UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Form 10-K

 

  Commission file number: 001-32347

 

ORMAT TECHNOLOGIES, INC.

  (Exact name of registrant as specified in its charter) 

  6225 Neil Road, Reno, Nevada 89511-1136

(Address of principal executive offices, including zip code)  

Registrant’s telephone number, including area code: (775) 356-9029

(Registrant’s telephone number, including area code)  

Securities Registered Pursuant to Section 12(b) of the Act: 

Securities Registered Pursuant to Section 12(g) of the Act:  

None  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐     No ☑  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ☐     No ☑  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑     No ☐  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑     No ☐  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  

  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No ☑

  As of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-

affiliates of the registrant was $527,942,658 based on the closing price as reported on the New York Stock Exchange. As described herein, the aggregate market value of common stock held by non-affiliates of the registrant increased significantly on February 12, 2015, which is the date on which the share exchange contemplated by the Share Exchange Agreement (as described herein) was completed.  

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: As of February 26, 2015, the number of outstanding shares of common stock, par value $0.001 per share was 48,552,560.  

Documents incorporated by reference: Part III (Items 10, 11, 12, 13 and 14) incorporates by reference portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders, which will be filed not later than 120 days after December 31, 2014.

 

ORA 10-K 12/31/2014

Section 1: 10-K (FORM 10-K)

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       For the fiscal year ended December 31, 2014   Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

DELAWARE 88-0326081 (State or other jurisdiction of

incorporation or organization) (I.R.S. Employer

Identification Number)

Title of Each Class Name of Each Exchange on Which Registered Common Stock $0.001 Par Value New York Stock Exchange

Large  accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller  reporting company ☐      (Do not check if  a smaller reporting company)

    

   ORMAT TECHNOLOGIES, INC.

 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014  TABLE OF CONTENTS

 

   

 

    Page No PART I

ITEM 1. BUSINESS 6 ITEM 1A. RISK FACTORS 65 ITEM 1B. UNRESOLVED STAFF COMMENTS 81 ITEM 2. PROPERTIES 81 ITEM 3. LEGAL PROCEEDINGS 81 ITEM 4. MINE SAFETY DISCLOSURES 82

PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 83 ITEM 6. SELECTED FINANCIAL DATA 85 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 87 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 118 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 119 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 180 ITEM 9A. CONTROLS AND PROCEDURES 180 ITEM 9B. OTHER INFORMATION 180

PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 181 ITEM 11. EXECUTIVE COMPENSATION 184 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 184 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 184 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 184

PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 185 SIGNATURES 186

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Glossary of Terms           When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:     Term Definition AER Alternative Earth Resources Inc. Amatitlan Loan $42,000,000 in initial aggregate principal amount borrowed by our subsidiary Ortitlan from TCW Global Project Fund II, Ltd.  AMM Administrador del Mercado Mayorista (administrator of the wholesale market — Guatemala) ARRA American Recovery and Reinvestment Act of 2009 Auxiliary Power The power needed to operate a geothermal power plant’s auxiliary equipment such as pumps and cooling towers Availability The ratio of the time a power plant is ready to be in service, or is in service, to the total time interval under consideration, expressed as a

percentage, independent of fuel supply (heat or geothermal) or transmission accessibility Balance of Plant equipment Power plant equipment other than the generating units including items such as transformers, valves, interconnection equipment, cooling towers

for water cooled power plants, etc. BLM Bureau of Land Management of the U.S. Department of the Interior BOT Build, operate and transfer Capacity The maximum load that a power plant can carry under existing conditions, less auxiliary power Capacity Factor The ratio of the average load on a generating resource to its generating capacity during a specified period of time, expressed as a percentage CARB California Air Resources Board CDC Commonwealth Development Corporation CGC Crump Geothermal Company LLC CNE National Energy Commission of Nicaragua CNEE National Electric Energy Commission of Guatemala COD Commercial Operation Date Company Ormat Technologies, Inc., a Delaware corporation, and its consolidated subsidiaries COSO Committee of Sponsoring Organizations of the Treadway Commission CPI Consumer Price Index CPUC California Public Utilities Commission DEG Deutsche Investitions-und Entwicklungsgesellschaft mbH DFIs Development Finance Institutions DOE U.S. Department of Energy DOGGR California Division of Oil, Gas, and Geothermal Resources DSCR Debt Service Coverage Ratio EBITDA Earnings before interest, taxes, depreciation and amortization EGS Enhanced Geothermal Systems EIS Environmental Impact Statement ENATREL Empresa Nicaragüense de Transmision ENEE Empresa Nacional de Energía Eléctrica ENEL Empresa Nicaragüense de Electricidad  Enthalpy The total energy content of a fluid; the heat plus the mechanical energy content of a fluid (such as a geothermal brine), which, for example, can

be partially converted to mechanical energy in an Organic Rankine Cycle.

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Term Definition EPA U.S. Environmental Protection Agency EPC Engineering, procurement and construction EPS Earnings per share ERC Kenyan Energy Regulatory Commission ESC Energy Sales Contract Exchange Act U.S. Securities Exchange Act of 1934, as amended FASB Financial Accounting Standards Board FERC U.S. Federal Energy Regulatory Commission FPA U.S. Federal Power Act, as amended GAAP Generally accepted accounting principles GCCU Geothermal Combined Cycle Unit GDC Geothermal Development Company GDL Geothermal Development Limited GEA Geothermal Energy Association Geothermal Power Plant The power generation facility and the geothermal field Geothermal Steam Act U.S. Geothermal Steam Act of 1970, as amended GHG Greenhouse gas GNP Gross National Product HELCO Hawaii Electric Light Company IFC International Finance Corporation IID Imperial Irrigation District ILA Israel Land Administration INDE Instituto Nacional de Electrification INE Nicaragua Institute of Energy IPPs Independent Power Producers ISO International Organization for Standardization ITC Investment tax credit ITC Cash Grant Payment for Specified Renewable Energy property in lieu of Tax Credits under Section 1603 of the ARRA John Hancock John Hancock Life Insurance Company (U.S.A.) JPM JPM Capital Corporation KenGen Kenya Electricity Generating Company Ltd. Kenyan Energy Act Kenyan Energy Act, 2006 KETRACO Kenya Electricity Transmission Company Limited KLP Kapoho Land Partnership KPLC Kenya Power and Lighting Co. Ltd. kVa Kilovolt-ampere kW Kilowatt - A unit of electrical power that is equal to 1,000 watts kWh Kilowatt hour(s), a measure of power produced LNG Liquefied natural gas Mammoth Pacific Mammoth-Pacific, L.P. MACRS Modified Accelerated Cost Recovery System MIGA Multilateral Investment Guaranty Agency, a member of the World Bank Group MW Megawatt - One MW is equal to 1,000 kW or one million watts MWh Megawatt hour(s), a measure of energy produced

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Term Definition NBPL Northern Border Pipe Line Company NIS New Israeli Shekel NGI Natural Gas-California SoCal-NGI Natural Gas price index NGP Nevada Geothermal Power NV Energy NV Energy, Inc. NYSE New York Stock Exchange OEC Ormat Energy Converter OFC Ormat Funding Corp., a wholly owned subsidiary of the Company OFC Senior Secured Notes $190,000,000 8.25% Senior Secured Notes, due 2020 issued by OFC OFC 2 OFC 2 LLC, a wholly owned subsidiary of the Company OFC 2 Senior Secured Notes Up to $350,000,000 Senior Secured Notes, due 2034 issued by OFC 2 OMPC Ormat Momotombo Power Company, a wholly owned subsidiary of the Company OPC OPC LLC, a consolidated subsidiary of the Company OPC Transaction Financing transaction involving four of our Nevada power plants in which institutional equity investors purchased an interest in our special

purpose subsidiary that owns such plants. OPIC Overseas Private Investment Corporation OrCal OrCal Geothermal Inc., a wholly owned subsidiary of the Company OrCal Senior Secured Notes $165,000,000 6.21% Senior Secured Notes, due 2020 issued by OrCal Organic Rankine Cycle A process in which an organic fluid such as a hydrocarbon or fluorocarbon (but not water) is boiled in an evaporator to generate high pressure

vapor. The vapor powers a turbine to generate mechanical power. After the expansion in the turbine, the low pressure vapor is cooled and condensed back to liquid in a condenser. A cycle pump is then used to pump the liquid back to the vaporizer to complete the cycle. The cycle is illustrated in the figure below:

       

      Ormat International Ormat International Inc., a wholly owned subsidiary of the Company Ormat Nevada Ormat Nevada Inc., a wholly owned subsidiary of the Company Ormat Systems Ormat Systems Ltd., a wholly owned subsidiary of the Company OrPower 4 OrPower 4 Inc., a wholly owned subsidiary of the Company Ortitlan Ortitlan Limitada, a wholly owned subsidiary of the Company ORTP ORTP, LLC, a consolidated subsidiary of the Company ORTP Transaction Financing transaction involving power plants in Nevada and California in which an institutional equity investor purchased an interest in our

special purpose subsidiary that owns such plants.

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Term Definition Orzunil Orzunil I de Electricidad, Limitada, a wholly owned subsidiary of the Company PG&E Pacific Gas and Electric Company PGV Puna Geothermal Venture, a wholly owned subsidiary of the Company PLN PT Perusahaan Listrik Negara Power plant equipment Interconnection equipment, cooling towers for water cooled power plant, etc., including the generating units PPA Power purchase agreement ppm Part per million PTC Production tax credit PUA Israeli Public Utility Authority PUCH Public Utilities Commission of Hawaii PUCN Public Utilities Commission of Nevada PUHCA U.S. Public Utility Holding Company Act of 1935 PUHCA 2005 U.S. Public Utility Holding Company Act of 2005 PURPA U.S. Public Utility Regulatory Policies Act of 1978 Qualifying Facility(ies) Certain small power production facilities are eligible to be “Qualifying Facilities” under PURPA, provided that they meet certain power and

thermal energy production requirements and efficiency standards. Qualifying Facility status provides an exemption from PUHCA 2005 and grants certain other benefits to the Qualifying Facility

RAM Renewable Auction Mechanism REC Renewable Energy Credit REG Recovered Energy Generation RGGI Regional Greenhouse Gas Initiative RPM Revolutions Per Minute RPS Renewable Portfolio Standards SCPPA Southern California Public Power Authority SEC U.S. Securities and Exchange Commission Securities Act U.S. Securities Act of 1933, as amended Senior Unsecured Bonds 7% Senior Unsecured Bonds Due 2017 issued by the Company SO#4 Standard Offer Contract No. 4 Solar PV Solar photovoltaic SOX Act Sarbanes-Oxley Act of 2002 Southern California Edison Southern California Edison Company SPE(s) Special purpose entity(ies) SRAC Short Run Avoided Costs TASG Tel Aviv Stock ExchangeTGL Tikitere Geothermal Power Limited Union Bank Union Bank, N.A. U.S.   United States of America U.S. Treasury U.S. Department of the Treasury WHOH Waste Heat Oil Heaters

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  Cautionary Note Regarding Forward-Looking Statements

  This annual report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical

facts, included in this report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this annual report, the words “may”, “will”, “could”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “projects”, “potential”, or “contemplate” or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this annual report are primarily located in the material set forth under the headings Item 1A — “Risk Factors” contained in Part I of this annual report, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this annual report, and “Notes to Financial Statements” contained in Item 8 — “Financial Statements and Supplementary Data” contained in Part II of this annual report, but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this annual report completely and with the understanding that actual future results and developments may be materially different from what we expect due to a number of risks and uncertainties, many of which are beyond our control. Other than as required by law, we will not update forward-looking statements even though our situation may change in the future.

  Specific factors that might cause actual results to differ from our expectations include, but are not limited to:  

 

 

 

 

 

 

 

 

 

 

 

 

   

 

  ● significant considerations, risks and uncertainties discussed in this annual report;

  ● geothermal resource risk (such as the heat content, useful life and geological formation of the reservoir);

  ● operating risks, including equipment failures and the amounts and timing of revenues and expenses;

  ● financial market conditions and the results of financing efforts;

  ● the impact of fluctuations in oil and natural gas prices on the energy price component under certain of our PPAs;

 ● environmental constraints on operations and environmental liabilities arising out of past or present operations, including the risk that we may not have, and in the future may be unable

to procure, any necessary permits or other environmental authorizations;

  ● construction or other project delays or cancellations;

  ● political, legal, regulatory, governmental, administrative and economic conditions and developments in the United States and other countries in which we operate;

  ● the enforceability of the long-term PPAs for our power plants;

  ● contract counterparty risk;

  ● weather and other natural phenomena including earthquakes, volcanic eruption, drought and other nature disasters;

 ● the impact of recent and future federal, state and local regulatory proceedings and changes, including legislative and regulatory initiatives regarding deregulation and restructuring of

the electric utility industry, public policies and government incentives that support renewable energy and enhance the economic feasibility of our projects at the federal and state level in the United States and elsewhere, and carbon-related legislation;

  ● changes in environmental and other laws and regulations to which our company is subject, as well as changes in the application of existing laws and regulations;

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  PART I

  ITEM 1. BUSINESS

  Certain Definitions

  Unless the context otherwise requires, all references in this annual report to “Ormat”, “the Company”, “we”, “us”, “our company”, “Ormat Technologies”, or “our” refer to Ormat

Technologies, Inc. and its consolidated subsidiaries. A glossary of certain terms and abbreviations used in this annual report appears at the beginning of this report.  

Overview   We are a leading vertically integrated company primarily engaged in the geothermal and recovered energy power business. We design, develop, build, own, and operate clean,

environmentally friendly geothermal and recovered energy-based power plants, usually using equipment that we design and manufacture.   Our geothermal power plants include both power plants that we have built and power plants that we have acquired, while all of our recovered energy-based plants have been constructed

by us. We conduct our business activities in the following two business segments:  

 

   

 

  ● current and future litigation;

 ● our ability to successfully identify, integrate and complete acquisitions, including risks arising in connection with our acquisition of our former parent company, Ormat Industries Ltd.

(also referred to in this annual report as “Ormat Industries”);

  ● competition from other existing geothermal energy projects and new geothermal energy projects developed in the future, and from alternative electricity producing technologies;

  ● market or business conditions and fluctuations in demand for energy or capacity in the markets in which we operate;

 ● the direct or indirect impact on our company’s business resulting from various forms of hostilities including the threat or occurrence of war, terrorist incidents or cyber-attacks or

responses to such threatened or actual incidents or attacks, including the effect on the availability of and premiums on insurance;

  ● development and construction of the Solar PV projects, if any, may not materialize as planned;

 ● the effect of and changes in current and future land use and zoning regulations, residential, commercial and industrial development and urbanization in the areas in which we operate;

and

 ● other uncertainties which are difficult to predict or beyond our control and the risk that we may incorrectly analyze these risks and forces or that the strategies we develop to address

them may be unsuccessful.

 ● The Electricity Segment — in this segment we develop, build, own and operate geothermal and recovered energy-based power plants in the United States and geothermal power

plants in other countries around the world and sell the electricity they generate; and

 ● The Product Segment — in this segment we design, manufacture and sell equipment for geothermal and recovered energy-based electricity generation, remote power units and

other power generating units and provide services relating to the engineering, procurement, construction, operation and maintenance of geothermal and recovered energy-based power plants.

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  The map below shows our current worldwide portfolio of operating geothermal and recovered energy power plants.  

  The charts below show the relative contributions of the Electricity Segment and the Product Segment to our consolidated revenues and the geographical breakdown of our segment

revenues for our fiscal year ended December 31, 2014. Additional information concerning our segment operations, including year-to-year comparisons of revenues, the geographical breakdown of revenues, cost of revenues, results of operations, and trends and uncertainties is provided below in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 — “Financial Statements and Supplementary Data”.  

 

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  The following chart sets forth a breakdown of our revenues for each of the years ended December 31, 2014 and 2013:

   Segment Contribution to Revenues

   The following chart sets forth the geographical breakdown of the revenues attributable to our Electricity and Product Segments for each of the years ended December 31, 2014 and 2013:  

  

Geographical Breakdown of the Electricity Segment Revenues  

   

 

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  Geographical Breakdown of the

Product Segment Revenues  

Most of the power plants that we currently own or operate produce electricity from geothermal energy sources. Geothermal energy is a clean, renewable and generally sustainable form of energy derived from the natural heat of the earth. Unlike electricity produced by burning fossil fuels, electricity produced from geothermal energy sources is produced without emissions of certain pollutants such as nitrogen oxide, and with far lower emissions of other pollutants such as carbon dioxide. As a result, electricity produced from geothermal energy sources contributes significantly less to global warming and local and regional incidences of acid rain than energy produced by burning fossil fuels. In addition, compared to other renewable energy sources, geothermal energy is base load and is generally available all the time. Geothermal energy is also an attractive alternative to other sources of energy as part of a national diversification strategy to avoid dependence on any one energy source or politically sensitive supply sources.

  In addition to our geothermal energy business, we manufacture products that produce electricity from recovered energy or so-called “waste heat”. We also construct, own, and operate

recovered energy-based power plants. Recovered energy represents residual heat that is generated as a by-product of gas turbine-driven compressor stations, solar thermal units and a variety of industrial processes, such as cement manufacturing. Such residual heat, which would otherwise be wasted, may be captured in the recovery process and used by recovered energy power plants to generate electricity without burning additional fuel and without additional emissions.

  During recent years, we have expanded our activity to the Solar PV industry. We are monitoring market drivers with potential for developing Solar PV power plants in locations where we

can offer competitively priced power generation. In early 2014, we completed the work on the Solar PV project, which is located near our Heber complex in California, and sold the project in March 2014 as a turnkey project.   Company Contact and Sources of Information

  We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may obtain and copy any document we file with the SEC at the SEC’s Public

Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website at http://www.sec.gov that contains reports, proxy and other information statements, and other information regarding issuers that file electronically with the SEC. Our SEC filings are accessible via the internet at that website.  

 

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   Our reports on Form 10-K, 10-Q and 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available through our website at

www.ormat.com for downloading, free of charge, as soon as reasonably practicable after these reports are filed with the SEC. Our Code of Business Conduct and Ethics, Code of Ethics Applicable to Senior Executives, Audit Committee Charter, Corporate Governance Guidelines, Nominating and Corporate Governance Committee Charter, Compensation Committee Charter, and Insider Trading Policy, as amended, are also available at our website address mentioned above. If we make any amendments to our Code of Business Conduct and Ethics or Code of Ethics Applicable to Senior Executives or grant any waiver, including any implicit waiver, from a provision of either code applicable to our Chief Executive Officer, Chief Financial Officer or principal accounting officer requiring disclosure under applicable SEC rules, we intend to disclose the nature of such amendment or waiver on our website. The content of our website, however, is not part of this annual report.

  You may request a copy of our SEC filings, as well as the foregoing corporate documents, at no cost to you, by writing to the Company address appearing in this annual report or by

calling us at (775) 356-9029.   Our Power Generation Business (Electricity Segment)

  Power Plants in Operation

  The table below summarizes certain key non-financial information relating to our power plants as of February 15, 2015. The generating capacity of certain of our power plants listed below has been updated to reflect changes in the resource temperature and other factors that impact resource capabilities:  

___________

   

 

                       

Type Region Plant   Ownership    Generating capacity

(MW)    Region 2014 Capacity

Factor  Geothermal California Ormesa complex     100%    54             Heber Complex     100%    92             Mammoth Complex     100%    29             North Brawley     100%    18                                  78%

  West Nevada Steamboat complex     100%    73            Brady Complex     100%    18                                   86%

  East Nevada Tuscarora     100%    18             Jersey Valley     100%    10            McGinness Hills     100%    72            Don A. Campbell     100%    19                                  93%

  Hawaii Puna     100%    38                                  77%

  International Amatitlan     100%    20             Zunil     97%    23            Olkaria III Complex     100%    110                                   97%Total Geothermal             594      86%REG   OREG 1     100%    22            OREG 2     100%    22            OREG 3     100%    5.5            OREG 4     100%    3.5        Total REG             53      53%Total             647         

We own and operate all of our power plants. Financial institutions hold equity interests in two of our consolidated subsidiaries: (i) OPC, which owns the Desert Peak 2 power plant in our Brady complex and the Steamboat Hills, Galena 2 and Galena 3 power plants in our Steamboat complex, and (ii) ORTP, which owns the Heber complex, the Ormesa complex, the Mammoth complex, the Steamboat 2 and 3 and Burdette (Galena 1) power plants both in our Steamboat complex, and Brady power plant in our Brady complex. In the above table, we show these power plants as being 100% owned because all of the generating capacity is owned by either OPC or ORTP and we control the operation of the power plants. The nature of the equity interests held by the financial institutions is described below in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “OPC Transaction” and “ORTP Transaction.”

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  All of the revenues that we currently derive from the sale of electricity are pursuant to long-term PPAs. In addition, approximately 44.3% of our total revenues in the year ended December

31, 2014 from the sale of electricity by our domestic power plants were derived from power purchasers that currently have investment grade credit ratings. The purchasers of electricity from our foreign power plants are either state-owned or private entities.

  New Power Plants

  We are currently in various stages of construction and development of new power plants and expansion of existing power plants. Our expansion plan includes 85 MW in generating

capacity from geothermal power plants in the United States, Kenya and Indonesia that we fully released for construction and are in different stages of construction. In addition, we have several projects worldwide that are either under initial stages of construction or under different stages of development with an aggregate capacity of up to approximately 180 MW.

  We have a substantial land position across 32 sites, mostly in the U.S., that are expected to support future geothermal development, on which we have started or plan to start exploration

activity. This land position is comprised of various leases, exploration concessions for geothermal resources and an option to enter into geothermal leases.   

Our Product Business (Product Segment)   We design, manufacture and sell products for electricity generation and provide the related services described below. Generally, we manufacture products only against customer orders

and do not manufacture products for our own inventory.  

Power Units for Geothermal Power Plants. We design, manufacture and sell power units for geothermal electricity generation, which we refer to as OECs. Our customers include contractors and geothermal power plant owners and operators.  

 

References to generating capacity generally refer to the gross capacity less auxiliary power in the case of all of our existing domestic and foreign power plants, except for the Zunil power plant. We determine the generating capacity figures in these power plants by taking into account resource capabilities. In the case of the Zunil power plant, the capacity revenues are calculated based on 24 MW capacity unrelated to the actual performance of the reservoir until 2019. This column represents our net ownership in such generating capacity.

     In any given year, the actual power generation of a particular power plant may differ from that power plant’s generating capacity due to variations in ambient temperature, the availability of

the resource, and operational issues affecting performance during that year.

In February 2015, we signed a definitive agreement with infrastructure funds managed by Northleaf Capital Partners under which we established a new company, ORPD LLC, that will own Puna Complex, Don A. Campbell, OREG 1, OREG 2, OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. The closing of the transaction, which is subject to customary closing conditions, is expected in the first quarter of 2015. See also in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”.

The generating capacity of the Brady and Steamboat complexes was reduced in 2013 due to a decline in the resource temperature in each of these complexes. See “Description of Our Power Plants” below.

Following recent developments, detailed under “Description of Our Power Plants” below, we have decided to operate the North Brawley power plant at a capacity level of approximately 18 MW.

The generating capacity of the Jersey Valley power plant stabilized during 2014.

The McGinness phase 2 power plant reached commercial operation on February 1, 2015 and increased the McGinness complex to 72 MW.

The Don A. Campbell power plant generating capacity is higher than our original expectations of 16MW.

In January 2014, INDE exercised its right under the PPA to become a partner in the Zunil power plant with three percent (3%) equity interest. Detailed information is provided under “Description of Our Power Plants” below.

The OREG 4 power plant is not operating at full capacity as a result of continued low run time of the compressor station that serves as the plant’s heat source, which is resulting in low power generation.

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   Power Units for Recovered Energy-Based Power Generation. We design, manufacture and sell power units used to generate electricity from recovered energy, or so-called “waste heat”.

This heat is generated as a residual by-product of gas turbine-driven compressor stations, solar thermal units and a variety of industrial processes, such as cement manufacturing, and is not otherwise used for any purpose. Our existing and target customers include interstate natural gas pipeline owners and operators, gas processing plant owners and operators, cement plant owners and operators, and other companies engaged in other energy-intensive industrial processes.

  EPC of Power Plants. We engineer, procure, and construct, as an EPC contractor, geothermal and recovered energy power plants on a turnkey basis, using power units we design and

manufacture. Our customers are geothermal power plant owners as well as the same customers described above that we target for the sale of our power units for recovered energy-based power generation. Unlike many other companies that provide EPC services, we believe we have an advantage in that we are using our own manufactured equipment and thus have better quality and better control over the timing and delivery of required equipment and its related costs.

  Remote Power Units and Other Generators. We design, manufacture and sell fossil fuel powered turbo-generators with a capacity ranging between 200 watts and 5,000 watts, which

operate unattended in extreme hot or cold climate conditions. Our customers include contractors installing gas pipelines in remote areas and off-shore platforms operators and contractors. In addition, we design, manufacture, and sell generators for various other uses, including heavy duty direct-current generators.

  History

  We were formed as a Delaware corporation in 1994 by Ormat Industries, our former parent company. Ormat Industries was one of the first companies to focus on the development of

equipment for the production of clean, renewable and generally sustainable forms of energy. On February 12, 2015, we successfully completed the acquisition of Ormat Industries, eliminating its majority ownership and control of us. Our acquisition of Ormat Industries is described in greater detail below under “Recent Developments.”   Industry Background

  Geothermal Energy

  Most of our power plants in operation produce electricity from geothermal energy. There are several different sources or methods to obtain geothermal energy, which are described below.   Hydrothermal geothermal-electricity generation — Hydrothermal geothermal energy is derived from naturally occurring hydrothermal reservoirs that are formed when water comes

sufficiently close to hot rock to heat the water to temperatures of 300 degrees Fahrenheit or more. The heated water then ascends toward the surface of the earth where, if geological conditions are suitable for its commercial extraction, it can be extracted by drilling geothermal wells. Geothermal production wells are normally located within several miles of the power plant, as it is not economically viable to transport geothermal fluids over longer distances due to heat and pressure loss. The geothermal reservoir is a renewable source of energy if natural ground water sources and reinjection of extracted geothermal fluids are adequate over the long-term to replenish the geothermal reservoir following the withdrawal of geothermal fluids and if the well field is properly operated. Geothermal energy power plants typically have higher capital costs (primarily as a result of the costs attributable to well field development) but tend to have significantly lower variable operating costs (principally consisting of maintenance expenditures) than fossil fuel-fired power plants that require ongoing fuel expenses. In addition, because geothermal energy power plants produce weather-independent power 24 hours a day, the variable operating costs are lower.

  EGS — An EGS is a subsurface system that may be artificially created to extract heat from hot rock where the permeability and aquifers required for a hydrothermal system are insufficient

or non-existent. A geothermal power plant that uses EGS techniques recovers the thermal energy from the subsurface rocks by creating or accessing a system of open fractures in the rock through which water can be injected, heated through contact with the hot rock, returned to the surface in production wells and transferred to a power unit.

  Co-produced geothermal from oil and gas fields, geo-pressurized resources — Another source of geothermal energy is hot water produced from oil and gas production. In some oil and

gas fields, water is produced as a by-product of the oil and gas extraction. When the wells are deep, the fluids are often at high temperatures and if the water volume is significant, the hot water can be used for power generation in equipment similar to a geothermal power plant.  

 

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   Geothermal Power Plant Technologies

  Geothermal power plants generally employ either binary systems or conventional flash design systems, as briefly described below. In our geothermal power plants, we also employ our

proprietary technology of combined geothermal cycle systems.  

Binary System   In a geothermal power plant using a binary system, geothermal fluid (either hot water (also called brine) or steam or both) is extracted from the underground reservoir and flows from the

wellhead through a gathering system of insulated steel pipelines to a vaporizer that also heats a secondary working fluid. This is typically an organic fluid, such as pentane or butane, which is vaporized and is used to drive the turbine. The organic fluid is then condensed in a condenser which may be cooled directly by air or by water from a cooling tower and sent back to the vaporizer. The cooled geothermal fluid is then reinjected back into the reservoir. Ormat’s air-cooled binary geothermal power plant is depicted in the diagram below.

 

   Flash Design System

  In a geothermal power plant using flash design, geothermal fluid is extracted from the underground reservoir and flows from the wellhead through a gathering system of insulated steel

pipelines to flash tanks and/or separators. There, the steam is separated from the brine and is sent to a demister, where any remaining water droplets are removed. This produces a stream of dry saturated steam, which drives a steam turbine generator to produce electricity. In some cases, the brine at the outlet of the separator is flashed a second time (dual flash), providing additional steam at lower pressure used in the low pressure section of the steam turbine to produce additional electricity. Steam exhausted from the steam turbine is condensed in a surface or direct contact condenser cooled by cold water from a cooling tower. The non-condensable gases (such as carbon dioxide) are removed through the removal system in order to optimize the performance of the steam turbines. The resulting condensate is used to provide make-up water for the cooling tower. The hot brine remaining after separation of steam is injected (either directly or after passing through a binary plant to produce additional power from the residual heat remaining in the brine) back into the geothermal resource through a series of injection wells. The flash technology is depicted in the diagram below.  

 

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  In some instances, the wells directly produce dry steam and the steam is fed directly to the steam turbine with the rest of the system similar to the flash power plant described above.

    Our Proprietary Technology

  Our proprietary technology may be used in power plants operating according to the Organic Rankine Cycle, either alone or in combination with various other commonly used

thermodynamic technologies that convert heat to mechanical power, such as gas and steam turbines. It can be used with a variety of thermal energy sources, such as geothermal, recovered energy, biomass, solar energy and fossil fuels. Specifically, our technology involves original designs of turbines, pumps, and heat exchangers, as well as formulation of organic motive fluids (all of which are non-ozone-depleting substances). Using advanced computerized fluid dynamics and other computer aided design software as well as our test facilities, we continuously seek to improve power plant components, reduce operations and maintenance costs, and increase the range of our equipment and applications. We are always examining ways to increase the output of our plants by utilizing evaporative cooling, cold reinjection, performance simulation programs, and topping turbines. In the geothermal as well as the recovered energy (waste heat) areas, we are examining two-level and three-level energy systems and new motive fluids.

  We also developed, patented and constructed GCCU power plants in which the steam first produces power in a backpressure steam turbine and is subsequently condensed in a vaporizer

of a binary plant, which produces additional power. Ormat Geothermal Combined Cycle technology is depicted in the diagram below.  

 

In the conversion of geothermal energy into electricity, our technology has a number of advantages compared with conventional geothermal steam turbine plants. A conventional geothermal steam turbine plant consumes significant quantities of water, causing depletion of the aquifer, and also requires cooling water treatment with chemicals and thus a need for the disposal of such chemicals. A conventional geothermal steam turbine plant also creates a significant visual impact in the form of an emitted plume from the cooling towers, especially during cold weather. By contrast, our binary and combined cycle geothermal power plants have a low profile with minimum visual impact and do not emit a plume when they use air cooled condensers. Our binary and combined cycle geothermal power plants reinject all of the geothermal fluids utilized in the respective processes into the geothermal reservoir. Consequently, such processes generally have no emissions.  

 

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   Other advantages of our technology include simplicity of operation and easy maintenance. For instance, the OEC employs low RPM and a high efficiency organic vapor turbine directly

coupled to the generator eliminating the need for reduction gear. In addition, with our binary design, there is no contact between the turbine blade and geothermal fluids, which can often be very corrosive. Instead, the geothermal fluids pass through a heat exchanger, which is less susceptible to erosion and can adapt much better to corrosive fluids. In addition, with the organic vapor condensed above atmospheric pressure, no vacuum system is required.  

We use the same elements of our technology in our recovered energy products. The heat source may be exhaust gases from a simple cycle gas turbine, low pressure steam, or medium temperature liquid found in the process industries such as refineries and cement plants. In most cases, we attach an additional heat exchanger in which we circulate thermal oil to transfer the heat into the OEC’s own vaporizer in order to provide greater operational flexibility and control. Once this stage of each recovery is completed, the rest of the operation is identical to the OEC used in our geothermal power plants and enjoys the same advantages of using the Organic Rankine Cycle. In addition, our technology allows for better load following than conventional steam turbines exhibit, requires no water treatment (since it is air cooled), and does not require the continuous presence of a licensed steam boiler operator on site.

   Ormat’s REG technology is depicted in the diagram below.  

  Patents

  We have 69 U.S. patents that are still in force (and have approximately 34 U.S. patents pending). These patents and patents applications cover our products (mainly power units based on

the Organic Rankine Cycle) and systems (mainly geothermal power plants and industrial waste heat recovery plants for electricity production). The products-related patents cover components that include turbines, heat exchangers, seals and controls. The system-related patents cover not only a particular component but also the overall energy conversion system from the “fuel supply” (e.g., geothermal fluid, waste heat, biomass or solar) to electricity production.

  The system-related patents cover subjects such as waste heat recovery related to gas pipelines compressors and industrial waste heat, disposal of non-condensable gases present in

geothermal fluids, power plants for very high pressure geothermal resources, two-phase fluids as well as processes related to EGS. A number of patents cover combined cycle geothermal power plants, in which the steam first produces power in a backpressure steam turbine and is subsequently condensed in a vaporizer of a binary plant, which produces additional power. The terms of our patents range from one year to 18 years. The loss of any single patent would not have a material effect on our business or results of operations.  

 

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   Research and Development

  We are conducting research and development activities intended to improve plant performance, reduce costs, and increase the breadth of product offerings. The primary focus of our

research and development efforts includes continued improvements to our condensing equipment with improved performance and lower cost and land usage and developing new turbines and specialized remote power units.

  We are also continuing with development of new EGS technologies and their application to increase the fluid supply at our existing plants by enhancing the performance of existing wells

without additional drilling. We are undertaking this development effort at our Brady Complex in Nevada in cooperation with national laboratories, with funding support from the DOE. Other research and development activity co-funded by the DOE includes testing of new exploration and drilling technologies and practices.

  Additionally, we are continuing to evaluate investment opportunities in new companies with technology offering product for renewable energy markets.

  Market Opportunity

  Domestic

  Interest in geothermal energy in the United States remains strong for numerous reasons, including legislative support of renewable portfolio standards, coal and nuclear baseload energy

retirement and increasing awareness of the positive value of geothermal characteristics as compared to intermittent renewable technology.  

Although electricity generation from geothermal resources is currently concentrated mainly in California, Nevada, Hawaii, Idaho and Utah, we believe there may be opportunities for development in other states such as Arizona, New Mexico, Washington and Oregon due to the potential of geothermal resources.

  In a report issued in April 2014, the GEA identified 124 confirmed and unconfirmed geothermal projects under various phases of consideration or development in 12 U.S. states. The

domestic geothermal market experienced modest growth mainly, according to the GEA, due to the uncertainty surrounding federal production tax credit for new projects combined with as lowered demand across the market.

  The successful implementation of the various confirmed and unconfirmed geothermal projects identified by the GEA is depended on the respective project sponsor’s ability to fully

identify the resource, conduct exploration, and carry out development and construction. Accordingly, the GEA’s estimates may not be realized, and differences between the actual number of projects completed and those initially estimated may be material. We refer to the GEA assessment as a possible reference point, but we do not necessarily concur with its estimate.

  State level legislation

  An additional factor supporting recent growth in the renewable energy industry is the global concern about the environment. In response to an increasing demand for “green” energy,

many countries have adopted legislation requiring, and providing incentives for, electric utilities to sell electricity generated from renewable energy sources. In the U.S., approximately 40 states and four territories have enacted an RPS, renewable portfolio goals, or similar laws requiring or encouraging utilities in such states to generate or buy a certain percentage of their electricity from renewable energy or recovered heat sources.

  According to the Database of State Incentives for Renewables and Efficiency (DSIRE), 30 states and two territories (including California, Nevada, and Hawaii, where we have been the

most active in our geothermal energy development and in which all of our U.S. geothermal power plants in operation are located) and the District of Columbia define geothermal resources as “renewable”. In addition, according to the EPA, 25 states have enacted RPS, Clean Energy Standards, Energy Efficiency Resource Standards or Alternative Portfolio Standards program guidelines that include some form of combined heat and power and/or waste heat recovery.

  We see the impact of the RPS legislation as the most significant driver for us to expand existing power plants and to build new projects.

 

 

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   California   According to information posted on the California Public Utilities Commission website, California’s three large investor-owned utilities collectively served 22.27% of their 2013 retail

electricity sales with renewable power. These utilities have interim targets each year, with a requirement to attain RPS of 25% by 2016 increasing by two percent every year to 33% by the end of 2020. Publicly-owned utilities in California are also required to procure 33% of retail electricity sales from eligible renewable energy resources by 2020, opening up an additional market of potential off-takers for us even though these utilities do not have interim targets. In addition, a new bill was introduced in California to increase the RPS to 50% by 2030. The bill would require the California Public Utilities Commission to evaluate the cost-effectiveness of renewable energy sources not only in regards to their up-front costs but also for their ability to benefit the grid by supplementing intermittent solar and wind, or by providing base-load electricity generation. The bill, together with the California Governor’s call for a clean energy standard that includes 50% of the state’s electricity from renewable resource by 2030, could benefit geothermal energy, which has the advantage of generating flexible base-load power, and helping Califormia diversify its mix of renewable resource.

  In 2006, California passed a state climate change law, AB 32, to reduce GHG emissions to 1990 levels by the end of 2020, and in December 2010, the CARB approved cap-and-trade

regulations to reduce California’s GHG emissions under AB 32. The regulations set a limit on emissions from sources responsible for emitting 80% of California’s GHGs. On November 2014, the CARB released the results of its ninth auction (which was the first joint auction for California and Québec allowances) reporting that the vintage 2014 auction clearing price was $12.10 per allowance and the future vintage auction clearing price was $11.86 per allowance. All of the available 2014 and future vintage allowances offered were sold.

  In 2014, Assembly Bill No. 2363 (AB-2363), became effective. AB-2363, which requires the California Public Utilities Commission to adopt, by rulemaking, by December 31, 2015, a

methodology for determining the costs of integrating eligible renewable energy resources.   Nevada   Nevada’s RPS requires NV Energy to supply at least 25% of the total electricity it sells from eligible renewable energy resources by 2025. Nevada’s RPS required, for each of 2013 and

2014, that not less than 18% of electricity sold to Nevada retail customers be met with renewable energy resources and credits, and that not less than 5% of that amount be met with solar resources. According to NV Energy’s RPS Annual Report, in 2013, Nevada Power exceeded both the 2013 RPS requirement and the 2013 solar RPS requirement, achieving 20.4% and 18.2%, respectively. Sierra exceeded both the 2013 RPS requirement and the 2013 solar RPS requirement, with 34.7% and 16.1% respectively.  

In June 2013, the Nevada state legislature passed three bills that were signed into law and expected to support renewable energy development. Senate Bill (SB) No. 123 requires an electric utility to submit a plan for the retirement or elimination of not less than 800 MW of coal-fired electric generating capacity on or before December 31, 2019 and the construction or acquisition of, or contracting for, 350 MW of electric generating capacity from renewable energy facilities. Senate Bill (SB) No. 252 revises provisions relating to the renewable portfolio standard by removing energy efficiency, solar multipliers, and station usage from generating portfolio energy credits (PECs). Finally, Assembly Bill (AB) No. 239 Revised Statutes 701A.340 defines geothermal energy as renewable energy for purposes of tax abatements and makes geothermal projects eligible to apply for partial sales and property tax abatements, with property tax abatements for 20 years and local sales and use tax abatements for three years.  

Hawaii  

Hawaii’s RPS require each electric utility that sells electricity for consumption in Hawaii to obtain 15% of its net electricity sales from renewable energy sources by December 31, 2015, 20% by December 31, 2020, and 40% by 2030. According to a 2014 filing made with the Hawaii PUC, in 2013, Hawaiian Electric Company and its subsidiaries exceeded the 2013 RPS requirement, achieving a consolidated RPS of 34.4% of retail electricity sales from eligible renewable energy resources, including electrical energy savings from energy efficiency and solar water hearing technologies. Excluding electrical energy savings from energy efficient and solar water hearing technologies, the 2013 renewable generation percentage for the Hawaiian Electric Companies was 18.2%.  

In addition, the Hawaii Electric Light Company submitted a long term energy plan to the HPUC that includes the target goal of generating 92% of its electricity from renewable energy sources by the year 2030.  

 

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   Other States   Other state-wide and regional initiatives are also being developed to reduce GHG emissions and to develop trading systems for renewable energy credits. For example, nine Northeast and

Mid-Atlantic States are part of the RGGI, a regional cap-and-trade system to limit carbon dioxide. The RGGI is the first mandatory, market-based carbon dioxide emissions reduction program in the United States. Under RGGI, the participating adopted a new 2014 RGGI cap of 91 million short tons and plan to reduce carbon emissions from power plants at a rate of 2.5% per year between 2015 and 2020.

  In addition to RGGI, other states have also established the Midwestern Regional Greenhouse Gas Reduction Accord (Midwest Accord) and the Western Climate Initiative (WCI). The

RGGI, the WCI and the Midwest Accord have formed the North America 2050, a Partnership for Progress (NA2050) that facilitates state and provincial efforts to design, promote and implement cost-effective policies that reduce greenhouse gas emissions and create economic opportunities.

  Although individual and regional programs will take some time to develop, their requirements, particularly the creation of any market-based trading mechanism to achieve compliance with

emissions caps, should be advantageous to in-state and in-region (and, in some cases, such as RGGI and the State of California, inter-regional) energy generating sources that have low carbon emissions such as geothermal energy. Although it is currently difficult to quantify the direct economic benefit of these efforts to reduce GHG emissions, we believe they will prove advantageous to us.

  Federal level legislation   At the federal level, in 2011 the EPA’s Tailoring Rule sets thresholds for when permitting requirements under the Clean Air Act’s Prevention of Significant Deterioration and Title V

programs apply to certain major sources of GHG emissions. In 2013, President Obama outlined an agenda to help reduce carbon emissions, directing the EPA to complete new pollution standards for both new and existing power plants. The EPA released proposed rules for new fossil fuel fired power plants in September 2013 and for existing fossil fuel-fired power plants in June 2014. In the Clean Power Plan proposal, states identify a path forward using either current or new electricity production and pollution control policies to meet the goals of the proposed program including cutting carbon emission from the power sector by 30% below 2005 levels nationwide by 2030.

   The federal government also encourages production of electricity from geothermal resources or solar energy through certain tax subsidies. For a new geothermal power plant in the U.S.

that started construction by December 31, 2014, we are permitted to claim an investment tax credit against our U.S. federal income taxes equal to 30% of certain eligible costs when the project is placed in service. If we failed to meet the start of construction deadline for such a project, then the 30% credit is reduced to 10%. In lieu of the 30% investment tax credit (if the project qualifies), we are permitted to claim a tax credit based on the power produced from a geothermal power plant. These production-based credits, which in 2014 were 2.3 cents per kWh, are adjusted annually for inflation and may be claimed for ten years on the electricity produced by the project and sold to third parties after the project is placed in service. The owner of the power plant may not claim both the 30% investment tax credit and the production-based tax credit. For a new solar plant in the U.S. that is placed in service by December 31, 2016, we are permitted to claim an investment tax credit against our U.S. federal income taxes equal to 30% of certain eligible costs when the project is placed in service. The credit is reduced to 10% for solar projects placed in service after December 31, 2016.

  Under current tax rules, any unused tax credit has a one-year carry back and a twenty-year carry forward.   We are also permitted to depreciate, or write off, most of the cost of the plant. In those cases where we claimed the one-time 30% (or 10%) tax credit or received the Treasury cash grant,

our tax basis in the plant that we can recover through depreciation is reduced by one-half of the tax credit or cash grant; if in the future we claim other tax credits, there is no reduction in the tax basis for depreciation. For projects that we placed into service after September 8, 2010 and before January 1, 2012, a depreciation “bonus” will permit us to write off 100% of the cost of certain equipment that is part of the geothermal power plant in the year the plant is placed into service, if certain requirements are met. For projects that are placed into service after December 31, 2011 and before January 1, 2014, a similar “bonus” will permit us to write off 50% of the cost of that equipment in the year the power plant is placed into service. After applying any depreciation bonus that is available, we can write off the remainder of our tax basis in the plant, if any, over five years on an accelerated basis, meaning that more of the cost may be deducted in the first few years than during the remainder of the depreciation period.

  Collectively, these benefits (to the extent they are fully utilized) have a present value equivalent to approximately 30% to 40% of the capital cost of a new power plant.

 

 

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   Global   We believe the global markets continue to present growth and expansion opportunities in both established and emerging markets.   According to the last GEA, there are approximately 12,800 MW of new capacity in early stages of development or under construction in 70 countries and territories around the world

(excluding the U.S.). Additionally, developers are actively engaged with and exploring 27 gigawatts (GW) of geothermal resource globally that could potentially develop into power plants over the next decade. The GEA estimates that there are over 674 developing geothermal power projects globally, ranging from prospects to projects in the late stages of development.

  The assessment conducted by the GEA is only an estimate that is based on projects and resource reporting by the geothermal industry. Developer ability to fully develop the resource is

dependent upon on its capabilities to identify the resource, conduct exploration, development and construction; therefore, this estimate may not be accurate. We refer to it only as a possible reference point, but we do not necessarily concur with this estimate.

   Operations outside of the U.S. may be subject to and/or benefit from requirements under the Kyoto Protocol. The Kyoto Protocol was adopted in Kyoto, Japan, in 1997 and entered into

force in 2005. In the Bali Action Plan in 2007 and at Copenhagen in 2009 a long-term vision to limit global warming to two degrees Celsius was advanced, and agreed upon in 2010 at the Cancun Conference. The determination to keep within the two degrees Celsius limit led to the creation of the Durban Platform (ADP), in which developed and developing countries will work on a protocol, legal instrument or agreed outcome with legal force, applicable to all parties to the UN Framework Agreement on Climate Change. The new instrument will need to be adopted in 2015 and implemented from 2020. This will be the goal of the 21 U.N. Climate Change Conference that is scheduled to take place in Paris in late 2015.

  We believe that these developments and governmental plans will create opportunities for us to acquire and develop geothermal power generation facilities internationally, as well as

create additional opportunities for our Product Segment   Outside of the U.S., the majority of power generating capacity has historically been owned and controlled by governments. Since the early 1990s, however, many foreign governments

have privatized their power generation industries through sales to third parties encouraging new capacity development and/or refurbishment of existing assets by independent power developers. These foreign governments have taken a variety of approaches to encourage the development of competitive power markets, including awarding long-term contracts for energy and capacity to independent power generators and creating competitive wholesale markets for selling and trading energy, capacity, and related products. Some foreign regions and countries have also adopted active government programs designed to encourage clean renewable energy power generation such as the following countries in which we operate and/or are conducting business development activities:  

Latin America   Several Latin American countries have renewable energy programs. In November 2013, the national government of Guatemala, where our Zunil and Amatitlan power plants are located,

approved a law creating incentives for power generation from renewable energy sources. These incentives include, among other things, providing economic and fiscal incentives such as exemptions from taxes on the importation of relevant equipment and various tax exemptions for companies implementing renewable energy projects.

  In Honduras, where we are planning to build the first geothermal power plant under a BOT agreement, the national government approved the Incentives Act (Decree No.70-2007) providing

incentives related to tax exemption for equipment, materials and services related to power generation development based on renewable resources. At the same time, ENEE, the national integrated utility, will buy energy from such projects and offer to pay rates that are above the marginal cost approved by the CNE. Honduras also defined a target to reach at least 80% renewable energy production by 2038.  

In Chile, where we have three exploration concessions, the Chilean Renewable Energy Act of 2008 required five percent of electricity sold, to come from renewable sources, increasing gradually to 10% by 2024. On October 14, 2013, the President of Chile signed into law, a bill which mandates that utilities source 20% of their electricity from “non-conventional” renewable energy (ERNC), including solar photovoltaic (PV) and concentrating solar power (CSP), by 2025.

  Mexico is the world’s fourth largest producer of geothermal energy. Recent studies suggest an over 9,000 MW geothermal potential, of which only 12% is already developed. In December

2013, the Mexican Congress passed a constitutional reform (Energy Reform) in an attempt to increase the participation of private investors in the generation and commercialization of electric energy. According to the Mexico Country Report 2012, there is a large amount of unexploited geothermal potential in Mexico. This reform affects the electricity market by opening the generation and commercialization of electricity to private companies, the transformation of the Federal Electricity Commission to a for-profit public company, and the redefinition of functions and attributions of the Ministry of Energy. The secondary legislation that establishes the attributions of the public entities, procurement regulation, and normative framework for the productive companies of the State was finalized in 2014.  

 

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st

   Many islands nations depend almost entirely on petroleum to supply their electricity demands. With electricity prices average at US$0.35/kWh in 2014, the lack of diversified power

generation leaves Caribbean nations vulnerable to commodity market volatility, while the lack of new development leaves them reliant on what is believed to be outdated and often unreliable power plants. The larger issue hindering large-scale renewable energy deployments, however, is scale. While Caribbean nations have quite significant renewable energy potential yet most have small demand.  The majority of the Caribbean grids are relatively old, with the average diesel generators more than 20 years old. Furthermore, the power supply is relatively inefficient with high system losses.  Due to their sizes, each of the Caribbean countries is generally dominated by one local utility and simple market structures where electricity is regulated directly by local governments. Other than Guadeloupe, where a geothermal power plant has been operating since 1985, currently there are no other geothermal operating projects in the Caribbean region. Recently, some deep well drilling exploration was performed in a few islands.  

Oceania   In New Zealand, where we have been actively providing geothermal power plant solutions since 1988, the New Zealand government’s policies to fight climate change include an

unconditional GHG emissions reduction target of between 10% and 20% below 1990 levels by 2020 and the target of increasing renewable electricity generation to 90% of New Zealand’s total electricity generation by 2025.

  South East Asia   In Indonesia, where we participate in the Sarulla project that is currently under development, the government intends to increase the role of renewable energy sources and aims to have

them fulfill 25% of the domestic energy demand by 2025. The government has also implemented new policies and regulations intended to accelerate the development of renewable energy and geothermal projects in particular. Those regulations included designating approximately 4,000 MW of geothermal projects in its second phase of power acceleration projects to be implemented by 2014, of which the majority are IPP projects and the remaining state utility PLN projects. These targets were not met and the Indonesian government is in the process of issuing new directives for accelerating the geothermal market, including higher ceiling tariffs which may exceed 13.8 c/kWh. For the IPP sector, certain regulations for geothermal projects have been implemented, providing incentives such as investment tax credits and accelerated depreciation, and pricing guidelines to allow preferential power prices for generators; other regulations are being discussed including those that will ease the allocation of forestry permits. On a macro level, the Government of Indonesia committed at the United Nations Climate Change Conference 2009 in Copenhagen to reduce its CO² emissions by 26% by 2020.

  East Africa   In East Africa the geothermal potential along the Rift Valley is estimated at several thousand MW. The different countries along the Rift Valley are at different stages of development of

their respective geothermal potential.   In Kenya, there are already several geothermal power plants, including the only geothermal IPP in Africa, our Olkaria III complex. The Government of Kenya has identified the country's

untapped geothermal potential as the most suitable indigenous source of electricity and it aspires to reach 5,000 MW of geothermal power by 2030. To attain such number, GDC was formed to fast track the development of geothermal resources in Kenya. Ormat has as a 51% interest in a consortium that signed a PPA for a 35 MW geothermal power plant in the Menengai area.  

The governments of Djibouti, Ethiopia, Eretria, Tanzania, Uganda, Rwanda and Zambia are exploring ways to develop geothermal in their countries, mostly through the help of international development organizations such as the World Bank.  

In January 2014, energy ministers and delegates from 19 countries committed to the creation of the Africa Clean Energy Corridor Initiative, at a meeting in Abu Dhabi, convened by the International Renewable Energy Agency (IRENA). The Corridor will boost the deployment of renewable energy and aim to help meet Africa’s rising energy demand with clean, indigenous, cost-effective power from sources including hydro, geothermal, biomass, wind and solar.  

 

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   East Africa and South East Asia may benefit from two initiatives announced by President Obama. In June 2013, the Power Africa initiative was announced, pursuant to which the U.S. will

invest up to $7.0 billion in sub-Saharan Africa over the next five years with the aim of doubling access to power. The program will partner the U.S. Government with the government of six sub-Saharan countries, among them Kenya, Ethiopia and Tanzania, that have a potential for geothermal energy development. In 2012, President Obama proposed the U.S. Asia Pacific Comprehensive Energy Partnership (USACEP) that encourages U.S. companies to develop renewable energy in South East Asian countries, including Indonesia. The United States will provide up to $6.0 billion to support the Partnership.

  Other opportunities  

Recovered Energy Generation   In addition to our geothermal power generation activities, we are pursuing recovered energy-based power generation opportunities in North America and the rest of the world. We believe

recovered energy-based power generation will ultimately benefit from the efforts to reduce greenhouse gas generation. For example, in the U.S., the FERC has expressed its position that one of the goals of new natural gas pipeline design should be to facilitate the efficient, low-cost transportation of fuel through the use of waste heat (recovered energy) from combustion turbines or reciprocating engines that drive station compressors to generate electricity for use at compressor stations or for commercial sale. FERC has, as a matter of policy, requested natural gas pipeline operators filing for a certificate of approval for new pipeline construction or expansion projects to examine “opportunities to enhance efficiencies for any energy consumption processes in the development and operation” of the new pipeline. We have initially targeted the North American market, where we have built over 21 power plants which generate electricity from “waste heat” from gas turbine-driven compressor stations along interstate natural gas pipelines, from midstream gas processing facilities, and from processing industries in general.

  Several states, and to a certain extent, the federal government, have recognized the environmental benefits of recovered energy-based power generation. For example, 15 states currently

allow electric utilities to include recovered energy-based power generation in calculating such utilities' compliance with their mandatory or voluntary RPS. In addition, California modified the Self Generation Incentive Program (SGIP), which allows recovered energy-based generation to qualify for a per watt incentive.  North Dakota, South Dakota, and the U.S. Department of Agriculture (through the Rural Utilities Service) have approved recovered energy-based power generation units as renewable energy resources, which qualifies recovered energy-based power generators for federally funded, low interest loans, as a priority for our efforts in this regards.

  Recovery of waste heat is also considered “environmentally friendly” in the western Canadian provinces. We believe that Europe and other markets worldwide may offer similar

opportunities in recovered energy-based power generation.    In 2012, the Governor of Utah signed into law Senate Bill 12 (SB12) that enables the sale of electricity directly to large energy users. The direct purchasing, while still in early

implementation, could create a market opportunity for our REG units in Utah.  

In addition, in Colorado the state PUC ruled that Xcel Energy, the largest utility in Colorado, will begin offering a $500/kW incentive for recycled energy projects. The incentive will be paid out over 10 years to developers and manufacturers who convert waste heat from stacks and processes into electricity.

  In summary, the market for the recovery of waste heat into electricity exists either when the available electricity is expensive or where the regulatory environment facilitates construction

and marketing of the power. However, such projects tend to be relatively small (up to 6MW) and we expect the growth to be relatively slow and geographically scattered.  

 

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   Solar PV   The market for Solar PV power grew significantly in recent years, driven by a combination of favorable government policies and a decline in equipment prices.  We are monitoring market

drivers with the potential to develop Solar PV power plants in locations where we can offer competitively priced power generation.  

Competitive Strengths   Competitive Assets. We believe our assets are competitive for the following reasons:

 

 

 

 

  Ability to Finance Our Activities from Internally Generated Cash Flow. The cash flow generated by our portfolio of operating geothermal and REG power plants provides us with a

robust and predictable base for certain exploration, development, and construction activities.  

Growing Legislative Demand for Environmentally-Friendly Renewable Resource Assets. Most of our currently operating power plants produce electricity from geothermal energy sources. The clean and sustainable characteristics of geothermal energy give us a competitive advantage over fossil fuel-based electricity generation as countries increasingly seek to balance environmental concerns with demands for reliable sources of electricity.

  High Efficiency from Vertical Integration. Unlike our competitors in the geothermal industry, we are a fully-integrated geothermal equipment, services, and power provider. We design,

develop, and manufacture equipment that we use in our geothermal and REG power plants. Our intimate knowledge of the equipment that we use in our operations allows us to operate and maintain our power plants efficiently and to respond to operational issues in a timely and cost-efficient manner. Moreover, given the efficient communications among our subsidiary that designs and manufactures the products we use in our operations and our subsidiaries that own and operate our power plants, we are able to quickly and cost effectively identify and repair mechanical issues and to have technical assistance and replacement parts available to us as and when needed.

  Exploration and Drilling Capabilities. We have in-house capabilities to explore and develop geothermal resources and have established a drilling operation that currently owns nine

drilling rigs. We employ an experienced resource group that includes engineers, geologists, and drillers, which executes our exploration and drilling plans for projects that we develop.   Highly Experienced Management Team. We have a highly qualified senior management team with extensive experience in the geothermal power sector.   Technological Innovation. We have 69 U.S. patents in force (and have approximately 34 U.S. patents pending) relating to various processes and renewable resource technologies. All of

our patents are internally developed. Our ability to draw upon internal resources from various disciplines related to the geothermal power sector, such as geological expertise relating to reservoir management, and equipment engineering relating to power units, allows us to be innovative in creating new technologies and technological solutions.

  Limited Exposure to Fuel Price Risk. A geothermal power plant does not need to purchase fuel (such as coal, natural gas, or fuel oil) in order to generate electricity. Thus, once the

geothermal reservoir has been identified and estimated to be sufficient for use in a geothermal power plant, the drilling of wells is complete and the plant has a PPA, the plant is not exposed to fuel price or fuel delivery risk apart from the impact fuel prices may have on the price at which we sell power under PPAs that are based on the relevant power purchaser’s avoided costs.  

 

 • Contracted Generation. All of the electricity generated by our geothermal power plants is currently sold pursuant to long-term PPAs with an average remaining life of approximately

15 years.

 • Baseload Generation. All of our geothermal power plants supply all or a part of the baseload capacity of the electric system in their respective markets. This means they supply

electric power on an around-the-clock basis. This provides us with a competitive advantage over other renewable energy sources, such as wind power, solar power or hydro-electric power (to the extent they depend on precipitation), which cannot serve baseload capacity because of their intermittent nature.

 • Ancillary Services. Geothermal power plants positively impact electrical grid stability and provide valuable ancillary services. Because of the baseload nature of their output, they

have high transmission utilization efficiency, provide capacity, provide grid inertia and reduce the need for ancillary services such as voltage regulation, reserves and flexible capacity. Other intermittent renewables create integration costs, creating a significant competitive advantage for geothermal energy.  

 • Competitive Pricing. Geothermal power plants, while site specific, are economically feasible in many locations, and the electricity they generate is generally price competitive under

existing economic conditions and existing tax and regulatory regimes compared to electricity generated from fossil fuels or other renewable sources.

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   Although we are confident in our competitive position in light of the strengths described above, we face various challenges in the course of our business operations, including as a result

of the risks described in Item 1A — “Risk Factors” below, the trends and uncertainties discussed in “Trends and Uncertainties” under Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, and the competition we face in our different business segments described under “Competition” below.   Business Strategy

  Our strategy is to continue building a geographically balanced portfolio of geothermal and recovered energy assets, and to continue to be a leading manufacturer and provider of

products and services related to renewable energy. We intend to implement this strategy through:  

 

 

 

 

 

 

  Recent Developments

  The most significant recent developments in our company and business are described below.  

   

 

 • Development and Construction of New Geothermal Power Plants — continuously seeking out commercially exploitable geothermal resources, developing and constructing new

geothermal power plants and entering into long-term PPAs providing stable cash flows in jurisdictions where the regulatory, tax and business environments encourage or provide incentives for such development;

  • Expanding operation into global markets – increasing our business development activities in an effort to grow our business in the global markets in both business segments;

  • Acquisition of New Assets — acquiring from third parties additional geothermal and other renewable assets;

 • Manufacturing and Providing Products and Services Related to Renewable Energy — designing, manufacturing and contracting power plants for our own use and selling to third

parties power units and other generation equipment for geothermal and recovered energy-based electricity generation;

 • Increasing Output from Our Existing Power Plants — increasing output from our existing geothermal power plants by adding additional generating capacity, upgrading plant

technology, and improving geothermal reservoir operations, including improving methods of heat source supply and delivery;

 • Development and Construction of Recovered Energy Power Plants — since we utilize the same infrastructure to develop, supply or operate Geothermal and REG projects, we can

capitalize on opportunities in the REG markets and continue to add successful projects to both our electricity and product segments in this sector; and

 • Technological Expertise — investing in research and development of renewable energy technologies and leveraging our technological expertise to continuously improve power plant

components, reduce operations and maintenance costs, develop competitive and environmentally friendly products for electricity generation and target new service opportunities.

 

● On February 12, 2015, we announced the completion of the share exchange, which is the first and primary step of a series of transactions contemplated by the Share Exchange Agreement and Plan of Merger (the “Share Exchange Agreement”), dated as of November 10, 2014, by and among us, Ormat Industries, our then-parent company, and Ormat Systems. One of the key consequences of this transaction was that the number of shares of our common stock held by non-affiliated, “public” shareholders was increased from approximately 40% to approximately 76% of total shares outstanding, which we believe would help elevate trading volume and may increase equity coverage.

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  Pursuant to the Share Exchange Agreement, we agreed to acquire Ormat Industries through a share exchange in which we issued 30,203,186 new shares of our common stock to Ormat Industries' shareholders in exchange for all of the outstanding ordinary shares of Ormat Industries, reflecting an exchange ratio of 0.2592 shares of our common stock for each ordinary share of Ormat Industries. Following the satisfaction of the various conditions precedent to closing of the share exchange, including (i) the receipt of approval from the District Court of Tel Aviv – Jaffa of the scheme of arrangement under Israeli law represented by the share exchange; (ii) the approval by the controlling shareholder of the issuance of our shares of common stock to the shareholders of Ormat Industries in connection with the share exchange; (iii) the approval of the Share Exchange Agreement by the shareholders of Ormat Industries; and (iv) the maintenance in full force and effect of a ruling that has been obtained from the Israel Tax Authority confirming the Israeli income tax treatment of the transactions contemplated by the Share Exchange Agreement (the “Israeli Tax Ruling”); the share exchange was completed on February 12, 2015.

  As previously disclosed, we entered into several agreements in connection with the Share Exchange Agreement, including the following:

 

 

 

 

 

 

 

 

   

 

 o      voting agreements with the then principal shareholders of Ormat Industries, FIMI ENRG, Limited Partnership and FIMI ENRG, L.P. (together “FIMI”) and Bronicki

Investments Ltd. (“Bronicki”), which, following the share exchange, beneficially own approximately 15.06% and 8.84% of our outstanding shares, respectively. Under these voting agreements, FIMI and Bronicki agreed, among other things, to comply in all respects with the Israeli Tax Ruling applicable to the Ormat Industries shareholders.

 o      voting neutralization agreements with FIMI and Bronicki, whereby FIMI and Bronicki agreed, among other things, to certain restrictions on their shares of our common

stock. Among other things, these voting neutralization agreements:

 ■ require these shareholders to vote all voting securities owned by FIMI and Bronicki and their respective affiliates in excess of 16% and 9%, respectively, of the

combined voting power of our shares in proportion to votes cast by the other holders of our voting securities at any time any action is to be taken by our stockholders;

 ■ prohibit the acquisition of our voting securities by FIMI and Bronicki and their respective affiliates if after giving effect to any such acquisition FIMI and Bronicki and

their respective affiliates would beneficially own voting securities representing in the aggregate more than 20% and 12%, respectively, of the combined voting power of our shares;

  ■ prohibit, prior to January 1, 2017, the sale of more than 10% of our voting securities owned in the aggregate by FIMI and Bronicki; and

 ■ allow, following January 1, 2017, the sale of our voting securities owned by FIMI and Bronicki only if they are not acting in concert to sell or, if they are, only with 20

days’ prior written notice to us, subject to certain exceptions for public sales and mergers and acquisitions transactions.        ■ prohibit FIMI and Bronicki from renewing their shareholder rights agreement beyond its expiration date, May 22, 2017.

 o a registration rights agreement whereby FIMI and Bronicki may, subject to certain limitations, require us to prepare and file with the SEC a registration statement to register

a public offering of the shares of our common stock held by them, on customary terms and conditions set forth in the agreement.

 

● On February 5, 2015, we announced that our wholly-owned subsidiary has entered into a binding agreement with infrastructure funds managed by Northleaf Capital Partners (Northleaf) under which Ormat will contribute certain geothermal and recovered energy generation power plants into a newly established holding company subsidiary, ORPD LLC (ORPD), and Northleaf will acquire an approximately 40% equity interest in the ORPD. We will raise approximately $175 million from the transaction. The transaction is expected to close in March 2015, subject to customary closing conditions.

     

   The power plants that will be contributed to ORPD as part of the transaction include our Puna geothermal power plant in Hawaii, the Don A. Campbell geothermal power plant in

Nevada, and nine power plant units across three recovered energy generation assets known as OREG 1, OREG 2, and OREG 3. We will continue to consolidate the ORPD and its assets, and will continue to provide day-to-day management control, operations and maintenance control over the projects.

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● On February 5, 2015, the TASE approved the listing of our common stock on the TASE beginning on February 10, 2015 and our common stock is now listed on both the NYSE and the TASE. We are still subject to the rules and regulations of the NYSE and of the SEC. Under the local regime for dual listing, U.S.-listed companies, such as us, may dual-list on the TASE without additional regulatory requirements, using the same periodic reports, financial and other relevant disclosure information that they submit to the SEC and NYSE. However, as a result of the local regime requirements, we have undertaken, as part of the TASE listing, not to issue preferred stock for as long as our shares of common stock are listed on the TASE.

 

● On February 4, 2015, we announced that the second phase of our McGinness Hills geothermal power plant located in Lander County, Nevada has begun commercial operation. Since February 1, 2015, the complex sells electricity under the amended PPA with NV Energy at a new energy rate of $85.58/MWh with one percent annual escalator through December 2032. Following resource confirmation and excellent performance of the first phase of McGinness Hills, which had been operational since June 2012, the second phase initiated construction in March 2014. The McGinness Hills Phase 2 plant that came on line on February 1, 2015, brought the complex’s total capacity to approximately 72MW. We have a contract with NV Energy to sell energy produced at McGinness Hills through December 2032.

 ● On December 4, 2014, we announced the signing of an amended and restated PPA with KPLC, paving the way for the expansion of the Olkaria complex. Under the terms of the

PPA, we expect to increase the generating capacity of the complex by 24 MW, bringing the complex’s total capacity to 134 MW. The fourth plant is expected to come on line in the second half of 2016 and to sell electricity under a 20 year PPA with KPLC.

 

● On November 3, 2014, we, through a majority owned subsidiary (the Project Company), signed a 25-year PPA with KPLC and a project implementation and steam supply agreement (PISSA) with Geothermal Development Company (GDC) for the 35MW Menengai geothermal project in Kenya. Under the PISSA agreement, the Project Company will finance, design, construct, install, operate and maintain the Menengai steam plant on a build-own-operate (BOO) basis for 25 years. GDC, which is wholly owned by the Government of Kenya, will develop the geothermal resource, supply the steam for conversion to electricity and maintain the geothermal field through the term of the agreement. The Project Company expects to start construction upon financial closing.

  ● On November 3, 2014, we, through a wholly owned subsidiary, signed a $22.3 million engineering, procurement and construction (EPC) agreement with the Utah Associated

Municipal Power System (UAMPS). We will install an air-cooled Ormat Energy Converter (OEC) at the Kern River Transmission Company’s Veyo natural gas compressor station in Southern Utah. This new recovered energy generation (REG) project will generate power using heat that would otherwise have not have been utilized.

 

● On September 30, 2014, we repaid in full the outstanding amount of approximately $30.0 million from our $42.0 million loan with EIG Global Project Fund II, Ltd. (formerly TCW). The $42.0 million loan was signed in 2009 to refinance Ormat's investment in the 20 MW Amatitlan geothermal power plant located in Guatemala. The loan was scheduled to mature on June 15, 2016 and bears interest at a rate of 9.83%. This repayment resulted in a one-time charge to interest expense of approximately $1.1 million. We are currently negotiating a new financing agreement that we believe will contain improved terms.

 

● On August 29, 2014, we announced the signing of a $140.0 million loan under the OFC 2 senior secured notes to finance the construction of the McGinness Hills Phase 2 plant in Nevada. This drawdown is the last tranche under the Note Purchase Agreement with John Hancock Life Insurance Company (USA) and guaranteed by the U.S. Department of Energy’s Loan Programs Office in accordance with and subject to the Department’s Loan Guarantee Program under Section 1705 of Title XVII of the Energy Policy Act of 2005. The $140.0 million loan, which matures in December 2032, carries a 4.61% coupon with principal to be repaid on a quarterly basis. The OFC 2 Notes, which include loans for the Tuscarora, Jersey Valley and McGinness Hills complexes, are rated “BBB” by Standard & Poor’s.

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 ● On August 5, 2014, we signed a definitive Purchase and Sale Agreement with Alternative Earth Resources Inc. (AER), pursuant to which we paid $1.5 million in cash in

consideration for (i) AER's 50% interest in Crump Geyser and North Valley geothermal project assets and (ii) an option, exercisable over a four-year period, to purchase certain of AER's New Truckhaven geothermal asset.

 

● On July 1, 2014, Mr. Isaac Angel assumed the position of CEO of our company. He succeeded Mrs. Yehudit (Dita) Bronicki, who announced her retirement in November 2013. Mrs. Bronicki continues to serve as director of Ormat in a non-executive capacity. In addition, effective June 30, 2014, Mr. Gillon Beck stepped down from his position of Chairman of the Board of Directors of the Company and Mr. Yoram Bronicki assumed the position of Chairman. Mr. Beck continues to serve as a director of the Company. Upon assuming the position of the Chairman of the Board, Mr. Yoram Bronicki relinquished his position as President and Chief Operating Officer of the Company.

 

● On May 23, 2014, we announced the closing of the $1.17 billion financing agreements entered into by the Sarulla consortium for the 330-megawatt (MW) project in North Sumatra in Indonesia. The Japan Bank for International Cooperation (JBIC), the Asian Development Bank and six commercial banks provided the Sarulla project construction and term loans under a limited recourse financing package backed by political risk guarantees from JBIC. The consortium expects the first phase of operations to commence in 2016. The remaining two phases of operations are scheduled to commence within 18 months thereafter. We will supply our Ormat Energy Converters to the power plants and we added the $254.0 million supply contract to our Product Segment backlog. According to the current project plan, we started to recognize revenue from the project during the third quarter of 2014 and will continue to recognize revenues over the course of the next three to four years.

 ● On March 26, 2014, we signed an agreement with RET Holdings, LLC to sell the Heber Solar project in Imperial County, California for $35.25 million. We received the first payment

of $15.0 million in the first quarter of 2014 and the second payment for the remaining $20.25 million in the second quarter of 2014. We recognized pre-tax gain of $7.6 million in the second quarter of 2014.

 

● On February 4, 2014, we announced that we successfully completed construction and reached commercial operation of Plant 3 in the Olkaria III geothermal power plant complex in Kenya. With Plant 3 online, the complex's total generation capacity has increased to 110 MW. The power generated by the Olkaria III complex is sold under a 20-year PPA with KPLC. On November 25, 2013, we announced that we drew down the remaining $45.0 million comprising Tranche III of the previously announced $310.0 million project finance facility with OPIC.

 ● On January 23, 2014, we announced that we successfully completed the scope of work needed to bring the Mammoth G1 geothermal power plant in Mono County, California to

full capacity. The 6 MW plant reached commercial operation under the new PPA with Pacific, Gas and Electric (PG&E) that allows for hourly energy deliveries of up to 7.5 MW and, as of December 26, 2013, it received the full commercial rate defined in the PPA.

 

● On January 22, 2014, we announced that one of our wholly owned subsidiaries signed an amendment to the PPA with INDE for the Zunil geothermal power plant in Guatemala, which extends the term of the PPA from 2019 to 2034. The amendment also transfers operation and management responsibilities of the Zunil geothermal field from INDE to Ormat for the term of the amended PPA in exchange for a tariff increase. Additionally, INDE exercised its right under the PPA to become a partner in the Zunil power plant and to acquire a three percent equity interest therein.

 

● On January 6, 2014, we announced that we completed the construction of the 16 MW Don A. Campbell geothermal power plant in Mineral County, Nevada. The Don A. Campbell facility, formerly Wild Rose, receives a full rate of $99.0 per MWh with no annual escalation under the terms of the PPA, signed in April 2013, with Southern California Public Power Authority (SCPPA). SCPPA resells the power from the Don A. Campbell geothermal power plant to the Los Angeles Department of Water and Power (LADWP) and Burbank Water and Power through NV Energy Inc.’s transmission system.

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  Operations of our Electricity Segment  

How We Own Our Power Plants. We customarily establish a separate subsidiary to own interests in each power plant. Our purpose in establishing a separate subsidiary for each plant is to ensure that the plant, and the revenues generated by it, will be the only source for repaying indebtedness, if any, incurred to finance the construction or the acquisition (or to refinance the construction or acquisition) of the relevant plant. If we do not own all of the interest in a power plant, we enter into a shareholders agreement or a partnership agreement that governs the management of the specific subsidiary and our relationship with our partner in connection with the specific power plant. Our ability to transfer or sell our interest in certain power plants may be restricted by certain purchase options or rights of first refusal in favor of our power plant partners or the power plant’s power purchasers and/or certain change of control and assignment restrictions in the underlying power plant and financing documents. All of our domestic geothermal and REG power plants, with the exception of the Puna complex, which is an Exempt Wholesale Generator, are Qualifying Facilities under the PURPA, and are eligible for regulatory exemptions from most provisions of the FPA and certain state laws and regulations.

  How We Explore and Evaluate Geothermal Resources. Since 2006, we have expanded our exploration activities, initially in the U.S. and more recently with an increasing focus

internationally. It normally takes two to three years from the time we start active exploration of a particular geothermal resource to the time we have an operating production well, assuming we conclude the resource is commercially viable and determine to pursue its development. Exploration activities generally involve the phases described below.  

Initial Evaluation. Identifying and evaluating potential geothermal resources by sampling and studying new areas combined with information available from public and private sources. We generally adhere to the following process, although our process can vary from site to site depending on geological circumstances and prior evaluation:

 

 

 

 

 

  Our initial evaluation is usually conducted by our own staff, although we might engage outside service providers for some tasks from time to time. The costs associated with an initial

evaluation vary from site to site, based on various factors, including the acreage involved and the costs, if any, of obtaining information from private databases or other sources. On average, our expenses for an initial evaluation range from approximately $10,000 to $50,000 including travel, chemical analyses, and data acquisition.

  If we conclude, based on the information considered in the initial evaluation, that the geothermal resource could support a commercially viable power plant, taking into account various

factors described below, we proceed to land rights acquisition.  

Land Acquisition. Acquisition of land rights to any geothermal resources our initial evaluation indicates could potentially support a commercially viable power plant, taking into account various factors. For domestic power plants, we either lease or own the sites on which our power plants are located. For our foreign power plants, our lease rights for the plant site are generally contained in the terms of a concession agreement or other contract with the host government or an agency thereof. In certain cases, we also enter into one or more geothermal resource leases (or subleases) or a concession or an option agreement or other agreement granting us the exclusive right to extract geothermal resources from specified areas of land, with the owners (or sublessors) of such land. In some cases we obtain first the exploration license and once certain investment requirements are met, we can obtain the exploitation rights. This usually gives us the right to explore, develop, operate, and maintain the geothermal field, including, among other things, the right to drill wells (and if there are existing wells in the area, to alter them) and build pipelines for transmitting geothermal fluid. In certain cases, the holder of rights in the geothermal resource is a governmental entity and in other cases a private entity. Usually the duration of the lease (or sublease) and concession agreement corresponds to the duration of the relevant PPA, if any. In certain other cases, we own the land where the geothermal resource is located, in which case there are no restrictions on its utilization. Leasehold interests in federal land in the United States are regulated by the BLM and the Minerals Management Service. These agencies have rules governing the geothermal leasing process as discussed above under “Description of Our Leases and Lands”.  

 

  • We evaluate historic, geologic and geothermal information available from public and private databases, including geothermal, mining, petroleum and academic sources.

  • We visit sites, sampling fluids for chemistry if necessary, to evaluate geologic conditions.

 • We evaluate available data, and rank prospects in a database according to estimated size and perceived risk. For example, pre-drilled sites with extensive data are considered lower risk

than “green field” sites. Both prospect types are considered critical for Ormat’s continued growth.

 • We generally create a digital, spatial geographic information systems (GIS) database and 3D geologic model containing all pertinent information, including thermal water temperature

gradients derived from historic drilling, geologic mapping information (e.g., formations, structure, alteration, and topography), and any available archival information about the geophysical properties of the potential resource.

 • We assess other relevant information, such as infrastructure (e.g., roads and electric transmission lines), natural features (e.g., springs and lakes), and man-made features (e.g., old

mines and wells).

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   For most of our current exploration sites in the U.S., we acquire rights to use geothermal resource through land leases with the BLM, with various states, or through private leases.

Under these leases, we typically pay an up-front non-refundable bonus payment, which is a component of the competitive lease process. In addition, we undertake to pay nominal, fixed annual rent payments for the period from the commencement of the lease through the completion of construction. Upon the commencement of power generation, we begin to pay to the lessors long-term royalty payments based on the use of the geothermal resources as defined in the respective agreements. These payments are contingent on the power plant’s revenues. A summary of our typical lease terms is provided below under “Description of our Leases and Lands”.

  The up-front bonus and royalty payments vary from site to site and are based, among other things, on current market conditions.   Surveys. Conducting geological, geochemical, and/or geophysical surveys on the sites acquired. Following the acquisition of land rights for a potential geothermal resource, we

conduct additional surface water analyses, soil surveys, and geologic mapping to determine proximity to possible heat flow anomalies and up-flow/permeable zones. We augment our digital database with the results of those analyses and create conceptual and digital geologic models to describe geothermal system controls. We then initiate a suite of geophysical surveys (e.g., gravity, magnetics, resistivity, magnetotellurics, reflection seismic, LiDAR, and spectral surveys) to assess surface and sub-surface structure (e.g., faults and fractures) and improve the geologic model of fluid-flow conduits and permeability controls. All pertinent geological and geophysical data are used to create three-dimensional geologic models to identify drill locations. These surveys are conducted incrementally considering relative impact and cost, and the geologic model is updated continuously.

  We make a further determination of the commercial viability of the geothermal resource based on the results of this process, particularly the results of the geochemical surveys

estimating temperature and the overall geologic model, including potential resource size. If the results from the geochemical surveys are poor (i.e., low derived resource temperatures or poor permeability) or the geologic model indicates small or deep resource, we re-evaluate the commercial viability of the geothermal resource and may not proceed to exploratory drilling. We generally only move forward with those sites that we believe have a high probability for development.  

Exploratory Drilling. Drilling one or more exploratory wells on the high priority, relatively low risk sites to confirm and/or define the geothermal resource. If we proceed to exploratory drilling, we generally use outside contractors to create access roads to drilling sites and related activities. We have continued efforts to reduce exploration costs and therefore, after obtaining drilling permits, we generally drill temperature gradient holes and/or core holes that are lower cost than slim holes (used in the past) using either our own drilling equipment, whenever possible, or outside contractors. If the obtained data supports a conclusion that the geothermal resource can support a commercially viable power plant, it will be used as an observation well to monitor and define the geothermal resource. If the core hole indicates low temperatures or does not support the geologic model of anticipated permeability, it may be plugged and the area reclaimed. In undrilled sites, we typically step up from shallow (500-1000 ft) to deeper (2000-4000 ft) wells as confidence improves. Following proven temperature in core wells, we typically move to slim and/or full- size wells to quantify permeability.

  Each year we determine and approve an exploration budget for the entire exploration activity in such year. We prioritize budget allocation between the various geothermal sites based

on commercial and geological factors. The costs we incur for exploratory drilling vary from site to site based on various factors, including the accessibility of the drill site, the geology of the site, and the depth of the resource. However, on average, exploration costs, prior to drilling of a full-size well are approximately $1.0 to $3.0 million for each site, not including land acquisition. However, we only reach such spending levels for sites that proved to be successful in the early stages of the exploration.

  At various points during our exploration activities, we re-assess whether the geothermal resource involved will support a commercially viable power plant based on information

available at that time. Among other things, we consider the following factors:  

   

 

 • New data and interpretations obtained concerning the geothermal resource as our exploration activities proceed, and particularly the expected MW capacity power plant the resource

can be expected to support. The MW capacity can be estimated using analogous systems and/or quantitative heat in place estimates until results from drilling and flow tests quantify temperature, permeability, and resulting resource size.

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  If we conclude that the geothermal resource involved will support a commercially viable power plant, we proceed to constructing a power plant at the site.

  How We Construct Our Power Plants. The principal phases involved in constructing one of our geothermal power plants are as follows:

 

 

 

 

 

  It generally takes approximately two years from the time we drill a production well, until the power plant becomes operational.   Drilling Production Wells. We consider completing the drilling of first production well as the beginning of our construction phase for a power plant. However, it is not always

sufficient for a full release for construction. The number of production wells varies from plant to plant depending, among other things, on the geothermal resource, the projected capacity of the power plant, the power generation equipment to be used and the way geothermal fluids will be re-injected to maintain the geothermal resource and surface conditions. We generally drill the production wells ourselves although in some cases we use outside contractors.

  The cost for each production well varies depending, among other things, on the depth and size of the well and market conditions affecting the supply and demand for drilling

equipment, labor and operators. Our typical cost for each production well is approximately $4.0 million with a range of $1.0 million to $10.0 million.   Design. We use our own employees to design the well field and the power plant, including equipment that we manufacture and that will be needed for the power plant. The designs

vary based on various factors, including local laws, required permits, the geothermal resource, the expected capacity of the power plant and the way geothermal fluids will be re-injected to maintain the geothermal resource and surface conditions.

  Permits. We use our own employees and outside consultants to obtain any required permits and licenses for our power plants that are not already covered by the terms of our site

leases. The permits and licenses required vary from site to site, and are described below under “Environmental Permits”.   Manufacturing. Generally, we manufacture most of the power generating unit equipment we use at our power plants. Multiple sources of supply are generally available for all other

equipment we do not manufacture.   Construction. We use our own employees to manage the construction work. For site grading, civil, mechanical, and electrical work we use subcontractors.

 

 

  • Current and expected market conditions and rates for contracted and merchant electric power in the market(s) to be serviced.

  • Availability of transmission capacity.

  • Anticipated costs associated with further exploration activities and the relative risk of failure.

  • Anticipated costs for design and construction of a power plant at the site.

 • Anticipated costs for operation of a power plant at the site, particularly taking into account the ability to share certain types of costs (such as control rooms) with one or more other

power plants that are, or are expected to be, operating near the site.

  • Drilling production wells.

  • Designing the well field, power plant, equipment, controls, and transmission facilities.

  • Obtaining any required permits, electrical interconnection and transmission agreements.

  • Manufacturing (or in the case of equipment we do not manufacture ourselves, purchasing) the equipment required for the power plant.

  • Assembling and constructing the well field, power plant, transmission facilities, and related facilities.

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   During the year ended December 31, 2014, in the Electricity Segment we focused on the completion of the Olkaria III plant 3 and the construction of the McGinness Hills phase 2 power

plant and began construction in the Don A. Campbell phase 2. We began construction in the Olkaria III plant 3 and McGinness Hills phase 2 during the year ended December 31, 2013, and the Olkaria III Plant 2 during the year ended December 31, 2012.

   During the year ended December 31, 2014, we discontinued exploration and development activities at seven exploration sites and one development project, including Huu Dumpo in

Indonesia, Mount Spurr in Alaska, San Pablo, San Jose II, and Aroma in Chile, Silver Lake, Summer Lake and Foley Hot Springs in Oregon and Wister in California. During the year ended December 31, 2013, we discontinued exploration and development activities at three sites, including Magic Reservoir in Idaho, Wildhorse (Mustang) in Nevada and Drum Mountain in Utah. During the year ended December 31, 2012, we discontinued exploration and development activities at five sites, including Leach Hot springs, Hyder Hot Springs, Seven Devil, Smith Creek and Walker River in Nevada.

  After conducting exploratory studies and drilling in those sites, we concluded that the geothermal resource would not support commercial operations at that time. Costs associated

with exploration activities at these sites were expensed accordingly (see “Write-off of Unsuccessful Exploration Activities” under Item 7 — “Management Discussion and Analysis of Financial Condition and Results of Operations”).   

We added to our exploration activities four, two and five sites during the years ended December 31, 2014, 2013 and 2012, respectively.    How We Operate and Maintain Our Power Plants. In the U.S. we usually employ our subsidiary, Ormat Nevada, to act as operator of our power plants pursuant to the terms of an

operation and maintenance agreement. Operation and maintenance of our foreign projects are generally provided by our subsidiary that owns the relevant project. Our operations and maintenance practices are designed to minimize operating costs without compromising safety or environmental standards while maximizing plant flexibility and maintaining high reliability. Our operations and maintenance practices for geothermal power plants seek to preserve the sustainable characteristics of the geothermal resources we use to produce electricity and maintain steady-state operations within the constraints of those resources reflected in our relevant geologic and hydrologic studies. Our approach to plant management emphasizes the operational autonomy of our individual plant or complex managers and staff to identify and resolve operations and maintenance issues at their respective power plants; however each power plant or complex draws upon our available collective resources and experience, and that of our subsidiaries. We have organized our operations such that inventories, maintenance, backup, and other operational functions are pooled within each power plant complex and provided by one operation and maintenance provider. This approach enables us to realize cost savings and enhances our ability to meet our power plant availability goals.

  Safety is a key area of concern to us. We believe that the most efficient and profitable performance of our power plants can only be accomplished within a safe working environment for

our employees. Our compensation and incentive program includes safety as a factor in evaluating our employees, and we have a well-developed reporting system to track safety and environmental incidents, if any, at our power plants.

  How We Sell Electricity. In the U.S., the purchasers of power from our power plants are typically investor-owned electric utility companies. Outside of the United States, the purchaser is

either a state-owned utility or a privately-owned entity and we typically operate our facilities pursuant to rights granted to us by a governmental agency pursuant to a concession agreement. In each case, we enter into long-term contracts (typically called PPAs) for the sale of electricity or the conversion of geothermal resources into electricity. Although a power plant’s revenues under a PPA previously generally consisted of two payments — energy payments and capacity payments, our recent PPAs provide for energy payments only. Energy payments are normally based on a power plant’s electrical output actually delivered to the purchaser measured in kilowatt hours, with payment rates either fixed or indexed to the power purchaser’s “avoided” power costs (i.e., the costs the power purchaser would have incurred itself had it produced the power it is purchasing from third parties) or rates that escalate at a predetermined percentage each year. Capacity payments are normally calculated based on the generating capacity or the declared capacity of a power plant available for delivery to the purchaser, regardless of the amount of electrical output actually produced or delivered. In addition, most of our domestic power plants located in California are eligible for capacity bonus payments under the respective PPAs upon reaching certain levels of generation.  

 

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   How We Finance Our Power Plants. Historically we have funded our power plants with a combination of non-recourse or limited recourse debt, including lease financing, internally

generated cash, which includes funds from operation, as well as proceeds from loans under corporate credit facilities, sale of securities, and other sources of liquidity. Such leveraged financing permits the development of power plants with a limited amount of equity contributions, but also increases the risk that a reduction in revenues could adversely affect a particular power plant’s ability to meet its debt obligations. Leveraged financing also means that distributions of dividends or other distributions by plant subsidiaries to us are contingent on compliance with financial and other covenants contained in the financing documents.

  Non-recourse debt or lease financing refers to debt or lease arrangements involving debt repayments or lease payments that are made solely from the power plant’s revenues (rather than

our revenues or revenues of any other power plant) and generally are secured by the power plant’s physical assets, major contracts and agreements, cash accounts and, in many cases, our ownership interest in our affiliate that owns that power plant. These forms of financing are referred to as “project financing”. Project financing transactions generally are structured so that all revenues of a power plant are deposited directly with a bank or other financial institution acting as escrow or security deposit agent. These funds are then payable in a specified order of priority set forth in the financing documents to ensure that, to the extent available, they are used to first pay operating expenses, senior debt service (including lease payments) and taxes, and to fund reserve accounts. Thereafter, subject to satisfying debt service coverage ratios and certain other conditions, available funds may be disbursed for management fees or dividends or, where there are subordinated lenders, to the payment of subordinated debt service.

  In the event of a foreclosure after a default, our affiliate that owns the power plant would only retain an interest in the assets, if any, remaining after all debts and obligations have been

paid in full. In addition, incurrence of debt by a power plant may reduce the liquidity of our equity interest in that power plant because the interest is typically subject both to a pledge in favor of the power plant’s lenders securing the power plant’s debt and to transfer and change of control restrictions set forth in the relevant financing agreements.

  Limited recourse debt refers to project financing as described above with the addition of our agreement to undertake limited financial support for our affiliate that owns the power plant in

the form of certain limited obligations and contingent liabilities. These obligations and contingent liabilities may take the form of guarantees of certain specified obligations, indemnities, capital infusions and agreements to pay certain debt service deficiencies. To the extent we become liable under such guarantees and other agreements in respect of a particular power plant, distributions received by us from other power plants and other sources of cash available to us may be required to be used to satisfy these obligations. To the extent of these limited recourse obligations, creditors of a project financing of a particular power plant may have direct recourse to us.

  We have also used financing structures to monetize PTCs and other favorable tax benefits derived from the financed power plants and an operating lease arrangement for one of our

power plants.   How We Mitigate International Political Risk. We generally purchase insurance policies to cover our exposure to certain political risks involved in operating in developing countries, as

described below under “Insurance”. To date, our political risk insurance contracts are with the Multilateral Investment Guaranty Agency (MIGA), a member of the World Bank Group, and Zurich Re, a private insurance and re-insurance company. Such insurance policies generally cover, subject to the limitations and restrictions contained therein, 80-90% of our revenue loss resulting from a specified governmental act such as confiscation, expropriation, riots, the inability to convert local currency into hard currency, and, in certain cases, the breach of agreements. We have obtained such insurance for all of our foreign power plants in operation.  

 

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  Description of Our Leases and Lands

  We have domestic leases on approximately 374,176 acres of federal, state, and private land in Alaska, California, Hawaii, Idaho, Nevada, New Mexico, Oregon and Utah. The approximate

breakdown between federal, state, private leases and owned land is as follows:  

 

 

 

  Each of the leases within each of the categories has standard terms and requirements, as summarized below. Internationally, our land position includes approximately 174,000 acres, most

of which are geothermal exploration licenses in three prospects in Chile.  

Bureau of Land Management (BLM) Geothermal Leases   Certain of our domestic project subsidiaries have entered into geothermal resources leases with the U.S. government, pursuant to which they have obtained the right to conduct their

geothermal development and operations on federally-owned land. These leases are made pursuant to the Geothermal Steam Act and the lessor under such leases is the U.S. government, acting through the BLM.

  BLM geothermal leases grant the geothermal lessee the right and privilege to drill for, extract, produce, remove, utilize, sell, and dispose of geothermal resources on certain lands, together

with the right to build and maintain necessary improvements thereon. The actual ownership of the geothermal resources and other minerals beneath the land is retained in the federal mineral estate. The geothermal lease does not grant to the geothermal lessee the exclusive right to develop the lands, although the geothermal lessee does hold the exclusive right to develop geothermal resources within the lands. The geothermal lessee does not have the right to develop minerals unassociated with geothermal production and cannot prohibit others from developing the minerals present in the lands. The BLM may grant multiple leases for the same lands and, when this occurs, each lessee is under a duty to not unreasonably interfere with the development rights of the other. Because BLM leases do not grant to the geothermal lessee the exclusive right to use the surface of the land, BLM may grant rights to others for activities that do not unreasonably interfere with the geothermal lessee’s uses of the same land; such other activities may include recreational use, off-road vehicles, and/or wind or solar energy developments.

  Certain BLM leases issued before August 8, 2005 include covenants that require the projects to conduct their operations under the lease in a workmanlike manner and in accordance with

all applicable laws and BLM directives and to take all mitigating actions required by the BLM to protect the surface of and the environment surrounding the land. Additionally, certain leases contain additional requirements, some of which concern the mitigation or avoidance of disturbance of any antiquities, cultural values or threatened or endangered plants or animals, the payment of royalties for timber, and the imposition of certain restrictions on residential development on the leased land.

  BLM leases entered into after August 8, 2005 require the geothermal lessee to conduct operations in a manner that minimizes impacts to the land, air, water, to cultural, biological, visual,

and other resources, and to other land uses or users. The BLM may require the geothermal lessee to perform special studies or inventories under guidelines prepared by the BLM. The BLM reserves the right to continue existing leases and to authorize future uses upon or in the leased lands, including the approval of easements or rights-of-way. Prior to disturbing the surface of the leased lands, the geothermal lessee must contact the BLM to be apprised of procedures to be followed and modifications or reclamation measures that may be necessary. Subject to BLM approval, geothermal lessees may enter into unit agreements to cooperatively develop a geothermal resource. The BLM reserves the right to specify rates of development and to require the geothermal lessee to commit to a communalization or unitization agreement if a common geothermal resource is at risk of being overdeveloped.

  Typical BLM leases issued to geothermal lessees before August 8, 2005 have a primary term of ten years and will renew so long as geothermal resources are being produced or utilized in

commercial quantities, but cannot exceed a period of forty years after the end of the primary term. If at the end of the forty-year period geothermal steam is still being produced or utilized in commercial quantities and the lands are not needed for other purposes, the geothermal lessee will have a preferential right to renew the lease for a second forty-year term, under terms and conditions as the BLM deems appropriate.

  BLM leases issued after August 8, 2005 have a primary term of ten years. If the geothermal lessee does not reach commercial production within the primary term, the BLM may grant two

five-year extensions if the geothermal lessee: (i) satisfies certain minimum annual work requirements prescribed by the BLM for that lease, or (ii) makes minimum annual payments. Additionally, if the geothermal lessee is drilling a well for the purposes of commercial production, the primary term (as it may have been extended) may be extended for five years and as long thereafter as steam is being produced and used in commercial quantities (meaning the geothermal lessee either begins producing geothermal resources in commercial quantities or has a well capable of producing geothermal resources in commercial quantities and is making diligent efforts to utilize the resource) for thirty-five years. If, at the end of the extended thirty-five year term, geothermal steam is still being produced or utilized in commercial quantities and the lands are not needed for other purposes, the geothermal lessee will have a preferential right to renew the lease for fifty-five years, under terms and conditions as the BLM deems appropriate.  

 

  • 72% are leases with the U.S. government, acting through the BLM;

  • 15% are leases with private landowners and/or leaseholders;

  • 11% are leases with various states, none of which is currently material; and

  • 2% are owned by us.

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   For BLM leases issued before August 8, 2005, the geothermal lessee is required to pay an annual rental fee (on a per acre basis), which escalates according to a schedule described

therein, until production of geothermal steam in commercial quantities has commenced. After such production has commenced, the geothermal lessee is required to pay royalties (on a monthly basis) on the amount or value of (i) steam, (ii) by-products derived from production, and (iii) commercially de-mineralized water sold or utilized by the project (or reasonably susceptible to such sale or use).

  For BLM leases issued after August 8, 2005, (i) a geothermal lessee who has obtained a lease through a non-competitive bidding process will pay an annual rental fee equal to $1.00 per

acre for the first ten years and $5.00 per acre each year thereafter; and (ii) a geothermal lessee who has obtained a lease through a competitive process will pay a rental equal to $2.00 per acre for the first year, $3.00 per acre for the second through tenth year and $5.00 per acre each year thereafter. Rental fees paid before the first day of the year for which the rental is owed will be credited towards royalty payments for that year. For BLM leases issued, effective, or pending on August 5, 2005 or thereafter, royalty rates are fixed between 1.0-2.5% of the gross proceeds from the sale of electricity during the first ten years of production under the lease. The royalty rate set by the BLM for geothermal resources produced for the commercial generation of electricity but not sold in an arm’s length transaction is 1.75% for the first ten years of production and 3.5% thereafter. The royalty rate for geothermal resources sold by the geothermal lessee or an affiliate in an arm’s length transaction is 10.0% of the gross proceeds from the arm’s length sale. The BLM may readjust the rental or royalty rates at not less than twenty year intervals beginning thirty-five years after the date geothermal steam is produced.

  In the event of a default under any BLM lease, or the failure to comply with any of the provisions of the Geothermal Steam Act or regulations issued under the Geothermal Steam Act or

the terms or stipulations of the lease, the BLM may, 30 days after notice of default is provided to the relevant project, (i) suspend operations until the requested action is taken, or (ii) cancel the lease.

  Private Geothermal Leases

  Certain of our domestic project subsidiaries have entered into geothermal resources leases with private parties, pursuant to which they have obtained the right to conduct their

geothermal development and operations on privately owned land. In many cases, the lessor under these private geothermal leases owns only the geothermal resource and not the surface of the land.

  Typically, the leases grant our project subsidiaries the exclusive right and privilege to drill for, produce, extract, take and remove from the leased land water, brine, steam, steam power,

minerals (other than oil), salts, chemicals, gases (other than gases associated with oil), and other products produced or extracted by such project subsidiary. The project subsidiaries are also granted certain non-exclusive rights pertaining to the construction and operation of plants, structures, and facilities on the leased land. Additionally, the project subsidiaries are granted the right to dispose geothermal fluid as well as the right to re-inject into the leased land water, brine, steam, and gases in a well or wells for the purpose of maintaining or restoring pressure in the productive zones beneath the leased land or other land in the vicinity. Because the private geothermal leases do not grant to the lessee the exclusive right to use the surface of the land, the lessor reserves the right to conduct other activities on the leased land in a manner that does not unreasonably interfere with the geothermal lessee’s uses of the same land, which other activities may include agricultural use (farming or grazing), recreational use and hunting, and/or wind or solar energy developments.

  The leases provide for a term consisting of a primary term in the range of five to 30 years, depending on the lease, and so long thereafter as lease products are being produced or the

project subsidiary is engaged in drilling, extraction, processing, or reworking operations on the leased land.   As consideration under most of our project subsidiaries’ private leases, the project subsidiary must pay to the lessor a certain specified percentage of the value “at the well” (which is not

attributable to the enhanced value of electricity generation), gross proceeds, or gross revenues of all lease products produced, saved, and sold on a monthly basis. In certain of our project subsidiaries’ private leases, royalties payable to the lessor by the project subsidiary are based on the gross revenues received by the lessee from the sale or use of the geothermal substances, either from electricity production or the value of the geothermal resource “at the well”.

  In addition, pursuant to the leases, the project subsidiary typically agrees to commence drilling, extraction or processing operations on the leased land within the primary term, and to

conduct such operations with reasonable diligence until lease products have been found, extracted and processed in quantities deemed “paying quantities” by the project subsidiary, or until further operations would, in such project subsidiary’s judgment, be unprofitable or impracticable. The project subsidiary has the right at any time within the primary term to terminate the lease and surrender the relevant land. If the project subsidiary has not commenced any such operations on said land (or on the unit area, if the lease has been unitized), or terminated the lease within the primary term, the project subsidiary must pay to the lessor, in order to maintain its lease position, annually in advance, a rental fee until operations are commenced on the leased land.  

 

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   If the project subsidiary fails to pay any installment of royalty or rental when due and if such default continues for a period of fifteen days specified in the lease, for example, after its

receipt of written notice thereof from the lessor, then at the option of the lessor, the lease will terminate as to the portion or portions thereof as to which the project subsidiary is in default. If the project subsidiary defaults in the performance of any obligations under the lease, other than a payment default, and if, for a period of 90 days after written notice is given to it by the lessor of such default, the project subsidiary fails to commence and thereafter diligently and in good faith take remedial measures to remedy such default, the lessor may terminate the lease.

  We do not regard any property that we lease as material unless and until we begin construction of a power plant on the property, that is, until we drill a production well on the property.  

Exploration Concessions in Chile   We have been awarded six exploration concessions in Chile, under which we had the rights to start exploration work with an original term of two years. Prior to the last six months of the

original term of each exploration concession, we could request its extension for an additional period of two years. According to applicable regulations, the extension of the exploration concession is subject to the receipt by the Ministry of Energy of evidence that at least 25% of the planned investments for the execution of the project, as reflected in the relevant proposal submitted during the tender process, has been invested. Following submission of the request, the Ministry of Energy has three months in which it may grant or deny the extension. We have waived three of the six concessions we held. As of the date of this annual report we have the exclusive right to apply for an exploitation license for the remaining three sites. Our exclusive rights will expire on March 7, 2016, and obtaining such license is subject to an approval by the Ministry of Energy.

  Description of Our Power Plants

  Domestic Operating Power Plants

  The following descriptions summarize certain industry metrics for our domestic operating power plants:  

   

 

Brady Complex      Location Churchill County, Nevada   Generating Capacity 18MW   Number of Power Plants Two (Brady and Desert Peak 2 power plants).   Technology The Brady complex utilizes binary and flash systems. The complex uses air and water cooled systems.    Subsurface Improvements 12 production wells and eight injection wells are connected to the plants through a gathering system.    Major Equipment Three OEC units and three steam turbines along with the Balance of Plant equipment.    Age The Brady power plant commenced commercial operations in 1992 and a new OEC unit was added in 2004. The Desert Peak 2 power plant

commenced commercial operation in 2007.    Land and Mineral Rights The Brady complex area is comprised mainly of BLM leases. The leases are held by production. The scheduled expiration dates for all of these

leases are after the end of the expected useful life of the power plants. The complex’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described in “Description of Our Leases and Lands”.

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Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant to the leases, and the Brady power plant holds right of ways from the BLM and from the private owner that allows access to and from the plant.

   Resource Information The resource temperature at Brady is 273 degrees Fahrenheit and at Desert Peak 2 is 340 degrees Fahrenheit.      The Brady and Desert Peak geothermal systems are located within the Hot Springs Mountains, approximately 60 miles northeast of Reno,

Nevada, in northwestern Churchill County.     The dominant geological feature of the Brady area is a linear NNE-trending band of hot ground that extends for a distance of two miles.     The Desert Peak geothermal field is located within the Hot Springs Mountains, which form part of the western boundary of the Carson Sink. The

structure is characterized by east-titled fault blocks and NNE-trending folds.     Geologic structure in the area is dominated by high-angle normal faults of varying displacement.   Resource Cooling Approximately four degrees Fahrenheit per year was historically observed at Brady, and two degrees Fahrenheit was observed in 2013. The

temperature decline at Desert Peak is approximately two degrees Fahrenheit per year. At Desert Peak, two formally idle wells were connected for injection and two former injection were shut in to reduce the rate of cooling.

   Sources of Makeup Water Condensed steam is used for makeup water.    Power Purchaser Brady power plant — Sierra Pacific Power Company. Desert Peak 2 power plant — Nevada Power Company.    PPA Expiration Date Brady power plant — 2022. Desert Peak 2 power plant — 2027.    Financing OFC Senior Secured Notes and ORTP Transaction in the case of Brady, and OPC Transaction in the case of Desert Peak 2.    Don A. Campbell Project      Location Mineral County, Nevada   Generating Capacity 19 MW   Number of Power Plants One   Technology The Don A. Campbell power plant utilizes an air cooled binary system.    Subsurface Improvements Five production wells and three injection wells are connected to the plant.    Material Equipment One air cooled OEC unit with the Balance of Plant equipment.    Age The power plant is in its second year of operation.    Land and Mineral Rights The Don A. Campbell area is comprised of BLM leases.      Since we declared commercial operation, the leases are held by production, as described above in “Description of Our Leases and Lands”.     The project’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.

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Resource Information The Don A. Campbell geothermal reservoir consists of highly fractured, silicified alluvium over at least two square miles. Production and injection are very shallow with five pumped production wells (from depths of 1,350 to 1,900 feet) and three injection wells (from depths of 649 to 2,477 feet), all targeting northwest-dipping fractures. The thermal fluids are thought to be controlled by a combination of conductive heat transfer from deeper bedrock and through mixing of upwelling thermal fluids from a deeper geothermal system also contained in the bedrock. The system is considered blind with no surface expression of thermal features.

     The temperature of the resource is approximately 262 degrees Fahrenheit.   Resource Cooling From the beginning of operation the temperature is stable.    Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted in leases

from BLM.    Power Purchaser SCPPA    PPA Expiration Date 2034   Financing Corporate funds and cash grant that we received from the U.S. Treasury.    Supplemental Information In February 2015, we signed a definitive agreement with Northleaf under which we established a new company, ORPD LLC, that will own Puna

Complex, Don A. Campbell, OREG 1, OREG 2, OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. The agreements will be in effect at closing expected in the first quarter of 2015, subject to customary closing conditions. Discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”.

    Heber Complex      Location Heber, Imperial County, California   Generating Capacity 92 MW (See supplemental information below).   Number of Power Plants Five (Heber 1, Heber 2, Heber South, Gould 1 and Gould 2).    Technology The Heber 1 plant is a dual flash system with a binary bottoming unit called Gould-1 and the Heber 2 group is comprised of the Heber 2, Gould 2

and Heber South plants which all utilize binary systems. The complex uses a water cooled system.    Subsurface Improvements 31 production wells and 34 injection wells connected to the plants through a gathering system.    Major Equipment 17 OEC units and one steam turbine with the Balance of Plant equipment.    Age The Heber 1 plant commenced commercial operations in 1985 and the Heber 2 plant in 1993. The Gould 1 plant commenced commercial operation

in 2006 and the Gould 2 plant in 2005. The Heber South plant commenced commercial operation in 2008.    Land and Mineral Rights The total Heber area is comprised mainly of private leases. The leases are held by production. The scheduled expiration dates for all of these

leases are after the end of the expected useful life of the power plants.      The complex’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted

pursuant to the leases.

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Resource Information The resource supplying the flash flowing Heber 1 wells averages 347 degrees Fahrenheit. The resource supplying the pumped Heber 2 wells averages 317 degrees Fahrenheit.

     Heber production is from deltaic sedimentary sandstones deposited in the subsiding Salton Trough of California’s Imperial Valley. Produced

fluids rise from near the magmatic heated basement rocks (18,000 feet) via fault/fracture zones to the near surface. Heber 1 wells produce directly from deep (4,000 to 8,000 feet) fracture zones. Heber 2 wells produce from the nearer surface (2,000 to 4,000 feet) matrix permeability sandstones in the horizontal outflow plume fed by the fractures from below and the surrounding ground waters.

     Scale deposition in the flashing Heber 1 producers is controlled by down- hole chemical inhibition supplemented with occasional mechanical

cleanouts and acid treatments. There is no scale deposition in the Heber 2 production wells.   Resource Cooling An average of one degree Fahrenheit per year was observed during the past 20 years of production.    Sources of Makeup Water Water is provided by condensate and by the IID.   Power Purchaser Two PPAs with Southern California Edison and one PPA with SCPPA.   PPA Expiration Date Heber 1 — 2015, Heber 2 — 2023, and Heber South — 2031. The output from the Gould 1 and Gould 2 power plants is sold under the PPAs of

Southern California Edison and SCPPA.    Financing OrCal Senior Secured Notes and ORTP Transaction.    Supplemental Information In 2013, we entered into a new PPA with SCPPA, which will replace the current Heber 1 PPA with Southern California Edison upon the expiration

of the current PPA expected at the end of 2015.      In 2012, we drilled a new well as an upgrade project for the Heber 1 area to make better use of the available resource. We drilled two additional

wells in 2013 and four old wells were decommissioned. In 2015, we intend to drill one more well and perform upgrades to surface equipment. At the end of this process, we expect the capacity of the complex to reach 92MW.

    Jersey Valley Power Plant      Location Pershing County, Nevada   Generating Capacity 10 MW (see supplemental information below).   Number of Power Plants One   Technology The Jersey Valley power plant utilizes an air cooled binary system.    Subsurface Improvements Two production wells and four injection wells are connected to the plant through a gathering system. The third production well is not

connected to the power plant and will be used in the future as required.    Major Equipment Two OEC units together with the Balance of Plant equipment.    Age Construction of the power plant was completed at the end of 2010 and the off-taker approved commercial operation status under the PPA

effective on August 30, 2011.    Land and Mineral Rights The Jersey Valley area is comprised of BLM leases. The leases are held by production. The scheduled expiration dates for all of these leases are

after the end of the expected useful life of the power plant.

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  The power plant’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in “Description of Our Leases and Lands”.

   Access to Property Direct access to public roads from leased property and access across leased property under surface rights granted in leases from BLM.    Resource Information The Jersey Valley geothermal reservoir consists of a small high-permeability area surrounded by a large low-permeability area. The high-

permeability area has been defined by wells drilled along an interpreted fault trending west-northwest. Static water levels are artesian; two of the wells along the permeable zone have very high productivities, as indicated by Permeability Index (PI) values exceeding 20 gpm/psi. The average temperature of the resource is 320 degrees Fahrenheit.

    Resource Cooling The rate of cooling was six degree Fahrenheit in 2014.    Power Purchaser Nevada Power Company    PPA Expiration Date 2032   Financing Corporate funds and ITC cash grant from the U.S. Treasury.      Once the Jersey Valley power plant reaches certain operational targets and meets other conditions precedent, we have the ability to borrow

additional funds under the OFC 2 Senior Secured Notes.    Supplemental Information In 2014, we increased the injection capacity of the Jersey Valley power plant, which has been limiting generation in its early years. Following the

work we believe the power plant can operate at a stable capacity of 10MW.     Mammoth Complex      Location Mammoth Lakes, California   Generating Capacity 29 MW   Number of Power Plants Three (G-1, G-2, and G-3).   Technology The Mammoth complex utilizes air cooled binary systems.    Subsurface Improvements Ten production wells and five injection wells are connected to the plants through a gathering system.    Major Equipment Two new OECs and six Turbo-expanders together with the Balance of Plant equipment.    Age The G-1 plant commenced commercial operations in 1984 and G-2 and G-3 commenced commercial operation in 1990. We recently replaced the

equipment at the G-1 plant with new OECs.    Land and Mineral Rights The total Mammoth area is comprised mainly of BLM leases. The leases are held by production. The scheduled expiration dates for all of these

leases are after the end of the expected useful life of the power plants.      The complex’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted

pursuant to the leases.    Resource Information The average resource temperature is 339 degrees Fahrenheit.

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  The Casa Diablo/Basalt Canyon geothermal field at Mammoth lies on the southwest edge of the resurgent dome within the Long Valley Caldera. It is believed that the present heat source for the geothermal system is an active magma body underlying the Mammoth Mountain to the northwest of the field. Geothermal waters heated by the magma flow from a deep source (greater than 3,500 feet) along faults and fracture zones from northwest to southeast east into the field area.

     The produced fluid has no scaling potential.   Resource Cooling In the last two years the temperature has stabilized and there is no notable decline, although one degree Fahrenheit per year was observed

during the prior 20 years of production.    Power Purchaser G1 and G3 - PG&E and G2 -Southern California Edison.    PPA Expiration Date G-1 and G-3 — 2034, G-2 and— 2027.    Financing OFC Senior Secured Notes and ORTP Transaction.    Supplemental Information In 2012, we entered into two new PPAs with PG&E, which replaced the current G-1 (December 2013) and G-3 PPAs (April 2013) with Southern

California Edison.      In January 2014, we announced that we completed the scope of work needed to bring the G1 geothermal power plant to full capacity. The plant

reached commercial operation under the new PPA with PG&E and now receives the full commercial rate defined in the PPA.     McGinness Hills Complex      Location Lander County, Nevada   Generating Capacity 72 MW   Number of Power Plants Two   Technology The McGinness Hills complex utilizes an air cooled binary system.    Subsurface Improvements 10 production wells and five injection wells are connected to the power plant.    Material Equipment Six air cooled OEC units with the Balance of Plant Equipment.    Age The first phase commenced commercial operation on July 1, 2012, and the second phase on February 1, 2015.    Land and Mineral Rights The McGinness Hills area is comprised of private and BLM leases.      The leases are currently held by the payment of annual rental payments, as described above in “Description of Our Leases and Lands”.     The rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in “Description of

Our Leases and Lands”.   Resource Information The McGinness geothermal reservoir is contained within a network of fractured rocks over an area at least three square miles.  The reservoir is

contained in both Tertiary intrusive and Paleozoic sedimentary (basement) rocks.   The thermal fluids within the reservoir are inferred to flow upward through the basement rocks along the NNE-striking faults at several fault intersections.  The thermal fluids then generally outflow laterally to the NNE and SSW along the NNE-striking faults.  No modern thermal manifestations exist at McGinness, although hot spring deposits encompass an area of approximately 0.25 square miles and indicate a history of surface thermal fluid flow.  The resource temperature averages 337 degrees Fahrenheit and the fluids are sourced from the reservoir at elevations between 2,000 to 5,000 feet below the surface.

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  The average temperature of the resource is approximately 335 degrees Fahrenheit.   Resource Cooling The temperature has been stable since the first phase began operation with no notable cooling.    Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted in leases

from BLM.    Power Purchaser Nevada Power Company   PPA Expiration Date 2033   Financing OFC 2 Senior Secured Notes and ITC cash grant from the U.S. Treasury.     North Brawley Power Plant      Location Imperial County, California   Generating Capacity 18 MW (See supplemental information below)   Number of Power Plants One   Technology The North Brawley power plant utilizes a water-cooled binary system.    Subsurface Improvements 36 wells have been drilled and are connected to the plants through its gathering system. As we improved our knowledge of the reservoir, we

moved some of the wells between production and injection and left some idle. Currently, we have 13 wells connected to the production header and 23 wells, connected to the injection header.

   Major Equipment Five OEC units together with the Balance of Plant equipment.    Age The power plant commenced commercial operation on March 31, 2011.    Land and Mineral Rights The total North Brawley area is comprised of private leases. The leases are held by production. The scheduled expiration date for all of these

leases is after the end of the expected useful life of the power plant.      The plant’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted

pursuant to the leases.    Resource Information North Brawley production is from deltaic and marine sedimentary sands and sandstones deposited in the subsiding Salton Trough of the

Imperial Valley. Based on seismic refraction surveys the total thickness of these sediments in the Brawley area is over 15,000 feet. The shallow production reservoir (from depths of 1,500 to 4,500 feet) that was developed is fed by fractures and matrix permeability and is conductively heated from the underlying fractured reservoir which convectively circulates magmatically heated fluid. Produced fluid salinity ranges from 20,000 to 50,000 ppm, and the moderate scaling and corrosion potential is chemically inhibited. The temperature of the deeper fractured reservoir fluids exceed 525 degrees Fahrenheit, but the fluid is not yet developed because of severe scaling and corrosion potential. The deep reservoir is not dedicated to the North Brawley power plant.

     The average produced fluid resource temperature is 335 degrees Fahrenheit.   Resource Cooling We have not observed a noticeable cooling.

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Sources of Makeup Water Water is provided by the IID.   Power Purchaser Southern California Edison   PPA Expiration Date 2031   Financing Corporate funds and ITC cash grant from the U.S. Treasury.    Supplemental Information Since the North Brawley power plant was placed in service in 2010, it has been much more difficult to operate its geothermal field than other

fields, and the power plant has been unable to reach its design capacity of 50 MW.      We plan to continue to sell the generated power from the North Brawley plant to Southern California Edison under the existing PPA at a

capacity level of approximately 18 MW. We intend to refrain from additional capital investment to expand the capacity and reduce the operational costs of the North Brawley power plant until further geological analysis is completed and/or a higher energy rate will be secured.

     During the fourth quarter of 2012, we recognized an impairment charge of $229.1 million for this plant.    OREG 1 Power Plant      Location Four gas compressor stations along the Northern Border natural gas pipeline in North and South Dakota.    Generating Capacity 22 MW   Number of Units Four   Technology The OREG 1 power plant utilizes our air cooled OEC units.    Major Equipment Four WHOH and four OEC units together with the Balance of Plant equipment.    Age The OREG 1 power plant commenced commercial operations in 2006.    Land Easement from NBPL.   Access to Property Direct access to the plant from public roads.   Power Purchaser Basin Electric Power Cooperative   PPA Expiration Date 2031   Financing Corporate funds.   Supplemental Information In February 2015, we signed a definitive agreement with Northleaf under which we established a new company, ORPD LLC, that will own Puna

Complex, Don A. Campbell, OREG 1, OREG 2, OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. The agreements will be in effect at closing expected in the first quarter of 2015, subject to customary closing conditions. Discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”.

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OREG 2 Power Plant      Location Four gas compressor stations along the Northern Border natural gas pipeline; one in Montana, two in North Dakota, and one in Minnesota.    Generating Capacity 22 MW   Number of Units Four   Technology The OREG 2 power plant utilizes our air cooled OEC units.    Major Equipment Four WHOH and four OEC units together with the Balance of Plant equipment.    Age The OREG 2 power plant commenced commercial operations during 2009.    Land Easement from NBPL.   Access to Property Direct access to the plant from public roads.   Power Purchaser Basin Electric Power Cooperative   PPA Expiration Date 2034   Financing Corporate funds.   Supplemental Information In February 2015, we signed a definitive agreement with Northleaf under which we established a new company, ORPD LLC, that will own Puna

Complex, Don A. Campbell, OREG 1, OREG 2, OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. The agreements will be in effect at closing expected in the first quarter of 2015, subject to customary closing conditions. Discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”

   OREG 3 Power Plant      Location A gas compressor station along Northern Border natural gas pipeline in Martin County, Minnesota.    Generating Capacity 5.5 MW   Number of Units One   Technology The OREG 3 power plant utilizes our air cooled OEC units.    Major Equipment One WHOH and one OEC unit along with the Balance of Plant equipment.    Age The OREG 3 power plant commenced commercial operations during 2010.    Land Easement from NBPL.   Access to Property Direct access to the plant from public roads.   Power Purchaser Great River Energy   PPA Expiration Date 2029   Financing Corporate funds.   Supplemental Information In February 2015, we signed a definitive agreement with Northleaf under which we established a new company, ORPD LLC, that will own Puna

Complex, Don A. Campbell, OREG 1, OREG 2, OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. The agreements will be in effect at closing expected in the first quarter of 2015, subject to customary closing conditions. Discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”

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OREG 4 Power Plant      Location A gas compressor station along natural gas pipeline in Denver, Colorado.    Generating Capacity 3.5 MW   Number of Units One   Technology The OREG 4 power plant utilizes our air cooled OEC units.   Major Equipment Two WHOH and one OEC unit together with the Balance of Plant Equipment.    Age The OREG 4 power plant commenced commercial operations during 2009.    Land Easement from Trailblazer Pipeline Company.   Access to Property Direct access to the plant from public roads.   Power Purchaser Highline Electric Association   PPA Expiration Date 2029   Financing Corporate funds.   Supplemental Information The OREG 4 power plant was tested for impairment in the third quarter of 2012 due to continued low run time of the compressor station that

serves as its heat source, which resulted in low power generation and revenue.      As a result, during the third quarter of 2012 we recognized an impairment charge of $7.3 million for this plant.     Ormesa Complex      Location East Mesa, Imperial County, California   Generating Capacity 54 MW   Number of Power Plants Four (OG I, OG II, GEM 2 and GEM 3)   Technology The OG plants utilize a binary system and the GEM plants utilize a flash system. The complex uses a water cooling system.    Subsurface Improvements 31 production wells and 53 injection wells connected to the plants through a gathering system.    Material Major Equipment 32 OEC units and two steam turbines with the Balance of Plant equipment.    Age The various OG I units commenced commercial operations between 1987 and 1989, and the OG II plant commenced commercial operation in 1988.

Between 2005 and 2007 a significant portion of the old equipment in the OG plants was replaced (including turbines through repowering). The GEM plants commenced commercial operation in 1989, and a new bottoming unit was added in 2007.

   Land and Mineral Rights The total Ormesa area is comprised of BLM leases. The leases are held by production. The scheduled expiration dates for all of these leases are

after the end of the expected useful life of the power plants.      The complex’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant

to the leases.

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Resource Information The resource temperature is an average of 304 degrees Fahrenheit. Production is from sandstones.      Productive sandstones are between 1,800 and 6,000 feet, and have only matrix permeability. The currently developed thermal anomaly was

created in geologic time by conductive heating and direct outflow from an underlying convective fracture system. Produced fluid salinity ranges from 2,000 ppm to 13,000 ppm, and minor scaling and corrosion potential is chemically inhibited.

   Resource Cooling One degree Fahrenheit per year was observed during the past 20 years of production.    Sources of Makeup Water Water is provided by the IID.   Power Purchaser Southern California Edison under a single PPA.   PPA Expiration Date 2018   Financing OFC Senior Secured Notes and ORTP Transaction.     Puna Complex      Location Puna district, Big Island, Hawaii   Generating Capacity 38 MW   Number of Power Plants Two   Technology The Puna plants utilize our geothermal combined cycle and binary systems. The plants use an air cooled system.    Subsurface Improvements Five production wells and four injection wells connected to the plants through a gathering system.    Major Equipment One plant consists of ten OEC units made up of ten binary turbines, ten steam turbines and two bottoming units along with the Balance of Plant

equipment. The second plant consists of two OEC units along with Balance of Plant equipment.    Age The first plant commenced commercial operations in 1993. The second plant was placed in service in 2011 and commenced commercial operation

in 2012.    Land and Mineral Rights The Puna area is comprised of a private lease. The private lease is between PGV and KLP and it expires in 2046. PGV pays an annual rental

payment to KLP, which is adjusted every five years based on the CPI.      The state of Hawaii owns all mineral rights (including geothermal resources) in the state. The state has issued a Geothermal Resources Mining

Lease to KLP, and KLP in turn has entered into a sublease agreement with PGV, with the state’s consent. Under this arrangement, the state receives royalties of approximately three percent of the gross revenues.

   Access to Property Direct access to the leased property is readily available via county public roads located adjacent to the leased property. The public roads are at

the north and south boundaries of the leased property.    Resource Information The geothermal reservoir at Puna is located in volcanic rock along the axis of the Kilauea Lower East Rift Zone. Permeability and productivity are

controlled by rift-parallel subsurface fissures created by volcanic activity. They may also be influenced by lens-shaped bodies of pillow basalt which have been postulated to exist along the axis of the rift at depths below 7,000 feet.

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  The distribution of reservoir temperatures is strongly influenced by the configuration of subsurface fissures and temperatures are among the hottest of any geothermal field in the world, with maximum measured temperatures consistently above 650 degrees Fahrenheit.

     Resource Cooling The resource temperature is stable.     Power Purchaser Three PPAs with HELCO (see “Supplemental Information” below).      PPA Expiration Date 2027     Financing Operating Lease and ITC cash grant from the U.S. Treasury.     Supplemental Information Following the Hurricane Iselle that hit the Big Island of Hawaii in August 2014, we were required to temporarily shut down our Puna power plant.

As a result, one of the production wells did not fully recover and the plant lost approximately 5MW. We started the drilling of a sixth production well and the conversion of one of the drilled wells into an injection well.

       The pricing for the energy that is sold from the Puna complex is as follows:       • For the first on-peak 25 MW, the energy price has not changed from HELCO avoided cost.        • For the next on-peak 5 MW, the price has changed from a diesel-based price to a flat rate of 11.8 cents per kWh escalated by 1.5% per year.       • For the new on-peak 8 MW, the price is 9 cents per kWh for up to 30,000 MWh/year and 6 cents per kWh above 30,000 MWh/year,

escalated by 1.5% per year.        • For the first off-peak 22 MW the energy price has not changed from avoided cost.        The off-peak energy above 22 MW is dispatchable:        1. For the first off-peak 5 MW, the price has changed from diesel-based price to a flat rate of 11.8 cents per kWh escalated by 1.5% per year.        2. For the energy above 27 MW (up to 38 MW) the price is 6 cents per kWh, escalated by 1.5% per year.        The capacity payment for the first 30 MW remains the same ($160 kW/year for the first 25 MW and $100.95 kW/year for the additional 5 MW).

For the new 8MW power plant the annual capacity payment is $2 million.       We signed a definitive agreement with Northleaf under which we established a new company, ORPD LLC, that owns Puna Complex, Don A.

Campbell, OREG 1, OREG 2, OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. The agreements will be in effect at closing expected in the first quarter of 2015, subject to customary closing conditions. Discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”.

     Steamboat Complex          Location Steamboat, Washoe County, Nevada     Generating Capacity 73 MW     Number of Power Plants Six (Steamboat 2 and 3, Burdette (Galena 1), Steamboat Hills, Galena 2 and Galena 3).

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Technology The Steamboat complex utilizes a binary system (except for Steamboat Hills, which utilizes a single flash system). The complex uses air and water cooling systems.

   Subsurface Improvements 24 production wells and nine injection wells connected to the plants through a gathering system. We intend to tie into the plant in 2015 one new

production well and one new injection well that were drilled in 2014.    Major Equipment 10 individual air cooled OEC units and one steam turbine together with the Balance of Plant Equipment.    Age The power plants commenced commercial operation in 1992, 2005, 2007 and 2008. During 2008, the Rotoflow expanders at Steamboat 2 and 3 were

replaced with four turbines manufactured by us.    Land and Mineral Rights The total Steamboat area is comprised of 41% private leases, 41% BLM leases and 18% private land owned by us. The leases are held by

production. The scheduled expiration dates for all of these leases are after the end of the expected useful life of the power plants.      The complex’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.     We have easements for the transmission lines we use to deliver power to our power purchasers.   Resource Information The resource temperature is an average of 285 degrees Fahrenheit.      The Steamboat geothermal field is a typical basin and range geothermal reservoir. Large and deep faults that occur in the rocks allow circulation

of ground water to depths exceeding 10,000 feet below the surface. Horizontal zones of permeability permit the hot water to flow eastward in an out-flow plume.

     The Steamboat Hills and Galena 2 power plants produce hot water from fractures associated with normal faults. The rest of the power plants

acquire their geothermal water from the horizontal out-flow plume.     The water in the Steamboat reservoir has a low total solids concentration. Scaling potential is very low unless the fluid is allowed to flash which

will result in calcium carbonate scale. Injection of cooled water for reservoir pressure maintenance prevents flashing.   Resource Cooling Historically, the resource temperature declined at two degrees Fahrenheit per year, however, since the expansion of the complex, the rate of

decline has been approximately five degrees Fahrenheit per year (see “Supplemental Information” below).    Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant

to the leases.    Sources of Makeup Water Water is provided by condensate and the local utility.    Power Purchaser Sierra Pacific Power Company (for Steamboat 2 and 3, Burdette (Galena1), Steamboat Hills, and Galena 3) and Nevada Power Company (for

Galena 2).    PPA Expiration Date Steamboat 2 and 3 — 2022, Burdette (Galena1) — 2026, Steamboat Hills — 2018, Galena 3 — 2028, and Galena 2 — 2027.    Financing OFC Senior Secured Notes and ORTP Transaction (Steamboat 2 and 3, and Burdette (Galena1)) and OPC Transaction (Steamboat Hills, Galena 2,

and Galena 3)

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Supplemental information In an attempt to increase the output of the plant we have acquired land adjacent to the complex and are evaluating a resource development program on that land. Tracer tests and reservoir modeling showed that three injection wells were causing most of the cooling. We shut down these wells and a new injection well was drilled in 2014 in the new land which we expect will reduce the complex cooling. We are planning to further optimize the field in 2015 to reduce the cooling and maximize power output.

   Tuscarora Power Plant      Location Elko County, Nevada   Projected Generating Capacity 18 MW   Number of Power Plants One   Technology The Tuscarora power plant utilizes a water cooled binary system.    Subsurface Improvements Three production and six injection wells are connected to the power plant.    Major Equipment Two water cooled OEC units with the Balance of Plant equipment.    Age The power plant commenced commercial operation on January 11, 2012.    Land and Mineral Rights The Tuscarora area is comprised of private and BLM leases.      The leases are currently held by payment of annual rental payments, as described above in “Description of Our Leases and Lands”.     The plant’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.   Resource Information The Tuscarora geothermal reservoir consists of an area of approximately 2.5 square miles. The reservoir is contained in both Tertiary and

Paleozoic (basement) rocks. The Paleozoic section consists primarily of sedimentary rocks, overlain by tertiary volcanic rocks. Thermal fluid in the native state of the reservoir flows upward and to the north through apparently southward-dipping, basement formations. At an elevation of roughly 2,500 feet with respect to mean sea level, the upwelling thermal fluid enters the tertiary volcanic rocks and flows directly upward, exiting to the surface at Hot Sulphur Springs.

     The resource temperature averages 339 degrees Fahrenheit.   Resource Cooling We expect gradual decline in the cooling trend from two degrees Fahrenheit per year in the next two to three years, to less than one degree

Fahrenheit per year over the long term.    Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted in leases

from BLM.    Sources of Makeup Water Water is provided from five water makeup wells.    Power Purchaser Nevada Power Company   PPA Expiration Date 2032   Financing OFC 2 Senior Secured Notes and ITC cash grant from the U.S. Treasury.    Foreign Operating Power Plants         The following descriptions summarize certain industry metrics for our foreign operating power plants:

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Amatitlan Power Plant (Guatemala)     Location Amatitlan, Guatemala   Generating Capacity 20 MW   Number of Power Plants One   Technology The Amatitlan power plant utilizes an air cooled binary system and a small back pressure steam turbine (1 MW).    Subsurface Improvements Five production wells and two injection wells connected to the plants through a gathering system.    Major Equipment One steam turbine and two OEC units together with the Balance of Plant equipment.    Age The plant commenced commercial operation in 2007.    Land and Mineral Rights Total resource concession area (under usufruct agreement with INDE) is for a term of 25 years from April 2003. Leased and company owned

property is approximately three percent of the concession area. Under the agreement with INDE, the power plant company pays royalties of 3.5% of revenues up to 20.5 MW and two percent of revenues exceeding 20.5 MW.

     The generated electricity is sold at the plant fence. The transmission line is owned by INDE.   Resource Information The resource temperature is an average of 524 degrees Fahrenheit.      The Amatitlan geothermal area is located on the north side of the Pacaya Volcano at approximately 5,900 feet above sea level.     Hot fluid circulates up from a heat source beneath the volcano, through deep faults to shallower depths, and then cools as it flows horizontally

to the north and northwest to hot springs on the southern shore of Lake Amatitlan and the Michatoya River Valley.   Resource Cooling Approximately two degrees Fahrenheit per year.    Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant

to the lease agreement.    Power Purchasers INDE and another local purchaser.   PPA Expiration Date The PPA with INDE expires in 2028.   Financing Senior secured project loan from TCW Global Project Fund II, Ltd., which we repaid in full in September 2014. Currently, we are looking to

finance the project with financial institution.    Olkaria III Complex (Kenya)      Location Naivasha, Kenya   Generating Capacity 110 MW   Number of Power Plants Four (Olkaria III Phase 1 and Olkaria III Phase 2, together Plant 1, Plant 2 and Plant 3).    Technology The Olkaria III complex utilizes an air cooled binary system.

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Subsurface Improvements 16 production wells and four injection wells connected to the plants through a gathering system.    Major Equipment 11 OEC units together with the Balance of Plant equipment.    Age Plant 3 commenced commercial operation in January 2014 and plant 2 in April 2013. The first phase of Plant 1commenced operation in 2000 and

the second phase in 2009.    Land and Mineral Rights The total Olkaria III area is comprised of government leases. A license granted by the Kenyan government provides exclusive rights of use and

possession of the relevant geothermal resources for an initial period of 30 years, expiring in 2029, which initial period may be extended for two additional five-year terms. The Kenyan Minister of Energy has the right to terminate or revoke the license in the event work in or under the license area stops during a period of six months, or there is a failure to comply with the terms of the license or the provisions of the law relating to geothermal resources. Royalties are paid to the Kenyan government monthly based on the amount of power supplied to the power purchaser and an annual rent.

     The power generated is purchased at the metering point located immediately after the power transformers in the 220 kV sub-station within the

power plant, before the transmission lines which belong to the utility.   Resource Information The resource temperature is an average of 570 degrees Fahrenheit.      The Olkaria III geothermal field is on the west side of the greater Olkaria geothermal area located at approximately 6,890 feet above sea level

within the Rift Valley.     Hot geothermal fluids rise up from deep in the northeastern portion of the concession area, penetrating a low permeability zone below 3,280 feet

above sea level to a high productivity, two-phase zone identified between 3,280 and 4,270 feet ASL.    Resource Cooling The resource temperature is stable.   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant

to the lease agreement.    Power Purchaser KPLC   PPA Expiration Date 2033   Financing Senior secured project finance loan from OPIC and a subordinated loan from DEG.    Supplemental Information We recently signed an amended and restated PPA with KPLC, Under the terms of the PPA, we expect to increase the generating capacity of the

complex by 24 MW, bringing the complex’s total capacity to 134 MW. The fourth plant is expected to come on line in the second half of 2016 and to sell electricity under a 20 years PPA with KPLC

    Zunil Power Plant (Guatemala)      Location Zunil, Guatemala   Generating Capacity 24 MW   Number of Power Plants One   Technology The Zunil power plant utilizes an air cooled binary system.

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Subsurface Six production wells and two injection wells are connected to the plant through a gathering system.    Major Equipment Seven OEC units together with the Balance of Plant equipment.    Age The plant commenced commercial operation in 1999.    Land and Mineral Rights The land owned by the plant includes the power plant, workshop and open yards for equipment and pipes storage.      Pipelines for the gathering system transit through a local agricultural area’s right of way acquired by us.     The geothermal wells and resource are owned by INDE.     Our produced power is sold at our property line; power transmission lines are owned and operated by INDE.   Resource Information The Zunil geothermal reservoir is hosted in Tertiary volcanic rocks which include overly fractured granodiorite. Production wells produce a

reservoir from 536-572 degrees Fahrenheit to a depth of approximately 2,860-4,300 feet. A shallow steam cap exists in the production area of the field, and most of the wells produce high enthalpy fluid due to the presence of two-phase conditions in their feed zones. The wells target northwest- and northeast-trending fractures for permeability. These fractures are also thought to control upwelling from the volcanically-heated source. The upwelling fluids form a steam cap, and fluids and steam reach the surface along fractures, forming springs and fumaroles throughout the geothermal field.

   Resource Cooling The resource temperature is stable.    Access to Property Direct access to public roads.    Power Purchaser INDE   PPA Expiration Date 2034    Supplemental Information In January 2014, we signed an amendment with INDE to extend the term of the PPA by 15 years until 2034.      The PPA amendment also transfers operation and management responsibilities of the Zunil geothermal field from INDE to Ormat for the term of

the amended PPA in exchange for an increase in tariff. Additionally, INDE exercised its right under the PPA to become a partner in the Zunil power plant and to hold a three percent equity interest.

      Currently, the power plant generates approximately 9.5 MW due to lack of sufficient geothermal resource supply. We plan to improve the heat

supply to gradually increase generation, subject to monitoring and assessment of the geothermal reservoir. We expect that this improvement and the increase in tariff will increase the energy portion of revenues. We plan to drill a new production well in 2015 that we expect will increase output by 5 MW to 10 MW.

      According to the PPA amendment, payments for the Zunil plant will be made as follows:

  1. Capacity payment:            a. Until 2019, the capacity payment will be calculated based on 24 MW capacity regardless of the actual performance of the power plant.            b. From 2019 and onwards, the capacity payment will be based on actual delivered capacity and the capacity rate will be reduced.

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  Projects under Construction   

We are in varying stages of construction of projects, some of them we fully released and are in different stages of construction and two projects are each in an initial stage of construction.  

The following is a description of projects in Nevada, Kenya and Indonesia with an expected total generating capacity of approximately 86 MW that were released and are in different stages of construction.  

   

 

  2. Energy payment:            a. From January 2014 until 2034, the energy payment will include a geothermal field O&M rate based on actual delivered energy in addition

to the energy rate on actual delivered energy.            b. From 2019 and onwards, the energy rate on delivered energy will increase and will compensate the reduction in capacity price.

Don. A. Campbell Phase 2 (U.S.)      Location Mineral County, Nevada   Projected Generating Capacity 19 MW   Projected Technology  Phase 2 power plant will utilize a binary system.    Condition Field development and construction have begun    Land and Mineral Rights The Don A. Campbell area is comprised of BLM leases.      Since we declared commercial operation of Don A. Campbell phase 1, the leases are held by production, as described above in “Description of

Our Leases and Lands”.     The project’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in

“Description of Our Leases and Lands”.   Resource Information The Don A. Campbell geothermal reservoir consists of highly fractured, silicified alluvium over at least two square miles. Production and

injection are very shallow with five pumped production wells (from depths of 1,350 to 1,900 feet) and three injection wells (from depths of 649 to 2,477 feet), all targeting northwest-dipping fractures. The thermal fluids are thought to be controlled by a combination of conductive heat transfer from deeper bedrock and through mixing of upwelling thermal fluids from a deeper geothermal system also contained in the bedrock. The system is considered blind with no surface expression of thermal features.

   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted in leases

from BLM.    Power Purchaser The PPA for this power plant is in approval process of the off-taker    Financing Corporate funds    Projected Operation First quarter-2016    Supplemental Information In February 2015, we signed a definitive agreement with Northleaf under which we established a new company, ORPD LLC, that will own Puna

Complex, Don A. Campbell, OREG 1, OREG 2, and OREG 3 power plants and Northleaf will acquire an approximately 40% equity interest in ORPD LLC. Once Don A. Campbell phase 2 is completed and tested it will be added to ORPD LLC at a price agreed upon with Northleaf. The agreements will be in effect at closing expected in the first quarter of 2015, subject to customary closing conditions. The agreements are discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ORPD transaction”.

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Olkaria III – Plant 4 (Kenya)       Location Naivasha, Kenya    Projected Generating Capacity 24MW    Projected Technology Plant 4 will utilize an air cooled binary system.    Condition Field development of Plant 4 is in its final stage and site construction has started    Subsurface Improvement Two new production wells are planned to be drilled.    Land and Mineral Rights The total Olkaria III area is comprised of government leases. See description above under “Olkaria III Complex”.    Resource Information The Olkaria III geothermal field is on the west side of the greater Olkaria geothermal area located within the Rift Valley at approximately 6,890 feet

above sea level.      Hot geothermal fluids rise up from deep in the northeastern portion of the concession area through low permeability at a shallow depth to a high

productivity two-phase region from 3,280 to 4,270 feet above sea level.   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant

to the lease agreement.    Power Purchaser 20 years from COD of Plant 4.    Financing Corporate finance    Projected Operation Second half of 2016    Supplemental Information We amended and restated the existing PPA with KPLC. The amended and restated PPA provides for the construction of a new 24 MW power

plant bringing the complex's total capacity to 134 MW. Two new production wells are planned to be drilled.    Sarulla (Indonesia)     Location Tapanuli Utara North Sumatra, Indonesia. One site is located in Silangkitan (SIL) and the two other sites in Namura I Langit (NIL) area.   Ownership Sarulla Operation LTD (SOL) is a consortium consists of Medco Energi Internasional Tbk,Itochu Corporation, Kyushu Electric Power Co. Inc.,

and one of our wholly owned subsidiaries that hold 12.75% interest.   Projected Generating Capacity Approximately 330 MW   Projected Technology Integrated Geothermal Combined Cycle Unit comprised of 3 back pressure steam turbines and 18 OEC units.    Condition Field development is ongoing. Engineering, procurement and Construction are in progress. Infrastructure work has completed.    Land and Mineral Rights All land for the project was acquired.   Resource Information Two field areas, NIL and SIL host a liquid-dominated system. Previously drilled wells have temperatures from 275°C to 310°C. Flow tests of the

first SOL partnership well, N2n-1, predict 22 NMW single well capacity with 751 T/hr total flow and 125 T/hr steam flow at 12.5 bar and 1126 kJ/kg. Both fields are within a tectonic half graven adjacent to the Great Sumatran Fault. In addition to highly encouraging drilling results, extensive surface manifestations, including fumaroles, boiling hot springs, and alteration, highlight an extensive area of productivity.

   Access to Property Access to property for the project has been secured   Power Purchaser 30-year Energy Sales Contract with PT PLN (the state electric utility)    Financing In May, 2014, the consortium reached financial closing of $1.17 billion to finance the development of the project with a consortium of lenders

comprised of Japan Bank for International Cooperation (“JBIC”), the Asian Development Bank and six commercial banks and obtained construction and term loan under limited recourse financing package backed by political risk guarantee from JBIC. 

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Projected Operation The project will be constructed in three phases of approximately 110 MW each, utilizing both steam and brine extracted from the geothermal field to increase the power plant’s efficiency. The first phase of operations is expected to commence in 2016 and the remaining two phases of operations are scheduled to commence within 18 months thereafter.

   Supplemental Information The Sarulla project will be owned and operated by the consortium members under the framework of a JOC and ESC. Under the JOC, PT Pertamina

Geothermal Energy (PGE), the concession holder for the project, has provided the consortium with the right to use the geothermal field, and under the ESC, PT PLN, the state electric utility, will be the off-taker at Sarulla for a period of 30 years. 

     In addition to our equity holdings in the consortium, we designed the Sarulla plant and will supply our OECs to the power plant.

The following is a description of projects in California and Nevada with an expected total generating capacity of 50 MW that are each in an initial stage of construction:     Carson Lake Project (U.S.)       Location Churchill County, Nevada   Projected Generating Capacity 20 MW   Projected Technology The Carson Lake power plant will utilize a binary system.    Condition Initial stage of construction; currently on hold.    Subsurface Improvements On hold.    Land and Mineral Rights The Carson Lake area is comprised of BLM leases.      The leases are currently held by the payment of annual rental payments, as described above in “Description of Our Leases and Lands.”     Unless steam is produced in commercial quantities, the primary term for these leases will expire commencing August 31, 2016.

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    Projects under Various Stages of Development   We also have projects under various stages of development in the United States, Kenya, and Honduras. We expect to continue to explore these and other opportunities for expansion so

long as they continue to meet our business objectives and investment criteria.  

 

  The project’s rights to use the geothermal and surface rights under the leases are subject to various conditions, as described above in “Description of Our Leases and Lands”.

   Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted in leases

from BLM.    Resource Information The expected average temperature of the resource cannot be estimated as field development has not been completed yet.    Power Purchaser We have not executed a PPA.   Financing Corporate funds.   Projected Operation To be determined.   Supplemental Information Permitting documentation for the power plant was completed; however, we are still experiencing delays in the permitting process for the

transmission line.     CD4 Project (Mammoth Complex) (U.S.)       Location Mammoth Lakes, California   Projected Generating Capacity 30 MW   Projected Technology The CD4 power plant will utilize an air cooled binary system.    Condition Initial stage of construction.     Subsurface Improvements We have completed one production well and one injection well. Continued drilling is subject to receipt of additional permits.    Land and Mineral Rights The total Mammoth area is comprised mainly of BLM leases, which are held by production and are the subject of a unitization agreement.    Access to Property Direct access to public roads from the leased property and access across the leased property are provided under surface rights granted pursuant

to the leases.    Resource Information The expected average temperature of the resource cannot be estimated as field development has not been completed yet.    Power Purchaser We have not executed a PPA.   Financing Corporate funds.   Projected Operation To be determined.   Supplemental Information As part of the process to secure a transmission line, we are participating in the Southern California Edison Wholesale Distribution Access Tariff

Transition Cluster Generator Interconnection Process (WDAT LGIA) to deliver energy into the Southern California Edison system at the Casa Diablo Substation. Southern California Edison completed phase I and phase II cluster studies and the WDAT LGIA is being reviewed while re-evaluation of the system upgrades is being completed due to changes in the participants in the cluster study.

    Future Projects   

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   The following is a description of the projects currently under various stages of development and for which we are able to estimate their expected generating capacity. Upon completion of

these projects, the generating capacity of the geothermal projects would be up to approximately 58 MW (representing our interest). However, we prioritize our investments based on their readiness for continued construction and expected economics and therefore we are not planning to invest in all of such projects in 2015.

  e-Bay REG Project (U.S.)    In September 2013, we entered a Joint Development Agreement with eBay Inc. The Joint Development Agreement allows Ormat and eBay Inc. to advance negotiations on a 20-year term

contract and begin preliminary development work to supply cleaner electricity to eBay Inc.'s new Salt Lake City-based data center.  

Platanares Project (Honduras)   In December 2013, we completed the asset acquisition of the Geotérmica Platanares geothermal project in Honduras from ELCOSA, a privately owned Honduran energy company, upon

satisfaction of the required conditions precedent. We will hold the assets, including the project’s wells, land, permits and a PPA for up to 35 MW with ENEE, the national utility of Honduras, under a BOT structure for 15 years from commercial operation of the first phase. Under certain circumstances the agreement can be extended by up to one year.

  Platanares is a late-stage development geothermal project whose previous owners conducted exploration work. Once the well field is appraised, we will determine the expected capacity

and begin construction on the first phase anticipated to be approximately 18 MW and to reach commercial operation in 2017.   Menengai Project (Kenya)

  On November 3, 2014, our majority owned Kenyan subsidiary (the Project Company) owned by Ormat (51%), Symbion Power LLC (24.5%) and Civicon Ltd. (24.5%),signed a 25-year PPA

with Kenya Power and Lightning Co. Ltd. (KPLC) and a project implementation and steam supply agreement (PISSA) with Geothermal Development Company (GDC) for the 35MW Menengai geothermal project in Kenya.  

 

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   Under the PISSA agreement, the Project Company will finance, design, construct, install, operate and maintain the Menengai steam plant on a build-own-operate (BOO) basis for 25 years.

GDC, which is wholly owned by the Government of Kenya, will develop the geothermal resource, supply the steam for conversion to electricity and maintain the geothermal field through the term of the agreement. The Project Company expects to start construction upon financial closing.

   Exploration Prospects

  We have a substantial land position that is expected to support future development on which we have started or plan to start exploration activity. Our land position is comprised of

various leases and private land for geothermal resources of approximately 284,678 acres in 27 prospects including the following:  

Nevada [12]  

   California [4]  

  Hawaii [3]  

  Oregon [3]  

   

 

1. Aqua Quieta Completed exploration studies; 2. Argenta Under exploration studies; 3. Baltazar Completed exploration studies; 4. Beowawe Under exploration studies; 5. Dixie Hope Under exploratory drilling

  6.    Edwards Creek Under exploratory drilling;           7.   Hycroft Under exploration studies;           8.   North Valley Under exploration studies;           9.   South Jersey Lease acquired but no further action has yet been taken;           10.   Trinity Under exploration studies;            11.   Tungsten Mountain Under exploratory drilling; and           12.   Tuscarora Completed exploration studies.

1. East and North Brawley Deep resource lease acquired but no further action has yet been taken; 2. Glamis Lease acquired but no further action has yet been taken; 3. Rhyolite Plateau Lease acquired but no further action has yet been taken; and 4. Truckhaven Under exploration studies.

1.  Kona Under exploration studies. 2. Kula Lease acquired but no further action has yet been taken; and 3. Ulupalakua (Maui) Completed exploration studies.

1. Glass Buttes — Midnight Point Started exploratory drilling; 2. Newberry — Twilight Started exploratory drilling; and 3. Lakeview/ Goose Lake Completed exploration studies.

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  Utah [1]  

  New Mexico [1]  

  Guatemala [2]  

  New Zealand [1]  

  In addition, we have exploration concessions for geothermal resources of approximately 144,000 acres in the following prospects:

  Chile [3]  

  We also have an option to enter into geothermal leases covering more than 44,000 acres under a lease option agreement with Weyerhaeuser Company and agreement to conduct

exploration activity at Warm Springs Tribe. We are currently exploring the following prospects:  

Oregon [2]  

  Operations of our Product Segment

  Power Units for Geothermal Power Plants. We design, manufacture, and sell power units for geothermal electricity generation, which we refer to as OECs. Our customers include

contractors and geothermal plant owners and operators.  

The consideration for the power units is usually paid in installments, in accordance with milestones set in the supply agreement. Sometimes we agree to provide the purchaser with spare parts (or alternatively, with a non-exclusive license to manufacture such parts). We provide the purchaser with at least a 12-month warranty for such products. We usually also provide the purchaser (often, upon receipt of advances made by the purchaser) with a guarantee, which expires in part upon delivery of the equipment to the site and fully expires at the termination of the warranty period. The guarantees are typically supported by letters of credit.

  Power Units for Recovered Energy-Based Power Generation. We design, manufacture, and sell power units used to generate electricity from recovered energy or so-called “waste heat”.

Our existing and target customers include interstate natural gas pipeline owners and operators, gas processing plant owners and operators, cement plant owners and operators, and other companies engaged in other energy-intensive industrial processes. We have two different business models for this product line.

 

   

 

1. Whirlwind Valley Under exploration studies.

1. Rincon Completed exploration studies.

1. Amatitlan Phase II Exploration studies underway and are subject to acquisition of additional land; and 2. Tecumburu Under exploration studies.

1. Tikitere Signed BOT agreement; exploratory drilling is pending resource consent acceptance

1. Mariman Under exploration studies; 2. Quinohuen Under exploration studies; and 3. Sollipulli Under exploration studies.

1. Winema Started exploration studies; and 2. Warm Springs Tribe Started exploration studies.

 

● The first business model, which is similar to the model utilized in our geothermal power generation business, consists of the development, construction, ownership, and operation of recovered energy-based generation power plants. In this case, we will enter into agreements to purchase industrial waste heat, and enter into long-term PPAs with off-takers to sell the electricity generated by the REG unit that utilizes such industrial waste heat. The power purchasers in such cases generally are investor-owned electric utilities or local electrical cooperatives.

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    Remote Power Units and other Generators. We design, manufacture and sell fossil fuel powered turbo-generators with a capacity ranging between 200 watts and 5,000 watts, which

operate unattended in extreme hot or cold climate conditions. The remote power units supply energy for remote and unmanned installations and along communications lines and cathodic protection along gas and oil pipelines. Our customers include contractors installing gas pipelines in remote areas. In addition, we manufacture and sell generators for various other uses, including heavy duty direct current generators. The terms of sale of the turbo-generators are similar to those for the power units produced for power plants.

  EPC of Power Plants. We engineer, procure and construct, as an EPC contractor, geothermal and recovered energy power plants on a turnkey basis, using power units we design and

manufacture. Our customers are geothermal power plant owners as well as the same customers described above that we target for the sale of our power units for recovered energy-based power generation. Unlike many other companies that provide EPC services, we have an advantage in that we are using our own manufactured equipment and thus have better control over the timing and delivery of required equipment and its costs. The consideration for such services is usually paid in installments, in accordance with milestones set in the EPC contract and related documents. We usually provide performance guarantees or letters of credit securing our obligations under the contract. Upon delivery of the plant to its owner, such guarantees are replaced with a warranty guarantee, usually for a period ranging from 12 months to 36 months. The EPC contract usually places a cap on our liabilities for failure to meet our obligations thereunder.

  In connection with the sale of our power units for geothermal power plants, power units for recovered energy-based power generation and remote power units and other generators, we

enter, from time to time, into sales agreements for the marketing and sale of such products pursuant to which we are obligated to pay commissions to such representatives upon the sale of our products in the relevant territory covered by such agreements by such representatives or, in some cases, by other representatives in such territory.

  Our manufacturing operations and products are certified ISO 9001, ISO 14001, American Society of Mechanical Engineers, and TÜV, and we are an approved supplier to many electric

utilities around the world.  

Backlog   We have a product backlog of approximately $325.8 million as of February 26, 2015, which includes revenues for the period between January 1, 2015 and February 19, 2015, compared to

$165.0 million as of February 26, 2014, which included revenues for the period between January 1, 2014 and February 15, 2014.  

The following is a breakdown of the Product Segment backlog as of February 26, 2015 (dollars in millions):   

   

 

 ● Pursuant to the second business model, we construct and sell the power units for recovered energy-based power generation to third parties for use in “inside-the-fence” installations

or otherwise. Our customers include gas processing plant owners and operators, cement plant owners and operators and companies in the process industry.

 

Expected Completion of the Contract  

Sales Expected to be Recognized in 2015    

Sales Expected to be Recognized in the years

following 2015    

Expected Until End of Contract  

                         Geothermal 2017     148.7 - 156.9      130.9 - 139.1    $ 282.8 Recovered Energy 2016     18.2 - 19.3      3.2 - 4.3      22.5 Remote Power Units 2016     7.4 - 7.8      2.3 - 2.7      10.1 Other 2017     5.7 - 6.0      4.4 - 4.7      10.4 Total      180.0 - 190.0       140.8 - 150.8      325.8 

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  Competition

  In our Electricity Segment, we face competition from geothermal power plant owners and developers as well as other renewable energy providers.   In our Product Segment, we face competition from power plant equipment manufacturers or system integrators and from engineering or projects management companies.

  Electricity Segment

  Competition in the Electricity Segment is particularly marked in the very early stage of either obtaining the rights to the resource for the development of future projects or acquiring a site

already in a more advanced stage of development. Once we or other developers obtained such rights or own a power plant, competition is limited. From time to time and in different jurisdictions competing geothermal developers become our customers in the Product Segment.  

The main companies competing with us in the geothermal sector in the United States are CalEnergy, Calpine Corporation, Terra-Gen Power LLC, Enel Green Power S.p.A and other smaller-sized pure play developers. Outside the United States, in many cases our competitors are companies that gained experience developing geothermal projects in their own countries and are now seeking to take this experience and develop geothermal projects in other countries. The main ones are Chevron Corporation, Energy Development Corporation (EDC) from the Philippines, Mighty River Power (MRP) and Contact Energy Limited from New Zealand, Origin Energy from Australia, Tata Group from India and Enel Green Power from Italy. Additionally, we see competition from small country specific companies. While the geothermal industry is characterized by high barriers to entry, national electric utilities or state-owned oil companies might also enter the market.

  In obtaining new PPAs, we also face competition from companies engaged in the power generation business from other renewable energy sources, such as wind power, biomass, solar

power and hydro-electric power. In the last few years, competition from the wind and solar power generation industries has increased significantly.   As a geothermal company, we are focused on niche markets where our site-specific and base load advantages can allow us to develop competitive projects.  

Product Segment   Our competitors among power plant equipment suppliers are divided into: high enthalpy and low enthalpy competitors. The main high enthalpy competitors are industrial steam turbine

manufacturers such as Mitsubishi Hitachi Power Systems, Fuji Electric Co., Ltd. and Toshiba of Japan, GE/Nuovo Pignone brand and Ansaldo Energia of Italy.  

The low enthalpy competitors are either binary systems manufacturers using the Organic Rankine Cycle such as Fuji Electric Co., Ltd of Japan, Atlas Copco Company, Exergy of Italy, and Mitsubishi Hitachi Power Systems (which acquired Turboden). While we believe that we have a distinct competitive advantage based on our accumulated experience and current worldwide share of installed binary generation capacity (which is in excess of 90%), an increase in competition, which we are currently experiencing, has started to impact our ability to secure new purchase orders from potential customers. The increased competition may also lead to a reduction in the prices that we are able to charge for our binary equipment, which in turn may impact our profitability.

  In the REG business, our competitors are other Organic Rankine Cycle manufacturers (such as GE and Mitsubishi/Turboden), manufactures that use Kalina technology (such as

Geothermal Energy Research & Development Co., Ltd in Japan), as well as other manufacturers of conventional steam turbines.   In the remote power unit business, we face competition from Global Thermoelectric, as well as from manufacturers of diesel generator sets and small wind and solar installations with

batteries.   Currently, none of our competitors compete with us in both the Electricity and the Product Segments.   When the proposed project is an EPC project we also compete with other service suppliers, such as project/engineering companies.

 

 

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   Customers

  All of our revenues from the sale of electricity in the year ended December 31, 2014 were derived from fully-contracted energy and/or capacity payments under long-term PPAs with

governmental and private utility entities. Southern California Edison, Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy), HELCO, and SCPPA accounted for 13.5%, 16.5%, 8.0% and 3.9% of revenues, respectively, for the year ended December 31, 2014. Based on publicly available information, as of December 31, 2014, the issuer ratings of Southern California Edison, HELCO, Sierra Pacific Power Company, Nevada Power Company, and SCPPA were as set forth below:

 

  The credit ratings of any power purchaser may change from time to time. There is no publicly available information with respect to the credit rating or stability of the power purchasers

under the PPAs for our foreign power plants.   Our revenues from the Product Segment are derived from contractors or owners or operators of power plants, process companies, and pipelines.  

Raw Materials, Suppliers and Subcontractors   In connection with our manufacturing activities, we use raw materials such as steel and aluminum. We do not rely on any one supplier for the raw materials used in our manufacturing

activities, as all of such raw materials are readily available from various suppliers.   We use subcontractors for some of the manufacturing for our products components and for construction activities of our power plants, which allows us to expand our construction and

development capacity on an as-needed basis. We are not dependent on any one subcontractor and expect to be able to replace any subcontractor, or assume such manufacturing and construction activities of our projects ourselves, without adverse effect to our operations.

  Employees

  As of December 31, 2014, we employed 1,095 employees, of which 471 were located in the United States, 515 were located in Israel and 109 were located in other countries. We expect that

future growth in the number of our employees will be mainly attributable to the purchase and/or development of new power plants.   None of our employees are represented by a labor union, and we have never experienced any labor dispute, strike or work stoppage. We consider our relations with our employees to be

satisfactory. We believe our future success will depend on our continuing ability to hire, integrate, and retain qualified personnel.  

In the United States, we currently do not have employees represented by unions recognized by the company under collective bargaining agreements. However, a union has filed a petition with the National Labor Relations Board (NLRB) in an attempt to organize our employees in our Puna complex in Hawaii. The NLRB ruled that a certification of representative should be issued. The Company appealed the NLRB decision and the matter is currently under litigation in the federal Court of Appeals for the Ninth Circuit in California.

  We have no collective bargaining agreements with respect to our Israeli employees. However, by order of the Israeli Ministry of Industry, Trade and Labor, the provisions of a collective

bargaining agreement between the Histadrut (the General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (which includes the Industrialists Association) may apply to some of our Israeli non-managerial, finance and administrative, and sales and marketing personnel. This collective bargaining agreement principally concerns cost of living increases, length of the workday, minimum wages and insurance for work-related accidents, annual and other vacation, sick pay, and determination of severance pay, pension contributions, and other conditions of employment. We currently provide such employees with benefits and working conditions which are at least as favorable as the conditions specified in the collective bargaining agreement.  

 

Issuer Standard & Poor’s Ratings Services Moody’s Investors Service Inc. Southern California Edison BBB+ (stable outlook) A2 (stable outlook) HELCO BBB- (Watch) Baa1(stable outlook) Sierra Pacific Power Company BBB+ (stable outlook) Baa1 (stable outlook) Nevada Power Company BBB+ (stable outlook) Baa1 (stable outlook) SCPPA A- (Negative outlook) Aa3 (stable outlook) Pacific, Gas and Electric BBB (Negative outlook) A3 (stable outlook)

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   Insurance

  We maintain business interruption insurance, casualty insurance, including flood, volcanic eruption and earthquake coverage, and primary and excess liability insurance, control of wells,

as well as customary worker’s compensation and automobile, marine transportation insurance and such other commercial insurance, if any, as is generally carried by companies engaged in similar businesses and owning similar properties in the same general areas or as may be required by any of our PPAs, or any lease, financing arrangement, or other contract. To the extent any such casualty insurance covers both us and/or our power plants, and any other person and/or plants, we generally have specifically designated as applicable solely to us and our power plants “all risk” property insurance coverage in an amount based upon the estimated full replacement value of our power plants (provided that earthquake, volcanic eruption and flood coverage may be subject to annual aggregate limits depending on the type and location of the power plant) and business interruption insurance in an amount that also varies from power plant to power plant.

  We generally purchase insurance policies to cover our exposure to certain political risks involved in operating in developing countries. Political risk insurance policies are generally

issued by entities which specialize in such policies, such as MIGA (a member of the World Bank Group), or by private sector providers, such as Lloyd Syndicates, Zurich Emerging Markets and other such companies. To date, all of our political risk insurance contracts are with the Multilateral Investment Guarantee Agency and with Zurich Emerging Markets. Currently we hold such insurance for all of our foreign power plants in operation, and for the Sarulla project, which is under construction. Such insurance policies generally cover, subject to the limitations and restrictions contained therein, approximately 90% of our losses derived from a specified governmental act, such as confiscation, expropriation, riots, and the inability to convert local currency into hard currency and, in certain cases, the breach of agreements with governmental entities.

  Regulation of the Electric Utility Industry in the United States

  The following is a summary overview of the electric utility industry and applicable federal and state regulations, and should not be considered a full statement of the law or all issues

pertaining thereto.  

PURPA   PURPA provides the owners of power plants certain benefits described below, if a power plant is a “Qualifying Facility”. A small power production facility is a Qualifying Facility if: (i) the

facility does not exceed 80 MW; (ii) the primary energy source of the facility is biomass, waste, renewable resources, or any combination thereof, and at least 75% of the total energy input of the facility is from these sources, and fossil fuel input is limited to specified uses; and (iii) the facility, if larger than one megawatt, has filed with FERC a notice of self-certification of qualifying status, or has filed with FERC an application for FERC certification of qualifying status, that has been granted. The 80 MW size limitation, however, does not apply to a facility if (i) it produces electric energy solely by the use, as a primary energy input, of solar, wind, waste or geothermal resources; and (ii) an application for certification or a notice of self-certification of qualifying status of the facility was submitted to the FERC prior to December 21, 1994, and construction of the facility commenced prior to December 31, 1999.

  FERC's regulations under PURPA exempt owners of small power production Qualifying Facilities that use geothermal resources as their primary source and other Qualifying Facilities that

are 30 MW or under in size from regulation under the PUHCA 2005, from many provisions of the FPA and from state laws relating to the financial, organization and rate regulation of electric utilities.

  With respect to the FPA, FERC's regulations under PURPA do not exempt from the rate provisions of the FPA sales of energy or capacity from Qualifying Facilities larger than 20 MW in

size that are made (a) pursuant to a contract executed after March 17, 2006 that is not a contract made pursuant to a state regulatory authority’s implementation of PURPA or (b) not pursuant to another provision of a state regulatory authority’s implementation of PURPA. The practical effect of these regulations is to require owners of Qualifying Facilities that are larger than 20 MW in size to obtain market-based rate authority from FERC if they seek to sell energy or capacity other than pursuant to a contract executed before March 17, 2006 pursuant to a state regulatory authority’s implementation of PURPA or pursuant to a provision of a state regulatory authority’s implementation of PURPA. Until that contract expires, is terminated or is materially modified, a Qualifying Facility, under a PURPA contract executed prior to March 17, 2006, will not be required to file for market based rates.  

 

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   In addition, PURPA and FERC’s regulations under PURPA require that electric utilities offer to purchase electricity generated by Qualifying Facilities at a rate based on the purchasing

utility’s incremental cost of purchasing or producing energy (also known as “avoided cost”). However, FERC's regulations under PURPA also allow FERC, upon request of a utility, to terminate a utility’s obligation to purchase energy from Qualifying Facilities upon a finding that Qualifying Facilities have nondiscriminatory access to either: (i) independently administered, auction-based day ahead, and real time markets for energy and wholesale markets for long-term sales of capacity; (ii) transmission and interconnection services provided by a FERC-approved regional transmission entity and administered under an open-access transmission tariff that affords nondiscriminatory treatment to all customers, and competitive wholesale markets that provide a meaningful opportunity to sell capacity and energy, including long and short term sales; or (iii) wholesale markets for the sale of capacity and energy that are at a minimum of comparable competitive quality as markets described in (i) and (ii) above. FERC regulations protect a Qualifying Facility’s rights under any contract or obligation involving purchases or sales that are entered into before FERC has determined that the contracting utility is entitled to relief from the mandatory purchase obligation. FERC has granted the request of California investor-owned utilities for a waiver of the mandatory purchase obligation for Qualifying Facilities larger than 20 MW in size.

  We expect that our power plants in the United States will continue to meet all of the criteria required for Qualifying Facilities under PURPA. However, since the Heber power plants have

PPAs with Southern California Edison that require Qualifying Facility status to be maintained, maintaining Qualifying Facility status remains a key obligation. If any of the Heber power plants loses its Qualifying Facility status our operations could be adversely affected. Loss of Qualifying Facility status would eliminate the Heber power plants’ exemption from the FPA and thus, among other things, the rates charged by the Heber power plants in the PPAs with Southern California Edison and SCPPA would become subject to FERC regulation. Further, it is possible that the utilities that purchase power from the power plants could successfully obtain a waiver of the mandatory-purchase obligation in their service territories. For example, the three California investor-owned utilities have received such a waiver from FERC for projects larger than 20 MW. If this occurs, the power plants’ existing PPAs will not be affected, but the utilities will not be obligated under PURPA to renew these PPAs or execute new PPAs upon the existing PPAs’ expiration.

  PUHCA

  Under PUHCA 2005, the books and records of a utility holding company, its affiliates, associate companies, and subsidiaries are subject to FERC and state commission review with

respect to transactions that are subject to the jurisdiction of either FERC or the state commission or costs incurred by a jurisdictional utility in the same holding company system. However, if a company is a utility holding company solely with respect to Qualifying Facilities, exempt wholesale generators, or foreign utility companies, it will not be subject to review of books and records by FERC under PUHCA 2005. Qualifying Facilities that make only wholesale sales of electricity are not subject to state commissions’ rate regulations and, therefore, in all likelihood would not be subject to any review of their books and records by state commissions pursuant to PUHCA 2005 as long as the Qualifying Facility is not part of a holding company system that includes a utility subject to regulation in that state.

  FPA

  Pursuant to the FPA the FERC has exclusive jurisdiction over the rates for most wholesale sales of electricity and transmission in interstate commerce. These rates may be based on a cost

of service approach or may be determined on a market basis through competitive bidding or negotiation. FERC's regulations under PURPA exempt owners of small power production Qualifying Facilities that use geothermal resources as their primary source and other Qualifying Facilities that are 30 MW or under in size from many provisions of the FPA. If any of the power plants were to lose its Qualifying Facility status, such power plant could become subject to the full scope of the FPA and applicable state regulations. The application of the FPA and other applicable state regulations to the power plants could require our power plants to comply with an increasingly complex regulatory regime that may be costly and greatly reduce our operational flexibility. Even if a power plant does not lose Qualifying Facility status, if a PPA with a power plant expires, is terminated or is materially modified, the owner of a Qualifying Facility power plant in excess of 20 MW will become subject to rate regulation under the Federal Power Act.

  If a power plant in the United States were to become subject to FERC’s ratemaking jurisdiction under the FPA as a result of loss of Qualifying Facility status and the PPA remains in effect,

the FERC may determine that the rates currently set forth in the PPA are not just and reasonable and may set rates that are lower than the rates currently charged. In addition, the FERC may require that the power plant refund a portion of amounts previously paid by the relevant power purchaser to such power plant. Such events would likely result in a decrease in our future revenues or in an obligation to disgorge revenues previously received from the power plant, either of which would have an adverse effect on our revenues.  

 

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   Moreover, the loss of the Qualifying Facility status of any of our power plants selling energy to Southern California Edison could also permit Southern California Edison, pursuant to the

terms of its PPA, to cease taking and paying for electricity from the relevant power plant and to seek refunds for past amounts paid. In addition, the loss of any such status would result in the occurrence of an event of default under the indenture for the OFC Senior Secured Notes and the OrCal Senior Secured Notes and hence would give the indenture trustee the right to exercise remedies pursuant to the indenture and the other financing documents.

   State Regulation

  Our power plants in California and Nevada, by virtue of being Qualifying Facilities that make only wholesale sales of electricity, are not subject to rate, financial and organizational

regulations applicable to electric utilities in those states. The power plants each sell or will sell their electrical output under PPAs to electric utilities (Sierra Pacific Power Company, Nevada Power Company, Southern California Edison or SCPPA). All of the utilities except SCPPA are regulated by their respective state public utilities commissions. Sierra Pacific Power Company and Nevada Power Company, which merged and are doing business as NV Energy, are regulated by the PUCN. Southern California Edison is regulated by the CPUC.

  Under Hawaii law, non-fossil generators are not subject to regulation as public utilities. Hawaii law provides that a geothermal power producer is to negotiate the rate for its output with

the public utility purchaser. If such rate cannot be determined by mutual accord, the PUCH will set a just and reasonable rate. If a non-fossil generator in Hawaii is a Qualifying Facility, federal law applies to such Qualifying Facility and the utility is required to purchase the energy and capacity at its avoided cost. The rates for our power plant in Hawaii are established under a long-term PPA with HELCO.

  Environmental Permits

  U.S. environmental permitting regimes with respect to geothermal projects center upon several general areas of focus. The first involves land use approvals. These may take the form of

Special Use Permits or Conditional Use Permits from local planning authorities or a series of development and utilization plan approvals and right of way approvals where the geothermal facility is entirely or partly on BLM or U.S. Forest Service lands. Certain federal approvals require a review of environmental impacts in conformance with the federal National Environmental Policy Act. In California, some local permit approvals require a similar review of environmental impacts under a state statute known as the California Environmental Quality Act. These federal and local land use approvals typically impose conditions and restrictions on the construction, scope and operation of geothermal projects.

  The second category of permitting focuses on the installation and use of the geothermal wells themselves. Geothermal projects typically have three types of wells: (i) exploration wells

designed to define and verify the geothermal resource, (ii) production wells to extract the hot geothermal liquids (also known as brine) for the power plant, and (iii) injection wells to inject the brine back into the subsurface resource. For example, in Nevada and on BLM lands, the well permits take the form of geothermal drilling permits for well installation. Approvals are also required to modify wells, including for use as production or injection wells. For all wells drilled in Nevada, a geothermal drilling permit must be obtained from the Nevada Division of Minerals. Those wells in Nevada to be used for injection will also require Underground Injection Control permits from the Nevada Division of Environmental Protection. Geothermal wells on private lands in California require drilling permits from the California Department of Conservation’s DOGGR. The eventual designation of these installed wells as individual production or injection wells and the ultimate closure of any wells is also reviewed and approved by DOGGR pursuant to a DOGGR-approved Geothermal Injection Program.

  A third category of permits involves the regulation of potential air emissions associated with the construction and operation of wells and power plants and surface water discharges

associated with construction and operations activities. Generally, each well and plant requires a preconstruction air permit and storm water discharge permit before earthwork can commence. In addition, in some jurisdictions the wells that are to be used for production require and those used for injection may require air emissions permits to operate. Internal combustion engines and other air pollutant emissions sources at the projects may also require air emissions permits. For our projects, these permits are typically issued at the state or county level. Permits are also required to manage storm water during project construction and to manage drilling muds from well construction, as well as to manage certain discharges to surface impoundments, if any.

  A fourth category of permits, that are required in both California and Nevada, includes ministerial permits such as building and permits hazardous materials storage and management

permits and pressure vessel operating permits. We are also required to obtain water rights permits in Nevada. In addition to permits, there are various regulatory plans and programs that are required, including risk management plans (federal and state programs) and hazardous materials management plans (in California).  

 

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   In some cases our projects may also require permits, issued by the applicable federal agencies or authorized state agencies, regarding threatened or endangered species, permits to impact

wetlands or other waters and notices of construction of structures which may have an impact on airspace. Environmental laws and regulations may change in the future, which may lead to increases in the time to receive such permits and associated costs of compliance.

  As of the date of this report, all of the material environmental permits and approvals currently required for our operating power plants have been obtained. We are currently experiencing

regulatory delays in obtaining various environmental permits and approvals required for projects in development and construction. These delays may lead to increases in the time and cost to complete these projects. Our operations are designed and conducted to comply with applicable environmental permit and approval requirements. Non-compliance with any such requirements could result in fines and penalties, and could also affect our ability to operate the affected project.

  Environmental Laws and Regulations

  Our facilities are subject to a number of environmental laws and regulations relating to development, construction and operation. In the United States, these may include the Clean Air

Act, the Clean Water Act, the Emergency Planning and Community Right-to-Know Act, the Endangered Species Act, the National Environmental Policy Act, the Resource Conservation and Recovery Act, and related state laws and regulations.

  Our geothermal operations involve significant quantities of brine (substantially, all of which we reinject into the subsurface) and scale, both of which can contain materials (such as

arsenic, lead, and naturally occurring radioactive materials) in concentrations that exceed regulatory limits used to define hazardous waste. We also use various substances, including isopentane and industrial lubricants that could become potential contaminants and are generally flammable. Hazardous materials are also used in our equipment manufacturing operations in Israel. As a result, our projects are subject to domestic and foreign federal, state and local statutory and regulatory requirements regarding the use, storage, fugitive emissions, and disposal of hazardous substances. The cost of investigation and removal or remediation activities associated with a spill or release of such materials could be significant.

  Although we are not aware of any mismanagement of these materials, including any mismanagement prior to the acquisition of some of our power plants, that has materially impaired any

of the power plant sites, any disposal or release of these materials onto the power plant sites, other than by means of permitted injection wells, could lead to contamination of the environment and result in material cleanup requirements or other responsive obligations under applicable environmental laws. We believe that at one time there may have been a gas station located on the Mammoth complex site, but because of significant surface disturbance and construction since that time further physical evaluation of the environmental condition of the former gas station site has been impractical. We believe that, given the subsequent surface disturbance and construction activity in the vicinity of the suspected location of the service station, it is likely that environmental contamination, if any, associated with the former facilities and any associated underground storage tanks would have already been encountered if they still existed.

  Regulation of the Electric Utility Industry in our Foreign Countries of Operation

  The following is a summary overview of certain aspects of the electric industry in the foreign countries in which we have an operating geothermal power plant. As such, it should not be

considered a full statement of the laws in such countries or all of the issues pertaining thereto.  

Guatemala. The General Electricity Law of 1996, Decree 93-96, created a wholesale electricity market in Guatemala and established a new regulatory framework for the electricity sector. The law created a new regulatory commission, the CNEE, and a new wholesale power market administrator, the AMM, for the regulation and administration of the sector. The AMM is a private not-for-profit entity. The CNEE functions as an independent agency under the Ministry of Energy and Mines and is in charge of regulating, supervising, and controlling compliance with the electricity law, overseeing the market and setting rates for transmission services, and distribution to medium and small customers. All distribution companies must supply electricity to such customers pursuant to long-term contracts with electricity generators. Large customers can contract directly with the distribution companies, electricity generators or power marketers, or buy energy in the spot market. Guatemala has approved a Law of Incentives for the Development of Renewable Energy Power plants, Decree 52-2003, in order to promote the development of renewable energy power plants in Guatemala. This law provides certain benefits to companies utilizing renewable energy, including a 10-year exemption from corporate income tax and VAT on imports and customs duties. On September 16, 2008, CNEE issued a resolution which approved the Technical Norms for the Connection, Operation, Control and Commercialization of the Renewable Distributed Generation and Self-producers Users with Exceeding Amounts of Energy. This Technical Norm was created to regulate all aspects of generation, connection, operation, control and commercialization of electric energy produced with renewable sources to promote and facilitate the installation of new generation plants, and to promote the connection of existing generation plants which have exceeding amounts of electric energy for commercialization. It is applicable to projects with a capacity of up to 5 MW.

  Kenya. The electric power sector in Kenya is regulated by the Kenyan Energy Act.  Among other things, the Kenyan Energy Act provides for the licensing of electricity power producers

and public electricity suppliers or distributors. KPLC is the only licensed public electricity supplier and has a monopoly in the distribution of electricity in the country. The Kenyan Energy Act permits IPPs to install power generators and sell electricity to KPLC, which is owned by various private and government entities, and which currently purchases energy and capacity from other IPPs in addition to our Olkaria III complex. The electricity sector is regulated by the ERC which was created under the Kenyan Energy Act. KPLC’s retail electricity rates are subject to approval by the ERC. The ERC has an expanded mandate to regulate not just the electric power sector but the entire energy sector in Kenya. Transmission of electricity is now undertaken by KETRACO while another company, GDC, is responsible for geothermal assessment, drilling of wells and sale of steam for electricity operations to IPPs and KenGen.  Both KETRACO and GDC are wholly owned by the government of Kenya.  Under the new national constitution enacted in August 2010, formulation of energy policy (including electricity) and energy regulation are functions of the national government. However, the constitution lists the planning and development of electricity and energy regulation as a function of the county governments (i.e. the regional or local level where an individual power plant is or is intended to be located).  

 

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   ITEM 1A. RISK FACTORS

   Because of the following factors, as well as other variables affecting our business, operating results or financial condition, past financial performance may not be a reliable indicator of

future performance, and historical trends should not be used to anticipate results or trends in future periods.  

Our financial performance depends on the successful operation of our geothermal power and REG plants, which is subject to various operational risks.   Our financial performance depends on the successful operation of our subsidiaries’ geothermal and REG power plants. In connection with such operations, we derived approximately

68.3% of our total revenues for the year ended December 31, 2014 from the sale of electricity. The cost of operation and maintenance and the operating performance of our subsidiaries’ geothermal power and REG plants may be adversely affected by a variety of factors, including some that are discussed elsewhere in these risk factors and the following:

 

 

 

 

 

 

 

  Any of these events could significantly increase the expenses incurred by our power plants or reduce the overall generating capacity of our power plants and could significantly reduce

or entirely eliminate the revenues generated by one or more of our power plants, which in turn would reduce our net income and could materially and adversely affect our business, financial condition, future results and cash flow.

  As mentioned above, the aging of our power plants may reduce their availability and increase maintenance costs due to the need to repair or replace our equipment. For example, in 2013

we replaced old equipment at the Mammoth complex, which were not manufactured by us. Such major maintenance activities impact both the capacity factor of the affected power plant and its operating costs

  Our exploration, development, and operation of geothermal energy resources are subject to geological risks and uncertainties, which may result in decreased performance or increased costs for our power plants.

  Our primary business involves the exploration, development, and operation of geothermal energy resources. These activities are subject to uncertainties that, in certain respects, are

similar to those typically associated with oil and gas exploration, development, and exploitation, such as dry holes, uncontrolled releases, and pressure and temperature decline. Any of these uncertainties may increase our capital expenditures and our operating costs, or reduce the efficiency of our power plants. We may not find geothermal resources capable of supporting a commercially viable power plant at exploration sites where we have conducted tests, acquired land rights, and drilled test wells, which would adversely affect our development of geothermal power plants. Further, since the commencement of their operations, several of our power plants have experienced geothermal resource cooling uncontrolled flow and/or reservoir pressure decline in the normal course of operations. For example, some of Brady’s production wells have cooled significantly due to breakthrough from injection wells. Because geothermal reservoirs are complex geological structures, we can only estimate their geographic area and sustainable output. The viability of geothermal power plants depends on different factors directly related to the geothermal resource (such as the temperature, pressure, storage capacity, transmissivity, and recharge) as well as operational factors relating to the extraction or reinjection of geothermal fluids. For example, at our North Brawley power plant, instability of the sands and clay in the geothermal resource and variability in the chemical composition of the geothermal fluid have all combined to increase our capital expenditures for the plant, as well as our ongoing operating expenses, and have so far prevented the plant from operation at its intended design capacity. In our North Brawley power plant in 2014 we also experienced an uncontrolled flow in one of the production wells that caused to a reduction in generation and increased costs. Our geothermal energy power plants may also suffer an unexpected decline in the capacity of their respective geothermal wells and are exposed to a risk of geothermal reservoirs not being sufficient for sustained generation of the electrical power capacity desired over time.  

 

  ● regular and unexpected maintenance and replacement expenditures;

  ● shutdowns due to the breakdown or failure of our equipment or the equipment of the transmission serving utility;

  ● labor disputes;

  ● the presence of hazardous materials on our power plant sites;

  ● continued availability of cooling water supply;

 ● catastrophic events such as fires, explosions, earthquakes, landslides, floods, releases of hazardous materials, severe weather storms, or similar occurrences affecting our power

plants or any of the power purchasers or other third parties providing services to our power plants; and

  ● the aging of power plants (which may reduce their availability and increase the cost of their maintenance).

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   Another aspect of geothermal operations is the management and stabilization of subsurface impacts caused by fluid injection pressures of production and injection fluids to mitigate

subsidence. In the case of the geothermal resource supplying the Heber complex, pressure drawdown in the center of the well field has caused some localized ground subsidence, while pressure in the peripheral areas has caused localized ground inflation. Inflation and subsidence, if not controlled, can adversely affect farming operations and other infrastructure at or near the land surface. Potential costs, which cannot be estimated and may be significant, of failing to stabilize site pressures in the Heber complex area include repair and modification of gravity-based farm irrigation systems and municipal sewer piping and possible repair or replacement of a local road bridge spanning an irrigation canal.

  Additionally, active geothermal areas, such as the areas in which our power plants are located, are subject to frequent low-level seismic disturbances, volcanic eruptions and lava flows.

Serious seismic disturbances, volcanic eruptions and lava flows are possible and could result in damage to our power plants or equipment or degrade the quality of our geothermal resources to such an extent that we could not perform under the PPA for the affected power plant, which in turn could reduce our net income and materially and adversely affect our business, financial condition, future results and cash flow. If we suffer a serious seismic disturbance, volcanic eruptions and lava flows, our business interruption and property damage insurance may not be adequate to cover all losses sustained as a result thereof. In addition, insurance coverage may not continue to be available in the future in amounts adequate to insure against such seismic disturbances, volcanic eruptions and lava flows.

  Furthermore, absent additional geologic/hydrologic studies, any increase in power generation from our geothermal power plants, failure to reinject the geothermal fluid or improper

maintenance of the hydrological balance may affect the operational duration of the geothermal resource and cause it to decline in value over time, and may adversely affect our ability to generate power from the relevant geothermal power plant.

  Reduced levels of recovered energy required for the operation of our REG power plants may result in decreased performance of such power plants.

  Our REG power plants generate electricity from recovered energy or so-called “waste heat” that is generated as a residual by-product of gas turbine-driven compressor stations and a

variety of industrial processes. Any interruption in the supply of the recovered energy source, such as a result of reduced gas flows in the pipelines or reduced level of operation at the compressor stations, or in the output levels of the various industrial processes, may cause an unexpected decline in the capacity and performance of our recovered energy power plants.

   Our business development activities may not be successful and our projects under construction may not commence operation as scheduled.

  We are in the process of developing and constructing a number of new power plants. Our success in developing a particular project is contingent upon, among other things, negotiation

of satisfactory engineering and construction agreements and PPAs, receipt of required governmental permits, obtaining adequate financing, and the timely implementation and satisfactory completion of construction. We may be unsuccessful in accomplishing any of these matters or doing so on a timely basis. Although we may attempt to minimize the financial risks attributable to the development of a project by securing a favorable PPA, obtaining all required governmental permits and approvals and arranging, in certain cases, adequate financing prior to the commencement of construction, the development of a power project may require us to incur significant expenses for preliminary engineering, permitting and legal and other expenses before we can determine whether a project is feasible, economically attractive or capable of being financed.  

 

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   Currently, we have projects and prospects under exploration, development or construction in the United States, Kenya, Chile, Guatemala, New Zealand, Honduras and Indonesia, and we

intend to pursue the expansion of some of our existing plants and the development of other new plants. Our completion of these facilities is subject to substantial risks, including:  

 

 

 

 

 

 

 

 

  Any one of these could give rise to delays, cost overruns, the termination of the plant expansion, construction or development or the loss (total or partial) of our interest in the project

under development, construction, or expansion.  

We rely on power transmission facilities that we do not own or control.   We depend on transmission facilities owned and operated by others to deliver the power we sell from our power plants to our customers. If transmission is disrupted, or if the

transmission capacity infrastructure is inadequate, our ability to sell and deliver power to our customers may be adversely impacted and we may either incur additional costs or forego revenues. In addition, lack of access to new transmission capacity may affect our ability to develop new projects. Existing congestion of transmission capacity, as well as expansion of transmission systems and competition from other developers seeking access to expanded systems, could also affect our performance.

   We may be unable to obtain the financing we need to pursue our growth strategy and any future financing we receive may be less favorable to us than our current financing arrangements, either of which may adversely affect our ability to expand our operations.

  Most of our geothermal power plants generally have been financed using leveraged financing structures, consisting of non-recourse or limited recourse debt obligations. Each of our

projects under development or construction and those projects and businesses we may seek to acquire or construct will require substantial capital investment. Our continued access to capital with acceptable terms is necessary for the success of our growth strategy. Our attempts to obtain future financings may not be successful or on favorable terms.

  Market conditions (including those described in the immediately preceding risk factor) and other factors may not permit future project and acquisition financings on terms similar to those

our subsidiaries have previously received. Our ability to arrange for financing on a substantially non-recourse or limited recourse basis, and the costs of such financing, are dependent on numerous factors, including general economic conditions, conditions in the global capital and credit markets (as discussed above), investor confidence, the continued success of current power plants, the credit quality of the power plants being financed, the political situation in the country where the power plant is located, and the continued existence of tax and securities laws which are conducive to raising capital. If we are not able to obtain financing for our power plants on a substantially non-recourse or limited recourse basis, we may have to finance them using recourse capital such as direct equity investments or the incurrence of additional debt by us.

  Also, in the absence of favorable financing options, we may decide not to build new plants or acquire facilities from third parties. Any of these alternatives could have a material adverse

effect on our growth prospects.  

 

  ● unanticipated cost increases;

  ● shortages and inconsistent qualities of equipment, material and labor;

  ● work stoppages;

  ● inability to obtain permits and other regulatory matters;

  ● failure by key contractors and vendors to timely and properly perform, including where we will use equipment manufactured by others;

  ● failure by key suppliers to provide steam for electricity generation including in the Menengai project in Kenya where the steam will be provided by others.

  ● inability to secure the required transmission capacity;

  ● adverse environmental and geological conditions (including inclement weather conditions); and

  ● our attention to other projects, including those in the solar energy sector.

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   Our use of joint ventures may limit our flexibility with jointly owned investments.  

We have entered into an agreement to sell minority equity interests in three of our consolidated subsidiaries, through which we hold a large number of our domestic geothermal power plants and recovered energy generation plants, to different third parties. We may continue in the future to develop and/or acquire and/or hold properties in joint ventures with other entities when circumstances warrant the use of these structures. Ownership of assets in joint ventures is subject to risks that may not be present with other methods of ownership, including:

 

 

 

 

 

 

   Our international operations expose us to risks related to the application of foreign laws, taxes, economic conditions, labor supply and relations, political conditions, and policies of foreign governments, any of which may adversely affect our business, financial condition, future results and cash flow.

  We have substantial operations outside of the United States, both in our Electricity Segment and our Product Segment. Our foreign operations are subject to regulation by various foreign

governments and regulatory authorities and are subject to the application of foreign laws. Such foreign laws or regulations may not provide the same type of legal certainty and rights, in connection with our contractual relationships in such countries, as are afforded to our operations in the United States, which may adversely affect our ability to receive revenues or enforce our rights in connection with our foreign operations. Furthermore, existing laws or regulations may be amended or repealed, and new laws or regulations may be enacted or issued. In addition, the laws and regulations of some countries may limit our ability to hold a majority interest in some of the power plants that we may develop or acquire, thus limiting our ability to control the development, construction and operation of such power plants, or our ability to import our products into such countries. Our foreign operations are also subject to significant political, economic and financial risks, which vary by country, and include:

  •     changes in government policies or personnel;   •     changes in general economic conditions;   •     restrictions on currency transfer or convertibility;   •     changes in labor relations;   •     political instability and civil unrest;   •     changes in the local electricity and/or geothermal markets;   •     breach or repudiation of important contractual undertakings by governmental entities; and   •     expropriation and confiscation of assets and facilities.

 

 

 ● we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving

such impasses or potential disputes, including litigation or arbitration;

 ● our joint venture partners could have investment goals that are not consistent with our investment objectives, including the timing, terms and strategies for any investments in

the projects that are owned by the joint ventures, which could affect decisions about future capital expenditures, major operational expenditures and retirement of assets, among other things;

  ● our ability to transfer our interest in a joint venture to a third party may be restricted and the market for our interest may be limited;

 ● our joint venture partners may be structured differently than us for tax purposes, and this could impact our ability to fully take advantage of federal tax incentives available for

renewable energy projects;

 ● our joint venture partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their obligations as a joint venture partner, which may

require us to infuse our own capital into the venture on behalf of the partner despite other competing uses for such capital; and

 ● our joint venture partners may have competing interests in our markets and investments in companies that compete directly or indirectly with us that could create conflict of

interest issues.

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   In particular, in regards to our Electricity Segment, in Guatemala the electricity sector was partially privatized, and it is currently unclear whether further privatization will occur in the

future. Such developments may affect our Amatitlan and Zunil power plants if, for example, they result in changes to the prevailing tariff regime or in the identity and creditworthiness of our power purchasers. In Kenya, recent sentiment suggests increased opposition to the presence of foreign investors generally, including in the electricity sector. Any break-up and potential privatization of KPLC may adversely affect our Olkaria III complex. Although we generally obtain political risk insurance in connection with our foreign power plants, such political risk insurance does not mitigate all of the above-mentioned risks. In addition, insurance proceeds received pursuant to our political risk insurance policies, where applicable, may not be adequate to cover all losses sustained as a result of any covered risks and may at times be pledged in favor of the power plant lenders as collateral. Also, insurance may not be available in the future with the scope of coverage and in amounts of coverage adequate to insure against such risks and disturbances. In regards to our Product segment, since we primarily engage in sales in those markets where there is a geothermal reservoir, any such change might adversely affect geothermal developers in those markets and, subsequently, the ability of such developers to purchase our products. Any or all of these changes could materially adversely affect our business, financial condition, future results and cash flow.

  Our foreign power plants and foreign manufacturing operations expose us to risks related to fluctuations in currency rates, which may reduce our profits from such power plants and operations.

  Risks attributable to fluctuations in currency exchange rates can arise when any of our foreign subsidiaries borrow funds or incur operating or other expenses in one type of currency but

receive revenues in another. In such cases, an adverse change in exchange rates can reduce such subsidiary’s ability to meet its debt service obligations, reduce the amount of cash and income we receive from such foreign subsidiary or increase such subsidiary’s overall expenses. In addition, the imposition by foreign governments of restrictions on the transfer of foreign currency abroad, or restrictions on the conversion of local currency into foreign currency, would have an adverse effect on the operations of our foreign power plants and foreign manufacturing operations, and may limit or diminish the amount of cash and income that we receive from such foreign power plants and operations.

  A significant portion of our electricity revenue is attributed to payments made by power purchasers under PPAs. The failure of any such power purchaser to perform its obligations under the relevant PPA or the loss of a PPA due to a default would reduce our net income and could materially and adversely affect our business, financial condition, future results and cash flow. 

  A significant portion of our revenue is attributed to our electricity revenues derived from power purchasers under the relevant PPAs. There is a risk that any one or more of the power

purchasers may not fulfill their respective payment obligations under their PPAs. If any of the power purchasers fails to meet its payment obligations under its PPAs, it could materially and adversely affect our business, financial condition, future results and cash flow.

  Seasonal variations may cause significant fluctuations in our cash flows, which may cause the market price of our common stock to fall in certain periods.

  Our results of operations are subject to seasonal variations. This is primarily because some of our domestic power plants receive higher capacity payments under the relevant PPAs

during the summer months, and due to the generally higher time-of-use energy factor during the summer months. Some of our other power plants may experience reduced generation during warm periods due to the lower heat differential between the geothermal fluid and the ambient surroundings. Such seasonal variations could materially and adversely affect our business, financial condition, future results and cash flow. If our operating results fall below the public’s or analysts’ expectations in some future period or periods, the market price of our common stock will likely fall in such period or periods.

  Pursuant to the terms of some of our PPAs with investor-owned electric utilities and public-owned electric utilities in states that have renewable portfolio standards, the failure to supply the contracted capacity and energy thereunder may result in the imposition of penalties.

  Under the PPAs of our Burdette (Galena 1), Desert Peak 2, Galena 2, Galena 3, Jersey Valley, McGinness Hills, Tuscarora North Brawley and Don A. Campbell power plants, we may be

required to make payments to the relevant power purchaser in an amount equal to such purchaser’s replacement costs for renewable energy relating to any shortfall amount of renewable energy that we do not provide as required under the PPA and which such power purchaser is forced to obtain from an alternate source. Also, under the PPAs of our Zunil and Puna power plants, we may be required to pay penalties payments to the relevant power purchaser in an amount agreed upon if we have shortfall amounts of energy that we do not provide as required under the PPA. All of these plants were in commercial operation in 2014, and to date, the shortfall amount has not been material. In addition, we may be required to make payments to the relevant power purchaser in an amount equal to its replacement costs relating to any renewable energy credits we do not provide as required under the relevant PPA. We may be subject to certain penalties, and we may also be required to pay liquidated damages if certain minimum performance requirements are not met under certain of our PPAs. With respect to the Brady PPA, we may also be required to pay liquidated damages of approximately $1.5 million (increased by the percent change in GNP deflator) to our power purchaser if the relevant power plant does not maintain availability of at least 85% during applicable peak periods. Any or all of these could materially and adversely affect our business, financial condition, future results and cash flow.  

 

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    The SRAC for our power purchasers may decline, which would reduce our power plant revenues and could materially and adversely affect our business, financial condition, future

results and cash flow.   

Under a number of the PPAs for our power plants in California, the price that Southern California Edison pays is based upon its SRAC, which are the incremental costs that it would have incurred had it generated the relevant electrical energy itself or purchased such energy from others. Under settlement agreements between Southern California Edison and a number of power generators in California that are Qualifying Facilities, including our subsidiaries, the energy price component payable by Southern California Edison was fixed through April 2012, but since then and going forward it will be based on Southern California Edison’s SRAC, as determined by the CPUC. These SRAC may vary substantially on a monthly basis, and are expected to be based primarily on natural gas prices for gas delivered to California as well as other factors. The levels of SRAC prices paid by Southern California Edison may decline following the expiration date of the settlement agreements, which in turn would reduce our power plant revenues derived from Southern California Edison under our PPAs and could materially and adversely affect our business, financial condition, future results and cash flow.

  In December 2010, a global settlement (Global Settlement) relating primarily to the purchase and payment obligations of investor-owned utilities to Qualifying Facilities was approved by

the CPUC and became effective on November 23, 2011. Under the terms of the Global Settlement, existing Qualifying Facilities with “Legacy PPAs” (meaning any PPA that was in effect at the time the Global Settlement went into effect) had the option to choose to enter into a “Legacy PPA Amendment” within 180 days of the effectiveness of the Global Settlement. The Legacy PPA Amendment allowed a Qualifying Facility to choose a pricing methodology option going forward from the “pricing effective date”, which in our case was the end of the fixed rate period that terminated April 2012 under a prior settlement agreement with Southern California Edison until December 31, 2014, after which the SRAC will be tied only to a formula with energy market heat rates. The pricing options that we chose for our PPAs were as follows:

 

 

  The Global Settlement further provides that after July 1, 2015 if the term of a Qualifying Facility’s Legacy PPA expires, the investor-owned utilities would have no obligation to purchase

power from the Qualifying Facility if the Qualifying Facility has a generating capacity in excess of 20 MW. Qualifying Facilities below 20 MW will be entitled to a new standard offer PPA, with SRAC pricing and capacity payments as determined from time to time by the CPUC. The joint parties to the Global Settlement agreed that the utilities can go to FERC to obtain a waiver of the mandatory purchase obligation under PURPA for Qualifying Facilities above 20 MW and FERC has granted such waiver for these California utilities. Our existing PPAs with California investor-owned utilities are not affected by this waiver.  

 

 ● In the case of our Ormesa complex and Heber complex PPAs we switched to a new SRAC methodology, which includes fixed rates, declining heat rates, a variable O&M

component, an adjustment based on location, and a price adjustment if GHG costs are imposed on the facility, all until December 31, 2014, after which the SRAC will be tied only to a formula with energy market heat rates; and

 ● In the case of our Mammoth G2 power plant PPA we switched to the same formula specified in (1) above but with somewhat higher heat rates, no GHG cost adder and no location

adjustment (for renewable resources).

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   If any of our domestic power plants loses its current Qualifying Facility status under PURPA, or if amendments to PURPA are enacted that substantially reduce the benefits currently afforded to Qualifying Facilities, our domestic operations could be adversely affected.  

Most of our domestic power plants are Qualifying Facilities pursuant to PURPA, which largely exempts the power plants from the FPA, and certain state and local laws and regulations regarding rates and financial and organizational requirements for electric utilities.

  If any of our domestic power plants were to lose its Qualifying Facility status, such power plant could become subject to the full scope of the FPA and applicable state regulation. The

application of the FPA and other applicable state regulation to our domestic power plants could require our operations to comply with an increasingly complex regulatory regime that may be costly and greatly reduce our operational flexibility.

  If a domestic power plant were to lose its Qualifying Facility status, it would become a public utility under the FPA, and the rates charged by such power plant pursuant to its PPAs would

be subject to the review and approval of FERC. FERC, upon such review, may determine that the rates currently set forth in such PPAs are not appropriate and may set rates that are lower than the rates currently charged. In addition, FERC may require that the affected domestic power plant refund amounts previously paid by the relevant power purchaser to such power plant.. Even if a power plant does not lose its Qualifying Facility status, pursuant to regulations issued by FERC for Qualifying Facility power plants above 20 MW, if a power plant’s PPA is terminated or otherwise expires, and the subsequent sales are not made pursuant to a state’s implementation of PURPA, that power plant will become subject to FERC’s ratemaking jurisdiction under the FPA. Moreover, a loss of Qualifying Facility status also could permit the power purchaser, pursuant to the terms of the particular PPA, to cease taking and paying for electricity from the relevant power plant or, consistent with FERC precedent, to seek refunds of past amounts paid. This could cause the loss of some or all of our revenues payable pursuant to the related PPAs, result in significant liability for refunds of past amounts paid, or otherwise impair the value of our power plants. If a power purchaser were to cease taking and paying for electricity or seek to obtain refunds of past amounts paid, there can be no assurance that the costs incurred in connection with the power plant could be recovered through sales to other purchasers or that we would have sufficient funds to make such payments. In addition, the loss of Qualifying Facility status would be an event of default under the financing arrangements currently in place for some of our power plants, which would enable the lenders to exercise their remedies and enforce the liens on the relevant power plant.

  Pursuant to the Energy Policy Act of 2005, FERC also has the authority to prospectively lift the mandatory obligation of a utility under PURPA to offer to purchase the electricity from a

Qualifying Facility if the utility operates in a workably competitive market. Existing PPAs between a Qualifying Facility and a utility are not affected. If, in addition to the California utilities’ waiver of the mandatory purchase obligation for QF projects that exceed 20 MW described in the risk factor above entitled "The SRAC for our power purchasers may decline, which would reduce our power plant revenues and could materially and adversely affect our business, financial condition, future results and cash flow", the utilities in the other regions in which our domestic power plants operate were to be relieved of the mandatory purchase obligation, they would not be required to purchase energy from the power plant in the region under Federal law upon termination of the existing PPA or with respect to new power plants, which could materially and adversely affect our business, financial condition, future results and cash flow.

   Our financial performance is significantly dependent on the successful operation of our power plants, which is subject to changes in the legal and regulatory environment affecting our power plants.

  All of our power plants are subject to extensive regulation, and therefore changes in applicable laws or regulations, or interpretations of those laws and regulations, could result in

increased compliance costs, the need for additional capital expenditures or the reduction of certain benefits currently available to our power plants. The structure of domestic and foreign federal, state and local energy regulation currently is, and may continue to be, subject to challenges, modifications, the imposition of additional regulatory requirements, and restructuring proposals. We or our power purchasers may not be able to obtain all regulatory approvals that may be required in the future, or any necessary modifications to existing regulatory approvals, or maintain all required regulatory approvals. In addition, the cost of operation and maintenance and the operating performance of geothermal power plants may be adversely affected by changes in certain laws and regulations, including tax laws.

  Any changes to applicable laws and regulations could significantly increase the regulatory-related compliance and other expenses incurred by the power plants and could significantly

reduce or entirely eliminate the revenues generated by one or more of the power plants, which in turn would reduce our net income and could materially and adversely affect our business, financial condition, future results and cash flow.  

 

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   The costs of compliance with environmental laws and of obtaining and maintaining environmental permits and governmental approvals required for construction and/or operation may increase in the future and these costs (as well as any fines or penalties that may be imposed upon us in the event of any non-compliance with such laws or regulations) could materially and adversely affect our business, financial condition, future results and cash flow.

   Environmental laws, ordinances and regulations affecting us can be subject to change and such change could result in increased compliance costs, the need for additional capital

expenditures, or otherwise adversely affect us. In addition, our power plants are required to comply with numerous domestic and foreign, federal, regional, state and local statutory and regulatory environmental standards and to maintain numerous environmental permits and governmental approvals required for construction and/or operation. We may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of the power plants. We have not yet obtained certain permits and government approvals required for the completion and successful operation of power plants under construction or enhancement. Our failure to renew, maintain or obtain required permits or governmental approvals, including the permits and approvals necessary for operating power plants under construction or enhancement, could cause our operations to be limited or suspended. Finally, some of the environmental permits and governmental approvals that have been issued to the power plants contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If we fail to satisfy these conditions or comply with these restrictions, or with any statutory or regulatory environmental standards, we may become subject to regulatory enforcement action and the operation of the power plants could be adversely affected or be subject to fines, penalties or additional costs.

  We could be exposed to significant liability for violations of hazardous substances laws because of the use or presence of such substances at our power plants.

  Our power plants are subject to numerous domestic and foreign federal, regional, state and local statutory and regulatory standards relating to the use, storage and disposal of hazardous

substances. We use butane, pentane, industrial lubricants, and other substances at our power plants which are or could become classified as hazardous substances. If any hazardous substances are found to have been released into the environment at or by the power plants in concentrations that exceed regulatory limits, we could become liable for the investigation and removal of those substances, regardless of their source and time of release. If we fail to comply with these laws, ordinances or regulations (or any change thereto), we could be subject to civil or criminal liability, the imposition of liens or fines, and large expenditures to bring the power plants into compliance. Furthermore, in the United States, we can be held liable for the cleanup of releases of hazardous substances at other locations where we arranged for disposal of those substances, even if we did not cause the release at that location. The cost of any remediation activities in connection with a spill or other release of such substances could be significant.

  We believe that at one time there may have been a gas station located on the Mammoth complex site, but because of significant surface disturbance and construction since that time,

further physical evaluation of the environmental condition of the former gas station site has been impractical. There may be soil or groundwater contamination and related potential liabilities of which we are unaware related to this site, which may be significant and could materially and adversely affect our business, financial condition, future results and cash flow.

  We may not be able to successfully integrate companies which we may acquire in the future, which could materially and adversely affect our business, financial condition, future results and cash flow.

  Our strategy is to continue to expand in the future, including through acquisitions. Integrating acquisitions is often costly, and we may not be able to successfully integrate our acquired

companies with our existing operations without substantial costs, delays or other adverse operational or financial consequences. Integrating our acquired companies involves a number of risks that could materially and adversely affect our business, including:

 

 

 

 

  If any of our acquired companies suffers customer dissatisfaction or performance problems, this could adversely affect the reputation of our group of companies and could materially and

adversely affect our business, financial condition, future results and cash flow.  

 

  ● failure of the acquired companies to achieve the results we expect;

  ● inability to retain key personnel of the acquired companies;

  ● risks associated with unanticipated events or liabilities; and

  ● the difficulty of establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and procedures.

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    The power generation industry is characterized by intense competition, and we encounter competition from electric utilities, other power producers, and power marketers that could materially and adversely affect our business, financial condition, future results and cash flow.

  The power generation industry is characterized by intense competition from electric utilities, other power producers and power marketers. In recent years, there has been increasing

competition in the sale of electricity, in part due to excess capacity in a number of U.S. markets and an emphasis on short-term or “spot” markets, and competition has contributed to a reduction in electricity prices. For the most part, we expect that power purchasers interested in long-term arrangements will engage in “competitive bid” solicitations to satisfy new capacity demands. This competition could adversely affect our ability to obtain PPAs and the price paid for electricity by the relevant power purchasers. There is also increasing competition between electric utilities. This competition has put pressure on electric utilities to lower their costs, including the cost of purchased electricity, and increasing competition in the future will put further pressure on power purchasers to reduce the prices at which they purchase electricity from us.

  The reduction or elimination of government incentives could adversely affect our business, financial condition, future results and cash flows.  

Construction and operation of our geothermal power plants and recovered energy-based power plants, and may benefit in the future, from public policies and government incentives that support renewable energy and enhance the economic feasibility of these projects in regions and countries where we operate. Such policies and incentives include PTCs and ITCs, accelerated depreciation tax benefits, renewable portfolio standards, carbon trading mechanisms, rebates, and mandated feed-in-tariffs, and may include similar or other incentives to end users, distributors, system integrators and manufacturers of geothermal, solar and other power products. Some of these measures have been implemented at the federal level, while others have been implemented by different states within the U.S. or countries outside the U.S. where we operate.

  The availability and continuation of these public policies and government incentives have a significant effect on the economics and viability of our development program and continued

construction of new geothermal, recovered energy-based and Solar PV power plants. Any changes to such public policies, or any reduction in or elimination or expiration of such government incentives could affect us in different ways. For example, any reduction in, termination or expiration of renewable portfolio standards may result in less demand for generation from our geothermal and recovered energy-based, power plants. Any reductions in, termination or expiration of other government incentives could reduce the economic viability of, and cause us to reduce, the construction of new geothermal, recovered energy-based, and Solar PV power plants. Similarly, any such changes that affect the geothermal energy industry in a manner that is different from other sources of renewable energy, such as wind or solar, may put us at a competitive disadvantage compared to businesses engaged in the development, construction and operation of renewable power projects using such other resources. Any of the foregoing outcomes could have a material adverse effect on our business, financial condition, future results, and cash flows.

  We face competition from other companies engaged in the solar energy sector.

  The solar power market is intensely competitive and rapidly evolving. We compete with many companies that have longer operating histories in this sector, larger customer bases, and

greater brand recognition, as well as, in some cases, significantly greater financial and marketing resources than us. In some cases, these competitors are vertically integrated in the solar energy sector, manufacturing Solar PV, silicon wafers, and other related products for the solar industry, which may give them an advantage in developing, constructing, owning and operating solar power projects. Our limited experience in the Solar PV sector may affect our ability to successfully develop, construct, finance, and operate Solar PV power projects.

  The existence of a prolonged force majeure event or a forced outage affecting a power plant or the transmission system of the IID could reduce our net income and materially and adversely affect our business, financial condition, future results and cash flow.  

The operation of our subsidiaries’ geothermal power plants is subject to a variety of risks discussed elsewhere in these risk factors, including events such as fires, explosions, earthquakes, landslides, floods, severe storms, volcanic eruptions, lava flow or other similar events. If a power plant experiences an occurrence resulting in a force majeure event, although our subsidiary that owns that power plant would be excused from its obligations under the relevant PPA the relevant power purchaser may not be required to make any capacity and/or energy payments with respect to the affected power plant or plant so long as the force majeure event continues and, pursuant to certain of our PPAs, will have the right to prematurely terminate the PPA. Additionally, to the extent that a forced outage has occurred, the relevant power purchaser may not be required to make any capacity and/or energy payments to the affected power plant, and if as a result the power plant fails to attain certain performance requirements under certain of our PPAs, the purchaser may have the right to permanently reduce the contract capacity (and correspondingly, the amount of capacity payments due pursuant to such agreements in the future), seek refunds of certain past capacity payments, and/or prematurely terminate the PPA. As a consequence, we may not receive any net revenues from the affected power plant other than the proceeds from any business interruption insurance that applies to the force majeure event or forced outage after the relevant waiting period, and may incur significant liabilities in respect of past amounts required to be refunded.  

 

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   In addition, if the transmission system of the IID experiences a force majeure event or a forced outage which prevents it from transmitting the electricity from the Heber complex, the

Ormesa complex or the North Brawley power plant to the relevant power purchaser, the relevant power purchaser would not be required to make energy payments for such non-delivered electricity and may not be required to make any capacity payments with respect to the affected power plant so long as such force majeure event or forced outage continues. The impact of such force majeure would depend on the duration thereof, with longer outages resulting in greater revenue loss. In the event of any such force majeure event, our business, financial condition, future results and cash flows could be materially and adversely affected.  

Some of our leases will terminate if we do not extract geothermal resources in “commercial quantities”, thus requiring us to enter into new leases or secure rights to alternate geothermal resources, none of which may be available on terms as favorable to us as any such terminated lease, if at all.

  Most of our geothermal resource leases are for a fixed primary term, and then continue for so long as geothermal resources are extracted in “commercial quantities” or pursuant to other

terms of extension. The land covered by some of our leases is undeveloped and has not yet produced geothermal resources in commercial quantities. Leases that cover land which remains undeveloped and does not produce, or does not continue to produce, geothermal resources in commercial quantities and leases that we allow to expire, will terminate. In the event that a lease is terminated and we determine that we will need that lease once the applicable power plant is operating, we would need to enter into one or more new leases with the owner(s) of the premises that are the subject of the terminated lease(s) in order to develop geothermal resources from, or inject geothermal resources into, such premises or secure rights to alternate geothermal resources or lands suitable for injection. We may not be able to do this or may not be able to do so without incurring increased costs, which could materially and adversely affect our business, financial condition, future results and cash flow.

  Our BLM leases may be terminated if we fail to comply with any of the provisions of the Geothermal Steam Act or if we fail to comply with the terms or stipulations of such leases, which could materially and adversely affect our business, financial condition, future results and cash flow.

  Pursuant to the terms of our BLM leases, we are required to conduct our operations on BLM-leased land in a workmanlike manner and in accordance with all applicable laws and BLM

directives and to take all mitigating actions required by the BLM to protect the surface of and the environment surrounding the relevant land. Additionally, certain BLM leases contain additional requirements, some of which relate to the mitigation or avoidance of disturbance of any antiquities, cultural values or threatened or endangered plants or animals. In the event of a default under any BLM lease, or the failure to comply with such requirements, or any non-compliance with any of the provisions of the Geothermal Steam Act or regulations issued thereunder, the BLM may, 30 days after notice of default is provided to our relevant project subsidiary, suspend our operations until the requested action is taken or terminate the lease, either of which could materially and adversely affect our business, financial condition, future results and cash flow.

  Some of our leases (or subleases) could terminate if the lessor (or sublessor) under any such lease (or sublease) defaults on any debt secured by the relevant property, thus terminating our rights to access the underlying geothermal resources at that location.

  The fee interest in the land which is the subject of some of our leases (or subleases) may currently be or may become subject to encumbrances securing loans from third-party lenders to

the lessor (or sublessor). Our rights as lessee (or sublessee) under such leases (or subleases) are or may be subject and subordinate to the rights of any such lender. Accordingly, a default by the lessor (or sublessor) under any such loan could result in a foreclosure on the underlying fee interest in the property and thereby terminate our leasehold interest and result in the shutdown of the power plant located on the relevant property and/or terminate our right of access to the underlying geothermal resources required for our operations.  

 

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   In addition, a default by a sublessor under its lease with the owner of the property that is the subject of our sublease could result in the termination of such lease and thereby terminate

our sublease interest and our right to access the underlying geothermal resources required for our operations.  

Current and future urbanizing activities and related residential, commercial, and industrial developments may encroach on or limit geothermal or Solar PV activities in the areas of our power plants, thereby affecting our ability to utilize access, inject and/or transport geothermal resources on or underneath the affected surface areas or construct and operate Solar PV facilities which require large areas of relatively flat land.

  Current and future urbanizing activities and related residential, commercial and industrial development may encroach on or limit geothermal activities in the areas of our power plants,

thereby affecting our ability to utilize, access, inject, and/or transport geothermal resources on or underneath the affected surface areas. In particular, the Heber power plants rely on an area, which we refer to as the Heber Known Geothermal Resource Area, or Heber KGRA, for the geothermal resource necessary to generate electricity at the Heber power plants. Imperial County has adopted a “specific plan area” that covers the Heber KGRA, which we refer to as the “Heber Specific Plan Area”. The Heber Specific Plan Area allows commercial, residential, industrial and other employment oriented development in a mixed-use orientation, which currently includes geothermal uses. Several of the landowners from whom we hold geothermal leases have expressed an interest in developing their land for residential, commercial, industrial or other surface uses in accordance with the parameters of the Heber Specific Plan Area. Currently, Imperial County’s Heber Specific Plan Area is coordinated with the cities of El Centro and Calexico. There has been ongoing underlying interest since the early 1990s to incorporate the community of Heber. While any incorporation process would likely take several years, if Heber were to be incorporated, the City of Heber could replace Imperial County as the governing land use authority, which, depending on its policies, could have a significant effect on land use and availability of geothermal resources.

  Current and future development proposals within Imperial County and the City of Calexico, applications for annexations to the City of Calexico, and plans to expand public infrastructure

may affect surface areas within the Heber KGRA, thereby limiting our ability to utilize, access, inject and/or transport the geothermal resource on or underneath the affected surface area that is necessary for the operation of our Heber power plants, which could adversely affect our operations and reduce our revenues.

  Current construction works and urban developments in the vicinity of our Steamboat complex of power plants in Nevada may also affect future permitting for geothermal operations

relating to those power plants. Such works and developments include plans for the construction of a new casino hotel and other commercial or industrial developments on land in the vicinity of our Steamboat complex.

  We depend on key personnel for the success of our business.

  In general, our success depends to a significant extent on the performance of our senior management, particularly the continued service of our key employees. Our success also depends

on our ability to identify, hire and retain other qualified and experienced key personnel. Although to date we have been successful in identifying, hiring and retaining the services of senior management, we face risks associated with our ability to locate or employ on acceptable terms qualified replacements for our senior management or key employees if their services were no longer available, and with the inherent difficulties and uncertainties of transitioning the Company under the leadership of new management. Our inability to successfully identify, hire and retain any key employee could materially harm our business, financial condition, future results and cash flow.

   Our power plants have generally been financed through a combination of our corporate funds and limited or non-recourse project finance debt and lease financing. If our project subsidiaries default on their obligations under such limited or non-recourse debt or lease financing, we may be required to make certain payments to the relevant debt holders, and if the collateral supporting such leveraged financing structures is foreclosed upon we may lose certain of our power plants.

  Our power plants have generally been financed using a combination of our corporate funds and limited or non-recourse project finance debt or lease financing. Limited recourse project

finance debt refers to our additional agreement, as part of the financing of a power plant, to provide limited financial support for the power plant subsidiary in the form of limited guarantees, indemnities, capital contributions and agreements to pay certain debt service deficiencies. Non-recourse project finance debt or lease financing refers to financing arrangements that are repaid solely from the power plant’s revenues and are secured by the power plant’s physical assets, major contracts, cash accounts and, in many cases, our ownership interest in the project subsidiary. If our project subsidiaries default on their obligations under the relevant debt documents, creditors of a limited recourse project financing will have direct recourse to us, to the extent of our limited recourse obligations, which may require us to use distributions received by us from other power plants, as well as other sources of cash available to us, in order to satisfy such obligations. In addition, if our project subsidiaries default on their obligations under the relevant debt documents (or a default under such debt documents arises as a result of a cross-default to the debt documents of some of our other power plants) and the creditors foreclose on the relevant collateral, we may lose our ownership interest in the relevant project subsidiary or our project subsidiary owning the power plant would only retain an interest in the physical assets, if any, remaining after all debts and obligations were paid in full.  

 

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   Changes in costs and technology may significantly impact our business by making our power plants and products less competitive.

  A basic premise of our business model is that generating baseload power at geothermal power plants achieves economies of scale and produces electricity at a competitive price.

However, traditional coal-fired systems and gas-fired systems may under certain economic conditions produce electricity at lower average prices than our geothermal plants. In addition, there are other technologies that can produce electricity, most notably fossil fuel power systems, hydroelectric systems, fuel cells, microturbines, windmills, Solar PV cells and Solar PV systems. Some of these alternative technologies currently produce electricity at a higher average price than our geothermal plants, however research and development activities are ongoing to seek improvements in such alternate technologies and their cost of producing electricity is gradually declining. It is possible that advances will further reduce the cost of alternate methods of power generation to a level that is equal to or below that of most geothermal power generation technologies. If this were to happen, the competitive advantage of our power plants may be significantly impaired.

  Our expectations regarding the market potential for the development of recovered energy-based power generation may not materialize, and as a result we may not derive any significant revenues from this line of business.

  Demand for our recovered energy-based power generation units may not materialize or grow at the levels that we expect. We currently face competition in this market from manufacturers

of conventional steam turbines and may face competition from other related technologies in the future. If this market does not materialize at the levels that we expect, such failure may materially and adversely affect our business, financial condition, future results and cash flow.

  Our intellectual property rights may not be adequate to protect our business.

  Our intellectual property rights may not be adequate to protect our business. While we occasionally file patent applications, patents may not be issued on the basis of such applications

or, if patents are issued, they may not be sufficiently broad to protect our technology. In addition, any patents issued to us or for which we have use rights may be challenged, invalidated or circumvented.

  In order to safeguard our unpatented proprietary know-how, trade secrets and technology, we rely primarily upon trade secret protection and non-disclosure provisions in agreements

with employees and others having access to confidential information. These measures may not adequately protect us from disclosure or misappropriation of our proprietary information.   Even if we adequately protect our intellectual property rights, litigation may be necessary to enforce these rights, which could result in substantial costs to us and a substantial diversion

of management attention. Also, while we have attempted to ensure that our technology and the operation of our business do not infringe other parties’ patents and proprietary rights, our competitors or other parties may assert that certain aspects of our business or technology may be covered by patents held by them. Infringement or other intellectual property claims, regardless of merit or ultimate outcome, can be expensive and time-consuming and can divert management’s attention from our core business.

  Threats of terrorism and catastrophic events that could result from terrorism, cyber-attacks, or individuals and/or groups attempting to disrupt our business, or the businesses of third parties, may impact our operations in unpredictable ways and could adversely affect our business, financial condition, future results and cash flow.

  We are subject to the potentially adverse operating and financial effects of terrorist acts and threats, as well as cyber-attacks, including, among others, malware, viruses and attachments

to e-mails, and other disruptive activities of individuals or groups. Our generation and transmission facilities, information technology systems and other infrastructure facilities and systems and physical assets, could be directly or indirectly affected by such activities. Terrorist acts or other similar events could harm our business by limiting our ability to generate or transmit power and by delaying the development and construction of new generating facilities and capital improvements to existing facilities. These events, and governmental actions in response, could result in a material decrease in revenues and significant additional costs to repair and insure our assets, and could adversely affect operations by contributing to the disruption of supplies and markets for geothermal and recovered energy. Such events could also impair our ability to raise capital by contributing to financial instability and lower economic activity.  

 

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   We operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure. Despite our implementation

of security measures, all of our technology systems (and any programs or data stored thereon or therein) are vulnerable to security breaches, failures, data leakage or unauthorized access due to such activities. Those breaches and events may result from acts of our employees, contractors or third parties. If our technology systems were to fail or be breached and we were unable to recover in a timely way, we would be unable to fulfill critical business functions, and sensitive confidential and other data could be compromised, which could adversely affect our business, financial condition, future results and cash flow.

  The implementation of security guidelines and measures and maintenance of insurance, to the extent available, addressing such activities could increase costs. These types of events

could adversely affect our business, financial condition, future results and cash flow. In addition such events could require significant management attention and resources and could adversely affect our reputation among customers and the public.

  A disruption of transmission or the transmission infrastructure facilities of third parties could negatively impact our business. Because generation and transmission systems are part of an

interconnected system, we face the risk of possible loss of business due to a disruption caused by the impact of an event on the interconnected system within our systems or within a neighboring system. Any such disruption could adversely affect our business, financial condition, future results and cash flow.

  Possible fluctuations in the cost of construction, raw materials, and drilling may materially and adversely affect our business, financial condition, future results, and cash flow.

  Our manufacturing operations are dependent on the supply of various raw materials, including primarily steel and aluminum, and on the supply of various industrial equipment

components that we use. We currently obtain all such materials and equipment at prevailing market prices. We are not dependent on any one supplier and do not have any long-term agreements with any of our suppliers. Future cost increases of such raw materials and equipment, to the extent not otherwise passed along to our customers, could adversely affect our profit margins.

  Conditions in and around Israel, where the majority of our senior management and all of our production and manufacturing facilities are located, may adversely affect our operations and may limit our ability to produce and sell our products or manage our power plants.

  The majority of our senior management and all of our production and manufacturing facilities are located in Israel. As such, political, economic and security conditions in Israel directly

affect our operations.   Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and the continued state of hostility, varying in

degree and intensity, has led to security and economic problems for Israel.   Negotiations between Israel and representatives of the Palestinian Authority in an effort to resolve the state of conflict have been sporadic and have failed to result in peace. The

establishment in 2006 of a government in the Gaza territory by representatives of the Hamas militant group has created additional unrest and uncertainty in the region. In each of December 2008, November 2012 and July 2014, Israel engaged in an armed conflict with Hamas, each of which involved additional missile strikes from the Gaza Strip into Israel and disrupted most day-to-day civilian activity in the proximity of the border with the Gaza Strip. Our production facilities in Israel are located approximately 26 miles from the border with the Gaza Strip.

  The recent political instability and civil unrest in the Middle East and North Africa (including the ongoing civil war in Syria) as well as the recently increased tension between Iran and

Israel have raised new concerns regarding security in the region and the potential for armed conflict or other hostilities involving Israel. We could be adversely affected by any such hostilities, the interruption or curtailment of trade between Israel and its trading partners, or a significant downturn in the economic or financial condition of Israel. In addition, the sale of products manufactured in Israel may be adversely affected in certain countries by restrictive laws, policies or practices directed toward Israel or companies having operations in Israel.  

 

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   In addition, some of our employees in Israel are subject to being called upon to perform military service in Israel, and their absence may have an adverse effect upon our operations.

Generally, unless exempt, male adult citizens of Israel under the age of 41 are obligated to perform up to 36 days of military reserve duty annually. Additionally, all such citizens are subject to being called to active duty at any time under emergency circumstances.

  These events and conditions could disrupt our operations in Israel, which could materially harm our business, financial condition, future results, and cash flow.   

We are a holding company and our revenues depend substantially on the performance of our subsidiaries and the power plants they operate, most of which are subject to restrictions and taxation on dividends and distributions.

  We are a holding company whose primary assets are our ownership of the equity interests in our subsidiaries. We conduct no other business and, as a result, we depend entirely upon

our subsidiaries’ earnings and cash flow.   The agreements pursuant to which most of our subsidiaries have incurred debt restrict the ability of these subsidiaries to pay dividends, make distributions or otherwise transfer funds to

us prior to the satisfaction of other obligations, including the payment of operating expenses, debt service and replenishment or maintenance of cash reserves. In the case of some of our power plants that are owned jointly with other partners, there may be certain additional restrictions on dividend distributions pursuant to our agreements with those partners. Further, if we elect to receive distributions of earnings from our foreign operations, we may incur United States taxes on account of such distributions, net of any available foreign tax credits. In all of the foreign countries where our existing power plants are located, dividend payments to us are also subject to withholding taxes. Each of the events described above may reduce or eliminate the aggregate amount of revenues we can receive from our subsidiaries.

  The Israeli Tax Ruling we obtained in connection with our acquisition of Ormat Industries imposes conditions that may limit our flexibility in operating our business and our ability to enter into certain corporate transactions.  

The Israel Tax Ruling we obtained in connection with the acquisition of Ormat Industries imposes a number of conditions that limit our flexibility in operating our business and in engaging in certain corporate transactions. These conditions include, among others, that until the end of 2016, each of Bronicki and FIMI may not sell their shares of our common stock, except in certain limited circumstances and in connection with these sale limitations, we cannot engage in a sale of the Company (through a merger or otherwise), conduct certain private placements of our common stock or public offerings of our common stock that will result in a decrease of their stockholdings to less than 51% of their holdings immediately following the closing of the share exchange. Additionally, until the end of 2018, we agreed to maintain (and, to the extent that our operations expand, likewise expand) the production activities we currently carry out in Israel. Under certain circumstances, these conditions may not allow us the flexibility that we need to operate our business and may prevent us from taking advantage of strategic opportunities that would benefit our business and our stockholders.

  As a result of the share exchange, a substantial percentage of our shares is held by a small group of stockholders whose interests may conflict with the interests of our other stockholders.  

As of February 26, 2015, Bronicki and FIMI beneficially own, collectively, approximately 23.9% of our outstanding common stock. Bronicki and FIMI are parties to a shareholder rights agreement that, among other things, includes joint voting and other arrangements that affect us and our subsidiaries. As a result of these stockholders’ beneficial ownership of our outstanding common stock, and taking into consideration the shareholders rights agreement between them, they could exert significant influence on the election of our directors and decisions on matters submitted to a vote of our shareholders, including mergers, consolidations and the sale of all or substantially all of our assets. This concentration of ownership of our shares could delay or prevent proxy contests, mergers, tender offers, or other purchases of our shares that might otherwise give our stockholders the opportunity to realize a premium over the then-prevailing market price for our shares. This concentration of ownership may also adversely affect our stock price.  

 

 78

    The price of our common stock may fluctuate substantially and your investment may decline in value.

  The market price of our common stock may be highly volatile and may fluctuate substantially due to many factors, including:  

 

 

 

 

 

 

 

 

 

 

 

  In addition, the stock market in general, and the NYSE and the market for energy companies in particular, have experienced extreme price and volume fluctuations that have often been

unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business, financial condition, future results and cash flow.

  Future sales of common stock by some of our existing stockholders could cause our stock price to decline.

  As of the date of this report, FIMI holds approximately 15.1% of our outstanding common stock, Bronicki holds approximately 8.8% of our outstanding common stock, and some of our

directors, officers and employees also hold shares of our outstanding common stock. Sales of such shares in the public market, as well as shares we may issue upon exercise of outstanding options, could cause the market price of our common stock to decline. As more fully described above under " – Recent Developments", in connection with the Share Exchange Agreement, we entered with FIMI and Bronicki into several agreements, including (1) a registration rights agreement whereby FIMI and Bronicki may require us to register our common stock held by them with the SEC or to include our common stock held by them in an offering and sale by us, and (2) voting neutralization agreements that, among other things, restrict their ability to sell our common stock held by them.  

 

 ● actual or anticipated fluctuations in our results of operations including as a result of seasonal variations in our Electricity Segment-based revenues or variations from year-to-year in

our Product Segment-based revenues;

  ● variance in our financial performance from the expectations of market analysts;

  ● conditions and trends in the end markets we serve, and changes in the estimation of the size and growth rate of these markets;

  ● announcements of significant contracts by us or our competitors;

  ● changes in our pricing policies or the pricing policies of our competitors;

  ● restatements of historical financial results and changes in financial forecasts;

  ● loss of one or more of our significant customers;

  ● legislation;

  ● changes in market valuation or earnings of our competitors;

  ● the trading volume of our common stock;

  ● the trading of our common stock on multiple trading markets, which takes place in different currencies and at different times; and

  ● general economic conditions.

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   Provisions in our charter documents and Delaware law may delay, prevent or deter an acquisition of us, which could adversely affect the value of our common stock.

  Our restated certificate of incorporation and our bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. These

provisions include procedural requirements relating to stockholder meetings and stockholder proposals that could make stockholder actions more difficult. Our Board of Directors is classified into three classes of directors serving staggered, three-year terms and directors may be removed only for cause. Any vacancy on the Board of Directors may be filled only by the vote of the majority of directors then in office. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.  

Regulations related to conflict minerals may force us to incur additional expenses and may damage our relationship with certain customers.  

On August 22, 2012, the SEC adopted requirements regarding mandatory disclosure for companies regarding their use of "conflict minerals" (including tantalum, tin, tungsten and gold) in their products. In general, while we do not directly purchase or use any of these “conflict minerals” as raw materials in the products we manufacture or as part of our manufacturing processes, we will need to examine whether such minerals are contained in the products supplied to us by third parties and, if so, whether such minerals originate from the Democratic Republic of Congo or adjoining countries. If we utilize any of these minerals and they are necessary to the production or functionality of any of our products or products we are contracted to manufacture, we will need to conduct specified due diligence activities and file with the SEC a report disclosing, among others, whether such minerals originate from the Democratic Republic of Congo or adjoining countries. The implementation of these SEC rules could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of certain components incorporated in our products. In addition, we expect to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products, and possibly additional expenses related to any changes to our products we may decide are advisable based upon our due diligence findings. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.  

 

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   ITEM 1B. UNRESOLVED STAFF COMMENTS

  None.

  ITEM 2. PROPERTIES

  We currently lease corporate offices at 6225 Neil Road, Reno, Nevada 89511-1136. We also occupy an approximately 807,000 square feet office and manufacturing facility located in the

Industrial Park of Yavne, Israel, which we lease from the Israel Land Administration. See Item 13 — “Certain Relationships and Related Transactions”. We also lease small offices in each of the countries in which we operate.

  We believe that our current facilities will be adequate for our operations as currently conducted.   Each of our power plants is located on property leased or owned by us or one of our subsidiaries, or is a property that is subject to a concession agreement.   Information and descriptions of our plants and properties are included in Item 1 — “Business”, of this annual report.   

ITEM 3. LEGAL PROCEEDINGS   There were no material developments in any legal proceedings to which the Company is a party during the fiscal year 2014, other than as described below.  

   

 

  

   

 

● Jon Olson and Hilary Wilt, together with Puna Pono Alliance, an unincorporated association, filed suit on February 17, 2015, in the Third Circuit Court for the State of Hawaii, seeking declaratory and injunctive relief against Puna Geothermal Venture and the County of Hawaii.  The relief requested includes a declaratory ruling that a County ordinance adopted in 2012, prohibiting night time geothermal drilling and drilling operations, applies to PGV’s current drilling activities at the KS-16 well.  We believe that the allegations of the complaint have no merit, and will defend itself vigorously.

● On July 8, 2014, Global Community Monitor, LiUNA, and two residents of Bishop, California filed a complaint in the United States District Court for the Eastern District of California, alleging that Mammoth Pacific, L.P., Ormat Technologies, Inc. and Ormat Nevada, Inc. are operating three geothermal generating plants in Mammoth Lakes, California (MP-1; MP-II and PLES-I) in violation of the federal Clean Air Act (“CAA”) and Great Basin Unified Air Pollution Control District (“District”) rules. The Company believes the complaint is without merit, and intends to vigorously defend itself against the allegations set forth in the complaint and to take all necessary legal action to have the complaint dismissed. Filing of the complaint in and of itself does not have any immediate adverse implications for the Mammoth plants.

● On April 5, 2012, the International Brotherhood of Electrical Workers Local 1260 (“Union”) filed a petition with the National Labor Relations Board (“NLRB”) seeking to organize the operations and maintenance employees at the Puna Project.  PGV lost the union election by a slim margin in May 2012.  The election results and the Employer’s obligation to negotiate with the Union were appealed to the United States Court of Appeals for the Ninth Circuit, but were remanded back to the NLRB after the U.S. Supreme Court’s decision in Noel Canning, 573 U.S., 134 S.Ct. 2550 (2014). On November 26, 2014, the NLRB found that a certification of representative should be issued. In January 2015, the parties submitted briefing to the NLRB as to whether summary judgment is appropriate.  PGV currently expects a decision in this matter will be rendered within the next two to four months. Depending on the decision, PGV expects to review its options and either accept negotiations with the Union or continue to appeal the decision.

● In January 2014, Ormat learned that two former employees alleged in a "qui tam" complaint filed in the United States District Court for the Southern District of California that us, PGV and select affiliates of us (collectively, the "Ormat Parties") submitted fraudulent applications and certifications to obtain grants. The United States Department of Justice has declined to intervene. The former employees have proceeded on their own and served the Ormat Parties with their initial complaint in April 2014, and then filed an amended complaint in May 2014. Pursuant to the Ormat Parties' motion to move the venue of the proceeding, and despite the complainants’ objection, the file was reassigned from the United States District Court for the Southern District of California to the District of Nevada.

     In July 2014, the Ormat Parties filed a motion to dismiss the amended complaint, in response to which the complainants have filed responses urging the court to reject the motion to dismiss.

In August, 2014, the United States filed a statement of interest urging rejection of one of the Ormat Parties' arguments raised in the motion to dismiss - that the False Claims Act's "Tax Bar" excludes such Act's application to the case - while continuing to take no position as to the overall sufficiency of the complainants' complaint. The motion to dismiss remains pending before the Nevada United States District Court, and a hearing has been scheduled for March by the court.

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  ITEM 4. MINE SAFETY DISCLOSURES

  Not applicable.

 

 

  In the interim, FIMI and Ormat Industries (both of who were originally named on the complaint, but were never served) have been removed from the complaint as co-defendants. The Ormat Parties continue to believe that the allegations of the lawsuit have no merit, and will continue to defend themselves vigorously.

   ● In addition, from time to time, the Company is named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of our

business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings, the Company accrues reserves when a loss is probable and the amount of such loss can be reasonably estimated. It is the opinion of the Company’s management that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.

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  PART II

   ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  

Our common stock is traded on the NYSE under the symbol “ORA” since November 11, 2004. Prior to that, there was no public market for our stock. Effective on February 10, 2015, our common stock also began trading on the TASE.  

As of February 23, 2015, there were 21 record holders of the Company’s common stock. On February 25, 2015, our stock’s closing price as reported on the NYSE was $32.62 per share.  

Dividends   We have adopted a dividend policy pursuant to which we currently expect to distribute at least 20% of our annual profits available for distribution by way of quarterly dividends. In

determining whether there are profits available for distribution, our Board of Directors will take into account our business plan and current and expected obligations, and no distribution will be made that in the judgment of our Board of Directors would prevent us from meeting such business plan or obligations.

  Notwithstanding this policy, dividends will be paid only when, as and if approved by our Board of Directors out of funds legally available therefore. The actual amount and timing of

dividend payments will depend upon our financial condition, results of operations, business prospects and such other matters as the Board may deem relevant from time to time. Even if profits are available for the payment of dividends, the Board of Directors could determine that such profits should be retained for an extended period of time, used for working capital purposes, expansion or acquisition of businesses or any other appropriate purpose. As a holding company, we are dependent upon the earnings and cash flow of our subsidiaries in order to fund any dividend distributions and, as a result, we may not be able to pay dividends in accordance with our policy. Our Board of Directors may, from time to time, examine our dividend policy and may, in its absolute discretion, change such policy. In addition to the required Board of Directors’ approval for the payment of dividends, the Company can declare as dividends no more than 35% of annual net income as dividends due to restrictions related to its third-party debt (see Note 10 to our consolidated financial statements set forth in Item 8 of this annual report).

  We have declared the following dividends over the past two years:  

  High/Low Stock Prices

  The following table sets forth the high and low sales prices of our common stock for the years ended December 31, 2013 and 2014, and from January 1, 2015 until February 26, 2015:  

 

 

Date Declared  

Dividend Amount per Share   Record Date   Payment Date

               November 6, 2013   $ 0.04   November 20, 2013   December 4, 2013 February 25, 2014   $ 0.06   March 13, 2014   March 27, 2014 May 8, 2014   $ 0.05   May 21, 2014   May 30, 2014 August 5, 2014   $ 0.05   August 19, 2014   August 28, 2014 November 5, 2014   $ 0.05   November 20, 2014   December 4, 2014

   

First Quarter

2013    

Second Quarter

2013    

Third Quarter

2013    

Fourth Quarter

2013    

First Quarter

2014    

Second Quarter

2014    

Third Quarter

2014    

Fourth Quarter

2014    

January 1 to

February 26, 2015  

High   $ 22     $ 24     $ 28     $ 28     $ 30     $ 30     $ 29     $ 29     $ 33 Low   $ 20     $ 20     $ 23     $ 25     $ 24     $ 26     $ 25     $ 26     $ 26 

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  Stock Performance Graph

  The following performance graph represents the cumulative total shareholder return for the period November 11, 2004 (the date upon which trading of the Company’s common stock

commenced) through December 31, 2014 for our common stock, compared to the Standard and Poor’s Composite 500 Index, and two peer groups.   Comparison of Cumulative Returns for the Period November 11, 2004 through December 31, 2014

 

       * IPP Peers are The AES Corporation, NRG Energy Inc., Calpine Corporation and Covanta Holding Corp.      * Renewable Energy (Renewable) Peers are Acciona S.A. and U.S. Geothermal Inc.

  The above Stock Performance Graph shall not be deemed to be soliciting material or to be filed with the SEC under the Securities Act and the Exchange Act except to the extent that the

Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.  

Equity Compensation Plan Information   For information on our equity compensation plan, refer to Item 12 — “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.

 

 

  11/11/2004 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014Ormat Technologies Inc 0% 9% 74% 145% 267% 112% 152% 97% 20% 29% 81% 81%Standard & Poor's Composite 500 Index 0% 8% 11% 26% 31% -20% -1% 12% 12% 27% 65% 84%^NEX -Wilder Hill new Energy Global 0% 9% 30% 74% 174% 7% 50% 28% -23% -28% 12% 11%IPP Peers* 0% 22% 26% 79% 79% 77% 107% 119% 131% 165% 187% 222%Renewable Peers** 0% 41% 19% 63% 204% 20% 45% -25% -22% -30% -42% -23%

 84

   ITEM 6. SELECTED FINANCIAL DATA

  The following table sets forth our selected consolidated financial data for the years ended and at the dates indicated. We have derived the selected consolidated financial data for the

years ended December 31, 2014, 2013 and 2012 and as of December 31, 2014 and 2013 from our audited consolidated financial statements set forth in Item 8 of this annual report. We have derived the selected consolidated financial data for the years ended December 31, 2011 and 2010 and as of December 31, 2012, 2011 and 2010 from our audited consolidated financial statements not included herein.

  The information set forth below should be read in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our

consolidated financial statements, including the notes thereto, set forth in Item 8 of this annual report.  

 

 

    Year Ended December 31,      2014     2013     2012     2011     2010  

    (Dollars in thousands, except per share data)  Statements of Operations Data:                                        Revenues:                                        

Electricity   $ 382,301     $ 329,747     $ 314,894     $ 312,296     $ 279,947  Product     177,223       203,492       186,879       113,160       81,410  

Total revenues     559,524       533,239       501,773       425,456       361,357  Cost of revenues:                                        

Electricity     246,630       232,874       237,415       235,609       233,894  Product     109,143       140,547       135,346       76,072       53,277  

Total cost of revenues     355,773       373,421       372,761       311,681       287,171  Gross margin     203,751       159,818       129,012       113,775       74,186  

Operating expenses:                                        Research and development expenses     783       4,965       6,108       8,801       10,120  Selling and marketing expenses     15,425       24,613       15,718       16,053       13,302  General and administrative expenses     28,614       29,188       28,066       27,366       26,937  Impairment charge     —      —      236,377       —      — Write-off of unsuccessful exploration activities     15,439       4,094       2,639       —      3,050  

Operating income (loss)     143,490       96,958       (159,896)     61,555       20,777  Other income (expense):                                        

Interest income     312       1,332       1,201       1,427       343  Interest expense, net     (84,654)     (73,776)     (64,069)     (69,459)     (40,473)Foreign currency translation and transaction gains (losses)     (5,839)     5,085       242       (1,350)     1,557  Income attributable to sale of tax benefits     24,143       19,945       10,127       11,474       8,729  Gain from sale of property, plant and equipment     7,628       —      —      —      36,928  Gain from extinguishment of liability     —      —      —      —      — Other non-operating income, net     756       1,592       590       671       130  

Income (loss) from continuing operations, before income taxes and equity in income (losses) of investees     85,836       51,136       (211,805)     4,318       27,991  

Income tax benefit (provision)     (27,608)     (13,552)     (1,827)     (48,240)     1,700  Equity in losses of investees, net     (3,213)     (250)     (2,522)     (959)     998  

Income (loss) from continuing operations     55,015       37,334       (216,154)     (44,881)     30,689  Discontinued operations:                                        

Income from discontinued operations (including gain on disposal of $0, $3,646, $0, $0, and $6,336 respectively)     —      5,311       4,811       2,452       9,141  

Income tax provision     —      (614)     (1,264)     (295)     (2,602)Total income from discontinued operations     —      4,697       3,547       2,157       6,539  

                                         Net income (loss)     55,015       42,031       (212,607)     (42,724)     37,228  Net loss (income) attributable to noncontrolling interest     (833)     (793)     (414)     (332)     90  Net income (loss) attributable to the Company's stockholders   $ 54,182     $ 41,238     $ (213,021)   $ (43,056)   $ 37,318  

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    Year Ended December 31,      2014     2013     2012     2011     2010  

    (Dollars in thousands, except per share data)  Earnings (loss) per share attributable to the Company's stockholders:                                        

Basic:                                        Income (loss) from continuing operations   $ 1.19     $ 0.81     $ (4.77)   $ (1.00)   $ 0.67  Discontinued operations     —      0.10       0.08       0.05       0.15  Net income (loss)   $ 1.19     $ 0.91     $ (4.69)   $ (0.95)   $ 0.82 

Diluted:                                        Income (loss) from continuing operations   $ 1.18     $ 0.81     $ (4.77)   $ (1.00)   $ 0.67  Discontinued operations     —      0.10       0.08       0.05       0.15  Net income (loss)   $ 1.18     $ 0.91     $ (4.69)   $ (0.95)   $ 0.82  

                                         Weighted average number of shares used in computation of earnings (loss)

per share attributable to the Company's stockholders:                                                                                 

Basic     45,508      45,440       45,431       45,431       45,431  

Diluted     45,859      45,475       45,431       45,431       45,452                                                                                    Dividend per share declared   $ 0.21     $ 0.08     $ 0.08     $ 0.13     $ 0.27                                           Balance Sheet Data (at end of year):                                        Cash and cash equivalents   $ 40,230       57,354       66,628       99,886       82,815  Working capital     68,121       103,001       64,100       98,415       66,932  Property, plant and equipment, net (including construction-in process)     1,734,359       1,741,163       1,649,014       1,889,083       1,696,101  Total assets     2,121,556       2,159,433       2,087,523       2,314,718       2,043,328  Long-term debt (including current portion)     1,001,410       1,077,857       1,030,928       1,025,010       789,669  Equity     786,746       745,111       695,607       906,644       945,227  

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  ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      

You should read the following discussion and analysis of our results of operations, financial condition and liquidity in conjunction with our consolidated financial statements and the related notes. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report including information with respect to our plans and strategies for our business, statements regarding the industry outlook, our expectations regarding the future performance of our business, and the other non-historical statements contained herein are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” You should also review Item 1A — “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements.   General

  Overview

  We are a leading vertically integrated company engaged primarily in the geothermal and recovered energy power business. We design, develop, build, sell, own, and operate clean,

environmentally friendly geothermal and recovered energy-based power plants, in most cases using equipment that we design and manufacture.   Our geothermal power plants include both power plants that we have built and power plants that we have acquired, while all of our recovered energy-based plants have been constructed

by us. We conduct our business activities in two business segments:  

 

  Both our Electricity Segment and Product Segment operations are conducted in the United States and throughout the world. Our current generating portfolio includes geothermal plants in

the United States, Guatemala, and Kenya, as well as REG plants in the United States.   For the year ended December 31, 2014, our total revenues increased by 4.9% (from $533.2 million to $559.5 million) over the previous year.   For the year ended December 31, 2014, Electricity Segment revenues were $382.3 million, compared to $329.7 million for the year ended December 31, 2013, an increase of 15.9%, and

Product Segment revenues for the year ended December 31, 2014 were $177.2 million, compared to $203.5 million during the year ended December 31, 2013, a decrease of 12.9%.   During the years ended December 31, 2014 and 2013, our consolidated power plants generated 4,450,910 MWh and 4,253,489 MWh, respectively, an increase of 4.6%   For the year ended December 31, 2014, our Electricity Segment represented approximately 68.3% of our total revenues (61.8% in 2013), while our Product Segment represented

approximately 31.7% of our total revenues (38.2% in 2013).  

 

 ● The Electricity Segment — in this segment, we develop, build, own and operate geothermal and recovered energy-based power plants in the United States and geothermal power

plants in other countries around the world, and sell the electricity they generate ; and  

 ● The Product Segment — in this segment we design, manufacture and sell equipment for geothermal and recovered energy-based electricity generation, remote power units and other

power generating units and provide services relating to the engineering, procurement, construction, operation and maintenance of geothermal and recovered energy-based power plants.

 87

  In the year ended December 31, 2014, approximately 70.0% of our Electricity Segment revenues were derived from PPAs with fixed energy rates which are not affected by fluctuations in

energy commodity prices. We have variable price PPAs in California and Hawaii, which provide for payments based on the local utilities’ avoided cost, which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others, as follows:

 

 

  We reduced our economic exposure to fluctuations in the price of oil until December 31, 2014 and in the price of natural gas until March 31, 2015, by entering into derivatives transactions.

In the year ended December 31, 2014, we recorded a gain of $5.7 million in electricity revenues related to these transactions.   Electricity Segment revenues are also subject to seasonal variations and can be affected by higher-than-average ambient temperatures, as described below under “Seasonality”. In

addition, the revenues we report in our financial statements may show more variation due to our increased use of derivatives in connection with our variable price PPAs and the accounting principles associated with our use of those derivatives.

  To comply with obligations under their respective PPAs, certain of our project subsidiaries are structured as special purpose, bankruptcy remote entities and their assets and liabilities are

ring-fenced, and such assets are not generally available to pay the corporate debt (other than debt at the respective project subsidiary level).  However, these project subsidiaries are allowed to pay dividends and make distributions to us of all available and unrestricted cash flows generated by their assets.

  Revenues attributable to our Product Segment are based on the sale of equipment and the provision of various services to our customers. These revenues may vary from period to period

because of the timing of our receipt of purchase orders and the progress of our execution of each project.   Our management assesses the performance of our two segments of operation differently. In the case of our Electricity Segment, when making decisions about potential acquisitions or the

development of new projects, we typically focus on the internal rate of return of the relevant investment, technical and geological matters and other business considerations. We evaluate our operating power plants based on revenues and expenses, and our projects that are under development based on costs attributable to each such project. We evaluate the performance of our Product Segment based on the timely delivery of our products, performance quality of our products, revenues and expenses and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders.

  Trends and Uncertainties

  The geothermal industry in the United States has historically experienced significant growth followed by a consolidation of owners and operators of geothermal power plants. Since 2001,

there has been increased demand for energy generated from geothermal resources in the United States as costs for electricity generated from geothermal resources have become more competitive. Recently, much of this is attributable to legislative and regulatory requirements and incentives, such as state renewable portfolio standards and federal tax credits. The ARRA further encourages the use of geothermal energy through PTCs or ITCs as well as cash grants (which are discussed in more detail in the section entitled “Government Grants and Tax Benefits” below). In response, the geothermal industry in the United States has seen a wave of new entrants and, over the last several years, consolidation involving smaller developers. We believe that the future demand for energy generated from geothermal and other renewable resources in the United States will be driven by further commitment and implementation of renewable portfolio standards as well as the introduction of additional tax incentives. The trends that from time to time impact our operations are subject to market cycles.  

 

 ● The energy rates under the PPAs in California for each of the Ormesa complex, the Heber 1 and Heber 2 power plants in the Heber complex and the G2 power plant in the Mammoth

complex change primarily based on fluctuations in natural gas prices; and

  ● The prices paid for the electricity pursuant to the 25 MW PPA for the Puna complex in Hawaii change primarily due to variations in the price of oil.

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  Although other trends, factors and uncertainties may impact our operations and financial condition, including many that we do not or cannot foresee, we believe that our results of

operations and financial condition for the foreseeable future will be primarily affected by the following trends, factors and uncertainties:  

 

 

 

  In June 2013, the Nevada state legislature passed three bills that were signed by Nevada’s Governor and are expected to support renewable energy development in the state. Senate bill (SB) No. 123 calls for the retirement or elimination of not less than 800 MW of coal-fired electric generating capacity on or before December 31, 2019 and the construction or acquisition of, or contracting for, 350 MW of electric generating capacity from renewable energy facilities. Senate Bill 252 revises provisions relating to the renewable portfolio standard by removing energy efficiency, solar multipliers, and station usage from generating portfolio energy credits. Finally, Assembly Bill (AB) No. 239 Revised Statutes 701A.340 defines geothermal energy as renewable energy for purposes of tax abatements and makes geothermal projects eligible for partial sales and property tax abatements, with property tax abatements for a period of twenty years and local sales and use tax abatements for three years. In September 26, 2014 Governor Brown signed into law Assembly Bill No. 2363 (AB-2363), which requires the California Public Utilities Commission to adopt, by December 31, 2015, a methodology for determining the costs of integrating eligible renewable energy resources.

 

 

 ● We expect to continue to generate the majority of our revenues from our Electricity Segment through the sale of electricity from our power plants. All of our current revenues from the

sale of electricity are derived from payments under long-term PPAs related to fully-contracted power plants. We also intend to continue to pursue opportunities, as they arise in our recovered energy business, in the Solar PV sector and in other forms of clean energy.

 ● Our focus continues to be organic growth through exploration, development, construction of new projects and enhancements of existing power plants along with increasing

operational efficiency of our operating portfolio. We expect that our investment in organic growth will increase our total generating capacity, consolidated revenues and operating income attributable to our Electricity Segment from year to year. In addition, we routinely look at acquisition opportunities.

 

● The continued awareness of climate change may result in significant changes in the business and regulatory environments, which may create business opportunities for us. In 2011, the first phase of the EPA “Tailoring Rule” took effect. The Tailoring Rule sets thresholds addressing the applicability of the permitting requirements under the Clean Air Act’s Prevention of Significant Deterioration and Title V programs to certain major sources of GHG emissions. On June 23, 2014, the United States Supreme Court issued its decision in Utility Air Regulatory Group v. Environmental Protection Agency et al., No. 12-1146, in part addressing the Tailoring Rule. As a result of this decision, the EPA can no longer require stationary sources of greenhouse gas emissions to comply with requirements under the Clean Air Act’s Prevention of Significant Deterioration and Title V programs solely because of emissions of greenhouse gases. Since the court also held that the EPA lacked the authority to interpret the Clean Air Act’s and issue the Tailoring Rule, the EPA must formally adopt thresholds triggering application of the Clean Air Act’s Prevention of Significant Deterioration and Title V programs to stationary sources of greenhouse gas emissions that are subject to these programs in any event because of emissions of conventional pollutants. Different states have begun examining the effect of this decision on their applicable air emissions regulations. In addition to future establishment of these thresholds, federal legislation or additional federal regulations addressing climate change may be enacted.

 

● In June 2013, President Barack Obama announced a new national climate action plan, directing the EPA to complete new carbon dioxide pollution standards for both new and existing power plants. In addition, several states and regions are already addressing legislation to reduce GHG emissions. For example, California’s state climate change law, AB 32, which was signed into law in September 2006, regulates most sources of GHG emissions and aims to reduce GHG emissions to 1990 levels by 2020. On October 20, 2011 the CARB adopted cap-and-trade regulations to reduce California’s greenhouse gas emissions under AB 32. In addition to California, twenty U.S. states have set GHG emissions reduction targets and two states have reduction goals. Regional initiatives, such as the Western Climate Initiative (which includes California and four Canadian provinces) and the Midwest GHG Reduction Accord (which includes six U.S. states and one Canadian province), are also being developed to reduce GHG emissions and develop trading systems for renewable energy credits. In the United States, approximately 40 states have adopted RPS, renewable portfolio goals, or similar laws requiring or encouraging electric utilities in such states to generate or buy a certain percentage of their electricity from renewable energy sources or recovered heat sources. On April 12, 2011, the California Senate Bill X1-2 (SBX1-2) was signed into law, and increased California’s RPS to 33% by December 31, 2020 and instituted a tradable REC program. SBX1-2 is expected to foster a liquid tradable REC market and lead to more creative off-take arrangements. Although we cannot predict at this time whether the tradable REC program under SBX1-2 and its implementing regulations will have a significant impact on our operations or revenue, it may facilitate additional options when negotiating PPAs and selling electricity from our projects.

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  Our Puna Complex is located in the Puna District on the Big Island, Hawaii, which is the general area that has been impacted by the eruption of Klauea active volcano in June 27, 2014 and the resulting lave flow and continuing volcanic activity since then. Our power plants at the Puna Complex were not directly affected by the volcanic eruption and the resulting lava flow however, the uncertainties regarding the potential impact of the lava flow on the transmission lines owned and maintained by HELCO (our power purchaser) necessitated contingency planning and cooperation with HELCO in anticipation of a possible loss of transmission capacity. As of the date of this Annual Report on Form 10-K, Helco has implemented several measures to protect the two transmission lines over which power generated by the Puna complex is transmitted to the grid from the extreme heat generated by the lava flow passing through and around the transmission poles. As a result, our power plant was not affected from the lava flow and the transmission lines are operating at regular capacity. It is impossible to predict whether the lava flow or other new or recurring volcanic activity may subsequently adversely impact the operation of our Puna complex and the operational integrity of the transmission poles and the transmission lines. Our Puna complex revenues consist of capacity payments and energy payments from HELCO. In the event of declared force majeure, HELCO is required to continue to make capacity payments but is not required to make energy payments to the extent the force majeure event precludes us from delivering, or HELCO from accepting, the energy. Loss of energy payments under the Puna PPAs would have an adverse effect on our financial performance. Revenues generated by the Puna Complex comprised 7.9% of our total revenues in 2014.

 

 

 

● Outside of the United States, in November 2012, the United States, Brunei, and Indonesia formed the Asia-Pacific comprehensive partnership and President Obama announced the allocation of $6.0 billion for green energy development in Asia. Also, on June 30, 2013, President Obama announced the “Power Africa” initiative pursuant to which the United States will invest $7.0 billion in Sub-Saharan Africa over the following five years, with the aim of doubling access to power. The Sub-Sahara Africa includes three countries (Ethiopia, Kenya and Tanzania) that have large geothermal potential as well as operating geothermal power plants. We accelerated our efforts to expand business development activities in those areas by, among other things, participating in new applicable bids. In addition, we expect that a variety of governmental initiatives will create new opportunities for the development of new projects, as well as create additional markets for our products. These initiatives include the award of long-term contracts to independent power generators, the creation of competitive wholesale markets for selling and trading energy, capacity and related energy products and the adoption of programs designed to encourage “clean” renewable and sustainable energy sources.

 

● In the Electricity Segment, we expect competition from the wind and solar power generation industry to continue. While we believe the expected demand for renewable energy will be large enough to accommodate increased competition, any such increase and the amount of renewable energy under contract may contribute to a reduction in electricity prices. Despite increased competition from the wind and solar power generation industry, we believe that base load electricity, such as geothermal-based energy, will continue to be an important source of renewable energy in areas with commercially viable geothermal resource. Also, geothermal power plants positively impact electrical grid stability and provide valuable ancillary services because of their base load nature while the intermittent renewables create integration costs. In the geothermal industry, we are experiencing a notable decrease in competition, specifically in the acquisition of geothermal leases. The reduced level of competition has contributed to a decrease in lease costs.

 

● In the Product Segment, we expect increased competition from binary power plant equipment suppliers including the major steam turbine manufacturers. While we believe that we have a distinct competitive advantage based on our accumulated experience and current worldwide share of installed binary generation capacity, an increase in competition may impact our ability to secure new purchase orders from potential customers. The increased competition may also lead to a reduction in the prices that we are able to charge for our binary equipment, which in turn may impact our profitability.

 ● The changing natural gas landscape, the resulting effect on natural gas pricing (in either direction) and the corresponding implications for electric utilities and other producers of

electricity in terms of planning for and choosing a source of fuel, will affect the pricing under our PPAs that have SRAC pricing, as described below.

 

● The 38 MW Puna complex has three PPAs, of which the 25 MW PPA has a monthly variable energy rate based on the local utility’s avoided costs. A decrease in the price of oil will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from oil, which will result in a reduction of the energy rate that we may charge under this PPA. In order to reduce our exposure to oil, we recently signed a fixed rate PPAs for the rest of the complex. In the meantime, we have entered into put and swap contracts to reduce our exposure to fluctuations in the energy rate caused by fluctuations in oil prices through December 31, 2014. Our use of derivative instruments for this purpose has increased, and may continue to be used to manage our economic exposure.

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  Revenues

  We generate our revenues from the sale of electricity from our geothermal and recovered energy-based power plants; the design, manufacture and sale of equipment for electricity

generation; and the construction, installation and engineering of power plant equipment.   Revenues attributable to our Electricity Segment are derived from the sale of electricity from our power plants pursuant to long-term PPAs. While approximately 70.0% of our Electricity

revenues for the year ended December 31, 2014 were derived from PPAs with fixed price components, we have variable price PPAs in California and Hawaii. Our 143 MW California SO#4 PPAs are subject to the impact of fluctuations in natural gas prices whereas the prices paid for electricity pursuant to the 25 MW PPA for the Puna complex in Hawaii are impacted by the price of oil. Accordingly, our revenues from those power plants may fluctuate. In each of 2013 and 2014, we entered into derivative transactions in an attempt to reduce our exposure to fluctuations in the prices of oil from Puna’s PPAs until December 31, 2014, and natural gas from California SO#4 PPAs until March 31, 2015.

  Our Electricity Segment revenues are also subject to seasonal variations, as more fully described in “Seasonality” below.

 

 

 

● We had PPAs for the Ormesa, Mammoth and Heber complexes for a total of 161 MW that were fixed until May 1, 2012. Thereafter, the energy price component under these PPAs changed from a fixed rate to a variable rate based on SRAC pricing that is impacted by natural gas prices. In 2013, we signed new fixed rate PPAs that reduced our current exposure to SRAC by 18 MW and by additional 44 MW in 2016. We have entered into derivative transactions at a fixed price of $4.07 per MMbtu for the year 2014 to reduce further our exposure to fluctuations in natural gas prices through December 31, 2014 and $4.95 per MMbtu for the period from January 1, 2015 until March 31, 2015. Our use of derivative instruments for this purpose has increased, and likely will continue to be used to manage our economic exposure.

 ● The viability of a geothermal resource depends on various factors such as the resource temperature, the permeability of the resource (i.e., the ability to get geothermal fluids to the

surface) and operational factors relating to the extraction and injection of the geothermal fluids. Such factors, together with the possibility that we may fail to find commercially viable geothermal resources in the future, represent significant uncertainties that we face in connection with our growth expectations.

 ● As our power plants (including their respective well fields) age, they may require increased maintenance with a resulting decrease in their availability, potentially leading to the

imposition of penalties if we are not able to meet the requirements under our PPAs as a result of any decrease in availability.

 

● Our foreign operations are subject to significant political, hostility, economic and financial risks, which vary by country. As of the date of this annual report, those risks include security conditions in Israel, the partial privatization of the electricity sector in Guatemala and the political uncertainty currently prevailing in some of the countries in which we operate. Although we maintain among other things political risk insurance for most of our investments in foreign power plants to mitigate these risks, insurance does not provide complete coverage with respect to all such risks.

 

● The Sarulla 330 MW project was released for construction, and we began to recognize our first product segment revenues in the quarter ended September 30, 2014, under the supply contract we signed with the EPC contractor. Going forward we expect to derive significant revenues from the supply contract. We expect to generate additional income from our 12.75% equity investment in the Sarulla consortium. The Sarulla project’s future operations may be impacted by various factors which we do not control given our minority position in the consortium, as well as other factors discussed above under “Risk Factors”.

 

● FERC is allowed under PURPA to terminate, upon the request of a utility, the obligation of electric utilities to purchase the output of a Qualifying Facility if FERC finds that there is an accessible competitive market for energy and capacity from the Qualifying Facility. The legislation does not affect existing PPAs. We do not expect this change in law to affect our U.S. power plants significantly, as all of our current PPAs are long-term. FERC has granted the California investor owned utilities a waiver of the mandatory purchase obligations from Qualifying Facilities above 20 MW. If the utilities in the regions in which our domestic power plants operate were to be relieved of the mandatory purchase obligation, they would not be required to purchase energy from us upon termination of the existing PPA, which could have an adverse effect on our revenues.

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    Our PPAs generally provide for energy payments alone, or energy and capacity payments. Generally, capacity payments are payments calculated based on the amount of time that our

power plants are available to generate electricity. Some of our PPAs provide for bonus payments in the event that we are able to exceed certain target capacity levels and the potential forfeiture of payments if we fail to meet certain minimum target capacity levels. Energy payments, on the other hand, are payments calculated based on the amount of electrical energy delivered to the relevant power purchaser at a designated delivery point. The rates applicable to such payments are either fixed (subject, in certain cases, to certain adjustments) or are based on the relevant power purchaser’s avoided costs. Our more recent PPAs generally provide for energy payments alone with an obligation to compensate the off-taker for its incremental costs as a result of shortfalls in our supply.

  Revenues attributable to our Product Segment fluctuate between periods, mainly based on our ability to receive customer orders and the status and timing of such orders. Larger

customer orders for our products are typically the result of our participating in, and winning, tenders or requests for proposals issued by potential customers in connection with projects they are developing. Such projects often take a significant amount of time to design and develop and are subject to various contingencies, such as the customer’s ability to raise the necessary financing for a project. Consequently, we are generally unable to predict the timing of such orders for our products and may not be able to replace existing orders that we have completed with new ones. As a result, revenues from our Product Segment fluctuate (sometimes, extensively) from period to period. In both 2012 and 2013, we experienced a significant increase in our Product Segment customer orders, which has increased our Product Segment backlog. The backlog for our Product Segment as of February 26, 2015, is described above in Item 1 — “Business”.  

 

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  The following table sets forth a breakdown of our revenues for the years indicated:

 

  Geographic Breakdown of Revenues

  The following table sets forth the geographic breakdown of the revenues attributable to our Electricity and Product Segments for the years indicated:

 

  Seasonality   The prices paid for the electricity generated by some of our domestic power plants pursuant to our PPAs are subject to seasonal variations. The prices (mainly for capacity) paid for

electricity under the PPAs with Southern California Edison and Pacific Gas & Electric in California for the Heber 1 and 2 power plants in the Heber complex, the Mammoth complex, the Ormesa complex, and the North Brawley power plant are higher in the months of June through September. As a result, we receive, and expect to continue to receive in the future, higher revenues during such months. In the winter, our power plants produce more energy principally due to the lower ambient temperature, which has a favorable impact on our energy revenues. However, the higher payments payable by Southern California Edison and Pacific Gas & Electric Company in the summer months have a more significant impact on our revenues than that of the higher energy revenues generally generated in winter due to increased efficiency. As a result, our electricity revenues are generally higher in the summer than in the winter.

  Breakdown of Cost of Revenues

  Electricity Segment

  The principal cost of revenues attributable to our operating power plants includes operation and maintenance expenses comprised of salaries and related employee benefits, equipment

expenses, costs of parts and chemicals, costs related to third-party services, lease expenses, royalties, startup and auxiliary electricity purchases, property taxes, insurance and, for some of our projects, purchases of make-up water for use in our cooling towers and also depreciation and amortization. In our California power plants our principal cost of revenues also includes transmission charges and scheduling charges. Some of these expenses, such as parts, third-party services and major maintenance, are not incurred on a regular basis. This results in fluctuations in our expenses and our results of operations for individual power plants from quarter to quarter. Payments made to government agencies and private entities on account of site leases where plants are located are included in cost of revenues. Royalty payments, included in cost of revenues, are made as compensation for the right to use certain geothermal resources and are paid as a percentage of the revenues derived from the associated geothermal rights. Royalties constituted approximately 4.3% and 4.2% of Electricity Segment revenues for the years ended December 31, 2014 and December 31, 2013, respectively.  

 

    Revenues (dollars in thousands)     % of Revenues for Period Indicated  

    Year Ended December 31,     Year Ended December 31,  

    2014     2013     2012     2014     2013     2012  Revenues:                                                

Electricity   $ 382,301     $ 329,747     $ 314,894       68.3 %     61.8 %     62.8 % Product     177,223       203,492       186,879       31.7       38.2       37.2  

Total revenues   $ 559,524     $ 533,239     $ 501,773       100.0 %     100.0 %     100.0 %

    Revenues in Thousands     % of Revenues for Period Indicated  

    Year Ended December 31,     Year Ended December 31,  

    2014     2013     2012     2014     2013     2012  Electricity Segment:                                                

United States   $ 268,198     $ 246,112     $ 246,070       70.2 %     74.6 %     78.1 % Foreign     114,103       83,635       68,824       29.8       25.4       21.9  

Total   $ 382,301     $ 329,747     $ 314,894       100.0%     100.0%     100.0%

                                                 Product Segment:                                                

United States   $ 17,000     $ 55,101     $ 21,374       9.6 %     27.1 %     11.4 % Foreign     160,223       148,391       165,505       90.4       72.9       88.6  

Total   $ 177,223     $ 203,492     $ 186,879       100.0%     100.0%     100.0%

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  Product Segment

  The principal cost of revenues attributable to our Product Segment includes materials, salaries and related employee benefits, expenses related to subcontracting activities, and

transportation expenses. Sales commissions to sales representatives are included in selling and marketing expenses. Some of the principal expenses attributable to our Product Segment, such as a portion of the costs related to labor, utilities and other support services are fixed, while others, such as materials, construction, transportation and sales commissions, are variable and may fluctuate significantly, depending on market conditions. As a result, the cost of revenues attributable to our Product Segment, expressed as a percentage of total revenues, fluctuates. Another reason for such fluctuation is that in responding to bids for our products, we price our products and services in relation to existing competition and other prevailing market conditions, which may vary substantially from order to order.

  Cash and Cash Equivalents

   

Our cash and cash equivalents, as of December 31, 2014 decreased to $40.2 million from $57.4 million as of December 31, 2013. This decrease is principally due to: (i) our use of $158.8 million to fund capital expenditures; (ii) a net change in restricted cash and cash equivalents of $42.2 million; (iii) $12.9 million of cash used to repurchase portion of Ormat Funding LLC (OFC) Senior Secured Notes; (iv) net repayment of $91.7 million used under our revolving credit lines with commercial banks; (v) repayment of $111.2 million of long-term debt; (vi) $11.3 million of cash paid to noncontrolling interest; and (vii) $9.6 million cash dividend paid. This decrease was partially offset by: (i) an additional $140.0 million of proceeds from sale of series C Senior Secured Notes in August 2014 by OFC2 to finance a portion of the construction costs of Phase 2 of the McGinness Hills facility as described below under “Non-Recourse and Limited-Recourse Third-Party Debt”; (ii) $220.9 million derived from operating activities during the year ended December 31, 2014; (iii) cash grant of $27.4 million received from the U.S. Treasury under Section 1603 of the ARRA relating to our Don A. Campbell geothermal power plant and our G1 refurbishment power plant at the Mammoth Complex; and (iv) $35.3 million cash received from the sale of the Heber Solar plant. Our corporate borrowing capacity under committed lines of credit with different commercial banks as of December 31, 2014 was $555.2 million, as described below in “Liquidity and Capital Resources”, of which we have utilized $357.2 million as of December 31, 2014.

  Critical Accounting Estimates and Assumptions

  Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements set forth in Item 8 of this annual report. However, certain of our accounting

policies are particularly important to an understanding of our financial position and results of operations. In applying these critical accounting estimates and assumptions, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. Such estimates are based on management’s historical experience, the terms of existing contracts, management’s observance of trends in the geothermal industry, information provided by our customers and information available to management from other outside sources, as appropriate. Such estimates are subject to an inherent degree of uncertainty and, as a result, actual results could differ from our estimates. Our critical accounting policies include:

 

  Revenues generated from the construction of geothermal and recovered energy-based power plant equipment and other equipment on behalf of third parties (product revenues) are recognized using the percentage of completion method, which requires estimates of future costs over the full term of product delivery. Such cost estimates are made by management based on prior operations and specific project characteristics and designs. If management’s estimates of total estimated costs with respect to our Product Segment are inaccurate, then the percentage of completion is inaccurate resulting in an over- or under-estimate of gross margins. As a result, we review and update our cost estimates on significant contracts on a quarterly basis, and at least on an annual basis for all others, or when circumstances change and warrant a modification to a previous estimate. Changes in job performance, job conditions, and estimated profitability, including those arising from the application of penalty provisions in relevant contracts and final contract settlements, may result in revisions to costs and revenues and are recognized in the period in which the revisions are determined. Provisions for estimated losses relating to contracts are made in the period in which such losses are determined. Revenues generated from engineering and operating services and sales of products and parts are recorded once the service is provided or product delivery is made, as applicable.

 

 

 • Revenues and Cost of Revenues. Revenues related to the sale of electricity from our geothermal and REG power plants and capacity payments paid in connection with such sales

(electricity revenues) are recorded based upon output delivered and capacity provided by such power plants at rates specified pursuant to the relevant PPAs. Revenues related to PPAs accounted for as operating leases with minimum lease rentals which vary over time are generally recognized on a straight-line basis over the term of the PPA.

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  We capitalize costs incurred in connection with the exploration and development of geothermal resources beginning when we acquire land rights to the potential geothermal resource. Prior to acquiring land rights, we make an initial assessment that an economically feasible geothermal reservoir is probable on that land using available data and external assessments vetted through our exploration department and occasionally outside service providers. Costs incurred prior to acquiring land rights are expensed. It normally takes two to three years from the time we start active exploration of a particular geothermal resource to the time we have an operating production well, assuming we conclude the resource is commercially viable.

  In most cases, we obtain the right to conduct our geothermal development and operations on land owned by the BLM, various states or with private parties. In consideration for certain of these leases, we may pay an up-front non-refundable bonus payment which is a component of the competitive lease process. This payment and other related costs (such as legal fees) are capitalized and included in construction-in-process. Once we acquire land rights to the potential geothermal resource, we perform additional activities to assess the commercial viability of the resource. Such activities include, among others, conducting surveys and other analyses, obtaining drilling permits, creating access roads to drilling sites, and exploratory drilling which may include temperature gradient holes and/or slim holes. Such costs are capitalized and included in construction-in-process. Once our exploration activities are complete, we finalize our assessment as to the commercial viability of the geothermal resource and either proceed to the construction phase for a power plant or abandon the site. If we decide to abandon a site, all previously capitalized costs associated with the exploration project are written off.

  Our assessment of economic viability of an exploration project involves significant management judgment and uncertainties as to whether a commercially viable resource exists at the time we acquire land rights and begin to capitalize such costs. As a result, it is possible that our initial assessment of a geothermal resource may be incorrect and we will have to write-off costs associated with the project that were previously capitalized. For example, during the years ended December 31, 2014, and 2013, we determined that the geothermal resource at two and three of our exploration projects, respectively, would not support commercial operations and as such, we abandoned those sites. As a result of this determination, we expensed $15,439,000 and $4,094,000 of capitalized costs during the years ended December 31, 2014 and 2013, respectively. Due to the uncertainties inherent in geothermal exploration, these historical impairments may not be indicative of future impairments. Included in construction-in-process are costs related to projects in exploration and development of $73,431,000 and $69,639,000 at December 31, 2014 and 2013, respectively. Included in this amount, $26,618,000 and $30,141,000 relates to up-front bonus payments at December 31, 2014 and 2013, respectively.

 

  We test our operating plants that are operated together as a complex for impairment at the complex level because the cash flows of such plants result from significant shared operating activities. For example, the operating power plants in a complex are managed under a combined operation management generally with one central control room that controls and one maintenance group that services all of the power plants in a complex. As a result, the cash flows from individual plants within a complex are not largely independent of the cash flows of other plants within the complex. We test for impairment of our operating plants which are not operated as a complex, as well as our projects under exploration, development or construction that are not part of an existing complex, at the plant or project level. To the extent an operating plant becomes part of a complex in the future, we will test for impairment at the complex level.

 

 

 

• Property, Plant and Equipment. We capitalize all costs associated with the acquisition, development and construction of power plant facilities. Major improvements are capitalized and repairs and maintenance (including major maintenance) costs are expensed. We estimate the useful life of our power plants to range between 25 and 30 years. Such estimates are made by management based on factors such as prior operations, the terms of the underlying PPAs, geothermal resources, the location of the assets and specific power plant characteristics and designs. Changes in such estimates could result in useful lives which are either longer or shorter than the depreciable lives of such assets. We periodically re-evaluate the estimated useful life of our power plants and revise the remaining depreciable life on a prospective basis.

 

• Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. We evaluate long-lived assets, such as property, plant and equipment and construction-in-process for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors which could trigger an impairment include, among others, significant underperformance relative to historical or projected future operating results, significant changes in our use of assets or our overall business strategy, negative industry or economic trends, a determination that an exploration project will not support commercial operations, a determination that a suspended project is not likely to be completed, a significant increase in costs necessary to complete a project, legal factors relating to our business or when we conclude that it is more likely than not that an asset will be disposed of or sold.

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Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset. The significant assumptions that we use in estimating our undiscounted future cash flows include (i) projected generating capacity of the power plant and rates to be received under the respective PPA and (ii) projected operating expenses of the relevant power plant. Estimates of future cash flows used to test recoverability of a long-lived asset under development also include cash flows associated with all future expenditures necessary to develop the asset. If future cash flows are less than the assumptions we used in such estimates, we may incur impairment losses in the future that could be material to our financial condition and/or results of operations.

  If our assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. We believe that for year ended December 31, 2014, no impairment exists for any of our long-lived assets; however, estimates as to the recoverability of such assets may change based on revised circumstances. Estimates of the fair value of assets require estimating useful lives and selecting a discount rate that reflects the risk inherent in future cash flows.

  The North Brawley geothermal power plant and the OREG 4 REG power plant were tested for impairment in 2012 and impairment charges were taken in 2012 for these plants as described in Note 6 of our consolidated financial statements.

 

 

  We evaluate our ability to utilize the deferred tax assets quarterly and assess the need for the valuation allowance. In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can be affected by changes in tax laws, statutory tax rates, and future taxable income. We have recorded a valuation allowance related to our U.S. deferred tax assets. In the future, if there is sufficient evidence that we will be able to generate sufficient future taxable income in the U.S., we may be required to reduce this valuation allowance, resulting in income tax benefits in our consolidated statement of operations.

  In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, which is greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information, we recognize between 0 to 100% of the tax benefit. . For those income tax positions where it is not more likely than not that a tax benefit will be sustained, we do not recognize any tax benefit in the consolidated financial statements. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition or results of operations.

  New Accounting Pronouncements

  See Note 1 to our consolidated financial statements set forth in Item 8 of this annual report for information regarding new accounting pronouncements.

 

 

 

• Obligations Associated with the Retirement of Long-Lived Assets. We record the fair market value of legal liabilities related to the retirement of our assets in the period in which such liabilities are incurred. These liabilities include our obligation to plug wells upon termination of our operating activities, the dismantling of our power plants upon cessation of our operations, and the performance of certain remedial measures related to the land on which such operations were conducted. When a new liability for an asset retirement obligation is recorded, we capitalize the costs of such liability by increasing the carrying amount of the related long-lived asset. Such liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. At retirement, we either settle the obligation for its recorded amount or report either a gain or a loss with respect thereto. Estimates of the costs associated with asset retirement obligations are based on factors such as prior operations, the location of the assets and specific power plant characteristics. We review and update our cost estimates periodically and adjust our asset retirement obligations in the period in which the revisions are determined. If actual results are not consistent with our assumptions used in estimating our asset retirement obligations, we may incur additional losses that could be material to our financial condition or results of operations.

 

• Accounting for Income Taxes. Significant estimates are required to arrive at our consolidated income tax provision and other tax balances. This process requires us to estimate our actual current tax exposure and to make an assessment of temporary differences resulting from differing treatments of items for tax and accounting purposes. Such differences result in deferred tax assets and liabilities which are included in our consolidated balance sheets. For those jurisdictions where the projected operating results indicate that realization of our net deferred tax assets is not more likely than not, a valuation allowance is recorded.

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  Results of Operations

  Our historical operating results in dollars and as a percentage of total revenues are presented below. A comparison of the different years described below may be of limited utility due to

(i) our recent construction or disposition of new power plants and enhancement of acquired power plants and (ii) fluctuation in revenues from our Product Segment.  

 

 

    Year Ended December 31,      2014     2013     2012 As Revised  

    (Dollars in thousands, except per share data)  Statements of Operations Historical Data:                        Revenues:                        

Electricity   $ 382,301     $ 329,747     $ 314,894  Product     177,223       203,492       186,879  

      559,524       533,239       501,773  Cost of revenues:                        

Electricity     246,630       232,874       237,415  Product     109,143       140,547       135,346  

      355,773       373,421       372,761  Gross margin                        

Electricity     135,671       96,873       77,479  Product     68,080       62,945       51,533  

      203,751       159,818       129,012  Operating expenses:                        

Research and development expenses     783       4,965       6,108  Selling and marketing expenses     15,425       24,613       15,718  General and administrative expenses     28,614       29,188       28,066  Impairment charge     —      —      236,377  Write-off of unsuccessful exploration activities     15,439       4,094       2,639  

Operating income (loss)     143,490       96,958       (159,896)Other income (expense):                        

Interest income     312       1,332       1,201  Interest expense, net     (84,654)     (73,776)     (64,069)Foreign currency translation and transaction gains (losses)     (5,839)     5,085       242  Income attributable to sale of tax benefits     24,143       19,945       10,127  Gain from sale of property, plant and equipment     7,628                Other non-operating income, net     756       1,592       590  

Income (loss) from continuing operations, before income taxes and equity in income of investees equity in income of investees     85,836       51,136       (211,805)

Income tax provision     (27,608)     (13,552)     (1,827)Equity in losses of investees, net     (3,213)     (250)     (2,522)

Income (loss) from continuing operations     55,015       37,334       (216,154)Discontinued operations:                        

Income from discontinued operations (including gain on disposal of ,$0, $3,646 and $0, respectively)     —      5,311       4,811  Income tax provision     —      (614)     (1,264)Total income from discontinued operations     —      4,697       3,547  

                         Net income (loss)     55,015       42,031       (212,607)Net loss attributable to noncontrolling interest     (833)     (793)     (414)Net income (loss) attributable to the Company's stockholders   $ 54,182     $ 41,238     $ (213,021)

Earnings (loss) per share attributable to the Company's stockholders:                        Basic:                        

Income (loss) from continuing operations   $ 1.19     $ 0.81     $ (4.77)Discontinued operations     —      0.10       0.08  Net income (loss)   $ 1.19     $ 0.91     $ (4.69)

Diluted:                        Income (loss) from continuing operations   $ 1.18     $ 0.81     $ (4.77)Discontinued operations     —      0.10       0.08  Net income (loss)   $ 1.18     $ 0.91     $ (4.69)

Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders:                        

Basic     45,623       45,440       45,431  

Diluted     45,974       45,475       45,431  

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  Comparison of the Year Ended December 31, 2014 and the Year Ended December 31, 2013    Total Revenues  

Total revenues for the year ended December 31, 2014 were $559.5 million, compared to $533.2 million for the year ended December 31, 2013, which represented a 4.9% increase in total revenues. This increase was attributable to our Electricity Segment, in which revenues increased by 15.9% over the corresponding period in 2013. This increase was offset due to a 12.9% decrease in our Product Segment over the corresponding period in 2013.

  Electricity Segment  

Revenues attributable to our Electricity Segment for the year ended December 31, 2014 were $382.3 million, compared to $329.7 million for the year ended December 31, 2013, which represented a 15.9% increase in such revenues. This increase was primarily due to: (i) the increase in generation as a result of the commencement of operations of our Plant 2 and 3 at the Olkaria III complex in Kenya, which commenced commercial operations in May 2013 and January 2014, respectively, and our Don A. Campbell power plant in Nevada, which commenced commercial operation in December 2013; (ii) higher energy rates under the SO#4 contracts; and (iii) net gain on derivative contracts on oil and natural gas prices of $5.7 million in the year ended December 31, 2014, compared to a net loss of $5.0 million over the corresponding period in 2013.  

 

    Year Ended December 31,      2014     2013     2012  Statements of Operations Data:                        Revenues:                        

Electricity     68.3 %     61.8 %     62.8 % Product     31.7       38.2       37.2  

      100.0       100.0       100.0  Cost of revenues:                        

Electricity     64.5       70.6       75.4  Product     61.6       69.1       72.4  

      63.6       70.0       74.3  Gross margin                        

Electricity     35.5       29.4       24.6  Product     38.4       30.9       27.6  

      36.4       30.0       25.7  Operating expenses:                        

Research and development expenses     0.1       0.9       1.2  Selling and marketing expenses     2.8       4.6       3.1  General and administrative expenses     5.1       5.5       5.6  Impairment charge     0.0       0.0       47.1  Write-off of unsuccessful exploration activities     2.8       0.8       0.5  

Operating income (loss)     25.6       18.2       (31.9)Other income (expense):                        

Interest income     0.1       0.2       0.2  Interest expense, net     (15.1)     (13.8)     (12.8)Foreign currency translation and transaction gains (losses)     (1.0)     1.0       0.0  Income attributable to sale of tax benefits     4.3       3.7       2.0  Other non-operating income, net     0.1       0.3       0.1  

                         Income (loss) from continuing operations, before income taxes and equity in income of investees     15.3       9.6       (42.2)

Income tax provision     (4.9)     (2.5)     (0.4)Equity in losses of investees, net     (0.6)     (0.0)     (0.5)

Income (loss) from continuing operations     9.8       7.0       (43.1)Discontinued operations:                        

Income from discontinued operations (including gain on disposal of ,$0, $3,646 and $0, respectively)     0.0       1.0       1.0  Income tax provision     0.0       (0.1)     (0.3)Total income from discontinued operations     0.0       0.9       0.7  

                         Net income (loss)     9.8       7.9       (42.4)Net loss attributable to noncontrolling interest     (0.1)     (0.1)     (0.1)

Net income (loss) attributable to the Company's stockholders     9.7 %     7.7 %     (42.5)%

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     Power generation in our power plants increased by 4.6% from 4,253,489 MWh in the year ended December 31, 2013 to 4,450,910 MWh in the year ended December 31, 2014.

  Product Segment  

Revenues attributable to our Product Segment for the year ended December 31, 2014 were $177.2 million, compared to $203.5 million for the year ended December 31, 2013, which represented a 12.9% decrease. This decrease in our Product Segment revenues was primarily due to timing of revenue recognition and different product mix.

  Total Cost of Revenues  

Total cost of revenues for the year ended December 31, 2014 was $355.8 million, compared to $373.4 million for the year ended December 31, 2013, which represented a 4.7% decrease. This decrease was primarily due to the decrease in cost of revenues from our Product Segment. The decrease was partially offset due to an increase in cost of revenues from our Electricity Segment. As a percentage of total revenues, our total cost of revenues for the year ended December 31, 2014 decreased to 63.6%, compared to 70.0% for the year ended December 31, 2013. This decrease was attributable to a decrease in cost of revenues as a percentage of total revenues, in both our Electricity and Product Segments, as further explained below.

  Electricity Segment  

Total cost of revenues attributable to our Electricity Segment for the year ended December 31, 2014 was $246.6 million, compared to $232.9 million for the year ended December 31, 2013, which represented a 5.9% increase. This increase was primarily due to additional cost of revenues from the new power plants that commenced commercial operation in 2013 and 2014, as discussed above. As a percentage of total Electricity Segment revenues, the total cost of revenues attributable to our Electricity Segment for the year ended December 31, 2014 was 64.5%, compared to 70.6% for the year ended December 31, 2013. This decrease was mainly due to new power plants that came on line with lower operating expenses due to higher efficiency.

    Product Segment

  Total cost of revenues attributable to our Product Segment for the year ended December 31, 2014 was $109.1 million, compared to $140.5 million for the year ended December 31, 2013,

which represented a 22.3% decrease. This decrease was primarily due to the decrease in Product Segment revenues as discussed above. As a percentage of total Product Segment revenues, our total cost of revenues attributable to the Product Segment for the year ended December 31, 2014 was 61.6%, compared to 69.1% for the year ended December 31, 2013. The decrease was mainly attributable to the different product mix and different margins in the various sales contracts we entered into for this segment during these periods, as well as manufacturing enhancements that we effected during the year.

  Research and Development Expenses  

Research and development expenses excluding grants from the U.S Department of Energy were $1.3 million for the year ended December 31, 2014, compared to $6.6 million for the year ended December 31, 2013. Research and development expenses are net of grants from the U.S Department of Energy in the amount of $0.5 million and $1.6 million for the years ended December 31, 2014 and 2013, respectively, related to the Enhanced Geothermal Systems project. Research and development expenses for the year ended December 31, 2014 were $0.8 million, compared to $5.0 million for the year ended December 31, 2013.

  Selling and Marketing Expenses  

Selling and marketing expenses for the year ended December 31, 2014 were $15.4 million, compared to $24.6 million for the year ended December 31, 2013. The decrease was primarily due to a one-time early termination fee in the amount of $9.0 million we paid to SCE in the first quarter of 2013 to terminate PPAs for the G1 and G3 power plants in the Mammoth complex, and from a $2.6 million termination fee paid to NV Energy related to the termination of the Dixie Meadows PPA. The decrease was partially offset due to higher sales commissions related to our Product Segment due to different commissions mix. Excluding the one-time termination fees, selling and marketing expenses for the year ended December 31, 2014 constituted 2.8% of total revenues for such year, compared to 2.4% of such revenues for the year ended December 31, 2013.  

 

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  General and Administrative Expenses  

General and administrative expenses for the year ended December 31, 2014 were $28.6 million, compared to $29.2 million for the year ended December 31, 2013. General and administrative expenses for the year ended December 31, 2014, constituted 5.1% of total revenues for such year, compared to 5.5% for the year ended December 31, 2013.

  Write-off of Unsuccessful Exploration Activities  

Write-off of unsuccessful exploration activities for the year ended December 31, 2014 was $15.4 million compared to $4.1 million for the year ended December 31, 2013. Write-off of unsuccessful exploration activities for the year ended December 31, 2014 represented the costs of $8.1 million related to our exploration activities in the Wister site in California, and $7.3 million related to our exploration activities in the Mount Spurr site in Alaska, which we determined in the second and the fourth quarters of 2014, respectively, would not support commercial operation. The majority of the write-off of unsuccessful exploration activities for the year ended December 31, 2013 represented the costs (including land costs) related to the Drum Mountain prospect in Utah, which we determined in the fourth quarter of 2013 would not support commercial operations.

  Operating Income  

Operating income for the year ended December 31, 2014 was $143.5 million, compared to $97.0 million for the year ended December 31, 2013, an increase of 48.0%. The increase in operating income was principally attributable to: (i) the increase in our gross margin in our Electricity Segment and (ii) one-time early termination fees of $11.6 million included in 2013 in selling and marketing expenses discussed above. This increase was partially offset due to write-off of unsuccessful exploration activities, as discussed above. Operating income attributable to our Electricity Segment for the year ended December 31, 2014 was $90.4 million, compared to $54.3 million for the year ended December 31, 2013. Operating income attributable to our Product Segment for the year ended December 31, 2014 was $53.1 million, compared to $42.7 million for the year ended December 31, 2013.

  Interest Expense, Net  

Interest expense, net, for the year ended December 31, 2014 was $84.7 million, compared to $73.8 million for the year ended December 31, 2013, which represented a 14.7% increase. This $10.9 million increase was primarily due to: the conversion in July 2013 of OPIC interest loans from floating interest rate to fixed interest rate; and a $4.4 million decrease related to interest capitalized to projects.

  Foreign Currency Translation and Transaction Gains (Losses)

  Foreign currency translations and transaction losses for the year ended December 31, 2014 were $5.8 million, compared to gains of $5.1 million for the year ended December 31, 2013. The

loss in 2014 was primarily due to foreign currency forward contracts that we entered into to hedge our exposure to the NIS for the year ended December 31, 2014, which were not accounted for as hedge transactions.

  Income Attributable to Sale of Tax Benefits  

Income attributable to the sale of tax benefits to institutional equity investors (as described in “OPC Transaction” and “ORTP Transaction” each below) for the year ended December 31, 2014 was $24.1 million, compared to $19.9 million for the year ended December 31, 2013. This income represents the value of PTCs and taxable income or loss generated by OPC and ORTP and allocated to the investors in the amount of $7.0 million and $17.1 million, respectively, in the year ended December 31, 2014, compared to $5.4 million and $14.5 million, respectively, in the year ended December 31, 2013. The increase was primarily attributable to an additional payment we received in the three months ended March 31, 2014, in the amount of $2.2 million related to the ORTP transaction which represented 25% of the value of PTC’s generated.

  Gain from sale of Property, Plant and Equipment  

Gain from sale of property, plant and equipment for the year ended December 31, 2014 was $7.6 million. This gain relates to the sale of the Heber Solar project in Imperial County, California for $35.25 million in the first quarter of 2014. We received the first payment of $15.0 million in the first quarter of 2014, and the second payment of the remaining $20.25 million in the second quarter of 2014. We recognized the gain in the second quarter of 2014. There was no gain on sale of property, plant and equipment in the year ended December 31, 2013.  

 

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   Income Taxes

  Income tax provision for the year ended December 31, 2014 was $27.6 million, compared to $13.6 million for the year ended December 31, 2013. The increase in income tax provision primarily

resulted from the increase in income before taxes in jurisdictions outside the United States. Our effective tax rate for the years ended December 31, 2014 and 2013, was 32.2% and 26.5%, respectively. The effective tax rate differs from the federal statutory rate of 35% for the year ended December 31, 2014 primarily due to un-benefited losses in the U.S. and certain foreign jurisdictions.

  For the year ended December 31, 2014 and 2013, we recorded a valuation allowance in the amount of approximately $111.3 million and $114.8 million respectively, against our U.S. deferred tax

assets in respect of net operating loss (NOL) carryforwards and unutilized tax credits (PTCs and ITCs). As of December 31, 2014 we had U.S. federal NOLs in the amount of approximately $251.4 million, state NOLs in the amount of approximately $216.5 million, and unutilized tax credits of approximately $71.4 million, all of which can be carried forward for 20 years. The related deferred tax assets totaled approximately $111.3 million. Realization of these deferred tax assets and tax credits is dependent on generating sufficient taxable income in the U.S. prior to expiration of the NOL carryforwards and tax credits. The scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies were considered in determining the amount of valuation allowance. A valuation allowance in the amount of $111.3 million was recorded against the U.S. deferred tax assets as of December 31, 2014 as at that point in time, we believe it is more likely than not that the deferred tax assets will not be realized. Subsequent to the balance sheet date, and as more fully described in Note 24 of the consolidated financial statements, we entered into a significant non-routine transaction for the partial sale of certain assets which is expected to result in a taxable gain in the U.S., for which we expect to utilize a portion of its NOL carryforwards and tax credits. In 2015 or in future years , if sufficient additional evidence of our ability to generate taxable income is established in the future we may be required to reduce or fully release the valuation allowance, resulting in income tax benefits in our consolidated statement of operations.

  Equity in losses of investee   Equity in losses of investee in the year ended December 31, 2014 was $3.2 million, compared to $0.3 million in the year ended December 31, 2013. Equity in losses of investee derived from our

12.75% ownership in Sarulla project.  

Income from Continuing Operations  

Income from continuing operations for the year ended December 31, 2014 was $55.0 million, compared to $37.3 million for the year ended December 31, 2013, an increase of 47.4%. The increase in income from continuing operations of $17.7 million was principally attributable to (i) a $46.5 million increase in operating income; (ii) a $7.6 million gain on sale of property, plant and equipment; and (iii) a $4.2 million increase in income attributable to sale of tax benefits all as discussed above. This increase was partially offset by (i) a $10.9 million increase in interest expense, net; (ii) a $10.9 million increase in foreign currency translation and transaction losses; and (iii) a $14.1 million increase in income tax provision.

  Discontinued Operations

  In June 2013, our wholly-owned subsidiary sold its interest in MPC, the operator of the Momotombo geothermal power plant in Nicaragua to a private company for $7.8 million,

approximately one year before the scheduled termination of the concession agreement with the Nicaraguan owner. As a result, we recorded an after-tax gain on sale of $3.6 million in the year ended December 31, 2013. The operations of MPC for the year ended December 31, 2013, have been included in discontinued operations. Discontinued operations for the year ended December 31, 2013 include revenues of $4.9 million from MPC.  

 

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  Net Income  

Net income for the year ended December 31, 2014 was $55.0 million, compared to $42.0 million for the year ended December 31, 2013, which represents an increase of $13.0 million, a 30.9% increase. The increase in net income was principally attributable to the increase in income from continuing operations, as discussed above.

  Comparison of the Year Ended December 31, 2013 and the Year Ended December 31, 2012    Total Revenues

  Total revenues for the year ended December 31, 2013 were $533.2 million, compared to $501.8 million for the year ended December 31, 2012, which represented a 6.3% increase in total

revenues. This increase was attributable to both our Product and Electricity Segments, in which revenues increased by 8.9% and 4.7%, respectively, over the corresponding period in 2012.  

Electricity Segment  

Revenues attributable to our Electricity Segment for the year ended December 31, 2013 were $329.7 million, compared to $314.9 million for the year ended December 31, 2012, which represented a 4.7% increase in such revenues. This increase was primarily due to a $37.3 million increase in revenues from our: (i) Olkaria III Plant 2, which commenced commercial operation at the beginning of May 2013; (ii) a full year of operations of the McGinness Hills power plant in 2013 compared to only six months in 2012; and (iii) Tuscarora power plant, which started to receive commercial rates in the second quarter of 2012. This increase was partially offset by: (i) an $11.0 million decrease resulting from the impact of natural gas prices on the energy rates in our SO#4 PPAs in California, which at the beginning of May 2012 changed from a fixed rate to a variable rate; (ii) a $4.5 million net decrease due to reduced generation in some of our power plants and a reduction in energy rates in our Puna and Amatitlan power plants; and (iii) a net loss of $5.0 million on derivative contracts on oil and natural gas prices, compared to a net gain of $2.1 million over the corresponding period in 2012. Power generation in our power plants increased by 7.9% from 3,942,293 MWh in the year ended December 31, 2012 to 4,253,489 MWh in the year ended December 31, 2013.

  Product Segment

  Revenues attributable to our Product Segment for the year ended December 31, 2013 were $203.5 million, compared to $186.9 million for the year ended December 31, 2012, which

represented an 8.9% increase. The increase in our Product Segment revenues reflects the increase in new customer orders that we secured in 2012 and 2013.   Total Cost of Revenues

  Total cost of revenues for the year ended December 31, 2013 was $373.4 million, compared to $372.8 million for the year ended December 31, 2012. As a percentage of total revenues, our

total cost of revenues for the year ended December 31, 2013 decreased to 70.0%, compared to 74.3% for the year ended December 31, 2012. The decrease was attributable to a decrease in cost of revenues in our Electricity offset by an increase in our Product Segments.

  Electricity Segment

  Total cost of revenues attributable to our Electricity Segment for the year ended December 31, 2013 was $232.9 million, compared to $237.4 million for the year ended December 31, 2012,

which represented a 1.9% decrease. This decrease was primarily due to a decrease in depreciation in our: (i) North Brawley power plant as a result of an impairment for the plant we recorded in the fourth quarter of 2012 and (ii) Mammoth complex, due to fully depreciating a portion of its equipment in previous periods as a result of the planned refurbishment and purchase of new equipment. The decrease was primarily offset by additional cost of revenues from our new plants, the Olkaria III Plant 2, which commenced commercial operation at the beginning of May 2013 and McGinness Hills power plant, which commenced commercial operations in July 2012. As a percentage of total electricity revenues, the total cost of revenues attributable to our Electricity Segment for the year ended December 31, 2013 was 70.6%, compared to 75.4% for the year ended December 31, 2012.  

 

 102

  Product Segment   Total cost of revenues attributable to our Product Segment for the year ended December 31, 2013 was $140.5 million, compared to $135.3 million for the year ended December 31, 2012,

which represented a 3.8% increase. As a percentage of total Product Segment revenues, our total cost of revenues attributable to the Product Segment for the year ended December 31, 2013 was 69.1%, compared to 72.4% for the year ended December 31, 2012. The decrease was mainly attributable to the different product mix and different margins in the various sales contracts we entered into for this segment during these periods.

  Research and Development Expenses

  Research and development expenses for the year ended December 31, 2013 were $5.0 million, compared to $6.1 million for the year ended December 31, 2012, which represented an 18.7%

decrease. The research and development expenses are net of grants from the DOE in the amount of $1.6 million and $0.7 million for the years ended December 31, 2013 and 2012, respectively, with respect to the EGS project.

  Selling and Marketing Expenses

  Selling and marketing expenses for the year ended December 31, 2013 were $24.6 million, compared to $15.7 million for the year ended December 31, 2012, which represented a 56.6%

increase. The increase was primarily due to a one-time early termination fee in the amount of $9.0 million we paid to SCE relating to the termination of the PPAs for the G1 and G3 power plants in the Mammoth complex, as described under Item 1 – “Business” and from a $2.6 million termination fee paid to NV Energy related to the termination of the Dixie Meadows PPA. The increase was partially offset by lower sales commissions related to our Product Segment due to different commissions mix. Excluding the one-time termination fees, selling and marketing expenses for the year ended December 31, 2013 constituted 2.4% of total revenues for such year, compared to 3.1% of such revenues for the year ended December 31, 2012.

  General and Administrative Expenses

  General and administrative expenses for the year ended December 31, 2013 were $29.2 million, compared to $28.1 million for the year ended December 31, 2012. General and administrative

expenses for the year ended December 31, 2013, constituted 5.5% of total revenues for such year, compared to 5.6% for the year ended December 31, 2012.   Impairment Charges

  There were no impairment charges for the year ended December 31, 2013. The impairment charges for the year ended December 31, 2012 were $236.4 million.

   Write-off of Unsuccessful Exploration Activities

  Write-off of unsuccessful exploration activities for the year ended December 31, 2013 was $4.1 million compared to $2.6 million for the year ended December 31, 2012. The majority of the

write-off of unsuccessful exploration activities for the year ended December 31, 2013 represented the costs (including land costs) related to the Drum Mountain prospect in Utah, which we determined in the fourth quarter of 2013 would not support commercial operations. Write-off of unsuccessful exploration activities for the year ended December 31, 2012 represented the write-off of exploration costs (including land costs) related to five exploration sites in Nevada that we determined in the year ended December 31, 2012 would not support commercial operations.

  Operating Income (Loss)

  Operating income for the year ended December 31, 2013 was $97.0 million, compared to operating loss of $159.9 million for the year ended December 31, 2012. The increase in operating

income was principally attributable to: (i) the impairment charges for the year ended December 31, 2012 in the total amount of $236.4 million, as described above; and (ii) the increased gross margins in both our electricity and product segments as discussed above. The increase was partially offset due to the one-time early termination fees of $11.6 million included in selling and marketing expenses discussed above. Operating income attributable to our Electricity Segment for the year ended December 31, 2013 was $54.3 million, compared to operating loss of $190.0 million for the year ended December 31, 2012. Operating income attributable to our Product Segment for the year ended December 31, 2013 was $42.7 million, compared to $30.1 million for the year ended December 31, 2012.  

 

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  Interest Expense, Net

  Interest expense, net, for the year ended December 31, 2013 was $73.8 million, compared to $64.1 million for the year ended December 31, 2012, which represented a 15.2% increase. This

$9.7 million increase was primarily due to an increase of $6.9 million in interest expense related to the sale of tax benefits, and a $4.4 million decrease related to interest capitalized to our projects under development and construction.

  Foreign Currency Translation and Transaction Gains

  Foreign currency translations and transaction used to cover our foreign exchange exposure, resulted in gains for the year ended December 31, 2013 of $5.1 million, compared to $0.2 million

for the year ended December 31, 2012. The increase was primarily due to gains on foreign currency forward contracts for the year ended December 31, 2013, which were not accounted for as hedge transactions.

   Income Attributable to Sale of Tax Benefits

  Income attributable to the sale of tax benefits to institutional equity investors (as described in “OPC Transaction” and “ORTP Transaction” below) for the year ended December 31, 2013

was $19.9 million, compared to $10.1 million for the year ended December 31, 2012. This income represents the value of PTCs and taxable income or loss generated by OPC and ORTP and allocated to the investors in the amount of $5.4 million and $14.5 million, respectively, in the year ended December 31, 2013, compared to PTCs and taxable income or loss generated by OPC and allocated to the investors in the year ended December 31, 2012.  

  Income Taxes

  Income tax provision for the year ended December 31, 2013 was $13.6 million, compared to $1.8 million for the year ended December 31, 2012. The increase in Income tax provision primarily

resulted from the increase in income before taxes in jurisdictions outside the U.S.. Our effective tax rate for the years ended December 31, 2013 and 2012, was 26.5% and 0.9%, respectively. The effective tax rate differs from the federal statutory rate of 35% for the year ended December 31, 2013, primarily due to unbenefited losses in the U.S. and certain foreign jurisdictions.

  For the year ended December 31, 2013 and 2012, we recorded a valuation allowance in the amount of approximately $112.1 million and $113.6 million respectively, against our U.S. deferred

tax assets in respect of net operating loss (NOL) carryforwards and unutilized tax credits (PTCs and ITCs). As of December 31, 2013 we had U.S. federal NOLs in the amount of approximately $235.4 million, state NOLs in the amount of approximately $218.1 million, and unutilized tax credits of approximately $71.3 million, all of which can be carried forward for 20 years. The related deferred tax assets totaled approximately $112.1 million. Realization of these deferred tax assets and tax credits is dependent on generating sufficient taxable income in the U.S. prior to expiration of the NOL carryforwards and tax credits. The scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies were considered in determining the amount of valuation allowance. A valuation allowance in the amount of $112.1 million was recorded against the U.S. deferred tax assets as of December 31, 2013 as at that point in time, we believed it is more likely than not that the deferred tax assets will not be realized.

  Income (Loss) from Continuing Operations

  Income from continuing operations for the year ended December 31, 2013 was $37.3 million, compared to a loss from continuing operations of $216.2 million for the year ended December

31, 2012. The increase in income from continuing operations of $253.6 million was principally attributable to (i) a $256.3 million increase in operating income, as discussed above; (ii) a $4.8 million increase in foreign currency translation and transaction gains; and (iii) a $9.8 million increase in income attributable to sale of tax benefits. This increase was offset partially by a $9.6 million increase in interest expense, net, and $11.1 million increase in income tax provision.  

 

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  Discontinued Operations

  In June 2013, our wholly-owned subsidiary sold its interest in MPC, the operator of the Momotombo geothermal power plant in Nicaragua to a private company for $7.8 million,

approximately one year before the scheduled termination of the concession agreement with the Nicaraguan owner. As a result, we recorded an after-tax gain on sale of $3.6 million in the year ended December 31, 2013. The operations of MPC for the year ended December 31, 2012, have been included in discontinued operations. Discontinued operations for the years ended December 31, 2013 and 2012 include revenues of $4.9 million and $12.6 million, respectively of MPC.

  Net Income (Loss)

  Net income for the year ended December 31, 2013 was $42.0 million, compared to net loss of $212.6 million for the year ended December 31, 2012. The increase in net income of $254.7 million

was principally attributable to a $253.6 million increase in income from continuing operations, as discussed above.    Liquidity and Capital Resources  

Our principal sources of liquidity have been derived from cash flows from operations, proceeds from third party debt in the form of borrowings under credit facilities and private offerings, issuances of notes, project financing, tax monetization transactions, short term borrowing under our lines of credit, sale of membership interests and cash grants we received under the ARRA. We have utilized this cash to develop and construct power generation plants, fund our acquisitions, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs.

  As of December 31, 2014, we had access to the following sources of funds: (i) $40.2 million in cash, cash equivalents of which $33.5 million is related to foreign jurisdictions; and (ii) $198.0

million of unused corporate borrowing capacity under existing lines of credit with different commercial banks.   Our estimated capital needs for 2015 include approximately $250.0 million for capital expenditures on new projects under development or construction, exploration activity, operating

projects, and machinery and equipment, as well as $71.5 million for debt repayment.   We believe that based on our plans to increase our operations outside of the U.S., the cash generated from our operations outside of the U.S. will be reinvested outside of the U.S. In

addition, our U.S. sources of cash and liquidity are sufficient to meet our needs in the U.S., and accordingly, we do not currently plan to repatriate the funds we have designated as being permanently invested outside the U.S. If we change our plans, we may be required to accrue and pay U.S. taxes to repatriate these funds.

  We expect to finance these requirements with: (i) the sources of liquidity described above; (ii) positive cash flows from our operations; and (iii) future project financing and refinancing

(including construction loans). Management believes that these sources will address our anticipated liquidity, capital expenditures, and other investment requirements.  

Third-Party Debt   Our third-party debt is composed of two principal categories. The first category consists of project finance debt or acquisition financing that we or our subsidiaries have incurred for the

purpose of developing and constructing, refinancing or acquiring our various projects, which are described below under “Non-Recourse and Limited-Recourse Third-Party Debt”. The second category consists of debt incurred by us or our subsidiaries for general corporate purposes, which are described below under “Full-Recourse Third-Party Debt.”

  Non-Recourse and Limited-Recourse Third-Party Debt   OFC Senior Secured Notes — Non-Recourse  

In February 2004, OFC, one of our subsidiaries, issued $190.0 million of OFC Senior Secured Notes for the purpose of refinancing the acquisition cost of the Brady, Ormesa and Steamboat 1, 1A, 2 and 3 power plants, and the financing of the acquisition cost of 50% of the Mammoth complex. The OFC Senior Secured Notes have a final maturity date of December 30, 2020. Principal and interest on the OFC Senior Secured Notes are payable in semi-annual payments. The OFC Senior Secured Notes are collateralized by substantially all of the assets of OFC and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OFC. There are various restrictive covenants under the OFC Senior Secured Notes, which include limitations on additional indebtedness of OFC and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OFC.  In addition, there are restrictions on the ability of OFC to make distributions to its shareholders, which include a required historical and projected 12-month debt service coverage ratio (DSCR) of not less than 1.25 (measured semi-annually as of June 30 and December 31 of each year). If OFC fails to comply with the DSCR ratio it will be prohibited from making distributions to its shareholders.  We are only required to measure these covenants on a semi-annual basis and as of December 31, 2014, the last measurement date of the covenants, the actual historical 12-month DSCR was 1.28 and the pro-forma 12-month DSCR was 1.31 (on a semi-annual basis and as of December 31, 2014). There were $67.2 million of OFC Senior Secured Notes outstanding as of December 31, 2014.  

 

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  In January 2014, we acquired from OFC noteholders OFC Senior Secured Notes with an outstanding aggregate principal amount of $13.2 million. We recognized a gain of $0.3 million in

the year ended December 31, 2014. In February 2013, we acquired from OFC noteholders OFC Senior Secured Notes with an outstanding aggregate principal amount of $12.8 million and we recognized a gain of $0.8 million in the year ended December 31, 2013.

  OrCal Geothermal Senior Secured Notes — Non-Recourse  

In December, 2005, OrCal, one of our subsidiaries, issued $165.0 million of OrCal Senior Secured Notes for the purpose of refinancing the acquisition cost of the Heber complex. The OrCal Senior Secured Notes have been rated BBB- by Fitch Ratings. The OrCal Senior Secured Notes have a final maturity date of December 30, 2020. Principal and interest on the OrCal Senior Secured Notes are payable in semi-annual payments. The OrCal Senior Secured Notes are collateralized by substantially all of the assets of OrCal and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OrCal. There are various restrictive covenants under the OrCal Senior Secured Notes which include limitations on additional indebtedness of OrCal and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OrCal. In addition, there are restrictions on the ability of OrCal to make distributions to its shareholders, which include a required historical and projected 12-month DSCR of not less than 1.25 (measured semi-annually as of June 30 and December 31 of each year). If OrCal fails to comply with the DSCR ratio it will be prohibited from making distributions to its shareholders. As of December 31, 2014, the last measurement date of the covenants, the actual historical 12-month DSCR was 1.28, and the pro-forma 12-months DSCR was 1.29. There were $55.1 million of OrCal Senior Secured Notes outstanding as of December 31, 2014.

   OFC 2 Senior Secured Notes — Limited Recourse during Construction and Non-Recourse Thereafter  

In September 2011, OFC 2, one of our subsidiaries, and its wholly owned project subsidiaries (collectively, the OFC 2 Issuers) entered into a note purchase agreement (the Note Purchase Agreement) with OFC 2 Noteholder Trust, as purchaser, John Hancock, as administrative agent, and the DOE, as guarantor, in connection with the offer and sale of up to $350.0 million aggregate principal amount of OFC 2 Senior Secured Notes due December 31, 2034. As of December 31, 2014, we have utilized $291.7 million of the notes and we do not expect further drawdowns under this agreement.

  Subject to the fulfillment of customary and other specified conditions precedent, the OFC 2 Senior Secured Notes may be issued in up to six distinct series associated with the phased

construction (Phase I and Phase II) of the Jersey Valley, McGinness Hills and Tuscarora geothermal power plants, which are owned by the OFC 2 Issuers. The OFC 2 Senior Secured Notes will mature and the principal amount of the OFC 2 Senior Secured Notes will be payable in equal quarterly installments and in any event not later than December 31, 2034. Each series of notes will bear interest at a rate calculated based on a spread over the Treasury yield curve that will be set at least ten business days prior to the issuance of such series of notes. Interest will be payable quarterly in arrears. The DOE guarantees payment of 80% of principal and interest on the OFC 2 Senior Secured Notes pursuant to Section 1705 of Title XVII of the Energy Policy Act of 2005, as amended. The conditions precedent to the issuance of the OFC 2 Senior Secured Notes include certain specified conditions required by the DOE in connection with its guarantee of the OFC 2 Senior Secured Notes.

  In October 2011, the OFC 2 Issuers completed the sale of $151.7 million in aggregate principal amount of 4.687% Series A Notes due 2032 (the Series A Notes). The net proceeds from the

sale of the Series A Notes, after deducting transaction fees and expenses, were approximately $141.1 million, and were used to finance a portion of the construction costs of Phase I of the McGinness Hills and Tuscarora power plants and to fund certain reserves. Principal and interest on the Series A Notes are payable quarterly in arrears on the last day of March, June, September and December of each year.  

 

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  On June 20, 2014, Phase I of the Tuscarora facility achieved project completion under the OFC 2 Note Purchase Agreement. In accordance with the terms of the Note Purchase

Agreement, we recalibrated the original financing assumptions and as a result the loan amount was adjusted through a principal payment of $4.3 million.   On August 29, 2014, OFC 2 signed a $140.0 million loan under the OFC 2 senior secured notes to finance the construction of the McGinness Hills Phase 2 project. This draw is the last

tranche (Series C notes) under the Note Purchase Agreement with John Hancock Life Insurance Company (USA) and is guaranteed by the U.S. Department of Energy Loan Programs Office in accordance with and subject to the Department’s Loan Guarantee Program under section 1705 of Title XVII of the Energy Policy Act of 2005. The $140.0 million loan, which matures in December 2032, carries a 4.61% coupon with principal to be repaid on a quarterly basis. The OFC 2 Notes, which include loans for the Tuscarora, Jersey Valley and McGinness Hills complexes, are rated “BBB” by Standard & Poor’s.

  In connection with the anticipation drawdown, on August 13, 2014, we entered into an on-the-run interest lock agreement with a financial institution with a termination date of August 15,

2014. This on-the-run interest lock agreement had a notional amount of $140.0 million and was designated by us to as a cash flow hedge. The objective of this cash flow hedge was to eliminate the variability in the change in the 10-year U.S. Treasury rate as that is one of the components in the annual interest rate of OFC 2 loan that was forecasted to be fixed on August 15, 2014. As such, we hedged the variability in total proceeds attributable to changes in the 10-years U.S. Treasury rate for the forecasted issuance of fixed rate OFC 2 loan. On the settlement date of August 18, 2014, we paid $1.5 million to the counterparty of the on-the-run interest rate lock agreement.

  The OFC 2 Senior Secured Notes are collateralized by substantially all of the assets of OFC 2 and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by

all of the wholly owned subsidiaries of OFC 2. There are various restrictive covenants under the OFC 2 Senior Secured Notes, which include limitations on additional indebtedness of OFC 2 and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OFC 2. In addition, there are restrictions on the ability of OFC 2 to make distributions to its shareholders. Among other things, the distribution restrictions include a historical and projected quarterly DSCR requirement of at least 1.2 (on a blended basis for all of the OFC 2 power plants) and 1.5 on a pro forma basis (giving effect to the distributions). We are required to measure these covenants on a quarterly basis and as of December 31, 2014, the last measurement date of the covenants, the actual DSCR was 1.62 and the pro-forma 12-month DSCR was 2.24. There were $272.5 million of OFC 2 Senior Secured Notes outstanding as of December 31, 2014.

  We provided a guarantee in connection with the issuance of the Series A and C Notes which will be available to be drawn upon if certain trigger events occur. One trigger event is the

failure of any facility financed by the relevant series of OFC 2 Senior Secured Notes to reach completion and meet certain operational performance levels (the non-performance trigger) which gives rise to a prepayment obligation on the OFC 2 Senior Secured Notes. The other trigger event is a payment default on the OFC 2 Senior Secured Notes or the occurrence of certain fundamental defaults that result in the acceleration of the OFC 2 Senior Secured Notes, in each case that occurs prior to the date that the relevant facility financed by such OFC 2 Senior Secured Notes reaches completion and meets certain operational performance levels. A demand on our guarantee based on the non-performance trigger is limited to an amount equal to the prepayment amount on the OFC 2 Senior Secured Notes necessary to bring the OFC 2 Issuers into compliance with certain coverage ratios. A demand on our guarantee based on the other trigger event is not so limited.  

Olkaria III Finance Agreement with OPIC — Limited Recourse during Construction and Non-Recourse Thereafter  

In August  2012, OrPower 4, one of our subsidiaries, entered into a finance agreement with OPIC, an agency of the United States government, to provide limited-recourse senior secured debt financing in an aggregate principal amount of up to $310.0 million (the OPIC Loan) for the refinancing and financing of our Olkaria III geothermal power complex in Kenya. The finance agreement was amended on November 9, 2012.

  The OPIC Loan is comprised of three tranches:

 

 

 

 

 

 • Tranche I in an aggregate principal amount of $85.0 million, which was drawn in November 2012, was used to prepay approximately $20.5 million (plus associated prepayment

penalty and breakage costs of $1.5 million) of the DEG Loan, as described below under “Full Recourse Debt”. The remainder of Tranche I proceeds was used for reimbursement of prior capital costs and other corporate purposes.

 • Tranche II in an aggregate principal amount of $180.0 million was used to fund the construction and well field drilling for Plant 2 of the Olkaria III geothermal power complex.

In November 2012, an amount of $135.0 million was disbursed under this Tranche II, and in February 2013, the remaining $45.0 million was distributed under this Tranche II.

 • Tranche III in an aggregate principal amount of $45.0 million was used to fund the construction of Plant 3 of the Olkaria III geothermal power complex and was drawn down in

full in November 2013.

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  In July 2013 we completed the conversion of the interest rate applicable to both Tranche I and Tranche II from a floating interest rate to a fixed interest rate. The average fixed interest rate

for Tranche I, which has an outstanding balance as of December 31, 2014, of $75.5 million and matures on December 15, 2030 and Tranche II, which has an outstanding balance as of December 31, 2014, of $164.1 million and matures on June 15, 2030, is 6.31%. In November 2013 we fixed the interest rate applicable to Tranche III. The fixed interest rate for Tranche III, which has an outstanding balance as of December 31, 2014, of $43.0 million and matures on December 15, 2030, is 6.12%.

  OrPower 4 has a right to make voluntary prepayments of all or a portion of the OPIC Loan subject to prior notice, minimum prepayment amounts, and a prepayment premium of 2% in the

first two years after the Plant 2 commercial operation date, declining to 1% in the third year after the Plant 2 commercial operation date, and without premium thereafter, plus a redemption premium. In addition, the OPIC Loan is subject to customary mandatory prepayment in the event of certain reductions in generation capacity of the power plants, unless such reductions will not cause the projected ratio of cash flow to debt service to fall below 1.7.

  The OPIC Loan is secured by substantially all of OrPower 4’s assets and by a pledge of all of the equity interests in OrPower 4.   The finance agreement includes customary events of default, including failure to pay any principal, interest or other amounts when due, failure to comply with covenants, breach of

representations and warranties, non-payment or acceleration of other debt of OrPower 4, bankruptcy of OrPower 4 or certain of its affiliates, judgments rendered against OrPower 4, expropriation, change of control, and revocation or early termination of security documents or certain project-related agreements, subject to various exceptions and notice, cure and grace periods.

  The repayment of the remaining outstanding DEG Loan (see “Full-Recourse Third-Party Debt” below) in the amount of approximately $31.6 million as of December 31, 2014, has been

subordinated to the OPIC Loan.   There are various restrictive covenants under the OPIC Loan, which include a required historical and projected 12-month DSCR of not less than 1.4 (measured as of March 15, June 15,

September 15 and December 15 of each year).  If OrPower 4 fails to comply with these financial ratios it will be prohibited from making distributions to its shareholders.  In addition, if the DSCR falls below 1.1, subject to certain cure rights such failure will constitute an event of default by OrPower 4. This covenant in respect of Tranche I became effective on December 15, 2014. As of December 31, 2014, the actual historical and projected 12-month DSCR was 2.05 and 1.94, respectively.

  As of December 31, 2014, $282.6 million of the above loan was outstanding.  

Amatitlan Loan — Non-Recourse  

In May 2009, Ortitlan, one of our subsidiaries, entered into a note purchase agreement in an aggregate principal amount of $42.0 million which refinanced its investment in the 20 MW geothermal power plant located in Amatitlan, Guatemala. The loan was provided by EIG Global Project Fund II, Ltd. (formerly TCW). On September 30, 2014, we repaid the loan in full from corporate funds. The outstanding amount at the time of repayment was approximately $30.0 million. We are currently negotiating a new financing agreement that we believe will contain improved terms.

   Full-Recourse Third-Party Debt  

Union Bank. In February 2012, Ormat Nevada, our wholly owned subsidiary entered into an amended and restated credit agreement with Union Bank. Under the amended and restated agreement, the credit termination date was extended from February 15, 2012 to February 7, 2014, which was subsequently extended to May 20, 2015. The aggregate amount available under the credit agreement is $50.0 million. The facility is limited to the issuance, extension, modification or amendment of letters of credit. Union Bank is currently the sole lender and issuing bank under the credit agreement, but is also designated as an administrative agent on behalf of banks that may, from time to time in the future, join the credit agreement as parties thereto. In connection with this transaction, we entered into a guarantee in favor of the administrative agent for the benefit of the banks, pursuant to which we agreed to guarantee Ormat Nevada’s obligations under the credit agreement. Ormat Nevada’s obligations under the credit agreement are otherwise unsecured.  

 

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  There are various restrictive covenants under the credit agreement, including a requirement to comply with the following financial ratios, which are measured quarterly: (i) a 12-month debt

to EBITDA ratio not to exceed 4.5; (ii) 12-month DSCR of not less than 1.35; and (iii) distribution leverage ratio not to exceed 2.0. As of December 31, 2014: (i) the actual 12-month debt to EBITDA ratio was 3.18; (ii) the 12-month DSCR was 2.45; and (iii) the distribution leverage ratio was 0.65. In addition, there are restrictions on dividend distributions in the event of a payment default or noncompliance with such ratios, and subject to specified carve-outs and exceptions, a negative pledge on the assets of Ormat Nevada in favor of Union Bank.

  As of December 31, 2014, letters of credit in the aggregate amount of $42.1 million remain issued and outstanding under this committed credit agreement with Union Bank.  

HSBC. In May 2013, Ormat Nevada, our wholly owned subsidiary, entered into a credit agreement with HSBC Bank USA, N.A for one year with annual renewals, which was extended to May 31, 2015. The aggregate amount available under the credit agreement is $25.0 million. This credit line is limited to the issuance, extension, modification or amendment of letters of credit and $10.0 million out of this credit line is available to be drawn for working capital needs. HSBC is currently the sole lender and issuing bank under the credit agreement, but is also designated as an administrative agent on behalf of banks that may, from time to time in the future, join the credit agreement as parties thereto. In connection with this transaction, we entered into a guarantee in favor of the administrative agent for the benefit of the banks, pursuant to which we agreed to guarantee Ormat Nevada’s obligations under the credit agreement. Ormat Nevada’s obligations under the credit agreement are otherwise unsecured.

  There are various restrictive covenants under the credit agreement, including a requirement to comply with the following financial ratios, which are measured quarterly: (i) a 12-month debt

to EBITDA ratio not to exceed 4.5; (ii) 12-month DSCR of not less than 1.35; and (iii) distribution leverage ratio not to exceed 2.0. As of December 31, 2013: (i) the actual 12-month debt to EBITDA ratio was 3.18; (ii) the 12-month DSCR was 2.45; and (iii) the distribution leverage ratio was 0.65. In addition, there are restrictions on dividend distributions in the event of a payment default or noncompliance with such ratios, and subject to specified carve-outs and exceptions, a negative pledge on the assets of Ormat Nevada in favor of HSBC.

  As of December 31, 2014, letters of credit in the aggregate amount of $21.8 million remain issued and outstanding under this committed credit agreement.   Credit Agreements. We also have committed credit agreements with six other commercial banks for an aggregate amount of $480.2 million. Under the terms of these credit agreements, we

or our Israeli subsidiary, Ormat Systems, can request: (i) extensions of credit in the form of loans and/or the issuance of one or more letters of credit in the amount of up to $247.0 million; and (ii) the issuance of one or more letters of credit in the amount of up to $233.2 million. The credit agreements mature between end of March 2015 and November 2016. Loans and draws under the credit agreements or under any letters of credit will bear interest at the respective bank’s cost of funds plus a margin.

  As of December 31, 2014, loans in the total amount of $20.3 million were outstanding, and letters of credit with an aggregate stated amount of $293.2 million were issued and outstanding

under these credit agreements. The $20.3 million in loans are for terms of three months or less and bear interest at a weighted average rate of 2.30%.   Term Loans. We have a $20.0 million term loan with a group of institutional investors, which matures on July 16, 2015, is payable in 12 semi-annual installments commencing January 16,

2010, and bears interest of 6.5%. As of December 31, 2014, $3.9 million was outstanding under this loan.   We have a $20.0 million term loan with a group of institutional investors, which matures on August 1, 2017, is payable in 12 semi-annual installments commencing February 1, 2012, and

bears interest at 6-month LIBOR plus 5.0%. As of December 31, 2014, $10.0 million was outstanding under this loan.   We have a $20.0 million term loan with a group of institutional investors, which matures on November 16, 2016, is payable in ten semi-annual installments commencing May 16, 2012, and

bears interest of 5.75%. As of December 31, 2014, $8.0 million was outstanding under this loan.   We had a $50.0 million term loan with a commercial bank, which fully repaid on November 10, 2014. The loan was payable in ten semi-annual installments commencing May 10, 2010, and

bore interest at 6-month LIBOR plus 3.25%.  

 

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  Senior Unsecured Bonds. We have an aggregate principal amount of approximately $250.0 million of Senior Unsecured Bonds issued and outstanding. We issued approximately $142.0

million of these bonds in August 2010 and an additional $107.5 million in February 2011. Subject to early redemption, the principal of the bonds is repayable in a single bullet payment upon the final maturity of the bonds on August 1, 2017. The bonds bear interest at a fixed rate of 7.00%, payable semi-annually. The bonds that we issued in February 2011 were issued at a premium which reflects an effective fixed interest of 6.75%.

  Loan Agreement with DEG (The Olkaria III Complex). OrPower 4 entered into a project financing loan to refinance its investment in Plant 1 of the Olkaria III complex located in Kenya

with a group of European DFIs arranged by DEG. The DEG Loan will mature on December 15, 2018, and is payable in 19 equal semi-annual installments. Interest on the loan is variable based on 6-month LIBOR plus 4.0%. We fixed the interest rate on most of the loan at 6.90%. As of December 31, 2014, $31.6 million is outstanding under the DEG Loan (out of which $21.7 million bears interest at a fixed rate).

  In October 2012, OrPower 4, DEG and the other parties thereto amended and restated the DEG Loan Agreement. The amendment became effective on November 9, 2012 upon the

execution by OrPower 4 of the Tranche I and Tranche II Notes under the OPIC loan and the related disbursements of the proceeds thereof under the OPIC Finance Agreement (as described above under the heading “Non-Recourse and Limited –Recourse Third-Party Debt”). As part of the amendment we prepaid in full two loans under the DEG facility in the total principal amount of approximately $20.5 million. The amended and restated DEG Loan Agreement provides for (i) the release and discharge of all collateral security previously provided by OrPower 4 to the secured parties under the DEG Loan Agreement and the substitution of the Company’s guarantee of OrPower 4’s payment and certain other performance obligations in lieu thereof; (ii) the establishment of a LIBOR floor of 1.25% in respect of one of the loans under the DEG Loan Agreement, and (iii) the elimination of most of the affirmative and negative covenants under the DEG Loan Agreement and certain other conforming provisions as a result of OrPower 4’s execution of the OPIC Finance Agreement and its obligations thereunder.

  Our obligations under the credit agreements, the loan agreements, and the trust instrument governing the bonds, described above, are unsecured, but we are subject to a negative pledge

in favor of the banks and the other lenders and certain other restrictive covenants. These include, among other things, a prohibition on: (i) creating any floating charge or any permanent pledge, charge or lien over our assets without obtaining the prior written approval of the lender; (ii) guaranteeing the liabilities of any third party without obtaining the prior written approval of the lender; and (iii) selling, assigning, transferring, conveying or disposing of all or substantially all of our assets, or a change of control in our ownership structure. Some of the credit agreements, the term loan agreements, and the trust instrument contain cross-default provisions with respect to other material indebtedness owed by us to any third party. In some cases, we have agreed to maintain certain financial ratios, which are measured quarterly, such as: (i) equity of at least $600 million and in no event less than 30% of total assets; (ii) 12-month debt, net of cash, cash equivalents, and short-term bank deposits to Adjusted EBITDA ratio not to exceed 7.0; and (iii) dividend distributions not to exceed 35% of net income in any calendar year. As of December 31, 2014: (i) total equity was $786.7 million and the actual equity to total assets ratio was 37.1% and (ii) the 12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 3.70. During the year ended December 31, 2014, we distributed interim dividends in an aggregate amount of $9.6 million. The failure to perform or observe any of the covenants set forth in such agreements, subject to various cure periods, would result in the occurrence of an event of default and would enable the lenders to accelerate all amounts due under each such agreement.

  As described above, we are currently in compliance with our covenants with respect to the credit agreements, the loan agreements and the trust instrument, and believe that the

restrictive covenants, financial ratios and other terms of any of our (or Ormat Systems’) full-recourse bank credit agreements will not materially impact our business plan or operations.  

Letters of Credit  

Some of our customers require our project subsidiaries to post letters of credit in order to guarantee their respective performance under relevant contracts. We are also required to post letters of credit to secure our obligations under various leases and licenses and may, from time to time, decide to post letters of credit in lieu of cash deposits in reserve accounts under certain financing arrangements. In addition, our subsidiary, Ormat Systems, is required from time to time to post performance letters of credit in favor of our customers with respect to orders of products.

  As of December 31, 2014, committed letters of credit in the aggregate amount of $357.2 million remained issued and outstanding under the credit agreements with Union Bank, HSBC and

six of the commercial banks as described under “Full-Recourse Third Party Debt”.  

 

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  Puna Power Plant Lease Transactions  

In May 2005, our Hawaiian subsidiary, PGV, entered into a transaction involving the original geothermal power plant of the Puna complex located on the Big Island. The transaction was concluded with financing parties by means of a leveraged lease transaction. A secondary stage of the lease transaction relating to two new geothermal wells that PGV drilled in the second half of 2005 (for production and injection) was completed on December 30, 2005. Pursuant to a 31-year head lease, PGV leased its geothermal power plant to the abovementioned financing parties in return for payments of $83.0 million by such financing parties to PGV, which are accounted for as deferred lease income.

  OPC Transaction  

In June 2007, Ormat Nevada entered into agreements with affiliates of Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. (Morgan Stanley Geothermal LLC and Lehman-OPC LLC, respectively), under which those investors purchased, for cash, interests in a newly formed subsidiary of Ormat Nevada, OPC, entitling the investors to certain tax benefits (such as PTCs and accelerated depreciation) and distributable cash associated with four geothermal power plants in Nevada.

  The first closing under the agreements occurred in 2007 and covered our Desert Peak 2, Steamboat Hills, and Galena 2 power plants. The investors paid $71.8 million at the first closing.

The second closing under the agreements occurred in 2008 and covered the Galena 3 power plant. The investors paid $63.0 million at the second closing.   Ormat Nevada continues to operate and maintain the power plants. Under the agreements, Ormat Nevada initially received all of the distributable cash flow generated by the power plants,

while the investors received substantially all of the PTCs and the taxable income or loss (together, the Economic Benefits). Once Ormat Nevada recovered the capital that it invested in the power plants, which occurred in the fourth quarter of 2010, the investors began receiving both the distributable cash flow and the Economic Benefits. Once the investors reach a target after-tax yield on their investment in OPC (the OPC Flip Date), Ormat Nevada will receive 95% of both distributable cash and taxable income, on a going forward basis. Following the OPC Flip Date, Ormat Nevada also has the option to purchase the investors’ remaining interest in OPC at the then-current fair market value or, if greater, the investors’ capital account balances in OPC. If Ormat Nevada were to exercise this purchase option, it would become the sole owner of the power plants again.

  Our voting rights in OPC are based on a capital structure that is comprised of Class A and Class B membership units. Through Ormat Nevada, we own all of the Class A membership

units, which represent 75% of the voting rights in OPC and the investors(as described below) own all of the Class B membership units, which represent 25% of the voting rights of OPC. Other than in respect of customary protective rights, all operational decisions in OPC are decided by the vote of a majority of the membership units. Following the OPC Flip Date, Ormat Nevada’s voting rights will increase to 95% and the investor’s voting rights will decrease to 5%. Ormat Nevada retains the controlling voting interest in OPC both before and after the OPC Flip Date and therefore consolidates OPC.

  The Class B membership units are provided with a 5% residual economic interest in OPC, which commences as of the OPC Flip Date. This residual 5% interest represents a noncontrolling

interest and is not subject to mandatory redemption or guaranteed payments. The Class B membership units are currently held by Morgan Stanley Geothermal LLC and JPM. On October 30, 2009, Ormat Nevada acquired from Lehman-OPC LLC all of the Class B membership units of OPC held by Lehman-OPC LLC pursuant to a right of first offer for a purchase price of $18.5 million in cash and on February 3, 2011, Ormat Nevada sold to JPM all of the Class B membership units of OPC that it had acquired for a sale price of $24.9 million in cash.

  ORTP Transaction  

On January 24, 2013, Ormat Nevada entered into agreements with JPM under which JPM purchased interests in a newly formed subsidiary of Ormat Nevada, ORTP, entitling JPM to certain tax benefits (such as PTCs and accelerated depreciation) associated with certain geothermal power plants in California and Nevada.

  Under the terms of the transaction, Ormat Nevada transferred the Heber complex, the Mammoth complex, the Ormesa complex, and the Steamboat 2 and 3, Burdette (Galena 1) and Brady

power plants to ORTP, and sold class B membership units in ORTP to JPM. In connection with the closing, JPM paid approximately $35.7 million to Ormat Nevada and will make additional payments to Ormat Nevada of 25% of the value of PTCs generated by the portfolio over time. The additional payments are expected to be made until December 31, 2016 and total up to a maximum amount of $11.0 million, of which we received $2.2 million in the first quarter of 2014.

  Ormat Nevada will continue to operate and maintain the power plants. Under the agreements, Ormat Nevada will initially receive all of the distributable cash flow generated by the power

plants, while JPM will receive substantially all of PTCs and the taxable income or loss (together, the Economic Benefits). JPM’s return is limited by the terms of the transaction. Once JPM reaches a target after-tax yield on its investment in ORTP (the ORTP Flip Date), Ormat Nevada will receive 97.5% of the distributable cash and 95.0% of the taxable income, on a going forward basis. At any time during the twelve-month period after the end of the fiscal year in which the ORTP Flip Date occurs (but no earlier than the expiration of five years following the date that the last of the power plants was placed in service for purposes of federal income taxes), Ormat Nevada also has the option to purchase JPM’s remaining interest in ORTP at the then-current fair market value. If Ormat Nevada were to exercise this purchase option, it would become the sole owner of the power plants again.  

 

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  The Class B membership units entitle the holder to a 5.0% (allocation of income and loss) and 2.5% (allocation of cash) residual economic interest in OERP. The 5.0% and 2.5% residual

interest commences on achievement by JPM of a contractually stipulated return that triggers the ORTP Flip Date. The actual ORTP Flip Date is not known with certainty. This residual 5.0% and 2.5% interest represents a noncontrolling interest and is not subject to mandatory redemption or guaranteed payments.

  Our voting rights in ORTP are based on a capital structure that is comprised of Class A and Class B membership units. Through Ormat Nevada, we own all of the Class A membership

units, which represent 75.0% of the voting rights in ORTP. JPM owns all of the Class B membership units, which represent 25.0% of the voting rights of ORTP. Other than in respect of customary protective rights, all operational decisions in ORTP are decided by the vote of a majority of the membership units. Ormat Nevada retains the controlling voting interest in ORTP both before and after the ORTP Flip Date and therefore will continue to consolidate ORTP.

  Liquidity Impact of Uncertain Tax Positions   As discussed in Note 18 to our consolidated financial statements set forth in Item 8 of this annual report, we have a liability associated with unrecognized tax benefits and related interest

and penalties in the amount of approximately $7.5 million as of December 31, 2014. This liability is included in long-term liabilities in our consolidated balance sheet, because we generally do not anticipate that settlement of the liability will require payment of cash within the next twelve months. We are not able to reasonably estimate when we will make any cash payments required to settle this liability.

  Dividend   The following are the dividends declared by us during the past two years:  

  Historical Cash Flows

  The following table sets forth the components of our cash flows for the relevant periods indicated:  

 

 

Date Declared  

Dividend Amount per Share

 Record Date Payment Date

August 8, 2013     0.04   August 19, 2013 August 29, 2013 November 6, 2013     0.04   November 20, 2013 December 4, 2013 February 25, 2014     0.06   March 13, 2014 March 27, 2014 May 8, 2014     0.05   May 21, 2014 May 30, 2014 August 5, 2014     0.05   August 19, 2014 August 28, 2014 November 5, 2014     0.05   November 20, 2014 December 4, 2014

    Year Ended December 31,  

    2014     2013     2012      (Dollars in thousands)  Net cash provided by operating activities   $ 213,235    $ 86,760     $ 89,471  Net cash used in investing activities     (129,162)     (157,153)     (100,790)Net cash provided by (used in) financing activities     (101,197)     61,119       (21,939)Net change in cash and cash equivalents     (17,124)     (9,274)     (33,258)

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  For the Year Ended December 31, 2014

  Net cash provided by operating activities for the year ended December 31, 2014 was $213.2 million, compared to $86.8 million for the year ended December 31, 2013. The net increase of

$126.5 million resulted primarily from (i) a decrease in receivables of $47.1 million in the year ended December 31, 2014, compared to an increase of $37.2 million in the year ended December 31, 2013, as a result of timing of collections from our customers; (ii) an increase in billing in excess of costs and estimated earnings on uncompleted contracts, net of $10.2 million in our Product Segment in the year ended December 31, 2014, compared to a decrease of $29.1 million in the year ended December 31, 2013, as a result of timing in billing of our customers; and (iii) the increase in cash inflow from higher net income of $13.0 million, from $42.0 million for the year ended December 31, 2013 to $55.0 million for the year ended December 31, 2014.

  Net cash used in investing activities for the year ended December 31, 2014 was $129.2 million, compared to $157.2 million for the year ended December 31, 2013. The principal factors that

affected our net cash used in investing activities during the year ended December 31, 2014 were: (i) capital expenditures of $151.2 million, primarily for our facilities under construction; and (ii) a net increase of $42.2 million in restricted cash and cash equivalents, due to timing of debt repayments, reduced by: (i)  cash grant of $27.4 million received in the year ended December 31, 2014 from the U.S. Treasury under Section 1603 of the ARRA relating to our Don A. Campbell geothermal power plant and our G1 refurbishment power plant at the Mammoth Complex; and (iii) $35.3 million cash received due to the sale of Heber Solar.

  Net cash used in financing activities for the year ended December 31, 2014 was $101.2 million, compared to net cash provided by financing activities of $61.1 million for the year ended

December 31, 2013. The principal factors that affected the net cash used in financing activities during the year ended December 31, 2014 were: (i) net repayment of $91.7 million under our revolving credit lines with commercial banks; (ii) the repayment of long-term debt in the amount of $111.2 million; (iii) $12.9 million of cash paid to repurchase our OFC Senior Secured Notes; (iv) $11.4 million of cash paid to noncontrolling interest; and (v) $9.6 million cash dividend paid, reduced by $140.0 million of proceeds from sale of series C Senior Secured Notes in August 2014 by OFC2 to finance a portion of the construction costs of Phase 2 of the McGinness Hills facility.

  For the Year Ended December 31, 2013

  Net cash provided by operating activities for the year ended December 31, 2013 was $86.8 million, compared to $89.5 million for the year ended December 31, 2012. The net decrease of

$2.7 million resulted primarily from: (i) an increase in net income of $254.7 million from a net loss of $212.6 million in the year ended December 31, 2012 to net income of $42.0 million in the year ended December 31, 2013, as described above; (ii) an increase in deferred income tax provision, net of $9.2 million in the year ended December 31, 2013, compared to a decrease of $4.7 million in the year ended December 31, 2012. Such increase was partially offset by: (i) an impairment charge of $236.4 million, for the year ended December 31, 2012; (ii) a decrease in billing in excess of costs and estimated earnings on uncompleted contracts, net of $29.1 million in our Product Segment in the year ended December 31, 2013, compared to $13.3 million in the year ended December 31, 2012, as a result of timing in billing of our customers; and (iii) an increase in receivables of $37.2 million in the year ended December 31, 2013, compared to $3.6 million in the year ended December 31, 2012, as a result of timing of collections from our customers.

  Net cash used in investing activities for the year ended December 31, 2013 was $157.2 million, compared to $100.8 million for the year ended December 31, 2012. The principal factors that

affected our net cash used in investing activities during the year ended December 31, 2013 were capital expenditures of $204.6 million, primarily for our facilities under construction reduced by: (i) a net decrease of $25.5 million in restricted cash and cash equivalents; (ii) cash grant of $14.7 million received in the year ended December 31, 2013 from the U.S. Treasury under Section 1603 of the ARRA relating to the Brawley geothermal power plant; and (iii) the receipt of $7.7 million of cash from the sale of our interest in MPC.

  Net cash provided by financing activities for the year ended December 31, 2013 was $61.1 million, compared to net cash used in financing activities of $21.9 million for the year ended

December 31, 2012. The principal factors that affected the net cash provided by financing activities during the year ended December 31, 2013 were: (i) $90.0 million of net proceeds from the disbursement from Tranche II and III of the OPIC Loan, as described above under “Non-Recourse and Limited-Recourse Third-Party Debt”; (ii) $31.4 million of net proceeds from the ORTP Transaction (see “ORTP Transaction” above); (iii) a net increase of $38.4 million against our revolving lines of credit with commercial banks, reduced by: (i) $11.9 million of cash paid to repurchase our OFC Senior Secured Notes; (ii) the repayment of long-term debt in the amount of $68.4 million; (iii) $13.4 million of cash paid to the Class B membership units of OPC (see “OPC Transaction”); and (iv) the payment of a dividend to our shareholders in the amount of $3.6 million.  

 

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  EBITDA and Adjusted EBITDA   We calculate EBITDA as net income before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net income before interest, taxes, depreciation and

amortization, adjusted for (i) termination fees, (ii) impairment of long-lived assets, (iii) write-off of unsuccessful exploration activities,(iv) any mark-to-market gains or losses from accounting for derivatives, (v) merger and acquisition transaction cost, (vi) stock-based compensation, and (vii) gain from extinguishment of liability. EBITDA and Adjusted EBITDA are not a measurement of financial performance or liquidity under accounting principles generally accepted in the United States of America and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net earnings as indicators of our operating performance or any other measures of performance derived in accordance with accounting principles generally accepted in the United States of America. EBITDA and Adjusted EBITDA are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of a company’s ability to service and/or incur debt. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do.

  This information should not be considered in isolation or as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP or other non-GAAP

financial measures.   Adjusted EBITDA for the year ended December 31, 2014 was $272.7 million, compared to $241.0 million for the year ended December 31, 2013 and $187.2 million for the year ended

December 31, 2012.   The following table reconciles net cash provided by operating activities to EBITDA and adjusted EBITDA, for the years ended December 31, 2014, 2013, and 2012:  

  Capital Expenditures

  Our capital expenditures primarily relate to two principal components: (i) the enhancement of our existing power plants; and (ii) the development and construction of new power plants.   We have estimated approximately $232.0 million in capital expenditures for construction of new projects, and for enhancement of our existing power plants, of which we have invested

approximately $17.0 million as of December 31, 2014 and of which we expect to invest $153.0 million in 2015 and the remaining $67.0 million thereafter.   In addition, we estimate approximately $97.0 million in additional capital expenditures in 2015 to be allocated as follows: (i) $32.0 million in development of new projects; (ii) $16.0 million for

enhancement of our operating power plants; (iii) $46.0 million in exploration activities in various leases for geothermal resources in which we have started the exploration activity; and (iv) $3.0 million in enhancement of our production facilities.

  In the aggregate, we estimate our total capital expenditures for 2015 to be approximately $250.0 million.

 

 

    Year Ended December 31,  

    2014     2013     2012      (Dollars in thousands)                           Net cash provided by operating activities   $ 213,235    $ 86,760     $ 89,471  Adjusted for:                        

Interest expense, net (excluding amortization of deferred financing costs)     76,970       67,677       57,711  Interest income     (312)     (1,332)     (1,201)Income tax provision (benefit)     27,608       14,166       3,091  Minority interest in earnings of subsidiaries     -       -       -  Adjustments to reconcile net income to net cash provided by operating activities (excluding

depreciation and amortization)     (57,422)     48,203       (199,738)EBITDA     260,079       215,474       (50,666)

Loss (gain) on derivatives which represent swap contracts on natural gas and oil prices     (6,960)     7,813       (4,982)Stock-based compensation     5,571       6,262       6,394  Gain on sale of subsidiary and property, plant and equipment     (7,628)     (3,646)     - Termination fee     -       11,604       -  Share exchange transaction costs     1,000       -       -  Impairment charge     -       -       236,377  Write-off of insuccessful exploration activities     15,439       4,094       2,639  Loss (gain) on derivatives which represent currency forward contracts     5,172       (615)     (2,565)Adjusted EBITDA   $ 272,673    $ 240,986    $ 187,197  

Net cash used in investing activities   $ (129,162)   $ (157,153)   $ (100,790)

Net cash provided by (used in) financing activities   $ (101,197)   $ 61,119     $ (21,939)

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  Exposure to Market Risks

  Based on current conditions, we believe that we have sufficient financial resources to fund our activities and execute our business plans. However, the cost of obtaining financing for our

project needs may increase significantly or such financing may be difficult to obtain.   One market risk to which power plants are typically exposed is the volatility of electricity prices. Our exposure to such market risk is currently limited because many of our long-term PPAs

(except for the 25 MW PPA for the Puna complex and the PPAs of the Heber 1 and 2 power plants in the Heber complex, the Ormesa complex and the G2 power plant in the Mammoth complex) have fixed or escalating rate provisions that limit our exposure to changes in electricity prices. Beginning in May 2012, the energy payments under the PPAs of the Heber 1 and 2 power plants in the Heber complex, the Ormesa complex and the G2 power plant in Mammoth complex are determined by reference to the relevant power purchaser’s SRAC. A decline in the price of natural gas will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from natural gas, which in turn will reduce the variable energy rate that we may charge under the relevant PPA for these power plants. In October 2013 and March 2014, we entered into derivative transactions to reduce our exposure to the price of natural gas, under these PPAs, until March 31, 2015. The Puna complex is currently benefiting from energy prices which are higher than the floor under the 25 MW PPA for the Puna complex as a result of the high fuel costs that impact Hawaii Electric Light Company’s (HELCO’s) avoided costs. Likewise, in October 2013 we entered into a derivative transaction to reduce our exposure to the price of oil, under the 25 MW PPA of the Puna complex, until December 31, 2014.

  As of December 31, 2014, 96.0% of our consolidated long-term debt comprised a fixed rate debt and therefore was not subject to interest rate volatility risk. As of such date, 4.0% of our

long-term debt was in the form of a floating rate instrument, exposing us to changes in interest rates in connection therewith. As of December 31, 2014, $40.2 million of our long-term debt remained subject to some floating rate risk.

  We currently maintain our surplus cash in short-term, interest-bearing bank deposits, money market securities and commercial paper (with a minimum investment grade rating of AA by

Standard & Poor’s Ratings Services (.   Our cash equivalents are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates, while

floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our debt securities as “available-for-sale”, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

  Another market risk to which we are exposed is potential adverse changes in foreign currency exchange rates, in particular the fluctuation of the U.S. dollar versus the NIS. Risks

attributable to fluctuations in currency exchange rates can arise when we or any of our foreign subsidiaries borrow funds or incur operating or other expenses in one type of currency but receive revenues in another. In such cases, an adverse change in exchange rates can reduce such subsidiary’s ability to meet its debt service obligations, reduce the amount of cash and income we receive from such foreign subsidiary, or increase such subsidiary’s overall expenses. Risks attributable to fluctuations in foreign currency exchange rates can also arise when the currency denomination of a particular contract is not the U.S. dollar. Substantially all of our PPAs in the international markets are either U.S. dollar-denominated or linked to the U.S. dollar. Our construction contracts from time to time contemplate costs which are incurred in local currencies. The way we often mitigate such risk is to receive part of the proceeds from the sale contract in the currency in which the expenses are incurred. Currently, we have forward contracts in place to reduce our foreign currency exposure, and expect to continue to use currency exchange and other derivative instruments to the extent we deem such instruments to be the appropriate tool for managing such exposure. We do not believe that our exchange rate exposure has or will have a material adverse effect on our financial condition, results of operations or cash flows.

  We performed a sensitivity analysis on the fair values of our swap contracts on oil prices, put options on natural gas prices, long-term debt obligations, and foreign currency exchange

forward contracts. The swap contracts on oil prices, put options on natural gas prices and foreign currency exchange forward contracts listed below principally relate to trading activities. The sensitivity analysis involved increasing and decreasing forward rates at December 31, 2014 and 2013 by a hypothetical 10% and calculating the resulting change in the fair values.  

 

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  The results of the sensitivity analysis calculations as of December 31, 2014 and 2013 are presented below:

 

  Effect of Inflation

  We do not expect that inflation will be a significant risk in the near term, given the current global economic conditions, however, that could change in the future. To address rising

inflation, some of our contracts include certain mitigating factors against any inflation risk.   In connection with the Electricity Segment, inflation may directly impact an expense incurred for the operation of our projects, hence increasing the overall operating cost to us. The

negative impact of inflation may be partially offset by price adjustments built into some of our PPAs that could be triggered upon such occurrences. The energy payments pursuant to the PPAs for the Brady power plant, the Steamboat 2 and 3 power plant, the Steamboat Hills power plant, and the Burdette power plant increase every year through the end of the relevant terms of such agreements, though such increases are not directly linked to the CPI or any other inflationary index. Lease payments are generally fixed, while royalty payments are generally determined as a percentage of revenues and therefore are not significantly impacted by inflation. In our Product Segment, inflation may directly impact fixed and variable costs incurred in the construction of our power plants, hence increasing our operating costs in that segment. In this segment, it is more likely that we will be able to offset part or all of the inflationary impact through our project pricing. With respect to power plants that we construct for our own electricity production, inflationary pricing may impact our operating costs which may be partially offset in the pricing of the new long-term PPAs that we negotiate.

  Contractual Obligations and Commercial Commitments

  The following tables set forth our material contractual obligations as of December 31, 2014 (in thousands):  

___________

  

 

 

    Assuming a 10% Increase in Rates   Assuming a 10% Decrease in Rates        As of December 31,   As of December 31,    Risk   2014   2013   2014   2013   Change in the Fair Value of

    (Dollars in thousands)    NGI Price     (685)       (3,522)       685        3522      NGI Swap NYMEX Heating Oil Price     -        (3,442)       -        3,442      NYMEX HO2 Swap Foreign Currency     (6,720)       (3,381)       1,809        4,133      Foreign Currency Forward Contracts Interest Rate     (1,102)       (2,562)       1,129        3,557      Ormat Funding Corp. (“OFC”) Interest Rate     (921)       (1,298)       945        1,650      Orcal Geothermal Inc. (“OrCal”) Interest Rate     (10,155)       (5,519)       10,861        6,100      OFC 2 LLC (“OFC 2”) Interest Rate     (244)       (379)       249        560      Loan from DEG Interest Rate     (10,211)       (11,836)       10,825        -      Loan from OPIC Interest Rate     -        (328)       -        468      Loan from TCW Interest Rate     (3,336)       (4,349)       3,389        5,623      Senior unsecured bonds

          Payments Due By Period  

   

Remaining Total     2015     2016     2017     2018     2019     Thereafter  

Long-term liabilities principal   $ 1,001,410     $ 91,779     $ 69,060     $ 316,017     $ 59,186     $ 50,889     $ 414,479  Interest on long-term liabilities     347,852       59,372       54,328       50,110       28,584       25,046       130,412  Future minimum operating lease     47,218       8,222       8,374       8,747       8,944       6,018       6,913  Benefits upon retirement     16,579       4,109       665       2,163       2,518       821       6,303  Asset retirement obligation     19,142       —      —      —      —      —      19,142  Purchase commitments     119,200       119,200       —      —      —      —      — 

    $ 1,551,401     $ 282,682     $ 132,427     $ 377,037     $ 99,232     $ 82,774     $ 577,249  

The above amounts were determined based on the employees’ current salary rates and the number of years’ service that will have been accumulated at their expected retirement date. These amounts do not include amounts that might be paid to employees that will cease working with us before reaching their expected retirement age.

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(1)

(2)

(3)

(1) Interest on the OFC Senior Secured Notes due in 2020 is fixed at a rate of 8.25%. Interest on the OrCal Senior Secured Notes due in 2020 is fixed at a rate of 6.21%. Interest on the OFC 2 Senior Secured Notes Series A due in 2032 is fixed at a rate of 4.687%. Interest on the OPIC Loan due in 2030 is fixed at an average rate of 6.29%. Interest on the DEG Loan due in 2018 is fixed for $21.7 million as of December 31, 2014, at a rate of 6.9% and variable on the remaining balance (which as of December 31, 2014 was $9.9 million). Interest on a loan from institutional investors due in 2015 is fixed at a rate of 6.5%. Interest on a loan from institutional investors due in 2016 is fixed at a rate of 5.75%. Interest on the Senior Unsecured Bonds due in 2017 is fixed at a rate of 7%. Interest on the remaining debt is variable (based primarily on changes in LIBOR rates). For purposes of the above calculation of interest payments pertaining to variable rate debt, future LIBOR rates were based on constant maturity swaps.     

(2)

 

  The above table does not reflect unrecognized tax benefits of $7.5 million, the timing of which is uncertain. Refer to Note 18 to our consolidated financial statements set forth in Item 8 of

this annual report for additional discussion of unrecognized tax benefits. The above table also does not reflect a liability associated with the sale of tax benefits of $39.0 million, the timing of which is uncertain. Refer to Note 12 to our consolidated financial statements as set forth in Item 8 of this annual report for additional discussion of our liability associated with the sale of tax benefits.

  Concentration of Credit Risk

  Our credit risk is currently concentrated with the following major customers: Southern California Edison, HELCO, KPLC and Sierra Pacific Power Company and Nevada Power Company

(subsidiaries of NV Energy). If any of these electric utilities fails to make payments under its PPAs with us, such failure would have a material adverse impact on our financial condition.   Southern California Edison accounted for 13.5%, 14.2%, and 18.0% of our total revenues for the three years ended December 31, 2014, 2013, and 2012, respectively. Southern California

Edison is also the power purchaser and revenue source for our Mammoth project, which we accounted for separately under the equity method of accounting through August 1, 2010.   Sierra Pacific Power Company and Nevada Power Company accounted for 16.5%, 17.6%, and 13.6% of our total revenues for the three years ended December 31, 2014, 2013, and 2012,

respectively.   KPLC accounted for 15.4%, 11.6%, and 8.1% of our total revenues for the three years ended December 31, 2014, 2013, and 2012, respectively.  

Government Grants and Tax Benefits  

The U.S. government encourages production of electricity from geothermal resources through certain tax subsidies. If we started construction of a new geothermal power plant in the U.S. by December 31, 2014, we are permitted to claim a tax credit against our U.S. federal income taxes equal to 30% of certain eligible costs when the project is placed in service. If we fail to meet the start of construction deadline for such a project, then the 30% credit is reduced to 10%. In lieu of the 30% tax credit (if the project qualifies), we are permitted to claim a tax credit based on the power produced from a geothermal power plant. These production-based credits, which in 2013 were 2.3 cents per kWh, are adjusted annually for inflation and may be claimed for ten years on the electricity produced by the project and sold to third parties after the project is placed in service. The owner of the power plant may not claim both the 30% tax credit and the production-based tax credit. Under current tax rules, any unused tax credit has a one-year carry back and a twenty-year carry forward. If we claim the ITC, our “tax basis” in the plant that we can recover through depreciation must be reduced by half of the ITC. If we claim the PTC, there is no reduction in the tax basis for depreciation. Companies that placed qualifying renewable energy facilities in service during 2009, 2010 or 2011 or that began construction of qualifying renewable energy facilities during 2009, 2010 or 2011 and placed them in service by December 31, 2013, may choose to apply for a cash grant from the U.S. Treasury in an amount equal to the ITC. Likewise, the tax basis for depreciation will be reduced by 50% of the cash grant received. Under the ARRA, the U.S. Treasury is instructed to pay the cash grant within 60 days of the application or the date on which the qualifying facility is placed in service.

  Ormat Systems received “Benefited Enterprise” status under Israel’s Law for Encouragement of Capital Investments, 1959 (the Investment Law), with respect to two of its investment

programs. As a Benefited Enterprise, Ormat Systems was exempt from Israeli income taxes with respect to income derived from the first benefited investment for a period of two years that started in 2004, and thereafter such income was subject to reduced Israeli income tax rates, which could not exceed 25% for an additional five years until 2010. Ormat Systems was also exempt from Israeli income taxes with respect to income derived from the second benefited investment for a period of two years that started in 2007. Thereafter, such income is subject to reduced Israeli income tax rates which cannot exceed 25% for an additional five years until 2013 (see also below). These benefits are subject to certain conditions, including among other things, that all transactions between Ormat Systems and its affiliates are done on an arm’s- length basis, and that the management of Ormat Systems will be located in, and the control will be conducted from Israel during the entire period of the tax benefits. A change in control of Ormat Systems would need to be reported to the Israel Tax Authority in order for Ormat Systems to maintain the tax benefits. In January 2011, new legislation amending the Investment Law was enacted. Under the new legislation, a uniform rate of corporate tax will apply to all qualified income of certain industrial companies, as opposed to the previous law’s incentives that are limited to income from a “Benefited Enterprise” during their benefits period. According to the amendment, the uniform tax rate applicable to the zone where the production facilities of Ormat Systems are located would be 15% in 2011 and 2012, 12.5% in 2013 and 16% in 2014 and thereafter. Under the transitory provisions of the new legislation, Ormat Systems had the option either to irrevocably comply with the new law while waiving benefits provided under the previous law or to continue to comply with the previous law during the transition period, with an option to move from the previous law to the new law at any stage. Ormat Systems decided to irrevocably comply with the new law starting in 2011.  

 

We purchase raw materials for inventories, construction-in-process and services from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, we enter into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based upon specifications defined by us, or that establish parameters defining our requirements. At December 31, 2015, total obligations related to such supplier agreements were approximately $119.2 million (approximately $44.1million of which relate to construction-in-process). All such obligations are payable in 2015.

 117

(3)

  In November 2012, new legislation amending the Investment Law was enacted. Under the new legislation, companies that had retained earnings as of December 31, 2011 from Benefited

Enterprises would have elected by November 11, 2013 to pay a reduced corporate tax rate set forth in the new legislation on such undistributed income and distribute a dividend from such income without being required to pay additional corporate tax with respect to such income.  Ormat Systems decided not to make such an election.

   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Information responding to Item 7A is included in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this annual report.

 

 

 118

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

 

Index to Consolidated Financial Statements of Ormat Technologies, Inc. and Subsidiaries     Report of Independent Registered Public Accounting Firm 119 Consolidated Financial Statements as of December 31, 2014 and 2013 and for Each of the Three Years in the Period Ended December 31, 2014:  

Consolidated Balance Sheets 120Consolidated Statements of Operations and Comprehensive Income (Loss) 121

Consolidated Statements of Equity 122 Consolidated Statements of Cash Flows 123 Notes to Consolidated Financial Statements 124

 119

  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  To the Board of Directors and Stockholders of Ormat Technologies, Inc.:

  In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows present

fairly, in all material respects, the financial position of Ormat Technologies, Inc. and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

  A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods

are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.    

/s/ PricewaterhouseCoopers LLP  

San Francisco, California February 26, 2015  

 

 120

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS  

  The accompanying notes are an integral part of the consolidated financial statements

 

 

    December 31,      2014     2013  

    (Dollars in thousands)  ASSETS      

Current assets:                Cash and cash equivalents   $ 40,230     $ 57,354  Restricted cash and cash equivalents (all related to VIEs)     93,248       51,065  Receivables:                

Trade     48,609       95,365  Related entity     451       442  Other     10,141       11,049  

Due from Parent     1,337       382  Inventories     16,930       22,289  Costs and estimated earnings in excess of billings on uncompleted contracts     27,793       21,217  Deferred income taxes     251       523  Prepaid expenses and other     34,884       29,654  

Total current assets     273,874       289,340  Unconsolidated investments     —      7,076  Deposits and other     20,044       22,114  Deferred income taxes     —      891  Deferred charges     37,567       36,738  Property, plant and equipment, net ($1,339,342 and $1,381,083 related to VIEs, respectively)     1,437,637       1,452,336  Construction-in-process ($162,006 and $136,947 related to VIEs, respectively)     296,722       288,827  Deferred financing and lease costs, net     27,057       30,178  Intangible assets, net     28,655       31,933  

Total assets   $ 2,121,556     $ 2,159,433  

LIABILITIES AND EQUITY  Current liabilities:                

Accounts payable and accrued expenses   $ 88,276     $ 98,047  Deferred income taxes     974       — Short term revolving credit lines with banks (full recourse)     20,300       — Billings in excess of costs and estimated earnings on uncompleted contracts     24,724       7,903  Current portion of long-term debt:                

Limited and non-recourse (all related to VIEs):                Senior secured notes     34,368       31,137  Other loans     17,995       20,377  

Full recourse     19,116       28,875  Total current liabilities     205,753       186,339  

Long-term debt, net of current portion:                Limited and non-recourse (all related to VIEs):                

Senior secured notes     360,366       270,310  Other loans     264,625       311,078  

Full recourse:                Senior unsecured bonds (plus unamortized premium based upon 7% of $820)     250,289       250,596  Other loans     34,351       53,467  Revolving credit lines with banks (full recourse)     —      112,017  

Unconsolidated investments     3,617       — Liability associated with sale of tax benefits     39,021       60,985  Deferred lease income     60,560       63,496  Deferred income taxes     66,220       55,035  Liability for unrecognized tax benefits     7,511       4,950  Liabilities for severance pay     20,399       23,841  Asset retirement obligation     19,142       18,679  Other long-term liabilities     2,956       3,529  

Total liabilities     1,334,810       1,414,322                   

Commitments and contingencies (Note 22)                                 Equity:                

The Company's stockholders' equity:                Common stock, par value $0.001 per share; 200,000,000 shares authorized; 45,537,162 and 45,460,653 shares issued and

outstanding as of December 31, 2014 and 2013 , respectively     46       46  Additional paid-in capital     742,006       735,295  Retained earnings     41,539       (3,088)Accumulated other comprehensive income     (8,668)     487  

                       774,923       732,740  Noncontrolling interest     11,823       12,371  

Total equity     786,746       745,111  Total liabilities and equity   $ 2,121,556     $ 2,159,433  

 121

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  

  The accompanying notes are an integral part of the consolidated financial statements.

 

 

    Year Ended December 31,      2014     2013     2012  

    (Dollars in thousands, except per share data)  Revenues:                        

Electricity   $ 382,301     $ 329,747     $ 314,894  Product     177,223       203,492       186,879  

Total revenues     559,524       533,239       501,773  Cost of revenues:                        

Electricity     246,630       232,874       237,415  Product     109,143       140,547       135,346  

Total cost of revenues     355,773       373,421       372,761  Gross margin     203,751       159,818       129,012  

Operating expenses:                        Research and development expenses     783       4,965       6,108  Selling and marketing expenses     15,425       24,613       15,718  General and administrative expenses     28,614       29,188       28,066  Impairment charge     —      —      236,377  Write-off of unsuccessful exploration activities     15,439       4,094       2,639  

Operating income (loss)     143,490       96,958       (159,896)Other income (expense):                        

Interest income     312       1,332       1,201  Interest expense, net     (84,654)     (73,776)     (64,069)Foreign currency translation and transaction gains (losses)     (5,839)     5,085       242  Income attributable to sale of tax benefits     24,143       19,945       10,127  Gain from sale of property, plant and equipment     7,628       —      — Other non-operating income, net     756       1,592       590  

Income (loss) from continuing operations, before income taxes and equity in income of investees     85,836       51,136       (211,805)Income tax provision     (27,608)     (13,552)     (1,827)Equity in losses of investees, net     (3,213)     (250)     (2,522)

Income (loss) from continuing operations     55,015       37,334       (216,154)Discontinued operations:                        

Income from discontinued operations (including gain on disposal of $0, $3,646 and $0, respectively)     —      5,311       4,811  Income tax provision     —      (614)     (1,264)Total income from discontinued operations     —      4,697       3,547  

Net income (loss)     55,015       42,031       (212,607)Net loss attributable to noncontrolling interest     (833)     (793)     (414)Net income (loss) attributable to the Company's stockholders   $ 54,182     $ 41,238     $ (213,021)

Comprehensive income (loss):                        Net income (loss)     55,015       42,031       (212,607)Other comprehensive income (loss), net of related taxes:                        

Change in unrealized gains or losses in respect of the Company's share in derivatives instruments of unconsolidated investment     (6,302)     —      — 

Loss in respect of derivative instruments designated for cash flow hedge     (902)     —      — Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge     (141)     (164)     (190)Change in unrealized gains or losses on marketable securities available-for-sale     —      —      246  

Comprehensive income (loss)     47,670       41,867       (212,551)Comprehensive loss attributable to noncontrolling interest     (833)     (793)     (414)Comprehensive income (loss) attributable to the Company's stockholders   $ 46,837     $ 41,074     $ (212,965)

Earnings (loss) per share attributable to the Company's stockholders:                        Basic:                        

Income (loss) from continuing operations   $ 1.19     $ 0.81     $ (4.77)Discontinued operations     —      0.10       0.08  Net income (loss)   $ 1.19     $ 0.91     $ (4.69)

Diluted:                        Income (loss) from continuing operations   $ 1.18     $ 0.81     $ (4.77)Discontinued operations     —      0.10       0.08  Net income (loss)   $ 1.18     $ 0.91     $ (4.69)

Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders:                        

Basic     45,508      45,440       45,431  

Diluted     45,859      45,475       45,431  

Dividend per share declared   $ 0.21     $ 0.08     $ 0.08  

 122

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY  

  The accompanying notes are an integral part of the consolidated financial statements.

 

 

    The Company's Stockholders' Equity                                              Retained     Accumulated                                              Additional     Earnings     Other                              Common Stock     Paid-in     (Accumulated     Comprehensive             Noncontrolling     Total      Shares     Amount     Capital     Deficit)     Income     Total     Interest     Equity                                                                       (Dollars in thousands, except per share data)                                                                   Balance at December 31, 2011     45,431     $ 46     $ 725,746     $ 172,331     $ 595     $ 898,718     $ 7,926     $ 906,644                                                                   

Stock-based compensation     —      —      6,394       —      —      6,394       —      6,394  Cash paid to non controlling interest     —      —      —      —      —      —      (1,244)     (1,244)Cash dividend declared, $0.08 per share     —      —      —      (3,636)     —      (3,636)     —      (3,636)Net (loss) income     —      —      —      (213,021)     —      (213,021)     414       (212,607)Other comprehensive income (loss), net                                                                

Currency translation adjustment                                                                Amortization of unrealized gains in respect of

derivative instruments designated for cash flow hedge (net of related tax of $117)     —      —      —      —      (190)     (190)     —      (190)

Change in unrealized gains or losses on marketable securities available-for-sale (net of related tax of $0)     —      —      —      —      246       246       —      246  

Balance at December 31, 2012     45,431       46       732,140       (44,326)     651       688,511       7,096       695,607  Stock-based compensation     —      —      6,262       —      —      6,262       —      6,262  Exercise of options by employees and directors     30       —      529       —      —      529       —      529  Cash paid to noncontrolling interest     —      —      —      —      —      —      (669)     (669)Cash dividend declared, $0.08 per share     —      —      (3,636)     —      —      (3,636)     —      (3,636)Increase in noncontrolling interest in ORTP LLC     —      —      —      —      —      —      5,151       5,151  

Net income     —      —      —      41,238       —      41,238       793       42,031  of related taxes:                                                                

Currency translation adjustment of derivative instruments designated for cash flow hedge (net of related tax of $101)     —      —      —      —      (164)     (164)     —      (164)

Balance at December 31, 2013     45,461       46       735,295       (3,088)     487       732,740       12,371       745,111  Stock-based compensation     —      —      5,571       —      —      5,571       —      5,571  Exercise of options by employees and directors     76       —      981       —      —      981       —      981  Cash paid to noncontrolling interest     —      —      —      —      —      —      (651)     (651)Cash dividend declared, $0.21 per share     —      —      —      (9,555)     —      (9,555)     —      (9,555)Increase in noncontrolling interest     —      —      —      —      —      —      257       257  Acquisition of noncontrolling interest in Crump     —      —      159       —      —      159       (987)     (828)Net income     —      —      —      54,182       —      54,182       833       55,015  Other comprehensive income (loss), net                                                                

of related taxes:                                                                Currency translation adjustment                                                                

Loss in respect of derivative instruments designated for cash flow hedge (net of related tax of $554)     —      —      —      —      (902)     (902)     —      (902)

Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment (net of related tax of $0)     —      —      —      —      (8,112)     (8,112)     —      (8,112)

Amortization of unrealized gains in respect flow hedge (net of related tax of $87)     —      —      —      —      (141)     (141)     —      (141)

Balance at December 31, 2014     45,537     $ 46     $ 742,006     $ 41,539     $ (8,668)   $ 774,923     $ 11,823     $ 786,746  

 123

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

    Year Ended December 31,      2014     2013     2012                               (Dollars in thousands)  Cash flows from operating activities:                        

Net income (loss)   $ 55,015     $ 42,031     $ (212,607)Adjustments to reconcile net income (loss) to net cash provided by operating activities:                        

Depreciation and amortization     100,798       92,932       102,340  Amortization of premium from senior unsecured bonds     (308)     (307)     (307)Accretion of asset retirement obligation     829       1,544       1,701  Stock-based compensation     5,571       6,262       6,394  Amortization of deferred lease income     (2,685)     (2,685)     (2,685)Income attributable to sale of tax benefits, net of interest expense     (13,823)     (7,999)     (4,003)Equity in income (losses) of investees     3,213       150       442  Mark-to-market of derivative instruments     (6,960)     7,813       — Write-off of unconsolidated investment     —      —      2,114  Write-off of unsuccessful exploration activities     15,439       4,039       2,639  Impairment charge     —      —      236,377  Gain on severance pay fund asset     1,492       (877)     (931)Gain on sale of a subsidiary and property, plant and equipment     (7,628)      (3,646)     — Deferred income tax provision (benefit)     13,135       9,245       (4,736)Liability for unrecognized tax benefits     2,561       (2,330)     1,405  Deferred lease revenues     (251)     (217)     128  Other     (181)     (819)     — Changes in operating assets and liabilities, net of amounts acquired:                        

Receivables     47,114       (37,174)     (3,623)Costs and estimated earnings in excess of billings on uncompleted contracts     (6,576)     (11,604)     (5,647)Inventories     5,359       (1,620)     (8,128)Prepaid expenses and other     (1,337)     (600)     (15,472)Deposits and other     584       621       (12,746)Accounts payable and accrued expenses     (9,638)     6,077       11,414  Due from/to related entities, net     (9)     (69)     (86)Billings in excess of costs and estimated earnings on uncompleted contracts     16,821       (17,505)     (7,696)Liabilities for severance pay     (3,442)     1,267       2,340  Other long-term liabilities     (903)     2,302       895  Due from/to Parent     (955)     (71)     (51)

Net cash provided by operating activities     213,235      86,760       89,471  Cash flows from investing activities:                        

Marketable securities, net     —      —      18,763  Short-term deposit     —      3,010       (3,010)Net change in restricted cash, cash equivalents and marketable securities     (42,183)     25,472       (1,016)Cash received from sale of a subsidiary     35,250       7,699       — Capital expenditures     (151,153)     (204,628)     (233,020)Cash grant received from the U.S. Treasury under Section 1603 of the ARRA     27,427       14,685       119,199  Investment in unconsolidated companies     (631)     (4,635)     (1,390)Increase (decrease) in severance pay fund asset, net of payments made to retired employees     2,128       1,244       (316)

Net cash used in investing activities     (129,162)     (157,153)     (100,790)Cash flows from financing activities:                        

Proceeds from issuance of senior unsecured bonds     —      —      1,171  Proceeds from long-term loans, net of transaction costs     140,000       90,000       214,051  Proceeds from exercise of options by employees     981       529       — Proceeds from the sale of limited liability company interest in ORTP LLC, net of transaction costs     —      31,376       — Purchase of OFC Senior Secured Notes     (12,860)     (11,888)     — Proceeds from revolving credit lines with banks     2,830,683       3,058,956       2,953,535  Repayment of revolving credit lines with banks     (2,922,400)     (3,020,545)     (3,093,978)Cash received from non-controlling interest     2,234       —      — Payment for acquisition of noncontrolling interest in Crump     (1,490)     —      — Repayments of long-term debt     (111,180)     (68,370)     (74,502)Cash paid to non-controlling interest     (11,320)     (13,384)     (15,383)Cash paid for interest rate cap     (1,505)     —      — Deferred debt issuance costs     (4,785)     (1,919)     (3,197)Cash dividends paid     (9,555)     (3,636)     (3,636)

Net cash provided by (used in) financing activities     (101,197)     61,119       (21,939)Net change in cash and cash equivalents     (17,124)     (9,274)     (33,258)Cash and cash equivalents at beginning of period     57,354       66,628       99,886  Cash and cash equivalents at end of period   $ 40,230     $ 57,354     $ 66,628  

Supplemental disclosure of cash flow information:                        Cash paid during the year for:                        

Interest, net of interest capitalized   $ 62,376     $ 51,306     $ 40,398  

Income taxes, net   $ 5,787     $ 4,114     $ 11,570  

Supplemental non-cash investing and financing activities:                        Increase (decrease) in accounts payable related to purchases of property, plant and equipment   $ 3,853     $ 4,372     $ (18,813)

Accrued liabilities related to financing activities   $ 658     $ —    $ 288  

Increase (decrease) in asset retirement cost and asset retirement obligation   $ (366)   $ 588     $ (3,696)

The accompanying notes are an integral part of the consolidated financial statements.  

 124

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 1 — BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

  Business

  Ormat Technologies, Inc. (the “Company”), a subsidiary of Ormat Industries Ltd. (the “Parent”), is primarily engaged in the geothermal and recovered energy business, including the

supply of equipment that is manufactured by the Company and the design and construction of power plants for projects owned by the Company or for third parties. The Company owns and operates geothermal and recovered energy-based power plants in various countries, including the United States of America (“U.S.”), Kenya, and Guatemala. The Company’s equipment manufacturing operations are located in Israel.

  Most of the Company’s domestic power plant facilities are Qualifying Facilities under the Public Utility Regulatory Policies Act of 1978 (“PURPA”). The power purchase agreements

(“PPAs”) for certain of such facilities are dependent upon their maintaining Qualifying Facility status. Management believes that all of the facilities located in the U.S. were in compliance with Qualifying Facility status requirements as of December 31, 2014.

   Cash dividends

  During the years ended December 31, 2014, 2013, and 2012, the Company’s Board of Directors declared, approved, and authorized the payment of cash dividends in the aggregate amount

of $9.6 million ($0.21 per share), $3.6 million ($0.08 per share), and $3.6 million ($0.08 per share), respectively. Such dividends were paid in the years declared.  

Rounding   Dollar amounts, except per share data, in the notes to these financial statements are rounded to the closest $1,000, unless otherwise indicated.  

Basis of presentation   The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts

of the Company and of all majority-owned subsidiaries in which the Company exercises control over operating and financial policies, and variable interest entities in which the Company has an interest and is the primary beneficiary. Intercompany accounts and transactions have been eliminated in consolidation.

  Investments in less-than-majority-owned entities or other entities in which the Company exercises significant influence over operating and financial policies are accounted for using the

equity method of accounting or consolidated if they are a variable interest entity in which the Company has an interest and is the primary beneficiary. Under the equity method, original investments are recorded at cost and adjusted by the Company’s share of undistributed earnings or losses of such companies. The Company’s earnings or losses in investments accounted for under the equity method have been reflected as “equity in income (losses) of investees, net” on the Company’s consolidated statements of operations and comprehensive income (loss).

  Cash and cash equivalents

  The Company considers all highly liquid instruments, with an original maturity of three months or less, to be cash equivalents.  

Restricted cash, cash equivalents, and marketable securities   Under the terms of certain long-term debt agreements, the Company is required to maintain certain debt service reserves, cash collateral and operating fund accounts that have been

classified as restricted cash and cash equivalents. Funds that will be used to satisfy obligations due during the next twelve months are classified as current restricted cash and cash equivalents, with the remainder classified as non-current restricted cash and cash equivalents (see Note 6). Such amounts were invested primarily in money market accounts and commercial paper with a minimum investment grade of “AA”.  

 

 125

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  During the year ended December 31, 2012, the Company had investments in marketable securities that were classified as available-for-sale. The changes in the fair value of those securities

were recorded in other comprehensive income (loss).  

Concentration of credit risk   Financial instruments which potentially subject the Company to concentration of credit risk consist principally of temporary cash investments and accounts receivable.   The Company places its temporary cash investments with high credit quality financial institutions located in the U.S. and in foreign countries. At December 31, 2014 and 2013, the

Company had deposits totaling $23,488,000 and $13,805,000, respectively, in seven U.S. financial institutions that were federally insured up to $250,000 per account. At December 31, 2014 and 2013, the Company’s deposits in foreign countries of approximately $24,304,000 and $56,133,000, respectively, were not insured.

  At December 31, 2014 and 2013, accounts receivable related to operations in foreign countries amounted to approximately $21,935,000 and $32,231,000, respectively. At December 31, 2014,

and 2013, accounts receivable from the Company’s major customers (see Note 19) amounted to approximately 69% and 35%, respectively, of the Company’s accounts receivable.   The Company performs ongoing credit evaluations of its customers’ financial condition. The Company has historically been able to collect on substantially all of its receivable balances,

and accordingly, no provision for doubtful accounts has been made.  

Inventories   Inventories consist primarily of raw material parts and sub-assemblies for power units, and are stated at the lower of cost or market value, using the weighted-average cost method.

Inventories are reduced by a provision for slow-moving and obsolete inventories. This provision was not significant at December 31, 2014 and 2013.  

Deposits and other   Deposits and other consist primarily of performance bonds for construction projects, long-term insurance contract and receivables, and derivative instruments.  

Deferred charges   Deferred charges represent prepaid income taxes on intercompany sales. Such amounts are amortized using the straight-line method and included in income tax provision over the life of

the related property, plant and equipment.  

Property, plant and equipment   Property, plant and equipment are stated at cost. All costs associated with the acquisition, development and construction of power plants operated by the Company are capitalized. Major

improvements are capitalized and repairs and maintenance (including major maintenance) costs are expensed. Power plants operated by the Company, which include geothermal wells and exploration and resource development costs, are depreciated using the straight-line method over their estimated useful lives, which range from 25 to 30 years. The other assets are depreciated using the straight-line method over the following estimated useful lives of the assets:

 

 

 

    (In years)  Leasehold improvements     15-20  Machinery and equipment — manufacturing and drilling     10  Machinery and equipment — computers     3-5  Office equipment — furniture and fixtures     5-15  Office equipment — other     5-10  Automobiles     5-7  

 126

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The cost and accumulated depreciation of items sold or retired are removed from the accounts. Any resulting gain or loss is recognized currently and is recorded in operating income.   The Company capitalizes interest costs as part of constructing power plant facilities. Such capitalized interest is recorded as part of the asset to which it relates and is amortized over the

asset’s estimated useful life. Capitalized interest costs amounted to $3,206,000, $7,598,000, and $11,964,000 for the years ended December 31, 2014, 2013, and 2012, respectively.  

Cash Grants   From 2009 to 2014, the Company was awarded cash grants from the U.S. Department of the Treasury (“U.S. Treasury”) for Specified Energy Property in Lieu of Tax Credits under Section

1603 of the American Recovery and Reinvestment Act of 2009 (“ARRA”). The Company recorded the cash grant as a reduction in the carrying value of the related plant and amortized the grants as a reduction in depreciation expense over the plant’s estimated useful life.  

Exploration and development costs   The Company capitalizes costs incurred in connection with the exploration and development of geothermal resources once it acquires land rights to the potential geothermal resource.

Prior to acquiring land rights, the Company makes an initial assessment that an economically feasible geothermal reservoir is probable on that land. The Company determines the economic feasibility of potential geothermal resources internally, with all available data and external assessments vetted through the exploration department and occasionally using outside service providers. Costs associated with the initial assessment are expensed and included in cost of electricity revenues in the consolidated statements of operations and comprehensive income (loss). Such costs were immaterial during the years ended December 31, 2014, 2013, and 2012. It normally takes two to three years from the time active exploration of a particular geothermal resource begins to the time a production well is in operation, assuming the resource is commercially viable. However, in certain sites the process may take longer due to permitting delays, transmission constrains or any other commercial milestones that are required to be reached in order to pursue the development process.

  In most cases, the Company obtains the right to conduct the geothermal development and operations on land owned by the Bureau of Land Management (“BLM”), various states or with

private parties. In consideration for certain of these leases, the Company may pay an up-front bonus payment which is a component of the competitive lease process. The up-front bonus payments and other related costs, such as legal fees, are capitalized and included in construction-in-process. The annual land lease payments made during the exploration, development and construction phase are expensed as incurred and included in “electricity cost of revenues” in the consolidated statements of operations and comprehensive income (loss). Upon commencement of power generation on the leased land, the Company begins to pay to the lessors long-term royalty payments based on the utilization of the geothermal resources as defined in the respective agreements. Such payments are expensed when the related revenues are earned and included in “electricity cost of revenues” in the consolidated statements of operations and comprehensive income (loss).

  Following the acquisition of land rights to the potential geothermal resource, the Company conducts further studies and surveys, including water and soil analyses among others, and

augments its database with the results of these studies. The Company then initiates a suite of geophysical surveys to assess the resource and determine drilling locations. If the results of these activities support the initial assessment of the feasibility of the geothermal resource, the Company then proceeds to exploratory drilling and other related activities which may include drilling of temperature gradient holes, drilling of slim holes, building access roads to drilling locations, drilling full size production and/or injection wells and flow tests. If the slim hole supports a conclusion that the geothermal resource will support a commercially viable power plant, it may be converted to a full-size commercial well, used either for extraction or re-injection or geothermal fluids, or be used as an observation well to monitor and define the geothermal resource. Costs associated with these activities and other directly attributable costs, including interest once physical exploration activities begin and permitting costs are capitalized and included in “construction-in-process”. If the Company concludes that a geothermal resource will not support commercial operations, capitalized costs are expensed in the period such determination is made.

  Write-off of unsuccessful activities for the year ended December 31, 2014, 2013 and 2012, was $15.4 million, $4.1 million, and $2.6 million. In 2014, the write-offs included the exploration

costs that were determined that they would not support commercial operations related to the Company’s exploration activities in the Wister site in California of $8.1 million and the Mount Spur site in Alaska of $7.3 million.  

 

 127

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Grants received from the U.S. Department of Energy (“DOE”) are offset against the related exploration and development costs. Such grants amounted to $179,000, $1,665,000, and

$1,368,000 for the years ended December 31, 2014, 2013, and 2012, respectively.   All exploration and development costs that are being capitalized, including the up-front bonus payments made to secure land leases, will be depreciated over their estimated useful lives

when the related geothermal power plant is substantially complete and ready for use. A geothermal power plant is substantially complete and ready for use when electricity generation commences.

  Asset retirement obligation

  The Company records the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. The Company’s legal liabilities include plugging wells and

post-closure costs of power producing sites. When a new liability for asset retirement obligations is recorded, the Company capitalizes the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. At retirement, the obligation is settled for its recorded amount at a gain or loss.

  Deferred financing and lease transaction costs

  Deferred financing costs are amortized over the term of the related obligation using the effective interest method. Amortization of deferred financing costs is presented as interest expense

in the consolidated statements of operations and comprehensive income (loss). Accumulated amortization related to deferred financing costs amounted to $31,871,000 and $25,371,000 at December 31, 2014 and 2013, respectively. Amortization expense for the years ended December 31, 2014, 2013, and 2012 amounted to $6,500,000, $6,009,000, and $3,676,000, respectively. During the years ended December 31, 2014 and 2013 amounts of $711,000 and $254,000, respectively, were written-off as a result of the extinguishment of liability.

  Deferred transaction costs relating to the Puna operating lease (see Note 11) in the amount of $4,172,000 are amortized using the straight-line method over the 23-year term of the lease.

Amortization of deferred transaction costs is presented in cost of revenues in the consolidated statements of operations and comprehensive income (loss). Accumulated amortization related to deferred lease costs amounted to $1,773,000 and $1,589,000 at December 31, 2014 and 2013, respectively. Amortization expense for each of the years ended December 31, 2014, 2013, and 2012 amounted to $184,000.

  Intangible assets

  Intangible assets consist of allocated acquisition costs of PPAs, which are amortized using the straight-line method over the 13 to 25-year terms of the agreements (see Note 8).  

Impairment of long-lived assets and long-lived assets to be disposed of   The Company evaluates long-lived assets, such as property, plant and equipment and construction-in-process for impairment whenever events or changes in circumstances indicate that

the carrying amount of an asset may not be recoverable. Factors which could trigger an impairment include, among others, significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of assets or its overall business strategy, negative industry or economic trends, a determination that an exploration project will not support commercial operations, a determination that a suspended project is not likely to be completed, a significant increase in costs necessary to complete a project, legal factors relating to its business or when it concludes that it is more likely than not that an asset will be disposed of or sold.

  The Company tests its operating plants that are operated together as a complex for impairment at the complex level because the cash flows of such plants result from significant shared

operating activities. For example, the operating power plants in a complex are managed under a combined operation management generally with one central control room that controls all of the power plants in a complex and one maintenance group that services all of the power plants in a complex. As a result, the cash flows from individual plants within a complex are not largely independent of the cash flows of other plants within the complex. The Company tests for impairment its operating plants which are not operated as a complex as well as its projects under exploration, development or construction that are not part of an existing complex at the plant or project level. To the extent an operating plant becomes part of a complex, the Company will test for impairment at the complex level.  

 

 128

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be

generated by the asset. The significant assumptions that the Company uses in estimating its undiscounted future cash flows include: (i) projected generating capacity of the complex or power plant and rates to be received under the respective PPA(s) ) and expected market rates thereafter and (ii) projected operating expenses of the relevant complex or power plant. Estimates of future cash flows used to test recoverability of a long-lived asset under development also include cash flows associated with all future expenditures necessary to develop the asset.

  If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be

disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Management believes that no impairment exists for long-lived assets; however, estimates as to the recoverability of such assets may change based on revised circumstances. If actual cash flows differ significantly from the Company’s current estimates, a material impairment charge may be required in the future.

  Derivative instruments

  Derivative instruments (including certain derivative instruments embedded in other contracts) are measured at their fair value and recorded as either assets or liabilities unless exempted

from derivative treatment as a normal purchase and sale. All changes in the fair value of derivatives are recognized in earnings unless specific hedge criteria are met, which requires a company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

  The Company maintains a risk management strategy that incorporates the use of swap contracts and put options on oil and natural gas prices, forward exchange contracts, interest rate

swaps, and interest rate caps to minimize significant fluctuation in cash flows and/or earnings that are caused by oil and natural gas prices, exchange rate or interest rate volatility. Gains or losses on contracts that initially qualify for cash flow hedge accounting, net of related taxes, are included as a component of other comprehensive income or loss and accumulated other comprehensive income or loss are subsequently reclassified into earnings when the hedged forecasted transaction affects earnings. Gains or losses on contracts that are not designated as a cash flow hedge are included currently in earnings.

  Foreign currency translation

  The U.S. dollar is the functional currency for all of the Company’s consolidated operations and those of its equity affiliates. For those entities, all gains and losses from currency

translations are included in the consolidated statements of operations and comprehensive income (loss).  

Comprehensive income (loss) reporting   Comprehensive income (loss) includes net income or loss plus other comprehensive income (loss), which for the Company consists of foreign currency translation adjustments, the non-

credit portion of unrealized gain or loss on available-for-sale marketable securities and the mark-to-market gains or losses on derivative instruments designated as a cash flow hedge. For the years ended December 31, 2014, 2013 and 2012, the Company reclassified ($141,000), ($164,000) and $56,000, respectively, from other comprehensive income, of which $228,000, $265,000 and $61,000, respectively, were recorded to reduce interest expense and $87,000, $101,000 and $117,000, respectively, were recorded against the income tax provision, in the consolidated statements of operations and comprehensive income (loss).

  Revenues and cost of revenues

  Revenues are primarily related to: (i) sale of electricity from geothermal and recovered energy-based power plants owned and operated by the Company and (ii) geothermal and recovered

energy-based power plant equipment engineering, sale, construction and installation, and operating services.   Revenues related to the sale of electricity from geothermal and recovered energy-based power plants and capacity payments are recorded based upon output delivered and capacity

provided at rates specified under relevant contract terms. For PPAs agreed to, modified, or acquired in business combinations on or after July 1, 2003, the Company determines whether such PPAs contain a lease element requiring lease accounting. Revenue from such PPAs are accounted for in electricity revenues. The lease element of the PPAs is also assessed in accordance with the revenue arrangements with multiple deliverables guidance, which requires that revenues be allocated to the separate earnings processes based on their relative fair value. PPAs with minimum lease rentals which vary over time are generally recognized on the straight-line basis over the term of the PPAs. PPAs with contingent rentals are recognized when earned.  

 

 129

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Revenues from engineering, operating services, and parts and product sales are recorded upon providing the service or delivery of the products and parts and when collectability is

reasonably assured. Revenues from the supply and/or construction of geothermal and recovered energy-based power plant equipment and other equipment to third parties are recognized using the percentage-of-completion method. Revenue is recognized based on the percentage relationship that incurred costs bear to total estimated costs. Costs include direct material, labor, and indirect costs. Selling, marketing, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenues and are recognized in the period in which the revisions are determined.

  In specific instances where there is a lack of dependable estimates or inherent risks cause forecast to be doubtful, then the completed-contract method is followed. Revenue is recognized

when the contract is substantially complete and when collectability is reasonably assured. Costs that are closely associated with the project are deferred as contract costs and recognized similarly to the associated revenues.

  Warranty on products sold

  The Company generally provides a one-year warranty against defects in workmanship and materials related to the sale of products for electricity generation. Estimated future warranty

obligations are included in operating expenses in the period in which the related revenue is recognized. Such charges are immaterial for the years ended December 31, 2014, 2013, and 2012.  

Research and development   Research and development costs incurred by the Company for the development of existing and new geothermal, recovered energy and remote power technologies are expensed as

incurred. Grants received from the DOE are offset against the related research and development expenses. Such grants amounted to $555,000, $1,616,000, and $660,000 for the years ended December 31, 2014, 2013, and 2012, respectively.

  Stock-based compensation

  The Company accounts for stock-based compensation using the fair value method whereby compensation cost is measured at the grant date, based on the calculated fair value of the

award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company uses the simplified method in developing an estimate of the expected term of “plain vanilla” stock-based awards.

  Income taxes

  Income taxes are accounted for using the asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and

liabilities for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. The Company accounts for investment tax credits and production tax credits as a reduction to income taxes in the year in which the credit arises. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not, more likely than not expected to be realized. A full valuation allowance has been established to offset the Company’s U.S. deferred tax assets. Tax benefits from uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

  Earnings (loss) per share

  Basic earnings (loss) per share attributable to the Company’s stockholders (“earnings (loss) per share”) is computed by dividing net income or loss attributable to the Company’s

stockholders by the weighted average number of shares of common stock outstanding for the period. The Company does not have any equity instruments that are dilutive, except for stock-based awards.  

 

 130

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The table below shows the reconciliation of the number of shares used in the computation of basic and diluted earnings per share:  

   In the year ended December 31, 2012, the employee stock options were anti-dilutive because of the Company’s net loss, and therefore, they have been excluded from the diluted earnings

(loss) per share calculation.   The number of stock-based awards that could potentially dilute future earnings per share and were not included in the computation of diluted earnings per share because to do so would

have been anti-dilutive was 3,237,593, 5,139,339, and 5,479,852, respectively, for the years ended December 31, 2014, 2013, and 2012.  

Use of estimates in preparation of financial statements   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of such financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The most significant estimates with regard to the Company’s consolidated financial statements relate to the useful lives of property, plant and equipment, impairment of long-lived assets and assets to be disposed of, revenue recognition of product sales using the percentage of completion method, asset retirement obligations, and the provision for income taxes.  

 

    Year Ended December 31,  

    2014     2013     2012      (In thousands)  Weighted average number of shares used in computation of basic earnings per share     45,508      45,440       45,431  Add:                        Additional shares from the assumed exercise of employee stock options     350      35       -                           Weighted average number of shares used in computation of diluted earnings per share     45,858      45,475       45,431  

 131

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  New Accounting Pronouncements

  New accounting pronouncements effective in the year ended December 31, 2014

  Presentation of Unrecognized Tax Benefits

  In July 2013, the Financial Accounting Standards Board (“FASB”) clarified the accounting guidance on presentation of the unrecognized tax benefits when a net operating loss

carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit (or a portion thereof) should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except for certain exceptions specified in the guidance. The exceptions include when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to reduce any income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and is to be made assuming the disallowance of the tax position at the reporting date. This accounting update is effective for fiscal periods after December 15, 2013. The provision was applied prospectively to all unrecognized tax benefits that exist on January 1, 2014. The adoption of this guidance did not have a material impact on the consolidated financial statements.

   

New accounting pronouncements effective in future periods  

Reporting Discontinued Operations and Disclosures  

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendment, required to be applied prospectively for reporting periods beginning after December 15, 2014, limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on operations and financial results. The amendment requires expanded disclosures for discontinued operations and also requires additional disclosures regarding disposals of individually significant components that do not qualify as discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. This amendment has no impact on our current disclosures, but will in the future if we dispose of any individually significant components of the Company.    

Revenues from Contracts with Customers  

In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers, Topic 606, which was a joint project of the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The update provides that an entity should recognize revenue in connection with the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, an entity is required to apply each of the following steps: (1) identify the contract(s) with the customer; (2) identify the performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the potential impact, if any, of the adoption of these amendments on its consolidated financial statements.  

 

 132

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 2 — INVENTORIES  

Inventories consist of the following:  

    NOTE 3 — COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS  

Cost and estimated earnings on uncompleted contracts consist of the following:  

  These amounts are included in the consolidated balance sheets under the following captions:  

  The completion costs of the Company’s construction contracts are subject to estimation. Due to uncertainties inherent in the estimation process, it is reasonably possible that estimated

contract earnings will be further revised in the near term.  

 

    December 31,  

    2014     2013      (Dollars in thousands)  Raw materials and purchased parts for assembly   $ 4,840    $ 6,326 Self-manufactured assembly parts and finished products     12,090      15,963 Total   $ 16,930    $ 22,289 

    December 31,  

    2014     2013      (Dollars in thousands)  Costs and estimated earnings incurred on uncompleted contracts   $ 127,959     $ 51,550  Less billings to date     (124,890)     (38,236)Total   $ 3,069     $ 13,314  

    December 31,  

    2014     2013      (Dollars in thousands)  Costs and estimated earnings in excess of billings on uncompleted contracts   $ 27,793     $ 21,217  Billings in excess of costs and estimated earnings on uncompleted contracts     (24,724)     (7,903)Total   $ 3,069     $ 13,314  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 4 — UNCONSOLIDATED INVESTMENTS   Unconsolidated investments, mainly in power plants, consist of the following:  

  The Sarulla Project

  The Company is a 12.75% member of a consortium which is in the process of developing the Sarulla geothermal power project in Indonesia with expected generating capacity of

approximately 330 megawatts (“MW”). The Sarulla project is located in Tapanuli Utara, North Sumatra, Indonesia and will be owned and operated by the consortium members under the framework of a Joint Operating Contract (“JOC”) and Energy Sales Contract (“ESC”) that were signed on April 4, 2013. Under the JOC, PT Pertamina Geothermal Energy (“PGE”), the concession holder for the project, has provided the consortium with the right to use the geothermal field, and under the ESC, PT PLN, the state electric utility, will be the off-taker at Sarulla for a period of 30 years. In addition to its equity holdings in the consortium, the Company designed the Sarulla plant and is expected to supply its Ormat Energy Converters (“OECs”) to the power plant. The supply contract was signed in October 2013.   

The consortium has started preliminary testing and development activities at the site and signed an engineering procurement and construction agreement (“EPC”) with an unrelated third party. The project will be constructed in three phases of 110 MW each, utilizing both steam and brine extracted from the geothermal field to increase the power plant’s efficiency.

  On May 16, 2014, the consortium reached financial closing of $1.17 billion financing agreements to finance the development of the Sarulla project with a consortium of lenders comprised

of Japan Bank for International Cooperation (“JBIC”), the Asian Development Bank and six commercial banks and obtained construction and term loan under limited recourse financing package backed by political risk guarantee from JBIC.  

Of the $1.17 billion, $0.1 billion (which was drawn down by the Sarulla project company on May 23, 2014) bears a fixed interest rate and $1.07 billion bears interest at a rate linked to Libor.  

The Sarulla consortium entered into interest rate swap agreements with various international banks in order to fix the Libor interest rate on up to $0.96 billion of the $1.07 billion credit facility at a rate of 3.4565%. The interest rate swap became effective as of June 4, 2014 along with the second draw-down by the project company of $50.0 million.  

The Sarulla project company has accounted for the interest rate swap as a cash flow hedge upon which changes in the fair value of the hedging instrument, relative to the effective portion, will be recorded in other comprehensive income. As such, during the period, the project recorded a loss equal to $63.6 million, of which the Company's share was $8.1 million which was recorded in other comprehensive income.  

The first phase of operations is expected to commence in 2016 and the remaining two phases of operations are scheduled to commence within 18 months thereafter. The Company will supply its OEC to the power plant and has added the $254.0 million supply contract to its product segment backlog. According to the current plan, the Company started to recognize revenue from the project during the third quarter of 2014 and will continue to recognize revenues over the course of the next three to four years. For the year ended December 31, 2014, the Company recognized Products revenues of $38.2 million. The Company has eliminated the related intercompany profit of $1.8 million against equity in income (loss) of investees.  

During 2014, the Company made additional investment contributions of $0.6 million to the Sarulla project, consistent with its pro rata share in the consortium.  

The Company’s share in the results of operations of the Sarulla project was not significant for each of the periods presented in these consolidated financial statements.  

 

    December 31,  

    2014     2013      (Dollars in thousands)  Sarulla   $ (3,617)   $ 7,076  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 5 — VARIABLE INTEREST ENTITIES

  The Company’s overall methodology for evaluating transactions and relationships under the variable interest entity (“VIE”) accounting and disclosure requirements includes the

following two steps: (i) determining whether the entity meets the criteria to qualify as a VIE; and (ii) determining whether the Company is the primary beneficiary of the VIE.   In performing the first step, the significant factors and judgments that the Company considers in making the determination as to whether an entity is a VIE include:  

 

 

 

 

  If the Company identifies a VIE based on the above considerations, it then performs the second step and evaluates whether it is the primary beneficiary of the VIE by considering the

following significant factors and judgments:  

 

  The Company’s VIEs include certain of its wholly owned subsidiaries that own one or more power plants with long-term PPAs. In most cases, the PPAs require the utility to purchase

substantially all of the plant’s electrical output over a significant portion of its estimated useful life. Most of the VIEs have associated project financing debt that is non-recourse to the general creditors of the Company, is collateralized by substantially all of the assets of the VIE and those of its wholly owned subsidiaries (also VIEs) and is fully and unconditionally guaranteed by such subsidiaries. The Company has concluded that such entities are VIEs primarily because the entities do not have sufficient equity at risk and/or subordinated financial support is provided through the long-term PPAs. The Company has evaluated each of its VIEs to determine the primary beneficiary by considering the party that has the power to direct the most significant activities of the entity. Such activities include, among others, construction of the power plant, operations and maintenance, dispatch of electricity, financing and strategy. Except for power plants that it acquired, the Company is responsible for the construction of its power plants and generally provides operation and maintenance services. Primarily due to its involvement in these and other activities, the Company has concluded that it directs the most significant activities at each of its VIEs and, therefore, is considered the primary beneficiary. The Company performs an ongoing reassessment of the VIEs to determine the primary beneficiary and may be required to deconsolidate certain of its VIEs in the future. The Company has aggregated its consolidated VIEs into the following categories: (i) wholly owned subsidiaries with project debt; (ii) wholly owned subsidiaries with PPAs; and (iii) less than majority-owned subsidiaries.  

 

 • The design of the entity, including the nature of its risks and the purpose for which the entity was created, to determine the variability that the entity was designed to create and

distribute to its interest holders;

  • The nature of the Company’s involvement with the entity;

  • Whether control of the entity may be achieved through arrangements that do not involve voting equity;

  • Whether there is sufficient equity investment at risk to finance the activities of the entity; and

  • Whether parties other than the equity holders have the obligation to absorb expected losses or the right to receive residual returns.

  • Whether the Company has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and

 • Whether the Company has the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could

potentially be significant to the VIE.

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The tables below detail the assets and liabilities (excluding intercompany balances which are eliminated in consolidation) for the Company’s VIEs, combined by VIE classifications, that

were included in the consolidated balance sheets as of December 31, 2014 and 2013:  

 

 

    December 31, 2014  

    Project Debt     PPAs  

    (Dollars in thousands)  Assets:                

Restricted cash and cash equivalents   $ 87,832     $ — Other current assets     72,091       4,496  Unconsolidated investments     —      — Property, plant and equipment, net     1,160,559      178,783  Construction-in-process     161,534       472  Other long-term assets     51,264       (1)

                 Total assets   $ 1,533,280    $ 183,750  

                 Liabilities:                

Accounts payable and accrued expenses   $ 14,266    $ 2,990  Long-term debt     685,248       — Other long-term liabilities     91,254       6,885  

                 Total liabilities   $ 790,768    $ 9,875  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

   Acquisition of interests in Crump Geyser and North Valley Geothermal project  

On August 5, 2014, the Company signed a definitive Purchase and Sale Agreement with Alternative Earth Resources Inc. (“AER”), pursuant to which the Company paid $1.5 million in cash and (i) purchased AER's 50% interest in Crump Geyser Company (“CGC”), which holds the rights to the Crump Geyser geothermal project, as well as the rights to the North Valley geothermal project and (ii) obtained an option, exercisable over a four-year period, to purchase certain of AER's New Truckhaven geothermal lease. Prior to this transaction, CGC was consolidated by the Company as a variable interest entity. As a result of the acquisition of the remaining interest, the Company continues to consolidate Crump, but now as a wholly owned indirect subsidiary, and so the carrying value of the non-controlling interest of CGC of $1.0 million was reclassified to the Company's equity and the difference of $0.2 million between the fair value of the consideration paid and the related carrying value of the noncontrolling interest acquired was recorded within “additional paid-in capital” in the condensed consolidated statement of equity. The acquisition of the remaining 50% was triggering event for the Company to evaluate if CGC is a VIE. The Company performed the analysis and concluded that CGC is a VIE and is included in the consolidated balance sheet as of December 31, 2014.   NOTE 6— FAIR VALUE OF FINANCIAL INSTRUMENTS

  The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received upon selling an asset or paid upon transferring a liability in an

orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:

  Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;   Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;   Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

 

    December 31, 2013  

    Project Debt     PPAs    

Less than Majority- owned Subsidiary  

    (Dollars in thousands)  Assets:                        

Restricted cash, cash equivalents and marketable securities   $ 48,276     $ —    $ — Other current assets     66,672       5,459       — Property, plant and equipment, net     1,190,467       190,616       — Construction-in-process     136,486       461       11,055  Other long-term assets     56,601       267       — 

                         Total assets   $ 1,498,502     $ 196,803     $ 11,055  

                         Liabilities:                        

Accounts payable and accrued expenses   $ 16,087     $ 2,608     $ — Long-term debt     632,906       —      — Other long-term liabilities     103,538       5,948       — 

                         Total liabilities   $ 752,531     $ 8,556     $ — 

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The following table sets forth certain fair value information at December 31, 2014 and 2013 for financial assets and liabilities measured at fair value by level within the fair value hierarchy,

as well as cost or amortized cost. As required by the fair value measurement guidance, assets and liabilities are classified in their entirety based on the lowest level of inputs that is significant to the fair value measurement.   

 

   

   

 

            December 31, 2014              Fair Value  

   

Carrying Value at

December 31, 2014     Total     Level 1     Level 2     Level 3  

    (Dollars in thousands)  Assets                                        

Current assets:                                        Cash equivalents (including restricted cash accounts)   $ 85,076     $ 85,076     $ 85,076     $ —    $ — Derivatives:                                        

Swap transaction on natural gas price (1)     4,129       4,129       —      4,129       — Liabilities:                                        

Current liabilities:                                        Derivatives:                                        

Currency forward contracts     (2,882)     (2,882)     —      (2,882)     — 

    $ 86,323     $ 86,323     $ 85,076     $ 1,247     $ — 

            December 31, 2013              Fair Value  

   

Carrying Value at

December 31, 2013

 

  Total     Level 1     Level 2     Level 3      (Dollars in thousands)  Assets                                        

Current assets:                                        Cash equivalents (including restricted cash accounts)   $ 40,015     $ 40,015     $ 40,015     $ —    $ — Derivatives:                                        

Currency forward contracts     2,290       2,290       —      2,290       — Liabilities:                                        

Current liabilities:                                        Derivatives:                                        

Swap transaction on oil price     (2,490)     (2,490)     —      (2,490)     — Swap transaction on natural gas price     (341)     (341)     —      (341)     — 

    $ 39,474     $ 39,474     $ 40,015     $ (541)   $ — 

This amount relates to derivatives which represent swap contract on natural gas prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within “prepaid expenses and other” and “accounts payable and accrued expenses” on December 31, 2014 and 2013, respectively, in the consolidated balance sheets with the corresponding gain or loss being recognized within “electricity revenue” in the consolidated statement of operations and comprehensive income (loss).

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

   The amounts set forth in the tables above include investments in debt instruments and money market funds (which are included in cash equivalents). Those securities and deposits are

classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market.  

The following table presents the amounts of gain (loss) recognized in the consolidated statements of operations and comprehensive income (loss) on derivative instruments not designated as hedges:

 

  On September 3, 2013, the Company entered into a NGI swap contract with a bank for notional quantity of approximately 4.4 million MMbtu for settlement effective January 1, 2014 until

December 31, 2014, in order to reduce its exposure to NGI below $4.035 per MMbtu under its PPAs with Southern California Edison. The contract did not have up-front costs. Under the terms of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contract has monthly settlement whereby the difference between the fixed price of $4.035 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2014 to December 1, 2014) will be settled on a cash basis.

  On October 16, 2013, the Company entered into a NGI swap contract with a bank for notional quantity of approximately 4.2 million MMbtu for settlement effective January 1, 2014 until

December 31, 2014, in order to reduce its exposure to NGI below $4.103 per MMbtu under its PPAs with Southern California Edison. The contract did not have any up-front costs. Under the terms of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contract has monthly settlements whereby the difference between the fixed price of $4.103 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2014 to December 1, 2014) will be settled on a cash basis.  

 

These amounts relate to derivatives which represent currency forward contracts valued primarily based on observable inputs, including forward and spot prices for currencies, netted against contracted rates and then multiplied against notional amounts, and are included within :accounts payable and accrued expenses” and “prepaid expenses and other” on December 31, 2014 and 2013, respectively, in the consolidated balance sheet with the corresponding gain or loss being recognized within “foreign currency translation and transaction gains (losses)” in the consolidated statement of operations and comprehensive income (loss).

This amount relates to derivatives which represent swap contract on oil prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within “accounts payable and accrued expenses” on December 31, 2013, in the consolidated balance sheets with the corresponding gain or loss being recognized within “electricity revenues” in the consolidated statement of operations and comprehensive income (loss).

Derivatives not designated as       Amount of recognized gain (loss)   hedging instruments    Location of recognized gain (loss)   2014     2013     2012  

        (Dollars in thousands)                               Put options on oil price   Electricity revenues   $ —    $ (1,330)   $ (807)Put options on natural gas price   Electricity revenues     —      —      (1,342)Swap transaction on oil price   Electricity revenues     2,728       (635)     1,598  Swap transactions on natural gas price   Electricity revenues     2,996       (3,052)     2,804  

Currency forward contracts  Foreign currency translation and transaction gains

(losses)     (4,949)     5,912       463  

        $ 775     $ 895     $ 2,716  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  On October 16, 2013, the Company entered into a New York Harbor ULSD swap contract with a bank for notional quantity of 275,000 BBL effective from January 1, 2014 until December 31,

2014 to reduce the Company’s exposure to fluctuations in the energy rate caused by fluctuations in oil prices under the 25 MW PPA for the Puna complex. The Company entered into this contract because the swap had a high correlation with the avoided costs (which are incremental costs that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others) that HELCO uses to calculate the energy rate. The contract did not have any up-front costs. Under the term of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date ($125.15 per BBL). The swap contract has monthly settlements whereby the difference between the fixed price and the monthly average market price will be settled on a cash basis.  

On March 6, 2014, the Company entered into an NGI swap contract with a bank for notional quantity of approximately 2.2 million MMbtu for settlement effective January 1, 2015 until March 31, 2015, in order to reduce its exposure to NGI below $4.95 per MMbtu under its PPAs with Southern California Edison. The contract did not have any up-front costs. Under the terms of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contract has monthly settlements whereby the difference between the fixed price of $4.95 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2015 to March 1, 2015) will be settled on a cash basis.

  The foregoing swap transactions have not been designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “electricity

revenues” in the consolidated statements of operations and comprehensive income (loss). The Company recognized a net gain from these transactions of $5.7 million in the year ended December 31, 2014, compared to net loss of $5.0 million in the year ended December 31, 2013.  

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the year ended December 31, 2014.   The fair value of the Company’s long-term debt is as follows:  

  The fair value of OFC Senior Secured Notes in 2013 was determined using observable market prices as these securities are traded. The fair value of all the long-term debt is determined by

a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of current borrowing rates.The fair value of revolving lines of credit is determined using a comparison of market-based price sources that are reflective of similar credit ratings to those of the Company.

  The carrying value of other financial instruments, such as revolving lines of credit, deposits, and other long-term debt approximates fair value.   The following table presents the fair value of financial instruments as of December 31, 2014:  

 

 

    Fair Value     Carrying Amount  

    2014     2013     2014     2013      (Dollars in millions)     (Dollars in millions)  Olkaria III Loan - DEG   $ 32.2     $ 40.3     $ 31.6     $ 39.5  Olkaria III Loan - OPIC     279.4       279.6       282.6       299.9  Amatitlan Loan     —      34.8       —      31.5  Senior Secured Notes:                                

Ormat Funding Corp. ("OFC")     71.4      83.5       67.2       90.8  OrCal Geothermal Inc. ("OrCal")     55.5      65.8       55.1       66.2  OFC 2 LLC ("OFC 2")     238.8       119.0       272.5       144.4  

Senior Unsecured Bonds     265.4       270.6       250.4       250.6  Loan from institutional investors     12.2       20.1       11.9       19.5  

    Level 1     Level 2     Level 3     Total      (Dollars in millions)  Olkaria III - DEG   $ —    $ —    $ 32.2     $ 32.2  Olkaria III - OPIC     —      —      279.4       279.4  Senior Secured Notes:                                

OFC     —      71.4      —      71.4 OrCal     —      —      55.5      55.5 OFC 2     —      —      238.8       238.8  

Senior unsecured bonds     —      —      265.4       265.4  Loan from institutional investors     —      —      12.2       12.2  Other long-term debt     —      10.0       —      10.0  Revolving credit lines with banks     —      20.3       —      20.3  Deposits     17.3       —      —      17.3  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The following table presents the fair value of financial instruments as of December 31, 2013:  

  Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

  The North Brawley geothermal power plant was tested for impairment as of December 31, 2012 due to the low output and higher than expected operating costs. The plant was placed in

service under its PPA with Southern California Edison in 2010. However, management found that the North Brawley geothermal field was significantly more difficult to operate than other fields of the Company and the power plant was unable to reach its design capacity of 50 MW and instead, operated at capacities between 20 MW and 33 MW. This generation level was achieved only after significant additional capital expenditures and higher than anticipated operating costs.

  In order to improve the economics of the plant, the Company approached Southern California Edison to discuss various contractual alternatives to the PPA and, in early 2012 it reached a

written understanding to engage in discussions with third parties about purchasing the power at better rates. However, in a letter dated January 14, 2013, Southern California Edison informed the Company that it is no longer interested in pursuing alternatives to the current PPA, thus retracting its permission to the Company to explore a replacement PPA with higher electricity prices.

  As a result of Southern California Edison’s notification and the rates under the existing PPA, coupled with a further understanding of the cost and probability of success of additional well

field work which has been accumulated in recent months, the Company has concluded that it will not be economical to continue to invest the substantial capital required to increase the generating capacity of the power plant. Accordingly, the Company decided to operate the plant at the current capacity level of approximately 27 MW and refrain from additional capital investment to expand the capacity.

  Based on these indicators, the power plant was tested for recoverability by estimating its future cash flows taking into consideration rates to be received under the PPA with Southern

California Edison through the end of its term and expected market rates thereafter, possible penalties for underperformance during periods when the plant is expected to operate below the stated capacity in the PPA, projected capital expenditures and projected operating expenses over the life of the plant.

  As a result, the North Brawley power plant was written down to its fair value of $32.0 million. The impairment loss of $229.1 million is presented in the consolidated statement of operations

and comprehensive income (loss) under “Impairment Charges”.   In estimating the fair value for the power plant, the Company primarily relied on the “Income Approach”, using assumptions that the Company believes market participants would utilize in

making such valuation. The “Income Approach” is based on the principle that the value of an asset is equal to the present value of the cash flows that the asset is expected to generate. To estimate the fair value of the power plant, a discounted cash flow (“DCF”) analysis was utilized whereby the cash flows expected to be generated by the power plant were discounted to their present value equivalent using the rate of return that reflects the relative risk of each asset, as well as the time value of money. This return, known as the weighted average cost of capital (“WACC”), an overall rate based upon the individual rates of return for invested capital (equity and interest-bearing debt), was calculated by weighting the acquired return on interest-bearing debt and common equity capital in proportion to their estimated percentage in the expected capital structure. The estimate for the WACC of 8% developed in the valuation is for independent power producers and geothermal power producers.  

 

    Level 1     Level 2     Level 3     Total      (Dollars in millions)  Olkaria III Loan - DEG   $ —    $ —    $ 40.3     $ 40.3  Olkaria III Loan - OPIC     —      —      279.6       279.6  Amatitlan Loan     —      —      34.8       34.8  Senior Secured Notes:                                

OFC     —      83.5       —      83.5  OrCal     —      —      65.8       65.8  OFC 2     —      —      119.0       119.0  

Senior unsecured bonds     —      —      270.6       270.6  Loan from institutional investors     —      —      20.1       20.1  Other long-term debt     —      23.3       —      23.3  Revolving lines of credit     —      112.0       —      112.0  Deposits     21.3       —      —      21.3  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  In addition to the WACC rate of 8%, other significant inputs of the future net cash flow estimates included in the valuation are generation output, average realized price, and operating

costs. These future net cash flow estimates are classified as Level 3 within the fair value hierarchy. Below are the significant unobservable inputs for each year included in the valuation as of the year ended December 31, 2012.

 

  OREG 4, a recovered energy generation power plant, was also tested for impairment in the third quarter of 2012 due to continued low run time of the compressor station that serves as it

heat source, which resulted in low power generation and revenues. Based on these indicators, the power plant was tested for recoverability by estimating its future cash flows over the life of the plant.

  As a result, the OREG 4 power plant was written down to its fair value of $3.6 million. The impairment loss of $7.3 million is presented in the consolidated statement of operations and

comprehensive income (loss) under “Impairment Charges”.   In estimating the fair value for the power plant, the Company primarily relied on the “Income Approach”, using assumptions that the Company believes market participants would utilize in

making such valuation. The “Income Approach” is based on the principle that the value of an asset is equal to the present value of the cash flows that the asset is expected to generate. To estimate the fair value of the power plant, a DCF analysis was utilized and the estimate for the WACC of 8% developed in the valuation is for independent power producers and geothermal power producers.

  In addition to the WACC rate of 8%, other significant inputs of the future net cash flow estimates included in the valuation are generation output, average realized price, and operating

costs. These future net cash flow estimates are classified as Level 3 within the fair value hierarchy. Below are the significant unobservable inputs for each year included in the valuation as of the quarter ended September 30, 2012.  

 

 

(Dollars in thousands, except realized price)                    

    Valuation Technique   Amount or Range     Weighted Average  Generation output (MWh)   DCF     224,836       224,836 Average realized price ($/MWh)   DCF   $ 84.50 — $111.25     $ 92.31 Operating costs   DCF   $ 12,687 — $20,430     $ 16,163 

(Dollars in thousands, except realized price)                    

    Valuation Technique   Amount or Range     Weighted Average  Generation output (MWh)   DCF     11,916—15,456       15,097 Average realized price ($/MWh)   DCF   $  49.00—$71.50     $  60.36 Operating costs   DCF   $ 86 — $595     $ 400 

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 7 — PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION-IN-PROCESS

  Property, plant and equipment

  Property, plant and equipment, net, consist of the following:

 

   

Depreciation expense for the years ended December 31, 2014, 2013, and 2012 amounted to $87,851,000, $91,791,000, and $89,876,000, respectively. Depreciation expense for the years ended December 31, 2014 and 2013 is net of the impact of the cash grant in the amount of $5,318,000 and $4,330,000, respectively. As of December 31, 2013 accumulated depreciation balance does not include MPC balance of $35,396,000.

  U.S. Operations

  The net book value of the property, plant and equipment, including construction-in-process, located in the United States was approximately $1,327,356,000 and $1,316,597,000 as of

December 31, 2014 and 2013, respectively. These amounts as of December 31, 2014 and 2013 are net of cash grants in the amount of $149,785,000 and $127,675,000, respectively.   Impairment tests of the North Brawley and OREG 4 plants performed during the year ended December 31, 2012 resulted in impairment charges.  

Foreign Operations   The net book value of property, plant and equipment, including construction-in-process, located outside of the United States was approximately $407,003,000 and $424,567,000 as of

December 31, 2014 and 2013, respectively.   The Company, through its wholly owned subsidiary, OrPower 4, Inc. (“OrPower 4”) owns and operates geothermal power plants in Kenya. The net book value of assets associated with

the power plants was $305,129,000 and $338,517,000 as of December 31, 2014 and 2013, respectively. The Company sells the electricity produced by the power plants to Kenya Power and Lighting Co. Ltd. (“KPLC”) under a 20-year PPA.  

 

    December 31,      2014     2013  

    (Dollars in thousands)  Land owned by the Company where the geothermal resource is located   $ 31,465     $ 30,336  Leasehold improvements     3,420       3,386  Machinery and equipment     123,807       101,104  Office equipment     17,150       17,492  Automobiles     6,495       5,745  Geothermal and recovered energy generation power plants, including geothermal wells and exploration and resource development

costs:                United States of America, net of cash grants and impairment charges     1,463,291       1,439,374  Foreign countries     473,481       448,161  

Asset retirement cost     7,444       7,803        2,126,553       2,053,401  Less accumulated depreciation     (688,916)     (601,065)               Property, plant and equipment, net   $ 1,437,637     $ 1,452,336  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  In May 2013 the Company sold the Momotombo Power Company, which operates the Momotombo power plant located in Nicaragua (see Note 16).   The Company, through its wholly owned subsidiary, Orzunil I de Electricidad, Limitada (“Orzunil”), owns a power plant in Guatemala. On January 22, 2014, Orzunil signed an amendment

to the PPA with Instituto Nacional de Electrificacion (“INDE”) a Guatemalan power utility for its Zunil geothermal power plant in Guatemala. The amendment extends the term of the PPA from 2019 to 2034. Capacity revenues are calculated based on Zunil capacity until 2019 unrelated to actual performance. The PPA amendment also transfers operation and management responsibilities of the Zunil geothermal field from INDE to the Company for the term of the amended PPA in exchange for a tariff increase. Additionally, INDE exercised its right under the PPA to become a partner in the Zunil power plant with 3% equity interest. The net book value of the assets related to the power plant was $19,141,000 and $18,846,000 at December 31, 2014 and 2013, respectively.

  The Company, through its wholly owned subsidiary, Ortitlan, Limitada (“Ortitlan”), owns a power plant in Guatemala. The net book value of the assets related to the power plant was

$45,624,000 and $52,272,000 at December 31, 2014 and 2013, respectively.  

On December 2, 2013, the Company’s wholly-owned subsidiary, Ormat International obtained control over the assets of Honduran GeoPlanares, including a PPA with ENEE, and a 30-year concession to use the geothermal resource in exchange for annual royalty payments of 12% of revenue if the project is successful, and return of the project to the seller after a 15 year operating period. The development of the project depends on the appraisal stage. Ormat has an option to abandon the project if the geothermal resource does not meet certain criteria specified in the agreement. The net book value of assets was $12.3 million at December 31, 2014.

      Construction-in-process

  Construction-in-process consists of the following:  

   

On March 26, 2014, the Company signed an agreement with RET Holdings, LLC to sell the Heber Solar project in Imperial County, California for $35.25 million. The Company received the first payment of $15.0 million during the first quarter of 2014 and the second payment for the remaining $20.25 million was paid in the second quarter of 2014. Due to certain contingencies in the sale agreement, the Company deferred the pre-tax gain of approximately $7.6 million until the contingencies were resolved in the second quarter of 2014.  

 

    December 31,  

    2014     2013      (Dollars in thousands)  Projects under exploration and development:                

Up-front bonus lease costs   $ 26,618     $ 30,141  Exploration and development costs     45,977       38,220  Interest capitalized     836       1,278  

      73,431       69,639                   Projects under construction:                

Up-front bonus lease costs     27,473       27,473  Drilling and construction costs     187,545       184,767  Interest capitalized     8,273       6,948  

      223,291       219,188  Total   $ 296,722     $ 288,827  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

    Projects under Exploration and Development  

   

Up-front Bonus Lease Costs    

Exploration and Development

Costs    

Interest Capitalized     Total  

    (Dollars in thousands)  Balance at December 31, 2011   $ 36,832     $ 40,223     $ 1,598     $ 78,653  

Cost incurred during the year     —      3,782       420       4,203  Write off of unsuccessful exploration costs     (1,160)     (1,479)     —      (2,639)Transfer of projects under exploration and development to projects under construction     (1,687)     (10,224)     (740)     (12,651)

Balance at December 31, 2012     33,985       32,302       1,278       67,565  Cost incurred during the year     —      6,168       —      6,168  Write off of unsuccessful exploration costs     (3,844)     (250)     —      (4,094)

Balance at December 31, 2013     30,141       38,220       1,278       69,639  Cost incurred during the year     —      19,231       —      19,231  Write off of unsuccessful exploration costs     (3,523)     (11,474)     (442)     (15,439)

Balance at December 31, 2014   $ 26,618     $ 45,977     $ 836     $ 73,431  

    Projects under Construction  

   

Up-front Bonus Lease Costs    

Drilling and Construction

Costs    

Interest Capitalized     Total  

    (Dollars in thousands)  Balance at December 31, 2011   $ 31,179     $ 246,878     $ 13,841     $ 291,898  

Cost incurred during the year     —      216,894       11,542       228,435  Transfer of completed projects to property, plant and equipment     1,687       10,224       740       12,651  Transfer from projects under exploration and development     (3,706)     (190,123)     (10,579)     (204,408)

Balance at December 31, 2012     29,160       283,873       15,543       328,576  Cost incurred during the year     —      203,859       7,609       211,468  Transfer from projects under exploration and development     (1,687)     (302,966)     (16,204)     (320,857)

Balance at December 31, 2013     27,473       184,766       6,948       219,187  Cost incurred during the year     —      132,597       3,206       135,803  Sale of property, plant and equipment     —      (24,692)     (911)     (25,603)Reclassification of completed projects to property, plant and equipment     —      (105,126)     (970)     (106,096)

Balance at December 31, 2014   $ 27,473     $ 187,545     $ 8,273     $ 223,291  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 8 — INTANGIBLE ASSETS

  Intangible assets amounting to $28,655,000 and $31,933,000 consist mainly of the Company’s power purchase agreements (“PPAs”) acquired in business combinations, net of

accumulated amortization of $35,170,000 and $31,890,000, as of December 31, 2014 and 2013, respectively. Amortization expense for the years ended December 31, 2014, 2013, and 2012 amounted to $3,280,000, $3,280,000, and $3,289,000, respectively. In 2014 and 2013, there were no additions or disposals for intangible assets.

  Estimated future amortization expense for the intangible assets as of December 31, 2014 is as follows:  

  Termination fee

  Fees to terminate PPAs are recognized in period incurred as selling and marketing expenses. During 2014, no termination fees were incurred. During 2013, the Company finalized the

agreement with Southern California Edison Company (“Southern California Edison”), by which the G1 and G3 Standard Offer #4 PPAs were terminated and a termination fee of $9.0 million was incurred. In addition, an amount of $2.6 million was paid to NV Energy related to the termination of the Dixie Meadows power purchase agreement PPA.     NOTE 9 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:  

   

 

    (Dollars in thousands)  Year ending December 31:        2015   $ 3,280 2016     3,280 2017     2,944 2018     2,814 2019     2,743 Thereafter     13,594          Total   $ 28,655  

    December 31,  

    2014     2013      (Dollars in thousands)  Trade payables   $ 48,283     $ 49,619  Salaries and other payroll costs     10,774       11,711  Customer advances     3,768       6,410  Accrued interest     8,546       9,277  Income tax payable     3,164       224  Property tax payable     4,192       4,671  Scheduling and transmission     1,771       1,300  Royalty accrual     2,104       1,531  Deferred revenues     —      5,750  Other     5,674       7,554  Total   $ 88,276     $ 98,047  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 10 — LONG-TERM DEBT AND CREDIT AGREEMENTS  

Long-term debt consists of notes payable under the following agreements:  

  Loan Agreement with TCW (the Amatitlan Power Plant)

  In May 2009, the Company’s wholly owned subsidiary, Ortitlan, entered into a note purchase agreement, in an aggregate principal amount of $42.0 million which refinanced its investment

in the 20 MW Amatitlan geothermal power plant located in Amatitlan, Guatemala (the “Amatitlan Loan”). The Amatitlan Loan was provided by TCW Global Project Fund II, Ltd. (“TCW”). The Amatitlan Loan was scheduled to mature on June 15, 2016. The Amatitlan Loan bore interest at a rate of 9.83%.

  On September 30, 2014, Ortitlan prepaid the outstanding amount of approximately $30.0 million with EIG Global Project Fund II, Ltd. (formerly TCW). This repayment resulted in a one-time

charge to interest expense of approximately $1.1 million, consisting of (i) prepayment premium of $0.6 million, and (ii) write-off of related deferred financing costs amounting to a $0.5 million.  

Finance Agreement with OPIC (the Olkaria III Complex)  

On August 23, 2012, the Company’s wholly owned subsidiary, OrPower 4 entered into a Finance Agreement with Overseas Private Investment Corporation (“OPIC”), an agency of the United States government, to provide limited-recourse senior secured debt financing in an aggregate principal amount of up to $310.0 million (the “OPIC Loan”) for the refinancing and financing of the Olkaria III geothermal power complex in Kenya. The Finance Agreement was amended on November 9, 2012.  

 

    December 31,  

    2014     2013      (Dollars in thousands)  Limited and non-recourse agreements:                

Loans:                Non-recourse:                

Loan agreement with TCW (the Amatitlan power plant)   $ -     $ 31,509  Limited recourse:                

Loan agreement with OPIC (the Olkaria III power plant)     282,620       299,946  Senior Secured Notes:                

Non-recourse:                Ormat Funding Corp. ("OFC")     67,206       90,840  OrCal Geothermal Inc. ("OrCal")     55,050       66,156  

Limited recourse:                OFC 2 LLC ("OFC 2")     272,477       144,450  

      677,353       632,901  Less current portion     (52,363)     (51,514)Non current portion   $ 624,990     $ 581,387  

Full recourse agreements:                Senior unsecured bonds   $ 250,289     $ 250,596  Loans from institutional investors     21,887       32,868  Loan agreement with DEG (the Olkaria III power plant)     31,580       39,474  Loan from a commercial bank     -       10,000  Revolving credit lines with banks     20,300       112,017        324,056       444,955  Less current portion     (39,416)     (28,875)Non current portion   $ 284,640     $ 416,080  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The OPIC Loan is comprised of up to three tranches:  

 

 

  In July 2013 we completed the conversion of the interest rate applicable to both Tranche I and Tranche II from a floating interest rate to into a fixed interest rate. The average fixed interest

rate for Tranche I, which has an outstanding balance as of December 31, 2014, of $75.5 million and matures on December 15, 2030 and Tranche II, which has an outstanding balance as of December 31, 2014, of $164.1 million and matures on June 15, 2030, is 6.31%. In November 2013, we fixed the interest rate for the Tranche III. The fixed interest rate for Tranche III which has an outstanding balance as of December 31, 2014, of $43.0 million and matures on December 15, 2030, is 6.12%.

  OrPower 4 has a right to make voluntary prepayments of all or a portion of the OPIC Loan subject to prior notice, minimum prepayment amounts, and a prepayment premium of 2.0% in the

first two years after the Plant 2 commercial operation date, declining to 1% in the third year after the Plant 2 commercial operation date, and without premium thereafter, plus a redemption premium. In addition, the OPIC Loan is subject to customary mandatory prepayment in the event of certain reductions in generation capacity of the power plants, unless such reductions will not cause the projected ratio of cash flow to debt service to fall below 1.7.

  The OPIC Loan is secured by substantially all of OrPower 4’s assets and by a pledge of all of the equity interests in OrPower 4.   The finance agreement includes customary events of default, including failure to pay any principal, interest or other amounts when due, failure to comply with covenants, breach of

representations and warranties, non-payment or acceleration of other debt of OrPower 4, bankruptcy of OrPower 4 or certain of its affiliates, judgments rendered against OrPower 4, expropriation, change of control, and revocation or early termination of security documents or certain project-related agreements, subject to various exceptions and notice, cure and grace periods.

  The repayment of the remaining outstanding DEG Loan (see “Full-Recourse Third-Party Debt” below) in the amount of approximately $31.6 million as of December 31, 2014, has been

subordinated to the OPIC Loan.   There are various restrictive covenants under the OPIC Loan, which include a required historical and projected 12-month DSCR of not less than 1.4 (measured as of March 15, June 15,

September 15 and December 15 of each year). If OrPower 4 fails to comply with these financial ratios it will be prohibited from making distributions to its shareholders. In addition, if the DSCR falls below 1.1, subject to certain cure rights, such failure will constitute an event of default by OrPower 4. This covenant in respect of Tranche I became effective on December 15, 2014. As of December 31, 2014, the actual historical and projected 12-month DSCR was 2.05 and 1.94, respectively.

  As of December 31, 2014, $282.6 million of the OPIC Loan was outstanding.  

Debt service reserve   As required under the terms of the OPIC Loan, OrPower 4 maintains an account which may be funded by cash or backed by letters of credit in an amount sufficient to pay scheduled debt

service amounts, including principal and interest, due under the terms of the OPIC Loan in the following six months. This restricted cash account is classified as current in the consolidated balance sheets. As of December 31, 2014 and 2013, the balance of the account was $8.6 million and $10.1 million, respectively. In addition, as of December 31, 2014, part of the required debt service reserve was backed by a letter of credit in the amount of $15.7 million (see Note 22).  

 

 • Tranche I in an aggregate principal amount of $85.0 million, which was drawn in November 2012, was used to prepay approximately $20.5 million (plus associated prepayment

penalty and breakage costs of $1.5 million) of the DEG Loan, as described below. The remainder of Tranche I proceeds was used for reimbursement of prior capital costs and other corporate purposes.

 • Tranche II in an aggregate principal amount of $180.0 million was used to fund the construction and well field drilling for the expansion of the Olkaria III geothermal power complex

(“Plant 2”). In November 2012, an amount of $135.0 million was disbursed under this Tranche II, and in February 2013, the remaining $45.0 million was distributed under this Tranche II.

 • Tranche III in an aggregate principal amount of $45.0 million was used to fund the construction of Plant 3 of Olkaria III complex. In November 2013, an amount of $45.0 million was

disbursed under this Tranche.

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Well drilling reserve

  As required under the terms of the OPIC Loan, OrPower 4 may be required to maintain an account which may be funded by cash or backed by letters of credit to reserve funds for future

well drilling, based on determination upon the completion of the expansion work.  

OFC Senior Secured Notes   In February 2004, OFC, a wholly owned subsidiary, issued $190.0 million, 8.25% Senior Secured Notes (“OFC Senior Secured Notes”) and received net cash proceeds of approximately

$179.7 million, after deduction of issuance costs of approximately $10.3 million, which have been included in deferred financing costs in the consolidated balance sheet. The OFC Senior Secured Notes have a final maturity of December 30, 2020. Principal and interest on the OFC Senior Secured Notes are payable in semi-annual payments. The OFC Senior Secured Notes are collateralized by substantially all of the assets of OFC and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OFC. There are various restrictive covenants under the OFC Senior Secured Notes, which include limitations on additional indebtedness of OFC and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OFC.  In addition, there are restrictions on the ability of OFC to make distributions to its shareholders, which include a required historical and projected 12-month DSCR of not less than 1.25 (measured semi-annually as of June 30 and December 31 of each year). If OFC fails to comply with the DSCR ratio it will be prohibited from making distributions to its shareholders. The Company believes that the transition to variable energy prices under the Ormesa and Mammoth PPAs and the impact of the currently low natural gas prices on the revenues under these PPAs may cause OFC to not meet the DSCR ratio requirements for making distributions, but it does not believe that there will be an event of default by OFC. OFC is only required to measure these covenants on a semi-annual basis and as of December 31, 2014, the last measurement date of the covenants, the actual historical 12-month DSCR was 1.28 and the pro-forma 12-month DSCR was 1.31. There were $67.2 million and $90.8 million of OFC Senior Secured Notes outstanding as of December 31, 2014 and December 31, 2013, respectively.

  In February 2013, the Company repurchased from OFC noteholders OFC Senior Secured Notes with an outstanding aggregate principal amount of $12.8 million and recognized a gain of

approximately $0.8 million in the first quarter of 2013.   In January 2014, the Company repurchased from OFC noteholders OFC Senior Secured Notes with an outstanding aggregate principal amount of $13.2 million and recognized a gain of

approximately $0.3 million in the first quarter of 2014.   OFC may redeem the OFC Senior Secured Notes, in whole or in part, at any time, at redemption price equal to the principal amount of the OFC Senior Secured Notes to be redeemed plus

accrued interest, premium and liquidated damages, if any, plus a “make-whole” premium. Upon certain events, as defined in the indenture governing the OFC Senior Secured Notes, OFC may be required to redeem a portion of the OFC Senior Secured Notes at a redemption price ranging from 100% to 101% of the principal amount of the OFC Senior Secured Notes being redeemed plus accrued interest, premium and liquidated damages, if any.

  Debt service reserve

  As required under the terms of the OFC Senior Secured Notes, OFC maintains an account which may be funded by cash or backed by letters of credit (see below) in an amount sufficient

to pay scheduled debt service amounts, including principal and interest, due under the terms of the OFC Senior Secured Notes in the following six months. This restricted cash account is classified as current in the consolidated balance sheets. As of each of December 31, 2014 and 2013, the balance of such account was $2.1million and $2.9 million, respectively. In addition, as of each of December 31, 2014 and 2013, part of the required debt service reserve was backed by a letter of credit in the amount of $11.1 million and $10.6 million (see Note 22), respectively.

  OrCal Senior Secured Notes

  In December 2005, OrCal, a wholly owned subsidiary, issued $165.0 million, 6.21% Senior Secured Notes (“OrCal Senior Secured Notes”) and received net cash proceeds of approximately

$161.1 million, after deduction of issuance costs of approximately $3.9 million, which have been included in deferred financing costs in the consolidated balance sheet. The OrCal Senior Secured Notes have been rated BBB- by Fitch Ratings. The OrCal Senior Secured Notes have a final maturity of December 30, 2020. Principal and interest on the OrCal Senior Secured Notes are payable in semi-annual payments. The OrCal Senior Secured Notes are collateralized by substantially all of the assets of OrCal, and those of its subsidiaries and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OrCal. There are various restrictive covenants under the OrCal Senior Secured Notes, which include limitations on additional indebtedness of OrCal and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OrCal. In addition, there are restrictions on the ability of OrCal to make distributions to its shareholders, which include a required historical and projected 12-month DSCR of not less than 1.25 (measured semi-annually as of June 30 and December 31 of each year). If OrCal fails to comply with the DSCR ratio it will be prohibited from making distributions to its shareholders. The Company believes that the transition to variable energy prices under two of the complex’s, PPAs and the impact of the currently low natural gas prices on the revenues under these PPAs may cause OrCal to not meet the DSCR ratio requirements for making distributions, but it does not believe that there will be an event of default by OrCal. OrCal is only required to measure these covenants on a semi-annual basis and as of December 31, 2014, the last measurement date of the covenants, the actual historical 12-month DSCR was 1.28 and the pro-forma 12-month DSCR was 1.29. There were $55.1 million and $66.2 million of OrCal Senior Secured Notes outstanding as of December 31, 2014 and December 31, 2013, respectively.  

 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  OrCal may redeem the OrCal Senior Secured Notes, in whole or in part, at any time at a redemption price equal to the principal amount of the OrCal Senior Secured Notes to be redeemed

plus accrued interest, and a “make-whole” premium. Upon certain events, as defined in the indenture governing the OrCal Senior Secured Notes, OrCal may be required to redeem a portion of the OrCal Senior Secured Notes at a redemption price of 100% of the principal amount of the OrCal Senior Secured Notes being redeemed plus accrued interest.

  Debt service reserve

  As required under the terms of the OrCal Senior Secured Notes, OrCal maintains an account which may be funded by cash or backed by letters of credit (see below) in an amount

sufficient to pay scheduled debt service amounts, including principal and interest, due under the terms of the OrCal Senior Secured Notes in the following six months. This restricted cash account is classified as current in the consolidated balance sheets. As of December 31, 2014 and 2013, the balance of such account was $0.8 million and $3.0 million, respectively. In addition, as of December 31, 2014 and 2013, part of the required debt service reserve was backed by a letter of credit in the amount of $10.1 million and $10.2 million, respectively (see Note 22).

  OFC 2 Senior Secured Notes  

In September 2011, the Company’s subsidiary OFC 2 and its wholly owned project subsidiaries (collectively, the “OFC 2 Issuers”) entered into a note purchase agreement (the “Note Purchase Agreement”) with OFC 2 Noteholder Trust, as purchaser, John Hancock Life Insurance Company (U.S.A.), as administrative agent, and the DOE, as guarantor, in connection with the offer and sale of up to $350.0 million aggregate principal amount of OFC 2’s Senior Secured Notes (“OFC 2 Senior Secured Notes”) due December 31, 2034.

  Subject to the fulfillment of customary and other specified conditions precedent, the OFC 2 Senior Secured Notes may be issued in up to six distinct series associated with the phased

construction (Phase I and Phase II) of the Jersey Valley, McGinness Hills and Tuscarora geothermal power plants, which are owned by the OFC 2 Issuers. The OFC 2 Senior Secured Notes will mature and the principal amount of the OFC 2 Senior Secured Notes will be payable in equal quarterly installments and in any event not later than December 31, 2034. Each series of notes will bear interest at a rate calculated based on a spread over the Treasury yield curve that will be set at least ten business days prior to the issuance of such series of notes. Interest will be payable quarterly in arrears. The DOE will guarantee payment of 80% of principal and interest on the OFC 2 Senior Secured Notes pursuant to Section 1705 of Title XVII of the Energy Policy Act of 2005, as amended. The conditions precedent to the issuance of the OFC 2 Senior Secured Notes includes certain specified conditions required by the DOE in connection with its guarantee of the OFC 2 Senior Secured Notes.

  On October 31, 2011, the Issuers completed the sale of $151.7 million in aggregate principal amount of 4.687% Series A Notes due 2032 (the “Series A Notes”). The net proceeds from the

sale of the Series A Notes, after deducting transaction fees and expenses, were approximately $141.1 million, and were used to finance a portion of the construction costs of Phase I of the McGinness Hills and Tuscarora power plants and to fund certain reserves. Principal and interest on the Series A Notes are payable quarterly in arrears on the last day of March, June, September and December of each year.

  On June 20, 2014, Phase 1 of Tuscarora Facility achieved Project Completion under the OFC 2 Note Purchase Agreement. In accordance with the terms of the Note Purchase Agreement

and following recalibration of the financing assumptions, the loan amount was adjusted through a principal prepayment of $4.3 million.   On August 29, 2014, OFC 2 signed a $140.0 million loan under the OFC 2 senior secured notes to finance the construction of the McGinness Hills Phase project. This drawdown is the last

tranche (Series C notes) under the Note Purchase Agreement with John Hancock Life Insurance Company and guaranteed by the U.S. Department of Energy’s Loan Programs Office in accordance with and subject to the Department's Loan Guarantee Program under Section 1705 of Title XVII of the Energy Policy Act of 2005. The $140.0 million loan, which matures in December 2032, carries a 4.61% coupon with principal to be repaid on a quarterly basis. The OFC 2 Notes, which include loans for the Tuscarora, Jersey Valley and McGinness Hills complexes, are rated “BBB” by Standard & Poor's.  

 

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  In connection with the anticipated drawdown, on August 13, 2014, the Company entered into an on-the-run interest rate lock agreement with a financial institution with a termination date

of August 15, 2014. This on-the-run interest rate lock agreement had a notional amount of $140.0 million and was designated by us to be a cash flow hedge. The objective of this cash flow hedge was to eliminate the variability in the changes in the 10-year U.S. Treasury rate as that is one of the components in the annual interest rate of the OFC 2 loan that was forecasted to be fixed on August 15, 2014. As such, the Company hedged the variability in total proceeds attributable to changes in the 10-year U.S. Treasury rate for the forecasted issuance of fixed rate OFC 2 loan. On August 18, 2014, the settlement date, the Company paid $1.5 million to the counterparty of the on-the-run interest rate lock agreement.

  The Company concluded that the cash flow hedge was fully effective with no ineffective portion and no amounts excluded from the effectiveness testing, thus the total loss from the cash

flow hedge was fully recognized in “Loss in respect of derivatives instruments designated for cash flow hedge” under other comprehensive income of $0.9 million noted above, which was net of related taxes of $0.6 million. The cash flow hedge loss recorded will be amortized over the life of the OFC 2 loan using the effective interest method. The Company expects to reclassify $0.1 million of the loss from “Accumulated other comprehensive income (loss)” into interest expense during the next twelve months.

  The OFC 2 Senior Secured Notes are collateralized by substantially all of the assets of OFC 2 and those of its wholly owned subsidiaries and are fully and unconditionally guaranteed by

all of the wholly owned subsidiaries of OFC 2. There are various restrictive covenants under the OFC 2 Senior Secured Notes, which include limitations on additional indebtedness of OFC 2 and its wholly owned subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by OFC 2. In addition, there are restrictions on the ability of OFC 2 to make distributions to its shareholders. Among other things, the distribution restrictions include a historical and projected quarterly DSCR requirement of at least 1.2 (on a blended basis for all of the OFC 2 power plants) and 1.5 on a pro forma basis (giving effect to the distributions). We are required to measure these covenants on a quarterly basis and as of December 31, 2014, the last measurement date of the covenants, the actual DSCR was 1.62 and the pro-forma 12-month DSCR was 2.24. There were $272.5 million and $144.4 million of OFC 2 Senior Secured Notes outstanding as of December 31, 2014 and December 31, 2013, respectively.

  The Company provided a guarantee in connection with the issuance of the Series A and C Notes. One trigger event is the failure of any facility financed by the relevant Series of OFC 2

Senior Secured Notes to reach completion and meet certain operational performance levels (the non-performance trigger) which gives rise to a prepayment obligation on the OFC 2 Senior Secured Notes. The other trigger event is a payment default on the OFC 2 Senior Secured Notes or the occurrence of certain fundamental defaults that result in the acceleration of the OFC 2 Senior Secured Notes, in each case that occurs prior to the date that the relevant facility(ies) financed by such OFC 2 Senior Secured Notes reaches completion and meets certain operational performance levels. A demand on the Company’s guarantee based on the non-performance trigger is limited to an amount equal to the prepayment amount on the OFC 2 Senior Secured Notes necessary to bring the OFC 2 Issuers into compliance with certain coverage ratios. A demand on the Company’s guarantee based on the other trigger event is not so limited.

  Debt service reserve; other restricted funds

  Under the terms of the OFC 2 Senior Secured Notes, OFC 2 is required to maintain a debt service reserve and certain other reserves, as follows:  

 

 

 

 (i) A debt service reserve account which may be funded by cash or backed by letters of credit (see below) in an amount sufficient to pay scheduled debt service amounts, including

principal and interest, due under the terms of the OFC 2 Senior Secured Notes in the following six months. This restricted cash account is classified as current in the consolidated balance sheet. As of December 31, 2014, part of the required debt service reserve was backed by a letter of credit in the amount of $17.1 million (see Note 22).

 

(ii) A performance level reserve account, intended to provide additional security for the OFC 2 Senior Secured Notes, which may be funded by cash or backed by letters of credit. This reserve builds up over time and reduces gradually each time the project achieves certain milestones. Upon issuance of the Series A Notes, this reserve was funded in the amount of $28.0 million. As of December 31, 2014, the balance of such account was $38.7 million, and in addition OFC 2 funded $17.1 million in a letter of credit issued, that is required to be maintained at all times until this reserve reduces to zero.

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

   

Senior Unsecured Bonds   In August 2010, the Company entered into a trust instrument governing the issuance of, and accepted subscriptions for, an aggregate principal amount of approximately $142.0 million of

senior unsecured bonds (the “Bonds”). Subject to early redemption, the principal of the Bonds is repayable in a single bullet payment upon the final maturity of the Bonds on August 1, 2017. The Bonds bear interest at a fixed rate of 7%, payable semi-annually. In February 2011, the Company accepted subscription for an aggregate principal amount of approximately $108.0 million of additional senior unsecured bonds (the “Additional Bonds”) under two addendums to the trust instrument. The terms and conditions of the Additional Bonds are identical to the original Bonds. The Additional Bonds were issued at a premium which reflects an effective fixed interest of 6.75%.

  Loans from institutional investors

  In July 2009, the Company entered into a 6-year loan agreement of $20.0 million with a group of institutional investors (the “First Loan”). The First Loan matures on July 16, 2015, is

payable in 12 semi-annual installments, which commenced on January 16, 2010, and bears interest of 6.5%.   In July 2009, the Company entered into an 8-year loan agreement of $20.0 million with another group of institutional investors (the “Second Loan”). The Second Loan matures on August

1, 2017, is payable in 12 semi-annual installments, which commenced on February 1, 2012, and bears interest at 6-month LIBOR plus 5.0%.   In November 2010, the Company entered into a 6-year loan agreement of $20.0 million with a group of institutional investors (the “Third Loan”). The Third Loan matures on November 16,

2016, is payable in ten semi-annual installments, which commenced on May 16, 2012, and bears interest of 5.75%.  

Loan Agreement with DEG (the Olkaria III Complex)   In March 2009, the Company’s wholly owned subsidiary, OrPower 4, entered into a project financing loan of $105.0 million to refinance its investment in Phase I of the Olkaria III complex

located in Kenya (the “DEG Loan”). The DEG Loan was provided by a group of European Development Finance Institutions (“DFIs”) arranged by DEG — Deutsche Investitions — und Entwicklungsgesellschaft mbH (“DEG”). The first disbursement of $90.0 million occurred on March 23, 2009 and the second disbursement of $15.0 million occurred on July 10, 2009. The DEG Loan will mature on December 15, 2018, and is payable in 19 equal semi-annual installments, commencing December 15, 2009. Interest on the DEG Loan is variable based on 6-month LIBOR plus 4.0% and OrPower 4 had the option to fix the interest rate upon each disbursement. Upon the first disbursement, the Company fixed the interest rate on $77.0 million of the DEG Loan at 6.90%. As of December 31, 2014 $31.6 million is outstanding under the DEG Loan (out of which $21.7 million bears interest at a fixed rate).

  In October 2012, OrPower 4, DEG and the parties thereto amended and restated the DEG Loan agreement (the “DEG Amendment”). The DEG Amendment became effective on November 9,

2012 upon the execution by OrPower 4 of the Tranche I and Tranche II Notes and the related disbursements of the proceeds thereof under the OPIC Finance Agreement (as described above). The amended and restated DEG Loan Agreement provides for: (i) the prepayment in full of two loans thereunder in the total principal amount of approximately $20.5 million; (ii) the release and discharge of all collateral security previously provided by OrPower 4 to the secured parties under the DEG Loan agreement and the substitution of the Company’s guarantee of OrPower 4’s payment and certain other performance obligations in lieu thereof; and (iii) the establishment of a LIBOR floor of 1.25% in respect of one of the loans under the DEG Loan agreement, and (iv) the elimination of most of the affirmative and negative covenants under the DEG Loan agreement and certain other conforming provisions to take into account OrPower 4’s execution of the OPIC Finance Agreement and its obligations thereunder.  

 

 (iii) Under the terms of the OFC 2 Senior Secured Notes, OFC 2 is also required to maintain a well field drilling and maintenance reserve that builds up over time and is dedicated to costs

and expenses associated with drilling and maintenance of the project's well field, which may be funded by cash or backed by letters of credit.

 (iv) A performance level reserve account for McGinness Hills Phase II, intended to provide additional security for the OFC 2 Senior Secured Notes, which may be funded by cash or

backed by letters of credit. Upon issuance of the Series C Notes, this reserve was funded in the amount of $53.4 million in letter of credit and as of December 31, 2014, the balance did not change.

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Loan from a commercial bank

  In November 2009, the Company entered into a 5-year loan agreement of $50.0 million with a commercial bank. The bank loan matured on November 10, 2014 and was payable in 10 semi-

annual installments, which commenced on May 10, 2010, and bore interest at 6-month LIBOR plus 3.25%.  

Revolving credit lines with commercial banks   As of December 31, 2014, the Company has credit agreements with eight commercial banks for an aggregate amount of $555.2 million (including $50.0 million from Union Bank, N.A.

(“Union Bank”) and $25.0 million from HSBC), see below. Under the terms of these credit agreements, the Company, or its Israeli subsidiary, Ormat Systems, can request: (i) extensions of credit in the form of loans and/or the issuance of one or more letters of credit in the amount of up to $247.0 million; and (ii) the issuance of one or more letters of credit in the amount of up to $308.2 million. The credit agreements mature between end of March, 2015 and November 2016. Loans and draws under the credit agreements or under any letters of credit will bear interest at the respective bank’s cost of funds plus a margin.

  As of December 31, 2014, loans in the total amount of $20.3 million were outstanding, and letters of credit with an aggregate stated amount of $357.2 million were issued and outstanding

under such credit agreements. The $20.3 million in loans are for terms of three months or less and bear interest at an annual weighted average rate of 2.30%.  

Restrictive covenants   The Company’s obligations under the credit agreements, the loan agreements, and the trust instrument governing the bonds, described above, are unsecured, but are subject to a

negative pledge in favor of the banks and the other lenders and certain other restrictive covenants. These include, among other things, a prohibition on: (i) creating any floating charge or any permanent pledge, charge or lien over our assets without obtaining the prior written approval of the lender; (ii) guaranteeing the liabilities of any third party without obtaining the prior written approval of the lender; and (iii) selling, assigning, transferring, conveying or disposing of all or substantially all of our assets, or a change of control in our ownership structure. Some of the credit agreements, the term loan agreements, as well as the trust instrument contain cross-default provisions with respect to other material indebtedness owed by us to any third party. In some cases, the Company has agreed to maintain certain financial ratios, which are measured quarterly, such as: (i) equity of at least $600.0 million and in no event less than 30% of total assets; (ii) 12-month debt, net of cash, cash equivalents marketable securities and short-term bank deposits to Adjusted EBITDA ratio not to exceed 7; and (iii) dividend distribution not to exceed 35% of net income for that year. As of December 31, 2014: (i) total equity was $786.7 million and the actual equity to total assets ratio was 37.1%, and (ii) the 12-month debt, net of cash, cash equivalents marketable securities and short-term bank deposits to Adjusted EBITDA ratio was 3.70. During the year ended December 31, 2013, the Company distributed interim dividends in an aggregate amount of $3.6 million. Although the Company reported a net loss for the year ended December 31, 2012, under the credit agreements, the loan agreements, and the trust instrument governing the bonds the Company can distribute interim dividends on the basis of its estimate of its net income for the year. Since the Company incurred a loss for the year ended December 31, 2012, an adjustment for the distributable dividend in the amount of $3.6 million was made in the year ended December 31, 2013. The failure to perform or observe any of the covenants set forth in such agreements, subject to various cure periods, would result in the occurrence of an event of default and would enable the lenders to accelerate all amounts due under each such agreement.

  Credit agreement with Union Bank 

  In February 2012, the Company’s wholly owned subsidiary, Ormat Nevada Inc. (“Ormat Nevada”), entered into an amended and restated credit agreement with Union Bank. Under the

amended and restated agreement, the credit termination date was extended to February 7, 2014 (which was subsequently extended to March 31, 2014 pursuant to Amendment No. 1 to the agreement), and the aggregate amount available under the credit agreement was increased from $39.0 million to $50.0 million. The facility is limited to the issuance, extension, modification or amendment of letters of credit. Union Bank is currently the sole lender and issuing bank under the credit agreement, but is also designated as an administrative agent on behalf of banks that may, from time to time in the future, join the credit agreement as parties thereto. In connection with this transaction, the Company entered into a guarantee in favor of the administrative agent for the benefit of the banks, pursuant to which the Company agreed to guarantee Ormat Nevada’s obligations under the credit agreement. Ormat Nevada’s obligations under the credit agreement are otherwise unsecured. There are various restrictive covenants under the credit agreement, which include a requirement to comply with the following financial ratios, which are measured quarterly: (i) a 12-month debt to EBITDA ratio not to exceed 4.5; (ii) 12-month DSCR of not less than 1.35; and (iii) distribution leverage ratio not to exceed 2.0. As of December 31, 2014: (i) the actual 12-month debt to EBITDA ratio was 3.18; (ii) the 12-month DSCR was 2.45; and (iii) the distribution leverage ratio was 0.65. In addition, there are restrictions on dividend distributions in the event of a payment default or noncompliance with such ratios, and subject to specified carve-outs and exceptions, a negative pledge on the assets of Ormat Nevada in favor of Union Bank. As of December 31, 2014, letters of credit in the aggregate amount of $42.1 million remain issued and outstanding under this credit agreement with Union Bank.  

 

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Credit agreement with HSBC

  In May 2013, Ormat Nevada, a wholly owned subsidiary of the Company, entered into a credit agreement with HSBC Bank USA, N.A for one year with annual renewals. The aggregate

amount available under the credit agreement is $25.0 million. This credit line is limited to the issuance, extension, modification or amendment of letters of credit and $10.0 million out of this credit line for working capital needs. HSBC is currently the sole lender and issuing bank under the credit agreement, but is also designated as an administrative agent on behalf of banks that may, from time to time in the future, join the credit agreement as parties thereto. In connection with this transaction, we entered into a guarantee in favor of the administrative agent for the benefit of the banks, pursuant to which we agreed to guarantee Ormat Nevada’s obligations under the credit agreement. Ormat Nevada’s obligations under the credit agreement are otherwise unsecured. There are various restrictive covenants under the credit agreement, including a requirement to comply with the following financial ratios, which are measured quarterly: (i) a 12-month debt to EBITDA ratio not to exceed 4.5; (ii) 12-month DSCR of not less than 1.35; and (iii) distribution leverage ratio not to exceed 2.0. As of December 31, 2013: (i) the actual 12-month debt to EBITDA ratio was 3.18; (ii) the 12-month DSCR was 2.45; and (iii) the distribution leverage ratio was 0.65. In addition, there are restrictions on dividend distributions in the event of a payment default or noncompliance with such ratios, and subject to specified carve-outs and exceptions, a negative pledge on the assets of Ormat Nevada in favor of HSBC. As of December 31, 2014, letters of credit in the aggregate amount of $21.8 million remain issued and outstanding under this credit agreement.

   Future minimum payments

  Future minimum payments under long-term obligations, excluding revolving credit lines with commercial banks, as of December 31, 2014 are as follows:

 

   NOTE 11 — PUNA POWER PLANT LEASE TRANSACTIONS

  In 2005, the Company’s wholly owned subsidiary in Hawaii, Puna Geothermal Ventures (“PGV”), entered into transactions involving the original geothermal power plant of the Puna

complex located on the Big Island (the “Puna Power Plant”).   Pursuant to a 31-year head lease (the “Head Lease”), PGV leased Puna Power Plant to an unrelated company in return for prepaid lease payments in the total amount of $83.0 million (the

“Deferred Lease Income”). The carrying value of the leased assets as of December 31, 2014 and 2013 amounted to $34.4 million and $36.9 million, net of accumulated depreciation of $28.0 million and $25.5 million, respectively. The unrelated company (the “Lessor”) simultaneously leased back the Puna Power Plant to PGV under a 23-year lease (the “Project Lease”). PGV’s rent obligations under the Project Lease will be paid solely from revenues generated by the Puna Power Plant under a PPA that PGV has with Hawaii Electric Light Company (“HELCO”). The Head Lease and the Project Lease are non-recourse lease obligations to the Company. PGV’s rights in the geothermal resource and the related PPA have not been leased to the Lessor as part of the Head Lease but are part of the Lessor’s security package.

  The Head Lease and the Project Lease are being accounted for separately. Each was classified as an operating lease in accordance with the accounting standards for leases. The Deferred

Lease Income is amortized into revenue, using the straight-line method, over the 31-year term of the Head Lease. Deferred transaction costs amounting to $4.2 million are being amortized, using the straight-line method, over the 23-year term of the Project Lease.

   

 

    (Dollars in thousands)           Year ending December 31:        2015   $ 91,779  2016     69,060  2017     316,017  2018     59,186  2019     50,889  Thereafter     414,479  Total   $ 1,001,410  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Future minimum lease payments under the Project Lease, as of December 31, 2014, are as follows:

 

  Depository accounts

  As required under the terms of the lease agreements, there are certain reserve funds that need to be managed by the indenture trustee in accordance with certain balance requirements.

Such reserve funds amounted to $2.7 million and $4.3 million as of December 31, 2014 and 2013, respectively, and were included in restricted cash accounts in the consolidated balance sheets and were classified as current as they were used for current payments.

  Distribution account

  PGV maintains an account to deposit its remaining cash, after making all of the necessary payments and transfers as provided for in the lease agreements, in order to make distributions to

the Company’s wholly owned subsidiary, Ormat Nevada. The distributions are allowed only if PGV maintains various restrictive covenants under the lease agreements, which include limitations on additional indebtedness. As of December 31, 2014 and 2013, the balance of such account was $0.    NOTE 12 —TAX MONETIZATION TRANSACTIONS

  OPC TRANSACTION   In June 2007, the Company’s wholly owned subsidiary Ormat Nevada entered into agreements with affiliates of Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. (Morgan

Stanley Geothermal LLC and Lehman-OPC LLC), under which those investors purchased, for cash, interests in a newly formed subsidiary of Ormat Nevada, OPC LLC (“OPC”), entitling the investors to certain tax benefits (such as production tax credits (“PTCs”) and accelerated depreciation) and distributable cash associated with four geothermal power plants.

  The first closing under the agreements occurred in 2007 and covered the Company’s Desert Peak 2, Steamboat Hills, and Galena 2 power plants. The investors paid $71.8 million at the first

closing. The second closing under the agreements occurred in 2008 and covered the Galena 3 power plant. The investors paid $63.0 million at the second closing.   Ormat Nevada continues to operate and maintain the power plants. Under the agreements, Ormat Nevada initially received all of the distributable cash flow generated by the power plants,

while the investors received substantially all of the production tax credits and taxable income or loss (together, the “Economic Benefits”). Once Ormat Nevada recovered the capital that it has invested in the power plants, which occurred in the fourth quarter of 2010, the investors receive both the distributable cash flow and the Economic Benefits. The investors’ return is limited by the term of the transaction. Once the investors reach a target after-tax yield on their investment in OPC (the “OPC Flip Date”), Ormat Nevada will receive 95% of both distributable cash and taxable income, on a going forward basis. Following the OPC Flip Date, Ormat Nevada also has the option to buy out the investors’ remaining interest in OPC at the then-current fair market value or, if greater, the investors’ capital account balances in OPC. Should Ormat Nevada exercise this purchase option, it would thereupon revert to being sole owner of the power plants.

  The Class B membership units are provided with a 5% residual economic interest in OPC. The 5% residual interest commences on achievement by the investors of a contractually

stipulated return that triggers the OPC Flip Date. The actual OPC Flip Date is not known with certainty and is determined by the operating results of OPC. This residual 5% interest represents a noncontrolling interest and is not subject to mandatory redemption or guaranteed payments. Cash is distributed each period in accordance with the cash allocation percentages stipulated in the agreements. Until the fourth quarter of 2010, Ormat Nevada was allocated the cash earnings in OPC and therefore, the amount allocated to the 5% residual interest represented the noncash loss of OPC which principally represented depreciation on the property, plant and equipment. As from the fourth quarter of 2010, the distributable cash is allocated to the Class B membership units. As a result of the acquisition by Ormat Nevada, on October 30, 2009, of all of the Class B membership units of OPC held by Lehman-OPC LLC (see below), the residual interest decreased to 3.5%. Such residual interest increased to 5% on February 3, 2011 when Ormat Nevada sold its Class B membership units to JPM Capital Corporation (“JPM”) (see below).  

 

    (Dollars in thousands)  Year ending December 31:        2015   $ 8,222  2016     8,374  2017     8,747  2018     8,944  2019     6,018  Thereafter     6,913  Total   $ 47,218  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The Company’s voting rights in OPC are based on a capital structure that is comprised of Class A and Class B membership units. Through Ormat Nevada, the Company owns all of the

Class A membership units, which represent 75% of the voting rights in OPC. The investors own all of the Class B membership units, which represent 25% of the voting rights in OPC. In the period from October 30, 2009 to February 3, 2011, the Company owned, through Ormat Nevada, all of the Class A membership units, which represented 75% of the voting rights in OPC, and 30% of the Class B membership units, which represented 7.5% of the voting rights of OPC. In total the Company had 82.5% of the voting rights in OPC as of December 31, 2010. In that period, the investors owned 70% of the Class B membership units, which represented 17.5% of the voting rights of OPC. Other than in respect of customary protective rights, all operational decisions in OPC are decided by the vote of a majority of the membership units. Following the OPC Flip Date, Ormat Nevada’s voting rights will increase to 95% and the investor’s voting rights will decrease to 5%. Ormat Nevada retains the controlling voting interest in OPC both before and after the OPC Flip Date and therefore consolidates OPC.

  On October 30, 2009, Ormat Nevada acquired from Lehman-OPC LLC all of the Class B membership units of OPC held by Lehman-OPC pursuant to a right of first offer for a price of $18.5

million. A substantial portion of the initial sale of the Class B membership units by Ormat Nevada was accounted for as a financing transaction. As a result, the repurchase of these interests at a discount resulted in a pre-tax gain of $13.3 million in the year ended December 31, 2009. In addition, an amount of approximately $1.1 million has been reclassified from noncontrolling interest to additional paid-in capital representing the 1.5% residual interest of Lehman-OPC’s Class B membership units.

  On February 3, 2011, Ormat Nevada sold to JPM all of the Class B membership units of OPC that it had acquired on October 30, 2010 for a sale price of $24.9 million in cash. The Company

did not record any gain from the sale of its Class B membership interests in OPC to JPM. A substantial portion of the Class B membership units are accounted for as a financing transaction. As a result, the majority of these proceeds were recorded as a liability. In addition, $2.3 million has been reclassified from additional paid-in capital to noncontrolling interest representing the 1.5% residual interest of JPM’s Class B membership units.

  ORTP TRANSACTION   In January  2013, Ormat Nevada entered into agreements with JP Morgan (“JPM”) under which JPM purchased interests in a newly formed subsidiary of Ormat Nevada, ORTP, LLC

(“ORTP”), entitling JPM to certain tax benefits (such as PTCs and accelerated depreciation) associated with certain geothermal power plants in California and Nevada.  

Under the terms of the transaction, Ormat Nevada transferred the Heber complex, the Mammoth complex, the Ormesa complex, and the Steamboat 2 and 3, Burdette (Galena 1) and Brady power plants to ORTP, and sold class B membership units in ORTP to JPM. In connection with the closing, JPM paid approximately $35.7 million to Ormat Nevada and will make additional payments to Ormat Nevada of 25% of the value of PTCs generated by the portfolio over time. The additional payments are expected to be made until December 31, 2016 up to maximum amount of $11.0 million. In January 2015 and 2014, the Company received $1.6 million and $2.2 million, respectively.  

Ormat Nevada will continue to operate and maintain the power plants. Under the agreements, Ormat Nevada will initially receive all of the distributable cash flow generated by the power plants, while JPM will receive substantially all of PTCs and the taxable income or loss (together, the “Economic Benefits”). JPM’s return is limited by the terms of the transaction. Once JPM reaches a target after-tax yield on its investment in ORTP (the “ORTP Flip Date”), Ormat Nevada will receive 97.5% of the distributable cash and 95% of the taxable income, on a going forward basis. At any time during the twelve-month period after the end of the fiscal year in which the ORTP Flip Date occurs (but no earlier than the expiration of five years following the date that the last of the power plants was placed in service for purposes of federal income taxes), Ormat Nevada also has the option to buy out JPM’s remaining interest in ORTP at the then-current fair market value. If Ormat Nevada were to exercise this purchase option, it would become the sole owner of the power plants again.  

 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The Class B membership units entitle the holder to 5.0% (allocation of income and loss) and 2.5% (allocation of cash) residual economic interest in ORTP. The 5.0% and 2.5% residual

interest commences on achievement by JPM of a contractually stipulated return that triggers the ORTP Flip Date. The actual ORTP Flip Date is not known with certainty. This residual 5.0% and 2.5% interest represents a noncontrolling interest and is not subject to mandatory redemption or guaranteed payments.  

The Company’s voting rights in ORTP are based on a capital structure that is comprised of Class A and Class B membership units. Through Ormat Nevada the Company owns all of the Class A membership units, which represent 75% of the voting rights in ORTP. JPM owns all of the Class B membership units, which represent 25% of the voting rights of ORTP. Other than in respect of customary protective rights, all operational decisions in ORTP are decided by the vote of a majority of the membership units. Ormat Nevada retains the controlling voting interest in ORTP both before and after the ORTP Flip Date and therefore will continue to consolidate ORTP.    

NOTE 13 — ASSET RETIREMENT OBLIGATION  

The following table presents a reconciliation of the beginning and ending aggregate carrying amount of asset retirement obligation for the years presented below:  

  During the year ended December 31, 2014, the Company decreased the aggregate carrying amount of its asset retirement obligation by $1,395,000 due to changes in useful life and price

estimates.   During the year ended December 31, 2013, the Company decreased the aggregate carrying amount of its asset retirement obligation by $2,742,000 due to changes in useful life and price

estimates.  

 

    Year Ended December 31,  

    2014     2013      (Dollars in thousands)  Balance at beginning of year   $ 18,679     $ 19,289  Revision in estimated cash flows     (1,395)     (2,742)Liabilities incurred     356       588  Accretion expense     1,502       1,544  Balance at end of year   $ 19,142     $ 18,679  

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 14 — STOCK-BASED COMPENSATION

  The Company makes an estimate of expected forfeitures and recognizes compensation costs only for those stock-based awards expected to vest. As of December 31, 2014, the total future

compensation cost related to unvested stock-based awards that are expected to vest is $8,146,000, which amount will be recognized over a weighted average period of 1.4 years.   During the years ended December 31, 2014, 2013 and 2012, the Company recorded compensation related to stock-based awards as follows:

 

  During the fourth quarters of 2014 and 2013, the Company evaluated the trends in the stock-based award forfeiture rate and determined that the actual rates are 5.6%. This represents a

decrease of 0.8% from the estimate made in the third quarter of 2012. As a result of the increase in the estimated forfeiture rate, the stock based compensation expense decreased by an immaterial amount.

  Valuation assumptions

  The fair value of each grant of stock-based awards is estimated using the Black-Scholes valuation model and the assumptions noted in the following table. The Company’s expected term

represents the period that the Company’s stock-based awards are expected to be outstanding. In the absence of enough historical information, the expected term was determined using the simplified method giving consideration to the contractual term and vesting schedule. The dividend yield forecast is expected to be 20% of the Company’s yearly net profit, which is equivalent to a 0.7% yearly weighted average dividend rate in the year ended December 31, 2014. The risk-free interest rate was based on the yield from U.S. constant treasury maturities bonds with an equivalent term. The forfeiture rate is based on trends in actual stock-based awards forfeitures.

  The Company calculated the fair value of each stock-based award on the date of grant based on the following assumptions:

 

  Stock-based awards

  The 2004 Incentive Compensation Plan

  In 2004, the Company’s Board of Directors adopted the 2004 Incentive Compensation Plan (“2004 Incentive Plan”), which provides for the grant of the following types of awards:

incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights (“SARs”), stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2004 Incentive Plan, a total of 3,750,000 shares of the Company’s common stock have been reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2004 Incentive Plan cliff vest and are exercisable from the grant date as follows: 25% after 24 months, 25% after 36 months, and the remaining 50% after 48 months. Options granted to non-employee directors under the 2004 Incentive Plan cliff vest and are exercisable one year after the grant date. Vested shares may be exercised for up to ten years from the date of grant. The shares of common stock will be issued upon exercise of options or SARs from the Company’s authorized share capital. The 2004 Incentive Plan expired in May 2012 upon adoption of the 2012 Incentive Plan, except as to share based awards outstanding on that date.  

 

    Year Ended December 31,  

    2014     2013     2012      (Dollars in thousands, except per share data)  Cost of revenues   $ 3,076     $ 3,971     $ 4,225  Selling and marketing expenses     261       494       542  General and administrative expenses     2,234       1,799       1,611  Total stock-based compensation expense     5,571       6,264       6,378  Tax effect on stock-based compensation expense     836       783       797  Net effect of stock-based compensation expense   $ 4,735     $ 5,481     $ 5,581  

    Year Ended December 31,  

    2014     2013     2012  For stock options issued by the Company:                        

Risk-free interest rates     1.7%    0.8%    1.0%Expected lives (in years)     5.1       4.6       5.0  Dividend yield     0.9%    0.71%    0.81%Expected volatility     35.1%    37.8%    47.2%Forfeiture rate     0.0%    5.6%    6.4%

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The 2012 Incentive Compensation Plan  

In May 2012, the Company’s shareholders adopted the 2012 Incentive Compensation Plan (“2012 Incentive Plan”), which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, SARs, stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2012 Incentive Plan, a total of 4,000,000 shares of the Company’s common stock have been reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2012 Incentive Plan will vest and become exercisable as follows: 25% vest 24 months after the grant date, an additional 25% vest 36 months after the grant date, and the remaining 50% vest 48 months after the grant date. Options granted to non-employee directors under the 2012 Incentive Plan will vest and become exercisable one year after the grant date. Vested stock-based awards may be exercised for up to ten years from the date of grant. The shares of common stock will be issued upon exercise of options or SARs from the Company’s authorized share capital.

  The 2012 Incentive Plan empowers our Board of Directors, in its discretion, to amend the 2012 Incentive Plan in certain respects. Consistent with its authority to amend the Incentive Plan,

in February 2014 the Board adopted and approved certain amendments to the Incentive Plan. The key amendments are as follows:   Increase of per grant limit: Section 15(a) of the 2012 Incentive Plan was amended to allow the grant of up to 400,000 shares of our common stock with respect to the initial grant of an

equity award to newly hired executive officers in any calendar year. This amendment was adopted by our stockholders on May 31, 2014; and   Acceleration of vesting: Section 15(l) of the 2012 Incentive Plan was amended to clarify our ability to provide in the applicable award agreement that part and/or all of the award will be

accelerated upon the occurrence of certain pre-determined events and/or conditions, such as a "change in control" (as defined in the 2012 Incentive Plan, as amended).  

On February 11, 2014, the Company granted its Chief Financial Officer options to purchase 32,500 shares of common stock under the 2012 Incentive Plan. The exercise price of each option is $24.57, which represented the fair market value of the Company’s common stock on the grant date. Such options will expire five years from the date of grant and will vest in equal annual installments over a period of three years from the grant date, subject to acceleration upon a change of control.

  The fair value of each stock option on the grant date was $5.78. The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes valuation model

based on the following assumptions:  

  On April 2, 2014, the Company granted its newly appointed Chief Executive Officer options to purchase up to an aggregate of 400,000 shares of common stock under the 2012 Incentive

Plan. The exercise price of each option is $29.52 per share, which represented the fair market value of the Company’s common stock on the date of the grant. Options to purchase 300,000 shares of common stock will expire six years following the date of grant and will vest in equal annual installments over four years from the grant date, subject to acceleration in the event of a change of control. The remaining options to purchase 100,000 shares of common stock will vest on March 31, 2021, subject to acceleration associated with a change of control, and will expire seven and a half years from the date of grant.  

 

Risk-free interest rates     0.81%Expected life (in years)     3.375 Dividend yield     0.80%Expected volatility     33.50%Forfeiture rate     0.00%

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  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The fair value of each option on the grant date was $12.88 for grant of options to purchase 300,000 shares of common stock, and $8.33 for the grant of options to purchase 100,000 shares

of common stock. The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes valuation model based on the following assumptions:      

     

On November 5, 2014, the Company granted its board members options to purchase 52,500 shares of common stock under the 2012 Incentive Plan. The exercise price of each option is $28.23, which represented the fair market value of the Company’s common stock on the grant date. Such options will expire seven years from the date of grant and will vest in 100% one year from the grant date.

  The fair value of each stock option on the grant date was $7.01. The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes valuation model

based on the following assumptions:  

  

__________

  As of December 31, 2014, 2,124,900 shares of the Company’s common stock are available for future grants under the 2012 Incentive Plan. No shares of the Company’s common stock are

available for future grants under the 2004 Incentive Plan as of such date.    

 

   

Grant of options to purchase 100,000 shares of common

stock    

Grant of options to purchase 300,000 shares of common

stock  Risk-free interest rates     2.36%    1.64%Expected life (in years)     7.25      4.75 Dividend yield     0.90%    0.90%Expected volatility     42.80%    33.10%Forfeiture rate     0%    0%

Risk-free interest rates     1.30%Expected life (in years)     4.0 Dividend yield     0.70%Expected volatility     32.40%Forfeiture rate     0.00%

    Year Ended December 31,  

    2014     2013     2012  

    Shares    

Weighted Average Exercise Price     Shares    

Weighted Average Exercise Price     Shares    

Weighted Average Exercise Price  

Outstanding at beginning of year     4,710     $ 28.23       3,563     $ 30.09       2,934     $ 32.40  Granted, at fair value:                                                

Stock Options     485       29.05       45       26.70       75       19.01  SARs*     —      —      1,270       23.08       602       20.13  

Exercised     (243)     24.10       (39)     16.89       —      — Forfeited     (116)     23.20       (114)     30.04       (48)     28.92  Expired     (359)     42.70       (15.00)     37.90       —      — 

Outstanding at end of year     4,477       27.48       4,710       28.23       3,563       30.09  

Options and SARs exercisable at end of year     2,106       31.25       2,123       33.82       1,592       36.61  

Weighted-average fair value of options and SARs granted during the year          $ 9.00            $ 6.66            $ 7.25  

* Upon exercise, SARs entitle the recipient to receive shares of common stock equal to the increase in value of the award between the grant date and the exercise date.

 160

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The following table summarizes information about stock-based awards outstanding at December 31, 2014 (shares in thousands):

 

 

 

          Options Outstanding     Options Exercisable  

  Exercise Price    

Number of Shares Outstanding  

 

Weighted Average Remaining Contractual Life in Years

 

 

Aggregate Intrinsic Value    

Number of Shares Exercisable  

 

Weighted Average Remaining Contractual Life in Years

 

 

Aggregate Intrinsic Value  

  $ 15.00       -            $ -       -       -     $ -      18.56       45       4.8       388       45       4.8       389      19.10       8       3.8       61       8       3.8       182      19.69       26       4.6       197       26       4.6       197      20.13       509       4.3       3,585       99       4.3       -      20.54       100       4.3       664       25       4.3       -      23.34       1,129       4.4       4,343       -       -       -      24.57       33       4.1       85       -       -             25.65       493       3.3       754       220       3.3       225      25.74       8       0.8       11       8       0.8       33      26.70       45       5.8       22       45       5.8       -      26.84       418       1.2       142       418       1.2       196      28.19       30       2.8       -       30       2.8       -      28.23       53       6.8       -       -       -             29.21       8       2.3       -       8       2.3       -      29.52       400       5.6       -       -       -             29.95       538       2.3       -       538       2.3       -      34.13       222       1.3       -       222       1.3       -      38.50       23       1.8       -       23       1.8       -      45.78       390       0.3       -       390       0.3       -                                                                                                                           4,477       3.3       10,252       2,106       2.1       1,222  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The following table summarizes information about stock-based awards outstanding at December 31, 2013 (shares in thousands):  

  The aggregate intrinsic value in the above tables represents the total pretax intrinsic value, based on the Company’s stock price of $27.18 and $27.21 as of December 31, 2014 and 2013,

respectively, which would have potentially been received by the stock-based award holders had all stock-based award holders exercised their stock-based award as of those dates. The total number of in-the-money stock-based awards exercisable as of December 31, 2014 and 2013 was 895,354 and 811,269, respectively.

  The total pretax intrinsic value of options exercised during the year ended December 31, 2014 and 2013 was $2,036,000 and $140,000, respectively, based on the average stock price of

$27.49 and 23.57 during the years ended December 31, 2014 and 2013, respectively. No options were exercised during the year ended December 31, 2012.  

 

          Options Outstanding     Options Exercisable  

  Exercise Price    

Number of Shares Outstanding  

 

Weighted Average Remaining Contractual Life in Years

 

 

Aggregate Intrinsic Value    

Number of Shares Exercisable  

 

Weighted Average Remaining Contractual Life in Years

 

 

Aggregate Intrinsic Value  

  $ 15.00       21       .8     $ 258       21       .8     $ 258      18.56       45       5.8       389       45       5.8       389      19.10       23       4.8       182       23       4.8       182      19.69       26       5.6       197       26       5.6       197      20.13       578       5.3       4,089       -       -       -      20.54       120       5.3       800       -       -       -      23.34       1,138       5.4       4,404       -       -       -      25.65       578       4.3       901       144       4.3       225      25.74       23       1.8       33       23       -       33      26.70       45       6.8       23       -       -       -      26.84       529       2.2       196       529       2.2       196      28.19       30       3.8       -       30       3.8       -      29.21       8       3.3       -       8       3.3       -      29.95       547       3.3       -       273       3.3       -      34.13       222       2.3       -       222       2.3       -      38.50       23       2.8       -       23       2.8       -      38.85       8       .2       -       8       .2       -      42.08       329       .3       -       329       .3       -      45.78       397       1.3       -       397       -       -      52.98       23       .8       -       23       .8       -                                                                    4,710       3.7       11,472       2,123       2.1       1,480  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 15 — POWER PURCHASE AGREEMENTS

  Substantially all of the Company’s electricity revenues are recognized pursuant to PPAs in the U.S. and in various foreign countries, including Kenya and Guatemala. These PPAs

generally provide for the payment of energy payments or both energy and capacity payments through their respective terms which expire in varying periods from 2015 to 2034. Generally, capacity payments are calculated based on the amount of time that the power plants are available to generate electricity. The energy payments are calculated based on the amount of electrical energy delivered at a designated delivery point. The price terms are customary in the industry and include, among others, a fixed price, short-run avoided cost (“SRAC”) (the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others), and a fixed price with an escalation clause that includes the value for environmental attributes, known as renewable energy credits. Certain of the PPAs provide for bonus payments in the event that the Company is able to exceed certain target levels and potential payments by the Company if it fails to meet minimum target levels. One PPA gives the power purchaser or its designee the right of first refusal to acquire the geothermal power plants at fair market value. Upon satisfaction of certain conditions specified in this PPA, and subject to receipt of requisite approvals and negotiations between the parties, the Company has the right to demand that the power purchaser acquire the power plant at fair market value. The Company’s subsidiaries in Guatemala sell power at an agreed upon price subject to terms of a “take or pay” PPA.

  Pursuant to the terms of certain of the PPAs, the Company may be required to make payments to the relevant power purchaser under certain conditions, such as shortfall on delivery of

renewable energy and energy credits, and not meeting certain performance threshold requirements, as defined in the relevant PPA. The amount of payment required is dependent upon the level of shortfall on delivery or performance requirements and is recorded in the period the shortfall occurs. In addition, if the Company does not meet certain minimum performance requirements, the capacity of the power plant may be permanently reduced.

  As discussed in Note 1, the Company assessed all PPAs agreed to, modified or acquired in business combinations on or after July 1, 2003, and evaluated whether such PPAs contained a

lease element requiring lease accounting. Future lease revenues under PPAs which contain a lease element as of December 31, 2014 including the PPAs that provide for minimum production or performance guarantees are accounted for as contingent lease revenues as they are production-based payments and contingent on generation levels that are impacted by climatic variables that are inherently uncertain including geological conditions and ambient temperature.

  The PPAs considered to be leases were also assessed for inclusion of embedded derivatives, which required that they be separately accounted for at fair value. However, none of such

PPAs were determined to include embedded derivatives.  

 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 16 — DISCONTINUED OPERATIONS  

On May 30, 2013, the Company’s wholly owned subsidiary, Ormat Holding Corp., sold the Momotombo Power Company (“OMPC”), which operates the Momotombo power plant located in Nicaragua, to a third party for $7,751,000 approximately one year before the scheduled termination of the concession arrangement with the Nicaraguan owner. The Company recorded an after-tax gain on sale of approximately $3.6 million in the year ended December 31, 2013.

  In conjunction with the sale, the Company’s wholly owned subsidiary and the buyer signed a technical support agreement, whereby the subsidiary will provide technical consulting

services, which can be terminated by either party with 60 days advance notice. The Company is of the opinion that the expected continuing cash flows from this agreement are insignificant and that there is no significant continuing involvement by the Company, including its subsidiaries, in the operations of the MPC after the sale. Therefore, the related income from operations prior to the date of the sale and the gain on the sale of the MPC have been included as discontinued operations in the consolidated statements of operations and comprehensive income (loss) for all comparative periods presented.  

The summarized financial information related to the discontinued operations is as follows:  

  The net assets of the MPC as of May 30, 2013 were as follows:  

 

 

    Year Ended December 31,  

    2014     2013     2012      (Dollars in thousands)  Revenues - electricity   $ —    $ 4,866     $ 12,635  Cost of revenues - electricity     —      2,869       7,219  Gross margin     —      1,997       5,416  Operating expenses:                        Selling and marketing expenses     —      192       404  General and administrative expenses     —      140       201  Operating income     —      1,665       4,811  Income from discontinued operations before income taxes     —      5,311       4,811  Income tax provision     —      (614)     (1,264)Income from discontinued operations, net of taxes   $ —    $ 4,697     $ 3,547  

    (Dollars in thousands)           Cash and cash equivalents   $ 52  Accounts receivable     2,274  Prepaid expenses and other     167  Property, plant and equipment     3,935  Accounts payable and accrued expenses     (493)Deferred income taxes     (442)Accrued severance pay     (313)Other liabilities     (590)Net assets   $ 4,590  

 164

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 17 — INTEREST EXPENSE, NET

  The components of interest expense are as follows:  

    NOTE 18 — INCOME TAXES  

U.S. and foreign components of income (loss) from continuing operations, before income taxes and equity in income (losses) of investees consisted of:  

  The components of the provision (benefit) for income taxes, net are as follows:  

 

 

    Year Ended December 31,  

    2014     2013     2012      (Dollars in thousands)  Interest related to sale of tax benefits   $ 12,413     $ 13,753     $ 6,827  Interest expense     75,447       67,621       69,206  Less — amount capitalized     (3,206)     (7,598)     (11,964)

    $ 84,654     $ 73,776     $ 64,069  

    Year Ended December 31,      2014     2013     2012      (Dollars in thousands)  U.S   $ (2,623)   $ 1,520     $ (283,242)Non-U.S. (foreign)     88,459       49,616       71,437  

    $ 85,836     $ 51,136     $ (211,805)

    Year Ended December 31,      2014      2013     2012      (Dollars in thousands)  Current:                        

State   $ 490     $ 208     $ (768)Foreign     13,983       2,886       7,331  

    $ 14,473     $ 3,094     $ 6,563                           Deferred:                        

Federal     —      —      (17,312)State     —      —      (44)Foreign     13,135       10,458       12,620  

      13,135       10,458       (4,736)

    $ 27,608     $ 13,552     $ 1,827  

 165

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The significant components of the deferred income tax expense (benefit) are as follows:  

  Reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:

 

   

 

    Year Ended December 31,      2014      2013      2012      (Dollars in thousands)                           Deferred tax expense (exclusive of the effect of other components listed below)   $ (8,993)   $ (71,052)   $ 23,802  Write-off of power plants     —      —      (90,720)Usage (benefit) of operating loss carryforwards - US     7,764       11,672       26,907  Change in valuation allowance     3,526       (1,787)     16,877  Change in foreign income tax     13,135       10,458       8,257  Change in lease transaction     2,136       974       1,170  Change in tax monetization transaction     5,184       46,051       5,353  Change in intangible drilling costs     (9,706)     15,091       14,133  Benefit of production tax credits and alternative minimum tax credit     89       (949)     (10,515)

    $ 13,135     $ 10,458     $ (4,736)

    Year Ended December 31,      2014     2013     2012  U.S. federal statutory tax rate     35.0%    35.0%    35.0%Valuation allowance     (1.7)     (3.5)     (8.0)Tax monetization     2.5       -       -  State income tax, net of federal benefit     (0.7)     (0.2)     4.1  Effect of foreign income tax, net     (4.9)     (7.9)     2.4  Production tax credits     0.9       (1.9)     5.0  Dividends from foreign subsidiaries     -       -       (39.3)Subpart F income     1.4       4.7       -  Depletion     (1.1)     -       0.3  Other, net     0.8       0.3       (0.4)Effective tax rate     32.2%    26.5%    0.9%

 166

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The net deferred tax assets and liabilities consist of the following:  

  The following table presents a reconciliation of the beginning and ending valuation allowance:  

  At December 31, 2014, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $251.4 million and state NOL carryforwards of approximately $216.5

million, net of valuation allowance of $111.3 million, available to reduce future taxable income, which expire between 2021 and 2034 for federal NOLs and between 2013 and 2034 for state NOLs. The investment tax credits (“ITCs”) in the amount of $0.7 million at December 31, 2014 are available for a 20-year period and expire between 2022 and 2024. The PTCs in the amount of $71.4 million at December 31, 2014 are available for a 20-year period and expire between 2026 and 2034.

  Realization of the deferred tax assets and tax credits is dependent on generating sufficient taxable income in appropriate jurisdictions prior to expiration of the NOL carryforwards and tax

credits. The most significant factor considered with respect to the ability of the Company to realize these deferred tax assets is the Company’s U.S. cumulative results over the past three years. The Company viewed this factor as a significant piece of negative evidence that made it difficult to support a conclusion that expected taxable income from future operations justifies recognition of deferred tax assets. Based on the results, a valuation allowance in the amount of $111.3 million and $114.8 million was recorded against the U.S. deferred tax assets as of December 31, 2014 and 2013, respectively as, at this point in time, it is more likely than not that the deferred tax assets will not be realized.

  Subsequent to the balance sheet date, and as more fully described in Note 24, the Company entered into a significant non-routine transaction for the partial sale of certain assets which

is expected to result in a taxable gain in the U.S., for which the Company expects to utilize a portion of its NOL carryforwards and tax credits. In 2015 or in future years , if sufficient additional evidence of the Company’s ability to generate taxable income is established in the future, the Company may be required to reduce or fully release the valuation allowance, resulting in income tax benefits in its consolidated statement of operations.

    

 

    December 31,  

    2014     2013      (Dollars in thousands)                   Deferred tax assets (liabilities):                

Net foreign deferred taxes, primarily depreciation   $ (66,943)   $ (53,621)Depreciation     86,705      96,137  Intangible drilling costs     (91,678)     (81,972)Net capital loss carryforward - U.S.     100,139       92,375  Tax monetization transaction     (67,337)     (72,521)Lease transaction     4,573       2,437  Investment tax credits     672       672  Production tax credits     71,402       71,313  Stock options amortization     4,467       3,464  Accrued liabilities and other     2,337       2,901  

      44,337       61,185  Less - valuation allowance     (111,280)     (114,806)Total   $ (66,943)   $ (53,621)

    Year Ended December 31,      2014     2013     2012      (Dollars in thousands)                           Balance at beginning of the year   $ 114,806     $ 113,596     $ 61,500  Additions to deferred income tax expense     (3,526)     1,210       52,096  Balance at end of the year   $ 111,280     $ 114,806     $ 113,596  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The following table presents the deferred taxes on the balance sheets as of the dates indicated:

  

  The total amount of undistributed earnings of foreign subsidiaries for income tax purposes was approximately $75.9 million at December 31, 2014. It is the Company’s intention to reinvest

undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or U.S. income taxes which may become payable if undistributed earnings of foreign subsidiaries were paid as dividends to the Company. The additional taxes on that portion of undistributed earnings which is available for dividends are not practicably determinable.

  The distribution of $250.0 million in the form of a cash and loan from Ormat Holding Corporation and Ormat Systems, respectively, in 2012 to the Company did not represent a change in

the Company’s indefinite reinvestment position. The Company has not recognized deferred tax liabilities for outside basis differences (including undistributed earnings) relating to its foreign subsidiaries because such amounts have been indefinitely reinvested.

  The Company believes that based on our plans to increase the operations outside of the U.S., the cash generated from our operations outside of the U.S. will be reinvested outside of the

U.S. In addition, our U.S. sources of cash and liquidity are sufficient to meet our needs in the U.S. and, accordingly, we do not currently plan to repatriate the funds we have designated as being permanently invested outside the U.S. If we change our plans, we may be required to accrue and pay U.S. taxes to repatriate these funds.

  Uncertain tax positions

  We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our

provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve positions and changes to reserves that are considered probable.

  At December 31, 2014 and 2013, there are $7.5 million and $5.0 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate. Interest and penalties

assessed by taxing authorities on an underpayment of income taxes are included as a component of income tax provision in the consolidated statements of operations and comprehensive income.  

A reconciliation of our unrecognized tax benefits is as follows:  

  The Company and its U.S. subsidiaries file consolidated income tax returns for federal and state purposes. As of December 31, 2014, the Company has not been subject to U.S. federal or

state income tax examinations. The Company remains open to examination by the Internal Revenue Service for the years 2000-2014 and by local state jurisdictions for the years 2002-2014. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods.

  The reduction of $0.6 million and $3.7 million in 2014 and 2013, respectively, was due to the statute of limitation expiration on certain tax position.  

 

    Year Ended December 31,      2014     2013     2012      (Dollars in thousands)                           Current deferred tax assets   $ 251     $ 523     $ 637  Current deferred tax liabilities     (975)     —      (20,392)Non-current deferred tax assets     —      891       21,283  Non-current deferred tax liabilities     (66,219)     (55,035)     (45,059)

    $ (66,943)   $ (53,621)   $ (43,531)

    Year Ended December 31,      2014     2013     2012      (Dollars in thousands)  Balance at beginning of year   $ 4,950     $ 7,281     $ 5,875  Additions based on tax positions taken in prior years     230       200       1,381  Additions based on tax positions taken in the current year     2,980       1,146       25  Reduction based on tax positions taken in prior years     (649)     (3,677)     — Balance at end of year   $ 7,511     $ 4,950     $ 7,281  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The Company’s foreign subsidiaries remain open to examination by the local income tax authorities in the following countries for the years indicated:  

  Management believes that the liability for unrecognized tax benefits is adequate for all open tax years based on its assessment of many factors, including among others, past experience

and interpretations of local income tax regulations. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. As a result, it is possible that federal, state and foreign tax examinations will result in assessments in future periods. To the extent any such assessments occur, the Company will adjust its liability for unrecognized tax benefits.  

Tax benefits in the U.S.   The U.S. government encourages production of electricity from geothermal resources through certain tax subsidies under the ARRA. The Company is permitted to claim 30% of the

eligible cost of each new geothermal power plant in the United States, which is placed in service before January 1, 2014 as an ITC against its federal income taxes. After this date, the ITC is reduced to 10%. Alternatively, the Company is permitted to claim a PTC, which in 2014 was 2.3 cents per kWh and which may be adjusted annually for inflation. The PTC may be claimed for ten years on the electricity output of new geothermal power plants put into service by December 31, 2013. The owner of the power plant must choose between the PTC and the 30% ITC described above. In either case, under current tax rules, any unused tax credit has a 1-year carry back and a 20-year carry forward. Whether the Company claims the PTC or the ITC, it is also permitted to depreciate most of the plant for tax purposes over five years on an accelerated basis, meaning that more of the cost may be deducted in the first few years than during the remainder of the depreciation period. If the Company claims the ITC, the Company’s “tax base” in the plant that it can recover through depreciation must be reduced by half of the ITC. If the Company claims the PTC, there is no reduction in the tax basis for depreciation. Companies that place qualifying renewable energy facilities in service, during 2009, 2010 or 2011, or that begin construction of qualifying renewable energy facilities during 2009, 2010 or 2011 and place them in service by December 31, 2013, may choose to apply for a cash grant from the U.S. Department of the Treasury (“U.S. Treasury”) in an amount equal to the ITC. Likewise, the tax base for depreciation will be reduced by 50% of the cash grant received. Under the ARRA, the U.S. Treasury is instructed to pay the cash grant within 60 governmental business days of the application or the date on which the qualifying facility is placed in service.

  On June 7, 2007, April 17, 2008 and January 24, 2013, a wholly-owned subsidiary, Ormat Nevada, concluded transactions to monetize PTCs and other favorable tax attributes (see Note 12).

  Income taxes related to foreign operations

  Guatemala — The enacted tax rate is 28%. Orzunil, a wholly owned subsidiary, was granted a benefit under a law which promotes development of renewable power sources. The law

allows Orzunil to reduce the investment made in its geothermal power plant from income tax payable, which reduces the effective tax rate to zero. Ortitlan, another wholly owned subsidiary, was granted a tax exemption for a period of ten years ending August 2017. The effect of the tax exemption in the years ended December 31, 2014, 2013, and 2012 is $3.6 million, $1.9 million, and $4.4 million, respectively ($0.08, $0.04, and $0.10 per share of common stock, respectively).

  Israel — The Company’s operations in Israel through its wholly owned Israeli subsidiary, Ormat Systems Ltd. (“Ormat Systems”), are taxed at the regular corporate tax rate of 24% in 2011,

25% in 2012 and 2013, and 26.5% in 2014 and thereafter Ormat Systems received “Benefited Enterprise” status under Israel’s Law for Encouragement of Capital Investments, 1959 (the “Investment Law”), with respect to two of its investment programs. As a Benefited Enterprise, Ormat Systems was exempt from Israeli income taxes with respect to income derived from the first benefited investment for a period of two years that started in 2004, and thereafter such income was subject to reduced Israeli income tax rates which will not exceed 25% for an additional five years until 2010. Ormat Systems was also exempt from Israeli income taxes with respect to income derived from the second benefited investment for a period of two years that started in 2007, and thereafter such income is subject to reduced Israeli income tax rates which will not exceed 25% for an additional five years until 2013 (see also below). These benefits are subject to certain conditions, including among other things, that all transactions between Ormat Systems and its affiliates are at arm’s length, and that the management and control of Ormat Systems will be from Israel during the whole period of the tax benefits. A change in control should be reported to the Israel Tax Authority in order to maintain the tax benefits. In January 2011, new legislation amending the Investment Law was enacted. Under the new legislation, a uniform rate of corporate tax would apply to all qualified income of certain industrial companies, as opposed to the current law’s incentives that are limited to income from a “Benefited Enterprise” during their benefits period. According to the amendment, the uniform tax rate applicable to the zone where the production facilities of Ormat Systems are located would be 15% in 2011 and 2012, 12.5% in 2013,, and 16% in 2014 and thereafter. Under the transitory provisions of the new legislation, Ormat Systems had the option either to irrevocably comply with the new law while waiving benefits provided under the previous law or to continue to comply with the previous law during a transition period with the option to move from the previous law to the new law at any stage. Ormat Systems decided to irrevocably comply with the new law starting in 2011.  

 

Israel     2009 — 2014 Kenya     2000 — 2014 Guatemala     2008 — 2014  Philippines     2008 —2014 New Zealand     2009 —2014 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  In November 2012, new legislation amending the Investment Law was enacted. Under the new legislation, companies that have retained earnings as of December 31, 2011 from Benefited

Enterprises may elect by November 11, 2013 to pay a reduced corporate tax rate as set forth in the new legislation on such income and distribute a dividend from such income without being required to pay additional corporate tax with respect to such income.  Ormat Systems decided not to make such election.

  Other significant foreign countries — The Company’s operations in Kenya are taxed at the rate of 37.5%. The Company’s operations in New Zealand are taxed at the rate of 28% in 2014,

2013 and 2012.   We believe that based on our plans to increase the operations outside of the U.S., the cash generated from our operations outside of the U.S. will be reinvested outside of the U.S. In

addition, our U.S. sources of cash and liquidity are sufficient to meet our needs in the U.S. and, accordingly, we do not currently plan to repatriate the funds we have designated as being permanently invested outside the U.S. If we change our plans, we may be required to accrue and pay U.S. taxes to repatriate these funds.

  During the quarter ended December 31, 2012, the Company repatriated earnings of approximately $250.0 million from two of its wholly-owned foreign subsidiaries. These cash distributions

to the Company made during 2012 were the first ever remittances of foreign earnings received by the Company and were a one-time event. The Company does not plan to repatriate the funds designated as being permanently invested outside the U.S. Of the cash distributions in 2012, $177.2 million was considered to be “Dividends from foreign subsidiaries”, which impacted the Company’s effective tax rate and $13.0 million reduced the Company’s tax basis in its foreign subsidiary. In addition, $59.8 million, which resulted in a deferred tax liability at December 31, 2012, was recognized as taxable income in 2013.   NOTE 19 — BUSINESS SEGMENTS

  The Company has two reporting segments: Electricity and Product Segments. These segments are managed and reported separately as each offers different products and serves different

markets. The Electricity Segment is engaged in the sale of electricity from the Company’s power plants pursuant to PPAs. The Product Segment is engaged in the manufacture, including design and development, of turbines and power units for the supply of electrical energy and in the associated construction of power plants utilizing the power units manufactured by the Company to supply energy from geothermal fields and other alternative energy sources. Transfer prices between the operating segments were determined on current market values or cost plus markup of the seller’s business segment.

   

 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Summarized financial information concerning the Company’s reportable segments is shown in the following tables:

 

  Reconciling information between reportable segments and the Company’s consolidated totals is shown in the following table:

 

   

 

    Electricity     Product     Consolidated      (Dollars in thousands)  Year Ended December 31, 2014:                        

Net revenues from external customers   $ 382,301     $ 177,223     $ 559,524  Intersegment revenues     —      44,718       44,718  Depreciation and amortization expense     97,826       2,973       100,799  Operating income (loss)     90,401       53,089       143,490  Segment assets at period end *     1,963,486       158,070       2,121,556  Expenditures for long-lived assets     155,323       3,458       158,781  * Including unconsolidated investments     —      —      — 

                         Year Ended December 31, 2013:                        

Net revenues from external customers   $ 329,747     $ 203,492     $ 533,239  Intersegment revenues     —      37,248       37,248  Depreciation and amortization expense     88,853       4,079       92,932  Operating income (loss)     54,265       42,693       96,958  Segment assets at period end *     2,017,838       141,595       2,159,433  Expenditures for long-lived assets     203,047       1,581       204,628  * Including unconsolidated investments     7,076       —      7,076  

                         Year Ended December 31, 2012 :                        

Net revenues from external customers   $ 314,894     $ 186,879     $ 501,773  Intersegment revenues     —      48,315       48,315  Depreciation and amortization expense     95,927       3,557       99,484  Operating income     (189,994)     30,098       (159,896)Segment assets at period end *     1,990,490       97,033       2,087,523  Expenditures for long-lived assets     228,289       4,731       233,020  * Including unconsolidated investments     2,591       —      2,591  

    Year Ended December 31,                         2014     2013     2012      (Dollars in thousands)                           Revenues:                        

Total segment revenues   $ 559,524     $ 533,239     $ 501,773  Intersegment revenues     44,718       37,248       48,315  Elimination of intersegment revenues     (44,718)     (37,248)     (48,315)

Total consolidated revenues   $ 559,524     $ 533,239     $ 501,773                           Operating income:                        

Operating income   $ 143,490     $ 96,958     $ (159,896)Interest income     312       1,332       1,201  Interest expense, net     (84,654)     (73,776)     (64,069)Foreign currency translation and transaction gains (losses)     (5,839)     5,085       242  Income attributable to sale of equity interest     24,143       19,945       10,127  Gain from sale of property, plant and equipment     7,628       —      — Other non-operating income (expense), net     756       1,592       590  

Total consolidated income before income taxes and equity in income of investees   $ 85,836     $ 51,136     $ (211,805)

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The Company sells electricity and products for power plants and others, mainly to the geographical areas according to location of the customers, as detailed below. The following tables

present certain data by geographic area:  

  ____________

Revenues as reported in the geographic area in which they originate.  

  The following table presents revenues from major customers:

 

________ Revenues reported in Electricity Segment. Subsidiaries of NV Energy, Inc. Revenues reported in Products Segment.

 

 

    Year Ended December 31,                         2014     2013     2012      (Dollars in thousands)                           Revenues from external customers attributable to:                        

North America   $ 293,710     $ 314,666     $ 271,845  Pacific Rim     4,859       20,082       109,177  Latin America     29,329       21,879       27,939  Africa     86,074       68,746       40,885  Far East     59,212       10,582       2,075  Europe     86,340       97,284       49,852  

Consolidated total   $ 559,524     $ 533,239     $ 501,773  

    Year Ended December 31,                         2014     2013     2012      (Dollars in thousands)                           Long-lived assets (primarily power plants and related assets) located in:                                                 

North America   $ 1,369,136    $ 1,387,449     $ 1,358,877  Latin America     76,601      63,972       67,536  Africa     330,200       338,395       274,395  Europe     13,272      12,787       14,859  Pacific Rim and Far East     862       671       210  

Consolidated total   $ 1,790,071     $ 1,803,274     $ 1,715,877  

    Year Ended December 31,                                                       2014     2013     2012  

    Revenues       %       Revenues       %       Revenues       %    

   (Dollars in thousands)            

(Dollars in thousands)            

(Dollars in thousands)          

Southern California Edison   $ 75,803       13.5     $ 75,562       14.2     $ 90,239       18.0  Hawaii Electric Light Company     44,513       8.0       48,825       9.2       48,606       9.7  Sierra Pacific Power Company and Nevada Power

Company     92,580       16.5       94,111       17.6       78,631       15.7                                                   Mighty River Power     —      —      19,174       3.6       99,617       19.9  KPLC     86,074       15.4       61,876       11.6       40,887       8.1  

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 20 — TRANSACTIONS WITH RELATED ENTITIES  

Transactions between the Company and related entities, other than those disclosed elsewhere in these financial are summarized below:  

  The current asset due from the Parent at December 31, 2014 and 2013 in the amount of $1,337,000 and $442,000, respectively, represents the net obligation resulting from ongoing

operations and transactions with the Parent and is payable from available cash flow. Interest is computed on balances greater than 60 days at LIBOR plus 1% (but not less than the change in the Israeli Consumer Price Index plus 4%) compounded quarterly, and is accrued and paid to the Parent annually.

  Restructuring with the Parent

  On February 5, 2015, the TASE approved the listing of the Company’s common stock on the TASE. On February 10, 2015, the Company's common stock was successfully listed on the

TASE. The Company will remain subject to the rules and regulations of the NYSE and of the U.S. Securities and Exchange Commission (“SEC”). Under the local regime for dual listing, the Company will use the same periodic reports, financial and other relevant disclosure information that The Company submits to the SEC and NYSE.

  On February 12, 2015 the Company completed the share exchange transaction with its parent entity, Ormat Industries Ltd. ("OIL") following which, it became a non-controlled public

company and its public float increased from approximately 40% to approximately 76% of its total shares outstanding.   Under the terms of the share exchange, OIL shareholders received 0.2592 shares for each share in OIL, or an aggregate of approximately 30.2 million shares, reflecting a net issuance of

approximately 3.0 million shares (after deducting the 27.2 million shares that OIL held in Ormat Technologies). Consequently, the Company' total shares outstanding increased from approximately 45.5 million shares to approximately 48.5 million shares.  

Corporate and administrative services agreement with the Parent   Ormat Systems and the Parent have agreements whereby Ormat Systems provided to the Parent, for a monthly fee of $10,000 (adjusted annually, in part based on changes in the Israeli

Consumer Price Index), certain corporate administrative services, including the services of executive officers. In addition, Ormat Systems agreed to provide the Parent with services of certain skilled engineers and other research and development employees at Ormat Systems’ cost plus 10%.

  Lease agreements with the Parent

  Ormat Systems has a rental agreement with the Parent entered into in July 2004 for the sublease of office and manufacturing facilities in Yavne, Israel, for a monthly rent of $52,000,

adjusted annually for changes in the Israeli Consumer Price Index, plus taxes and other costs to maintain the properties. The term of the rental agreement is for a period ending the earlier of: (i) 25 years from July 1, 2004; or (ii) the remaining periods of the underlying lease agreements between the Parent and the Israel Land Administration (which terminate between 2018 and 2047).

  Effective April 1, 2009, Ormat Systems entered into an additional rental agreement with the Parent for the sublease of additional manufacturing facilities adjacent to the current

manufacturing facilities in Yavne, Israel. The term of the additional rent agreement will expire on the same day as the abovementioned lease agreement entered into in July 2004. Pursuant to the additional lease agreement, Ormat Systems pays a monthly rent of $77,000, adjusted annually for changes in the Israeli Consumer Price Index, plus tax and other costs to maintain the properties.  

 

    Year Ended December 31,  

    2014     2013     2012      (Dollars in thousands)  Property rental fee expense paid to the Parent   $ 1,821     $ 1,797     $ 1,762  

Interest expense on note payable to the Parent   $ —    $ —    $ — 

Corporate financial, administrative, executive services, and research and development services provided to the Parent   $ 151     $ 148     $ 146  

Services rendered by an indirect shareholder of the Parent   $ —    $ 15     $ 51  

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

As of February 12, 2015, the corporate and administrative service and the lease agreements are no longer effective as a result of the restructuring transaction described above.  

Registration rights agreement   Prior to the closing of the Company’s initial public offering in November 2004, the Company and the Parent entered into a registration rights agreement pursuant to which the Parent may

require the Company to register its common stock for sale on Form S-1 or Form S-3. The Company also agreed to pay all expenses that result from the registration of the Company’s common stock under the registration rights agreement, other than underwriting commissions for such shares and taxes. The Company has also agreed to indemnify the parent, its directors, officers and employees against liability that may result from their sale of the Company’s common stock, including Securities Act liabilities.  

 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 21 — EMPLOYEE BENEFIT PLAN

  401(k) Plan

  The Company has a 401(k) Plan (the “Plan”) for the benefit of its U.S. employees. Employees of the Company and its U.S. subsidiaries who have completed one year of service or who had

one year of service upon establishment of the Plan are eligible to participate in the Plan. Contributions are made by employees through pretax deductions up to 60% of their annual salary. Contributions made by the Company are matched up to a maximum of 2% of the employee’s annual salary. The Company’s contributions to the Plan were $533,000, $482,000, and $507,000 for the years ended December 31, 2014, 2013, and 2012, respectively.

  Severance plan

  The Company, through Ormat Systems, provides limited non-pension benefits to all current employees in Israel who are entitled to benefits in the event of termination or retirement in

accordance with the Israeli Government sponsored programs. These plans generally obligate the Company to pay one month’s salary per year of service to employees in the event of involuntary termination. There is no limit on the number of years of service in the calculation of the benefit obligation. The liabilities for these plans are recorded at each balance sheet date by determining the undiscounted obligation as if it were payable at that point in time. Such liabilities have been presented in the consolidated balance sheets as “liabilities for severance pay”. The Company has an obligation to partially fund the liabilities through regular deposits in pension funds and severance pay funds. The amounts funded amounted to $15,953,000 and $19,572,000 at December 31, 2014 and 2013, respectively, and have been presented in the consolidated balance sheets as part of “deposits and other”. The severance pay liability covered by the pension funds is not reflected in the financial statements as the severance pay risks have been irrevocably transferred to the pension funds. Under the Israeli severance pay law, restricted funds may not be withdrawn or pledged until the respective severance pay obligations have been met. As allowed under the program, earnings from the investment are used to offset severance pay costs. Severance pay expenses for the years ended December 31, 2014, 2013, and 2012 were $2,095,000, $877,000, and $2,320,000, respectively, which are net of income (including loss) amounting to ($1,491,000), $2,155,000, and $930,000, respectively, generated from the regular deposits and amounts accrued in severance funds.

      The Company expects to pay the following future benefits to its employees upon their reaching normal retirement age:  

  The above amounts were determined based on the employees’ current salary rates and the number of years’ service that will have been accumulated at their retirement date. These

amounts do not include amounts that might be paid to employees that will cease working with the Company before reaching their normal retirement age.  

 

    (Dollars in thousands)  Year ending December 31:        2015   $ 4,109 2016     665 2017     2,163 2018     2,518 2019     821 2020-2023     6,303     $ 16,579 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 22 — COMMITMENTS AND CONTINGENCIES

  Geothermal resources

  The Company, through its project subsidiaries in the United States, controls certain rights to geothermal fluids through certain leases with the Bureau of Land Management (“BLM”) or

through private leases. Royalties on the utilization of the geothermal resources are computed and paid to the lessors as defined in the respective agreements. Royalty expense under the geothermal resource agreements were $16,304,000, $13,896,000, and $12,048,000 for the years ended December 31, 2014, 2013, and 2012, respectively.

  Letters of credit

  In the ordinary course of business with customers, vendors, and lenders, the Company is contingently liable for performance under letters of credit totaling $353.1 million at December 31,

2014. Management does not expect any material losses to result from these letters of credit because performance is not expected to be required, and, therefore, is of the opinion that the fair value of these instruments is zero.

  Purchase commitments

  The Company purchases raw materials for inventories, construction-in-process and services from a variety of vendors. During the normal course of business, in order to manage

manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based upon specifications defined by the Company, or that establish parameters defining the Company’s requirements.

  At December 31, 2014, total obligations related to such supplier agreements were approximately $119.2 million (out of which approximately $44.1 million relate to construction-in-process).

All such obligations are payable in 2015.  

Grants and royalties   The Company, through Ormat Systems, had historically, through December 31, 2003, requested and received grants for research and development from the Office of the Chief Scientist of

the Israeli Government. Ormat Systems is required to pay royalties to the Israeli Government at a rate of 3.5% to 5.0% of the revenues derived from products and services developed using these grants. No royalties were paid for the years ended December 31, 2014, 2013, and 2012. The Company is not liable for royalties if the Company does not sell such products and services. Such royalties are capped at the amount of the grants received plus interest at LIBOR. The cap at December 31, 2014 and 2013, amounted to $1.6 million and $1.5 million, respectively, of which approximately $0.6 million and $0.5 million, respectively, represents interest based on the LIBOR rate, as defined above.

  Lease commitments  

At December 31, 2014, 2013 and 2012, total lease expenses for leasing of land, building and equipment outside of the Puna lease (separately described in Note 11) amounted to $0.3 million, $0.4 million and $0.4 million respectively. The related future minimum lease payments are immaterial for each year.

  Contingencies

 

 

 

 

● Jon Olson and Hilary Wilt, together with Puna Pono Alliance, an unincorporated association, filed suit on February 17, 2015, in the Third Circuit Court for the State of Hawaii, seeking declaratory and injunctive relief against Puna Geothermal Venture and the County of Hawaii.  The relief requested includes a declaratory ruling that a County ordinance adopted in 2012, prohibiting night time geothermal drilling and drilling operations, applies to PGV’s current drilling activities at the KS-16 well.  The Company believes that the allegations of the complaint have no merit, and will defend itself vigorously.

   ● On July 8, 2014, Global Community Monitor, LiUNA, and two residents of Bishop, California filed a complaint in the United States District Court for the Eastern District of California, alleging

that Mammoth Pacific, L.P., Ormat Technologies, Inc. and Ormat Nevada, Inc. are operating three geothermal generating plants in Mammoth Lakes, California (MP-1; MP-II and PLES-I) in violation of the federal Clean Air Act (“CAA”) and Great Basin Unified Air Pollution Control District (“District”) rules. The Company believes the complaint is without merit, and intends to vigorously defend itself against the allegations set forth in the complaint and to take all necessary legal action to have the complaint dismissed. Filing of the complaint in and of itself does not have any immediate adverse implications for the Mammoth plants..

● On April 5, 2012, the International Brotherhood of Electrical Workers Local 1260 (“Union”) filed a petition with the National Labor Relations Board (“NLRB”) seeking to organize the operations and maintenance employees at the Puna Project.  PGV lost the union election by a slim margin in May 2012.  The election results and PGV’s obligation to negotiate with the Union were appealed to the United States Court of Appeals for the Ninth Circuit, but were remanded back to the NLRB after the U.S. Supreme Court’s decision in Noel Canning, 573 U.S., 134 S.Ct. 2550 (2014). On November 26, 2014, the NLRB found that a certification of representative should be issued. In January 2015, the parties submitted briefing to the NLRB as to whether summary judgment is appropriate.  PGV currently expects a decision in this matter will be rendered within the next two to four months. Depending on the decision, PGV expects to review its options and either accept negotiations with the Union or continue to appeal the decision.

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

  In the interim, FIMI and Ormat Industries (who were originally named on the complaint, but never served) have been removed from the complaint as co-defendants. The Ormat Parties continue to believe that the allegations of the lawsuit have no merit, and will continue to defend themselves vigorously.

 

 

 

● In January 2014, Ormat learned that two former employees alleged in a "qui tam" complaint filed in the United States District Court for the Southern District of California that Seller, PGV and select Affiliates of the Seller (collectively, the "Ormat Parties") submitted fraudulent applications and certifications to obtain grants. The United States Department of Justice has declined to intervene. The former employees have proceeded on their own and served the Ormat Parties with their initial complaint in April 2014, and then filed an amended complaint in May 2014. Pursuant to the Ormat Parties' motion to move the venue of the proceeding, and despite the complainants’ objection, the file was reassigned from the United States District Court for the Southern District of California to the District of Nevada.

● In July 2014, the Ormat Parties filed a motion to dismiss the amended complaint, in response to which the complainants have filed responses urging the court to reject the motion to dismiss. In August, 2014, the United States filed a statement of interest urging rejection of one of the Ormat Parties' arguments raised in the motion to dismiss - that the False Claims Act's "Tax Bar" excludes such Act's application to the case - while continuing to take no position as to the overall sufficiency of the complainants' complaint. The motion to dismiss remains pending before the Nevada United States District Court, and a hearing has been scheduled for March by the Reno court.

● In addition, from time to time, the Company is named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of our business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings, the Company accrues reserves when a loss is probable and the amount of such loss can be reasonably estimated. It is the opinion of the Company’s management that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.

 177

  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 23 — QUARTERLY FINANCIAL INFORMATION (UNAUDITED)  

   

 

    Three Months Ended  

   

Mar. 31, 2013    

June 30, 2013    

Sept. 30, 2013    

Dec. 31, 2013    

Mar. 31, 2014    

June 30, 2014    

Sept. 30, 2014    

Dec. 31, 2014  

    (Dollars in thousands, except per share amounts)  Revenues:                                                                

Electricity   $ 68,298     $ 87,713     $ 88,994     $ 84,742     $ 94,817     $ 91,692     $ 102,506     $ 93,286  Product     50,608       64,966       41,755       46,163       47,619       35,911       37,736       55,957  

Total revenues     118,906       152,679       130,749       130,905       142,436       127,603       140,242       149,243  Cost of revenues:                                                                

Electricity     55,088       58,641       61,356       57,789       57,034       67,322       61,727       60,547  Product     37,041       43,657       29,637       30,212       31,943       20,324       23,040       33,836  

Total cost of revenues     92,129       102,298       90,993       88,001       88,977       87,646       84,767       94,383  Gross margin     26,777       50,381       39,756       42,904       53,459       39,957       55,475       54,860  

Operating expenses:                                                                Research and development expenses     1,000       1,608       838       1,519       (87)     232       250       388  Selling and marketing expenses     11,509       3,777       2,575       6,752       3,379       3,216       4,258       4,572  General and administrative expenses     6,584       7,134       6,546       8,924       7,596       6,072       7,179       7,767  Write-off of unsuccessful exploration activities     --       --       --       4,094       --       8,107       --       7,332  

Operating income     7,684       37,862       29,797       21,615       42,571       22,330       43,788       34,801  Other income (expense):                                                                

Interest income     41       87       742       462       111       90       35       76  Interest expense, net     (15,863)     (17,504)     (18,459)     (21,950)     (20,518)     (22,072)     (22,494)     (19,570)Foreign currency translation and transaction gains

(losses)     1,682       904       1,258       1,241       (638)     (55)     (2,946)     (2,200)Income attributable to sale of tax benefits     3,532       5,783       5,027       5,603       6,717       6,130       5,487       5,809  Gain from sale of property, plant and equipment            --       --       --       --       7,628       --       --  Other non-operating income (expense), net     1,417       29       137       9       63       343       243       107  

Income (loss) from continuing operations, before income taxes and equity in income of investees     (1,507)     27,161       18,502       6,980       28,306       14,394       24,113       19,023  

Income tax benefit (provision)     (4,047)     (5,780)     (5,201)     1,476       (6,320)     (4,967)     (6,444)     (9,877)Equity in income (losses) of investees     --       9       (158)     (101)     (197)     (114)     (899)     (2,003)Income (loss) from continuing operations     (5,554)     21,390       13,143       8,355       21,789       9,313       16,770       7,143  Discontinued operations:                                                                

Income from discontinued operations (including gain on disposal of $0, $3,646, $0, $0, $0, $0, $0, and $0, respectively)     831       4,480       --       --       --       --       --       --  

Income tax provision     (251)     (363)     --       --       --       --       --       --  Total income from discontinued operations     580       4,117       --       --       --       --                

Net income (loss)     (4,974)     25,507       13,143       8,355       21,789       9,313       16,770       7,143  Net loss (income) attributable to noncontrolling

interest     (85)     (322)     (193)     (193)     (237)     (177)     (256)     (163)Net income (loss) attributable to the Company's

stockholders   $ (5,059)   $ 25,185     $ 12,950     $ 8,162     $ 21,552     $ 9,136     $ 16,514     $ 6,980                                                                   Earnings (loss) per share attributable to the

Company's stockholders                                                                                                                                 

Basic:                                                                Income (loss) from continuing operations   $ (0.12)   $ 0.46     $ 0.29     $ 0.18     $ 0.47     $ 0.20     $ 0.37     $ 0.15  Discontinued operations     0.01       0.09       --       --       -       -       -       -  Net income (loss)   $ (0.11)   $ 0.55     $ 0.29     $ 0.18     $ 0.47     $ 0.20     $ 0.37     $ 0.15  

                                                                 Diluted:                                                                

Income (loss) from continuing operations   $ (0.12)   $ 0.46     $ 0.28     $ 0.18     $ 0.47     $ 0.20     $ 0.36     $ 0.15  Discontinued operations     0.01       0.09       --       --       -       -       -       -  Net income (loss)   $ (0.11)   $ 0.55     $ 0.28     $ 0.19     $ 0.47     $ 0.20     $ 0.36     $ 0.15  

                                                                 Weighted average number of shares used in

computation of earnings (loss) per share attributable to the Company's stockholders:                                                                

                                                                 Basic     45,431       45,431       45,438       45,461       45,479       45,606       45,690       45,537 

Diluted     45,431       45,448       45,494       45,610       45,660       45,963       46,102       46,018 

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  ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 24 — SUBSEQUENT EVENTS  

Cash dividend  

On February 24, 2015, the Company’s Board of Directors declared, approved and authorized payment of a quarterly dividend of $4.0 million ($0.08 per share) to all holders of the Company’s issued and outstanding shares of common stock on March 16, 2015, payable on March 27, 2015.   Entry into a Material Definitive Agreement

  On February 5, 2015, Ormat Nevada Inc. (“Ormat Nevada”), a wholly-owned subsidiary of the Company, entered into an Agreement for Purchase of Membership Interests (the “Purchase

Agreement”) with Northleaf Geothermal Holdings, LLC (“Northleaf”), pursuant to which Ormat Nevada has agreed to sell to Northleaf 100% of the Class B Membership Interests, which represent approximately 40% of the aggregate membership interests, in ORPD LLC, a new holding company subsidiary of Ormat Nevada (“ORPD”), and to admit Northleaf as a member of ORPD. In connection with the transaction, Ormat Nevada will contribute certain of its project company-subsidiaries that own certain geothermal and recovered energy generation power plants to ORPD.  

The power plants that will be contributed to ORPD include the Puna geothermal power plant in Hawaii, the Don A. Campbell geothermal power plant in Nevada, and nine power plant units across three recovered energy generation assets known as OREG 1, OREG 2 and OREG 3. Ormat Nevada will continue to operate and maintain the power plants.  

The purchase price for the sale of the ORPD membership interests under the Purchase Agreement is approximately $175.0 million, subject to certain adjustments based on the closing date of the sale as provided in the Purchase Agreement. The percentage membership interest to be acquired by Northleaf is also subject to adjustment based on the exchange rate between Canadian and U.S. dollars. This transaction is expected to result in a taxable gain in the U.S. Assuming satisfaction or waiver of the conditions under the Purchase agreement, the sale is expected to close in March 2015.  

 

 179

  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  

None.   ITEM 9A. CONTROLS AND PROCEDURES

  Disclosure Controls and Procedures

  The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures

(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded as of December 31, 2014, that the disclosure controls and procedures were effective in ensuring that all material information required to be filed in reports that the Company files or submits under the Exchange Act has been recorded, processed, summarized and reported when required and the information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

  Management’s Report on Internal Control over Financial Reporting

  Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods

are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.   Management, under the supervision and participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over

financial reporting as of December 31, 2014 using criteria established in Internal Control — Integrated Framework (2013) issued by the COSO and concluded that the Company maintained effective internal control over financial reporting as of December 31, 2014.

  The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public

accounting firm, as stated in their report which appears herein.  

Changes in Internal Control over Financial Reporting   No changes in the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, have been identified during the Company’s fourth fiscal

quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.   ITEM 9B. OTHER INFORMATION

  None.

 

 

 180

  PART III

  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

  Information required by this Item in addition to that below is incorporated by reference herein from the Company’s definitive 2015 Proxy Statement.   The following table sets forth the name, age and positions of our directors, executive officers and persons who are executive officers of certain of our subsidiaries who perform policy

making functions for us:  

  ** Performs the functions described in the table, but is employed by Ormat Systems  

   

  Yoram Bronicki.  Yoram Bronicki serves as the Chairman of our Board of Directors since July 1, 2014. Between September 20, 2007 and June 30, 2014, he served as our President and Chief

Operating Officer and has been a member of our Board of Directors since November 12, 2004. From July 1, 2004 to September 20, 2007, Mr. Bronicki was our Chief Operating Officer, North America. Mr. Bronicki was also a member of the Board of Directors of Ormat Industries Ltd. from November 1997 to May 2012. Mr. Bronicki was also a Project Manager for Ormat International Inc. and Ormat Industries Ltd. (1996-2001), and was a Project Engineer for Ormat Industries Ltd. (1995-1996). Mr. Bronicki is the son of Yehudit Bronicki. Mr. Bronicki obtained a Bachelor of Science in Mechanical Engineering from Tel Aviv University in 1989 and completed the Technion Institute of Management Senior Executives Program and the Stanford University Senior Executive program.

  Gillon Beck. Gillon Beck has been a member of our Board of Directors since May 22, 2012, and served as the Chairman of our Board of Directors since then until June 30, 2014. Since 2003,

Mr. Beck has been a Senior Partner at FIMI Opportunity Funds, as well as a Director of the FIMI Opportunity Funds' General Partners and SPV companies. In addition, Mr. Beck currently serves as Chairman of the Board of Ham-Let (Israel-Canada) Ltd. a company publicly-traded on the Tel Aviv Stock Exchange (TASE) , Chairman of Magal Security Systems Ltd. (traded on NASDAQ) and Chairman of Inrom Industries, Ltd., Rivulis Ltd, H.R. Givon Ltd. and Overseas Commerce Ltd, the four of which are private companies. He also serves as a member of the Board of Directors of Ormat Industries Ltd (TASE) and Inrom Construction Material Ltd (TASE). During the past five years, Mr. Beck formerly served as a member of the Board of Directors of the following public companies: Merhav Ceramic and Building Materials Center, Ltd., Retalix Ltd., and Orian C.M. Ltd. From 1999 to 2003, Mr. Beck served as Chief Executive Officer and President of Arad Ltd., a publicly-traded water measurement and automatic meter reading company, and from 1995 to 1999, he served as Chief Operating Officer of Arad Ltd. Mr. Beck received a Bachelor of Science degree (Cum Laude) in Industrial Engineering in 1990 from the Technion – Israel Institute of Technology, and a Master of Business Administration in Finance in 1992 from Bar-Ilan University.  

 

Name Age PositionYoram Bronicki 48 Chairman of the Board of Directors Gillon Beck 52 Independent DirectorYehudit “Dita” Bronicki 73 Director   Dan Falk 70 Independent Director Ami Boehm 43 ]Independent Director] Robert F. Clarke 72 Independent Director Robert E. Joyal 70 Independent Director David Granot 68 Independent Director Isaac Angel 58 Chief Executive Officer   Doron Blachar 47 Chief Financial Officer** Zvi Krieger 59 Executive Vice President — Electricity Segment ** Bob Sullivan 52 Executive Vice President Business Development, Sales and MarketingShlomi Argas 49 Executive Vice President Projects **Shimon Hatzir 53 Executive Vice President Engineering ** Erez Klein 48 Executive Vice President Production **Nir Wolf 49 Executive Vice President Market Development**Etty Rosner 59 Corporate Secretary, Senior Vice President Contract Management **

  1) Denotes Class I Director – Term expiring at 2017 Annual Shareholders Meeting   2) Denotes Class II Director – Term expiring at 2015 Annual Shareholders Meeting   3) Denotes Class III Director – Term expiring at 2016 Annual Shareholders Meeting

 181

(1)

 (3) (2)

(3) (2)

(2) (2) (1)

  Yehudit “Dita” Bronicki. Yehudit Bronicki served as our Chief Executive Officer from July 1, 2004 until June 30 2014. During this time period, she was also a member of our Board of

Directors, a position that she continues to hold, and is a member of the Board of Directors of some of our major subsidiaries. From July 1, 2004 to September 20, 2007, Mrs. Bronicki also served as our President. Mrs. Bronicki was a co-founder of Ormat Turbines Ltd. and is a member of the Board of Directors and the Chairman of the Board of Ormat Industries Ltd., the publicly traded successor to Ormat Turbines Ltd. From 1992 to June 2005, Mrs. Bronicki was a director of Bet Shemesh Engines, a manufacturer of jet engines. In addition, since 2000, Mrs. Bronicki has been a member of the Board of Orbotech Ltd., a NASDAQ-listed manufacturer of equipment for inspecting and imaging circuit boards and display panels. From 1994 to 2001, Mrs. Bronicki was on the Advisory Board of the Bank of Israel. Mrs. Bronicki has worked in the power industry since 1965. Yehudit Bronicki is the mother of Yoram Bronicki. Mrs. Bronicki obtained a Bachelor of Arts in Social Sciences from Hebrew University in 1965. In 2007, she received a PhD. Honoris Causa from the Technion – Israel Institute of Technology.

  Dan Falk. Dan Falk has been a member of our Board of Directors since November 12, 2004. Mr. Falk also serves as the Chairman of the Board of Directors of Advanced Vision

Technology (A.V.T.), Ltd., a public non-U.S. company. He is also a member of the Board of Directors of Orbotech Ltd., Nice Systems Ltd., and Attunity Ltd., all NASDAQ publicly traded companies. During the past five years, Mr. Falk served as a member of the Board of Directors of the following public companies, for which he no longer serves as a Director: Orad Hi-Tech Systems Ltd., Nova Measuring Instruments Ltd., Clicksoftware Technologies Ltd., Dmatek Ltd., Jacada Ltd., Oriion Medical Ltd., Poalim Ventures I Ltd., and Medcon Ltd. From 2001 to 2004, Mr. Falk was a business consultant to several public and private companies. From 1999 to 2000, Mr. Falk was Chief Operating Officer and Chief Executive Officer of Sapiens International N.V. From 1995 to 1999, Mr. Falk was an Executive Vice President of Orbotech Ltd. From 1985 to 1995, Mr. Falk was Vice President of Finance and Chief Financial Officer of Orbot Systems Ltd. and Orbotech Ltd. Mr. Falk obtained a Masters of Business Administration from Hebrew University in 1972 and a Bachelor of Arts in Economics and Political Science from Hebrew University in 1968. Mr. Falk is the Chair of our Audit Committee.

  Ami Boehm.  Ami Boehm has been a member of our Board of Directors since May 22, 2012.  Since 2004, Mr. Boehm has been a Partner at FIMI Opportunity Funds, as well as Managing

Partner and CEO of FITE GP (2004). In addition, Mr. Boehm currently serves as a member of the Board of Directors of Gilat Satellite Networks Ltd., and Magal Security Systems Ltd., both NASDAQ publicly-traded companies, and of the following non-U.S. public companies:., Ham-Let (Israel Canada) Ltd. He also serves as a member of the Board of Directors of Dimar, Ltd. and Novolog (Pharm Up 1966) Ltd., two private companies. During the past five years, Mr. Boehm formerly served as a member of the Board of Directors of the following non-U.S. public companies: Global Wire Ltd., Telkoor Telecom Ltd., Scope Metal Trading, Ltd. and Inter Industries, Ltd. From 1999 to 2004, Mr. Boehm served as Head of Research at Discount Capital Markets, the investment arm of Israel Discount Bank, and from 1998 to 1999 he worked in the Office of the Attorney General in the Israeli Ministry of Justice. Mr. Boehm received a Bachelor of Law degree in 1997 from Tel Aviv University, a Bachelor of Arts degree in Economics in 1998 from Tel Aviv University, and a Masters of Business Administration in Finance in 2004 jointly from Northwestern University's Kellogg School of Business and Tel Aviv University.

  Robert F. Clarke. Robert F. Clarke has been a member of our Board of Directors since February 27, 2007. Mr. Clarke was Chairman (since September 1998) and President and Chief

Executive Officer (since January 1991) of Hawaiian Electric Industries, Inc. (HEI), from which he retired effective May 2006. Since June 1, 2006, Mr. Clarke has been Executive in Residence at the Shidler College of Business at the University of Hawaii. In addition, Mr. Clarke serves as an advisory director to Oceanic Cable Hawaii, and as a member of the advisory boards of the Shidler College of Business at the University of Hawaii, Sennet Capital, and Aina Koa Pono, a Hawaii based privately held company exploring renewable energy projects in converting biomass into fuels. Mr. Clarke joined HEI in February 1987 as Vice President of Strategic Planning and was in charge of implementing the Company’s diversification strategy. Mr. Clarke was named HEI Group Vice President — Diversified Companies in May 1988. He was made a director of HEI in 1989. Prior to joining HEI, Mr. Clarke served as Senior Vice President and Chief Financial Officer of Alexander & Baldwin and as Controller of Dillingham Corporation. Prior to that, he worked for the Ford Motor Company and for the Singer Company. He received his Bachelor’s degree in economics in 1965 and his Master’s degree in finance in 1966 from the University of California at Berkeley. Honors include Phi Beta Kappa in 1965.

  Robert E. Joyal. Robert E. Joyal has been a member of our Board of Directors since May 2012. Mr. Joyal has served as a director of Leucadia National Corporation since March 2013 upon

the completion of Leucadia’s acquisition of Jefferies Group, Inc.. Mr. Joyal had served as a director of Jefferies from 2006 until March 2014. Mr. Joyal has also served as a member of the Board of Trustees of the following investment funds: MassMutual Funds, Babson Capital Corporate Investors, and Babson Capital Participation Investors and is a member of the investment committee of various funds sponsored by First Israel Mezzanine Investors. He has also been a director of Kimco Insurance Company since 2007. During the past five years, Mr. Joyal served as a member of the Board of Directors of the following public companies, for which he no longer serves as a Director: Alabama Aircraft Industries Inc. and Scottish Re Group Ltd. Mr. Joyal is a Chartered Financial Analyst. He earned a BA from St. Michael's College and a MBA from Western New England College.  

 

 182

  David Granot.  David Granot has been a member of our Board of Directors since May 22, 2012. From 2007 to January 1, 2014, Mr. Granot has served as Chairman of Scorpio Real Estate, a

non-U.S. public company. In addition, he is a member of the Board of Directors of the following non-U.S. public companies: Alrov (Israel) Ltd., Harel Insurance Investments and Financial Services Ltd., the second largest insurance company in Israel, and Tempo Beverages Ltd. He also serves on the Board of the following private company: G.D. Goren Management and Consultation Ltd. During the past five years, Mr. Granot served as a member of the Board of Directors of the following non-U.S. public and private companies, for which he no longer serves as a Director: Ham-Let (Israel-Canada) Ltd., a member of the IDB Group, and BSG Capital Market Ltd. From 2001 through 2007, Mr. Granot served as the CEO of the First International Bank of Israel Ltd. He earned a BA in Economics and a MBA from the Hebrew University in Jerusalem.

  Isaac Angel. Isaac Angel commenced serving as an officer of the Company on April 1, 2014, and assumed the position of Chief Executive Officer as of July 1, 2014.  From February 1999 to

November 2006, he served in various positions at Lipman Electronic Engineering Ltd., including as its President and CEO. After the acquisition of Lipman Electronic Engineering Ltd. by VeriFone in 2006, Mr. Angel served as Executive Vice President, Global Operations of VeriFone from 2006 to 2008.  From 2008 to 2009, Mr. Angel served as Executive Chairman of LeadCom Integrated Solutions Ltd.  Since 2008, Mr. Angel has served as a director of Frutarom Industries Ltd., and from 2012 until 2013, he served as a director of Retalix Ltd.  

Doron Blachar. Doron Blachar has served as our Chief Financial Officer since April 2, 2013.  From 2009 to 2013, he was the CFO of Shikun & Binui Ltd. From 2011 to 2013, Mr. Blachar served as a director of A.D.O Group Ltd., a public company. From 2005 to 2009, he served as the Vice President – Finance of Teva Pharmaceutical Industries Ltd.  From 1998 to 2005, he served in a number of positions at Amdocs Limited, including as Vice President – Finance from 2002 to 2005.  Mr. Blachar obtained a Bachelor of Arts in Accounting and Economics and a Master of Business Administration from Tel Aviv University.  He is also a Certified Public Accountant in Israel.    

Zvi Krieger.  Zvi Krieger has served as our Executive Vice President of the Electricity Segment since July 2014. From November 2009 to June 2014 Mr. Krieger was our Executive Vice President of Geothermal Resource; from September 2007 to October, 2009, he was our Senior Vice President of Geothermal Engineering; from July 2004 to August 2007, he was our Vice President of Geothermal Engineering. From 2001 to June 2004, Mr. Krieger was the Vice President of Geothermal Engineering of Ormat Industries Ltd. Mr. Krieger has been with Ormat Industries Ltd. since 1981 and served as Application Engineer, Manager of System Engineering, Director of New Technologies Business Development and Vice President of Geothermal Engineering. Mr. Krieger obtained a Bachelor of Science in Mechanical Engineering from the Technion – Israel Institute of Technology in 1980.

  Bob Sullivan. Bob Sullivan has served as Executive Vice President of Sales, Marketing and Business Development since January 1, 2015. From April 2009 through 2015, Mr. Sullivan

served as our Vice President and then Senior Vice President of Business Development responsible for policy, marketing, sales, and project development in North America. From June 2007 to April 2009, Mr. Sullivan served as Project Manager. From 2006 until 2007 Mr. Sullivan served as Operations Director North America. Mr. Sullivan joined us in December 2003 as Plant Manager. He is a graduate of the US Navy’s Nuclear Power School and has a Bachelor of Science in Business from Capella University.

  Shlomi Argas. Shlomi Argas has been with Ormat for 20 years. He has served as Executive Vice President of Projects and has been a member of the management team since July 2014.

From 2009, Mr. Argas has been responsible for management of geothermal projects, Recovered Energy Generation (REG) projects and, since July 2014, management of Geodrill's, our drilling company. From 2006 through 2009, Mr. Argas served as Manager of REG Projects Department, responsible for the design and installation of REG plants. From 1994 to 2006, Mr. Argas served as Product Engineer, Product Engineering Department. Mr Argas obtained a Bachelor of Science in Mechanical Engineering from Ben-Gurion University in 1992 and a Certificate from the Technology Institute of Management, Executive Management Program. 

  Shimon Hatzir. Shimon Hatzir has served as our Executive Vice President Engineering since July 2014. From November 4, 2009 to June 2014 Mr. Hatzir has served as our Senior Vice

President of Engineering. From September 20, 2007 to November 3, 2009, Mr. Hatzir was our Senior Vice President of Electrical and Conceptual Engineering; from July 1, 2004 to September 20, 2007, he was our Vice President of Electrical and Conceptual Engineering; from 2002 to June 30, 2004, he was the Vice President of Electrical and Conceptual Engineering of Ormat Industries Ltd; from 1996 to 2001, he was Manager of Electrical and Conceptual Engineering of Ormat Industries Ltd.; and from 1989 to 1995, he was a Project Engineer in the Engineering Division. Mr. Hatzir obtained a Bachelor of Science in Mechanical Engineering from Tel Aviv University in 1988 and a Certificate of the Technology Institute of Management, Senior Executive Program.

  Erez Klein. Erez Klein has been with Ormat for 20 years. He has served as Executive Vice President of Production and has been a member of the management team since July 2014. He has

served as our Vice President of OSL operation from 2012 until June 2014, responsible for global purchasing and manufacturing, and has been a member of the management team since July 2014. From 2011 to 2012, Mr. Klein was Vice President of mechanical engineering, and from 2009 to 2011 he served as mechanical engineering director. From 2007 to 2009, Mr. Klein served as manager of our Product Engineering Department, and from 1994 to 2007 he served as Product Engineer, Product Engineering Department, and was responsible for the design of various projects. Mr. Klein obtained a Bachelor of Science in Mechanical Engineering from Tel-Aviv University in 1994 and a Certificate from the Technology Institute of Management, Executive Management Program and Stanford Executive Program.

  Nir Wolf. Nir Wolf has served as our Executive Vice President Market Development since July 2014. From January 1, 2010 to June 2014 Mr Wolf has served as our Vice President for

Business Development — Marketing and Sales, Rest of the World. From December 2005 to December 31, 2009, Mr. Wolf served as our Vice President, Distributed Power responsible for the marketing, sales, engineering and after-sales activities of the remote power units. From December 1999 to December 2005, Mr. Wolf had a leading position as Business Development Manager in the Marketing and Sales Department. Starting January 14, 1994, when Mr. Wolf joined us, he was positioned in the Project Management Department as a Budget and Schedule Controller and later on as a Project Manager. Mr. Wolf obtained a Bachelor of Science in Industrial Engineering, cum laude from the Technion – Israel Institute of Technology in 1991. In 1995, Mr. Wolf obtained a Master of Business Administration from the Bar Ilan University. Mr. Wolf participated in the Technion Institute of Management Senior Executive Program.

  Etty Rosner. Etty Rosner has served as our Corporate Secretary since October 21, 2004. Ms. Rosner is also the Corporate Secretary of Ormat Industries Ltd., a position she has held since

1991. Ms. Rosner is also our Senior Vice President of Contract Management since September 20, 2007; from July 1, 2004 to September 20, 2007, Ms. Rosner was our Vice President of Contract Management; from 1999 to June 30, 2004, she was the Vice President of Contract Management of Ormat Industries Ltd; from 1991 to 1999, she was Contract Administration Manager and Corporate Secretary of Ormat Industries; and from 1981 to 1991, she was the Manager of the Export Department and Office Administrative Manager of Ormat Industries. Ms. Rosner obtained a Diploma in General Management from Tel Aviv University in 1990.

 

 

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  Audit Committee   The information required under this section is incorporated by reference herein from the Company’s definitive 2014 Proxy Statement.

  ITEM 11. EXECUTIVE COMPENSATION

  The information required under this item is incorporated by reference herein from the Company’s definitive 2015 Proxy Statement.

  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  The information required under this item is incorporated by reference herein from the Company’s definitive 2015 Proxy Statement.

  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  The information required under this item is incorporated by reference herein from the Company’s definitive 2015 Proxy Statement.

  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

  The information required under this item is incorporated by reference herein from the Company’s definitive 2015 Proxy Statement.

 

 

 184

  PART IV

  ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

  (a) (1) List of Financial Statements   See Index to Financial Statements in Part II, Item 8 of this annual report.        (2) List of Financial Statement Schedules    All applicable schedule information is included in our Financial Statements in Part II, Item 8 of this annual report.   (b) Exhibit Index. We hereby file, as exhibits to this Annual Report, those exhibits listed on the Exhibit Index immediately following the signature page hereto.

 

 

 185

  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,

thereunto duly authorized.    

  Date: February 26, 2015   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities

indicated, on February 26, 2015.                     

 

 

  ORMAT TECHNOLOGIES, INC.              By: /s/ Isaac Angel                 

    Name:    Isaac Angel       Title:      Chief Executive Officer  

Signature   Capacity      

/s/     Isaac Angel   Chief Executive Officer Isaac Angel    

     /s/ DORON BLACHAR   Chief Financial Officer

Doron Blachar   (Principal Financial and Accounting Officer)     

/s/ YORAM BRONICKI   Chairman of the Board of Directors Yoram Bronicki    

     /s/ GILLON BECK        Director

Gillon Beck         

/s/    AMI BOEHM              DirectorAmi Boehm    

     /s/    DAN FALK   Director

Dan Falk    

 186

  (C) EXHIBIT INDEX   

 

 

  

 

 

 

 

 

 

 

 

 

 

 

   

 

Exhibit No. Document

3.1 Second Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

3.2 Third Amended and Restated By-laws, incorporated by reference to Exhibit 3.2 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on February 26, 2009.

3.3 Amended and Restated Limited Liability Company Agreement of OPC LLC dated June 7, 2007, by and among Ormat Nevada Inc., Morgan Stanley Geothermal LLC, and Lehman-OPC LLC, incorporated by reference to Exhibit 3.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on June 13, 2007.

4.1 Form of Common Share Stock Certificate, incorporated by reference to Exhibit 4.1 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

4.2 Form of Preferred Share Stock Certificate, incorporated by reference to Exhibit 4.2 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

4.3 Form of Rights Agreement by and between Ormat Technologies, Inc. and American Stock Transfer & Trust Company, incorporated by reference to Exhibit 4.3 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 22, 2004.

4.4 Indenture for Senior Debt Securities, dated as of January 16, 2006, between Ormat Technologies, Inc. and Union Bank of California, incorporated by reference to Exhibit 4.2 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-3 (File No. 333-131064) to the Securities and Exchange Commission on January 26, 2006.

4.5 Indenture for Subordinated Debt Securities, dated as of January 16, 2006, between Ormat Technologies, Inc. and Union Bank of California, incorporated by reference to Exhibit 4.3 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-3 (File No. 333-131064) to the Securities and Exchange Commission on January 26, 2006.

4.6 Deed of Trust, dated as of August 3, 2010, between Ormat Technologies, Inc. and Ziv Haft Trust Company Ltd., as trustee, incorporated by reference to Exhibit 4.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on February 2, 2011.

4.7 Addendum, dated as of January 27, 2011, to the Deed of Trust, dated as of August 3, 2010, between Ormat Technologies, Inc. and Ziv Haft Trust Company Ltd., as trustee, incorporated by reference to Exhibit 4.2 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on February 2, 2011.

4.8 Form of Bond issued pursuant to the Deed of Trust, dated as of August 3, 2010 (as amended or supplemented), between Ormat Technologies, Inc. and Ziv Haft Trust Company Ltd., as trustee, incorporated by reference to Exhibit 4.3 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on February 2, 2011.

4.9 Second Addendum, dated as of February 11, 2011, to the Deed of Trust, dated as of August 3, 2010 (as amended or supplemented), between Ormat Technologies, Inc. and Ziv Haft Trust Company Ltd., incorporated by reference to Exhibit 4.7 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 6, 2011.

4.10 Indenture of Trust and Security Agreement, dated September 23, 2011, among OFC 2 LLC, ORNI 15 LLC, ORNI 39 LLC, ORNI 42 LLC, HSS II, LLC, and Wilmington Trust Company, as Trustee and Depository, incorporated by reference to Exhibit 4.8 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on November 4, 2011.

4.11 Third Addendum, dated as of December 1, 2011, to a Deed of Trust, dated as of August 3, 2010 as amended on January 31, 2011 (effective as of January 27, 2011) and on February 13, 2011, between Ormat Technologies, Inc. and Mishmeret — Trusts Services Company Ltd. (formerly Ziv Haft Trust Company Ltd.), as trustee, incorporated by reference to Exhibit 4.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on December 1, 2011.

10.1.1 Indenture, dated February 13, 2004, among Ormat Funding Corp., Brady Power Partners, Steamboat Development Corp., Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2 LLC, ORNI 7 LLC, Ormesa LLC and Union Bank of California, incorporated by reference to Exhibit 10.1.7 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

 187

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit No. Document

10.1.2 First Supplemental Indenture, dated May 14, 2004, among Ormat Funding Corp., Brady Power Partners, Steamboat Development Corp., Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2 LLC, ORNI 7 LLC, Ormesa LLC and Union Bank of California, incorporated by reference to Exhibit 10.1.8 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.1.3 Fifth Supplemental Indenture, dated April 26, 2006, among Ormat Funding Corp. and Union Bank of California, N.A., incorporated by reference to Exhibit 10.1.6 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q (File No 001-32347) to the Securities and Exchange Commission on August 7, 2006.

10.1.4 Loan Agreement, dated October 1, 2003, by and between Ormat Technologies, Inc. and Ormat Industries Ltd., incorporated by reference to Exhibit 10.1.9 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.1.5 Amendment No. 1 to Loan Agreement, dated September 20, 2004, by and between Ormat Technologies, Inc. and Ormat Industries Ltd., incorporated by reference to Exhibit 10.1.10 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.1.6 Guarantee Fee Agreement, dated January 1, 1999, by and between Ormat Technologies, Inc. and Ormat Industries Ltd., incorporated by reference to Exhibit 10.1.13 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.1.7 Reimbursement Agreement, dated July 15, 2004, by and between Ormat Technologies, Inc. and Ormat Industries Ltd., incorporated by reference to Exhibit 10.1.14 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.1.8 Services Agreement, dated July 15, 2004, by and between Ormat Industries Ltd. and Ormat Systems Ltd., incorporated by reference to Exhibit 10.1.15 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.1.9 Agreement for Purchase of Membership Interests in OPC LLC dated June 7, 2007, by and among Ormat Nevada Inc., Morgan Stanley Geothermal LLC and Lehman-OPC LLC, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on June 13, 2007.

10.1.10 First Amendment to Agreement for Purchase of Membership Interests in OPC LLC, dated as of April 17, 2008, by and among Ormat Nevada Inc., Morgan Stanley Geothermal LLC, and Lehman-OPC LLC, incorporated by reference to Exhibit 10.1.18 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 7, 2008.

10.1.11 Membership Interest Purchase Agreement, dated as of October 30, 2009, by and among Lehman-OPC LLC, Ormat Nevada Inc. and OPC LLC, incorporated by reference to Exhibit 10.1.13 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 3, 2009.

10.2.1 Power Purchase Contract, dated July 18, 1984, between Southern California Edison Company and Republic Geothermal, Inc., incorporated by reference to Exhibit 10.3.1 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.2 Amendment No. 1, to the Power Purchase Contract, dated December 23, 1988, between Southern California Edison Company and Ormesa Geothermal, incorporated by reference to Exhibit 10.3.2 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.3 Power Purchase Contract, dated June 13, 1984, between Southern California Edison Company and Ormat Systems, Inc., incorporated by reference to Exhibit 10.3.3 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.4 Power Purchase and Sales Agreement, dated as of August 26, 1983, between Chevron U.S.A. Inc. and Southern California Edison Company, incorporated by reference to Exhibit 10.3.4 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.5 Amendment No. 1, to Power Purchase and Sale Agreement, dated as of December 11, 1984, between Chevron U.S.A. Inc., HGC and Southern California Edison Company, incorporated by reference to Exhibit 10.3.5 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004

 188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit No.  Document

10.2.6 Settlement Agreement and Amendment No. 2, to Power Purchase Contract, dated August 7, 1995, between HGC and Southern California Edison Company, incorporated by reference to Exhibit 10.3.6 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.7 Power Purchase Contract dated, April 16, 1985, between Southern California Edison Company and Second Imperial Geothermal Company, incorporated by reference to Exhibit 10.3.7 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.8 Amendment No. 1, dated as of October 23, 1987, between Southern California Edison Company and Second Imperial Geothermal Company, incorporated by reference to Exhibit 10.3.8 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.9 Amendment No. 2, dated as of July 27, 1990, between Southern California Edison Company and Second Imperial Geothermal Company, incorporated by reference to Exhibit 10.3.9 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.10 Amendment No. 3, dated as of November 24, 1992, between Southern California Edison Company and Second Imperial Geothermal Company, incorporated by reference to Exhibit 10.3.10 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.11 Amended and Restated Power Purchase and Sales Agreement, dated December 2, 1986, between Mammoth Pacific and Southern California Edison Company, incorporated by reference to Exhibit10.3.11 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.12 Amendment No. 1, to Amended and Restated Power Purchase and Sale Agreement, dated May 18, 1990, between Mammoth Pacific and Southern California Edison Company, incorporated by reference to Exhibit 10.3.12 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.13 Power Purchase Contract, dated April 15, 1985, between Mammoth Pacific and Southern California Edison Company, incorporated by reference to Exhibit 10.3.13 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.14 Amendment No. 1, dated as of October 27, 1989, between Mammoth Pacific and Southern California Edison Company, incorporated by reference to Exhibit 10.3.14 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.15 Amendment No. 2, dated as of December 20, 1989, between Mammoth Pacific and Southern California Edison Company, incorporated by reference to Exhibit 10.3.15 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.16 Power Purchase Contract, dated April 16, 1985, between Southern California Edison Company and Santa Fe Geothermal, Inc., incorporated by reference to Exhibit 10.3.16 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.17 Amendment No. 1, to Power Purchase Contract, dated October 25, 1985, between Southern California Edison Company and Mammoth Pacific, incorporated by reference to Exhibit 10.3.17 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.18 Amendment No. 2, to Power Purchase Contract, dated December 20, 1989, between Southern California Edison Company and Pacific Lighting Energy Systems, incorporated by reference to Exhibit 10.3.18 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.19 Interconnection Facilities Agreement, dated October 20, 1989, by and between Southern California Edison Company and Mammoth Pacific, incorporated by reference to Exhibit 10.3.19 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.20 Interconnection Facilities Agreement, dated October 13, 1985, by and between Southern California Edison Company and Mammoth Pacific (II), incorporated by reference to Exhibit 10.3.20 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.21 Interconnection Facilities Agreement, dated October 20, 1989, by and between Southern California Edison Company and Pacific Lighting Energy Systems, incorporated by reference to Exhibit 10.3.21 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

 189

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit No. Document

10.2.22 Interconnection Agreement, dated August 12, 1985, by and between Southern California Edison Company and Heber Geothermal Company incorporated by reference to Exhibit 10.3.22 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.23 Plant Connection Agreement for the Heber Geothermal Plant No. 1, dated, July 31, 1985, by and between Imperial Irrigation District and Heber Geothermal Company incorporated by reference to Exhibit 10.3.23 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.24 Plant Connection Agreement for the Second Imperial Geothermal Company Power Plant No. 1, dated, October 27, 1992, by and between Imperial Irrigation District and Second Imperial Geothermal Company incorporated by reference to Exhibit 10.3.24 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.25 IID-SIGC Transmission Service Agreement for Alternative Resources, dated, October 27, 1992, by and between Imperial Irrigation District and Second Imperial Geothermal Company incorporated by reference to Exhibit 10.3.25 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.2.26 Plant Connection Agreement for the Ormesa Geothermal Plant, dated October 1, 1985, by and between Imperial Irrigation District and Ormesa Geothermal incorporated by reference to Exhibit 10.3.26 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.27 Plant Connection Agreement for the Ormesa IE Geothermal Plant, dated, October 21, 1988, by and between Imperial Irrigation District and Ormesa IE incorporated by reference to Exhibit 10.3.27 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.28 Plant Connection Agreement for the Ormesa IH Geothermal Plant, dated, October 3, 1989, by and between Imperial Irrigation District and Ormesa IH incorporated by reference to Exhibit 10.3.28 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.29 Plant Connection Agreement for the Geo East Mesa Limited Partnership Unit No. 2, dated, March 21, 1989, by and between Imperial Irrigation District and Geo East Mesa Limited Partnership incorporated by reference to Exhibit 10.3.29 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.30 Plant Connection Agreement for the Geo East Mesa Limited Partnership Unit No. 3, dated, March 21, 1989, by and between Imperial Irrigation District and Geo East Mesa Limited Partnership incorporated by reference to Exhibit 10.3.30 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.31 Transmission Service Agreement for the Ormesa I, Ormesa IE and Ormesa IH Geothermal Power Plants, dated, October 3, 1989, between Imperial Irrigation District and Ormesa Geothermal incorporated by reference to Exhibit 10.3.31 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.32 Transmission Service Agreement for the Geo East Mesa Limited Partnership Unit No. 2, dated, March 21, 1989, by and between Imperial Irrigation District and Geo East Mesa Limited Partnership incorporated by reference to Exhibit 10.3.32 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.33 Transmission Service Agreement for the Geo East Mesa Limited Partnership Unit No. 3, dated, March 21, 1989, by and between Imperial Irrigation District and Geo East Mesa Limited Partnership incorporated by reference to Exhibit 10.3.33 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.34 IID-Edison Transmission Service Agreement for Alternative Resources, dated, September 26, 1985, by and between Imperial Irrigation District and Southern California Edison Company incorporated by reference to Exhibit 10.3.34 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.35 Plant Amendment No. 1, to IID-Edison Transmission Service Agreement for Alternative Resources, dated, August 25, 1987, by and between Imperial Irrigation District and Southern California Edison Company incorporated by reference to Exhibit 10.3.35 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

 190

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit No. Document

10.2.36 Agreement Addressing Renewable Energy Pricing and Payment Issues, dated June 15, 2001, by and between Second Imperial Geothermal Company QFID No. 3021 and Southern California Edison Company incorporated by reference to Exhibit 10.3.39 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.37 Amendment No. 1 to Agreement Addressing Renewable Energy Pricing and Payment Issues, dated November 30, 2001, by and between Second Imperial Geothermal Company QFID No. 3021 and Southern California Edison Company incorporated by reference to Exhibit 10.3.40 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.38 Agreement Addressing Renewable Energy Pricing and Payment Issues, dated June 15, 2001, by and between Heber Geothermal Company QFID No. 3001 and Southern California Edison Company incorporated by reference to Exhibit 10.3.41 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.39 Amendment No. 1 to Agreement Addressing Renewable Energy Pricing and Payment Issues, dated November 30, 2001, by and between Heber Geothermal Company QFID No. 3001 and Southern California Edison Company incorporated by reference to Exhibit 10.3.42 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.40 Energy Services Agreement, dated February 2003, by and between Imperial Irrigation District and ORMESA, LLC incorporated by reference to Exhibit 10.3.43 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.41 Purchase Power Contract, dated March 24, 1986, by and between Hawaii Electric Light Company and Thermal Power Company incorporated by reference to Exhibit 10.3.44 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.42 Firm Capacity Amendment to Purchase Power Contract, dated July 28, 1989, by and between Hawaii Electric Light Company and Puma Geothermal Venture incorporated by reference to Exhibit 10.3.45 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.43 Amendment to Purchase Power Contract, dated October 19, 1993, by and between Hawaii Electric Light Company and Puma Geothermal Venture incorporated by reference to Exhibit 10.3.46 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.44 Third Amendment to the Purchase Power Contract, dated March 7, 1995, by and between Hawaii Electric Light Company and Puna Geothermal Venture incorporated by reference to Exhibit 10.3.47 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.45 Performance Agreement and Fourth Amendment to the Purchase Power Contract, dated February 12, 1996, by and between Hawaii Electric Light Company and Puna Geothermal Venture incorporated by reference to Exhibit 10.3.48 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.2.46 Agreement to Design 69 KV Transmission Lines, a Substation at Pohoiki, Modifications to Substations at Puna and Kaumana, and a Temporary 34.5 Facility to Interconnect PGV’s Geothermal Electric Plant with HELCO’s System Grid (Phase II and III), dated June 7, 1990, by and between Hawaii Electric Light Company and Puna Geothermal Venture incorporated by reference to Exhibit 10.3.49 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.1 Ormesa BLM Geothermal Resources Lease CA 966 incorporated by reference to Exhibit 10.4.1 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.2 Ormesa BLM License for Electric Power Plant Site CA 24678 incorporated by reference to Exhibit 10.4.2 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.3 Geothermal Resources Mining Lease, dated February 20, 1981, by and between the State of Hawaii, as Lessor, and Kapoho Land Partnership, as Lessee incorporated by reference to Exhibit 10.4.3 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

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Exhibit No. Document

10.3.4 Geothermal Lease Agreement, dated October 20, 1975, by and between Ruth Walker Cox and Betty M. Smith, as Lessor, and Gulf Oil Corporation, as Lessee incorporated by reference to Exhibit 10.4.4 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.5 Geothermal Lease Agreement, dated August 1, 1976, by and between Southern Pacific Land Company, as Lessor, and Phillips Petroleum Company, as Lessee incorporated by reference to Exhibit 10.4.5 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.6 Geothermal Resources Lease, dated November 18, 1983, by and between Sierra Pacific Power Company, as Lessor, and Geothermal Development Associates, as Lessee incorporated by reference to Exhibit 10.4.6 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.7 Lease Agreement, dated November 1, 1969, by and between Chrisman B. Jackson and Sharon Jackson, husband and wife, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.7 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.8 Lease Agreement, dated September 22, 1976, by and between El Toro Land & Cattle Co., as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.8 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.9 Lease Agreement, dated February 17, 1977, by and between Joseph L. Holtz, as Lessor, and Chevron U.S.A. Inc., as Lessee incorporated by reference to Exhibit 10.4.9 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.10 Lease Agreement, dated March 11, 1964, by and between John D. Jackson and Frances Jones Jackson, also known as Frances J. Jackson, husband and wife, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.10 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.11 Lease Agreement, dated February 16, 1964, by and between John D. Jackson, conservator for the estate of Aphia Jackson Wallan, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.11 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.12 Lease Agreement, dated March 17, 1964, by and between Helen S. Fugate, a widow, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.12 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.13 Lease Agreement, dated February 16, 1964, by and between John D. Jackson and Frances J. Jackson, husband and wife, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.13 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.14 Lease Agreement, dated February 20, 1964, by and between John A. Straub and Edith D. Straub, also known as John A. Straub and Edythe D. Straub, husband and wife, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.14 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.15 Lease Agreement, dated July 1, 1971, by and between Marie L. Gisler and Harry R. Gisler, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.15 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.16 Lease Agreement, dated February 28, 1964, by and between Gus Kurupas and Guadalupe Kurupas, husband and wife, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.16 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.17 Lease Agreement, dated April 7, 1972, by and between Nowlin Partnership, as Lessor, and Standard Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.17 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.18 Geothermal Lease Agreement, dated July 18, 1979, by and between Charles K. Corfman, an unmarried man as his sole and separate property, and Lessor, and Union Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.18 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

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Exhibit No.  Document

10.3.19 Lease Agreement, dated January 1, 1972, by and between Holly Oberly Thomson, also known as Holly F. Oberly Thomson, also known as Holly Felicia Thomson, as Lessor, and Union Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.19 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.20 Lease Agreement, dated June 14, 1971, by and between Fitzhugh Lee Brewer, Jr., a married man as his separate property, Donna Hawk, a married woman as her separate property, and Ted Draper and Helen Draper, husband and wife, as Lessor, and Union Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.20 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.21 Lease Agreement, dated May 13, 1971, by and between Mathew J. La Brucherie and Jane E. La Brucherie, husband and wife, and Robert T. O’Dell and Phyllis M. O’Dell, husband and wife, as Lessor, and Union Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.21 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.22 Lease Agreement, dated June 2, 1971, by and between Dorothy Gisler, a widow, Joan C. Hill, and Jean C. Browning, as Lessor, and Union Oil Company of California, as Lessee incorporated by reference to Exhibit 10.4.22 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.23 Geothermal Lease Agreement, dated February 15, 1977, by and between Walter J. Holtz, as Lessor, and Magma Energy Inc., as Lessee incorporated by reference to Exhibit 10.4.23 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.24 Geothermal Lease, dated August 31, 1983, by and between Magma Energy Inc., as Lessor, and Holt Geothermal Company, as Lessee incorporated by reference to Exhibit 10.4.24 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.25 Unprotected Lease Agreement, dated July 15, 2004, by and between Ormat Industries Ltd. and Ormat Systems Ltd. incorporated by reference to Exhibit 10.4.25 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

10.3.26 Geothermal Resources Lease, dated June 27, 1988, by and between Bernice Guisti, Judith Harvey and Karen Thompson, Trustees and Beneficiaries of the Guisti Trust, as Lessor, and Far West Capital, Inc., as Lessee incorporated by reference to Exhibit 10.4.26 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.27 Amendment to Geothermal Resources Lease, dated January, 1992, by and between Bernice Guisti, Judith Harvey and Karen Thompson, Trustees and Beneficiaries of the Guisti Trust, as Lessor, and Far West Capital, Inc., as Lessee incorporated by reference to Exhibit 10.4.27 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.28 Second Amendment to Geothermal Resources Lease, dated June 25, 1993, by and between Bernice Guisti, Judith Harvey and Karen Thompson, Trustees and Beneficiaries of the Guisti Trust, as Lessor, and Far West Capital, Inc. and its Assignee, Steamboat Development Corp., as Lessee incorporated by reference to Exhibit 10.4.28 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.29 Geothermal Resources Sublease, dated May 31, 1991, by and between Fleetwood Corporation, as Lessor, and Far West Capital, Inc., as Lessee incorporated by reference to Exhibit 10.4.29 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.30 KLP Lease and Agreement, dated March 1, 1981, by and between Kapoho Land Partnership, as Lessor, and Thermal Power Company, as Lessee incorporated by reference to Exhibit 10.4.30 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.31 Amendment to KLP Lease and Agreement, dated July 9, 1990, by and between Kapoho Land Partnership, as Lessor, and Puna Geothermal Venture, as Lessee incorporated by reference to Exhibit 10.4.31 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.3.32 Second Amendment to KLP Lease and Agreement, dated December 31, 1996, by and between Kapoho Land Partnership, as Lessor, and Puna Geothermal Venture, as Lessee incorporated by reference to Exhibit 10.4.32 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

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Exhibit No. Document

10.3.33 Participation Agreement, dated May 18, 2005, by and among Puna Geothermal Venture, SE Puna, L.L.C., Wilmington Trust Company, S.E. Puna Lease, L.L.C., AIG Annuity Insurance Company, American General Life Insurance Company, Allstate Life Insurance Company and Union Bank of California, incorporated by reference to Exhibit 10.4.33 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q/A to the Securities and Exchange Commission on December 22, 2005.

10.3.34 Project Lease Agreement, dated May 18, 2005, by and between SE Puna, L.L.C. and Puna Geothermal Venture, incorporated by reference to Exhibit 10.4.34 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q/A to the Securities and Exchange Commission on December 22, 2005.

10.4.1 Patent License Agreement, dated July 15, 2004, by and between Ormat Industries Ltd. and Ormat Systems Ltd. incorporated by reference to Exhibit 10.5.4 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.4.2 Form of Registration Rights Agreement by and between Ormat Technologies, Inc. and Ormat Industries Ltd. incorporated by reference to Exhibit 10.5.5 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 22, 2004.

10.5.1 Ormat Technologies, Inc. 2004 Incentive Compensation Plan incorporated by reference to Exhibit 10.6.1 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 22, 2004.

10.5.2 Form of Incentive Stock Option Agreement incorporated by reference to Exhibit 10.6.2 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 22, 2004.

10.5.3 Form of Nonqualified Stock Option Agreement incorporated by reference to Exhibit 10.6.3 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 22, 2004.

10.6.1 Waiver executed by Lucien Bronicki in favor of Ormat Technologies, Inc., dated May 22, 2012, incorporated by reference to Exhibit 10.6.3 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 11, 2013.

10.6.2 Undertaking executed by Lucien Bronicki in favor of Ormat Industries Ltd. and Ormat Technologies, Inc., dated May 22, 2012, incorporated by reference to Exhibit 10.6.4 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 11, 2013.

10.7.1 Waiver executed by Yehudit Bronicki in favor of Ormat Technologies, Inc., dated May 22, 2012, incorporated by reference to Exhibit 10.7.4 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 11, 2013.

10.7.2 Undertaking executed by Yehudit Bronicki in favor of Ormat Industries Ltd. and Ormat Technologies, Inc., dated May 22, 2012, incorporated by reference to Exhibit 10.7.5 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 11, 2013.

10.8.1 Form of Executive Employment Agreement of Yoram Bronicki incorporated by reference to Exhibit 10.9 to Ormat Technologies, Inc. Registration Statement Amendment No. 1 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on September 28, 2004.

10.8.2 Amendment to Employment Agreement of Yoram Bronicki, dated March 28, 2008, by and between Ormat Technologies, Inc. and Yoram Bronicki, incorporated by reference to Exhibit 10.8.1 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 7, 2008.

10.8.3 Amendment to Employment Agreement of Yoram Bronicki, dated November 4, 2009, by and between Ormat Technologies, Inc. and Yoram Bronicki, incorporated by reference to Exhibit 10.8.3 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 9, 2009.

10.8.4 Waiver executed by Yoram Bronicki in favor of Ormat Technologies, Inc., dated May 22, 2012, incorporated by reference to Exhibit 10.8.4 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 11, 2013.

10.8.5 Undertaking executed by Yoram Bronicki in favor of Ormat Industries Ltd. and Ormat Technologies, Inc., dated May 22, 2012, incorporated by reference to Exhibit 10.8.5 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 11, 2013.

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Exhibit No. Document

10.8.6 Amendment to Employment Agreement of Yoram Bronicki, dated December 10, 2013, by and between Ormat Technologies, Inc. and Yoram Bronicki, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on December 10, 2013.

10.9 Form of Indemnification Agreement incorporated by reference to Exhibit 10.11 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 20, 2004.

10.10 Note Purchase Agreement, dated December 2, 2005, among Lehman Brothers Inc., OrCal Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial Geothermal Company, Heber Field Company and Heber Geothermal Company, incorporated by reference to Exhibit 10.12 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 28, 2006.

10.11.1 Indenture dated as of December 8, 2005 among OrCal Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial Geothermal Company, Heber Field Company and Heber Geothermal Company and Union Bank of California, incorporated by reference to Exhibit 10.13 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 28, 2006.

10.11.2 First Supplemental Indenture dated as of June 14, 2006 amending the Indenture dated as of December 8, 2005 among OrCal Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial Geothermal Company, Heber Field Company and Heber Geothermal Company and Union Bank of California, incorporated by reference to Exhibit 10.13.2 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q (File No 001-32347) to the Securities and Exchange Commission on August 7, 2006.

10.12 Guarantee dated as of December 8, 2005 among OrCal Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial Geothermal Company, Heber Field Company and Heber Geothermal Company, incorporated by reference to Exhibit 10.14 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 28, 2006.

10.13 Note Purchase Agreement, dated February 6, 2004, among Lehman Brothers Inc., Ormat Funding Corp., Brady Power Partners, Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2 LLC and ORNI 7 LLC, incorporated by reference to Exhibit 10.15 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 28, 2006.

10.14 Agreement No. 2 Addressing Renewable Energy Pricing Issues, dated May 10, 2006, between Ormesa LLC and Southern California Edison Company, incorporated by reference to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on May 16, 2006.

10.15 Agreement No. 2 Addressing Renewable Energy Pricing Issues, dated May 10, 2006, between Ormesa LLC and Southern California Edison Company, incorporated by reference to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on May 16, 2006.

10.16 Agreement No. 2 Addressing Renewable Energy Pricing Issues, dated May 10, 2006, between Heber Geothermal Company and Southern California Edison Company, incorporated by reference to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on May 16, 2006.

10.17 Agreement No. 2 Addressing Renewable Energy Pricing Issues, dated May 10, 2006, between Second Imperial Geothermal Company and Southern California Edison Company, incorporated by reference to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on May 16, 2006.

10.18.1 Amended and Restated Power Purchase Agreement for Olkaria III Geothermal Plant, dated January 19, 2007, between OrPower 4 Inc. and The Kenya Power and Lighting Company Limited, incorporated by reference to Ormat Technologies, Inc. Annual Report o Form 10-K to the Securities and Exchange Commission on March 12, 2007.

10.18.2 Olkaria III Project Security Agreement, dated January 19, 2007, between OrPower 4 Inc. and The Kenya Power and Lighting Company Limited, incorporated by reference to Ormat Technologies, Inc. Annual Report o Form 10-K to the Securities and Exchange Commission on March 12, 2007.

10.18.3 Common Terms Agreement, dated January 5, 2009, between OrPower 4, Inc. and DEG — Deutsche Investitions-Und Enticklungsgesellschaft MBH, Societe de Promotion et de Participation pour la Cooperation Economique, and BNY Corporate Trustee Services Limited, incorporated by reference to Exhibit 10.18.3 to Ormat Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2008 to the Securities and Exchange Commission on March 2, 2009.

10.18.4 DEG A Facility Loan Agreement, dated January 5, 2009, between OrPower 4, Inc. and DEG — Deutsche Investitions-Und Enticklungsgesellschaft MBH and Societe de Promotion et de Participation pour la Cooperation Economique, incorporated by reference to Exhibit 10.18.4 to Ormat Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2008 to the Securities and Exchange Commission on March 2, 2009.

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Exhibit No. Document

10.18.5 DEG B Facility Loan Agreement, dated January 5, 2009, between OrPower 4, Inc. and DEG — Deutsche Investitions-Und Enticklungsgesellschaft MBH and Societe de Promotion et de Participation pour la Cooperation Economique, incorporated by reference to Exhibit 10.18.5 to Ormat Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2008 to the Securities and Exchange Commission on March 2, 2009.

10.18.6 DEG C Facility Loan Agreement, dated January 5, 2009, between OrPower 4, Inc. and DEG — Deutsche Investitions-Und Enticklungsgesellschaft MBH and Societe de Promotion et de Participation pour la Cooperation Economique, incorporated by reference to Exhibit 10.18.6 to Ormat Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2008 to the Securities and Exchange Commission on March 2, 2009.

10.18.7 Proparco A Facility Loan Agreement, dated January 5, 2009, between OrPower 4, Inc. and DEG — Deutsche Investitions-Und Enticklungsgesellschaft MBH and Societe de Promotion et de Participation pour la Cooperation Economique, incorporated by reference to Exhibit 10.18.7 to Ormat Technologies, Inc. Annual Report on Form 10-K for the year ended December 31, 2008 to the Securities and Exchange Commission on March 2, 2009.

10.19 Amendment No. 2 to the Power Purchase Contract between Ormesa LLC and Ormat Technologies, Inc., and Southern California Edison Company (RAP ID 3012) dated April 23, 2006, incorporated by reference to Exhibit 10.21.2 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on August 8, 2007.

10.20 Joint Ownership Agreement for the Carson Lake Project, dated as of March 12, 2008, by and between Nevada Power Company and ORNI 16 LLC, incorporated by reference to Exhibit 10.24 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 7, 2008.

10.21 Note Purchase Agreement, dated as of May 18, 2009, among Ortitlan, Limitada and TCW Global Project Fund II, Ltd., incorporated by reference to Exhibit 10.23 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on May 21, 2009.

10.22 Sale and Purchase Agreement dated August 2, 2010, between ORNI 44 LLC and CD Mammoth Lakes I, Inc. and CD Mammoth Lakes II, Inc., incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on November 4, 2010.

10.23 Note Purchase Agreement, dated September 23, 2011, among OFC 2 LLC, ORNI 15 LLC, ORNI 39 LLC, ORNI 42 LLC, and HSS II, LLC, as Issuers, OFC 2 Noteholder Trust, as Purchaser, John Hancock Life Insurance Company (U.S.A.), as Administrative Agent, and the United States Department of Energy (DOE), as Guarantor, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on November 4, 2011.

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Exhibit No. Document

10.26.1 Finance Agreement, dated as of August 23, 2012, between OrPower 4, Inc., an indirect wholly-owned subsidiary of Ormat Technologies, Inc., and Overseas Private Investment Corporation, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on November 8, 2012.

10.26.2 Amendment No. 1 to the Finance Agreement, dated as of August 23, 2012, between OrPower 4, Inc., an indirect wholly-owned subsidiary of Ormat Technologies, Inc., and Overseas Private Investment Corporation, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 9, 2012.

10.27 Amendment Agreement relating to a Common Terms Agreement, dated October 31, 2012, between OrPower 4, Inc., an indirect wholly-owned subsidiary of Ormat Technologies, Inc., and Deutsche Investitions-und Entwicklungsgesellschaft mbH, incorporated by reference to Exhibit 10.2 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 9, 2012.

10.28 Equity Contribution Agreement with respect to ORTP, dated as of January 24, 2013,  between Ormat Nevada, Inc., a wholly-owned subsidiary of Ormat Technologies, Inc., and JPM Capital Corporation, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on January 30, 2013.

10.29 Limited Liability Company Agreement of ORTP, LLC dated as of January 24, 2013, between Ormat Nevada, Inc., a wholly-owned subsidiary of Ormat Technologies, Inc., and JPM Capital Corporation, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on January 30, 2013.

10.30.1 Employment Agreement, dated as of February 11, 2014, between Ormat Technologies, Inc. and Isaac Angel, incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on February 11, 2014.

10.30.2 Employment Agreement, dated as of January 6, 2013, between Ormat Systems, Ltd. and Doron Blachar, incorporated by reference to Exhibit 10.30.2 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange on February 28, 2014.

10.31.1 Amended and Restated Ormat Technologies, Inc. 2012 Incentive Compensation Plan, incorporated by reference to Exhibit 10.2 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on February 11, 2014.

10.31.2 Form of Incentive Stock Option Agreement to Ormat Technologies, Inc. 2012 Incentive Compensation Plan, incorporated by reference to Exhibit 10.312 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on February 26, 2014.

10.31.3 Form of Freestanding Stock Appreciation Right Agreement to Amended and Restated Ormat Technologies, Inc. 2012 Incentive Compensation Plan, Nonqualified Stock Option Agreement to Ormat Technologies 2012 Incentive Compensation Plan, incorporated by reference to Exhibit 10.312 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on February 26, 2014.

10.32 Membership Interest Purchase and Sale Agreement between RET Holdings LLC and Ormat Nevada Inc., dated March 26, 2014, incorporated by reference to Exhibit 10 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on March 31, 2014.

10.33.1 JBIC Facility Agreement, dated March 28, 2014, by and among Kyuden Sarulla Pte. Ltd., OrSarulla Inc., PT Medco Geopower Sarulla, Sarulla Operations Ltd, Sarulla Power Asset Limited, Japan Bank for International Cooperation and Mizuho Bank, Ltd., dated March 28, 2014, incorporated by reference to Exhibit 10.7 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 9, 2014.

10.33.2 Common Terms Agreement, dated March 28, 2014, by and among Kyuden Sarulla Pte. Ltd., OrSarulla Inc., PT Medco Geopower Sarulla, Sarulla Operations Ltd, Sarulla Power Asset Limited, Japan Bank for International Cooperation, Asian Development Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., ING Bank N.V., Tokyo Branch, National Australia Bank Limited, Mizuho Bank, Ltd., Mizuho Bank (USA), Pt. Bank Mizuho Indonesia, Société Générale, Société Générale Tokyo Branch, and Sumitomo Mitsui Banking Corporation, dated March 28, 2014, incorporated by reference to Exhibit 10.8 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 9, 2014.

10.33.3 Covered Lenders Facility Agreement, dated March 28, 2014, by and among Kyuden Sarulla Pte. Ltd., Orsarulla Inc., PT Medco Geopower Sarulla, Sarulla Operations Ltd, Sarulla Power Asset Limited, The Bank of Tokyo-Mitsubishi UFJ, Ltd., ING Bank N.V., Tokyo Branch, National Australia Bank Limited, Société Générale, Tokyo Branch, and Sumitomo Mitsui Banking Corporation, dated March 28, 2014, incorporated by reference to Exhibit 10.9 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 9, 2014.

 197

   

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

  

 

     

 

Exhibit No. Document

10.33.4 ADB Facility Agreement, dated March 28, 2014, by and among Kyuden Sarulla Pte. Ltd., OrSarulla Inc., PT Medco Geopower Sarulla, Sarulla Operations Ltd, Sarulla Power Asset Limited and Asian Development Bank, dated March 28, 2014, incorporated by reference to Exhibit 10.10 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 9, 2014.

10.33.5 Ormat Equity Support Deed, dated March 28, 2014, by and among Ormat International, Inc., Ormat Holding Corp., OrPower 11 Inc., OrSarulla Inc., Sarulla Operations Ltd, Mizuho Bank, Ltd. and Mizuho Bank (USA), dated March 28, 2014, incorporated by reference to Exhibit 10.11 to Ormat Technologies, Inc. Quarterly Report on Form 10-Q to the Securities and Exchange Commission on May 9, 2014.

10.34.1 Share Exchange Agreement and Plan of Merger dated as of November 10, 2014 by and among Ormat Technologies, Inc., Ormat Industries Ltd. and Ormat Systems Ltd., incorporated by reference to Exhibit 2 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 17, 2014.

10.34.2 Voting Agreement dated as of November 10, 2014 by and between Ormat Technologies, Inc. and Ormat Industries Ltd., incorporated by reference to Exhibit 10.1 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 17, 2014.

10.34.3 Voting and Undertaking Agreement dated as of November 10, 2014 by and between Ormat Technologies, Inc. and FIMI ENRG, Limited Partnership and FIMI ENRG, L.P., incorporated by reference to Exhibit 10.2 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 17, 2014.

10.34.4 Voting and Undertaking Agreement dated as of November 10, 2014 by and between Ormat Technologies, Inc. and Bronicki Investments Ltd., incorporated by reference to Exhibit 10.3 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 17, 2014.

10.34.5 Voting Neutralization Agreement dated as of November 10, 2014 among Ormat Technologies, Inc. and FIMI ENRG, Limited Partnership and FIMI ENRG, L.P., incorporated by reference to Exhibit 10.4 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 17, 2014.

10.34.6 Voting Neutralization Agreement dated as of November 10, 2014 between Ormat Technologies, Inc. and Bronicki Investments Ltd., incorporated by reference to Exhibit 10.5 to Ormat Technologies, Inc. Current Report on Form 8-K to the Securities and Exchange Commission on November 17, 2014.

10.34.7 Agreement for Purchase of Membership Interests in ORPD LLC by and between Ormat Nevada Inc. and Northleaf Geothermal Holdings LLC, dated February 5, 2015, filed herewith.

21.1 Subsidiaries of Ormat Technologies, Inc., incorporated by reference to Exhibit 21.1 to Ormat Technologies, Inc. Annual Report on Form 10-K to the Securities and Exchange Commission on March 28, 2006.

23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, filed herewith.

31.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

99.1 Material terms with respect to BLM geothermal resources leases incorporated by reference to Exhibit 99.1 to Ormat Technologies, Inc. Registration Statement Amendment No. 2 on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on October 20, 2004.

99.2 Material terms with respect to BLM site leases incorporated by reference to Exhibit 99.2 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

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  101.INS* XBRL Instance Document.*  101.SCH* XBRL Taxonomy Extension Schema Document.*  101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.*  101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.*  101.LAB* XBRL Taxonomy Extension Label Linkbase Document.*  101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.*    *     Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that

section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference.

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(Back To Top)

Exhibit 10.34.7  

Execution Copy  

   

AGREEMENT FOR PURCHASE OF MEMBERSHIP INTERESTS

in

ORPD LLC

by and between

ORMAT NEVADA INC.

and

NORTHLEAF GEOTHERMAL HOLDINGS LLC    

 

 

Exhibit No.  Document

99.3 Material terms with respect to agreements addressing renewable energy pricing and payment issues incorporated by reference to Exhibit 99.3 to Ormat Technologies, Inc. Registration Statement on Form S-1 (File No. 333-117527) to the Securities and Exchange Commission on July 20, 2004.

Section 2: EX-10.34.7 (EXHIBIT 10.34.7)

  

  TABLE OF CONTENTS

  Page

 

 

ARTICLE 1 DEFINED TERMS 1 1.1 Defined Terms 1

ARTICLE 2 SALE AND PURCHASE OF MEMBERSHIP INTEREST 1 2.1 Agreement to Sell and Purchase 1 2.2 Purchase Price 1 2.3 Closing; Pre-Closing Date 2 2.4 Conditions Precedent to the Obligations of Purchaser 2 2.5 Conditions Precedent to the Obligations of Seller 6

ARTICLE 3 REPRESENTATIONS AND WARRANTIES 7 3.1 Representations and Warranties of Seller 7 3.2 Representations and Warranties of Purchaser 16 3.3 No Other Seller Representations 18

ARTICLE 4 CERTAIN OTHER REPRESENTATIONS, WARRANTIES AND COVENANTS 19 4.1 Confidentiality 19 4.2 Access to Information 19 4.3 Regulatory Matters 19 4.4 Transfer Taxes 19 4.5 Further Action 19 4.6 Regulatory and Other Approvals 20 4.7 Notices of Certain Events 20 4.8 Notices 21 4.9 Exclusive Dealing 21 4.10 Other Seller Actions 21 4.11 Division of Don A. Campbell and Don A. Campbell Expansion 22 4.12 OREG Conversion; Tax Separation 22 4.13 Certain Credit Support Obligations 22 4.14 PGV II Interests 22

ARTICLE 5 INDEMNIFICATION 23 5.1 Indemnification 23

 Exhibit-D-i 

 

  

 

5.2 Direct Claims 25 5.3 Third Party Claims 25 5.4 After-Tax Basis 26 5.5 No Duplication 27 5.6 Sole Remedy 27 5.7 Survival 27 5.8 Final Date for Assertion of Indemnity Claims 27 5.9 Mitigation and Limitations on Losses 28 5.10 Payment of Indemnification Claims 28 5.11 Specific Performance 28

ARTICLE 6 TERMINATION 29 6.1 Termination 29 6.2 Effect of Termination 29

ARTICLE 7 GENERAL PROVISIONS 30 7.1 Exhibits and Schedules 30 7.2 Disclosure Schedules 30 7.3 Amendment, Modification and Waiver 30 7.4 Severability 30 7.5 Expenses 30 7.6 Parties in Interest 30 7.7 Notices 31 7.8 Counterparts 32 7.9 Entire Agreement 32 7.10 GOVERNING LAW; CHOICE OF FORUM; WAIVER OF JURY TRIAL 32 7.11 Public Announcements 32 7.12 Assignment 33 7.13 Intent of the Parties 33

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Annex I Definitions     Exhibits:       Exhibit A Form of Company LLC Agreement Exhibit B Form of Management Services Agreement Exhibit C Form of Assignment Agreement Exhibit D Form of Amendment to Don A. Campbell Operation and Maintenance Agreement         Schedules:       Schedule 1 Project Companies and Projects Schedule 2.4(b) Consents Schedule 2.4(m) Material Adverse Effect Schedule 2.4(t) Estoppels Schedule 3.1(d) Absence of Litigation Schedule 3.1(g)(iv) Audits Schedule 3.1(g)(viii) Powers of Attorney and Tax Rulings Schedule 3.1(h) Financial Statements Schedule 3.1(i) Compliance with Applicable Law Schedule 3.1(j) Environmental Matters Schedule 3.1(k) Permits Schedule 3.1(l) Insurance Schedule 3.1(m) Real Property Schedule 3.1(n) Personal Property Schedule 3.1(o) Liens Schedule 3.1(p) Material Contracts Schedule 3.1(q) Employee Benefit Plans Schedule 3.1(r) Affiliate Transactions Schedule 3.1(w) Liabilities Schedule 3.1(z) Bank Accounts Schedule 3.1(bb) Sufficiency of Assets Schedule 3.1(cc) Background Materials Schedule 3.1(ee) Material Adverse Effect Schedule 3.1(ff) Permitted Distributions Schedule 4.10(a)(iii) Capital Contributions

  -iii-

  AGREEMENT FOR PURCHASE OF MEMBERSHIP INTERESTS

  This Agreement is made and entered into as of February ____, 2015, by and between Northleaf Geothermal Holdings LLC, a Delaware limited liability company ("Purchaser") and Ormat

Nevada Inc., a Delaware corporation ("Seller"), for the sale by the Seller to the Purchaser of all of the Class B Membership Interests (as defined below) of ORPD LLC, a Delaware limited liability company (the "Company").  

In consideration of the respective representations, warranties, covenants, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties hereto hereby agree as follows:  

ARTICLE 1 DEFINED TERMS

  1.1     Defined Terms. Capitalized terms used but not otherwise defined herein shall have the meanings given such terms in Annex I hereto, and the rules of interpretation set forth in

Annex I hereto shall apply to this Agreement.  

ARTICLE 2 SALE AND PURCHASE OF MEMBERSHIP INTEREST

  2.1     Agreement to Sell and Purchase. Upon the terms and subject to the conditions set forth in this Agreement, Seller shall sell, assign, transfer and deliver to Purchaser on the

Closing Date, and Purchaser shall purchase on the Closing Date, all of the Class B Membership Interests in the Company free and clear of any Liens, for the consideration specified in Section 2.2.  

2.2     Purchase Price. The purchase price (the "Purchase Price") for the Class B Membership Interests being purchased under this Agreement will be an amount equal to (x) Base Level Consideration multiplied by Acquisition Percentage divided by (y) 40%, where:  

(a)     "Acquisition Percentage" means the minimum of (A) 40% or (B) (x) C$ 203,000,000 divided by the USD-CAD Forex Rate, divided by (y) the Base Level Consideration multiplied by (z) 40%, rounded down to the nearest one half of one percentage point;  

(b)     "Base Level Consideration" means the sum of (x) US$ 172,700,000, multiplied by (y) 1 plus (8% multiplied by the number days between December 31, 2014 and the Pre-Closing Date divided by 365), plus (z) 40% multiplied by the Pre-Close Capital Contributions Amount;  

(c)     "Pre-Close Capital Contributions Amount" means the sum of any capital contributions made by Ormat to any of the Project Companies between December 31, 2014 and the Pre-Closing Date required to fund project-level capital expenditures in accordance with Section 4.10(a)(iii), excluding the capital contribution made by Seller pursuant to Section 2.4(aa); and   

 

  

  (d)     "USD-CAD Forex Rate" means the ‘Open' foreign exchange rate shown on the website www.bloomberg.com/quote/USDCAD:CUR or, if such website is not available,

another publicly verifiable data source as agreed by the Parties on the Pre-Closing Date.  

The Purchase Price shall be payable by wire transfer of immediately available United States dollars to such account or accounts as Seller may designate in a written notice given to Purchaser not later than 12 Business Days before the Closing Date.  

2.3     Closing; Pre-Closing Date. The closing of the purchase and sale of the Class B Membership Interests (the "Closing") will take place (a) at the offices of Chadbourne & Parke LLP in New York, New York at 10:00 a.m. (Eastern time) on the 12 Business Day after the Pre-Closing Date or (b) at such other place and time as Purchaser and Seller may agree in writing but in any event prior to the Long-Stop Date. The "Pre-Closing Date" shall be the date on which all of the conditions in Section 2.4 and Section 2.5 have either been satisfied (other than conditions, which by their nature, are to be satisfied on the Closing Date) or, in the case of conditions not satisfied, waived in writing by the Party entitled to the benefit of such conditions. Each Party shall deliver written notice to the other Party on the date on which it believes that it has satisfied all of the conditions in Section 2.4 or Section 2.5, as applicable (other than conditions, which by their nature, are to be satisfied on the Closing Date).  

2.4     Conditions Precedent to the Obligations of Purchaser. The obligation of Purchaser to consummate the Closing will be subject to the satisfaction or waiver by Purchaser of each of the conditions set forth below:  

(a)     Each of the representations and warranties of Seller in Section 3.1 of this Agreement and in any other Transaction Document shall be true and correct in all material respects as of the date hereof and as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects).  

(b)     All consents, approvals and filings required to be obtained or made by Seller, Manager, the Company and any Project Company (i) for the Seller, Manager or the Company to execute, deliver and perform the Transaction Documents to which it is a party or (ii) to effect the conversions described in Section 2.4(p), including each of the consents, approvals and filings set forth on Schedule 2.4(b), shall have been obtained or made and shall be in full force and effect as of the Closing Date.  

(c)     Seller shall have delivered to Purchaser one or more legal opinions of counsel to Seller, Manager and the Company, in form and substance reasonably satisfactory to Purchaser, to the effect that each of the Transaction Documents to which each of Seller, Manager, the Company, or any Project Company is a party, and the performance of each of their respective obligations thereunder, including the conversions described in Section 2.4(p), (i) has been duly authorized, executed and delivered by such party, (ii) constitutes the valid and binding obligation of such party, as applicable, and is enforceable against such entity in accordance with its terms, (iii) does not violate any Applicable Law, decree, or judgment to which Seller, Manager, the Company or any Project Company or any of their respective properties are subject, (iv) does not conflict with, or cause a breach of, any provision in the Organizational Documents of Seller, Manager, the Company or any Project Company, (v) does not violate, result in the breach of, or constitute a default under certain examined documents, or result in the creation or imposition pursuant to the provisions of such examined documents of a Lien upon any assets of the Company or any Project Company, and (vi) does not require any notice, consent, approval or filing with any Governmental Authority or other Person, in each case, subject to customary qualifications, limitations and exceptions.   

 

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th

  (d)     There shall not be any action or proceeding that has been instituted or threatened in writing by any Governmental Authority or Person against any of Purchaser, Seller,

Manager, the Company or any Project Company (i) that seeks to impair, restrain, prohibit or invalidate the transactions contemplated herein or in any Transaction Document, (ii) that seeks to impair, restrain, prohibit or invalidate the transactions contemplated by any Material Contract or (iii) regarding the effectiveness or validity of any governmental approvals with respect to any Project Company, except, in each case under clauses (ii) and (iii), to the extent such action or proceeding has not or could not reasonably be expected to have a Material Adverse Effect.  

(e)     Purchaser shall have received true and complete copies of all Material Contracts.  

(f)     Purchaser shall have received true and complete copies of all title policies with respect to the Puna Project, the Don A. Campbell Project and the Don A. Campbell Expansion and as-built surveys with respect to the Puna Project and the Don A. Campbell Project, each of which shall be in form and substance reasonably satisfactory to the Purchaser.  

(g)     Seller shall have delivered to Purchaser an officer's certificate of an authorized officer of Seller (i) certifying that each of the conditions to the obligation of the Seller to consummate the Closing, set forth in Section 2.5, has been fulfilled to the satisfaction of Seller or has been waived by the Seller, (ii) certifying that each of the representations and warranties of Seller set forth in Section 3.1 is true and correct in all material respects as of the date hereof and as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects); (iii) certifying that Seller has performed all of its obligations under this Agreement required to be performed by Seller prior to or at Closing; and (iv) attaching true and complete copies of the Organizational Documents and a good standing certificate issued as of a recent date of each of Seller, Manager, the Company and the Project Companies, and resolutions of Seller, Manager, and the Company authorizing the execution of and performance of each such entity's obligations under each of the Transaction Documents to which it is a party.  

(h)     Seller shall have delivered to Purchaser a certificate of incumbency from the secretary or assistant secretary of each of Seller, the Manager and the Company as to the officers of Seller, the Manager, and the Company who sign the Transaction Documents on behalf of each of them.  

(i)     The Company LLC Agreement shall have been duly executed and delivered by Seller to Purchaser.   

 

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  (j)     Seller shall have delivered to Purchaser an affidavit of non-foreign status that complies with Section 1445 of the Code, duly executed by Seller.

  (k)     The Management Services Agreement shall have been duly executed and delivered by Seller and the Company.

  (l)     Except as listed on Schedule 3.1(p), there shall be no defaults under any Material Contracts.

  (m)     Except as disclosed on Schedule 2.4(m), there shall not have occurred any events or circumstances that, individually or in the aggregate, have had or could reasonably

be expected to have a Material Adverse Effect.  

(n)     Seller shall have delivered to Purchaser a duly executed Assignment Agreement with respect to the assignment of the Class B Membership Interests.  

(o)     Seller shall have delivered or caused the Company to deliver to Purchaser the certificate of Class B Membership Interest.  

(p)     Seller shall have provided evidence satisfactory to Purchaser that each of OREG 1, OREG 2, and OREG 3 was converted from a Delaware corporation to a Delaware limited liability company that is treated as a "disregarded entity" for United States federal income tax purposes and that each such conversion occurred at least one Business Day prior the sale provided for in Section 2.4(s) below.  

(q)     Seller shall have provided evidence satisfactory to Purchaser that each of the Project Companies has been contributed to the Company.  

(r)     Seller shall have provided an IRS Form 8594 in form and substance reasonably satisfactory to Purchaser.  

(s)     Seller shall have provided evidence satisfactory to Purchaser that no less than a one percent interest in the Company (such interest shall consist of 1% of the Class A Membership after closing) was sold to an entity that for United States federal income tax purposes is recognized as separate from each of the Seller and the Company and that such sale occurred at least five Business Days prior to the Closing.  

(t)     Seller shall have provided an estoppel duly executed by each Person and with respect to each contract set forth on Schedule 2.4(t) hereto; provided that with respect to the Puna Lease Financing Documents and the Puna Land Lease, Seller (x) shall deliver a request for an estoppel to the Owner Lessor (in respect of the Puna Lease Financing Documents) and to the respective landlord (in respect of the Puna Land Lease), (y) shall keep Purchaser updated regarding the response from each such counterparty and the status of any discussions between Seller and such counterparty regarding such request for an estoppel, and (z) may elect at any time prior to Closing to deliver written notice to Purchaser that the provision of Section 5.1(e) shall apply with respect to such contracts.   

 

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  (u)     Seller shall have delivered to Purchaser a duly executed amendment to the operations and maintenance agreement for the Don A. Campbell Project, in the form attached

hereto as Exhibit D.  

(v)     Seller shall have delivered to Purchaser an unaudited consolidated and consolidating balance sheet and statements of income, changes in members' equity, and cash flow as of and for the 12-month period ended December 31, 2014 for the Company and the Project Companies (the "Balance Sheet").  

(w)     Seller shall have delivered to Purchaser a copy of the duly executed DAC 2 EPC Agreement.  

(x)     Purchaser shall have received evidence that PGV has filed a self-certification of qualifying small power production facility status with FERC under subpart B of 18 C.F.R. part 292 with respect to such Project.  

(y)     Seller shall have delivered to Purchaser duly executed copies of operation and maintenance agreements for each of the OREG 1 Project, OREG 2 Project, and the OREG 3 Project, in form and substance reasonably satisfactory to Purchaser.  

(z)     Seller shall have provided evidence satisfactory to Purchaser that Purchaser has been named as an additional insured on all insurance policies relating to the Company, the Project Companies and the Projects as its interests may appear.  

(aa)     Seller shall have provided evidence satisfactory to Purchaser that Seller has contributed US$ 4,000,000 to the Company, which amount shall be used by the Company for payment of transaction expenses pursuant to Section 7.5.  

(bb)     Seller shall have delivered to Purchaser written evidence of the resignation of the managing member of the Company and of each Project Company, effective as of the Effective Time.  

(cc)     Seller shall have delivered to Purchaser a CD containing all Background Materials.  

(dd)     Seller shall have delivered to Purchaser evidence that all interests in the geothermal resources and land rights previously assigned by PGV to PGV-II (the "PGV-II Interests") have been transferred back to PGV; provided, however, that if Seller is unable to obtain any consent from any Governmental Authority or Person that are required for such transfer using commercially reasonable efforts, Seller shall deliver written notice thereof to Purchaser and Section 4.14 shall continue in full force and effect after the Closing.  

(ee)     Seller shall have delivered to Purchaser evidence that monies in an amount equal to all revenues received by any Project Company on and after January 1, 2015 have been deposited into the respective bank accounts listed on Schedule 3.1(z).   

 

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  2.5     Conditions Precedent to the Obligations of Seller.

  The obligation of Seller to consummate the Closing will be subject to the satisfaction or waiver by Seller of each of the conditions set forth below:

  (a)     Purchaser shall have paid to Seller the Purchase Price in the manner set forth in Section 2.2.

  (b)     Each of the representations and warranties of Purchaser in Section 3.2 and in any other Transaction Document shall be true and correct in all material respects as of the

Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects).  

(c)     All consents, approvals and filings required to be obtained or made by Purchaser to execute, deliver and perform the Transaction Documents to which it is a party shall have been obtained or made and shall be in full force and effect as of the Closing Date.  

(d)     Purchaser shall have delivered to Seller one or more legal opinions of counsel to Purchaser, in form and substance reasonably satisfactory to Seller, to the effect that each of the Transaction Documents to which Purchaser is a party (i) has been duly authorized, executed and delivered by Purchaser, (ii) constitutes the valid and binding obligation of Purchaser and is enforceable against Purchaser in accordance with its terms, (iii) does not violate any Applicable Law, decree, or judgment to which Purchaser is subject, and (iv) does not conflict with, or cause a breach of, any provision in the Organizational Documents of the Purchaser, in each case, subject to customary qualifications, limitations and exceptions.  

(e)     Purchaser shall have delivered to Seller an officer's certificate of an authorized officer of Purchaser (i) certifying that each of the conditions to the obligations of Purchaser to consummate the Closing, as set forth in Section 2.4, has been fulfilled to the satisfaction of Purchaser or has been waived by Purchaser, (ii) certifying that each of the representations and warranties of Purchaser set forth in Section 3.2 are true and correct in all material respects as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects); (iii) certifying that Purchaser has performed all of its obligations under this Agreement required to be performed by Purchaser prior to or at Closing; and (iv) attaching true and complete copies of the Organizational Documents of Purchaser and a good standing certificate issued as of a recent date, and resolutions of Purchaser authorizing the execution of the Transaction Documents to which it is a party.  

(f)     Purchaser shall have delivered to Seller certificates of incumbency from the secretary or assistant secretary of Purchaser as to the officers of Purchaser who sign the Transaction Documents on behalf of Purchaser.  

(g)     The Company LLC Agreement shall have been agreed by the parties and duly executed and delivered by Purchaser to Seller.   

 

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  (h)     The Company shall have duly executed and delivered a pledge agreement pursuant to which it grants a first priority Lien on its equity interests in ORNI 8 and OrPuna in

favor of the collateral agent for the benefit of Holders of the Senior Secured Notes.  

(i)     Purchaser shall have delivered to Seller evidence of Purchaser's election filed with the IRS to be treated as a corporation for United Stated federal income tax purposes.  

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

  3.1     Representations and Warranties of Seller. Seller represents and warrants to Purchaser as set forth below with respect to itself, the Company and the Project Companies:

  (a)     Organization, Good Standing, Etc. of Seller. Seller is a Delaware corporation, duly incorporated, validly existing and in good standing under the laws of the State of

Delaware. As of the Closing Date, the Company and each Project Company (other than PGV) will be a Delaware limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware. PGV is a general partnership, duly organized, validly existing and in good standing under the laws of the State of Hawaii. Each of Seller, the Company and the Project Companies has the relevant power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof. Seller has made available to Purchaser true and complete copies of the Organizational Documents of Seller, the Company and each Project Company.  

(b)     Authority. Each of Seller and the Company has the necessary power and authority to enter into the Transaction Documents to which it is party, to perform its obligations thereunder and to consummate the transactions contemplated therein. All corporate or limited liability company actions or proceedings to be taken by or on the part of Seller and the Company to authorize and permit the due execution and valid delivery by each of Seller and the Company of the Transaction Documents to which it is a party and each other agreement instrument or certificate required to be duly executed and validly delivered by it pursuant thereto, the performance by Seller and the Company of its obligations thereunder, and the consummation by Seller and the Company of the transactions contemplated therein, have been duly and properly taken. The Purchase Agreement has been and, as of the Closing Date, each of the other Transaction Documents will be duly executed and delivered by Seller and the Company, as applicable, and constitute the legal, valid, and binding obligation of Seller and the Company, as applicable, enforceable in accordance with their terms, except as such enforceability (i) may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights and remedies generally and (ii) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).  

(c)     No Conflicts; Consents.  

(i)     The execution and delivery of the Transaction Documents to which each of Seller and the Company is a party and the performance by each of Seller and the Company of its respective obligations thereunder will not, (x) violate any Applicable Law to which Seller, the Company or any of the Project Companies or any of their respective properties are subject, (y) conflict with or cause a breach of any provision in the Organizational Documents of Seller, the Company or any Project Company or (z) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, Permit, instrument, decree, judgment or other arrangement to which Seller, the Company or any Project Company is a party or under which any of them is bound or to which any of their assets are subject (or result in the imposition of a Lien upon any such assets), except (in the case of this clause (z)) for any that could not reasonably be expected to have a Material Adverse Effect.   

 

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  (ii)     Except as set forth on Schedule 2.4(b), no consent, approval, waiver, or authorization is required to be obtained by Seller, the Company or any Project Company

from any Person or Governmental Authority in connection with the execution, delivery and performance by Seller and the Company of the Transaction Documents and the consummation of the transactions contemplated therein.  

(d)     Absence of Litigation.  

(i)     Seller has not received written notification of any actions or proceedings that have been instituted or threatened in writing by any Governmental Authority or Person against any of Seller, Manager, the Company or any Project Company that seeks to impair, restrain, prohibit or invalidate the transactions contemplated herein or in any Transaction Document.  

(ii)     Except as set forth on Schedule 3.1(d), none of the Seller, the Company or any Project Company (w) is subject to any outstanding injunction, judgment, order, decree, or ruling, (x) is subject to any pending action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator, including with respect to environmental matters, (y) to Seller's Knowledge, is threatened with being made a party to any action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator including with respect to environmental matters, or (z) has received any written notice that any of the plaintiffs in U.S. ex rels. Calilung & Kell v. Ormat Industries Ltd., et al., U.S.D.C. of S.D. CAL., Case No. 13-CV-0261-BEN (DHB) (the "FCA Claim") intends to refile any suit with respect to the FCA Claim or the payment of the Puna Cash Grant.  

(e)     Ownership; No Other Subsidiaries.  

(i)     (x) As of the date hereof, Seller owns, of record and beneficially, 100% of the membership interests of the Company and as of the Closing Date, Seller will own, of record and beneficially, 99% of the membership interests of the Company and a newly formed subsidiary of Ormat will own, of record and beneficially, 1% of the membership interests of the Company; (y) (i) as of the date hereof, Seller owns, of record and beneficially, 100% of the membership interests in each of ORNI 8, OrPuna, OREG 1, OREG 2, OREG 3 and ORNI 47, and (ii) on the Closing Date, the Company will own, of record and beneficially, 100% of the membership interests in each of ORNI 8, OrPuna, OREG 1, OREG 2, OREG 3 and ORNI 47, and does not and will not have any ownership interest in any other Person, (z) ORNI 8 and OrPuna collectively own, of record and beneficially, 100% of the partnership interests of PGV, and do not have any ownership interest in any other Person. None of PGV, OREG 1, OREG 2, OREG 3 and ORNI 47 have any ownership interest in any other Person. On the Closing Date, the membership interests of the Company will consist solely of the Class A Membership Interests and the Class B Membership Interests and there are no other classes or types of equity interests of the Company.   

 

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  (ii)     There are no outstanding options, warrants, calls, puts, convertible securities or other contracts of any nature obligating Seller to issue, deliver or sell

membership interests or other securities in the Company, except as provided herein, or obligating the Company or any Project Company to issue, deliver or sell membership interests or other securities in any of the Project Companies. There are no voting trusts, proxies or other agreements or understanding in effect with respect to the voting or transfer of any of the membership interests in the Company.  

(f)     Valid Interests. The Class B Membership Interests (i) will constitute membership interests in the Company, and (ii) are being sold free and clear of any Liens except for obligations imposed on members of the Company under the Company LLC Agreement.  

(g)     Tax Matters.  

(i)     (x) All income tax returns and other material Tax Returns required to be filed by or with respect to the Company, each Project Company and the Projects have been timely filed (taking into account applicable extensions), (y) all such returns were true, correct, and complete in all material respects, and (z) all Taxes shown as due on such returns have been paid in full (other than those Taxes that are being contested in good faith, by appropriate proceedings and with adequate reserves).  

(ii)     There are no outstanding agreements or waivers extending a statutory period of limitations or requests to extend a statutory period of limitations relating to Taxes due from the Company or any Project Company.  

(iii)     Neither the Company nor any Project Company has been a party to (x) a transaction that constitutes a "listed transaction" for purposes of Section 6011 of the Code and the Treasury Regulations (or a similar provision of state law) or (y) any transaction that constitutes a "reportable transaction" within the meaning of Treasury Regulations Section 1.6011-4(b) (or a similar provision of state law).  

(iv)     Except as set forth on Schedule 3.1(g)(iv), there are no audits, examinations, or matters under discussion with any Governmental Authority with respect to Taxes relating to the Company, a Project Company, or a Project.  

(v)     There are no Liens for Taxes (other than statutory Liens for current Taxes of the Company or Project Company not yet due and payable) on any assets of the Company or Project Company.  

(vi)     No claim has ever been made by an authority in a jurisdiction where Seller (or any of its Affiliates), the Company or a Project Company does not file Tax Returns that Seller (or any of its Affiliates), the Company or a Project Company is or may be subject to taxation by such jurisdiction.   

 

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  (vii)     Neither the Company nor any Project Company is a party to any Tax allocation, Tax indemnity or Tax sharing agreement or similar arrangements with any

Person (other than customary tax provisions in a Material Contract or Tax sharing obligations under consolidated return regulations).  

(viii)     Except as set forth on Schedule 3.1(g)(viii), no power of attorney is currently in effect, and no Tax ruling has been requested of any Governmental Authority, with respect to any Tax matter relating to the Company, a Project Company, or any Project.  

(ix)     None of Seller, the Company, any of the Company's members prior to the Closing, OrPuna, ORNI 8, PGV, or ORNI 47 is, or has been, a Disqualified Person and none of OREG 1, OREG 2 or OREG 3 is, or has been, a Depreciation Disqualified Person.  

(x)     Each Project is, and has been at all times, located in the United States. An election was made for each Project Company under Section 168(g)(7) of the Code. No proceeds of any issue of state or local government obligations have been used to provide financing (directly or indirectly) for any Project the interest on which is exempt from Section 103 of the Code. To Seller's Knowledge, no Project is comprised of, and has not been comprised of any imported property within the meaning of Section 168(g)(6) of the Code.  

(xi)     All information and statements contained in the Cash Grant Applications or in any supplemental materials requested from the applicant by the U.S. Department of Treasury were accurate on the date the applicable Cash Grant Application or supplemental materials was executed or provided, as the case may be (except, in each case, to the extent such information or statements were explicitly made as of a specified date and were not otherwise required to be updated for the date of the Cash Grant Application or the date of such supplemental materials, as the case may be). From the time when each of the Puna Project and the Don A. Campbell Project was placed in service for United States federal income tax purposes, each such Project has been continually operated as a facility that produces electricity from geothermal energy (within the meaning of Section 45(c)(4) of the Code) (other than for curtailments, outages, or other similar provisions under the applicable power purchase agreements, or due to routine or customary maintenance). All annual certifications and reports required to be filed with the U.S. Department of Treasury with respect to the Puna Project or the Don A. Campbell Project have been prepared and timely filed. No production tax credits pursuant to Section 45 of the Code or investment tax credits pursuant to Section 48 of the Code have been claimed on any Tax Return filed by the Seller (or its Affiliates) with respect to the Puna Project or the Don A. Campbell Project. No Application for Section 1603 Payments for Specified Renewable Energy Property in Lieu of Tax Credits was filed for any of the Projects other than the Puna Project and the Don A. Campbell Project.  

(xii)     None of the Projects is "leased to a tax-exempt entity" within the meaning of Section 168(h)(1)(A) of the code.   

 

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  (xiii)     The Company and each Project Company has complied in all material respects with any income tax reporting obligations provided for in any Material Contract

that any of the foregoing is a party to, and neither the Company nor any Project Company has committed any act, failed to act or breached any representation that would result in a tax indemnity obligation that is in excess of $250,000 under any such Material Contract.  

(h)     Financial Statements. Included in Schedule 3.1(h) are true and complete copies of (x) the audited financial statements of PGV (the "PGV Audited Financial Statements") for the year ended December 31, 2013 and (y) the Balance Sheet. The PGV Audited Financial Statements, PGV Interim Financial Statements and the Balance Sheet have been prepared in accordance with GAAP (subject, in the case of the Balance Sheet, to customary year-end adjustments and the absence of footnotes) and consistent with past fiscal periods. The PGV Audited Financial Statements, PGV Interim Financial Statements and the Balance Sheet present fairly in all material respects the financial position of the respective entities as of the date thereof. Except in the case of PGV, and except for the Balance Sheet, no audited or unaudited financial statements have been prepared with respect to the Company, any Project Company or any Project.  

(i)     Compliance with Applicable Law. Except (i) as set forth on Schedule 3.1(i), (ii) with respect to Environmental Laws (which are addressed in Section 3.1(j)) and (iii) with respect to Taxes (which are addressed in Section 3.1(g)), (x) the Company and the Project Companies are currently in material compliance with all material Applicable Law, (y) during the period that the Company and/or the relevant Project Company has owned, directly or indirectly, the relevant Project, the Company and/or each such Project Company has been in material compliance with all material Applicable Law, except for any noncompliance that has been fully resolved or that does not present and is not reasonably likely to present any material liability to, or any material restriction on operations of, the Company or any Project Company, and (z) neither the Company nor any Project Company has received written notice from a Governmental Authority of an actual or potential violation of any Applicable Law.  

(j)     Environmental Matters. Except as listed on Schedule 3.1(j), (i) to Seller's Knowledge, each Project Company is and has been in material compliance with all applicable Environmental Laws, (ii) none of the Seller, the Company, or any Project Company has treated, recycled, stored, transported, handled, or Released or threatened to Release any Hazardous Substances and to Seller's Knowledge, no Hazardous Substances have been Released on the Project sites by third parties (and there are no locations or premises used by a Project Company where Hazardous Substances have been Released by a Project Company), except as could not be expected to result in material costs or material liabilities under Environmental Laws, (iii) none of the Seller (with respect to any Project, the Company or any Project Company), the Company, or any Project Company has received written notice from any Governmental Authority of a request for information under Section 104 of CERCLA or of an actual or potential violation of any Environmental Laws or is currently subject to or on notice with respect to any investigation, order, claim, or agreement with respect to any matter concerning a Hazardous Substance and (iv) none of the Seller, the Company, or any Project Company has, either expressly or by operation of law, assumed any contractual liabilities under Environmental Law, including any obligation for corrective or remedial action, of any other Person relating to Environmental Law. To Seller's Knowledge, there are no facts or circumstances related to the Projects (including the presence, if any, of aboveground storage tanks, known underground storage tanks, PCBs or asbestos-containing materials) or condition at the Project sites that are likely to give rise to a material violation of, or material costs or material liabilities under, applicable Environmental Laws.   

 

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  (k)     Permits. All material Permits held by each Project Company are shown on Schedule 3.1(k). Such Permits constitute all material Permits required to own, operate and

maintain the respective Projects. Except as listed on Schedule 3.1(k), to Seller's Knowledge, (i) each Project Company is currently in material compliance with all material Permits, (ii) during the period in which the Company and/or the relevant Project Company has owned, directly or indirectly, the relevant Project, each Project Company has been in material compliance with all material Permits, (iii) each Project Company currently has in full force and effect all material Permits necessary to own, operate and maintain its Project, and (iv) none of the Project Companies has received written notice from any Governmental Authority of an actual or potential violation of any material Permit. Except as listed on Schedule 3.1(k), all Permits are final, non-appealable, in good standing, and not subject to any modification or formal threat of revocation, challenge or suspension. As of the Closing Date, Seller has no reason to believe that any Project Company will not continue to be able to operate in compliance with all such Permits. True and complete copies of such Permits (without duplication of any documents delivered pursuant to Section 3.1(cc)) have been made available to Purchaser.  

(l)     Insurance. Schedule 3.1(l) contains a true and complete list of all insurance policies maintained by Seller or its Affiliates (including the Company and the Project Companies) relating to the Company, the Project Companies or the Projects, and to Seller's Knowledge (i) such insurance is adequate and customary for the business being conducted, (ii) there are no circumstances that have rendered such insurance unenforceable, and (iii) except as set forth on Schedule 3.1(1), there are no outstanding claims (or circumstances that could reasonably be expected to result in claims) under such policies. Neither the Seller, nor the Company or any of the Project Companies, has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such policies. All premiums due and payable on such policies have been paid.  

(m)     Real Property. The Company does not own or lease any real property. All real property owned or leased by each Project Company or to which such Project Company has rights under leases, subleases, easements, licenses, governmental permits or rights of way, and the title insurance maintained by such Project Company with respect to all such property, is described on Schedule 3.1(m) (the "Real Property"). Each Project Company has good and marketable title to its Real Property, including a valid leasehold interest in the real property leased by such Project Company, subject only to the Permitted Liens. The real property owned or leased, or in which rights are held, by each Project Company has been and is sufficient to enable each Project Company to conduct its operations prior to and as of the Closing Date and Seller has no reason to believe that such real property owned or leased, or in which rights are held, will not be sufficient to allow each Project Company to conduct its operations through the end of the economic useful life of the Projects, including providing adequate ingress and egress from each Project in order to operate and maintain, and to produce and sell power from each Project; provided, however, that no representation is made regarding the availability, adequacy or sufficiency for any purpose whatsoever of any geothermal resource. (i) No Project Company is in breach of any of its obligations with respect to the Real Property, except for any breach which does not have, and could not reasonably be expected to have, a Material Adverse Effect, and the Seller has not and neither the Company, nor any Project Company has been informed in writing by the owner of the Real Property that a Project Company is in breach of its obligations with respect to the Real Property, and (ii) Seller has not received any written notice of any threatened or actual condemnation proceedings, and to Seller's Knowledge, any such real property, in whole or in part, has not been and is not currently subject to, or threatened with, notice of condemnation proceedings, whether under the power of eminent domain or otherwise, by any Governmental Authority. All premiums with respect to the title insurance shown on Schedule 3.1(m) have been paid, no claims have been made under such title insurance and, to Seller's Knowledge, there are no circumstances that have rendered such title insurance unenforceable.   

 

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  (n)     Personal Property. The Company owns no personal property other than the membership interests in the Project Companies as described in Section 3.1(e). Schedule 3.1(n)

lists all items and the location of personal property having a replacement cost of at least $1 million owned by the Company or any of the Project Companies. Except as shown on Schedule 3.1(n), the Company and each Project Company has good and marketable title to all tangible personal property owned by it and valid leasehold title to all tangible personal property leased by it. All such equipment and facilities listed on Schedule 3.1(n) and each Project is in good operating condition and repair (normal wear and tear excluded), are adequate for the uses to which they are being put and are not in need of maintenance or repairs except for maintenance and repairs in accordance with Prudent Industry Practices.  

(o)     Liens. Except as listed on Schedule 3.1(o), all assets owned by the Company and by each of the Project Companies are free and clear of all Liens, other than Permitted Liens.  

(p)     Material Contracts. Schedule 3.1(p) contains a true and complete list of all Material Contracts to which either the Company or any Project Company is a party. Each such Material Contract is in full force and effect and binding on the Company or the relevant Project Company, as applicable, and to Seller's Knowledge, on the other parties thereto, except as enforceability may be limited by applicable bankruptcy and similar laws affecting the enforcement of creditors' rights and general equitable principles. Neither the Company nor any Project Company or, to Seller's Knowledge, any other party to a Material Contract is in default under any Material Contract. To Seller's Knowledge, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute a default under any Material Contract, result in a termination thereof, cause the acceleration or any other change of any right or obligation thereunder or cause the loss of any benefit thereunder, except where any such default, change or loss could not reasonably be expected to have a Material Adverse Effect. True and complete copies of each Material Contract (including all amendments and modifications thereto) have been made available to Purchaser.   

 

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  (q)     Employee Matters. Neither the Company nor any Project Company, other than PGV, has any employees. PGV has 28 employees. Neither the Company nor any Project

Company, other than PGV, has maintained, sponsored, administered or participated in any employee benefit plan or arrangement, including any employee benefit plan subject to ERISA. Schedule 3.1(q) sets forth a complete list of each "employee benefit plan" as defined in Section 3(3) of ERISA and any other material plan, policy, program, practice, arrangement or agreement providing compensation or other benefits to any employee of PGV, entered into, maintained, sponsored or contributed to by PGV, or under which PGV has any obligation or liability (each a "Benefit Plan"). None of the Company, any Project Company nor any ERISA Affiliate has (or within the last 6 years has had) any direct or indirect liability, whether actual or contingent, in respect of any "employee benefit plan" (as defined in Section 3(3) of ERISA) that is (i) subject to Section 412 of the Code or Title IV of ERISA, (ii) maintained by more than one employer within the meaning of Section 413(c) of the Code, (iii) a "multiemployer plan" as defined in Section 3(37) of ERISA, or (iv) a "multiple employer welfare arrangement" as defined in Section 3(40) of ERISA. PGV does not have any material liability with respect to an obligation to provide health or other non-pension benefits to any individual beyond their retirement or other termination of service other than coverage mandated by Part 6 of Subtitle B of Title I of ERISA or similar state law and at the individual's sole expense. Each Benefit Plan has been administered in all material respects in accordance with its terms and in compliance with the applicable provisions of ERISA, the Code and all other Applicable Laws, except for such impropriety or noncompliance as could not reasonably be expected to have a Material Adverse Effect, and all contributions required to be made with respect to any Benefit Plan on or before the date of this Agreement have been made. To the Knowledge of the Seller, there are no facts or circumstances that could reasonably be expected to cause the imposition of any liability, penalty or tax under ERISA, the Code or other Applicable Law with respect to any Benefit Plan, except as could not reasonably be expected to have a Material Adverse Effect.  

(r)     Affiliate Transactions. Except as listed on Schedule 3.1(r) and except for the Transaction Documents, there are no existing contracts or agreements between the Company or any Project Company, on the one hand, and the Seller or any other Affiliate of the Seller or any of their respective directors, officers or employees, on the other hand. Except as reflected on Schedule 3.1(h), neither the Company nor any of the Project Companies has any outstanding debt to an Affiliate thereof. PGV-II owns the PGV-II Interests and has never developed the PGV-II Interests and is not party to any agreement to develop, construct, sell, assign or transfer the PGV-II Interests.  

(s)     Tax Character. Each of the Project Companies and the Company is a "disregarded entity" for United States federal income tax purposes. No elections have been filed with the IRS to treat the Company or any of the Project Companies as an association taxable as a corporation. Each of ORNI 8, OrPuna, ORNI 47 and the Company was originally formed as a single member limited liability company and always has been a single member limited liability company. PGV was originally acquired by ORNI 8 and OrPuna as a partnership and is, and at all times has been, treated as a disregarded entity for federal Tax purposes. Each of OREG 1, OREG 2 and OREG 3 was originally formed as a corporation and, at all times prior to its conversion to a limited liability company in connection with the Closing, has been taxed as a corporation for federal Tax purposes.  

(t)     Regulatory Status. Each Project, other than the Puna Project, is a Qualifying Facility within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended, and the rules and regulations promulgated thereunder. PGV is an Exempt Wholesale Generator within the meaning of the Public Utilities Holding Company Act of 2005, as amended ("PUHCA") and the rules and regulations promulgated thereunder.   

 

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  (u)     Public Utility Holding Company. Neither the Seller, the Company nor any Project Company is subject to regulation as a "holding company" or a "public utility company"

within the meaning of PUHCA.  

(v)     Utilities. All utility services necessary for the operation of each Project for its intended purpose of producing and selling electricity are, and Seller has no reason to believe will not be, available.  

(w)     Liabilities. Other than as set forth on Schedule 3.1(w), neither the Company nor any Project Company has any liabilities, whether fixed or contingent, other than (i) as reflected on the PGV Audited Financial Statements for the year ended December 31, 2013, (ii) liabilities arising after December 31, 2013 in the Ordinary Course of Business, (iii) liabilities in respect of performance under any contract in accordance with its terms, and (iv) liabilities not required to be reflected on a balance sheet prepared in accordance with GAAP.  

(x)     Brokers. Except for UBS Securities LLC (whose fees shall be for Seller's account), none of the Seller, the Company or any Project Company has any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.  

(y)     Scope of Business. The Company has not engaged in any business unrelated to acquisition and ownership of, directly or indirectly, the Project Companies. None of the Project Companies has engaged in any business unrelated to the development, construction, ownership, operation and maintenance of its respective Project and activities incidental thereto.  

(z)     Bank Accounts. Schedule 3.1(z) contains a true and complete list of the names and locations of banks, trust companies and other financial institutions at which the Company and each Project Company maintains accounts of any nature or safe deposit boxes and the authorized signatories for each such account.  

(aa)     Solvency. None of Seller, the Company or any Project Company has admitted in writing its inability to pay its debts generally as they become due, is subject to a present filing against it of a petition in bankruptcy or a petition to take advantage of any insolvency act, is subject to a present assignment for the benefit of creditors, has consented to the appointment of a receiver for itself or for the whole or any substantial part of its property, or is subject to a present petition in bankruptcy, adjudication of bankruptcy or filing of a petition or answer seeking reorganization or arrangement under any bankruptcy laws.  

(bb)     Sufficiency of Assets. Except as set forth on Schedule 3.1(bb), as of the Closing Date, the assets of the Company, whether real, personal, tangible or intangible and whether leased, owned or licensed, comprising the Projects constitute all of the assets required for or used in the operation of the Projects as presently operated or proposed to be operated and no other assets are required or necessary in the operation of the Projects in the Ordinary Course of Business; provided, however, that nothing contained herein shall constitute any representation or warranty regarding the sufficiency or adequacy of the geothermal resources available to the Projects.   

 

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  (cc)     Accuracy of Information Furnished. Seller collected and, with respect to the documents prepared by Seller, prepared the written materials contained in the virtual data

room and Seller's written responses to due diligence inquiries, as set forth in Schedule 3.1(cc) (collectively, the "Background Materials") in good faith. The Background Materials were provided to the Purchaser by the Seller in good faith. Without limiting the effectiveness of any qualification contained in any other representation or warranty in this Section 3.1, Seller has provided all documents in Seller's possession containing material information (exclusive of documents that contain information duplicative of information contained or incorporated in any other Background Materials) relating to the Company, the Projects and the Project Companies and the Background Materials do not contain any untrue statement of a material fact concerning the Company or the Projects or the Project Companies and the transactions contemplated by this Agreement. Seller has not intentionally omitted any material fact or document from the Background Materials with the purpose of causing the Background Materials, when taken in their entirety, to be misleading. Notwithstanding anything in this Section 3.1(cc), no representation or warranty is made with respect to any Background Materials that are in the nature of projections other than that they were prepared in good faith and on the basis of assumptions that were considered reasonable in all material respects by Seller at the time made. The copies of the documents listed on Schedule 3.1(cc) that are contained in the data room are true and complete copies thereof.  

(dd)     Intellectual Property. The Company and each Project Company, through rights granted by Seller and its Affiliates or otherwise, possess all rights necessary to lawfully use all patents, trademarks, licenses, service marks, trade names, trade secrets, and other proprietary, or intellectual property rights that are necessary for the operation of the respective Projects and their respective businesses in the Ordinary Course of Business. To the Knowledge of Seller, the operation of the Projects and the businesses as conducted by the Company and each Project Company does not infringe on any patent, trademark, license, service mark, trade name, trade secret, obligation of confidence or other proprietary, or intellectual property right of any Person.  

(ee)     Absence of Certain Changes or Events. Except as disclosed on Schedule 3.1(ee), since the date of the Balance Sheet, there has not occurred any events or circumstances that individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.  

(ff)     Restricted Payments. Except as disclosed on Schedule 3.1(ff), since the date of the Balance Sheet, none of the Company or the Project Companies have made any Restricted Payments.  

3.2     Representations and Warranties of Purchaser. The Purchaser represents and warrants to Seller as follows:  

(a)     Organization, Good Standing, Etc. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware, and has the limited liability company organizational power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof.   

 

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  (b)     Authority. Purchaser has the limited liability company organizational power and authority to enter into this Agreement and the other Transaction Documents to which it

is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby or thereby. All actions or proceedings required to be taken by or on the part of the Purchaser to authorize and permit the due execution and valid delivery by Purchaser of this Agreement and the instruments required to be duly executed and validly delivered by Purchaser pursuant hereto and thereto, the performance by Purchaser of its obligations hereunder and thereunder, and the consummation by Purchaser of the transactions contemplated herein and therein, have been duly and properly taken. This Agreement has been duly executed and validly delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable in all material respects against Purchaser in accordance with its terms and conditions except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors' rights and remedies generally and general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).  

(c)     No Conflicts. The execution and delivery by Purchaser of this Agreement and the other Transaction Documents to which Purchaser is a party do not, and the performance by Purchaser of Purchaser obligations hereunder and thereunder will not, (i) violate any Applicable Law, (ii) conflict with or cause a breach of any provision of its Organizational Documents or (iii) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, license, instrument, decree, judgment or other arrangement to which Purchaser is a party or under which it is bound or to which any of its assets are subject (or result in the imposition of a Lien upon any such assets), except (in the case of this clause (iii)) for any that could not reasonably be expected to have a material adverse impact on Purchaser's ability to consummate the transactions contemplated by this Agreement.  

(d)     Absence of Litigation.  

(i)     Purchaser has not received written notification of any actions or proceedings that have been instituted or threatened in writing by any Governmental Authority or Person against the Purchaser that seeks to impair, restrain, prohibit or invalidate the transactions contemplated herein or in any Transaction Document.  

(ii)     Purchaser (x) is not subject to any pending or outstanding injunction, judgment, order, decree, ruling or charge, (y) is not subject to any pending action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator, and (z) to Purchaser's knowledge, is not threatened with being made a party to any action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator.  

(e)     Accredited Investor; Information; Investment Intent. Purchaser is an "Accredited Investor" as such term is defined in Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). Purchaser has had a reasonable opportunity to ask questions of and receive answers from Seller concerning Seller, the Class B Membership Interests, the Company and the Project Companies, and all such questions have been answered to the full satisfaction of Purchaser. Purchaser understands that the Class B Membership Interests have not been registered under the Securities Act in reliance on an exemption therefrom, and that the Class B Membership Interests must be held indefinitely unless the sale thereof is registered under the Securities Act or an exemption from registration is available thereunder, and that Seller is under no obligation to register the Class B Membership Interests. Purchaser shall not sell, hypothecate or otherwise transfer the Class B Membership Interests without registering or qualifying them under the Securities Act and applicable state securities laws unless the transfer is exempted from registration or qualification under such laws. Purchaser is purchasing the Class B Membership Interests for its own account and not for the account of any other Person and not with a view to distribution to others.   

 

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  (f)     Information and Investment Intent. Purchaser recognizes that investment in the Class B Membership Interests involves substantial risks. Purchaser acknowledges that

any financial projections that may have been provided to it are based on assumptions of future operating results developed by Seller and Seller's advisers and, therefore, represent an estimate of future results based on assumptions about certain events (many of which are beyond the control of Seller, the Company and the Project Companies). Purchaser understands that no assurances or representations can be given that the actual results of the operations of the Company and the Project Companies will conform to the projected results for any period. Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risk of its investment and is able to bear the economic risk of holding the Class B Membership Interests for an indefinite period (including total loss of its investment). Purchaser has relied solely on its own legal, tax and financial advisers for its evaluation of an investment in the Class B Membership Interests and not on the advice of the Seller or the Company or any of their respective legal, tax or financial advisers. Notwithstanding the foregoing, nothing in this paragraph (f) shall relieve Seller or any of its Affiliates of any obligations expressly imposed upon them hereunder or reduce the rights expressly granted hereunder to Purchaser and its Affiliates in respect of the express representations, warranties and covenants or other agreements of Seller or its Affiliates to the extent contained herein.  

(g)     Public Utility Holding Company. Purchaser is not a "holding company" within the meaning of PUHCA.  

(h)     Disqualified Person. Purchaser is not a Disqualified Person.  

3.3     No Other Seller Representations. Except with respect to the representations and warranties of Seller and the Company in the Transaction Documents, none of Seller, the Company or any of the Project Companies has made any representation or warranty, either express or implied, nor has the Purchaser relied on any representation or warranty not expressly made herein or in any other Transaction Document. The Purchaser specifically acknowledges that, except as stated in Section 3.1 and any representations and warranties made in any other Transaction Document, no representation or warranty has been made and that the Purchaser has not relied on any representation or warranty about the accuracy of any projections, estimates or budgets, future revenues, future results from operations, future cash flows, the future condition of the Projects or any assets of the Project Companies, or the future financial condition of the Project Companies.   

 

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  ARTICLE 4

CERTAIN OTHER REPRESENTATIONS, WARRANTIES AND COVENANTS  

4.1     Confidentiality. Each of Seller and Purchaser agree that the Confidentiality Agreement, dated February 26, 2014 (the "Confidentiality Agreement") between Seller and Northleaf Capital Partners (Canada) Ltd., an Affiliate of Purchaser, shall terminate at the Effective Time and, thereafter, the provisions of Section 11.12 of the Company LLC Agreement shall apply.  

4.2     Access to Information. From the date hereof and continuing until the earlier of the termination of this Agreement or the Effective Time, Seller, on not less than 5 days prior notice by Purchaser to Seller, will and will cause the Company to (a) give Purchaser, its counsel, financial advisors, auditors and other authorized representatives reasonable access during normal business hours to the offices, properties, employees and personnel, books and records of the Company and the Project Companies, (b) furnish to Purchaser, its counsel, financial advisors, auditors, and other authorized representatives such financial and operating data and other information as such persons may reasonably request, and (c) instruct the Company's employees, auditors, counsel and financial advisors to cooperate with Purchaser in its investigation of the business of the Company and the Project Companies. The foregoing information shall be held in confidence by Purchaser, its counsel, financial advisors, auditors and other authorized representatives in accordance with the provisions of the Confidentiality Agreement or Section 11.12 of the Company LLC Agreement as provided in Section 4.1 hereof.  

4.3     Regulatory Matters. Promptly after the Effective Time, Seller shall file or cause to be filed with FERC a notice of self re-certification as a Qualifying Facility within the meaning of the Public Utility Regulatory Policies Act of 1978 with respect to each Project that is a Qualifying Facility.  

4.4     Transfer Taxes. The Seller on the one hand, and the Purchaser, on the other, shall bear in equal portions and pay all sales, use, transfer, recording, gains, stock transfer and other similar taxes and fees if any, arising out of or in connection with the transactions contemplated by this Agreement and the other Transaction Documents.  

4.5     Further Action. Subject to the terms and conditions of this Agreement, each of Purchaser and Seller agrees to use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable (including to obtain all applicable Governmental Approvals (if any), consents, approvals and agreements of, and to give all notices and make all filings (if any) with, any third parties as may be necessary) to consummate and make effective the transactions contemplated herein as soon as practicable, but in no event later than the Long-Stop Date. From time to time, as and when requested by any Party, the other Party will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such commercially reasonable actions, as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated herein.   

 

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  4.6     Regulatory and Other Approvals.

  (a)     Seller and Purchaser shall proceed diligently and in good faith and use all commercially reasonable efforts to prepare, as soon as is practical following the date of this

Agreement, and shall proceed diligently and in good faith and use all commercially reasonable efforts to submit, as soon as practical, all necessary filings in connection with the transactions contemplated by this Agreement that may be required by any Applicable Law. Seller and Purchaser shall request expedited treatment of any such filings, shall promptly make any appropriate or necessary, subsequent or supplemental filings, and shall cooperate with each other in the preparation of such filings in such manner as is reasonably necessary and appropriate. Seller and Purchaser shall consult with each and shall agree in good faith upon the timing of such filings.  

(b)     Neither Seller nor Purchaser shall, and each of Seller and Purchaser shall cause its respective Affiliates not to, take any action that could reasonably be expected to adversely affect the approval of any Governmental Authority of any of the aforementioned filings.  

4.7     Notices of Certain Events.  

(a)     From the date hereof through the Closing Date, Seller will promptly notify Purchaser in writing of: (i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated herein; (ii) any document, report, certificate, instrument, request, notice or other communication delivered or made available to Seller or any of its Affiliates from any Governmental Authority, any of the Project Companies or any other Person in connection with the transactions contemplated herein, any of the Project Companies, the Projects or any Material Contract; (iii) any claim commenced, or, to the Seller's Knowledge, threatened in writing, relating to or involving or otherwise affecting any of the Project Companies, the assets (including material permits) and liabilities of any of the Project Companies or the consummation of the transactions contemplated herein; and (iv) any circumstance or event which has resulted in, or could reasonably be expected to result in, any representation or warranty made by Seller hereunder not being true and correct or the failure of any of the conditions set forth in Section 2.4 to be satisfied.  

(b)     From the date hereof through the Closing Date, Purchaser will promptly notify Seller in writing of: (i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated herein; (ii) any document, report, certificate, instrument, request, notice or other communication delivered or made available to Purchaser or any of its Affiliates from any Governmental Authority or any other Person in connection with the transactions contemplated herein; (iii) any claim commenced, or, to the Purchaser's knowledge, threatened in writing, relating to or involving or otherwise affecting the consummation of the transactions contemplated herein; and (iv) any circumstance or event which has resulted in, or could reasonably be expected to result in, any representation or warranty made by Seller hereunder not being true and correct or the failure of any of the conditions set forth in Section 2.5 to be satisfied.   

 

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  4.8     Notices. Promptly after the date of this Agreement, Seller will, and will, upon the reasonable request of Purchaser, request that the Project Companies, deliver all notices not

previously delivered or waived prior to the date hereof that are required to be provided by Seller or any Project Company, in each case in connection with the execution, delivery and performance by Seller and the Project Companies of this Agreement and any agreements described in or contemplated by this Agreement and the consummation of the transactions contemplated herein. Without limiting the foregoing, Seller and Purchaser will cooperate to complete the necessary notice and acknowledgements required to be delivered to the Director, Governor's Office of Energy of the State of Nevada in connection with the sales and use tax abatement and the property tax abatement agreements for the Don A. Campbell Project ; provided, that the Seller shall prepare or cause the Company to prepare a draft of the necessary notice and acknowledgements (including written instructions regarding any actions required of Purchaser) and provide and the same to Purchaser and its counsel at least five Business Days prior to the deadline for the delivery of the same to such Director (or if no deadline is applicable within 10 Business Days of the Closing).  

4.9     Exclusive Dealing. From the date hereof through the Closing Date, Seller will not, and will cause its Affiliates not to, directly or indirectly, solicit, encourage, initiate, accept, agree to or consummate any proposals, inquiries or offers from, solicit, encourage, initiate, enter into or participate in inquiries, discussions or negotiations with, or provide any information to, any Person (other than Purchaser and its Affiliates), concerning any financing, investment, disposition or transfer of or other business combination or asset sale involving the Class B Membership Interests, the Company, any of the Project Companies or any of the Projects or any portion of, or any interest or claim in, any of the foregoing or otherwise cooperate with or assist or participate in or encourage or facilitate in any other manner any effort or attempt by any Person to do or seek to do any of the foregoing.  

4.10     Other Seller Actions.  

(a)     From the date hereof through the Closing Date, Seller and its Affiliates:  

(i)     shall continue to operate the Company, the Project Companies and the Projects in the Ordinary Course of Business and maintain and preserve in all material respects the assets of each Project Company;  

(ii)     shall not permit the Company or any Project Company to make any Restricted Payment;  

(iii)     except as set forth on Schedule 4.10(a)(iii) or otherwise approved by Purchaser in accordance with Section 4.10(b), neither Seller nor its Affiliates (other than the Company and any Project Company) shall make any capital contributions or loans to the Company or any Project Company; provided, that Seller shall fund such amounts permitted under Schedule 4.10(a)(iii) as a capital contribution (and not as a loan) and shall deliver to Purchaser evidence of such capital contribution and a written explanation of why such capital contribution was necessary; and  

(iv)     without limiting the foregoing, shall not take any other action, or omit to take any action, that will cause or result in a material change to (i) the operation and maintenance of the Projects (or any portion thereof) or (ii) the terms of any Material Contract in respect of or in relation to the Projects (or any portion thereof) or the Project Companies, other than in accordance with the provisions of the Company LLC Agreement as if the Company LLC Agreement was in full force and effect as of the date of such action or omission.   

 

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  (b)     From the date hereof through the Closing Date, Seller and its Affiliates will not otherwise take any action, or omit to take any action, that would qualify as a "Major

Decision" under the Company LLC Agreement as if the Company LLC Agreement was in effect on the date hereof without Purchaser's prior written approval.  

4.11     Division of Don A. Campbell and Don A. Campbell Expansion. Seller shall, and shall cause ORNI 47 and ORNI 37 to, use commercially reasonable efforts to, within 120 days after the date hereof, split the assets shared by the Don A. Campbell Project and the Don A. Campbell Expansion (including any land and interconnection facilities in which ORNI 47 and ORNI 37 hold undivided 50% interests as tenants in common) so that each of ORNI 47 and ORNI 37 only holds those assets necessary for the Don A. Campbell Project and the Don A. Campbell Expansion, respectively.  

4.12     OREG Conversion; Tax Separation. As soon as reasonably practicable after the date hereof, (a) Seller shall cause each of OREG 1, OREG 2, and OREG 3 to be converted from a Delaware corporation to a Delaware limited liability company that is treated as a disregarded entity for income tax purposes and (b) Seller shall sell no less than a one percent interest in the Company to an entity that for United States federal income tax purposes is recognized as separate from each of the Seller and the Company.  

4.13     Certain Credit Support Obligations. For a period of five (5) years following the Closing Date, Seller shall procure and maintain, and bear all associated costs and expenses of, any letters of credit, guarantees, cash collateral or other credit enhancement or credit support arrangement (collectively, "Credit Support") to support the payment and performance obligations of each of ORNI 47 and ORNI 37 under its respective power purchase agreement or any other Material Contract of such entity described in clause (a) of the definition of such term. From and after the end of such five (5) years period, the Company (or the applicable Project Company) shall be responsible to procure and maintain, and shall bear all associated costs and expenses of, any such Credit Support.  

4.14     PGV II Interests. From the date hereof through the date on which the PGV-II Interests are transferred to PGV in accordance with Section 2.4(dd), Seller shall not, and will cause its Affiliates (including PGV-II) not to, directly or indirectly, develop or construct any project using the PGV-II Interests or solicit, encourage, initiate, accept, agree to or consummate any proposals, inquiries or offers from, solicit, encourage, initiate, enter into or participate in inquiries, discussions or negotiations with, or provide any information to any Person concerning the development, construction, financing, investment, disposition or transfer of the PGV-II Interests or assist or participate in or encourage or facilitate in any other manger any effort or attempt by any Person to do or seek to do any of the foregoing.   

 

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  ARTICLE 5

INDEMNIFICATION  

5.1     Indemnification. (a) Seller agrees to indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against any and all Purchaser Indemnified Costs; provided, however, that except with respect to Purchaser Indemnified Costs resulting from fraud, gross negligence or willful misconduct or failure to pay any amount due to Purchaser Indemnified Parties under any Transaction Document, and except as otherwise set forth in Section 5.1(e) below, in no event shall Seller's aggregate obligation to indemnify the Purchaser Indemnified Parties hereunder exceed 25% of the Purchase Price, less any amounts paid as damages by Seller to Purchaser under the Company LLC Agreement, and provided, further, however, that (i) the 25% limitation above shall be 100% in respect of a breach of Seller's representations in Section 3.1(a), Section 3.1(b), Section 3.1(e), Section 3.1(f), Section 3.1(g) and Section 3.1(x) and (ii) there shall be no cap with respect to any Third Party Claim or any claim based on fraud, gross negligence or willful misconduct. Without regard to any of the foregoing limitations or the requirements of Section 5.1(c), Seller also agrees to indemnify, defend and hold harmless the Company and any Project Company from and against any and all damages, losses, claims, liabilities, Taxes, penalties, costs, and reasonable expenses (including court cost and reasonable attorneys' fees and expenses of one law firm) incurred by the Company or any Project Company as a result of (x) the imposition of any liability for the Taxes of any other Person under Treasury Regulations 1.1502-6 (or any similar provision of state or local law) as a transferee or successor, by contract or otherwise ("Treas. Reg. 1.1502-6 Liability"), and (y) the loss of, reduction to, or other change in the sales and use tax and the property tax abatement for the Don A. Campbell Project (the "Tax Abatement Liability") as a result of the violations of Nevada Revised Statute Chapter 701A and Nevada Administrative Code chapter 701A, as further described on Schedule 3.1(i).  

(b)     Purchaser agrees to severally indemnify, defend and hold harmless the Seller Indemnified Parties from and against any and all Seller Indemnified Costs; provided, however, that except with respect to Seller Indemnified Costs resulting from fraud, gross negligence or willful misconduct or failure to pay any amount due to Seller Indemnified Parties under any Transaction Document, in no event shall Purchaser's aggregate obligation to indemnify the Seller Indemnified Parties hereunder exceed 25% of the sum of the Purchase Price paid by Purchaser as of the date such indemnification obligation arises, less any amounts paid as damages by Purchaser under the Company LLC Agreement (provided, however, that the 25% limitation above shall be 100% in respect of a breach of Purchaser's representations in Section 3.2(a), Section 3.2(b), Section 3.2(c)(ii) and Section 3.2(e)).  

(c)     No claim for indemnification may be made with respect to any breach (other than failure to pay an amount due) unless and until the aggregate amount of claims for which indemnification is (or previously has been) sought exceeds $1,000,000; provided, that once such threshold amount of claims has been reached, the relevant Indemnified Party shall have the right to be indemnified for all such claims, including amounts that were not previously paid because such threshold amount had not been reached.   

 

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  (d)     Notwithstanding any other provision herein, Seller shall indemnify (but without duplication of any indemnity amount actually paid to and retained by the applicable

Purchaser Indemnified Party pursuant to another provision herein), defend and hold harmless on an after-Tax basis the Purchaser Indemnified Parties from and against any and all claims, damages (including treble damages) or Taxes imposed on, incurred or suffered by, or otherwise charged to the Company or any Project Company, as a result of the FCA Claim or any claim, suit or proceeding asserting the subject matter thereof. Such indemnification obligation shall include claims asserted by the Department of Justice, a relator or the Internal Revenue Service whether under the Cash Grant Guidance and related statutes, the False Claims Act or otherwise. Such indemnification shall be without regard to any "cap," "deductible" ☒or time limitation provided herein. Such indemnity shall include reimbursement of reasonable and documented third-party legal fees and related expenses that are incurred by the Purchaser in connection with the matters described in this Section 5.1(d).  

(e)     If Seller has delivered a notice to Purchaser in accordance with Section 2.4(t) with respect to the Puna Lease Financing Documents or the Puna Land Lease, then Seller agrees to indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against any and all Purchaser Indemnified Costs resulting from a breach of Seller's representations contained in (A) the third and fourth sentences of Section 3.1(m), (B) clause (i) of the fifth sentence of Section 3.1(m), and (C) Section 3.1(p), in each case, as such representations pertain to the Puna Lease Financing Documents or the Puna Land Lease, as applicable. The indemnity set forth in this Section 5.1(e) shall comprise a separate and independent indemnity from Section 5.1(a), provided that in no event shall Seller's aggregate liability under this Section 5.1(e) (x) exceed 55% of the Purchase Price, and (y) when aggregated with all other amounts paid by Seller to Purchaser pursuant to this Section 5.1 (other than amounts that are uncapped pursuant to Section 5.1(a)) exceed 100% of the Purchase Price.  

(f)     Seller agrees to indemnify, defend and hold harmless, on an after-Tax basis, Purchaser, its Affiliates, the Company and any Project Company from and against any and all damages, losses, claims, liabilities, penalties, costs (including capital expenditures) and expenses (including court costs and reasonable attorneys’ fees and expenses) incurred by the Company or any Project Company arising out of or related to the EPA violations disclosed on Schedule 3.1(j). In furtherance thereof, notwithstanding anything to the contrary in the Company LLC Agreement, any capital expenditures that are required by Environmental Laws or otherwise necessary as a result of such EPA violations (as opposed to a fine, penalty or similar payment obligation that would be indemnified pursuant to the prior sentence) that are required to be made by the Company or any Project Company in connection with such EPA violation shall be funded by Seller making a payment to such entity, which shall be treated as an indemnity payment by the Seller to such entity. Seller’s obligations under this Section 5.1(f) shall be subject to the 25% of the Purchase Price cap set forth in Section 5.1(a).   

 

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  5.2     Direct Claims. In any case in which an Indemnified Party seeks indemnification under Section 5.1 which is not subject to Section 5.3 because no Third Party Claim is involved,

the Indemnified Party shall notify the Indemnifying Party in writing of such direct claim, of any amounts which such Indemnified Party claims are subject to indemnification under the terms of this Article 5. The failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim, except to the extent the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim.  

5.3     Third Party Claims. An Indemnified Party shall give written notice to any Indemnifying Party within 30 days after it has actual knowledge of commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "Third Party Claim") in respect of which such Indemnified Party may seek indemnification under Section 5.1. Such notice shall state the nature and basis of such Third Party Claim and the events and the amounts thereof to the extent known. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it, may have to such Indemnified Party under this Article 5, except to the extent the failure to give such notice materially and adversely prejudices such Indemnifying Party. In case any such action, proceeding or claim is brought against an Indemnified Party, so long as (a) the Indemnifying Party has acknowledged in writing to the Indemnified Party that it is liable to the Indemnified Party for such Third Party Claim pursuant to this Section 5.3, (b) in the reasonable judgment of the Indemnified Party a conflict of interest between it and the Indemnifying Party does not exist in respect of such Third Party Claim and (c) in the reasonable judgment of the Indemnified Party such Third Party Claim does not entail a material risk of criminal penalties or civil fines or non-monetary sanctions being imposed on the Indemnified Party (a "Third Party Penalty Claim") (the forgoing conditions being referred to as the "Control Conditions"), the Indemnifying Party shall be entitled to participate in and assume the defense thereof, with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party, and after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than as expressly provided below in this Section 5.3; provided, that nothing contained herein shall permit Seller to control or participate in any Tax contest or dispute involving Purchaser or any Affiliate of Purchaser, or permit Purchaser to control or participate in any Tax contest or dispute involving Seller or any Affiliate of Seller other than the Company or any Project Company; and, provided, further, that the Parties agree that the handling of any Tax or Cash Grant contests involving the Company will be governed by Section 7.7 of the Company LLC Agreement. In the event that (i) the Indemnifying Party advises an Indemnified Party that it will not contest a claim for indemnification hereunder, (ii) the Indemnifying Party fails, within 30 days of receipt of any indemnification notice to notify, in writing, such Indemnified Party of its election, to defend, settle or compromise, at is sole cost and expense, any such Third Party Claim (or discontinues its defense at any time after it commences such defense) or (iii) in the reasonable judgment of the Indemnified Party, a conflict of interest between it and the Indemnifying Party exists in respect of such Third Party Claim or the action or claim is a Third Party Penalty Claim, then the Indemnified Party may, at its option, defend, settle or otherwise compromise or pay such action or claim or Third Party Claim, and the Indemnifying Party shall be liable for and shall reimburse the Indemnified Party promptly and periodically for the Indemnified Party's reasonable costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding. In any event, unless and until the Indemnifying Party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the Indemnifying Party shall be liable for the Indemnified Party's reasonable costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding. The Indemnified Party shall cooperate fully with the Indemnifying Party in connection with any negotiation or defense of any such action or claim by the Indemnifying Party. The Indemnifying Party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the Indemnifying Party elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. If any of the Control Conditions is not satisfied or becomes unsatisfied, (x) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, such Third Party Claim in any manner it may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (y) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the reasonable costs or defending against such Third Party Claim (including reasonable consultant, attorney and expert witness fees, disbursements and expenses), and (z) the Indemnifying Party will remain responsible for any losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by such Third Party Claim to the fullest extent provided in this Article 5. The Indemnifying Party and the Indemnified Party shall cooperate fully with each other in connection with the defense, negotiation or settlement of any such legal proceeding, claim or demand. Notwithstanding anything in this Section 5.3 to the contrary, the Indemnifying Party shall not, without the Indemnified Party's prior written consent, settle or compromise any claim or consent to entry of judgment in respect thereof which imposes any criminal liability or civil fine or sanction or equitable remedy on the Indemnified Party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party, a release from all liability in respect of such claim.   

 

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  5.4     After-Tax Basis. For tax reporting purposes, to the maximum extent permitted by the Code, each Party will agree to treat all amounts paid under any of the provisions of this

Article 5 as an adjustment to the purchase price for the Class B Membership Interests (or otherwise as a non-taxable reimbursement, contribution or return of capital, as the case may be). To the extent any such indemnification payment is includable as income of the Indemnified Party as determined by agreement of the Parties, or if there is no agreement, by an opinion of a nationally-recognized tax counsel selected jointly by the Parties that such amount is "more likely than not" includable as income of the recipient, the amount of the payment shall be increased by the amount of any United States federal income tax required to be paid by the Indemnified Party or its Affiliates on the receipt or accrual of the indemnification payment, including, for this purpose, the amount of any such Tax required to be paid by the Indemnified Party on the receipt or accrual of the additional amount required to be added to such payment pursuant to this Section 5.4, assuming full taxability, using an assumed tax rate equal to the highest marginal United States federal income tax rate applicable to corporations generally (currently 35 % for federal only). Both Parties shall have the opportunity to comment on the opinion delivered in accordance with the foregoing sentence. If an opinion is delivered in accordance with this Section 5.4, the Indemnified Party shall report the relevant indemnification payments as income consistent with such opinion and otherwise act in a manner consistent with such opinion. Any payment made under this Article 5 shall be reduced by the present value (as determined on the basis of a discount rate equal to 8 % per annum and the same assumptions about taxability and tax rates) of any United States federal income tax benefit to be realized by the Indemnified Party or its Affiliates by reason of the facts and circumstances giving rise to such indemnification.   

 

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  5.5     No Duplication. Any liability of an Indemnifying Party to an Indemnified Party for indemnification under this Article 5 shall be determined without duplication of recovery by

such Indemnified Party from such Indemnifying Party. Without limiting the generality of the prior sentence, if a statement of facts, condition or event constitutes a breach of more than one representation, warranty, covenant or agreement which is subject to the indemnification obligation in Section 5.1, only one recovery of Purchaser Indemnified Costs or Seller Indemnified Costs, as applicable, shall be allowed.  

5.6     Sole Remedy. The remedies of the Parties under this Article 5 are the sole and exclusive remedies that a Party may have under this Agreement for the recovery of monetary damages with respect to any breach or failure to perform any covenant or agreement set forth in Article 4 of this Agreement or any breach of any representation or warranty set forth in this Agreement other than for Purchaser Indemnified Costs or Seller Indemnified Costs, as the case may be, arising from fraud, gross negligence or willful misconduct.  

5.7     Survival. All representations and warranties in this Agreement shall survive until the final date for any assertion of claims as forth in Section 5.8.  

5.8     Final Date for Assertion of Indemnity Claims.  

(a)     All claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of representations or warranties shall be forever barred unless Seller is notified on or prior to the date that is 18 months after the Closing Date, except that (i) claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from any Treas. Reg. 1.1502-6 Liability or Tax Abatement Liability, and any breaches of representations and warranties made in Sections 3.1(b), 3.1(e), and 3.1(f) shall survive indefinitely, (ii) claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of the representations and warranties set forth in Sections 3.1(g) or 3.1(s) shall survive for 30 days after the applicable statute of limitations on the assessment and collection of such Taxes attributable to Company or Project Company items, (iii) claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of the representations and warranties set forth in Section 3.1(j) shall survive until the date that is 3 years after the Closing Date; and (iv) claims by a Purchaser Indemnified Party for indemnification under Section 5.1(e) shall survive until the date that is 4 years after the Closing Date; provided, that if written notice of a claim for indemnification has been given by such Purchaser Indemnified Party on or prior to any such date, then the obligation of the Seller to indemnify such Purchaser Indemnified Party pursuant to this Article 5 shall survive with respect to such claim until such claim is finally resolved.  

(b)     All claims by a Seller Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of representations or warranties shall be forever barred unless Purchaser is notified on or prior to the date that is 18 months after the Closing Date; except that claims by a Seller Indemnified Party for indemnification pursuant to this Article 5 resulting from any breaches of representations and warranties made in Sections 3.2(b), Section 3.2(c)(ii) and Section 3.2(e) shall survive indefinitely, provided, that if written notice of a claim for indemnification has been given by such Seller Indemnified Party on or prior to such date, then the obligation of the Purchaser to indemnify such Seller Indemnified Party pursuant to this Article 5 shall survive with respect to such claim until such claim is finally resolved.   

 

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  5.9     Mitigation and Limitations on Losses. Notwithstanding anything to the contrary contained herein:

  (a)     Reasonable Steps to Mitigate. Each of the Indemnified Parties will take, at the Indemnifying Party's cost and expense, all reasonable commercial steps identified by the

Indemnifying Party to mitigate its Purchaser Indemnified Costs or Seller Indemnified Costs, as the case may be, which steps may include availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. The Indemnified Parties will provide such evidence and documentation of the nature and extent of its Purchaser Indemnified Costs or Seller Indemnified Costs, as the case may be, as may be reasonably requested by the Indemnifying Party.  

(b)     Net of Insurance Benefits. The amount of Purchaser Indemnified Costs and Seller Indemnified Costs recoverable hereunder shall be net of insurance recoveries actually received by the applicable Indemnified Party from insurance policies of the Company or the Project Companies (including under the existing title policies).  

(c)     No Consequential Damages. Except to the extent awarded by a court of competent jurisdiction in a final and non-appealable judgment in connection with a Third Party Claim, fraud, gross negligence or willful misconduct, neither Purchaser Indemnified Costs nor Seller Indemnified Costs shall include, and the Indemnifying Party shall have no obligation to indemnify any Indemnified Parties for or in respect of any punitive, consequential or exemplary damages of any nature, including damages for lost profits.  

5.10     Payment of Indemnification Claims. All claims for indemnification shall be paid by the Indemnifying Party in immediately available funds in United States dollars. Payments for indemnification claims shall be made promptly after any final determination of the amount of such claim is made by a court of competent jurisdiction (or by agreement of the Parties involved).  

5.11     Specific Performance. Notwithstanding anything contained herein to the contrary, each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity.   

 

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  ARTICLE 6

TERMINATION  

6.1     Termination. This Agreement may be terminated at any time prior to the Closing:  

(a)     by the mutual written consent of Seller and Purchaser;  

(b)     by Purchaser by written notice to Seller if:  

(i)     Purchaser is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Section 2.4 and such breach, inaccuracy or failure has not been cured by Seller within 10 days of Seller's receipt of written notice of such breach from Purchaser; or  

(ii)     any of the conditions set forth in Section 2.4 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Long-Stop Date, unless such failure shall be due to the failure of Purchaser to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;  

(c)     by Seller by written notice to Purchaser if:  

(i)     Seller is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Purchaser pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Section 2.5 and such breach, inaccuracy or failure has not been cured by Purchaser within 10 days of Purchaser's receipt of written notice of such breach from Seller; or  

(ii)     any of the conditions set forth in Section 2.5 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Long-Stop Date, unless such failure shall be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or  

(d)     by Purchaser or Seller in the event that (i) there shall be any Applicable Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued an order restraining or enjoining the transactions contemplated by this Agreement, and such order shall have become final and non-appealable.  

6.2     Effect of Termination. In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:  

(a)     as set forth in this Section 6.2, and Section 7.5; and   

 

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  (b)     that nothing herein shall relieve any party hereto from liability for any willful breach of any provision hereof, fraud or intentional misrepresentation.

  ARTICLE 7

GENERAL PROVISIONS  

7.1     Exhibits and Schedules. All Exhibits and Schedules attached hereto are incorporated herein by reference.  

7.2     Disclosure Schedules. Any matter disclosed in any section of the Schedules shall be deemed disclosed for all purposes and all sections of the Schedules to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections.  

7.3     Amendment, Modification and Waiver. This Agreement may not be amended or modified except by an instrument in writing signed by both Parties. Any failure of Purchaser or Seller to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the Party to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure.  

7.4     Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Applicable Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any Party.  

7.5     Expenses. On the Closing Date, the Company will assume $3 million in transaction related expenses on behalf of the Seller and $1 million in transaction related expenses on behalf of the Purchaser and pay such expenses upon receipt of invoices therefor. Except for such amounts assumed by the Company pursuant to the first sentence of this Section 7.5, each Party will pay its own costs and expenses (including fees and expenses of legal counsel and other advisors or experts appointed by such Party) in connection with the preparation, negotiation and consummation of the transactions contemplated by this Agreement and the other Transaction Documents and neither Party shall have any liability therefor, whether or not the transactions contemplated herein or therein are consummated; provided, however, that Seller shall also bear the costs and expenses of the Company and the Project Companies (including their legal fees and expenses) in connection with the Transaction Documents and the transactions contemplated thereby, including any consent, approval, filing or notification required in connection therewith. Neither Party shall be responsible for any commission, broker's fee, finder's fee or similar fee or expense of the other Party.  

7.6     Parties in Interest. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each Party and their successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other Person (other than the Indemnified Parties as provided in Article 5) any rights or remedies of any nature whatsoever under or by reason of this Agreement.   

 

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  7.7     Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by a nationally recognized overnight courier, by

email, facsimile, or mailed by registered or certified mail (return receipt requested) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):  

(a)     If to Seller, to:  

Ormat Nevada Inc. 6225 Neil Road Reno, Nevada 89511 Attention: Doron Blachar Telephone:     (775) 356-9029 Facsimile:     (775) 356-9039 Email:     dblachar@ormat.com With a copy to: Chadbourne & Parke LLP 1200 New Hampshire Avenue, NW Washington, DC 20036 Attention:     Noam Ayali Telephone:     (202) 974-5600 Facsimile:     (202) 974-5602 Email:     nayali@chadbourne.com

  (b)     If to Purchaser, to:

  Northleaf Geothermal Holdings LLC c/o Northleaf Capital Partners 79 Wellington Street West 6 Floor, Box 120 Toronto Ontario M5K 1N9 Attention:     Olivier Laganiere Telephone:     (416) 477-6721 Facsimile:     (416) 304-0195 Email:     olivier.laganiere@northleafcapital.com

  

 

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th

With a copy to: Akin Gump Strauss Hauer & Feld LLP 2629 Century Park East Suite 2400 Los Angeles, CA 90067 Attention:     Edward Zaelke Telephone:     (310) 229-1000 Facsimile:     (310) 229-1001 Email:     ezaelke@akingump.com

  All notices and other communications given in accordance herewith shall be deemed given (i) on the date of delivery, if hand delivered, (ii) on the date of receipt, if emailed or faxed

(provided a hard copy of such transmission is dispatched by first class mail within 48 hours), (iii) 3 Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and (iv) 1 Business Day after the date of sending, if sent by a nationally recognized overnight courier; provided, that a notice given in accordance with this Section 7.7 but received on any day other than a Business Day or after business hours in the place of receipt, will be deemed given on the next Business Day in that place.  

7.8     Counterparts. This Agreement may be executed and delivered (including by email or facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.  

7.9     Entire Agreement. This Agreement (together with the other Transaction Documents) constitutes the entire agreement of the Parties and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the Parties with respect to the subject matter hereof.  

7.10     GOVERNING LAW; CHOICE OF FORUM; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN NEW YORK WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING RELATING TO A DISPUTE AND FOR ANY COUNTERCLAIM WITH RESPECT THERETO.  

7.11     Public Announcements. Except for statements made or press releases issued (a) in connection with any filing or disclosure under or pursuant to the securities laws, including without limitation, the rules and regulations of any stock exchange on which securities of a party or any of its Affiliates are traded, in any applicable jurisdiction, or (b) as otherwise required by Applicable Law, neither Seller nor Purchaser shall issue, or permit any of their respective Affiliates to issue, any press release or otherwise make any public statements with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party (not to be unreasonably withheld, conditioned or delayed) and the Parties shall cooperate as to the timing and contents of such press releases or statements.   

 

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  7.12     Assignment. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

Neither Party may assign its rights or obligations hereunder without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed). Any attempted assignment of this Agreement other than in strict accordance with this Section 7.12 and the terms of the Company LLC Agreement shall be null and void and of no force or effect.  

7.13     Intent of the Parties. The Parties intend, for United States federal income tax purposes, that the acquisition of the Class B Membership Interests be treated as an acquisition of undivided interests in the Company's assets and a contribution to the Company of such undivided interests, consistent with Revenue Ruling 99-5 (Situation 1). The Parties shall each report the transactions contemplated by this Agreement to the applicable taxing authorities consistent with the allocation schedule as set forth on IRS Form 8594, prepared in accordance with Section 1060 of the Code.  

[Remainder of page intentionally left blank. Signature pages to follow.]   

 

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  IN WITNESS WHEREOF, each Party hereto has caused this Agreement for Purchase of Membership Interests to be signed on its behalf as of the date first written above.

 

   

Signature page to Agreement for Purchase of Membership Interests   

 

ORMAT NEVADA INC.    By:  /s/ Isaac Angel Name:  Isaac Angel Title:  CEO & Secretary       By:  /s/ Doron Blachar Name:  Doron Blachar Title:  Treasurer 

 

 

   

Signature page to Agreement for Purchase of Membership Interests   

 

NORTHLEAF GEOTHERMAL HOLDINGS LLC    By:  /s/ Jamie Storrow Name:  Jamie Storrow Title:  Managing Director       By:  /s/ George Zakem Name:  George Zakem Title:  Managing Director 

 

  ANNEX I

DEFINITIONS  

"Accredited Investor" has the meaning set forth in Section 3.2(e).  

"Acquisition Percentage" has the meaning set forth in Section 2.2(a).  

"Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For purposes of this definition and this Agreement, (a) the term "control" (and correlative terms) means (i) the ownership of 50% or more of the equity interest in a Person, or (ii) the power, whether by contract, equity ownership or otherwise, to direct or cause the direction of the policies or management of a Person, and (b) the Company shall be deemed to be an Affiliate of Seller prior to the Closing (for purposes of representations and warranties), but shall not be deemed to be an Affiliate of Seller or Purchaser from and after the Closing for the purposes of this Agreement.  

"Agreement" means this Agreement for Purchase of Membership Interests, and all schedules and exhibits hereto.  

"Applicable Law" means any constitution, statute, law, rule, regulation, ordinance, judgment, order, decree or governmental approval, or any directive or requirement which has the force of law, or other governmental restriction which has the force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, applicable to and/or binding on the Seller, the Company, or any Project Company, or the Purchaser, as the context may require, in each case as modified and/or supplemented.  

"ARRA" means Division B of the American Recovery and Reinvestment Act of 2009, as amended.  

"Assignment Agreement" means the Assignment of Membership Interests, by and between Seller and Purchaser, substantially in the form annexed hereto as Exhibit C, dated the Closing Date.  

"Background Materials" has the meaning set forth in Section 3.1(cc).  

"Balance Sheet" has the meaning set forth in Section 2.4(v).  

"Base Level Consideration" has the meaning set forth in Section 2.2(b).  

"Benefit Plan" has the meaning set forth in Section 3.1(q).  

"Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which commercial banks in New York, New York or Toronto, Canada are authorized or required by law to be closed.  

"Cash Grant" means a grant provided for in Section 1603 of the ARRA.  

 

 Annex-1

  "Cash Grant Application" means an "Application for Section 1603 Payments for Specified Renewable Energy Property in Lieu of Tax Credits" filed with respect to the Puna Project or

the Don A. Campbell Project, together with any exhibits, annexes, schedules, attachments, reports, or other documents filed together with such application.  

"Class A Membership Interests" means the membership interests in the Company designated as "Class A" membership interests.  

"Class B Membership Interests" means the membership interests in the Company designated as "Class B" membership interests.  

"Closing" has the meaning set forth in Section 2.3.  

"Closing Date" means the date of the Closing.  

"Code" means the United States Internal Revenue Code of 1986, as amended.  

"Company" has the meaning set forth in the preamble to this Agreement.  

"Company LLC Agreement" means the Amended and Restated Limited Liability Company Agreement of the Company by and among Seller, Purchaser and a newly formed subsidiary of Seller owning 1% of the membership interests of the Company, substantially in the form annexed as Exhibit A, dated the Closing Date.  

"Confidentiality Agreements" has the meaning set forth in Section 4.1.  

"Control Conditions" has the meaning set forth in Section 5.3.  

"Credit Support" has the meaning set forth in Section 4.13.  

"DAC 2 EPC Agreement" means the engineering procurement and construction agreement between Seller, as Contractor, and ORNI 37, as Owner, in the form agreed between the Seller and Purchaser.  

"Depreciation Disqualified Person" means (a) the United States, any state or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing, (b) any organization which is exempt from tax imposed by the Code (including any former tax-exempt organization within the meaning of Section 168(h)(2)(E) of the Code and any tax-exempt controlled entity within the meaning of Section 168(h)(6)(F)(iii) of the Code if such entity has not made the election provided in Section 168(h)(6)(F)(ii) of the Code), (c) any Person who is not a United States Person, (d) any Indian tribal government described in Section 7701(a)(40) of the Code, and (e) any partnership or other pass-thru entity any partner (or other holder of an equity or profits interest) of which is described in clauses (a) through (d) above; provided, however, that any such Person shall not be considered a Depreciation Disqualified Person to the extent that (i) the exception under Section 168(h)(1)(D) of the Code applies with respect to the income from the Company or Project Company for that Person or (ii) the Person is described within clause (c) of this definition and the exception under Section 168(h)(2)(B)(i) of the Code applies with respect to the income from the Company or Project Company for that Person.  

 

 Annex-2

  "Disqualified Person" means a Depreciation Disqualified Person or Grant Disqualified Person.

  "Don A. Campbell Expansion" means the approximately 19 MW expansion of the Don A. Campbell Project.

  "Don A. Campbell Project" means the approximately 19 MW geothermal power project owned by ORNI 47, as described on Schedule 1(for the avoidance of doubt the Don A. Campbell

Project does not include the Don A. Campbell Expansion).  

"Effective Time" means the effective time of the Closing.  

"Environmental Law" means any and all Applicable Laws and Permits relating to the environment, the protection or preservation of human health or safety, including the health and safety of employees, the preservation or reclamation of natural resources, or the management, release or threatened release of Hazardous Substances.  

"Equity Interests" means (a)(i) with respect to a limited liability company, any and all shares, interests, participations or other equivalents (however designated) of membership interests of such limited liability company, (ii) with respect to a partnership, any and all partnership interests, units, interests, participations shares or other equivalents (however designated) of partnership interests and (iii) with respect to a corporation, any and all capital stock, shares and other equivalents (however designated) of Equity Interests and (b) securities convertible into or exchangeable for any of the foregoing, and any and all warrants, rights or options to purchase, or obligations of a Person to sell, any of the foregoing, whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.  

"ERISA" means the United States Employee Retirement Income Security Act of 1974, as amended.  

"ERISA Affiliate" means any other organization or entity that, together with the Company, is treated as a single employer under ERISA § 4001(b) or Code §§ 414(b), (c), (m) or (o).  

"Exhibits" means the Exhibits attached to this Agreement.  

"FCA Claim" has the meaning set forth in Section 3.1(d)(ii).  

"FERC" means the Federal Energy Regulatory Commission.  

"GAAP" means United States generally accepted accounting principles as recognized by the American Institute of Certified Public Accountants, as in effect from time to time, consistently applied and maintained on a consistent basis for a Person throughout the period indicated and consistent with such Person's prior financial practice.  

 

 Annex-3

  "Governmental Authority" means any governmental department, commission, board, bureau, agency, court or other instrumentality of any country, state, province, county, parish or

municipality, jurisdiction, or other political subdivision thereof.  

"Grant Disqualified Person" means, at any time during the Recapture Period, (a) any Federal, state or local government (including any political subdivision, agency or instrumentality thereof), (b) any organization described in Section 501(c) of the Code and exempt from tax under Section 501(a) of the Code, (c) any entity referred to in paragraph (4) of Section 54(j) of the Code, (d) any Person described in Section 50(d)(1) of the Code, (e) any Person who is not a "United States person" as defined in Section 7701(a)(30) of the Code, unless such Person is a foreign person or entity (other than a foreign partnership or foreign pass-through entity) that is subject to United States federal income tax on more than 50 % of the gross income for the taxable year derived by such Person from the Project Company; or (f) any partnership or other pass-through entity (including a single-member disregarded entity) other than a real estate investment trust as defined in Section 856(a) of the Code or a cooperative organization described in Section 1381(a) of the Code, any direct or indirect partner (or other direct or indirect holder of an equity or profits interest) of which is a Grant Disqualified Person, and (g) that if and to the extent the definition of "Disqualified Person" under Section 1603(g) of ARRA or the Treasury Guidance is amended after the date of this Agreement and applicable to periods prior to the date of this Agreement, the definition of "Grant Disqualified Person" hereunder shall be interpreted to conform to such amendment and further Treasury Guidance; provided, however, that subject to clause (g), a taxable C Corporation (as defined in the Code) some or all of whose shareholders are described in clauses (a) through (f) above shall not be treated as a Grant Disqualified Person and such a corporation's ownership of an interest in an entity described in clause (f) above will not cause such entity to be treated as a Grant Disqualified Person.  

"Hazardous Substances" means (a) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, solid wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (b) asbestos or asbestos-containing material in any form; (c) polychlorinated biphenyls ("PCBs"), or PCB-containing materials or fluids; (d) radon; (e) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof; and (f) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, or contaminant that, whether by its nature or its use, is subject to regulation or giving rise to liability under any Environmental Laws.  

"Holder" means each person in whose name the Senior Secured Note is registered.  

"Indemnified Party" means any Person seeking indemnification from another Person pursuant to Article 5.  

"Indemnifying Party" means any Person against whom a claim for indemnification is asserted by another Person pursuant to Article 5.  

"Indenture" means the Indenture dated as of May 18, 2005 (as amended through the date hereof) among SE Puna, L.L.C., the guarantors named therein and Union Bank of California, N.A., as Trustee (as such terms are defined in the Indenture).  

 

 Annex-4

  "IRS" means the Internal Revenue Service of the United States of America.

  "Knowledge", with respect to Seller, means the actual knowledge, after due inquiry, of the persons listed below and the knowledge each such Person would have as a result of

reasonable inquiries of Persons with supervisory or managerial responsibilities related to such matters.  

  "Liens" means any liens, pledges, claims, security interests, encumbrances, easements, rights-of-way, mortgages, deeds of trust, covenants, restrictions, rights of first refusal or

defects in title, or any agreement to provide any of the foregoing.  

"Long-Stop Date" means the date that is 90 calendar days from the date hereof  

"Management Services Agreement" means the Management Services Agreement by and between the Company and the Manager, substantially in the form annexed hereto as Exhibit B, dated the Closing Date.  

"Manager" means Ormat Nevada Inc., as "Manager" under the Management Services Agreement.  

"Material Adverse Effect" means any event, occurrence, fact or condition that has or could reasonably be expected to have, individually or in the aggregate, a material adverse effect on (a) the business, assets, liabilities, financial condition or results of operations of the Company or any of the Project Companies, taken as a whole, or (b) the ability of Seller to consummate the transactions contemplated hereby, in each case excluding any effect resulting from (i) any change in political, social, economic, industry, market or financial condition (including changes in the electric generating, transmission or distribution industry, the wholesale or retail markets for electrical power, the general state of the energy industry, including natural gas and natural gas liquid prices, the transmission system, interest rates, consumer confidence, outbreak of hostilities, terrorist activities or war), whether general or regional in nature, but excluding any such changes that are limited specifically to the Project Companies, (ii) any change in Applicable Law or regulatory policy which does not have a disproportionate effect on the Company or the Project Companies compared to other owners or operators of similar geothermal power projects, (iii) effects of weather or meteorological events, but excluding any such effects or events that are limited specifically to the Projects, (iv) strikes, work stoppages or other labor disturbances, other than any of the foregoing occurring solely at the Company or the Project Companies or (v) the execution or delivery of the Transaction Documents or the transactions contemplated thereby or the announcement thereof.  

 

Name Subject Matter Doron Blachar 3.1(a)-(i), 3.1(l), 3.1(s), 3.1(w)-(z), 3.1(aa), 3.1(cc)-(dd), 3.1(ff), 4.7(a) Ohad Zimron/Zvi Krieger 3.1(n)-(r), 3.1(t)-(v), 3.1(bb), 3.1(ee) Randy Peterson 3.1(j), 3.1(k) Scott Kessler 3.1(m) Smadar Lavi 3.1(p), 3.1(r), 3.1(cc)

 Annex-5

  "Material Contract" means each of the following to which the Company or a Project Company is party: (a) any power purchase agreement, operation and maintenance agreement

(including, without limitation, each Operation and Maintenance Agreement), interconnection agreement, transmission agreement, energy attribute agreement, commodity hedge agreement or similar project agreement related to the sale of electricity or transmission services of a Project, (b) any services agreement involving annual payments by or to the Company or a Project Company in excess of $3.5 million, (d) any agreement relating to indebtedness or any material performance obligation of the Company or any Project Company, including any leases, guarantees, letter of credit arrangements or bonding arrangements, in each case, in a principal amount, or that involves annual payments in an amount, of at least $3.5 million, (e) any agreement or document creating or relating to Liens on any property or assets of the Company or any Project Company securing any obligation created under an agreement specified in clause (d) above, (f) any engineering, construction, procurement, construction management, equipment purchase, or similar contract involving annual payments by or to the Company or a Project Company in excess of $3.5 million, (g) any product warranty or repair contract by or with a manufacturer or vendor of equipment owned or leased by a Project Company with a fair market value of more than $3.5 million, (h) any contract for the sale or purchase of any business entity, or of any property involving assets with a value in excess of $3.5 million, (i) any settlement agreement involving payments by or to the Company or a Project Company in excess of $3.5 million or imposing any material unperformed obligations on the Company or any Project Company, (j) any contracts between the Seller or any Affiliate thereof (other than the Company or a Project Company) and either the Company or a Project Company, (k) any agreement regarding the sharing or allocation of Taxes, (l) any contract with payments based on the net profits of the Company or a Project Company (such as a royalty fee contract), (m) any contracts evidencing the real estate interests required for the ownership, use and operation of the Projects, (n) any contract providing for the indemnification to or from any Person with respect to any material liabilities relating to the Company, any Project or any of their respective properties or assets, (o) any contract under which any material intellectual property is licensed to the Company or any Project Company, (p) any contract that provides for non-monetary obligations on the part of the Company or any Project Company, the non-performance of which could reasonably be expected to have a Material Adverse Effect and (q) any other contract that is expected to require payments by or to the Company and the Project Companies in the aggregate of more than $3.5 million in any calendar year.  

"Operation and Maintenance Agreements" means, collectively, the Operation and Maintenance Agreements between the Seller or an Affiliate of Seller and each Project Company.  

"Ordinary Course of Business" means the ordinary conduct of business consistent with past custom and practice (including with respect to quantity and frequency).  

"OREG 1" means as of the date hereof, OREG 1, Inc., a Delaware corporation, and after the conversion set forth in Section 4.12, OREG 1, LLC, a Delaware limited liability company.  

"OREG 1 Project" means the recovered energy generation project owned by OREG 1, as described on Schedule 1.  

 

 Annex-6

  "OREG 2" means as of the date hereof, OREG 2, Inc., a Delaware corporation, and after the conversion set forth in Section 4.12, OREG 2, LLC, a Delaware limited liability company.

  "OREG 2 Project" means the recovered energy generation project owned by OREG 2, as described on Schedule 1.

  "OREG 3" means as of the date hereof, OREG 3, Inc., a Delaware corporation, and after the conversion set forth in Section 4.12, OREG 3, LLC, a Delaware limited liability company.

  "OREG 3 Project" means the recovered energy generation project owned by OREG 3, as described on Schedule 1.

  "Organizational Documents" means articles of incorporation, certificate of incorporation, charter, bylaws, articles of organization, formation or association, regulations, operating

agreement, certificate of limited partnership, partnership agreement, and all other similar documents, instruments or certificates executed, adopted, or filed in connection with the creation, formation or organization of a Person, including any amendments thereto.  

"ORNI 8" means ORNI 8 LLC, a Delaware limited liability company.  

"ORNI 37" means ORNI 37 LLC, a Delaware limited liability company.  

"ORNI 47" means ORNI 47 LLC, a Delaware limited liability company.  

"OrPuna" means OrPuna LLC, a Delaware limited liability company.  

"Party" means a party to this Agreement.  

"PCBs" has the meaning set forth in the definition of "Hazardous Substances" in this Annex I.  

"Permits" means all licenses, franchises, permits, certificates, orders, approvals, exemptions, registrations or other authorizations from, or filings or certifications made with, Governmental Authorities, including Permits under Environmental Laws.  

"Permitted Liens" means (a) Liens granted in favor of the collateral agent for the benefit of the Holders of the Senior Secured Notes, (b) Liens for any Tax not yet due or being contested in good faith and by appropriate proceedings, so long as (i) such proceedings shall not involve any substantial danger of the sale, forfeiture or loss of any Project, the sites of any Project or any easements, as the case may be, title thereto or any interest therein, and shall not interfere in any material respect with the use of any Project, any Project sites or any easements, and (ii) adequate reserves have been provided therefor to the extent required by and in accordance with GAAP, (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's, employees', contractors', operators' or other similar liens or charges securing the payment of expenses not yet due and payable that were incurred in the Ordinary Course of Business of each Project Company, (d) trade contracts or other obligations of a like nature incurred in the Ordinary Course of Business, not to exceed $3.5 million, by each Project Company, (e) obligations or duties to any Governmental Authority arising in the Ordinary Course of Business (including under Permits held by the Project Companies and under all Applicable Law, (f) obligations or duties under easements, leases or other property rights, and (g) all other encumbrances and exceptions that are incurred in the Ordinary Course of Business of each Project, are not incurred for borrowed money and do not have a material adverse effect on either the use of any assets of the Project Companies as currently used or the value of any such assets, and which involve encumbrances or assets with an aggregate amount or value (aggregated across all Projects and Project Companies) not exceeding $3.5 million.  

 

 Annex-7

  "Person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity.

  "PGV" means Puna Geothermal Venture, a Hawaii general partnership.

  "PGV Audited Financial Statements" has the meaning set forth in Section 3.1(h).

  "PGV Interim Financial Statements" has the meaning set forth in Section 3.1(h).

  "PGV-II" means PGV-II Inc., a Delaware corporation.

  "PGV-II Interests" has the meaning set forth in Section 2.4(dd).

  "Pre-Close Capital Contributions Amount" has the meaning set forth in Section 2.2(c).

  "Pre-Closing Date" has the meaning set forth in Section 2.3.

  "Project Companies" means each of OREG 1, OREG 2, OREG 3, ORNI 8, ORNI 47, OrPuna and PGV.

  "Projects" means the power projects described on Schedule 1.

  "Prudent Industry Practices" means, at any particular time, either (a) any of the practices, methods and acts engaged in or approved by a significant portion of the competitive

geothermal power generating industry or recovered energy power generating industry, as applicable, operating in the United States at such time, or (b) with respect to any matter to which the practices referred to in clause (a) do not apply, any of the practices, methods and acts that, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good competitive electric generation business practices, reliability, safety and expedition. "Prudent Industry Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers' warranties, the requirements of insurance policies and the requirements of governmental bodies of competent jurisdiction.  

"PUHCA" has the meaning set forth in Section 3.1(t).  

"Puna Cash Grant" means the Cash Grant received in respect of the Puna Project.  

"Puna Land Lease" has the meaning set forth in Schedule 2.4(t).  

 

 Annex-8

  "Puna Lease Financing Documents" has the meaning set forth in Schedule 2.4(t).

  "Puna Project" means the geothermal power project owned by PGV, as described on Schedule 1.

  "Purchase Price" has the meaning set forth in Section 2.2.

  "Purchaser" has the meaning set forth in the first paragraph of this Agreement.

  "Purchaser Indemnified Costs" means, subject to Article 5 of this Agreement, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and

reasonable expenses (including court costs and reasonable attorneys' fees and expenses of one law firm, for all Purchaser Indemnified Parties, incurred by any of the Purchaser Indemnified Parties resulting from or relating to (a) any breach or default by Seller of any representation, warranty, covenant, indemnity or agreement under this Agreement or any other Transaction Document or (b) any claim for fraud, gross negligence, or willful misconduct relating to this Agreement or any Transaction Document.  

"Purchaser Indemnified Parties" means Purchaser and each of its Affiliates and each of their respective shareholders, members, partners, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.  

"Real Property" has the meaning set forth in Section 3.1(m).  

"Recapture Period" means with respect to the Puna Project or Don A. Campbell Project, the period commencing on the date that such Project was placed in service for United States federal income tax purposes and ending on the 5th anniversary thereof.  

"Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment.  

"Restricted Payment" means, as to any Person, (a) the declaration or payment of any dividend on or in respect of any Equity Interests of such Person, (b) the purchase, redemption, defeasance or other acquisition or retirement of any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person, (c) any other distribution of or in respect of any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person, (d) any payment on account of, any setting apart or allocating any sum for the payment of, any dividend or distribution, or for the purchase, redemption, defeasance, retirement or other acquisition of, any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person or (e) the payment of any amounts, directly or indirectly, to such Person's Affiliates, other than as required under the terms of any Material Contracts in effect as of the date of this Agreement or required by Applicable Law; provided, that any distribution set forth on Schedule 3.1(ff) shall not be considered a "Restricted Payment" hereunder.  

"Schedules" means the Schedules attached to this Agreement.  

"Securities Act" has the meaning set forth in Section 3.2(e).  

 

 Annex-9

  "Seller" has the meaning set forth in the first paragraph of this Agreement.

  "Seller Indemnified Costs" means, subject to Article 5 of this Agreement, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and

reasonable expenses (including court costs and reasonable attorneys' fees and expenses of one law firm for all Seller Indemnified Parties) incurred by any of the Seller Indemnified Parties resulting from or relating to (a) any breach or default by Purchaser of any representation, warranty, covenant, indemnity or agreement under this Agreement or any other Transaction Document or (b) any claim for fraud or willful misconduct relating to this Agreement or any Transaction Document.  

"Seller Indemnified Parties" means Seller and each of its Affiliates and each of their respective shareholders, members, partners, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.  

"Senior Secured Note" or "Note" mean the SE Puna, L.L.C. 6.24% Senior Secured Note due December 30, 2019, issued pursuant to the Indenture dated as of May 18, 2005 (as amended through the date hereof) by and among the SE Puna, L.L.C. and Union Bank of California, N.A., as indenture trustee.  

"Tax" or "Taxes" means any taxes, assessments, fees and other governmental charges imposed by any Governmental Authority, including income, profits, gross receipts, net proceeds, alternative or add-on minimum, ad valorem, value added, turnover, sales, use, property, personal property (tangible and intangible), environmental, stamp, leasing, lease, user, excise, duty, franchise, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, unclaimed property (escheat) or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.  

"Tax Returns" means any return, report, statement, information return or other document (including any amendments thereto and any related or supporting information) filed or required to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes.  

"Third Party Claim" has the meaning set forth in Section 5.3.  

"Third Party Penalty Claim" has the meaning set forth in Section 5.3.  

"Transaction Documents" means this Agreement, the Company LLC Agreement, the Management Services Agreement, the Assignment Agreement and any letter agreement between the Seller and the Purchaser that is expressly designated therein as a "Transaction Document."  

"Treasury Guidance" means the U.S. Department of Treasury's program guidance publication entitled "Payments for Specific Energy Property in Lieu of Tax Credits under the American Recovery and Reinvestment Act of 2009" dated July 2009, revised March 2010 and April 2011 and any other guidance, instructions, or terms and conditions published or issued by the U.S. Department of Treasury in respect of the Cash Grant or any application therefore.  

 

 Annex-10

  "Treas. Reg. 1.1502-6 Liability" has the meaning set forth in Section 5.1.

  "Treasury Regulations" means the regulations promulgated by the U.S. Department of Treasury under the Code, as such regulations are amended from time to time.

  "USD-CAD Forex Rate" has the meaning set forth in Section 2.2(d).

 

 

 Annex-11

  OTHER DEFINITIONAL PROVISIONS

  (a)     All terms in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.

  (b)     As used in this Agreement and in any certificate or other documents made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such

certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Agreement or in any such certificate or other document shall control.  

(c)     The words "hereof", "herein", "hereunder", and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section references contained in this Agreement are references to Sections in this Agreement unless otherwise specified. The term "including" shall mean "including without limitation".  

(d)     The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.  

(e)     Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein.  

(f)     Any references to a Person are also to its successors and permitted assigns.  

(g)     All Article and Section titles or captions contained in this Agreement or in any Exhibit or Schedule referred to herein and the table of contents of this Agreement are for convenience only and shall not be deemed a part of this Agreement or affect the meaning or interpretation of this Agreement. Unless otherwise specified, all references herein to numbered Articles and Sections are to Articles and Sections of this Agreement, as applicable, and all references herein to Schedules or Exhibits are to Schedules and Exhibits to this Agreement.  

(h)     Unless otherwise specified, all references contained in this Agreement, in any Exhibit or Schedule referred to herein or in any instrument or document delivered pursuant hereto to dollars or "$" shall mean United States dollars.  

(i)     The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  

 

 Annex-12

  Exhibit A

  Form of Company LLC Agreement

  (see attached)

   

 

  Exhibit-A-1

    

 

[FORM OF] AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

OF

ORPD LLC

a Delaware Limited Liability Company

dated as of [●], 2015

 

 

  

  TABLE OF CONTENTS

  Page

   

  

 

Article I DEFINITIONS     2Section 1.1. Definitions 2 Section 1.2. Other Definitional Provisions 2

Article II CONTINUATION; OFFICES; TERM   3 Section 2.1. Continuation of the Company 3 Section 2.2. Name, Office and Registered Agent 3 Section 2.3. Purpose 3 Section 2.4. Term 3 Section 2.5. Organizational and Fictitious Name Filings; Preservation of Limited Liability 3 Section 2.6. No Partnership Intended 4

Article III RIGHTS AND OBLIGATIONS OF THE MEMBERS   4 Section 3.1. Membership Interests 4 Section 3.2. Meetings of the Members; Actions by the Members 5 Section 3.3. Management Rights 6 Section 3.4. Other Activities 7 Section 3.5. No Right to Withdraw 7 Section 3.6. Limitation on Liability of Members 8 Section 3.7. No Liability for Deficits 9 Section 3.8. Company Property 9 Section 3.9. Retirement, Resignation, Expulsion, Incompetency, Bankruptcy or Dissolution of a Member 9 Section 3.10. Withdrawal of Capital 9 Section 3.11. Representations and Warranties 9 Section 3.12. Covenants 11

Article IV CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS; RESERVES     12Section 4.1. Capital Contributions 12 Section 4.2. Capital Accounts 12 Section 4.3. Additional Capital Contributions 13 Section 4.4. Dilution Mechanism 14 Section 4.5. Additional Activities Contribution 14 Section 4.6. Pre-Emptive Rights 17

Article V ALLOCATIONS   17Section 5.1. Allocations 17 Section 5.2. Adjustments 18

 ii 

 

  

 

Section 5.3. Tax Allocations 19 Section 5.4. Transfer or Change in Company Interest 19 Section 5.5. Other Allocation Rules 19

Article VI DISTRIBUTIONS   20Section 6.1. Distributions 20 Section 6.2. Withholding Taxes 20 Section 6.3. Limitation upon Distributions 20 Section 6.4. Special Ormat Distribution 21 Section 6.5. Special Puna Distributions 21 Section 6.6. No Return of Distributions 23

Article VII ACCOUNTING AND RECORDS   23 Section 7.1. Reports 23 Section 7.2. Books and Records and Inspection 24 Section 7.3. Financial Statements 25 Section 7.4. Bank Accounts, Notes and Drafts 26 Section 7.5. Partnership Status and Tax Elections 26 Section 7.6. Company Tax Returns 27 Section 7.7. Tax Audits 28 Section 7.8. Cooperation 29 Section 7.9. Fiscal Year 29 Section 7.10. Tax Year 29 Section 7.11. Recapture Related Obligations 29

Article VIII MANAGEMENT   30 Section 8.1. Management 30 Section 8.2. Managing Member 31 Section 8.3. Major Decisions 31

Article IX TRANSFERS     32Section 9.1. Prohibited Transfers 32 Section 9.2. Lock-Up Period 32 Section 9.3. Requirements for Transfers of Membership Interests 32 Section 9.4. Right of First Offer 34 Section 9.5. Tag-Along Sale 36 Section 9.6. Regulatory and Other Authorizations and Consents 37 Section 9.7. Admission 38

Article X DISSOLUTION AND WINDING-UP     38Section 10.1. Events of Dissolution 38 Section 10.2. Distribution of Assets 38

 iii 

 

   

 

 

Section 10.3. In-Kind Distributions 39 Section 10.4. Certificate of Cancellation 39

Article XI MISCELLANEOUS   40 Section 11.1. Notices 40 Section 11.2. Amendment 40 Section 11.3. Partition 40 Section 11.4. Waivers and Modifications 40 Section 11.5. Severability 41 Section 11.6. Successors; No Third-Party Beneficiaries 41 Section 11.7. Entire Agreement 41 Section 11.8. Governing Law 41 Section 11.9. Further Assurances 41 Section 11.10. Counterparts 41 Section 11.11. Dispute Resolution 42 Section 11.12. Confidentiality 44 Section 11.13. Joint Efforts 45 Section 11.14. Specific Performance 45 Section 11.15. Survival 46 Section 11.16. Working Capital Loans and Letter of Credit Reimbursement Obligations 46 Section 11.17. Recourse Only to Member 47

ANNEX 1: Definitions     EXHIBITS:  

Exhibit A: Form of Certificate of Class A Membership Interests Exhibit B: Form of Certificate of Class B Membership Interests Exhibit C-1: Form of Quarterly Operations Reports Exhibit C-2 Form of Monthly Operations Reports Exhibit D: Form of Working Capital Loan Note Exhibit E: Form of ORNI 37 Purchase Agreement Exhibit F: Capacity Test Procedures

        SCHEDULES  

Schedule I Register Schedule 4. 2(d) Capital Accounts Schedule 9.4(e) ROFO Representations

 iv 

  AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

ORPD LLC  

This Amended and Restated Limited Liability Company Agreement (this "Agreement") of ORPD LLC, a Delaware limited liability company (the "Company"), dated as of [●], 2015 (the "Effective Date"), by and between Ormat Nevada Inc., a Delaware corporation ("Ormat"), Northleaf Geothermal Holdings LLC, a Delaware limited liability company ("Northleaf") and [ORPD Holding LLC], a [Delaware limited liability company] (the "1% Member"), adopted, executed and agreed to, for good and valuable consideration, by the Members, as defined below.  

Preliminary Statements  

A.     The Company was formed by the filing of its Certificate of Formation with the Secretary of State of the State of Delaware on February 2, 2015 (the "Certificate of Formation") and is governed by the limited liability company agreement of the Company dated as of February 2, 2015 executed by Ormat (the "Original LLC Agreement").  

B.     The Company owns, of record and beneficially, 100% of the membership interests in each of OREG 1, OREG 2, OREG 3, ORNI 8, ORNI 47 and OrPuna; ORNI 8 and OrPuna collectively own, of record and beneficially, 100% of the partnership interests of PGV (each of the foregoing entities, a "Project Company" and, collectively with any other Subsidiaries of the Company, the "Project Companies"). Each of the Project Companies owns and operates, directly or indirectly, one or more geothermal or recovered energy generation facilities (collectively, the "Projects").  

C. Pursuant to the Agreement for Purchase of Membership Interests between Ormat and Northleaf, dated as of February [●], 2015 (the " Purchase Agreement") Ormat has agreed to sell (and as of the Effective Date has sold) to Northleaf, and Northleaf has agreed to purchase (and as of the Effective Date has purchased) from Ormat, all of the Class B Membership Interests (as defined in Annex I hereto) of the Company.  

D.     Ormat, Northleaf and the 1% Member desire for Northleaf to be admitted as a Member (as defined in Annex I hereto) of the Company and for the Company to continue and for the Original LLC Agreement to be amended and restated as stated herein.   

 

  

  NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are

hereby acknowledged, the Members hereby agree to adopt this Agreement with respect to various matters relating to the Company and Members to read as follows:  

ARTICLE I DEFINITIONS

  Section 1.1.     Definitions. Capitalized terms used but not otherwise defined in this Agreement have the meanings given to such terms in Annex I.

  Section 1.2.     Other Definitional Provisions.

  (a)     All terms in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined

therein.  

(b)     As used in this Agreement and in any certificate or other documents made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Agreement or in any such certificate or other document shall control.  

(c)     The words "hereof," "herein," "hereunder," and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section references contained in this Agreement are references to Sections in this Agreement unless otherwise specified. The term "including" shall mean "including without limitation."  

(d)     The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.  

(e)     Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein.  

(f)     Any references to a Person are also to its permitted successors and assigns.  

(g)     Unless otherwise specified, all references contained in this Agreement, in any Exhibit or Schedule referred to herein or in any instrument or document delivered pursuant hereto to dollars or "$" shall mean United States dollars.   

 

 2

  ARTICLE II

CONTINUATION; OFFICES; TERM  

Section 2.1.     Continuation of the Company. The Members hereby acknowledge the continuation of the Company as a limited liability company pursuant to the Act, the Certificate of Formation and this Agreement. This Agreement amends and restates the Original LLC Agreement in its entirety.  

Section 2.2.     Name, Office and Registered Agent.  

(a)     The name of the Company is "ORPD LLC" or such other name or names as may be agreed to by the Members from time to time. The principal office of the Company shall be: 6225 Neil Road, Reno, Nevada 89511-1136. The Managing Member may at any time change the location of such office to another location, provided, that the Managing Member gives prompt written notice of any such change to the Members and the registered agent of the Company.  

(b)     The registered office of the Company in the State of Delaware is located at c/o HIQ Corporate Services, 800 North State Street, Dover, Delaware 19901. The registered agent of the Company for service of process at such address is HIQ Corporate Services, Inc. The registered office and registered agent may be changed by the Managing Member at any time in accordance with the Act; provided, that the Managing Member gives prompt written notice of any such change to all Members. The registered agent's primary duty as such is to forward to the Company at its principal office and place of business any notice that is served on it as registered agent.  

Section 2.3.     Purpose. The nature of the business or purpose to be conducted or promoted by the Company is: (a) to acquire, own, hold or dispose of the limited liability company interests or partnership interests, as applicable, in the Project Companies and/or the Projects; (b) to enter into the Transaction Documents to which it is a party, and to engage in the transactions contemplated by the Transaction Documents; and (c) to engage in any lawful act or activity, enter into any agreement and to exercise any powers permitted to limited liability companies formed under the Act that are incidental to or necessary, suitable or convenient for the accomplishment of the purposes specified above.  

Section 2.4.     Term. The term of the Company commenced on February 2, 2015 and shall continue indefinitely or until the Company is dissolved in accordance with the terms hereof or as otherwise provided by law (the "Termination Date").  

Section 2.5.     Organizational and Fictitious Name Filings; Preservation of Limited Liability. Prior to the Company's conducting business in any jurisdiction other than Delaware, the Managing Member shall cause the Company to register as a foreign limited liability company and file such fictitious or trade names, statements or certificates in such jurisdictions and offices as are necessary or appropriate for the conduct of the Company's operation of its business. The Managing Member may take any and all other actions as may be reasonably necessary or appropriate to perfect and maintain the status of the Company as a limited liability company or similar type of entity under the laws of Delaware and any other state or jurisdiction other than Delaware in which the Company engages in business and continue the Company as a limited liability company and to protect the limited liability of the Members as contemplated by the Act.   

 

 3

  Section 2.6.     No Partnership Intended. Other than for purposes of determining the status of the Company under the Code and the applicable Treasury Regulations and under any

applicable state, municipal or other income tax law or regulation, the Members intend that the Company not be a partnership, limited partnership, joint venture or other arrangement, and this Agreement shall not be construed to suggest otherwise.  

ARTICLE III RIGHTS AND OBLIGATIONS OF THE MEMBERS

  Section 3.1.     Membership Interests.

  (a)     The Membership Interests of the Company shall consist of [600] Class A Membership Interests (the "Class A Membership Interests") and [400] Class B Membership

Interests (the "Class B Membership Interests").  

(b)     The Class A Membership Interests and the Class B Membership Interests shall (i) have the rights and obligations ascribed to such Membership Interests in this Agreement and the Act; (ii) be evidenced solely by certificates in the forms annexed hereto as Exhibit A and Exhibit B, respectively, or such other form as may be prescribed from time to time by any Applicable Law; (iii) be recorded in a register of Membership Interests (the "Register"), which shall be in the form attached hereto as Schedule I setting forth, with respect to all Members, such Member's name; the number and class of Membership Interests held by such Member, and which the Managing Member shall maintain; (iv) be transferable only in compliance with the provisions of Article IX hereof and upon presentation of the certificates duly endorsed for Transfer, or accompanied by assignment documentation in accordance with Article IX; (v) be "securities" governed by Article 8 of the UCC in any jurisdiction (x) that has adopted revisions to Article 8 of the UCC substantially consistent with the 1994 revisions to Article 8 adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and (y) whose laws may be applicable, from time to time, to the issues of perfection, the effect of perfection or non-perfection, and the priority of a security interest in Membership Interests in the Company; and (vi) be personal property.  

(c)     The Company shall be entitled to treat the registered holder of a Membership Interest, as shown in the Register, as a Member for all purposes of this Agreement, except that the Managing Member may record in the Register any security interest of a secured party pursuant to any security interest permitted by this Agreement. The Managing Member shall from time to time update the Register as necessary to accurately reflect the information therein. Any reference in this Agreement to the Register shall be deemed to be a reference to the Register as in effect at that time. Each Member shall receive, upon such Member's request, the information set forth on the Register with respect to such Member's Membership Interest as of the date of such request. Revisions to the Register made by the Managing Member as a result of changes to the information set forth therein made in accordance with this Agreement shall not constitute an amendment of this Agreement, and shall not require the consent of any Member.   

 

 4

  (d)     If a Member transfers all of its Membership Interest to another Person pursuant to and in accordance with the terms set forth in Article IX, the transferor shall

automatically cease to be a Member.  

Section 3.2.     Meetings of the Members; Actions by the Members.  

(a)     Meetings of the Members shall be held quarterly and may also be called at any time by the Managing Member within 10 days following the written request of a Member. Except as otherwise permitted by this Agreement (including Section 3.2(e) below), all actions of the Members shall be taken at meetings of the Members. The Members may conduct any Company business at any such meeting that is permitted under the Act or this Agreement. Meetings shall be at a reasonable time and place. Accurate minutes of any meeting shall be taken and filed with the minute books of the Company. Following each meeting, the minutes of the meeting shall be sent to each Member.  

(b)     Members may participate in any meeting of the Members by means of conference telephone or other communications equipment so that all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. A Member may designate a third party (non-employee of the Member) as its representative for any meeting of the Members; provided, that such designee (i) is not then currently employed directly or indirectly as an employee, consultant, or advisor (or in any similar capacity) of or by a Competitor, (ii) prior to, and as a condition of, attending any meeting of the Members, such designee has executed a confidentiality agreement which shall include customary confidentiality undertakings and restrictions on use provisions, which shall be in all respects acceptable to the Managing Member (or, if Ormat is no longer the Managing Member, acceptable to the Managing Member and Ormat) and (iii) the Member designating such third party shall be responsible and liable for the acts or omissions of its designee.  

(c)     The presence in person or by proxy of Members owning more than 50% of the aggregate Class A Membership Interests and more than 50% of the aggregate Class B Membership Interests shall constitute a quorum for purposes of transacting business at any meeting of the Members.  

(d)     Written notice stating the place, day and hour of the meeting of the Members, and the purpose or purposes for which the meeting is called, shall be delivered by or at the direction of the Managing Member, to each Member of record not less than 5 Business Days nor more than 30 days prior to the meeting. Notwithstanding the foregoing, meetings of the Members may be held without notice so long as all the Members are present in person or by proxy.  

(e)     Any action of the Members that may be taken at a meeting of the Members may be taken by the Members without a meeting if such action is proposed by written notice to the Members as provided in this Section 3.2(e) and is authorized or approved by the written consent of Members representing sufficient Membership Interests (based on voting power of such Membership Interests) to authorize or approve such action pursuant to this Agreement. Written notice stating the proposed Member action, authorization or approval to be considered, together with relevant materials and information reasonably necessary for the Members to consider such action, authorization or approval, shall be delivered by or at the direction of the Managing Member to each Member of record entitled to vote on such matter not less than 5 Business Days nor more than 30 days prior to the time that such action, authorization or approval is proposed to take effect. Where such action by written consent is authorized by unanimous written consent, no such prior notice is required. A copy of any action taken by written consent shall be sent promptly to all Members and all actions by written consent shall be filed with the minute books of the Company.   

 

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  (f)     With respect to those matters required or permitted to be voted upon by the Members, or for which a consent or approval of Members is required or permitted, the

affirmative vote, consent or approval by a simple majority of Membership Interests (based on voting power of such Membership Interests) (the "Majority Vote") shall be required to authorize or approve any such matter; provided, that, the affirmative unanimous vote, consent or approval of the Class A Members and Class B Members shall be required for any Major Decisions. Notwithstanding anything to the contrary in this Agreement, (x) either the Managing Member or Northleaf (for so long as Northleaf and its Affiliates, collectively hold the majority of the Class B Membership Interests) may determine and so instruct the Company pursuant to written notice delivered to the Company (with a copy to each Member), to cause the relevant Project Company to exercise (i) the purchase option under Section 21 of the Puna Project Lease Agreement and (ii) the renewal option under Section 15 of the Puna Project Lease Agreement and (y) the Class B Member shall have the right to enforce the provisions of any Affiliate Contract and the warranties and indemnities under the Don A. Campbell Expansion EPC Agreement and the ORNI 37 Purchase Agreement on behalf of the Project Company party thereto (including ORNI 37). Except as otherwise expressly provided in this Agreement, no separate vote, consent or approval of either the Class A Members, acting as a class, or the Class B Members, acting as a class, shall be required to authorize or approve any matter for which a vote, consent or approval of Members is required under this Agreement.  

(g)     The voting power of each Membership Interest for purposes of any vote, consent or approval of Members required under this Agreement or the Act shall be as follows:  

(i)     each Class A Membership Interest shall be entitled to 1 vote; and  

(ii)     each Class B Membership Interest shall be entitled to 1 vote.  

Section 3.3.     Management Rights. Except as otherwise provided in this Agreement with respect to matters which are expressly required to be approved by the Members under this Agreement or as otherwise mandatorily required by the Act, no Member other than the Managing Member shall have any right, power or authority to take part in the management or control of the business of, or transact any business for, the Company, to sign for or on behalf of the Company or to bind the Company in any manner whatsoever. Except as otherwise provided herein, neither the Managing Member nor the Manager shall hold out or represent to any third party that any other Member has any such power or right or that any Member is anything other than a member in the Company. A Member shall not be deemed to be participating in the control of the business of the Company by virtue of its possessing or exercising any rights set forth in this Agreement or the Act or any other agreement relating to the Company.   

 

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  Section 3.4.     Other Activities. Notwithstanding any duty otherwise existing at law or in equity, any Member or the Manager may engage in or possess an interest in other business

ventures of every nature and description, independently or with others, even if such activities compete directly with the business of the Company, and, except as and to the extent expressly set forth in this Agreement, neither the Company nor any of the Members shall have any rights by virtue of this Agreement in and to such independent ventures or any income, profits or property derived from them. Without limiting the generality of the foregoing, the Members recognize and agree that:  

(a)     the Members and their respective Affiliates currently engage in certain activities involving the generation, transmission, distribution, marketing and trading of electricity and other energy products (including futures, options, swaps, exchanges of future positions for physical deliveries and commodity trading), and the gathering, processing, storage and transportation of such products, as well as other commercial activities related to such products, and that these and other activities by Members and their Affiliates (herein referred to as "Outside Activities") may be made possible or more profitable by reason of the Company's activities. The Members agree that (i) no Member or Affiliate of a Member shall be restricted in its right to conduct, individually or jointly with others, for its own account any Outside Activities, and (ii) no Member or its Affiliates shall have any duty or obligation, express or implied, to account to, or to share the results or profits of such Outside Activities with, the Company, any other Member or any Affiliate of any other Member, by reason of such Outside Activities.  

(b)     Except for the Don A. Campbell Expansion (which shall be contributed to the Company in accordance with Section 4.5 hereof), neither party has an exclusivity obligation for future investments.  

(c)     Each Member, for itself and its Affiliates, retain any and all rights to directly or indirectly pursue future development and acquisition opportunities outside of the Company and without participation of the Company or the other Member.  

(d)     The Members hereby agree that each of the Puna Project and the Don A. Campbell Project utilizes specific geothermal resources as set forth in the Puna GeothermEx Report and the DAC GeothermEx Report, respectively, located on such land owned or leased by the relevant Project Company as set forth in Schedule 3.1(m) to the Purchase Agreement (for purposes hereof, the "Geothermal Resource Area"). Notwithstanding anything in this Section 3.4 to the contrary, Ormat agrees that it shall not separately develop any geothermal power project (other than the Don A. Campbell Expansion) that relies on the same Geothermal Resource Area or any contiguous tract unless it shall have first delivered to each Class B Member a resource report from a recognized geothermal reservoir engineering firm mutually selected by the Members that confirms that such new project development and use of such Geothermal Resource Area could not reasonably be expected to adversely affect the relevant Project Company's existing Project.  

Section 3.5.     No Right to Withdraw. Except as otherwise expressly provided in this Agreement, no Member shall have any right to voluntarily resign or otherwise withdraw from the Company without the prior written consent of the remaining Members of the Company in their sole and absolute discretion.   

 

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  Section 3.6.     Limitation on Liability of Members.

  (a)     Each Member's liability shall be limited as set forth in the Act and other Applicable Laws. Except as otherwise required by the Act, the debts, obligations and liabilities of

the Company, whether arising in contract, tort or otherwise, shall be the debts, obligations and liabilities solely of the Company, and the Members of the Company shall not be obligated personally for any of such debts, obligations or liabilities solely by reason of being a Member of the Company. In no event shall any Member or the Manager be liable under this Agreement to another Member for any lost profits of, or any consequential, punitive, special or incidental damages incurred by, such Member arising from a breach of this Agreement; provided, that this Section 3.6(a) shall in no way limit any such liability of a Member or the Manager to the Company, any of its Subsidiaries or another Member under any other Transaction Document or for gross negligence, fraud or willful misconduct.  

(b)     Each Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any other Person who is a Member, the Manager or any officer or employee of the Company, or by any other individual as to matters such Covered Person reasonably believe are within such other individual's professional or expert competence, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits or losses of the Company or any other facts pertinent to the existence and amount of assets from which distribution to the Members might properly be paid.  

(c)     To the extent that, at law or in equity, a Member, in its capacity as a member (or manager) of the Company or otherwise, has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any Member or other Person bound by this Agreement, such Member, acting under this Agreement shall not be liable to the Company or to any Member or other Person bound by this Agreement for its good faith reliance on the provisions of this Agreement; provided, that this Section 3.6(c) shall not be construed to limit obligations or liabilities therefor, in each case as expressly stated in this Agreement or any other Transaction Document, or in the event of gross negligence, fraud or willful misconduct. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Member, in its capacity as a member (or manager) of the Company or otherwise, otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Member.  

(d)     No Member, in its capacity as a Member, Managing Member or Manager, shall have any liability for breach of contract (except as provided in (i) and (ii) below) or breach of duties (including fiduciary duties) of a member or manager to the Company or to any other Person that is a party to or is otherwise bound by this Agreement, in each case, to the fullest extent permitted by the Act; provided, that (i) this Agreement shall not limit or eliminate liability for any (x) obligations expressly imposed on such Member, as Member, Managing Member or Manager, pursuant to this Agreement or any other Transaction Document or (y) act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing or (z) fraud, willful misconduct or gross negligence and (ii) this Section 3.6(d) shall not limit or eliminate liabilities expressly stated in this Agreement or any other Transaction Document.   

 

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  (e)     Liability to the Company, any Class B Member or any other Person bound by this Agreement for damages resulting from a breach or breaches by (i) the Manager of any

of its obligations, covenants or agreements under the Management Services Agreement or (ii) by the Operator of any of its obligations, covenants or agreements under any O&M Agreement shall be separate and distinct from liabilities of Ormat in its capacity as a Class A Member.  

(f)     Except as otherwise mandatorily required under Applicable Law, whenever in this Agreement a Member is permitted or required to make a decision (i) in its "sole discretion" or "discretion" or under a grant of similar authority or latitude, the Member may consider such interests and factors as it desires, including expressly its own interests, and shall have no duty or obligation to give any consideration to any interests of or factors affecting the Company or any other Member, or (ii) in its "good faith" or under another expressed standard, a Member shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or any other agreement contemplated herein or by relevant provisions of law (whether common or statutory) or in equity or otherwise.  

Section 3.7.     No Liability for Deficits. Except to the extent otherwise provided by law with respect to third party creditors of the Company and in Section 10.2(f), none of the Members shall be liable to the Company for any deficit in its Capital Account, nor shall such deficits be deemed assets of the Company.  

Section 3.8.     Company Property. All property owned by the Company, whether real or personal, tangible or intangible and wherever located, shall be deemed to be owned by the Company, and no Member, individually, shall have any ownership of such property.  

Section 3.9.     Retirement, Resignation, Expulsion, Incompetency, Bankruptcy or Dissolution of a Member. The retirement, resignation, expulsion, Bankruptcy or dissolution of a Member shall not, in and of itself, dissolve the Company. The successors in interest to the bankrupt Member shall, for the purpose of settling the estate, have all of the rights of such Member, including the same rights and subject to the same limitations that such Member would have had under the provisions of this Agreement to Transfer its Membership Interest. A successor in interest to a Member shall not become a substituted Member except as provided in this Agreement.  

Section 3.10.     Withdrawal of Capital. No Member shall have the right to withdraw capital from the Company or to receive or demand distributions (except as to distributions of Distributable Cash as set forth in Article VI) or return of its Capital Contributions until the Company is dissolved in accordance with this Agreement and applicable provisions of the Act. No Member shall be entitled to demand or receive any interest on its Capital Contributions.  

Section 3.11.     Representations and Warranties.  

(a)     Each Member hereby represents and warrants to the Company and each other Member that the following statements are true and correct as of the date it becomes a Member (both immediately before and after the time it becomes a Member):  

(i)     That the Member is duly incorporated, organized or formed (as applicable), validly existing and (if applicable) , in good standing under the law of the jurisdiction of its incorporation, organization or formation; if required by applicable law, that Member is duly qualified and in good standing in the jurisdiction of its principal place of business, if different from its jurisdiction of incorporation, organization or formation; and that Member has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, and performance of this Agreement by that Member have been duly taken.

  

 

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  (ii)     That the Member has duly executed and delivered this Agreement and the other documents contemplated herein, and they constitute the legal, valid and

binding obligation of the Member enforceable against it in accordance with their terms (except as may be limited by Bankruptcy, insolvency or similar laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity).

  (iii)     That the Member's authorization, execution, delivery, and performance of this Agreement does not and will not (x) conflict with, or result in a breach, default or

violation of, (A) the Organizational Documents of such Member, (B) any material contract or agreement to which the Member is a party or is otherwise subject, or (C) any law, rule, regulation, order, judgment, decree, writ, injunction or arbitral award to which the Member is subject, except in the case of clauses (B) and (C) if any such breach, default or violation would not reasonably be expected to have a Material Adverse Effect; or (y) require any consent, approval or authorization from, filing or registration with, or notice to, any Governmental Authority or other Person, unless such requirement has already been satisfied.

  (iv)     That the Member is not a Disqualified Person.

  (v)     That the Member is a United States Person within the meaning of Section 7701(a)(30) of the Code.

  (vi)     That either (x) no part of the aggregate Capital Contribution made by that Member, constitutes assets of any "employee benefit plan" within the meaning of

Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, or other "benefit plan investor" (as defined in U.S. Department of Labor Reg. §§2510.3-101 et seq.) or assets allocated to any insurance company separate account or general account in which any such employee benefit plan or benefit plan investor (or related trust) has any interest or (y) the source of the funding used to pay the Capital Contribution made by that Member is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption 95-60, issued July 12, 1995, and there is no employee benefit plan, treating as a single plan all plans maintained by the same employer or employee organization, with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such plan exceeds 10% of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the National Association of Insurance Commissioners "Annual Statement" filed with such Member's state of domicile.

  

 

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  (vii)     That the Member is an "Accredited Investor" as such term is defined in Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). That

the Member has had a reasonable opportunity to ask questions of and receive answers from the Company concerning the Membership Interests and the Company, and all such questions have been answered to the full satisfaction of that Member. That the Member understands that the Membership Interests have not been registered under the Securities Act in reliance on an exemption therefrom, and that the Company is under no obligation to register the Membership Interests. That the Member will not transfer the Membership Interests in violation of the Securities Act or any other applicable securities laws. That the Member is purchasing the Membership Interests for its own account and not for the account of any other Person and not with a view to distribution or resale to others.

  (b)     It is expressly understood and agreed that all representations and warranties in this Section 3.11 shall terminate upon the termination of the Company; provided however,

that any representations and warranties that relate to Taxes shall survive until 90 days after the end of the applicable statute of limitations (including extensions thereto.)  

Section 3.12.     Covenants.  

(a)     Each Member covenants to the Company and each other Member that it will not become a Disqualified Person and will continue to be a United States Person within the meaning of Section 7701(a)(30) of the Code.  

(b)     Each Member covenants that it will not cause the Company to claim, and it will not claim for itself, an investment tax credit or production tax credit with respect to the Puna Project or the Don A. Campbell Project.  

(c)     Each Member agrees to cooperate with the Company and the Managing Member in order to make any filings with FERC that are reasonably necessary in order to ensure that the Company remains in compliance with or exempt from the Federal Power Act and FERC rules and regulations thereunder.  

(d)     The Managing Member shall take such actions, acting in accordance with the Prudent Operator Standard, to (i) cause the Company and/or PGV, as applicable, to comply in all material respects with the terms and conditions of the Puna Operative Documents, and (ii) cause the Project Companies to perform and observe their respective covenants and obligations under the Material Contracts to which they are party except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect; provided, that (x) it shall not be a breach of the Managing Member's obligations under this Section 3.12(d) if any failure to comply with any obligation under the Puna Operative Documents or the other Material Contracts, as the case may be, is not reasonably susceptible to cure within the requisite time period (if any) by the Managing Member, Company or relevant Project Company, as the case may be, or funds are not available from Distributable Cash as needed to effect such cure, (y) the Managing Member shall have no obligation to cause Company funds to be applied towards any payments due and owing under the applicable Puna Operative Documents or with respect to any Project Company's other obligations (in either such case only to the extent that adequate funds are not available at such Project Company) other than from Distributable Cash available in accordance with this Agreement, and (z) for the avoidance of doubt, the Managing Member shall have no obligation to use its own funds to perform any obligation hereunder.   

 

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  (e)     Each Class B Member, on behalf of itself and its Affiliates (other than the Company and its Subsidiaries) covenants that, without the prior written consent of the

Company, it shall not solicit for employment or otherwise induce, influence or encourage to terminate employment with Ormat or any Affiliate of Ormat or employ any officer or employee of Ormat or any Affiliate of Ormat (each, a "Covered Employee"), except (i) pursuant to a general solicitation through the media that is not directed specifically to any officers or employees of Ormat or any Affiliate of Ormat, (ii) if Ormat or any Affiliate of Ormat terminated the employment of such Covered Employee prior to the Class B Member having solicited or otherwise contacted such Covered Employee or discussed the employment or other engagement of the Covered Employee, or (iii) such Covered Employee terminated their employment with Ormat or any Affiliate of Ormat at least 120 days prior to the Class B Member having solicited or otherwise contacted such covered Employee or discussed the employment or other engagement of the Covered Employee.  

ARTICLE IV CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS; RESERVES

  Section 4.1.     Capital Contributions. Except as provided in this Article IV and Section 10.2(f) of this Agreement, no Member will be required to make any Capital Contributions to the

Company after the Effective Date.  

Section 4.2.     Capital Accounts.  

(a)     A capital account (a "Capital Account") will be established and maintained for each Member. If there is more than one Member in a class, then each of the Members in that class will have a separate Capital Account.  

(b)     A Member's Capital Account will be increased by (i) the amount of money the Member contributes to the Company, (ii) the net value of any property the Member contributes or is deemed to contribute to the Company (i.e., the fair market value of the property net of liabilities secured by the property that the Company is considered to assume or take subject to under Section 752 of the Code), and (iii) the income and gain the Member is allocated by the Company, including any income and gain that are exempted from tax. A Member's Capital Account will be decreased by (w) the amount of Distributable Cash distributed or deemed distributed to the Member by the Company, (x) the net value of any property distributed to the Member by the Company (i.e., the fair market value of the property net of liabilities secured by the property that the Member is considered to assume or take subject to under Section 752 of the Code), (y) any expenditures of the Company described in Section 705(a)(2)(B) of the Code (i.e., that cannot be capitalized or deducted in computing taxable income) that are allocated to the Member; and (z) losses and deductions that are allocated to the Member.  

(c)     [Intentionally Deleted].   

 

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  (d)     The Capital Account balances and Membership Interests of each Member on the Effective Date are shown in Schedule 4.2(d).

  (e)     The Managing Member will update Schedule 4.2(d) from time to time as necessary to reflect accurately the information therein. Any such updating will be consistent with

how this Article IV requires that the Capital Accounts be maintained. Any reference in this Agreement to Schedule 4.2(d) will be treated as a reference to Schedule 4.2(d) as amended and in effect from time to time.  

(f)     If all or a portion of a Membership Interest in the Company is Transferred in accordance with the terms of this Agreement, then the transferee will succeed to the Capital Account of the transferor to the extent it relates to the Membership Interests so Transferred.  

(g)     The provisions of this Agreement relating to maintenance of Capital Accounts are intended to comply with Treasury Regulation Section 1.704-1(b) and 1.704-2, and will be interpreted and applied in a manner consistent with such Treasury Regulations or any successor provision.  

Section 4.3.     Additional Capital Contributions.  

(a)     Subject to Section 3.2(f), if the Managing Member determines that the Company requires additional capital to cover working capital, maintenance or capital expenditure needs of the Company, then the Managing Member shall call for additional Capital Contributions in cash (each such Capital Contribution, an "Additional Capital Contribution") from the Members in accordance with the terms and conditions set forth in clause (b) below. Upon any such call for an Additional Capital Contribution, the Members shall contribute to the Company such Additional Capital Contribution as is designated by the Managing Member to be needed.  

(b)     Each such capital call, if any, shall consist of notice to each Member specifying the following:  

(i)     the total Additional Capital Contribution required from all Members and the purpose of the Additional Capital Contribution;  

(ii)     the amount of each Member's pro rata share of the Additional Capital Contribution required (allocated among the Members pro rata in accordance with the percentage of the Membership Interests held by each Member);

  (iii)     the date on which such Additional Capital Contribution is due (which shall not be less than 10 Business Days after the date that notice of such capital call is

given pursuant to the notice provisions in Section 11.1); and  

(iv)     the account of the Company to which such Additional Capital Contribution should be made.  

(c)     If any Member (a "Non-Funding Member") fails to deliver to the Company any amount requested to be contributed by such Member pursuant to a capital call under this Section 4.3 within the time prescribed, the Managing Member may request the amount of such Non-Funding Member's share of the capital call from other Members, in which event, each other Member may, at its election, contribute to the Company such Non-Funding Member's Additional Capital Contribution. For the avoidance of doubt, in no event shall a Member have the obligation to fund any portion of a Non-Funding Member's Additional Capital Contribution.   

 

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  Section 4.4.     Dilution Mechanism. Notwithstanding Section 4.3(c) above, following a failure to make an Additional Capital Contribution by a Non-Funding Member, the Managing

Member shall cause the units of Membership Interests of each Member to be adjusted accordingly by issuing additional units of Membership Interests to the Members who have funded their portion of such Additional Capital Contribution in an amount equal to the amount of the Additional Capital Contribution divided by the Fair Market Value of the units of Membership Interests as of the date such Additional Capital Contribution was made, and recording such issuance in the Register. For purposes of this Agreement, "Fair Market Value" means the value (a) unanimously agreed by the Members or (b) failing agreement within 15 Business Days, determined by a nationally-recognized independent financial advisor having specific expertise in the valuation of assets similar to the Membership Interests (the "Independent Appraiser") selected by the Members. The Independent Appraiser shall determine the Fair Market Value based on the following assumptions and bases: (i) the value that a third-party purchaser would pay in an arm's length sale between a willing seller and a willing purchaser, (ii) if the Company is carrying on business as a going concern, on the assumption that it will continue to do so, and (iii) taking into account any information that the Independent Appraiser reasonably thinks fit, including submissions from the Members, based on then current customary market practices for valuing geothermal assets similar to the Project. The Independent Appraiser shall determine the Fair Market Value within 20 Business Days after being engaged. In the event that the Independent Appraiser provides a range of values, then the Fair Market Value shall be deemed to be the mid-point of that range. The cost of the Independent Appraiser shall be borne equally by the Members.  

Section 4.5.     Additional Activities Contribution.  

(a)     Additional Project Commencement. Ormat, in its sole discretion, may determine to proceed with an expansion of the Don A. Campbell Project (the "Don A. Campbell Expansion").  

(i)     If Ormat determines to proceed with the Don A. Campbell Expansion, Ormat shall bear the cost of and be solely responsible for the development and construction thereof (which shall be performed pursuant to the Don A. Campbell Expansion EPC Agreement and the related purchase orders) and, on the 12 Business Day after determination of the DAC Expansion Capital Contribution and satisfaction of the closing conditions set forth in Sections 2.4 and 2.5 of the ORNI 37 Purchase Agreement, (x) Ormat and the Company shall enter into the ORNI 37 Purchase Agreement pursuant to which Ormat will sell all of the membership interests of ORNI 37 to the Company and (y) the Members shall make a capital contribution (the "DAC Expansion Capital Contribution") in the manner described below.

  

 

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  (ii)     The DAC Expansion Capital Contribution will be calculated on the basis of the generation capacity of the Don A. Campbell Project and the Don A. Campbell

Expansion (collectively, the "Don A. Campbell Facility") demonstrated by the capacity tests (the "Capacity Tests"). Each Capacity Test shall be performed in accordance with the capacity test procedures set forth in Exhibit F attached hereto and mutually agreed to by the Members (the "Capacity Test Procedures"). The results of any Capacity Test conducted under this Section 4.5(a) will not be deemed final until the Independent Engineer confirms that (x) such Capacity Tests were performed in accordance with the Capacity Test Procedures and that (y) the results of such Capacity Test were correctly calculated.

  (iii)     The first Capacity Test will be conducted at the end of the second month following the Don A. Campbell 2 COD and the second Capacity Test will be

conducted at the end of the fourth month following the Don A. Campbell 2 COD. If the average result of such Capacity Tests (the "First Tested Capacity") is less than or equal to 40.82 MW, but greater than or equal to 37.82 MW, then the "Final Tested Capacity" will be equal to the First Tested Capacity. If the First Tested Capacity is outside of the ranges described in the prior sentence, the Final Tested Capacity will be calculated in accordance with clauses (iv) and (v) below (as applicable).

  (iv)     If the First Tested Capacity is less than 37.82MW, Ormat shall be entitled, at its option (exercised in its sole discretion by providing written notice to the

Company and Northleaf within 14 days from the end of the second Capacity Test described in clause (iii) above) to delay the transfer of ORNI 37 to the Company for a period of up to 12 months following the Don A. Campbell 2 COD. During such 12 month period, Ormat shall undertake at its sole cost and expense such additional work and investment as it may deem appropriate to improve the generation capacity of the Don A. Campbell Expansion (which costs and expenses shall not be funded from revenues received by ORNI 37 under the Don A. Campbell 2 PPA or otherwise or be deemed to be capital contributions, loans or other amounts contributed by Ormat to the Company, ORNI 47 or ORNI 37). At any time during such 12-month period, upon written notification by Ormat to the Company and Northleaf, a single Capacity Test will be performed, and the "Revised Tested Capacity" will be equal to the result of such Capacity Test.

  (v)     If the First Tested Capacity is lower than 37.82 MW but greater than or equal to 36.82 MW and Ormat has not exercised its option under clause (iv) above, then

the Final Tested Capacity will be equal to the First Tested Capacity. If Ormat has exercised its option under clause (iv) and the Revised Tested Capacity is within a tolerance of plus/minus 2 MW of 38.82 MW, then the Final Tested Capacity will be equal to the Revised Tested Capacity.

  (vi)     If (x) the First Tested Capacity is higher than 40.82 MW or lower than 36.82 MW and Ormat has not exercised its option under clause (iv) above, or (y) if Ormat

has exercised its option under clause (iv) above and the Revised Tested Capacity is higher than 40.82 MW or lower than 36.82 MW, then the Independent Engineer shall verify the validity of such First Tested Capacity or the Revised Tested Capacity (as applicable). If the Independent Engineer confirms the validity of such First Tested Capacity or the Revised Tested Capacity, then the Final Tested Capacity will be equal to such First Tested Capacity or the Revised Tested Capacity (as applicable). If the Independent Engineer invalidates the First Tested Capacity or the Revised Tested Capacity, a Capacity Test will be performed again in accordance with the Capacity Test Procedures until the Independent Engineer has validated the results of a Capacity Test, and the Final Tested Capacity will be equal to the result of such Capacity Test.

  

 

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  (vii)     If the Final Tested Capacity is within a tolerance of plus/minus 1 MW of 38.82 MW, then the DAC Expansion Capital Contribution shall be $87.8 million, and

each Member shall contribute its pro-rata share within twelve (12) Business days following the determination of the Final Tested Capacity.  

(viii)     If the Final Tested Capacity is not within a tolerance of plus/minus 1 MW of 38.82 MW, then the DAC Expansion Capital Contribution shall be equal to the sum of (x) $87.8 million plus (y) (1) Final Tested Capacity minus 38.82 MW times (2) $7.72 million per MW, and each Member shall contribute its pro-rata share within twelve (12) Business days following the determination of the Final Tested Capacity. All amounts contributed pursuant to clause (vii) or clause (viii) shall be used by the Company to pay the purchase price under the ORNI 37 Purchase Agreement.

  (ix)     If closing under the ORNI 37 Purchase Agreement occurs more than 90 days after the date on which the Don A. Campbell 2 COD occurs, Northleaf shall pay to

the Company, in addition to its pro-rata share of the DAC Expansion Capital Contribution calculated in accordance with subclauses (vii) or (viii) of this Section 4.5(a) (the "Northleaf DAC Pro-Rata Amount"), in an amount equal to (x) the Northleaf DAC Pro-Rata Amount multiplied by (y) 8% multiplied by the number of days between the 91 day after Don A. Campbell 2 COD and the date of satisfaction of the conditions precedent under the ORNI 37 Purchase Agreement divided by 365.

  (x)     (A) If Ormat and Northleaf have not agreed on a Tax Equity Transaction as of the closing date of the transfer of ORNI 37 to the Company and counsel to

Northleaf has opined that the Don A. Campbell Expansion will qualify for the federal production tax credit under the rules and guidance promulgated by the IRS, the Class B Member's portion of the DAC Expansion Capital Contribution shall be increased by $3.1 million; provided, that if Northleaf owns less than 40% of the Membership Interests, such amount shall be adjusted by multiplying $3.1 million by a fraction, the numerator of which is the percentage of Membership Interests actually owned by Northleaf and the denominator of which is 40%. (B) Ormat and Northleaf agree to cooperate in good faith to achieve a mutually beneficial Tax Equity Transaction. If Ormat and Northleaf do not agree on a Tax Equity Transaction, and a Member, directly or indirectly through an Affiliate, desires to enter into a Tax Equity Transaction, then such Member shall first comply with its obligations under Section 9.5 as if such transaction was a Tag-Along Transfer and the other Member shall have the right to participate in such Tax Equity Transaction on the same terms. (C) If (i) Ormat and Northleaf have not agreed on a Tax Equity Transaction, (ii) counsel to Northleaf has not opined that the Don A. Campbell Expansion will qualify for the federal production tax credit under the rules and guidance promulgated by the IRS, and as result the Class B Member's portion of the DAC Expansion Capital Contribution has not been increased pursuant to sublcause (A) above, and (iv) Northleaf subsequently claims federal production tax credits with respect to the Don A. Campbell Expansion, Northleaf will pay to Ormat $3.1 million; provided, that if Northleaf owns less than 40% of the Membership Interests, such amount shall be adjusted by multiplying $3.1 million by a fraction, the numerator of which is the percentage of Membership Interests actually owned by Northleaf and the denominator of which is 40%.

  

 

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  (xi)     Ormat shall remain solely responsible for the payment of any outstanding costs to complete any remaining items on the Punchlist (as defined in the Don A.

Campbell Expansion EPC Agreement) after the purchase of ORNI 37 by the Company.  

(xii)     From the Don A. Campbell 2 COD and until the transfer of ORNI 37 to the Company, Ormat shall not permit ORNI 37 to, and shall cause ORNI 37 not to, make any Restricted Payment.

  (b)     Ormat may contribute additional projects to the Company on terms to be negotiated by the parties.

  Section 4.6.     Pre-Emptive Rights. If the Company proposes to issue any additional Membership Interests or other equity securities or interests convertible or exchangeable into

Membership Interests ("New Equity Interests") by the Company (other than pursuant to Section 4.4), the Company shall give written notice (an "Issuance Notice") to each of the Members setting forth the material terms and conditions upon which they are proposed to be issued. Both Members will have the right to purchase a pro rata share of such New Equity Interests based upon their proportionate share of the Membership Interests in the Company at the time. Each of the Members may exercise such right by delivering an irrevocable written notice to the Company (the "Acceptance Notice"), within 10 Business Days after receiving the Issuance Notice from the Company (the "Preemptive Right Notice Period"), specifying the number of New Equity Interests (up to its pro rata portion of such New Equity Interests (based on its respective percentage of the Membership Interests)) that it desires to purchase upon the terms and conditions and for the purchase price set forth in the notice. The delivery of an Acceptance Notice shall be a binding and irrevocable offer by such Member to purchase the New Equity Interests described therein. If a Member has failed to exercise its preemptive rights in full (a "Non-Exercising Member"), each Member that has exercised its preemptive rights in full shall have the right to purchase its pro rata portion (based on its respective percentage of the Membership Interests) of the Non-Exercising Member's unpurchased allotment of New Equity Interests, by delivering an irrevocable written notice to the Company within 5 Business Days after receipt of notice from the Company.  

ARTICLE V ALLOCATIONS

  Section 5.1.     Allocations. For purposes of maintaining Capital Accounts, after giving effect to Section 5.2, Profits and Losses and credit for any Fiscal Year will be allocated among the

Members pro rata in proportion to the Membership Interests held by each Member.   

 

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  Section 5.2.     Adjustments. The following adjustments will be made to the allocations in Section 5.1 to comply with Treasury Regulation Section 1.704-1(b):

  (a)     In any Fiscal Year in which there is a net decrease in Company Minimum Gain, income in the amount of the net decrease will be allocated to Members in the ratio required

by Treasury Regulation Section 1.704-2 or any successor provision.  

(b)     In any Fiscal Year in which there is a net decrease in Minimum Gain Attributable to Member Nonrecourse Debt, then income in the amount of the net decrease will be allocated to each Member who was considered to have had a share of such minimum gain at the beginning of the Fiscal Year in the ratio required by Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii) or any successor provisions.  

(c)     Any Member Nonrecourse Deductions for any Fiscal Year will be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i)(1). Nonrecourse Deductions for any Fiscal Year will be allocated to the Members in the same ratio as other income and loss under Section 5.1 or Section 10.2(c) as applicable.  

(d)     To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of the Code is required under Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member's interest in the Company, the amount of the adjustment to Capital Accounts will be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and the gain or loss will be specially allocated to the Members in accordance with Sections 5.2(a) or (b), as in effect at the time of the adjustment, in the event Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4) applies.  

(e)     Items of income or gain for any taxable period shall be allocated to the Members in the manner and to the extent required by the "qualified income offset" provisions of Regulation Section 1.704-1(b)(2)(ii)(d). In no event shall Losses of the Company be allocated to a Member if such allocation would cause or increase a negative balance in such Member's Capital Account (determined for purposes of this Section only, by increasing the Member's Capital Account balance by the amount the Member is obligated to restore to the Company pursuant to Regulation Section 1.704-1(b)(2)(ii)(c) and the amount the Member is deemed obligated to restore to the Company pursuant to Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5)).  

(f)     The allocations in this Section 5.2 are required to comply with the Treasury Regulations. To the extent the Company can do so consistently with the Treasury Regulations, the net amount of the allocations under Article V and Section 10.2 to each Member will be the net amount that would have been allocated to each Member if this Agreement did not have Section 5.2.   

 

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  Section 5.3.     Tax Allocations.

  (a)     All allocations of tax items of Company income, gain, deductions and losses for each Fiscal Year will be allocated in the same proportions as the allocations of book items

of Company income, gain, deductions and losses were made for such Fiscal Year pursuant to Sections 5.1 and 5.2.  

(b)     Notwithstanding Section 5.3(a), if, as a result of contributions of property by a Member to the Company or an adjustment to the Gross Asset Value of Company assets pursuant to this Agreement, there exists a variation between the adjusted basis of an item of Company property for federal income tax purposes and as determined under the definition of Gross Asset Value, then allocations of income, gain, loss, and deduction will be allocated among the Members so as to take into account any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value using the traditional method in Treasury Regulation Section 1.704-3(b).  

(c)     Allocations pursuant to this Section 5.3 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of income, gain, deductions or losses or distributions pursuant to any other provision of this Agreement.  

(d)     To the extent that an adjustment to the adjusted tax basis of any Company asset is made pursuant to Section 743(b) of the Code as the result of a purchase of a Membership Interest in the Company, any adjustment to the depreciation, amortization, gain or loss resulting from such adjustment shall affect the transferee only and shall not affect the Capital Account of the transferor or transferee. In such case, the transferee shall be required to agree to provide to the Company (i) information about the allocation of any step-up or step-down in basis to the Company's assets and (ii) the depreciation or amortization method for any step-up in basis to the Company's assets.  

Section 5.4.     Transfer or Change in Company Interest. If the respective Membership Interests or allocation ratios described in this Article V of the existing Members in the Company change or if a Membership Interest is Transferred in compliance with this Agreement to any other Person, then, for the Fiscal Year in which the change or Transfer occurs, all income, gains, losses, deductions, credits and other tax incidents resulting from the operations of the Company shall be allocated, as between the Members for the Fiscal Year in which the change occurs or between the transferor and transferee, by taking into account their varying interests using the proration method permitted by Treasury Regulation Section 1.706-1(c)(2)(ii), unless otherwise agreed by all the Members.  

Section 5.5.     Other Allocation Rules.  

(a)     For purposes of determining the amount of any item of income, gain, loss, deduction or credit allocable to any period, such items shall be determined on a quarterly basis (and prorating the items in such quarterly period to each day within such quarterly period), unless another method is required under Section 706 of the Code and the Treasury Regulations thereunder or expressly agreed to by the Members.   

 

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  (b)     The Company shall allocate 100% of the "excess nonrecourse liabilities" of the Company for purposes of Treasury Regulation Section 1.752-3(a) in the ratio in which

Profits and Losses are shared under Section 5.1.  

(c)     For any Fiscal Year, if a distribution is paid to any Member pursuant to Section 6.5 that varies from what such Member would have been distributed without regard to Section 6.5, then the Company shall increase or decrease its allocation of income and deductions to such Member (with a corresponding increase or decrease with respect to the other Member) to reflect such variation in the amount distributed; provided, the foregoing shall not apply to the extent such allocation would result in (i) an allocation of any Tax credits provided for in Sections 45 or 48 of the Code pertaining to the Don A. Campbell Expansion other than in proportion to the Membership Interest held by each Member or (ii) recapture of any such federal income Tax credit; provided, further, the previous proviso shall be inapplicable to the extent the Don A. Campbell Expansion is subject to a Tax Equity Transaction between the Company or a subsidiary of the Company and one or more investors, purchasers or lessees.  

ARTICLE VI DISTRIBUTIONS

  Section 6.1.     Distributions. Except as provided otherwise in Section 10.2 and subject to Section 6.3, Section 6.4 and Section 6.5, Distributable Cash will be distributed to the Members

pro rata in proportion to the Membership Interests held by each such Member.  

(a)     Subject to Section 6.3, the Company will make distributions of Distributable Cash pursuant to this Section 6.1 on each Distribution Date.  

Section 6.2.     Withholding Taxes. If the Company is required to withhold taxes with respect to any allocation or distribution of Distributable Cash to any Member pursuant to any applicable federal, state or local tax laws, the Company may, after first notifying the Member and permitting the Member, if legally permitted, to contest the applicability of such taxes, withhold such amounts and make such payments to taxing authorities as are necessary to ensure compliance with such tax laws. Any funds withheld by reason of this Section 6.2 shall nonetheless be deemed distributed to the Member in question for all purposes under this Agreement. If the Company did not withhold from actual distributions Distributable Cash any amounts it was required to withhold, the Company may, at its option, (a) require the Member to which the withholding was credited to reimburse the Company for such withholding, or (b) reduce any subsequent distributions of Distributable Cash by the amount of such withholding. This obligation of a Member to reimburse the Company for taxes that were required to be withheld shall continue after such Member Transfers its Membership Interests in the Company. Each Member agrees to furnish the Company with any representations and forms as shall reasonably be requested by the Company to assist it in determining the extent of, and in fulfilling, any withholding obligations it may have.  

Section 6.3.     Limitation upon Distributions. No distribution or deemed distribution of Distributable Cash shall be made: (a) if such distribution would violate any contract or agreement to which the Company is then a party or any Applicable Law then applicable to the Company, (b) to the extent that, in accordance with the Prudent Operator Standard, any amount otherwise distributable should be retained by the Company to pay, or to establish a reserve for the payment of, any liability or obligation of the Company or any Project Company, whether liquidated, fixed, contingent or otherwise, or to hedge an existing investment, including funding reserve accounts for spare parts and operational and maintenance costs for the Projects, or (c) to the extent that the Managing Member, acting in accordance with the Prudent Operator Standard, determines that the Distributable Cash is insufficient to permit such distribution.   

 

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  Section 6.4.     Special Ormat Distribution. Notwithstanding anything in the agreement to the contrary, all distributions following the Closing shall be made to Ormat, until Ormat has

received $1 million, and thereafter, all distributions shall be made in accordance with this Article 6.  

Section 6.5.     Special Puna Distributions. On the Effective Date, the initial values of the Puna Class A Tracking Amount and Puna Class B Tracking Amount will be calculated in accordance with Sections 6.5(a) and 6.5(b) with respect to each payment received from HELCO prior to the Effective Date relating to invoicing periods beginning on January 1, 2015. Thereafter, (x) upon PGV's receipt of any payment from HELCO made under the Puna On-Peak/Off-Peak PPA, excluding any payments made under any extension thereof, relating to any invoicing period beginning on January 1, 2015 and ending upon the termination of the Puna On-Peak/Off-Peak PPA (a "PGV Special Revenue Payment") or (y) each distribution made to Members, the Puna Class A Tracking Amount and the Puna Class B Tracking Amount shall be recalculated as follows:  

(a)     Immediately following each PGV Special Revenue Payment, if such amount paid by HELCO for electricity delivered under the Puna On-Peak/Off-Peak PPA (excluding, for the avoidance of doubt, any capacity payment) is higher than the product of (w) the MWh delivered to HELCO under the Puna On-Peak/Off-Peak PPA during such applicable invoice period(s), multiplied by (x) the applicable fixed price per MWh shown in the Puna Fixed Price Table, then the Puna Class A Tracking Amount shall be increased by an amount equal to (A) (y) such positive excess minus (z) the absolute value of any increase in the variable expense items incurred by PGV during such invoice period(s) that is attributable to the excess amounts paid by HELCO relating to such invoice period(s) (including, without limitation, royalties and taxes), multiplied by (B) the Class B Percentage Interest, with such amount never being less than zero;  

(b)     Immediately following each PGV Special Revenue Payment, if such amount paid by HELCO for electricity delivered under the Puna On-Peak/Off-Peak PPA (excluding, for the avoidance of doubt, any capacity payment) is lower than the product of (w) the MWh delivered to HELCO under the Puna On-Peak/Off-Peak PPA during such applicable invoice period(s), multiplied by (x) the applicable fixed price per MWh shown in the Puna Fixed Price Table, then the Puna Class B Tracking Amount shall be increased by an amount equal to (A) (y) the absolute value of such differential, minus (z) the absolute value of any decrease in the variable expense items incurred by PGV during such invoice period that is attributable to the reduced amounts paid by HELCO relating to such invoice period(s) (including, without limitation, royalties and taxes), multiplied by (B) the Class B Percentage Interest, with such amount never being less than zero;   

 

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  (c)     Any Puna Class A Tracking Amount and Puna Class B Tracking Amount that are outstanding as of any date of calculation, shall be set-off against each other

immediately following any calculation undertaken in accordance with clause (a) and (b) above, such that at all times one of either the Puna Class A Tracking Amount or the Puna Class B Tracking Amount shall be equal to zero;  

(d)     Upon each Distribution Date, if the Puna Class A Tracking Amount is greater than zero, then any Distributable Cash available on the applicable Distribution Date will be distributed:  

(i)     to the Class A Member, in an amount equal to (x) the Class A Percentage Interest multiplied by the Distributable Cash available on the applicable Distribution Date plus (y) the Puna Class A Tracking Amount(with the aggregate amount under clauses (x) and (y) not to exceed the amount of available Distributable Cash);

  (ii)     to the Class B Member, in an amount equal to (x) the Class B Percentage Interest multiplied by the Distributable Cash available on the applicable Distribution

Date minus (y) the Puna Class A Tracking Amount (with the aggregate amount under clauses (x) and (y) to be not less than zero);  

(e)     Upon each Distribution Date, if the Puna Class B Tracking Amount is greater than zero, then any Distributable Cash available on the applicable Distribution Date will be distributed:  

(i)     to the Class A Member, in an amount equal to (x) the Class A Percentage Interest multiplied by the Distributable Cash available on the applicable Distribution Date minus (y) the Puna Class B Tracking Amount (with the aggregate amount under clauses (x) and (y) to be not less than zero);

  (ii)     to the Class B Member, in an amount equal to (x) the Class B Percentage Interest multiplied by the Distributable Cash available on the applicable Distribution

Date plus (y) the Puna Class B Tracking Amount (with the aggregate amount under clauses (x) and (y) not to exceed the amount of available Distributable Cash);  

(f)     Immediately following any distribution made to the Members, the Puna Class A Tracking Amount and the Puna Class B Tracking Amount will be reset to zero; provided that if, on any applicable Distribution Date, available Distributable Cash is insufficient to pay in full the Puna Class A Tracking Amount pursuant to subclause (d)(i) above or the Puna Class B Tracking Amount pursuant to subclause (e)(i) above, such unpaid amount will be carried forward as an outstanding Puna Class A Tracking Amount or Puna Class B Tracking Amount, as applicable, and shall be taken into account for purposes of any subsequent calculation in accordance with clauses (a), (b), (c), (d) and (e) of this Section 6.5.  

   

(g)     No later than 14 days following the Effective Date, upon each Distribution Date and no later than 10 days following each payment by HELCO with respect to the applicable invoice period, the Managing Member shall provide each of the Class A Member and the Class B Member with a copy of its updated calculation of the Puna Class A Tracking Amount and the Puna Class B Tracking Amount in accordance with this Section 6.5.   

 

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  Section 6.6.     No Return of Distributions. Any distribution of Distributable Cash or property pursuant to this Agreement shall be treated as a compromise within the meaning of

Section 18-502(b) of the Act and, to the fullest extent permitted by law, any Member receiving or deemed to receive the payment of any such money or distribution of any such property shall not be required to return any such money or property to any Person, the Company or any creditor of the Company. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to return such money or property, such obligation shall be the obligation of such Member and not of the other Members. Without limiting the generality of the foregoing, a deficit Capital Account of a Member shall not be deemed to be a liability of such Member nor an asset or property of the Company.  

ARTICLE VII ACCOUNTING AND RECORDS

  Section 7.1.     Reports.

  (a)     The Managing Member shall cause the Manager to prepare and deliver (or cause to be prepared and delivered) to each Member (i) on or before the 45 day after the end

of each quarter, a written status report, in the form attached hereto as Exhibit C-1, relating to the Projects' operations for such quarter and such other relevant operational information as may from time to time be reasonably requested by the Class B Member and (ii) on or before the 15 day after the end of each month, a written status report, in the form attached hereto as Exhibit C-2, relating to the Projects' operations for such month.  

(b)     The Managing Member shall cause the Manager to prepare or cause to be prepared, and shall submit to each Member, an annual capital and operating budget for the Company and each Project Company no later than 45 calendar days prior to the start of each Fiscal Year, which shall not include any Major Capital Expenditures (the "Annual Operating Budget"), provided, that the first Annual Operating Budget will be agreed upon by Ormat and the Class B Member prior to the Effective Date. The Annual Operating Budget for each Fiscal Year will become effective automatically for any Fiscal Year, (i) if the amount by which the aggregate amount of the Annual Operating Budget for such Fiscal Year is escalated from the immediately preceding Annual Operating Budget is not higher than the sum of indexation calculated in accordance with the CPI-West All Urban plus 5%, or (ii) 30 calendar days after the Annual Operating Budget is sent to each Member as provided in this Section 7.1(b), unless within such period the Class B Member gives the Managing Member written notice stating in reasonable detail which items of the Annual Operating Budget it questions or objects to and the reasons for such question or objection, in which case the Annual Operating Budget shall become effective with respect to (x) those items that are not subject to question or objection as set forth in the Annual Operating Budget as submitted to Members and (y) pending resolution of any question or objection, the amount of any item subject to a question or objection shall be escalated from the amount in the immediately preceding Annual Operating Budget by an amount equal to indexation calculated in accordance with the CPI-West All Urban plus 5%; provided, that any Annual Operating Budget that exceeds the immediately preceding Annual Operating Budget by an amount that, in aggregate, is in excess of the O&M Variance shall (x) require unanimous consent of the Members or (y) failing such consent, be referred for resolution as provided in Section 11.11(b). Notwithstanding anything in this Agreement to the contrary, any increase in the amount of royalties paid in respect of the Puna Project in accordance with the terms of the agreements providing for such royalties in effect as of the Effective Date (or as otherwise amended as a Major Decision) shall be disregarded for purposes of determining whether a proposed Annual Operating Budget has triggered an increase requiring approval under this Section 7.1(b).   

 

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  (c)     The Managing Member shall cause the Manager to prepare or cause to be prepared, and shall submit to each Member, a memorandum outlining in reasonable detail the

rationale, technical considerations, cost, timing and major risks associated with any proposed Major Capital Expenditure. Each Major Capital Expenditure will be a Major Decision that requires the unanimous consent of the Members and failing such consent, be referred for resolution as provided in Section 11.11(b).  

(d)     The Managing Member shall, or shall cause the Manager to, provide a copy of (i) all material reports, notices, amendments, waivers, consents or other material written communication relating to any dispute, potential default or event of default in connection with, or termination of, the Senior Secured Notes, any Material Contract, or any material Permit, (ii) notice of any material event of loss (including any condemnation or eminent domain proceeding) or event of force majeure at any Project, (iii) notice of any actual litigation or proceeding affecting the Company or any Project Company, and notice of any written threat of litigation or proceeding against the Company or any Project Company that could reasonably be expected to have a Material Adverse Effect, (iv) all material notices, demands or other material written communication pursuant to or relating to any necessary Governmental Approval for a Project or to or from any Governmental Authority with respect to the Company or any Project Company, (v) any other required material report or material formal written notice received or delivered by Ormat, or any of its subsidiaries, from or, as applicable, to the trustee under the Indenture, in each case, to the Class B Member within 5 Business Days of receipt or delivery of such reports, notices, or other written communication or becoming aware of such event, (vi) any material Affiliate Contracts entered into and any material notices, amendments, waiver, consents or other material written communication related thereto within 5 Business Days thereof and (vii) any communication as to any deficiencies in the Company's accounting practices from the Accounting Firm, or of the resignation of the Accounting Firm.  

Section 7.2.     Books and Records and Inspection.  

(a)     The Managing Member shall cause the Company to keep and shall cause, on behalf of the Company, the Manager to maintain, full and accurate books of account, financial records and supporting documents, which shall reflect, completely, accurately and in reasonable detail in all material respects each transaction of the Company and such other matters as are usually entered into the records or maintained by Persons engaged in a business of like character or as are required by law, and all other documents and writings of the Company. The books of account, financial records, and supporting documents and the other documents and writings of the Company shall be kept and maintained by the Manager at the principal office of the Company. The financial records and reports of the Company shall be kept in accordance with GAAP and kept on an accrual basis.   

 

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  (b)     In addition to and without limiting the generality of Section 7.2(a), the Managing Member shall cause the Company to keep and shall cause, on behalf of the Company,

the Manager to maintain at the Company's principal office:  

(i)     true and full information regarding the status of the financial condition of the Company, including any financial statements for the 3 most recent years;  

(ii)     promptly after becoming available, a copy of the Company's federal, state, and local income Tax Returns for each year;  

(iii)     minutes of the proceedings of the Members and the Managing Member;  

(iv)     a current list of the name and last known business, residence or mailing address of each Member and the Manager;  

(v)     a copy of this Agreement and the Certificate of Formation, and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which this Agreement and such Certificate of Formation and all amendments thereto and copies of written consents of Members;

  (vi)     true and full information regarding the amount of cash and a description and statement of the agreed value of any other property and services contributed by

each Member, and the date upon which each became a Member; and  

(vii)     copies of records that would enable a Member to determine the Member's relative shares of the Company's distributions and the Member's relative voting right.

  (c)     Upon at least 5 Business Days prior notice to the Managing Member, all books and records of the Company shall be open to inspection and copying by any of the

Members or their Representatives during business hours and at such Member's expense, for any purpose reasonably related to such Member's interest in the Company, provided, that any such inspection or copying is conducted in a manner which does not unreasonably interfere with the Company's business.  

Section 7.3.     Financial Statements.  

(a)     As soon as practical after the end of each quarter, but in any event within 60 calendar days after the end of each quarter (excluding the quarter ending December 31 of each year), the Managing Member shall cause the Manager to furnish to each Member unaudited consolidated financial statements with respect to such quarter for the Company consisting of (i) a consolidated balance sheet showing the Company's financial position as of the end of such quarter, (ii) consolidated profit and loss statements for the Company for such quarter, and (iii) a consolidated statement of cash flows for the Company for such quarter.   

 

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  (b)     As soon as practical after the end of each Fiscal Year, but in any event within 120 calendar days after the end of the Fiscal Year, the Managing Member shall cause the

Manager to furnish to each Member consolidated financial statements with respect to such Fiscal Year for the Company that are audited and certified by the Accounting Firm as presenting fairly in all material respects the financial conditions and results of operations of Company in accordance with GAAP consistently applied, subject only to normal year-end audit adjustments, consisting of (i) a consolidated balance sheet showing the Company's financial position as of the end of such Fiscal Year, (ii) consolidated profit and loss statements for the Company for such Fiscal Year, (iii) a consolidated statement of cash flows for the Company for such Fiscal Year and (iv) related footnotes.  

Section 7.4.     Bank Accounts, Notes and Drafts.  

(a)     All funds not required for the immediate needs of the Company may be placed in Permitted Investments, which investments shall have a maturity appropriate for the anticipated cash flows needs of the Company. All Company funds shall be deposited and held in accounts which are separate from all other accounts maintained by the Members and the Manager, and the Company's funds shall not be commingled with any other funds of any other Person, including any Manager, any Member or any Affiliate (other than the Company itself) of a Manager or a Member.  

(b)     The Members acknowledge that the Managing Member or the Manager may maintain Company funds in accounts, money market funds, certificates of deposit, other liquid assets in excess of the insurance provided by the Federal Deposit Insurance Corporation, or other depository insurance institutions and that neither the Managing Member nor the Manager shall be accountable or liable for any loss of such funds resulting from failure or insolvency of the depository institution, so long as any such maintenance of funds is in compliance with the first sentence of Section 7.4(a).  

(c)     Checks, notes, drafts and other orders for the payment of money shall be signed by such Persons as the Managing Member from time to time may authorize, including the Manager. When the Managing Member so authorizes, the signature of any such Person may be a facsimile.  

Section 7.5.     Partnership Status and Tax Elections.  

(a)     The Members intend that the Company will be taxed as a partnership for federal, state and local income tax purposes. The Members agree not to elect to be excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state statute and agree not to elect for the Company to be treated as a corporation, or an association taxable as a corporation, under the Code or any similar state statute.  

(b)     The Company shall make the following elections on the appropriate Tax Returns:  

(i)     to the extent permitted under Section 706 of the Code, to adopt as the Company's Tax Year the 12 month period ending on December 31, effective as of December 31, 2014;

  

 

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  (ii)     to adopt the accrual method of accounting;

  (iii)     to elect the recurring item exception under Treasury Regulations 1.461-5;

  (iv)     to opt out of depreciation bonus under Section 168(k) of the Code;

  (v)     to elect to deduct intangible drilling costs immediately under Section 263(c) of the Code;

  (vi)     to elect to amortize the organizational expenses of the Company ratably over a period of 180 months as permitted by Section 709(b) of the Code; and

  (vii)     if approved in writing by Members representing a Majority Vote, any other election the Managing Member may deem appropriate.

  (c)     The Company shall file an election under Section 6231(a)(1)(B)(ii) of the Code and the Treasury Regulation thereunder to treat the Company as a partnership to which the

provisions of Sections 6221 through 6234 of the Code, inclusive, apply.  

(d)     At the request of any Member, the Company will file an election to adjust the basis of the Company's property pursuant to Section 754 of the Code.  

Section 7.6.     Company Tax Returns. The federal income Tax Returns for the Company and all other Tax Returns of the Company shall be prepared as directed by the Managing Member in Consultation with the other Members. The Managing Member, in Consultation with the other Members, may extend the time for filing any such Tax Returns as provided for under applicable statutes. At the Company's expense, the Managing Member shall cause the Company to retain the Accounting Firm to prepare or review the necessary federal and state income Tax Returns and information returns for the Company. Each Member shall provide such information, if any, as may be reasonably needed by the Company for purposes of preparing such Tax Returns, provided, that such information is readily available from regularly maintained accounting records. The Managing Member shall cause the Manager to deliver to the other Members for their review a copy of the Company's federal and state income Tax Returns and information returns in the form proposed to be filed for each Tax Year by no later than March 15 (or if a filing extension has been requested, June 30 ) of the following year, and shall cause the Manager to incorporate all reasonable changes or comments to such proposed Tax Returns and information returns requested by the other Members at least 10 days prior to the filing date for such returns. After taking into account any such requested changes, the Managing Member shall cause the Company to timely file, taking into account any applicable extensions, such Tax Returns. Within 20 days after filing such federal and state income Tax Returns and information returns, the Managing Member shall cause the Company to deliver to each Member a copy of the Company's federal and state income Tax Returns and information returns as filed for each Tax Year, together with any additional tax-related information in the possession of the Company that such Member may reasonably and timely request in order to properly prepare its own income Tax Returns.   

 

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  Section 7.7.     Tax Audits.

  (a)     Ormat is hereby designated the "tax matters partner," as that term is defined in Section 6231(a)(7) of the Code (the "Tax Matters Partner"), of the Company, with all of the

rights, duties and powers provided for in Sections 6221 through 6234 of the Code. The Tax Matters Partner is hereby directed and authorized to take whatever steps the Tax Matters Partner, in its reasonable discretion, deems necessary or desirable to perfect such designation, including filing any forms or documents with the IRS, taking such other action as may from time to time be required under the Treasury Regulations and directing the Manager to take any of the foregoing actions. The Tax Matters Partner shall remain as the Tax Matters Partner so long as it retains any ownership interests in the Company unless the Tax Matters Partner requests that it not serve as Tax Matters Partner and such request is approved by the unanimous written consent of Members. In addition, if at any time the Tax Matters Partner ceases to own or hold at least 25% of the aggregate outstanding Membership Interests and there is a Member that owns or holds more than 25% of the aggregate outstanding Membership Interests, the other Members shall have the right to remove the Tax Matters Partner as the Tax Matters Partner; provided, that, Ormat shall retain control over the administration of and any proceedings related to any Cash Grants as if it were still the Tax Matters Partner (but subject to the remaining provisions of this Section 7.7).  

(b)     The Tax Matters Partner, in Consultation with the other Members, shall direct, or cause the Manager to direct, the defense of any claims made by the IRS to the extent that such claims relate to the adjustment of Company items at the Company level and, in connection therewith, shall cause the Company to retain and to pay the fees and expenses of counsel and other advisors chosen by the Tax Matters Partner in Consultation with the other Members. The Tax Matters Partner shall promptly deliver, or shall cause the Manager to promptly deliver, to each Member a copy of all notices, communications, reports and writings received from the IRS relating to or potentially resulting in an adjustment of Company items, shall promptly advise, or cause the Manager to promptly advise, each Member of the substance of any conversations with the IRS in connection therewith and shall keep, or cause the Manager to keep, the Members advised of all developments with respect to any proposed adjustments which come to its or the Manager's, as the case may be, attention. In addition, the Tax Matters Partner shall or shall cause the Manager to (i) provide each Member with a draft copy of any correspondence or filing to be submitted by the Company in connection with any administrative or judicial proceedings relating to the determination of Company items at the Company level reasonably in advance of such submission, (ii) incorporate all reasonable changes or comments to such correspondence or filing requested by any Member and (iii) provide each Member with a final copy of correspondence or filing. The Tax Matters Partner will provide, or cause the Manager to provide, each Member with notice reasonably in advance of any meetings or conferences with respect to any administrative or judicial proceedings relating to the determination of Company items at the Company level (including any meetings or conferences with counsel or advisors to the Company with respect to such proceedings) and each Member shall have the right to participate, at its sole cost and expense, in any such meetings or conferences.   

 

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  (c)     If for any reason the IRS disregards the election made by the Company pursuant to Section 7.5(c) and commences any audit or proceeding in which it makes a Claim, or

proposes to make a Claim, against any Member that could reasonably be expected to result in the disallowance or adjustment of any items of income, gain, loss, deduction or credit allocated to such Member by the Company, then such Member shall promptly advise the other Members of the same, and such Member in Consultation with the other Members shall use commercially reasonable efforts to convert the portion of such audit or proceeding that relates to such items into a Company level proceeding consistent with the Company's election pursuant to Section 7.5(c).  

(d)     If any Member intends to file, pursuant to Section 6227 of the Code, a request for an administrative adjustment of any such partnership item of the Company, or to file a petition under Sections 6226, 6228 or other Sections of the Code with respect to any such partnership item or any other tax matter involving the Company, such Member shall, at least 30 days prior to any such filing, notify the other Members of such intent, which notification must include a reasonable description of the contemplated action and the reasons for such action; provided, however, that this Section 7.7(d) shall not relieve any such Member's obligations to use all commercially reasonable efforts to convert a Member level proceeding into a Company level proceeding as provided in Section 7.7(c).  

(e)     The provisions of this Section 7.7 will survive the termination of the Company or the termination of any Member's interest in the Company and will remain binding on the Members for the period of time necessary to resolve with the IRS any and all federal income tax matters relating to the Company that are subject to Sections 6221 through 6233 of the Code.  

Section 7.8.     Cooperation. Subject to the provisions of this Article VII, each Member shall provide the other Members with such assistance as may reasonably be requested by such other Members in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to the liability for any Taxes with respect to the operations of the Company.  

Section 7.9.     Fiscal Year. The fiscal year of the Company (the "Fiscal Year") for financial reporting purposes will be a 12 month year ending December 31.  

Section 7.10.     Tax Year. The tax year of the Company (the "Tax Year") will be a 12 month year ending December 31 unless the Company is required by Section 706 of the Code to use a different Tax Year.  

Section 7.11.     Recapture Related Obligations.  

(a)     Satisfaction of Certain Recapture-Related Obligations of the Company or a Project Company.  

(i)     If the Company or any Project Company is required to make any payment to the United States of America (or any agency or instrumentality thereof) resulting from a Recapture Event (x) as a result of a Class A Recapture Event, then the Class A Member will be required to pay the amount of such payment (A) to the United States of America (or any agency or instrumentality thereof) on behalf of the Company or Project Company, or (B) in the event that the Company or Project Company has already made such payment, to the Company or Project Company in accordance with this Section 7.11(a) or (y) as a result of a Class B Recapture Event, then the Class B Member will be required to pay the amount of such payment (A) to the United States of America (or any agency or instrumentality thereof) on behalf of the Company or Project Company or (B) in the event that the Company or Project Company has already made such payment, to such the Company or Project Company in accordance with this Section 7.11(a).

  

 

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  (ii)     Within 10 days after the Company or any Project Company becomes aware that a Recapture Event has occurred that requires the Company or Project Company

to make a payment as a result of such Recapture Event, the Managing Member shall cause the Company to deliver to the Members a written notice, specifying in reasonable detail the cause of such Recapture Event, including whether caused by a Class A Recapture Event or Class B Recapture Event, and the Company's calculation of the amount of any such payment as a result of such Recapture Event. Within 5 days following receipt of notice, each Member shall notify the Company in writing whether it agrees with or disputes all or a portion of the amount specified in the notice, specifying the amount, if any, so agreed to. The Company and Project Companies shall each have all rights and remedies available at law or in equity to the Members to collect any payment required to be paid by the Company or any Project Company as a result of a Class A Recapture Event or Class B Recapture Event from the responsible Members.

  (b)     If the amount of any Recapture Damages paid under this Section 7.11 are reduced or recovered by the Member receiving payment from such Recapture Damages at any

time after such Recapture Damages are paid to the Company or any Project Company, the amount of such reduction or recovery, less any costs or expenses incurred in connection therewith, must promptly be repaid to the Company or applicable Project Company by such Member net of any Taxes imposed upon the indemnified party in respect of such amounts.  

(c)     Until payments have been made in an amount equal to the full amount of any Recapture Damages payable pursuant to this Section 7.11, any distributions to which the Member who owes such Recapture Damages would otherwise be entitled hereunder shall not be paid to such Member and, until the applicable Project Company or Company shall have received the final amount of Recapture Damages to which such Member shall have agreed or shall have been determined to be liable for, all Distributable Cash otherwise payable to such Member shall be retained by the Company.  

ARTICLE VIII MANAGEMENT

  Section 8.1.     Management. Each of the Members acknowledges and agrees that the Manager shall have the authority, powers and responsibilities set forth in the Management

Services Agreement and as provided herein. The Company hereby ratifies and approves the Management Services Agreement. Except (a) for duties and powers delegated to the Manager hereunder or under the Management Services Agreement, (b) for Major Decisions and (c) as otherwise required by Applicable Law, the powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of the Managing Member, who shall take all actions for and on behalf of the Company not otherwise provided for in this Agreement.   

 

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  Section 8.2.     Managing Member. The Managing Member shall be the Member designated to act as such hereunder from time to time in accordance with the provisions of this Section

8.2 (the "Managing Member"). The initial Managing Member shall be Ormat. The Managing Member may, at any time, upon not less than 90 Business Days' notice to the other Members resign as Managing Member and will in good faith assist the Members with finding a replacement Managing Member and providing them with reasonable assistance in transitioning to the new Managing Member. The Members, by unanimous written consent, may at any time (a) remove a Managing Member and (b) fill any vacancy as Managing Member caused by removal, resignation or otherwise. The Class B Member shall have the right to remove the Managing Member in the event of fraud or gross negligence or if at any time the Managing Member ceases to own or hold at least 25% of the aggregate outstanding Membership Interests and there is a Member that owns or holds more than 25% of the aggregate outstanding Membership Interests. The Class B Member shall also have the right to remove the Managing Member in the event that the Managing Member breaches a material provision of this Agreement and such breach (i) continues for 30 days after the Managing Member has been provided notice of such breach, provided that such period shall extend to 90 days if the Managing Member is diligently pursuing a cure of such breach and (ii) has a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Company and the Project Companies (taken as a whole).  

Section 8.3.     Major Decisions.  

(a)     In addition to any other approval required by Applicable Laws or this Agreement, Major Decisions are reserved to the Members, and none of the Company, the Managing Member, or any officer thereof shall do or take or make or approve any Major Decisions without the affirmative unanimous vote of all Membership Interests entitled to vote.  

(b)     The Managing Member will submit proposed Major Decisions to the Members in writing, and each submission shall explain in reasonable detail what is proposed and the basis for the Managing Member's recommendation.  

(c)     The decision of each Member as to whether or not to consent to any Major Decision shall be in the sole discretion of such Member. A request for consent shall be sent by the Managing Member to each Member as provided in Section 11.1. If a Member does not provide a written response manifesting an unambiguous notice of approval or rejection within 10 Business Days of delivery to that Member of a request for consent, the Managing Member shall provide a second request for consent to such Member. A Member will be deemed to have consented if no written response manifesting an unambiguous approval or rejection is received from that Member within 10 Business Days of delivery to that Member of such a second request for consent.   

 

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  ARTICLE IX TRANSFERS

  Section 9.1.     Prohibited Transfers. No Member shall sell, transfer, assign, convey, pledge, mortgage, encumber, hypothecate or otherwise dispose of all or any part of its Membership

Interests or any interest, rights or obligations with respect thereto, directly or indirectly (by operation of law or otherwise, including, without limitation, through a change of control or merger of such Member) (any such action, a "Transfer"), except as provided in this Article IX. Any Transfer of Northleaf's Membership Interests that would otherwise result from the change of beneficial ownership of the direct or indirect Equity Interests of Northleaf shall not be deemed to be a Transfer hereunder so long as such Equity Interests continue to be directly managed and controlled by an Affiliate of Northleaf Capital Partners Ltd. Any attempted Transfer that does not comply with this Article IX shall be null and void and of no force or effect whatsoever.  

Section 9.2.     Lock-Up Period. Prior to the third anniversary of the Effective Date (the "Lock-Up Period"), no Transfers shall be made except for the Transfer of:  

(a)     Class A Membership Interests by any Class A Member or any Affiliate of such Class A Member to any other Class A Member or any Affiliate of such Class A Member or permitted under Section 9.3(b)(ii).  

(b)     Class B Membership Interests by any Class B Member or any Affiliate of such Class B Member to any other Class B Member or any Affiliate of such Class B Member or permitted under Section 9.3(b)(ii).  

Section 9.3.     Requirements for Transfers of Membership Interests.  

(a)     Generally Applicable Conditions to Transfer. Except as otherwise provided in Section 9.3(b) and (c), all Transfers of Membership Interests must satisfy the following conditions:  

(i)     The transferring Member must give notice of the proposed Transfer to each of the Members not less than 10 days prior to the effective date of the proposed Transfer;

  (ii)     The transferring Member and the prospective transferee must execute, acknowledge and deliver to the Company such instruments of transfer and assignment

with respect to such Transfer and such other instruments as are reasonably satisfactory in form and substance to the other Members to effect such Transfer and to confirm the transferor's intention that the transferee become a Member in its place, and the prospective transferee makes the representations and warranties in Section 3.11 and agrees to be bound by the covenants in Section 3.12 as of the date of such Transfer;

  (iii)     The transferee executes, adopts and acknowledges this Agreement, and executes such other agreements as the Managing Member may reasonably deem

necessary or appropriate to confirm the undertaking of the transferee to be bound by the terms of this Agreement and to assume the obligations of the transferor under this Agreement;

  

 

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  (iv)     Such Transfer will not violate any securities laws or any other applicable federal or state laws or the order of any court having jurisdiction over the Company or

any of its assets or any material contract, lease, security, indenture or agreement binding on the Company or its assets;  

(v)     The Transfer will not result in a termination of the Company under Section 708(b)(1)(B) of the Code, unless the transferor has indemnified the other Members against any adverse tax effects in a manner acceptable to the other Members;

  (vi)     The Transfer will not (w) cause the Company to be classified as an entity other than a partnership for United States federal tax purposes (or cause the Company

to be treated as a publicly traded partnership taxable as a corporation), or (x) cause the restrictions on use of Company losses in Section 470 of the Code to apply to the Company or the Members, (y) cause any Project to be treated wholly or partly as "tax-exempt use property" within the meaning of Section 168(h) of the Code or (z) cause the Company to become a Disqualified Person;

  (vii)     The Transferee is not a Disqualified Person;

  (viii)     Solely to the extent the following may be applicable to the Company, any Project Company, or the Projects, such Transfer shall not result in the Company, any

Project Company, or any Project: (x) being in violation of the Federal Power Act, or any FERC regulation or order thereunder; (y) losing its authorization to sell electric energy at wholesale at market-based rates, including preapprovals or waivers normally granted to holders of market-based rate authority; or (z) ceasing to be an EWG or a QF, and a qualifying small power production facility in accordance with 18 C.F.R. Part 292;

  (ix)     All permits, consents and licenses, including all necessary Governmental Approvals with respect to such Transfer (including, if applicable, approval from FERC

under Section 203 of the Federal Power Act) shall have been obtained. To the extent that a Governmental Approval is required in order to consummate such Transfer the transferring Member and its proposed transferee will cooperate by providing all information necessary, in the reasonable discretion of such transferring Member or its proposed transferee, as applicable, to be included in any application or filing for any such Governmental Approval;

  (x)     Except in the case of a Transfer by Ormat, the Transferee is not a Competitor; and

  (xi)     Such Transfer shall not result in the breach by the transferring Member of any covenant of such Member under this Agreement.

  

 

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  (b)     Transfers not Subject to General Conditions. None of the requirements set forth in Section 9.3(a) shall apply to the following Transfers:

  (i)     Transfers at Closing in accordance with the sale of Membership Interests under the Purchase Agreement; and

  (ii)     The grant of any security interest in any Membership Interest, pursuant to any security agreement any Member may enter into with lenders.

  (c)     Transfers not Subject to Prior Notice. The following Transfers are not subject to prior notice pursuant to Section 9.3(a)(i):

  (i)     A Transfer (x) by a Class A Member to a Class A Approved Transferee or (b) by a Class B Member, in each case in connection with any foreclosure or other

exercise of remedies in respect of such Member's Membership Interest subject to a security interest referred to in Section 9.3(b)(ii) (a "Foreclosure Event");  

(ii)     A Transfer by any Class A Member to any other Class A Member or to any Affiliate of a Class A Member;  

(iii)     A Transfer by an Class B Member to any other Class B Member or to any Affiliate of a Class B Member; and  

(iv)     Any Transfer made in accordance with Sections 9.4 and 9.5.  

Section 9.4.     Right of First Offer.  

(a)     Notice of Desire to Transfer. If at any time after the expiration of the Lock-Up Period, a Member (the "Selling Member") desires to Transfer any of its Membership Interests to a Third Person, it shall first give written notice to the other Member (the "Offering Member") of such desire and request a ROFO Offer (as defined below) from the Offering Member (such notice, a "Transfer Request"); provided, that any Transfer of Ormat's Membership Interests that would otherwise result from a direct or indirect (including by operation of law or otherwise) acquisition, merger, change of control or other like transaction with respect to Ormat or a parent entity of Ormat shall not be subject to this Section 9.4.  

(b)     Delivery of ROFO Offer. The Offering Member (or any Affiliate of any the Offering Member designated by it) shall have the right, for a period of 45 calendar days after receipt of a Transfer Request, to inform the Selling Member in writing of its offer to purchase the subject Membership Interest, specifying the price (the "Specified Price") and other terms (the "Specified Terms") of such offer (such notice, the "ROFO Offer"). Any ROFO Offer, if given, shall be irrevocable.  

(c)     Acceptance or Refusal by the Selling Member. The Selling Member shall have the right, for a period of 30 calendar days after receipt of a ROFO Offer, to elect by written notice to the Offering Member that delivered the ROFO Offer to (i) accept the Offering Member's offer to purchase the subject Membership Interests at the Specified Price and on the Specified Terms or (ii) Transfer the subject Membership Interests to a Third Person; provided, that the price offered by such Third Person is higher than the Specified Price and the other applicable terms offered by such Third Person are, when taken as a whole, better than the Specified Terms (such price and terms to be described in the notice). If the Transfer described in the notice given pursuant to Section 9.4(c)(ii) is not consummated within 120 calendar days from delivery of such election notice by the Selling Member, then any subsequent Transfer by such Selling Member of the subject Membership Interests shall again be subject to the right of first offer as set forth in this Section 9.4.   

 

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  (d)     Timing of Closing of ROFO Transfer. The closing of the Transfer of the subject Membership Interests pursuant to Section 9.4(c)(i) shall occur no later than 120 calendar

days after the notice of election to accept the ROFO Offer is given pursuant to Section 9.4(c) or such later date as may be required to obtain any applicable governmental consents or approvals, or to satisfy any reporting or waiting period under any Applicable Laws, or at such other time as the parties agree.  

(e)     Closing of ROFO Transfer. If the ROFO Offer is exercised, at the closing of the Transfer, (i) the Offering Member shall pay (by wire transfer of immediately available United States dollars to such United States bank accounts as the Selling Member may designate in a written notice to the Company and the Offering Member no later than 5 Business Days prior to the closing date for the Transfer pursuant to the ROFO Offer) an amount equal to the cash price of the subject Membership Interests set forth in the ROFO Offer and (ii) the Selling Member that gave the Transfer Request shall: (x) Transfer to the Offering Member all right, title and interest in and to the Membership Interests, free and clear of all Encumbrances other than Permitted Encumbrances; (y) be deemed to have made the representations set forth on Schedule 9.4(e) attached hereto to each of the Offering Member and the Company; and (z) take all such further actions and execute, acknowledge and deliver all such further documents that are necessary to effectuate the Transfer of the subject Membership Interests contemplated by this Section 9.4(e). Upon the closing of such Transfer, (A) all of the Selling Member's obligations and liabilities associated with the subject Membership Interests which are the subject of such Transfer will terminate except those obligations and liabilities accrued through the date of such closing, (B) such Selling Member shall have no further rights as a Member in respect of the Membership Interests which are the subject of such Transfer, and (C) all the rights, obligations and liabilities associated with the Membership Interests which are the subject of such Transfer shall become the rights, obligations and liabilities of the Offering Member acquiring such Membership Interests.  

(f)     Transfer to Third Parties. If the Offering Member (or its Affiliates) have not given a ROFO Offer by the time required under Section 9.4(b), then thereafter for a period of 120 calendar days the Selling Member that gave the Transfer Request may Transfer its Membership Interests to a Third Person in accordance with the other provisions of this Article IX. If such Transfer is not consummated within such 120 day period, then any subsequent Transfer by the Selling Member of its Membership Interests shall again be subject to the right of first offer as set forth in this Section 9.4.  

(g)     ROFO Inapplicable to Transfers between Affiliates or Foreclosure Event. A proposed Transfer between one Member to another Member, or to or between a Member and its Affiliates, or in connection with a Foreclosure Event shall not be subject to the right of first offer as set forth in this Section 9.4.   

 

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  Section 9.5.     Tag-Along Sale.

  (a)     If at any time after the expiration of the Lock-Up Period (i) the Class A Member receives, and intends to accept, a dated, bona fide third party offer ("Third Party Offer")

to acquire 50% or more of the Class A Member's Class A Membership Interests, and (ii) the proposed Transfer is to be made to someone who is not an Affiliate of the Class A Member (each Transfer that meets the conditions of (i) and (ii) being called a "Tag-Along Transfer"), the Class B Member shall have the right (the "Tag-Along Right") to participate in the Tag-Along Transfer with respect to a corresponding percentage of its Class B Membership Interests (with the Class A Membership Interests proposed to be sold by the Class A Members being called the "Tagged Membership Interests" and, the Class B Membership Interests proposed to be sold by the Class B Members being called the "Tag-Along Membership Interests").  

(b)     The Class A Member shall send written notice (the "Tag-Along Notice") to the Company and the Class B Member of the Third Party Offer and proposed Tag-Along Transfer within 10 days after receiving the Third Party Offer, including, without limitation, all consideration to be paid and the identity of the proposed transferee(s). If the B Class Member desires to exercise the Tag-Along Right that became exercisable as a result of such proposed Tag-Along Transfer, it shall give written notice to the Company (a "Tag-Along Election Notice"), within 30 days after the Tag-Along Notice, that such Member desires to sell its Tag-Along Membership Interests. Failure of the Class B Member to deliver such a Tag-Along Exercise Notice by such date shall be deemed to constitute an election by it not to exercise such Tag-Along Right.  

(c)     If the Class B Member properly gives the Tag-Along Election Notice, it shall have the right to sell its Class B Membership Interests in the Tag-Along Transfer (each, a "Tag-Along Participant").  

(d)     The delivery of a Tag-Along Election Notice shall constitute an irrevocable commitment by a Tag-Along Participant to sell its respective Tag-Along Membership Interests for its proportionate share of the consideration specified in the Tag-Along Notice unless a determination not to proceed with the Tag-Along Transfer is made by mutual agreement among the proposed transferee, the Class A Member, and the Tag-Along Participants.  

(e)     The Class A Member shall use its commercially reasonable efforts to obtain the agreement of the prospective transferee(s) to the participation of the Tag-Along Participants. The Class A Member shall not Transfer any Class A Membership Interests to the prospective transferee(s) if the prospective transferee(s) refuse to purchase the Tag-Along Membership Interests assigned to each such Tag-Along Participant. After compliance with this Section 9.5, each Tag-Along Participant shall be permitted to Transfer its Tag-Along Membership Interests to the prospective transferee(s) on terms no more advantageous to them than those specified in the Tag-Along Notice, with each Tag-Along Participant providing the same representations, warranties and indemnifications as the Class A Member, except that the liability of any Tag-Along Participant for breach of representations or warranties or for indemnification payments will be several, and not joint, will be proportionate to the proceeds received or receivable by it in the Tag-Along Transfer (unless the obligation arises from a representation, warranty, or covenant unique to such Tag-Along Participant (e.g., title to its the Tag-Along Membership Interests)), and will be limited to any net proceeds received or receivable by it in the Tag-Along Transfer.   

 

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  (f)     Each of the Tag-Along Participants shall assist in effecting the Tag-Along Transfer, pursuant to the terms and conditions specified in the Tag-Along Notice, of its Tag-

Along Membership Interests.  

Section 9.6.     Regulatory and Other Authorizations and Consents.  

(a)     In connection with any Transfer pursuant to Section 9.4 or 9.5 (the "Designated Transfer"), each Member involved shall use all commercially reasonable efforts to obtain all authorizations, consents, orders and approvals of, give all notices to and make all filings with, all Governmental Authorities and third parties that may be or become necessary for the Designated Transfer, its execution and delivery of, and the performance of its obligations under, this Agreement or other Transaction Documents in connection with any such Designated Transfer and will cooperate fully with the other Members in promptly seeking to obtain all such authorizations, consents, orders and approvals, giving such notices and making such filings, including the provision to such third parties and Governmental Authorities of such financial statements and other publicly available financial information with respect to such Member as such third parties or Governmental Authorities may reasonably request; provided, however, that no Member involved shall have any obligation to pay any consideration to obtain any such consents. In addition, the Members involved shall keep each other reasonably apprised of their efforts to obtain necessary consents and waivers from third parties or Governmental Authorities and the responses of such third parties and Governmental Authorities to requests to provide such consents and waivers.  

(b)     Without limiting the generality of Section 9.6(a), each Member shall make such filings, if any, as may be required under the HSR Act, the Federal Power Act, as amended, or any state Applicable Laws relating to the ownership or control of the Company, the Project Companies, or the Projects.  

(i)     To the extent required by the HSR Act, each Member involved in a Designated Transfer shall (x) file or cause to be filed, as promptly as practicable but in no event later than the 15 Business Day after the delivery of any ROFO Offer or Tag-Along Notice, as applicable (each, a "Transfer Notice"), with the Federal Trade Commission and the United States Department of Justice, all reports and other documents required to be filed by such Member under the HSR Act concerning the Designated Transfer and (y) promptly comply with or cause to be complied with any requests by the Federal Trade Commission or the United States Department of Justice for additional information concerning the Designated Transfer, in each case so that the initial 30 day waiting period applicable under the HSR Act shall expire as soon as practicable. Each Member involved in a Designated Transfer agrees to request, and to cooperate with the other Members involved in requesting, early termination of any applicable waiting period under the HSR Act. Each of the Members involved in a Designated Transfer shall be responsible for the filing fees incurred by all Members involved in the Designated Transfer in connection with the initial filings required by the HSR Act in connection with the Designated Transfers (pro rata in the proportion that the number of Membership Interests of each such Member bears to the total number of Membership Interests involved in the Designated Transfer). Except as expressly provided in the prior sentence with respect to filing fees, each Member involved in a Designated Transfer will be responsible for its own fees and expenses, including any fees and expenses of counsel, accountants or other professional advisors.

  

 

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  (ii)     To the extent required by the Federal Power Act, each Member involved in a Designated Transfer shall (x) file or cause to be filed, as promptly as practicable but

in no event later than the 21st Business Day after the delivery of any Transfer Notice, an application for approval of the Designated Transfer pursuant to Section 203(a)(1) of the Federal Power Act, and (y) as promptly as practicable but in no event later than the tenth Business Day after the delivery of any Transfer Notice, provide to the Company and the Managing Member information needed for the Company and/or the Managing Member to file an application for approval of the Designated Transfer under Section 203(a)(2) of the Federal Power Act.

  Section 9.7.     Admission. Any transferee of all or part of any Membership Interests pursuant to a Transfer made in accordance with this Agreement shall be admitted to the Company

as a Member upon its execution of a counterpart to this Agreement.  

ARTICLE X DISSOLUTION AND WINDING-UP

  Section 10.1.     Events of Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the first to occur of any of the following:

  (a)     the written consent of the Members representing a unanimous vote to dissolve and terminate the Company;

  (b)     the entry of a decree of judicial dissolution under Section 18-802 of the Act;

  (c)     the disposition of all or substantially all of the Company's business and assets;

  (d)     the issuance of a final, nonappealable court order which makes it unlawful for the business of the Company to be carried on; or

  (e)     at any time there are no Members of the Company unless the business of the Company is continued in accordance with the Act.

  Section 10.2.     Distribution of Assets.

  (a)     The Members hereby appoint the Managing Member to act as the liquidator upon the occurrence of one of the events in Section 10.1. Upon the occurrence of such an

event, the liquidator will proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The liquidator may sell, and will use commercially reasonable efforts to obtain the best possible price for, any or all Company property, including to Members.   

 

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  (b)     The liquidator will first pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations of the Company (including the Working Capital Loans,

and all expenses incurred in liquidation) or otherwise make adequate provision for payment and discharge thereof (including the establishment of a cash escrow fund for contingent, conditional or unmatured liabilities in such amount and for such term as the liquidator may reasonably determine) in the order of priority as provided by law. In no event, without the unanimous approval of the Members, will a sale to a Member be for an amount that is less than Fair Market Value.  

(c)     Following the distribution in Section 10.2(b), all assets of the Company will be treated as if sold and any gain or loss treated as realized on those assets will be allocated pro rata in proportion to the Membership Interests held by each Member first to Members with deficits in their Adjusted Capital Accounts (in the ratio of the deficits if more than one Member's Adjusted Capital Account is in deficit) in order to eliminate the deficits and then pro rata in proportion to the Membership Interests held by such Member.  

(d)     After the allocations in clauses (c) have been made, then Distributable Cash and property will be distributed pro rata to the Members in the amount of the positive balances in their Capital Accounts by the end of the Tax Year during which the liquidation occurs (or, if later, within 90 days after the date of such liquidation).  

(e)     The distribution of Distributable Cash and property to a Member in accordance with the provisions of this Section 10.2 constitutes a complete return to the Member of its Capital Contributions and a complete distribution to the Member on its Membership Interests in the Company of all the Company's property and constitutes a compromise to which all Members have consented within the meaning of Section 18-502(b) of the Act. If the assets of the Company remaining after the payment or discharge of the debts and liabilities of the Company are insufficient to return Capital Contributions of each Member, such Member shall have no recourse against the Company or any other Member.  

(f)     If a Member has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all Tax Years including the Tax Year in which the liquidation and dissolution occurs) the Member shall be obligated to contribute cash to the Company in an amount equal to such deficit balance by the end of the Tax Year of the Company during which the liquidation of the Company occurs, or if later, within 90 days after the date of such liquidation; provided, that the amount a Member is required to contribute under this Section 10.2(f) shall not exceed the amount necessary to ensure that tax credits are not reallocated to the other Members.  

Section 10.3.     In-Kind Distributions. There shall be no distribution of assets of the Company in kind without the unanimous approval of the Members.  

Section 10.4.     Certificate of Cancellation.  

(a)     When all debts, liabilities and obligations have been paid and discharged or adequate provisions have been made therefor and all of the remaining property and assets have been distributed to the Members, a certificate of cancellation shall be executed and filed by the liquidator with the Secretary of State of the State of Delaware, which certificate shall set forth the information required by Section 18-203 of the Act.   

 

 39

  (b)     Upon the filing of the certificate of cancellation, the existence of the Company shall cease.

  (c)     All costs and expenses in fulfilling the obligations under this Section 10.4 shall be borne by the Company.

  ARTICLE XI

MISCELLANEOUS  

Section 11.1.     Notices. Unless otherwise provided herein, any offer, acceptance, election, approval, consent, certification, request, waiver, notice or other communication required or permitted to be given hereunder (collectively referred to as a "Notice"), shall be in writing and deemed given if delivered personally, by a nationally-recognized overnight courier, by facsimile, email, or mailed by registered or certified mail (return receipt requested) directed to the intended recipient at the address of such Member set forth on Schedule 4.2(d) attached hereto (as applicable) or at such other address as any Member hereafter may designate to the others in accordance with a Notice under this Section 11.1. A Notice and other communications given in accordance herewith shall be deemed given (a) on the date of delivery, if hand delivered, (b) on the date of receipt, if faxed or emailed (provided a hard copy of such transmission is dispatched by first class mail within 48 hours), (c) 3 Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and (d) 1 Business Day after the date of sending, if sent by a nationally-recognized overnight courier; provided, that a notice given in accordance with this Section 11.1 but received on any day other than a Business Day or after business hours in the place of receipt, will be deemed given on the next Business Day in that place.  

Section 11.2.     Amendment. Except for an amendment of Schedule 4.2(d) hereto in accordance with the terms of this Agreement, and a Transfer of Membership Interests and the admission of a new Member in accordance with the terms of this Agreement, this Agreement may be changed, modified or amended only by an instrument in writing duly executed by all of the Members.  

Section 11.3.     Partition. Each of the Members hereby irrevocably waives, to the extent it may lawfully do so, any right that such Member may have to maintain any action for partition with respect to the Company property.  

Section 11.4.     Waivers and Modifications. Any waiver or consent, express, implied or deemed, to or of any breach or default by any Person in the performance by that Person of its obligations with respect to the Company or any action inconsistent with this Agreement is not a consent or waiver to or of any other breach or default in the performance by that Person of the same or any other obligations of that Person with respect to the Company or any other such action. Failure on the part of a Person to insist in any one or more instances upon strict performance of any provisions of this Agreement, to take advantage of any of its rights hereunder, or to declare any Person in default with respect to the Company, irrespective of how long that failure continues, does not constitute a waiver by that Person of its rights with respect to that Person or its rights with respect to that default until the applicable statute of limitations period has lapsed. All waivers and consents hereunder shall be in writing duly executed by the Members affected by such waiver or consent and shall be delivered to the other Members in the manner set forth in Section 11.1.   

 

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  Section 11.5.     Severability. Except as otherwise provided in the succeeding sentence, every term and provision of this Agreement is intended to be severable, and if any term or

provision of this Agreement is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the legality or validity of the remainder of this Agreement. The preceding sentence shall be of no force or effect if the consequence of enforcing the remainder of this Agreement without such illegal or invalid terms or provision would be to cause any Party to lose the benefit of its economic bargain.  

Section 11.6.     Successors; No Third-Party Beneficiaries. This Agreement is binding on and inures to the benefit of the Members and their respective heirs, legal representatives, successors and permitted assigns. Nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any Claim, cause of action, remedy or right of any kind, it being the intent of the Members that this Agreement shall not be construed as a third-party beneficiary contract. To the full extent permitted by law, no creditor or other third party having dealings with the Company shall have the right to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and permitted assigns. None of the rights of the Members herein set forth to make Capital Contributions or loans to the Company shall be deemed an asset of the Company for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Company or pledged or encumbered by the Company to secure any debt or other obligation of the Company or of any of the Members.  

Section 11.7.     Entire Agreement. This Agreement, including the Schedules, Annexes and Exhibits attached hereto or incorporated herein by reference constitute the entire agreement of the Members with respect to the matters covered herein. This Agreement supersedes all prior agreements and oral understandings among the parties hereto with respect to such matters.  

Section 11.8.     Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, excluding any conflict of laws rule or principle that might refer the governance or construction of this Agreement to the law of another jurisdiction.  

Section 11.9.     Further Assurances. In connection with this Agreement and the transactions contemplated hereby, each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.  

Section 11.10.     Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart.    

 

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  Section 11.11.     Dispute Resolution.

  (a)     In the event a dispute, controversy or claim arises hereunder, other than any difference or disagreement over approval of a Major Decision described in clauses (b)

through (r) of the definition of Major Decision (a "Dispute"), the aggrieved party will promptly provide written notification of the Dispute to the other party within 10 days after such Dispute arises. A meeting will be held promptly between the parties, attended by representatives of the parties with decision-making authority regarding the Dispute, to attempt in good faith to negotiate a resolution of the Dispute. If the parties are not successful in resolving any Dispute within 21 days, the Dispute will thereafter be resolved in accordance with Sections 11.11(b), 11.11(c) or 11.11(d), as applicable.  

(b)     If the Dispute arises under Section 4.5(a)(ii), Section 7.1(b) or Section 7.1(c) and involves the resolution of (x) a failure to agree on the Capacity Test Procedures, (y) the approval of an Annual Operating Budget with expenditures exceeding the O&M Variance or (z) the approval of Major Capital Expenditures, the Independent Engineer will provide binding resolution of the Dispute.  

(c)     Arbitration. If the Parties fail for any reason to resolve the Dispute as provided in Section 11.11(a) (or any mutually agreed extension) and resolution of such Dispute is not provided for in Sections 11.11(b) or 11.11(d), the Parties agree to arbitrate the Dispute using the following procedures:  

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

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

  (iii)     Each Party shall select one (1) arbitrator within ten (10) days of the receipt of the Demand, or if a Party fails to make such selection within ten (10) days from the

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

  

 

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

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

  (v)     This Agreement and the rights and obligations of the Parties hereunder shall remain in full force and effect pending the award in any arbitration proceeding

hereunder.  

(vi)     Unless otherwise ordered by the arbitrators, each Party shall bear its own costs and fees, including attorneys' fees and expenses. The Parties expressly agree that the arbitrators shall have no power to consider or award any form of damages barred by Section 3.6.

  (vii)     The Parties, to the fullest extent permitted by Applicable Laws, hereby irrevocably waive and exclude any recourse to the court system other than to enforce

the agreement to arbitrate pursuant to this Section 11.11, for attachment, or other order in aid of arbitration proceedings or to enforce the award of the arbitral panel.  

(d)     Buy-Sell. If the Dispute involves the resolution of the approval of any Major Decision set forth in clauses (a) or (s) of the definition of Major Decision which is not resolved in accordance with Section 11.11(a), then either Member (in such capacity, the "Proposing Member"), may deliver a written notice ("Buyout Notice") to the Company and the other Member (the "Receiving Member") stating that, at the Receiving Member's option, the Receiving Member may either sell all of the Receiving Member's Membership Interests to the Proposing Member or purchase all of the Proposing Member's Membership Interest for the cash price set forth in the Buyout Notice. Upon delivery of the Buyout Notice, the Receiving Member's right to deliver a Buyout Notice shall be suspended.  

(i)     The Receiving Member shall, within 10 Business Days after receipt of the Buyout Notice, deliver written notice (the "Buyout Response") to the Proposing Member stating whether it will sell all of its Membership Interests to the Proposing Member or purchase all of the Proposing Member's Membership Interests for the price set forth in the Buyout Notice. If the Receiving Member does not timely deliver a Buyout Response, the Proposing Member shall have the right to make the election to purchase the Receiving Member's Membership Interests or sell the Proposing Member's Membership Interests to the Receiving Member for the purchase price set forth in the Buyout Notice. If the Proposing Member does not timely deliver such election within 10 Business Days after the date on which the Buyout Response was due, the Buyout Notice shall expire and neither Member shall be obligated to purchase or sell the Membership Interests purchase to this Section 11.11(d) without the issuance of a new Buyout Notice in accordance with this Section 11.11(d). The purchase and sale of the Membership Interests shall be completed as soon as reasonably practicable after delivery of the Buyout Response or the Proposing Member's election, as applicable, and the Members and the Company shall take all actions and execute all documents reasonably required to consummate such purchase. Each Member shall continue its performance as a Member until the purchase and sale under this Section 11.11(d) has been completed.

  

 

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  (ii)     The procedure set forth in this Section 11.11(d) shall be the exclusive remedy for resolving any deadlock regarding a Dispute over the approval of a Major

Decision set forth in clauses (a) or (s) of the definition of Major Decision, provided, that the Members shall have the right to continue good faith negotiations regarding such deadlock after delivery of a Buyout Notice. If the Members reach a resolution of such deadlock after delivery of a Buyout Notice or Buyout Response, as applicable, then the Proposing Member or the Receiving Member, as applicable, shall cancel the Buyout Notice. During any period in which a deadlock continues, the Members shall continue to operate the Company in good faith and to the best of their abilities consistent with past practices and the Annual Operating Budget. If no Buyout Notice is delivered, the Members shall try to resolve the deadlock issue pursuant to good faith negotiations.

  Section 11.12.     Confidentiality. Each Member shall, and shall cause their Affiliates and its and their respective stockholders, members, partners, Subsidiaries and Representatives to,

hold confidential and not use in any manner detrimental to the Company or any Member all information they may have or obtain concerning Ormat, the Company and their respective assets, business, operations or prospects or this Agreement (the "Confidential Information"); provided, however, that Confidential Information shall (a) not include information that (i) becomes generally available to the public other than as a result of a disclosure by a Member or any of its Representatives, (ii) becomes available to a Member or any of its Representatives on a nonconfidential basis prior to its disclosure by the Company or its Representatives, (iii) is required or requested to be disclosed by a Member or any of its Affiliates or their respective stockholders, members, Subsidiaries or Representatives as a result of any Applicable Law or rule or regulation of any stock exchange, or (iv) is required or requested by the IRS in connection with the Projects, including in connection with a request for any private letter ruling, any determination letter or any audit and (b) in respect of Ormat only, not include information concerning patents, licenses, applications, trade names, trademarks, copyright or any other intellectual property owned, developed, acquired, licensed or used by any Ormat Affiliate. Additionally, the Parties may disclose to any and all Persons, without limitations of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure; provided, however, that no party hereto shall be permitted to disclose such tax treatment in violation of federal or state securities laws. The preceding sentence is intended to cause the transactions contemplated hereby to be treated as not having been offered under conditions of confidentiality for purposes of Treasury Regulations Section 1.6011-4(b)(3) (or any successor provision) promulgated under Section 6011 of the Code, and shall be construed in a manner consistent with such purpose. If such party becomes compelled by legal or administrative process to disclose any Confidential Information, such party will provide the other Members with prompt Notice so that the other Members may seek a protective order or other appropriate remedy or waive compliance with the non-disclosure provisions of this Section 11.12 with respect to the information required to be disclosed. If such protective order or other remedy is not obtained, or such other Members waive compliance with the non-disclosure provisions of this Section 11.12 with respect to the information required to be disclosed, the first party will furnish only that portion of such information that it is advised, by opinion of counsel, is legally required to be furnished and will exercise reasonable efforts, at the other Members' expense, to obtain reliable assurance that confidential treatment will be accorded such information, including, in the case of disclosures to the IRS described in clause (a)(iv) above, to obtain reliable assurance that, to the maximum extent permitted by Applicable Laws, such information will not be made available for public inspection pursuant to Section 6110 of the Code. Nothing herein shall be construed as prohibiting a party hereunder from using such Confidential Information in connection with (i) any claim against another Member hereunder, (ii) any exercise by a party hereunder of any of its rights hereunder and (iii) a disposition by a Member of all or a portion of its Membership Interest or a disposition of an equity interest in such Member or its Affiliates, provided, that, such potential purchaser shall have entered into a confidentiality agreement with respect to Confidential Information on customary terms used in confidentiality agreements in connection with corporate acquisitions before any such information may be disclosed. In addition, each Member hereby acknowledges that (x) the financial statements of the Company furnished to Members from time to time are confidential and may constitute material, non-public information concerning Affiliates of the Company or their securities under the United States federal securities laws; (y) the United States federal securities laws, among other things, prohibit certain persons in possession of material, non-public information concerning companies or securities from buying or selling securities issued by those companies or disclosing that material, nonpublic information to others who buy or sell those securities while in possession of that information (or disclose that information to others who buy or sell); and (z) each Member has a duty to comply with applicable United States federal securities laws.   

 

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  Section 11.13.     Joint Efforts. To the fullest extent permitted by law, neither this Agreement nor any ambiguity or uncertainty herein will be construed against any of the parties hereto,

whether under any rule of construction or otherwise. On the contrary, this Agreement has been prepared by the joint efforts of the respective attorneys for, and has been reviewed by, each of the parties hereto.  

Section 11.14.     Specific Performance. The Members agree that irreparable damage may result if this Agreement is not performed in accordance with its terms, and the Members agree that any damages available at law for a breach of this Agreement may not be an adequate remedy. Therefore, to the extent that damages available at law for a breach of this Agreement are an inadequate remedy, the fullest extent permitted by law, the provisions hereof and the obligations of the Members hereunder may be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies and all other remedies provided for in this Agreement shall, however, be cumulative and not exclusive and shall be in addition to any other remedies that a Member may have under this Agreement, at law or in equity.   

 

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  Section 11.15.     Survival. All indemnities and reimbursement obligations made pursuant to this Agreement shall survive dissolution and liquidation of the Company until expiration of

the longest applicable statute of limitations (including extensions and waivers) with respect to the matter for which a Person would be entitled to be indemnified or reimbursed, as the case may be.  

Section 11.16.     Working Capital Loans and Letter of Credit Reimbursement Obligations.  

(a)     Terms of Working Capital Loans. Ormat, or any Affiliate of Ormat, may make (but will have no obligation to make), or any third party lender may make, loans to the Company or any Project Company, when and as needed (as determined by the Managing Member and without any requirement for consent or other action by any Class B Member for Working Capital Loans to the extent such Working Capital Loan would not otherwise constitute a Major Decision), sufficient to cover working capital, maintenance and capital expenditure needs of the Company or any of the Project Companies (any such loan, a "Working Capital Loan"); provided, that Working Capital Loans shall not be made or used to fund the payment of all or any portion of the Management Fee (as defined in the Management Services Agreement) and no portion of the Management Fee will be paid to the extent that such portion of the Management Fee could not have been paid due to insufficient funds but for a Working Capital Loan. All Working Capital Loans (i) shall be on terms and conditions no less favorable to the Company than could be expected to be obtained from a third party lender on an arm's length basis (and, to the extent applicable, shall satisfy all requirements under the Transaction Documents applicable to transactions between the Company and any Affiliate of a Member), (ii) shall be unsecured (and, to the extent applicable, shall satisfy all requirements under the Transaction Documents applicable to subordinated loans); and (iii) shall be repaid by the Company out of Distributable Cash on a pro rata basis with all such other Working Capital Loans and Credit Support Reimbursement Obligations, unless such loans are otherwise agreed by the Company and such lending parties to be payable in installments over a longer period of time. In the event that Ormat or an Affiliate of Ormat makes any Working Capital Loan, each Class B Member will have the option, at its discretion, to participate in such Working Capital Loan by providing up to its pro rata portion (based on its respective percentage of the Membership Interests) of the funds loaned to the Company under such Working Capital Loan within 30 days after the funding of such Working Capital Loan to the Company, on the same terms and conditions as provided under such Working Capital Loan. Any Working Capital Loan shall be evidenced by a note substantially in the form of Exhibit D hereto.   

 

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  (b)     Credit Support Reimbursement Obligations. In the event that Ormat or any Affiliate thereof incurs reimbursement obligations or loans resulting from draws on any Credit

Support provided on behalf of the Company or a Project Company, or otherwise advances cash reserves or posts other collateral in connection with Credit Support, such reimbursement obligations (the "Credit Support Reimbursement Obligations"), loans or cash advances shall be deemed an unsecured loan to the Company or Project Company, as applicable, by Ormat or such Affiliate, as applicable, to be repaid out of available cash flow of the Company (or, if applicable, the Project Company), on a pari passu basis with any outstanding Working Capital Loans, but before any distributions to the Members under Article VI. In any case where the Company incurs such a reimbursement obligation to Ormat or any Affiliate thereof in connection with a market-based third party letter of credit obtained by Ormat or any Affiliate thereof, such obligation shall bear interest at the actual rate incurred by Ormat or any Affiliate thereof under such letter of credit, and shall otherwise have terms and conditions applicable to Working Capital Loans, excluding any limitations on the aggregate principal amount outstanding on Working Capital Loans. In any case where the Company incurs such a reimbursement obligation, the interest rate shall be no greater than the interest rate provided in connection with the Working Capital Loans (LIBOR plus 2.0 %). Each Class B Member shall have the option, at its discretion, to participate in any such loan to the Company by providing up to its pro rata portion (based on its respective percentage of the Membership Interests) of the amount of the Credit Support Reimbursement Obligation incurred by the Company under such Credit Support within 30 days after the incurrence of such reimbursement obligation, under the same terms and conditions as provided in the immediately preceding sentence.  

(c)     Guaranty Fees. In the event that a Member or an Affiliate thereof provides on behalf of the Company or a Project Company any guaranty, letter of credit or surety bond, such Member shall provide a copy thereof to the other Members within 10 Business Days and such Member or Affiliate will be entitled to (i) receive a fee (the "Guaranty Fee") which fee shall be comparable to a fee chargeable for providing such guaranty, letter of credit or surety bond to a project company rated below investment grade (or not rated), on a non-recourse basis, that may be arranged in an arm's length transaction by a guarantor which would be deemed to have a credit rating of at least BBB+ and taking into account the amount of the underlying obligation being guaranteed and the length of time the guarantee will be outstanding, and (ii) compensation for the costs and expenses (including reasonable legal fees) incurred in connection with effecting, maintaining and renewing such guaranty, letter of credit or surety bond; provided, that each other Member shall have the right to participate in providing such Credit Support and receiving such Guaranty Fee, by providing up to its pro rata portion (based on its respective percentage of the Membership Interests) of such Credit Support (either by providing a similar credit support instrument with respect to such portion of the obligation, or by indemnifying the Member originally providing such Credit Support with respect to such portion of the credit support obligation,) and shall share in the Guaranty Fee owed in respect thereof by the Company to the original provider of such Credit Support.  

Section 11.17.     Recourse Only to Member. The sole recourse of the Company for performance of the obligations of any Member hereunder shall be against such Member and its assets and not against any assets or property of any present or future stockholder, partner, member, director, executive, officer, employee, servant, agent, authorized representative or Affiliate of such Member.  

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  IN WITNESS WHEREOF, the parties, each a Member, have caused this Amended and Restated Limited Liability Company Agreement to be signed by their respective duly authorized

officers as of the date first above written.  

 

 

ORMAT NEVADA INC.       By:   

Name:  Title:  

      By:   

Name:  Title:  

 

  

 

 

NORTHLEAF GEOTHERMAL HOLDINGS LLC       By:   

Name:  Title:  

      By:   

Name:  Title:  

 

   

  

 

[ORPD HOLDING LLC]       By:   

Name:  Title:  

      By:   

Name:  Title:  

 

  Annex I

  Definitions

  "1% Member" has the meaning given in the preamble

  "AAA" has the meaning set forth in Section 11.11(c)(i) of the Agreement.

  "Acceptance Notice" has the meaning set forth in Section 4.6 of the Agreement.

  "Accounting Firm" means any of Deloitte Touche Tohmatsu, Ernst & Young, KPMG International, PricewaterhouseCoopers or any nationally-recognized Affiliate thereof chosen by

the Tax Matters Partner, or such other firm of certified public accountants approved by unanimous consent of the Members.  

"Act" means the Delaware Limited Liability Company Act, Delaware Code Ann. 6, Sections 18-101, et seq. and any successor statute, as the same may be amended from time to time.  

"Additional Capital Contribution" has the meaning set forth in Section 4.3(a) of the Agreement.  

"Adjusted Capital Account" means the Capital Account of a Member (a) increased as described in Section 4.2 of this Agreement and by the amount of potential deficit that the Member is deemed obligated to restore, calculated as described in the penultimate sentence of Treasury Regulation Section 1.704-2(g)(1) and the penultimate sentence of Treasury Regulation Section 1.704-2(i)(5), and (b) decreased by expected items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).  

"Affiliate" means, with respect to any Person, any other Person that Controls, is Controlled by or is under common Control with such first Person.  

"Affiliate Contract" means any contract between the Company and/or any one or more Project Companies, on the one hand, and Ormat or any Ormat Affiliate (other than the Company or any Project Company), on the other hand, in each case if such contract involves annual payments (or otherwise has a value) in excess of $500,000 individually or $1,000,000 in the aggregate with all other such contracts entered into in a single calendar year.  

"Agreement" means the Amended and Restated Limited Liability Company Agreement of ORPD LLC.  

"Annual Operating Budget" has the meaning set forth in Section 7.1(b) of the Agreement.  

"Applicable Laws" means all laws (including common law), statutes, rules, regulations, ordinances, judgments, settlements, orders, decrees, injunctions, and writs of any Governmental Authority having jurisdiction over Ormat Nevada Inc., Northleaf Geothermal Holdings LLC, the Company or any Project Company, as applicable.   

 

 Annex I - 1

  "ARRA" means Division B of the American Recovery and Reinvestment Act of 2009, as amended.

  "Bankruptcy" of a Person means the occurrence of any of the following events: (a) the filing by such Person of a voluntary case or the seeking of relief under any chapter of Title 11 of

the United States Code, as now constituted or hereafter amended (the "Bankruptcy Code"), (b) the making by such Person of a general assignment for the benefit of its creditors, (c) the admission in writing by such Person of its inability to pay its debts as they mature, (d) the filing by such Person of an application for, or consent to, the appointment of any receiver or a permanent or interim trustee of such Person or of all or any portion of its property, including the appointment or authorization of a trustee, receiver or agent under applicable law or under a contract to take charge of its property for the purposes of enforcing a lien against such property or for the purpose of general administration of such property for the benefit of its creditors, (e) the filing by such Person of a petition seeking a reorganization of its financial affairs or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, (f) an involuntary case is commenced against such Person by the filing of a petition under any chapter of the Bankruptcy Code and within 60 days after the filing thereof either the petition is not dismissed or the order for relief is not stayed or dismissed, (g) an order, judgment or decree is entered appointing a receiver or a permanent or interim trustee of such Person or of all or any portion of its property, including the entry of an order, judgment or decree appointing or authorizing a trustee, receiver or agent to take charge of the property of such Person for the purpose of enforcing a lien against such property or for the purpose of general administration of such property for the benefit of the creditors of such Person, and such order, judgment or decree shall continue unstayed and in effect for a period of 60 days, or (h) an order, judgment or decree is entered, without the approval or consent of such Person, approving or authorizing the reorganization, insolvency, readjustment of debt, dissolution or liquidation of such Person under any such law or statute, and such order, judgment or decree shall continue unstayed and in effect for a period of 60 days. The foregoing definition of "Bankruptcy" is intended to replace and shall supersede the definition of "Bankruptcy" in Sections 18-101(1) and 18-304 of the Act.  

"Bankruptcy Code" has the meaning set forth in the definition of "Bankruptcy" in this Annex I.  

"Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which commercial banks in New York City or Toronto, Canada are authorized or required by law to be closed.  

"Buyout Notice" has the meaning set forth in Section 11.11(d) of the Agreement.  

"Buyout Response" has the meaning set forth in Section 11.11(d)(i) of the Agreement.  

"Capacity Test" has the meaning set forth in Section 4.5(a)(ii).  

"Capacity Test Procedures" has the meaning set forth in Section 4.5(a)(ii).   

 

 Annex I - 2

  "Capital Account" means an account for each Member calculated as described in Section 4.2 of this Agreement and used to distribute assets at liquidation as described in Section 10.2

of this Agreement.  

"Capital Contribution" means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property contributed to the Company with respect to the Membership Interests in the Company held or purchased by such Member.  

"Cash Grant" means a grant provided for in Section 1603 of the ARRA.  

"Certificate of Formation" has the meaning set forth in the preliminary statements of the Agreement.  

"Claim" means any and all judgments, awards, claims, causes of action, demands, lawsuits, suits, proceedings, Governmental Authority investigations or audits, losses (including amounts paid in settlement of claims), assessments, fines, penalties, administrative orders, injunctions, obligations, costs, expenses, taxes, liabilities and damages (including any loss of profits, consequential, punitive, incidental or special damages recovered by any Third Person, but excluding loss of profits, consequential, punitive, incidental or special damages asserted by any Member or an Affiliate, and including, without limitation, interest, penalties, reasonable attorney's fees, disbursements and costs of investigations, deficiencies, levies, duties and imposts).  

"Class A Approved Transferee" means a Person (or a direct or indirect subsidiary of such Person) that (a) has a tangible net worth of at least $500,000,000 and (b) either (i) owns and manages or (ii) operates (in each case before giving effect to any Transfer hereunder) not less than 250 MW of geothermal projects in the United States, and such Person must have done so for a period of at least 5 years prior to any Transfer hereunder.  

"Class A Member" means a Member holding one or more Class A Membership Interests.  

"Class A Membership Interests" has the meaning set forth in Section 3.1 of the Agreement.  

"Class A Percentage Interest" means, with respect to the Class A Members, a fraction, expressed as a percentage, (i) the numerator of which is the number of Class A Membership Interests held by the Class A Members and (ii) the denominator of which is the total number of Membership Interests held by all Members.  

"Class A Recapture Event" means an event or occurrence of any fact or circumstance that causes a loss or recapture of all or a portion of the Cash Grant that is directly attributable to (a) a breach of a representation or covenant made by the Class A Member under Section 3.11 or 3.12 of the Agreement (b) a breach of a representation under Section 3.1(g) of the Purchase Agreement, or (c) any Transfer by a Class A Member or a Person that is a direct or indirect owner of a Class A Member prohibited by Article IX of the Agreement that causes the Company or a Project Company to become a Grant Disqualified Person.  

"Class B Member" means a Member holding one or more Class B Membership Interests.   

 

 Annex I - 3

  "Class B Membership Interests" has the meaning set forth in Section 3.1 of the Agreement.

  "Class B Percentage Interest" means, with respect to the Class B Members, a fraction, expressed as a percentage, (i) the numerator of which is the number of Class B Membership

Interests held by the Class B Members and (ii) the denominator of which is the total number of Membership Interests held by all Members.  

"Class B Recapture Event" means an event or occurrence of any fact or circumstance that causes a loss or recapture of all or a portion of the Cash Grant that is directly attributable to (a) a breach of a representation or covenant made by the Class B Member under Section 3.11 or 3.12 of the Agreement (b) a breach of a representation under Section 3.2(h) of the Purchase Agreement, or (c) any Transfer by a Class B Member or a Person that is a direct or indirect owner of a Class B Member prohibited by Article IX of the Agreement that causes the Company or a Project Company to become a Grant Disqualified Person.  

"Closing" has the meaning assigned it in the Purchase Agreement.  

"Code" means the Internal Revenue Code of 1986, as amended from time to time.  

"Company" has the meaning set forth in the introductory paragraph of the Agreement.  

"Company Minimum Gain" means the amount of minimum gain there is in connection with nonrecourse liabilities of the Company, calculated in the manner "partnership minimum gain" is calculated in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).  

"Competitor" means any person which, directly or indirectly, through one or more Affiliates, joint ventures, or otherwise, owns, operates, manages, or develops or manufactures equipment for use, in geothermal power generating facilities or recovered energy (waste heat) based power generating facilities; provided, that, any institution that has a financial interest in a geothermal power generating facility similar to that owned by Northleaf in the Company shall not be considered a Competitor solely as a result thereof.  

"Confidential Information" has the meaning set forth in Section 11.12 of the Agreement.  

"Consultation" means to confer with, and reasonably consider and take into account the reasonable suggestions, comments or opinions of another Person.  

"Control" means the possession, directly or indirectly, of either of the following:  

(a)     (i)in the case of a corporation, more than 50% of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or joint venture, the right to more than 50% of the distributions (including liquidating distributions) therefrom; (iii) in the case of a trust or estate, including a business trust, more than 50% of the beneficial interest therein; and (iv) in the case of any other entity, more than 50% of the economic or beneficial interest therein; or

  

 

 Annex I - 4

  (b)     in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to direct or cause the direction of the policies or management of such entity.

  "Covered Employee" has the meaning set forth in Section 3.12(e) of the Agreement.

  "Covered Person" means each Member and its respective shareholders, partners, members, directors, officers, employees and agents.

  "CPI-West All Urban" means the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the West as provided by the U.S. Department of Labor, Bureau of Labor

Statistics (and if such index is no longer published or available, such other index as the parties shall mutually agree in writing).  

"Credit Support" means any letters of credit, guarantee, cash collateral or other credit enhancement or credit support arrangements to support the payment and performance obligations of the Project Companies, including any future collateral obligations that may be imposed on the Project Companies.  

"Credit Support Reimbursement Obligations" has the meaning set forth in Section 11.16(b) of the Agreement.  

"DAC Expansion Capital Contribution" has the meaning set forth in Section 4.5(a)(i) of the Agreement.  

"DAC GeothermEx Report" means the "Due Diligence Resource Review of Don A. Campbell Geothermal Project, Mineral County, Nevada," dated December 23, 2014, produced by GeothermEx.  

"Depreciation" means for each Fiscal Year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for United States federal income tax purposes with respect to an asset for such Fiscal Year or part thereof, except that if the Gross Asset Value of an asset differs from its adjusted basis for United States federal income tax purposes at the beginning of such Fiscal Year, the depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof shall be an amount which bears the same ratio to such Gross Asset Value as the United States federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof bears to such adjusted tax basis. If such asset has a zero adjusted tax basis, the depreciation, amortization, or other cost recovery deduction for each taxable year shall be determined under a method reasonably selected by the Managing Member.  

"Demand" has the meaning set forth in Section 11.11(c)(i) of the Agreement.  

"Designated Transfer" has the meaning set forth in Section 9.6 of the Agreement.  

"Dispute" has the meaning set forth in Section 11.11(a) of the Agreement.   

 

 Annex I - 5

  "Disqualified Person" means (a) any federal, state or local government (or any political subdivision, agency or instrumentality thereof); (b) any organization described in Section 501(c)

of the Code and exempt from tax under Section 501(a) of the Code; (c) any entity referenced in Section 54(j)(4) of the Code; (d) any foreign person or entity as defined in Section 168(h)(2)(C) of the Code unless the exception under Section 168(h)(2)(B) of the Code applies with respect to income from the Project for that person; (e) any other Person that is ineligible to receive the Grant under Section 1603(g) of ARRA; and (f) any partnership or other pass-through entity (including a single-member disregarded entity), other than a real estate investment trust as defined in Section 856(a) of the Code, any direct or indirect partner (or other holder of an equity or profits interest) of which is described in clauses (a) through (e); provided, that a taxable C corporation, any of whose shareholders are ineligible to receive the Grant by virtue of being described in clauses (a) through (e) above will not be considered a Disqualified Person. Notwithstanding the above, if and to the extent the types of Disqualified Persons described in Sections 1603(f) and 1603(g) of ARRA are amended after the date of the Agreement, the definition of "Disqualified Person" under the Agreement shall be interpreted to conform to such amendment and any Treasury Guidance with respect thereto.  

"Distributable Cash" means, as of any date, all cash, cash equivalents and liquid investments held by the Company, excluding amounts on deposit in any reasonable reserves to be determined by the Managing Member.  

"Distribution Date" means the 7th day of each calendar month.  

"Don A. Campbell Expansion" has the meaning set forth in Section 4.5(a)(ii) of the Agreement.  

"Don A. Campbell Expansion EPC Agreement" means that certain Engineering, Procurement and Construction Agreement, dated on or about the date hereof, between Ormat, as Contractor, and ORNI 37, as Owner.  

"Don A. Campbell Project" has the meaning assigned it in the Purchase Agreement.  

"Don A. Campbell Facility" has the meaning set forth in Section 4.5(a)(ii) of the Agreement.  

"Don A. Campbell 2 COD" means the achievement of Commercial Operation (as such term is defined in the Don A. Campbell 2 PPA).  

"Don A. Campbell 2 PPA" means the Power Purchase Agreement dated as of December 18, 2014 between the Southern California Public Power Authority and ORNI 37.  

"Effective Date" has the meaning set forth in the introductory paragraph of the Agreement.  

"Encumbrance" means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, mortgage, security interest, right of first refusal or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.   

 

 Annex I - 6

  "Environmental Law" means any and all Applicable Laws and Permits relating to the environment, the protection or preservation of human health or safety, including the health and

safety of employees, the preservation or reclamation of natural resources, or the management, release or threatened release of Hazardous Substances.  

"Equity Interests" means (a)(i) with respect to a limited liability company, any and all shares, interests, participations or other equivalents (however designated) of membership interests of such limited liability company, (ii) with respect to a partnership, any and all partnership interests, units, interests, participations shares or other equivalents (however designated) of partnership interests and (iii) with respect to a corporation, any and all capital stock, shares and other equivalents (however designated) of Equity Interests and (b) securities convertible into or exchangeable for any of the foregoing, and any and all warrants, rights or options to purchase, or obligations of a Person to sell, any of the foregoing, whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.  

"EWG" means an "exempt wholesale generator", as such term is defined in Section 1262(6) of the Public Utilities Holding Company Act of 2005, as amended and the FERC's rules at 18 C.F.R. §366.1.  

"Fair Market Value" has the meaning set forth in Section 4.4 of the Agreement.  

"Federal Power Act" means the Federal Power Act of 1935, as amended, including the rules, regulations, and orders issued thereunder.  

"FERC" means the Federal Energy Regulatory Commission and any successor thereto.  

"Final Tested Capacity" has the meaning set forth in Section 4.5(a)(iii) of the Agreement.  

"First Tested Capacity" has the meaning set forth in Section 4.5(a)(iii) of the Agreement.  

"Fiscal Year" has the meaning set forth in Section 7.9 of the Agreement.  

"Foreclosure Event" has the meaning set forth in Section 9.3(c)(i) of the Agreement.  

"GAAP" means generally accepted accounting principles as in effect in the United States of America consistently applied.  

"Geothermal Resource Area" has the meaning set forth in Section 3.4(d) of the Agreement.  

"GeothermEx" means GeothermEx, Inc., a Schlumberger Company.  

"Governmental Approval" means any action, approval, consent, waiver, exemption, variance, franchise, order, permit, authorization, registration, right or license of, with or from a Governmental Authority.   

 

 Annex I - 7

  "Governmental Authority" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-

governmental acting under delegated authority, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity (including any zoning authority, FERC or any comparable authority), or any arbitrator with authority to bind a party at law.  

"Grant Disqualified Person" means, at any time during the Recapture Period, (a) any Federal, state or local government (including any political subdivision, agency or instrumentality thereof), (b) any organization described in Section 501(c) of the Code and exempt from tax under Section 501(a) of the Code, (c) any entity referred to in paragraph (4) of Section 54(j) of the Code, (d) any Person described in Section 50(d)(1) of the Code, (e) any Person who is not a "United States person" as defined in Section 7701(a)(30) of the Code, unless such Person is a foreign person or entity (other than a foreign partnership or foreign pass-through entity) that is subject to United States federal income tax on more than 50 % of the gross income for the taxable year derived by such Person from the Project Company; or (f) any partnership or other pass-through entity (including a single-member disregarded entity) other than a real estate investment trust as defined in Section 856(a) of the Code or a cooperative organization described in Section 1381(a) of the Code, any direct or indirect partner (or other direct or indirect holder of an equity or profits interest) of which is a Grant Disqualified Person, and (g) that if and to the extent the definition of "Disqualified Person" under Section 1603(g) of ARRA or the Treasury Guidance is amended after the date of this Agreement and applicable to periods prior to the date of this Agreement, the definition of "Grant Disqualified Person" hereunder shall be interpreted to conform to such amendment and further Treasury Guidance; provided, however, that subject to clause (g), a taxable C Corporation (as defined in the Code) some or all of whose shareholders are described in clauses (a) through (f) above shall not be treated as a Grant Disqualified Person and such a corporation's ownership of an interest in an entity described in clause (f) above will not cause such entity to be treated as a Grant Disqualified Person.  

"Gross Asset Value" means, with respect to any asset, the asset's adjusted tax basis for federal income tax purposes, except as follows:  

(a)     the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the Gross Fair Market Value of such asset as of the date of contribution; provided, that the initial Gross Asset Values of the assets contributed to the Company pursuant to Section 4.2(d) of the Agreement shall be shown in Schedule 4.2(d) to the Agreement;

  (b)     the Gross Asset Values of all Company assets shall be adjusted to equal their respective fair market values at the times described in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), including upon: (i) the acquisition of additional Membership Interests in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of money or Company property as consideration for Membership Interests in the Company; (iii) in connection with the grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a member capacity, or by a new Member acting in a member capacity in anticipation of being a Member; and (iv) the liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (i) and (ii) shall be made only if the Managing Member determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

  

 

 Annex I - 8

  (c)     the Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted immediately prior to distribution to equal the Gross Fair Market Value of such asset on the date of distribution;

  (d)     the Gross Asset Values of all Company assets shall be adjusted to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are required to be taken into account in determining Capital Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the Managing Member determines that an adjustment pursuant to subsection (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and

  (e)     if the Gross Asset Value of an asset has been determined or adjusted pursuant to subsection (a), (b) or (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset.

  "Gross Fair Market Value" means, with respect to any asset, the fair market value of the asset as reasonably determined by the Managing Member.

  "Guaranty Fee" has the meaning set forth in Section 11.16(c) of the Agreement.

  "Hazardous Substances" means (a) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, solid wastes, and toxic substances as those or similar terms are

defined under any Environmental Laws; (b) asbestos or asbestos-containing material in any form; (c) polychlorinated biphenyls ("PCBs"), or PCB-containing materials or fluids; (d) radon; (e) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof; and (f) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, or contaminant that, whether by its nature or its use, is subject to regulation or giving rise to liability under any Environmental Laws.  

"HELCO" means Hawaii Electric Light Company, Inc..  

"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended and the regulations adopted thereunder.  

"Indenture" means the Indenture dated as of May 18, 2005 (as amended through the date hereof) among SE Puna, L.L.C., the guarantors named therein and Union Bank of California, N.A., as Trustee (as such terms are defined in the Indenture).   

 

 Annex I - 9

  "Independent Appraiser" has the meaning set forth in Section 4.4 of the Agreement.

  "Independent Engineer" means Luminate or another nationally recognized firm of independent engineers experienced with geothermal or recovered energy projects comparable to the

Projects selected by a Super Majority Vote.  

"IRS" means the Internal Revenue Service or any successor agency.  

"Issuance Notice" has the meaning set forth in Section 4.6 of the Agreement.  

"LIBOR" means the percentage rate per annum equal to the offered rate per annum for deposits in US Dollars which is quoted on the Screen Rate for the purpose of displaying London interbank offered rates of major banks for deposits in US Dollars as administered by ICE Benchmark Administration Limited (or any other Person which takes over the administration of that rate) in US Dollars (before any correction, recalculation or republication by the administration) for a period of one month, at approximately 11:00 a.m. London time two London Business Days prior to the date the applicable Working Capital Loan or Credit Support Reimbursement Obligation is extended to the Company, or if no such rate appears, the one-month London Interbank Offered Rate as published in the Wall Street Journal two London Business Days prior to the date such Working Capital Loan or Credit Support Reimbursement Obligation is extended to the Company.  

"Liens" means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest, restrictive covenant or easement or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected or effective under applicable law, or any interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.  

"Lock-Up Period" has the meaning set forth in Section 9.2 of the Agreement.  

"London Business Day" means any day on which banks in London, England are open for business.  

"Major Capital Expenditure" means a capital expenditure in a single transaction or a series of transactions for that same capital expenditure in excess of $3.5 million, excluding the capital expenditures required for the Don A. Campbell Expansion.  

"Major Decision" means:  

Any of the following with respect to the Company or any of its Subsidiaries:  

 

  

 

 a. Except as expressly provided in the Agreement, the alteration, amendment or other modification of any of the allocation and distribution rights of the Members, including any change in

the number of votes allocated to each of the Class A Membership Interests and the Class B Membership Interests;

 b. Approval of the Annual Operating Budget if any such Annual Operating Budget is escalated from the prior year's Annual Operating Budget by an amount that in aggregate is in excess

of the sum of (i) indexation calculated pursuant to CPI-West All Urban plus (ii) 8% (the "O&M Variance");

 Annex I - 10

 

 

 

 

 

 

 

 

 

  

 

  c. Any Major Capital Expenditure;

 d. Dispositions or acquisitions that exceed, individually or (over a single calendar year) in the aggregate with similar transactions, $3.5 million (except as contemplated by an Annual

Operating Budget and other than the disposition of obsolete assets disposed of in the Ordinary Course of Business), or the merger, consolidation, reorganization or business combination of the Company or any of its Subsidiaries with any other Person;

  e. Deviations from the Company's or any of its Subsidiary's primary business purpose or the Company's or any of its Subsidiary's addition of a new line(s) of business;

 f. Except as contemplated by an Annual Operating Budget, the issuance of debt and equity securities, admission of new members (except as permitted pursuant to Article IX), entry into

any capital lease over $3.5 million or providing any guarantee of the indebtedness of any other Person;

  g. Dissolution or liquidation of the Company or any of its Subsidiaries or the commencement of any Bankruptcy proceedings;

  h. Material amendment to the Certificate of Formation, this Agreement, or the Organizational Documents of any of the Company's Subsidiaries;

 i. The appointment of an accounting firm other than Deloitte Touche Tohmatsu, Ernst & Young, KPMG International, PricewaterhouseCoopers or any nationally-recognized Affiliate

thereof;

 

j. The (1) entry into, cancelation, suspension, or termination of any Material Contract (other than contracts described in sub-clause (j) of the definition of Material Contracts and transactions contemplated by any of the Transaction Documents), (2) assignment, release or relinquishment of the rights or obligations of any party to, or amendment to, any Material Contract (other than contracts described in sub-clause (j) of the definition of Material Contracts) if any of the foregoing items in this clause (2) would have a Material Adverse Effect on the Company or any Project Company or (3) renewal of any Material Contract (other than affiliate contracts described in sub-clause (j) of the definition of Material Contracts), except to the extent such renewal is on substantially the same terms as the original Material Contract; provided, that none of such actions in the foregoing subclauses 1-3 will be considered a Major Decision in respect of a Material Contract (other than contracts described in sub-clause (j) of the definition of Material Contracts) if the actions are required by or resulting from any requirement of any Governmental Authority;

 

k. The (1) entry into, cancelation, suspension, or termination of any Affiliate Contract (other than transactions contemplated by any of the Transaction Documents), (2) assignment, release or relinquishment of the rights or obligations of any party to any Affiliate Contract if any of the foregoing items in this clause (2) would have a Material Adverse Effect on the Company or any Project Company, (3) renewal of any Affiliate Contract, except to the extent such renewal is on substantially the same terms as the original Material Contract, or (4) any amendment of any Affiliate Contract, if such amendment, individually or together with any prior amendments of such Affiliate Contract, increases any monetary obligations contained in such Affiliate Contract by more than 5%; provided, that none of such actions in the foregoing subclauses 1-4 will be considered a Major Decision in respect of an Affiliate Contract if the actions are required by or resulting from any requirement of any Governmental Authority

 Annex I - 11

 

 

 

 

 

 

 

 

 

  "Major Decision" shall also include any amendment, modification or waiver of the Don A. Campbell Expansion EPC Agreement that changes the contract price, warranties, indemnities, third-party beneficiaries or any other provisions that could materially and adversely impact the Company, the Members or the Don A. Campbell Expansion after contribution thereof to the Company.

  "Majority Vote" has the meaning set forth in Section 3.2(f) of the Agreement.

  

 

 l. The determination to refrain from exercising (i) the purchase option under Section 21 of the Puna Project Lease Agreement and (ii) the renewal option under Section 15 of the Puna

Project Lease Agreement;

  m. After the aggregate amount of Additional Capital Contributions required to be funded by each Member exceeds $2.5 million, any capital call for Additional Capital Contributions;

  n. Electing, or making any material change in tax methodology, practice or policy or changing the United States federal income Tax classification;

 o. The creation or granting of any Lien or Encumbrance (other than Permitted Encumbrances) on any material property of the Company or any Project Company (other than pursuant to

any Material Contract or amendment or modification thereof approved pursuant to clause (j) of this definition);

 p. The commencement or settlement of any claim, litigation, arbitration or other dispute resolution involving the Company or any of its Subsidiaries, unless such claim, litigation,

arbitration or other dispute resolution involves less than $1 million;

  q. The creation of any Subsidiary;

 r. The employment of any officer or employee (other than with respect to PGV) or the determination or amendment of the compensation of any officer or employee not contemplated by

the Annual Operating Budget;

  s. The selection of a replacement manager upon any resignation of removal of the Manager under the Management Services Agreement; or

  t. Making an election for income tax purposes that is not the most accelerated form of depreciation or other cost recovery that is available for its property.

 Annex I - 12

  "Management Services Agreement" means the Management Services Agreement, dated as of [●], between the Manager and the Company.

  "Manager" means Ormat pursuant to the Management Services Agreement, or any successor manager under a replacement management services agreement.

  "Managing Member" has the meaning set forth in Section 8.2 of the Agreement.

  "Material Adverse Effect" has the meaning assigned it in the Purchase Agreement.

  "Material Contract" means each of the following to which the Company or a Project Company is party: (a) any power purchase agreement, operation and maintenance agreement

(including, without limitation, each O&M Agreement), interconnection agreement, transmission agreement, energy attribute agreement, commodity hedge agreement or similar project agreement related to the sale of electricity or transmission services of a Project, (b) any services agreement involving annual payments by or to the Company or a Project Company in excess of $3.5 million, (d) any agreement relating to indebtedness or any material performance obligation of the Company or any Project Company, including any leases, guarantees, letter of credit arrangements or bonding arrangements, in each case, in a principal amount, or that involves annual payments in an amount, of at least $3.5 million, (e) any agreement or document creating or relating to Liens on any property or assets of the Company or any Project Company securing any obligation created under an agreement specified in clause (d) above, (f) any engineering, construction, procurement, construction management, equipment purchase, or similar contract involving annual payments by or to the Company or a Project Company in excess of $3.5 million, (g) any product warranty or repair contract by or with a manufacturer or vendor of equipment owned or leased by a Project Company with a fair market value of more than $3.5 million, (h) any contract for the sale or purchase of any business entity, or of any property involving assets with a value in excess of $3.5 million, (i) any settlement agreement involving payments by or to the Company or a Project Company in excess of $3.5 million or imposing any material unperformed obligations on the Company or any Project Company, (j) any contracts between the Seller or any Affiliate thereof (other than the Company or a Project Company) and either the Company or a Project Company, (k) any agreement regarding the sharing or allocation of Taxes, (l) any contract with payments based on the net profits of the Company or a Project Company (such as a royalty fee contract), (m) any contracts evidencing the real estate interests required for the ownership, use and operation of the Projects, (n) any contract providing for the indemnification to or from any Person with respect to any material liabilities relating to the Company, any Project or any of their respective properties or assets, (o) any contract under which any material intellectual property is licensed to the Company or any Project Company, (p) any contract that provides for non-monetary obligations on the part of the Company or any Project Company, the non-performance of which could reasonably be expected to have a Material Adverse Effect and (p) any other contract that is expected to require payments by or to the Company and the Project Companies in the aggregate of more than $3.5 million in any calendar year.  

"Member" means any Person executing the Agreement as of the date of the Agreement as a member of the Company or any Person admitted to the Company as a member as provided in the Agreement (each in the capacity as a member of the Company), but does not include any Person who has ceased to be a member of the Company.   

 

 Annex I - 13

  "Member Nonrecourse Debt" means "partner nonrecourse debt" as defined in Treasury Regulation Section 1.704-2(b)(4). An example is where a Member or a person related to the

Member makes a loan on a nonrecourse basis to the Company.  

"Member Nonrecourse Deductions" has the same meaning as the term "partner nonrecourse deductions" in Treasury Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).  

"Membership Interest" means the interest of a Member in the Company, including rights to distributions (liquidating or otherwise), allocations, and to vote, consent or approve, if any.  

"Minimum Gain Attributable to Member Nonrecourse Debt" means the amount of minimum gain there is in connection with a Member Nonrecourse Debt, calculated in the manner described in Treasury Regulation Section 1.704-2(i)(3).  

"New Equity Interests" has the meaning set forth in Section 4.6 of the Agreement.  

"Non-Exercising Member" has the meaning set forth in Section 4.6 of the Agreement.  

"Non-Funding Member" has the meaning set forth in Section 4.3(c) of the Agreement.  

"Nonrecourse Deduction" means a deduction for spending that is funded out of nonrecourse borrowing by the Company or that is otherwise attributable to a "Nonrecourse Liability" of the Company within the meaning of Treasury Regulation Section 1.704-2.  

"Nonrecourse Liability" has the meaning in Treasury Regulation Section 1.704-2(b)(3).  

"Northleaf" has the meaning given in the preamble.  

"Northleaf DAC Pro-Rata Amount" has the meaning set forth in Section 4.5(a)(ix) of the Agreement.  

"Notice" has the meaning set forth in Section 11.1 of the Agreement.  

"O&M Agreements" means, collectively, each of the Operation and Maintenance Agreements between the Operator and a Project Company, as each such agreement may be amended, supplemented or replaced from time to time.  

"O&M Variance" has the meaning set forth in clause (b) of the definition of Major Decisions in this Annex I.  

"Offering Member" has the meaning set forth in Section 9.4(a) of the Agreement.  

"Operator" means Ormat, or any successor thereto, each in its capacity as the operator pursuant to each O&M Agreement.   

 

 Annex I - 14

  "Ordinary Course of Business" means the ordinary conduct of business consistent with past custom and practice (including with respect to quantity and frequency).

  "OREG 1" means OREG 1, LLC, a Delaware limited liability company.

  "OREG 2" means OREG 2, LLC, a Delaware limited liability company.

  "OREG 3" means OREG 3, LLC, a Delaware limited liability company.

  "Organizational Documents" means articles of incorporation, certificate of incorporation, charter, bylaws, articles of organization, formation or association, regulations, operating

agreement, certificate of limited partnership, partnership agreement, and all other similar documents, instruments or certificates executed, adopted, or filed in connection with the creation, formation or organization of a Person, including any amendments thereto.  

"Original LLC Agreement" has the meaning set forth in the preliminary statements of this Agreement.  

"Ormat" means Ormat Nevada Inc., a Delaware corporation.  

"ORNI 8" means ORNI 8 LLC, a Delaware limited liability company.  

"ORNI 37" means ORNI 37 LLC, a Delaware limited liability company.  

"ORNI 37 Purchase Agreement" means the Agreement for Purchase of Membership Interests in ORNI 37, in substantially the form attached hereto as Exhibit E.  

"ORNI 47" means ORNI 47 LLC, a Delaware limited liability company.  

"OrPuna" means OrPuna LLC, a Delaware limited liability company.  

"Outside Activities" has the meaning set forth in Section 3.4(a) of the Agreement.  

"Party" means a party to the Agreement.  

"Permitted Encumbrance" means Encumbrances provided for under the Transaction Documents, liens for Taxes not yet due and payable and restrictions on transfer of the Membership Interests under any applicable federal, state or foreign securities law.  

"Permitted Investments" means any of the following having a maturity of not greater than 1 year from the date of issuance thereof: (a) readily marketable direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the government of the United States of America, (b) insured certificates of deposit of or time deposits with any commercial bank that is a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated at least "Prime 1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A 1" (or the then equivalent grade) by Standard & Poor's Corporation, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion or (c) money market funds rated "AAA" or "Aaa2" or better by Standard & Poor's Corporation or Moody's Investors Service, Inc.   

 

 Annex I - 15

  "Permits" means all licenses, franchises, permits, certificates, orders, approvals, exemptions, registrations or other authorizations from, or filings or certifications made with,

Governmental Authorities, including Permits under Environmental Laws.  

"Person" means any natural person, corporation, limited liability company, partnership, firm, association, Governmental Authority or any other entity whether acting in an individual, fiduciary or other capacity.  

"PGV" means Puna Geothermal Venture, a Hawaii general partnership.  

"PGV Special Revenue Payment" has the meaning set forth in Section 6.5 of the Agreement.  

"Preemptive Right Notice Period" has the meaning set forth in Section 4.6 of the Agreement.  

"Profits" and "Losses" mean, as applicable, for each Fiscal Year, an amount equal to the Company's taxable income or loss for such Fiscal Year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):  

(a)     Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of Profits and Losses, including any income allocated with respect to the Grant, shall be taken into account in computing such taxable income or loss;

  (b)     Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of Profits and Losses, shall be taken into account in computing such taxable income or loss;

  (c)     In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses;

  (d)     Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

  

 

 Annex I - 16

  (e)     In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of Depreciation;

  (f)     To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases Gross Asset Value of the asset) or loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and

  (g)     Notwithstanding any other provision of this definition of Profits and Losses, any items that are specially allocated pursuant to Section 5.2 shall not be taken into account in computing Profits or Losses.

  "Project" and "Projects" have the meaning set forth in the Preliminary Statements to the Agreement and shall also include the Don A. Campbell Expansion after transfer of ORNI 37 to

the Company in accordance with Section 4.5.  

"Project Company" and "Project Companies" have the meaning set forth in the Preliminary Statements to the Agreement and shall also include ORNI 37 after transfer of ORNI 37 to the Company in accordance with Section 4.5.  

"Proposing Member" has the meaning set forth in Section 11.11(d) of the Agreement.  

"Prudent Operator Standard" means that a Person will (a) perform its duties in good faith and as a reasonably prudent operator, (b) perform its duties in compliance with (or to cause the applicable Project Companies to comply in all materials respects with) the requirements of the Material Contracts, (c) exercise such care, skill and diligence as a reasonably prudent business company of established reputation engaged in the geothermal or recovered energy business would exercise in the conduct of its business and for the advancement or protection of its own interests, (d) perform the duties in accordance with applicable geothermal or recovered energy industry standards, (e) use sufficient and properly trained and skilled personnel, and (f) use parts and supplies that meet the specifications set forth in the Material Contracts, in all cases with respect to (a) through (f) herein, taking into account all of the costs, expenses and benefits of operation of each Project.  

"Puna Class A Tracking Amount" means amounts distributable to the Class A Member with respect to amounts received from HELCO under the Puna On-Peak/Off-Peak PPA, calculated in accordance with Section 6.5 of the Agreement.  

"Puna Class B Tracking Amount" means amounts distributable to the Class B Member with respect to amounts received from HELCO under the Puna On-Peak/Off-Peak PPA, calculated in accordance with Section 6.5 of the Agreement.   

 

 Annex I - 17

  "Puna Fixed Price Letter Agreement" means that certain letter agreement between Ormat and Northleaf dated on or about the date of the Purchase Agreement and designated a

"Transaction Document" therein.  

"Puna Fixed Price Table" means the table setting forth specified fixed prices per MWhs sold, attached to and forming a part of the Puna Fixed Price Letter Agreement.  

"Puna GeothermEx Report" means the "Due Diligence Resource Analysis of the Puna Geothermal Project, Hawaii County, Hawaii," dated December 2014 produced by GeothermEx.  

"Puna Operative Documents" has the meaning assigned it in that certain Participation Agreement, dated as of May 18, 2005, among Puna Geothermal Venture, as Lessee, SE Puna, L.L.C., as Owner Lessor, Wilmington Trust Company, SE Puna Lease, L.L.C., AIG Annuity Insurance Company, American General Life Insurance Company, Allstate Life Insurance Company, and Union Bank of California, N.A., as Indenture Trustee, and executed in connection with the issuance of the Senior Secured Notes.  

"Puna On-Peak/Off-Peak PPA" means that certain Purchase Power Contract Unscheduled Energy Made Available from Qualifying Facility between Thermal Power Company and HELCO dated as of March 24, 1986 as amended by (i) that certain Firm Capacity Amendment to Purchase Power Contract (dated March 24, 1986) between PGV and HELCO dated as of July 28, 1989, (ii) that certain Amendment to Purchase Power Contract, as amended between PGV and HELCO dated as of October 19, 1993, (iii) that certain Third Amendment to the Purchase Power Contract between PGV and HELCO dated as of March 7, 1995, (iv) that certain Performance Agreement and Fourth Amendment between PGV and HELCO dated as of February 12, 1996 and (v) that certain Fifth Amendment to the Purchase Power Contract for Unscheduled Energy Made Available from Qualifying Facility dated march 24, 1986 as amended between PGV and HELCO dated as of February 7, 2011.  

"Puna Project" has the meaning assigned it in the Purchase Agreement.  

"Puna Project Lease Agreement" means that certain Project Lease Agreement, dated May 18, 2005 between SE Puna, L.L.C. and PGV.  

"Purchase Agreement" has the meaning set forth in the Preliminary Statements of the Agreement.  

"QF" means a "qualifying facility" under the Public Utility Regulatory Policies Act of 1978, and FERC's rules and regulations thereunder at 18 C.F.R. Part 292.  

"Recapture Damages" means the amount of any portion of any payment required to be made to the United States of America (or any agency or instrumentality thereof), as applicable, resulting from all or any portion of the Cash Grant being recaptured or lost – reduced for certain U.S. federal income tax benefits received as a result of such loss or recapture.  

"Recapture Event" means an event that results in the loss or recapture of the Cash Grant or a portion thereof, by Treasury or any other Governmental Authority.   

 

 Annex I - 18

  "Recapture Period" means with respect to the Puna Project or Don A. Campbell Project, the period commencing on the date that such Project was placed in service for United States

federal income tax purposes and ending on the 5 anniversary thereof.  

"Receiving Member" has the meaning set forth in Section 11.11(d) of the Agreement.  

"Register" has the meaning set forth in Section 3.1(b) of the Agreement.  

"Representatives" means, with respect to any Person, the managing member(s), the officers, directors, employees, representatives or agents (including investment bankers, financial advisors, attorneys, accountants, brokers and other advisors) of such Person, to the extent that such officer, director, employee, representative or agent of such Person is acting in his or her capacity as an officer, director, employee, representative or agent of such Person.  

"Restricted Payment" means, as to any Person, (a) the declaration or payment of any dividend on or in respect of any Equity Interests of such Person, (b) the purchase, redemption, defeasance or other acquisition or retirement of any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person, (c) any other distribution of or in respect of any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person, (d) any payment on account of, any setting apart or allocating any sum for the payment of, any dividend or distribution, or for the purchase, redemption, defeasance, retirement or other acquisition of, any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person or (e) the payment of any amounts, directly or indirectly, to such Person's Affiliates, other than as required under the terms of any Material Contracts in effect as of the date of the Purchase Agreement or required by Applicable Law.  

"Revised Tested Capacity" has the meaning set forth in Section 4.5(a)(iv) of the Agreement.  

"ROFO Offer" has the meaning set forth in Section 9.4(b) of the Agreement.  

"Schedules" means the schedules attached to the Agreement.  

"Screen Rate" means Reuters Page LIBOR01 (or if such page is not accessible or ceases to display, such other page on the Reuters Screen or on the relevant pages of such other service as may be selected by the Parties for the purposes of displaying comparable rates).  

"Securities Act" has the meaning set forth in Section 3.11(a)(vii) of the Agreement.  

"Selling Member" has the meaning set forth in Section 9.4(a) of the Agreement.  

"Senior Secured Note" or "Note" mean the SE Puna, L.L.C. 6.24% Senior Secured Note due May 19, 2005 issued pursuant to the Indenture dated as of May 18, 2005 (as amended through the date hereof) by and among the SE Puna, L.L.C. and Union Bank of California, N.A., as indenture trustee.  

"Specified Price" has the meaning set forth in Section 9.4(b) of the Agreement.   

 

 Annex I - 19

th

  "Specified Terms" has the meaning set forth in Section 9.4(b) of the Agreement.

  "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other entity of which such Person (either alone or through or

together with any other Person pursuant to any agreement, arrangement, contract or other commitment) owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.  

"Super Majority Vote" means the approval of the Class A Members owning more than 50% of the outstanding Class A Membership Interests and Class B Members owing more than 50% of the outstanding Class B Membership Interests.  

"Tag-Along Election Notice" has the meaning set forth in Section 9.5(b) of the Agreement.  

"Tag-Along Membership Interests" has the meaning set forth in Section 9.5(a) of the Agreement.  

"Tag-Along Notice" has the meaning set forth in Section 9.5(b) of the Agreement.  

"Tag-Along Participant" has the meaning set forth in Section 9.5(c) of the Agreement.  

"Tag-Along Right" has the meaning set forth in Section 9.5(a) of the Agreement.  

"Tag-Along Transfer" has the meaning set forth in Section 9.5(a) of the Agreement.  

"Tagged Membership Interests" has the meaning set forth in Section 9.5(a) of the Agreement.  

"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means:  

(a)     any taxes, customs, duties, charges, fees, levies, penalties or other assessments, fees and other governmental charges imposed by any Governmental Authority, including, but not limited to, income, profits, gross receipts, net proceeds, windfall profit, severance, property, personal property (tangible and intangible) production, sales, use, leasing or lease, license, excise, duty, franchise, capital stock, net worth, employment, occupation, payroll, withholding, social security (or similar), unemployment, disability, payroll, fuel, excess profits, occupational, premium, severance, estimated, alternative or add-on minimum, ad valorem, value added, turnover, transfer, stamp, or environmental tax, unclaimed property (escheat) or any other tax, custom, duty, fee, levy or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax, or additional amount attributable thereto; and

  (b)     any liability for the payment of amounts with respect to payment of a type described in clause (a), including as a result of being a member of an affiliated, consolidated, combined or unitary group, as a result of succeeding to such liability as a result of merger, conversion or asset transfer or as a result of any obligation under any tax sharing arrangement or tax indemnity agreement.

  

 

 Annex I - 20

  "Tax Equity Transaction" means a transaction or series of transactions involving one or more investors, purchasers or lessees seeking a return that is enhanced by tax benefits of the

production tax credits provided for in Section 45 of the Code, the investment tax credits provided for in Section 48 of the Code or similar federal tax credit, attribute, benefit or incentive mechanism.  

"Tax Matters Partner" has the meaning set forth in Section 7.7(a) of the Agreement.  

"Tax Returns" means any return, report, statement, information return or other document (including any amendments thereto and any related or supporting information) filed or required to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes, including after the Effective Date any IRS Schedule K-1 issued to Members by the Company, information return, claim for refund, amended return or declaration of estimated Tax.  

"Tax Year" has the meaning set forth in Section 7.10 of the Agreement.  

"Termination Date" has the meaning set forth in Section 2.4 of the Agreement.  

"Tested Capacity" has the meaning set forth in Section 4.5(a)(ii) of the Agreement.  

"Third Party Offer" has the meaning set forth in Section 9.5(a) of the Agreement.  

"Third Person" means a Person other than a Member or an Affiliate of a Member.  

"Transaction Documents" means (a) the Purchase Agreement, (b) this LLC Agreement (c) the Management Services Agreement, (d) the Assignment Agreement, (e) each O&M Agreement, (vii) the Don A. Campbell Expansion Purchase Agreement and (viii) any letter agreement between the Seller and the Purchaser that is expressly designated therein as a "Transaction Document."  

"Transfer" has the meaning set forth in Section 9.1 of the Agreement.  

"Transfer Notice" has the meaning set forth in Section 9.6(b)(i) of the Agreement.  

"Transfer Request" has the meaning set forth in Section 9.4(a) of the Agreement.  

"Treasury" means the United States Department of the Treasury.  

"Treasury Guidance" means the U.S. Department of Treasury's program guidance publication entitled "Payments for Specific Energy Property in Lieu of Tax Credits under the American Recovery and Reinvestment Act of 2009" dated July 2009, revised March 2010 and April 2011 and any other guidance, instructions, or terms and conditions published or issued by the U.S. Department of Treasury in respect of the Cash Grant or any application therefore.   

 

 Annex I - 21

  "Treasury Regulations" means the final and temporary regulations promulgated under the Code, as such regulations are in effect on the date hereof.

  "UCC" means the Uniform Commercial Code, as the same may be in effect in the State of New York or any other applicable jurisdiction.

  "Working Capital Loan" has the meaning set forth in Section 11.16(a) of the Agreement.  

 

 Annex I - 22 

  Exhibit A

  Form of Certificate for Class A Membership Interest

  THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. ACCORDINGLY, SUCH INTERESTS MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT COMPLIANCE WITH SUCH ACT AND SUCH STATE SECURITIES LAWS, AND THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT THAT NO VIOLATION OF SUCH ACT AND SUCH STATE SECURITIES LAWS WILL RESULT FROM ANY PROPOSED SALE, TRANSFER OR OTHER DISPOSITION OF SUCH INTERESTS.   THIS CERTIFICATE EVIDENCES AN INTEREST IN ORPD LLC AND SHALL BE A SECURITY FOR THE PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK.  

  ORPD LLC

a Delaware Limited Liability Company Certificate of Interest

  This certifies that [●] is the owner of [●] Class A Membership Interests in ORPD LLC (the " Company"), which limited liability company interests are subject to the terms of the

Amended and Restated Limited Liability Company Agreement of ORPD LLC, dated as of [●], 2015, as the same may be further amended from time to time in accordance with the terms thereof (the "Limited Liability Company Agreement").  

This Certificate of Interest may be transferred by the lawful holders hereof only in accordance with the provisions of the Limited Liability Company Agreement.  

IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly authorized representative this [●] day of [●], 20__.  

  

 

No. [●]  Class A Membership Interests

  ORPD LLC       By ORMAT NEVADA INC., its Managing

Member  

                  By:         Name:      Title:  

 Exhibit A - 1  

  [Reverse]

  INSTRUMENT OF TRANSFER OF

MEMBERSHIP INTEREST IN ORPD LLC

  FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer unto

  ___________________________________________   (print or type name of assignee)   the limited liability company interest evidenced by and within the Certificate of Interest herewith, and does hereby irrevocably constitute and appoint __________________ as attorney to transfer said interest on the books of ORPD LLC, with full power of substitution in the premises.   Dated as of:  

  

 

 

  [__________________]   By:                                                                                                    Name:            Title:

 Exhibit A - 2 

  Exhibit B

  Form of Certificate for Class B Membership Interest

  THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. ACCORDINGLY, SUCH INTERESTS MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT COMPLIANCE WITH SUCH ACT AND SUCH STATE SECURITIES LAWS, AND THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT THAT NO VIOLATION OF SUCH ACT AND SUCH STATE SECURITIES LAWS WILL RESULT FROM ANY PROPOSED SALE, TRANSFER OR OTHER DISPOSITION OF SUCH INTERESTS.   THIS CERTIFICATE EVIDENCES AN INTEREST IN ORPD LLC AND SHALL BE A SECURITY FOR THE PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK.  

  ORPD LLC

a Delaware Limited Liability Company Certificate of Interest

  This certifies that [●] is the owner of [●] Class B Membership Interests in ORPD LLC (the " Company"), which limited liability company interests are subject to the terms of the

Amended and Restated Limited Liability Company Agreement of ORPD LLC, dated as of [●], 2015, as the same may be further amended from time to time in accordance with the terms thereof (the "Limited Liability Company Agreement").  

This Certificate of Interest may be transferred by the lawful holders hereof only in accordance with the provisions of the Limited Liability Company Agreement.  

IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly authorized representative this [●] day of [●], 20__.  

 

 

No. [●]  Class B Membership Interests

  ORPD LLC       By ORMAT NEVADA INC., its

Managing Member                     By:        Name:      Title:  

 Exhibit B - 1 

  [Reverse]

  INSTRUMENT OF TRANSFER OF

MEMBERSHIP INTEREST IN ORPD LLC

  FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer unto

  _________________________________________   (print or type name of assignee)   the limited liability company interest evidenced by and within the Certificate of Interest herewith, and does hereby irrevocably constitute and appoint __________________ as attorney to transfer said interest on the books of ORPD LLC, with full power of substitution in the premises.   Dated as of:  

 

 

 

[__________________]   By:                                                                                                    Name:            Title:

 Exhibit B - 2 

  Exhibit C-1

  Form of Quarterly Operations Report

     

[Asset Photos]  

   

ORPD LLC

 

Quarterly Operations Report [Insert Quarter]

         

  

 

TO: ORPD LLC ORMAT Nevada Inc. Northleaf Geothermal Holdings LLC

   FROM: ORMAT Nevada Inc.    DATE:  [Insert Date]

 Exhibit C - 1 - 1 

 

  [Summary of key performance metrics including well performance, availability, generation, capacity factors]   [Summary of key financial metrics including revenues, EBITDA and distributions and comparison to budget]   [Summary of significant on-site developments, including status of capex projects, well issues, HR/legal/environmental/insurance/safety concerns, etc.]   [Puna – Estimated MW Net production from each production well, updated on an annual basis]   [DAC – average temperature from each production well]   

 

1. EXECUTIVE SUMMARY

 Exhibit C - 1 -2 

 

 

   

 

2. KEY PERFORMANCE INDICATORS

 Exhibit C - 1 -3 

 

 

 

  [Description of environmental issues facing the sites]

 

  [Description of H&S issues facing the projects]

 

  [Description of any insurance issues, including claims, coverage shortfalls, upcoming renewals, etc.]

 

  [Description of any community issues facing the sites]

 

  [Description of any legal issues facing the projects]

 

  [Description of progress with preventative maintenance plan]

 

  [Updates with respect to any major capital expenditure projects at any of the sites]

  [Updates with respect to progress of DAC 2]

 

  [Description of forced/planned outages over the quarter]

 

  [Description of any material curtailment imposed on any of the projects]

  

 

3. ASSET MANAGEMENT REPORT

 3.1. Operations

[Top highlights and incidents from site]

  3.2. Environmental

  3.3. Health and Safety

  3.4. Insurance

  3.5. Community

  3.6. Legal and Regulatory Compliance

  3.7. Preventative Maintenance

  3.8. Capital Expenditures

  3.9. Forced Outages and Planned Outages

  3.10. Curtailment

 Exhibit C - 1 - 4 

 

   

  [Discussion of key financial results, reasons behind material deviations from budget, any notable changes to ORPD’s financial position, etc.]   [Update on Capital Expenditures]   [Calculation of Puna Class A/Class B Distribution Amounts]   [12-month Class A/Class B distribution projections]   

 

4. FINANCIAL REPORT & CASHFLOW PROJECTIONS

 Exhibit C-1 - 5 

 

 

   

 

5. MONTHLY EXPENSE REPORT

 Exhibit C-1 - 6 

   Exhibit C-2

  Form of Monthly Operations Reports

  MONTHLY UPDATE – ORPD LLC   Performance Update 

    Major Operational Issues   [Brief summary of operational issues/developments, reportable incidents and major capital expenditures]   Major Non-Operational Issues   [Brief summary any significant legal/contractual, insurance, environmental, health & safety, community and human resource issues that may have arisen over the month]  

  Management estimates based on preliminary analysis and available data. Subject to review.

  

 

  PUNA DON A. CAMPBELL OREG I-II-III

PRODUCTION

Gross Production (MWh)      

Net Production (MWh)      

Capacity Factor (%)      

FINANCIAL

Revenues (US$)      

Expenses (US$)      

EBITDA (US$)      

 Exhibit C-2 - 1 

1

1

  Exhibit D

  Form of Working Capital Loan Note

  PROMISSORY NOTE

[Working Capital Loan]  

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

 

    FOR VALUE RECEIVED, ORPD LLC, a Delaware limited liability company (the "Borrower"), hereby promises to pay to the order of [●], [●](the " Lender"), the principal sum of

[●] dollars $[●], on date [●] days after the date of this Note (the " Maturity Date"), unless sooner paid as provided herein.  

The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding, from the date hereof until paid in full, at a rate of per annum equal to LIBOR (as defined below) plus [2.0] percent, calculated on the basis of a 360-day year, such interest to be payable monthly on the last business day of each month (each, a "Payment Date"), commencing [insert date]. In addition, all accrued and unpaid interest hereon will be due and payable upon the day that all principal is due and payable (whether on the Maturity Date, by acceleration or otherwise). For purposes of this Note, "LIBOR" means the rate per annum quoted on the British Bankers’ Association Website "Historic Libor Rates" page, for 1 month Libor as of 10 London Business Days before the date hereof as the rate per annum for deposits in U.S. dollars, or if no rate appears on British Bankers’ Association Website, the one-month London Interbank Offered Rate as published in the Wall Street Journal two London Business Days prior to the date hereof. For the purposes of this Note, "London Business Day" means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London, England.  

Payment of both principal and interest on this Note shall be made by wire transfer to the Lender at such bank instructions provided to the Borrower in lawful money of the United States of America in immediately available funds.  

The Borrower shall have the right to prepay this Note in whole or in part at any time, together with interest on the amount prepaid to the date of prepayment, without penalty or premium.

  

 

$[●]     [Date]

 Exhibit D - 1  

  Upon the occurrence of any of the following events, this Note shall become immediately due and payable in full, together with interest accrued thereon:

  (i)     the Borrower shall fail to make any payment hereunder when due and payable, and such default continues unremedied for a period of ten (10) days after receipt of written

notice thereof from the Lender;  

(ii)     the Borrower shall become insolvent, or generally fail to pay, or admit in writing its inability to pay, its debts as they become due, or shall voluntarily commence any proceeding or file any petition under any bankruptcy, insolvency or similar federal, state or foreign law or seeking dissolution, liquidation or reorganization or the appointment of a receiver, trustee, custodian or liquidator for it or a substantial portion of its property, assets or business or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of an involuntary petition filed against it in any bankruptcy, insolvency or similar proceeding, or shall be adjudicated bankrupt, or shall make a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian or liquidator for a substantial portion of its property, assets or business, or shall by any act or failure to act indicate its consent to or approval of any of the foregoing, or if any corporate action is taken by the Borrower for the purpose of effecting any of the foregoing; or  

(iii)     involuntary proceedings or an involuntary petition shall be commenced or filed against the Borrower under any bankruptcy, insolvency or similar federal, state or foreign law or seeking the dissolution, liquidation or reorganization of it or the appointment of a receiver, trustee, custodian or liquidator for it or of a substantial part of its property, assets or business, and such proceedings or petition shall not be dismissed within sixty (60) days; or any writ, judgment, tax lien, warrant of attachment, execution or similar process shall be issued or levied against a substantial part of its property, assets or business, and such writ, judgment, lien, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, within sixty (60) days after commencement, filing or levy, as the case may be, or any order for relief shall be entered in any such proceeding; or any winding-up, dissolution, liquidation or reorganization of the Borrower.  

The Borrower waives any and all right to assert any defense (except for the Borrower’s performance under the Note), set-off, counterclaim or cross claim of any nature whatsoever with respect to this Note or the obligations of the Borrower hereunder in any action or proceeding brought by the Lender to collect this Note, or any portion hereof. The Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.  

The Borrower promises to pay all reasonable out-of pocket costs and expenses of the Lender (including, without limitation, reasonable attorneys’ fees and disbursements) incurred in connection with (i) the enforcement of, or collection of any amounts due under, this Note or (ii) any waiver, extension, amendment or modification of this Note.   

 

 Exhibit D - 2 

  This Note shall be binding upon, and shall inure to the benefit of, the Borrower and the Lender and their respective successors and assigns; provided, however, that the

Borrower shall not assign its rights or obligations hereunder without the prior written consent of the Lender. This Note may be freely assigned by the Lender without the consent of the Borrower.  

This Note may only be modified, amended, or terminated (other than by payment in full) by an agreement in writing signed by the Borrower and the Lender. No waiver of any term, covenant or provision of this Note shall be effective unless given in writing by the Lender.  

ALL LEGAL ACTIONS OR PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO THIS NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS NOTE THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY LEGAL ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL TO THE ADDRESS OF THE BORROWER SET FORTH BELOW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A HOLDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.  

IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and year first above written.  

  

 

 

ORPD LLC         By                                                                               Name:         Title:        Address:         [                                                                   ]       [                                                                   ]       [                                                                   ]

 Exhibit D - 3 

  Exhibit E

  Form of Don A. Campbell Expansion Purchase Agreement

  (see attached)

  

 

  

   

  [FORM OF] AGREEMENT FOR PURCHASE OF MEMBERSHIP INTERESTS

in

ORNI 37 LLC

by and between

ORMAT NEVADA INC.

and

ORPD LLC    

 

 

  

  TABLE OF CONTENTS

  Page

   

  

 

ARTICLE 1 DEFINED TERMS   11.1 Defined Terms 1

ARTICLE 2 SALE AND PURCHASE OF MEMBERSHIP INTEREST   12.1 Agreement to Sell and Purchase 1 2.2 Purchase Price 1 2.3 Closing 1 2.4 Conditions Precedent to the Obligations of Purchaser 2 2.5 Conditions Precedent to the Obligations of Seller 4

ARTICLE 3 REPRESENTATIONS AND WARRANTIES   53.1 Representations and Warranties of Seller 5 3.2 Representations and Warranties of Purchaser 13 3.3 No Other Seller Representations 15

ARTICLE 4 CERTAIN OTHER REPRESENTATIONS, WARRANTIES AND COVENANTS   154.1 Regulatory Matters 15 4.2 Transfer Taxes 15 4.3 Further Action 15 4.4 Notices 16

ARTICLE 5 INDEMNIFICATION   165.1 Indemnification 16 5.2 Direct Claims 17 5.3 Third Party Claims 17 5.4 After-Tax Basis 18 5.5 No Duplication 19 5.6 Sole Remedy 19 5.7 Survival 19 5.8 Final Date for Assertion of Indemnity Claims 19 5.9 Mitigation and Limitations on Losses 20 5.10 Payment of Indemnification Claims 20 5.11 Specific Performance 20 5.12 Third-Party Beneficiary 21

ARTICLE 6 [RESERVED]   21ARTICLE 7 GENERAL PROVISIONS   21

7.1 Exhibits and Schedules 21 7.2 Disclosure Schedules 21 7.3 Amendment, Modification and Waiver 21 7.4 Severability 21 7.5 Expenses 21

  

 

  

 

7.6 Parties in Interest 21 7.7 Notices 22 7.8 Counterparts 24 7.9 Entire Agreement 24 7.10 GOVERNING LAW; CHOICE OF FORUM; WAIVER OF JURY TRIAL 24 7.11 Public Announcements 24 7.12 Assignment 24 7.13 Intent of the Parties 24

 -ii-

 

 

 

Annex I Definitions    Exhibits:  Exhibit A Form of Assignment Agreement    Schedules:      Schedule 1 Project Schedule 2.4(b) Consents Schedule 2.4(t) Estoppels Schedule 3.1(d) Absence of Litigation Schedule 3.1(h) Financial Statements Schedule 3.1(i) Compliance with Applicable Law Schedule 3.1(j) Environmental Matters Schedule 3.1(k) Permits Schedule 3.1(l) Insurance Schedule 3.1(m) Real Property Schedule 3.1(n) Personal Property Schedule 3.1(p) Material Contracts Schedule 3.1(z) Bank Accounts Schedule 3.1(cc) Background Materials

 -iii- 

  AGREEMENT FOR PURCHASE OF MEMBERSHIP INTERESTS

  This Agreement is made and entered into as of [●], by and between ORPD LLC, a Delaware limited liability company (“Purchaser”) and Ormat Nevada Inc., a Delaware corporation

(“Seller”), for the sale by the Seller to the Purchaser of all of the Membership Interests (as defined below) of ORNI 37 LLC, a Delaware limited liability company (the “Company”).  

In consideration of the respective representations, warranties, covenants, agreements, and conditions hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties hereto hereby agree as follows:  

ARTICLE 1 DEFINED TERMS

  1.1     Defined Terms.  Capitalized terms used but not otherwise defined herein shall have the meanings given such terms in Annex I hereto, and the rules of interpretation set forth in

Annex I hereto shall apply to this Agreement.  

ARTICLE 2 SALE AND PURCHASE OF MEMBERSHIP INTEREST

  2.1     Agreement to Sell and Purchase.   Upon the terms and subject to the conditions set forth in this Agreement, Seller shall sell, assign, transfer and deliver to Purchaser on the

Closing Date, and Purchaser shall purchase on the Closing Date, all of the Membership Interests in the Company free and clear of any Liens, for the consideration specified in Section 2.2.  

2.2     Purchase Price.  

(a)     The purchase price (the “Purchase Price”) for the Membership Interests being purchased under this Agreement will be an amount equal to US$ [__________]. 

(b)     The Purchase Price shall be payable by wire transfer of immediately available United States dollars to such account or accounts as Seller may designate in a written notice given to Purchaser on or prior to the Closing Date.  

2.3     Closing.  The closing of the purchase and sale of the Membership Interests (the “Closing”) will take place (a) at the offices of Chadbourne & Parke LLP in New York, New York at 10:00 a.m. (Eastern time) on the date hereof or (b) at such other place and time as Purchaser and Seller may agree in writing.    

   NTD: To be calculated in accordance with Section 4.5(a)(ii) of the ORPD LLC Agreement. 

  

 

  

1

1

  2.4     Conditions Precedent to the Obligations of Purchaser.

  The obligation of Purchaser to consummate the Closing will be subject to the satisfaction or waiver by Purchaser of each of the conditions set forth below:

  (a)     Each of the representations and warranties of Seller in Section 3.1 of this Agreement and in any other Transaction Document shall be true and correct in all material

respects as of the date hereof and as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects).  

(b)     All consents, approvals and filings required to be obtained or made by Seller and the Company for the Seller or the Company to execute, deliver and perform the Transaction Documents to which it is a party, including each of the consents, approvals and filings set forth on Schedule 2.4(b), shall have been obtained or made and shall be in full force and effect as of the Closing Date.  

(c)     Seller shall have delivered to Purchaser one or more legal opinions of counsel to Seller and the Company, in form and substance reasonably satisfactory to Purchaser, to the effect that each of the Transaction Documents to which each of Seller or the Company is a party, and the performance of each of their respective obligations thereunder, (i) has been duly authorized, executed and delivered by such party, (ii) constitutes the valid and binding obligation of such party, as applicable, and is enforceable against such entity in accordance with its terms, (iii) does not violate any Applicable Law, decree, or judgment to which Seller or the Company or any of their respective properties are subject, (iv) does not conflict with, or cause a breach of, any provision in the Organizational Documents of Seller or the Company, (v) does not violate, result in the breach of, or constitute a default under certain examined documents, or result in the creation or imposition pursuant to the provisions of such examined documents of a Lien upon any assets of the Company, and (vi) does not require any notice, consent, approval or filing with any Governmental Authority or other Person, in each case, subject to customary qualifications, limitations and exceptions.  

(d)     There shall not be any action or proceeding that has been instituted or threatened in writing by any Governmental Authority or Person against any of Purchaser, Seller, or the Company (i) that seeks to impair, restrain, prohibit or invalidate the transactions contemplated herein or in any Transaction Document, (ii) that seeks to impair, restrain, prohibit or invalidate the transactions contemplated by any Material Contract or (iii) regarding the effectiveness or validity of any governmental approvals with respect to the Company, except, in each case under clauses (ii) and (iii), to the extent such action or proceeding has not or could not reasonably be expected to have a Material Adverse Effect.  

(e)     Purchaser shall have received true and complete copies of all Material Contracts.  

(f)     Purchaser shall have received an endorsement of the existing Title Insurance Policy with respect to the Project and an as-built survey with respect to the Project, each of which shall be in form and substance reasonably satisfactory to the Purchaser.   

 

 -2-

  (g)     Seller shall have delivered to Purchaser an officer’s certificate of an authorized officer of Seller (i) certifying that each of the conditions to the obligation of the Seller to

consummate the Closing, set forth in Section 2.5, has been fulfilled to the satisfaction of Seller or has been waived by the Seller, (ii) certifying that each of the representations and warranties of Seller set forth in Section 3.1 is true and correct in all material respects as of the date hereof and as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects); (iii) certifying that Seller has performed all of its obligations under this Agreement required to be performed by Seller prior to or at Closing; and (iv) attaching true and complete copies of the Organizational Documents and a good standing certificate issued as of a recent date of each of Seller and the Company, and resolutions of Seller and the Company authorizing the execution of and performance of each such entity’s obligations under each of the Transaction Documents to which it is a party.  

(h)     Seller shall have delivered to Purchaser a certificate of incumbency from the secretary or assistant secretary of each of Seller and the Company as to the officers of Seller and the Company who sign the Transaction Documents on behalf of each of them.  

(i)     Seller shall have delivered resignations of all managers and officers of the Company effective upon closing.  

(j)     Seller shall have delivered to Purchaser an affidavit of non-foreign status that complies with Section 1445 of the Code, duly executed by Seller.  

(k)     Seller shall have delivered to Purchaser evidence that (i) “Commercial Operation” has occurred under the PPA and (ii) “Substantial Completion” has occurred under the EPC Agreement.  

(l)     No amendments to the Material Contracts shall have been made if such amendment, modification or waiver would have been a Major Decision under the limited liability company agreement of Purchaser and there shall be no defaults under any Material Contracts.  

(m)     There shall not have occurred any events or circumstances that, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect.  

(n)     Seller shall have delivered to Purchaser a duly executed Assignment Agreement with respect to the assignment of the Membership Interests.  

(o)     Seller shall have delivered to Purchaser evidence that a bank account has been opened for the Company and all revenues received by the Company from and after the “Commercial Operation Date” (as defined in the PPA) have been deposited into such account.  

(p)     Seller shall have delivered to Purchaser evidence that from and after the “Commercial Operation Date” (as defined in the PPA), the Company has not made any Restricted Payments.  

(q)     [Reserved]   

 

 -3-

  (r)     Seller shall have provided an IRS Form 8594 in form and substance reasonably satisfactory to Purchaser.

  (s)     [Reserved]

  (t)     Seller shall have provided an estoppel duly executed by each Person and with respect to each contract set forth on Schedule 2.4(t) hereto.

  (u)     Seller shall have delivered to Purchaser a duly executed Operation and Maintenance Agreement between Seller, as Operator, and ORNI 37 LLC, as Owner, in

substantially the same form as the operations and maintenance agreement for the Don A. Campbell Project (as defined in the Initial PSA). (the “O&M Agreement”)  

(v)     Seller shall have delivered to Purchaser an unaudited balance sheet and statements of income, changes in members’ equity, and cash flow as of and for the month ended [______] for the Company (the “Balance Sheet”).  

(w)     Purchaser shall have received evidence that the Company received market-based rate authorization from FERC pursuant to Section 205 of the Federal Power Act before generating test power.  

(x)     Purchaser shall have received evidence that the Company has received open access and Standards of Conduct waivers from FERC prior to obtaining a 50 percent ownership interest in the Campbell Gen-Tie Line and any other FERC-jurisdictional shared transmission facilities covered by the Shared Facilities Agreement and that FERC has accepted the Shared Facilities Agreement for filing.  

2.5      Conditions Precedent to the Obligations of Seller.  

The obligation of Seller to consummate the Closing will be subject to the satisfaction or waiver by Seller of each of the conditions set forth below:  

(a)     Purchaser shall have paid to Seller the Purchase Price in the manner set forth in Section 2.2.  

(b)     Each of the representations and warranties of Purchaser in Section 3.2 and in any other Transaction Document shall be true and correct in all material respects as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects).    

   NTD: This schedule will include estoppels from BLM, Nevada Power, and SCPPA.

  

 

 -4-

2

2

  (c)     All consents, approvals and filings required to be obtained or made by Purchaser to execute, deliver and perform the Transaction Documents to which it is a party shall

have been obtained or made and shall be in full force and effect as of the Closing Date.  

(d)     [Reserved]  

(e)     Purchaser shall have delivered to Seller an officer’s certificate of an authorized officer of Purchaser (i) certifying that each of the conditions to the obligations of Purchaser to consummate the Closing, as set forth in Section 2.4, has been fulfilled to the satisfaction of Purchaser or has been waived by Purchaser, (ii) certifying that each of the representations and warranties of Purchaser set forth in Section 3.2 are true and correct in all material respects as of the Closing Date (other than those qualified by a reference to materiality or Material Adverse Effect, which representations and warranties shall be true and correct in all respects); (iii) certifying that Purchaser has performed all of its obligations under this Agreement required to be performed by Purchaser prior to or at Closing; and (iv) attaching true and complete copies of the Organizational Documents of Purchaser and a good standing certificate issued as of a recent date, and resolutions of Purchaser authorizing the execution of the Transaction Documents to which it is a party.  

(f)     Purchaser shall have delivered to Seller certificates of incumbency from the secretary or assistant secretary of Purchaser as to the officers of Purchaser who sign the Transaction Documents on behalf of Purchaser.  

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

  3.1     Representations and Warranties of Seller. Seller represents and warrants to Purchaser as set forth below with respect to itself and the Company:

  (a)     Organization, Good Standing, Etc. of Seller. Seller is a Delaware corporation, duly incorporated, validly existing and in good standing under the laws of the State of

Delaware. The Company is a Delaware limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Seller and the Company has the relevant power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof. Seller has made available to Purchaser true and complete copies of the Organizational Documents of Seller and the Company.  

(b)     Authority. Each of Seller and the Company has the necessary power and authority to enter into the Transaction Documents to which it is party, to perform its obligations thereunder and to consummate the transactions contemplated therein. All corporate or limited liability company actions or proceedings to be taken by or on the part of Seller and the Company to authorize and permit the due execution and valid delivery by each of Seller and the Company of the Transaction Documents to which it is a party and each other agreement instrument or certificate required to be duly executed and validly delivered by it pursuant thereto, the performance by Seller and the Company of its obligations thereunder, and the consummation by Seller and the Company of the transactions contemplated therein, have been duly and properly taken. The Transaction Documents have been duly executed and delivered by Seller and the Company, as applicable, and constitute the legal, valid, and binding obligation of Seller and the Company, as applicable, enforceable in accordance with their terms, except as such enforceability (i) may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors’ rights and remedies generally and (ii) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).   

 

 -5-

  (c)     No Conflicts; Consents.

  (i)     The execution and delivery of the Transaction Documents to which each of Seller and the Company is a party and the performance by each of Seller and the

Company of its respective obligations thereunder will not, (x) violate any Applicable Law to which Seller or the Company or any of their respective properties are subject, (y) conflict with or cause a breach of any provision in the Organizational Documents of Seller or the Company or (z) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, Permit, instrument, decree, judgment or other arrangement to which Seller or the Company is a party or under which any of them is bound or to which any of their assets are subject (or result in the imposition of a Lien upon any such assets), except (in the case of this clause (z)) for any that could not reasonably be expected to have a Material Adverse Effect.  

(ii)     Except as set forth on Schedule 2.4(b), no consent, approval, waiver, or authorization is required to be obtained by Seller or the Company from any Person or Governmental Authority in connection with the execution, delivery and performance by Seller and the Company of the Transaction Documents and the consummation of the transactions contemplated therein.  

(d)     Absence of Litigation.  

(i)     Seller has not received written notification of any actions or proceedings that have been instituted or threatened in writing by any Governmental Authority or Person against any of Seller or the Company that seeks to impair, restrain, prohibit or invalidate the transactions contemplated herein or in any Transaction Document.  

(ii)     Except as set forth on Schedule 3.1(d), none of the Seller or the Company (x) is subject to any outstanding injunction, judgment, order, decree, or ruling, (y) is subject to any pending action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator, including with respect to environmental matters or (z) to Seller’s Knowledge, is threatened with being made a party to any action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator including with respect to environmental matters.  

(e)     Ownership; No Other Subsidiaries.  

(i)     Seller owns, of record and beneficially, 100% of the membership interests of the Company (the “Membership Interests”). The Company does not have any ownership interest in any other Person.   

 

 -6-

  (ii)     There are no outstanding options, warrants, calls, puts, convertible securities or other contracts of any nature obligating Seller to issue, deliver or sell

membership interests or other securities in the Company, except as provided herein, or obligating the Company to issue, deliver or sell membership interests or other securities in the Company. There are no voting trusts, proxies or other agreements or understanding in effect with respect to the voting or transfer of any of the membership interests in the Company.  

(f)     Valid Interests. The Membership Interests (i) will constitute membership interests in the Company, and (ii) are being sold free and clear of any Liens, except for obligations imposed on members of the Company under the Company LLC Agreement.  

(g)     Tax Matters.  

(i)     (x) All income tax returns and other material Tax Returns required to be filed by or with respect to the Company and the Project have been timely filed (taking into account applicable extensions), (y) all such returns were true, correct, and complete in all material respects, and (z) all Taxes shown as due on such returns have been paid in full (other than those Taxes that are being contested in good faith, by appropriate proceedings and with adequate reserves).  

(ii)     There are no outstanding agreements or waivers extending a statutory period of limitations or requests to extend a statutory period of limitations relating to Taxes due from the Company.  

(iii)     The Company has not been a party to (x) a transaction that constitutes a “listed transaction” for purposes of Section 6011 of the Code and the Treasury Regulations (or a similar provision of state law) or (y) any transaction that constitutes a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b) (or a similar provision of state law).  

(iv)     Except as set forth on Schedule 3.1(g)(iv), there are no audits, examinations, or matters under discussion with any Governmental Authority with respect to Taxes relating to the Company or the Project.  

(v)     There are no Liens for Taxes (other than statutory Liens for current Taxes of the Company not yet due and payable) on any assets of the Company.  

(vi)     No claim has ever been made by an authority in a jurisdiction where Seller (or any of its Affiliates) or the Company does not file Tax Returns that Seller (or any of its Affiliates) or the Company is or may be subject to taxation by such jurisdiction.  

(vii)     The Company is not a party to any Tax allocation, Tax indemnity or Tax sharing agreement or similar arrangements with any Person (other than customary tax provisions in a Material Contract or Tax sharing obligations under consolidated return regulations).  

(viii)     Except as set forth on Schedule 3.1(g)(viii), no power of attorney is currently in effect (provided, that no power of attorney is currently in effect for income tax purposes), and no Tax ruling has been requested of any Governmental Authority, with respect to any Tax matter relating to the Company or the Project.  

 

 -7-

   

(ix)     None of Seller or the Company is, or has been, a Depreciation Disqualified Person.  

(x)     The Project is, and has been at all times, located in the United States. An election was made for the Company under Section 168(g)(7) of the Code. No proceeds of any issue of state or local government obligations have been used to provide financing (directly or indirectly) for the Project if the interest on it is exempt from Section 103 of the Code. To Seller’s Knowledge, the Project is not comprised of, and has not been comprised of any imported property within the meaning of Section 168(g)(6) of the Code.  

(xi)     No production tax credits pursuant to Section 45 of the Code or investment tax credits pursuant to Section 48 of the Code have been claimed on any Tax Return filed by the Seller (or its Affiliates) or the Company with respect to the Project.  

(xii)     The Project is not “leased to a tax-exempt entity” within the meaning of Section 168(h)(1)(A) of the code.  

(xiii)     [The “construction,” within the meaning Section 407 of the American Taxpayer Relief Act of 2012, of the Project began before January 1, 2014.]  

(xiv)     [The Project was “placed in service before January 1, 2016” within the meaning of Section 3.02 of IRS Notice 2013-60.] 

(h)     Financial Statements. Included in Schedule 3.1(h) is a true and complete copy of the Balance Sheet. The Balance Sheet has been prepared in accordance with GAAP (subject to customary year-end adjustments and the absence of footnotes) and consistent with past fiscal periods. The Balance Sheet presents fairly in all material respects the financial position of the Company as of the date thereof. Except for the Balance Sheet, no audited or unaudited financial statements have been prepared with respect to the Company or the Project.  

(i)     Compliance with Applicable Law. Except (i) as set forth on Schedule 3.1(i), (ii) with respect to Environmental Laws (which are addressed in Section 3.1(j)) and (iii) with respect to Taxes (which are addressed in Section 3.1(g)), (x) the Company is currently in material compliance with all material Applicable Law, (y) during the period that the Company has owned, directly or indirectly, the Project, the Company has been in material compliance with all material Applicable Law, except for any noncompliance that has been fully resolved or that does not present and is not reasonably likely to present any material liability to, or any material restriction on operations of, the Company, and (z) the Company has not received any written notice from a Governmental Authority of an actual or potential violation of any Applicable Law.    

  NTD: The representations in clauses (xiii) and (xiv) will only apply if a Tax Equity Transaction has not been agreed for the Project in accordance with Section 4.5(a)(x) of the ORPD LLC

Agreement prior to signing this Agreement.   

 

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  (j)     Environmental Matters. Except as listed on Schedule 3.1(j), (i) to Seller’s Knowledge, the Company is and has been in material compliance with all applicable

Environmental Laws, (ii) none of the Seller or the Company has treated, recycled, stored, transported, handled, or Released or threatened to Release any Hazardous Substances and to Seller’s Knowledge, no Hazardous Substances have been Released on the Project sites by third parties (and there are no locations or premises used by the Company where Hazardous Substances have been Released by the Company), except as could not be expected to result in material costs or material liabilities under Environmental Laws, (iii) none of the Seller (solely with respect to the Company) or the Company has received written notice from any Governmental Authority of a request for information under Section 104 of CERCLA or of an actual or potential violation of any Environmental Laws or is currently subject to or on notice with respect to any investigation, order, claim, or agreement with respect to any matter concerning a Hazardous Substance and (iv) none of the Seller or the Company has, either expressly or by operation of Law, assumed any contractual liabilities under Environmental Law, including any obligation for corrective or remedial action, of any other Person relating to Environmental Law. To Seller’s Knowledge, there are no facts or circumstances related to the Project (including the presence, if any, of aboveground storage tanks, known underground storage tanks, PCBs or asbestos-containing materials) or condition at the Project site that are likely to give rise to a material violation of, or material costs or material liabilities under, applicable Environmental Laws.  

(k)     Permits. All material Permits held by the Company are shown on Schedule 3.1(k). Such Permits constitute all material Permits required to own, operate and maintain the Project. Except as listed on Schedule 3.1(k), to Seller’s Knowledge, (i) the Company is currently in material compliance with all material Permits, (ii) during the period in which the Company has owned, directly or indirectly, the Project, the Company has been in material compliance with all material Permits, (iii) the Company currently has in full force and effect all material Permits necessary to own, operate and maintain the Project, and (iv) the Company has not received any written notice from any Governmental Authority of an actual or potential violation of any material Permit. Except as listed on Schedule 3.1(k), all Permits are final, non-appealable, in good standing, and not subject to any modification or formal threat of revocation, challenge or suspension. As of the Closing Date, Seller has no reason to believe that the Company will not continue to be able to operate in compliance with all such Permits. True and complete copies of such Permits (without duplication of any documents delivered pursuant to Section 3.1(cc)) have been made available to Purchaser.  

(l)     Insurance. Schedule 3.1(l) contains a true and complete list of all insurance policies maintained by Seller or its Affiliates (including the Company) relating to the Company or the Project, and to Seller’s Knowledge (i) such insurance is adequate and customary for the business being conducted, (ii) there are no circumstances that have rendered such insurance unenforceable, and (iii) except as set forth on Schedule 3.1(1), there are no outstanding claims (or circumstances that could reasonably be expected to result in claims) under such policies. Neither the Seller nor the Company has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such policies. All premiums due and payable on such policies have been paid.   

 

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  (m)     Real Property. All real property owned or leased by the Company or to which the Company has rights under leases, subleases, easements, licenses, governmental

permits or rights of way, and the title insurance maintained by the Company with respect to all such property, is described on Schedule 3.1(m) (the “Real Property”). The Company has good and marketable title to its Real Property, including a valid leasehold interest in the real property leased by the Company, subject only to the Permitted Liens. The real property owned or leased, or in which rights are held, by the Company has been and is sufficient to enable the Company to conduct its operations prior to and as of the Closing Date and Seller has no reason to believe that such real property owned or leased, or in which rights are held, will not be sufficient to allow the Company to conduct its operations through the end of the economic useful life of the Project, including providing adequate ingress and egress from the Project in order to operate and maintain, and to produce and sell power from the Project; provided, however, that no representation is made regarding the availability, adequacy or sufficiency for any purpose whatsoever of any geothermal resource. (i) The Company is not in breach of any of its obligations with respect to the Real Property, except for any breach which does not have, and could not reasonably be expected to have, a Material Adverse Effect, and neither Seller nor the Company has been informed in writing by the owner of the Real Property that the Company is in breach of its obligations with respect to the Real Property, and (ii) Seller has not received any written notice of any threatened or actual condemnation proceedings, and to Seller’s knowledge, any such real property, in whole or in part, has not been and is not currently subject to, or threatened with, notice of condemnation proceedings, whether under the power of eminent domain or otherwise, by any Governmental Authority. All premiums with respect to the title insurance shown on Schedule 3.1(m) have been paid, no claims have been made under such title insurance and, to Seller’s Knowledge, there are no circumstances that have rendered such title insurance unenforceable.  

(n)     Personal Property. Schedule 3.1(n) lists all items and the location of personal property having a replacement cost of at least $1 million owned by the Company. The Company has good and marketable title to all tangible personal property owned by it and valid leasehold title to all tangible personal property leased by it. All such equipment and facilities listed on Schedule 3.1(n) and the Project is in good operating condition and repair (normal wear and tear excluded), are adequate for the uses to which they are being put and are not in need of maintenance or repairs except for maintenance and repairs in accordance with Prudent Industry Practices.  

(o)     Liens. All assets owned by the Company are free and clear of all Liens, other than Permitted Liens.  

(p)     Material Contracts. Schedule 3.1(p) contains a true and complete list of all Material Contracts to which the Company is a party. Each such Material Contract is in full force and effect and binding on the Company and to Seller’s knowledge, on the other parties thereto, except as enforceability may be limited by applicable bankruptcy and similar laws affecting the enforcement of creditors’ rights and general equitable principles. Neither the Company nor, to Seller’s Knowledge, any other party to a Material Contract is in default under any Material Contract. To Seller’s Knowledge, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute a default under any Material Contract, result in a termination thereof, cause the acceleration or any other change of any right or obligation thereunder or cause the loss of any benefit thereunder, except where any such default, change or loss could not reasonably be expected to have a Material Adverse Effect. True and complete copies of each Material Contract (including all amendments and modifications thereto) have been made available to Purchaser.   

 

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  (q)     Employee Matters. The Company has no employees and has not maintained, sponsored, administered or participated in any employee benefit plan or arrangement,

including any employee benefit plan subject to ERISA.  

(r)     Affiliate Transactions. Except as listed on Part I of Schedule 3.1(r), and except for the Transaction Documents, there are no existing contracts or agreements between the Company, on the one hand, and the Seller or any other Affiliate of the Seller or any of their respective directors, officers or employees, on the other hand. Except as set forth on Part II of Schedule 3.1(r) , the Company has no outstanding debt to an Affiliate thereof.  

(s)     Tax Character. The Company is a “disregarded entity” for federal income tax purposes. No elections have been filed with the IRS to treat the Company as an association taxable as a corporation and the Company has never been characterized as a corporation for U.S. federal income tax purposes. The Company was originally formed as a single member limited liability company and always has been a single member limited liability company.  

(t)     Regulatory Status. The Project is a Qualifying Facility within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended, and the rules and regulations promulgated thereunder.  

(u)     Public Utility Holding Company. Neither the Seller nor the Company is subject to regulation as a “holding company” or a “public utility company” within the meaning of PUHCA.  

(v)     Utilities. All utility services necessary for the operation of the Project for its intended purpose of producing and selling electricity are, and Seller has no reason to believe will not be, available.    

  NTD: Part II of Schedule 3.1(r) will only list amounts due and payable under the EPC Agreement and the 2 related purchase orders issued prior to February 5, 2015, the O&M Agreement, the

Shared Facilities Agreement and the LGIA.  

 

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  (w)     Liabilities. The Company has no liabilities, whether fixed or contingent, other than (i) liabilities shown on the Balance Sheet, (ii) liabilities arising after the date of the

Balance Sheet in the Ordinary Course of Business, (iii) liabilities in respect of performance under any contract in accordance with its terms, and (iv) liabilities not required to be reflected on a balance sheet prepared in accordance with GAAP.  

(x)     Brokers. None of the Seller or the Company has any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.  

(y)     Scope of Business. The Company has not engaged in any business unrelated to the development, construction, ownership, operation and maintenance of the Project and activities incidental thereto.  

(z)     Bank Accounts. Schedule 3.1(z) contains a true and complete list of the names and locations of banks, trust companies and other financial institutions at which the Company maintains accounts of any nature or safe deposit boxes and the authorized signatories for each such account.  

(aa)     Solvency. None of Seller or the Company has admitted in writing its inability to pay its debts generally as they become due, is subject to a present filing against it of a petition in bankruptcy or a petition to take advantage of any insolvency act, is subject to a present assignment for the benefit of creditors, has consented to the appointment of a receiver for itself or for the whole or any substantial part of its property, or is subject to a present petition in bankruptcy, adjudication of bankruptcy or filing of a petition or answer seeking reorganization or arrangement under any bankruptcy laws.  

(bb)     Sufficiency of Assets. Except as set forth in Schedule 3.1(bb), which only lists assets comprising spare parts, inventory and other ancillary equipment that is not immediately necessary for the operation of the Project at a steady state in a manner allowing compliance with all Material Contracts, as of the Closing Date, the assets of the Company, whether real, personal, tangible or intangible and whether leased, owned or licensed, comprising the Project constitute all of the assets required for or used in the operation of the Project as presently operated or proposed to be operated and no other assets are required or necessary in the operation of the Project in the Ordinary Course of Business; provided, however, that nothing contained herein shall constitute any representation or warranty regarding the sufficiency or adequacy of the geothermal resources available to the Project.  

(cc)     Accuracy of Information Furnished. Seller collected and, with respect to the documents prepared by Seller, prepared the written materials contained in the virtual data room and Seller’s written responses to due diligence inquiries, as set forth in Schedule 3.1(cc) (collectively, and in each case, solely as such written materials and written responses pertain solely to the Company, the “Background Materials”) in good faith. The Background Materials were provided to the Purchaser by the Seller in good faith. Without limiting the effectiveness of any qualification contained in any other representation or warranty in this Section 3.1, Seller has provided all documents in Seller’s possession containing material information (exclusive of documents that contain information duplicative of information contained or incorporated in any other Background Materials) relating to the Company and the Project and the Background Materials do not contain any untrue statement of a material fact concerning the Company or the Project and the transactions contemplated by this Agreement. Seller has not intentionally omitted any material fact or document from the Background Materials with the purpose of causing the Background Materials, when taken in their entirety, to be misleading. Notwithstanding anything in this Section 3.1(cc), no representation or warranty is made with respect to any Background Materials that are in the nature of projections other than that they were prepared in good faith and on the basis of assumptions that were considered reasonable in all material respects by Seller at the time made. The copies of the documents listed on Schedule 3.1(cc) that are contained in the data room are true and complete copies thereof.   

 

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  (dd)     Intellectual Property. The Company, through rights granted by Seller and its Affiliates or otherwise, possess all rights necessary to lawfully use all patents, trademarks,

licenses, service marks, trade names, trade secrets, and other proprietary, or intellectual property rights that are necessary for the operation of the Project and the Company’s business in the Ordinary Course of Business. To the Knowledge of Seller, the operation of the Project and the businesses as conducted by the Company does not infringe on any patent, trademark, license, service mark, trade name, trade secret, obligation of confidence or other proprietary, or intellectual property right of any Person.  

(ee)     Absence of Certain Changes or Events. Since the date of the Balance Sheet, there has not occurred any events or circumstances that individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.  

(ff)     Restricted Payments. The Company has not made any Restricted Payments.  

3.2     Representations and Warranties of Purchaser. The Purchaser represents and warrants to Seller as follows:  

(a)     Organization, Good Standing, Etc. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware, and has the limited liability company organizational power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof.  

(b)     Authority. Purchaser has the limited liability company organizational power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby or thereby. All actions or proceedings required to be taken by or on the part of the Purchaser to authorize and permit the due execution and valid delivery by Purchaser of this Agreement and the instruments required to be duly executed and validly delivered by Purchaser pursuant hereto and thereto, the performance by Purchaser of its obligations hereunder and thereunder, and the consummation by Purchaser of the transactions contemplated herein and therein, have been duly and properly taken. This Agreement has been duly executed and validly delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable in all material respects against Purchaser in accordance with its terms and conditions except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors’ rights and remedies generally and general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).   

 

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  (c)     No Conflicts. The execution and delivery by Purchaser of this Agreement and the other Transaction Documents to which Purchaser is a party do not, and the

performance by Purchaser of Purchaser obligations hereunder and thereunder will not, (i) violate any Applicable Law, (ii) conflict with or cause a breach of any provision of its Organizational Documents or (iii) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, license, instrument, decree, judgment or other arrangement to which Purchaser is a party or under which it is bound or to which any of its assets are subject (or result in the imposition of a Lien upon any such assets), except (in the case of this clause (iii)) for any that could not reasonably be expected to have a material adverse impact on Purchaser’s ability to consummate the transactions contemplated by this Agreement.  

(d)     Absence of Litigation.  

(i)     Purchaser has not received written notification of any actions or proceedings that have been instituted or threatened in writing by any Governmental Authority or Person against the Purchaser that seeks to impair, restrain, prohibit or invalidate the transactions contemplated herein or in any Transaction Document.  

(ii)     Purchaser (x) is not subject to any pending or outstanding injunction, judgment, order, decree, ruling or charge, (y) is not subject to any pending action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator, and (z) to Purchaser’s knowledge, is not threatened with being made a party to any action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator.  

(e)     Accredited Investor; Information; Investment Intent. Purchaser is an “Accredited Investor” as such term is defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). Purchaser has had a reasonable opportunity to ask questions of and receive answers from Seller concerning Seller, the Membership Interests and the Company, and all such questions have been answered to the full satisfaction of Purchaser. Purchaser understands that the Membership Interests have not been registered under the Securities Act in reliance on an exemption therefrom, and that the Membership Interests must be held indefinitely unless the sale thereof is registered under the Securities Act or an exemption from registration is available thereunder, and that Seller is under no obligation to register the Membership Interests. Purchaser shall not sell, hypothecate or otherwise transfer the Membership Interests without registering or qualifying them under the Securities Act and applicable state securities laws unless the transfer is exempted from registration or qualification under such laws. Purchaser is purchasing the Membership Interests for its own account and not for the account of any other Person and not with a view to distribution to others.   

 

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  (f)     Information and Investment Intent. Purchaser recognizes that investment in the Membership Interests involves substantial risks. Purchaser acknowledges that any

financial projections that may have been provided to it are based on assumptions of future operating results developed by Seller and Seller’s advisers and, therefore, represent an estimate of future results based on assumptions about certain events (many of which are beyond the control of Seller and the Company). Purchaser understands that no assurances or representations can be given that the actual results of the operations of the Company will conform to the projected results for any period. Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risk of its investment and is able to bear the economic risk of holding the Membership Interests for an indefinite period (including total loss of its investment). Purchaser has relied solely on its own legal, tax and financial advisers for its evaluation of an investment in the Membership Interests and not on the advice of the Seller or the Company or any of their respective legal, tax or financial advisers. Notwithstanding the foregoing, nothing in this paragraph (f) shall relieve Seller or any of its affiliates of any obligations expressly imposed upon them hereunder or reduce the rights expressly granted hereunder to Purchaser and its affiliates in respect of the express representations, warranties and covenants or other agreements of Seller or its affiliates to the extent contained herein.  

(g)     Public Utility Holding Company. Purchaser is not a “holding company” within the meaning of PUHCA.  

3.3     No Other Seller Representations.  Except with respect to the representations and warranties of Seller and the Company in the Transaction Documents, none of Seller or the Company has made any representation or warranty, either express or implied, nor has the Purchaser relied on any representation or warranty not expressly made herein or in any other Transaction Document. The Purchaser specifically acknowledges that, except as stated in Section 3.1 and any representations and warranties made in any other Transaction Document, no representation or warranty has been made and that the Purchaser has not relied on any representation or warranty about the accuracy of any projections, estimates or budgets, future revenues, future results from operations, future cash flows, the future condition of the Project or any assets of the Company, or the future financial condition of the Company.  

ARTICLE 4 CERTAIN OTHER REPRESENTATIONS, WARRANTIES AND COVENANTS

  4.1     Regulatory Matters.   Promptly after the effective time of the Closing, to the extent required by Applicable Law, Seller shall file or cause to be filed with FERC a notice of self re-

certification as a Qualifying Facility within the meaning of the Public Utility Regulatory Policies Act of 1978 with respect to the Project.  

4.2     Transfer Taxes.The Seller on the one hand, and the Purchaser, on the other, shall bear in equal portions and pay all sales, use, transfer, recording, gains, stock transfer and other similar taxes and fees if any, arising out of or in connection with the transactions contemplated by this Agreement and the other Transaction Documents.  

4.3     Further Action. From time to time, as and when requested by any Party, the Seller and Purchaser will each execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such commercially reasonable actions, as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated herein.   

 

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  4.4     Notices

  Seller and Purchaser will cooperate to complete the necessary notice and acknowledgements required to be delivered to the Director, Governor's Office of Energy of the State of Nevada

in connection with the sales and use tax abatement and the property tax abatement agreements for the Project; provided, the Seller shall prepare or cause the Company to prepare a draft of the necessary notice and acknowledgements (including written instructions regarding any actions required of Purchaser) and provide and the same to Purchaser and its counsel at least five Business Days prior to the deadline for the delivery of the same to such Director (or if no deadline is applicable within 10 Business Days of the Closing).  

ARTICLE 5 INDEMNIFICATION

  5.1     Indemnification.   (a) Seller agrees to indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against any and all Purchaser Indemnified Costs; provided,

however, that except with respect to Purchaser Indemnified Costs resulting from fraud, gross negligence or willful misconduct or failure to pay any amount due to Purchaser Indemnified Parties under any Transaction Document, in no event shall Seller’s aggregate obligation to indemnify the Purchaser Indemnified Parties hereunder exceed 25% of the Purchase Price (provided, however, that (i) the 25% limitation above shall be 100% in respect of a breach of Seller’s representations in Section 3.1(a), Section 3.1(b), Section 3.1(e), Section 3.1(f), Section 3.1(g) and Section 3.1(x) and (ii) there shall be no cap with respect to any Third Party Claim or any claim based on fraud, gross negligence or willful misconduct). Without regard to any of the foregoing limitations or the requirements of Section 5.1(c), Seller also agrees to indemnify, defend and hold harmless the Company from and against any and all damages, losses, claims, liabilities, Taxes, penalties, costs, and reasonable expenses (including court cost and reasonable attorneys’ fees and expenses of one law firm) incurred by the Company as a result of the imposition of any liability for the Taxes of any other Person under Treasury Regulations 1.1502-6 (or any similar provision of state or local law) as a transferee or successor, by contract or otherwise (“Treas. Reg. 1.1502-6 Liability”).  

(a)     Purchaser agrees to severally indemnify, defend and hold harmless the Seller Indemnified Parties from and against any and all Seller Indemnified Costs; provided, however, that except with respect to Seller Indemnified Costs resulting from fraud, gross negligence or willful misconduct or failure to pay any amount due to Seller Indemnified Parties under any Transaction Document, in no event shall Purchaser’s aggregate obligation to indemnify the Seller Indemnified Parties hereunder exceed 25% of the sum of the Purchase Price paid by Purchaser as of the date such indemnification obligation arises (provided, however, that the 25% limitation above shall be 100% in respect of a breach of Purchaser’s representations in Section 3.2(a), Section 3.2(b), Section 3.2(c)(ii) and Section 3.2(e)).  

(b)     No claim for indemnification may be made with respect to any breach (other than failure to pay an amount due) unless and until the aggregate amount of claims for which indemnification is (or previously has been) sought exceeds $1,000,000; provided, that once such threshold amount of claims has been reached, the relevant Indemnified Party shall have the right to be indemnified for all such claims, including amounts that were not previously paid because such threshold amount had not been reached.   

 

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  5.2     Direct Claims.  In any case in which an Indemnified Party seeks indemnification under Section 5.1 which is not subject to Section 5.3 because no Third Party Claim is involved,

the Indemnified Party shall notify the Indemnifying Party in writing of such direct claim, of any amounts which such Indemnified Party claims are subject to indemnification under the terms of this Article 5. The failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim, except to the extent the resulting delay materially prejudices the position of the Indemnifying Party with respect to such claim.  

5.3     Third Party Claims.  An Indemnified Party shall give written notice to any Indemnifying Party within 30 days after it has actual knowledge of commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a “Third Party Claim”) in respect of which such Indemnified Party may seek indemnification under Section 5.1. Such notice shall state the nature and basis of such Third Party Claim and the events and the amounts thereof to the extent known. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it, may have to such Indemnified Party under this Article 5, except to the extent the failure to give such notice materially and adversely prejudices such Indemnifying Party. In case any such action, proceeding or claim is brought against an Indemnified Party, so long as (a) the Indemnifying Party has acknowledged in writing to the Indemnified Party that it is liable to the Indemnified Party for such Third Party Claim pursuant to this Section 5.3, (b) in the reasonable judgment of the Indemnified Party a conflict of interest between it and the Indemnifying Party does not exist in respect of such Third Party Claim and (c) in the reasonable judgment of the Indemnified Party such Third Party Claim does not entail a material risk of criminal penalties or civil fines or non-monetary sanctions being imposed on the Indemnified Party (a “Third Party Penalty Claim”) (the forgoing conditions being referred to as the “Control Conditions”), the Indemnifying Party shall be entitled to participate in and assume the defense thereof, with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party, and after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than as expressly provided below in this Section 5.3; provided, that nothing contained herein shall permit Seller to control or participate in any Tax contest or dispute involving Purchaser or any Affiliate of Purchaser, or permit Purchaser to control or participate in any Tax contest or dispute involving Seller or any Affiliate of Seller other than the Company. In the event that (i) the Indemnifying Party advises an Indemnified Party that it will not contest a claim for indemnification hereunder, (ii) the Indemnifying Party fails, within 30 days of receipt of any indemnification notice to notify, in writing, such Indemnified Party of its election, to defend, settle or compromise, at is sole cost and expense, any such Third Party Claim (or discontinues its defense at any time after it commences such defense) or (iii) in the reasonable judgment of the Indemnified Party, a conflict of interest between it and the Indemnifying Party exists in respect of such Third Party Claim or the action or claim is a Third Party Penalty Claim, then the Indemnified Party may, at its option, defend, settle or otherwise compromise or pay such action or claim or Third Party Claim, and the Indemnifying Party shall be liable for and shall reimburse the Indemnified Party promptly and periodically for the Indemnified Party’s reasonable costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding. In any event, unless and until the Indemnifying Party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the Indemnifying Party shall be liable for the Indemnified Party’s reasonable costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding. The Indemnified Party shall cooperate fully with the Indemnifying Party in connection with any negotiation or defense of any such action or claim by the Indemnifying Party. The Indemnifying Party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the Indemnifying Party elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. If any of the Control Conditions is not satisfied or becomes unsatisfied, (x) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, such Third Party Claim in any manner it may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (y) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the reasonable costs or defending against such Third Party Claim (including reasonable consultant, attorney and expert witness fees, disbursements and expenses), and (z) the Indemnifying Party will remain responsible for any losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by such Third Party Claim to the fullest extent provided in this Article 5. The Indemnifying Party and the Indemnified Party shall cooperate fully with each other in connection with the defense, negotiation or settlement of any such legal proceeding, claim or demand. Notwithstanding anything in this Section 5.3 to the contrary, the Indemnifying Party shall not, without the Indemnified Party’s prior written consent, settle or compromise any claim or consent to entry of judgment in respect thereof which imposes any criminal liability or civil fine or sanction or equitable remedy on the Indemnified Party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party, a release from all liability in respect of such claim.   

 

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  5.4     After-Tax Basis.  For tax reporting purposes, to the maximum extent permitted by the Code, each Party will agree to treat all amounts paid under any of the provisions of this

Article 5 as an adjustment to the purchase price for the Membership Interests (or otherwise as a non-taxable reimbursement, contribution or return of capital, as the case may be). To the extent any such indemnification payment is includable as income of the Indemnified Party as determined by agreement of the Parties, or if there is no agreement, by an opinion of a nationally-recognized tax counsel selected jointly by the Parties that such amount is “more likely than not” includable as income of the recipient, the amount of the payment shall be increased by the amount of any United States federal income tax required to be paid by the Indemnified Party or its Affiliates on the receipt or accrual of the indemnification payment, including, for this purpose, the amount of any such Tax required to be paid by the Indemnified Party on the receipt or accrual of the additional amount required to be added to such payment pursuant to this Section 5.4, assuming full taxability, using an assumed tax rate equal to the highest marginal United States federal income tax rate applicable to corporations generally (currently 35 % for federal only). Both Parties shall have the opportunity to comment on the opinion delivered in accordance with the foregoing sentence. If an opinion is delivered in accordance with this Section 5.4, the Indemnified Party shall report the relevant indemnification payments as income consistent with such opinion and otherwise act in a manner consistent with such opinion. Any payment made under this Article 5 shall be reduced by the present value (as determined on the basis of a discount rate equal to 8 % per annum and the same assumptions about taxability and tax rates) of any federal income tax benefit to be realized by the Indemnified Party or its Affiliates by reason of the facts and circumstances giving rise to such indemnification.   

 

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  5.5     No Duplication.  Any liability of an Indemnifying Party to an Indemnified Party for indemnification under this Article 5 shall be determined without duplication of recovery by

such Indemnified Party from such Indemnifying Party. Without limiting the generality of the prior sentence, if a statement of facts, condition or event constitutes a breach of more than one representation, warranty, covenant or agreement which is subject to the indemnification obligation in Section 5.1, only one recovery of Purchaser Indemnified Costs or Seller Indemnified Costs, as applicable, shall be allowed.  

5.6     Sole Remedy.  The remedies of the Parties under this Article 5 are the sole and exclusive remedies that a Party may have under this Agreement for the recovery of monetary damages with respect to any breach or failure to perform any covenant or agreement set forth in this Agreement or any breach of any representation or warranty set forth in this Agreement other than for Purchaser Indemnified Costs or Seller Indemnified Costs, as the case may be, arising from fraud, gross negligence or willful misconduct.  

5.7     Survival.  All representations and warranties in this Agreement shall survive until the final date for any assertion of claims as forth in Section 5.8.  

5.8     Final Date for Assertion of Indemnity Claims.  

(a)     All claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of representations or warranties shall be forever barred unless Seller is notified on or prior to the date that is 18 months after the Closing Date, except that (i) claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from any Treas. Reg. 1.1502-6 Liability and any breaches of representations and warranties made in Sections 3.1(b), 3.1(e), and 3.1(f) shall survive indefinitely, (ii) claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of the representations and warranties set forth in Sections 3.1(g) or 3.1(s) shall survive for 30 days after the applicable statute of limitations on the assessment and collection of such Taxes attributable to Company items, and (iii) claims by a Purchaser Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of the representations and warranties set forth in Section 3.1(j) shall survive until the date that is 3 years after the Closing Date; provided, that if written notice of a claim for indemnification has been given by such Purchaser Indemnified Party on or prior to any such date, then the obligation of the Seller to indemnify such Purchaser Indemnified Party pursuant to this Article 5 shall survive with respect to such claim until such claim is finally resolved.  

(b)     All claims by a Seller Indemnified Party for indemnification pursuant to this Article 5 resulting from breaches of representations or warranties shall be forever barred unless Purchaser is notified on or prior to the date that is 18 months after the Closing Date; except that claims by a Seller Indemnified Party for indemnification pursuant to this Article 5 resulting from any breaches of representations and warranties made in Sections 3.2(b), Section 3.2(c)(ii) and Section 3.2(e) shall survive indefinitely, provided, that if written notice of a claim for indemnification has been given by such Seller Indemnified Party on or prior to such date, then the obligation of the Purchaser to indemnify such Seller Indemnified Party pursuant to this Article 5 shall survive with respect to such claim until such claim is finally resolved.   

 

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  5.9     Mitigation and Limitations on Losses.  Notwithstanding anything to the contrary contained herein:

  (a)     Reasonable Steps to Mitigate. Each of the Indemnified Parties will take, at the Indemnifying Party’s cost and expense, all reasonable commercial steps identified by the

Indemnifying Party to mitigate its Purchaser Indemnified Costs or Seller Indemnified Costs, as the case may be, which steps may include availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. The Indemnified Parties will provide such evidence and documentation of the nature and extent of its Purchaser Indemnified Costs or Seller Indemnified Costs, as the case may be, as may be reasonably requested by the Indemnifying Party.  

(b)     Net of Insurance Benefits. The amount of Purchaser Indemnified Costs and Seller Indemnified Costs recoverable hereunder shall be net of insurance recoveries actually received by the applicable Indemnified Party from insurance policies of the Company (including under the existing title policies).  

(c)     No Consequential Damages. Except to the extent awarded by a court of competent jurisdiction in a final and non-appealable judgment in connection with a Third Party Claim, fraud, gross negligence or willful misconduct, neither Purchaser Indemnified Costs nor Seller Indemnified Costs shall include, and the Indemnifying Party shall have no obligation to indemnify any Indemnified Parties for or in respect of any punitive, consequential or exemplary damages of any nature, including damages for lost profits.  

5.10     Payment of Indemnification Claims.  All claims for indemnification shall be paid by the Indemnifying Party in immediately available funds in United States dollars. Payments for indemnification claims shall be made promptly after any final determination of the amount of such claim is made by a court of competent jurisdiction (or by agreement of the Parties involved).  

5.11     Specific Performance.  Notwithstanding anything contained herein to the contrary, each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity.   

 

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  5.12     Third-Party Beneficiary.  The Parties acknowledge and agree that Northleaf Geothermal Holdings LLC is a third-party beneficiary of the Company and shall have the right to

enforce all of Seller’s indemnification obligations hereunder directly against Seller on behalf of Purchaser.  

ARTICLE 6 [RESERVED]

  ARTICLE 7

GENERAL PROVISIONS  

7.1     Exhibits and Schedules.  All Exhibits and Schedules attached hereto are incorporated herein by reference.  

7.2     Disclosure Schedules.  Any matter disclosed in any section of the Schedules shall be deemed disclosed for all purposes and all sections of the Schedules to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections.  

7.3     Amendment, Modification and Waiver.  This Agreement may not be amended or modified except by an instrument in writing signed by both Parties. Any failure of Purchaser or Seller to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by the Party to be bound thereby, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure.  

7.4     Severability.  If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Applicable Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any Party.  

7.5     Expenses.  Each Party will pay its own costs and expenses (including fees and expenses of legal counsel and other advisors or experts appointed by such Party) in connection with the preparation, negotiation and consummation of the transactions contemplated by this Agreement and the other Transaction Documents and neither Party shall have any liability therefor, whether or not the transactions contemplated herein or therein are consummated; provided, however, that Seller shall also bear the costs and expenses of the Company (including their legal fees and expenses) in connection with the Transaction Documents and the transactions contemplated thereby, including any consent, approval, filing or notification required in connection therewith. Neither Party shall be responsible for any commission, broker’s fee, finder’s fee or similar fee or expense of the other Party.  

7.6     Parties in Interest.  This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each Party and their successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other Person (other than the Indemnified Parties as provided in Article 5 and Northleaf Geothermal Holdings LLC as provided in Section 5.12) any rights or remedies of any nature whatsoever under or by reason of this Agreement.   

 

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  7.7     Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by a nationally recognized overnight courier, by

email, facsimile, or mailed by registered or certified mail (return receipt requested) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):  

(a)     If to Seller, to:  

Ormat Nevada Inc. 6225 Neil Road Reno, Nevada 89511 Attention: Doron Blachar Telephone:     (775) 356-9029 Facsimile:        (775) 356-9039 Email:     dblachar@ormat.com

  With a copy to:

  Chadbourne & Parke LLP 1200 New Hampshire Avenue, NW Washington, DC 20036 Attention:       Noam Ayali Telephone:     (202) 974-5600 Facsimile:        (202) 974-5602 Email:               nayali@chadbourne.com

  (b)     If to Purchaser, to:

  ORPD LLC 6225 Neil Road Reno, Nevada 89511

  Attention: [●] Telephone:     (775) 356-9029 Facsimile:       (775) 356-9039 Email: [●]

  With a copy to:

  Northleaf Geothermal Holdings LLC c/o Northleaf Capital Partners 79 Wellington Street West 6 Floor, Box 120 Toronto Ontario M5K 1N9

  

 

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th

  Attention:      Olivier Laganiere Telephone:     (416) 477-6721 Facsimile:        (416) 304-0195 Email:     olivier.laganiere@northleafcapital.com

  With a copy to:

  Akin Gump Strauss Hauer & Feld LLP 2629 Century Park East Suite 2400 Los Angeles, CA 90067 Attention:       Edward Zaelke Telephone:     (310) 229-1000 Facsimile:        (310) 229-1001 Email:               ezaelke@akingump.com

  With a copy to:

  Ormat Nevada Inc. 6225 Neil Road Reno, Nevada 89511 Attention: Doron Blachar Telephone:     (775) 356-9029 Facsimile:        (775) 356-9039 Email:               dblachar@ormat.com

  With a copy to:

  Chadbourne & Parke LLP 1200 New Hampshire Avenue, NW Washington, DC 20036 Attention:       Noam Ayali Telephone:     (202) 974-5600 Facsimile:        (202) 974-5602 Email:               nayali@chadbourne.com

  All notices and other communications given in accordance herewith shall be deemed given (i) on the date of delivery, if hand delivered, (ii) on the date of receipt, if emailed or faxed

(provided a hard copy of such transmission is dispatched by first class mail within 48 hours), (iii) 3 Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and (iv) 1 Business Day after the date of sending, if sent by a nationally recognized overnight courier; provided, that a notice given in accordance with this Section 7.7 but received on any day other than a Business Day or after business hours in the place of receipt, will be deemed given on the next Business Day in that place.   

 

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  7.8     Counterparts. This Agreement may be executed and delivered (including by email or facsimile transmission) in one or more counterparts, all of which shall be considered one and

the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.  

7.9     Entire Agreement. This Agreement (together with the other Transaction Documents) constitutes the entire agreement of the Parties and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the Parties with respect to the subject matter hereof.  

7.10     GOVERNING LAW; CHOICE OF FORUM; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN NEW YORK WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING RELATING TO A DISPUTE AND FOR ANY COUNTERCLAIM WITH RESPECT THERETO.  

7.11     Public Announcements. Except for statements made or press releases issued (a) in connection with any filing or disclosure under or pursuant to the securities laws, including without limitation, the rules and regulations of any stock exchange on which securities of a party or any of its Affiliates are traded, in any applicable jurisdiction, or (b) as otherwise required by Applicable Law, neither Seller nor Purchaser shall issue, or permit any of their respective Affiliates to issue, any press release or otherwise make any public statements with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party (not to be unreasonably withheld, conditioned or delayed) and the Parties shall cooperate as to the timing and contents of such press releases or statements.  

7.12     Assignment. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither Party may assign its rights or obligations hereunder without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed). Any attempted assignment of this Agreement other than in strict accordance with this Section 7.12 shall be null and void and of no force or effect.  

7.13     Intent of the Parties. The Parties intend, for federal income tax purposes, that the acquisition of the Membership Interests be treated as an acquisition of undivided interests in the Company’s assets directly by the Purchaser.  

[Remainder of page intentionally left blank. Signature pages to follow.]   

 

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  IN WITNESS WHEREOF, each Party hereto has caused this Agreement for Purchase of Membership Interests to be signed on its behalf as of the date first written above.

 

   

Signature page to Agreement for Purchase of Membership Interests (ORNI 37)   

 

ORMAT NEVADA INC.       By:     Name:     Title:  

 

 

   

Signature page to Agreement for Purchase of Membership Interests (ORNI 37)   

 

ORPD LLC, By: Ormat Nevada Inc., its managing member       By:     Name:     Title:  

  

  ANNEX I

DEFINITIONS  

“Affiliate” means, with respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For purposes of this definition and this Agreement, (a) the term “control” (and correlative terms) means (i) the ownership of 50% or more of the equity interest in a Person, or (ii) the power, whether by contract, equity ownership or otherwise, to direct or cause the direction of the policies or management of a Person, and (b) the Company shall be deemed to be an Affiliate of Seller prior to the Closing (for purposes of representations and warranties), but shall not be deemed to be an Affiliate of Seller or Purchaser from and after the Closing for the purposes of this Agreement.  

“Agreement” means this Agreement for Purchase of Membership Interests, and all schedules and exhibits hereto.  

“Applicable Law” means any constitution, statute, law, rule, regulation, ordinance, judgment, order, decree or governmental approval, or any directive or requirement which has the force of law, or other governmental restriction which has the force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, applicable to and/or binding on the Seller, the Company, or the Purchaser, as the context may require, in each case as modified and/or supplemented.  

“Assignment Agreement” means the Assignment of Membership Interests, by and between Seller and Purchaser, substantially in the form annexed hereto as Exhibit A, dated the Closing Date.  

“Background Materials” has the meaning set forth in Section 3.1(cc).  

“Balance Sheet” has the meaning set forth in Section 2.4(v).  

“Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which commercial banks in New York, New York or Toronto, Canada are authorized or required by law to be closed.  

“Closing” has the meaning set forth in Section 2.3.  

“Closing Date” means the date of the Closing.  

“Code” means the United States Internal Revenue Code of 1986, as amended.  

“Company” has the meaning set forth in the preamble to this Agreement.  

“Control Conditions” has the meaning set forth in Section 5.3.  

“Depreciation Disqualified Person” means (a) the United States, any state or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing, (b) any organization which is exempt from tax imposed by the Code (including any former tax-exempt organization within the meaning of Section 168(h)(2)(E) of the Code and any tax-exempt controlled entity within the meaning of Section 168(h)(6)(F)(iii) of the Code if such entity has not made the election provided in Section 168(h)(6)(F)(ii) of the Code), (c) any Person who is not a United States Person, (d) any Indian tribal government described in Section 7701(a)(40) of the Code, and (e) any partnership or other pass-thru entity any partner (or other holder of an equity or profits interest) of which is described in clauses (a) through (d) above; provided, however, that any such Person shall not be considered a Depreciation Disqualified Person to the extent that (i) the exception under Section 168(h)(1)(D) of the Code applies with respect to the income from the Company for that Person or (ii) the Person is described within clause (c) of this definition and the exception under Section 168(h)(2)(B)(i) of the Code applies with respect to the income from the Company for that Person.   

 

 Annex-1

  “Environmental Law” means any and all Applicable Laws and Permits relating to the environment, the protection or preservation of human health or safety, including the health

and safety of employees, the preservation or reclamation of natural resources, or the management, release or threatened release of Hazardous Substances.  

“EPC Agreement” means that certain Engineering, Procurement and Construction Contract between Seller, as Contractor, and Company, as Owner, dated as of [January 31], 2015.  

"Equity Interests" means (a)(i) with respect to a limited liability company, any and all shares, interests, participations or other equivalents (however designated) of membership interests of such limited liability company, (ii) with respect to a partnership, any and all partnership interests, units, interests, participations shares or other equivalents (however designated) of partnership interests and (iii) with respect to a corporation, any and all capital stock, shares and other equivalents (however designated) of Equity Interests and (b) securities convertible into or exchangeable for any of the foregoing, and any and all warrants, rights or options to purchase, or obligations of a Person to sell, any of the foregoing, whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.  

“ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended.  

“ERISA Affiliate” means any other organization or entity that, together with the Company, is treated as a single employer under ERISA § 4001(b) or Code §§ 414(b), (c), (m) or (o).  

“Exhibits” means the Exhibits attached to this Agreement.  

“FERC” means the Federal Energy Regulatory Commission.  

“GAAP” means United States generally accepted accounting principles as recognized by the American Institute of Certified Public Accountants, as in effect from time to time, consistently applied and maintained on a consistent basis for a Person throughout the period indicated and consistent with such Person’s prior financial practice.   

 

 Annex-2

  “Governmental Authority” means any governmental department, commission, board, bureau, agency, court or other instrumentality of any country, state, province, county, parish

or municipality, jurisdiction, or other political subdivision thereof.  

   

“Hazardous Substances” means (a) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, solid wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (b)  asbestos or asbestos-containing material in any form; (c) polychlorinated biphenyls (“PCBs”), or PCB-containing materials or fluids; (d) radon; (e) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof; and (f) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, or contaminant that, whether by its nature or its use, is subject to regulation or giving rise to liability under any Environmental Laws.  

“Indemnified Party” means any Person seeking indemnification from another Person pursuant to Article 5.  

“Indemnifying Party” means any Person against whom a claim for indemnification is asserted by another Person pursuant to Article 5.  

“Initial PSA” means the Agreement for Purchase of Membership Interests in the Purchaser, dated on or about February 5, 2015, by and between Northleaf Geothermal Holdings, LLC and the Seller.  

“IRS” means the Internal Revenue Service of the United States of America.  

“Knowledge”, with respect to Seller, means the actual knowledge, after due inquiry, of the persons listed below and the knowledge each such Person would have as a result of reasonable inquiries of Persons with supervisory or managerial responsibilities related to such matters.  

  “Liens” means any liens, pledges, claims, security interests, encumbrances, easements, rights-of-way, mortgages, deeds of trust, covenants, restrictions, rights of first refusal or

defects in title, or any agreement to provide any of the foregoing.   

 

Name   Doron Blachar  Ohad Zimron  Randy Peterson  Scott Kessler  Zvi Krieger  Smadar Lavi  

 Annex-3

  “Material Adverse Effect” means any event, occurrence, fact or condition that has or could reasonably be expected to have, individually or in the aggregate, a material adverse

effect on (a) the business, assets, liabilities, financial condition or results of operations of the Company, taken as a whole, or (b) the ability of Seller to consummate the transactions contemplated hereby, in each case excluding any effect resulting from (i) any change in political, social, economic, industry, market or financial condition (including changes in the electric generating, transmission or distribution industry, the wholesale or retail markets for electrical power, the general state of the energy industry, including natural gas and natural gas liquid prices, the transmission system, interest rates, consumer confidence, outbreak of hostilities, terrorist activities or war), whether general or regional in nature, but excluding any such changes that are limited specifically to the Company, (ii) any change in Applicable Law or regulatory policy which does not have a disproportionate effect on the Company compared to other owners or operators of similar geothermal power projects, (iii) effects of weather or meteorological events, but excluding any such effects or events that are limited specifically to the Project, (iv) strikes, work stoppages or other labor disturbances, other than any of the foregoing occurring solely at the Company or (v) the execution or delivery of the Transaction Documents or the transactions contemplated thereby or the announcement thereof.  

“Material Contract” means each of the following to which the Company is party: (a) any power purchase agreement, operation and maintenance agreement, interconnection agreement, transmission agreement, energy attribute agreement, commodity hedge agreement or similar project agreement related to the sale of electricity or transmission services of a Project, (b) any services agreement involving annual payments by or to the Company in excess of $3.5 million, (d) any agreement relating to indebtedness or any material performance obligation of the Company, including any leases, guarantees, letter of credit arrangements or bonding arrangements, in each case, in a principal amount, or that involves annual payments in an amount, of at least $3.5 million, (e) any agreement or document creating or relating to Liens on any property or assets of the Company securing any obligation created under an agreement specified in clause (d) above, (f) any engineering, construction, procurement, construction management, equipment purchase, or similar contract involving annual payments by or to the Company in excess of $3.5 million, (g) any product warranty or repair contract by or with a manufacturer or vendor of equipment owned or leased by the Company with a fair market value of more than $3.5 million, (h) any contract for the sale or purchase of any business entity, or of any property involving assets with a value in excess of $3.5 million, (i) any settlement agreement involving payments by or to the Company in excess of $3.5 million or imposing any material unperformed obligations on the Company, (j) any contracts between the Seller or any Affiliate thereof (other than the Company) and the Company, (k) any agreement regarding the sharing or allocation of Taxes, (l) any contract with payments based on the net profits of the Company (such as a royalty fee contract), (m) any contracts evidencing the real estate interests required for the ownership, use and operation of the Project, (n) any contract providing for the indemnification to or from any Person with respect to any material liabilities relating to the Company, any Project or any of their respective properties or assets, (o) any contract under which any material intellectual property is licensed to the Company, (p) any contract that provides for non-monetary obligations on the part of the Company, the non-performance of which could reasonably be expected to have a Material Adverse Effect and (q) any other contract that is expected to require payments by or to the Company in the aggregate of more than $3.5 million in any calendar year.   

 

 Annex-4

  “Membership Interests” has the meaning set forth in Section 3.1(e)(i).

  “O&M Agreement” has the meaning set forth in Section 2.4(u)

  “Ordinary Course of Business” means the ordinary conduct of business consistent with past custom and practice (including with respect to quantity and frequency).

  “Organizational Documents” means articles of incorporation, certificate of incorporation, charter, bylaws, articles of organization, formation or association, regulations, operating

agreement, certificate of limited partnership, partnership agreement, and all other similar documents, instruments or certificates executed, adopted, or filed in connection with the creation, formation or organization of a Person, including any amendments thereto.  

“Party” means a party to this Agreement.  

“PCBs” has the meaning set forth in the definition of “Hazardous Substances” in this Annex.  

“Permits” means all licenses, franchises, permits, certificates, orders, approvals, exemptions, registrations or other authorizations from, or filings or certifications made with, Governmental Authorities, including Permits under Environmental Laws.  

“Permitted Liens” means (a) Liens for any Tax not yet due or being contested in good faith and by appropriate proceedings, so long as (i) such proceedings shall not involve any substantial danger of the sale, forfeiture or loss of any Project, the sites of any Project or any easements, as the case may be, title thereto or any interest therein, and shall not interfere in any material respect with the use of any Project, any Project sites or any easements, and (ii) adequate reserves have been provided therefor to the extent required by and in accordance with GAAP, (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, employees’, contractors’, operators’ or other similar liens or charges securing the payment of expenses not yet due and payable that were incurred in the Ordinary Course of Business of the Company, (c) trade contracts or other obligations of a like nature incurred in the Ordinary Course of Business, not to exceed $3.5 million, by the Company, (d) obligations or duties to any Governmental Authority arising in the Ordinary Course of Business (including under Permits held by the Company and under all Applicable Law, (e) obligations or duties under easements, leases or other property rights, and (f) all other encumbrances and exceptions that are incurred in the Ordinary Course of Business of each Project, are not incurred for borrowed money and do not have a material adverse effect on either the use of any assets of the Company as currently used or the value of any such assets, and which involve encumbrances or assets with an aggregate amount or value not exceeding $3.5 million.  

“Person” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity.  

“Project” means the up to 19 MW geothermal power project owned by the Company, as described on Schedule 1.   

 

 Annex-5

  “Prudent Industry Practices” means, at any particular time, either (a) any of the practices, methods and acts engaged in or approved by a significant portion of the competitive

geothermal power generating industry or recovered energy power generating industry, as applicable, operating in the United States at such time, or (b) with respect to any matter to which the practices referred to in clause (a) do not apply, any of the practices, methods and acts that, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good competitive electric generation business practices, reliability, safety and expedition. “Prudent Industry Practice” is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers’ warranties, the requirements of insurance policies and the requirements of governmental bodies of competent jurisdiction.  

“PPA” means that certain Don A. Campbell 2 Geothermal Energy Project Power Purchase Agreement between Southern California Public Power Authority and the Company, dated as of December 18, 2014.  

“PUHCA” means Public Utilities Holding Company Act of 2005, as amended.  

“Purchase Price” has the meaning set forth in Section 2.2(a).  

“Purchaser” has the meaning set forth in the first paragraph of this Agreement.  

“Purchaser Indemnified Costs” means, subject to Article 5 of this Agreement, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm, for all Purchaser Indemnified Parties, incurred by any of the Purchaser Indemnified Parties resulting from or relating to (a) any breach or default by Seller of any representation, warranty, covenant, indemnity or agreement under this Agreement or any other Transaction Document or (b) any claim for fraud, gross negligence, or willful misconduct relating to this Agreement or any Transaction Document.  

“Purchaser Indemnified Parties” means Purchaser and each of its Affiliates and each of their respective shareholders, members, partners, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.  

“Real Property” has the meaning set forth in Section 3.1(m).  

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment.  

“Restricted Payment” means, as to any Person, (a) the declaration or payment of any dividend on or in respect of any Equity Interests of such Person, (b) the purchase, redemption, defeasance or other acquisition or retirement of any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person, (c) any other distribution of or in respect of any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person, (d) any payment on account of, any setting apart or allocating any sum for the payment of, any dividend or distribution, or for the purchase, redemption, defeasance, retirement or other acquisition of, any Equity Interests of such Person, either directly or indirectly, whether in cash or property or in any shares of such Person or (e) the payment of any amounts, directly or indirectly, to such Person’s Affiliates, other than as required under the terms of any Material Contracts in effect on the date of this Agreement or required by Applicable Law.   

 

 Annex-6

  “Schedules” means the Schedules attached to this Agreement.

  “Securities Act” has the meaning set forth in Section 3.2(e).

  “Seller” has the meaning set forth in the first paragraph of this Agreement.

  “Seller Indemnified Costs” means, subject to Article 5 of this Agreement, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and

reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Seller Indemnified Parties) incurred by any of the Seller Indemnified Parties resulting from or relating to (a) any breach or default by Purchaser of any representation, warranty, covenant, indemnity or agreement under this Agreement or any other Transaction Document or (b) any claim for fraud or willful misconduct relating to this Agreement or any Transaction Document.  

“Seller Indemnified Parties” means Seller and each of its Affiliates and each of their respective shareholders, members, partners, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.  

“Shared Facilities Agreement” means that certain Shared Facilities and Shared Premises Agreement among ORNI 47 LLC, the Company and Seller, dated as of December 19, 2014.  

“Tax” or “Taxes” means any taxes, assessments, fees and other governmental charges imposed by any Governmental Authority, including income, profits, gross receipts, net proceeds, alternative or add-on minimum, ad valorem, value added, turnover, sales, use, property, personal property (tangible and intangible), environmental, stamp, leasing, lease, user, excise, duty, franchise, capital stock, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess profits, occupational, premium, windfall profit, severance, estimated, unclaimed property (escheat) or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.  

“Tax Returns” means any return, report, statement, information return or other document (including any amendments thereto and any related or supporting information) filed or required to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes.  

“Third Party Claim” has the meaning set forth in Section 5.3.   

 

 Annex-7

  “Third Party Penalty Claim” has the meaning set forth in Section 5.3.

  “Transaction Documents” means this Agreement and the Assignment Agreement.

  “Treas. Reg. 1.1502-6 Liability” has the meaning set forth in Section 5.1.

  “Treasury Regulations” means the regulations promulgated by the U.S. Department of Treasury under the Code, as such regulations are amended from time to time.

  

 

 Annex-8

  OTHER DEFINITIONAL PROVISIONS

  (a)     All terms in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined

therein.  

(b)     As used in this Agreement and in any certificate or other documents made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Agreement or in any such certificate or other document shall control.  

(c)     The words “hereof”, “herein”, “hereunder”, and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section references contained in this Agreement are references to Sections in this Agreement unless otherwise specified. The term “including” shall mean “including without limitation”.  

(d)     The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.  

(e)     Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein.  

(f)     Any references to a Person are also to its successors and permitted assigns.  

(g)     All Article and Section titles or captions contained in this Agreement or in any Exhibit or Schedule referred to herein and the table of contents of this Agreement are for convenience only and shall not be deemed a part of this Agreement or affect the meaning or interpretation of this Agreement. Unless otherwise specified, all references herein to numbered Articles and Sections are to Articles and Sections of this Agreement, as applicable, and all references herein to Schedules or Exhibits are to Schedules and Exhibits to this Agreement.  

(h)     Unless otherwise specified, all references contained in this Agreement, in any Exhibit or Schedule referred to herein or in any instrument or document delivered pursuant hereto to dollars or “$” shall mean United States dollars.  

(i)     The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.   

 

 Annex-9

   

Exhibit A  

Form of Assignment Agreement    

 

 

  Exhibit F

  Capacity Test Procedures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  ● Don A. Campbell Project and Don A. Campbell Expansion (each, a “Plant”) shall be tested simultaneously as a combined unit.

 ● All parts of the Don A. Campbell Facility shall be operated in normal, automatic operating mode without exceeding the predefined design limits or prudent long-term operating

conditions for any system or component.

 ● The resource, wells, and equipment shall operate in stable condition for at least 12 hours prior to the start of the test to demonstrate reasonably constant geothermal fluid flows and

temperatures being delivered to the Don A. Campbell Facility.

  ● Each test shall be conducted for a period of 15 days except as extended as outlined below (the “Test Period”).

  ● The average geothermal fluid flow during each test shall not exceed 31,560 gpm.

  ● The net energy production shall be measured at the Don A. Campbell Facility revenue meter on the low side of the GSU.

  ● The test uncertainties shall be calculated before and after the test and shall not exceed:

Measurement Units Max uncertainty

Net output kW 0.40%

Ambient temperature °F 1.0 °F

Geothermal fluid flow gpm 1.0%

  ● Instrument accuracies shall be reviewed and calibrated as needed to achieve the target uncertainties to the satisfaction of both parties.

 ● No tolerances shall be applied for uncertainty or any other reason. The net capacity (corrected only for ambient temperature) shall be compared directly to the guaranteed value without

allowance for uncertainty, i.e. no “deadband”.

 ● The Plant Capacity will be calculated by applying the appropriate Ambient Temperature Correction Factor to the capacity. This Ambient Temperature Correction Factor will be the

average of the reciprocal of F1 for the measured temperature during the Test Period, as set forth in the formula below:

 Exhibit F - 1 

  Where:

  n      Number of points

  F1i      Ambient Temperature Correction Factor for point i.

  Meter     MWh Meter readings at the each Plant revenue meter on the low side of the GSU transformer.

 

 

 

 

 

 

 

 

  

 

  ● Power and ambient temperature will be measured at least at 10 minutes intervals.

  ● Ambient temperature shall be measured with two (2) RTDs at each Plant in locations that give a good average value for the site, as agreed by both Parties.

 ● The HMI (Human Machine Interface) shall be used to collect, store, and average the data. Averages shall be available for each minute and hour of each test and provided in Excel or

delimited text files. Other normal measurements in the Don A. Campbell Facility shall be recorded and made available upon request.

 ● The acceptance criteria are: compliance with Permits and Applicable Laws, compliance with all NV Energy requirements for delivering energy to the transmission grid, compliance with

the test procedures, all tests conducted in a safe and sustainable manner, and any other requirements customary for tests of this nature.

 ● During each test, each Plant is allowed one trip (complete shutdown) for problems within the Plant. Repeated trips of any major equipment are not acceptable. If any major equipment

trips more than twice during the test, the test shall be void and shall be restarted from the beginning.

  ● Any Test Periods impacted by grid outages shall be omitted, both energy and duration, in the calculations and the test extended accordingly.

 ● Northleaf and/or its representatives shall have the right to witness the tests.  Notice of the planned testing schedule shall be provided to Northleaf not less than 10 days prior to the

start of each test.  Rescheduling of the tests shall be done with at least 3 days’ notice.

 ● After completion of the test, Ormat shall provide a Test Report consistent with industry standards that includes, at least, the following information: (i) calibration dates and certificates

of the instruments; (ii) evidence that instrumentation uncertainties are within the acceptable range; (iii) a complete set of operating data for the test, including but not limited to kW, gpm, ambient temp and inlet temp for each interval.]

 Exhibit F - 2 

  Schedule I

  Register

   

 

 

 

NAME OF MEMBER ADDRESS DATE OF ENTRY AS

MEMBER CERT. NO. ISSUED

CLASS OF MEMBERSHIP INTERESTS

NUMBER OF UNITS

                       

 Schedule I - 1 

  Schedule 4.2(d)

  Capital Accounts

 

   

  To be finalized at Closing.

  

 

Member Name and Address  Ormat Nevada Inc. Ormat Nevada Inc. 6225 Neil Road Reno, Nevada 89511 Attention: Zvi Krieger and Ohad Zimron Telephone: (775) 356-9029 Facsimile: (775) 356-9039 Email: ZKrieger@ormat.com and Ozimron@ormat.com 

  Northleaf Geothermal Holdings LLC c/o Northleaf Capital Partners 79 Wellington Street West 6 Floor, Box 120 Toronto Ontario M5K 1N9 Attention:  Olivier Laganiere Telephone:  (416) 477-6721 Facsimile:  (416) 304-0195

       Class of Membership Interest and percentage Class A (100%)   Class B (100%)        Capital Account Balance $[●]   $[●]        Capital Interest [60]%   [40]%

 Schedule 4.2 (d) - 1 

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  Schedule 9.4(e) 

  ROFO Representations and Warranties of Selling Member

  Selling Member represents and warrants to each of the Offering Member and the Company as of the date of the closing of the Transfer pursuant to Section 9.4 of the Amended and

Restated Limited Liability Company Agreement of ORPD LLC, dated as of [___], 2015, by and among Ormat Nevada Inc., Northleaf Geothermal Holdings LLC and [1% Member] (this “Agreement”) as set forth below:  

(a)     Organization, Good Standing, Etc. of Seller. Selling Member is duly organized or incorporated, as applicable, validly existing and in good standing under the laws of the State of Delaware.  

(b)     Authority. Selling Member has the necessary power and authority to Transfer to the Offering Member all right, title and interest in and to the Membership Interests specified in the ROFO Offer and being Transferred to the Offering Member (“Transferred Interests”) and take all such further actions and execute, acknowledge and deliver all such further documents that are necessary to effectuate the Transfer of the Transferred Interests contemplated by Section 9.4(e) of this Agreement (the “Transfer Documents”). All corporate or limited liability company actions or proceedings to be taken by or on the part of Selling Member to authorize and permit the Transfer of the Transferred Interests and the due execution and valid delivery by Selling Member of the Transfer Documents to which it is a party and each other agreement instrument or certificate required to be duly executed and validly delivered by it pursuant thereto, the performance by Selling Member of its obligations thereunder, and the consummation by Selling Member of the transactions contemplated therein, have been duly and properly taken. The Transfer Documents have been duly executed and delivered by Selling Member and constitute the legal, valid, and binding obligation of Selling Member enforceable in accordance with their terms, except as such enforceability (i) may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors’ rights and remedies generally and (ii) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).  

(c)     No Conflicts; Consents.  

(i)     The execution and delivery of the Transfer Documents to which Selling Member is a party and the performance by Selling Member of its respective obligations thereunder will not, (x) violate any Applicable Law to which Selling Member or the Company or any of their respective properties are subject, (y) conflict with or cause a breach of any provision in the Organizational Documents of Selling Member or the Company or (z) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, permit, instrument, decree, judgment or other arrangement to which Selling Member or the Company is a party or under which any of them is bound or to which any of their assets are subject (or result in the imposition of an Encumbrance upon any such assets), except (in the case of this clause (z)) for any that could not reasonably be expected to materially and adversely affect the Transferred Interests or any action taken or to be taken by Selling Member under the Transfer Documents.

   

 

 Schedule 9.4(e) - 1 

  (ii)     No consent, approval, waiver, or authorization is required to be obtained by Selling Member or the Company from any Person or Governmental Authority in connection

with the Transfer of the Transferred Interests or the execution, delivery and performance by Selling Member and the Company of the Transfer Documents and the consummation of the transactions contemplated therein that has not been obtained as of the closing date of the Transfer.  

(d)     Absence of Litigation. Selling Member has not received written notification of any actions or proceedings that have been instituted or threatened in writing by any Governmental Authority or Person against any of Selling Member or the Company that seeks to impair, restrain, prohibit or invalidate the Transfer of the Transferred Interests contemplated herein or in any Transfer Document.  

(e)     Ownership.  

(i)     Selling Member owns, of record and beneficially, 100% of the Transferred Interests.  

(ii)     Selling Member has not made any prior assignment, transfer or participation of the Transferred Interests or of any interest therein and has not entered into any agreement (other than the Transfer Documents) or arrangement to do the same.  

(iii)     Selling Member is not party to any other contract or agreement (other than the Transfer Documents) that could obligate Selling Member to Transfer the Transferred Interests. There are no voting trusts, proxies or other agreements or understanding in effect with respect to the voting or transfer of any of the Transferred Interests.  

(f)     No Encumbrances. The Transferred Interests are being sold free and clear of any Encumbrances except for Permitted Encumbrances.  

(g)     Brokers. None of the Selling Member or the Company has any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by the Transfer Documents.   

 

 Schedule 9.4(e) - 2

  Exhibit B

  Form of Management Services Agreement

  (see attached)

  

 

 Exhibit-B-1 

  [FORM OF] MANAGEMENT SERVICES AGREEMENT

(ORPD LLC)

  THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is made as of this [●] day of [●], 2015 (the " Effective Date"), by and between ORPD LLC, a Delaware

limited liability company (the "Company"), and Ormat Nevada Inc., a Delaware corporation (the "Manager").  

W I T N E S S E T H :  

1.     Concurrently herewith, Northleaf Geothermal Holdings LLC, Ormat Nevada Inc. and the [1% Member] are entering into that certain Limited Liability Company Agreement of ORPD LLC (the "ORPD LLC Agreement"); and  

2.     Pursuant to the terms of the ORPD LLC Agreement, the Members agreed that the Company enter into this Agreement with the Manager in order to provide for, among other things, the delegation to the Manager of the day-to-day administrative, fiscal, and management services for the Company.  

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:  

ARTICLE I DEFINITIONS AND USAGE

  Section 1.01 Definitions. Unless the context shall otherwise require or the express terms of this Agreement shall otherwise provide, capitalized terms used in this Agreement

shall have the following meanings (provided, that capitalized terms not otherwise defined herein shall have the same meanings as set forth in the ORPD LLC Agreement):  

"Agreement" is defined in the preamble.  

"Approved Budget" means the operating budget of the Company.  

"Cause" shall mean the occurrence of an Event of Default of the Manager pursuant to Section 8.01(b).  

"Company" is defined in the preamble.  

"CPI-West All Urban" means the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the West as provided by the U.S. Department of Labor, Bureau of Labor Statistics (and if such index is no longer published or available, such other index as the parties shall mutually agree in writing).  

"Documentation" means all written invoices, receipts, billing statements, payment notices, wire receipt and payment notifications, bank statements and other similar written evidence of (a) amounts paid or payable by the Company to any Person and (b) received or receivable by the Company from any Person, in each case in connection with the Company.   

 

  

  "Effective Date" is the date first set forth above in the preamble.

  "Emergency Expenditure" is defined in Section 4.01(b).

  "Events of Default" has the meaning set forth in Section 8.01.

  "Excluded Expenses" has the meaning set forth in Section 4.01(b).

  "Initial Term" has the meaning set forth in Section 7.01(a).

  "Losses" is defined in Section 9.01(a).

  "Management Fee" is defined in Section 4.01(a).

  "Manager" is defined in the preamble.

  "Nonreimbursable Services" shall consist of the following services to be provided to the Company: (a) supervision and monitoring of the Service Providers, (b) bookkeeping

and record keeping, (c) the Company’s day-to-day overall coordination and supervision of the performance of the Services, (d) preparing the draft capital and operating budget pursuant to Section 2.01(o) hereof, (e) reporting to and communication with the Managing Member and the Members regarding the Services, (f) preparing and submitting (i) Documentation, and, in the case of an Emergency Expenditure, oral notification, necessary in order to remit funds of the Company for payment of the Company’s asset management expenses and (ii) other Documentation necessary to perform the obligations hereunder, (g) depositing funds into the accounts maintained on behalf of the Company pursuant to Section 2.01(r) hereof, (h) payment of the Company’s expenses and (i) the making of distributions in accordance with the provisions hereof and the ORPD LLC Agreement.  

"ORPD LLC Agreement" is defined in the preamble.  

"Prudent Industry Practices" means, at any particular time, either (a) any of the practices, methods and acts engaged in or approved by a significant portion of the competitive geothermal power generating industry or recovered energy power generating industry, as applicable, operating in the United States at such time, or (b) with respect to any matter to which the practices referred to in clause (a) do not apply, any of the practices, methods and acts that, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good competitive electric generation business practices, reliability, safety and expedition. "Prudent Industry Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers' warranties, the requirements of insurance policies and the requirements of governmental bodies of competent jurisdiction.   

 

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  "Reference Rate" means the rate as published, from time to time, in The Wall Street Journal as the prime lending rate or "prime rate" plus 1% (whichever is lower). If the

Reference Rate is hereafter no longer published by The Wall Street Journal, the Reference Rate shall mean the rate published by a national publication as shall be agreed between the parties.  

"Renewal Term" has the meaning set forth in Section 7.01(a).  

"Service Providers" means each third party hired by the Company to perform fiscal and administrative or other services for the Company (other than the Manager).  

"Services" means the responsibilities of the Manager under Article II of this Agreement.  

"Term" means the Initial Term and any Renewal Term.  

ARTICLE II RESPONSIBILITIES

  Section 2.01 Manager’s Responsibilities. During the Term, the Manager shall provide the following Services to the Company:

  (a)     (i) Prepare and promptly pay, or cause to be prepared and paid, on behalf of the Company, any amounts required to be paid by the Company under the Material

Contracts or any other agreements to which the Company is a party, subject in all cases to the applicable Approved Budget (except to the extent otherwise expressly permitted by the terms of this Agreement), (ii) ensure the Company’s compliance with its obligations and enforcement of any rights or remedies under the Material Contracts or any other agreements to which the Company is a party, and (iii) subject to the expenditure limitations contained in the ORPD LLC Agreement and adopted or implemented by the Managing Member, purchase or lease, at the sole expense (but subject to Section 4.01(c)) of the Company, any materials, supplies and equipment necessary for the performance of the Services; provided, that nothing herein shall imply any duty of the Manager under any circumstances to expend its own funds in payment of the expenses of the Company;  

(b)     Maintain, or cause to be maintained, reserves for the Company from time to time as directed by, and upon terms established by, the Company;  

(c)     Remit from funds of the Company amounts in payment of the expenses of the Company in accordance with the Approved Budget and the ORPD LLC Agreement;  

(d)     Maintain, or cause to be maintained, full and accurate books of account, financial records and supporting documents in accordance with prudent business practices and GAAP and make such books of account, financial records and supporting documents available for inspection and copying during normal business hours on its premises, upon reasonable prior notice, by any Member or any other Person authorized by such Member to inspect or copy such books and records, subject to appropriate confidentiality safeguards;   

 

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  (e)     Maintain, or cause to be maintained, at the Company’s principal office (i) true and full information regarding the status of the financial condition of the Company,

including any financial statements for the 3 most recent years; (ii) promptly after becoming available, a copy of the Company's federal, state, and local income tax returns for each year; (iii) minutes of the proceedings of the Members and the Managing Member; (iv) a current list of the name and last known business, residence or mailing address of each Member and the Manager; (v) a copy of the ORPD LLC Agreement and the Company’s Certificate of Formation, and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which the ORPD LLC Agreement and such Certificate of Formation and all amendments thereto which have been executed and copies of written consents of Members; (vi) true and full information regarding the amount of cash and a description and statement of the agreed value of any other property and services contributed by each Member, and the date upon which each became a Member; (vii) copies of records that would enable a Member to determine the Member’s relative shares of the Company’s distributions and the Member’s relative voting rights; and (viii) all records related to the production and sale of electricity by the Projects, and, if applicable, the qualification of such sales for production tax credits or investment tax credits pursuant to the Code, applicable Treasury Regulations and any other pronouncements by the IRS, whether currently existing or promulgated in the future;  

(f)     Perform, or cause to be performed, on behalf of the Company all reporting and other routine management responsibilities reasonably believed by the Manager to be required under the Material Contracts and other agreements to which the Company is a party, including representing the Company in ordinary course business matters with third parties arising thereunder;  

(g)     Perform, or cause to be performed, on behalf of the Company all routine administrative services reasonably required in connection with maintaining the Company’s existence and operations, such as the filing of limited liability company reports and, consistent with and subject to Prudent Industry Practices, maintaining in effect (and paying on a timely basis, solely from funds of the Company available for such purpose and, in accordance with Section 2.01(a), not from the Manager's own funds, all rents, royalties, costs, expenses and monies in connection with) all real property ownership, site licenses, easements, rights of way, rights to the geothermal reservoir, wells and fluid usage and exploitation rights;  

(h)      (i) On or before the 45 day after the end of each quarter, prepare and deliver (or cause to be prepared and delivered) a written status report, in the form attached hereto as Exhibit B-1, relating to the Projects' operations for such quarter and (ii) on or before the 15 day after the end of each month, prepare and deliver a written status report, in the form attached hereto as Exhibit B-2, relating to the Projects' operations for such month;  

(i)     Notify the Managing Member and the Members of any variance not contemplated in the applicable Annual Budget or O&M budget and involving more than $500,000 for the Company in any calendar year, promptly after learning of such variance;  

(j)     Provide such readily available information to the Members as they may reasonably request from time to time;   

 

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  (k)     Advise the Company to engage additional Service Providers as reasonably believed by the Manager to be necessary or desirable, or as instructed by the Managing

Member, to represent or perform services for the Company;  

(l)     In a timely way (i) procure and maintain, or cause to be procured and maintained, all required governmental approvals and permits, prepare and submit all filings of any nature which are required to be made thereunder and represent the Company in matters with governmental authorities relating thereto, and (ii) prepare and submit, or cause to be prepared and submitted, all filings of any nature which are required to be made by the Company under the terms of any permits held by the Company or any laws, regulations or ordinances applicable to the Company;  

(m)     [Intentionally omitted;]  

(n)     Provide a copy of (i) all material reports, notices, amendments, waivers, consents or other material written communication relating to any dispute, potential default or event of default in connection with, or termination of, the Senior Secured Notes, any Material Contract, or any material Permit, (ii) notice of any material event of loss (including any condemnation or eminent domain proceeding) or event of force majeure at any Project, (iii) notice of any actual litigation or proceeding affecting the Company or any Project Company, and notice of any written threat of litigation or proceeding against the Company or any Project Company that could reasonably be expected to have a Material Adverse Effect, (iv) all material notices, demands or other material written communication pursuant to or relating to any necessary Governmental Approval for a Project or to or from any Governmental Authority with respect to the Company or any Project Company, (v) any other required material report or material formal written notice received or delivered by Ormat, or any of its subsidiaries, from or, as applicable, to the trustee under the Indenture, in each case, to the Members and the Company within 5 Business Days of receipt or delivery of such reports, notices, or other written communication or becoming aware of such event, (vi) any material Affiliate Contracts entered into and any material notices, amendments, waiver, consents or other material written communication related thereto within 5 Business Days thereof and (vii) any communication as to any deficiencies in the Company's accounting practices from the Accounting Firm, or of the resignation of the Accounting Firm;  

(o)     45 days prior to the commencement of each Fiscal Year (commencing with Fiscal Year 2016), submit for approval of the Company, a proposed Annual Budget for the upcoming Fiscal Year;  

(p)     Perform and discharge all responsibilities and functions assigned to the Manager under or pursuant to the ORPD LLC Agreement as in effect as of the date hereof in accordance with the terms set forth in the ORPD LLC Agreement, including preparing or causing to be prepared, each of the reports required to be prepared pursuant to Section 7.1 of the ORPD LLC Agreement within the time periods specified therein;  

(q)     [Intentionally omitted.]   

 

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  (r)     Maintain, or cause to be maintained, in the name and for the exclusive benefit of the Company, accounts at one or more banks or other financial institutions for the

deposit of all funds received by the Company during the term of this Agreement, and invest such funds in accordance with the investment provisions of the ORPD LLC Agreement; provided, that nothing herein shall imply any guarantee or undertaking by the Manager with respect to the collection of amounts due to the Company;  

(s)     (i) Prepare and file, or cause to be prepared and filed, by the Accounting Firm on behalf of the Company, on a timely basis, all federal, state and local income tax returns and related information and filings required to be filed by the Company, including, without limitation, each Member’s IRS Form K-l, if any; provided, that at least 30 days (including extensions) prior to filing the federal and state income tax returns and related information and filings, the Manager shall deliver to the Members for their review a draft of the Company’s federal and state income tax returns and related information and filings in the form proposed to be filed and shall incorporate all reasonable changes or comments to such proposed tax returns and related information and filings requested by the other Members at least 10 days (including extensions) prior to the filing date for such returns and (ii) pay out of the Company’s funds all taxes and other governmental charges shown to be due thereon before they become delinquent and make all federal, state and local income tax elections in accordance with the provisions of the ORPD LLC Agreement;  

(t)     Give prompt written notice to the Company and the Members of any decision that arises which constitutes a "Major Decision" under the ORPD LLC Agreement and not make any such decision without the required consent of the Members in accordance with the ORPD LLC Agreement;  

(u)     If so instructed by the Tax Matters Partner, (i) direct the defense of any claims made by the IRS to the extent that such claims relate to the adjustment of Company items at the Company level, (ii) promptly deliver to each Member a copy of all notices, communications, reports and writings received from the IRS relating to, or potentially resulting in, an adjustment of Company items, (iii) promptly advise each Member of the substance of any conversations with the IRS in connection therewith and keep the Members advised of all developments with respect to any proposed adjustments which come to its attention; (iv) provide each Member with a draft copy of any correspondence or filing to be submitted by the Company in connection with any administrative or judicial proceedings relating to the determination of Company items at the Company level reasonably in advance of such submission; (v) incorporate all reasonable changes or comments to such correspondence or filing requested by any Member; (vi) provide each Member with a final copy of correspondence or filing; and (vii) provide each Member with notice reasonably in advance of any meetings or conferences with respect to any administrative or judicial proceedings relating to the determination of Company items at the Company level (including any meetings or conferences with counsel or advisors to the Company with respect to such proceedings);  

(v)     Prepare, or cause to be prepared, the financial statements required to be prepared pursuant to Section 7.3 of the ORPD LLC Agreement within the time periods specified therein;   

 

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  (w)     Make distributions out of available cash as provided under the relevant provisions of the ORPD LLC Agreement;

  (x)     (i) At the Company’s sole expense, cause the Company to obtain and maintain, or cause to be obtained and maintained, insurance meeting the requirements of Exhibit A

hereto, and all other coverage to be maintained on behalf of the Company under the Material Contracts and as otherwise authorized or directed by the Managing Member (ii) deliver to the Members as soon as practicable upon receipt thereof a copy of any notice of cancellation of insurance and (iii) administer any insurance policies;  

(y)     Make draws under the Company’s working capital facilities, if any, if such draws are necessary to meet the Company’s cash flow requirements, and cause such funds to be deposited into the Company’s accounts;  

(z)     Administer any escrow arrangements to which the Company is a party, as well as any letters of credit, bonds or other similar support instruments posted by the Company relating to any Project;  

(aa)     Notify the Managing Member promptly of the receipt of any communication as to any deficiencies in the Company’s accounting practices from the Accounting Firm, or of the resignation of the Accounting Firm;  

(bb)     Ensure that no power sales are made from the Company to any related-parties of any of the Manager, the Members or any Affiliate of the Manager, or the Members; and  

(cc)     Maintain, or cause to be maintained, a register of membership interests of the Company and record therein any (i) transfers of membership interest made in accordance with the terms of the ORPD LLC Agreement and (ii) security interests of a secured party pursuant to any security interest permitted under the ORPD LLC Agreement.  

ARTICLE III STANDARD OF PERFORMANCE

  Section 3.01 Standard of Performance. The Manager shall perform the Services in accordance with applicable law and shall (a) exercise such care, skill and diligence as a

reasonably prudent business company of established reputation engaged in providing administrative services for geothermal power or recovered energy generation businesses would exercise in the conduct of its business and for the advancement or protection of its own interests, (b) perform its duties hereunder in accordance with applicable geothermal power or recovered energy generation industry standards, taking into account (if applicable and for as long as required under the ORPD LLC Agreement) any requirement to maintain qualification for production tax credits or investment tax credits under the Code, and (c) use sufficient and properly trained and skilled personnel in the performance of Services; provided, that the Manager shall be deemed to have satisfied its duties (i) in respect of supervision of Service Providers providing design, engineering and advisory services, by diligent review of the work product of such Service Providers, and without any duty to conduct further investigation, verification or consultation, in the absence of actual knowledge that such work product is incorrect or incomplete; and (ii) in respect of any specific matter or circumstance requiring interpretation, application, or enforcement of Material Contracts, by relying conclusively on the advice of qualified legal counsel and/or qualified industry consultants engaged to advise the Company or the Projects with respect to such matter or circumstance. It is understood and agreed by the Company and the Manager that the Manager is not guaranteeing or undertaking to procure any financial or other outcome with respect to the Company or the Projects, or providing any guarantees relating to the performance of the Company or the Projects. The Manager shall not take any affirmative action as would cause the Company in any material respect to violate any federal, state or local laws and regulations, including environmental laws and regulations, and to the extent that the Manager has knowledge of any such existing or prospective violation take, or direct Service Providers to take, commercially reasonable actions, at the sole expense (but subject to Section 4.0l(c)) of the Company (unless such existing or prospective violation arises from a material breach of the Manager’s duties hereunder), to redress or mitigate any such violation.   

 

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  ARTICLE IV

COMPENSATION AND PAYMENT  

Section 4.01 Management Fee; Expenses.  

(a)     As compensation for the Services, the Company will pay the Manager a management fee (the "Management Fee") initially equal to $25,000 per month. The Management Fee shall be escalated on an annual basis on each anniversary of the Effective Date, indexed to CPI-West All Urban.  

(b)     In connection with matters within the Approved Budget, and matters outside of the parameters of the Approved Budget but authorized pursuant to this Section 4.01, the Company will reimburse the Manager from the Company’s funds for the following expenses (other than any such expenses that constitute Excluded Expenses): (i) all reasonable out-of-pocket expenses of Manager’s personnel, (ii) all Emergency Expenditures and (iii) reasonable expenses of independent third parties (other than any such Persons performing Nonreimbursable Services) which, for the convenience of the Company, perform services by contract with the Manager rather than directly with the Company, provided, that the Members have consented to such arrangement. For purposes of this Section 4.01(b), (x) "Excluded Expenses" shall mean costs incurred by Manager in employing its personnel (other than amounts payable to its personnel as described in clause (i) above), including costs associated with wages, benefits, workers’ compensation insurance and home office expenses and costs incurred to retain Persons to perform Nonreimbursable Services) and (y) an "Emergency Expenditure" shall mean an expense with respect to the Company that is not included in the Approved Budget and which is incurred, in the reasonable judgment of the Manager, to avoid or to mitigate a risk of physical injury to any Person, or a financial loss or damage to the Company or the Projects, or a violation of law and with respect to which there is not a reasonable opportunity to convene a meeting of the Members in order to obtain prior approval of the expense. The Manager shall give prompt written notice to the Members of any Emergency Expenditure. Notwithstanding any of the foregoing, for the avoidance of doubt, to the extent an obligation of the Manager is expressly to be performed at the sole expense of the Company, the Manager shall be reimbursed for any amounts (other than Excluded Expenses) expended from its own funds to perform such obligation.   

 

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  (c)     If the Manager, at its election, engages any third party to perform any Nonreimbursable Services, it shall be responsible for paying any fees and expenses of such third

party, provided, that if such third parties shall have been engaged by Manager at the direction of the Managing Member or as otherwise required in the ORPD LLC Agreement, Manager shall be reimbursed for such fees and expenses incurred in connection with such engagement. Manager shall exercise reasonable and due care to select reasonably well qualified third-parties based on their experience, availability, reputation, creditworthiness and cost and, with respect to any services which the Manager could perform itself, unless any third party was engaged at the direction, or with the consent, of the Members or as otherwise required by the ORPD LLC Agreement, the Manager shall remain responsible to the Company with respect to any such services by a third party.  

(d)     The Manager shall obtain the Managing Member’s prior written approval before incurring any expense that would constitute a Major Decision; provided, however, that consent shall not be required (i) as to any Emergency Expenditure, and (ii) for reimbursement of the Manager for any reasonable expense of a Service Provider (other than a Service Provider providing Nonreimbursable Services) which, for the convenience of the Company, performs services by contract with the Manager rather than directly with the Company.  

Section 4.02 Billing and Payment.  

(a)     Within 15 days following the Manager’s submission of an invoice to the Managing Member reflecting (i) any expenses due and payable by the Company (and including invoices and other material identifying and substantiating, in reasonable detail, the nature of such expenses and the basis for reimbursement thereof), and (ii) the monthly portion of the Management Fee due and payable by the Company (and including invoices and other material identifying and substantiating, in reasonable detail, the nature of such costs and the basis for reimbursement), the Managing Member shall approve such payment to the Manager of (x) the expenses and (y) the portion of the Management Fee specified in such invoice, less any portion of such expenses and Management Fee that any Member disputes in good faith, provided, that any invoiced amount incurred in accordance with the Approved Budget shall be deemed approved by the Managing Member and shall be paid by the Company unless the Managing Member shall dispute in good faith such payment for reasons unrelated to the Approved Budget.  

(b)     The parties shall negotiate in good faith to attempt to resolve any such disputed portion in accordance with Article VI hereof and any amount owed hereunder which remains unpaid more than 10 days after the date such amount is due and payable under this Agreement shall accrue interest at the Reference Rate beginning on the 1st day after such amount became due and payable.  

Section 4.03 Records. The Manager shall retain copies of invoices submitted by it under Section 4.02, and of any third party invoices or similar documentation contained or reflected therein, for a minimum period of 3 years or such longer period as required by applicable law. Records maintained by the Manager pursuant to this Section 4.03 shall be the property of the Company and shall not be destroyed, unless the Company shall have consented to such destruction in writing or declined in writing to accept possession of the records after the Manager has advised the Company that the records will be destroyed.   

 

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  ARTICLE V

DELAYS  

Section 5.01 Conditions. If the Manager becomes aware of any event or circumstance which could prevent its performance of any of its obligations hereunder, the Manager shall give prompt notice thereof to the Managing Member. The Manager shall attempt in good faith to minimize any such delay, provided, however, that the Manager shall not be obligated to undertake or perform any actions which are prohibited by contract or any applicable law or that would expose the Manager to any material risk of liability or to any expense which is not reasonably expected to be promptly reimbursed or indemnified hereunder.  

ARTICLE VI DISPUTE RESOLUTION

  Section 6.01 Procedure.

  (a)     Other than with respect to an Event of Default under Section 8.01, the parties shall attempt, in good faith, to resolve or cure all disputes, controversies or claims relating

to this Agreement by mutual agreement in accordance with this Article VI before initiating any legal action or attempting to enforce any rights or remedies hereunder (including termination), at law or in equity (regardless of whether this Article VI is referenced in the provision of this Agreement which is the basis for any such dispute).  

(b)     If a party believes that a dispute, controversy or claim under this Agreement has arisen, such party shall within 10 days after such dispute, controversy or claim arises, give notice thereof to the other party and the Managing Member, which notice shall describe in reasonable detail the basis and specifics of the dispute, controversy or claim. A meeting or conference call shall be held promptly, and in no case later than 10 days following delivery of such notice, attended by representatives of the parties with decision-making authority regarding the dispute, controversy or claim to attempt in good faith to negotiate a resolution.  

(c)     If, within 21 days following the meeting required pursuant to Section 6.01(b), the parties are unable to resolve the dispute, either party may pursue whatever rights it has available under this Agreement, at law or in equity.   

 

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  ARTICLE VII

COMMENCEMENT AND TERMINATION  

Section 7.01 Term.  

(a)     Except as may otherwise be provided herein, this Agreement shall commence on the Effective Date and remain in full force and effect following the Effective Date until and including the 10th anniversary of the Effective Date (the "Initial Term"); provided, that unless either Party gives notice of termination at least 90 days prior to the expiration of the Initial Term or any Renewal Term, this Agreement shall be renewed for successive 3 year renewal terms (each, a "Renewal Term") (the Initial Term and all Renewal Terms, the "Term").  

(b)     In connection with the expiration of the Initial Term or any Renewal Term or any earlier termination of this Agreement, the Manager shall (i) cooperate with all reasonable requests of the Company in connection with the transition of Services performed by Manager (including the transferring of the records in Manager’s possession) to the entity selected by the Company to undertake the Services hereunder and (ii) Manager shall deliver to the Company all books, records, contracts, plans, specifications, reports, studies, leases, rent rolls, receipts for deposits, unpaid bills, and other papers, materials, supplies, documents or properties (including advertising materials, keys, combinations to locks, equipment and supplies) and other information (including information stored in a computer), if any, which are in Manager’s possession and which relate to the Company. In the event of termination by the Company under Section 8.03, the Manager shall be responsible for all costs and expenses incurred in connection with clause (ii) above.  

Section 7.02 Resignation of Manager. The Manager may resign by giving written notice of such resignation to the Company specifying a date (which date shall be not less than 30 days after the giving of such notice) upon which such resignation shall take effect; provided, however, that notwithstanding such 30 day notice period, the Manager’s resignation shall not become effective until the appointment of a successor Manager pursuant to the terms of the ORPD LLC Agreement.  

Section 7.03 Early Termination. Subject to Section 7.01, this Agreement may not be terminated except:  

(a)     by mutual written agreement of the parties;  

(b)     pursuant to Sections 7.02, 8.02 and 8.03; or  

(c)     if Ormat Nevada Inc. ceases to own or hold 25% of the membership interests in the Company and another Member owns or holds more than 25% of the membership interests in the Company, by written notice from the Company to the Manager.  

Section 7.04 Replacement Manager. In the event the Manager is removed or resigns, a replacement manager shall be selected pursuant to Section 8.1 of the ORPD LLC Agreement.  

ARTICLE VIII DEFAULT

  Section 8.01 Events of Default. Subject to the provisions of Article VI, the following events shall be events of default ("Events of Default") under this Agreement regardless of

the pendency of any bankruptcy, reorganization, receivership, insolvency or other proceeding which has or might have the effect of preventing such party from complying with the terms of this Agreement:  

(a)     Failure by a party to make any payment required to be made hereunder, if such failure shall continue for 30 days after written notice thereof has been given to the non-paying party; or   

 

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  (b)     If there shall occur (i) any failure by the Manager to comply in any material respect with any term, provision or covenant of this Agreement (other than a failure

addressed by another paragraph of this Section 8.01), and such failure (x) is not cured within 30 days after receipt by the Manager of notice of such failure, which period shall be extended to 90 days if the Manager is diligently pursuing to cure such failure and (y) has a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, (ii) fraud, willful misappropriation of funds, gross negligence or willful misconduct by Manager in the performance of its duties under this Agreement, or (iii) a representation made by Manager in or pursuant to this Agreement is proven to have been false or misleading in any material respect as of the date on which it was made (or as of the date otherwise specified in any such representation) and such representation, if capable of being cured, is not corrected within 30 days after receipt by the Manager of notice of such false or misleading representation, which period shall be extended to 90 days if the Manager is diligently pursuing to cure and correct such representation; or  

(c)     Failure by the Company to comply in any material respect with any term, provision or covenant of this Agreement (other than a failure addressed by another paragraph of this Section 8.01), and such failure (i) continues for 30 days after written notice thereof has been given to the Company, which period shall be extended to 90 days if the Manager is diligently pursuing to cure such failure and (ii) has a material adverse effect on the Manager’s ability to perform its obligations under this Agreement.  

Section 8.02 Bankruptcy.  

(a)     Subject to the rights or remedies it may have, either party shall have the right to terminate this Agreement, effective immediately, if, at any time, the Bankruptcy of the other party shall occur.  

(b)     The Company shall have the right to terminate this Agreement, effective immediately, if, at any time, the Bankruptcy of the Class A Member shall occur or foreclosure or involuntary transfer of the Class A Membership Interests held by the Class A Member.  

Section 8.03 Remedies. If an Event of Default occurs and is continuing hereunder, then this Agreement may be terminated immediately by written notice from the non-defaulting party to the defaulting party, without obligation to or recourse by the defaulting party. A notice of termination for Cause shall be effective if executed by the Managing Member of the Company. If a termination pursuant to this Section 8.03 occurs, the terminating party shall have all rights and remedies allowed at law or in equity, subject however, to the specific limitations of liability set forth in Article IX.  

ARTICLE IX INDEMNIFICATION AND LIMITATION OF DAMAGES

  Section 9.01 Indemnification.

  (a)     To the extent not otherwise covered by insurance and to the extent not prohibited by law, the Company shall indemnify and hold harmless the Manager, its officers,

directors, employees and Affiliates from and against all losses, claims, demands, damages, costs, expenses of any nature (including, but not limited to, reasonable attorneys' fees and disbursements) or liabilities (or actions, suits or proceedings including any inquiry or investigation or claims in respect thereof), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative, arbitral or investigative (collectively, "Losses") resulting from or arising out of the Manager’s performance of its obligations hereunder; provided, however, that the Manager shall not have the right to be so indemnified for Losses arising out of or relating to fraud, the gross negligence or willful misconduct of the Manager or its subcontractors, or a breach of its obligations under this Agreement.   

 

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  (b)     To the extent not otherwise covered by insurance and to the extent not prohibited by law, subject to the specific limitations of liability set forth in this Article IX, the

Manager shall indemnify and hold harmless the Company, its members, officers, directors, employees and Affiliates from and against all Losses for (i) injuries, disease or death to any person, (ii) any damage to any property of any person, (iii) all fines or penalties issued by, and other similar amounts payable to any Governmental Authority, and (iv) any other losses or liabilities, resulting from or arising out of the fraud, gross negligence or willful misconduct of the Manager or a material breach of the Manager’s obligations under this Agreement (for purposes of clarity, the Manager shall not be deemed to be an "Affiliate" of the Company for this Section 9.01(b)).  

Section 9.02 Limitation of Liability.  

(a)     The Manager shall have no liability under this Agreement for failure to take actions which it is not obligated to take pursuant to this Agreement and as to which it has requested the consent of the Managing Member (or the Members where consent of the Members is required under the ORPD LLC Agreement) for the Manager to perform such actions if such consent is not timely given (including actions requiring a variance from the Approved Budget for which a request for variance by the Manager has been made and not timely approved), or for actions taken at the direction of the Managing Member in accordance with the terms of the ORPD LLC Agreement (or the Members where consent of the Members is required under the ORPD LLC Agreement), or for failure to take actions requiring the expenditure of Company funds in accordance with the Approved Budget if such funds are not available (for reasons other than a failure of the Manager to provide the Services in accordance with this Agreement).  

(b)     Except in the event of third party indemnity claims, fraud, gross negligence or willful misconduct, none of the Manager, the Company, or any of their respective officers, members or employees will be liable for punitive, consequential or exemplary damages of any nature including, but not limited to, damages for lost profits or revenues or the loss or use of such profits or revenue, loss by reason of plant shutdown or inability to operate at rated capacity, increased operating expenses of plant or equipment, increased costs of purchasing or providing equipment, materials, labor, services, costs of replacement power or capital, debt service fees or penalties, inventory or use charges, damages to reputation, damages for lost opportunities, or claims of any of the Project Companies’ customers, members or affiliates, regardless of whether said claim is based upon contract, warranty, tort (including negligence and strict liability) or other theory of law. For avoidance of doubt, the loss of production tax credits shall not be considered as consequential damages or otherwise falling into any of the foregoing categories.   

 

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  (c)     In no event shall the Manager’s aggregate liability under, in connection with or arising hereunder, whether regarding any indemnification, environmental responsibility

or otherwise, exceed the aggregate amount of Management Fees actually paid to the Manager (other than arising out of or relating to the fraud, gross negligence or willful misconduct of the Manager).  

Section 9.03 Supremacy. The provisions expressed in this Article IX shall prevail over any conflicting or inconsistent provisions contained elsewhere in this Agreement and shall survive termination of this Agreement.  

ARTICLE X REPRESENTATIONS AND WARRANTIES

  Section 10.01 Representations and Warranties. Each party hereto represents and warrants, as of the date hereof, as follows:

  (a)     it is a corporation or limited liability company, as applicable, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or

formation;  

(b)     it has taken all necessary action to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder;  

(c)     this Agreement constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights and the enforcement of debtors’ obligations generally, and (ii) general principles of equity, regardless of whether enforcement is pursuant to a proceeding in equity or at law;  

(d)     the execution, delivery and performance of this Agreement do not violate (i) its constituent documents, (ii) any contract to which it is a party or to which any of its properties are subject, or (iii) any law, rule, regulation, order, writ, judgment, injunction, decree or determination to which it is subject or by which its properties are bound;  

(e)     no consent, authorization, approval or other action by, and no notice to or filing with, any governmental authority or any other Person is required for the due execution, delivery or performance of this Agreement by such party; and  

(f)     there is no action, suit or proceeding at law or in equity or by or before any governmental authority, arbitral tribunal or other body now pending or threatened against or affecting it or its property, which would reasonably be expected to have a material adverse effect on the transactions contemplated by this Agreement.   

 

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  ARTICLE XI

MISCELLANEOUS  

Section 11.01 Assignment.  

(a)     The Manager may not assign its rights and obligations under this Agreement to any third party without the prior written consent of the Company; provided, that notwithstanding the foregoing, the Manager may assign its rights and obligations under this Agreement to an Affiliate of the Manager under common ownership with the Manager. Manager shall promptly notify the Company of any such assignment.  

(b)     The Company may not assign its rights and obligations under this Agreement to any third party without the prior written consent of the Manager.  

Section 11.02 Authorization. Except as expressly authorized in writing by the Managing Member, or contemplated under the Services, the Manager shall not have the right or the obligation to create any obligation or to make any representation on behalf of the Company.  

Section 11.03 Governing Law; Choice of Forum; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY TO THIS AGREEMENT). THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN NEW YORK WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING RELATING TO A DISPUTE AND FOR ANY COUNTERCLAIM WITH RESPECT THERETO.  

Section 11.04 Independent Contractor. Nothing contained in this Agreement and no action taken by any party to this Agreement shall be (a) deemed to constitute any party or any of such party’s employees, agents or representatives to be an employee, agent or representative of the other party; (b) deemed to create any company, partnership, joint venture, association or syndicate among or between the parties; or (c) except as contemplated under the Services, deemed to confer on any party any expressed or implied right, power or authority to enter into any agreement or commitment, express or implied, or to incur any obligation or liability on behalf of the other party, except as expressly authorized in writing.  

Section 11.05 Notice. All notices, requests, consents, demands and other communications (collectively "notices") required or permitted to be given under this Agreement shall be in writing signed by the party giving such notice and shall be given to each party at its address or fax number set forth in this Section 11.05 or at such other address or fax number as such party may hereafter specify by notice to the other party and shall be either delivered personally or sent by fax or registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier service. A notice shall be deemed to have been given (a) when successfully transmitted if given by fax or (b) when delivered, if given by any other means. Notices shall be sent to the following addresses:   

 

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  To the Manager:

  Ormat Nevada Inc. 6225 Neil Road Reno, Nevada 89511 Attention: Zvi Krieger and Ohad Zimron Facsimile: (775) 356-9039 Email: ZKrieger@ormat.com and Ozimron@ormat.com

  To the Company:

  ORPD LLC 6225 Neil Road Reno, Nevada 89511 Attention: Asset Management Facsimile: (775) 356-9039

  With copies to:

  All of the Members, at their respective addresses as set forth in the ORPD LLC Agreement.

  Section 11.06 Usage. This Agreement shall be governed by the following rules of usage: (a) a reference in this Agreement to a Person includes, unless the context otherwise

requires, such Person’s permitted assignees; (b) a reference in this Agreement to a law, license, or permit includes any amendment, modification or replacement to such law, license or permit; (c) accounting terms used in this Agreement shall have the meanings assigned to them by GAAP; (d) a reference in this Agreement to an article, section, exhibit, schedule or appendix is to an article, section, exhibit, schedule or appendix of this Agreement unless otherwise stated; (e) a reference in this Agreement to any document, instrument or agreement shall be deemed to include all appendices, exhibits, schedules and other attachments thereto and all documents, instruments or agreements issued or executed in substitution thereof, and shall mean such document, instrument or agreement, or replacement thereof, as amended, modified and supplemented from time to time in accordance with its terms and as the same is in effect at any given time; (f) unless otherwise specified, the words "hereof," "herein" and "hereunder" and words or similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and (g) the words "include" and "including" and words of similar import used in this Agreement are not limiting and shall be construed to be followed by the words "without limitation", whether or not they are in fact followed by such words.  

Section 11.07 Entire Agreement. This Agreement (including all appendices and exhibits thereto) constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior written and oral agreements and understandings with respect to such subject matter.   

 

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  Section 11.08 Amendment. Neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by a document

in writing signed by both parties.  

Section 11.09 Confidential Information. Except as required by applicable law, no party shall, without the prior written consent of the other party, disclose any confidential information obtained from the other party to any third parties, other than to consultants or to employees who have agreed to keep such information confidential as contemplated by this Agreement and who are reasonably believed to need the information to assist such party with the exercise or performance of any rights and obligations provided to, or imposed upon, such party in such document.  

Section 11.10 Third Party Beneficiaries. Except as otherwise expressly stated herein, this Agreement is intended to be solely for the benefit of the parties hereto and their permitted assignees and is not intended to and shall not confer any rights or benefits to the general public or any other third party not a signatory thereto; provided, however, that the Members are intended beneficiaries of this Agreement (subject to all the limitations hereof applicable to the Company, including Article III and Article IX hereof).  

Section 11.11 Discharge of Obligations. With respect to any duties or obligations discharged hereunder by the Manager, the Manager may discharge such duties or obligations through the personnel of an Affiliate of the Manager; provided, that notwithstanding the foregoing, the Manager shall remain fully liable hereunder for such discharged duties and obligations.  

Section 11.12 Severability. Any provision of this Agreement that shall be held to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall negotiate in good faith a replacement provision or provisions that are valid and enforceable and that as closely as possible correspond to the spirit and purpose of the invalid or unenforceable provisions and this Agreement as a whole.  

Section 11.13 Binding Effect. The terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their successors and permitted assigns.  

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  IN WITNESS WHEREOF, the parties hereto have executed, or caused to be executed, this Agreement as of the date first set forth above.

   

   

Signature page to Management Services Agreement   

 

ORMAT NEVADA INC.    By:      Name:      Title:         By:      Name:      Title:   

 18

 

   

Signature page to Management Services Agreement   

 

ORPD LLC  By: ORMAT NEVADA INC.

as Managing Member       By:  Name:  Title:              By:  Name:  Title:  

 19

  Exhibit A

Insurance Requirements  

Coverage. To the extent not otherwise maintained by the operator under the O&M Agreements or by any Project Company under any outstanding Material Contract, the Manager shall procure and maintain in full force and effect or cause to be procured or maintained in full force and effect the following minimum insurance coverage consistent with industry practice as set forth below. All such insurance carried shall be placed with such insurers having a minimum A.M. Best rating of A- :VII, or its equivalent with such rating agencies as A.M. Best or S&P and admitted or approved in the state of the site of the applicable Project, and be in such form, with such other terms, conditions, limits and deductibles (subject to the minimum insurance coverage below) and such other or additional insurance to cover increases or changes in risks, policy limits, policy coverage or otherwise which are considered prudent in the geothermal or recovered energy industries for property and facilities similar in type, nature, use and location of the applicable Project.   I.     Operations Period  

 

 

 

1. All Risk Property Insurance. All risk property insurance covering each and every component of the equipment against physical loss or damage including but not limited to fire, lightning, extended coverage, collapse, flood, earth movement, windstorm, hail, explosion, smoke, malicious mischief and comprehensive boiler and machinery coverage, including electrical malfunction and mechanical breakdown coverage. Such insurance coverage shall not include any exclusion for resultant damage caused by faulty workmanship, design or materials. Such insurance coverage shall be written on a replacement cost basis with limit of liability not less than $220,300,000for the Projects on a per occurrence basis (reinstated following covered claims) with no aggregate with reasonable and customary sublimits to apply to the Project (such as those noted below, subject to market changes and conditions):

Flood Aggregate $50,000,000

Flood Zones A and V Aggregate $10,000,000

Earthquake Aggregate $50,000,000

CA and HI Earthquake Aggregate $30,000,000

Volcanic Eruption Aggregate $10,000,000

Demolition and Increased Cost of Construction 20% of damaged location TIV

Time Element from Service Interruption $15,000,000

Expediting Expenses $10,000,000

Debris Removal Lesser of $10,000,000 or 10% of Loss

Contingent Time Element – Locations with XS of $20MM BI $10,000,000

Contingent Time Element – Locations with BI less than $20MM $ 5,000,000

   

Valuable Papers $ 5,000,000

Leased Equipment $ 1,000,000

Off-Site Storage $ 5,000,000

Unnamed Locations $5,000,000

Pollution Clean-up and Removal Aggregate $ 500,000

Incidental Course of Construction $10,000,000

Transit per Conveyance $15,000,000

Professional Fees $ 1,000,000

Preservation of Property $ 5,000,000

Mobile Equipment $ 500,000

Fine Arts $ 500,000

Claims Cost Expense $ 500,000

Transmission and Distribution As Scheduled

Errors and Omissions $ 1,000,000

Ingress/Egress 30 Days

Civil Authority 30 Days

Extra Expense $ 5,000,000

Accounts Receivable $ 5,000,000

Property of Employees $ 1,000,000

Underground Equipment $ 500,000

 Exh. A Page 1 of 5

  2.     Business Interruption. As an extension of the insurance required under coverage described above in I.1, the Manager shall maintain business interruption insurance on an actual loss sustained basis with an indemnification period of not less than twelve (12) months. The cover shall include cover for twelve (12) months projected gross revenues (including applicable Production Tax Credits grossed up for taxes, Renewable Electric Certificates or similar revenues), less non-continuing expenses. The business interruption limit of insurance can be included in the all-risk property policy limit described above in I.1.   Such insurance shall include coverage for contingent business interruption covering non-owned substations(s) and switching stations (to the extent they are First Tier Named Customers or suppliers) which can be a sublimit to the all-risk property policy limit described in I.1. above. The deductibles for business interruption and contingent business interruption shall not exceed Ninety (90) days.   3.     Commercial or Comprehensive General Liability. The Manager shall maintain third party liability insurance coverage written on an occurrence policy form or claims made basis with a limit of liability of not less than $1,000,000 per occurrence and $2,000,000 in the aggregate. Such insurance shall include coverage for legal liability to third parties for bodily injury and property damage including premises/operations, explosion, collapse, underground hazards, broad form contractual liability, products/completed operations, broad form property damage and personal injury liability. Such insurance coverage shall include punitive damages to the extent normally available. Such policy to have deductibles not to exceed $200,000.  

 

Exh. A Page 2 of 5

  4.     Workers’ Compensation/Employer’s Liability. If the Company has employees, the Company shall maintain Workers’ Compensation insurance in accordance with statutory provisions covering accidental injury, illness or death of any such employee while at work or in the scope of his or her employment with such entity, and Employer’s Liability insurance in an amount not less than $1,000,000. Such insurance coverage shall not include any occupational disease exclusions.   5.     Automobile Liability. Manager shall maintain Automobile Liability insurance covering owned, non-owned, leased, hired or borrowed vehicles of the Company if any, against bodily injury or property damage. Such insurance coverage shall have a limit of liability of not less than $1,000,000. To the extent the Manager has no owned automobiles, hired and non-owned automobile liability can be provided under the commercial general liability policy in lieu of an automobile liability policy.   6.     Excess/Umbrella Liability. The Manager shall maintain Excess/Umbrella Liability insurance written on an occurrence policy form or claims made policy form providing coverage limits in excess of the primary limits applying under policies described in subsections (I)(3), (I)(4) (employers’ liability only), and (I)(5). Such insurance coverage, including primary limits, shall have a limit of liability of not less than $25,000,000.   In the event the combined commercial general liability limits have the potential to be eroded by (i) paid claims or (ii) claims reserves, policy limits for the Project will be increased to a minimum amount of not less than $10,000,000 by replenishing the existing policy or by purchasing stand-alone insurance for the Project   7.     Control of Well.      The Manager shall maintain Control of Well insurance, on a form acceptable with a limit of not less than $20,000,000 per occurrence, $1,000,000 per occurrence for Care, Custody and Control. Additional coverage should include Redrill / Extra Expense and Seepage, Pollution, and Cleanup and Contamination.   8.     All deductibles shall be the sole responsibility of the Company.   II.     Endorsements   The Policies required shall contain the following endorsements:   1.     With respect to the liability insurance coverage described herein, except for Workers’ Compensation, each of the Members shall be named as an additional insured.   2.     With respect to the all-risk property, machinery breakdown and business interruption policy, the Members shall be named as an additional insured and loss payee as their interests may appear. It shall be understood that any obligation imposed upon the Manager, including but not limited to the obligation to pay premiums, shall be the sole obligation of the Company, and not that of any Member.  

 

Exh. A Page 3 of 5

  3.     The insurance policies or policy endorsements shall provide that:  

1.     the insurance companies will give the Members at least ten (10) days prior written notice, in the case of nonpayment of premiums, or sixty (60) days’ prior written notice, in all other cases, before any such policy or policies of insurance shall be canceled; 2.     in as much as the liability policies are written to cover more than one insured, all terms, conditions, insuring agreements and endorsements of the liability policies, with the exception of the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured and such liability policies shall include a cross liability clause; 3.     the insurers thereunder shall waive all rights of subrogation against the Members, 4.     such insurance shall be primary without right of contribution of any other insurance carried by or on behalf of the Members with respect to their interests in the Projects; and 5.     the policy (in the case only of property policies, and not in the case of liability policies) shall be endorsed to provide that the insurance policy shall not be voided or vitiated with respect to the interest of the Members due to actions or inactions of any of the insured or any additional insured.

  III.     Certifications   1.     At each policy renewal, the Manager shall provide to the Members approved Certificates of Insurance, from each insurer or by the Manager’s authorized broker. Such certification shall identify the underwriters, the type of insurance, the limits, deductibles, and term thereof and shall specifically list the special provisions delineated for such insurance required by Section I and II, above. Upon request, the Manager shall furnish any Member with copies of all insurance policies, binders, cover notes or other evidence of such insurance.   2.     Upon request, concurrent with the furnishing of all certificates referred to in this Exhibit A, the Manager shall furnish any Member with an opinion from its insurance broker(s), acceptable to such Member, stating that all premiums then due have been paid and that, in the opinion of such broker(s), the insurance then maintained by the Manager is in accordance with this Exhibit A. Furthermore, upon its first knowledge, such insurance broker(s) shall advise the Members promptly in writing of any default in the payment of any premiums or any other act or omission, on the part of any Person, which might invalidate or render unenforceable, in whole or in part, any insurance provided by the Manager.   IV.     Other   1.     Availability of Insurance. In the event any insurance (including the limits or deductibles thereof) herein required to be maintained, other than insurance required by law to be maintained shall not be available and commercially feasible on reasonable terms and conditions in the commercial insurance market, each Member, with the advice of an independent insurance consultant, shall not unreasonably withhold its agreement to waive such requirement to the extent the maintenance thereof is not so available; provided, however, that:  

1.     the Manager shall first request any such waiver in writing, which request shall be accompanied by a letter prepared by an independent insurance advisor or broker of recognized national standing indicating that such insurance is not reasonably available and commercially feasible in the commercial insurance market for electric generating plants of similar type and capacity (and, in any case where the required amount is not so available, certifying as to the maximum amount which is so available) and explaining in detail the basis for such conclusions such insurance advisers and the form and substance of such reports to be reasonably acceptable to the Members;  

 

Exh. A Page 4 of 5

  2.     at any time after the granting of any such waiver any Member may request, and the Manager shall furnish to such Member within 15 days after such request, confirmation

reasonably acceptable to such Member from such insurance advisers updating their prior reports and reaffirming such conclusion; and any such waiver shall be effective only so long as such insurance shall not be available and commercially feasible in the commercial insurance market, it being understood that the failure of the Manager to timely furnish any such supplemental report shall be evidence that such waiver is no longer effective because such condition no longer exists, but that such failure is not the only way to establish such nonexistence.  

 

Exh. A Page 5 of 5

  Exhibit B-1

Form of Quarterly Operations Reports

     

[Asset Photos]  

   

ORPD LLC

 

Quarterly Operations Report [Insert Quarter]

 

  

 

TO: ORPD LLC ORMAT Nevada Inc. Northleaf Geothermal Holdings LLC

   FROM:  ORMAT Nevada Inc.   DATE: [Insert Date]

 Exh. B-1 Page 1 of 6

 

  [Summary of key performance metrics including well performance, availability, generation, capacity factors]   [Summary of key financial metrics including revenues, EBITDA and distributions and comparison to budget]   [Summary of significant on-site developments, including status of capex projects, well issues, HR/legal/environmental/insurance/safety concerns, etc.]   [Puna – Estimated MW Net production from each production well, updated on an annual basis]   [DAC – average temperature from each production well]

 

 

1. EXECUTIVE SUMMARY

Exh. B-1 Page 2 of 6

 

   

 

 

2. KEY PERFORMANCE INDICATORS

Exh. B-1 Page 3 of 6

 

 

 

  [Description of environmental issues facing the sites]

 

  [Description of H&S issues facing the projects]

 

  [Description of any insurance issues, including claims, coverage shortfalls, upcoming renewals, etc.]

 

  [Description of any community issues facing the sites]

 

  [Description of any legal issues facing the projects]

 

  [Description of progress with preventative maintenance plan]

 

  [Updates with respect to any major capital expenditure projects at any of the sites]

  [Updates with respect to progress of DAC 2]

 

  [Description of forced/planned outages over the quarter]

 

  [Description of any material curtailment imposed on any of the projects]

  

 

3. ASSET MANAGEMENT REPORT

 3.1. Operations

[Top highlights and incidents from site]

  3.2. Environmental

  3.3. Health and Safety

  3.4. Insurance

  3.5. Community

  3.6. Legal and Regulatory Compliance

  3.7. Preventative Maintenance

  3.8. Capital Expenditures

  3.9. Forced Outages and Planned Outages

  3.10. Curtailment

Exh. B-1 Page 4 of 6

 

 

    [Discussion of key financial results, reasons behind material deviations from budget, any notable changes to ORPD’s financial position, etc.]   [Update on Capital Expenditures]   [Calculation of Puna Class A/Class B Distribution Amounts]   [12-month Class A/Class B distribution projections]  

 

4. FINANCIAL REPORT & CASHFLOW PROJECTIONS

Exh. B-1 Page 5 of 6

 

   

 

 

5. MONTHLY EXPENSE REPORT

Exh. B-1 Page 6 of 6

  Exhibit B-2

Form of Monthly Operations Reports

  MONTHLY UPDATE – ORPD LLC   Performance Update 

    Major Operational Issues   [Brief summary of operational issues/developments, reportable incidents and major capital expenditures]   Major Non-Operational Issues   [Brief summary any significant legal/contractual, insurance, environmental, health & safety, community and human resource issues that may have arisen over the month]  

Management estimates based on preliminary analysis and available data. Subject to review.  

 

  PUNA DON A. CAMPBELL OREG I-II-III-IV PRODUCTION Gross Production (MWh)      

Net Production (MWh)      

Capacity Factor (%)      

FINANCIAL Revenues (US$)      

Expenses (US$)      

EBITDA (US$)      

 Exh. B-2Page 1 of 1

1

1

  Exhibit C

  Form of Assignment Agreement

  (see attached)

  

 

 Exhibit-C-1 

  [FORM OF] ASSIGNMENT OF MEMBERSHIP INTERESTS

  This ASSIGNMENT OF MEMBERSHIP INTERESTS, dated as of [●], 2015 (the “Assignment Agreement”), is by and among ORMAT NEVADA INC., a Delaware corporation (the

"Transferor"), NORTHLEAF GEOTHERMAL HOLDINGS LLC, a Delaware limited liability company (the "Transferee"), and ORPD LLC, a Delaware limited liability company (the “Company”).  

W I T N E S S E T H :  

WHEREAS, the Company was formed by virtue of its Certificate of Formation filed with the Secretary of State of the State of Delaware on February 2, 2015 and, until the date hereof, has been governed by the Limited Liability Company Agreement of the Company, dated as of February 2, 2015 (the “Original Operating Agreement”), executed by the Transferor;  

WHEREAS, the Transferor currently owns, of record and beneficially, 99% of the membership interests of the Company;  

WHEREAS, pursuant to the Agreement for Purchase of Membership Interests in ORPD LLC, dated as of February [●], 2015 (the “Purchase Agreement”), between the Transferor and Transferee, the Transferor has agreed to sell to the Transferee, and the Transferee has agreed to purchase from the Transferor, on the terms and subject to the conditions set forth in the Purchase Agreement, all Class B Membership Interests of the Company;  

WHEREAS, pursuant to the Amended and Restated Limited Liability Company Agreement of ORPD LLC, dated as of [●], 2015 (the “LLC Agreement”), by and among the Transferor, the Transferee and the [1% Member], the Transferor, Transferee and [1% Member] have agreed to admit the Transferee as the only Class B Member of the Company and for the Original Operating Agreement to be amended and restated as stated therein; and  

NOW, THEREFORE, in consideration of the mutual covenants and agreements and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned do hereby agree as follows:  

1.     Defined Terms. All capitalized terms not defined herein are used herein as defined in the LLC Agreement.  

2.     Instructions to Transfer. As of the date hereof, the Transferor hereby assigns and transfers unto the Transferee complete record and beneficial ownership of all of the Transferor's Class B Membership Interests in the Company, together with all rights associated therewith, free and clear of any Encumbrances other than Permitted Encumbrances. The Transferor hereby irrevocably instructs the Company to register on the books of the Company the transfer to the Transferee of complete record and beneficial ownership of all of the Transferor’s Class B Membership Interests in the Company.   

 

 1 

  3.     Further Assurances. Subject to the terms and conditions of the Purchase Agreement, at any time, or from time to time after the date hereof, the Transferor and Transferee shall, at

the other's reasonable request, and at the requesting party's expense, execute and deliver such instruments of transfer, conveyance, assignment and assumption, in addition to this Assignment Agreement, and take such other action as either of them may reasonably request in order to evidence the transfer effected hereby.  

4.     Successors and Assigns. This Assignment Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  

5.     Purchase Agreement Terms. This Assignment Agreement shall, in every respect, be subject to and governed by the terms of the Purchase Agreement. To the extent this Assignment Agreement conflicts with the Purchase Agreement, the Purchase Agreement will control.  

6.     Counterparts. This Assignment Agreement may be executed and delivered (including by email or facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.  

7.     Governing Law. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.     

[Remainder of page intentionally left blank. Signature page to follow.]   

 

 2 

  IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this instrument as of the date first above written.

   

   

   

[Signature Page to Assignment Agreement]   

 

  ORMAT NEVADA INC as the Transferor

          

 By: _______________________________________

Name: Title:

 By: _______________________________________

Name: Title:

  

 

   

   

[Signature Page to Assignment Agreement]   

 

  NORTHLEAF GEOTHERMAL HOLDINGS LLC as a Transferee

          

 By: _______________________________________

Name: Title:

 By: _______________________________________

Name: Title:

  

 

   

   

[Signature Page to Assignment Agreement]   

 

  ORPD LLC as the Company

          

 By: _______________________________________

Name: Title:

 By: _______________________________________

Name: Title:

  

  Exhibit D

  Form of Amendment to Don A. Campbell Operation and Maintenance Agreement

  (see attached)

  

 

 Exhibit-D-1 

  [FORM OF] AMENDMENT NO. 1

TO OPERATION AND MAINTENANCE AGREEMENT

  This Amendment No. 1 (this “Amendment”), dated as of [_____], 2015, to the Operation and Maintenance Agreement, dated as of December 6, 2013 (the “Agreement”), by and

between ORNI 47 LLC (the “Owner”) and Ormat Nevada Inc. (the “Operator”). Each capitalized term used but not defined herein shall have the meaning assigned to such term in the Agreement.  

RECITALS  

WHEREAS, the Operator and Northleaf Geothermal Holdings, LLC (the “Purchaser”) have entered into an Agreement for Purchase of Membership Interests, dated as of February [__], 2015 (the “Purchase Agreement”), pursuant to which the Operator shall sell to the Purchaser membership interests in ORPD LLC, the owner of Owner;  

WHEREAS, it is a condition precedent to the Purchaser’s obligations to enter into the transactions contemplated by the Purchase Agreement that the parties hereto enter into this Amendment; and  

WHEREAS, in connection with the transactions contemplated by the Purchase Agreement, the parties hereto desire to amend the Agreement as provided herein.  

AGREEMENT  

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:  

  (a)     Section 1.1 of the Agreement is amended by adding the following new definition in the appropriate alphabetical order:

  “ORPD LLC Agreement: means that certain Amended and Restated Limited Liability Company Agreement of ORPD LLC, dated as of [__], 2015, by and among Operator, Northleaf Geothermal Holdings LLC and [1% Member], as amended, amended and restated, modified or supplemented from time to time.”

  (b)     Section 2.1.14 of the Agreement is amended by deleting the last paragraph thereof and replacing it with the following new paragraph:

  “If, upon the commencement of any Year, the plan and budget is escalated from the immediately preceding Year's plan and budget by an amount greater than indexation calculated in accordance with Consumer Price Index, Urban Consumers – West (CPI-U, West) plus 5% and Operator has been notified by the Owner that certain line items are being questioned or objected to pursuant to the LLC Agreement then (x) those items that are not subject to question or objection shall become effective and (y) pending resolution of any question or objection, the amount of any item subject to a question or objection shall be escalated from the amount in the immediately preceding budget by an amount equal to indexation calculated in accordance with Consumer Price Index, Urban Consumers – West (CPI-U, West) plus 5%. If, upon the commencement of any Year, the plan and budget is escalated from the immediately preceding Year's plan and budget by an amount great than indexation calculated in accordance with Consumer Price Index, Urban Consumers – West (CPI-U, West) plus 8%, a stand-by plan and budget in an amount equivalent to the previous Year's plan and budget plus (i) indexation calculated in accordance with Consumer Price Index, Urban Consumers – West (CPI-U, West) plus (ii) 8% shall be applied in the upcoming Year, pending approval of such plan and budget in accordance with the LLC Agreement. Upon resolution of the dispute, retroactive adjustments will be made to reflect the implementation of the final plan and budget as of the beginning of the relevant Year.”

  

 

  1. Amendments.

 1

  (c)     A new Section 2.1.18 shall be added to the Agreement as follows:

  “2.1.18 Arrange for the sale of power generated by the Facility pursuant to the Power Purchase Agreement and for the billing and collection of revenues therefrom.”

  (d)     The first paragraph of Section 2.4 of the Agreement is amended by deleting such paragraph in its entirety and replacing it with the following new paragraph:

  “As soon as the need for Major Maintenance Work arises, and to the extent such Major Maintenance Work was not budgeted in the relevant annual operating plan and budget, Operator shall submit to Owner a request to approve Major Maintenance Work. The request will provide Owner with details of the failure or planned overhaul, method of repair or performance, cost estimate and time estimate of the work. Upon approval of Owner, Operator will carry out the actions necessary to correct the failure and/or complete the needed Major Maintenance Work; provided, however, that if such Major Maintenance Work is a Major Decision (as defined in the ORPD LLC Agreement), then Operator shall not perform such Major Maintenance Work until Owner has provided prior written approval. Operator shall use reasonable efforts to perform all Major Maintenance Work during a Major Maintenance Blockout (as defined in the Power Purchase Agreement) consistent with Prudent Utility Practices.”

  (e)     Section 3.1.2 of the Agreement is amended by deleting it in its entirety and replacing it with the following:

  “3.1.2 [Reserved]”

  (f)     The first paragraph of Section 4.1 of the Agreement is amended by deleting such paragraph in its entirety and replacing it with the following new paragraph:

  “In addition to other payment obligations provided in this Agreement, Owner shall be responsible for the following main payment obligations: Fixed Operation Fee, Variable Operation Expenses and Owner’s Costs; provided, that, notwithstanding anything to the contrary, none of Owner’s payment obligations shall include, and Owner shall not be responsible for, any internal overhead costs of Operator in performing the services under this Agreement.”

  

 

 2

  (g)     Section 4.1.1 of the Agreement is amended by deleting it in its entirety and replacing it with the following:

  “4.1.1 Fixed Operation Fee

  Commencing on the Effective Date and for the first twelve months thereafter, Owner shall pay to Operator a fixed monthly fee of $111,394. Commencing on the thirteenth month and throughout the Term, Owner shall pay to Operator a fixed monthly fee of $89,760 subject to adjustment based on the Consumer Price Index, Urban Consumers — West (CPI-U, West) on January 1 of each Year thereafter, which shall cover all costs associated with the ordinary maintenance of the Facility (the “Fixed Operation Fee”). The Fixed Operation Fee shall cover the direct cost of labor employed by or on behalf of Operator for the routine operation and maintenance of the Facility (which specifically excludes labor for Major Maintenance Work), and of administration, on behalf of Owner, of the Facility including billing and collection of revenues from the sale of power generated by the Facility, contract management services, procurement services, and accounting support. The Fixed Operation Fee shall not cover and shall be in addition to additional payments to Operator and costs at Owner’s additional expense with regard to: (a) Variable Operation Expenses, (b) Owner’s Costs (e) costs and expenses caused to Operator as a result of Owner non-compliance with any of its obligations described in Sections 3 or 7, (d) all costs and expenses of Owner in connection with the performance of any of its obligations under this Agreement, (e) all Operator costs and losses for which Owner is responsible under Section 3.2, and (f) any other costs, reimbursement obligations, expenses, losses, or damages and any taxes, duties, levies or fees which are expressly described in this Agreement as an Owner obligation (including, without Limitation, those described in Section 3.1.1), all of which shall be at Owner’s additional expense. At Operator’s written request, the Parties shall renegotiate in good faith the Fixed Operation Fee for every three (3) year period, so as to reflect as nearly as possible the economic factors that were the basis for the calculation of the initial Fixed Operation Fee and other factors and circumstances justifying the adjustment of the same. If Owner does not accept Operator’s proposal for adjustment of the Fixed Operation Fee within fifteen (15) days of the date of such request, and the parties have not been able to resolve their differences and agree on an adjustment of the Fixed Operation Fee after a period that expires six (6) months following the date of Operator’s initial request to adjust the Fixed Operation Fee, Operator shall be entitled to terminate this Agreement upon written notice to Owner, and the results of such termination shall he as described in Section 8.4.

  

 

 3

  (h)     Section 4.1.2.A of the Agreement is deleted and replaced in its entirety with the following:

  “A.     Supply and replacement parts, consumables and chemicals (whether routine or not), and all Major Maintenance Work to the Facility (labor, parts and materials).”

  (i)     Section 4.1.2.F of the Agreement is deleted and replaced in its entirety with the following:

  "F.     All works (including materials, equipment and services) performed by any operator or subcontractors in connection with the maintenance of the Facility that is not routine operation and maintenance of the Facility."

  (j)     Section 4.1.3 of the Agreement is amended by deleting the following:

  “and (v) all royalties and any other fees and expenses necessary for the continued operation and maintenance of the Facility and the conduct of business.”

 

  3.     No Further Amendment. Except as specifically set forth herein, this Amendment shall not modify or in any way affect any of the provisions of the Agreement, which shall remain in

full force and effect and is hereby ratified and confirmed in all respects. This Amendment is limited precisely as written and shall not be deemed to be an amendment to any other term or condition of the Agreement or any of the documents referred to therein.  

4.     Effect of Amendment. This Amendment shall form a part of the Agreement for all purposes, and each party thereto and hereto shall be bound hereby. From and after the execution of this Amendment by the parties hereto, any reference to “this Agreement,” “hereof,” “herein,” “hereunder” and words or expressions of similar import shall be deemed a reference to the Agreement as amended hereby.  

5.     Governing Law. This Amendment shall be governed by the laws of the State of Nevada, without regard to the conflicts of law principles thereof that may direct the application of the laws of another jurisdiction.  

6.     Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall be deemed one and the same agreement. Signatures to this Amendment transmitted by facsimile transmission, by electronic mail in “portable document format” (“.pdf”) form, or by any other electronic means will have the same effect as physical delivery of the paper document bearing the original signature.  

[Signature Pages Follow]   

 

  2. Effective Date. This Amendment shall be effective as of the date hereof.

 4

  IN WITNESS WHEREOF, each of the undersigned has executed this Amendment as of the date first above written.

   

   

Signature Page to Amendment No. 1 to Don A. Campbell O&M Agreement   

 

  ORMAT NEVADA INC.                    By:        Name:      Title:                  By:        Name:      Title:  

  

 

   

Signature Page to Amendment No. 1 to Don A. Campbell O&M Agreement (Back To Top)

Exhibit 23.1  

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-129583, 333-143488 and 333-181509) of Ormat Technologies, Inc. of our report dated February 26, 2015 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

   

/s/ PricewaterhouseCoopers LLP  

San Francisco, California February 26, 2015

  (Back To Top)

Exhibit 31.1   

Ormat Technologies, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  I, Isaac Angel, certify that:   1. I have reviewed this annual report on Form 10-K of Ormat Technologies, Inc.;   2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the

circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of

operations and cash flows of the registrant as of, and for, the periods presented in this report;   4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-

15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;   (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure

controls and procedures, as of the end of the period covered by this report based on such evaluation; and   (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s

fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the

registrant’s ability to record, process, summarize and report financial information; and   (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  

Date: February 26, 2015  

 

  ORNI 47 LLC                     By:        Name:      Title:                    By:        Name:      Title:  

Section 3: EX-23.1 (EXHIBIT 23.1)

Section 4: EX-31.1 (EXHIBIT 31.1)

  By:  /s/ Isaac Angel              Name: Isaac Angel       Title: Chief Executive Officer    

  (Back To Top)

Exhibit 31.2  

Ormat Technologies, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  I, Doron Blachar, certify that:   1. I have reviewed this annual report on Form 10-K of Ormat Technologies, Inc.;   2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the

circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of

operations and cash flows of the registrant as of, and for, the periods presented in this report;   4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-

15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;   (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure

controls and procedures, as of the end of the period covered by this report based on such evaluation; and   (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s

fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and   5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit

committee of the registrant’s board of directors (or persons performing the equivalent functions):  

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

   

Date: February 26, 2015  

(Back To Top)

Exhibit 32.1  

  CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  I, Isaac Angel, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of Ormat Technologies, Inc. on

Form 10-K for the year ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such annual report on Form 10-K fairly presents in all material respects the financial condition, results of operations and cash flows of Ormat Technologies, Inc. as of and for the periods presented in such annual report on Form 10-K. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying such annual report and shall not be deemed filed pursuant to the Securities Exchange Act of 1934.

  

  Date: February 26, 2015

  (Back To Top)

Section 5: EX-31.2 (EXHIBIT 31.2)

  By:  /s/ DORON BLACHAR               Name:             Doron Blachar       Title:             Chief Financial Officer    

Section 6: EX-32.1 (EXHIBIT 32.1)

  By:  /s/ Isaac Angel               Name:        Isaac Angel       Title:        Chief Executive Officer    

Section 7: EX-32.2 (EXHIBIT 32.2)

Exhibit 32.2  

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  

I, Doron Blachar, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of Ormat Technologies, Inc. on Form 10-K for the year ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such annual report on Form 10-K fairly presents in all material respects the financial condition, results of operations and cash flows of Ormat Technologies, Inc. as of and for the periods presented in such annual report on Form 10-K. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying such annual report and shall not be deemed filed pursuant to the Securities Exchange Act of 1934.

 

                                                                                Date: February 26, 2015 (Back To Top)

  By:  /s/ DORON BLACHAR               Name: Doron Blachar       Title: Chief Financial Officer