Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-32347

ORMAT TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE   88-0326081

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

6225 Neil Road, Reno, Nevada 89511-1136

(Address of principal executive offices, including zip code)

(775) 356-9029

(Registrant’s telephone number, including area code)

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   þ       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   þ       No   ¨

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):

 

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

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

Indicate the number of shares outstanding shares of each of the registrant’s classes of common stock as of the latest practicable date: As of November 6, 2012, the number of outstanding shares of common stock, par value $0.001 per share was 45,430,886.

 

 

 


Table of Contents

ORMAT TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

 

PART I — FINANCIAL INFORMATION   

ITEM 1.

  FINANCIAL STATEMENTS      4   

ITEM 2.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      24   

ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      57   

ITEM 4.

  CONTROLS AND PROCEDURES      57   
PART II — OTHER INFORMATION   

ITEM 1.

  LEGAL PROCEEDINGS      59   

ITEM 1A.

  RISK FACTORS      61   

ITEM 2.

  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      61   

ITEM 3.

  DEFAULTS UPON SENIOR SECURITIES      61   

ITEM 4.

  MINE SAFETY DISCLOSURES      61   

ITEM 5.

  OTHER INFORMATION      61   

ITEM 6.

  EXHIBITS      62   

SIGNATURES

     64   

 

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Table of Contents

Certain Definitions

Unless the context otherwise requires, all references in this quarterly report to “Ormat”, “the Company”, “we”, “us”, “our company”, “Ormat Technologies” or “our” refer to Ormat Technologies, Inc. and its consolidated subsidiaries.

 

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PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     September 30,
2012
     December 31,
2011
 
     (In thousands)  
ASSETS   

Current assets:

     

Cash and cash equivalents

   $ 37,524      $ 99,886  

Marketable securities

             18,521  

Short-term bank deposit

     3,008          

Restricted cash, cash equivalents and marketable securities (all related to VIEs)

     76,296        75,521  

Receivables:

     

Trade

     80,166        51,274  

Related entity

     351        287  

Other

     10,265        9,415  

Due from parent

     196        260  

Inventories

     17,786        12,541  

Costs and estimated earnings in excess of billings on uncompleted contracts

     7,704        3,966  

Deferred income taxes

     1,729        1,842  

Prepaid expenses and other

     31,497        18,672  
  

 

 

    

 

 

 

Total current assets

     266,522        292,185  

Unconsolidated investments

     3,476        3,757  

Deposits and other

     27,416        22,194  

Deferred charges

     38,636        40,236  

Property, plant and equipment, net ($1,424,544 and $1,477,580 related to VIEs, respectively)

     1,491,411        1,518,532  

Construction-in-process ($248,754 and $271,859 related to VIEs, respectively)

     367,762        370,551  

Deferred financing and lease costs, net

     26,821        28,482  

Intangible assets, net

     36,319        38,781  
  

 

 

    

 

 

 

Total assets

   $ 2,258,363      $ 2,314,718  
  

 

 

    

 

 

 
LIABILITIES AND EQUITY   

Current liabilities:

     

Accounts payable and accrued expenses

   $ 96,516      $ 105,112  

Billings in excess of costs and estimated earnings on uncompleted contracts

     32,546        33,104  

Current portion of long-term debt:

     

Limited and non-recourse (all related to VIEs):

     

Senior secured notes

     25,609        21,464  

Other loans

     13,744        13,547  

Full recourse

     20,755        20,543  
  

 

 

    

 

 

 

Total current liabilities

     189,170        193,770  

Long-term debt, net of current portion:

     

Limited and non-recourse (all related to VIEs):

     

Senior secured notes

     329,000        341,157  

Other loans

     93,015        100,585  

Full recourse:

     

Senior unsecured bonds (plus unamortized premium based upon 7% of $1,514)

     250,982        250,042  

Other loans

     49,869        63,623  

Revolving credit lines with banks

     187,474        214,049  

Liability associated with sale of tax benefits

     56,528        69,269  

Deferred lease income

     67,051        68,955  

Deferred income taxes

     58,758         54,665  

Liability for unrecognized tax benefits

     7,139        5,875  

Liabilities for severance pay

     20,818        20,547  

Asset retirement obligation

     22,548        21,284  

Other long-term liabilities

     2,857        4,253  
  

 

 

    

 

 

 

Total liabilities

     1,335,209        1,408,074  
  

 

 

    

 

 

 

Commitments and contingencies

     

Equity:

     

The Company’s stockholders’ equity:

     

Common stock, par value $0.001 per share; 200,000,000 shares authorized;45,430,886 shares issued and outstanding as of September 30, 2012 and December 31, 2011

     46        46  

Additional paid-in capital

     730,583        725,746  

Retained earnings

     184,649        172,331  

Accumulated other comprehensive income

     697        595  
  

 

 

    

 

 

 
     915,975        898,718  

Noncontrolling interest

     7,179        7,926  
  

 

 

    

 

 

 

Total equity

     923,154        906,644  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 2,258,363      $ 2,314,718  
  

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  
    

(In thousands, except per share data)

 

Revenues:

        

Electricity

   $ 81,452     $ 86,815     $ 248,710     $ 246,273  

Product

     54,685       24,026       149,616       67,002  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     136,137       110,841       398,326       313,275  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Electricity

     61,466       57,941       177,350       186,090  

Product

     42,130       17,137       108,575       43,276  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     103,596       75,078       285,925       229,366  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     32,541       35,763       112,401       83,909  

Operating expenses:

        

Research and development expenses

     1,436       2,346       3,948       7,128  

Selling and marketing expenses

     3,445       2,940       13,033       9,325  

General and administrative expenses

     6,208       6,269       20,315       20,755  

Impairment charge

     7,264              7,264         

Write-off of unsuccessful exploration activities

                   1,919         
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     14,188       24,208       65,922       46,701  

Other income (expense):

        

Interest income

     280       438       1,004       1,289  

Interest expense, net

     (15,400     (23,909     (44,541     (54,431

Foreign currency translation and transaction gains (losses)

     615       (2,659     (1,127     (1,546

Income attributable to sale of tax benefits

     2,311       2,344       7,417       7,624  

Other non-operating income, net

     215       347       344       465  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in losses of investees

     2,209       769       29,019       102  

Income tax benefit (provision)

     (1,479     305       (11,245     726  

Equity in losses of investees

     (1,245     (71     (1,542     (552
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (515     1,003       16,232        276  

Net income attributable to noncontrolling interest

     (67     (137     (278     (252
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company’s stockholders

   $ (582   $ 866     $ 15,954     $ 24  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Net income (loss)

   $ (515   $ 1,003     $ 16,232      $ 276  

Other comprehensive income (loss), net of related taxes:

        

Amortization of unrealized gains or losses in respect of derivative instruments designated for cash flow hedge

     (47     (53     (140     (159

Change in unrealized gains or losses on marketable securities available-for-sale

     262       (111     242       (320
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (300     839       16,334       (203

Comprehensive income attributable to noncontrolling interest

     (67     (137     (278     (252
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to the Company’s stockholders

   $ (367   $ 702     $ 16,056      $ (455
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share attributable to the Company’s stockholders — basic and diluted

   $ (0.01   $ 0.02     $ 0.35     $ 0.00   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares used in computation of earnings (loss) per share attributable to the Company’s stockholders:

        

Basic

     45,431       45,431       45,431       45,431  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     45,431       45,440       45,438       45,442  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividend per share declared

   $ 0.04     $ 0.04     $ 0.08     $ 0.13  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

    The Company’s Stockholders’ Equity  
                Additional
Paid-in
Capital
          Accumulated
Other
Comprehensive
Income
                   
    Common Stock       Retained
Earnings
            Noncontrolling
Interest
    Total
Equity
 
    Shares     Amount           Total      
    (In thousands, except per share data)  

Balance at December 31, 2010

    45,431     $ 46      $ 716,731      $ 221,311      $ 1,044      $ 939,132      $ 6,095      $ 945,227   

Stock-based compensation

                  5,000                     5,000              5,000  

Increase in noncontrolling interest due to sale of equity interest in OPC LLC

                  2,343                     2,343       1,662       4,005  

Cash dividend declared, $0.13 per share

                         (5,924            (5,924            (5,924

Net income

                         24              24       252       276  

Other comprehensive loss, net of related taxes:

               

Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $96)

                                (159     (159            (159

Change in unrealized gains or losses on marketable securities available-for-sale (net of related tax of $0)

                                (320     (320            (320
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

    45,431     $ 46      $ 724,074      $ 215,411      $ 565      $ 940,096      $ 8,009      $ 948,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    45,431     $ 46      $ 725,746      $ 172,331      $ 595      $ 898,718      $ 7,926      $ 906,644   

Stock-based compensation

                  4,837                     4,837              4,837  

Cash paid to non-controlling interest

                                              (1,025     (1,025

Cash dividend declared, $0.08 per share

                         (3,636            (3,636            (3,636

Net income

                         15,954              15,954       278       16,232  

Other comprehensive (income) loss, net of related taxes:

               

Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $88)

                                (140     (140            (140

Change in unrealized gains or losses on marketable securities available-for-sale (net of related tax of $0)

                                242       242              242  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    45,431     $ 46      $ 730,583      $ 184,649      $ 697      $ 915,975      $ 7,179      $ 923,154   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months  Ended
September 30,
 
     2012     2011  
     (In thousands)  

Cash flows from operating activities:

    

Net income

   $ 16,232     $ 276  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     75,812       71,261  

Amortization of premium from senior unsecured bonds

     (231     (72

Accretion of asset retirement obligation

     1,264       1,183  

Stock-based compensation

     4,837       5,000  

Amortization of deferred lease income

     (2,014     (2,014

Income attributable to sale of tax benefits, net of interest expense

     (2,775     (2,243

Equity in losses of investees

     442       552  

Impairment of auction rate securities

            205  

Write-off of unconsolidated investment

     1,100         

Write-off of unsuccessful exploration activities

     1,919         

Impairment charge

     7,264         

Unrealized loss on interest rate lock transactions

            11,052  

Loss on severance pay fund asset

     332       282  

Premium from issuance senior unsecured bonds

            1,957  

Deferred income tax provision (benefit)

     5,894       (1,805

Liability for unrecognized tax benefits

     1,264       (1,186

Deferred lease revenues

     110       233  

Changes in operating assets and liabilities, net of amounts acquired:

    

Receivables

     (29,742     2,556  

Costs and estimated earnings in excess of billings on uncompleted contracts

     (3,738     2,628  

Inventories

     (5,245     (5,361

Prepaid expenses and other

     (12,825     (8,043

Deposits and other

     (5,356     (471

Accounts payable and accrued expenses

     9,523       (9,592

Due from/to related entities, net

     (64     (78

Billings in excess of costs and estimated earnings on uncompleted contracts

     (558     32,511  

Liabilities for severance pay

     271       281  

Other long-term liabilities

     (1,396     (719

Due from/to parent

     64       121  
  

 

 

   

 

 

 

Net cash provided by operating activities

     62,384       98,514  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Marketable securities, net

     18,763       (20,287

Short-term bank deposit

     (3,008       

Net change in restricted cash, cash equivalents and marketable securities

     (775     (36,884

Capital expenditures

     (186,332     (180,771

Cash grant received

     119,199         

Investment in unconsolidated companies

     (1,260     (305

Increase (decrease) in severance pay fund asset, net of payments made to retired employees

     (198     61  
  

 

 

   

 

 

 

Net cash used in investing activities

     (53,611     (238,186
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of senior unsecured bonds

     1,171       107,447  

Proceeds from the sale of limited liability company interest in OPC LLC, net of transaction costs

            24,878  

Proceeds from revolving credit lines with banks

     2,134,887       419,156  

Repayment of revolving credit lines with banks

     (2,161,462     (387,300

Repayments of long-term debt

     (28,927     (26,002

Cash paid to non-controlling interest

     (10,991     (10,769

Deferred debt issuance costs

     (2,177     (5,552

Cash dividends paid

     (3,636     (5,924
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (71,135     115,934  
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (62,362     (23,738

Cash and cash equivalents at beginning of period

     99,886       82,815  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 37,524     $ 59,077  
  

 

 

   

 

 

 

Supplemental non-cash investing and financing activities:

    

Increase (decrease) in accounts payable related to purchases of property, plant and equipment

   $ (18,119   $ 11,046  
  

 

 

   

 

 

 

Accrued liabilities related to financing activities

   $      $ 1,309  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — GENERAL AND BASIS OF PRESENTATION

These unaudited condensed consolidated interim financial statements of Ormat Technologies, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2012, the consolidated results of operations and comprehensive income (loss) for the three and nine-month periods ended September 30, 2012 and 2011 and the consolidated cash flows for the nine-month periods ended September 30, 2012 and 2011.

The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three and nine-month periods ended September 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011. The condensed consolidated balance sheet data as of December 31, 2011 was derived from the audited consolidated financial statements for the year ended December 31, 2011, but does not include all disclosures required by U.S. GAAP.

Dollar amounts, except per share data, in the notes to these financial statements are rounded to the closest $1,000.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of temporary cash investments, marketable securities and accounts receivable.

The Company places its temporary cash investments with high credit quality financial institutions located in the United States (“U.S.”) and in foreign countries. At September 30, 2012 and December 31, 2011, the Company had deposits totaling $9,554,000 and $39,569,000, respectively, in seven U.S. financial institutions that were federally insured up to $250,000 per account. At September 30, 2012 and December 31, 2011, the Company’s deposits in foreign countries amounted to approximately $36,557,000 and $57,838,000, respectively.

At September 30, 2012 and December 31, 2011, accounts receivable related to operations in foreign countries amounted to approximately $38,281,000 and $21,453,000, respectively. At September 30, 2012 and December 31, 2011, accounts receivable from the Company’s major customers that have generated 10% or more of its revenues amounted to approximately 47% and 58% of the Company’s accounts receivable, respectively.

Southern California Edison Company (“Southern California Edison”) accounted for 19.8% and 34.5% of the Company’s total revenues for the three months ended September 30, 2012 and 2011, respectively, and 18.8% and 30.5% for the nine months ended September 30, 2012 and 2011, respectively.

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 14.1% and 10.5% of the Company’s total revenues for the three months ended September 30, 2012 and 2011, respectively, and 13.8% and 12.8% for the nine months ended September 30, 2012 and 2011, respectively.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Hawaii Electric Light Company (“HELCO”) accounted for 8.1% and 10.3% of the Company’s total revenues for the three months ended September 30, 2012 and 2011, respectively, and 9.1% and 10.9% for the nine months ended September 30, 2012 and 2011, respectively.

Kenya Power and Lighting Co. Ltd. accounted for 8.6% and 8.0% of the Company’s total revenues for the three months ended September 30, 2012 and 2011, respectively, and 7.8% and 8.4% for the nine months ended September 30, 2012 and 2011, respectively.

The Company performs ongoing credit evaluations of its customers’ financial condition. The Company has historically been able to collect on all of its receivable balances, and accordingly, no provision for doubtful accounts has been made.

Letters of Credit

Some of the Company’s customers require the Company’s project subsidiaries to post letters of credit in order to guarantee their respective performance under relevant contracts. The Company is also required to post letters of credit to secure its 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, the Company is required from time to time to post performance letters of credit in favor of its customers with respect to orders of products. As of September 30, 2012, letters of credit in the aggregate amount of $248.2 million remained issued and outstanding.

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements Effective in the Nine-Month Period Ended September 30, 2012

Fair Value Measurement

In May 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding fair value measurements and disclosures. Required disclosures were expanded under the new guidance, particularly for fair value measurements that are categorized within Level 3 of the fair value hierarchy, for which quantitative information about the unobservable inputs, the valuation processes used by the entity, and the sensitivity of the measurement to the unobservable inputs are required. In addition, entities are required to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the balance sheet but for which the fair value is required to be disclosed. The adoption of this guidance by the Company on January 1, 2012 did not have a material impact on the Company’s consolidated financial statements. See Note 5 for these and other fair value related disclosures.

Presentation of Comprehensive Income in the Financial Statements

In June 2011, the FASB issued authoritative guidance intended to increase the prominence of items reported in other comprehensive income. The guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also required presentation of adjustments for items that are reclassified from other comprehensive income in the statement where the components of net income and the components of other comprehensive income are presented, which was indefinitely deferred by the FASB in December 2011. The guidance (other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) became effective on January 1, 2012. The adoption of this guidance by the Company on January 1, 2012 did not have a material impact on the Company’s consolidated financial statements.

 

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New Accounting Pronouncement Effective in Future Periods

Disclosures about Offsetting Assets and Liabilities

In December 2011, the FASB issued authoritative guidance that revises the manner in which entities disclose the offsetting of assets and liabilities. The new guidance requires entities to disclose both gross information and net information about instruments and transactions eligible for offset in the balance sheet and those that are subject to an agreement similar to a master netting arrangement. The guidance will be applicable retrospectively effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of this amendment is not expected to have a material effect on the Company’s consolidated financial statements.

NOTE 3 — INVENTORIES

Inventories consist of the following:

 

     September 30,
2012
     December 31,
2011
 
     (Dollars in thousands)  

Raw materials and purchased parts for assembly

   $ 11,966      $ 6,058  

Self-manufactured assembly parts and finished products

     5,820        6,483  
  

 

 

    

 

 

 

Total

   $ 17,786      $ 12,541  
  

 

 

    

 

 

 

NOTE 4 — UNCONSOLIDATED INVESTMENTS

Unconsolidated investments consist of the following:

 

     September 30,
2012
     December 31,
2011
 
     (Dollars in thousands)  

Sarulla

   $ 2,496      $ 2,215  

Watts & More Ltd.

     980        1,542  
  

 

 

    

 

 

 
   $ 3,476      $ 3,757  
  

 

 

    

 

 

 

The Sarulla Project

The Company is a 12.75% member of a consortium which is in the process of developing a geothermal power project in Indonesia with expected generating capacity of approximately 330 megawatts (“MW”). The 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 with PT Pertamina Geothermal Energy. The project will be constructed in three phases over a period of five years, with each phase utilizing the Company’s 110 MW to 120 MW combined cycle geothermal 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 consortium is in the process of negotiating certain contractual amendments for facilitation of project financing and for signing the resulting amended energy sales contract, and intends to proceed with the project after those amendments have become effective.

The Company’s share in the results of operations of the Sarulla project was not significant for each of the periods presented in these condensed consolidated financial statements.

 

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Watts & More Ltd.

In October 2010, the Company invested $2.0 million in Watts & More Ltd. (“W&M”), an early stage start-up company, engaged in the development of energy harvesting and system balancing solutions for electrical sources and, in particular, solar photovoltaic systems. During June and July 2012, the Company granted W&M loans in a total principal amount of approximately $1.0 million. The loans bear interest of 9% and are repayable (principal and interest) by W&M at any time upon 14 days prior written notice. At any time prior to the repayment of the loans, the Company may convert the outstanding principal and interest (or any part thereof) to ordinary shares of W&M. In connection with the loans, in July 2012, W&M issued to the Company ordinary shares at par value, such that, as of September 30, 2012, the Company held approximately 36.1% of W&M’s outstanding ordinary shares.

The Company’s share in the results of operations of W&M was not significant for each of the periods presented in these condensed consolidated financial statements. See also below.

In the third quarter of 2012, the Company wrote off its investment in the ordinary shares of W&M, since the Company will not continue to invest in W&M. The amount of the remaining investment represents the loans granted by the Company to W&M, which are secured by the intellectual property of W&M.

NOTE 5 — FAIR VALUE MEASUREMENTS

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).

 

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The following table sets forth certain fair value information at September 30, 2012 and December 31, 2011 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.

 

                                                                          
     Cost or Amortized
Cost at September 30,
2012
                           
        Fair Value at September 30, 2012  
        Total     Level 1      Level 2     Level 3  
     (Dollars in thousands)  

Assets

            

Current assets:

            

Cash equivalents (including restricted cash accounts)

   $ 20,837      $ 20,837     $ 20,837      $      $   

Derivatives (1)

     2,892        2,980               2,980         

Liabilities:

            

Current liabilities:

            

Derivatives (2)

             (77             (77       
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 23,729      $ 23,740     $ 20,837      $ 2,903     $   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     Cost or Amortized
Cost at December 31,
2011
                           
        Fair Value at December 31, 2011  
        Total     Level 1      Level 2     Level 3  
     (Dollars in thousands)  

Assets

            

Current assets:

            

Cash equivalents (including restricted cash accounts)

   $ 61,649      $ 61,649     $ 61,649      $      $   

Marketable securities (including restricted accounts)

     18,284        18,521       18,521                 

Liabilities:

            

Current liabilities:

            

Derivatives (2)

             (890             (890       
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 79,933      $ 79,280     $ 80,170      $ (890   $   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

This amount relates to derivatives which represent European put options on natural gas and oil and swap contracts on crude oil, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within “prepaid expenses and other” in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within “electricity revenues” in the condensed consolidated statement of operations and comprehensive income (loss).

 

(2)

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” in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within “foreign currency translation and transaction gains (losses)” in the condensed consolidated statement of operations and comprehensive income (loss).

The Company’s financial assets measured at fair value (including restricted cash accounts) at September 30, 2012 and December 31, 2011 include investments in debt instruments (which are included in marketable

 

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securities) and money market funds (which are included in cash equivalents). Those securities are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market.

As of December 31, 2010, all of the Company’s auction rate securities were associated with failed auctions. Such securities had par values totaling $4.5 million, all of which had been in a loss position since the fourth quarter of 2007. The Company’s auction rate securities at December 31, 2010, were valued using Level 3 inputs. Historically, the carrying value of auction rate securities approximated fair value due to the frequent resetting of the interest rates. While the Company continued to earn interest on these investments at the contractual rates, the estimated market value of these auction rate securities no longer approximated par value. Due to the lack of observable market quotes on the Company’s illiquid auction rate securities, the Company utilized valuation models that relied exclusively on Level 3 inputs including, among other things: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect the uncertainty of current market conditions; (iii) consideration of the probabilities of default, auction failure, or repurchase at par for each period; (iv) assessments of counterparty credit quality; (v) estimates of the recovery rates in the event of default for each security; and (vi) overall capital market liquidity. These estimated fair values were subject to uncertainties that were difficult to predict. Therefore, such auction rate securities were classified as of December 31, 2010 as Level 3 in the fair value hierarchy. In the first quarter of 2011, the Company identified a buyer outside of the auction process and, in April 2011, it sold the balance of the auction rate securities for consideration of $2,822,000.

The table below sets forth a summary of the changes in the fair value of the Company’s financial assets classified as Level 3 (i.e., illiquid auction rate securities) for the nine months ended September 30, 2011:

 

     (Dollars in thousands)  

Balance at beginning of period

   $ 3,027  

Total unrealized losses:

  

Included in net income

     (205

Transferred to Level 2

     (2,822
  

 

 

 

Balance at end of period

   $   
  

 

 

 

In April 2012, the Company entered into a NYMEX Heating Oil swap contract (85%) and an ICE Brent swap contract (15%) for notional volume of 241,250 BBL with a bank effective from May 1, 2012 until March 31, 2013 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 these contracts because both swaps had a high correlation with the avoided costs (which are the 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 contracts did not have up-front costs. Under the terms of these contracts, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date ($130.50 per BBL in respect of NYMEX Heating Oil and $115.50 per BBL in respect of ICE Brent). The swap contracts have monthly settlements whereby the difference between the fixed price and the monthly average market price will be settled on a cash basis.

In May 2012, the Company entered into a European put transaction with a bank effective from July 1, 2012 until December 31, 2012, pursuant to which the Company purchased a natural gas put option for 4.4 million MMbtus that settles against Natural Gas — California SoCal — NGI (“NGI”). The Company entered into this transaction in order to reduce its exposure to NGI below $3.08 per MMbtu under its PPAs with Southern California Edison. The Company paid an up-front premium of approximately $1.6 million that was recorded on May 24, 2012 as a current asset and is marked to market on each balance sheet date. Under this transaction, the

 

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Company will receive from the bank on each settlement date the difference between the strike price of $3.08 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 (July 1, 2012 to December 1, 2012). If the strike price is lower than the market price, no payment will be made.

In July 2012, the Company entered into another European put transaction with the same bank for settlement effective from August 1, 2012 until December 31, 2012, pursuant to which the Company purchased a natural gas put option for 0.7 million MMbtus that settles against NGI. The Company entered into this transaction in order to reduce its exposure to NGI below $3.19 per MMbtu under its PPAs with Southern California Edison. The Company paid an up-front premium of approximately $0.2 million that was recorded on July 23, 2012 as a current asset and is marked to market on each balance sheet date. Under this transaction, the Company will receive from the bank on each settlement date the difference between the strike price of $3.19 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 (August 1, 2012 to December 1, 2012). If the strike price is lower than the market price, no payment will be made.

On September 27, 2012, the Company entered into European put transactions with two banks effective from January 1, 2013 until December 31, 2013, pursuant to which the Company purchased NYMEX Heating Oil put options for notional volume of 191,250 BBL, and ICE Brent put options for notional volume of 33,750 BBL. The Company entered into these transactions to reduce its 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 these transactions because both transactions had a high correlation with the avoided costs that HELCO uses to calculate the energy rate. The Company paid up-front premiums in the total amount of approximately $2.6 million that were recorded on September 27, 2012 as current assets and are marked to market on each balance sheet date. Under these transactions, the Company will receive from the banks on each settlement date the difference between the strike price of $126.63 per BBL in respect of NYMEX Heating Oil and $106.80 in respect of ICE Brent and the respective monthly average market price of the relevant commodity. If the strike price is lower than the monthly average market price, no payment will be made.

These 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 condensed consolidated statements of operations and comprehensive income (loss). The Company recognized a loss from these transactions of $3.8 million and $0.0 million, respectively, in the three and nine months ended September 30, 2012.

On October 11, 2012, the Company entered into NGI swap contracts for notional volume of 8.9 million MMbtus with a bank effective from January 1, 2013 until December 31, 2013 (see Note 13 for discussion of these contracts).

There were no transfers of assets or liabilities between Level 1 and Level 2 during the nine months ended September 30, 2012.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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The fair value of the Company’s long-term debt approximates its carrying amount, except for the following:

 

     Fair Value      Carrying Amount  
     September 30,
2012
     December 31,
2011
     September 30,
2012
     December 31,
2011
 
     (Dollars in millions)      (Dollars in millions)  

Olkaria III loan

   $ 73.1      $ 79.2      $ 71.8      $ 77.4  

Amatitlan loan

     39.9        37.2        34.9        36.8  

Senior secured notes:

           

Ormat Funding Corp. (“OFC”)

     113.7        114.8        119.7        125.0  

OrCal Geothermal Inc. (“OrCal”)

     80.5        84.4        83.7        85.9  

OFC 2 LLC (“OFC 2”)

     121.3        131.0        151.2        151.7  

Senior unsecured bonds

     250.7         252.8        249.5         248.3  

Loans from institutional investors

     28.9        34.2        29.0        34.2  

The fair value of the OFC Senior Secured Notes is determined using observable market prices because these securities are traded. The fair value of the other long-term debt is determined by a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of estimated 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 September 30, 2012:

 

                                                                   
     Level 1      Level 2      Level 3      Total  
     (Dollars in millions)  

Olkaria III loan

   $       $       $ 73.1      $ 73.1  

Amatitlan loan

                     39.9        39.9  

Senior secured notes:

           

OFC

             113.7                113.7  

OrCal

                     80.5        80.5  

OFC 2

                     121.3        121.3  

Senior unsecured bonds

                     250.7         250.7   

Loan from institutional investors

                     28.9        28.9  

Other long-term debt

             43.1                43.1  

Revolving lines of credit

             187.5                187.5  

Deposits

     20.3                        20.3  

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

During the third quarter of 2012, the OREG 4 power plant (“OREG 4”), which generates electricity using recovered heat and has a carrying value of $10.9 million, was tested for recoverability due to continued low output and written down to its fair value of $3.6 million. The fair value was determined from a cash flow model (a Level 3 measure) using internally developed cash flows including assumptions about generation capacity and operating expenses and a discount rate of 8%. The impairment loss of $7.3 million is presented in the Company’s condensed consolidated statement of operations and comprehensive income (loss) under “Impairment Charge”.

 

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NOTE 6 — STOCK-BASED COMPENSATION

The 2004 Incentive Compensation Plan

On April 2, 2012, the Company granted its employees 602,000 stock appreciation rights (“SARs”) under the Company’s 2004 Incentive Compensation Plan. The exercise price of each such SAR is $20.13, which represented the fair market value of the Company’s common stock on the date of grant. Such SARs will expire seven years from the date of grant, and 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. 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.

The fair value of each SAR on the date of grant was $7.98. The Company calculated the fair value of each SAR on the date of grant using the Black-Scholes valuation model based on the following assumptions:

 

Risk-free interest rates

     1.05

Expected lives (in years)

     5.125  

Dividend yield

     0.80

Expected volatility

     47.50

Forfeiture rate

     7.46

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.

On August 1, 2012, the Company granted to each of its four new non-employee directors options to purchase 7,500 shares of common stock under the Company’s 2012 Incentive Plan at an exercise price of $19.69 per share. Such options will expire seven years from the date of grant and will vest on the first anniversary of the date of grant.

The fair value of each option on the date of grant was $7.06. The Company calculated the fair value of each option on the date of grant using the Black-Scholes valuation model based on the following assumptions:

 

Risk-free interest rates

     0.48

Expected lives (in years)

     4.00  

Dividend yield

     0.80

Expected volatility

     48.76

Forfeiture rate

     0.00

 

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On November 6, 2012, the Company granted to each of its six non-employee directors options to purchase 7,500 shares of common stock under the Company’s 2012 Incentive Plan (see Note 13).

NOTE 7 — INTEREST EXPENSE, NET

The components of interest expense, net, are as follows:

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
         2012             2011             2012             2011      
     (Dollars in thousands)     (Dollars in thousands)  

Interest related to sale of tax benefits

   $ 1,580     $ 1,360     $ 5,140     $ 5,236  

Loss on interest rate lock transactions*

            11,645              16,380  

Other interest expense

     16,301       14,266       48,968       41,364  

Less — amount capitalized

     (2,481     (3,362     (9,567     (8,549
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 15,400     $ 23,909     $ 44,541     $ 54,431  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* The interest rate lock transactions are related to the OFC 2 Senior Secured Notes and were not accounted for using hedge accounting.

NOTE 8 — 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.

The table below shows the reconciliation of the number of shares used in the computation of basic and diluted earnings (loss) per share:

 

     Three Months  Ended
September 30,
     Nine Months  Ended
September 30,
 
         2012              2011              2012              2011      
     (In thousands)      (In thousands)  

Weighted average number of shares used in computation of basic earnings (loss) per share

     45,431        45,431        45,431        45,431  

Add:

           

Additional shares from the assumed exercise of stock-based awards

             9        7        11  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of shares used in computation of diluted earnings (loss) per share

     45,431        45,440        45,438        45,442  
  

 

 

    

 

 

    

 

 

    

 

 

 

In the three months ended September 30, 2012, the stock-based awards were anti-dilutive because of the Company’s net loss, and therefore they have been excluded from the diluted earnings (loss) per share calculation.

 

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The number of stock-based awards that could potentially dilute future earnings per share and that were not included in the computation of diluted earnings (loss) per share (because to do so would have been anti-dilutive) was 5,423,548 and 4,816,079 for the three months ended September 30, 2012 and 2011, respectively, and 5,663,796 and 4,116,282 for the nine months ended September 30, 2012 and 2011, respectively.

NOTE 9 — 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 are determined based on current market values or cost plus markup of the seller’s business segment.

Summarized financial information concerning the Company’s reportable segments is shown in the following tables:

 

     Electricity      Product      Consolidated  
     (Dollars in thousands)  

Three Months Ended September 30, 2012:

        

Net revenues from external customers

   $ 81,452      $ 54,685      $ 136,137  

Intersegment revenues

             11,063        11,063  

Operating income

     6,804        7,384        14,188  

Segment assets at period end *

     2,150,533         107,830        2,258,363   

* Including unconsolidated investments

     2,496        980        3,476  

Three Months Ended September 30, 2011:

        

Net revenues from external customers

   $ 86,815      $ 24,026      $ 110,841  

Intersegment revenues

             15,264        15,264  

Operating income

     21,087        3,121        24,208  

Segment assets at period end *

     2,121,932        88,789        2,210,721  

* Including unconsolidated investments

     2,287        1,710        3,997  

 

Nine Months Ended September 30, 2012:

        

Net revenues from external customers

   $ 248,710      $ 149,616      $ 398,326  

Intersegment revenues

             32,970        32,970  

Operating income

     40,855        25,067        65,922  

Segment assets at period end *

     2,150,533         107,830        2,258,363   

* Including unconsolidated investments

     2,496        980        3,476  

Nine Months Ended September 30, 2011:

        

Net revenues from external customers

   $ 246,273      $ 67,002      $ 313,275  

Intersegment revenues

             46,013        46,013  

Operating income

     34,917        11,784        46,701  

Segment assets at period end *

     2,121,932        88,789        2,210,721  

* Including unconsolidated investments

     2,287        1,710        3,997  

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Reconciling information between reportable segments and the Company’s consolidated totals is shown in the following table:

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  
     (Dollars in thousands)     (Dollars in thousands)  

Operating income

   $ 14,188     $ 24,208     $ 65,922     $ 46,701  

Interest income

     280       438       1,004       1,289  

Interest expense, net

     (15,400     (23,909     (44,541     (54,431

Foreign currency translation and transaction gains

     615       (2,659     (1,127     (1,546

Income attributable to sale of equity interest

     2,311       2,344       7,417       7,624  

Other non-operating income (expense), net

     215       347       344       465  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss), before income taxes and equity in losses of investees

   $ 2,209     $ 769     $ 29,019     $ 102  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 10 — CONTINGENCIES

Securities Class Actions

Following the Company’s public announcement that it would restate certain of its financial results due to a change in the Company’s accounting treatment for certain exploration and development costs, three securities class action lawsuits were filed in the United States District Court for the District of Nevada on March 9, 2010, March 18, 2010 and April 7, 2010. These complaints asserted claims against the Company and certain directors and officers for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). One complaint also asserted claims for alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act. All three complaints alleged claims on behalf of a putative class of purchasers of the Company’s common stock between May 6, 2008 or May 7, 2008 and February 23, 2010 or February 24, 2010. These three lawsuits were consolidated by the Court in an order issued on June 3, 2010, and the Court appointed three of the Company’s stockholders to serve as lead plaintiffs.

Lead plaintiffs filed a consolidated amended class action complaint (“CAC”) on July 9, 2010 that asserted claims under Sections 10(b) and 20(a) of the Exchange Act on behalf of a putative class of purchasers of the Company’s common stock between May 7, 2008 and February 24, 2010. The CAC alleged that certain of the Company’s public statements were false and misleading for failing to account properly for the Company’s exploration and development costs based on the Company’s announcement on February 24, 2010 that it was going to restate certain of its financial results to change its method of accounting for exploration and development costs in certain respects. The CAC also alleged that certain of the Company’s statements concerning the North Brawley project were false and misleading. The CAC sought compensatory damages, expenses, and such further relief as the Court may deem proper.

Defendants filed a motion to dismiss the CAC on August 13, 2010. On March 3, 2011, the Court granted in part and denied in part defendants’ motion to dismiss. The Court dismissed plaintiffs’ allegations that the Company’s statements regarding the North Brawley project were false or misleading, but did not dismiss plaintiffs’ allegations regarding the 2008 restatement. Defendants answered the remaining allegations in the CAC regarding the restatement on April 8, 2011, and the case entered the discovery phase. On July 22, 2011, plaintiffs filed a motion to certify the case as a class action on behalf of a class of purchasers of the Company’s common stock between February 25, 2009 and February 24, 2010, and defendants filed an opposition to the motion for class certification on October 4, 2011.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Subsequently, the parties participated in mediation where they reached an agreement in principle to settle the securities class action lawsuits. The parties thereafter filed a stipulation of settlement with the U.S. District Court for the District of Nevada on March 27, 2012, providing that the claims against the Company and its directors and officers will be dismissed with prejudice and plaintiffs will release the defendants from all claims in exchange for a cash payment of $3.1 million to be funded by the Company’s insurers. The stipulation of settlement received preliminary approval by the Court on March 30, 2012, and final approval on October 16, 2012.

The Company and the individual defendants have steadfastly maintained that the claims raised in the securities class action lawsuits were without merit, and have vigorously contested those claims. As part of the settlement, the Company and the individual defendants continue to deny any liability or wrongdoing under the securities laws or otherwise.

Stockholder Derivative Cases

Four stockholder derivative lawsuits have also been filed in connection with the Company’s public announcement that it would restate certain of its financial results due to a change in the Company’s accounting treatment for certain exploration and development costs. Two cases were filed in the Second Judicial District Court of the State of Nevada in and for the County of Washoe on March 16, 2010 and April 21, 2010, and two cases were filed in the United States District Court for the District of Nevada on March 29, 2010 and June 7, 2010. All four lawsuits assert claims brought derivatively on behalf of the Company against certain of its directors and officers for alleged breach of fiduciary duty and other claims, including waste of corporate assets and unjust enrichment.

The two stockholder derivative cases filed in the Second Judicial District Court of the State of Nevada in and for the County of Washoe were consolidated by the Court in an order dated May 27, 2010, and the plaintiffs filed a consolidated derivative complaint on September 7, 2010. In accordance with a stipulation between the parties, defendants filed a motion to dismiss on November 16, 2010. On April 18, 2011, the Court stayed the state derivative case pending the resolution of the securities class action lawsuits.

The two stockholder derivative cases filed in the United States District Court for the District of Nevada were consolidated by the Court in an order dated August 31, 2010, and plaintiffs filed a consolidated derivative complaint on October 28, 2010. The Company filed a motion to dismiss on December 13, 2010. On March 7, 2011, the Court transferred the federal derivative case to the Court presiding over the securities class action, and on August 29, 2011, the Court stayed the federal derivative case pending the resolution of the securities class action lawsuits.

The parties to all the stockholder derivative cases executed a stipulation of settlement to resolve all cases on September 25, 2012. The stipulation provides that: (i) all claims asserted in the derivative cases will be dismissed with prejudice and that plaintiffs will release the defendants from all claims; (ii) the Company will implement and/or maintain certain corporate governance measures for no less than five years; and (iii) plaintiffs’ counsel will receive attorneys’ fees of $700,000 to be funded by the Company’s insurers. The stipulation of settlement received preliminary approval on October 22, 2012. It still remains subject to final approval following notice to the Company’s stockholders.

The Company believes the allegations in these purported derivative actions are without merit and, as part of the settlement, continues to deny any liability or wrongdoing.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Other

On January 4, 2012, the California Unions for Reliable Energy (“CURE”) filed a petition in the Alameda Superior Court, naming the California Energy Commission (“CEC”) and the Company as defendant and real party in interest, respectively. The petition asks the Court to order the CEC to vacate its decision which denied, with prejudice, the complaint filed by CURE against the Company with the CEC. The CURE complaint alleged that the Company’s North Brawley project and East Brawley project both exceed the CEC’s 50 MW jurisdictional threshold and therefore are subject to the CEC licensing authority rather than the Imperial County licensing authority. In addition, the CURE petition asks the Court to investigate and halt any ongoing violation of the Warren Alquist Act by the Company, and to award CURE attorney’s fees and costs. As to North Brawley, CURE alleges that the CEC decision violated the Warren Alquist Act because it failed to consider provisions of the County permit for North Brawley, which CURE contends authorizes the Company to build a generating facility with a number of Ormat Energy Converters (“OECs”) capable of generating more than 50 MW. As to East Brawley, CURE alleges that the CEC decision violated the Warren Alquist Act because it failed to consider the conditional use permit application for East Brawley, which CURE contends shows that the Company requested authorization to build a facility with a number of OECs capable of generating more than 50 MW.

The Company believes that the petition is without merit and intends to respond and take necessary legal action to dismiss the proceedings. The parties have filed briefs in the proceeding, and the matter is set for hearing. The filing of the petition in and of itself does not have any immediate adverse implications for the North Brawley or East Brawley projects and the Company continues to operate the North Brawley project in the ordinary course of business and is proceeding with its development work on the East Brawley project.

From time to time, the Company is named as a party in various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of its 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.

NOTE 11 — CASH DIVIDENDS

On May 8, 2012, the Company’s Board of Directors declared, approved and authorized payment of a quarterly dividend of $1.8 million ($0.04 per share) to all holders of the Company’s issued and outstanding shares of common stock on May 21, 2012. Such dividend was paid on May 30, 2012.

On August 1, 2012, the Company’s Board of Directors declared, approved and authorized payment of a quarterly dividend of $1.8 million ($0.04 per share) to all holders of the Company’s issued and outstanding shares of common stock on August 14, 2012. Such dividend was paid on August 23, 2012.

NOTE 12 — INCOME TAXES

The Company’s effective tax rate for the three months ended September 30, 2012 and 2011 was 67.0% and 39.7%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2012 and 2011 was 38.8% and 711.8%, respectively. The effective tax rate differs from the federal statutory rate of 35% primarily due to the increase in the valuation allowance against the Company’s U.S. deferred tax assets in respect of net operating loss (“NOL”) carryforwards and unutilized tax credits (see below), offset by: (i) lower tax rates in Israel; and (ii) a tax credit and tax exemption related to the Company’s subsidiaries in Guatemala.

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

At December 31, 2011, the Company had U.S. NOL carryforwards of approximately $349.5 million and state NOL carryforwards of approximately $159.0 million available to reduce future taxable income, which expire between 2021 and 2031 for federal NOLs and between 2015 and 2031 for state NOLs. Investment tax credits in the amount of $2.0 million at December 31, 2011 are available for a 20-year period and expire between 2022 and 2024. Production tax credits in the amount of $59.9 million at December 31, 2011 are available for a 20-year period and expire between 2026 and 2031.

Realization of the deferred tax assets is dependent on generating sufficient taxable income in appropriate jurisdictions 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 $61.5 million was recorded against the U.S. deferred tax assets as of December 31, 2011 because, at this point in time, it is more likely than not that the deferred tax assets will not be realized. Such valuation allowance was increased to $97.3 million as of September 30, 2012. If sufficient evidence of the Company’s ability to generate taxable income is established in the future, the Company may be required to reduce this valuation allowance, resulting in income tax benefits in its consolidated statement of operations and comprehensive income (loss).

The Company’s subsidiary, Ormat Systems Ltd. (“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 beginning 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 beginning in 2007, and thereafter such income was subject to reduced Israeli income tax rates, which will not exceed 25% for an additional five years until 2013 (see also below). 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 2014, and 12% in 2015 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. As a result, the deferred taxes as of December 31, 2010 have been reduced by $0.5 million. This amount reduced the tax provision for the nine months ended September 30, 2011 by such amount.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

 

     Nine Months Ended
September 30,
 
         2012              2011      
     (Dollars in thousands)  

Balance at beginning of period

   $ 5,875      $ 5,431  

Additions based on tax positions taken in prior years

     1,264        190  

Decrease for settlements with taxing authorities

             (1,376
  

 

 

    

 

 

 

Balance at end of period

   $ 7,139      $ 4,245  
  

 

 

    

 

 

 

 

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 13 — SUBSEQUENT EVENTS

Swap Contracts on Natural Gas Prices

On October 11, 2012, the Company entered into NGI swap contracts for notional volume of approximately 8.9 million MMbtus with a bank for settlement effective from January 1, 2013 until December 31, 2013, in order to reduce its exposure to NGI below $4.00 per MMbtu under its PPAs with Southern California Edison. The contracts did not have up-front costs. Under the terms of these contracts, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contracts have monthly settlements whereby the difference between the fixed price of $4.00 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, 2013 to December 1, 2013) will be settled on a cash basis. These contracts will not be designated as hedge transactions and will be marked to market with the corresponding gains or losses recognized within “electricity revenues” in the condensed consolidated statements of operations and comprehensive income (loss).

Options Grant

On November 6, 2012, the Company granted to each of its six non-employee directors options to purchase 7,500 shares of common stock, under the Company’s 2012 Incentive Plan at an exercise price of $18.56 per share. Such options will expire seven years from the date of grant and will vest on the first anniversary of the date of grant.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q 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 quarterly 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 quarterly report on Form 10-Q, 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 quarterly report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors”, and “Notes to Condensed Consolidated Financial Statements”, 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 quarterly report on Form 10-Q 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 quarterly report;

 

   

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

 

   

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

 

   

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 power purchase agreements (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;

 

   

the impact of recent and future federal and state 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;

 

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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;

 

   

current and future litigation;

 

   

our ability to successfully identify, integrate and complete acquisitions;

 

   

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

 

   

the effect of and changes in economic conditions in the areas in which we operate;

 

   

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 the threat or occurrence of 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;

 

   

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;

 

   

development and construction of the solar photovoltaic (Solar PV) projects may not materialize as planned;

 

   

the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011 and any update contained herein and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (SEC); and

 

   

other uncertainties which are difficult to predict or beyond our control and the risk that we incorrectly analyze these risks and forces or that the strategies we develop to address them could be unsuccessful.

Investors are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

General

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included elsewhere in this report. See also “Cautionary Note Regarding Forward-Looking Statements” above and Item 1A — “Risk Factors” below 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.

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:

 

   

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. We have expanded our activities in the Electricity Segment to include the ownership and operation of power plants that produce electricity generated by Solar PV systems that we do not manufacture; and

 

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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.

Both our Electricity Segment and Product Segment operations are conducted in the United States and throughout the world. Our current generating portfolio includes geothermal power plants in the United States, Guatemala, Kenya, and Nicaragua, as well as recovered energy generation (REG) plants in the United States.

For the nine months ended September 30, 2012, our total revenues increased by 27.1% (from $313.3 million to $398.3 million) over the same period last year.

For the nine months ended September 30, 2012, total Electricity Segment revenues were $248.7 million, compared to $246.3 million for the nine months ended September 30, 2011, an increase of 1.0%, while Product Segment revenues were $149.6 million for the nine months ended September 30, 2012, compared to $67.0 million for the nine months ended September 30, 2011, an increase of 123.3%.

For the nine months ended September 30, 2012, our Electricity Segment revenues represented approximately 62.4% of our total revenues, while our Product Segment revenues represented approximately 37.6% of our total revenues. For the nine months ended September 30, 2011, our Electricity Segment revenues represented approximately 78.6% of our total revenues, while our Product Segment revenues represented approximately 21.4% of our total revenues. The increase in Product Segment revenues reflects the increase in new customer orders that we secured in 2011, particularly the $130.0 million order we received from Mighty River Power Limited for the Ngatamariki Geothermal Field in New Zealand, which project is underway in 2012 and is expected to be completed in 2013.

Revenues from our Electricity Segment are derived from sales of electricity generated by our power plants pursuant to long-term PPAs. We have variable price PPAs in California, Hawaii and Guatemala:

 

   

The energy rate under the PPAs in California for the Ormesa complex, the Mammoth complex, and the Heber 1 and Heber 2 power plants (the California SO#4 PPAs), changed in the beginning of May 2012, from a fixed to a variable rate that is subject to the impact of fluctuations in natural gas prices.

 

   

The prices paid for the electricity pursuant to the 25 megawatts (MW) PPA for the Puna complex in Hawaii are variable and based on the local utility’s 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. The prices, which are calculated on a monthly basis, are mainly impacted by the price of oil.

 

   

The energy price under the Amatitlan PPA in Guatemala is fixed, but we have the option to sell the power with advance notice to the spot market.

We have reduced our exposure to fluctuations in the price of natural gas and oil until December 31, 2013 by entering into derivative contracts, as described below under the heading “Recent Developments”.

In the nine months ended September 30, 2012, approximately 79.9% of our Electricity Segment revenues were derived from PPAs with fixed energy rates, which are not affected by the fluctuations in energy commodity prices. Electricity Segment revenues are also subject to seasonal variations and can be affected by higher-than average ambient temperatures, as described below under the heading “Seasonality”.

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

 

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typically focus on the internal rate of return of the relevant investment, relevant technical and geological matters and other relevant 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, and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders.

Recent Developments

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

 

   

Since the beginning of the year we entered into two new PPAs with Pacific Gas and Electric Company (PG&E) under the Renewable Auction Mechanism (RAM) program in California (discussed below under the heading “Trends and Uncertainties”) to replace existing SO#4 PPAs:

 

   

We signed a 20-year PPA that was approved by the California Public Utilities Commission (CPUC), for the sale of up to 14 MW of energy to be produced from the G3 power plant in the Mammoth complex in California. Subject to final agreement with the current offtaker, Southern California Edison Company (Southern California Edison), we expect to start selling the electricity under the new PPA at the very end of 2012.

 

   

We signed a 20-year PPA for the sale of up to 7.5 MW of energy to be produced from the G1 power plant in the Mammoth complex in California. The PPA is subject to the approval of the CPUC and to final agreement with Southern California Edison. We expect to start selling the electricity under the new PPA toward the end of 2013.

 

   

Since April 2012, we have entered into several derivatives transactions to reduce our exposure to fluctuations in the price of natural gas and oil under our PPAs with Southern California Edison and under the 25 MW PPA for the Puna complex. These transactions have not been designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within electricity revenues.

 

   

In October 2012, we entered into Natural Gas — California SoCal — NGI (NGI) swap contracts for settlement effective from January 1, 2013 until December 31, 2013. The swap contracts have monthly settlements whereby the difference between the NGI and fixed price of $4.00 per MMbtu will be settled on a cash basis. Under the terms of these contracts, we will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. These swap contracts fix the energy rates under the SO#4 PPAs. The capacity payments under these PPAs remain fixed.

 

   

In September 2012, we entered into European put transactions with two banks for settlement effective from January 1, 2013 until December 31, 2013, pursuant to which we purchased NYMEX Heating Oil and ICE Brent put options. We entered into these transactions because both options had a high correlation with the avoided costs that Hawaii Electric Light Company (HELCO) uses to calculate the energy rate for the 25 MW PPA for the Puna complex. Under these transactions, we will receive on each settlement date the difference between the strike price and the respective monthly average market price of the relevant commodity. If the strike price is lower than the monthly average market price, no payment will be made. These transactions ensure a minimum on-peak energy rate and the capacity payments under these PPAs remain fixed.

 

   

In July 2012, we entered into a European put transaction with a bank for settlement effective from August 1, 2012 until December 31, 2012, pursuant to which we purchased a natural gas put option for 0.7 million MMbtus that settles against NGI. We entered into this transaction in order to reduce our exposure to NGI below $3.19 per MMbtu under our California SO#4 PPAs with Southern California Edison. We paid an up-front premium of approximately $0.2 million that was recorded as a current asset and is marked to market on each balance sheet date. Under this

 

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transaction we will receive from the bank on each settlement date the difference between the strike price of $3.19 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 (July 1, 2012 to December 1, 2012). If the strike price is lower than the market price, no payment will be made.

 

   

In May 2012, we entered into a European put transaction with a bank for settlement effective from July 1, 2012 until December 31, 2012, pursuant to which we purchased a natural gas put option for 4.4 million MMbtus that settles against NGI. We entered into this transaction in order to reduce our exposure to NGI below $3.08 per MMbtu under our California SO#4 PPAs with Southern California Edison. We paid an up-front premium of approximately $1.6 million that was recorded as a current asset and is marked to market on each balance sheet date. Under this transaction we will receive from the bank on each settlement date the difference between the strike price of $3.08 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 (July 1, 2012 to December 1, 2012). If the strike price is lower than the market price, no payment will be made.

 

   

In April 2012, we entered into a NYMEX Heating Oil swap contract (85%) and an ICE Brent swap contract (15%) with a bank, each of which is effective from May 1, 2012 until March 31, 2013. We entered into these contracts because both swaps had a high correlation with the avoided costs that HELCO uses to calculate the energy rate for the 25 MW PPA for the Puna complex. Fuel prices in April 2012 were at historically high levels and we wanted to protect ourselves from a decrease in prices over the next twelve months. The contracts did not have up-front costs. Under the terms of these contracts, we will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contracts have monthly settlements whereby the difference between the fixed price and the monthly average price will be settled on a cash basis.

 

   

In the second and third quarters of 2012, we received approximately $119.2 million in cash grants from the U.S. Department of the Treasury (U.S. Treasury) under Section 1603 of the American Recovery and Reinvestment Act of 2009 (ARRA) for specified energy property in lieu of tax credits relating to the enhancement of our Puna geothermal complex, and to our Jersey Valley, Tuscarora and McGinness Hills geothermal power plants.

 

   

In September 2012, we entered into European put transactions with two banks for settlement effective from January 1, 2013 until December 31, 2013, pursuant to which we purchased NYMEX Heating Oil and ICE Brent put options 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. We entered into these transactions because both options had a high correlation with the avoided costs that HELCO uses to calculate the energy rate. Under these transactions, we will receive on each settlement date the difference between the strike price and the respective monthly average market price of the relevant commodity. If the strike price is lower than the monthly average market price, no payment will be made. These transactions ensure a minimum on-peak energy rate of approximately $182 per MWh. The capacity payment under these PPAs remains fixed. These transactions have not been designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within electricity revenues.

 

   

In August 2012, our indirect wholly owned subsidiary, OrPower 4, Inc. (OrPower 4), and the Overseas Private Investment Corporation (OPIC), an agency of the United States Government, signed a finance agreement for limited-recourse project financing (Finance Agreement) totaling up to $310 million for the Olkaria III geothermal power complex located in Naivasha, Kenya. The OPIC loan is comprised of up to three tranches. The first two tranches totaled up to $265 million, with a final maturity of approximately 18 years. The loan will be used to pay costs of the existing facility and fund construction and well field drilling for the expansion of the Olkaria III geothermal power complex which could generate up to 84 MW. The Finance Agreement also includes a standby tranche of up to $45 million in

 

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the event OrPower 4 elects to construct a further expansion of up to 16 MW. Disbursements of the OPIC loan are subject to fulfillment of customary conditions precedent for funding, which we expect will be satisfied before December 31, 2012.

 

   

In August 2012, NV Energy, Inc. (NV Energy) approved the commercial operation date of our 30 MW McGinness Hills power plant in Nevada and the full energy price under the PPA has been paid retroactive to July 1, 2012.

 

   

In July 2012, our wholly owned subsidiary, Ormat Nevada Inc. (Ormat Nevada), entered into a $61.4 million engineering, procurement and construction (EPC) contract with Enel Green Power North America (Enel). Under the terms of the EPC contract, we will provide two air-cooled Ormat Energy Converters at Enel’s Cove Fort geothermal power plant project in southern Utah. Previously, on April 25, 2012, we entered into an interim agreement in the amount of $9.1 million to ensure timely completion of the project.

 

   

In May 2012, NV Energy approved the commercial operation date of our 18 MW Tuscarora power plant in Nevada, and the full energy price under the PPA has been paid retroactive to January 1, 2012.

 

   

In May 2012, Bronicki Investments Ltd. (Bronicki Investments), the controlling shareholder of our parent company, Ormat Industries Ltd. (Ormat Industries), completed the sale of part of its interest in Ormat Industries to FIMI ENRG Limited Partnership, a newly formed Israeli partnership, and FIMI ENRG, L.P., a newly formed Delaware partnership, both controlled by FIMI Opportunity IV (collectively, FIMI), whereby Bronicki Investments sold to FIMI approximately 11.7% of the issued and outstanding shares of Ormat Industries. Following consummation of the transaction, each of Bronicki Investments and FIMI now holds 22.499% of the issued and outstanding shares of Ormat Industries, and the parties collectively own 44.999% of the issued and outstanding shares of Ormat Industries. In addition, effective May 22, 2012, Gillon Beck, a senior partner in FIMI, was appointed as the chairman of our Board of Directors; Ami Boehm, David Granot and Robert E. Joyal were appointed to our Board; and Lucien Y. Bronicki (our former Chairman), Roger W. Gale and David Wagener (former members of our Board) resigned from their respective positions on our Board of Directors.

 

   

In February 2012, Geothermal Development Company (GDC), a company owned by the Government of Kenya, awarded our subsidiary the first well head power plant project in the Menengai geothermal field in Kenya on a Build-Own-Transfer basis. The award was the result of an international tender for the design, manufacturing, procurement, construction and commissioning of a 6 MW geothermal well head power plant. GDC will supply the steam for conversion to electricity by our power plant. The Menengai geothermal field is located on the outskirts of the town of Nakuru, about 110 miles west of Nairobi.

 

   

In January 2012, the Public Utilities Commission of Nevada (PUCN) approved the 20-year PPA that we signed in February 2011 with NV Energy to sell 30 MW from the Dixie Meadows geothermal project that we are developing in Churchill County, Nevada.

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. During the 1990s, growth and development in the geothermal industry occurred primarily in foreign markets and only minimal growth and development occurred in the United States. 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 relative to fossil fuel generation. This has been partly due to increasing natural gas and oil prices during much of this period and, equally important, to newly enacted 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 production tax credits (PTCs) or investment tax credits (ITCs) as well as cash grants (which are discussed in more detail in the section entitled “Government Grants and

 

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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 see the increasing demand for energy generated from geothermal and other renewable resources in the United States and the further introduction of renewable portfolio standards as significant trends affecting our industry today and in the immediate future. Our operations and the trends that from time to time impact our operations are subject to market cycles.

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 affected by the following trends, factors and uncertainties:

 

   

We expect to continue to generate the majority of our revenues from our Electricity Segment through the sale of electricity from our power plants. Substantially 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 and in the Solar PV sector.

 

   

Our primary focus continues to be our organic growth through exploration, development, and construction of new projects and enhancements of existing power plants. We expect that this 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 U.S. Environmental Protection Agency’s (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 greenhouse gas (GHG) emissions. Federal legislation or additional federal regulations addressing climate change are possible. Several states and regions are already addressing climate change. 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 California Air Resources Board (CARB) adopted cap-and-trade regulations to reduce California’s greenhouse gas emissions under AB 32. In addition to California, twenty-two other states have set GHG emissions targets or 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 addition, twenty-nine U.S. states and the District of Columbia have adopted Renewable Portfolio Standards (RPS) and eight other states have adopted renewable portfolio goals. On April 12, 2011, Governor Jerry Brown signed California Senate Bill X1-2 (SBX1-2) which increased California’s RPS to 33% by December 31, 2020 and instituted a tradable Renewable Energy Credit (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. The CPUC recently authorized the utilities to procure 1,299 MW through the RAM program, a procurement mechanism for renewable distributed generation projects greater than 3 MW and up to 20 MW, by holding four auctions over two years. We expect that the additional demand for renewable energy from utilities in California will outpace a possible reduction in general demand for energy (if any) due to the effect of economic conditions. We see this demand in California after 2016 driven by the impact of the increase in California’s RPS. This may create opportunities for us to replace the remainder of our existing SO#4 PPAs, expand existing power plants and develop new power plants.

 

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Outside of the United States, we expect that a variety of government 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.

 

   

We expect competition from the wind and solar power generation industry to continue. While the expected demand for renewable energy is large enough to accommodate increased competition, the increase in competition 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 baseload electricity, such as geothermal-based energy, will continue to be a leading source of renewable energy in areas with commercially viable geothermal resources.

 

   

The business environment for obtaining new PPAs in California has become more difficult. Currently, the three investor-owned utilities in California appear to have sufficient renewable energy under contract to satisfy their RPS goals over the next few years.

 

   

In the Product Segment, we expect increased competition from binary power plant equipment suppliers. 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 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.

 

   

North America is the largest and most developed natural gas market in the world. As recently as five years ago, the region was considered to be short on supply, with an expected need to import significant volumes of liquefied natural gas (LNG) from the international gas market to balance supply with expected demand. The rise of shale gas production over the last three years has completely changed the natural gas market landscape in North America. The unexpected growth in supply at increasingly lower costs has come at a time when the U.S. economy has been facing constrained demand growth for natural gas. Among other things, this has led to an increased interest in exporting natural gas from the U.S., in the form of LNG. Various natural gas companies and other project sponsors have recently applied, and in some cases, have already received an export license to export LNG to countries with which the U.S. has a free trade agreement providing comity in trading natural gas (FTA-nations) and to other non-FTA nations. At the same time, environmentalists, regulators, natural gas companies and the public have been focusing more attention on the potential environmental impacts associated with natural gas fracking, including possible chemical leakage, ground water contamination and other effects, which may slow development in some areas. The changing natural gas landscape, and 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, all combine to affect the pricing under our PPAs that have short run avoided costs (SRAC) pricing or that are otherwise tied to natural gas prices . In addition, the current low natural gas price level is causing some producers to shut-in wells, which in turn may increase natural gas prices.

 

   

Our 25 MW PPA for the Puna complex has a monthly variable energy rate based on the local utility’s avoided costs, which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others. 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 and under any other variable energy rate in PPAs that we may enter into in the future. As described above under the heading “Recent Developments”, we have entered into swap and put contracts to reduce our exposure to fluctuations in the energy rate caused by fluctuations in oil prices through December 31, 2013.

 

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Our PPAs for the Ormesa complex, the Mammoth complex and the Heber 1 and 2 power plants were fixed until May 1, 2012. As of this date, the energy price component under these PPAs has changed from a fixed rate to a variable rate based on SRAC pricing, as required under a global settlement relating primarily to purchase and payment obligations of investor-owned utilities in California. These PPAs are impacted by fluctuations in natural gas prices. As described above under the heading “Recent Developments”, we have entered into put and swap transactions to reduce our exposure to fluctuations in natural gas prices through December 31, 2013. Our use of derivative instruments for this purpose has increased, and likely will continue to increase, volatility in revenues and certain other line items in our financial statements due to applicable accounting standards.

 

   

We are experiencing a notable decrease in competition in the U.S. geothermal industry, specifically in the acquisition of geothermal leases. The reduced level of competition has contributed to a decrease in lease costs.

 

   

In the United States, we have noticed increased activity from union organizers to encourage employees to join unions that will act as bargaining representatives. We currently do not have employees represented by unions under collective bargaining agreements. However, a union has recently filed a petition with the National Labor Relations Board (NLRB) in an attempt to organize our employees in our Puna complex in Hawaii. The matter is being processed and adjudicated under NLRB procedures.

 

   

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 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, economic and financial risks, which vary by country. As of today, those risks include the partial privatization of the electricity sector in Guatemala, labor unrest in Nicaragua and the political uncertainty currently prevailing in some of the countries in which we operate. Although we maintain political risk insurance for most of our foreign power plants to mitigate these risks, insurance does not provide complete coverage with respect to all such risks.

 

   

The Energy Policy Act of 2005 authorizes the Federal Energy Regulatory Commission (FERC) to revise the Public Utility Regulatory Policies Act (PURPA) so as to terminate 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 except one of our current PPAs are long-term. FERC recently 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.

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. We have variable price PPAs in California, Hawaii and Guatemala. Our

 

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California SO#4 PPAs are subject to the impact of fluctuations in natural gas prices. The prices paid for electricity pursuant to the 25 MW PPA for the Puna complex in Hawaii are impacted by the price of oil. The energy price under the Amatitlan PPA in Guatemala is fixed, but we have the option to sell the power with an advance notice to the spot market. Accordingly, our revenues from those power plants may fluctuate. As discussed above in the section entitled “Recent Developments,” in the second, third and fourth quarters of 2012, we entered into swap contracts and put transactions to reduce our exposure to fluctuations in the prices of natural gas and oil, under the California SO#4 PPAs and under the 25 MW PPA for the Puna complex, until December 31, 2013.

Our Electricity Segment revenues are also subject to seasonal variations, as more fully described in the section entitled “Seasonality” below, and may also be affected by higher-than-average ambient temperature, which could cause a decrease in the generating capacity of our power plants, and by unplanned major maintenance activities related to our power plants.

Our PPAs generally provide for the payment of 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 cost, its alternative cost of obtaining energy. 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 win 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 often subject to various contingencies, such as the customer’s ability to raise the necessary financing for a project. As a result, 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 (and at times, extensively) from period to period. In 2011, we experienced a significant increase in our Product Segment customer orders, which has increased our Product Segment backlog. We expect that our Product Segment revenues will remain robust until the end of 2013 as a result of these new orders and increased backlog.

The following table sets forth a breakdown of our revenues for the periods indicated:

 

     Revenues in Thousands      % of Revenues for Period Indicated  
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
         2012              2011              2012              2011              2012             2011             2012             2011      

Revenues:

                    

Electricity

   $ 81,452       $ 86,815       $ 248,710       $ 246,273         59.8     78.3     62.4     78.6

Product

     54,685        24,026        149,616        67,002        40.2       21.7       37.6       21.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 136,137       $ 110,841       $ 398,326       $ 313,275         100.0     100.0     100.0     100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Geographical Breakdown of Revenues

The following table sets forth the geographic breakdown of the revenues attributable to our Electricity and Product Segments for the periods indicated:

 

     Revenues in Thousands      % of Revenues for Period Indicated  
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012      2011      2012      2011          2012             2011             2012             2011      

Electricity Segment:

                    

United States

   $ 59,179       $ 66,951       $ 185,910       $ 188,400         72.7     77.1     74.7     76.5

Foreign

     22,273        19,864        62,800        57,873        27.3       22.9       25.3       23.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 81,452       $ 86,815       $ 248,710       $ 246,273         100.0     100.0     100.0     100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Product Segment:

                    

United States

   $ 11,417       $       $ 11,417       $         20.9     0.0     7.6     0.0

Foreign

     43,268        24,026        138,199        67,002        79.1       100.0       92.4       100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 54,685       $ 24,026       $ 149,616       $ 67,002         100.0     100.0     100.0     100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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 paid for electricity under the PPAs with Southern California Edison in California for the Heber 1 and 2 plants, the Mammoth complex, the Ormesa complex, and the North Brawley plant are higher in the months of June through September. As a result, we receive, and will receive in the future, higher revenues during such months. The prices paid for electricity pursuant to the PPAs of our power plants in Nevada have no significant changes during the year. In the winter, due principally to the lower ambient temperature, our power plants produce more energy and as a result we receive higher energy revenues. However, the higher capacity payments payable by Southern California Edison 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, such as depreciation and amortization, 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 and insurance. In our California power plants, our principal cost of revenues also includes transmission charges, scheduling charges and purchases of make-up water for use in our cooling towers. 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 3.5%, respectively, of total Electricity Segment revenues for the nine months ended September 30, 2012 and 2011, respectively.

 

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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 paid 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, Cash Equivalents, Marketable Securities, and Short-Term Bank Deposit

Our cash, cash equivalents, marketable securities, and short-term bank deposits as of September 30, 2012 decreased to $40.5 million from $118.4 million as of December 31, 2011. This decrease was principally due to: (i) our use of $186.3 million to fund capital expenditures; (ii) repayment of $28.9 million of long-term debt; (iii) $11.0 million of cash paid to the Class B membership units of OPC LLC (OPC) (see “OPC Transaction” below); and (iv) net repayment of $26.6 million to borrowers under our revolving credit lines with commercial banks. The decrease in our cash resources was partially offset by: (i) $62.4 million derived from operating activities during the nine months ended September 30, 2012; and (ii) cash grants in the total amount of $119.2 million received from the U.S. Treasury under Section 1603 of the ARRA in the second and third quarters of 2012 relating to the enhancement of our Puna geothermal complex and to our Jersey Valley, Tuscarora and McGinness Hills geothermal power plants. Our corporate borrowing capacity under committed lines of credit with different commercial banks as of September 30, 2012 was $487.2 million, as described below in the section entitled “Liquidity and Capital Resources,” of which we utilized $401.8 million (including $214.3 million of letters of credit) as of September 30, 2012.

Critical Accounting Estimates and Assumptions

A comprehensive discussion of our critical accounting estimates and assumptions is included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our annual report on Form 10-K for the year ended December 31, 2011.

New Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements.

 

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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 periods described below may be of limited utility mainly because of the following: (i) our recent construction of new power plants and enhancement of existing power plants; and (ii) fluctuation in revenues from our Product Segment.

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  
    

(In thousands, except

per share data)

   

(In thousands, except

per share data)

 

Statements of Operations Historical Data:

        

Revenues:

        

Electricity

   $ 81,452     $ 86,815     $ 248,710     $ 246,273  

Product

     54,685       24,026       149,616       67,002  
  

 

 

   

 

 

   

 

 

   

 

 

 
     136,137       110,841       398,326       313,275  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Electricity

     61,466       57,941       177,350       186,090  

Product

     42,130       17,137       108,575       43,276  
  

 

 

   

 

 

   

 

 

   

 

 

 
     103,596       75,078       285,925       229,366  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin:

        

Electricity

     19,986       28,874       71,360       60,183  

Product

     12,555       6,889       41,041       23,726  
  

 

 

   

 

 

   

 

 

   

 

 

 
     32,541       35,763       112,401       83,909  

Operating expenses:

        

Research and development expenses

     1,436       2,346       3,948       7,128  

Selling and marketing expenses

     3,445       2,940       13,033       9,325  

General and administrative expenses

     6,208       6,269       20,315       20,755  

Impairment charge

     7,264              7,264         

Write-off of unsuccessful exploration activities

                   1,919         
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     14,188       24,208       65,922       46,701  

Other income (expense):

        

Interest income

     280       438       1,004       1,289  

Interest expense, net

     (15,400     (23,909     (44,541     (54,431

Foreign currency translation and transaction gains (losses)

     615       (2,659     (1,127     (1,546

Income attributable to sale of tax benefits

     2,311       2,344       7,417       7,624  

Other non-operating income, net

     215       347       344       465  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in losses of investees

     2,209       769       29,019       102  

Income tax benefit (provision)

     (1,479     305       (11,245     726  

Equity in losses of investees

     (1,245     (71     (1,542     (552
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (515     1,003       16,232       276  

Net income attributable to noncontrolling interest

     (67     (137     (278     (252
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company’s stockholders

   $ (582   $ 866     $ 15,954     $ 24  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share attributable to the Company’s stockholders — basic and diluted

   $ (0.01   $ 0.02     $ 0.35     $ 0.00   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares used in computation of earnings (loss) per share attributable to the Company’s stockholders:

        

Basic

     45,431       45,431       45,431       45,431  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     45,431       45,440       45,438       45,442  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Three Months
Ended September 30,
    Nine Months
Ended September 30,
 
         2012             2011             2012             2011      

Statements of Operations Percentage Data:

        

Revenues:

        

Electricity

     59.8     78.3     62.4     78.6

Product

     40.2       21.7       37.6       21.4  
  

 

 

   

 

 

   

 

 

   

 

 

 
     100.0       100.0       100.0       100.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Electricity

     75.5       66.7       71.3       75.6  

Product

     77.0       71.3       72.6       64.6  
  

 

 

   

 

 

   

 

 

   

 

 

 
     76.1       67.7       71.8       73.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin:

        

Electricity

     24.5       33.3       28.7       24.4  

Product

     23.0       28.7       27.4       35.4  
  

 

 

   

 

 

   

 

 

   

 

 

 
     23.9       32.3       28.2       26.8  

Operating expenses:

        

Research and development expenses

     1.1       2.1       1.0       2.3  

Selling and marketing expenses

     2.5       2.7       3.3       3.0  

General and administrative expenses

     4.6       5.7       5.1       6.6  

Impairment charge

     5.3       0.0       1.8       0.0  

Write-off of unsuccessful exploration activities

     0.0       0.0       0.5       0.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     10.4       21.8       16.5       14.9  

Other income (expense):

        

Interest income

     0.2       0.4       0.3       0.4  

Interest expense, net

     (11.3     (21.6     (11.2     (17.4

Foreign currency translation and transaction gains (losses)

     0.5       (2.4     (0.3     (0.5

Income attributable to sale of tax benefits

     1.7       2.1       1.9       2.4  

Other non-operating income, net

     0.2       0.3       0.1       0.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in losses of investees

     1.6       0.7       7.3       0.0  

Income tax benefit (provision)

     (1.1     0.3       (2.8     0.2  

Equity in losses of investees

     (0.9     (0.1     (0.4     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (0.4     0.9       4.1       0.1  

Net income attributable to noncontrolling interest

     (0.0     (0.1     (0.1     (0.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company’s stockholders

     (0.4 )%      0.8     4.0     0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three Months Ended September 30, 2012 and the Three Months Ended September 30, 2011

Total Revenues

Total revenues for the three months ended September 30, 2012 were $136.1 million, compared to $110.8 million for the three months ended September 30, 2011, which represented a 22.8% increase in total revenues. This increase was principally attributable to our Product Segment, in which revenues increased by 127.6% over the same period last year, principally because of the Mighty River Power Limited order for the Ngatamariki Geothermal Field in New Zealand project and the Enel order for the Cove Fort project referred to below. The increase was partially offset by a 6.2% decrease in our Electricity Segment revenues from the same period last year.

 

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Electricity Segment

Revenues attributable to our Electricity Segment for the three months ended September 30, 2012 were $81.5 million, compared to $86.8 million for the three months ended September 30, 2011, which represented a 6.2% decrease. This decrease was primarily due to: (i) a $9.3 million decrease resulting from the impact of the low natural gas prices on the energy rates under our SO#4 PPAs in California, which in the beginning of May 2012 changed from a fixed rate to a variable rate that is impacted by natural gas prices; and (ii) a net loss of $3.8 million on swap contracts and put transactions on oil prices and put transactions on natural gas prices, which are described above under the heading “Recent Developments”. In the second quarter of 2012 we recorded a net gain in the amount of $3.8 million from these transactions. These transactions are not designated as hedge transactions for accounting purposes. This decrease was partially offset by $7.8 million in revenues from our Tuscarora and McGinness Hills power plants, which commenced commercial operations in January 2012 and July 2012, respectively. The generation in our power plants increased by 11.7%, from 887,069 MWh in the three months ended September 30, 2011, to 990,674 MWh in the three months ended September 30, 2012, and the average revenue rate of our electricity portfolio decreased from $98 per MWh in the three months ended September 30, 2011, to $82 per MWh in the three months ended September 30, 2012. We revised the calculation of the MWh for our Zunil power plant to reflect the change in the energy payment, which since September 2011 has been based on the actual generation of the power plant. The revenues from our North Brawley power plant both in the third quarter of 2012 and in the third quarter of 2011 were $4.0 million.

Product Segment

Revenues attributable to our Product Segment for the three months ended September 30, 2012 were $54.7 million, compared to $24.0 million for the three months ended September 30, 2011, which represented a 127.6% increase. The increase in our Product Segment revenues reflects the increase in new customer orders that we secured in 2011 and 2012, largely attributable to the $130.0 million order we received from Mighty River Power Limited for the Ngatamariki Geothermal Field in New Zealand project and to the $61.4 million order received from Enel for the Cove Fort project in Utah, as described above under the heading “Recent Developments”, both of which are expected to be completed in 2013.

Total Cost of Revenues

Total cost of revenues for the three months ended September 30, 2012 was $103.6 million, compared to $75.1 million for the three months ended September 30, 2011, which represented an increase of 38.0%. This was primarily due to the significant increase in revenues attributable to our Product Segment. As a percentage of total revenues, our total cost of revenues for the three months ended September 30, 2012 was 76.1%, compared to 67.7% for the same period in 2011. The increase in cost of revenues as a percentage of total revenues was attributable to both our Electricity and Product Segments, as described below.

Electricity Segment

Total cost of revenues attributable to our Electricity Segment for the three months ended September 30, 2012 was $61.5 million, compared to $57.9 million for the three months ended September 30, 2011, which represented a 6.1% increase. This increase was primarily due to: (i) additional cost of revenues from our Tuscarora and McGinness Hills power plants which commenced commercial operations in January 2012 and July 2012, respectively; and (ii) an increase of $1.1 million in operation and maintenance costs associated with our North Brawley power plant (from $7.5 million in the third quarter of 2011 to $8.6 million in the third quarter of 2012). As a percentage of total electricity revenues, the total cost of revenues attributable to our Electricity Segment for the three months ended September 30, 2012 was 75.5%, compared to 66.7% for the three months ended September 30, 2011. This increase in Electricity Segment cost of revenues as a percentage of total electricity revenues is mainly attributable to the decrease in the average rate of our electricity revenues as discussed above, and the increase in the volume of electricity produced.

 

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Product Segment

Total cost of revenues attributable to our Product Segment for the three months ended September 30, 2012 was $42.1 million, compared to $17.1 million for the three months ended September 30, 2011, which represented a 145.8% increase. This increase is attributable to a significant increase in revenues in this segment. As a percentage of total Product Segment revenues, our total cost of revenues attributable to this segment for the three months ended September 30, 2012 was 77.0%, compared to 71.3% for the three months ended September 30, 2011. This increase in Product Segment cost of revenues as a percentage of total product revenues is mainly attributable to a different product mix and different margins in the various sales contracts.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2012 were $1.4 million, compared to $2.3 million for the three months ended September 30, 2011, which represented a 38.8% decrease. This decrease reflects normal fluctuations in our research and development activities. Our research and development activities during the three months ended September 30, 2012 included: (i) continued development of Enhanced Geothermal Systems (EGS); and (ii) activities intended to improve plant performance, reduce costs, and increase the breadth of product offerings. These activities include developing: (i) improvements to our Evaporative Cooling system; (ii) condensing equipment with improved performance and lower land usage; (iii) new turbine products; and (iv) specialized power units designed to reduce fuel consumption and associated costs during a project’s development phase.

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended September 30, 2012 were $3.4 million, compared to $2.9 million for the three months ended September 30, 2011, which represented a 17.2% increase. The increase reflects additional selling and marketing expenses associated with the increased Product Segment revenues. Selling and marketing expenses for the three months ended September 30, 2012 constituted 2.5% of total revenues, compared to 2.7% for the three months ended September 30, 2011.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2012 were $6.2 million, compared to $6.3 million for the three months ended September 30, 2011, which represented a 1.0% decrease. General and administrative expenses for the three months ended September 30, 2012 constituted 4.6% of total revenues, compared to 5.7% for the three months ended September 30, 2011.

Impairment Charge

During the third quarter of 2012, OREG 4, which generates electricity using recovered heat and has a carrying value of $10.9 million, was tested for recoverability due to continued low output and was written down to its fair value of $3.6 million. The impairment loss of $7.3 million is presented in our condensed consolidated statement of operations and comprehensive income (loss) under “Impairment Charge”.

We evaluate long-lived assets, including power plants, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such evaluations include estimates of future cash flows. If actual cash flows differ significantly from our current estimates, a material impairment charge may be required in the future.

Operating Income

Operating income for the three months ended September 30, 2012 was $14.2 million, compared to $24.2 million for the three months ended September 30, 2011. The decrease of $10.0 million in operating income was principally attributable to: (i) impairment loss in the amount of $7.3 million as described above; and (ii) a decrease in our electricity gross margin. Operating income attributable to our Electricity Segment for the three months ended September 30, 2012 was $6.8 million, compared to $21.1 million for the three months ended

 

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September 30, 2011. Operating income attributable to our Product Segment for the three months ended September 30, 2012 was $7.4 million, compared to $3.1 million for the three months ended September 30, 2011. The increase in operating income attributable to our Product Segment was primarily due to an increase in our product revenues, as described above.

Interest Expense, Net

Interest expense, net for the three months ended September 30, 2012 was $15.4 million, compared to $23.9 million for the three months ended September 30, 2011, which represented a 35.6% decrease. The decrease was primarily attributable to an $11.6 million loss in the three months ended September 30, 2011 on interest lock transactions relating to the OFC 2 Senior Secured Notes, which were not accounted for as hedge transactions. The decrease was partially offset by additional interest expense, mainly as a result of the issuance of Series A Senior Secured Notes in October 2011 by OFC 2 LLC (OFC 2).

Foreign Currency Translation and Transaction Gains (Losses)

Foreign currency translation and transaction gains for the three months ended September 30, 2012 were $0.6 million, compared to losses of $2.7 million for the three months ended September 30, 2011. The $3.3 million increase is primarily due to gains on forward foreign exchange transactions for the three months ended September 30, 2012, which were not accounted for as hedge transactions, compared to losses in the three months ended September 30, 2011.

Income Attributable to Sale of Tax Benefits

Income attributable to the sale of tax benefits to institutional equity investors (as described under the heading “OPC Transaction” below) for the three months ended September 30, 2012 and 2011 was $2.3 million. This income represents the value of PTCs and taxable income or loss generated by OPC and allocated to the investors.

Income Taxes

Income tax provision for the three months ended September 30, 2012 was $1.5 million, compared to income tax benefit of $0.3 million for the three months ended September 30, 2011. The increase in income tax provision primarily resulted from the increase in income before taxes and from the increase in the valuation allowance against our U.S. deferred tax assets in respect of net operating loss (NOL) carryforwards and unutilized tax credits. The effective tax rate for the three months ended September 30, 2012 was 67.0%, compared to 39.7% for the three months ended September 30, 2011. The increase in the effective tax rate primarily resulted from the increase in the valuation allowance referred to above.

Net Income (Loss)

Net loss for the three months ended September 30, 2012 was $0.5 million, compared to net income of $1.0 million for the three months ended September 30, 2011. The decrease in net income of $1.5 million was principally attributable to: (i) a $10.0 million decrease in operating income; (ii) a $1.8 million increase in income tax provision. The decrease was partially offset by: (i) a $3.3 million decrease in foreign currency transaction losses and (ii) an $8.5 million decrease in interest expense, net of capitalized interest.

 

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Comparison of the Nine Months Ended September 30, 2012 and the Nine Months Ended September 30, 2011

Total Revenues

Total revenues for the nine months ended September 30, 2012 were $398.3 million, compared to $313.3 million for the nine months ended September 30, 2011, which represented a 27.1% increase in total revenues. This increase was principally attributable to our Product Segment, in which revenues increased by 123.3% over the same period last year, principally because of the Mighty River Power Limited order for the Ngatamariki Geothermal Field in New Zealand project referred to below.

Electricity Segment

Revenues attributable to our Electricity Segment for the nine months ended September 30, 2012 were $248.7 million, compared to $246.3 million for the nine months ended September 30, 2011, which represented a 1.0% increase. This increase was primarily due to: (i) $14.1 million in revenues from our Tuscarora and McGinness Hills power plants, which commenced commercial operations in January 2012 and July 2012, respectively; and (ii) an $5.2 million net increase in revenues from our other power plants. This increase was partially offset by a $16.9 million decrease resulting from the impact of low natural gas prices on the energy rates in our SO#4 PPAs in California, which in the beginning of May 2012 changed from a fixed rate to a variable rate that is subject to the impact of fluctuations in natural gas prices. The generation in our power plants increased by 5.3%, from 2,871,819 MWh in the nine months ended September 30, 2011, to 3,024,738 MWh in the nine months ended September 30, 2012, and the average revenue rate of our electricity portfolio decreased from $86 per MWh in the nine months ended September 30, 2011, to $82 per MWh in the nine months ended September 30, 2012. We revised the calculation of the MWh for our Zunil power plant to reflect the change in the energy payment, which is based, since September 2011, on the actual generation of the power plant. The revenues from our North Brawley power plant in the nine months ended September 30, 2012 decreased to $11.8 million from $12.7 million during the same period in 2011.

Product Segment

Revenues attributable to our Product Segment for the nine months ended September 30, 2012 were $149.6 million, compared to $67.0 million for the nine months ended September 30, 2011, which represented a 123.3% increase. The increase in our Product Segment revenues reflects the increase in new customer orders that we secured in 2011, largely attributable to the $130.0 million order we received from Mighty River Power Limited for the Ngatamariki Geothermal Field in New Zealand, which project is underway in 2012 and is expected to be completed in 2013.

Total Cost of Revenues

Total cost of revenues for the nine months ended September 30, 2012 was $285.9 million, compared to $229.4 million for the nine months ended September 30, 2011, which represented an increase of 24.7%. This was primarily due to the significant increase in revenues attributable to our Product Segment. As a percentage of total revenues, our total cost of revenues for the nine months ended September 30, 2012 was 71.8%, compared to 73.2% for the same period in 2011. The decrease in cost of revenues as a percentage of total revenues was attributable to the decrease in total cost of revenues in our Electricity Segment.

Electricity Segment

Total cost of revenues attributable to our Electricity Segment for the nine months ended September 30, 2012 was $177.4 million, compared to $186.1 million for the nine months ended September 30, 2011, which represented a 4.7% decrease. The cost per MWh in the nine months ended September 30, 2012 was lower than in the same period in 2011, as a result of lower maintenance costs in most of our power plants and specifically at

 

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North Brawley, where we incurred costs of $23.2 million associated with operating and maintaining the plant in the nine months ended September 30, 2012, compared to $32.1 million in the nine months ended September 30, 2011. We were able to improve our operating efficiencies specifically in the maintenance of our well fields. As a percentage of total electricity revenues, the total cost of revenues attributable to our Electricity Segment for the nine months ended September 30, 2012 was 71.3%, compared to 75.6% for the nine months ended September 30, 2011.

Product Segment

Total cost of revenues attributable to our Product Segment for the nine months ended September 30, 2012 was $108.6 million, compared to $43.3 million for the nine months ended September 30, 2011, which represented a 150.9% increase. As a percentage of total Product Segment revenues, our total cost of revenues attributable to this segment for the nine months ended September 30, 2012 was 72.6%, compared to 64.6% for the nine months ended September 30, 2011. This increase in Product Segment cost of revenues as a percentage of total product revenues is mainly attributable to: (i) the recognition of revenues in the amount of $3.0 million relating to an LNG energy recovery unit in Spain in the nine months ended September 30, 2012, with virtually no associated cost of revenues, since the related costs were included in research and development costs in previous periods, compared to $7.9 million in the same period last year; (ii) a different product mix; and (iii) different margins in the various sales contracts.

Research and Development Expenses

Research and development expenses for the nine months ended September 30, 2012 were $3.9 million, compared to $7.1 million for the nine months ended September 30, 2011, which represented a 44.6% decrease. This decrease was primarily attributable to the costs incurred in the nine months ended September 30, 2011 in respect of an experimental LNG energy recovery unit which was completed in 2011. Our research and development activities during the nine months ended September 30, 2012 included: (i) continued development of Enhanced Geothermal Systems (EGS); and (ii) activities intended to improve plant performance, reduce costs, and increase the breadth of product offerings. These activities include developing: (i) improvements to our Evaporative Cooling system; (ii) condensing equipment with improved performance and lower land usage; (iii) new turbine products; and (iv) specialized power units designed to reduce fuel consumption and associated costs during a project’s development phase.

Selling and Marketing Expenses

Selling and marketing expenses for the nine months ended September 30, 2012 were $13.0 million, compared to $9.3 million for the nine months ended September 30, 2011, which represented a 39.8% increase. The increase reflects additional selling and marketing expenses associated with the increased Product Segment revenues. Selling and marketing expenses for the nine months ended September 30, 2012 constituted 3.3% of total revenues, compared to 3.0% for the nine months ended September 30, 2011.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2012 were $20.3 million, compared to $20.8 million for the nine months ended September 30, 2011. General and administrative expenses for the nine months ended September 30, 2012 constituted 5.1% of total revenues, compared to 6.6% for the nine months ended September 30, 2011.

Impairment Charge

During the third quarter of 2012, the OREG 4 power plant (OREG 4), which generates electricity using recovered heat and has a carrying value of $10.9 million, was tested for recoverability due to continued low

 

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output and was written down to its fair value of $3.6 million. The impairment loss of $7.3 million is presented in our condensed consolidated statement of operations and comprehensive income (loss) under “Impairment Charge”.

Write-off of Unsuccessful Exploration Activities

Write-off of unsuccessful exploration activities for the nine months ended September 30, 2012 was $1.9 million. This represented the write-off of exploration costs related to several projects in Nevada, which we determined in the nine months ended September 30, 2012 would not support commercial operations. We did not have a write-off of unsuccessful exploration activities in the nine months ended September 30, 2011.

We evaluate long-lived assets, including power plants, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such evaluations include estimates of future cash flows. If actual cash flows differ significantly from our current estimates, a material impairment charge may be required in the future.

Operating Income

Operating income for the nine months ended September 30, 2012 was $65.9 million, compared to $46.7 million for the nine months ended September 30, 2011. The increase of $19.2 million in operating income was principally attributable to an increase in our gross margin due to the increase in revenues, as described above, offset by the impairment loss in the amount of $7.3 million, as described above. Operating income attributable to our Electricity Segment for the nine months ended September 30, 2012 was $40.9 million, compared to $34.9 million for the nine months ended September 30, 2011. Operating income attributable to our Product Segment for the nine months ended September 30, 2012 was $25.1 million, compared to $11.8 million for the nine months ended September 30, 2011.

Interest Expense, Net

Interest expense, net for the nine months ended September 30, 2012 was $44.5 million, compared to $54.4 million for the nine months ended September 30, 2011, which represented an 18.2% decrease. The decrease is primarily due to: (i) a $16.4 million loss, in the nine months ended September 30, 2011, on interest lock transactions relating to the OFC 2 Senior Secured Notes, which were not accounted for as hedge transactions; and (ii) an increase of $1.0 million in interest capitalized to projects as a result of increased aggregate investment in projects under construction, offset by additional interest expense mainly as a result of the issuance of Series A Senior Secured Notes in October 2011 by OFC 2 LLC (OFC 2) and the full period impact in 2012 of the issuance of Senior Unsecured Bonds.

Foreign Currency Translation and Transaction Gains (Losses)

Foreign currency translation and transaction losses for the nine months ended September 30, 2012 were $1.1 million, compared to $1.5 million for the nine months ended September 30, 2011. The $0.4 million decrease is primarily due to a decrease in losses on forward foreign exchange transactions for the nine months ended September 30, 2012, which were not accounted for as hedge transactions, compared to the nine months ended September 30, 2011.

Income Attributable to Sale of Tax Benefits

Income attributable to the sale of tax benefits to institutional equity investors (as described under the heading “OPC Transaction” below) for the nine months ended September 30, 2012 was $7.4 million, compared to $7.6 million for the nine months ended September 30, 2011. This income represents the value of PTCs and taxable income or loss generated by OPC and allocated to the investors. The decrease is due to lower depreciation for tax purposes as a result of declining depreciation rates utilizing the Modified Accelerated Cost Recovery System (MACRS).

 

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Income Taxes

Income tax provision for the nine months ended September 30, 2012 was $11.2 million, compared to income tax benefit of $0.7 million for the nine months ended September 30, 2011. The increase in income tax provision primarily resulted from the increase in income before taxes and from the increase in the valuation allowance against our U.S. deferred tax assets in respect of NOL carryforwards and unutilized tax credits. The effective tax rate for the nine months ended September 30, 2012 was 38.8%, compared to 711.8% for the nine months ended September 30, 2011. The decrease in the effective tax rate primarily resulted from the increase in the income before taxes, offset by the increase in the valuation allowance referred to above.

Net Income

Net income for the nine months ended September 30, 2012 was $16.2 million, compared to $0.3 million for the nine months ended September 30, 2011. The increase in net income of $16.0 million was principally attributable to: (i) a $19.2 million increase in operating income; and (ii) a $9.9 million decrease in interest expense, net of capitalized interest. The increase was partially offset by a $12.0 million increase in income tax provision.

Liquidity and Capital Resources

Our principal sources of liquidity have been derived from cash flows from operations, the issuance of our common stock in public and private offerings, proceeds from third-party debt in the form of borrowings under credit facilities and private offerings, issuances by our subsidiaries, Ormat Funding Corp. (OFC), OrCal Geothermal Inc. (OrCal), and OFC 2 LLC (OFC 2), of their respective Senior Secured Notes, project financing (including the Puna lease and the OPC Transaction described below), and cash grants we received under the ARRA. We have utilized this cash to fund our acquisitions, to develop and construct power generation plants, and to meet our other cash and liquidity needs.

As of September 30, 2012, we have access to: (i) $40.5 million in cash, cash equivalents and marketable securities; and (ii) $85.4 million of unused corporate borrowing capacity under existing committed lines of credit with different commercial banks.

Our estimated capital needs for the remainder of 2012 are approximately $70.0 million for capital expenditures on new projects in development or construction, exploration activity, operating projects, and machinery and equipment, as well as $26.6 million for debt repayment.

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 the OPIC Loan described below under the heading “New Financing of Our Projects”). Management believes that these sources will meet 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 the heading “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 under the heading “Full-Recourse Third-Party Debt”.

Non-Recourse and Limited-Recourse Third-Party Debt

OFC Senior Secured Notes — Non-Recourse

On February 13, 2004, OFC, one of our subsidiaries, issued $190.0 million, 8  1 / 4 % Senior Secured Notes (OFC Senior Secured Notes) in an offering subject to Rule 144A and Regulation S of the Securities Act of 1933,

 

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as amended (the Securities Act), for the purpose of refinancing the acquisition cost of the Brady, Ormesa and Steamboat 1 and 1A power plants, and the financing of the acquisition cost of the Steamboat 2 and 3 power plants. 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 (which are measured semi-annually as of June 30 and December 31 of each year). If OFC fails to comply with the DSCR ratios it will be precluded from making distributions to its shareholders. We expect that the transition to variable energy prices under the Ormesa and Mammoth PPAs and the impact of the currently low natural gas prices on our revenues will cause OFC to be below DSCR requirements for distributions, but we do not expect an event of default by OFC. As of June 30, 2012 (the last measurement date of the covenants), the actual historical 12-month DSCR was 1.66. As of September 30, 2012, there were $119.7 million of OFC Senior Secured Notes outstanding.

OrCal Secured Notes — Non-Recourse

On December 8, 2005, OrCal, one of our subsidiaries, issued $165.0 million, 6.21% Senior Secured Notes (OrCal Senior Secured Notes) in an offering subject to Rule 144A and Regulation S of the Securities Act, for the purpose of refinancing the acquisition cost of the Heber power plants. 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 (which are measured semi-annually as of June 30 and December 31 of each year). If OrCal fails to comply with the DSCR ratios it will be precluded from making distributions to its shareholders. As of June 30, 2012 (the last measurement date of the covenants), the actual historical 12-month DSCR was 2.04. As of September 30, 2012, there were $83.7 million of OrCal Senior Secured Notes outstanding.

OFC 2 Senior Secured Notes — Limited-Recourse during Construction and Non-Recourse Thereafter

On September 23, 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 U. S. Department of Energy (DOE), as guarantor, in connection with the offer and sale of up to $350.0 million aggregate principal amount of Senior Secured Notes due December 31, 2034 (OFC 2 Senior Secured Notes).

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 facilities owned by the 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 in accordance with an amortization schedule attached to such Notes 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

 

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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 their guarantee of the OFC 2 Senior Secured Notes.

On October 31, 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 $147.4 million, and were used to finance a portion of the construction costs of Phase I of the McGinness Hills and Tuscarora facilities 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.

Issuance of the next series of notes, the Series B Notes, is dependent on the Jersey Valley facility reaching certain operational targets in addition to the other conditions precedent noted above. If issued, the aggregate principal amount of the Series B Notes will not exceed $28.0 million, and such proceeds will be used to finance a portion of the construction costs of Phase I of the Jersey Valley facility.

The OFC 2 Issuers have sole discretion regarding whether to commence construction of Phase II of any of the Jersey Valley, McGinness Hills and Tuscarora facilities. If Phase II construction is undertaken for any of the facilities, the OFC 2 Issuers may issue Phase II tranches of Notes, comprised of one or more of Series C Notes, Series D Notes, Series E Notes and Series F Notes, to finance a portion of the construction costs of such Phase II of any facility. The aggregate principal amount of all Phase II Notes may not exceed $170.0 million. The aggregate principal amount of each series of Notes comprising a Phase II tranche will be determined by the OFC 2 Issuers in their sole discretion provided that certain financial ratios are satisfied pursuant to the terms of the Note Purchase Agreement and subject to the aggregate limit noted above.

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 DSCR requirement of at least 1.2 (on a blended basis for all of the OFC 2 facilities) and 1.5 on a pro forma basis (giving effect to the distributions). As of September 30, 2012, the actual DSCR from the operation date was 1.29 and the pro-forma 12-month DSCR was 2.15.

In addition, in connection with the issuance of each series of OFC 2 Senior Secured Notes, we will provide a guarantee with respect to the OFC 2 Senior Secured Notes, which will be available to be drawn upon if specific 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.

As of September 30, 2012, there were $151.2 million of OFC 2 Senior Secured Notes outstanding.

Olkaria III Loan — Non-Recourse

One of our subsidiaries, OrPower 4, Inc. (OrPower 4), has a project financing loan of $105.0 million which refinanced its investment in the 48 MW Olkaria III complex located in Kenya. The loan was provided by a group

 

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of European Development Finance Institutions (DFIs) arranged by DEG — Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG). The 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%, except with respect to $77.0 million of the loan that has a fixed interest rate of 6.90% per annum. There are various restrictive covenants under the loan, including a requirement to comply with the following financial ratios for each calculation period (measured as of June 15 and December 15 of each year): (i) an historical and projected 6-month DSCR of not less than 1.15; (ii) a debt to equity (including shareholder’s loan) ratio which does not exceed 3.0; and (iii) an equity (including shareholder’s loan) to total assets ratio of not less than 0.25. If OrPower 4 fails to comply with these financial ratios it will be precluded from making distributions to its shareholders. In addition, subject to certain cure rights, such failure will constitute an event of default by OrPower 4. As of June 15, 2012 (the last measurement date of the covenants): (i) the actual 6-month historical DSCR was 2.37; (ii) the debt to equity ratio was 0.52; and (iii) the equity to total assets ratio was 0.56. As of September 30, 2012, $71.8 million of the Olkaria III loan was outstanding.

We plan to refinance the existing Olkaria III Loan as described under “New Financing of Our Projects” below.

Amatitlan Loan — Non-Recourse

One of our subsidiaries, Ortitlan Limitada (Ortitlan), 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 TCW Global Project Fund II, Ltd. (TCW). The loan will mature on June 15, 2016, and is payable in 28 quarterly installments, which commenced on September 15, 2009. The annual interest rate on the loan is 9.83%, but the effective cost for us is approximately 8%, due to the elimination, following this refinancing, of the political risk insurance premiums that we had been paying on our equity investment in the project. There are various restrictive covenants under the loan, which include: (i) a projected 12-month DSCR of not less than 1.2; and (ii) a long-term debt to equity ratio not to exceed 4.0 (both of which are measured quarterly). If Ortitlan fails to comply with these financial ratios it will be precluded from making distributions to its shareholders. In addition, subject to certain cure rights, such failure will constitute an event of default by Ortitlan. As of September 30, 2012, the projected 12-month DSCR was 1.57 and the debt to equity ratio was 2.24. As of September 30, 2012, $34.9 million of the Amatitlan loan was outstanding .

New Financing of Our Projects

Refinancing of the Olkaria III Loan and Financing of the Construction of the Olkaria III Complex Expansion

On August 23, 2012, OrPower 4 entered into a Finance Agreement with the 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 our Olkaria III geothermal power complex in Kenya.

The OPIC Loan is comprised of up to three tranches:

 

   

Tranche I in an aggregate principal amount of up to $85.0 million will be used to prepay approximately $20.5 million (plus associated prepayment penalty and breackage costs of $1.5 million) of the $71.8 million outstanding debt provided by a group of European DFIs arranged by DEG, which was incurred to finance a portion of the construction costs of the existing Plant 1 at the Olkaria III complex, as described under “Olkaria III Loan —Non-Recourse” above. The remainder of Tranche I proceeds will be used for reimbursement of prior capital costs and other corporate purposes.

 

   

Tranche II in an aggregate principal amount of up to $180.0 million, will be used to fund the construction and well field drilling for the expansion of the Olkaria III geothermal power complex to up to 84 MW (Plant 2).

 

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Tranche III is a stand-by tranche in an aggregate principal amount of up to $45.0 million, and will be made available to OrPower 4 in the event it elects, in its discretion, to construct a further expansion of the Olkaria III complex of up to an additional 16 MW (Plant 3). Terms and conditions for Tranche III of the OPIC Loan will be agreed by OPIC and OrPower 4 in subsequent documentation.

It is expected that both Tranche I and Tranche II will initially bear interest at a floating rate from the date of disbursement until a conversion date selected by OrPower 4, whereupon interest on each Tranche will convert to a fixed rate. Interest, whether floating or fixed, will be payable quarterly in arrears on each March 15, June 15, September 15 and December 15, commencing with the first such date following the respective disbursement of a Tranche. OrPower 4 is required to select a conversion date that will be a date occurring between the commercial operation date of Plant 2 and the date that is 180 days after such commercial operation date.

In each case, the applicable Tranche interest rate will be determined at the time of the actual disbursement of loan proceeds based upon, and in connection with the issuance of certificates of participation in the OPIC Loan. The payment of principal and interest on the certificates of participation will be fully guaranteed to the purchasers thereof by OPIC. The OPIC guarantee is backed by the full faith and credit of the U.S. government.

The final maturity of Tranche I and Tranche II is approximately 18 years.

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, reducing to 1% in the third year after the Plant 2 commercial operation date, and without premium thereafter. In addition, the OPIC Loan is subject to customary mandatory prepayment requirements, including from insurance and condemnation proceeds and from asset sales above certain thresholds. The OPIC Loan is also subject to mandatory prepayment to the extent required to maintain a projected ratio of cash flow to debt service of 1.7:1, in the event of certain reductions in the generation capacity of the geothermal power plants.

The OPIC Loan is secured by a security interest over substantially all of OrPower 4’s assets and by a pledge of all of the equity interests in OrPower 4. The conditions to disbursement under the Finance Agreement include a requirement that the existing security interests in favor of the third party lenders that financed a portion of the construction costs of Plant 1 be discharged and released such that the security interests granted in favor of OPIC will constitute perfected first priority security interests.

The Finance Agreement contains customary representations and warranties, and customary affirmative and negative covenants applicable to OrPower 4. The affirmative covenants include, among others, a historic and projected ratio of cash flow to debt service of 1.1:1.0, maintenance of business, corporate existence, insurance, property rights, and books and records. The negative covenants, include, among others, limitations on OrPower 4’s ability to incur other indebtedness, pay dividends, make repurchases of equity, merge or consolidate with another person, or grant liens on the collateral securing the OPIC Loan.

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 debt provided by the group of European DFIs, in the amount of approximately $51.3 million, has been subordinated to the OPIC Loan. OrPower 4 and the remaining DFI lenders have amended and restated the relevant loan and collateral security documents to effect the subordination and release the security previously supporting the DFI loans. In exchange, we have provided a corporate guaranty to the remaining DFI lenders, with respect to the payment obligations of OrPower 4 on the remaining subordinated loan.

 

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Full-Recourse Third-Party Debt

Union Bank. On February 7, 2012, Ormat Nevada entered into an amended and restated credit agreement with Union Bank, N.A. (Union Bank). Under the amended and restated agreement, the credit termination date was extended to February 7, 2014 and the aggregate amount available under the credit agreement was increased 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, we have 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, 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 September 30, 2012: (i) the actual 12-month debt to EBITDA ratio was 3.58; (ii) the 12-month DSCR was 2.07; and (iii) the distribution leverage ratio was 0.77. 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 September 30, 2012, letters of credit in the aggregate amount of $42.3 million remain issued and outstanding under this credit agreement with Union Bank.

Credit Agreements. We also have credit agreements with five other commercial banks for an aggregate amount of $437.2 million. Under the terms of these credit agreements, we, or our Israeli subsidiary, Ormat Systems Ltd. (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 $332.2 million; and (ii) the issuance of one or more letters of credit in the amount of up to $105.0 million. The credit agreements mature between December 2012 and December 2014. 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. Credit agreements in the amount of $65.0 million are due to expire in the fourth quarter of 2012. We are currently negotiating the extension of these credit agreements.

As of September 30, 2012, loans in the total amount of $187.5 million were outstanding, and letters of credit with an aggregate stated amount of $172.0 million were issued and outstanding under these credit agreements. The $187.5 million in loans are for terms of three months or less and bear interest at a weighted average rate of 2.9%.

Term Loans. We have a $20.0 million term loan with a group of financial institutions, which matures on July 16, 2015, is payable in 12 semi-annual installments that commenced January 16, 2010, and bears interest of 6.5%. As of September 30, 2012, $11.0 million was outstanding under this loan.

We have a $20.0 million term loan with a group of financial institutions, which matures on August 1, 2017, is payable in 12 semi-annual installments that commenced February 1, 2012, and bears interest at 6-month LIBOR plus 5.0%. As of September 30, 2012, $16.7 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 10 semi-annual installments that commenced May 16, 2012, and bears interest of 5.75%. As of September 30, 2012, $18.0 million was outstanding under this loan.

We have a $50.0 million term loan with a commercial bank, which matures on November 10, 2014, is payable in 10 semi-annual installments that commenced May 10, 2010, and bears interest at 6-month LIBOR plus 3.45%. As of September 30, 2012, $25.0 million was outstanding under this loan.

 

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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 7.0%, 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% per annum. We issued the bonds outside the United States to investors who are not “U.S. persons” in an unregistered offering pursuant to, and subject to the requirements of, Regulation S under the Securities Act.

Our obligations under the credit agreements, the term 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, 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, 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 marketable securities to Adjusted EBITDA ratio not to exceed 7.0; and (iii) dividend distributions not to exceed 35% of net income for that year. 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 of September 30, 2012: (i) total equity was $923.2 million and the actual equity to total assets ratio was 40.9%; (ii) the 12-month debt, net of cash, cash equivalents and marketable securities to Adjusted EBITDA ratio was 4.8; and (iii) dividend distributions were less than 35% of net income for the first nine months of 2012.

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 plan of 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, 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 September 30, 2012, letters of credit in the aggregate amount of $248.2 million remained issued and outstanding (out of which $214.3 million were issued under the credit agreements with Union Bank and five of the commercial banks as described under “Full-Recourse Third-Party Debt” above and $33.9 million were issued under non-committed lines of credit).

Puna Complex Lease Transactions

On May 19, 2005, our subsidiary in Hawaii, Puna Geothermal Venture (PGV), entered into a transaction involving the Puna geothermal power plant 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

 

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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 LLC (OPC), entitling the investors to certain tax benefits (such as PTCs and accelerated depreciation) and distributable cash associated with four geothermal power plants.

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 recovers the capital that it 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 Flip Date), Ormat Nevada will receive 95% of both distributable cash and taxable income, on a going forward basis. Following the 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, as described in the paragraph below, 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 Flip Date. The actual 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. The Class B membership units are currently held by Morgan Stanley Geothermal LLC and JPM Capital Corporation.

Our voting rights in OPC are based on a capital structure that is comprised of Class A and Class B membership units. Through our subsidiary, Ormat Nevada, we own 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 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 Flip Date, Ormat Nevada’s voting rights will increase to 95% and the investors’ voting rights will decrease to 5%. Ormat Nevada retains the controlling voting interest in OPC both before and after the Flip Date and therefore consolidates OPC.

Liquidity Impact of Uncertain Tax Positions

As discussed in Note 10 to our condensed consolidated financial statements set forth in Item 1 of this quarterly report, we have a liability associated with unrecognized tax benefits and related interest and penalties in the amount of approximately $7.1 million as of September 30, 2012. 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.

 

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Dividends

The following are the dividends declared by us during the past two years:

 

Date Declared

   Dividend
Amount
per  Share
    

Record Date

  

Payment Date

November 2, 2010

   $ 0.05       November 17, 2010    November 30, 2010

February 22, 2011

   $ 0.05       March 15, 2011    March 24, 2011

May 4, 2011

   $ 0.04       May 18, 2011    May 25, 2011

August 3, 2011

   $ 0.04       August 16, 2011    August 25, 2011

May 8, 2012

   $ 0.04       May 21, 2012    May 30, 2012

August 1, 2012

   $ 0.04       August 14, 2012    August 23, 2012

Historical Cash Flows

The following table sets forth the components of our cash flows for the relevant periods indicated:

 

     Nine Months Ended September 30,  
             2012                     2011          
     (In thousands)  

Net cash provided by operating activities

   $ 62,384     $ 98,514  

Net cash used in investing activities

     (53,611     (238,186

Net cash provided by (used in) financing activities

     (71,135     115,934  

Net change in cash and cash equivalents

     (62,362     (23,738

For the Nine Months Ended September 30, 2012

Net cash provided by operating activities for the nine months ended September 30, 2012 was $62.4 million, compared to $98.5 million for the nine months ended September 30, 2011. The net decrease of $36.1 million resulted primarily from: (i) an increase in receivables of $29.7 million in the nine months ended September 30, 2012, compared to a decrease of $2.6 million in the nine months ended September 30, 2011, as a result of timing of collections from our customers; (ii) a decrease in billing in excess of costs and estimated earnings on uncompleted contracts, net of $4.3 million relating to our Product Segment in the nine months ended September 30, 2012, compared to an increase of $35.1 million in the nine months ended September 30, 2011, as a result of timing in billing of our customers; and (iii) an unrealized loss on interest rate lock transactions of $11.1 million in the nine months ended September 30, 2011. Such increase was partially offset by: (i) an increase in net income to $16.2 million in the nine months ended September 30, 2012, from $0.3 million in the nine months ended September 30, 2011, mainly as a result of an increase in our operating income as described above; (ii) an increase in accounts payable and accrued expenses of $9.5 million in the nine months ended September 30, 2012, compared to a decrease of $9.6 million in the nine months ended September 30, 2011, as a result of timing of payments to our vendors; (iii) an increase in deferred income tax provision, net of $5.9 million in the nine months ended September 30, 2012, compared to a decrease of $1.8 million in the nine months ended September 30, 2011; and (iv) an impairment charge of $7.3 million in the nine months ended September 30, 2012.

Net cash used in investing activities for the nine months ended September 30, 2012 was $53.6 million, compared to $238.2 million for the nine months ended September 30, 2011. The principal factors that affected our net cash used in investing activities during the nine months ended September 30, 2012 were capital expenditures of $186.3 million, primarily for our facilities under construction, offset by: (i) cash grant in the amount of $119.2 million received in the nine months ended September 30, 2012 from the U.S. Treasury under Section 1603 of the ARRA relating to the enhancement of our Puna geothermal complex and to our Jersey Valley, Tuscarora, and McGinness Hills geothermal power plants; and (ii) net decrease of $18.8 million in marketable securities. The principal factors that affected our net cash used in investing activities during the nine

 

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months ended September 30, 2011 were: (i) capital expenditures of $180.8 million, primarily for our facilities under construction; (ii) net increase of $36.9 million in restricted cash, cash equivalents and marketable securities; and (iii) net increase of $20.3 million in marketable securities.

Net cash used in financing activities for the nine months ended September 30, 2012 was $71.1 million, compared to net cash provided by financing activities of $115.9 million for the nine months ended September 30, 2011. The principal factors that affected the net cash used in financing activities during the nine months ended September 30, 2012 were: (i) a net decrease of $26.6 million against our revolving lines of credit with commercial banks; (ii) the repayment of long-term debt in the amount of 28.9 million; (iii) $11.0 million of cash paid to the Class B membership units of OPC (see “OPC Transaction” above); and (iv) the payment of a dividend to our shareholders in the amount of $3.6 million. The principal factors that affected our net cash provided by financing activities during the nine months ended September 30, 2011 were: (i) the issuance of an aggregate amount of approximately $107.4 million Senior Unsecured Bonds in February 2011; and (ii) proceeds from the sale of all of the Class B membership units of OPC acquired on October 30, 2009 for a sale price of $24.9 million; and (iii) a net increase of $31.9 million against our revolving lines of credit with commercial banks, offset by: (i) the repayment of long-term debt in the amount of $26.0 million; (ii) $10.8 million of cash paid to the Class B membership units of OPC; and (iii) the payment of a dividend to our shareholders in the amount of $5.9 million.

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, excluding impairment of long-lived assets. EBITDA and adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the United States of America (GAAP) 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 GAAP. EBITDA and adjusted EBITDA are presented because we believe they 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 three months ended September 30, 2012 was $48.2 million, compared to $46.7 million for the three months ended September 30, 2011. Adjusted EBITDA for the nine months ended September 30, 2012 was $150.5 million, compared to $121.6 million for the nine months ended September 30, 2011.

 

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The following table reconciles net cash provided by operating activities to EBITDA and adjusted EBITDA for the three and nine-month periods ended September 30, 2012 and 2011:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  
     (In thousands)     (In thousands)  

Net cash provided by (used in) operating activities

   $ (9,695   $ 59,008     $ 62,384     $ 98,514  

Adjusted for:

        

Interest expense, net (excluding amortization of deferred financing costs)

     14,202       23,222       40,931       52,046  

Interest income

     (280     (438     (1,004     (1,289

Income tax provision (benefit)

     1,779       (305     11,545       (726

Adjustments to reconcile net income or loss to net cash provided by operating activities (excluding depreciation and amortization)

     34,936       (34,749     29,361       (26,977
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     40,942       46,738       143,217       121,568  

Impairment charge

     7,264              7,264         
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 48,206     $ 46,738     $ 150,481     $ 121,568  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

   $ 13,417     $ (102,445   $ (53,611   $ (238,186
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

   $ (32,882   $ 58,176     $ (71,135   $ 115,934  
  

 

 

   

 

 

   

 

 

   

 

 

 

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.

Carson Lake Project. We plan to develop the 20 MW Carson Lake project on Bureau of Land Management (BLM) leases located in Churchill County, Nevada. Permitting delays prevented substantial progress on the project site until late last year. However, we received approval from the BLM for the required Environmental Impact Study. We recently started the drilling activity in the project’s field, and we are evaluating the results.

CD 4 Project. We are currently developing 30 MW of new capacity at the Mammoth complex, on land which is comprised mainly of BLM leases. We have commenced field development, and the drilling of additional wells is subject to our obtaining the required permits.

Heber Solar PV Project. We are currently developing the 10 MW Heber Solar PV project located in Imperial County, California. We signed a 20-year PPA with the Imperial Irrigation District (IID). We expect to begin commercial operation in 2013, subject to timely completion of the interconnection that is to be provided by IID.

Mammoth Complex. We are currently in the process of repowering the Mammoth complex located in Mammoth Lakes, California, by replacing part of the old units with new Ormat-manufactured equipment. We expect the replacement of the equipment to optimize the operation of the complex. We have started manufacturing the equipment for the complex.

Olkaria III Phase 3. Development of Phase 3 of the Olkaria III complex located in Naivasha, Kenya is in process. Field development of the new 36 MW power plant at the Olkaria III complex is in advanced stages, power plant equipment is on site and site construction is in progress. The new power plant is scheduled to come online in mid-2013.

 

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Wild Rose Project. We are currently developing the 16 MW Wild Rose project located in Mineral County, Nevada. Field development is in advanced stages; manufacturing of the power plant equipment is in process. The new power plant is expected to come online in 2013. Actual generation capacity will be determined based on field development results.

Heber 1 Power Plant. We plan to enhance the Heber complex located in Imperial Valley, California, by replacing part of the old equipment with new equipment. We expect the replacement of the equipment to optimize the operation of the Heber complex.

We have estimated approximately $319.0 million in capital expenditures for construction of new projects that are still under construction and that are expected to be completed by 2013, of which we have invested approximately $149.0 million as of September 30, 2012. We expect to invest an additional $48.0 million of such total during the remainder of 2012. The remaining $122.0 million will be invested in 2013.

In addition, we estimate approximately $22.0 million in additional capital expenditures during the remainder of 2012 to be allocated as follows: (i) $7.0 million for development of new projects; (ii) $10.0 million for enhancement of our operating power plants; and (iii) $9.0 million for exploration activities in various leases for geothermal resources in which we have started the exploration activity. In the aggregate, we estimate our total capital expenditures for the remainder of 2012 to be approximately $70.0 million.

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) have fixed or escalating rate provisions that limit our exposure to changes in electricity prices. However, beginning in May 2012, the energy payments under the PPAs for the Heber 1 and 2 power plants, the Ormesa complex, and the Mammoth complex have been 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 addition, as discussed in the section above entitled “Recent Developments”, in May and July 2012, we entered into put transactions, and in October 2012, we entered into swap contracts to reduce our exposure to the price of natural gas, under the above PPAs, until December 31, 2013. 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 HELCO’s avoided costs. Likewise, as discussed in the section above entitled “Recent Developments”, in April 2012, we entered into swap contracts, and in September 2012, we entered into put transactions to reduce our exposure to the price of oil, under the 25 MW PPA of the Puna complex, until December 31, 2013.

As of September 30, 2012, 74.4% of our consolidated long-term debt was in the form of fixed rate securities and therefore not subject to interest rate volatility risk. As of such date, 25.6% of our debt was in the form of a floating rate instrument, exposing us to changes in interest rates in connection therewith. As of September 30, 2012, $248.2 million of our 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 and our portfolio of marketable securities 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,

 

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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 expectations 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 primarily related to potential adverse changes in foreign currency exchange rates, in particular the fluctuation of the U.S. dollar versus the New Israeli Shekel (NIS). Risks attributable to fluctuations in currency exchange rates can arise when we or any of our foreign subsidiaries borrows funds or incurs operating or other expenses in one type of currency but receives revenues in another. In such cases, an adverse change in exchange rates can reduce our or 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 and option 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.

Concentration of Credit Risk

Our credit risk is currently concentrated with a limited number of major customers: Southern California Edison, HELCO, Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy), and Kenya Power and Lighting Co. Ltd. (KPLC). 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 19.8% and 34.5% of our total revenues for the three months ended September 30, 2012 and 2011, respectively, and 18.8% and 30.5% for the nine months ended September 30, 2012 and 2011, respectively.

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 14.1% and 10.5% of our total revenues for the three months ended September 30, 2012 and 2011, respectively, and 13.8% and 12.8% for the nine months ended September 30, 2012 and 2011, respectively.

HELCO accounted for 8.1% and 10.3% of our total revenues for the three months ended September 30, 2012 and 2011, respectively, and 9.1% and 10.9% for the nine months ended September 30, 2012 and 2011, respectively.

KPLC accounted for 8.6% and 8.0% of our total revenues for the three months ended September 30, 2012 and 2011, respectively, and 7.8% and 8.4% for the nine months ended September 30, 2012 and 2011, respectively.

Government Grants and Tax Benefits

The U.S. government encourages production of electricity from geothermal resources through certain tax subsidies under the ARRA. We are permitted to claim 30% of the eligible costs of each new geothermal power plant in the United States as an ITC against our federal income taxes. Alternatively, we are permitted to claim a PTC, which in 2011 was 2.2 cents per kWh and which is adjusted annually for inflation. The PTC may be

 

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claimed for ten years on the electricity output of new geothermal power plants put into service by December 31, 2013. The owner of the project 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 we claim the PTC or the ITC, we are 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 we claim the ITC, our “tax basis” in the plant that we can recover through depreciation must be reduced by half of the tax credit. If we claim a 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 Treasury (U.S. Treasury) in an amount equal to the ITC. 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.

Our subsidiary, 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 our affiliates are at arm’s length, and that the management and control of Ormat Systems will be from Israel during the entire 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 its 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 2014, and 12% in 2015 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We incorporate by reference the information appearing under “Exposure to Market Risks” and “Concentration of Credit Risk” in Part I, Item 2 of this quarterly report on Form 10-Q.

 

ITEM 4 . CONTROLS AND PROCEDURES

a. Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures to ensure that the information required to be disclosed in our filings pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, as of September 30, 2012, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective.

 

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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.

b. Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting in the third quarter of 2012 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1 . LEGAL PROCEEDINGS

Securities Class Actions

Following the Company’s public announcement that it would restate certain of its financial results due to a change in the Company’s accounting treatment for certain exploration and development costs, three securities class action lawsuits were filed in the United States District Court for the District of Nevada on March 9, 2010, March 18, 2010 and April 7, 2010. These complaints asserted claims against the Company and certain directors and officers for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act). One complaint also asserted claims for alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act. All three complaints alleged claims on behalf of a putative class of purchasers of the Company’s common stock between May 6, 2008 or May 7, 2008 and February 23, 2010 or February 24, 2010. These three lawsuits were consolidated by the Court in an order issued on June 3, 2010, and the Court appointed three of the Company’s stockholders to serve as lead plaintiffs.

Lead plaintiffs filed a consolidated amended class action complaint (CAC) on July 9, 2010 that asserted claims under Sections 10(b) and 20(a) of the Exchange Act on behalf of a putative class of purchasers of the Company’s common stock between May 7, 2008 and February 24, 2010. The CAC alleged that certain of the Company’s public statements were false and misleading for failing to account properly for the Company’s exploration and development costs based on the Company’s announcement on February 24, 2010 that it was going to restate certain of its financial results to change its method of accounting for exploration and development costs in certain respects. The CAC also alleged that certain of the Company’s statements concerning the North Brawley project were false and misleading. The CAC sought compensatory damages, expenses, and such further relief as the Court may deem proper.

Defendants filed a motion to dismiss the CAC on August 13, 2010. On March 3, 2011, the Court granted in part and denied in part defendants’ motion to dismiss. The Court dismissed plaintiffs’ allegations that the Company’s statements regarding the North Brawley project were false or misleading, but did not dismiss plaintiffs’ allegations regarding the 2008 restatement. Defendants answered the remaining allegations in the CAC regarding the restatement on April 8, 2011, and the case entered the discovery phase. On July 22, 2011, plaintiffs filed a motion to certify the case as a class action on behalf of a class of purchasers of the Company’s common stock between February 25, 2009 and February 24, 2010, and defendants filed an opposition to the motion for class certification on October 4, 2011.

Subsequently, the parties participated in a mediation where they reached an agreement in principle to settle the securities class action lawsuits. The parties thereafter filed a stipulation of settlement with the U.S. District Court for the District of Nevada on March 27, 2012, providing that the claims against the Company and its directors and officers will be dismissed with prejudice and plaintiffs will release the defendants from all claims in exchange for a cash payment of $3.1 million to be funded by the Company’s insurers. The stipulation of settlement received preliminary approval by the Court on March 30, 2012, and final approval on October 16, 2012.

The Company and the individual defendants have steadfastly maintained that the claims raised in the securities class action lawsuits were without merit, and have vigorously contested those claims. As part of the settlement, the Company and the individual defendants continue to deny any liability or wrongdoing under the securities laws or otherwise.

Stockholder Derivative Cases

Four stockholder derivative lawsuits have also been filed in connection with the Company’s public announcement that it would restate certain of its financial results due to a change in the Company’s accounting

 

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treatment for certain exploration and development costs. Two cases were filed in the Second Judicial District Court of the State of Nevada in and for the County of Washoe on March 16, 2010 and April 21, 2010, and two cases were filed in the United States District Court for the District of Nevada on March 29, 2010 and June 7, 2010. All four lawsuits assert claims brought derivatively on behalf of the Company against certain of its directors and officers for alleged breach of fiduciary duty and other claims, including waste of corporate assets and unjust enrichment.

The two stockholder derivative cases filed in the Second Judicial District Court of the State of Nevada in and for the County of Washoe were consolidated by the Court in an order dated May 27, 2010 and the plaintiffs filed a consolidated derivative complaint on September 7, 2010. In accordance with a stipulation between the parties, defendants filed a motion to dismiss on November 16, 2010. On April 18, 2011, the Court stayed the state derivative case pending the resolution of the securities class action lawsuit.

The two stockholder derivative cases filed in the United States District Court for the District of Nevada were consolidated by the Court in an order dated August 31, 2010, and plaintiffs filed a consolidated derivative complaint on October 28, 2010. The Company filed a motion to dismiss on December 13, 2010. On March 7, 2011, the Court transferred the federal derivative case to the Court presiding over the securities class action, and on August 29, 2011, the Court stayed the federal derivative case pending the resolution of the securities class action lawsuit.

The parties to all the stockholder derivative cases executed a stipulation of settlement to resolve all cases on September 25, 2012. The stipulation provides that: (i) all claims asserted in the derivative cases will be dismissed with prejudice and that plaintiffs will release the defendants from all claims; (i) the Company will implement and/or maintain certain corporate governance measures for no less than five years; and (iii) plaintiffs’ counsel will receive attorneys’ fees of $700,000 to be funded by the Company’s insurers. The stipulation of settlement received preliminary approval on October 22, 2012. It still remains subject to final approval following notice to the Company’s stockholders.

The Company believes the allegations in these purported derivative actions are without merit and, as part of the settlement, continues to deny any liability or wrongdoing.

Other

On January 4, 2012, the California Unions for Reliable Energy (CURE) filed a petition in the Alameda Superior Court, naming the California Energy Commission (CEC) and the Company as defendant and real party in interest, respectively. The petition asks the Court to order the CEC to vacate its decision which denied, with prejudice, the complaint filed by CURE against the Company with the CEC. The CURE complaint alleged that the Company’s North Brawley project and East Brawley project both exceed the CEC’s 50 MW jurisdictional threshold and therefore are subject to the CEC licensing authority rather than the Imperial County licensing authority. In addition, the CURE petition asks the Court to investigate and halt any ongoing violation of the Warren Alquist Act by the Company, and to award CURE attorney’s fees and costs. As to North Brawley, CURE alleges that the CEC decision violated the Warren Alquist Act because it failed to consider provisions of the County permit for North Brawley, which CURE contends authorizes the Company to build a generating facility with a number of Ormat Energy Converters (OECs) capable of generating more than 50 MW. As to East Brawley, CURE alleges that the CEC decision violated the Warren Alquist Act because it failed to consider the conditional use permit application for East Brawley, which CURE contends shows that the Company requested authorization to build a facility with a number of OECs capable of generating more than 50 MW.

The Company believes that the petition is without merit and intends to respond and take necessary legal action to dismiss the proceedings. The parties have filed briefs in the proceeding, and the matter is set for hearing. Filing of the petition in and of itself does not have any immediate adverse implications for the North Brawley or East Brawley projects and the Company continues to operate the North Brawley project in the ordinary course of business and is proceeding with its development work on the East Brawley project.

 

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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 its 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.

 

ITEM 1A.   RISK FACTORS

A comprehensive discussion of our risk factors is included in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 29, 2012, which is further updated by the addition of the risk factor discussed below.

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, recovered energy-based power plants, and solar PV power plants have benefited, 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 production and investment tax credits, cash grants, loan guaranties, 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 solar and other power products. Some of these measures have been implemented at the federal level, while others have been implemented by different states 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, recovered energy-based, and solar PV 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.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities of the Company during the third fiscal quarter of 2012.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Our management believes that we are currently in compliance with our covenants with respect to our third-party debt.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

 

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

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 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.
    4.2    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.
    4.3    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.
    4.4    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.
    4.5    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.
    4.6    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.
    4.7    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., as trustee, 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.
    4.8    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.

 

62


Table of Contents

Exhibit

No.

  

Document

    4.9    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    Finance Agreement, dated as of August 23, 2012, by and between OrPower 4, Inc., an indirect wholly-owned subsidiary of Ormat Technologies, Inc., and the Overseas Private Investment Corporation, filed herewith.
  10.2    Equity Contribution, Subordination, and Share Retention Agreement, dated as of August 23, 2012, by and among OrPower 4, Inc., Ormat Technologies, Inc., Ormat International Inc., Ormat Holding Corp., and the Overseas Private Investment Corporation, filed herewith.
  10.3    Guaranty, dated as of October 25, 2012, by and between Ormat Technologies, Inc. and DEG—Deutsche Investitions-Und entwicklungsgesellschaft mbH, 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.
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 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 Securities Exchange Act of 1934, as amended, 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.

 

63


Table of Contents

SIGNATURES

Pursuant to the requirements 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.

 

ORMAT TECHNOLOGIES, INC.
By:   /s/     J OSEPH T ENNE        
  Name:     Joseph Tenne
  Title:       Chief Financial Officer

Date: November 8, 2012

 

64


Table of Contents

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 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.
    4.2    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.
    4.3    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.
    4.4    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.
    4.5    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.
    4.6    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.
    4.7    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., as trustee, 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.
    4.8    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.

 

65


Table of Contents

Exhibit

No.

  

Document

    4.9    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        Finance Agreement, dated as of August 23, 2012, by and between OrPower 4, Inc., an indirect wholly-owned subsidiary of Ormat Technologies, Inc., and the Overseas Private Investment Corporation, filed herewith.
  10.2    Equity Contribution, Subordination, and Share Retention Agreement, dated as of August 23, 2012, by and among OrPower 4, Inc., Ormat Technologies, Inc., Ormat International Inc., Ormat Holding Corp., and the Overseas Private Investment Corporation, filed herewith.
  10.3    Guaranty, dated as of October 25, 2012, by and between Ormat Technologies, Inc. and DEG—Deutsche Investitions-Und entwicklungsgesellschaft mbH, 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.
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 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 Securities Exchange Act of 1934, as amended, 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.

 

66

Exhibit 10.1

EXECUTION VERSION

 

 

 

FINANCE AGREEMENT

between

ORPOWER 4 INC.

and

OVERSEAS PRIVATE INVESTMENT CORPORATION

Dated as of August 23, 2012

OPIC/615-2011-039-IG

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I DEFINITIONS AND INTERPRETATION

     1   

SECTION 1.01.

 

D EFINITIONS AND I NTERPRETATION .

     1   

ARTICLE II AMOUNT AND TERMS OF THE LOANS

     1   

SECTION 2.01.

 

A MOUNT AND D ISBURSEMENT .

     1   

SECTION 2.02.

 

I NTEREST ; D EFAULT I NTEREST .

     2   

SECTION 2.03.

 

R EPAYMENT OF THE L OANS .

     3   

SECTION 2.04.

 

V OLUNTARY P REPAYMENT .

     3   

SECTION 2.05.

 

M ANDATORY P REPAYMENT .

     4   

SECTION 2.06.

 

L OAN F EES AND C ANCELLATION .

     5   

SECTION 2.07.

 

T AX G ROSS -U P ; S TAMP D UTIES ; P ROPER L EGAL F ORM .

     6   

SECTION 2.08.

 

M ISCELLANEOUS .

     6   

ARTICLE III REPRESENTATIONS AND WARRANTIES

     7   

SECTION 3.01.

 

R EPRESENTATIONS AND W ARRANTIES .

     7   

ARTICLE IV CONDITIONS PRECEDENT TO THE FIRST DISBURSEMENT OF LOANS

     12   

SECTION 4.01.

 

A UTHORIZATION .

     12   

SECTION 4.02.

 

T RANSACTION D OCUMENTS .

     12   

SECTION 4.03.

 

O WNERSHIP .

     13   

SECTION 4.04.

 

C ONSENTS .

     13   

SECTION 4.05.

 

S ITE .

     13   

SECTION 4.06.

 

S ECURITY I NTEREST .

     14   

SECTION 4.07.

 

I NSURANCE .

     14   

SECTION 4.08.

 

A UDITORS .

     14   

SECTION 4.09.

 

L EGAL O PINIONS .

     14   

SECTION 4.10.

 

A PPOINTMENT OF A GENT .

     14   

SECTION 4.11.

 

A CCOUNTS .

     15   

SECTION 4.12.

 

D-U-N-S N UMBER ; TIN.

     15   

SECTION 4.13.

 

F INANCIAL P ROJECTIONS .

     15   

SECTION 4.14.

 

C ONSTRUCTION B UDGET ; C ONSTRUCTION S CHEDULE .

     15   

SECTION 4.15.

 

E NVIRONMENTAL AND S OCIAL R EQUIREMENTS .

     15   

SECTION 4.16.

 

D UE D ILIGENCE .

     15   

SECTION 4.17.

 

R EPORTS .

     15   

SECTION 4.18.

 

O PERATIONAL M ATTERS .

     16   

SECTION 4.19.

 

G EOTHERMAL R ESOURCE .

     16   

SECTION 4.20.

 

R ATIO OF C ASH F LOW TO D EBT S ERVICE .

     16   

SECTION 4.21.

 

F UNDING A RRANGEMENTS .

     16   

SECTION 4.22.

 

A NTI -C ORRUPTION H ANDBOOK .

     17   

SECTION 4.23.

 

PPA N OTICE R EQUIREMENTS .

     17   

ARTICLE V CONDITIONS PRECEDENT TO EACH DISBURSEMENT

     17   

SECTION 5.01.

 

D ISBURSEMENT R EQUEST .

     17   

SECTION 5.02.

 

R EPRESENTATIONS AND D EFAULTS .

     17   

SECTION 5.03.

 

N O E VENT OF D EFAULT ; C HANGE IN C IRCUMSTANCES .

     17   

SECTION 5.04.

 

N OTE .

     17   

SECTION 5.05.

 

C LOSING C ERTIFICATE .

     18   

 

- i -


TABLE OF CONTENTS

(continued)

 

         Page  

SECTION 5.06.

 

F INANCIAL I NFORMATION AND P ROJECT P ROGRESS .

     18   

SECTION 5.07.

 

P AYMENT OR R EIMBURSEMENT OF E XPENSES .

     18   

SECTION 5.08.

 

C ENTRAL B ANK R EGISTRATION ; C ONSENTS .

     18   

SECTION 5.09.

 

E QUITY C ONTRIBUTIONS .

     18   

SECTION 5.10.

 

D EBT S ERVICE R ESERVE R EQUIREMENT .

     18   

SECTION 5.11.

 

D EBT TO E QUITY R ATIO .

     18   

SECTION 5.12.

 

P ROJECT C OSTS .

     19   

SECTION 5.13.

 

F UNDING A RRANGEMENTS .

     19   

SECTION 5.14.

 

I NSURANCE .

     19   

SECTION 5.15.

 

I NDEPENDENT E NGINEER C ERTIFICATE .

     19   

SECTION 5.16.

 

L IEN W AIVERS .

     19   

SECTION 5.17.

 

O THER D OCUMENTS .

     19   

ARTICLE VI AFFIRMATIVE COVENANTS

     20   

SECTION 6.01.

 

U SE OF P ROCEEDS ; P ROJECT C OMPLETION .

     20   

SECTION 6.02.

 

C OMPANY C ONSTRUCTION , D RILLING AND O PERATIONS .

     20   

SECTION 6.03.

 

M AINTENANCE OF R IGHTS AND C OMPLIANCE WITH L AWS .

     21   

SECTION 6.04.

 

M AINTENANCE OF I NSURANCE .

     22   

SECTION 6.05.

 

A CCOUNTING AND F INANCIAL M ANAGEMENT .

     22   

SECTION 6.06.

 

F INANCIAL S TATEMENTS AND O THER I NFORMATION .

     22   

SECTION 6.07.

 

A NNUAL O PERATING B UDGET .

     23   

SECTION 6.08.

 

A CCESS TO R ECORDS ; I NSPECTION ; M EETINGS .

     24   

SECTION 6.09.

 

N OTICE OF D EFAULT AND O THER M ATTERS .

     24   

SECTION 6.10.

 

S ECURITY D OCUMENTS .

     24   

SECTION 6.11.

 

F INANCIAL R ATIOS ; D EBT S ERVICE R ESERVE .

     24   

SECTION 6.12.

 

E NVIRONMENTAL , H EALTH AND S AFETY C OMPLIANCE .

     25   

SECTION 6.13.

 

W ORKER R IGHTS .

     26   

SECTION 6.14.

 

A NTI -C ORRUPTION H ANDBOOK .

     28   

SECTION 6.15.

 

A DDITIONAL P ROJECT D OCUMENTS .

     28   

SECTION 6.16.

 

D RILLING P ROGRAM .

     28   

SECTION 6.17.

 

P OST -P ROJECT C OMPLETION D ATE Y IELD T ESTING .

     28   

ARTICLE VII NEGATIVE COVENANTS

     28   

SECTION 7.01.

 

L IENS .

     28   

SECTION 7.02.

 

I NDEBTEDNESS .

     28   

SECTION 7.03.

 

N O A LTERATION OR A SSIGNMENT OF A GREEMENTS ; PPA.

     29   

SECTION 7.04.

 

R ESTRICTED P AYMENTS AND S HAREHOLDER P AYMENTS .

     30   

SECTION 7.05.

 

C ONDUCT OF B USINESS WITH A FFILIATES .

     30   

SECTION 7.06.

 

N O S ALE OF A SSETS ; M ERGERS .

     30   

SECTION 7.07.

 

L EASE O BLIGATIONS .

     31   

SECTION 7.08.

 

O RDINARY C ONDUCT OF B USINESS .

     31   

SECTION 7.09.

 

OFAC C OMPLIANCE .

     31   

SECTION 7.10.

 

P ROHIBITED P AYMENTS .

     31   

SECTION 7.11.

 

A CCOUNTS .

     32   

SECTION 7.12.

 

E XPENDITURES .

     32   

SECTION 7.13.

 

A MENDMENT OF A NNUAL O PERATING B UDGET .

     32   

 

- ii -


TABLE OF CONTENTS

(continued)

 

         Page  

ARTICLE VIII DEFAULTS AND REMEDIES

     32   

SECTION 8.01.

 

E VENTS OF D EFAULT .

     32   

SECTION 8.02.

 

R EMEDIES UPON E VENT OF D EFAULT .

     35   

SECTION 8.03.

 

J URISDICTION AND C ONSENT TO S UIT ; W AIVERS .

     35   

SECTION 8.04.

 

A RBITRATION .

     36   

SECTION 8.05.

 

B ORROWER C ONSENT TO S UIT ; E XCLUSIVE F ORUM S ELECTION FOR C ERTAIN A CTIONS .

     36   

SECTION 8.06.

 

J UDGMENT C URRENCY .

     37   

SECTION 8.07.

 

N O I MMUNITY .

     38   

ARTICLE IX MISCELLANEOUS

     38   

SECTION 9.01.

 

N OTICES .

     38   

SECTION 9.02.

 

E NGLISH L ANGUAGE .

     39   

SECTION 9.03.

 

GOVERNING LAW.

     39   

SECTION 9.04.

 

S UCCESSION ; A SSIGNMENT .

     39   

SECTION 9.05.

 

S URVIVAL OF A GREEMENTS .

     39   

SECTION 9.06.

 

I NTEGRATION ; A MENDMENTS .

     40   

SECTION 9.07.

 

S EVERABILITY .

     40   

SECTION 9.08.

 

N O W AIVER .

     40   

SECTION 9.09.

 

WAIVER OF JURY TRIAL.

     40   

SECTION 9.10.

 

I NDEMNITY .

     40   

SECTION 9.11.

 

F URTHER A SSURANCES .

     41   

SECTION 9.12.

 

C OUNTERPARTS .

     41   

SECTION 9.13.

 

W AIVER OF L ITIGATION P AYMENTS .

     41   

SECTION 9.14.

 

C OOPERATION ; L OAN S ERVICING .

     42   

SECTION 9.15.

 

R EINSTATEMENT .

     42   

SCHEDULES

 

  X      Defined Terms and Rules of Interpretation
  Y      Original Wells
  Z      DFI Security Documents and Releases
  2.08      OPIC Payment Instructions
  3.01(c)      Shareholder Payments
  3.01(d)      Capitalization
  3.01(l)      Financial Plan
  3.01(x)      Payment of Contractors and Subcontractors
  4.04      Consents
  4.19-A      Drilling Program
  4.19-B      Reservoir Monitoring Plan

 

- iii -


TABLE OF CONTENTS

(continued)

 

                Page
  4.19-C      Form of Reservoir Monitoring Report   
  6.02(d)      O&M Parameters   
  6.04      Minimum Insurance Requirements   
  6.06(c)      Construction Period Report   
  6.06(d)      Operating Report   
  6.07      Form of Annual Operating Budget   
  7.07      Lease Obligations   
  8.04      Arbitration Provisions   

EXHIBITS

 

     A      Form of Disbursement Request
     B-1      Form of Secretary’s Certificate of the Borrower (pursuant to Section 4.01)
     B-2      Form of Certificate of the Shareholder (pursuant to Section 4.01)
     C      Independent Engineer’s Closing Certificate (pursuant to Sections 4.17 and 5.15)
     D      Form of Borrower’s Closing Certificate (pursuant to Section 5.05(a))
     E      Borrower’s Completion Certificate
     F      Independent Engineer’s Completion Certificate
     G      Resource Consultant’s Completion Certificate

 

- iv -


FINANCE AGREEMENT

THIS FINANCE AGREEMENT , dated as of August 23, 2012 (this “ Agreement ”), is made by and between ORPOWER 4 INC., a limited liability company incorporated and existing under the laws of the Cayman Islands and registered in the Republic of Kenya as a foreign company (the “ Borrower ”), and OVERSEAS PRIVATE INVESTMENT CORPORATION , an agency of the United States of America (“ OPIC ”).

The Borrower intends to design, construct, finance, furnish, install, test, commission, operate and own an integrated eighty-four (84) MW geothermal power generation facility located in Hell’s Gate National Park in the Rift Valley Province of Kenya (the “ Project ”), consisting of Plant 1, certain upgrades of Plant 1 and related infrastructure and Plant 2.

In connection therewith, the Borrower has requested that OPIC provide a credit facility pursuant to Section 234(c) of the Foreign Assistance Act of 1961, as amended, which OPIC is willing to do on the terms and conditions set forth herein. Accordingly, in consideration of the foregoing and of the agreements contained herein, it is agreed as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

SECTION 1.01. Definitions and Interpretation.

In this Agreement, including the Exhibits and Schedules hereto, (a) capitalized terms used but not otherwise defined have the meanings set forth in the attached Schedule X ( Defined Terms and Rules of Interpretation ), and (b) the rules of interpretation set forth in Schedule X ( Defined Terms and Rules of Interpretation ) apply.

ARTICLE II

AMOUNT AND TERMS OF THE LOANS

SECTION 2.01. Amount and Disbursement.

(a) Tranche I Commitment . Subject to the terms and conditions hereof, OPIC agrees to make, and the Borrower agrees to accept, a Tranche I Loan for the Project in a principal amount not to exceed eighty-five million Dollars ($85,000,000).

(b) Tranche II Commitment . Subject to the terms and conditions hereof, OPIC agrees to make, and the Borrower agrees to accept, a Tranche II Loan for the Project in a principal amount not to exceed one hundred eighty million Dollars ($180,000,000).

(c) Disbursement; Term . During the Commitment Period, the Borrower may request a Disbursement by delivering to OPIC a Disbursement Request not less than twenty (20) Business Days prior to the Closing Date. The Disbursement of the Tranche I Loan and the first Disbursement of the Tranche II Loan shall be made no later than the first anniversary of the date of this Agreement. Each Disbursement shall be evidenced by a Note, dated the Closing Date, in the principal amount of the Disbursement and maturing on the applicable Note Maturity Date. The Tranche I Loan shall not exceed the amount of the Tranche I Commitment and the Tranche II Loan shall not exceed the amount of the Tranche II Commitment. Loan amounts repaid or prepaid may not be reborrowed.

 

- 1 -


(d) Number and Amount of Disbursements .

(i) There shall be a single Disbursement of the Tranche I Loan in an amount not to exceed the Tranche I Commitment (the “ Tranche I Disbursement ”) which shall be made simultaneously with the first Disbursement of the Tranche II Loan;

(ii) There shall be no more than one (1) Disbursement of the Tranche II Loan in each fiscal quarter and no more than ten (10) total Disbursements of the Tranche II Loan (each, a “ Tranche II Disbursement ”). Except as set forth below, each Tranche II Disbursement shall be in an amount of not less than ten million Dollars ($10,000,000), in multiples of one hundred thousand Dollars ($100,000) in excess thereof, but in any event not greater than:

 

  (A) in the case of the first Tranche II Disbursement, one hundred thirty-five million Dollars ($135,000,000); and

 

  (B) in the case of each other Tranche II Disbursement, thirty-five million Dollars ($35,000,000); and

(iii) Notwithstanding the foregoing, the Borrower may request the last Tranche II Disbursement in an amount not to exceed the total undisbursed and entire remaining amount of the Tranche II Loan Commitment; provided , that , such Disbursement shall be for an amount not less than five million Dollars ($5,000,000).

(e) Expansion Loan . Subject to terms and conditions to be agreed between the Borrower and OPIC in subsequent documentation (“ Expansion Loan Documents ”), OPIC will agree to make, and the Borrower will agree to accept, a loan (an “ Expansion Loan ”) in a principal amount not to exceed forty-five million Dollars ($45,000,000) to finance the development, construction and start-up operating costs of an up to 16 MW expansion of the Project.

SECTION 2.02. Interest; Default Interest.

(a) Payment of Interest; OPIC Note Interest Rate . On each Payment Date, (i) in the case of the Tranche I Loan, beginning on the Initial Payment Date and ending on the Tranche I Maturity Date and (ii) in the case of the Tranche II Loan, beginning on the Initial Payment Date and ending on the Tranche II Maturity Date, the Borrower shall pay to the order of OPIC interest in arrears on the daily outstanding principal balance of each Note, less any amount of principal on which interest is payable at the Default Rate pursuant to Section 2.02(b), accrued at a rate per annum , subject to Section 2.02(c), equal to the sum of the following (subject to Section 2.02(c), the “ OPIC Note Interest Rate ” with respect to each Note):

 

  (i) the Certificate Interest Rate; and

 

  (ii) the OPIC Guaranty Fee.

(b) Default Rate . If the Borrower fails to pay when due any amount due to OPIC under any Financing Document, such unpaid amount shall bear interest at the Default Rate from the date such amount is due until the date on which such amount is paid in full.

(c) Adjustment to OPIC Note Interest Rate . If OPIC shall have made payment of any principal, interest or other guaranteed amount on account of a defaulted payment pursuant to OPIC’s guaranty under the Funding Documents under any Note (an “ OPIC Guaranty Payment ”), then, with respect to the amount of such OPIC Guaranty Payment, the OPIC Note Interest Rate from the date of such

 

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OPIC Guaranty Payment to the date of payment in full to OPIC of the amount of such OPIC Guaranty Payment may, at OPIC’s option, be converted to a fixed per annum rate of interest equal to the sum of the following:

 

  (i) The U.S. Treasury Cost; and

 

  (ii) The OPIC Guaranty Fee,

and, the Borrower shall, on demand, pay to OPIC the amount of such OPIC Guaranty Payment, together with interest thereon at the Default Rate, adjusted as provided in this Section 2.02(c).

(d) Conversion of Weekly Rate Note . On the Conversion Date with respect to any Weekly Rate Note, the Borrower shall issue to OPIC one or more (as OPIC may specify) Fixed Rate Notes aggregating the principal amount of such Weekly Rate Note and dated the Conversion Date and OPIC shall return such Weekly Rate Note to the Borrower in exchange therefor. All Fixed Rate Notes in respect of the Tranche II Loan shall be issued for a term ending on or before the Tranche II Maturity Date.

SECTION 2.03. Repayment of the Loans.

The Borrower shall repay:

(a) the Tranche I Loan in seventy-three (73) approximately equal quarterly installments (collectively, the “ Tranche I Principal Installments ”) on each Payment Date beginning on the Initial Payment Date and ending no later than the Tranche I Maturity Date; and

(b) the Tranche II Loan in up to sixty-nine (69) approximately equal quarterly installments (collectively, the “ Tranche II Principal Installments ”) beginning on the Tranche II Initial Payment Date and ending no later than the Tranche II Maturity Date.

SECTION 2.04. Voluntary Prepayment.

Subject to the requirements of the Funding Documents, including payment of any Redemption Premium payable thereunder, on any Business Day following the last day of the Commitment Period, the Borrower may, upon not less than thirty (30) calendar days nor more than forty-five (45) calendar days prior notice to OPIC, prepay the Loans, in whole or in part, in a minimum partial prepayment amount of five million Dollars ($5,000,000), together with the payment to OPIC of (a) interest accrued to the date of prepayment on the portion of the principal amount of each Note that is to be prepaid in the case of a prepayment on a Payment Date or a prepayment in whole, (b) the Redemption Premium (if applicable) and (c) a premium (the “Prepayment Premium” ), calculated as a percentage of the Loan amount prepaid, in accordance with the following schedule:

 

Year Following Plant 2 COD    Prepayment Premium  

Year 1

     2

Year 2

     2

Year 3

     1

Year 4 and thereafter

     None   

All voluntary prepayments shall be applied in accordance with Section 4.03(e) of the OPIC Funding Agreement, or as OPIC may otherwise determine.

 

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SECTION 2.05. Mandatory Prepayment.

The Borrower shall prepay the Loans as follows and in the manner provided in the Funding Documents:

(a) in the event that the aggregate amount of property and casualty insurance proceeds or other compensation proceeds for loss or damage (excluding business interruption insurance proceeds) to an asset (including by expropriation or governmental action) received by the Borrower during any Fiscal Year (i) in excess of one million Dollars ($1,000,000) is not applied to the repair or replacement of assets insured thereby where such funds will be spent within one hundred-eighty (180) days (or such other longer period as OPIC may agree in its sole discretion) after receipt by the Borrower, in the amount of any amounts not so applied and (ii) equal to or less than one million Dollars ($1,000,000) if the Borrower has not certified to OPIC within thirty (30) days (or such other longer period as OPIC may agree in its sole discretion) after receipt by the Borrower that the Borrower’s failure to apply such amount to the repair or replacement of assets insured thereby will not impair the Project, result in a failure to meet Contracted Plant Capacity or a breach of any of the Borrower’s obligations under the Project Documents, in the amount of any amounts not so applied;

(b) in the event there are performance liquidated damages paid pursuant to the Supply Agreement or the Coordination Contract, in the amount of any such damages;

(c) in the event there is a purchase payment made by KPLC pursuant to Clause 10 of the PPA, in the amount equal to the lesser of (i) the Secured Obligations and (ii) such purchase payment;

(d) in the event there is a downward revision of the Contracted Plant Capacity (as contemplated in Clause 9.8A of the PPA, including following any repeated Contracted Plant Capacity Test conducted due to a failed Contracted Plant Capacity Test pursuant to the final sentence of Clause 9.10 of the PPA) such that the Contracted Plant Capacity following such downward revision is less than the Required Contracted Plant Capacity, by an amount sufficient to restore the projected ratio of Cash Flow to Debt Service to the projected level set forth in the then current Financial Model. Any prepayment under this clause (d) shall be made by utilizing funds on deposit in the Equity Sub-Account or in the Equity Distribution Account until the projected ratio of Cash Flow to Debt Service has been so restored; provided , that no mandatory prepayment shall be required to be made under this clause (d) if the projected ratio of Cash Flow to Debt Service in any year during the remaining term of the Loan is 1.7:1 or higher;

(e) unless otherwise agreed by OPIC, in the event the Borrower receives any Sale Proceeds (excluding proceeds from the Disposition of Certified Emissions Reductions pursuant to the CER Documents) in excess of two hundred and fifty thousand Dollars ($250,000) resulting from one or more Dispositions in any year of all or any part of the Property of the Borrower, in the amount of such Sale Proceeds; and

(f) in the event the Borrower receives any Termination Payment or Expropriation Proceeds, in the amount equal to the lesser of (i) the Secured Obligations and (ii) such Termination Payment or Expropriation Proceeds, as the case may be.

Prepayments under this Section 2.05 shall be subject to any Redemption Premium or other amounts payable pursuant to the Funding Documents and shall be applied in the same manner as if made pursuant to Section 2.04 ( Voluntary Prepayment ), except that no Prepayment Premium shall be due. For purposes of Section 2.05(a), the prepayment shall be applied against payments due to OPIC taking into

 

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account the Redemption Premium, if payable pursuant to the Funding Documents in connection with such prepayment.

SECTION 2.06. Loan Fees and Cancellation.

(a) Commitment Fee . During the applicable Commitment Period, the Borrower shall pay to OPIC, in arrears, on each Payment Date beginning on the first Payment Date after the date of this Agreement and on the last day of such Commitment Period, or, if earlier, the date this Agreement is terminated, a commitment fee (the “Commitment Fee” ) accruing on a daily basis for each day of such Commitment Period at the rate of twenty-five hundredths of one percent (0.25%) per annum on an amount calculated for each day during the Commitment Period equal to the sum of the Tranche I Commitment and the Tranche II Commitment on such day.

(b) Cancellation Fee . The Borrower may cancel all or any part of the Commitments at any time upon written notice and payment to OPIC of a cancellation fee (the “ Cancellation Fee ”) equal to one percent (1.0%) of the amount of the Commitment canceled, provided that, with respect to the Tranche II Commitment, the Borrower demonstrates to OPIC’s satisfaction that there are sufficient funds available to construct and operate the Project. Any part of the Commitments not disbursed at the end of the applicable Commitment Period or that is terminated for any reason shall be deemed to have been canceled, and such Cancellation Fee shall be payable with respect thereto.

(c) Facility Fee. The Borrower shall pay OPIC a facility fee (the “ Facility Fee ”) in an amount equal to seventy-five hundredths of one percent (0.75%) of the Commitments on or prior to the initial Closing Date.

(d) Maintenance Fee . The Borrower shall pay to OPIC an annual maintenance fee (the “Maintenance Fee” ) in the amount of fifty thousand Dollars ($50,000) on the first anniversary of the Payment Date immediately following the first Closing Date and on each anniversary of such Payment Date for so long as any portion of the Loan remains outstanding.

(e) Modification Fee. In the event that the Borrower requests an amendment to or waiver of any provision of this Agreement or any other Financing Document (including any restructuring under this Agreement or any other Financing Document) that relates to the term or the amortization of the Loans, the applicable OPIC Note Interest Rates, any fees due hereunder or thereunder, or any covenants, OPIC will consider such an amendment or waiver on its merits upon payment by the Borrower, at the time of such request, of a fee, determined by OPIC acting reasonably, commensurate with the complexity and timing constraints of such amendment or waiver (the “ Modification Fee ”); provided , however , that no Modification Fee will be required or payable if the amendment or waiver is necessary: (i) to correct an error or omission in any Financing Document, (ii) to comply with changes in Applicable Law, (iii) to address any matters related to the making of the Expansion Loan or the negotiation and preparation of the Expansion Loan Documents, or (iv) in OPIC’s determination, to improve the operations of the Project without materially altering the risks undertaken by OPIC. OPIC is under no obligation to agree to any amendment or waiver of any provision of this Agreement or any other Financing Document. The Borrower acknowledges that OPIC may request a Modification Fee in connection with restructurings of any kind or any prepayment requiring releases of collateral or other similar actions by OPIC; provided , however , that OPIC shall not request a Modification Fee and no Modification Fee shall be payable in connection with any repayment of the Loan in its entirety (whether as a result of a refinancing or otherwise). OPIC’s agreement in clause (iii) of the proviso above shall not prejudice OPIC’s ability to charge any other customary fee in connection with the making of the Expansion Loan or the negotiation and preparation of the Expansion Loan Documents.

 

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SECTION 2.07. Tax Gross-Up; Stamp Duties; Proper Legal Form.

(a) All sums payable by the Borrower hereunder and under any other Financing Document shall be paid in full, free of any deductions or withholdings of any and all present and future Taxes. If the Borrower is required by Applicable Law to deduct any Taxes from or to withhold any Taxes in respect of any amount payable to OPIC hereunder or under any Financing Document, then the Borrower shall pay such additional amount as may be necessary so that the actual amount received by OPIC after such deductions or withholdings equals the full amount stated to be payable under the Financing Documents.

(b) In addition to the obligations set forth in Section 6.03(c) ( Maintenance of Rights and Compliance with Laws ), the Borrower shall pay before they become overdue any and all present and future Taxes payable on or in connection with the execution, delivery, registration, or notarization, or for the legality, validity, or enforceability of this Agreement or any other Transaction Document directly to the Governmental Authority responsible for collecting such Taxes, except for any Taxes that the Borrower is contesting in good faith by appropriate proceedings and for which adequate reserves have been set aside in accordance with the Accounting Principles; provided , that the Borrower hereby indemnifies OPIC and holds OPIC harmless from and against any and all liabilities, fees, or additional expenses with respect to or resulting from any delay in paying, or omission to pay, any such Taxes. Within thirty (30) days after payment by the Borrower of any such Taxes, the Borrower shall furnish OPIC with the original or a Certified copy of the receipt evidencing payment thereof, together with any other information OPIC may reasonably request. OPIC shall have the right, but not the obligation, to pay any Taxes not paid by the Borrower and the Borrower shall, upon OPIC’s demand, promptly reimburse OPIC in full for all such payments.

SECTION 2.08. Miscellaneous.

(a) Payment or Reimbursement of Expenses . OPIC may retain such consultants as determined by OPIC to be necessary, including U.S. and local legal counsel, at any time until the Loans are indefeasibly repaid in full. Upon request, the Borrower shall promptly pay or reimburse OPIC for all of OPIC’s out-of-pocket fees and expenses incurred in connection with the negotiation, preparation, execution, delivery, notarization, recordation and implementation of the Financing Documents and, if applicable, the Expansion Loan Documents and the other documents, instruments and approvals required to be delivered thereunder, including (i) the reasonable fees and expenses of outside U.S. and local legal counsel and business consultants, and (ii) the costs of communications, preparation of any documents, authentication, registration, and recordation of any of the Financing Documents, preparation of bound volumes, dvds or cds of the Financing Documents for OPIC’s use, and termination of the Liens created pursuant to the Security Documents. The Borrower shall also reimburse OPIC, upon demand, for all costs and expenses (including attorneys’ fees and expenses and costs of travel) incurred by OPIC (A) in preserving in full force and effect, or enforcing its rights under, any of the Financing Documents or (B) in addition to the Modification Fee, in connection with the modification, amendment, or waiver of any provision of any Financing Document.

(b) Currency and Place of Payment . All payments to OPIC shall be made in Dollars by wire transfer in immediately available funds without counterclaim, offset, or deduction:

(i) if to the Paying Agent, as provided for in the Funding Documents; or

(ii) to OPIC, formatted as described in Schedule 2.08.

Whenever any payment would otherwise fall due on a day that is not a Business Day, the due date for payment shall be the immediately succeeding Business Day, and interest and fees shall be computed

 

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through such immediately succeeding Business Day in accordance with Section 2.08(c); provided , however , that the last payment shall include interest to but excluding the actual date of receipt of such payment.

(c) Computation of Interest on Notes and of Certain Fees . Except as otherwise provided herein, in the Funding Documents or in any Note:

(i) interest on any Note (including interest calculated at any OPIC Note Interest Rate or the Default Rate) shall accrue on a daily basis and shall be computed as provided therein;

(ii) the Commitment Fee and the Default Rate (as provided in Section 2.08(c)(i) above) shall accrue on a daily basis and shall be computed on the basis of 360-day years composed of twelve (12) thirty (30)-day months.

(d) Application of Payments to OPIC . Except as otherwise provided herein, in the Funding Documents or in any Note, payments received by OPIC under any of the Financing Documents shall be applied to amounts due to OPIC in such manner as OPIC in its sole discretion may determine.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.01. Representations and Warranties.

The Borrower represents and warrants to OPIC that:

(a) Existence and Power . The Borrower (i) is a limited liability company duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; (ii) is duly authorized to do business in each jurisdiction in which it conducts business; and (iii) has the power to own its properties, carry on its business and the Project, borrow money, create Liens on its properties, and execute, deliver, and perform each of the Borrower Documents.

(b) Authority. The Borrower’s execution, delivery, and performance of each of the Borrower Documents: (i) have been duly authorized by all necessary corporate action; (ii) will not violate any Corrupt Practices Laws, Environmental Laws and Worker Rights Requirements or, in any material respect, any other Applicable Law; and (iii) will not breach, or result in the imposition of any Lien upon any of its assets (other than Permitted Liens) under, any of its Charter Documents or any agreement or other requirement by which it or any of its properties may be bound or affected. Each of the Borrower Documents has been duly executed and delivered by the Borrower and is a legal, valid, and binding obligation of the Borrower, enforceable in accordance with its terms. Except for Consents referred to in Schedule 4.04 ( Consents ), all of which have been or shall be duly obtained, taken, given or made on or prior to the time set forth therein, no Consent of any Person is required in connection with the Borrower’s execution, delivery, performance, validity, or enforceability of any of the Borrower Documents.

(c) Financial Condition . The Borrower’s audited Financial Statements for the year ended December 31, 2011, which have been furnished to OPIC and any other Financial Statements that have been furnished to OPIC pursuant to Section 6.06 ( Financial Statements and Other Information ), are complete and correct and fairly present its financial condition and results of its operations for the period then ended, subject, in the case of quarterly unaudited financial statements, to the absence of footnotes and customary year-end adjustments. The Borrower has no material financial obligation, contingent or otherwise, of any kind except as disclosed in such Financial Statements. No change has occurred in the

 

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Borrower’s financial condition or prospects from that set forth in such Financial Statements that could be a Material Adverse Effect, and, since the date thereof, no dividend, Restricted Payment or Shareholder Payment has been declared or paid to the Shareholder or any other Person, except as permitted in Section 7.04 ( Restricted Payments and Shareholder Payments ) or, prior to the Cut-Off Date (except as set forth in Schedule 3.01(c)), as permitted under the Subordinated DFI Credit Agreements.

(d) Capitalization . (i) The Borrower’s issued share capital is as set forth on Schedule 3.01(d) ( Capitalization ). All such shares have been duly authorized and validly issued and are fully paid and nonassessable. There are no rights or claims of any character that restrict the transfer of, require the issuance of, or otherwise relate to any class of the Borrower’s shares other than (x) prior to the first Disbursement, as set forth in the DFI Share Pledge (as defined in Schedule Z) and (y) from and after the first Disbursement, as set forth in the Share Pledge. (ii) One hundred percent (100%) of the Borrower’s shares are directly owned by the Intermediate Shareholder and indirectly owned by the Shareholder in the manner set forth in Schedule 3.01(d) ( Capitalization ). The Borrower does not own or otherwise control any voting stock of, or have any ownership interest in, any other Person.

(e) Liens . The Security Documents are, or upon filing and registration will be, effective to create in favor of OPIC legal, valid, and enforceable first priority Liens (subject only to Permitted Liens) on all of the Borrower’s assets intended to be covered thereby. The Borrower does not have outstanding, nor is it contractually bound to create, any Lien on or with respect to any of its assets, rights, or revenues, except as permitted by Section 7.01 ( Liens ).

(f) Taxes and Reports . The Borrower has filed all tax returns and reports required by Applicable Law to be filed and has paid (or provided adequate reserves for) all Taxes due.

(g) Defaults . No Default or Event of Default has occurred and is continuing. Neither the Borrower nor, to the best of the Borrower’s knowledge, any other party is in breach of any provision of any contract to which the Borrower is a party, which breach could be a Material Adverse Effect.

(h) Litigation . No action, suit, other legal or arbitral proceeding, or investigation is pending by or before any domestic or foreign court or Governmental Authority or in any arbitral or other forum or, to the best of its knowledge after due inquiry, is threatened in writing, that (i) relates to any of the transactions contemplated by any Transaction Document, or (ii) if adversely determined, could be a Material Adverse Effect.

(i) Compliance with Law; Corrupt Practices; Anti-Money Laundering; Anti-Corruption Handbook.

(i) The Borrower has conducted and is conducting its business in compliance with (A) Corrupt Practices Laws, Environmental Laws and Worker Rights Requirements and (B) in all material respects, all other Applicable Laws, all Consents set forth on Part A of Schedule 4.04 ( Consents ) and its Charter Documents. Part A of Schedule 4.04 ( Consents ) sets forth each Consent necessary for the conduct of the Borrower’s business as presently conducted and that is required for the implementation of the Project and each such Consent has been obtained, or, in the case of the ERC Consent, will be clarified as described in Schedule 4.04 ( Consents ) prior to the first Disbursement of the Loans, by the Borrower and is, or, in the case of the ERC Consent, will be, in full force and effect. Part B of Schedule 4.04 ( Consents ) sets forth each Consent that is required to be obtained at a later date for the implementation of the Project and is ministerial in nature or is of a type that can reasonably be expected to be obtained, as required, in a timely fashion in the normal course of development and construction of the Project.

 

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(ii) Without limiting the effect of clause (i) above, the Borrower and its officers, directors, employees, and agents have complied with applicable Corrupt Practices Laws in obtaining all Consents in respect of the Borrower’s business and the Project and are otherwise conducting the Project and the Borrower’s business in compliance with applicable Corrupt Practices Laws. The Borrower’s internal management and accounting practices and controls are sufficient to provide reasonable assurances of compliance with applicable Corrupt Practices Laws and the prevention of Prohibited Payments. Neither the Borrower nor any Person acting on behalf of the Borrower has made any Prohibited Payment.

(iii) The Borrower is in compliance with the applicable requirements of (A) the Anti-Money Laundering Laws, (B) OFAC Regulations, and (C) all other applicable export control, anti-boycott and economic sanctions laws of the U.S. and other jurisdictions relating to its business and facilities.

(iv) None of the Borrower, its directors, members of senior management, or the Persons listed on Schedule 3.01(d) ( Capitalization ), is a Person included in the OFAC List.

(v) An Authorized Officer of the Borrower has received and reviewed the Anti-Corruption Handbook.

(j) Good Title, Use of Site; Easements, Property Interests, Utilities, Etc . The Borrower owns and has good, legal and marketable title to the Project Property (which comprises part of the Site) comprised in and subject to the provisions set forth in the Land Grant. The Borrower has (subject only to the provisions of the Land Grant, the Site Agreement, and the License) a lawful, valid, exclusive and irrevocable right of use of those parcels of land comprising the Site, in each case free and clear of all Liens (other than Permitted Liens). There is no parcel of land comprised in the Land Grant that will not be subject to a valid, effective and first-priority Lien created by the Legal Charge. The Borrower has (subject only to the provisions of the Land Grant, the Site Agreement, and the License) a lawful, valid, exclusive and irrevocable right of use and a possessory interest in all necessary easements and other rights of ingress to and egress from the Site and lawfully possesses a valid and subsisting leasehold estate in and to all of its leased property (if any) in each case free and clear of all Liens (other than Permitted Liens). Other than the rights referred to in the preceding sentences, no property rights (including easements or other rights of ingress or egress) are required or can reasonably be expected to be necessary for the design, development, construction, supply, start-up, commissioning, testing, financing, implementation, operation or maintenance of the Project in accordance with Applicable Law and the Transaction Documents. All utility and other services, means of transportation, facilities, other materials, and other rights that are or can reasonably be expected to be necessary for the Project in accordance with Applicable Law and the Transaction Documents have been procured or are commercially available to the Project. The Borrower validly owns and has a valid right to use all Intellectual Property Rights necessary for the Project. The Borrower is not aware of any non-compliance with respect to the Land Grant, the Site Agreement or the License that would adversely affect the Borrower's right to use the Site to implement the Project.

(k) Environmental, Health and Safety Matters . The Borrower has duly complied, and its business, operations, and assets, and the Project, are materially in compliance, with (i) the Environmental and Social Requirements and (ii) all Applicable Laws regarding the environment, health and safety and social performance. With respect to air emissions, discharges to surface water or ground water, noise emissions, solid or liquid waste disposal, the use, generation, storage, transportation, or disposal of toxic or hazardous substances or wastes, or other environmental, health, or safety matters, the Borrower (A) has been issued and will maintain all required Consents, (B) has received no written complaint, order, directive, claim, citation, or, since January 5, 2009, notice by any Governmental Authority and (C) has received no written complaint or claim from any Person seeking damages, contribution, indemnification,

 

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cost recovery, compensation, or injunctive relief that in the Borrower’s reasonable judgment has had, or could reasonably be expected to have, a Material Adverse Effect.

(l) Project Cost and Completion . The Borrower’s estimate of total Project Costs (including contingencies) is the equivalent of three hundred eighty one million seven hundred sixty five thousand Dollars ($381,765,000) based on the financial plan set forth on Schedule 3.01(l) ( Financial Plan ) (the “ Financial Plan ”), and the Borrower’s good faith estimate of the date on which it will achieve Project Completion is not later than June 30, 2013.

(m) Disclosure . All documents, reports, and other written information that have been furnished to OPIC are true and correct in all material respects and do not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained herein or therein when taken as a whole not materially misleading in light of the circumstances in which the same were made at the time such statements were made, provided, however, that with respect to any information that is in the nature of projections or estimates of future performance, including without limitation any information relating to the performance of the geothermal reservoir, the Borrower represents and warrants only that such projections and such other information were prepared and provided in good faith based on assumptions that are reasonable, but makes no representation or warranty as to the accuracy of such projections. There is no fact known to the Borrower the existence of which could be a Material Adverse Effect. No condition has arisen since the Borrower’s application for the Loans dated as of June 2nd, 2011 (submission code jBRT922F), that has or could be a Material Adverse Effect.

(n) Accounts . The Borrower does not own or maintain any accounts with a bank or other financial institution other than the Accounts, the CER Account and, prior to the first Disbursement of the Loans, the DFI Accounts.

(o) Suspension and Debarment . No event has occurred and no condition exists that is likely to result in the debarment or suspension of the Borrower from contracting with the U.S. Government or any agency or instrumentality thereof, and the Borrower is not now and has not been subject to any such debarment or suspension.

(p) ERISA and Employees . Neither the Borrower nor any ERISA Affiliate sponsors, maintains, administers, contributes to, participates in, or has any obligation to contribute to or any liability or potential liability under, any Guaranteed Pension Plan or Multiemployer Plan and neither the Borrower nor any ERISA Affiliate has ever sponsored, maintained, administered, contributed to, participated in, or had any obligation to contribute to or any liability or potential liability under, any Guaranteed Pension Plan or Multiemployer Plan. The Borrower does not sponsor, maintain, administer, contribute to, participate in, or have any obligation to contribute to or any liability or potential liability under, any Employee Benefit Plan.

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

(r) Margin Regulation . No part of the proceeds of the Loans will be used for purchasing or carrying any margin stock within the meaning of Regulation U, or for any purpose that violates any regulation of the Board of Governors of the Federal Reserve System.

(s) Regulation of Parties . None of the Borrower, its Affiliates nor OPIC is or will be, solely as a result of the participation by such parties separately or as a group in the transactions contemplated hereby or by any other Transaction Document, or as a result of the ownership, use, or operation of the

 

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Project (including ownership, use, or operation of the Project upon an exercise of remedies under the Security Documents), subject to regulation by any governmental authority of the U.S. as a “public utility”, an “electric utility”, an “electric utility holding company”, a “public utility holding company”, a “holding company”, or an “electrical corporation” or a subsidiary or affiliate of any of the foregoing under any Applicable Law, as a “public utility” or the equivalent under any Applicable Law of the Project Country.

(t) Other Liabilities . (i) The Borrower is not a party to, or committed to enter into, any contract other than the Transaction Documents which individually or in the aggregate could reasonably be expected to materially affect the judgment of a prospective investor, (ii) other than the Subordinated DFI Loans and the PROPARCO Loan, the Borrower has not engaged in any business other than such business resulting from the implementation of the Transaction Documents to which it is a party and participating in the transactions contemplated thereby, and (iii) except as provided in the Transaction Documents, the Borrower is not a party to any contracts or agreements with, or obliged with respect to any other commitments to, whether or not in the ordinary course of business, any Affiliate of the Borrower.

(u) Other Parties; Transaction Documents . (i) To the Borrower’s knowledge after due inquiry, each of the Transaction Documents constitutes the legal, valid and binding obligation of each party thereto (other than the Borrower and OPIC) enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, reorganization or other similar laws affecting creditors’ rights and general principles of equity; and (ii) following the date of this Agreement, none of the Transaction Documents to which the Borrower is a party has been amended, modified or terminated, except in accordance with this Agreement or as disclosed to OPIC and consented to in writing by OPIC.

(v) Project Documents . Except for services, materials or rights that can reasonably be expected to be available on commercially reasonable terms at the time required, the Project Documents required to be executed by the relevant Closing Date in accordance with the terms hereof constitute all contracts, agreements, leases, or other documents or instruments that are necessary for the (i) construction, completion, operation and ownership of the Project as of such date and (ii) the conduct of the business of the Borrower as contemplated by the Transaction Documents and the Financial Model.

(w) Ranking . The Obligations constitute unconditional and unsubordinated Indebtedness of the Borrower and rank at all times at least pari passu in priority of payment with all other present and future unsubordinated Indebtedness of the Borrower.

(x) Payment of Contractors and Subcontractors . All contractors and suppliers performing Works before the Cut-Off Date (other than the Key Contractors) have been paid in full for such Works, except for amounts (i) that are, in the aggregate, less than one hundred thousand dollars ($100,000) and (ii) that the failure to pay could not reasonably be expected to materially adversely affect the Project or impair operation of the Project. Part A of Schedule 3.01(x) sets forth a complete list of all contractors and suppliers (other than the Key Contractors) that, since the Cut-Off Date and until July 31, 2012, have performed Works. All such Works have been paid in full except as set forth in Part B of Schedule 3.01(x). Part B of Schedule 3.01(x) sets forth a list of all contractors and suppliers (other than the Key Contractors) that, since July 31, 2012, have performed or will perform Works and all amounts remaining to be paid (or projected to be paid) to each such contractor and supplier that, since the Cut-Off Date, is performing or will perform Works.

(y) Each of the foregoing representations and warranties (a) through (x) shall be deemed to be made as of the date hereof and as of each Closing Date. To the extent that any schedule referred to in this Section 3.01 shall need to be updated in order to permit such representation to be true and correct when made or deemed to be made, the Borrower shall provide OPIC with such updated schedule in

 

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writing prior to the date such representation is deemed made and shall request that this Agreement be amended in accordance with Section 9.06 ( Integration; Amendments ). Unless this Agreement is amended to reflect the changes in any such schedule, no change shall be deemed to have been made and no Modification Fee shall be due and payable by the Borrower for any such update.

ARTICLE IV

CONDITIONS PRECEDENT TO THE FIRST DISBURSEMENT OF LOANS

Unless OPIC otherwise agrees in writing, the obligation of OPIC to make the Disbursement of the Tranche I Loan and the first Disbursement of the Tranche II Loan is subject to the prior fulfillment, to OPIC’s satisfaction in its sole discretion, of the following conditions precedent and to their continued fulfillment on the first Closing Date:

SECTION 4.01. Authorization.

OPIC shall have received a certificate of an Authorized Officer of the Borrower dated the Closing Date, substantially in the form of Exhibit B-1 and of the Shareholder, dated as of the Closing Date, substantially in the form of Exhibit B-2.

SECTION 4.02. Transaction Documents.

(a) OPIC shall have received the following documents, each of which shall be satisfactory to OPIC in form and substance, shall have been duly executed by the parties thereto, and shall be in full force and effect in accordance with its terms without default:

(i) duly executed originals (or, at OPIC’s election, Certified copies) of (i) each of the following documents (the “ Loan Documents ”):

 

  (A) this Agreement;

 

  (B) the Note issued in connection with the Disbursement; provided that any Note executed after the date hereof in connection with a subsequent Disbursement shall be included in the definition of “Loan Document”;

 

  (C) the Equity Contribution and Share Retention Agreement;

 

  (D) the Accounts Agreement;

 

  (E) the DFI Subordination Agreement;

 

  (F) the Closing Coordination Agreement; and

 

  (G) the Funding Documents; and

(ii) each of the following documents (the “ Security Documents ”):

 

  (A) the New York Security Agreement;

 

  (B) the Share Pledge;

 

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  (C) the Debenture;

 

  (D) the Legal Charge;

 

  (E) the Direct Agreements;

 

  (F) each Release; and

 

  (G) each document that is necessary for the creation and perfection, in favor of OPIC, of a valid and enforceable, first-priority Lien on all of the Borrower’s assets, of whatever kind and nature, whether tangible or intangible, and wherever situated, both now owned and hereafter acquired, including all accounts receivable, inventory, general intangibles, equipment, real and personal property, accounts, rights under all project agreements, and in the proceeds thereof and certain other collateral specified in the Security Documents.

(b) OPIC shall have received copies of the Original Project Documents, each of which shall be satisfactory to OPIC in form and substance, shall have been duly executed by the parties thereto, and shall have been Certified.

SECTION 4.03. Ownership.

OPIC shall have received evidence satisfactory to it that the Shareholder holds 100% of the legal and beneficial title to the equity of the Intermediate Shareholder, and the Intermediate Shareholder holds 100% of the legal and beneficial title to the equity of the Borrower, as set forth in Schedule 3.01(d) ( Capitalization ).

SECTION 4.04. Consents.

OPIC shall have received Certified copies of all Consents (a) listed in Part A of Schedule 4.04 ( Consents ) and (b) that are necessary or advisable, in each case, for (i) the Financing Documents, and the payment of all amounts due or to become due with respect thereto, not to be subject to any Taxes and (ii) the execution, delivery, and performance by the Borrower and by the Shareholder of each Transaction Document to which they are a party, and all such Consents shall be in full force and effect and not subject to appeal. All Consents required at a later date are listed in Part B of Schedule 4.04 ( Consents ) and each such Consent shall be capable of being obtained as and when indicated in such schedule.

SECTION 4.05. Site.

OPIC shall have received evidence in form and substance satisfactory to it that the Borrower, holds lawful, valid, exclusive and irrevocable leasehold rights (only in the case of the Project Property) and rights to use the entire Site and the geothermal resource (in all such cases subject only to the provisions of the Land Grant, the Site Agreement, and the License), together with lawful, valid, exclusive and irrevocable right of use and a possessory interest in all necessary easements and other rights of ingress and egress for the development, construction, operation and maintenance of the Project free and clear of any Liens other than Permitted Liens (in all such cases subject only to the provisions of the Land Grant, the Site Agreement, and the License), and that such Site (together with such easements and rights of ingress and egress) is sufficient for the Borrower to develop, construct, operate and maintain the Project as contemplated by the Transaction Documents.

 

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SECTION 4.06. Security Interest.

Each Lien created by the Security Documents shall be of first priority (subject only to Permitted Liens) and (a) to the extent it arises or attaches under the Uniform Commercial Code enacted in any jurisdiction in the U.S., shall be perfected, and (b) in all other cases, shall be enforceable against the Borrower and third parties (including any holder of a subsequently established Lien). Each of the Security Documents shall be in full force and effect and shall have been duly filed and registered or recorded in every jurisdiction in which such filing and registration or recording is necessary to make valid and effective the Liens intended to be created thereby and the rights of OPIC thereunder, and OPIC shall have received evidence satisfactory to it that such filing and registration or recording has been made. In addition, the Borrower shall have executed all such other agreements or documents, or taken any actions that, in the opinion of counsel to OPIC, are necessary or advisable to secure the payment of all amounts due or to become due hereunder and under the Notes with valid, enforceable, first-priority Liens on all of the Borrower’s assets and the shares of capital stock of the Borrower. Each DFI Lien shall have been released and each DFI Security Document shall have been terminated.

SECTION 4.07. Insurance.

OPIC shall have received Certified copies of the Insurance Policies (and reinsurance policies, as applicable) required by and issued in accordance with Section 6.04 ( Maintenance of Insurance ), together with evidence that all premiums then due and payable under such Insurance Policies have been paid and such policies are in full force and effect without default.

SECTION 4.08. Auditors.

OPIC shall have received evidence that the Borrower has irrevocably instructed its auditors to respond directly to written communications from OPIC at any time regarding the Borrower’s accounts and operations, provided, that, OPIC shall provide the Borrower with copies of its communications to the auditors, including notices and requests for information, and will provide the Borrower with reasonable prior written notice of any discussions or meetings and a reasonable opportunity to participate in the same.

SECTION 4.09. Legal Opinions.

OPIC shall have received acceptable written opinions, dated the Closing Date, satisfactory to OPIC in form and substance, of (a) Walker Kontos Advocates, its legal counsel in the Project Country, (b) Kaplan & Stratton Advocates, the Borrower’s legal counsel in the Project Country, (c) Maples and Calder, the Borrower’s legal counsel in the Cayman Islands, (d) Clifford Chance US LLP, its legal counsel in the U.S., with respect to OPIC funding matters, (e) Chadbourne & Parke LLP, the Borrower’s legal counsel in the U.S., (f) Chadbourne & Park LLP, the Supplier’s legal counsel in the U.S., (g) Chadbourne & Park LLP, the Coordinator’s legal counsel in the U.S., (h) Hamilton Harrison & Mathews, KPLC’s legal counsel in Kenya, (i) Adrian Burke & Associates, Marriott’s legal counsel in Kenya, and (j) Chadbourne & Parke LLP, Geodrill’s legal counsel in the U.S.

SECTION 4.10. Appointment of Agent.

OPIC shall have received evidence that each agent for service of process (a) referred to in Section 8.03(c) ( Jurisdiction and Consent to Suit; Waivers ) with relation to the Borrower and (b) required to be appointed by any other party pursuant to the Financing Documents has been duly appointed and holds such appointment without reservation until six (6) months after the Tranche II Maturity Date, together with evidence of the prepayment in full of the fees of such agent.

 

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SECTION 4.11. Accounts.

Each of the Accounts shall have been established and, if applicable, funded in accordance with the terms of the Accounts Agreement, all amounts on deposit in each DFI Account shall have been transferred pursuant to the Closing Coordination Agreement and the DFI Accounts shall have been closed pursuant to the Closing Coordination Agreement.

SECTION 4.12. D-U-N-S Number; TIN.

The Borrower shall have (a) obtained a D-U-N-S ® number issued by Dun & Bradstreet, Inc. and provided such number to OPIC in writing and (b) the Borrower shall have provided to OPIC (i) its U.S. Taxpayer Identification Number or (ii) an explanation as to why it does not have or need a U.S. Taxpayer Identification Number.

SECTION 4.13. Financial Projections.

OPIC shall have received a Financial Model, including projected financial statements prepared on the basis of the Accounting Principles, which shall be satisfactory to OPIC in form and substance.

SECTION 4.14. Construction Budget; Construction Schedule.

OPIC shall have received an updated Construction Budget and Construction Schedule for completion of the Project, each of which shall be satisfactory to OPIC.

SECTION 4.15 Environmental and Social Requirements.

The Borrower shall deliver a copy of the Environmental Monitoring Program, which shall be prepared in accordance with the Environmental and Social Requirements and will incorporate, inter alia , (a) an overarching policy statement of environmental and social objectives and principles appropriate to the size and nature of the Project and of the Borrower’s organization that will be used to permit the Project to achieve sound and sustainable environmental and social performance; and (b) a grievance mechanism appropriate to the size and nature of the Project and of the Borrower’s organization for the Borrower to receive and facilitate resolution of concerns and grievances about the environmental and social performance of the Project and the Borrower’s organization.

SECTION 4.16 Due Diligence .

OPIC shall have completed to its satisfaction its due diligence investigation of the Borrower, the Shareholder, the Project and all other matters relating thereto, and the results of such investigations shall be satisfactory to OPIC.

SECTION 4.17 Reports.

OPIC shall have received copies of the following reports in each case in form and substance satisfactory to OPIC: (a) the final report from OPIC’s Independent Engineer confirming: (i) the satisfactory operational performance of Plant 1, (ii) matters relating to the construction of Plant 2, (iii) the adequacy of the geothermal resource to comply with the Borrower’s obligations under the PPA in respect of Plant 1 and Plant 2 (without giving effect to any reduction pursuant to Section 9.8A thereof), and (iv) any Disbursement is needed to pay Project Costs incurred in excess of the Equity Contributions required to be made pursuant to the Equity Contribution and Share Retention Agreement prior to the date of the Disbursement of the Tranche I Loan and the first Disbursement of the Tranche II Loan or that are due or will become due and payable within ninety (90) days of the Disbursement Request for the Tranche I Loan

 

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and the first Disbursement of the Tranche II Loan; (b) the Independent Engineer’s Closing Certificate, dated as of the date of the first Disbursement substantially in the form of Exhibit C; (c) the final report from OPIC’s Financial Model auditor; (d) the final report and opinion letter from OPIC’s tax consultant and (e) the final report and certificate dated the date of the first Disbursement from OPIC’s insurance advisor. Each such report shall, unless otherwise provided, (x) be dated not more than five (5) days prior to the first Closing Date or (y) be accompanied by a bring-down certificate (dated not more than five (5) days prior to the first Closing Date) from the relevant party certifying the statements made in its report remain true, correct and complete.

SECTION 4.18 Operational Matters.

(a) OPIC shall have received an Annual Operating Budget and Maintenance Plan for operation and maintenance of Plant 1 for the remainder of the Fiscal Year that includes the first Disbursement, each of which shall be satisfactory to OPIC.

(b) OPIC shall have received a complete set of as-built plans and specifications for Plant 1 and a copy of the O&M Manual, together with copies of all operating procedures agreed with (or specified by) KPLC pursuant to Section 8.5 of the PPA (if any).

(c) OPIC shall have received a complete list of the then current spare parts inventory with respect to Plant 1, including a reasonable cost estimate for such inventory.

(d) OPIC shall have received a copy of the then current Plant 1 maintenance log.

SECTION 4.19 Geothermal Resource.

Each of the following shall have occurred with respect to the geothermal resource: (i) the Borrower is diligently pursuing the Drilling Program, (ii) the Borrower shall be in compliance with the Reservoir Monitoring Plan and (iii) OPIC shall have received the Reservoir Monitoring Report most recently required to be delivered pursuant to Section 6.02(e) hereof.

SECTION 4.20 Ratio of Cash Flow to Debt Service.

As of the date of such Disbursement, after giving effect to the Disbursements made on such date, the minimum projected ratio of Cash Flow to Debt Service, calculated as provided in Section 6.11(a) ( Financial Ratios; Debt Service Reserve ), shall be not less than 1.4:1.0.

SECTION 4.21 Funding Arrangements.

Suitable arrangements shall have been made for funding the Loan (all agreements and documents required in connection with such funding arrangements are collectively referred to herein as the “ Funding Documents ”), which funding arrangements and Funding Documents shall be satisfactory to OPIC in form and substance, including without limitation satisfaction by the Borrower of all conditions precedent to the obligations of any other party to the Funding Documents and performance by the Borrower of all other obligations on its part to be performed prior to the making of the first Disbursement pursuant to any Transaction Document.

 

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SECTION 4.22 Anti-Corruption Handbook.

OPIC shall have received confirmation in the form of an acknowledgement Certified by an Authorized Officer of the Borrower, that each of the Senior Officers of the Borrower has received and reviewed a copy of the Anti-Corruption Handbook.

SECTION 4.23 PPA Notice Requirements.

OPIC shall have received copies of each Project Document delivered to KPLC pursuant to Section 21.1(d) of the PPA, both for Plant 1 and Plant 2 (together with transmittal letters to KPLC evidencing delivery thereof).

ARTICLE V

CONDITIONS PRECEDENT TO EACH DISBURSEMENT

Unless OPIC otherwise agrees in writing, the obligation of OPIC to make each Disbursement of the Loans (including the Disbursement of the Tranche I Loan and the first Disbursement of the Tranche II Loan) is subject to the prior fulfillment, to OPIC’s satisfaction in its sole discretion, of the following conditions precedent and to their continued fulfillment on each Closing Date:

SECTION 5.01. Disbursement Request.

The Borrower shall have delivered a Disbursement Request in accordance with Section 2.01(c) ( Disbursement; Term ).

SECTION 5.02. Representations and Defaults.

Each of the representations and warranties of the Borrower set forth in this Agreement and of the Borrower and the Shareholder in each of the other Financing Documents to which either is a party shall be true and correct in all material respects (except with respect to any provision including the word “material” or words of similar import, with respect to which such representations and warranties shall be true and correct) on such Closing Date as if made on such Closing Date after giving effect to such Disbursement or if such representation relates exclusively to an earlier date, as of such earlier date, and on such Closing Date no Default or Event of Default shall have occurred and be continuing or will result from the making of such Disbursement or from the application of the proceeds thereof.

SECTION 5.03. No Event of Default; Change in Circumstances.

Both before and after giving effect to the Disbursement, no Default or Event of Default shall have occurred or be continuing and nothing shall have occurred and be continuing that, in the reasonable judgment of OPIC, could be a Material Adverse Effect.

SECTION 5.04. Note.

The Borrower shall have furnished OPIC with one or more executed Notes issued in connection with the Disbursement, dated the Closing Date.

 

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SECTION 5.05. Closing Certificate.

The Borrower shall have furnished OPIC with a certificate of an Authorized Officer, dated the Closing Date, substantially in the form of Exhibit D, which shall include Certified copies of all Project Documents entered into subsequent to the immediately preceding Closing Date.

SECTION 5.06. Financial Information and Project Progress.

(a) Not less than ten (10) Business Days before such Closing Date, OPIC shall have received all Financial Statements, reports, and other information that the Borrower, pursuant to Section 6.06 ( Financial Statements and Other Information ), would otherwise be required to furnish to OPIC on or before such Closing Date, provided, that, the Borrower shall not be required to provide a statement from the Borrower’s auditor required to be provided under Section 6.06(b)(ii) ( Financial Statements and Other Information ) in connection with the first Disbursement.

(b) Not more than ten (10) Business Days before such Closing Date, OPIC shall have received a certificate from the Borrower, satisfactory to OPIC in form and substance, confirming that, with respect to each report delivered pursuant to clause (a), such report is true and correct in all material respects as of such date or, if there has been a change in the matters set forth therein, updating the relevant information.

SECTION 5.07. Payment or Reimbursement of Expenses.

All Fees and other amounts due, payable or reimbursable by the Borrower with respect to the Loans on or prior to the Closing Date shall have been paid in full.

SECTION 5.08. Central Bank Registration; Consents.

OPIC shall have received evidence satisfactory to it, as may be required by Applicable Law with respect to each Disbursement other than the first Disbursement, that the Borrower has taken all steps necessary to obtain any Consents necessary with respect to each such Disbursement. OPIC shall have received Certified copies of such Consents or copies of such certificates, legal opinions, or other documents, satisfactory to OPIC in form and substance, as OPIC shall have requested to evidence such Consents.

SECTION 5.09. Equity Contributions.

The Shareholder (either directly, through the Intermediate Shareholder or from the Borrower’s Cash Flow available for distribution in accordance with this Agreement) shall have made all equity investments in, or loans to, the Borrower in cash as required by the Equity Contribution and Share Retention Agreement and OPIC shall have received evidence satisfactory to it that such equity investments have been made as provided therein.

SECTION 5.10. Debt Service Reserve Requirement.

OPIC shall have received evidence that funds or assets on deposit in the Debt Service Reserve Account have a market value at least equal to the Debt Service Reserve Requirement.

SECTION 5.11. Debt to Equity Ratio .

The Debt to Equity Ratio shall be no greater than 75:25 after giving effect to such Disbursement.

 

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SECTION 5.12. Project Costs.

OPIC shall have (i) in consultation with the Independent Engineer, received, reviewed and approved the milestones reached and invoices received in respect of Project Costs incurred (a) after the Cut-Off Date, in connection with the first Disbursement, and (b) since the previous Disbursement, in connection with any subsequent Disbursement and (ii) received written confirmation from the Borrower’s auditor confirming that the Project Costs incurred through the end of the fiscal quarter most recently ended prior to such Disbursement are in accordance with the accounting records of the Borrower.

SECTION 5.13. Funding Arrangements.

Suitable arrangements shall have been made for funding such Disbursement, in accordance with the Funding Documents, which funding arrangements shall be satisfactory to OPIC in form and substance, including without limitation satisfaction by the Borrower of all conditions precedent to the obligations of any other party to the Funding Documents and performance by the Borrower of all other obligations on its part to be performed prior to the making of such Disbursement pursuant to any Transaction Document.

SECTION 5.14. Insurance.

OPIC shall have received evidence that all Insurance Policies (and reinsurance policies, as applicable) required by and issued in accordance with Section 6.04 ( Maintenance of Insurance ) are in full force and effect.

SECTION 5.15. Independent Engineer Certificate.

Except as provided pursuant to Section 4.17(a) ( Reports ) in connection with the initial Closing Date, OPIC shall have received from the Independent Engineer not later than ten (10) Business Days prior to any other Closing Date (or such shorter period as OPIC shall have agreed) a certificate dated as of such Closing Date substantially in the form of Exhibit C.

SECTION 5.16. Lien Waivers.

OPIC shall have received copies of all Lien waivers related to the Works required to be obtained pursuant to Section 6.02(h) hereof.

SECTION 5.17. Other Documents.

OPIC shall have received any document required to have been delivered pursuant to Section 6.03 ( Maintenance of Rights and Compliance with Laws ) or Section 6.15 ( Additional Project Documents ), Project Documents delivered to KPLC pursuant to Section 21.1(d) of the PPA (together with transmittal letters to KPLC evidencing delivery thereof) not previously delivered pursuant to Section 4.23 hereof ( PPA Notice Requirements ) and any such other certificates, opinions, agreements, and documents customary for transactions of the type contemplated by this Agreement, and translations of any of the foregoing, each satisfactory to OPIC in form and substance, as it may reasonably request.

 

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ARTICLE VI

AFFIRMATIVE COVENANTS

Unless OPIC otherwise agrees in writing, so long as the Commitments remain outstanding or until all amounts due and to become due hereunder and under the Notes shall have been indefeasibly paid in full, the Borrower agrees as follows:

SECTION 6.01. Use of Proceeds; Project Completion.

(a) The Borrower shall (i) implement the Project promptly in accordance with the Construction Budget and the Construction Schedule and (ii) apply the proceeds of the Tranche I Loan exclusively to (A) fund the Intermediate Shareholder Loan, (B) prepay the PROPARCO Indebtedness and, subject to OPIC’s consent, a portion of the Subordinated DFI Indebtedness, and (C) subject to Section 5.11 ( Debt to Equity Ratio ), repay Pre-Closing Costs.

(b) The Borrower shall apply the proceeds of the Tranche II Loan exclusively to (i) the development, construction and start-up of Plant 2, (ii) make certain modifications to Plant 1, and (iii) subject to Section 5.11 ( Debt to Equity Ratio ), repay Pre-Closing Costs.

(c) The Borrower shall use its best efforts to cause Project Completion to be achieved on or prior to June 30, 2013. The Borrower shall not make any investments or conduct any business unrelated to the Project. If the Borrower becomes unable to achieve Project Completion, or becomes unable to meet its other obligations prior to Project Completion, the Borrower shall promptly so notify OPIC.

SECTION 6.02. Company Construction, Drilling and Operations.

(a) The Borrower shall duly and punctually perform its obligations under each of the Borrower Documents.

(b) The Borrower shall in accordance with and subject to the terms of the PPA, the other GoK Agreements, the Consents set forth in Part A of Schedule 4.04 ( Consents ), the Consents set forth in Part B of Schedule 4.04 ( Consents ) to the extent then applicable to the Project, applicable legal requirements and Good Industry Practice, (i) diligently, duly and properly perform and complete (or cause to be performed and completed) the Works in accordance with the Construction Budget and the Construction Schedule; (ii) procure, provide and pay for all items and services necessary for the proper execution and completion of the Works, including all design, engineering, procurement, installation and construction services, all administration, management, training and coordination, all commissioning, testing and verification services, and all labor, plant, materials, permits, licenses, inspections, storage and transportation, and all other items, facilities and services necessary to perform the Works, (iii) complete the design, engineering, construction and installation of the Project as required by the PPA, the Supply Agreement and Coordination Contract, (iv) provide advance notice of completion testing so that the Independent Engineer may attend such testing, (v) provide a test report for review by the Independent Engineer that presents the results of the completion testing including all calculations to correct the Plant 1 and Plant 2 performance to the ambient conditions that are the basis for the guarantees in the Supply Agreement and the Coordination Contract, and (vi) promptly remedy defects in the Works in accordance with Good Industry Practice.

(c) The Borrower shall comply with the Reservoir Monitoring Plan and maintain the geothermal resource, the wells and the surface facilities at all times in compliance with its obligations under the PPA and in accordance with Good Industry Practice.

 

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(d) The Borrower shall conduct its business and operations in accordance with the O&M Parameters and otherwise in accordance with (i) Good Industry Practice and on an arm’s-length basis, with due diligence and efficiency and under the supervision of qualified and experienced management, (ii) the conditions to the Borrower’s warranties under the PPA, (iii) the terms and conditions of all Insurance Policies, (iv) all requirements of Applicable Law, all Consents set forth in Part A of Schedule 4.04 ( Consents ) and all Consents set forth in Part B of Schedule 4.04 ( Consents ) to the extent then applicable to the Project, and (v) the terms of the Project Documents and its Charter Documents, in each of the foregoing cases, in all material respects. The Borrower shall repair, replace, and protect each of its assets (ordinary wear and tear excepted) so that its business and the Project can be conducted in accordance with Good Industry Practice.

(e) Within thirty (30) days of the end of each of April and October, the Borrower shall provide a Reservoir Monitoring Report to OPIC.

(f) The Borrower shall provide OPIC prior written notice of any additional Contracted Plant Capacity Test (as such term is defined in the PPA).

(g) The Borrower shall provide OPIC with copies of all reports and material notices delivered by the Borrower to KPLC pursuant to the PPA.

(h) With respect to all Project Costs incurred in connection with the Works (i) after the Cut-Off Date but before the first Disbursement, the Borrower shall obtain Lien waivers from each Key Contractor related to such Works and deliver them prior to the first Disbursement as required by Section 5.16 and (ii) after the first Disbursement, the Borrower shall obtain Lien waivers from each relevant Key Contractor related to such Works within five (5) days of payment for any substantial portion of such Work. Any other contractor or supplier performing Works after the Cut-Off Date shall be listed in Part A of Schedule 3.01(x) and an estimate of all amounts owed or owing to such contractor or supplier shall be listed in Part B of Schedule 3.01(x), in each case as required pursuant to Section 3.01(x).

SECTION 6.03. Maintenance of Rights and Compliance with Laws.

The Borrower shall (a) obtain, maintain in full force and effect, and renew all Consents, leases and other rights in land, and franchises necessary for the conduct of its business and the performance of its obligations hereunder and under the other Transaction Documents; (b) conduct its business in compliance with all Environmental Laws, Corrupt Practices Laws, Worker Rights Requirements and its Charter Documents and, in all material respects, all other Applicable Laws and Consents; and (c) duly pay before they become overdue all Taxes levied or imposed in any jurisdiction upon its property, earnings, or business that, if not paid, could be a Material Adverse Effect, and all Indebtedness and other liabilities in a timely manner in accordance with normal business practices and with the terms governing the same, except amounts being contested in good faith by appropriate proceedings diligently pursued for which adequate reserves shall have been set aside in accordance with the Accounting Principles. To the extent that any Consent was not obtained by the Borrower prior to the first Disbursement, in accordance with Schedule 4.04 ( Consents ), the Borrower shall promptly deliver to OPIC a Certified copy of any such Consent obtained after the first Disbursement.

 

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SECTION 6.04. Maintenance of Insurance.

The Borrower shall:

(a) maintain or cause to be maintained in effect at all times insurance, with respect to the Project, against such risks and hazards, in such amounts, and in such form, as is usually carried by companies of a similar size that are engaged in the same or a similar business and that own similar properties in the same or similar geographic area as the Project, and in any event in compliance with the minimum insurance requirements set out in Schedule 6.04 ( Minimum Insurance Requirements );

(b) apply all Insurance Proceeds in accordance with the terms of Schedule 6.04 ( Minimum Insurance Requirements );

(c) enforce its rights under the Project Documents, to the extent that it has such rights, so as to ensure that any Person (other than the Borrower) required to provide insurance under a Project Document obtains and maintains Insurance Policies as required thereby; and

(d) observe and comply with each other obligation and agreement set forth in Schedule 6.04 ( Minimum Insurance Requirements ).

SECTION 6.05. Accounting and Financial Management.

(a) The Borrower shall (i) comply with Corrupt Practices Laws, (ii) maintain adequate accounting, management information and cost control systems; (iii) prepare its Financial Statements in accordance with the Accounting Principles; (iv) engage Kesselman & Kesselman, Certified Public Accountant (Isr.), a member of PricewaterhouseCoopers International Limited, or other independent internationally recognized accountants satisfactory to OPIC as its regular independent auditors; (v) notify OPIC of any change in such accountants and the reason therefor; and (vi) instruct such accountants to communicate directly with OPIC regarding the Borrower’s accounts and operations. Without limiting the foregoing, the Borrower shall maintain the systems described in clause (i) and related management and accounting policies and controls that are sufficient to provide reasonable assurances of compliance with applicable Corrupt Practices Laws and the prevention of Prohibited Payments.

(b) The Borrower shall comply with the applicable requirements of (i) the Anti-Money Laundering Laws, (ii) OFAC Regulations, and (iii) all other applicable export control, anti-boycott and economic sanctions laws of the U.S. and other jurisdictions relating to its business and facilities.

SECTION 6.06. Financial Statements and Other Information.

At its cost, the Borrower shall furnish to OPIC each of the following:

(a) Within forty-five (45) days after the end of each of the first three fiscal quarters of each Fiscal Year, its unaudited Financial Statements, all Certified by a Financial Officer as being true and complete and fairly presenting in all material respects the financial position, results of operations and cash flows of the Borrower as of the dates indicated and for the periods specified, subject to the absence of disclosures normally made in footnotes and to customary year-end adjustments, together with such officer’s certificate (i) that his or her review has not disclosed the existence of any Default or Event of Default, or, if any such Default or Event of Default then exists, specifying the nature and period of existence thereof and what action the Borrower has taken or proposes to take with respect thereto and (ii) demonstrating in reasonable detail the Borrower’s compliance with the financial ratios set forth in Section 6.11 ( Financial Ratios; Debt Service Reserve ) and the basis for such calculations;

 

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(b) (i) Within one hundred twenty (120) days after the end of each Fiscal Year, its audited Financial Statements, together with an auditor’s report in accordance with the Accounting Principles and (ii) a statement from the Borrower’s auditors to the effect that based on their examination, as of the date of the audited financial statements, the Borrower was in compliance with the financial ratios under Section 6.11 ( Financial Ratios; Debt Service Reserve ) of this Agreement;

(c) Until Project Completion, within twenty-one (21) days after the end of each month, a Construction Period Report substantially in the form set out in Schedule 6.06(c) ( Construction Period Report );

(d) (i) until Project Completion, not less than ten (10) Business Days prior to each Closing Date, an Operating Report for Plant 1 and, after Plant 2 COD, for Plant 2, substantially in the form set out in Schedule 6.06(d) ( Operating Report ), and (ii) after Project Completion, semi-annually, beginning on the first to occur of June 30 or December 31, an Operating Report substantially in the form set out in Schedule 6.06(d) ( Operating Report );

(f) Within forty-five (45) days after the end of each fiscal quarter, a Certified report setting forth in reasonable detail all transactions during the preceding fiscal quarter between the Borrower, on the one hand, and the Shareholder or any Affiliate of the Shareholder, on the other hand;

(g) Not later than June 30 of each year, beginning on June 30, 2013, the Self-Monitoring Questionnaire; and

(h) Copies of all other annual or interim reports and management letters submitted to the Borrower by its independent accountants, and such other information and data with respect to the Borrower’s operations, condition (financial or otherwise), assets, and prospects (including supporting information as to compliance with this Agreement) as OPIC may reasonably request from time to time.

SECTION 6.07. Annual Operating Budget.

(a) As soon as it is available, but in any event at least thirty (30) days prior to the commencement of each Fiscal Year, the Borrower shall submit to OPIC for approval by OPIC the Annual Operating Budget for such Fiscal Year prepared by the Borrower. Each Annual Operating Budget shall be consistent with the Financial Model and be accompanied by a certificate of an Authorized Officer of the Borrower certifying that the budget is a reasonable estimate for the period covered thereby and is in compliance with the requirements of this Section 6.07.

(b) A proposed Annual Operating Budget shall become effective on the later of (i) the first day of the relevant Fiscal Year and (ii) the date OPIC advises the Borrower that OPIC has approved such Annual Operating Budget. If OPIC does not approve an Annual Operating Budget, OPIC shall advise the Borrower of the items that are disapproved and the reason for such disapproval.

(c) If all or any part of an Annual Operating Budget is disapproved, the Borrower shall comply with all approved aspects of such Annual Operating Budget. With respect to those aspects of any Annual Operating Budget that are not approved, the Borrower and OPIC shall continue to discuss such aspects in good faith and the Annual Operating Budget for the preceding fiscal year related to such disapproved items shall be applicable and shall for all purposes hereof be deemed to be part of the approved Annual Operating Budget for the current Fiscal Year until such time as such aspects of the Annual Operating Budget for the current Fiscal Year have been approved in writing by OPIC.

 

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SECTION 6.08. Access to Records; Inspection; Meetings.

The Borrower shall, upon OPIC’s prior written request, give, or cause to be given, to any representatives of OPIC access during normal business hours to the Project (and, if maintained at a different location, the Borrower’s principal place of business) and permit them to (a) examine, copy, and make extracts from, any and all records and documents in the possession or subject to the control of the Borrower relating to its operations and financial affairs, and (b) inspect any of its facilities or properties. During the continuance of an Event of Default, the Borrower shall give OPIC not less than five (5) Business Days’ notice of, and shall permit an OPIC representative to attend (either in person or telephonically), each formal meeting of the Borrower’s shareholders and of its directors. In conducting any visit or inspection under this Section 6.08, OPIC and its representatives shall abide by and comply with all applicable health, safety and environmental policies and insurance requirements relating to the Project.

SECTION 6.09. Notice of Default and Other Matters.

The Borrower shall notify OPIC immediately of (a) the occurrence, to its knowledge, of any Default, (b) the occurrence of any Event of Default, and (c) any legal or arbitral proceedings against the Borrower that involve claims that either individually or in the aggregate at any given time exceed the equivalent of $500,000.

SECTION 6.10. Security Documents.

(a) The Borrower, at its own cost, shall take all actions necessary to maintain each of the Security Documents in full force and effect and enforceable in accordance with its terms, and to preserve OPIC’s security interests thereunder, including (i) maintaining all filings and recordations, (ii) paying fees and other charges, (iii) issuing supplemental documentation and continuation statements, (iv) discharging all Liens or other claims adversely affecting the rights of OPIC in the property subject to any Security Document (other than Permitted Liens), (v) publishing or otherwise delivering notice to third parties, (vi) delivery of title documents, and (vii) taking all actions necessary to ensure that all after-acquired property of the Borrower is subject to a valid and enforceable, perfected first priority Lien in favor of OPIC within sixty (60) days after the acquisition of such property.

(b) Without limiting the generality of subsection (a) above, in the event that any Governmental Authority issues or adopts any new Applicable Law relating to the creation, preservation, registration, perfection, protection or enforcement of security interests in assets of the same character as those covered by the Security Documents, or issues any clarifications of any existing Applicable Law relating to the same, the Borrower shall, at its own cost, execute and deliver all such additional amendments, assignments, certificates, instruments, notifications, or other documents and give further assurances and do all such other acts and things as OPIC shall reasonably request or as may be provided for in such new Applicable Law or any clarifications of any existing Applicable Law, to create, preserve, register, perfect, protect or enforce the security interest provided for in the Security Documents. All actions to be performed by the Borrower shall be taken by the Borrower within sixty (60) days after the issuance and applicability of such Applicable Law or clarification to OPIC’s security interest as provided in the preceding sentence (whether by the receipt of notice from OPIC or otherwise).

SECTION 6.11. Financial Ratios; Debt Service Reserve.

(a) The Borrower shall maintain immediately following the Grace Period and at all times thereafter, (i) a historic ratio of Cash Flow for the most recently completed four (4) consecutive full fiscal quarters, taken as a single accounting period, to Debt Service for the most recently completed four (4)

 

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consecutive full fiscal quarters, taken as a single accounting period, of not less than 1.1 to 1.0; and (ii) a projected ratio of Cash Flow for the next succeeding four (4) consecutive full fiscal quarters, taken as a single accounting period, to projected Debt Service for the next succeeding four (4) consecutive full fiscal quarters of not less than 1.1 to 1.0, in each case based on projections set forth in the then-current Financial Model; provided , that (i) until the Project Completion Date, “Debt Service” as used in clause (i) or (ii) above shall not include principal and interest in respect of Plant 2 and (ii) during the first year of commercial operations for Plant 2 after the Grace Period, the foregoing historical ratio of Cash Flow to Debt Service shall be adjusted to annualize historical Cash Flow for such periods.

(b) At all times, the Borrower shall (i) maintain funds or assets on deposit in the Debt Service Reserve Account with a market value at least equal to (x) the Debt Service Reserve Requirement or (y) if there has been a draw on the Debt Service Reserve Account pursuant to Section 6.8.2 of the Accounts Agreement, the amount then required to be on deposit in the Debt Service Reserve Account pursuant to Section 6.8.1 of the Accounts Agreement and (ii) maintain funds or assets on deposit in the Well Reserve Account with a market value at least equal to the then-current Well Reserve Requirement.

SECTION 6.12. Environmental, Health and Safety Compliance.

(a) The Borrower shall comply with, and shall conduct its business and operations, and maintain its assets, equipment, property, leaseholds, and other facilities in compliance with, the provisions of (i) the Environmental and Social Requirements, (ii) the EIA, (iii) the Management Services Agreement (iv) the Environmental Monitoring Program; and (v) all Applicable Laws regarding the environment, health and safety and social performance. The Borrower shall maintain all required Consents relating to: (A) air emissions; (B) discharges to surface water or ground water; (C) noise emissions; (D) solid or liquid waste disposal; (E) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or wastes; and (F) other environmental, health, or safety matters. The Environmental Monitoring Program should be updated to take into account the expansion activities and phases, and copies of all updates should be provided to OPIC. The Project should continue to focus on environmental and social management to achieve continuous improvement in the following areas:

 

  (1) soil erosion on exposed, steep slopes needs to be carefully monitored and barren areas need to be rapidly re-vegetated;

 

  (2) the brine discharge system (piping and reinjection wells) need to be regularly inspected and leaks immediately repaired;

 

  (3) dust from vehicular movement and areas cleared for construction needs to be suppressed with water as necessary;

 

  (4) no exotic floral species should be introduced into the area. Opportunistic species should be removed when detected;

 

  (5) disturbance to wild animals should be minimized. Structures that may obstruct the free movement of wildlife (such as disused fences, pipe, metal and timber structures) should be removed;

 

  (6) consultation and engagement with the local Maasai community should continue;

 

  (7) consultations and collaboration with other stakeholders (KenGen, KWS and the Lake Naivasha Riparian Association) should continue; and

 

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  (8) training on environmental, health and safety should continue.

(b) The Borrower shall submit to OPIC a copy of each Annual Environmental Audit Report prepared in accordance with the Kenyan Environmental Management and Coordination Act, 1999 (the “ Environmental Audit Report ”). Such report shall be submitted to OPIC no later than 30 days following acceptance of the reports by the Kenyan National Environmental Management Agency. In addition to the Environmental Audit Report, the submission to OPIC shall address any actions that the Borrower must undertake to address any deficiencies identified in the Environmental Audit Report.

(c) Without limiting Section 6.02 ( Company Construction, Drilling and Operations ), the Borrower shall promptly notify OPIC of any material changes to the Project including details of any expansions, change in well drilling locations, change in routing of steam piping or change in transmission line route.

(d) The Borrower shall notify OPIC immediately, and in no event later than thirty-six (36) hours after the Borrower becomes aware, through the exercise of reasonable due diligence and care, of any accident directly or indirectly caused by the Project, occurring at the Site or affecting any Worker engaged in their official duties that results in the loss of life or that has, or that could reasonably be foreseen to have a material adverse impact on the environment. The Borrower shall submit to OPIC within thirty (30) days after the occurrence of such event a summary report thereof.

(e) Any reports or other documentation required under this Section 6.12 shall be delivered electronically to eia@opic.gov and copied to notices@opic.gov and in hard copy to Director, Environmental Affairs, Overseas Private Investment Corporation, 1100 New York Avenue, NW, Washington, DC 20527.

(f) The Borrower shall require each Project Contractor, with respect to itself and any of its Project Subcontractors, to comply with the foregoing requirements with respect to any continuous on-Site work performed by such Project Contractor that is either (i) of substantial duration or (ii) material to the primary operations of the Project.

SECTION 6.13. Worker Rights.

(a) The Borrower shall:

(i) not take any actions to prevent Workers from lawfully exercising their right of association and their right to organize and bargain collectively;

(ii) observe Applicable Laws relating to a minimum age for employment of children, acceptable conditions of work with respect to minimum wages, hours of work, and occupational health and safety;

(iii) not use forced or compulsory labor, including, but not limited to any form of slavery, bonded labor or serfdom;

(iv) explain, document, and make available in writing and orally to each Worker, information regarding all of their working conditions and terms of employment, including their entitlement to wages and any benefits and the Worker Rights Requirements, prior to the later of (A) thirty (30) days after the date hereof or (B) each Worker commencing work;

 

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(v) not employ persons, formally or informally, under the age of sixteen (16) for general work, or eighteen (18) for work involving hazardous activity, which is work that, by its nature or the circumstances in which it is carried out, is likely to harm the health, safety, or morals of those persons;

(vi) not make employment decisions or discriminate with respect to aspects of the employment relationship on the basis of personal characteristics unrelated to inherent job requirements, including gender, race, religion, nationality, political opinion, or social or ethnic origin;

(vii) operate in a manner consistent with the requirements of Performance Standard 2 on Labor and Working Conditions;

(viii) with respect to Workers, not take any actions, or otherwise interfere with, coerce or penalize, on the basis of the right of association or on the basis of organization and collective bargaining activities or membership that may result in any form of retaliation, including, but not limited to, termination, suspension, demotion, blacklisting or transfer of any Worker by the Borrower, or by an officer, agent or representative thereof;

(ix) not require hourly or quota-based wage Workers to work more than forty-eight (48) standard hours of work per week and that Workers shall be guaranteed a weekly twenty-four (24) hour rest period;

(x) pay all wages, including all legally-mandated bonus pay and premium pay for overtime work, in full, in legal tender, and in a timely fashion, to Workers except when Workers have agreed otherwise;

(xi) ensure that Workers have the right to remove themselves from hazardous situations without jeopardizing their continued employment;

(xii) require each Project Contractor, with respect to itself and any of its Project Subcontractors, to comply with the foregoing requirements; provided that if any Applicable Law, or collective bargaining agreement, imposes a requirement that is more protective of worker rights than any of the foregoing requirements, the Borrower shall, and shall cause the Project Contractor(s) and Project Subcontractor(s) to, observe such Applicable Law or collective bargaining agreement (the requirements set forth in this Section 6.13(a), collectively, the “ Worker Rights Requirements ”).

(b) In the event that information concerning non-compliance or potential non-compliance with the Worker Rights Requirements (a “ Worker Rights Non-Compliance ”) comes to the attention of a responsible officer of the Borrower, the Borrower shall give prompt notice thereof to OPIC’s Director of Labor and Human Rights by email to the following address labor@opic.gov . The Borrower shall use all reasonable efforts, including remediation, to cure or to cause the relevant Project Contractor or Project Subcontractor to cure, or prevent the recurrence of, any Worker Rights Non-Compliance.

(c) Notwithstanding the foregoing, the Borrower shall not be responsible for any Worker Rights Non-Compliance resulting from the actions of a government.

 

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SECTION 6.14. Anti-Corruption Handbook.

The Borrower shall provide a copy of the Anti-Corruption Handbook to (a) all officers of the Borrower directly involved in the management of the Project and (b) the Shareholder.

SECTION 6.15. Additional Project Documents.

The Borrower shall promptly deliver to OPIC a Certified copy of any Project Document entered into after the first Closing Date, which Project Document shall be in form and substance satisfactory to OPIC.

SECTION 6.16. Drilling Program.

The Borrower shall comply with the provisions of the Drilling Program and shall use commercially reasonable efforts to complete the Drilling Program by March 15, 2013.

SECTION 6.17. Post-Project Completion Date Yield Testing.

Within thirty (30) days following the third (3rd) anniversary of the Project Completion Date, the Borrower shall conduct well testing (and the Resource Consultant shall be entitled to attend such testing). As a result of such testing and modeling, (a) the (i) actual yield (MW) and (ii) the historical and predicted rates of decline of all Original Wells and Expansion Wells shall have been determined by the Borrower and confirmed by the Resource Consultant, and (b) Schedule 2 to the Accounts Agreement shall have been revised to the satisfaction of OPIC, in consultation with the Resource Consultant, to set forth an updated Well Reserve Transfer Amount (as defined in the Accounts Agreement) that is sufficient to fund the Well Reserve Account in an amount equal to the Well Reserve Target Amount (as defined in the Accounts Agreement) in a reasonable time period, as determined by the Resource Consultant based on the historical and predicted rates of decline.

ARTICLE VII

NEGATIVE COVENANTS

Unless OPIC otherwise agrees in writing, so long as the Commitments remain outstanding or until all amounts due and to become due hereunder and under the Notes shall have been indefeasibly paid in full, the Borrower agrees as follows:

SECTION 7.01. Liens.

The Borrower shall not, directly or indirectly, create, assume, or otherwise permit to exist any Lien on any of its assets, whether now owned or hereafter acquired, or in any proceeds or income therefrom, except for Permitted Liens.

SECTION 7.02. Indebtedness.

The Borrower shall not incur, assume, guarantee, or permit to exist, or otherwise become liable for Indebtedness except:

(a) the Loans;

(b) the Subordinated DFI Loans;

 

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(c) any Expansion Loan(s);

(d) prior to the first Disbursement of the Loans, the PROPARCO Loan;

(e) Subordinated Affiliate Loans or other Indebtedness fully subordinated to the Loans on terms satisfactory to OPIC;

(f) Indebtedness consisting of suppliers of goods or services incurred in connection with the improvements of Plant 1 or the construction of Plant 2; provided that such Indebtedness is contemplated in the Construction Budget and approved by OPIC;

(g) royalty payments to the Government of the Republic of Kenya pursuant to Schedule 5 of the PPA (solely to the extent reimbursable or payable by KPLC);

(h) other than as described in Sections 7.02(e) and (f) above, Indebtedness consisting of trade credit from suppliers of goods or services incurred in the ordinary course of business in an aggregate amount not to exceed $250,000 and on terms requiring payment in full in not more than ninety (90) days; and

(i) Indebtedness consisting of unsecured short-term credit facilities not exceeding $250,000, in the aggregate, from commercial banks requiring repayment in not more than one hundred and eighty (180) days,

provided , that in no event shall any Indebtedness described above, when incurred, cause the Borrower to fail to meet the financial ratios set forth in Section 6.11 ( Financial Ratios; Debt Service Reserve ).

SECTION 7.03. No Alteration or Assignment of Agreements; PPA.

(a) The Borrower shall not terminate, amend, grant any waiver of, or assign any of the respective duties or obligations under, any provision of any Borrower Document or any Consent other than (i) ordinary course annual replacement of any KPLC Letter of Credit pursuant to the KPLC Security Agreement (as defined under the PPA) and (ii) amendments or waivers, either to correct manifest error or which are of a formal, minor, or technical nature and do not change materially any Person’s rights or obligations, provided , that the Borrower shall promptly give OPIC notice of any such replacement, amendment or waiver;

(b) The Borrower shall not enter into any additional Project Documents without OPIC’s prior written consent;

(c) The Borrower shall not make any change to the Construction Budget without OPIC’s prior written consent;

(d) The Borrower shall not make any changes to the assumptions in the Financial Model for the Project without OPIC’s prior written consent;

(e) The Borrower shall not deliver a Notice of Third Plant Exercise under and as defined in the PPA without OPIC’s consent; and

(f) The Borrower shall not compromise or settle any claim against any Person, the compromise or settlement of which in the manner contemplated by the Borrower would materially reduce

 

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the amount of any payment due to the Borrower or could reasonably be expected to adversely affect the Borrower’s ability to perform its obligations under the Transaction Documents.

SECTION 7.04. Restricted Payments and Shareholder Payments.

The Borrower shall not make, or incur any obligation to make, any Restricted Payment or any Shareholder Payment (other than (i) repayment of Pre-Closing Costs solely to the extent permitted by Section 6.01(a)(ii)(B) or Section 6.01(b)(iii) ( Use of Proceeds; Project Completion ) and (ii) any such payments made under the Project Documents) until all amounts due or to become due hereunder or under the Notes have been indefeasibly paid in full; provided , however , that the Borrower may make such payment in accordance with the terms of the Accounts Agreement and if, but only if, each of the following conditions is satisfied both before and after giving effect to such Restricted Payment or Shareholder Payment:

(a) prior to the Project Completion Date, (i) the Borrower has paid at least one (1) Tranche I Principal Installment to OPIC from revenue generated by Plant 1 in full and on time and (ii) the historic and projected ratio of Cash Flow to Debt Service for the Borrower, calculated in accordance with Section 6.11(a) ( Financial Ratios; Debt Service Reserve ), shall be no less than 1.2:1.0;

(b) on and after the Project Completion Date, (i) OPIC shall have confirmed that Project Completion Date has occurred, (ii) the Borrower has paid at least one Tranche I Principal Installment and one Tranche II Principal Installment to OPIC in full and on time, and (iii) the historic and projected debt service coverage ratio (calculated as set forth in Section 6.11(a) ( Financial Ratios; Debt Service Reserve )) for the Borrower shall be no less than 1.2:1.0 after giving effect to such payment; and

(c) at any time, (i) no Default or Event of Default shall have occurred and be continuing or will occur as a result of such Restricted Payment or Shareholder Payment and (ii) if a prepayment is required to be made pursuant to Section 2.05 ( Mandatory Prepayment ), such prepayment shall have been paid in full.

SECTION 7.05. Conduct of Business with Affiliates.

The Borrower shall not conduct any business with or enter into any business transaction involving the Shareholder, or any Affiliate of the Shareholder, except on an arm’s-length basis and subject to the reporting requirement set forth in Section 6.06(f) ( Financial Statements and Other Information ).

SECTION 7.06 No Sale of Assets; Mergers.

The Borrower shall not:

(a) sell, assign, convey, lease, or otherwise dispose of all or a material portion of its assets, other than the sale of power and Certified Emissions Reductions in accordance with the PPA and other than (i) the replacement of a capital asset with a capital asset of equal or greater value and/or (ii) the disposition of assets that are surplus, worn out or obsolete in the ordinary course and which are not necessary for the operation of the Project;

(b) dissolve, liquidate, or otherwise cease to do business; or

(c) merge or consolidate with any Person.

 

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SECTION 7.07. Lease Obligations.

The Borrower shall not enter into any agreement or arrangement to acquire by lease the use of any property or equipment of any kind, if the annual rental payable under such lease, when aggregated with the annual rentals payable under all other leases already entered into by the Borrower, would exceed $500,000 or its equivalent in any Fiscal Year with the exception of any leases listed on Schedule 7.07 or otherwise approved by OPIC.

SECTION 7.08. Ordinary Conduct of Business.

The Borrower shall not:

(a) engage in any business other than the Project;

(b) change the Project in any material respect;

(c) change its Charter Documents in a manner that would be inconsistent with the provisions of any Transaction Document;

(d) change its name or take any action that might adversely affect the Liens created by the Security Documents;

(e) other than the Original Project Documents and the other GoK Agreements, enter into any partnership, profit-sharing or royalty agreement, or other similar arrangement whereby the Borrower’s income or profits are, or might be, shared with any other Person;

(f) (i) create any subsidiaries, (ii) acquire by purchase or otherwise any of the shares of capital stock, other equity interests, or assets of another Person, or (iii) make or permit to exist any loans or advances to, or assume, guarantee, endorse, or otherwise become directly or contingently liable for, any obligation or Indebtedness of any Person other than the endorsement of negotiable instruments for collection in the ordinary course of business and the prudent investment of idle surplus funds in readily marketable Dollar-denominated debt securities;

(g) fail to maintain its corporate existence and its right to carry on its operations; or

(h) adopt, establish, maintain, sponsor, administer, contribute to, participate in, or incur any liability under or obligation to contribute to, any Employee Benefit Plan, Guaranteed Pension Plan, or Multiemployer Plan or incur any liability to provide post-retirement welfare benefits, except such liability to provide post-retirement welfare benefits as may be required by Applicable Law or other non-material post-retirement welfare benefits.

SECTION 7.09. OFAC Compliance.

The Borrower shall ensure that none of the Borrower, Borrower’s directors, members of senior management, the Shareholder, or the Intermediate Shareholder shall be a Person included in the OFAC List.

SECTION 7.10. Prohibited Payments.

Neither the Borrower nor any Person acting on behalf of the Borrower shall make any Prohibited Payment.

 

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SECTION 7.11. Accounts.

The Borrower shall not establish or maintain any account with a bank or other financial institution other than the Accounts, the CER Account and, prior to the first Disbursement of the Loans, the DFI Accounts.

SECTION 7.12. Expenditures.

The Borrower shall not, without having first proposed an amendment to the then-current Annual Operating Budget in accordance with Section 7.13 ( Amendment of Annual Operating Budget ) (and OPIC having approved such amendment in accordance with such Section), make expenditures that are not contemplated in any line item or category contained in such Annual Operating Budget, other than expenditures that do not exceed 110% of the aggregate amount contemplated in the Annual Operating Budget. The Borrower shall promptly (and in any event within five (5) Business Days) provide notice to OPIC of any expenditure in excess of such threshold.

SECTION 7.13. Amendment of Annual Operating Budget.

If at any time during any Fiscal Year (a) operating and maintenance costs to be paid during the balance of such Fiscal Year exceed or could reasonably be expected to exceed the allowance provisions of Section 7.12 ( Expenditures ) or (b) the Borrower believes such costs for the balance of such year will exceed the allowance provisions of Section 7.12, then the Borrower shall deliver a proposed amendment to the then current Annual Operating Budget to OPIC and such proposed amendment shall become effective on the date on which it is approved by OPIC. At the time the Borrower submits such proposed amendment, the Borrower shall certify the purpose of such amendment and that such amendment is reasonably necessary or advisable for the operation and maintenance of Project. The Borrower shall comply with the approved Annual Operating Budget (subject to the allowance provisions of Section 7.12 ( Expenditures )) until the proposed amendment is approved by OPIC.

ARTICLE VIII

DEFAULTS AND REMEDIES

SECTION 8.01. Events of Default.

Each of the following events or circumstances shall constitute an “ Event of Default ”:

(a) Payment Default. The Borrower fails to pay when due any amount payable to OPIC pursuant to this Agreement, any Note, or any other Financing Document.

(b) Cross-Default. (i) The Borrower fails to pay any amount due on any of its Indebtedness (including principal, interest and any premium or fee thereon, but excluding Indebtedness evidenced by this Agreement and the Notes) (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) having an aggregate principal amount (including undrawn revolving or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $250,000, and such failure continues beyond the applicable cure period, if any, or (ii) a default occurs under any agreement or instrument evidencing, or under which the Borrower has outstanding at the time, any such Indebtedness and such default continues beyond the applicable cure period, if any, and such Indebtedness shall be declared to be due and payable, or required to be prepaid, prior to the stated maturity thereof as a result of a default or other similar adverse event.

 

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(c) Representation Default. Any representation or warranty made or deemed made by or on behalf of the Borrower, the Shareholder or any of their Affiliates in any Financing Document proves to have been incorrect in any material respect when made or deemed made.

(d) Covenant Default. The Borrower fails to comply with any covenant or provision set forth in Sections 6.09 ( Notice of Default and Other Matters ), 6.10 ( Security Documents ), 6.11 ( Financial Ratios; Debt Service Reserve ), 6.12 ( Environmental, Health and Safety Compliance ), 6.13 ( Worker Rights ) (except as provided in Section 8.01(e)) or Article VII (excluding Sections 7.12 ( Expenditures ) and 7.13 ( Amendment of Annual Operating Budget )).

(e) Worker Rights Non-Compliance . With respect to any Worker Rights Non-Compliance caused by a Project Contractor or Project Subcontractor, the Borrower fails to cause the relevant Project Contractor or Project Subcontractor to cure, or prevent the recurrence of, any Worker Rights Non-Compliance and such failure continues for ninety (90) days after the first occurrence of such Worker Rights Non-Compliance.

(f) Approvals Default . Any Consent necessary for the execution, delivery, or performance of any Transaction Document or for the validity or enforceability of any of the Borrower’s, the Shareholder’s or Orda 9’s obligations under any of the Transaction Documents is not effected or given or is withdrawn or ceases to remain in full force and effect and (unless the lack of such Consent could have a Material Adverse Effect) such Consent remains not effected or given or is withdrawn or ceases to remain in full force and effect for a period of thirty (30) days.

(g) Obligation Default . The Borrower fails to comply with or perform any agreement or covenant contained herein other than those referred to in Sections 8.01(a), (b), (c), (d), (e) or (f) above and such failure continues for thirty (30) days after the occurrence thereof; provided, that, if (i) the Borrower has diligently sought to remedy such breach or default but through its good faith efforts has been unable to do so, and (ii) such breach or default is capable of cure within sixty (60) days, then such thirty (30) day period shall be extended to such date, not to exceed a total of sixty (60) days, as shall be necessary for the Borrower to cure such breach or default.

(h) Transaction Document Default . Any Transaction Document at any time for any reason (i) ceases to be in full force and effect, (ii) is declared to be void or is repudiated, (iii) is suspended or revoked, or terminated (other than upon expiration in accordance with its terms when fully performed), (iv) the validity or enforceability thereof is at any time contested by the Borrower, the Shareholder, or any other counter-party, or (v) ceases to give or provide the respective rights, titles, remedies, powers, or privileges intended to be created thereby.

(i) Security Default . (i) Any Security Document, once executed and delivered, ceases at any time for any reason to provide the Liens, rights, titles, interests, remedies, powers or privileges created thereby, (ii) any Lien created in any portion of the collateral pledged pursuant to the Security Documents shall cease to be effective or fail to have the priority originally created under the Security Documents, (iii) the validity of the Security Documents or the applicability thereof to the obligations of the Borrower hereunder or any part thereof, shall be disaffirmed by or on behalf of the Borrower, or (iv) OPIC’s security interest or other rights in any portion of the collateral pledged pursuant to the Security Documents shall terminate in any manner other than that contemplated by the Financing Documents.

(j) Other Agreements Default . The Borrower, the Shareholder, or any other party fails to comply with or perform any of its material obligations or undertakings set forth in any Transaction

 

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Document (other than this Agreement or the Notes) and such failure continues beyond the applicable cure period, if any.

(k) Expropriation Default . Any Governmental Authority condemns, nationalizes, seizes, or otherwise expropriates any substantial portion of the assets or the capital stock of the Borrower or takes any action that would prevent the Borrower from carrying on any material part of its business or operations.

(l) Voluntary Bankruptcy Default . The Borrower or, prior to Project Completion, the Shareholder or Orda 9 (or any successor in interest thereto) (i) applies for, or consents to the appointment of, a receiver, trustee, custodian, intervenor, or liquidator of itself or of all or a substantial part of its assets, (ii) files a voluntary petition in bankruptcy, admits in writing that it is unable to pay its debts as they become due, or generally fails to pay its debts as they become due, (iii) makes a general assignment for the benefit of creditors, (iv) files a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, or insolvency laws, (v) files an answer admitting the material allegations of, or consents to, or defaults in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceeding where such action or failure to act will result in a determination of bankruptcy or insolvency against it, or (vi) takes any corporate action to authorize any of the foregoing.

(m) Involuntary Bankruptcy Default . Without its application, approval, or consent, a proceeding is instituted in any court of competent jurisdiction or by or before any government or governmental agency of competent jurisdiction, seeking in respect of the Borrower or, prior to Project Completion, the Shareholder or Orda 9 (or any successor in interest thereto): adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of Indebtedness, the appointment of a trustee, receiver, liquidator, or the like of it or of all or any substantial part of its property or assets, or other like relief in respect of it under any bankruptcy, reorganization, or insolvency law; and, if such proceeding is being contested by it in good faith, the same continues undismissed for a period of thirty (30) days.

(n) Judgment Default . A final judgment or litigation settlement for the payment of money in an aggregate amount in excess of $500,000 or its equivalent in another currency is rendered against, or entered into by, the Borrower, and (i) such judgment is not satisfied or discharged within thirty (30) days of entry or (ii) there is a period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect.

(o) Material Adverse Effect Default . Any event, development or circumstance shall have occurred that has or could reasonably be expected to have a Material Adverse Effect.

(p) Political Violence Default . Any acts of war (whether declared or undeclared), revolution, insurrection, civil war, strife of a lesser degree, terrorism, or sabotage occur that cause the destruction, disappearance or physical damage of a substantial portion of the assets of the Borrower or prevent the Borrower from carrying on any material part of its business or operations.

(q) Change of Control Default . Any Change of Control of the Borrower occurs without the prior approval of OPIC unless otherwise permitted under the Transaction Documents.

(r) Rights to Project Site . Except pursuant to the Security Documents, the Borrower ceases to have the right to possess the Project Property or the Borrower ceases to have the right to use the Site or any material portion thereof for the purpose of owning, constructing, maintaining and operating the

 

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Project in the manner contemplated by the Transaction Documents or shall be prevented from using any of the same, and such loss of right has or could reasonably be expected to have a Material Adverse Effect.

(s) Abandonment Default . The Borrower voluntarily Abandons the Project.

SECTION 8.02. Remedies upon Event of Default.

(a) Except as otherwise provided in Section 8.02(b), if any Event of Default has occurred and is continuing, OPIC may at any time do any one or more of the following (i) suspend or terminate the Commitments, (ii) declare, by written demand for payment, any portion or all of the Loans to be due and payable, whereupon such portion or all of the Loans, together with interest accrued thereon and all other amounts due under the Financing Documents, shall immediately mature and become due and payable, without any other presentment, demand, diligence, protest, notice of acceleration, or other notice of any kind, all of which the Borrower hereby expressly waives, or (iii) except as required by Applicable Law, without notice of default or demand, proceed to protect and enforce its rights and remedies by appropriate proceedings or actions, whether for damages or the specific performance of any provision of any Financing Document, or in aid of the exercise of any power granted in any Financing Document, or by law, or may proceed to enforce the payment of any Note. In addition, upon the occurrence of an Event of Default referred to in Section 8.01(e) ( Events of Default; Worker Rights Non-Compliance ), OPIC may require the Borrower to terminate, or cause the relevant Project Contractor to terminate, such Project Contractor’s or Project Subcontractor’s Project Document, as the case may be.

(b) Upon the occurrence of an Event of Default referred to in Sections 8.01(l) ( Events of Default; Voluntary Bankruptcy Default ) or (m) ( Events of Default; Involuntary Bankruptcy Default ), (i) the Commitments shall automatically terminate, and (ii) the Loans, together with interest accrued thereon and all other amounts due under the Financing Documents, shall immediately mature and become due and payable, without any other presentment, demand, diligence, protest, notice of acceleration, or other notice or action of any kind, all of which the Borrower hereby expressly waives.

SECTION 8.03. Jurisdiction and Consent to Suit; Waivers.

The Borrower hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and any other Financing Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York sitting in The City of New York and the courts of the United States of America for the Southern District of New York;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees to irrevocably designate and appoint HIQ Corporate Services, Inc., located at 19 W. 34 th Street, Suite 1018, New York NY 10001-3006, as agent for service of process in New York as its authorized agent to receive, accept, and acknowledge on its behalf service of process in any such proceeding, and shall provide OPIC with evidence of the prepayment in full of the fees of such agent until six (6) months after the Loan Maturity Date. The Borrower agrees that service of process, writ, judgment, or other notice of legal process upon said agent shall be deemed and held in every respect to be effective personal service upon it. The Borrower shall maintain such appointment (or that of a successor

 

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satisfactory to OPIC) continuously in effect at all times while the Borrower is obligated under this Agreement or any Note. Nothing herein shall affect OPIC’s right to serve process in any other manner permitted by Applicable Law;

(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Applicable Law or shall limit the right to sue in any other jurisdiction; and

(e) agrees that judgment against it in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction with or without the U.S. by suit on the judgment or otherwise as provided by law, a Certified or exemplified copy of which judgment shall be conclusive evidence of the fact and amount of the Borrower’s obligation.

SECTION 8.04. Arbitration.

(a) Any Dispute shall be finally settled by arbitration in accordance with the Rules; provided , however , that this agreement to arbitrate Disputes shall not include the arbitration of (i) any Excluded Claims; and (ii) any Disputes that are subject to a pending action, suit or proceeding brought by OPIC in accordance with Section 8.05 ( Borrower Consent to Suit; Exclusive Forum Selection for Certain Actions ).

(b) Arbitration pursuant to this Section 8.04 is not a waiver of and shall not impair the enforcement rights of OPIC with respect to any Lien or the right of OPIC to exercise any other similar remedy under this Agreement or any other Financing Document to which the Borrower is a party, pursuant to Section 8.05(a) ( Borrower Consent to Suit; Exclusive Forum Selection for Certain Actions ) or otherwise, and such enforcement by OPIC shall not be deemed to be inconsistent with or a violation of the arbitration provisions of this Section 8.04.

(c) Any awards issued by the Arbitral Tribunal shall be final and binding on the Arbitration Parties; any orders so issued shall be binding on the Arbitration Parties. Judgment upon any award issued by the Arbitral Tribunal may be entered by any court having jurisdiction thereof or having jurisdiction over the relevant Arbitration Party or its assets. The Borrower hereby submits to the jurisdiction of the United States District Court for the Southern District of New York for the limited purpose of enforcing this agreement to arbitrate.

(d) The Arbitral Tribunal shall have no jurisdiction to grant any interim measure that limits or prevents, or seeks to limit or prevent, OPIC from exercising any enforcement right with respect to any Lien or enforcing any similar remedy under this Agreement or any other Financing Document to which the Borrower is a party, including without limitation any enforcement action pursuant to Section 8.05 ( Borrower Consent to Suit; Exclusive Forum Selection for Certain Actions ). The Borrower covenants and agrees not to seek any such interim measure, either in any arbitration pursuant to this Section 8.04 or otherwise.

(e) Notwithstanding Section 9.05 ( Survival of Agreements ), this Section 8.04 and any arbitration pursuant thereto shall be governed by Title 9 (Arbitration) of the United States Code.

SECTION 8.05. Borrower Consent to Suit; Exclusive Forum Selection for Certain Actions.

(a) Notwithstanding Section 8.04, OPIC in its sole discretion shall have the option at any time and from time to time to bring against the Borrower any action, suit or proceeding in respect of any Dispute, in any of (i) the courts of the State of New York in the County of New York or the United States District Court for the Southern District of New York, or (ii) the courts in any other jurisdiction where the

 

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Borrower or any of its property may be found; provided , however , with regard to any Dispute that has been referred to arbitration pursuant to Section 8.04 ( Arbitration ) by the Borrower, OPIC may, in its discretion, initiate an action, suit or proceeding as provided herein in lieu of such arbitration and in respect of such Dispute, so long as OPIC exercises its option to do so prior to the last day on which OPIC’s statement of defense (or equivalent submission) in respect of such Dispute is to be submitted.

(b) The Borrower hereby: (i) irrevocably waives any present or future objection to any such action, suit or proceeding in any such venue, and irrevocably consents and submits unconditionally to the non-exclusive jurisdiction of any such court for itself and in respect of any of its property; (ii) irrevocably waives any claim in any such court that any such action, suit, or proceeding brought therein has been brought in an inconvenient forum; (iii) agrees that final judgment against it in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction within or outside the United States of America by suit on the judgment or otherwise, a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of its obligation; and (iv) covenants and agrees not to resist enforcement of any such final judgment in any jurisdiction where OPIC commences enforcement proceedings.

(c) Prior to the first Disbursement, the Borrower shall irrevocably designate and appoint an agent satisfactory to OPIC for service of process in The City of New York, New York, with respect to any action or proceeding in New York, as its authorized agent to receive, accept and acknowledge on its behalf service of process in any such proceeding, and shall provide OPIC with evidence of the prepayment in full of the fees of such agent until six (6) months after the Loan Maturity Date. The Borrower agrees that service of process, writ, judgment or other notice of legal process upon said agent shall be deemed and held in every respect to be effective personal service upon it. The Borrower shall maintain such appointment (or that of a successor satisfactory to OPIC) continuously in effect at all times while the Borrower is obligated under this Agreement or any Note. Nothing herein shall affect OPIC’s right to effect service of process in any other manner permitted by Applicable Law.

(d) Any enforcement action, suit, or other judicial, administrative or arbitral proceeding by the Borrower against OPIC (or the United States government) in respect of an Excluded Claim shall be brought exclusively in a United States federal court of competent jurisdiction in the District of Columbia.

SECTION 8.06. Judgment Currency.

This is an international loan transaction in which the specification of Dollars is of the essence and such currency shall be the currency of account in all events. The payment obligations of the Borrower to OPIC under any Financing Document shall only be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise, to the extent of the amount in Dollars received by OPIC (after any premium and costs of exchange) on the prompt conversion to Dollars in the U.S. of the amount so paid in another currency under normal banking procedures. In the event that any payment by the Borrower in another currency, whether pursuant to a judgment or otherwise, upon conversion and transfer, does not result in the payment of the amount of Dollars then due at the place such amount is due, OPIC shall be entitled to demand immediate payment of and shall have a separate cause of action against the Borrower for the additional amount necessary to yield the amount of Dollars then due. In the event that OPIC upon the conversion of a payment in another currency into Dollars receives an amount greater than that to which it was entitled, the Borrower shall be entitled to prompt reimbursement of the excess amount.

 

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SECTION 8.07. No Immunity.

The Borrower represents and warrants that it is subject to civil and commercial law with respect to its obligations under each of the Borrower Documents, that the making and performance of such Borrower Documents and the borrowings by the Borrower pursuant hereto constitute private and commercial acts rather than governmental or public acts, and that neither the Borrower nor any of its properties or revenues has any right of immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment, or from any other legal process with respect to its obligations under such Borrower Documents. To the extent that the Borrower may hereafter be entitled, in any jurisdiction in which judicial or arbitral proceedings may at any time be commenced with respect to any Borrower Document, to claim for itself or its revenues or assets any such immunity, and to the extent that in any such jurisdiction there may be attributed to the Borrower such an immunity (whether or not claimed), the Borrower hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity. The foregoing waiver of immunity shall have effect under the United States Foreign Sovereign Immunities Act of 1976.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Notices.

Except as provided in Sections 6.12(e) ( Environmental, Health and Safety Compliance) and 6.13(b) ( Worker Rights ), each notice, demand, or other communication relating to this Agreement shall be in writing, shall be hand-delivered or sent prepaid by mail or overnight delivery service or e-mail or facsimile transmission (in the case of email or facsimile transmission, with a copy by mail to follow, receipt of which copy shall not be required to effect notice), and shall be deemed duly given when sent to the following addresses:

To the Borrower:

OrPower 4 Inc.

Off Moi South Lake Road

Hellsgate National Park

P.O. Box 1566- 20117

Naivasha

Kenya

E-mail: orpower4office@ormat.com

Phone: 254 50 50664

Attn.: Plant Manager

Facsimile: 254 50 50668

with a copy to: Ormat International, Inc.

6225 Neil Road

Reno, NV 89511-1136

USA

Facsimile: 775-356-9039

Attn: President

 

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To OPIC:

Overseas Private Investment Corporation

1100 New York Avenue, N.W.

Washington, D.C. 20527

United States of America

[Attn.: Vice President, Structured Finance

Facsimile: 1-202-842-0290] 1

[Attn.: Director, Portfolio Management Division

Facsimile: 1-202-408-9862] 2

E-mail: notices@opic.gov

Re: Olkaria III (Kenya) Loan No.: 615-2011-039-IG

Either party may, by written notice to the other, change the address to which such notices, demands, or other communications should be sent to it. No notice to OPIC, including notices delivered pursuant to Sections 6.12(e) ( Environmental, Health and Safety Compliance) and 6.13(b) ( Worker Rights ), shall be effective unless such notice includes the project name and number, as listed above, and, prior to the first Disbursement, attention to Vice President, Structured Finance and, subsequent to the first Disbursement, attention to Director, Portfolio Management Division.

SECTION 9.02. English Language.

All documents to be furnished or communications made under each of the Financing Documents shall be in English or, if in another language, shall be accompanied by a Certified translation into English, which translation shall govern between the Borrower and OPIC.

SECTION 9.03. GOVERNING LAW.

THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

SECTION 9.04. Succession; Assignment.

This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto, provided , however , that the Borrower shall not, without the prior written consent of OPIC, assign or delegate all or any part of its interest herein or obligations hereunder.

SECTION 9.05. Survival of Agreements.

Each agreement, representation, warranty, and covenant contained or referred to in this Agreement shall survive any investigation at any time made by OPIC and shall survive all disbursements of the Loans, except for changes permitted hereby, and, except as otherwise provided in this Section, shall terminate only when all amounts due or to become due under the Financing Documents are indefeasibly paid in full. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.07 ( Tax Gross-Up; Stamp Duties; Proper Legal Forum ), 2.08(a) ( Miscellaneous; Payment or Reimbursement of Expenses ), and 9.10 ( Indemnity ) shall survive the payment in full of principal and interest hereunder and under the Notes.

 

1  

For notices delivered prior to first Disbursement.

2  

For notices delivered after first Disbursement.

 

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SECTION 9.06. Integration; Amendments.

This Agreement, including the Exhibits and Schedules hereto, and the agreements referred to herein embody the entire understanding of the parties and supersede all prior negotiations, understandings, and agreements between them with respect to the subject matter hereof. The provisions of this Agreement may be waived, supplemented, or amended only by an instrument in writing signed by the parties hereto.

SECTION 9.07. Severability.

If any provision of this Agreement is prohibited or held to be invalid, illegal, or unenforceable in any jurisdiction, the parties hereto agree to the fullest extent permitted by law that it shall not affect the validity, legality, and enforceability of the other provisions of this Agreement and shall not render such provision prohibited, invalid, illegal, or unenforceable in any other jurisdiction. If, and to the extent that, any obligation of the Borrower (including that under Section 9.10 ( Indemnity )) is unenforceable for any reason it agrees, independently of any other obligation hereunder, to make the maximum contribution to the payment and satisfaction thereof as is permissible under Applicable Law.

SECTION 9.08. No Waiver.

(a) No failure or delay by OPIC in exercising any right, power, or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers, or remedies. No single or partial exercise of any such right, power, or remedy shall preclude any other or further exercise thereof or the exercise of any other legal right, power or remedy. No waiver of any such right, power, or remedy shall be effective unless given in writing.

(b) The rights, powers, or remedies provided for herein are cumulative and are not exclusive of any other rights, powers or remedies provided by law. The assertion or employment of any right, power or remedy hereunder, or otherwise, shall not prevent the concurrent assertion of any other right, power or remedy.

SECTION 9.09. WAIVER OF JURY TRIAL.

THE BORROWER AND OPIC EACH IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM ESTABLISHED BY ANY FINANCING DOCUMENT.

SECTION 9.10. Indemnity.

The Borrower shall, at all times, indemnify and hold harmless OPIC and its directors, officers, and employees (each, an “ Indemnified Person ”) in connection with any Loss (as defined below), any Costs of Defense (as defined below) and any litigation, investigation or proceeding relating to any Loss regardless of whether any Indemnified Person is a party thereto (the “ Borrower Indemnity ”). The term “ Loss ” shall mean any losses, claims, damages, liabilities, penalties, or other costs relating to the Loans, this Agreement, any other Transaction Document, the Project, the Commitments, or the intended use of the proceeds thereof to which an Indemnified Person may become subject. The term “ Costs of Defense ” shall mean costs, fees, and expenses incurred by or imposed on any Indemnified Person in defending, analyzing, settling, or resolving a Loss or Potential Loss (as defined below), and the expenses associated with the making of any affirmative claim in connection therewith ( provided , that costs, fees, and expenses

 

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in connection with a proceeding by any Indemnified Person to enforce his, her, or its rights under the Borrower Indemnity shall not be considered to be “Costs of Defense”). The term “ Potential Loss ” shall mean any event, fact, condition, or circumstance that is reasonably likely to give rise to a Loss. The Borrower Indemnity shall not apply to the extent that a court or arbitral tribunal with jurisdiction over the Loss and each Indemnified Person who has a Loss or Costs of Defense in connection therewith renders a final determination that the Loss or Costs of Defense resulted from (a) the gross negligence or willful misconduct of the Indemnified Person, or (b) the failure of OPIC to perform any act required of it relating to the Loans or otherwise under any Financing Document. The Borrower Indemnity is independent of and in addition to (i) any rights of any party hereto in connection with any Loss or Costs of Defense, and (ii) any other agreement, and shall survive the execution, modification, and amendment of this Agreement and the other Financing Documents, the expiration, cancellation, or termination of the Commitments, the disbursement and repayment of the Loans, and the provisions of any other indemnity. Any exclusion of an obligation to pay any amount under this Section shall not affect the requirement to pay such amount under any other Section hereof or under any other agreement. OPIC and each Indemnified Person shall have the right to control its, his, or her defense, provided , however , that each Indemnified Person shall: (A) notify the Borrower in writing as soon as practicable of any Loss, Potential Loss, or Costs of Defense, and (B) keep the Borrower reasonably informed of material developments with respect thereto. In exercising the right and power to control his, her, or its actions in connection with a Loss or Potential Loss, including a decision to settle any such Loss, each Indemnified Person shall, taking into account the nature and policies of such Indemnified Person (I) consult with the Borrower, and (II) act as such Indemnified Person would act if the Costs of Defense or settlement were to be paid by such Indemnified Person. The Borrower acknowledges and agrees that each Indemnified Person is an express, third-party beneficiary of the Borrower’s obligations under this Section 9.10.

SECTION 9.11. Further Assurances.

The Borrower shall execute and deliver to OPIC such additional documents and take such additional action as OPIC may require to carry out the purposes of the Financing Documents, to cause the Financing Documents to be duly registered, notarized, and stamped in any applicable jurisdiction, and to preserve and protect OPIC’s rights as contemplated herein or therein.

SECTION 9.12. Counterparts.

This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same instrument.

SECTION 9.13. Waiver of Litigation Payments.

In the event that any action or lawsuit is initiated by or on behalf of OPIC against the Borrower or any other party to any Transaction Document, the Borrower, to the fullest extent permissible under Applicable Law, irrevocably waives its right to, and agrees not to request, plead, or claim that OPIC and its successors, transfers, and assigns (any such Person, an “ OPIC Plaintiff ”) post, pay, or offer, any cautio judicatum solvi bond, litigation bond, or any other bond, fee, payment, or security measure provided for by any provision of law applicable to such action or lawsuit (any such bond, fee, payment, or measure, a “ Litigation Payment ”), and the Borrower further waives any objection that it may now or hereafter have to an OPIC Plaintiff’s claim that such OPIC Plaintiff should be exempt or immune from posting, paying, making, or offering any such Litigation Payment.

 

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SECTION 9.14. Cooperation; Loan Servicing.

OPIC may assign or delegate, with written notice to the Borrower, all or part of the responsibility for servicing the Loans to a loan servicer. Any Person who acquires the right to service the Loan shall benefit from all of the rights of OPIC hereunder, and any provision hereof that requires that any notice, report, statement, financial ratio or financial requirement be satisfactory to OPIC shall be deemed to mean that such notice, report, statement, financial ratio or financial requirement be satisfactory to such Person or each such Person; any provision hereof that requires or permits a determination by OPIC or the application of OPIC’s discretion shall be deemed to require or permit a determination or the application of the discretion of any such Person, and any indemnity or agreement to pay any fee or reimburse any expense of OPIC shall be deemed to be an indemnity or agreement to pay any fee or reimburse the expenses of any such Person (in each case as if the name of such Person had been stated in such provision).

SECTION 9.15. Reinstatement.

To the extent that OPIC receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or to its estate, trustee, receiver, custodian or any other party under any Bankruptcy Law or otherwise, then to the extent of the amount so required to be repaid, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the obligations hereunder as of the date such initial payment, reduction or satisfaction occurred.

 

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IN WITNESS WHEREOF, each of the parties has caused this Finance Agreement to be executed and delivered on its behalf by its authorized representative as of the date first above written.

 

ORPOWER 4 INC.

 

Name:
Title:
OVERSEAS PRIVATE INVESTMENT CORPORATION

 

Name:
Title:

[Olkaria III: Finance Agreement Signature Page]


SCHEDULE X

DEFINED TERMS AND RULES OF INTERPRETATION

1. Defined Terms . As used in the Finance Agreement, including the Exhibits and Schedules hereto, the following terms shall have the following meanings.

Abandon ” means (a) cease to have the right to possess and use the Site for the Project in the manner contemplated in the Transaction Documents or (b) suspend all or substantially all of its activities in connection with the Project for a period of fifteen (15) or more consecutive days.

Accounting Principles ” means IFRS.

Account Banks ” means, collectively, the Offshore Account Bank or the Onshore Account Banks, and any duly appointed successor or permitted assigns thereof.

Accounts Agreement ” means the Accounts Agreement dated as of the date hereof among the Borrower, OPIC, the Offshore Account Bank and the Onshore Account Banks.

Accounts ” means, collectively, the Offshore Accounts and the Onshore Accounts, each as defined in the Accounts Agreement.

Act of Political Violence ” means any act of war (whether declared or undeclared), revolution, insurrection, civil war, strife of a lesser degree, terrorism, or sabotage.

Actual Equity Contribution ” has the meaning set forth in the Equity Contribution and Share Retention Agreement.

Administrator ” means the International Centre for Dispute Resolution, a division of the American Arbitration Association, or any successor thereof as may be identified by the Rules.

Affiliate ” means, with respect to any Person, (i) any other Person that is directly or indirectly controlled by, under common control with, or controlling such Person; (ii) any other Person owning beneficially or controlling five percent (5%) or more of the equity interest in such Person; (iii) any officer or director of such Person; or (iv) any spouse or relative of such Person. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of partnership interests or voting securities, by contract or otherwise.

Agreement ” has the meaning set forth in the preamble.

Annual Operating Budget ” means, for any Fiscal Year, the operating budget (including the then required levels of maintenance capital expenditures) and operating plan for such Fiscal Year prepared by the Borrower in the form of Schedule 6.07, submitted by the Borrower to OPIC and approved by OPIC.

Anti-Corruption Handbook ” means the OPIC Anti-Corruption Policies and Strategies Handbook dated September 2006, posted on OPIC’s website at http://www.opic.gov/corruptpractices .

 

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Anti-Money Laundering Laws ” means (i) the USA PATRIOT Act of 2001 (Pub.L. No. 107-56) and (ii) any other law, regulation, order, decree or directive of any relevant jurisdiction having the force of law and relating to anti-money laundering.

Applicable Law ” means, with respect to a given Person on a given date, any constitution, statute, law, rule, regulation, ordinance, judgment, order, decree, Consent of a Governmental Authority, or any published directive, guideline, requirement or other governmental restriction that has the force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, that is binding on such Person whether in effect as of the date hereof or as of any date thereafter.

Arbitral Tribunal ” means the arbitral tribunal constituted in accordance with the Rules.

Arbitration Parties ” means each of (i) OPIC, (ii) the Borrower and (iii) any other party to an arbitration pursuant to Section 8.04; and “Arbitration Party” means any of them, as the context requires.

Authorized Officer ” means, with respect to any Person, any officer designated in such Person’s Charter Documents or otherwise in writing as having been authorized to execute and deliver any of the Transaction Documents.

Bankruptcy Law ” means Title 11 of the United Stated Code entitled “bankruptcy”, as now or hereafter in effect, or any successor statute.

Board of Governors of the Federal Reserve System ” means the Board of Governors of the Federal Reserve System, which is an agency of the United States of America responsible for the analysis of domestic and international financial and economic developments, and for regulating the operations of the Federal Reserve Banks and payment systems.

Borrower ” has the meaning set forth in the preamble to this Agreement.

Borrower Documents ” means each of the Transaction Documents to which the Borrower is or will be a party.

Borrower Indemnity ” has the meaning set forth in Section 9.10.

Borrower’s Completion Certificate ” means a certificate of an Authorized Officer substantially in the form of Exhibit E.

Business Day ” means any day other than (i) a Saturday, Sunday, or day on which commercial banks are authorized by law to close in the City of New York or Washington, D.C., United States of America, (ii) with respect to any communication to OPIC, a day on which OPIC is not open for business, and (iii) with respect to any Disbursement or payment to OPIC, a day on which OPIC or the United States Department of the Treasury is not open for business.

Cancellation Fee ” has the meaning set forth in Section 2.06(b).

Cash Flow ” of the Borrower, for any period, means the amount resulting from (i) its Net Income for such period, plus (ii) all interest expense, any expense for any Fees, and depreciation, amortization, deferred income taxes, political risk insurance expenses, and other non-cash expenses for such period (but only to the extent deducted in determining Net Income) plus (iii) any funds released from

 

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the Debt Service Reserve Account and transferred to the Offshore Revenue Account unless such funds were included in the determination of Net Income in such period, plus (iv) any funds released from Well Reserve Account and transferred to the Offshore Revenue Account unless such funds were included in the determination of the Net Income in such period, minus (v) any funds deposited into the Debt Service Reserve Account except for the initial deposit to Debt Service Reserve Account to the extent it was financed by the Loan and/or Equity Contributions, minus (vi) any funds deposited to the Well Reserve Account except for the initial deposit to Well Reserve Account to the extent it was financed by any Loan and/or Equity Contributions, minus (vii) the amount of net increase or net decrease in Working Capital between the first day of such period and the last day of such period except for initial increases in Working Capital due to Plant 2 COD that are financed by the Loan and/or Equity Contributions, minus (viii) any capital expenditure, excluding Plant 1 modification expenditures and any other expenditure prior to Project Completion to the extent such expenditures were financed with the proceeds of the Loan, Equity Contributions or paid from reserves, incurred in such period for repair or replacement of a capital asset.

CDM Registry ” means the standard electronic database for accurate accounting of the issuance, holding and acquisition of Certified Emissions Reductions in accordance with the Clean Development Mechanism established pursuant to Article 12 of the Kyoto Protocol as well as all other relevant international agreements.

CER Accounts ” means one or more accounts established in the name of the Borrower or its agent appointed pursuant to the CER Documents with the CDM Registry.

CER Documents ” means any documents entered into by the Borrower in respect of the sale or commercializing of Certified Emissions Reductions in relation to the Project.

Certificate Interest Rate ” has the meaning set forth in the OPIC Funding Agreement.

Certified ” means, in respect of any document, that such document is being delivered accompanied by a certification from an Authorized Officer that it is true and complete (or a true and complete copy, as the case may be), including all amendments to date, and, if applicable, is in full force and effect in accordance with its terms as of the date of such certification.

Certified Emissions Reductions ” means a unit issued pursuant to Article 12 of the Kyoto Protocol as well as all other relevant international agreements and resolutions and is equal to one metric tonne of carbon dioxide equivalent, calculated in accordance with such agreements and resolutions.

Change of Control ” means:

(a) before the Closing Date on which the final Tranche II Disbursement is made, (i) the failure of the Sponsor to be listed on the New York Stock Exchange; (ii) the failure of the Sponsor, directly or indirectly, to own one hundred percent (100%) of the issued and outstanding share capital and economic interests of the Shareholder; (iii) the failure of the Shareholder, directly or indirectly, to own one hundred percent (100%) of the issued and outstanding share capital and economic interests of the Intermediate Shareholder;

(b) from the Closing Date on which the final Tranche II Disbursement is made until the Project Completion Date: (i) the failure of the Sponsor, directly or indirectly, to own at least 50.1% of the issued and outstanding share capital and economic interests of, and to exercise control over, the Shareholder; (ii) the failure of the Shareholder, directly or indirectly, to own at least 50.1% of the issued and outstanding share capital and economic interests of, and to exercise control over, the Intermediate

 

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Shareholder; (iii) the failure of the Intermediate Shareholder to directly or indirectly own one hundred percent (100%) of the issued and outstanding share capital and economic interests of the Borrower; and

(c) from and after the Project Completion Date, the failure of the Shareholder, directly or indirectly (i) to own at least 50.1% of the issued and outstanding share capital and economic interests of the Borrower or (ii) to control the Borrower.

Charter Documents ” means, in respect of any Person, such Person’s founding act, charter, articles of incorporation and by-laws, memorandum and articles of association, statute, or similar instrument.

Closing Coordination Agreement ” means the Closing Coordination and Escrow Agreement to be entered into among the Subordinated DFI Lender, PROPARCO, OPIC, the Borrower, the escrow agent named therein, and the other agents and other parties thereto in form and substance satisfactory to OPIC.

Closing Date ” for any Disbursement means the Business Day on which a Disbursement is made.

Code ” means the Internal Revenue Code of 1986, as amended, and any successor statute and all rules and regulations promulgated thereunder.

Commitment Fee ” has the meaning set forth in Section 2.06(a).

Commitment Period ” means, with respect to any Loan, the period beginning on the date hereof and expiring on the earliest to occur of (a) the first date on which the amount of such Loan equals the amount of the relevant Commitments, (b) December 31, 2017, and (c) the date the relevant Commitment has been terminated;

Commitments ” means, collectively, the Tranche I Commitment and the Tranche II Commitment.

Consents ” means any registration, declaration, filing, consent, license, right, approval, authorization, or permit required under Applicable Law, or any approval, consent, ratification, waiver or other authorization from any other Person with respect to the Transaction Documents or to achieve Project Completion.

Construction Budget ” means the budget in respect of the costs to complete the Project delivered to OPIC in accordance with Section 4.14.

Construction Schedule ” means the schedule in respect of the design, construction, testing and placing into service of the Project delivered to OPIC in accordance with Section 4.14.

Construction Period Report ” means a report in the form set forth in Schedule 6.06(c) ( Construction Period Report ).

Contracted Plant Capacity ” has the meaning set forth in the PPA.

Contracted Plant Capacity Test ” has the meaning set forth in the PPA.

Conversion Date ” has the meaning set forth in the OPIC Funding Agreement.

 

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Coordination Contract ” means the Contract Regarding Pricing, Coordination and Security dated as of June 28, 2012, among the Borrower, the Supplier and the Coordinator.

Coordinator ” means Orda 9, Inc.

Corrupt Practices Laws ” means (i) the Foreign Corrupt Practices Act of 1977 (Pub. L. No. 95-213, §§101-104), as amended, and (ii) any other Applicable Law relating to bribery, kick-backs, or similar business practices.

Costs of Defense ” has the meaning set forth in Section 9.10.

Current Assets ” means assets of the Borrower treated as current assets under the Accounting Principles, which, for the avoidance of doubt, does not include amounts that may be on deposit in (i) the Debt Service Reserve Account or otherwise held to satisfy the Debt Service Reserve Requirement or (ii) the Well Reserve Account.

Current Liabilities ” means liabilities of the Borrower treated as current liabilities under the Accounting Principles.

Cut-Off Date ” means December 31, 2011.

Debenture ” means the instrument entered into or to be entered into by the Borrower in favor or OPIC as security for the repayment of the Secured Obligations creating fixed legal charges over all the present and future undertaking and assets of the Borrower (other than stock-in-trade, if any) and a floating charge over stock-in-trade (if any) and assigning (by way of security) certain rights, property and other undertaking of the Borrower.

Debt Service ”, for any period, means the sum of all payments of principal, interest, and fees made or required to be made by the Borrower in respect of its Indebtedness (excluding any Indebtedness owed to the Shareholder or the Intermediate Shareholder and any other Indebtedness that is fully subordinated to the Loans on terms acceptable to OPIC) during such period.

Debt Service Reserve Account ” means a Dollar-denominated account established by the Borrower in a U.S. financial institution acceptable to OPIC and pledged to OPIC pursuant to the terms of the New York Security Agreement.

Debt Service Reserve Requirement ” means, as of any date of determination, an amount equal to the aggregate amount of Debt Service on Long-term Indebtedness due in the six month period next succeeding such date of determination.

Debt to Equity Ratio ” means, as of any date of determination, the ratio of (i) the principal amount of the Loan then outstanding to (ii) the aggregate amount of Actual Equity Contributions made on or prior to such date.

Default ” means an event or condition that, with the passage of time or the giving of notice, or both, could constitute an Event of Default.

Default Rate ” means at the time any amount due to OPIC under any Financing Document is not paid when due (a) with respect to amounts due under a Note, an amount equal to the sum of (i) the applicable OPIC Note Interest Rate (as such rate may be adjusted as provided in Section 2.02(c)) and (ii) the Default Spread and (b) with respect to any other amounts due, an amount equal to the sum of

 

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(i) the applicable OPIC Note Interest Rate set forth in any Note then outstanding (as such rate may be adjusted as provided in Section 2.02(c)) and (ii) the Default Spread.

Default Spread ” means two per cent (2%)  per annum .

DFI Accounts ” means each of the accounts established pursuant to the DFI Accounts Agreement (as defined in Schedule Z).

DFI Global Agent ” means DEG, in its capacity as the global agent under the Subordinated DFI Credit Agreements and the PROPARCO Loan Agreement.

DFI Liens ” means any and all Liens created and existing under any Subordinated DFI Credit Agreement, the PROPARCO Loan Agreement, or any DFI Security Document in favor of the DFI Onshore Security Agent or the DFI Offshore Security Agent.

DFI Offshore Account Bank ” shall mean Union Bank, N.A., as Offshore Account Bank appointed pursuant to the terms of the DFI Accounts Agreement.

DFI Offshore Security Agent ” shall mean BNY Corporate Trustee Services Limited, in its capacity as offshore security agent to the Subordinated DFI Lender and PROPARCO.

DFI Onshore Security Agent ” shall mean Barclays Bank of Kenya Limited, in its capacity as onshore security agent for Subordinated DFI Lender and PROPARCO.

DFI Security Documents ” means each of the documents listed in Part A to Schedule Z.

DFI Subordination Agreement ” means the Subordination Agreement to be entered into among the Subordinated DFI Lender, OPIC and the Borrower in form and substance satisfactory to OPIC.

DEG ” means DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH.

Direct Agreements ” means:

(i) the KPLC Direct Agreement;

(ii) the Direct Agreement to be entered into among the Supplier, OPIC and the Borrower in form and substance satisfactory to OPIC;

(iii) the Direct Agreement to be entered into among the Coordinator, the Supplier, OPIC and the Borrower in form and substance satisfactory to OPIC;

(iv) the Direct Agreement to be entered into among Ormat International, Inc., OPIC and the Borrower in form and substance satisfactory to OPIC;

(v) the Direct Agreement to be entered into among Marriott, PR Marriott Drilling, Ltd., OPIC and the Borrower in form and substance satisfactory to OPIC; and

(vi) the Direct Agreement to be entered into among Geodrill, OPIC and the Borrower in form and substance satisfactory to OPIC.

Dispute ” means any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement, the Notes or any other Financing Document to which the Borrower or

 

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OPIC is a party, including any dispute, controversy or claim relating to the formation, existence, validity, interpretation, enforceability, breach, performance or termination of thereof.

Disbursement ” means (i) in the case of the Tranche I Loan, any disbursement of the Tranche I Loan and (ii) in the case of the Tranche II Loan, any disbursement of the Tranche II Loan.

Disbursement Request ” means a request for disbursement of either a Tranche I Loan or a Tranche II Loan, in each case substantially in the form of Exhibit A and acceptable to OPIC and the Independent Engineer.

Disposition ” means, with respect to any Property, any sale, license, assignment, exchange, conveyance, liquidation or lease or other transfer or disposition thereof, whether by agreement, operation of law or otherwise (and the verb “ Dispose ” shall be construed accordingly).

Dollars ” or “ $ ” means U.S. dollars.

Drilling Program ” shall mean the drilling program set forth in Schedule 4.19-A ( Drilling Program ).

EAC ” means the regional intergovernmental organization of the Project Country, Uganda, the United Republic of Tanzania, Republic of Rwanda and Republic of Burundi with its headquarters in Arusha, Tanzania.

EIA ” means the Environmental Impact Assessment for the Project, dated August, 2000, and Supplementary Report dated May 2001, prepared by Prof Mwakio P. Tole and Colleagues.

Employee Benefit Plan ” means any employee benefit plan within the meaning of §3(3) of ERISA that is subject to ERISA maintained or contributed to by the Borrower, other than a Guaranteed Pension Plan or a Multiemployer Plan.

Environmental and Social Requirements ” means (a) IFC’s Environmental, Health, and Safety General Guidelines (April 30, 2007), (b) IFC’s Environmental, Health and Safety Guidelines for Geothermal Power Generation (April 30, 2007), (b) the IFC’s Performance Standards on Social and Environmental Sustainability (April 30, 2006), and (c) the ESPS.

Environmental Audit Report ” has the meaning set forth in Section 6.12(b).

Environmental Law ” means, with respect to any Person, any and all laws applicable to such Person relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

Environmental Monitoring Program ” means the Borrower’s Environmental Monitoring Program, as updated from time to time.

Equity Contribution ” has the meaning set forth in the Equity Contribution and Share Retention Agreement.

Equity Contribution and Share Retention Agreement ” means the Equity Contribution, Subordination, and Share Retention Agreement, dated as of the date hereof, among the Borrower, the Sponsor, the Shareholder, the Intermediate Shareholder and OPIC.

 

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Equity Distribution Account ” has the meaning set forth in the Accounts Agreement.

Equity Sub-Account ” has the meaning set forth in the Accounts Agreement.

ERC Consent ” shall mean the Consent in item 1.3 of Part A of Schedule 4.04 ( Consents ).

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time, and all rules and regulations promulgated thereunder.

ERISA Affiliate ” shall mean any Person that is treated as a single employer with the Borrower under §414 of the Code.

ESPS ” means the Consolidated Environmental and Social Policy Statement/Labor and Human Rights Policy Statement dated as of October 15, 2010, which is posted on OPIC’s website at http://www.opic.gov/environment , as the same may be revised and supplemented by OPIC from time to time.

Event of Default ” has the meaning set forth in Section 8.01.

Event of Loss ” means, with respect to any Property of the Borrower, any loss of, destruction of or damage to, such Property (including any such loss, destruction or damage resulting from an Act of Political Violence).

Excluded Claims ” means any dispute, controversy or claim (including any counterclaim, defense or set-off) against OPIC, the United States of America, or any instrumentality or agency of the United States of America sounding in tort or other non-contractual basis for liability.

Expansion Loan ” has the meaning set forth in Section 2.01(e).

Expansion Loan Documents ” has the meaning set forth in Section 2.01(e).

Expropriation Event ” means (a) any condemnation, nationalization, seizure or expropriation by a Governmental Authority of all or a substantial portion of the Project or the Property of the Borrower or of its shares, (b) any assumption by a Governmental Authority of control of all or a substantial portion of the Property, assets or business operations of the Borrower or of its shares, (c) any taking of any action by a Governmental Authority for the dissolution or disestablishment of the Borrower, or (d) any taking of any action by a Governmental Authority that would prevent the Borrower from carrying on its business or operations or a substantial part thereof for a period of thirty (30) or more consecutive days.

Expropriation Proceeds ” means, with respect any Expropriation Event, any condemnation awards or other compensation, awards, damages and other payments or relief paid or payable by a Governmental Authority with respect to such Expropriation Event.

Expansion Wells ” means, collectively, all wells listed in Part A of the Drilling Program.

Facility Fee ” has the meaning set forth in Section 2.06(c).

Fees ” means the Commitment Fee, the Cancellation Fee, the Facility Fee, the Maintenance Fee and the Modification Fee (if applicable).

 

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Financial Model ” means a financial model prepared by the Borrower setting forth financial projections for the Project through December 15, 2033.

Financial Plan ” has the meaning set forth in Section 3.01(l).

Financial Officer ” the chief financial officer, chief operating officer, president, principal accounting officer, treasurer, controller or asset manager of the Borrower or an Affiliate of the Borrower, to the extent such officer is responsible for overseeing the financial operations of the Borrower.

Financial Statements ” means, with respect to any Person, its quarterly or annual consolidated balance sheet and statements of income, retained earnings, and sources and uses of funds for such fiscal period, together with all notes thereto and with comparable figures for the corresponding period of its previous Fiscal Year, each prepared in English and in Dollars in accordance with the Accounting Principles.

Financing Documents ” means the Loan Documents and the Security Documents, together with any other agreements or instruments entered into in connection with any of the foregoing or pursuant to which the Loans are made and designated by the Borrower and OPIC as a Financing Document.

Fiscal Year ” means, with respect to the Borrower, the period beginning on January 1and ending on December 31 of each year.

Fixed Rate Note ” means any promissory note issued by the Borrower pursuant to this Agreement substantially in the form of Exhibit A-1 of the OPIC Funding Agreement.

Funding Documents ” has the meaning set forth in Section 4.21.

Geodrill ” means Geodrill LLC.

Geodrill Service Agreement ” means the Rent and Technical Support Agreement for the Olkaria III Field Development and Drilling dated as of January 19, 2012, among Geodrill and the Borrower.

GoK Agreements ” means, collectively, the PPA, KPLC Security Agreement, the KPLC Letter of Credit, the GoK Support Letter, the Land Grant, the License, the Site Agreement and the Management Services Agreement and “ GoK Agreement ” means any of them.

GoK Support Letter ” means the letter, dated June 18, 2012, from the Government of the Republic of Kenya issued to the Borrower and the Financing Parties (as defined therein) thereto, including OPIC, which acceded to such letter pursuant to a Deed of Adherence, dated July 10, 2012, among the Government of the Republic of Kenya, the Borrower and OPIC.

Good Industry Practice ” means any of the practices, methods, standards and acts employed by, engaged in or approved by a significant portion of the international geothermal power industry and related installation business with respect to the engineering, design, construction, operation and maintenance of geothermal power infrastructure of the type to be incorporated into the Works and which practices, methods and standards shall conform to the requirements of the equipment suppliers and manufacturers of the plant and materials used in the Works, or any of the practices, methods, standards 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

 

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good business practices, reliability, safety and expedition. Good 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 practices, methods, or acts generally accepted in the industry.

Governmental Authority ” means any national, state, county, city, town, village, municipal or other local governmental department, commission, board, bureau, agency, authority or instrumentality of the Project Country, the EAC or the U.S., as applicable, or any political subdivision thereof, and any person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any of the foregoing entities, having jurisdiction over the Persons or matters in question.

Grace Period ” means the period commencing on the Initial Payment Date and ending on the second anniversary thereof.

Guaranteed Pension Plan ” means any employee pension benefit plan within the meaning of §3(2) of ERISA which is maintained or contributed to by the Borrower or any ERISA Affiliate, the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan.

Hedge Agreement ” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate insurance, currency swap agreement, currency option, futures contract, forward contract or any other similar agreement or arrangement with respect to interest rates and currency exchange rates, currencies, commodities or indices or to the hedging of assets or liabilities.

IFC ” means the International Finance Corporation, a member of the World Bank Group.

IFRS ” means the International Financial Reporting Standards (formerly International Accounting Standards), which are the standards issued by the International Accounting Standards Board together with the interpretations issued by the International Financial Reporting Interpretations Committee of the International Accounting Standards Board (as amended, supplemented or re-issued from time to time), applied on a consistent basis both as to classification of items and amounts.

Indebtedness ” means, with respect to any Person at any date, total liabilities as defined by the Accounting Principles and any obligation created, issued, incurred, or assumed by such Person for borrowed money or arising out of any credit facility, financial accommodation or Hedge Agreement, or for the deferred purchase price of goods or services, including, any credit to such Person under any conditional sale or other title retention agreement, all guaranties by such Person of liabilities or Indebtedness of any other Person, liabilities or Indebtedness of any other Person secured by any assets or revenue of such Person, and the net aggregate rentals under any lease by such Person as lessee that under the Accounting Principles would be capitalized on the books of the lessee or that is the substantial equivalent of the financing of the property so leased.

Indemnified Person ” has the meaning set forth in Section 9.10.

Independent Engineer ” means Shaw Consultants International, Inc.

Independent Engineer’s Completion Certificate ” means a certificate of the Independent Engineer substantially in the form of Exhibit F.

Initial Payment Date ” means December 15, 2012.

 

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Insurance Policy ” means each policy, contract or other instrument of insurance or reinsurance of any kind which is or is required to be taken out by or on behalf of any Obligor or any Project Subcontractor pursuant to Section 6.04 and Schedule 6.04 ( Minimum Insurance Requirements ) hereof and in which the Borrower has any interest (including any of the foregoing taken out by or on behalf of the Borrower under the PPA).

Insurance Proceeds ” means, with respect to any Event of Loss relating to any Property of the Borrower, any insurance or reinsurance (and any other amounts received pursuant to any Insurance Policy), with respect to such Event of Loss (excluding, in each case, the proceeds of general liability insurance, employers’ liability insurance, automobile liability insurance, marine cargo consequential loss insurance, advance loss of profits insurance and business interruption insurance and Expropriation Proceeds).

Intellectual Property Rights ” means rights in inventions, patents, copyrights, design rights, trademarks and trade names, service marks, trade secrets, know-how and other intellectual property rights (whether registered or unregistered) and all applications for any of them, anywhere in the world.

Intermediate Shareholder ” means Ormat Holding Corp., an exempted company incorporated with limited liability under the laws of the Cayman Islands.

Intermediate Shareholder Loan ” means a loan by the Borrower to the Intermediate Shareholder in the principal amount equal to the principal amount of the Subordinated DFI Loan outstanding as of the date of the DFI Subordination Agreement, such amount not to exceed $75,000,000.

Intermediate Shareholder Loan Agreement ” means the Loan Agreement to be entered into between the Borrower and the Intermediate Shareholder providing for the Intermediate Shareholder Loan, in form and substance satisfactory to OPIC.

Key Contractors ” means the Supplier, the Coordinator, Geodrill and Marriott.

KPLC ” means Kenya Power and Lighting Company Limited, a company incorporated in Kenya.

KPLC Direct Agreement ” means the Direct Agreement, to be entered into among KPLC, OPIC and the Borrower in form and substance satisfactory to OPIC.

KPLC Letter of Credit ” means each irrevocable and transferrable standby Letter of Credit, dated as of May 21, 2010, and May 18, 2011, respectively, issued by Barclays Bank of Kenya Limited in favor of KPLC, as renewed or replaced from time to time in the ordinary course in accordance with Sections 2.2, 2.3 and 2.4 of the KPLC Security Agreement.

KPLC Security Agreement ” means the Amended and Restated Olkaria III Project Security Agreement, dated 29 th  March 2011 between KPLC and the Borrower.

Land Grant ” means the grant registered at the Land Titles Registry at Nairobi as Number I.R.85444 relating to the Project Property and issued in favor of the Borrower.

Legal Charge ” means a legal charge over the Project Property, to be entered into by the Borrower in favor of OPIC to secure the repayment of the Secured Obligations, in form and substance satisfactory to OPIC.

 

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License ” means the Geothermal Resources Licence No. 1/99 dated 4 th  March, 1999 issued by the Government of Kenya in favor of the Borrower.

Lien ” means any lien, pledge, mortgage, security interest, deed of trust, charge, assignment, hypothecation, title retention, or other encumbrance on or with respect to, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any asset or revenue of any kind.

Litigation Payment ” has the meaning set forth in Section 9.13.

Loan ” means (i) the Tranche I Loan and the Tranche II Loan or (ii) the Tranche I Loan or the Tranche II Loan, as the context may require.

Loan Documents ” has the meaning set forth in Section 4.02(a)(i).

Loan Maturity Date ” means the latest of the Note Maturity Dates.

Long-term Indebtedness ” means, in accordance with the Accounting Principles, any Indebtedness, the final maturity of which, by its terms or by the terms of any agreement related to it, falls due more than one year after the date of its incurrence.

Loss ” has the meaning set forth in Section 9.10.

Maintenance Fee ” has the meaning set forth in Section 2.06(d).

Maintenance Plan ” means the forecast activities and schedule, and the required parts and equipment for planned maintenance events that require a full or partial Plant outage to complete.

Management Services Agreement ” means the Environmental Management Agreement in Respect of OrPower’s Project in Hell’s Gate National Park, dated 30 th  March 2001, between the Kenya Wildlife Service and the Borrower.

Marriott ” means Marriott Drilling Africa, Ltd.

Marriott Drilling Agreement ” means that certain Drilling Services Contract dated as of August 9, 2010, by and between Marriott and the Borrower, as amended.

Material Adverse Effect ” means any event, development, or circumstance having a material adverse effect on (i) the Project, (ii) the business, operations, property, condition (financial or otherwise), or prospects of the Borrower, the Shareholder, the Intermediate Shareholder, or any other Person whose continuing viability, because of its guaranty or other undertaking, is essential to the Project, (iii) the ability of the Borrower or any other party to carry out the Project or to perform in a timely manner its obligations under any Transaction Document, (iv) the validity or enforceability of any material provision of any Transaction Document, (v) the rights and remedies of OPIC under any Transaction Document, or (vi) the Liens provided to OPIC under the Security Documents.

MIGA ” means the Multilateral Investment Guarantee Agency, a member organization of the World Bank Group, or any successor agency thereto.

Minimum Yield Requirement ” means an actual yield (MW) of at least 106MW.

Modification Fee ” has the meaning set forth in Section 2.06(e).

 

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Multiemployer Plan ” means any multiemployer plan within the meaning of §3(37) of ERISA which is maintained or contributed to by the Borrower or any ERISA Affiliate and subject to Title IV of ERISA.

Net Income ” means, with respect to the Borrower, for any period, the net income (loss) of the Borrower for such period, as determined in accordance with the Accounting Principles, provided , that there shall be excluded in such determination (i) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period, (ii) any aggregate net gain during such period arising from the sale, conversion, exchange, or other disposition of capital assets, (iii) any gains resulting from the write-up of any assets, (iv) any net gain arising from the extinguishment, under the Accounting Principles, of any Indebtedness of the Borrower, and (v) any net income or gain during such period resulting from (A) any change in accounting principles in accordance with the Accounting Principles, (B) any prior period adjustments resulting from any change in accounting principles in accordance with the Accounting Principles, (C) any extraordinary items, and (D) any discontinued operations or the disposition thereof.

New York Security Agreement ” means the Security Agreement, dated as of the date hereof, between the Borrower and OPIC.

Note ” means (i) each Tranche I Note and Tranche II Note or (ii) any Tranche I Note or Tranche II Note, as the context may require.

Note Maturity Date ” means the Tranche I Maturity Date or any Tranche II Maturity Date, as applicable.

Notice of Arbitration ” means the written notice issued by an Arbitration Party to the Administrator and at the same time to the other Arbitration Party, referring a Dispute to arbitration pursuant to Section 8.04.

O&M Parameters ” shall mean the operation and maintenance parameters set forth in Schedule 6.02(d) ( O&M Parameters ).

O&M Manual ” has the meaning set forth in the O&M Parameters.

Obligor ” means each of the Borrower, the Shareholder, each other Person that owns equity interests in the Borrower, the Intermediate Shareholder and the Sponsor (without duplication).

OFAC ” means the Office of Foreign Assets Control of the U.S. Department of the Treasury, which administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted individuals, organizations, and foreign countries and regimes.

OFAC List ” means the Specially Designated Nationals and Blocked Persons List, as published by OFAC from time to time, and is available at the following website: http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf or any official successor website.

OFAC Regulations ” means (a) the rules and regulations promulgated by OFAC, as may be published in Chapter 31, Part 500 of the Code of Federal Regulations from time to time, and (b) any Executive orders imposing economic sanctions on individuals, organizations or foreign countries and regimes.

 

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Official ” means any officer of a political party or candidate for political office in the Project Country or the U.S. or any officer or employee (i) of the government of the Project Country or the U.S. (including any Governmental Authority of the Project Country or the U.S.) or (ii) of a public international organization.

Offshore Account Bank ” means a U.S. financial institution acceptable to OPIC, as account bank under the Accounts Agreement.

Offshore Revenue Account ” has the meaning set forth in the Accounts Agreement.

Onshore Account Bank ” means a financial institution acceptable to OPIC, as onshore account bank under the Accounts Agreement.

Operating Report ” means a report in the form set forth in Schedule 6.06(d) ( Operating Report ).

OPIC ” has the meaning set forth in the preamble to this Agreement.

OPIC Funding Agreement ” means the Funding and OPIC Guaranty Agreement to be entered into among the Borrower, U.S. Bank National Association as OPIC Paying Agent, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, as OPIC Placement Agent and OPIC in form and substance satisfactory to OPIC.

OPIC Guaranty Fee ” has the meaning set forth in the Funding Documents.

OPIC Guaranty Payment ” has the meaning set forth in Section 2.02(c).

OPIC Note Interest Rate ” has the meaning set forth in Section 2.02(a).

OPIC Plaintiff ” has the meaning set forth in Section 9.13.

OPIC Spread ” means two and seventy-five hundredths of one percent (2.75%).

Orda 6 ” means Orda 6, Inc.

Orda 9 ” means Orda 9, Inc.

Original Project Documents ” means (i) the Supply Agreement; (ii) the Coordination Contract; (iii) the PPA; (iv) the KPLC Security Agreement; (v) the KPLC Letter of Credit; (vi) the GoK Support Letter; (vii) the Site Agreement; (viii) the Land Grant; (ix) the Management Services Agreement; (x) the Marriott Drilling Agreement; (xi) the Geodrill Service Agreement; (xii) the Intermediate Shareholder Loan Agreement; (xiii) all contracts relating to the design, engineering, procurement and construction of the Project exceeding a value of $200,000; (xiv) all contracts for the lease of equipment or facilities for the Project exceeding a value of $100,000; (xv) all contracts to provide services to the Project exceeding a value of $200,000; (xvi) all contracts described in subsections (xii) through (xv) above that are entered into by the Borrower subsequent to the date hereof and prior to the date of the first Closing Date; and (xvii) all other material documents, contracts and agreements (other than the Financing Documents) executed subsequent to the date hereof and prior to the date of the first Closing Date and relating to the Project, including documents relevant to the construction, variation, operation or maintenance of the Project or ownership or management of the Borrower, in each case designated as a Project Document by the Borrower and OPIC. Contracts solely for the purchase of commodities,

 

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consumables or supplies to be utilized in connection with any contract described in subsections (i) through (xvii) above shall not be an “Original Project Document”.

Original Wells ” means, collectively, all wells listed on Schedule Y.

Ormat Energy Converter ” means the OEC, as defined in Section 1.1.1(ii)(c) of Exhibit A to the Supply Agreement.

Paying Agent ” means US Bank N.A.

Payment Date ” means the 15th day of each June, September, December and March after the date hereof until the Loans and all amounts due hereunder or under the Notes are paid in full, unless such Payment Date is not a Business Day, in which case the Payment Date will be the next succeeding Business Day.

PBGC ” means the Pension Benefit Guaranty Corporation created by §4002 of ERISA and any successor entity or entities having similar responsibilities.

Performance Standard 2 on Labor and Working Conditions ” means the IFC Performance Standard 2 on Labor and Working Conditions.

Permitted Liens ” means:

(a) Liens created under the Security Documents;

(b) Liens for any Taxes, assessments and other governmental charges, not yet due and arising in the ordinary course of business, 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 the Project, the Site or any easements that are material to the ownership, operation or maintenance of the Project, as the case may be;

(ii) title thereto or any interest therein and shall not interfere in any material respect with the use of the Project, the Site or any easements that are material to the ownership, operation or maintenance of the Project; and

(iii) a bond or other reasonable security has been posted or provided in such manner and amount as to assure that any Taxes, assessments or other governmental charges determined to be due will be promptly paid in full when such contest is determined;

(c) Liens, deposits or pledges in favor of a Governmental Authority and arising by operation of Applicable Law;

(d) material men’s, mechanics’, workers’, repairmen’s, employees’ or other like Liens, arising in the ordinary course of business or in connection with the development, construction, operation and/or maintenance of the Project, either for amounts not yet due or for amounts being contested in good faith and by appropriate proceedings so long as:

 

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(i) the Borrower reasonably determines that such proceedings shall not involve any substantial danger of the sale, forfeiture or loss of the Project, the Site or any easements that are material to the ownership, operation or maintenance of the Project, as the case may be;

(ii) title thereto or any interest therein and shall not interfere in any material respect with the use or disposition of the Project, the Site or any easements that are material to the ownership, operation or maintenance of the Projects; and

(iii) such Liens have been outstanding for a period of less than ninety (90) days;

(e) Liens arising out of judgments or awards that would not otherwise constitute an Event of Default hereunder so long as enforcement of such Lien has been stayed and an appeal or proceeding for review is being prosecuted in good faith and for the payment of which adequate reserves, bonds or other reasonable security have been provided or are fully covered by insurance;

(f) servitudes, easements, rights-of-way, restrictions, minor errors in title and such other encumbrances or charges against real property or interests therein arising by operation of Applicable Law and which do not in a material way interfere with the value or use thereof or the Borrower’s business, the Project, or the Site;

(g) any Liens encumbering rights to the Certified Emissions Reductions arising under the CER Documents; and

(h) until the date of the first Disbursement, the DFI Liens.

Person ” means an individual, a legal entity, including, a partnership, a joint venture, a corporation, a trust, and an unincorporated organization, and a government or any department or agency thereof.

Plant ” means either Plant 1 or Plant 2 and “ Plants ” means both of them.

Plant 1 ” means an existing 48 MW geothermal power plant located in the Republic of Kenya approximately 75 kilometers northwest of Nairobi consisting of geothermal production and injection wells, gathering and injection system piping, steam separators, an electrical switchyard, three Ormat Energy Convertors that have been operational since 2000 and three Ormat Energy Convertors added in 2008.

Plant 2 ” means a 36 MW expansion of Plant 1 which is to include new geothermal wells, new gathering system piping, a new steam separator, a new switchyard and three new Ormat Energy Convertors located on a site adjacent to Plant 1.

Plant 2 COD ” means the date on which the Full Commercial Operation Date (as defined in the PPA) of Plant 2 has occurred under the PPA and has been notified to KPLC pursuant to Clause 7.10 (b) of the PPA.

Potential Loss ” has the meaning set forth in Section 9.10.

PPA ” means the Second Amended and Restated Power Purchase Agreement, dated 29 th  March 2011, between the Borrower and KPLC.

 

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Pre-Closing Costs ” means an amount equal to the sum of (i) Project Costs in the aggregate amount of $226,121,000.00 incurred in connection with the Project until (and including) the Cut-Off Date and (ii) any amounts paid by the Sponsor or any of its Affiliates to finance Project Costs incurred after the Cut-Off Date until the date of the first Disbursement.

Pre-Funded Equity Contribution ” has the meaning set forth in the Equity Contribution and Share Retention Agreement.

Prepayment Premium ” has the meaning set forth in Section 2.04.

Principal Installments ” means (i) the Tranche I Principal Installments and the Tranche II Principal Installments or (ii) the Tranche I Principal Installments or the Tranche II Principal Installments, as the context may require.

Prohibited Payment ” means the giving or making by any Person (such Person, the “ Payor ”) of any offer, gift, payment, promise to pay or authorization of the payment of any money or anything of value, directly or indirectly, to or for the use or benefit of any Official (including to or for the use or benefit of any other Person if the Payor knows, or has reasonable grounds for believing, that the other Person would use such offer, gift, payment, promise or authorization of payment for the benefit of any such Official), for the purpose of influencing any act or decision or omission of any Official in order to obtain, retain or direct business to, or to secure any improper benefit or advantage for, the Borrower or the Project, or any other Person; provided that any such offer, gift, payment, promise or authorization of payment shall not be considered a Prohibited Payment if it (i) is expressly permitted by Applicable Law or (ii) is made for the purpose of expediting or securing the performance of a routine governmental action (as such term is construed under Applicable Law).

Project ” has the meaning set forth in the Recitals of this Agreement.

Project Completion ” means the occurrence of each of the following:

(a) Technical Completion:

(i) Completion (as such term is defined in the Supply Agreement) shall have occurred;

(ii) Expanded Plant Completion (as such term is defined in the Coordination Contract) shall have occurred;

(iii) Plant 2 COD shall have occurred;

(iv) Plant 1 shall have (x) been tested in accordance with the terms set forth in Schedule 4 of the PPA, and (y) achieved 48 MW of Plant Capacity (as such term is defined in the PPA);

(v) Plant 2 shall have (x) been tested in accordance with the terms set forth in Schedule 4 of the PPA, and (y) and has achieved 36 MW of Plant Capacity (as such term is defined in the PPA);

(vi) all buildings, equipment, facilities, and necessary infrastructure for the Project shall have been procured, constructed, and installed utilizing acceptable standards of workmanship and materials and in accordance with the Project plans and specifications, shall be

 

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operational and in good working condition, and shall meet manufacturers’ specifications and the terms of the PPA and the other Project Documents;

(vii) the Borrower shall be in compliance with the Reservoir Monitoring Plan and shall have developed and maintained the geothermal resource, the wells and the surface facilities at all times in compliance with its obligations under the PPA and in accordance with Good Industry Practice;

(viii) the punch list under Section 3.2 of the Coordination Contract shall have been agreed among the Borrower, the Coordinator and OPIC (acting in consultation with the Independent Engineer) and all items set forth on such punch list shall have been completed or a segregated cash reserve in the amount of one hundred and fifty percent (150%) of the estimated cost (as proposed by the Borrower and agreed by OPIC acting in consultation with the Independent Engineer) to complete all items set forth on such punch list shall have been established by the Borrower;

(ix) the Borrower shall have received Lien waivers executed by each Key Contractor releasing all claims and liens against the Borrower, the Project, the Plants or any part thereof arising under or in connection with the Works;

(x) all Expansion Wells and all other Resource Works (as defined in the Coordination Contract) shall have been completed by the Borrower and are fully operational;

(xi) each of (x) the actual yield (MW) of all Original Wells and Expansion Wells and (y) whether such actual yield (MW) satisfies the Minimum Yield Requirement shall have been determined, as certified by the Borrower and confirmed by the Resource Consultant in the form of Exhibit G;

(xii) all delay liquidated damages payable pursuant to Section 2.3 of the Coordination Contract and all performance deficiency liquidated damages payable pursuant to Section 2.4.2 of the Coordination Contract, shall have been paid in full; and

(xiii) all damages payable under the Supply Agreement shall have been paid in full;

(b) no Event of Default (or condition or event that, with the giving of notice, or lapse of time, or both, could constitute an Event of Default) has occurred and is continuing;

(c) the Borrower shall have submitted the most recent semi-annual Reservoir Monitoring Report as described in Section 6.02(e), together with confirmation from the Borrower that such report is true and correct in all material respects as of the Project Completion Date or, if there has been a change in the matters set forth therein, updating the relevant information;

(d) the Borrower owns and has good, legal and marketable title to the Project Property (which comprises part of the Site) comprised in and subject to the provisions set forth in the Land Grant and the Borrower has (subject to the provisions of the Land Grant, the Site Agreement and the Licence) a lawful, valid, exclusive and irrevocable right of use of those parcels of land comprising the Site, in each case free and clear of all Liens (other than Permitted Liens);

(e) the Liens purported to be granted by the Borrower in favor of OPIC with respect to all of its assets pursuant to the Security Documents shall be in full force and effect;

 

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(f) the Borrower shall have furnished OPIC with a Borrower’s Completion Certificate substantially in the form of Exhibit E hereto;

(g) the Independent Engineer shall have furnished OPIC with an Independent Engineer’s Completion Certificate substantially in the form of Exhibit F hereto; and

(h) the Resource Consultant shall have furnished OPIC with a certificate confirming (i) the matters reference in clause (a)(xi) above; and (ii) that the Borrower’s Steam Field Facilities as defined in the PPA (including the wells) are compliant with the requirements of Section 5.10A of the PPA, the Reservoir Monitoring Plan and this Agreement; and

(i) OPIC shall have determined that each of the requirements set forth in clauses (a) through (h) above has been satisfied and shall have notified the Borrower in writing.

Project Completion Date ” means the date on which Project Completion occurs.

Project Contractor ” means any Person that is a party to a Project Document with the Borrower.

Project Costs ” means all costs incurred or to be incurred by the Borrower to develop, finance and construct the Project, including, but not limited to (i) amounts payable under the Project Documents, (ii) interest, fees and expenses payable with respect to the Loans, (iii) expenses incurred to obtain use of the Site, (iv) costs and expenses of legal, engineering, accounting, construction management and other advisors incurred in connection with the Project, (iv) insurance premiums, (v) funding of the Debt Service Reserve Account, (vi) general and administrative costs such as payroll, rent, utilities, office equipment and supplies, vehicles, communications expenses and travel expenses, (vii) Taxes, and (viii) initial Working Capital.

Project Country ” means the Republic of Kenya.

Project Documents ” means (i) each Original Project Document; (ii) any amendment to, modification to, supplement to or replacement of any Original Project Document entered into subsequent to the first Closing Date; and (iii) all contracts described in subsections (xii) through (xv) of the definition of Original Project Documents (other than contracts solely for the purchase of commodities, consumables or supplies to be utilized in connection with any contract described in subsections (i) through (xv) of the definition of Original Project Documents) that are entered into by the Borrower subsequent to the first Closing Date.

Project Property ” means the real estate property with Land Reference Number 12881/3 comprised in Grant Number I.R. 85444 registered in the Land Titles Registry at Nairobi, Kenya.

Project Subcontractor ” means any Person, other than the Borrower, that is a party to a Project Document with a Project Contractor.

PROPARCO ” means Société de Promotion et de Participation pour la Coopération Economique.

PROPARCO Indebtedness ” means all amounts owed by the Borrower to PROPARCO in respect of the PROPARCO Loan Agreement.

 

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PROPARCO Loan Agreement ” means the Proparco A Loan Agreement, dated January 5, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time), among the Borrower, PROPARCO and the DFI Global Agent.

Property ” means any present or future right or interest in, to or under any assets, equipment, facilities, contracts, leaseholds, business, receivables, revenues, accounts or other property of any kind whatsoever, whether real, personal, mixed and whether tangible or intangible.

Redemption Premium ” has the meaning set forth in the Funding Documents.

Required Contracted Plant Capacity ” means 84MW.

Regulation U ” means Regulation U of the Board of Governors of the Federal Reserve of the United States (or any successor).

Releases ” means, collectively, the documents listed in Part B to Schedule Z and “ Release ” means any of them.

Reservoir Monitoring Plan ” shall mean the Borrower’s reservoir monitoring plan set forth in Schedule 4.19-B ( Reservoir Monitoring Plan ).

Reservoir Monitoring Report ” shall mean reservoir monitoring report prepared semi-annually by the Borrower in the form set forth in Schedule 4.19-C ( Form of Reservoir Monitoring Report ).

Resource Consultant ” means GeothermEx, Inc.

Restricted Payment ” means any of the following made directly or indirectly by the Borrower: (i) any dividend or distribution on any share of the Borrower, including any reduction of capital; (ii) any payment of principal or interest on any Indebtedness of the Borrower to or for the benefit of the Intermediate Shareholder or any Affiliate of the Intermediate Shareholder, other than accounts payable for goods or services provided on an arm’s-length basis; and (iii) any purchase, redemption, acquisition, or retirement of any shares of the Borrower or any Indebtedness of the Borrower held by the Intermediate Shareholder or any Affiliate of the Intermediate Shareholder.

Rules ” means the International Arbitration Rules of the American Arbitration Association in effect as of the date of the Notice of Arbitration, except as modified by Section 8.04 and Schedule 8.04 ( Arbitration Provisions ) or as may be modified by mutual agreement of the Arbitration Parties.

Sale Proceeds ” shall mean proceeds from any Disposition of all or any part of any Property of the Borrower, the enforcement of remedies under the Security Documents or otherwise, but excluding any such proceeds (a) included in any Termination Payment, (b) included in any Expropriation Proceeds or insurance proceeds described in Section 2.05(a), or (c) to the extent used in the ordinary course of business to replace the Property so disposed of.

Secured Obligations ” means all obligations owing to OPIC by the Borrower under or in connection with the Financing Documents including any liability in respect of further advances made under the Financing Documents whether present or future, actual or contingent and whether incurred by the Borrower alone or jointly and whether as principal or surety or in some other capacity.

 

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Security Documents ” has the meaning set forth in Section 4.02(a)(ii).

Self-Monitoring Questionnaire ” means the Annual Self-Monitoring Questionnaire used by OPIC to monitor compliance with OPIC’s policy requirements, a copy of which is available and which may be completed online at http://smq.opic.gov .

Senior Officer ” means any officer, director or manager.

Share Pledge ” means the Equitable Mortgage Over Shares, to be entered into among the Intermediate Shareholder, the Borrower, and OPIC in form and substance satisfactory to OPIC.

Shareholder ” means Ormat International, Inc., a Delaware corporation.

Shareholder Payment ” means any payment by the Borrower to, or on behalf of, the Shareholder or any Affiliate of the Shareholder other than a Restricted Payment, including any payment in respect of compensation, fees, salaries, bonuses, or commissions or any payment made on behalf of the Shareholder or any Affiliate of the Shareholder that is for the benefit of such party.

Site ” means the “License Area” described in Appendix I of the Site Agreement.

Site Agreement ” means the Site Agreement for Olkaria III Geothermal Plant, dated 5 th  November 1998 between the Borrower and the Government of the Republic of Kenya.

Sponsor ” means Ormat Technologies, Inc., a Delaware corporation.

Subordinated Affiliate Loan ” means a subordinated loan made by the Shareholder or any of its Affiliates to the Borrower in accordance with the terms of the Equity Contribution and Share Retention Agreement.

Subordinated DFI Credit Agreements ” means collectively (i) the Common Terms Agreement, dated as of January 5, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time), among the Borrower, the Subordinated DFI Lender, PROPARCO, the DFI Global Agent and the DFI Offshore Security Agent, (ii) the DEG A Loan Agreement, dated January 5, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time), among the Borrower, the Subordinated DFI Lender and the DFI Global Agent, (iii) the DEG B Loan Agreement, dated January 5, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time), among the Borrower, the Subordinated DFI Lender and the DFI Global Agent, and (iv) the DEG C Loan Agreement, dated January 5, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time), among the Borrower, the Subordinated DFI Lender and the DFI Global Agent.

Subordinated DFI Indebtedness ” means all amounts owed by the Borrower to the Subordinated DFI Lender in respect of the Subordinated DFI Loans.

Subordinated DFI Lender ” means DEG, as lender of each Subordinated DFI Loan.

Subordinated DFI Liens ” means the second priority Liens created and existing under any of the Subordinated DFI Credit Agreements.

Subordinated DFI Loans ” means the loans advanced to the Borrower by the Subordinated DFI Lender pursuant to the Subordinated DFI Credit Agreements.

 

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Supplier ” means Orda 6, Inc.

Supply Agreement ” means the Supply Contract, dated as of June, 28, 2012, between the Borrower and the Supplier.

Taxes ” means all taxes, charges, fees, levies or other assessments, including without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, value added, turnover, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp duties, occupation, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority and any political subdivision, instrumentality, agency or similar body of any taxing authority.

Term Conversion Date means the Payment Date next succeeding Plant 2 COD.

Termination Payment means any indemnity or other payment received by the Borrower or any Affiliate thereof from any counterparty other than OPIC under or in connection with any termination of a Project Document or a Consent, including any such payment made by KPLC or the Government of the Republic of Kenya pursuant to the GoK Agreements, KPLC pursuant to the PPA or by any counterparty to any Direct Agreement.

Tranche I Commitment ” means OPIC’s commitment to lend an amount up to $85,000,000 less (i) the portion thereof that pursuant to Section 2.06(b) has been canceled or has been deemed canceled, and (ii) any Tranche I Loan amounts disbursed pursuant to Section 2.01(c) and (d).

Tranche I Disbursement ” has the meaning set forth in Section 2.01(d)(i).

Tranche I Loan ” means, on any date, the aggregate of the outstanding unpaid principal amounts of the Tranche I Notes then outstanding.

Tranche I Maturity Date ” means the maturity date set forth in the Tranche I Note.

Tranche I Note ” means any promissory note issued by the Borrower pursuant to this Agreement evidencing a Tranche I Loan substantially in the form of a Fixed Rate Note.

Tranche I Principal Installments ” has the meaning set forth in Section 2.03(a).

Tranche II Commitment ” mean OPIC’s commitment to lend an amount up to $180,000,000 less (i) the portion thereof that pursuant to Section 2.06(b) has been canceled or has been deemed canceled, and (ii) any Tranche II Loan amounts disbursed pursuant to Section 2.01(c) and (d).

Tranche II Disbursement ” has the meaning set forth in Section 2.01(d)(ii).

Tranche II Initial Payment Date ” means, the earlier to occur of (i) the Payment Date following sixty (60) days after Plant 2 COD and (ii) September 15, 2013.

Tranche II Loan ” means, on any date, the aggregate of the outstanding unpaid principal amounts of the Tranche II Notes then outstanding.

Tranche II Maturity Date ” means the maturity date set forth in the applicable Tranche II Note.

 

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Tranche II Note ” means any promissory note issued by the Borrower pursuant to this Agreement evidencing a Tranche II Loan substantially in the form of a Weekly Rate Note or a Fixed Rate Note.

Tranche II Principal Installments ” has the meaning set forth in Section 2.03(b).

Transaction Documents ” means the Financing Documents and the Project Documents, together with all closing certificates required to be delivered thereunder, any other agreements or instruments entered into in connection with any of the foregoing or pursuant to which the Loans are made and such other documents as OPIC may reasonably request and designated by the Borrower and OPIC as a Transaction Document.

Uniform Commercial Code ” means the uniform rules created by the National Conference of Commissioners on Uniform State Laws in 1952 coordinating the sale of goods and other commercial transactions.

U.S. ” means the United States of America.

U.S. Government ” means the government of the United States of America and its agencies and instrumentalities.

U.S. Taxpayer Identification Number ” means an identification number used by the Internal Revenue Service, an agency of the United States of America, in the administration of tax laws. It is issued either by the Social Security Administration, an agency of the United States of America, or the Internal Revenue Service.

U.S. Treasury Cost ” has the meaning set forth in the Funding Documents.

Weekly Rate Note ” means any promissory note issued by the Borrower pursuant to this Agreement substantially in the form of Exhibit A-2 of the OPIC Funding Agreement.

Well Reserve Account ” means a Dollar-denominated account established by the Borrower in a U.S. financial institution acceptable to OPIC and pledged to OPIC pursuant to the terms of the New York Security Agreement.

Well Reserve Requirement ” means, at any time, an amount equal to (i) the sum of all transfers required to have been made on or before such date from the Revenue Account (as defined in the Accounts Agreement) to the Well Reserve Account pursuant to Section 6.3.2(e) of the Accounts Agreement minus (ii) any amounts withdrawn from the Well Reserve Account and applied to pay Well Drilling Costs (as defined in the Accounts Agreement) in accordance with Section 6.9.2 of the Accounts Agreement minus (iii) any amounts released from the Well Reserve Account under Section 6.9.3 of the Accounts Agreement.

Worker Rights Non-Compliance ” has the meaning set forth in Section 6.13(b).

Worker Rights Requirements ” has the meaning set forth in Section 6.13(a)(xii).

Workers ” means, collectively, (i) individuals that are employed directly by the Borrower, and (ii) individuals that, under a Project Document, perform continuous on-site work that is either (x) of substantial duration or (y) material to the primary operations of the Project.

 

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Working Capital ” means the amount resulting from Current Assets (excluding cash) minus Current Liabilities (excluding Debt Service for the Loans and for all other Long-term Indebtedness).

Works ” means the Plant Works (as defined in the Coordination Contract), the Resource Works (as defined in the Coordination Contract) and any other engineering, procurement, construction, drilling, commissioning or testing required to achieve Project Completion.

2. Rules of Interpretation.

In this Agreement, including Exhibits and Schedules hereto, unless otherwise indicated or required by the context: (a) reference to and the definition of any document (including this Agreement) shall be deemed a reference to such document as it may be amended, supplemented, replaced, revised, or modified from time to time; (b) all references to an “Article,” “Section”, “Schedule,” or “Exhibit” are to an Article or Section of this Agreement or to a Schedule or an Exhibit attached thereto and shall be deemed to have been made a part thereof; (c) the table of contents and article and section headings and other captions are for the purpose of reference only and do not limit or affect the meaning of the terms and provisions thereof; (d) defined terms in the singular include the plural and vice versa, and the masculine, feminine and neuter gender include all genders; (e) accounting terms not defined in this Schedule X have the meanings given to them under the Accounting Principles; (f) the words “hereof,” “herein” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (g) the words “include,” “includes,” and “including” mean include, includes and including “without limitation” and “without limitation by specification”; (h) terms capitalized for other than grammatical purposes that are defined in (i) the preamble, (ii) the recitals, or (iii) the Sections of this Agreement have the meanings ascribed to them therein; (i) phrases such as “satisfactory to OPIC”, “in such manner as OPIC may determine,” “to OPIC’s satisfaction,” “acceptable to OPIC”, “at OPIC’s election”, and phrases of similar import authorize and permit OPIC to approve, disapprove, act or decline to act in its sole discretion; (j) a reference to a “Person” includes a reference to its successors and assigns, (k) any reference to any Applicable Law shall be construed so as to include such Applicable Law as amended, modified, extended, re enacted, redesignated or replaced from time to time, (l) accounting terms shall have the respective meanings given to them under the Accounting Principles, (m) references to any condition or any representation by any Person being to the (i) best knowledge of such Person shall be deemed to be to the best knowledge of an Authorized Officer of such Person and (ii) knowledge of such Person shall be deemed to be to the knowledge of an Authorized Officer of such Person; and (n) the words “reasonable”, “reasonably”, “unreasonably”, and words of similar import, when applied to OPIC’s satisfaction, acceptance, determination, consent, discretion or approval, take into account any special consideration affecting decisions of OPIC in its capacity as a governmental entity or its responsibilities as such.

 

- 24 -


SCHEDULE Y

ORIGINAL WELLS

The following wells are the Original Wells, available for use as of the date hereof for Plant 1:

 

     Name of Well    Location of Well

1.

   A-1    A-Pad

2.

   A-2    A-Pad

3.

   A-4    A-Pad

4.

   A-5    A-Pad

5.

   B-3    B-Pad

6.

   B-7    B-Pad

7.

   B-9    B-Pad

8.

   C-2    C-Pad

9.

   OW-301    301

TOTAL CAPACITY OF ORIGINAL WELLS: 47 MW (LATE 2008) –TO- 44 MW (MID-2011)

 

- 1 -


SCHEDULE Z

DFI SECURITY DOCUMENTS AND RELEASES

Part A : DFI Security Documents:

 

  1. the Amended and Restated Project Accounts Agreement dated April 4, 2011, among the Borrower, the DFI Offshore Account Bank, the DFI Global Agent and each DFI Security Agent, as amended, amended and restated, supplemented or otherwise modified from time to time (the “ DFI Accounts Agreement ”).

 

  2. the Debenture dated January 23, 2009, among the Borrower and the DFI Onshore Security Agent (the “ DFI Debenture ”).

 

  3. the Legal Charge Over Land Reference Number 12881-3 dated January 23, 2009, among the Borrower and the DFI Onshore Security Agent (the “ DFI Legal Charge ”).

 

  4. the Share Charge dated January 23, 2009, among the Intermediate Shareholder, as chargor, and the DFI Offshore Security Agent (“ DFI Share Charge ”).

 

  5. the English Security Agreement dated January 23, 2009, among the Borrower and the DFI Offshore Security Agent (the “ DFI English Security Agreement ”).

 

  6. the Loan Assignment and Security Agreement, dated as of January 23, 2009, among the Intermediate Shareholder, the Shareholder, the Borrower and the Offshore Security Agent (the “ DFI Loan Assignment and Security Agreement ”).

 

  7. the Kenya Reinsurance Assignment Agreement dated February 17, 2009, among the Onshore Security Agent., Real Insurance Company Limited and the Borrower (the “ DFI Kenyan Reinsurance Assignment Agreement ”).

 

  8. the Security Trust and Intercreditor Deed, dated January 23, 2009, among the Borrower, the Intermediate Shareholder, the Shareholder, the lenders thereunder, the DFI Global Agent, the DFI Onshore Security Agent and the DFI Offshore Security Agent, as amended, amended and restated, supplemented or otherwise modified from time to time (the “ DFI Security Trust and Intercreditor Deed ”).

Part B : Releases:

 

  1. the Letter of Termination to be entered into among the Borrower, the DFI Offshore Account Bank, the DFI Global Agent, the DFI Onshore Security Agent and the DFI Offshore Security Agent with respect to closing of the DFI Accounts and termination of DFI Accounts Agreement, in form and substance satisfactory to OPIC.

 

  2. the Deed of Release to be entered into among the Borrower and the DFI Onshore Security Agent with respect to the release of all security under and termination of the DFI Debenture, in form and substance satisfactory to OPIC.

 

  3. the Deed of Release to be entered into among the Borrower and the DFI Onshore Security Agent with respect to the release of all security under and termination of the DFI Legal Charge, in form and substance satisfactory to OPIC.

 

- 1 -


  4. the Deed of Release to be entered into among the Intermediate Shareholder and the DFI Offshore Security Agent with respect to the release of all security under and termination of the DFI Share Charge, in form and substance satisfactory to OPIC.

 

  5. the Deed of Release to be entered into among the Borrower and the DFI Offshore Security Agent, with respect to the release of all security under and termination of the DFI English Security Agreement.

 

  6. the Deed of Release to be entered into among the Intermediate Shareholder, the Shareholder, the Borrower and the Offshore Security Agent, with respect to the release of all security under and termination of the DFI Loan Assignment and Security Agreement.

 

  7. the Deed of Release to be entered into among the Onshore Security Agent, Real Insurance Company Limited and the Borrower, with respect to the release of all security under and termination of the DFI Kenya Reinsurance Assignment Agreement.

 

  8. the Deed of Release to be entered into among the Borrower, the Intermediate Shareholder, the Shareholder, the lenders thereunder, the DFI Global Agent, the DFI Onshore Security Agent and the DFI Offshore Security Agent with respect to the release of all security under and termination of the DFI Security Trust and Intercreditor Deed.

 

  9. the Payment and Release Letter to be delivered from PROPARCO to the Borrower and the DFI Global Agent, with respect to the prepayment in full of the PROPARCO Loan Agreement.

 

- 2 -


SCHEDULE 2.08

OPIC PAYMENT INSTRUCTIONS

All payments to OPIC shall be made in Dollars by wire transfer in immediately available funds without counterclaim, offset, or deduction, via a U.S. domestic bank. Unless instructed otherwise by OPIC, wires should be sent to OPIC’s account with the U.S. Treasury Department in New York and must include the following required information:

 

Fedwire
Field
Tag

  

Fedwire Field Name

  

Required Information

{2000}    Amount (Mandatory)    (12 numeric, right-justified with leading zeros, no commas, or decimal point. Example: $39,287.21 becomes 000003928721)
{3400}    Receiver ABA routing number    021030004
{3400}    Receiver ABA short name    US TREAS NYC
{3600}    Business Function Code    CTR
{4200}    Beneficiary ID-code    D
{4200}    Beneficiary Identifier (account number – AGENCY ALC)    71000001
{4200}    Beneficiary Name    Overseas Private Investment Corporation
{5000}    Originator-ID-Code    D
{5000}    Originator-Identifier (Mandatory)    (34 characters maximum, Account Number of Borrower at their Financial Institution)
{5000}    Originator-Name (Mandatory)    (35 characters maximum, Borrower Name, truncate if necessary)
{6000}    Originator to Beneficiary Information – OPIC Loan Number    OPIC/615-2011-039-IG
{6000}    Originator to Beneficiary Information – Loan Payment Purpose (e.g., Interest, Principal, etc.) (Mandatory)   

 

- 1 -


SCHEDULE 3.01(c)

SHAREHOLDER PAYMENTS

 

Payment Date

  

Recipient

   Amount  

June 18, 2012

   Ormat Holding Corp.    $ 9,700,000   

 

- 1 -


SCHEDULE 3.01(d)

CAPITALIZATION

 

Entity

   Number of issued and
authorized shares
    

Entity holding the Shares

   Percentage of
shares held
 

OrPower 4 Inc.

     1000       Ormat Holding Corp.      100

Ormat Holding Corp.

     999.9       Ormat International, Inc.      100

 

- 1 -


SCHEDULE 3.01(l)

FINANCIAL PLAN

 

     US$ (‘000)  

Total Plant 1 Costs

   $ 155,103   

Total Plant 2 Costs

   $ 226,662   

Total Project Costs

   $ 381,765   

Total OPIC Debt

   $ 265,000   

Total Equity

   $ 116,765   

Total Sources

   $ 381,765   

 

- 1 -


SCHEDULE 3.01(x)

PAYMENT OF CONTRACTORS AND SUBCONTRACTORS

Part A : Set forth below is a complete list of all contractors and suppliers (other than the Key Contractors) that, since the Cut-Off Date and until July 31 2012, have performed Works. All such Works have been paid in full except as set forth in Part B of this schedule:

 

    

Contractor/Subcontractor

1.    AAR Health Services Limited
2.    Alpine Coolers Ltd
3.    Auto Scope Limited
4.    Baja Geo Systems, Inc
5.    Barico Maintenances Ltd
6.    BCD Travel
7.    Beecher Carlson Insurance Services, LLC.
8.    Bonfide C & F Co. Limited
9.    Bragg Crane Service
10.    Business Logistics
11.    Bytech Engineering Limited
12.    Callkey(E.A) Limited
13.    Car Track Kenya Limited
14.    Cashman Equipment Company
15.    Charles Odhiambo
16.    Chege Kuria
17.    Christian Jacobsen
18.    Civicon Limited
19.    Crystal Impex Ltd
20.    Davis & Shirtliff Ltd
21.    Davis-Lynch, Inc
22.    DHL Worldwide Express Kenya Limited
23.    Drilling Services Limited
24.    Economic Housing Group Limited
25.    Eli Holdings Limited
26.    Ephamu General Merchants
27.    Etichy Agencies
28.    Express Kenya Limited
29.    Fast World Computers Ltd
30.    Fish Eagle Inn
31.    Fortitude Consultants
32.    Freese Scan
33.    G4S Security Services Kenya Limited
34.    Galana Oil (K) Limited
35.    Geomatics Civil Engineering Surveyors Ltd
36.    Geo-Survey International Inc.
37.    Geothermal Consultants New Zealand Limited
38.    GIGI Motors Ltd
39.    Halliburton Energy Services, Inc.
40.    Harrison Muiruri Refrigeration
41.    Haynie Consulting Co.

 

- 1 -


    

Contractor/Subcontractor

42.    Heritage AII Insurance Co. Ltd
43.    Hobra Manufacturing Limited
44.    Hopkins Oil Tool, Inc
45.    Horizon Well Logging Inc
46.    Howard Humphreys (East Africa) Limited
47.    Image Plus Limited
48.    IntraSearch-MapMart
49.    Jabada Consulting Company
50.    James & Michael Tyres
51.    Jim Pairish Surveying Co.
52.    Joseph A. Bunce
53.    Joseph A. Bunce
54.    K & R Drilling Tools
55.    Kabiria Enterprises Ltd
56.    Kaplan & Stratton Advocates
57.    Kenya Bureau of Standards
58.    Kenya Electricity Generating Co. Ltd
59.    Kenya Power & Lighting Co.Ltd
60.    Keystone Drill Services LLC
61.    Kuster Co.
62.    La Pieve Limited
63.    Lake Naivasha Simba Lodge
64.    Lee D Weiss II
65.    Madgetech Inc
66.    Madris Petrochem
67.    Mahaver Stores Limited
68.    Mantrack Kenya Ltd
69.    Maruti Office Supplies Ltd
70.    Mathew N. Njuguna
71.    Matthew Well Consulting
72.    Mayaki Investments
73.    MFI Office Solutions Limited
74.    Michael R Needham
75.    Mueller Consulting
76.    Multichoice Kenya Limited
77.    Naivas Ltd
78.    Naivasha Bidii Investments
79.    Naivasha Municipal Council
80.    Narasha Community Dev. Project
81.    Ndonyo Health Care
82.    Nigel and Sarah Carnelley
83.    Oceanic Marine Surveyors Kenya Limited
84.    Oil Field Tubulars and Supply Co.
85.    Onase Logistics Ltd
86.    Oriental General Stores Ltd
87.    Ortitlan, Limitada
88.    Pacocean Forwarding
89.    Penibrah (K) Ltd
90.    Porto Safari Consultancy
91.    Precious Exhausters

 

- 2 -


    

Contractor/Subcontractor

92.    Pro Fire Pro Design
93.    Projection Solutions Ltd
94.    Radoine Ololgisoi Nkamasiai
95.    Real Insurance Company Limited
96.    Reykjavik Geothermal ehf
97.    Richfield Engineering Limited
98.    Riley Falcon Security Services Limited
99.    Riva Petroleum Dealers Limited
100.    Robert M. Cobb
101.    Royal Oilfield Logistics Services & Sup
102.    Safaricom Limited
103.    Sam Meeker
104.    San Joaquin Bit Service, Inc.
105.    Scan-Trans Carriers
106.    Service Charge
107.    Shaffer Oil Tool Services, Inc
108.    Siemens Limited
109.    Signature Cars Ltd
110.    Solutel Kenya
111.    Specialised Hardwares Limited
112.    Steel Structures Ltd
113.    Techspa General Supplies Limited
114.    Telkom Kenya Limited
115.    The Poly-Clinic Hospital
116.    The University of Arizona
117.    The University of Arizona
118.    Thermochem, Inc.
119.    Tiger Energy Services, Inc
120.    Toplis & Harding International Ltd
121.    Total Kenya Limited
122.    Trefi East Africa Limited
123.    VIVA Shipping Inc,
124.    Waki Clearing And Forwarding Agents
125.    Weatherford Services & Rentals Ltd
126.    Weatherford U.S., LP-Gemoco
127.    Weatherford U.S., LP-Houston
128.    William S.Ole Molo

 

- 3 -


Part B : Set forth below is a list of all contractors and suppliers (other than the Key Contractors) that, since July 31, 2012, have performed or will perform Works and all amounts remaining to be paid (or projected to be paid) to each such contractor and supplier that, since the Cut-Off Date, is performing or will perform Works:

 

Contractor/Supplier

  

Project Document/Agreement

  Amounts owed or estimated to be
owed through Project Completion
(US$/KES)
 

Civicon Limited

   Mechanical Construction Services   $ 9,454,000   

Hobra Manufacturing Limited

   Civil Construction Services   $ 609,000   

Siemens Limited

   Agreement for Engineering, Supply, and Construction of the Substation   $ 1,742,000   

Mehta Electrical

   Electrical Construction Services   $ 980,000   

Halliburton (various entities)

   Halliburton Master Service Agreement for Drilling Services   $ 6,300,000   

Weatherford (various entities)

   Weatherford Master Service Agreement for Drilling Services   $ 4,600,000   

Other Miscellaneous Contractors/Suppliers

   Various Agreements   $ 4,400,000   

 

- 4 -


SCHEDULE 4.04

CONSENTS

PART A: CONSENTS ALREADY OBTAINED

 

      

Particulars

  

Relevant Legislation

  

Relevant Authority

  

Status

1. ELECTRICAL AUTHORIZATIONS

1.1.    Generation Licence    Energy Act 2006    Electricity Regulatory Commission    Obtained
1.2.    Geothermal Resources Licence    Geothermal Resources Act 1982    Minister of Energy    Obtained
1.3    Approval of Power Purchase Agreement    Energy Act 2006    Electricity Regulatory Commission    Approval Letter obtained from ERC includes reference to incorrect PPA date. Borrower to provide letter from ERC referencing correct PPA date (i.e., March 29, 2011).

2. GENERAL DEVELOPMENT AUTHORIZATIONS

2.1.    Development Permission    Physical Planning Act    Naivasha Municipal Council    Obtained
2.2.    Licence for use of Radio Communication Apparatus    Kenya Communications Act 1998    Communications Commission of Kenya    Obtained

3. LAND AND CONSTRUCTION AUTHORIZATIONS

3.1.    Approval of building plans for the Plant    Occupational Safety and Health Act 2007    Director of Occupational Safety and Health Services.    Obtained
3.2.    Registration as a factory/workplace    Occupational Safety and Health Act 2007    Director of Occupational Safety and Health Services    Obtained
3.3.    Manufacturer’s test certificate for new steam boilers or a report from an authorised boiler inspector for    Occupational Safety and Health Act, 2008 section 67 (8)    Safety and Health Officer.    Obtained for Plant 1

 

- 1 -


   previously used steam boilers         

4. ENVIRONMENTAL AUTHORIZATIONS

4.1.    Environmental Impact Assessment Licence    Environmental Management and Co-ordination Act    NEMA    Obtained

5. IMMIGRATION AND EMPLOYMENT CONSENTS

5.1.    Registration as an employer    National Social Security Fund Act, chapter 258    The Managing Trustee, NSSF    Obtained
5.2.    Registration as an employer    Industrial Training Act, chapter 237 and Industrial Training (Training Levy) Order, 2007    Director of Industrial Training    Obtained

6. BUSINESS, TAX AND ACCOUNTING RELATED AUTHORIZATIONS

6.1.    Registration as a manufacturer    Standards Act, Chapter 496    Kenya Bureau of Standards    Obtained
6.2.    Single Business Permit    Local Government Act    Naivasha Municipal Council    Obtained
6.3.    Personal Identification Numbers for the Borrower    Income Tax Act, chapter 470    Commissioner for Income Tax (Kenya Revenue Authority)    Obtained
6.4.    VAT Registration    Value Added Tax Act, chapter 476    Commissioner of Value Added Tax (Kenya Revenue Authority)    Obtained
6.5.    Registration as a foreign company with a place of business in Kenya    Companies Act, chapter 486    Registrar of Companies    Obtained

PART B: CONSENTS TO BE OBTAINED AT A LATER DATE

 

      

Particulars

  

Relevant Legislation

  

Relevant Authority

  

Status

7. LAND AND CONSTRUCTION AUTHORIZATIONS
7.1.    Manufacturer’s test certificate for new steam boilers or a report from an authorised boiler inspector for    Occupational Safety and Health Act, 2008 section 67 (8)    Safety and Health Officer.    To be obtained for Plant 2 only upon Plant 2 commissioning.

 

- 2 -


   previously used steam boilers         
8. IMMIGRATION AND EMPLOYMENT CONSENTS
8.1.    Entry permits and work permits for non-residents in Kenya    Immigration Act, Chapter 172    Principal Immigration Officer (Immigration Department)    To be obtained as and when the need arises.

 

- 3 -


SCHEDULE 4.19-A

DRILLING PROGRAM

 

A. Number of Wells.

The following wells shall be drilled in respect of Plant 2:

 

     Name of Well    Location of Well    Expected output/capacity

1.

   A-9    A-Pad    21.3 MW (actual)

2.

   A-8    A-Pad    12.5 MW (actual)

3.

   A-7    A-Pad    10.0 MW (actual)

4.

   A-10    A-Pad    7 MW (projected)

5.

   B-14    B-Pad    7 MW (projected)

6.

   E-1    E-Pad    7 MW (projected)

7.

   F-1    F-Pad    7 MW (projected)

8.

   E-2    E-Pad    7 MW (projected)

 

B. Performance of Wells.

The aggregate capacity capable of being generated by the output of the Expansion Wells, in addition to the Original Wells, is expected to be at least 120MW.

 

C. Drilling Parameters.

The Borrower shall ensure that all drilling and well testing activities are conducted in accordance with Good Industry Practice, and that all relevant drilling and testing records have been made available to the Independent Engineer.

 

- 1 -


SCHEDULE 4.19-B

RESERVOIR MONITORING PLAN

[ See Attached ]

 

- 2 -


SCHEDULE 4.19-B

RESERVOIR MONITORING PLAN

 

Operating Data (a)

         Maximum
Measurement
Interval
       

Maximum
Measurement
Interval

Plant Operating Data (per unit and total for all quantities)

  (g)      

Field Operating Data - Production

  
        Per Well   
Generation        

Wellhead Pressure

   Daily

Gross Output

     6 hours   

Wellhead Temperature

   Daily

Net Output

     6 hours   

Mass Production Flow Rate - 2 phase

   Daily
Operating Parameters            (b)

Brine Flow

     6 hours    Per Separation system   

Brine Inlet Temperature

  (h)    6 hours   

Inlet Pressure

   Daily

Brine Inlet Pressure

  (h)    6 hours   

Outlet Pressure

   Daily

Brine Outlet Temperature

     6 hours      

Brine Outlet Pressure

  (h)    6 hours      

Steam Flow

     6 hours      

Steam Inlet Pressure

  (h)    6 hours   

Field Operating Data - Injection (per well)

  

Ambient Temperature

  (i)    6 hours   

Mass Flow Rate

   Daily (j)
       

Wellhead Pressure

   Daily (j)
       

Wellhead or Line Temperature

   Daily (j)

 

- 1 -


Reservoir Pressure Monitoring

Number of wells instrumented (minimum):    2 (c)
Instrumentation method:    Capillary tubing / chamber below water level
Measurement interval (maximum):    6 hours

Chemical Monitoring

Brine Samples (per production well and per injection stream)   

Sampling interval (maximum):

   12 months

Components analyzed:

   Standard geothermal suite (d)
Steam Samples (per Plant)   

Sampling interval (maximum):

   6 months

Components analyzed:

   Standard geothermal suite (d)
Other Sample Points (specify)   

Sampling interval (maximum):

  

Components analyzed:

  

Other

Temperature / Pressure Surveys (per well)   

Survey Frequency (maximum)

   2 years (e)
Well Inspections   

Inspection Type:

   Go Devil

Inspection Interval (maximum):

   (f)
Other (specify)   

Notes:

 

(a) Spot (instantaneous) measurements, not averaged values.

 

- 2 -


(b) Continuous per-well enthalpy monitoring is precluded by current wellfield configuration and instrumentation.
(c) Wells must have locations suitable for reservoir pressure monitoring.
(d) Analyte suite per Thermochem standards

Brine samples (well) - minimum analyte suite :

-pH (lab), Ca, Mg, Na, K, alkalinity, SO4, Cl, B, SIO2

-Ion balances (difference/sum) of 5% or less.

Steam samples (plant) - minimum analyte suite :

-total (gases/steam) plus gas components CO2, H2S, N2, Ar, O2, CH4, NH3, H2

 

(e) Greater frequency prior to plant start-up and in first year of operation. Once - adjacent to COD, once - 1 year after COD, thereafter - every two years.
(f) Frequency to be determined based on indications of well condition.
(g) Early generation is considered and monitored as a single unit, and not separately for each of the OECs.
(h) This data is measured at a plant level.
(i) Ambient Temperature is measured for the Site, and not for each unit or Plant.
(j) Required instruments will be installed and ready for monitoring by Project Completion.

 

- 3 -


SCHEDULE 4.19-C

RESERVOIR MONITORING REPORT

[ See Attached ]

 

- 1 -


SCHEDULE 4.19-C

FORM OF RESERVOIR MONITORING REPORT 1

Semiannual Period Ending: [ Insert Date ]

 

  I. Production Wells :

 

  A. Typical Monthly Values .

 

  i. For each production well list a typical value set on one day mid-month for each month of the semiannual period.

 

  ii. Include wells that are shut-in.

 

  iii. Total [six (6) records] per well. Add rows as needed to be complete.

 

Measured on Date

   Other     

Well

  

Date

  

WHP (Barg)

  

Valve open
(%)

  

Enthalpy
(kJ/kg)

  

Total
production
rate (T/hr)

  

Rate Basis

two-phase
orifice meter
measurements

  

Status/Comments

OW-301                     
OW-301                     
OW-301                     
A-1                     
A-1                     
A-1                     
Etc                     

 

1  

NOTES: TFT and Chemistry Data can be available every two years or so.

               Surveys will be conducted every 5 years. Remedial Work Reports can be provided when work is done.

 

- 1 -


  B. End of Semiannual Period Data .

 

  i. For each production well list the applicable data at end-of- semiannual period.

 

  ii. Include wells that are shut-in.

 

  iii. Total one (1) record per well. Add rows as needed to be complete.

 

Well

  

Hours
operated
during
quarter

   Date last
enthalpy test
   Enthalpy
(kJ/kg)
   Period to
Date
Cumulative
total mass
(metric T)
   Typical or
assumed
separation
pressure
(Barg)
   Period to Date
Cumulative
steam (metric T)
   Period to Date
Cumulative
brine (metric T)
  

Status/Comments

OW-301

                       

A-1

                       

A-2

                       

Etc

                       

 

- 2 -


  II. Injection Wells:

 

  A. Typical Monthly Values .

 

  i. For each production well list a typical value set on one day mid-month for each month of the semiannual period.

 

  ii. Include wells that are shut-in.

 

  iii. Total [six (6) records] per well. Add rows as needed to be complete.

 

Well

  

Date

  

Injection rate (T/h)

  

Wellhead pressure
(Barg)

  

Valve open (%)

  

Status/
Comments

B1               
B1               
B1               
OW-307               
OW-307               
OW-307               
Etc               

 

  B. Each Semiannual Period of Data .

 

  i. For each production well list the applicable data at end-of-semiannual period.

 

  ii. Include wells that are shut-in.

 

  iii. Total one (1) record per well. Add rows as needed to be complete.

 

- 3 -


Well

  

Hours operated this
6 months period

  

Period to date
Cumulative total
mass injected
(metric T)

  

Status/
Comments

B1         
OW-307         
OW-401         
Etc         

 

- 4 -


  III. Tracer Flow and Enthalpy Tests (TFT):

 

  A. For each production well, injection well or other sampling point list the associated data and append the TFT test report to this document.

 

  B. Add rows as needed to be complete.

 

  C. If the TFT report contains all applicable data, it is not necessary to fill out this table.

 

Sample Point
(Header or
Well)

 

Date

 

Wellhead
Pressure
(Barg)

 

Steam-Brine
Pressure
(Avg or
Normalized)
(Barg)

 

Normalized
Brine Flow
(Kg/sec)

 

Normalized
Steam
Flow

(Kg/sec)

 

Production
Enthalpy
(kJ/kg)

 

Total
Production
Flow

(kg/sec)

 

Are Data
NCG-

corrected?
(y/n)

 

NCG/Steam
wt.%

 

Status/
Comments

                   
                   
                   
                   
                   

 

- 5 -


  IV. Chemical Sampling (wells and production header(s)) :

 

  A. For each sample point list the activities undertaken and append the associated chemical analysis report to this document.

 

  B. Add rows as needed to be complete.

 

  C. If the analysis report contains all applicable data, it is not necessary.

 

Sample Point
(Header or
Well)

 

Date of
Sample
Collection

 

Sample
Port ID

 

Portable
Separator
Used
(x if yes)

 

Brine
sample
(x if
collected)

 

Steam/gas
sample
(x if
collected)

 

Steam-Brine
Separation
Pressure (psig)

 

Steam-Brine
Separation
Temperature
(°C)

 

Analytical
Report
Appended

 

Status/
Comments

production
header (name)
                 
Injection
header (name)
                 
Well                  
Well                  
Etc                  
Other                  

 

- 6 -


  V. TPS and other Well Logs :

 

  A. For each log run list the activities taken and append an electronic copy of the associated well log.

 

  B. Add rows as needed to be complete.

 

Well

 

Date

 

Flowing? (days)

  

S/I?
(days)

  

Type of Log

  

Log Data
Appended

  

Status/
Comments

               
               
               
               
               
               
               
               

 

  VI. Remedial Well Work :

 

  A. For each well worked on list the activities taken and outcomes.

 

  B. Add rows as needed to be complete.

 

Well

 

Date

 

Description of Operation and Outcome

   
   
   
   

 

- 7 -


  VII. Other Wellfield/Reservoir – Related Activities :

 

  A. List and describe other activities and tests such as:

 

  i. Use of scale inhibitors

 

  ii. ‘James Tube Flow tests and data obtained.

 

  iii. Reservoir Tracer Tests

 

  B. Add rows as needed to be complete.

 

  C. Any activity may be represented by appending an associated report.

 

- 8 -


SCHEDULE 6.02(d)

O&M PARAMETERS

ARTICLE I

DEFINITIONS

1.1 As used in this Schedule, the following terms shall have the meanings set forth below, such definitions to be equally applicable to the singular and plural form of the terms defined:

O&M Manual ” shall mean the Olkaria III OEC Operation and Maintenance Manual, dated as of January 8, 2012, as amended or modified from time to time in accordance with Section 2.4.

Maintenance Plan ” shall mean a maintenance plan prepared by the Borrower with respect to the Plant in form and substance satisfactory to the Independent Engineer and OPIC, as amended or modified from time to time in accordance with Section 2.4.

Project Operating Procedures ” shall mean all procedures required to safely operate the Project during normal operations and in all emergency situations.

Project Operating Standards ” shall mean, collectively: (i) the O&M Manual, (ii) the Maintenance Plan, (iii) the Routine Maintenance Procedures, (iv) the Reservoir Monitoring Plan, and (v) the Annual Operating Budget, each of which shall not contradict or require any action in contravention of any of the following: (a) Applicable Law, (b) Good Industry Practice, (c) these O&M Parameters, (d) the Project Operating Procedures, (e) any Consent applicable to the Project, (f) any manuals, mechanical catalogues, as-built drawings and any other operating procedures agreed with (or specified by) KPLC pursuant to Section 8.5 of the PPA in connection with the operation of the Plant, and (g) all other Project Documents and other agreements that affect or relate to the operation and maintenance of the Plant. In the event of any inconsistency among the requirements, standards and procedures described herein, the Borrower shall comply with the most stringent applicable standard.

Routine Maintenance Procedures ” shall mean those detailed procedures for the preventive maintenance that must be performed routinely on an ongoing basis to maintain the Plant in good working order, which shall be in form and substance acceptable to OPIC (acting in consultation with the Independent Engineer), as amended or modified from time to time in accordance with Section 2.4.

Spare Parts ” shall mean the spare parts that a prudent operator would maintain in inventory in order to undertake any repairs and/or operate the Plant in a good, workmanlike, and commercially reasonable manner in accordance with Routine Maintenance Procedures and Good Industry Practice.

Substantial Equipment Problem ” shall mean any equipment malfunction requiring repairs beyond the scope of routine maintenance or repairs not contemplated by the then current Annual Operating Budget.

1.2 Capitalized terms not otherwise defined have the meanings ascribed to them in the Finance Agreement.

 

- 1 -


ARTICLE II

DUTIES OF BORROWER

2.1 Until the indefeasible repayment in full of the Loans, the Borrower shall at all times be in care, custody and control of Plant 1 and, after Plant 2 COD, Plant 2. The Borrower shall perform all customary services necessary or appropriate for the operation and maintenance of each Plant in accordance with the Project Operating Standards, Applicable Law and all Consents applicable to the Project, except to the extent specified otherwise in these O&M Parameters. Without limiting the foregoing, the Borrower shall:

a. purchase for the Plants operating and maintenance supplies, safety equipment, and other items normally used and supplied for a geothermal power plant of the type and size of the Plant;

b. promptly repair, in a good and workmanlike manner, any equipment that fails or malfunctions or performs at a level or in a manner inconsistent with Good Industry Practice;

c. maintain and document the Project’s inventory of Spare Parts, and requisition replacements of such items as they are used, in accordance with the Project Operating Standards;

d. take all action that the Borrower considers necessary or advisable in the event of an emergency to protect (i) the Project and ensure the continued safe and efficient operation of the same to the maximum extent possible, (ii) all operations and maintenance personnel, (iii) all equipment located at the Site, and (iv) the Spare Parts, all in compliance with Good Industry Practice;

e. make all reasonable efforts to achieve or exceed the capacity of the Project and maximize net operating revenues by operating the Plant at optimum achievable conditions;

f. monitor and analyze critical operating parameters to confirm that the design capacity and product quality can be met and sustained for the term of the Finance Agreement;

g. make the necessary arrangements for safe offsite disposal of all waste collected or produced at the Site in accordance with Applicable Law and other Consents applicable to the Project. The Borrower shall not requisition, generate or otherwise bring onto the Site any chemical, material or other substance that is prohibited by Applicable Law or any other Consent applicable to the Project;

h. comply with all reporting obligations (if any) relating to the Plant pursuant to Applicable Law and other Consents applicable to the Project;

i. staff the Plant with qualified operators during all hours of operation;

j. ensure that at all times there shall be available at the Site, operation personnel, and during normal working hours (as well as “on call” availability outside of normal working hours), maintenance personnel, adequately trained to operate and maintain the Plant properly and efficiently within all Project Operating Standards and in accordance with Good Industry Practice;

k. perform the routine maintenance for the Plant and each Ormat Energy Converter so as to keep them in good working order in accordance with the Project Operating Standards;

 

- 2 -


l. make a requisition for all materials and arrange for the provision of all services to the extent necessary for routine maintenance of the Plant and in the event of Substantial Equipment Problems. All maintenance and repair work shall be performed in accordance with all applicable manufacturers’ recommendations and Good Industry Practice;

m. interface with all Governmental Authorities in relation to the PPA and the Project as and when necessary;

n. comply with the terms and requirements of all insurance contracts and any other insurance policies applicable to the Project; and

o. operate and maintain the Plant and perform all obligations pursuant to these O&M Parameters and the Annual Operating Budget.

2.2 Personnel . The Borrower shall provide supervisory personnel and shall employ, or contract for, qualified operating and maintenance personnel in accordance with the Project Operating Standards in sufficient numbers to perform all obligations hereunder. Such personnel shall have had experience and/or training in operating and maintaining geothermal facilities sufficient for the positions for which they are employed and shall possess experience and/or training equal to standards generally accepted within the industry for operating and maintaining similar equipment in accordance with the Project Operating Standards. To the extent required by Applicable Law, all personnel shall be validly licensed to perform the work to be performed by such personnel.

2.3 Records . The Borrower shall maintain maintenance and operating records with sufficient detail and accuracy so as to provide an accurate and complete history of the operation and maintenance of the Project in accordance with Good Industry Practice. All records prepared pursuant to this section shall be retained by the Borrower until all Secured Obligations have been indefeasibly paid in full. All records prepared pursuant to this section shall be maintained at a location at the Plants and made known to OPIC upon prior written request.

2.4 Changes in O&M Manual, Maintenance Plan and Routine Maintenance Procedures . The Borrower shall have the right from time to time to make changes in the O&M Manual, Maintenance Plan and Routine Maintenance Procedures that are consistent with (a) Good Industry Practices, (b) Applicable Law, (c) these O&M Parameters, (d) the Project Operating Procedures, (e) any Consent applicable to the Project, (f) any manuals, mechanical catalogues, as-built drawings and any other operation and maintenance procedures and/or documents agreed with (or specified by) KPLC or any Governmental Authority in connection with the operation of the Plant and (g) all other Project Documents. Any such changes shall be reflected in the O&M Manual, Maintenance Plan and Routine Maintenance Procedures, as applicable.

2.5 Testing . The Borrower shall perform routine operating tests designed to monitor the safety and performance of the Project and such other tests as are generally accepted for the operation of facilities similar to the Project.

 

- 3 -


SCHEDULE 6.04

MINIMUM INSURANCE REQUIREMENTS

 

1. Insurance covering the Borrower : The Borrower shall:

 

  1.1 procure not later than the first Closing Date and maintain, or cause to be procured and maintained, and in all cases at its own expense, at all times thereafter in full force and effect until all Secured Obligations are paid in full (unless otherwise specified below), insurance with insurers that meet the requirement set forth in Annex A hereto (i) as required by (x) Project Documents and (y) Applicable Law, (ii) of the types set forth in Annex A hereto and (iii) that insure and keep insured the Project and all its property and business that can be insured against insurable losses for which coverage is commonly purchased by prudent owners and operators of geothermal power plants comparable to the Project on a replacement cost basis in the case of casualty insurance, utilizing current full replacement values;

 

  1.2 promptly following the receipt of a notice from OPIC (which notice shall be provided after consultation with the Borrower) from time to time, obtain such additional insurance coverage of risks or liabilities that are not specified in this Schedule 6.04 as would from time to time be obtained by a prudent power plant operating company (operating an asset or assets similar to the Project) that does not self-insure, and in such amounts and deductibles as are specified in that notice; provided that the purchase of such additional insurance coverage is generally accepted industry practice and is available on commercially reasonable terms to a prudent power plant operating company (operating an asset or assets similar to the Project) that does not self-insure;

 

  1.3 promptly following the receipt of notice from OPIC from time to time, obtain such additional insurance(s) or make such modifications to the terms, conditions, amounts or deductibles of any Insurance Policy required pursuant to Sections 1.2 and 1.3 of this Schedule 6.04 as OPIC may determine in consultation with the Borrower and specify in such notice to be necessary to cover any material change in the identified risk exposure of the Borrower, its business or its property and to take account of inflationary and other relevant factors, provided that such modifications are available on commercially reasonable terms to a prudent power plant operating company (operating an asset or assets similar to the Project) that does not self-insure; provided further, that the purchase of such additional insurance coverage is generally accepted industry practice and is available on commercially reasonable terms to a prudent power plant operating company (operating an asset or assets similar to the Project) that does not self-insure;

 

  1.4 comply with all warranties under each Insurance Policy;

 

  1.5 not vary (except in accordance with the terms hereof), rescind, terminate, cancel, or cause or consent to a material change to any Insurance Policy unless OPIC has approved such proposed action;

 

  1.6 on each date that the Insurance Policies in effect on the first Disbursement Date are first renewed, ensure that only the Persons contemplated by this Schedule 6.04 are listed as loss payees on such Insurance Policies; and

 

  1.7 for the renewal of the Insurance Policies relating to all risk policies, ensure that the terms of such renewal takes into account the revised replacement cost value of the covered assets;

 

- 1 -


provided always that:

(a) OPIC shall be entitled from time to time to review, in consultation with the Borrower, the monetary limits and deductibles of each Insurance Policy, such review not to be conducted more frequently than once every calendar year with respect to each such policy.

 

2. Borrower Conditions and Requirements :

 

  2.1 Loss Notification : The Borrower shall promptly notify OPIC of any single loss for an amount that is or could reasonably be expected to be in excess of five hundred thousand Dollars ($500,000) covered by any Insurance Policies.

 

  2.2 Loss Adjustment and Settlement : A loss under any Insurance Policies providing property damage and business interruption insurance for the Project, shall be adjusted with the insurance companies, including the filing in a timely manner of appropriate proceedings, by the Borrower, subject to the approval of OPIC if such loss is in excess of $1,000,000 Dollars. In addition, the Borrower may, in its reasonable judgment, consent to the settlement of any loss, provided that in the event that the amount of the loss exceeds $1,000,000 Dollars the terms of such settlement is concurred with by OPIC. OPIC shall have and reserves the right to participate in settlement negotiations with the insurers.

 

  2.3 Compliance With Policy Requirements : The Borrower shall not violate or permit to be violated any of the conditions, provisions or requirements of any Insurance Policy, and the Borrower shall (i) in all material respects perform, satisfy and comply with, or (ii) cause to be in all material respects performed, satisfied and complied with, all conditions, provisions and requirements of all Insurance Policies.

 

  2.4 Waiver of Subrogation : The Borrower hereby waives any and every claim for recovery from OPIC for any and all loss or damage covered by any of the Insurance Policies. Furthermore, the Borrower shall cause its insurers (and reinsurers, if applicable) to waive any and all rights of subrogation against OPIC.

 

  2.5 Annual Overview of Insurances : On an annual basis, the Borrower shall furnish OPIC with an annual overview of its insurances, which shall include a list of all insurance policies and description of all renewals and other changes to the insurances for the previous year. Any certificates of insurance/binders, certificates from Borrower’s insurance broker or copies of insurance policies required to be delivered pursuant to Section 5.1 of this Schedule 6.04 that have not previously been delivered to OPIC shall be delivered together with such annual overview of insurances. Upon request, the Borrower will promptly furnish OPIC with copies of all Insurance Policies, binders and cover notes, reinsurance policies (if any) or other evidence of such insurance relating to the insurance required to be maintained by the Borrower, which documents, to the extent available, shall be provided in English.

 

  2.6 Payments : The Borrower shall pay when due any premium, commission and any other amounts and take such other action as may be necessary for effecting and maintaining in force each Insurance Policy.

 

  2.7 Notification : The Borrower shall promptly notify the relevant insurer of any event entitling the Borrower to make a claim in excess of the deductible amount in respect of such claim under any Insurance Policy written by such insurer and diligently pursue such claim, unless the Borrower and OPIC have decided not to pursue such claim.

 

  2.8 No omissions : The Borrower shall not do or omit to do, or permit to be done or not done, anything to:

 

- 2 -


  2.8.1 render any Insurance Policy, or any provision of that policy, void or voidable or lead to its suspension or impair or defeat any such policy in whole or in part; or

 

  2.8.2 prejudice the Borrower’s or, where OPIC is the loss payee or an additional or named insured, OPIC’s right to claim or recover under any Insurance Policy.

 

  2.9. Enforcement of Rights : The Borrower shall enforce its rights under the Project Documents, to the extent that it has such rights, so as to ensure that any Person (other than the Borrower) required to provide insurance under a Project Document obtains and maintains Insurance Policies as required thereby.

 

  2.10 Additional Undertakings :

 

  2.10.1 The Borrower shall procure that each insurer under all Insurance Policies:

(a) is promptly notified of the Lien created in favor of OPIC under the Security Documents in the Borrower’s title to, and rights, interest and benefits under, such policies by the delivery by the Borrower to each such insurer of the notice related to the fiduciary assignment of each such insurance under the Security Documents;

(b) provides OPIC sixty (60) days (or ten (10) days if due to non-payment of a premium) notice of the issuance of any notice of cancellation or suspension of the relevant policy; and

(c) acknowledges that OPIC, as lenders and beneficiaries under the relevant policy and the Transaction Documents, are not liable to the insurers (or reinsurers, if applicable) for the payment of any insurance (or reinsurance, if applicable) premiums nor for any other obligations of the Borrower or any obligations of any kind but have the right but not the obligation to pay premiums on behalf of the Borrower.

 

  2.10.2 The Borrower shall procure that (a) its insurance broker with respect to all Insurance Policies provides OPIC sixty (60) days (or ten (10) days if due to non-payment of a premium) notice of the issuance of any notice of cancellation or suspension of any policy and of any fact of which it becomes aware that could affect the coverage under any policy and (b) provides a certificate covering the matters set forth in Section 5.1(a) of this Schedule 6.04 with respect to the Insurance Policies as a condition to the first Disbursement.

 

  2.10.3 The Borrower shall provide OPIC sixty (60) days (or ten (10) days if due to non-payment of a premium) notice of the issuance of any notice of cancellation or suspension of any policy and of any fact of which it becomes aware that could affect the coverage under that policy and of such other matters as specified in this Schedule 6.04.

 

3. Insurance Policy Conditions and Requirements :

 

  3.1 Language : Each Insurance Policy (and reinsurance policy, if applicable) shall be in the English language, on terms and conditions acceptable to OPIC and consistent with market practice for prudent operators of power plants.

 

  3.2 Additional Insured : OPIC shall be named as additional insured or additional named insured under all insurances except workers compensation and employers liability.

 

- 3 -


  3.3 Separate Policies : All policy terms and conditions (except those relating to limits of liability) shall operate as if they were a separate policy covering each insured party and providing that each insured party is insured individually by such policy.

 

  3.4 Loss Payee : On every Insurance Policy (except for Third Party Liability Insurance) on the Borrower’s property which is the subject of the Security Documents and for delay in start-up (if any) and business interruption OPIC shall be the sole loss payee.

 

  3.5 Rights of OPIC : All terms and conditions of each First Party policy including Property, Business Interruption, Terrorism and Machinery Insurance Policy conferring any right, protection or benefit on OPIC (including sole loss payee and additional or additional named insured terms and conditions, notice requirements, etc.) shall at all times remain in full force and effect notwithstanding any act or failure to act on the part of the Borrower, its agents or employees or on the part of its construction contractors or subcontractors, unless such Insurance Policies are permitted to be terminated in accordance with this Schedule 6.04 and so long as 438 BFU Lender’s Loss Payable Clause or a generally accepted equivalent or alternative is commercially available.

 

  3.6 Separation of Interests : All policies shall insure the interests of OPIC regardless of any breach or violation by the Borrower or any other party of warranties, declarations or conditions contained in such policies, any action or inaction of the Borrower or others, or any foreclosure relating to the Project or any change in ownership of all or any portion of the Project.

 

  3.7 All liability Insurance Policies, except workers’ compensation and employer’s liability, to be maintained by Borrower, shall be endorsed to include a cross liability clause.

 

  3.8 Provide that the insurance shall be primary and not excess to or contributing with any other insurance or self-insurance maintained by the Borrower or any other party.

 

4. Failure to Maintain Insurance : In the event the Borrower fails to take out or maintain the full insurance coverage required by this Schedule 6.04, OPIC, upon thirty (30) days’ prior notice (unless the aforementioned insurance would lapse within such period, in which event notice should be given as soon as reasonably possible) to the Borrower of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same. All amounts so advanced therefore by OPIC shall become an additional obligation of the Borrower, and the Borrower shall forthwith pay such amounts to OPIC, together with default interest thereon from the date so advanced in accordance with the Finance Documents.

 

5. Reporting Requirements :

 

  5.1 Copies of Insurance Policies : From time to time after the first Disbursement Date, the Borrower shall provide to OPIC:

 

  (a)

within ten (10) days after any Insurance Policy (or reinsurance policy, if any) is issued (or renewed) to the Borrower, certificates of insurance or binders issued by the Borrower’s insurance broker. Such certificates of insurance/binders shall identify insurers, the type of insurance, the policy numbers, the insurance limits, the policy term, shall include evidence that values reported to the relevant insurers and reflected in the Insurance Policies’ limits are up-to-date and shall specifically list the special provisions and endorsements including endorsements for the benefit of OPIC required by this Schedule 6.04. Such certificates of insurance/binders shall be accompanied by a certificate from the Borrower’s insurance broker in form and substance acceptable to OPIC and confirming, inter alia , that such Insurance Policy has been issued or renewed, as applicable, is in full force and effect and all

 

- 4 -


  premiums then due and payable under such Insurance Policies have been paid, the renewal period, the premium, the amounts insured for each asset or item and any changes in terms or conditions from the policy’s original issue date or last renewal, and, with respect to any Insurance Policy renewal, confirmation that terms and conditions naming OPIC as sole or first loss payee and additional or named insured, as applicable remain in effect; and

 

  (b) within sixty (60) days after any Insurance Policy (or reinsurance policy, if any) is issued to the Borrower, a copy of such policy incorporating the loss payee terms and conditions required under this Schedule 6.04. The Borrower will provide copies of any facultative reinsurance policies to OPIC.

 

  5.2 Evidence of Premium Payment : The Borrower shall provide to OPIC such evidence of premium payment as OPIC may from time to time reasonably request.

 

  5.3 Other Information : The Borrower shall provide to OPIC any other information or documents on each Insurance Policy as OPIC reasonably requests from time to time.

 

6. Application of Proceeds : The Borrower shall apply all proceeds of Insurance Policies in the manner specified in the Accounts Agreement.

 

- 5 -


ANNEX A TO SCHEDULE 6.04

The Borrower will place all local insurance as is required by law and in accordance with the contractual specifications of the PPA.

Insurances shall be placed with insurers (and reinsurers, if applicable) rated at least A-, X by A.M. Best or A- by Standard and Poor’s (these alternative ratings being the “ Minimum Carrier Rating ”) or other insurers reasonably acceptable and approved by OPIC.

The Policies required below shall be effective on and from the date and time of the Closing Date or as otherwise specified below.

 

  1. Construction Insurance

 

  a. Builders All Risk

Including Machinery Breakdown, Delay in Start Up and/or Advance Loss of Profits written with a replacement cost basis of settlement on terms, conditions and with deductibles sublimits and aggregate sub limits acceptable to OPIC on the advice of the insurance consultant but in any event at a minimum as follows:

 

  a. Physical Damage including Machinery Breakdown: Full replacement and automatic reinstatement

 

  b. Delay in Start Up: 12 months loss of revenues less variable expenses or the equivalent

 

  c. Earthquake, Flood and Volcanic Eruption: Not less than $30,000,000 per occurrence and in the aggregate

 

  d. Inland Transit: $2,500,000

 

  e. Offsite Storage: $1,000,000 per unit, $5,000,000 limit

 

  f. Expediting Expense: 20% of property damage up to a maximum of $2,000,000

 

  g. Debris Removal: The lesser of 25% of loss or $5,000,000

 

  h. Testing and Commissioning cover for hot and cold testing with a minimum of 30 days for hot testing and extensions permitted

 

  i. LEG2/DE3 or the equivalent for Machinery Breakdown

 

  j. Deductibles not higher than $1,000,000 for machinery breakdown and 45 days waiting for Delay in Start Up except 5% of loss subject to a minimum of $1,000,000 for Earthquake, Flood and Volcanic Eruption.

 

  k. Interim Payment clause

 

  l. Standard exclusions permitted including nuclear, chemical, terrorism, war risks, the costs of making good latent defects (but not consequential loss) and gradual wear and tear

 

  b. Marine Cargo, Transit and Offsite Storage

Written on a replacement cost basis of settlement covering assets from suppliers premises to the project site and including Delay in Start Up and/or Advance Loss of Profits on terms, conditions and with deductibles and limits acceptable to OPIC on the advice of the insurance consultant but in any event at a minimum as follows:

 

  a. Limit sufficient to cover the replacement cost of the largest single conveyance

 

  b. Coverage to include Terrorism, War and Piracy

 

  c. Marine 50/50 Clause

 

- 6 -


  d. Institute Strikes Clause (cargo and air cargo)

 

  e. Institute War Clause (air cargo, cargo)

 

  f. Institute War Cancellation Clause (cargo)

 

  g. General Average/Salvage Clause

 

  h. Sue & Labor Clause

 

  i. Error and Omission Clause

 

  j. Overland Transits

 

  k. Other customary clauses

 

  l. Delay in Start Up/ALOP of not less than 12 months loss of revenues less variable expenses

 

  m. Deductibles not greater than $250,000 and 45 days waiting

 

  2. Operational Insurance

 

  a. Property All Risk Insurance

To be maintained at all times on operating assets (except underground pipelines and other assets as may be agreed by OPIC) written on a replacement cost basis of settlement and including Machinery Breakdown, Business Interruption and Contingent Business Interruption with terms, conditions, deductibles, sublimit and aggregated sub limits acceptable to OPIC on the advice of the insurance consultant but in any event at a minimum as follows:

 

  a. Property Damage and Machinery Breakdown: Full Replacement

 

  b. Earthquake and Flood: Not less than $50,000,000 per occurrence and in the aggregate

 

  c. Volcanic Eruption: Not less than $10,000,000 per occurrence and in the aggregate

 

  d. Business Interruption: 12 months gross earnings less variable expenses

 

  e. Contingent Business Interruption: not less than $10,000,000 for FLEXA perils

 

  f. 72 Hour Utility Service Interruption

 

  g. LEG2/DE3 of the equivalent for machinery breakdown

 

  h. Deductibles not greater than $750,000 and 45 days except 5% of loss for Earthquake, Flood, Wind and Volcanic Eruption subject to a minimum of $750,000.

 

  i. Other customary sub limits in accordance with industry practice including sabotage and malicious mischief

 

  j. Standard exclusions permitted including nuclear, chemical, war risks, terrorism, the cost of making good latent defects (but not consequential loss) and gradual wear and tear

 

  b. Control of Well/Operators Extra Expense

To be maintained at all times with a limit of not less than $20,000,000 combined single limit per occurrence except $2,500,000 for property of others in care, custody and control and deductibles not greater than $250,000.

 

- 7 -


  3. Other Insurances

At all times Borrower to maintain or cause to be maintained:

 

  a. General Liability

Written on “occurrence” policy form against claims for bodily injury (including death) and property damage. Such general liability insurance shall provide coverage for premises/operations, products-completed operations, blanket contractual liability, explosion, collapse and underground overage, broad form property damage, independent contractors, and personal injury insurance, and sudden and accidental pollution legal liability of not less than $30,000,000 per occurrence and in the aggregate at all times. This may be met through a combination of primary, excess and umbrella insurance. Deductibles not greater than $50,000.

 

  b. Workers Compensation Insurance .

As required by applicable laws or similar coverage as required by law and such other forms of insurance which the Borrower are required by law to provide, providing statutory benefits and covering loss resulting from injury, sickness, disability or death of the employees of the Borrower.

 

  c. Employer’s Liability Insurance

As required by applicable laws or similar coverage as required by law and such other forms of insurance which the Borrower are required by law to provide, providing statutory benefits and covering loss resulting from injury, sickness, disability or death of the employees of the Borrower but not less than $10,000,000 which may be met through a combination of primary and excess insurance with deductibles not greater than $50,000.

 

  d. Automobile Liability Insurance .

If Borrower has automobiles, automobile liability insurance against claims for bodily injury (including death) and property damage covering all owned, non-owned and hired motor vehicles, in amounts as required by law but in any event not less than $10,000,000 which may be met through a combination of primary and excess insurance with deductibles not greater than $50,000.

 

  e. Terrorism and Sabotage

Not less than $10,000,000 per occurrence and in the aggregate with a deductible of $100,000 for property damage and 30 days for business interruption.

 

4. Other Conditions

 

a. Non-renewal; “Tail” Coverage.

In the event that any policy is written on a “claims-made” basis and such policy is not renewed or the retroactive date of such policy is to be changed, the Borrower shall obtain for each such policy or policies extended reporting period coverage or “tail” coverage of at least three (3) years for each such policy or policies and shall provide OPIC with proof that such basic and supplemental extended reporting period coverage or “tail” has been obtained.

 

b. The governing law for the local policy is that of Kenya and for global corporate insurance and reinsurance (if any) is United Kingdom or New York.

 

c. Payment of Loss Proceeds by insurers will be in the currency in USD unless otherwise agreed by OPIC in its sole discretion.

 

- 8 -


SCHEDULE 6.06(c)

CONSTRUCTION PERIOD REPORT

Olkaria III Geothermal

Power Plant Project

EPC PROGRESS REPORT FOR OLKARIA III GEOTHERMAL PROJECT

THE MONTH ENDING [MONTH], [20XX]

 

- 1 -


1. Executive Summary

 

2. Work completed up to this Month

 

  2.1 General

 

  2.2 Engineering

[Reporting guidance: Provide discussion of any material progress and/or issues related to work during the period.]

ORDA 6

 

Description

[Include line items as appropriate for scope]

   Percent
Complete
  

Comments

Mechanical Engineering and Design

     

Engineering Subcontractors

 

Description

  

Subcontractor

   Percent
Complete
  

Comments

Civil & Structural Engineering and Design

        

Electrical Engineering and Design

        

Fire Protection Engineering and Design

        

Substation Engineering

        

Record Drawings

        

 

  2.3

Procurement & Manufacturing 1

 

  2.4 Wellfield Development

 

  2.4.1 Production

 

  2.4.2 Injection

 

1  

NOTE: Summarize the status of procurement for the Supply Contract and for each subcontractor that has procurement responsibilities in their scope as appropriate.

 

- 2 -


  2.5 Construction

 

  2.5.1 General

 

  2.5.2 Civil, foundations and buildings

 

  2.5.3 Mechanical and piping

 

  2.5.4 Electrical

 

  2.5.5 Sub-Station and T- line

 

  2.5.6 Manpower

 

     Total

Indirect Labor

  

Direct Labor

  

Total

  

 

  2.6 Start-up and Commissioning

 

  2.7 Activities Planned but not Carried out During the Month

 

  2.8 Quality Assurance

 

  2.8.1 Soil Compaction Tests

 

  2.8.2 Concrete Testing

 

Mix
Design

 

Number

of
Samples

this
Period

 

Total

Number

of

Samples

 

Avg. 7

day

Break

Strength

 

Avg. 28

day Break
Strength

 

STD

Dev.

28

day

 

Number

Failed @

28 days

 

Comments

             
             
             

 

- 3 -


  2.8.3 NDE Welds Testing

 

Tests This Month   Total Number Rejections and Repair Status

Test
Type

 

Tests
This
Month

 

Total
Rejected
This
Month

 

Total
Tested
to
Date

 

Total
Rejected
to Date

 

Location

 

Total
Repaired

 

%
Repairs

 

Comments

               
               
               

3. DESCRIPTION OF EXPECTED FUTURE ACTIVITIES

 

  3.1 General

Contractors currently on site:

 

No

  

Contractor

  

Responsibility

1.    [Name]   
2.    [Name]   
3.    [Name]   
4.    [Name]   
5.    [Name]   
6.    [Name]   
7.    [Name]   
8.    [Name]   
9.    [Name]   

 

  3.2 Engineering

 

  3.3 Procurement & Manufacturing

 

  3.3.1 OEC Equipment

 

  3.3.2 Other Equipment

 

- 4 -


  3.4 Wellfield Development

 

  3.4.1 Production

 

  3.4.2 Injection

 

  3.5 Construction

 

  3.5.1 General

 

  3.5.2 Civil, foundations and buildings

 

  3.5.3 Mechanical and piping

 

  3.5.4 Electrical

 

  3.5.5 Sub-Station and T- line

 

  3.6 Start-up and Commissioning

4. PROGRESS PROJECT SCHEDULE

 

  4.1 Project schedule (PDF format)

5. ENVIRONMENTAL AND SAFETY

 

  5.1 Training

 

   

Mass Safety Meetings held on [                    ].

 

   

Tool Training for [        ] held on [                    ].

 

   

Fall Protection Training for [        ] held on [                    ].

 

   

Confined Space Training for [        ] held on [                    ].

 

   

Industrial Hygiene for [        ] held on [                    ].

 

- 5 -


  5.2 Safety

For the month there were [    ] near misses, [    ] lost time incidents and [    ] fatalities. 2 The project totals to date are [    ] near misses, [    ] lost time incidents and [    ] fatalities. See Appendix 2 for tabulated data by subcontractor.

 

  5.3

Environmental 3

6. BUDGET

 

  6.1 Change Order Status

The following table gives a status of signed change orders as well as lists the scope changes requested to date.

Change Order Request Log

 

Change
Order
Number

 

Description

 

Date
Submitted

 

Estimated
Amount

 

Approved
or
Resolved
and Date

 

Approved
Amount

 

Remarks

           
           
           

 

  6.2 Budget Summary and Forecast

THE ORIGINAL PROJECT BUDGET IS [    ]. THERE ARE [        ] OF APPROVED CHANGE ORDERS RESULTING IN AN APPROVED BUDGET OF [        ]. THE FORECAST COST OF THE PROJECT AT COMPLETION IS [        ]. SEE APPENDIX 4 FOR THE DETAILED BUDGET SUMMARY AND FORECAST.

 

2  

NOTE: Please provide discussion of any LTI and/or fatalities that occurred during the period.

3  

NOTE: Please provide discussion of any environmental issues and mitigation measures that occurred during the period.

 

- 6 -


7. Appendices

Appendix 1 – Supply Contract Procurement Status

Appendix 2 – Project Schedule

Appendix 3 – Project Safety Statistics

Appendix 4 – Budget Summary and Forecast

Appendix 5 – Photographs from Site

 

- 7 -


SCHEDULE 6.06(D)

FORM OF OPERATING REPORT

[ See Attached ]

 

- 1 -


SCHEDULE 6.06(d)

FORM OF OPERATING REPORT 1

Report Date: [                    ]

Subject: Operating report for the period between DD/MM/20XX and DD/MM/20XX

Operating Report

 

1 Generation Summary

 

Item

  

For the period

  

YTD 20XX

Net Energy Sales (MWh)      
Avg. Daily Generation (MW)      
Availability (%)      

 

OEC

  

Operational
Hours during
Period

  

Periodical
MWh
Generation
(Gross)

  

Periodical
MW
(Gross)

  

YTD hr

  

YTD MWh
(Gross)

  

YTD MW
(Gross)

OEC-1

                 

OEC-2

                 

OEC-3

                 

 

1  

To be provided: (i) until Project Completion, prior to each Closing Date, an Operating Report for Plant 1 and, after Plant 2 COD, Plant 2, and (ii) after Project Completion, semi-annually, beginning on the first to occur of June 30 or December 31.

 

- 1 -


OEC-4

                 

OEC-5

                 

OEC-6

                 

Total

                 

Summary of Power Generation:

 

Indicator

  

Units

  

During Reporting
Period

  

Accumulated
during Calendar
Year

Power Plant Gross Generation

Aux. Load

Net Energy Sales

   MWh      

Average Power Delivered

   MW      

Average Power corrected by ambient temperature

   MW      

Capacity Factor 48 MW

Availability Factor all OECs

   %      

Average Ambient Temperature

   °C      

 

2 Maintenance Summary

 

2.1 OEC down time.

Definition: OEC is not available if it is stopped for preventive or corrective maintenance.

 

   

Maintenance Hours:

 

Preventive –          man hrs. total    OEC          hrs. down time registered
Corrective –          man hrs. total    OEC          hrs. down time registered

 

- 2 -


2.2 Corrective Maintenance

 

    

Date

  

Corrective Maintenance Events

  

Man

Hrs

  

Total

Man Hrs

  

Down

Time

BOP    [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
OEC 1    [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
OEC 2    [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
OEC 3    [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
OEC 4    [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
OEC 5    [Date]    [Event]         
   [Date]    [Event]         

 

- 3 -


   [Date]    [Event]         
   [Date]    [Event]         
OEC 6    [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
   [Date]    [Event]         
        

 

  

 

  

 

Total               
        

 

  

 

  

 

 

2.3 Maintenance Activities/Events Summary:

Power Grid:

 

   

[Preventive maintenance done as per schedule]

Balance of Plant:

 

   

[Monthly and weekly done as per schedule.]

 

   

[Early generation main steam line was repaired.]

 

   

[Annual maintenance for EG BOP was done.]

Well field and Gathering System:

 

   

[Weekly and monthly procedures done on schedule.]

OEC Units:

 

   

[Monthly and weekly PM done accordingly on all units.]

 

   

[OEC 4 feed pump 9300B failed and pulled out for farther investigation.]

 

   

[Commissioning of condensate bypass control valves.]

 

   

[Annual maintenance for EF units was done as scheduled.]

 

3 Environmental Compliance Status

 

- 4 -


[Reporting guidance: Please include results of monthly H2S monitoring program as a report attachment]

 

4 Power Plant Safety Monthly Status

 

Event

  

Date

Last Safety and Health Committee Training

   [Date]

Last Safety and Health Committee Meeting

   [Date]

Last Basic Occupational Safety and Health Training

   [Date]

Last Safety and Health meeting held (all)

   [Date]

Last Annual Fire Fighting Course

   [Date]

Last CPR and First Aid course

   [Date]

Last safety emergency response plan review

   [Date]

Last Occupational Accident/Incident Committee Training

   [Date]

Health and Safety Report

(The total lost time work hours logged during the specified reporting period should be reported to the appropriate regulatory agency.)

 

Non-Fatal Injures

   Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    Year
To-
Date

Number of Injuries (note 1)

                                      

Lost time less than one day

                                      

Lost time up to 3 days (note 2)

                                      

Lost time more than 3 days (note 2)

                                      

 

- 5 -


Total Number of Injuries

                                      

Time Lost (number of whole days)

                                      

Lost time up to 3 days

                                      

Lost time more than 3 days

                                      

Total Time Lost (days)

                                      

 

Note 1: Recorded on the day of the incident.
Note 2: The day on which an incident occurs is not included in the total

Occupational Illness

   Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    Year
To-

Date

Number of Positive Diagnoses (note 1)

                                      

Lost time less than one day

                                      

Lost time up to 3 days (note 2)

                                      

Lost time more than 3 days (note 2)

                                      

Total Number of Positive Diagnoses

                                      

Time Lost (number of whole days)

                                      

Lost time up to 3 days

                                      

Lost time more than 3 days

                                      

Total Time Lost (days)

                                      

 

Note 1: Recorded on the day of the positive diagnosis.
Note 2: The day on which an incident occurs is not included in the total

 

Fatalities

   Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    Year
To-

Date

Number of Fatalities (note 1)

                                      

Immediate

                                      

Within a Month of Injury

                                      

Within a Year of Injury

                                      

Total Number of Fatalities

                                      

 

- 6 -


Note 1: Recorded at time of death.

 

Contracted Plant Capacity (MW)    [Amount]
Date of Last Contracted Capacity Test    [Date]

[Reporting guidance: Please provide spreadsheet file that’s the basis for the tabulated monthly report data below along with the semiannual report .pdf file]

 

     Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    YTD

OEC 1

                                      

Operating Hours

                                      

Gross Generation (MWh)

                                      

OEC 2

                                      

Operating Hours

                                      

Gross Generation (MWh)

                                      

OEC 3

                                      

Operating Hours

                                      

Gross Generation (MWh)

                                      

OEC 4

                                      

Operating Hours

                                      

Gross Generation (MWh)

                                      

OEC 5

                                      

 

- 7 -


     Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    YTD

Operating Hours

                                      

Gross Generation (MWh)

                                      

OEC 6

                                      

Operating Hours

                                      

Gross Generation (MWh)

                                      

Plant

                                      

Gross Generation (MWh)

                                      

Auxiliary Use (MWh)

                                      

Energy Sales (MWh)

                                      

Scheduled / Preventive Maintenance (MWh)

                                      

Unscheduled / Corrective Maintenance (MWh)

                                      

Maximum Load (MW)

                                      

Minimum Load (MW)

                                      

Average Load (MW)

                                      

 

- 8 -


     Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    YTD

Period Hours

                                      

Operating Hours

                                      

Total Plant Scheduled / Preventive Maintenance Man Hours

                                      

Total Plant Unscheduled / Corrective Maintenance Man Hours

                                      

Calculated Steam Usage (Ton)

                                      

Average Steam Temperature

                                      

Average Steam Pressure

                                      

Total Brine Usage (Ton)

                                      

Average Brine Temperature

                                      

Average Brine Pressure (bar g)

                                      

Injection

                                      

Total Injected (Ton)

                                      

Average Injection Temperature

                                      

 

- 9 -


     Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec    YTD

Average Ambient Temperature

                                      

 

5 Comparison Between Operating Budget and Actual Financial Performance

 

     Actual*    Budget*
Total
     1st Qtr    2nd Qtr    3rd Qtr    4th Qtr    Total   

1. Salaries, G&A, etc.

                 

1.1 Salaries (fixed monthly portion)

                 

1.2 Salaries (Other)

                 

1.3 Site G&A

                 

1.4 Property Insurance

                 

1.5 Owner G&A

                 

1.6 Housing

                 

1.7 Safety

                 

1.8 Other / Misc.

                 
  

 

  

 

  

 

  

 

  

 

  

 

Total Fixed Costs Budget

                 
  

 

  

 

  

 

  

 

  

 

  

 

2. Spare Parts, Consumables, etc.

                 

2.1 Spare parts, repairs and consumables

                 

2.2 Other / Misc.

                 
  

 

  

 

  

 

  

 

  

 

  

 

Total Variable Costs Budget

                 
  

 

  

 

  

 

  

 

  

 

  

 

3. Wellfield Maintenance / Capex (excluding draw on reserves)

                 

3.1 Wellfield Maintenance

                 

3.2 CapEx

                 

3.3 Misc.

                 
  

 

  

 

  

 

  

 

  

 

  

 

Total Wellfield Maintenance / Capex Budget

                 
  

 

  

 

  

 

  

 

  

 

  

 

4. O&M Contingencies & misc.

                 

 

- 10 -


4.1 O&M Contingencies & misc.

                 
  

 

  

 

  

 

  

 

  

 

  

 

5. Corporate Income Taxes

                 
  

 

  

 

  

 

  

 

  

 

  

 

5.1 Cash corporate income taxes

                 
  

 

  

 

  

 

  

 

  

 

  

 

6. TOTAL

                 
  

 

  

 

  

 

  

 

  

 

  

 

 

* Sums are in thousand dollars.

 

Generation and Revenue

   1st Qtr    2nd Qtr    3rd Qtr    4th Qtr    YTD

Projected Net Generation (MWh)

              

Actual Net Generation (MWh)

              

Budgeted Revenue (M$)

              

Invoiced Amounts (M$)

              

 

- 11 -


SCHEDULE 6.07

FORM OF ANNUAL OPERATING BUDGET

[ See Attached ]

 

- 1 -


SCHEDULE 6.07

FORM OF ANNUAL OPERATING BUDGET

 

From: January 1st [        ]    To: December 31st [        ]

 

(In US$ thousands)    [        ] OPERATING BUDGET
     Annual    

Comments

1. Salaries, G&A, etc.

    

1.1 Salaries (Fixed Monthly Portion)

   $ [               1/12 per month

1.2 Salaries other

   $ [              

1.3 Site G&A

   $ [               1/12 per month

1.4 Property insurance

   $ [              

1.5 Owner G&A

   $ [              

1.6 Housing

   $ [              

1.7 Safety

   $ [              

1.8 Other / Misc.

   $ [              
  

 

 

   

Total Fixed Costs Budget

   $ [             ]    
  

 

 

   

2. Spare parts, Consumables, etc.

    

2.1 Spare parts, repairs and consumables

   $ [              

2.2 Other / Misc.

   $ [              
  

 

 

   

Total Variable Costs Budget    

   $                  
  

 

 

   

 

- 1 -


3. Wellfield Maintenance / Capex

     (exc, draw on reserves)

3.1 Wellfield maintenance

   $ [              

3.2 CapEx

   $ [              

3.3 Misc.(*)

   $ [              
  

 

 

   

Total Wellfield Maintenance / Capex

   $ [              
  

 

 

   

4. O&M Contingencies & misc.

    
  

 

 

   

4.1 O&M Contingencies & misc.

   $ [              
  

 

 

   

5. Income Taxes

    
  

 

 

   

5.1 Cash Income Taxes

   $ [              
  

 

 

   

6. TOTAL OPERATING BUDGET FOR PERIOD(**)

   $ [              

The Annual Operating Budget above is not evenly spread across the months within the year, with the exception of the items which are commented with “1/12 per month”.

 

(*) If miscellaneous amount exceeds twenty percent (20%) of total Wellfield Maintenance / Capex Amount, such costs should be further broken-down by category.
(**) Excluding : deposits to reserve accounts, political risk insurance premiums, royalty charges on revenue to KPLC, interest on debitory accounts (if any) and hedging costs (if any).

 

- 2 -


SCHEDULE 7.07

LEASES / RENTALS INCLUDED IN CONSTRUCTION / DRILLING BUDGET

 

Lessor

 

Purpose

  Amount of Purchase
Orders Issued as of
August 6, 2012
(US$)
    Amount of Purchase
Orders expected to be
issued by Project
Completion

(US$)
 

1. Weatherford U.S., L.P., Houston

 

Rentals of Tools for Drilling

  $ 33,870      $ 60,000   

2. Weatherford Services & Rentals, Nairobi

 

Rentals of Tools for Drilling

  $ 4,298,320      $ 6,000,000   

3. Weatherford Services & Rentals, Al Barsha

 

Rentals of Tools for Drilling

  $ 951,374      $ 1,000,000   

4. Weatherford U.S., L.P., Gemoco

 

Rentals of Tools for Drilling

  $ 61,656      $ 100,000   

5. Bonfide C & F Co Ltd, Nairobi

 

Crane Services

  $ 315,312      $ 2,300,000   

6. Jabada Consulting Company Limited, Nairobi

 

Equipment Rentals

  $ 480,649      $ 800,000   

7. Shaffer Oil Tools Services, Inc, Fontana

 

Rentals of Tools for Drilling

  $ 447,762      $ 700,000   

 

- 1 -


SCHEDULE 8.04

ARBITRATION PROVISIONS

The provisions of this Schedule 8.04 shall apply to any arbitration under Section 8.04 of this Agreement.

 

1. Place of Arbitration; Language.

 

  (a) The seat of the arbitration shall be The City of New York, New York, U.S.A.

 

  (b) The language of the arbitration shall be English. All hearings shall be conducted in English, all awards and orders shall be issued in English, and all communications, pleadings and documentary evidence shall be presented in English. If any documents are not in English, the offering Arbitration Party shall provide English translations thereof at its own expense.

 

2. Arbitral Tribunal.

 

  (a) Number of Arbitrators

The Arbitral Tribunal shall consist of three arbitrators appointed in accordance with Section 2(b) of this Schedule 8.04, unless, within twenty (20) days after the receipt by the respondent of the Notice of Arbitration, the Arbitration Parties shall have agreed that the Arbitral Tribunal consist of only one arbitrator, and shall have agreed on the identity of such arbitrator.

 

  (b) Appointment of Arbitral Tribunal – Three Arbitrators

 

  (i) If the Arbitral Tribunal is to consist of three arbitrators, each Arbitration Party shall nominate one arbitrator. The claimant shall nominate an arbitrator at the same time as serving the Notice of Arbitration. The respondent shall nominate an arbitrator within twenty (20) days of receipt of notice of the claimant’s nomination. If either Arbitration Party fails to nominate an arbitrator within such time limits, the other Arbitration Party may request that the Administrator appoint such arbitrator. The Administrator shall promptly make such appointment, and may exercise its discretion (subject to Section 2(c) hereof) in making such appointment. The two arbitrators thus appointed shall choose the third arbitrator who will act as the presiding arbitrator of the Arbitral Tribunal.

 

  (ii) If within twenty (20) days after the appointment of the second arbitrator the two arbitrators have not agreed on the choice of the presiding arbitrator, the Administrator shall promptly appoint the presiding arbitrator using the following list-procedure, unless (x) all Arbitration Parties agree that the list-procedure should not be used or (y) the Administrator determines in its discretion that the use of the list-procedure is not appropriate for the case:

(A) At the request of one of the Arbitration Parties the Administrator shall communicate to the Arbitration Parties an identical list containing at least seven names;

 

- 1 -


(B) Within ten (10) days after the receipt of this list, each Arbitration Party may return the list to the Administrator after having deleted the name or names of not more than two candidates to which it objects and numbered the remaining names on the list in the order of its preference;

(C) After the expiration of the above period of time, the Administrator shall promptly appoint the presiding arbitrator from among the names approved on the lists returned to it and taking into account the order of preference indicated by the Arbitration Parties; provided , however , that if this procedure has not resulted in the appointment of a presiding arbitrator within 120 days (unless the parties consent to an extension prior to the expiry of 120 days), then the Administrator shall promptly appoint the presiding arbitrator in accordance with the Rules.

 

  (c) Qualifications .

Each arbitrator, in addition to meeting the qualification requirements of the Rules, (i) shall be fluent in the English language, and (ii) shall be an attorney admitted to the bar of the State of New York, U.S.A., with experience in international investment and finance.

 

3. Expedited Proceedings

Unless the Arbitration Parties agree otherwise, the Arbitral Tribunal shall endeavor to issue its final award within nine (9) months from the date that the Arbitral Tribunal is constituted. Any time limit set by the Rules, the Administrator or the Arbitral Tribunal shall be extended only for extraordinary reasons (as determined in the sole discretion of the Arbitral Tribunal), unless otherwise agreed by the Arbitration Parties.

 

4. Consolidation

An Arbitral Tribunal shall have the power, at the request of an Arbitration Party, to consolidate any two or more arbitrations commenced pursuant to Section 8.04 of this Agreement; provided , however , that no such consolidation shall be ordered unless (i) the time limits referred to in Section 3 of this Schedule 8.04 can be complied with notwithstanding such consolidation, and (ii) the Arbitration Parties in the consolidated arbitration confirm the appointment of the Arbitral Tribunal.

 

- 2 -


EXHIBIT A

FORM OF DISBURSEMENT REQUEST

[ON BORROWER LETTERHEAD]

[ Date ]

Overseas Private Investment Corporation

1100 New York Avenue, N.W.

Washington, D.C. 20527

United States of America

 

Attention:      [Vice President, Structured Finance] 1
     [Director, Portfolio Management Division] 2

Disbursement Request

Dear Sir or Madam:

Reference is made to the Finance Agreement between OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands (the “ Borrower ”), and Overseas Private Investment Corporation, an agency of the United States of America (“ OPIC ”), dated as of August 23, 2012 (the “ Finance Agreement ”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Finance Agreement.

Pursuant to Section 5.01 of the Finance Agreement, notice is hereby given that the undersigned requests Disbursement of the [Tranche I Loan][Tranche II Loan] as follows:

 

  1. Amount of Disbursement: $[        ]

 

  2. Closing Date: [Not less than 20 Business Days from the date OPIC receives this Disbursement Request]

 

  3. D-U-N-S® Number: 864403811

 

  4. U.S. Taxpayer Identification Number: 98-0610631

 

A. PROCEEDS AND ADDITIONAL INFORMATION

I, [            ], the [title of Authorized Officer] of the Borrower, DO HEREBY CERTIFY that:

 

  1. [Attached hereto as Annex 1 is a schedule setting forth the Project Costs to which the prior Disbursements have been applied, including each written contract][confirmed purchase

 

1  

For notices delivered prior to first Disbursement.

2  

For notices delivered after first Disbursement.

 

- 1 -


  order][invoice] for such costs, indicating the [amount paid], [due date], [services performed] [and/or goods delivered], and evidence of such payment in the form of [wire transfers][delivery receipt][customs declaration][copies of cancelled checks or cashier’s checks][; and] 3

 

  2. Attached hereto as Annex 2 is a schedule setting forth the Project Costs to which the present Disbursement:

 

  a. will be applied, for which the proceeds of this Disbursement are presently needed or will be needed in the ninety (90) days next following the Closing Date, including each [written contract][confirmed purchase order][invoices][to adjust to include forecast payments] for such costs, indicating the amount payable, due date, and services performed and/or goods delivered (as applicable);

[and/or]

 

  b.

have been applied and for which the Borrower seeks reimbursement through the proceeds of this Disbursement[, including each [written contract][confirmed purchase order][invoices][and audited financial statements] 4 for such costs, indicating the amount payable and [services performed] [and/or goods delivered], and evidence of such payment in the form of [wire transfers][delivery receipt][customs declaration].] 5

 

  3. [Attached hereto as Annex 3 is evidence that an Equity Contribution in an amount equal to [$        ] has been deposited in the Equity Sub-Account.][No equity contribution is required to be made for this Disbursement.]

 

B. WIRE TRANSFER INFORMATION

The proceeds of the Disbursement should be transferred as follows:

 

Amount:

   $                
  

 

 

 

Payee Name:

  

FOREIGN BANK INFORMATION

 

1.      Bank name:

   Barclays Bank of Kenya Limited

2.      City, Country:

   Nairobi, Kenya

3.      Account reference:

  

4.      Payee account number:

   [ Borrower’s Account Number in Kenya/Account Bank Number in Kenya ]

5.      SWIFT Code (If available):

  

 

3  

Not applicable for first Disbursement.

4  

Applicable for first Disbursement and for the last disbursement regarding costs incurred for Plant 1.

5  

Revise as necessary for first Disbursement only to accommodate Pre-Funded Equity Contribution mechanics.

 

- 2 -


FOR DISBURSEMENT THROUGH

NEW YORK, NEW YORK CORRESPONDENT BANK INFORMATION 6

 

6.      Bank Name:

7.      City, State:

8.      Account Title:

9.      ABA number (9 digits):

10.    Account Number:

 

C. CONDITIONS PRECEDENT SATISFIED

As of the Closing Date, each of the conditions set forth in [Articles IV and V] 7 [Article V] 8 will be satisfied.

 

D. AUTHORIZED OFFICER’S CERTIFICATION

I am an Authorized Officer of the Borrower and affirm that I am authorized to make the above certifications on behalf of the Borrower.

 

Very truly yours,

ORPOWER 4 INC.

By:  

 

Name:  

 

Its:  

 

 

6  

This should be an account in NY, NY – the correspondent bank for Barclays Kenya

7  

Only applicable for first Disbursement.

8  

Only applicable for subsequent Disbursements.

 

- 3 -


Annex 1 to

Disbursement Request

Application of Prior Disbursements

1.

2.

3.

Attached hereto, with respect to each item listed above, is the corresponding [written contract][confirmed purchase order][invoices] for such costs, indicating the [amount paid,] [due date,] [services performed][and/ or goods delivered], and evidence of such payment in the form of [wire transfers][delivery receipt][customs declaration] [copies of cancelled checks or cashier’s checks].

 

- 4 -


Annex 2 to

Disbursement Request

Project Costs

1. The present Disbursement will be applied to the following Project Costs to be incurred:

 

  A. [            ]

 

  B. [            ]

 

  C. [            ]

2. The Project Costs referred to in item (1) above are evidenced by one of the following, copies of which are attached:

For Goods: Supplier’s invoice, bill of lading, confirmed purchase orders or customs declaration

For Services other than Construction Contractors: Service provider’s confirmed purchase order, claim or invoice

For Construction Contractors: Confirmed purchase order claim or invoice from contractor, as well as a summary of work progress certified by the Project’s engineer and approved by an Authorized Officer

3. The present Disbursement will be applied to the following Project Costs which have already been incurred:

 

  A. [            ]

 

  B. [            ]

 

  C. [            ]

4. The Project Costs referred to in item (3) are evidenced by one of the following, in accordance with the Accounting Principles:

Third-party independent audit opinion : From a firm previously approved by OPIC, opining as to scheduled capital and operating expenditures

Independent audited Financial Statements : For expenditures from a prior Fiscal Year, if such audit provides sufficient detail as to the specific capital and operating expenditures which to be reimbursed by the Disbursement

Other : each [written contract][confirmed purchase order][customs declaration] for such costs, indicating the amount payable, due date, and services performed or goods delivered; together with copies of such [written contract][confirmed purchase order][customs declaration]

 

- 5 -


Annex 3 to

Disbursement Request

Evidence of Cash Equity Contribution

Attached hereto is a bank statement evidencing the Equity Contribution made.

 

- 6 -


EXHIBIT B-1

FORM OF SECRETARY’S CERTIFICATE OF THE BORROWER

[ON BORROWER LETTERHEAD]

This Certificate is given on behalf of OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands (the “ Borrowe r”), pursuant to Sections 4.01 and 4.22 of the Finance Agreement entered into between the Borrower, and Overseas Private Investment Corporation, dated as of August 23, 2012 (the “ Finance Agreement ”).

All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Finance Agreement.

The undersigned, [            ], Assistant Secretary of the Borrower, DOES HEREBY CERTIFY that:

1. Attached hereto as Annex 1 are true and complete copies of (a) the certificate of incorporation of the Borrower, as certified by the Assistant Registrar of Companies of the Cayman Islands, and all amendments thereto, which [is/are] in full force and effect as of the date hereof, and (b) the Borrower’s memorandum and articles of association, including all amendments thereto, which are in full force and effect as of the date hereof.

2. Attached hereto as Annex 2 are true and complete copies of resolutions duly adopted by the Board of Directors of the Borrower to authorize inter alia the execution, delivery and performance of the Finance Agreement, the Note(s) and each of the other Transaction Documents to which it is or will be a party, and such resolutions have not been modified, rescinded or amended and are in full force and effect as of the date hereof.

3. The Persons whose names are listed on Annex 3 hereto (i) have been duly elected or appointed to, and currently hold, the positions indicated opposite to their respective names and (ii) are authorized to execute and deliver on behalf of the Borrower the Finance Agreement, the Note(s), each of the other Transaction Documents to which the Borrower is or will be a party, and all other notices or instruments contemplated in the Finance Agreement.

4. The signature appearing opposite each name listed on Annex 3 is the true signature of such Person.

5. Each Senior Officer of the Borrower has received and reviewed a copy of the Anti-Corruption Handbook.

 

- 7 -


WITNESS my hand this [    ] day of [            ], 20[    ].

 

 

Name:  
Title:   [Assistant Secretary]

I, [            ], the [                    ] of the Borrower, DO HEREBY CERTIFY that [            ] is duly elected and qualified as [Assistant Secretary] of the Borrower, and that the signature of such [Assistant Secretary] set forth above is true and genuine.

WITNESS my hand this [    ] day of [            ], 20[    ].

 

 

Name:
Title:

 

- 8 -


Annex 1

Certificate of Incorporation and Memorandum and Articles of Association

[see attached]

 

- 9 -


Annex 2

Resolutions

[see attached]

 

- 10 -


Annex 3

Incumbency Certificate

[see attached]

 

- 1 -


EXHIBIT B-2

FORM OF SECRETARY’S CERTIFICATE OF THE SHAREHOLDER

[ON SHAREHOLDER LETTERHEAD]

This Certificate is given on behalf of Ormat International, Inc., a corporation organized and existing under the laws of Delaware (the “ Shareholder ”), pursuant to Section 4.01 of the Finance Agreement entered into between the OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands (the “ Borrower ”), and Overseas Private Investment Corporation, dated as of August 23, 2012 (the “ Finance Agreement ”).

All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Finance Agreement.

The undersigned, [            ], Assistant Secretary of the Shareholder, DOES HEREBY CERTIFY that:

 

  1. Finance Agreement . I am familiar with the terms of the Finance Agreement and have made or caused to be made such examination or investigation as is necessary to enable me to express an informed opinion as to the matters set forth below.

 

  2. Existence and Power. The Shareholder (i) is a company duly incorporated or organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; (ii) is duly authorized to do business in each jurisdiction in which it conducts business; and (iii) has the power to own its properties, carry on its business, borrow money, create Liens on its properties, and execute, deliver, and perform each Transaction Document to which it is a party.

 

  3.

Charter Documents. Attached hereto as Annex 1 are true and complete copies of the Charter Documents of the Shareholder [and all amendments thereto,] 1 which [is/are] in full force and effect as of the date hereof.

 

  4. Authority. The Shareholder’s execution, delivery, and performance of the Transaction Documents to which it is a party: (i) have been duly authorized by all necessary corporate action and (ii) will not violate any Applicable Law. Each of the Transaction Documents to which it is a party has been duly executed and delivered by it and is a legal, valid, and binding obligation of the Shareholder, enforceable in accordance with its terms. No Consent of any Person is required in connection with the Shareholder’s execution, delivery, performance, validity, or enforceability of any Transaction Document to which it is a party.

 

  5. Resolutions. Attached hereto as Annex 2 are true and complete copies of resolutions duly adopted by the Board of Directors of the Shareholder to authorize inter alia the execution, delivery and performance of the Transaction Documents to which it is or will be a party, and such resolutions have not been modified, rescinded or amended and are in full force and effect as of the date hereof.

 

  6. Incumbency. The Persons whose names are listed on Annex 3 hereto (i) have been duly elected or appointed to, and currently hold, the positions indicated opposite to their respective names and the signatures appearing opposite their respective names are the true signatures of such Persons,

 

1 Include if applicable.

 

- 2 -


and (ii) are authorized to execute and deliver on behalf of the Shareholder each Transaction Document to which the Shareholder is or will be a party, and all other notices or instruments (if any) contemplated in each such Transaction Document.

 

  7. Adequate Financial Means. The Shareholder (i) has capital sufficient to carry on its businesses and transactions and all businesses and transactions in which it is about to engage, (ii) is able to pay its debts as they mature and (iii) owns property and other assets having a value, both at fair valuation and at present fair saleable value, greater than the total amount of the probable liabilities of the Shareholder on its debts and obligations as they become absolute and matured.

 

  8. No Default. No Default or Event of Default has occurred and is continuing. Neither the Shareholder nor, to the best of the Shareholder’s knowledge, any other party is in breach of any provision of any Transaction Document to which the Shareholder is a party, which breach could be a Material Adverse Effect.

 

  9. Financial Condition. The Shareholder has furnished to OPIC copies of its Financial Statements as required under Section 7.03 of the Equity Contribution and Share Retention Agreement. Such Financial Statements are complete and correct and fairly present its financial condition and results of its operations for the period then ended, subject, in the case of quarterly unaudited financial statements, to the absence of footnotes and customary year-end adjustments. The Shareholder has no material financial obligation, contingent or otherwise, of any kind except as disclosed in such Financial Statements.

 

  10. Bankruptcy; Insolvency; Winding-Up. The Shareholder has not taken any corporate action and no other legal steps have been taken or legal proceedings have been commenced or, to the best of its knowledge, threatened against it seeking a reorganization, moratorium, bankruptcy, arrangement, adjustment or composition or for the appointment of a receiver, liquidator, assignee, sequestrator (or similar official) in relation to any part of its property, or for its winding up, dissolution or re-organization or of any or all of its property.

 

  11. Share Capital. (i) All Share Capital (as defined in the Equity Contribution and Share Retention Agreement) of the Borrower is validly owned by the Intermediate Shareholder and has been duly authorized, validly issued, fully paid and is nonassessable and (ii) all Share Capital of the Intermediate Shareholder is validly owned by the Shareholder, has been duly authorized, validly issued, fully paid and is nonassessable.

 

- 3 -


WITNESS my hand this [    ] day of [            ], 20[    ].

 

 

Name:  
Title:   Assistant Secretary

I, [            ], the [            ] of the Shareholder, DO HEREBY CERTIFY that [            ] is duly elected and qualified as Assistant Secretary of the Shareholder, and that the signature of such Assistant Secretary set forth above is true and genuine.

WITNESS my hand this [    ] day of [            ], 20[    ].

 

 

Name:
Title:

 

- 4 -


Annex 1

Charter Documents

[see attached]

 

- 5 -


Annex 2

Resolutions

[see attached]

 

- 6 -


Annex 3

Incumbency

[see attached]

 

- 1 -


EXHIBIT C

FORM OF INDEPENDENT ENGINEER’S CLOSING CERTIFICATE

[ Date ]

Overseas Private Investment Corporation

1100 New York Avenue, N.W.

Washington, D.C. 20527

 

Attention:      [Vice President, Structured Finance] 1
     [Director, Portfolio Management Division] 2

Independent Engineer’s Closing Certificate

Dear Sir or Madam:

Reference is made to the Finance Agreement between OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands registered in the Republic of Kenya as a foreign company (the “ Borrower ”), and Overseas Private Investment Corporation, an agency of the United States of America (“ OPIC ”), dated as of August 23, 2012 (the “ Finance Agreement ”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Finance Agreement.

Shaw Consultants International, Inc., acting as the “Independent Engineer” under the Finance Agreement defined above, hereby submits this Certificate in connection with the current Disbursement Request, dated [ ], 201[ ] (the “ Current Disbursement Request ”).

The Independent Engineer has performed its review of the matters set forth in this Certificate relating to the Project in a professional manner in accordance with generally accepted engineering consulting practices and in accordance with the standards of care practiced by other consulting engineers in performing similar tasks on like projects and in accordance with its scope of services as defined in the engagement letter between the OPIC and the Independent Engineer. The Independent Engineer represents that it has the required skills and capacity to perform its services in the foregoing manner.

The Independent Engineer has reviewed the Current Disbursement Request, for a Closing Date of [                    ], monthly Construction Period Reports and all other information that it has determined to be relevant for purposes of providing this certification and has conducted a site visit on [ ] in order to enable it to deliver this Certificate.

On the basis of the foregoing and on the understanding and belief that the Independent Engineer has been provided true, correct and complete information from the Borrower as to the matters covered by this Certificate, the Independent Engineer hereby certifies, as of the date hereof, that:

 

 

1  

For notices delivered prior to first Disbursement.

2  

For notices delivered after first Disbursement.

 

- 1 -


1. The Current Disbursement Request requests funding for Project Costs that have been incurred or are reasonably expected to be incurred within ninety (90) days next following the Closing Date in the Current Disbursement Request, as documented in Annex 2 to the Current Disbursement Request.

2. The Disbursement requested in the Current Disbursement Request is within the Construction Budget.

3. The Construction Schedule, dated [                    ], submitted to the Independent Engineer is achievable for the Project.

4. To our knowledge, no event has occurred that could reasonably be expected to delay the Project Completion Date as specified in the Construction Schedule and in Section 6.01(c) of the Finance Agreement.

5. We have found no indications that the Works performed during the period covered by this Certificate were not performed and completed, as applicable, in accordance with the Project Documents, the Finance Agreement, the Construction Budget, the Construction Schedule and Good Industry Practice.

6. We have found no indications that the Project has not been operated in accordance with the PPA, the Finance Agreement, the Annual Operating Budget and Good Industry Practice.

7. We have found no indications that the Borrower has not developed and maintained the geothermal resource, the wells and the surface facilities in accordance with the PPA, the Finance Agreement and Good Industry Practice.

8. We are not aware of any technical errors or omissions in the information contained in the Current Disbursement Request.

9. To our knowledge, no event has occurred that would reasonably be expected to cause Project Costs to exceed the Construction Budget at Project Completion.

 

- 2 -


IN WITNESS WHEREOF, the undersigned has executed this Certificate on the date first above written.

 

Shaw Consultants International, Inc.
By:  

 

  Name:  
  Title:  

 

- 3 -


EXHIBIT D

FORM OF BORROWER’S CLOSING CERTIFICATE

[ON BORROWER LETTERHEAD]

[DATE]

I, [                    ], the [title of Authorized Officer] of OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands (the “ Borrower ”), DO HEREBY CERTIFY that:

A. I am familiar with the terms of the Finance Agreement between the Borrower and Overseas Private Investment Corporation (“ OPIC ”), dated as of August 23, 2012 (the “ Finance Agreement ”) (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Finance Agreement);

B. I have read the covenants, representations, warranties, and agreements of the Borrower contained in the Finance Agreement and have been represented by counsel in connection with the Finance Agreement;

C. I have made or caused to be made such examination or investigation as is necessary to enable me to express an informed opinion as to the matters set forth below;

and pursuant to Section 5.05 of the Finance Agreement DO HEREBY CERTIFY that:

 

  1. The representations and warranties set forth in Article III of the Finance Agreement are true and correct in all material respects on the date hereof or, if such representation and warranty relates exclusively to an earlier date, as of such earlier date, and no Default or Event of Default exists on the date hereof or will result from the making of the Disbursement or from the application of the proceeds thereof;

 

  2. As of the date hereof, no Material Adverse Effect has occurred;

 

  3.

[Pursuant to Section 4.02(a) of the Finance Agreement, attached hereto as Appendix A are true, correct and complete [originals][copies] 1 of each Financing Document, which are in full force and effect in accordance with their terms as of the date hereof; 2

 

  4. Pursuant to Section 4.02(b) of the Finance Agreement, attached hereto as Appendix B are true, correct and complete copies (and their respective English translations, if applicable) of each Original Project Document, including all amendments to date, which are in full force and effect in accordance with their terms as of the date hereof;

 

  5. With regard to Section 4.03 of the Finance Agreement, the Shareholder holds 100% of the legal and beneficial title to the equity of the Intermediate Shareholder, and the

 

1  

NOTE: Section 4.2(a)(i) provides for, at OPIC’s election, delivery of certified copies of each Loan Document.

2  

NOTE: Items 3 through 9 required for first Closing Date.

 

- 1 -


Intermediate Shareholder holds 100% of the legal and beneficial title to the equity of the Borrower;

 

  6. Pursuant to Section 4.04 of the Finance Agreement, attached hereto as (a)  Appendix C-1 are copies of all Consents (a) listed in Part A of Schedule 4.04; and (b)  Appendix C-2 are copies of all additional Consents necessary or advisable, in each case, for (i) the Financing Documents, and the payment of all amounts due or to become due with respect thereto, not to be subject to any Taxes and (ii) the execution, delivery, and performance by the Borrower and by the Shareholder of each Transaction Document to which they are a party, and all such Consents shall be in full force and effect and not subject to appeal;

 

  7. Pursuant to Section 4.04 of the Finance Agreement, construction of Plant 2 began before March 22, 2012 in accordance with the Certificate of Variation of Environmental Impact Assessment License, dated May 21, 2010, executed by the Director General of The National Environmental Management Authority.

 

  8. Pursuant to Section 4.07 of the Finance Agreement, attached hereto as Appendix D are true, correct and complete copies of the Insurance Policies (and reinsurance policies, as applicable) required by and issued in accordance with Section 6.04 of the Finance Agreement, which are in full force and effect in accordance with their terms;

 

  9. Pursuant to Section 4.23 of the Finance Agreement, attached hereto as Appendix E are copies of each Project Document delivered to KPLC pursuant to Section 21.1(d) of the PPA, both for Plant 1 and Plant 2 (together with transmittal letters to KPLC evidencing delivery thereof);

 

  10.

With respect to Section 8.5 of the PPA, (i) [the following procedures were agreed between the Borrower and KPLC on or before the Plant Commissioning Date for the First Plant: [DESCRIBE] [or] [no further procedures were agreed between the Borrower and KPLC on or before the Plant Commissioning Date for the First Plant] and (ii) since the Full Commercial Operation Date of the First Plant, no further procedures have been specified by KPLC or otherwise mutually agreed between KPLC and the Borrower.] 3

 

  11. All of the certifications contained in the Disbursement Request dated [                    ] remain true and correct and in full force and effect[.][, except for the following:

 

  i. [                             ]

 

  ii. [                             ]]

 

  12.

[Pursuant to Section 5.08 of the Finance Agreement, attached hereto as Appendix [    ] are [copies of each Consent][copies of certificates, legal opinions, or other documents evidencing that the Borrower taken all steps necessary to obtain any Consents] necessary with respect to the current Disbursement.] 4

 

  13. With regard to Section 5.10 of the Finance Agreement, funds or assets on deposit in the Debt Service Reserve Account have a market value at least equal to the Debt Service Reserve Requirement.

 

3  

NOTE: Items 3 through 9 required for first Closing Date.

4  

NOTE: to be included, if applicable, for all Closing dates subsequent to the first Closing Date.

 

- 2 -


  14.

[With regard to Section 5.14 of the Finance Agreement, all the Insurance Policies (and reinsurance policies, as applicable) required by and issued in accordance with Section 6.04 of the Finance Agreement are in full force and effect.] 5

 

  15. Pursuant to Section 5.16 of the Finance Agreement, attached hereto as Appendix [    ] are true, correct and complete copies of all Lien waivers from relevant Affiliates of the Borrower related to the Works required to be obtained by the Borrower pursuant to Section 6.02(h) of the Finance Agreement.

 

  16.

[Pursuant to Section 5.17 of the Finance Agreement, attached hereto as Appendix [    ] are all documents required to have been delivered pursuant to Section 6.03 ( Maintenance of Rights and Compliance with Laws ) or Section 6.15 ( Additional Project Documents ), Project Documents delivered to KPLC pursuant to Section 21.1(d) of the PPA (together with transmittal letters to KPLC evidencing delivery thereof) not previously delivered pursuant to Section 4.23 hereof ( PPA Notice Requirements ) and any such other certificates, opinions, agreements, and documents customary for transactions of the type contemplated by the Finance Agreement, and translations of any of the foregoing.] 6

WITNESS my hand on the date first written above.

 

ORPOWER 4 INC.
By:  

 

Name:  

 

Its:  

 

 

5  

NOTE: to be included for all Closing dates subsequent to the first Closing Date.

6  

NOTE: include any/all that are applicable.

 

- 3 -


EXHIBIT E

FORM OF BORROWER’S COMPLETION CERTIFICATE

[BORROWER LETTERHEAD]

[ Date ]

Overseas Private Investment Corporation

1100 New York Avenue, N.W.

Washington, D.C. 20527

 

Attention:      Director, Portfolio Management Division

Borrower’s Completion Certificate

Dear Sir or Madam:

Reference is made to the Finance Agreement between OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands and registered in the Republic of Kenya as a foreign company (the “ Borrower ”), and Overseas Private Investment Corporation, an agency of the United States of America (“ OPIC ”), dated as of August 23, 2012 (the “ Finance Agreement ”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Finance Agreement.

 

1. We have read the provisions of the Finance Agreement which are relevant to the furnishing of this Borrower’s Completion Certificate. To the extent that this Borrower’s Completion Certificate evidences, attests or confirms compliance with any covenants or conditions precedent provided for in the Finance Agreement, we have made such examination or investigation as was, in our opinion, reasonably necessary to enable us to express an informed opinion as to whether such covenants or conditions have been complied with.

 

2. BORROWER HEREBY CERTIFIES, as of the date hereof, that:

 

  a. Each requirement set forth in clauses (a) through (e) of the definition of “Project Completion” has been satisfied;

 

  b. With respect to item (a)(viii) of the definition of Project Completion, [all items set forth in the agreed punch list have been completed][a segregated cash reserve in the amount of one hundred and fifty percent (150%) of the estimated cost (as proposed by the Borrower and agreed by OPIC acting in consultation with the Independent Engineer) to complete all items set forth in the agreed punch list has been established and a copy of the agreed punch list is attached as Appendix [I] hereto].

 

  c. Each release referenced in Section (a)(ix) of the definition of Project Completion is attached hereto as Appendix [I][II].

 

- 1 -


  d. With respect to item (a)(xi) of the definition of Project Completion, (x) the actual yield (MW) of all Original Wells and Expansion Wells is [            ] and (y) the actual yield (MW) satisfies the Minimum Yield Requirement.

 

  e. Attached as Appendix [II][III] is the most recent semi-annual Reservoir Monitoring Report as described in Section 6.02(e) of the Finance Agreement [updated to reflect [ include narrative of change to semi-annual Reservoir Monitoring Report since delivery pursuant to Section 6.02(e )]]. Such [updated] semi-annual Reservoir Monitoring Report is true and correct in all material respects as of the Project Completion Date.

IN WITNESS WHEREOF, the undersigned has executed this Certificate on the date first above written.

 

OrPower 4 Inc.
By:  

 

  Name:  
  Title:  

 

- 2 -


Attachments

 

Appendix No.

    

Document

[I]      Punch List
[I][II]      Releases
[II][III]      Semi-annual Reservoir Monitoring Report

 

- 3 -


EXHIBIT F

FORM OF INDEPENDENT ENGINEER’S COMPLETION CERTIFICATE

[ Date ]

Overseas Private Investment Corporation

1100 New York Avenue, N.W.

Washington, D.C. 20527

 

Attention:      Director, Portfolio Management Division

Independent Engineer’s Completion Certificate

Dear Sir or Madam:

Reference is made to the Finance Agreement between OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands and registered in the Republic of Kenya as a foreign company (the “ Borrower ”), and Overseas Private Investment Corporation, an agency of the United States of America (“ OPIC ”), dated as of August 23, 2012 (the “ Finance Agreement ”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Finance Agreement.

Shaw Consultants International, Inc., acting as the “Independent Engineer” under the Finance Agreement defined above, hereby submits this Certificate in connection with the Borrower’s Completion Certificate, dated [ ].

The Independent Engineer has performed its review of the matters set forth in this Certificate relating to the Plant in a professional manner in accordance with generally accepted engineering consulting practices and in accordance with the standards of care practiced by other consulting engineers in performing similar tasks on like projects and in accordance with its scope of services as defined in the engagement letter between the OPIC and the Independent Engineer. The Independent Engineer represents that it has the required skills and capacity to perform its services in the foregoing manner.

The Independent Engineer has reviewed the Borrower’s Completion Certificate, Plant Commercial Operations Tests (as defined in the PPA), Construction Period Reports, and other information that it has determined to be relevant for purposes of providing this certification and has conducted a site visit on [ ] in order to enable it to deliver this Certificate.

On the basis of the foregoing and on the understanding and belief that the Independent Engineer has been provided true, correct and complete information from the requisite parties as to the matters covered by this Certificate, the Independent Engineer hereby certifies, as of the date hereof, that:

1. Each of the requirements set forth in clauses (a) through (c) of the definition of “Project Completion” have been satisfied as of the date hereof.

 

- 1 -


2. [The punch list is complete][The aggregate of all punch list items and other amounts due and payable by Borrower (if any) is [ ]]. 1

IN WITNESS WHEREOF, the undersigned has executed this Certificate on the date first above written.

 

Shaw Consultants International, Inc.
By:  

 

  Name:  
  Title:  

 

1  

Insert if applicable

 

- 2 -


EXHIBIT G

FORM OF RESOURCE CONSULTANT’S COMPLETION CERTIFICATE

[RESOURCE CONSULTANT LETTERHEAD]

[ Date ]

Overseas Private Investment Corporation

1100 New York Avenue, N.W.

Washington, D.C. 20527

 

Attention:      Director, Portfolio Management Division

Resource Consultant’s Completion Certificate

Dear Sir or Madam:

Reference is made to the Finance Agreement between OrPower 4 Inc., a limited liability company incorporated and existing under the laws of the Cayman Islands and registered in the Republic of Kenya as a foreign company (the “ Borrower ”), and Overseas Private Investment Corporation, an agency of the United States of America (“ OPIC ”), dated as of August 23, 2012 (the “ Finance Agreement ”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Finance Agreement.

GeothermEx, Inc., acting as the “Resource Consultant” under the Finance Agreement defined above, hereby submits this Certificate in connection with the Borrower’s Completion Certificate, dated [ ].

The Resource Consultant has performed its review of the matters set forth in this Certificate relating to the Plant in a professional manner in accordance with generally accepted engineering consulting practices and in accordance with the standards of care practiced by other consulting engineers in performing similar tasks on like projects and in accordance with its scope of services as defined in the engagement letter between the OPIC and the Independent Engineer. The Resource Consultant represents that it has the required skills and capacity to perform its services in the foregoing manner.

The Resource Consultant has reviewed the Borrower’s Completion Certificate and other information that it has determined to be relevant for purposes of providing this certification and has conducted a site visit on [ ] in order to enable it to deliver this Certificate.

The Resource Consultant hereby certifies, as of the date hereof, as follows:

A. all Expansion Wells have been completed by the Borrower and are fully operational;

B. with respect to item (a)(xi) of the definition of Project Completion, (x) the actual yield (MW) of all Original Wells and Expansion Wells is [            ] and (y) the actual yield (MW) satisfies the Minimum Yield Requirement; and

 

- 1 -


C. the Borrower’s Steam Field Facilities as defined in the PPA (including the wells) are compliant with the requirements of Section 5.10A of the PPA, the Reservoir Monitoring Plan and the Finance Agreement.

 

- 2 -


IN WITNESS WHEREOF, the undersigned has executed this Certificate on the date first above written.

 

GeothermEx, Inc.
By:  

 

  Name:  
  Title:  

 

- 3 -

Exhibit 10.2

EXECUTION VERSION

 

 

 

Equity Contribution, Subordination, and Share

Retention Agreement

among

ORPOWER 4 INC.,

as Borrower

ORMAT TECHNOLOGIES, INC.,

as Sponsor,

ORMAT INTERNATIONAL, INC.,

as Shareholder,

ORMAT HOLDING CORP.,

as Intermediate Shareholder,

and

OVERSEAS PRIVATE INVESTMENT CORPORATION,

as Lender

Dated as of August 23, 2012

OPIC/615-2011-039-IG

 

 

 


TABLE OF CONTENTS

 

          Page  

Section 1.     Definitions; Rules of Interpretation.

     1   

1.01     Defined Terms.

     1   

1.02     Rules of Interpretation.

     3   

Section 2.     Equity Contribution and Support Obligations of the Shareholder.

     3   

2.01     Equity Contributions.

     3   

2.02     Tax VAT/IDF Support.

     4   

2.03     Taxes in Respect of Subordinated Loans.

     4   

2.04     Mechanics for Funding Equity Contributions.

     4   

2.05     No Obligation.

     4   

Section 3.     Subordination and Deferment Provisions.

     5   

3.01     Subordination.

     5   

3.02     Written Instrument(s).

     5   

3.03     Payments other than in Bankruptcy.

     5   

3.04     Deferral.

     5   

3.05     No Acceleration.

     5   

3.06     No Commencement of Any Proceeding.

     5   

3.07     No Set-Off.

     6   

3.08     Subordination in Bankruptcy.

     6   

3.09     Rights of Subrogation.

     6   

3.10     Assignment of Subordinated Affiliate Loans in favor of OPIC.

     6   

3.11     No Other Assignment.

     7   

3.12     No Amendment of Subordinated Affiliate Loans.

     7   

3.13     Amounts Held in Trust.

     7   

Section 4.     Consent and Agreement; Etc.

     7   

4.01     Assignment of this Agreement.

     7   

Section 5.     Share Retention Obligations.

     8   

5.01     Share Retention Undertaking.

     8   

5.02     Restrictions on Share Transfer Recordation — Notice of Transfers.

     9   

5.03     Notification of Transfer Restrictions.

     9   

 

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Section 6.     Restricted Payments; Shareholder Payments.

     10   

Section 7.     Covenants.

     10   

7.01     Organizational Documents.

     10   

7.02     Bankruptcy; Insolvency; Winding Up.

     10   

7.03     Financial Statements.

     10   

Section 8.     Representations and Warranties.

     11   

8.01     Existence and Power.

     11   

8.02     Adequate Financial Means.

     11   

8.03     Authority.

     11   

8.04     No Default.

     11   

8.05     Financial Condition.

     11   

8.06     Bankruptcy; Insolvency; Winding-Up.

     11   

8.07     Share Capital.

     12   

8.08     Corrupt Practices; Anti-Money Laundering; Anti-Corruption Handbook.

     12   

8.09     VAT/IDF Matters

     12   

Section 9.     Miscellaneous.

     12   

9.01     No Waiver.

     12   

9.02     Notices.

     13   

9.03     Expenses.

     13   

9.04     Successors and Assigns.

     14   

9.05     Survival of Agreements.

     14   

9.06     Integration; Amendments.

     14   

9.07     Severability.

     14   

9.08     Counterparts.

     14   

9.09     Governing Law.

     14   

9.10     Waiver of Jury Trial.

     14   

9.11     Jurisdiction and Consent to Suit; Waivers.

     14   

9.12     Arbitration.

     15   

9.13     Relevant Party Consent to Suit; Exclusive Form Selection for Certain Actions.

     16   

9.14     Waiver of Litigation Payments.

     17   

9.15     Further Assurances.

     17   

9.16     English Language.

     17   

 

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This EQUITY CONTRIBUTION, SUBORDINATION AND SHARE RETENTION AGREEMENT (this “Agreement” ), dated as of August 23, 2012, is by and among:

 

(1) ORPOWER 4 INC. , a limited liability company incorporated and existing under the laws of the Cayman Islands and registered in the Republic of Kenya as a foreign company (the “Borrower” );

 

(2) ORMAT TECHNOLOGIES, INC. , a corporation organized and existing under the laws of the state of Delaware, United States of America (the “Sponsor” );

 

(3) ORMAT INTERNATIONAL, INC. , a corporation organized and existing under the laws of the state of Delaware, United States of America (the “Shareholder” );

 

(4) ORMAT HOLDING CORP. , an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Intermediate Shareholder” ); and

 

(5) OVERSEAS PRIVATE INVESTMENT CORPORATION , an agency of the United States of America ( “OPIC” ).

WHEREAS, the Borrower is undertaking the design, construction, completion, ownership and operation of the Project;

WHEREAS , in order to finance the Project and certain other costs and expenditures associated with the development of the Project, the Borrower and OPIC have, contemporaneously herewith, entered into a Finance Agreement (the “Finance Agreement” ), pursuant to which OPIC has agreed, subject to the terms and conditions contained therein, to lend to the Borrower loans (collectively, the “Loans ) in the aggregate principal amount of up to $310,000,000;

WHEREAS , in consideration for OPIC entering into the Finance Agreement, the Shareholder has agreed, directly or indirectly through the Intermediate Shareholder, to make certain equity contributions to the Borrower, as set forth in and subject to the terms and conditions of this Agreement; and

WHEREAS , it is a condition precedent to the making of the Loans that this Agreement shall have been executed and delivered by the parties hereto.

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

Section 1. Definitions; Rules of Interpretation .

1.01 Defined Terms . Unless otherwise defined herein, capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Finance Agreement. For purposes of this Agreement, the following terms shall have the following meanings:

 

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Actual Equity Contributions ” means, as of any date of determination, for the Shareholder, an amount equal to the aggregate amount of (i) Pre-Funded Equity Contributions, (ii) the aggregate amount of Project Costs paid by the Sponsor and/or its Affiliates from but excluding the Cut-Off Date to but excluding the date of the first Disbursement less any debt drawn on account of such Project Costs incurred between the Cut-Off Date and the date of the first Disbursement as part of the first Disbursement of Tranche II and (iii) Equity Contributions made by the Shareholder or the Intermediate Shareholder on and after the date hereof in accordance with Section 2.01(a) or Section 2.01(b).

“Control” means, with respect to any Person, any other Person having the power, directly or indirectly, (a) to appoint a majority of the administrators (directors and/or officers) of such Person, (b) to approve the corporate matters of such Person and (c) to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

Economic Ownership Interest ” means the beneficial ownership interest in the Share Capital of a Person (which must include the right to receive a share of dividends, profits and similar amounts distributed by such Person) held by another Person or Persons, directly or indirectly on a fully diluted basis.

Equity Contribution ” means an equity contribution made in accordance with Section 2.01(a) or Section 2.01(b).

Equity Funding Date ” means in any month during which the Borrower shall have delivered a Disbursement Request to be made during such month, fifteen (15) Business Days prior to the date of first Disbursement and at least ten (10) Business Days prior to any subsequent Disbursement specified therein.

IDF Fees ” means any fees payable to the Kenya Revenue Authority by the Borrower in respect of one or more Import Declaration Forms issued in relation to the importation of goods into Kenya by the Borrower.

Letter Regarding VAT/IDF ” means the letter entitled “Exemption from Customs Duty, VAT and IDF Fees — Olkaria III Geothermal Power Project” issued to the Permanent Secretary, Minister of Energy, by the Republic of Kenya, Office of the Deputy Prime Minister and Ministry of Finance dated March 31, 2011.

Pre-Funded Equity Contribution ” means US$81,862,000.

Relevant Parties ” means, collectively, the Borrower and each Shareholder Party and “Relevant Party” means any of them.

Required Equity Amount ” means $116,765,000.

Share Capital ” means, with respect to any Person, all shares of capital stock of any class, shares of any class, or other ownership interests of any kind in such Person, and any and all warrants, options, subscription bonus or other rights to purchase, subscribe for or acquire any title to any of the foregoing.

 

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“Shareholder Parties” means, collectively, the Sponsor, the Shareholder and the Intermediate Shareholder, and “Shareholder Party” means any of them.

“Subordinated Affiliate Loans” means the Subordinated Affiliate Loans to be provided to the Borrower by the Shareholder or any Affiliates thereof subject to the terms hereof.

Transfer ” means, with respect to any Share Capital or Economic Ownership Interest, as the context may require, (i) a sale, assignment, transfer, disposition, Lien or granting of an option, in each case, whether actual or contingent, of or over such Share Capital or Economic Ownership Interest or (ii) to sell, assign, transfer, pledge, grant an option over or otherwise dispose of, or encumber or permit any Lien to exist over such Share Capital or Economic Ownership Interest.

Unfunded Equity Commitment ” means, as of any date of determination, with respect to the Shareholder, the excess, if any, of (x) the Required Equity Amount over (y) the Actual Equity Contributions.

VAT/IDF Duties ” means any duties, value added taxes or IDF Fees payable to a Governmental Authority in Kenya in respect of those items of plant, materials and equipment listed in the Letter Regarding VAT/IDF, including, without limitation, any interest and any penalties, additions to tax or additional amounts imposed by any Governmental Authority in respect of any of the foregoing.

1.02 Rules of Interpretation . The principles of interpretation and construction set forth in Section 2 of Schedule X to the Finance Agreement shall apply to, and are hereby incorporated by reference as if fully set forth in, this Agreement.

Section 2. Equity Contribution and Support Obligations of the Shareholder .

2.01 Equity Contributions .

(a) If in connection with any Disbursement of the Loans an equity contribution is required to cause the Debt to Equity Ratio on the relevant Closing Date (calculated assuming that the Disbursement proposed to be made on such Closing Date is made) to be not greater than 75:25, then, on the relevant Equity Funding Date, the Shareholder shall make, or shall cause the Intermediate Shareholder to make, an equity contribution in an amount equal to the lesser of (A) the amount of equity contributions required to cause the Debt to Equity Ratio on the relevant Closing Date (calculated assuming that the Disbursement proposed to be made on such Closing Date is made) to be not greater than 75:25 and (B) the Unfunded Equity Commitment.

(b) If at any time the Shareholder elects to make an equity contribution to the Borrower that is not in connection with a Disbursement of the Loan, it shall be entitled to do so by making such equity contribution, or causing the Intermediate Shareholder to make, such Equity Contribution at any time.

 

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(c) Notwithstanding anything else to the contrary in this Agreement or any other Transaction Document, in no event shall the Shareholder or the Intermediate Shareholder be required to make Equity Contributions in an aggregate amount in excess of the Required Equity Amount.

2.02 VAT/IDF Support . If the Borrower is required to pay any VAT/IDF Duties, the Shareholder shall make, or shall cause the Intermediate Shareholder to make, an equity contribution in an amount equal to any such VAT/IDF Duties not less than ten (10) Business Days before any such VAT/IDF Duties are due.

2.03 Taxes in Respect of Subordinated Loans . After the date of the first Disbursement, if the Borrower is precluded by the terms of the DFI Subordination Agreement from paying any amount due in respect of the Subordinated DFI Loan but is required by Applicable Law to pay any Taxes in respect of any such amount that is accrued or owing in respect of the Subordinated DFI Indebtedness, the Shareholder shall make, or shall cause the Intermediate Shareholder to make, an equity contribution in an amount equal to any such Taxes not less than ten (l0) Business Days before any such Taxes are due.

2.04 Mechanics for Funding Equity Contributions .

(a) The Shareholder shall be entitled to make or effect, or cause to be made or effected, any Equity Contribution hereunder through any combination of (i) a subscription and payment in cash by the Intermediate Shareholder for additional shares in the Share Capital of the Borrower and (ii) Subordinated Affiliate Loans to the Borrower. The Shareholder hereby agrees that all Equity Contributions through any combination of (i) a subscription and payment in cash by the Intermediate Shareholder for additional shares in the Share Capital of the Borrower and (ii) Subordinated Affiliate Loans to the Borrower shall always be subject and subordinate in all respects to the interest in the Secured Obligations as set forth in Section 3.

(b) From the Cut-Off Date to the date of the first Disbursement, the Shareholder shall provide such evidence as OPIC shall reasonably require (and shall afford OPIC at least twenty (20) Business Days to review any such evidence) to validate any equity contribution made pursuant to Section 2.01(a) or 2.01(b). After the date of the first Disbursement, all equity contributions shall be made by deposit of immediately available funds into the Equity Sub-Account.

(c) The obligation of the Shareholder or Intermediate Shareholder to make any equity contribution hereunder shall cease on the Project Completion Date.

2.05 No Obligation . The parties hereto acknowledge that OPIC shall not have any obligation to call for the provision of funds to maintain the Debt to Equity Ratio in accordance with Section 2.01(a) and that OPIC shall not be liable to any party for not calling any funds or not calling sufficient funds under this Section 2.

 

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Section 3. Subordination and Deferment Provisions .

3.01 Subordination . Notwithstanding any provision to the contrary contained in any agreement relating to any Subordinated Affiliate Loan, so long as any amount of the Loans remains available for disbursement by OPIC and, thereafter, until all Secured Obligations have been paid in full, the Subordinated Affiliate Loans and all other obligations of the Borrower to the Shareholder (or any of its Affiliates) shall be subordinated to the Secured Obligations as provided herein.

3.02 Written Instrument(s) . Each Subordinated Affiliate Loan shall be in the form of a non-interest bearing (unless otherwise agreed by OPIC) long-term unsecured Subordinated Affiliate Loan evidenced by a written instrument or instruments in form and substance satisfactory to OPIC.

3.03 Payments other than in Bankruptcy . No payment of the principal of, interest on, or fees with respect to any Subordinated Affiliate Loan shall be made at any time by the Borrower except from amounts that would otherwise be available for distribution pursuant to Section 7.04 ( Restricted Payments and Shareholder Payments ) of the Finance Agreement.

3.04 Deferral . Payments of any amount in respect of any Subordinated Affiliate Loan not paid by reason of Section 3.03 will be deferred until such time as the same can be paid in accordance with the foregoing provisions of this Section 3. Any such deferral shall not constitute a default under such Subordinated Affiliate Loan.

3.05 No Acceleration . The Shareholder may not (and the Shareholder shall procure that none of its Affiliates may, as applicable) accelerate the repayment of any Subordinated Affiliate Loan without the prior written consent of OPIC unless the Secured Obligations have been accelerated following an Event of Default described in Section 8.01(m) of the Finance Agreement. Any Subordinated Affiliate Loan the repayment of which has been accelerated as permitted by this Section 3.05 shall nonetheless remain subject to the other provisions of this Section 3.

3.06 No Commencement of Any Proceeding . Until payment in full of the Secured Obligations, the Shareholder shall not (and the Shareholder shall procure that none of its Affiliates shall, as applicable) claim, demand, require, commence any action or proceeding of any kind against the Borrower (including, without limitation, bringing an action, petition or proceeding against the Borrower under any bankruptcy or similar laws of any jurisdiction, and joining in any such action, petition or proceeding) whether by the exercise of the right of set-off, counterclaim or of any similar right or otherwise howsoever, to obtain or with a view to obtaining any payment or reduction of or in respect of any Shareholder Loan; provided , however , that if OPIC files a claim against the Borrower for payment, the Shareholder (or any one or more of its Affiliates, as applicable) shall have the right to file a claim against the Borrower if and to the extent the filing of such claim is necessary to preserve its rights to receive payments under any Subordinated Affiliate Loan, provided that any such claim and right to receive any such payment under any Subordinated Affiliate Loan shall, in all cases, be subordinated in all respects to the right of OPIC to receive payment in full of the Secured Obligations as set forth in this Agreement.

 

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3.07 No Set-Off . The Shareholder shall not (and the Shareholder shall procure that none of its Affiliates shall, as applicable) set-off, counterclaim or otherwise reduce any payment obligation of the Shareholder (or any of its Affiliates, if applicable) to the Borrower against any payment that is required to be deferred under the provisions of this Section 3 until all the Secured Obligations have been repaid.

3.08 Subordination in Bankruptcy . Upon any distribution of assets in connection with any dissolution, winding up, liquidation or reorganization of the Borrower (whether in bankruptcy, insolvency or receivership proceedings or otherwise) or upon an assignment for the benefit of creditors of the Borrower:

(a) all Secured Obligations shall be paid in full before any amount on account of any Subordinated Affiliate Loan is paid; and

(b) until payment in full of the Secured Obligations, any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, to which the Shareholder (or any of its Affiliates, if applicable) would be entitled in respect of any Subordinated Affiliate Loan except for the provisions of this Section 3, shall instead be paid by the liquidator or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly to OPIC. OPIC shall be entitled to receive and collect on behalf of the Shareholder (or any of its Affiliates, if applicable) any and all such payments and distributions and give acquittance therefor, and to file any claim, proof of claim or other similar instrument and take such other action (including acceptance or rejection of any plan of reorganization or arrangement) in its own name or in the name of the Shareholder (or its Affiliates, if applicable) in respect of such Subordinated Affiliate Loans as directed by OPIC for the enforcement of this Section 3, provided , that no provision of this clause (b) shall, or shall be construed to, impose any obligation on OPIC to take or refrain from taking any action or pursue any claim on behalf of the Shareholder (or any of its Affiliates, if applicable), and the Shareholder hereby waives (and shall cause its Affiliates, as applicable, to waive) any claim or cause of action it may otherwise have against OPIC as a result of any action taken or not taken by OPIC to enforce any and all claims in respect of any amount on account of any Subordinated Affiliate Loan.

3.09 Rights of Subrogation . The Shareholder shall not (and the Shareholder shall procure that none of its Affiliates shall, as applicable), in respect of any payment or distribution made to OPIC on account of any Subordinated Affiliate Loan, seek to enforce repayment, obtain the benefit of any Lien created by the Security Documents or exercise any other rights or legal remedies of any kind that may accrue to the Shareholder (or its Affiliates, if applicable) against the Borrower, whether by way of subrogation, offset, counterclaim or otherwise, whether or not such rights or legal remedy arise in equity or under contract, statute or common law, in respect of such payment or distribution until payment in full of the Secured Obligations.

3.10 Assignment of Subordinated Affiliate Loans in favor of OPIC . All right, title and interest of the Shareholder (or any of its affiliates, if applicable) in, to and under each Subordinated Affiliate Loan shall be assigned to OPIC pursuant to a security agreement in form and substance acceptable to OPIC.

 

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3.11 No Other Assignment . The Shareholder shall not (and the Shareholder shall procure that none of its Affiliates shall, as applicable), without the prior written consent of OPIC, assign, transfer, encumber or otherwise dispose of all or part of its interest in any Subordinated Affiliate Loan to any Person other than a direct or indirect wholly-owned subsidiary of the Sponsor; provided that any such Person shall have entered into a subordination agreement with OPIC including the terms set forth in this Section 3 or otherwise acceptable to OPIC.

3.12 No Amendment of Subordinated Affiliate Loans . The Shareholder shall not (and the Shareholder shall procure that none of its Affiliates shall, as applicable), without the prior written consent of OPIC, terminate, amend or grant any waiver in respect of any document or instrument evidencing any Subordinated Affiliate Loan in any manner that could violate any provision of this Article 3 or could have an adverse effect on the Borrower.

3.13 Amounts Held in Trust . If, for any reason whatsoever, the Shareholder (or any of its Affiliates, if applicable) receives any payment or distribution contrary to the provisions of this Section 3, then the Shareholder shall (and shall cause its Affiliates, if applicable to) hold the same in trust for OPIC, promptly notify OPIC of the receipt of such payment or distribution and promptly pay the amount of such payment or distribution to OPIC or, if OPIC so elects, to any bank nominated by OPIC, to hold for the account of OPIC. Any amount so received by OPIC or its nominee may be applied towards the payment of any amount outstanding under the Finance Agreement, any Note or any other Financing Document, in such manner as directed by OPIC.

Section 4. Consent and Agreement; Etc.

4.01 Assignment of this Agreement .

(a) Each of the Shareholder and the Intermediate Shareholder acknowledge receipt of the New York Security Agreement and consents in all respects to the assignment thereunder (subject to the terms thereof) of all of the Borrower’s right, title and interest in, to and under this Agreement, including, without limitation, all of the Borrower’s rights to receive payments or other contributions under or with respect to this Agreement and all payments and other contributions due and to become due to the Borrower under or with respect to this Agreement, whether as contractual obligations, damages or otherwise.

(b) Each of the Shareholder and the Intermediate Shareholder acknowledge and agree, for the benefit of OPIC, that, pursuant to and in accordance with the Security Documents, OPIC and any permitted assignee(s) or designee(s) thereof shall be entitled to exercise any and all rights of the Borrower under this Agreement in accordance with the terms thereof (in their own names or in the name of the Borrower), and each of the Shareholder and Intermediate Shareholder shall comply in all respects with such exercise. Without limiting the generality of the foregoing, OPIC and any assignee(s) or designee(s) thereof shall have the full right and power to enforce directly against such Shareholder Party all obligations of such Shareholder Party under this Agreement and otherwise to exercise all remedies hereunder and to make all demands and give all notices and make all requests required or permitted to be made by the Borrower (in its own name or in the name of the Borrower) under this Agreement.

 

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Section 5. Share Retention Obligations .

5.01 Share Retention Undertaking .

(a) At all times before the Closing Date on which the final Tranche II Disbursement is made:

(i) the Sponsor shall maintain its listing on the New York Stock Exchange;

(ii) the Sponsor shall own, directly or indirectly, 100% of the Share Capital of and Economic Ownership Interest in the Shareholder; and

(iii) the Shareholder shall own, directly or indirectly, 100% of the Share Capital of and Economic Ownership Interest in the Intermediate Shareholder.

(b) At all times from the Closing Date on which the final Tranche II Disbursement is made until the Project Completion Date:

(i) the Sponsor shall (x) Control the Shareholder and (y) own, directly or indirectly, at least 50.1% of the Share Capital of and Economic Ownership Interest in the Shareholder;

(ii) the Shareholder shall (x) Control the Intermediate Shareholder and (y) own, directly or indirectly, at least 50.1% of the Share Capital of and Economic Ownership Interest in the Intermediate Shareholder; and

(iii) the Intermediate Shareholder shall own, directly or indirectly, 100% of the Share Capital of and Economic Ownership Interest in the Borrower.

(c) At all times from and after the Project Completion Date, the Shareholder shall (x) Control the Borrower and (y) own, directly or indirectly, at least 50.1% of the Share Capital of and Economic Ownership Interest in the Borrower.

(d) No Shareholder Party shall Transfer its ownership of the Share Capital of or Economic Ownership Interest in the Borrower or any other Shareholder Party, as applicable, to a Person included on the OFAC List.

(e) Each Shareholder Party and the Borrower agrees that it will not (i) make or suffer or permit to occur any Transfer of any Share Capital or Economic Ownership Interest owned directly or indirectly by such Person in the Borrower, except as permitted in sub-clause (b) or (c) above, or (ii) suffer or permit the Borrower to issue or Transfer any of its Share Capital or Economic Ownership Interest to any Person except in compliance with this Agreement.

 

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(f) Nothing contained in this Section 5.01 shall in any way affect the security interest over the Share Capital created in favor of OPIC pursuant to the Share Pledge and any Transfer of the Share Capital of the Borrower shall be made subject to such security interest .

(g) Without limiting Section 3.09, the parties hereto agree that any breach of the provisions of this Section 5 by any Shareholder Party or the Borrower shall cause irreparable injury to the interests of OPIC for which monetary damages (or other remedies at law) are inadequate in view of the complexities and uncertainties in measuring the actual damages that would be sustained by reason of such party’s noncompliance and the uniqueness of the Borrower’s business and the relationship among the parties hereto. Accordingly, the parties hereto agree that, to the extent permitted by applicable law, OPIC may enforce the provisions of this Section 5 by specific performance or injunctive relief.

(h) Each Shareholder Party and the Borrower hereby irrevocably waives, to the extent that it may do so under applicable law, any defense based on the adequacy of a remedy at law or in equity that may be asserted as a bar to the remedy of specific performance in any action brought against it for specific performance of the obligation of such Shareholder Party to retain its Share Capital of or Economic Ownership Interest in the Borrower under this Agreement by OPIC or the Borrower or for either of their benefit by a receiver, custodian or trustee appointed for the Borrower or in respect of all or a substantial part of the Borrower’s assets under the bankruptcy, insolvency or similar laws of any jurisdiction to which the Borrower or its assets are subject.

5.02 Restrictions on Share Transfer Recordation — Notice of Transfers . The Borrower and each of the Shareholder and the Intermediate Shareholder covenants with OPIC that, for so long as the provisions of Section 5.01 are in force and effect:

(a) to the extent permitted by law (i) with respect to the Borrower, it will not recognize any purported Transfer of the Share Capital or Economic Ownership Interest owned directly by the Intermediate Shareholder (other than in a transaction in favor of OPIC) the Intermediate Shareholder; and (ii) with respect to the Shareholder and the Intermediate Shareholder, it will not recognize any purported Transfer of its Share Capital owned directly by the relevant Shareholder Party (other than in a transaction in favor of OPIC), in each case, unless permitted under this Agreement or authorized in writing by OPIC; and

(b) it shall notify OPIC promptly upon receipt of any request to register or record any Transfer of its Share Capital or any other transaction in respect of its Share Capital, together with the details of such request, to the extent that such Transfer or other transaction would be inconsistent with the provisions of Section 5.01.

5.03 Notification of Transfer Restrictions .

(a) The restrictions imposed under this Section 5 shall be recorded in the register of members of the Borrower, the Intermediate Shareholder and the Shareholder, as applicable, and noted on the share certificates (i) issued by the Borrower to the Intermediate Shareholder and (ii) issued by the Intermediate Shareholder to the Shareholder.

 

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(b) The Borrower and each of the Shareholder and the Intermediate Shareholder shall deliver evidence of the recordation and annotation required under this Section 5.03 to OPIC.

Section 6. Restricted Payments; Shareholder Payments . Each Shareholder Party, solely in its capacity as a direct or indirect shareholder of the Borrower, shall cause the Borrower not to make any Restricted Payment or Shareholder Payment, except as permitted under the Financing Documents. If a Shareholder Party receives a Restricted Payment or a Shareholder Payment from the Borrower to which it is not entitled (because such Restricted Payment or Shareholder Payment was not made in accordance with the preceding sentence), then such Shareholder Party shall hold such Restricted Payment or Shareholder Payment (or an amount equal thereto) as depository for the benefit of OPIC and deliver the same over to OPIC upon written demand therefor by OPIC and as OPIC may direct. If a Shareholder Party obtains knowledge that any of its Affiliates has received a Restricted Payment or a Shareholder Payment from the Borrower to which such Person is not entitled, then such Shareholder Party shall use commercially reasonable efforts to cause such Affiliate to hold such Restricted Payment or Shareholder Payment (or an amount equal thereto) as depository for the benefit of OPIC or deposit it into the Offshore Revenue Account and deliver the same over to OPIC upon written demand therefor by OPIC or as OPIC may direct.

Section 7. Covenants . Each Shareholder Party covenants and agrees as follows:

7.01 Organizational Documents . The Intermediate Shareholder shall not, and the Shareholder shall procure that the Intermediate Shareholder shall not, approve or permit the implementation of any amendment, modification, supplement or waiver of any provision of the Charter Documents of the Borrower that would violate the provisions of the Transaction Documents.

7.02 Bankruptcy; Insolvency; Winding Up . The Intermediate Shareholder shall not, and each of the Shareholder and the Sponsor shall procure that the Intermediate Shareholder shall not, take any corporate action or any other legal steps or commence any legal proceedings seeking a reorganization, moratorium, bankruptcy, arrangement, adjustment or composition or for the appointment of a receiver, liquidator, assignee, sequestrator (or similar official) in relation to any part of the Project or the Borrower or for the winding up, dissolution or re-organization of the Borrower or of any or all of the Borrower’s property.

7.03 Financial Statements . At its cost, until the Project Completion Date, the Shareholder shall furnish to OPIC each of the following:

(a) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year, its unaudited Financial Statements, all certified by a financial officer as being true and complete and fairly presenting in all material respects the financial position, results of operations and cash flows of the Shareholder, as of the dates indicated and for the periods specified, subject to the absence of disclosures normally made in footnotes and to customary year-end adjustments;

 

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(b) within one hundred twenty (120) days after the end of each fiscal year, its audited Financial Statements.

Section 8. Representations and Warranties . Each Shareholder Party, severally and not jointly, with respect to itself only, hereby makes the applicable representations and warranties contained in this Section 8 for the benefit of OPIC, which shall survive the execution and delivery of this Agreement and the making of the Disbursements. Each such representation and warranty shall be deemed made as of (i) the date hereof and (ii) each Closing Date.

8.01 Existence and Power . Such Shareholder Party (i) is a company duly incorporated or organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; (ii) is duly authorized to do business in each jurisdiction in which it conducts business; and (iii) has the power to own its properties, carry on its business, borrow money, create Liens on its properties, and execute, deliver, and perform each of this Agreement and the other Transaction Documents to which it is a party.

8.02 Adequate Financial Means . The Shareholder and Intermediate Shareholder (i) has capital sufficient to carry on its businesses and transactions and all businesses and transactions in which it is about to engage, (ii) is able to pay its debts as they mature and (iii) owns property and other assets having a value, both at fair valuation and at present fair saleable value, greater than the total amount of the probable liabilities of such Shareholder Party on its debts and obligations as they become absolute and matured.

8.03 Authority . Such Shareholder Party’s execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party: (i) have been duly authorized by all necessary corporate action and (ii) will not violate any Applicable Law. This Agreement and each of the other Transaction Documents to which it is a party has been duly executed and delivered by it and is a legal, valid, and binding obligation of such Shareholder Party, enforceable in accordance with its terms. No Consent of any Person is required in connection with such Shareholder Party’s execution, delivery, performance, validity, or enforceability of this Agreement and any other Transaction Document to which it is a party.

8.04 No Default . No Default or Event of Default has occurred and is continuing. Neither such Shareholder Party nor, to the best of such Shareholder Party’s knowledge, any other party is in breach of any provision of any Transaction Document to which such Shareholder Party is a party, which breach could be a Material Adverse Effect.

8.05 Financial Condition . The Shareholder has furnished to OPIC copies of its Financial Statements as required under Section 7.03. Such Financial Statements are complete and correct and fairly present its financial condition and results of its operations for the period then ended, subject, in the case of quarterly unaudited financial statements, to the absence of footnotes and customary year-end adjustments. The Shareholder has no material financial obligation, contingent or otherwise, of any kind except as disclosed in such Financial Statements.

8.06 Bankruptcy; Insolvency; Winding-Up . Such Shareholder Party has not taken any corporate action and no other legal steps have been taken or legal proceedings have been commenced or, to the best of its knowledge, threatened against it seeking a reorganization,

 

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moratorium, bankruptcy, arrangement, adjustment or composition or for the appointment of a receiver, liquidator, assignee, sequestrator (or similar official) in relation to any part of its property, or for its winding up, dissolution or re-organization or of any or all of its property.

8.07 Share Capital . (i) All Share Capital of the Borrower owned by the Intermediate Shareholder has been duly authorized, validly issued, fully paid and is nonassessable and (ii) all Share Capital of the Intermediate Shareholder owned by the Shareholder, has been duly authorized, validly issued, fully paid and is nonassessable.

8.08 Corrupt Practices; Anti-Money Laundering; Anti-Corruption Handbook .

(a) Such Shareholder Party and its officers, directors, employees, and agents have complied with applicable Corrupt Practices Laws in obtaining all Consents related to the Project and are otherwise conducting the Project and such Shareholder Party’s business in compliance with applicable Corrupt Practices Laws. Such Shareholder Party’s internal management and accounting practices and controls are sufficient to provide reasonable assurances of compliance with applicable Corrupt Practices Laws and the prevention of Prohibited Payments. No Shareholder Party nor any Person acting on its or their behalves has made any Prohibited Payment.

(b) Such Shareholder Party is in compliance with the applicable requirements of (A) the Anti-Money Laundering Laws, (B) OFAC Regulations, and (C) all other applicable export control, anti-boycott and economic sanctions laws of the U.S. and other jurisdictions relating to its business and facilities.

(c) No Shareholder Party, its directors or members of senior management is a Person included in the OFAC List.

(d) An Authorized Officer of such Shareholder Party has received and reviewed the Anti-Corruption Handbook.

8.09 VAT/IDF Matters . All items that are required to be imported or purchased locally by the Borrower in order to construct the Project are (i) listed in the list of plant, materials and equipment attached to the Letter Regarding VAT/IDF or (ii) included in the Construction Budget.

Section 9. Miscellaneous .

9.01 No Waiver . (a) No failure or delay by OPIC in exercising any right, power, or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers, or remedies. No single or partial exercise of any such right, power, or remedy shall preclude any other or further exercise thereof or the exercise of any other legal right, power or remedy. No waiver of any such right, power, or remedy shall be effective unless given in writing

(b) The rights, powers, or remedies provided for herein are cumulative and are not exclusive of any other rights, powers or remedies provided by law. The assertion or employment of any right, power or remedy hereunder, or otherwise, shall not prevent the concurrent assertion of any other right, power or remedy.

 

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9.02 Notices . Except as otherwise expressly provided herein or in any Financing Document, all notices and other communications provided for hereunder shall be provided pursuant to Section 9.01 ( Notices ) of the Finance Agreement, which Section is incorporated as if set forth herein. All notices to the Shareholder Parties shall be provided to their respective addresses as follows:

For the Sponsor:

Ormat Technologies, Inc.

6225 Neil Road

Reno, NV 89511-1136 (USA)

Facsimile: +1-775-356-9039

Attention: President

For the Shareholder:

Ormat International, Inc.

6225 Neil Road

Reno, NV 89511-1136 (USA)

Facsimile: +1-775-356-9039

Attention: President

For the Intermediate Shareholder:

Ormat Holding Corp.

PO Box 309

Ugland House,

Grand Cayman KY1-1104 (Cayman Islands)

Facsimile: +1-345-949-8080

Attention: The Directors

with a copy to:

Ormat International, Inc.

6225 Neil Road

Reno, NV 89511-1136 (USA)

Facsimile: +1-775-356-9039

Attention: President

9.03 Expenses . Each Relevant Party shall pay or reimburse OPIC or as OPIC may direct, the costs and expenses incurred by OPIC in relation to the enforcement or protection of its rights under this Agreement, including legal and other professional fees and any taxes, duties, fees or other charges payable by OPIC.

 

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9.04 Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto, provided , however , that no Relevant Party shall, without the prior written consent of OPIC, assign or delegate all or any part of its interest herein or obligations hereunder.

9.05 Survival of Agreements . Each agreement, representation, warranty, and covenant contained or referred to in this Agreement shall survive any investigation at any time made by OPIC and shall survive all disbursements of the Loans, except for changes permitted hereby, and shall terminate only when all Secured Obligations are paid in full.

9.06 Integration; Amendments . This Agreement and the agreements referred to herein embody the entire understanding of the parties and supersede all prior negotiations, understandings, and agreements between them with respect to the subject matter hereof. The provisions of this Agreement may be waived, supplemented, or amended only by an instrument in writing signed by the parties hereto.

9.07 Severability . If any provision of this Agreement is prohibited or held to be invalid, illegal, or unenforceable in any jurisdiction, the parties hereto agree to the fullest extent permitted by law that it shall not affect the validity, legality, and enforceability of the other provisions of this Agreement and shall not render such provision prohibited, invalid, illegal, or unenforceable in any other jurisdiction. If, and to the extent that, any obligation of the Relevant Parties is unenforceable for any reason it agrees, independently of any other obligation hereunder, to make the maximum contribution to the payment and satisfaction thereof as is permissible under Applicable Law.

9.08 Counterparts . This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same instrument.

9.09 GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

9.10 Waiver of Jury Trial . EACH RELEVANT PARTY AND OPIC IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM ESTABLISHED BY ANY FINANCING DOCUMENT.

9.11 Jurisdiction and Consent to Suit; Waivers . Each Relevant Party hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and any other Financing Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York sitting in The City of New York and the courts of the United States of America for the Southern District of New York;

 

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(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees to irrevocably designate and appoint HIQ Corporate Services, Inc., located at 19 W. 34 th Street, Suite 1018, New York NY 10001-3006, as its authorized agent to receive, accept, and acknowledge on its behalf service of process in any such proceeding, and shall provide OPIC with evidence of the prepayment in full of the fees of such agent until six (6) months after the Loan Maturity Date. Such Relevant Party agrees that service of process, writ, judgment, or other notice of legal process upon said agent shall be deemed and held in every respect to be effective personal service upon it. Such Relevant Party shall maintain such appointment (or that of a successor satisfactory to OPIC) continuously in effect at all times while such Relevant Party is obligated under this Agreement. Nothing herein shall affect OPIC’s right to serve process in any other manner permitted by Applicable Law;

(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Applicable Law or shall limit the right to sue in any other jurisdiction; and

(e) agrees that judgment against it in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction with or without the U.S. by suit on the judgment or otherwise as provided by law, a Certified or exemplified copy of which judgment shall be conclusive evidence of the fact and amount of such Relevant Party’s obligation.

9.12 Arbitration . (a) Any Dispute shall be finally settled by arbitration in accordance with the Rules; provided , however , that this agreement to arbitrate Disputes shall not include the arbitration of (i) any Excluded Claims; and (ii) any Disputes that are subject to a pending action, suit or proceeding brought by OPIC in accordance with Section 9.13.

(b) Arbitration pursuant to this Section 9.12 is not a waiver of and shall not impair the enforcement rights of OPIC with respect to any Lien or the right of OPIC to exercise any other similar remedy under this Agreement or any other Financing Document to which such Relevant Party is a party, pursuant to Section 9.13(a) or otherwise, and such enforcement by OPIC shall not be deemed to be inconsistent with or a violation of the arbitration provisions of this Section 9.12.

(c) Any awards issued by the Arbitral Tribunal shall be final and binding on OPIC and the Relevant Parties; any orders so issued shall be binding on OPIC and the Relevant Parties. Judgment upon any award issued by the Arbitral Tribunal may be entered by any court having jurisdiction thereof or having jurisdiction over OPIC or the relevant Relevant Party or its assets. Each Relevant Party hereby submits to the jurisdiction of the United States District Court for the Southern District of New York for the limited purpose of enforcing this agreement to arbitrate.

 

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(d) The Arbitral Tribunal shall have no jurisdiction to grant any interim measure that limits or prevents, or seeks to limit or prevent, OPIC from exercising any enforcement right with respect to any Lien or enforcing any similar remedy under this Agreement or any other Financing Document to which such Relevant Party is a party, including without limitation any enforcement action pursuant to Section 9.13. Such Relevant Party covenants and agrees not to seek any such interim measure, either in any arbitration pursuant to this Section 9.12 or otherwise.

(e) Notwithstanding Section 9.09, this Section 9.12 and any arbitration pursuant thereto shall be governed by Title 9 (Arbitration) of the United States Code.

9.13 Relevant Party Consent to Suit; Exclusive Form Selection for Certain Actions . (a) Notwithstanding Section 9.12, OPIC in its sole discretion shall have the option at any time and from time to time to bring against any Relevant Party any action, suit or proceeding in respect of any Dispute, in any of (i) the courts of the State of New York in the County of New York or the United States District Court for the Southern District of New York, or (ii) the courts in any other jurisdiction where such Relevant Party or any of its property may be found; provided , however , with regard to any Dispute that has been referred to arbitration pursuant to Section 9.12 by such Relevant Party, OPIC may, in its discretion, initiate an action, suit or proceeding as provided herein in lieu of such arbitration and in respect of such Dispute, so long as OPIC exercises its option to do so prior to the last day on which OPIC’s statement of defense (or equivalent submission) in respect of such Dispute is to be submitted.

(b) Each Relevant Party hereby: (i) irrevocably waives any present or future objection to any such action, suit or proceeding in any such venue, and irrevocably consents and submits unconditionally to the non-exclusive jurisdiction of any such court for itself and in respect of any of its property; (ii) irrevocably waives any claim in any such court that any such action, suit, or proceeding brought therein has been brought in an inconvenient forum; (iii) agrees that final judgment against it in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction within or outside the United States of America by suit on the judgment or otherwise, a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of its obligation; and (iv) covenants and agrees not to resist enforcement of any such final judgment in any jurisdiction where OPIC commences enforcement proceedings.

 

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(c) Any enforcement action, suit, or other judicial, administrative or arbitral proceeding by such Relevant Party against OPIC (or the United States government) in respect of an Excluded Claim shall be brought exclusively in a United States federal court of competent jurisdiction in the District of Columbia.

9.14 Waiver of Litigation Payments . In the event that any action or lawsuit is initiated by or on behalf of OPIC against a Relevant Party, such Relevant Party, to the fullest extent permissible under Applicable Law, irrevocably waives its right to, and agrees not to request, plead, or claim that any OPIC Plaintiff post, pay, or offer, any Litigation Payment, and such Relevant Party further waives any objection that it may now or hereafter have to an OPIC Plaintiff’s claim that such OPIC Plaintiff should be exempt or immune from posting, paying, making, or offering any such Litigation Payment.

9.15 Further Assurances . Each Relevant Party shall execute and deliver to OPIC such additional documents and take such additional action as OPIC may require to carry out the purposes of this Agreement or any other Financing Document to which such Relevant Party is a party, to cause such Financing Document to be duly registered, notarized, and stamped in any applicable jurisdiction, and to preserve and protect OPIC’s rights as contemplated herein or therein.

9.16 English Language . All documents to be furnished or communications made under each of the Financing Documents shall be in English or, if in another language, shall be accompanied by a Certified translation into English, which translation shall govern between the Relevant Party and OPIC.

(Signature page follows)

 

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed and acknowledged by their respective officers or representatives hereunto duly authorized, as of the date first above written.

 

ORPOWER 4 INC.

By:

 

 

Name:

 

 

Its:

 

 

  Authorized Officer

 

ORMAT TECHNOLOGIES, INC.

By:

 

 

Name:

 

 

Its:     
  Authorized Officer

 

ORMAT INTERNATIONAL, INC.

By:

 

 

Name:

 

 

Its:

 

 

  Authorized Officer

[Olkaria III: ECSRA Signature Page]


ORMAT HOLDING CORP.

By:

 

 

Name:

 

 

Its:

 

 

  Authorized Officer

 

OVERSEAS PRIVATE INVESTMENT CORPORATION

By:

 

 

Name:

 

 

Its:

 

 

[Olkaria III: ECSRA Signature Page]

Exhibit 10.3

EXECUTION VERSION

GUARANTY

GUARANTY (this “ Guaranty ”), dated as of October 25, 2012, of ORMAT TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Delaware (the “ Guarantor ”), is made in favor of DEG — DEUTSCHE INVESTITIONS- UND ENTWICKLUNGSGESELLSCHAFT MBH (in its capacity as global agent for the benefit of the Subordinated DFI Lender (as such term is defined in the below-defined Subordination Agreement), the “ Global Agent ”)).

WHEREAS, OrPower 4 Inc., a limited liability company organized and existing under the laws of the Cayman Islands and registered in the Republic of Kenya as a foreign company (the “ Company ”), is an indirectly wholly-owned subsidiary of the Guarantor;

WHEREAS, the Company and the Subordinated DFI Lender are parties to that certain Common Terms Agreement, dated as of January 5, 2009 (as amended through the date hereof, the “ Original Common Terms Agreement ”), entered into by and among the Company, the Subordinated DFI Lender, in its capacity as the global agent thereunder and as a Lender (as defined in the Original Common Terms Agreement), Société de Promotion et de Participation pour la Coopération Economique (“PROPARCO”), as a Lender, and BNY Corporate Trustee Services Limited, an English limited liability company, in its capacity as the offshore security agent;

WHEREAS, the Company and the Subordinated DFI Lender are also parties to that certain (i) DEG A Loan Agreement, dated as of January 5, 2009 (as amended, amended and restated, modified or otherwise supplemented from time to time, the “ DEG A Loan Agreement ”), entered into by and among the Company, the Subordinated DFI Lender as Lender and the Global Agent, (ii) DEG B Loan Agreement, dated as of January 5, 2009 (as amended, amended and restated, modified or otherwise supplemented from time to time, the “ DEG B Loan Agreement ”), entered into by and among the Company, the Subordinated DFI Lender as Lender and the Global Agent, and (iii) DEG C Loan Agreement, dated as of January 5, 2009 (as amended, amended and restated, modified or otherwise supplemented from time to time, the “ DEG C Loan Agreement ”, and, together with the DEG A Loan Agreement and DEG B Loan Agreement, the “ DEG Loan Agreements ”), entered into by and among the Company, the Subordinated DFI Lender as Lender and the Global Agent;

WHEREAS, the Subordinated DFI Lender and PROPARCO extended certain loans to the Company pursuant to the Original Common Terms Agreement and the Loan Agreements (as such term is defined in the Original Common Terms Agreement) in connection with the existing 48 MW geothermal power plant (“ Plant 1 ”) located in Hell’s Gate National Park in the Rift Valley Province of Kenya owned and operated by the Company, subject to the terms and conditions set forth therein;

WHEREAS, the Company intends to expand the Plant 1 to an integrated 84 MW geothermal power generation facility by the addition of a second plant of approximately 36 MW (“ Plant 2 ”, together with Plant 1, the “ Project ”), and a further optional third plant of approximately 16 MW (if applicable);


WHEREAS, in order to finance the aforementioned expansion of Plant 1, the Company and Overseas Private Investment Corporation, an agency of the United States of America (“ OPIC ”), have agreed to enter into a finance agreement pursuant to which OPIC will make, subject to the terms and conditions set forth therein, certain loans (the “ OPIC Loan ”) to the Company in connection with the Project (the “ OPIC Financing ”);

WHEREAS, in connection with the expansion of the Project and the OPIC Financing, (i) the Company intends to repay in full all amounts owing to PROPARCO under the Original Common Terms Agreement and the Proparco A Loan Agreement (as such term is defined in the Original Common Terms Agreement) and to the Subordinated DFI Lender under the DEG C Loan Agreement, and (ii) the Company, the Subordinated DFI Lender and the other parties thereto (other than PROPARCO) intend to amend and restate the Original Common Terms Agreement (as so amended and restated, the “ Amended and Restated Common Terms Agreement ”);

WHEREAS, as a condition to the OPIC Financing, the Company, the Subordinated DFI Lender and OPIC will enter into a subordination agreement (the “ Subordination Agreement ”) pursuant to which, inter alia , the Subordinated DFI Lender will agree to subordinate the DEG A Loan Agreement and the DEG B Loan Agreement and the loans thereunder (the “ DFI Loans ”) to the OPIC Loan; and

WHEREAS, to induce the Subordinated DFI Lender to execute and deliver the Subordination Agreement, the Guarantor is willing to provide a guaranty in favor of the Global Agent for the benefit of the Subordinated DFI Lender for the payment obligations of the Company under the Amended and Restated Common Terms Agreement and the DEG Loan Agreements;

NOW, THEREFORE, the Guarantor hereby agrees:

Section 1. Definitions.

(a) The following terms when used in this Guaranty shall have the following meanings:

Adjusted EBITDA ” means, at any relevant time, the Guarantor’s EBIDTA together with depreciation, amortization, interest and taxes, which are attributed to the Guarantor’s investments in its non-consolidated subsidiaries presented on the equity basis, according to the Guarantor’s percentage holding therein and after elimination of any impairment of property, plant and equipment or any other long-lived assets, all as that are included in the Discussion and Financial Analysis Item in the Guarantor’s annual and quarterly reports.

Demand ” has the meaning set forth in Section 5(a) hereto.

EBITDA ” means, at each relevant time, earnings before interest, taxes, depreciation and amortization on the basis of the last four successive quarters at such time, as mentioned in the Discussion and Financial Analysis Item in the Guarantor’s annual or quarterly reports.


Financial Indebtedness ” means any indebtedness for or in respect of:

 

  i. moneys borrowed (by way of loan or otherwise);

 

  ii. any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent;

 

  iii. any amount raised pursuant to any note purchase facility or the issuance of bonds, notes, debentures, loan stock or any similar instrument;

 

  iv. the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with IFRS, be treated as a finance or capital lease;

 

  v. receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

 

  vi. any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;

 

  vii. any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);

 

  viii. any reimbursement or counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and

 

  ix. the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (i) to (viii) above.

Financial Year ” means the annual accounting period of the Guarantor ending on December 31 in each year.

Guaranteed Obligations ” means all present and future payment obligations of the Company to pay the principal of and interest on the DFI Loans and all other amounts (if any) due owing or incurred under the Amended and Restated Common Terms Agreement and the DEG Loan Agreements (including, without limitation, under any amendment, supplement or restatement of the Amended and Restated Common Terms Agreement or a DEG Loan Agreement, or in relation to any new or increased advances or utilizations of the DFI Loans).

Net Debt ” means short-term debt and long-term debt to banks, financial institutions (including current maturities of long-term loans) plus debt to note holders, less cash and cash equivalents and marketable securities as determined under GAAP; provided , that , (i) undertakings in relation to a sale of rights of ownership in connection with a transaction the substance of which is the sale of tax benefits (including any tax monetization transaction) shall not be deemed to be a debt, and (ii) subordinated loans extended to the Guarantor by its shareholders and any other subordinated


debt to the Guarantor’s shareholders, shall not be included in the scope of Net Debt; provided , however , that , Net Debt shall include the Guarantor’s share in the Net Debt of its unconsolidated subsidiaries, based on its percentage of shareholding.

Permitted Liens ” means:

 

  i. any lien, pledge, mortgage, security interest, deed of trust, charge, assignment, hypothecation, title retention or other encumbrance of whatever kind or type on the Guarantor’s equity (or similar) interests in any subsidiary as part of a project financing by such subsidiary, under the condition that each such specific lien, charge, pledge, mortgage, security interest, deed of trust, assignment, hypothecation, title retention or encumbrance will be removed upon the repayment of the financing; and

 

  ii. any lien, pledge, mortgage, security interest, deed of trust, charge, assignment, hypothecation, title retention or other encumbrance of whatever kind or type over any of the Guarantor’s assets for the purpose of securing the repayment of a credit granted to finance the acquisition by the Guarantor of that specific asset, excluding any guarantee or indemnity granted in respect of such financing, under the condition that each such encumbrance, lien, pledge, mortgage, security interest, deed of trust, assignment, hypothecation, title retention or charge will be removed upon the repayment of the credit.

Total Assets ” means in relation to the Guarantor and in respect of any Financial Year, the sum of its on-balance sheet fixed assets, intangibles, investments and current assets.

Trigger Event ” means (i) the occurrence of an Event of Default described in Section 22.1 (a) ( Events of Default ) of the Amended and Restated Common Terms Agreement, or (ii) acceleration of the DFI Loans following the occurrence of an Event of Default described in Section 22.1(c)(ii) (excluding such Event of Default to the extent it results only from a failure to comply with obligations under Clause 20.1(a) (Preservation of Rights) of the Amended and Restated Common Terms Agreement).

Capitalized terms used herein but not otherwise defined herein shall have the same meanings as set forth in the Amended and Restated Common Terms Agreement or the DEG Loan Agreements, as applicable.

Section 2. Guaranty by the Guarantor . (a) The Guarantor hereby absolutely, irrevocably and unconditionally guarantees to the Global Agent for the benefit of the Subordinated DFI Lender and its successors and permitted assigns, as a primary obligation, the due, punctual and complete payment of all Guaranteed Obligations upon the occurrence of any Trigger Event. This Guaranty constitutes a guarantee of payment when due and owing, and not merely of collection. The Guarantor hereby agrees that its obligations hereunder shall be independent, absolute and unconditional, irrespective of the termination (other than in accordance with its terms after final and indefeasible payment in full), validity or enforceability of the Amended and Restated Common Terms Agreement and/or the DEG Loan Agreements, any


change therein or amendment thereto, the absence of any action to enforce the same, the recovery of any judgment against the Company or any action to enforce the same, the existence of the Subordination Agreement, the failure of the Company or the Guarantor to comply with any requirement of any law, regulation or order, the dissolution, liquidation, reorganization or other alteration of the legal status or structure of the Company or the Guarantor or any other act, omission, matter, thing or circumstance which may otherwise reduce, release or prejudice any obligation of the Guarantor hereunder or constitute a legal or equitable discharge or defense of a guarantor or a surety, and the Guarantor hereby waives (to the fullest extent permitted by law) all defenses available to the Guarantor against enforcement of the Guaranteed Obligations.

(b) Notwithstanding anything in this Guaranty to the contrary, the Guarantor may satisfy its obligation to pay the Guaranteed Obligations hereunder by either (i) making payments under this Guaranty directly to the Global Agent for the benefit of the Subordinated DFI Lender or (ii) causing its wholly-owned subsidiary, Ormat Holding Corp. (a limited liability company organized and existing under the laws of the Cayman Islands) to make any such payments to the Global Agent for the benefit of the Subordinated DFI Lender.

(c) The Guarantor hereby waives to the fullest extent permitted under law (i) acceptance of this Guaranty, (ii) presentment, demand, or dishonor concerning the Guaranteed Obligations or the liabilities of the Guarantor, protest and any notice not provided for herein and (iii) any right to require that any action or proceeding (in a bankruptcy, liquidation, administration, insolvency or otherwise) be brought against the Company or any of its assets or properties, or against any other person, or to require that the Global Agent or the Subordinated DFI Lender seek enforcement of any performance against the Company or any other person, prior to any action against the Guarantor under the terms hereof. The Guarantor agrees that the Subordinated DFI Lender may at any time and from time to time, either before or after the maturity thereof, without notice to or further consent of the Guarantor, extend the time of payment or performance of, or renew any of, the Guaranteed Obligations, and may also make any agreement with the Company for the extension, renewal, payment, compromise or release, in whole or in part, or for any modification or waiver of the terms thereof or of any agreement between the Global Agent or the Subordinated DFI Lender and the Company without in any way impairing or affecting this Guaranty.

(d) The Guarantor shall be subrogated to all rights of the Global Agent or the Subordinated DFI Lender in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guaranty; provided , however , that the Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon such right of subrogation until all Guaranteed Obligations have been paid in full, and, if any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Global Agent for the benefit of the Subordinated DFI Lender and shall forthwith be paid to the Global Agent for the benefit of the Subordinated DFI Lender to be applied to the Guaranteed Obligations.

(e) If the Company is adjudged bankrupt or insolvent, or a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company, or any substantial part of its property or assets, is appointed, or the Company makes any arrangement


with its creditors, or is dissolved, liquidated or wound up, the Guarantor shall not file or pursue any proof in competition with the Subordinated DFI Lender in respect of any amounts owing to the Guarantor by the Company or on any account whatsoever, but instead shall give the Subordinated DFI Lender the benefit of any such proof and of all amounts to be received in respect of that proof until all of the Guaranteed Obligations have been paid in full. The Guarantor shall hold in trust for, and forthwith pay or transfer to, the Global Agent for the benefit of the Subordinated DFI Lender any payment or distribution received by the Guarantor contrary to this Section 2(e).

(f) This Guaranty shall be continuing and remain in full force and effect and be binding upon the Guarantor, its successors and permitted assigns until all of the Guaranteed Obligations have been satisfied in full. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Guaranteed Obligations are annulled, set aside, invalidated, declared to be fraudulent or preferential, rescinded or must otherwise be returned, refunded, restored or repaid by the Global Agent or by the Subordinated DFI Lender whether as a result of any proceedings related to the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, the Guarantor or otherwise, all as though such payment had not been made.

(g) The liability of the Guarantor under this Guaranty shall not be reduced, discharged or otherwise adversely affected by any act or omission which would not have discharged or affected the liability of the Guarantor had it been a principal debtor instead of a guarantor, or indemnifier or by anything done or omitted by any person which, but for this provision, might operate to exonerate or discharge the Guarantor or otherwise reduce or extinguish its liability under this Guaranty.

Section 3. Representations and Warranties . The Guarantor represents and warrants to the Global Agent and the Subordinated DFI Lender that:

(a) The Guarantor is duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power to execute, deliver and perform this Guaranty.

(b) The execution, delivery and performance of this Guaranty have been and remain duly authorized by all necessary corporate action and do not contravene any provision of the Guarantor’s articles of incorporation or bylaws, as amended to date, or any law, regulation, rule, decree, order, judgment, or contractual restriction binding on the Guarantor or its assets, and will not result in the creation or imposition of any lien on any part of its assets or oblige it to create any such lien. This Guaranty has been duly and validly executed and delivered by the Guarantor.

(c) No action by, notice to or filing with, or payment of any stamp, registration or similar tax to, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Guaranty, except as have been made as required prior to the date hereof.


(d) This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, fraudulent conveyance, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(e) No action, suit or other legal or arbitral proceeding is pending by or before any governmental authority or in any arbitral or other forum or, to the best of its knowledge, is threatened in writing, which could reasonably be expected to have a material adverse effect on the assets or financial condition of the Guarantor or the Guarantor’s ability to perform its obligations under this Guaranty.

(f) None of the Guarantor or the Guarantor’s assets is entitled to immunity on any grounds from any legal action or proceeding (including, without limitation, suit, attachment prior to judgment, execution or other enforcement).

(g) No event or circumstance has occurred and is continuing which constitutes a default under any material contractual obligation which is binding on the Guarantor, or to which its assets are subject, or which might have a material adverse effect on the Guarantor’s ability to perform its obligations under this Guaranty.

(h) The Guarantor’s payment obligations under this Guaranty rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

Section 4. The Guarantor covenants and agrees that:

(a) as long as this Guaranty is in full force and effect the Guarantor shall be prohibited from:

 

  i. creating any floating charge or any pledge, charge, encumbrance or lien over its assets other than Permitted Liens;

 

  ii. guaranteeing the liabilities of any third party (other than the Company pursuant hereto in relation to the Guaranteed Obligations and other than in respect of any liabilities of any other direct or indirect subsidiary of the Guarantor that are counted as part of the Net Debt of the Guarantor); and

 

  iii. selling, assigning, transferring, conveying or disposing of all or substantially all of its assets, or undergoing a change of control in its ownership structure,

in each case, without obtaining the prior written approval of the Global Agent acting at the instructions of the Subordinated DFI Lender.


(b) the Guarantor shall for the duration of its obligations under this Guaranty:

 

  i. maintain a share capital of at least USD 600 million, representing in any event no less than 30% of its Total Assets;

 

  ii. maintain a Net Debt to Adjusted EBITDA ratio of no more than 7:1; and

 

  iii. ensure that, as long as the principal of the DFI Loans have not been repaid in full, the dividend that will be distributed in respect of each Financial Year does not exceed 35% of the net income in that year, as shown on the Guarantor’s audited consolidated annual financial statements. Notwithstanding the foregoing, the Guarantor may, during the course of any Financial Year, make an interim dividend distribution on the basis of the Guarantor’s estimate of the net income for such Financial Year. If the amount of dividend that has actually been paid in any fiscal year exceeds the percentage mentioned above, such deviation will be set off against distributed dividends in respect of next Financial Year or an adjustment will be made in the next Financial Year in which a dividend is distributed. The amount to be offset or adjusted will be an amount representing the difference between the percentage dividend that was actually paid in the prior Financial Year and the percentage of 35% of the net income in such prior Financial Year.

(c) The Guarantor agrees that if it undertakes any financial covenants to a party providing it with Financial Indebtedness after the execution of this Guaranty that are more restrictive than those listed in (b) above, the Guarantor shall inform the Global Agent and the Subordinated DFI Lender of the same and those more restrictive financial covenants shall be deemed to be incorporated into 4(b) above.

(d) The Guarantor shall, as soon as available, but in any event within one hundred and twenty (120) days after the end of each of its Financial Years, deliver to the Global Agent a copy of its complete and audited financial statements for such Financial Year together with the Auditor’s audit report on them.

(e) The Guarantor shall, as soon as available, but in any event within forty-five (45) days after the end of each quarter of each of its Financial Years, deliver to the Global Agent a copy of the complete unaudited financial statements for such quarter and to the extent there are any internal or external factors materially affecting or which might materially affect the Guarantor’s business and operations or its financial condition, a report detailing the same.

(f) The Guarantor shall, when requested by the Global Agent acting at the instruction of the Subordinated DFI Lender, do or cause to be done anything that aids the exercise of any power, right or remedy of the Global Agent or the Subordinated DFI Lender under this Guaranty including, without limitation, executing any document or agreement.

(g) For each calculation to be made for the purposes of Section 4, figures shall be taken from the most recent set of financial statements supplied in accordance with


clause (d) above and if there is a dispute as to any interpretation or computation of any amount, then the decision of the Guarantor’s auditors or, in the absence of such decision, the reasonable interpretation or computation of the Subordinated DFI Lender, as communicated by the Global Agent, shall prevail.

(h) The Guarantor acknowledges that the occurrence of any of the following shall be additional Events of Default under the Amended and Restated Common Terms Agreement, leading to a Trigger Event under this Guaranty:

 

  i. non-compliance by the Guarantor with any of the covenants listed in (a) to (e) above;

 

  ii. any Financial Indebtedness of the Guarantor is not paid when due nor within any applicable grace period;

 

  iii. any Financial Indebtedness of the Guarantor is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described); and

 

  iv. any commitment for any Financial Indebtedness of the Guarantor is cancelled or suspended by a creditor of the Guarantor as a result of an event of default (however described).

(i) No Event of Default under paragraph (h) above will occur if the failure to comply is capable of remedy and is remedied to the satisfaction of the Subordinated DFI Lender within ten (10) days of the earlier of the Global Agent on behalf of the Subordinated DFI Lender giving notice to the Guarantor and the Guarantor becoming aware of the failure to comply, or, in the case of non-compliance by the Guarantor with any of the covenants listed in (d) and (e) above, if the failure to comply is capable of remedy and is remedied to the satisfaction of the Subordinated DFI Lender within thirty (30) days of the earlier of the Global Agent on behalf of the Subordinated DFI Lender giving notice to the Guarantor and the Guarantor becoming aware of the failure to comply.

(j) Notwithstanding anything to the contrary set forth herein, if up to the time of full repayment of the DFI Loans there is a change in the accounting principles (GAAP and/or IFRS), in such a way that the change adversely affects the financial covenants specified in Section 4 above, the Guarantor and the Global Agent on behalf of the Subordinated DFI Lender hereby agree to negotiate in good faith to amend the covenants set forth herein so as to adapt them mutatis mutandis to the principles set forth herein, within thirty (30) Business Days from the change in the accounting principles, and if not settled within this period, the financial restrictions specified in Section 4 above shall be updated, mutatis mutandis , to conform to the new accounting principles, in accordance with rules determined by an accountant from one of the five largest firms of accountants in the United States of America, provided , that , he/she is not part of the accounting firm which audits the Guarantor.


Section 5. Demands.

 

  (a) Following a Trigger Event, the Global Agent may present the Guarantor a demand in substantially the form set out in Schedule 1 ( Form of Demand for Payment ) (a “Demand” ) at the address specified in Section 6 ( Notices ) and the Guarantor shall, within seven (7) Business Days after the date of presentation of the Demand, pay to the account specified in the Demand the amount specified in the Demand.

 

  (b) More than one Demand may be presented under this Guaranty.

 

  (c) Each Demand shall be presented to the Guarantor as soon as reasonably practical after the due date for payment of the Guaranteed Obligation in respect of which that Demand is made, but no delay in presenting a Demand shall in any way prejudice the obligations of the Guarantor, or the rights of the Global agent or the Subordinated DFI Lender, hereunder.

Section 6. Notices . All notices to the Guarantor under this Guaranty shall, until the Guarantor furnishes written notice to the contrary, be in writing and mailed, faxed or delivered to the Guarantor at:

Ormat Technologies, Inc.

6225 Neil Road

Reno, Nevada 89511

Attention: President

Telephone: (775) 356-9029

Facsimile: (775) 356-9039

provided , however , that failure to furnish any copies of notices to the Company under the Amended and Restated Common Terms Agreement and the DEG Loan Agreements shall not affect the obligations of the Guarantor hereunder.

Section 7. Governing Law; Jurisdiction .

(a) This Guaranty shall be governed by and construed and enforced in accordance with the laws of the State of New York, United States of America without regard to principles of conflicts of law thereof which would require the general application of the law of another jurisdiction as the governing law of this contract.

(b) Any dispute, disagreement, or claim arising out of or relating to this Guaranty, or the execution or performance thereof, may be brought before the judges and courts of the State of New York located in the Borough of Manhattan or the United States of America located in the Southern District of New York.

(c) At the option of the Global Agent on behalf of the Subordinated DFI Lender, any dispute, disagreement, or claim arising out of or relating to this Guaranty, or the execution or performance thereof, may be brought before the judges of any other court having jurisdiction, or concurrently in more than one jurisdiction.


(d) Without prejudice to the generality of Clause (b) above, and for the benefit of the Global Agent and the Subordinated DFI Lender, the Guarantor irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York located in the Borough of Manhattan and of the United States of America located in the Southern District of New York in connection with any legal action, suit, or proceeding arising out of or relating to this Guaranty that may be brought by the Global Agent or the Subordinated DFI Lender. The Guarantor hereby designates, appoints, and empowers on the date hereof HIQ CORPORATE SERVICES, INC. (the “ Process Agent ”) located on this date at 19 W. 34 th Street, Suite 1018, New York NY 10001-3006, as its authorized agent to receive for and on behalf of the Guarantor and its property service of copies of the summons and complaint and any other legal process which may be served in any such action, suit, or proceeding in the State of New York. Such service may be made by mailing or delivering a copy of such process to the Guarantor in care of the Process Agent at the Process Agent’s above address, and the Guarantor hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. As an alternative method of service the Guarantor also irrevocably consents to the service of any and all process in any such action, or proceeding by the mailing of copies of such process to its address specified in Section 6 by registered airmail. The Guarantor agrees that a final judgment in any such actions or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(e) The Guarantor hereby knowingly irrevocably waives, to the fullest extent permitted by applicable law, any and all rights to trial by jury in any legal proceeding directly or indirectly arising out of or relating to this Guaranty or the transactions contemplated hereby, whether based on contract, tort, or any other theory.

Section 8. Interpretation . The headings of the sections and other subdivisions of this Guaranty are inserted for convenience only and shall not be deemed to constitute a part hereof.

Section 9. Attorney’s Cost . Unless otherwise paid by the Company, the Guarantor agrees to pay all reasonable attorney’s fees and all other reasonable and actual costs and expenses which may be incurred by the Global Agent or the Subordinated DFI Lender in connection with:

(a) the preparation, negotiation, execution and delivery of this Guaranty;

(b) any actual or proposed amendment, variation, supplement, waiver or consent under or in connection with this Guaranty;

(c) any discharge or release of this Guaranty;

(d) the preservation, or exercise and enforcement, of any rights under or in connection with this Guaranty or any attempt to do so; and

(e) any stamping or registration of this Guaranty.


Section 10. Currency of Payment . Any payment to be made by the Guarantor shall be made in the same currency as designated for payment in the Amended and Restated Common Terms Agreement and the DEG Loan Agreements and such designation of the currency of payment is of the essence.

Section 11. Successions or Assignments . This Guaranty shall inure to the benefit of the successors and permitted assigns of the Global Agent and the Subordinated DFI Lender who shall have the respective rights of the Global Agent and the Subordinated DFI Lender hereunder. This Guaranty is binding upon the Guarantor and its successors and permitted assigns.

Section 12. No Waiver; Cumulative Rights . No failure on the part of the Global Agent or the Subordinated DFI Lender to exercise, and no delay in exercising, any right, remedy or power provided for in this Guaranty shall operate as a waiver thereof, nor shall any single or partial exercise by the Global Agent or the Subordinated DFI Lender of any right, remedy or power hereunder preclude any other or future exercise of any such right, remedy or power. Each and every right, remedy and power hereby granted to the Global Agent or the Subordinated DFI Lender or allowed to it by law shall be cumulative and not exclusive of any other, and may be exercised by the Global Agent or the Subordinated DFI Lender from time to time.

Section 13. Severability . Any provision of this Guaranty that may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition 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.

Section 14. Counterparts. This Guaranty may be executed and delivered in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document.

Section 15. Taxes; Payments

(a) The Guarantor shall pay or cause to be paid all Taxes (other than income Taxes) on or in connection with the payment of any amount due under this Guaranty.

(b) All sums payable by the Guarantor under this Guaranty shall be paid in full to the Global Agent for the benefit of the Subordinated DFI Lender without any set-off, condition or counterclaim whatsoever and free and clear of any deductions or withholdings (including with respect to Taxes) whatsoever except as may be required by law or regulation which is binding on the Guarantor.

(c) If any deduction or withholding (including with respect to Taxes) is required by any law or regulation to be made by the Guarantor, the amount of the payment due from the Guarantor shall be increased to an amount which (after making any deduction or withholding) leaves an amount equal to the payment which would have been due if no deduction or withholding had been required.

(d) The Guarantor shall promptly deliver or procure delivery to the Global Agent of all receipts issued to it evidencing each deduction or withholding which it has made.


(e) The Guarantor shall not and may not direct the application by the Global Agent or the Subordinated DFI Lender of any sums received by the Global Agent or the Subordinated DFI Lender from the Guarantor under any of the terms of this Guaranty.

Section 16. Transfer

(a) This Guaranty may only be assigned or transferred by the Global Agent in connection with an assignment or transfer of the DFI Loans by the Subordinated DFI Lender.

(b) Except with prior written consent of the Global Agent acting at the instruction of the Subordinated DFI Lender, the Guarantor may not assign any of its rights and may not transfer any of its obligations under this Guaranty or enter into any transaction which would result in any of those rights or obligations passing to another person. Any purported assignment or transfer in violation of this Section 16(b) shall be void.

Section 17. Set-Offs

(a) The Guarantor authorizes the Subordinated DFI Lender to apply any credit balance (whether or not then due) to which the Guarantor is at any time beneficially entitled on any account with the Subordinated DFI Lender in (or towards) satisfaction of any sum then due and payable by the Guarantor to the Global Agent for the benefit of the Subordinated DFI Lender under this Guaranty, but which is unpaid. Where such application of balances requires the conversion of one currency into another the Subordinated DFI Lender may make such conversion at a market rate of exchange.

(b) The Subordinated DFI Lender shall not be obliged to exercise any rights given to it under clause 17(a).

Section 18. Evidence of Amounts and Certificate. Any certificate, determination or notification by the Global Agent on behalf of the Subordinated DFI Lender as to a rate or any amount payable under this Guaranty is (in the absence of manifest error) conclusive evidence of the matter to which it relates and shall contain reasonable details of the basis of determination.

Section 19. Amendments

This Guaranty may be amended, waived or otherwise modified only with the written consent of the Guarantor and the Global Agent acting at the instruction of the Subordinated DFI Lender.

[The remainder of this page is intentionally blank]


IN WITNESS WHEREOF , the Guarantor, by its officer duly authorized, intending to be legally bound, has caused this Guaranty to be duly executed and delivered as of the date first above written.

 

ORMAT TECHNOLOGIES, INC.

By:

 

 

  Name:  
  Title:  

 

DEG — DEUTSCHE INVESTITIONS- UND ENTWICKLUNGSGESELLSCHAFT MBH, as Global Agent

By:

 

 

 

Name:

 
 

Title:

 

By:

 

 

 

Name:

 
 

Title:

 

[Signature page to Ormat Technologies, Inc. Guaranty]


Schedule 1

Form of Demand for Payment

[DATE]

Ormat Technologies, Inc.

6225 Neil Road

Reno, Nevada 89511

Attention: President

Reference is made to the Guaranty, dated as of [            ], 2012 (the “ Guaranty ”), entered into by Ormat Technologies, Inc., as the guarantor (the “ Guarantor ”) in favor of DEG — Deutsche Investitions- und Entwicklungsgesellschaft mbH, in its capacity as the Global Agent for the benefit of the Subordinated DFI Lender (the “ Global Agent ”). Capitalized terms used herein but not defined in this Demand shall have the meanings ascribed to them in the Guaranty.

Pursuant to Section 2 ( Guaranty by the Guarantor ) of the Guaranty, the Global Agent hereby serves this Demand on the Guarantor for the payment of $[            ](            Dollars), which the Global Agent certifies is the amount due and payable to the Subordinated Lender under a DFI Loan as governed by the terms of the Amended and Restated Common Terms Agreement.

The Guarantor is directed to make the payment of the aforementioned amount by wire transfer to: [insert account information and wire instructions].

IN WITNESS WHEREOF , an authorized officer of the Global Agent has executed and delivered this Demand as of the      day of     , 20    .

 

DEG — DEUTSCHE INVESTITIONS- UND ENTWICKLUNGSGESELLSCHAFT

MBH, as Global Agent

By:

 

 

Name:

 

Title:

 

By:

 

 

Name:

 

Title:

 

Exhibit 31.1

Ormat Technologies, Inc.

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Yehudit Bronicki, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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.

 

By:    /s/ YEHUDIT BRONICKI
  Yehudit Bronicki
  Chief Executive Officer

Date: November 8, 2012

Exhibit 31.2

Ormat Technologies, Inc.

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph Tenne, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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.

 

By:    /s/ JOSEPH TENNE
  Joseph Tenne
  Chief Financial Officer

Date: November 8, 2012

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, Yehudit Bronicki, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of Ormat Technologies, Inc. on Form 10-Q for the quarter ended September 30, 2012 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 quarterly report on Form 10-Q 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 quarterly report on Form 10-Q. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying such quarterly report and shall not be deemed filed pursuant to the Securities Exchange Act of 1934.

 

By:   /s/ YEHUDIT BRONICKI
Name:   Yehudit Bronicki
Title:   Chief Executive Officer

Date: November 8, 2012

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, Joseph Tenne, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of Ormat Technologies, Inc. on Form 10-Q for the quarter ended September 30, 2012 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 quarterly report on Form 10-Q 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 quarterly report on Form 10-Q. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying such quarterly report and shall not be deemed filed pursuant to the Securities Exchange Act of 1934.

 

By:   /s/ JOSEPH TENNE
Name:   Joseph Tenne
Title:   Chief Financial Officer

Date: November 8, 2012