NOTE

— COMMITMENTS AND CONTINGENCIES

Geothermal resources

The Company, through its project subsidiaries in the U.S., controls certain rights to geothermal fluids through certain leases with the BLM or through private leases. Royalties on the utilization of the geothermal resources are computed and paid to the lessors as defined in the respective agreements. Royalty expense under the geothermal resource agreements were

$21.6

million,

$19.4

million, and

$17.1

million for the years ended

December 31, 2018,

2017,

and

2016,

respectively.

Letters of credit

In the ordinary course of business with customers, vendors, and lenders, the Company is contingently liable for performance under letters of credit totaling

$229.6

million at

December 31, 2018.

Management does

not

expect any material losses to result from these letters of credit because performance is

not

expected to be required, and, therefore, is of the opinion that the fair value of these instruments is zero.

Purchase commitments

The Company purchases raw materials for inventories, construction-in-process and services from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based upon specifications defined by the Company, or that establish parameters defining the Company’s requirements.

December 31, 2018,

total obligations related to such supplier agreements were approximately

$129.3

million (out of which approximately

$36.1

million relate to construction-in-process). All such obligations are payable in

2019.

Grants and royalties

The Company, through Ormat Systems, had historically, through

December 31, 2003,

requested and received grants for research and development from the Office of the Chief Scientist of the Israeli Government. Ormat Systems is required to pay royalties to the Israeli Government at a rate of

3.5%

5.0%

of the revenues derived from products and services developed using these grants.

royalties were paid for the years ended

December 31, 2018,

2017,

and

2016.

The Company is

not

liable for royalties if the Company does

not

sell such products and services. Such royalties are capped at the amount of the grants received plus interest at LIBOR. The cap at

December 31, 2018

and

2017,

amounted to

$2.0

million and

$1.9

million, respectively, of which approximately

$1.0

million and

$0.9

million, respectively, represents interest based on the LIBOR rate, as defined above.

Lease commitments

The Company entered into lease transactions for a fleet of vehicles. The lease transactions are classified as capital leases and the leased vehicles are classified under Property, Plant and Equipment in the total amount of

$7.5

million and

$3.6

million as of

December 31, 2018

and

2017,

respectively, representing the cost of vehicles under such transactions net of the related accumulated depreciation. The terms of the lease are monthly payments in equal installments over

years. The following table summarizes the minimum lease rentals for the following

five

years:

	(Dollars in thousands)
Year ending December 31:
2019	$	3,118
2020		3,318
2021		2,283
2022		1,941
2023		1,307
Total	$	11,967

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of

one

year as of

December 31, 2018.

Year ending December 31:	(Dollars in thousands)
2019	$	7,771
2020		4,197
2021		3,475
2022		2,474
2023		1,603
Later years		9,292
Total minimum rental payments	$	28,812

Contingencies

●

May 21, 2018,

a motion to certify a class action was filed in Tel Aviv District Court against Ormat Technologies, Inc. and

officers and directors, by the name of Heit vs. Ormat Technologies, et al. The alleged class is defined as "All persons who purchased Ormat shares on the Tel Aviv Stock Exchange between

August 3, 2017

and

May 13, 2018".

The motion alleges that the Company violated Sections

(a)(

) and

38C

of the Israeli Securities Law because it allegedly: (

) misled investors by stating in its financial statements that it maintains effective internal controls over its accounting policies and procedures, however the Company's internal controls had material weaknesses which led to erroneous accounting in its

2017

unaudited quarterly reports that had to be restated, including adjustments to the Company’s net income and shareholders’ equity; and (

) failed to issue an immediate report in Israel until

May 16, 2018,

analogous to the report that was released in the United States on

May 11, 2018

stating, inter alia, that the errors in its financial reports affected its balance sheet and would be remedied in its

2017

annual report. The Tel Aviv District Court has stayed the proceedings in Israel until a final decision in the U.S. putative class action case (Mac Costas below) of related subject matter is adjudicated. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

●

June 11, 2018,

a putative class action was filed by Mac Costas on behalf of alleged shareholders that purchased or acquired the Company's ordinary shares between

August 8, 2017

and

May 15, 2018

was commenced in the United States District Court for the District of Nevada against the Company and its Chief Executive Officer and Chief Financial Officer. The complaint asserts claims against all defendants pursuant to Section

(b) of the Exchange Act, as amended, and Rule

10b

thereunder and against its officers pursuant to Section

(a) of the Exchange Act. The complaint alleges that the Company's Form

-K for the years ended

December 31, 2016

and

2017,

and Form

-Qs for each of the quarters in the

nine

months ended

September 30, 2017

contained material misstatements or omissions, among other things, with respect to the Company’s tax provisions and the effectiveness of its internal control over financial reporting, and that, as a result of such alleged misstatements and omissions, the plaintiffs suffered damages. Following the Mac Costas claim filing,

four

additional complaints of similar content were filed by other complainants. As described below, this action has been consolidated with the derivative action of related subject matter. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

●

September 11, 2018,

the Klein derivative action was filed against the Company, our board and our CEO and CFO in the United States District Court for the District of Nevada, and on

October 22, 2018,

the Matthew derivative action was filed in the same court against the company, certain named present and former board members (Barniv, Beck, Boehm, Clark, Falk, Freedland, Granot, Joyal, Nishigori, Sharir, Stern and Wong) in the United States District Court, District of Nevada. Pursuant to a stipulation granted by the court, these derivative and the putative class actions described above (Mac Costas) have been consolidated, the derivative actions stayed pending a court ruling on an anticipated motion to dismiss the putative class actions, and service requirements waived by the Company and

three

US based directors. The Klein complaint asserts

four

derivative causes of action generally arising from Ormat's restatement of its financial statements: (i) the individual defendants allegedly breached their fiduciary duties by allowing the company to improperly report its financials; (ii) the individual defendants allegedly were unjustly enriched by being compensated while breaching their fiduciary duties; (iii) the individual defendants allegedly committed corporate waste in paying officers and directors and by incurring legal costs and potential liability; and (iv) the director defendants allegedly breached Section

(a) of the Exchange Act in connection with the issuance of

2018

proxy. The Matthew complaint similarly alleges derivatively a breach of fiduciary duties, abuse of control, gross mismanagement, and corporate waste by the named directors. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

●

Following the announcement of the Company’s acquisition of USG, a number of putative shareholder class action complaints were initially filed on behalf of USG shareholders between

March 8, 2018

and

March 30, 2018

against USG and the individual members of the USG board of directors. All of the purported class action suits filed in Federal Court in Idaho have been voluntarily dismissed. The single remaining class action complaint is a purported class action filed in the Delaware Chancery Court, entitled Riche v. Pappas, et al., Case

No.

2018

0177

(Del. Ch.,

Mar. 12, 2018).

An amended complaint was filed on

May 24, 2018

under seal, under a confidentiality agreement that was executed by plaintiff. The amended Riche complaint alleges state law claims for breach of fiduciary duty against former USG directors and seeks post-closing damages. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

●

February 18, 2018,

Western Watersheds Project ("WWP") filed a notice of appeal and petition for standing with respect to the

January 16, 2018

BLM decision approving Addendum

to Operation Plan & Utilization Plan for the McGinness Hills Geothermal Project. The appeal alleges that the

January 2018

BLM decision authorizing construction and operation of Phase

of McGinness Hills causes harm to WWP and its members by allowing degradation of the wildlife habitat of the Greater sage-grouse in that area. The Company has filed a motion to intervene as an interested party in support of the BLM. The litigation was resolved and the settlement for an immaterial amount was approved by the Interior Board of Land appeals.

●

August 5, 2016,

George Douvris, Stephanie Douvris, Michael Hale, Cheryl Cacocci, Hillary E. Wilt and Christina Bryan, acting for themselves and on behalf of all other similarly situated residents of the lower Puna District, filed a complaint in the Third Circuit Court for the State of Hawaii seeking certification of a class action for preliminary and permanent injunctive relief, consequential and punitive damages, attorney’s fees and statutory interest against PGV and other presently unknown defendants. On

December 12, 2016,

the District Court granted plaintiffs’ motion for joinder of HELCO as a co-defendant, and the case, which had been removed prior to the U.S. District Court for the District of Hawaii, was remanded back to the Third Circuit Court. The amended complaint purports that injuries and other damages in an undisclosed amount were caused to the plaintiffs as a result of an alleged toxic release by PGV in the wake of Hurricane Iselle in

August 2014.

June 14, 2017,

the Third Circuit Court denied HELCO’s motion to dismiss the complaint against itself which it had filed on

March 25, 2017

and agreed to the Company’s request to add

two

third

party defendants, who are, respectively, the distributor and manufacturer of the pressure release valve that failed to reseat during Hurricane Iselle. Discovery and depositions took place during the course of

2018

and, in

January 2019,

the case was again removed back to the U. S. District Court for the District of Hawaii. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

●

March 29, 2016,

a former local sales representative in Chile, Aquavant, S.A., filed a claim on the basis of unjust enrichment against Ormat’s subsidiaries in the

27th

Civil Court of Santiago, Chile. The claim requests that the court order Ormat to pay Aquavant

$4.6

million in connection with its activities in Chile, including the EPC contract for the Cerro Pabellon project and various geothermal concessions, plus

3.75%

of Ormat geothermal products sales in Chile over the next

years. Pursuant to various motions submitted by the defendants and the plaintiffs to various courts, including the Court of Appeals, the case was removed from the original court and then refiled before the

11th

Civil Court of Santiago. The evidentiary period has concluded before the Civil Court on the basis of the court’s “statement of facts” to be proved. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

In addition, from time to time, the Company is named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of our business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings, the Company accrues reserves when a loss is probable and the amount of such loss can be reasonably estimated. It is the opinion of the Company’s management that the outcome of these proceedings, individually and collectively, will

not

be material to the Company’s consolidated financial statements as a whole.