UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
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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 0-31687
EVERGREEN SOLAR, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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04-3242254 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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138 Bartlett Street |
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Marlboro, Massachusetts 01752
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(508) 357-2221 |
(Address of principal executive offices)(zip code)
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(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
Common Stock, Par Value $.01 Per Share
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The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o 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
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
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):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes þ No
The aggregate market value of the registrants voting and non-voting common equity held by
non-affiliates as of July 4, 2009 was approximately $421.2 million.
As of February 26, 2010, there were 207,875,047 shares of the registrants Common
Stock, $.01 par value per share, outstanding.
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of this report and the documents incorporated by
reference herein, contain forward-looking statements that involve risks, uncertainties and
assumptions, including those discussed in Item 1A of Risk Factors in this report. If the risks
or uncertainties ever materialize or any of the assumptions prove incorrect, our results will
differ from those expressed or implied by such forward-looking statements and assumptions. All
statements other than statements of historical fact are statements that could be deemed
forward-looking statements, including but not limited to statements regarding:
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our future growth, revenue, earnings and gross margin improvement; |
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our ability to reduce manufacturing costs in our Devens, Massachusetts manufacturing
facility and meet manufacturing cost targets in our Wuhan, China manufacturing facility; |
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the completion of our Midland and Wuhan, China facilities and other potential capacity
expansions, and the timing of such facilities becoming fully operational and meeting
manufacturing capacity goals on schedule and within budget; |
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the transition of our panel assembly to China from our manufacturing facility in Devens,
Massachusetts; |
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the sufficiency of our cash, cash equivalents and marketable securities; access to
capital markets to satisfy our anticipated cash requirements; and possible sales of
securities and our planned use of proceeds from such sales; |
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capital requirements to respond to competitive pressures and acquire complementary
businesses and necessary technologies; |
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costs associated with research and development, building or improving manufacturing
facilities, general and administrative expenses and business growth; |
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the demand and market for our products, shifts in our geographic product revenue mix, and
our position in the solar power market; |
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the volume of photovoltaic solar panels we can produce; |
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the making of strategic investments and expansion of strategic partnerships,
manufacturing operations and distribution networks; and the future benefit of these
activities; |
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operating efficiency of manufacturing facilities, including increases in manufacturing
scale and technological improvements needed to continuously reduce the cost per watt to
manufacture our products; |
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revenue from customer contracts primarily denominated in Euros that are subject to
foreign currency exchange risks and the use of derivative financial instruments to manage
those risks; |
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possible additional costs associated with our Sovello AG
joint venture, should it become insolvent or
in connection with the possible sale of Sovello or its assets; |
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our receipt of public grant awards and other funding to support our expansion; |
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our expectations regarding product performance and technological competitiveness; |
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our ability to obtain key materials; and |
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the benefits of our proprietary technology and new manufacturing and other developments,
including our quad wafer furnace and continued enhancements of our wafer, cell and panel
production technologies. |
These statements may be identified with such words as we expect, we believe, we
anticipate or similar indications of future expectations. These statements are neither promises
nor guarantees and involve risks and
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uncertainties, which could cause our actual results to differ
materially from such forward-looking statements. Such
risks and uncertainties constitute forward-looking statements and are made under the safe
harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Our actual results of operations and financial
condition have varied and could in the future vary significantly from those stated in any
forward-looking statements. The factors described in Part I, Item 1A, Risk Factors, in this
Annual Report on Form 10-K for the year ended December 31, 2009, could cause actual results to
differ materially from those contained in forward-looking statements made in this Annual Report on
Form 10-K, in the documents incorporated by reference into this Annual Report on Form 10-K or
presented elsewhere by our management from time to time. Such factors, among others, could have a
material adverse effect upon our business, results of operations and financial condition We
disclaim any obligation to update publicly or revise any such statements to reflect any change in
our expectations, or events, conditions, or circumstances on which any such statements may be
based, or that may affect the likelihood that actual results will differ from those set forth in
such forward-looking statements.
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ITEM 1. BUSINESS.
BUSINESS OVERVIEW
We develop, manufacture and market String Ribbon solar panels utilizing our proprietary wafer
manufacturing technology. Our technology involves a unique process to produce multi-crystalline
silicon wafers by growing thin strips of silicon that are then cut into wafers.
This process substantially reduces the amount of silicon and other processing costs required to
produce a wafer when compared to conventional sawing processes. Silicon is the key raw material in
manufacturing multi-crystalline silicon wafers. With current silicon consumption of about 3.9 grams
per watt, we believe we are the industry leader in efficient silicon consumption and use
approximately half the silicon used by wafer manufacturers utilizing conventional sawing processes.
The wafers we produce are the primary components of photovoltaic (PV) cells which, in turn, are
used to produce solar panels. We believe that our proprietary and patented technologies offer
significant cost and manufacturing advantages over competing silicon-based wafer manufacturing
technologies.
Our revenues today are primarily derived from the sale of solar panels. We sell our
products using distributors, systems integrators and other value-added resellers, who often add
value through system design by incorporating our panels with electronics, structures and wiring
systems. Applications for our products primarily include on-grid generation, in which supplemental
electricity is provided to an electric utility grid. Our products are currently sold to customers
primarily in Europe and the United States. As of December 31, 2009, we had approximately 830
megawatts (MW) of backlog remaining under our existing long-term contracts with deliveries
scheduled through 2013. Our sales contracts allow for our customers to request price changes based
upon current market conditions, and we may have to amend contracts for volumes or pricing, as we
did in 2009, in order to remain competitive in the marketplace in the future.
Our wafer manufacturing technology is proven. Large-scale commercial application of our
technology, using furnaces that grow two thin strips of multi-crystalline silicon, began in 2005
with the opening of Sovello AG (formally EverQ GmbH), our joint
venture with Renewable Energy
Corporation ASA (REC) and Q-Cells SE (Q-Cells). Since its opening, Sovello has produced and shipped
over 200 MW of product using our wafer technology, but has faced significant financial difficulties
as a result of the overwhelming recent market downturn in demand and pricing for its products.
Through
on-going research and design efforts and process changes, we
continuously improve our wafer manufacturing
technology and our ability to manufacture multi-crystalline silicon wafers. Our manufacturing
facility in Devens, Massachusetts uses our Quad wafer furnace equipment, which grows four thin
strips of multi-crystalline silicon from one furnace and incorporates a state of the art automated
laser cutting technology that further improves our wafer manufacturing process. To date, we have
produced and shipped approximately 113 MW of product from our Devens facility.
Our Devens facility has continuously met its key operation goals of rapid sequential
production increases and significantly reduced manufacturing costs since opening in mid-2008. Our
wafer cost at Devens for the fourth quarter 2009 was about $0.69 per watt which we believe is among
the lowest in the industry, even at the relatively small volumes currently produced at our Devens
facility and silicon cost at about $90 per kilogram, proving our competitive advantage in wafer
manufacturing.
Our total panel cost was about $2.05 per watt in the fourth quarter 2009, down from $3.19 in
the first quarter of the year. However, solar panel prices have fallen precipitously since
mid-2008 making it very difficult for manufacturers located in high-cost regions to remain price
competitive. Therefore, we are accelerating our strategic initiative of focusing on our unique
wafer manufacturing technology and will begin to transition our Devens-based panel assembly to
China beginning later in 2010. We expect that by moving panel assembly to China we will be able to
substantially reduce manufacturing costs. We expect the transition of panel assembly to China will
take approximately 12 to 18 months to complete, and that panel production, whether produced at
Devens or in China using cells produced at Devens, will be at least 35 MW each quarter. After the
transition is complete we will continue to produce wafers and cells at Devens and may increase
capacity if market demand warrants. If long-term demand for panels manufactured in the US
significantly increases, we will be well positioned to quickly reintroduce panel assembly at
Devens. We estimate we will incur non-cash charges of approximately $40 million associated with the
accelerated depreciation of panel assembly equipment, which is
expected to be recognized ratably
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mid-2011 beginning with the fourth quarter of 2009 and cash charges, principally
compensation costs, of about $3 million in 2011.
As part of our strategy of long-term growth and focusing on our core wafer manufacturing
technology, on July 30, 2009, we announced that we had finalized agreements with Jiawei Solarchina
Co., Ltd., and Hubei Science & Technology Investment Co., Ltd., an investment fund sponsored by the
government of Hubei, China (HSTIC) to expand our manufacturing operations into China. Under these
agreements:
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We will manufacture String Ribbon wafers using our state-of-the-art Quad furnaces
at a leased facility being built by Jiawei in Wuhan, China on Jiaweis campus. |
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Jiawei will convert the String Ribbon wafers into Evergreen Solar-branded panels on
a contract manufacturing basis. |
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We will reimburse Jiawei for its cell and panel conversion costs, plus a contract
manufacturing fee. The actual price paid to Jiawei will be negotiated annually. |
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Evergreen Solar has invested $17 million in cash and equipment in the Wuhan wafer
manufacturing operation to date. HSTIC has provided us $33 million of 7.5% financing,
which we must repay no later than July 2014. Jiawei will make a similar investment for its
cell and panel operations with the support of HSTIC. |
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Initial capacity is expected to be approximately 100 MW. Factory construction has
begun and the parties expect that wafer, cell and panel production will begin in mid-2010. |
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The parties intend to expand production capacity of their respective manufacturing
operations to approximately 500 MW by 2012, the timing and extent of any potential
expansion will be determined in 2010. |
Total cost estimated for the initial 100 MW wafer manufacturing facility is expected to be
approximately $55 to $60 million, the majority of which is for quad wafer furnaces. As the first
phase of our investment in China reaches 20 to 25 MW of capacity per quarter in early 2011, we
expect to initially produce a wafer for about $0.40 per watt, and with Jiaweis low cost cell and
panel manufacturing capabilities, a panel for about $1.25 per watt. As we continue to advance the
technology, make improvements in factory operations and add scale, we expect that we will be
producing Evergreen-branded solar panels for no more than $1.00 per watt by the end of 2012,
including an all in wafer cost of about $0.30 per watt.
On December 29, 2008, as part of ongoing efforts to lower overhead costs and reduce overall
cash requirements, we committed to a plan to cease operations at our pilot manufacturing facility
in Marlboro, Massachusetts. Production at the facility ceased on December 31, 2008. As a result
of the cessation of manufacturing in Marlboro, during 2008 we recorded restructuring costs,
principally non-cash charges, of approximately $30.4 million associated with the write-off of
manufacturing and development equipment, inventory and leasehold improvements of the Marlboro pilot
facility. As exhibited by Devens financial performance in 2009, closing the Marlboro pilot
manufacturing facility and better utilizing existing equipment and facilities at our research and
development center and at our Devens manufacturing facility has resulted in lower overhead costs
and reduced overall cash requirements.
At December 31, 2009, we had approximately $112.4 million of cash and cash equivalents, which
includes approximately $33 million received from HSTIC as part of its funding obligation for our
Wuhan, China factory expansion. Through 2010, our major cash requirements are expected to be
approximately $97 million, comprised of:
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Capital required for our Wuhan, China expansion of about $50 million; |
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Final acceptance payments on equipment for Devens of about $7 million; |
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First phase of our Midland filament factory of about $3 million; |
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Sustaining capital of about $7 million; |
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Estimated payments for Sovello matters of about $15 million; and |
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Debt service of about $15 million. |
We have sales contracts for approximately 100 MW of product to be manufactured at our Devens
facility for delivery during 2010. Our sales plan assumes there should be sufficient market demand
to sell the expected Devens manufacturing capacity at continually declining selling prices. We will
moderate our production levels depending on changes in market demands during the year.
We believe that our business plan will provide sufficient liquidity to fund our planned
capital programs, our share of any potential funding requirements related to our investment in
Sovello and our operating needs for the next 12 months. While our business plan anticipates certain
levels of potential risk, particularly in light of the difficult and uncertain current economic
environment and the continuing reduction of industry panel pricing caused by expanding competition,
especially from China, and the possible excess capacity, we are exposed to additional particular
risks and uncertainties including, but not limited to:
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the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per
quarter, and stabilization of panel pricing at about $2.00 per watt, with sales made to
creditworthy customers; |
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higher than planned manufacturing costs and failing to achieve expected Devens
operating metrics, with any delays in our plan to transition panel assembly to China
resulting in continued higher costs that could impair business operations; |
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continued significant fluctuation of the Euro against the U.S. dollar, as a
substantial portion of the contracted sales are denominated in Euros; |
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the ability of Jiawei to execute against its plans to meet our required timetables;
and |
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increased funding requirements for Sovello to potentially address the loss of any
prior or expected government grant funding for Sovello (see Note 5 of our consolidated
financial statements). |
Although our current business plan indicates we have adequate liquidity to operate under
expected operating conditions, the risks noted above could result in liquidity uncertainty. Our
plan with regard to this uncertainty includes, among other actions:
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continually monitoring our operating results against expectations and, if required,
further restricting operating costs and capital spending if events warrant; |
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if conditions allow, possibly accessing the capital markets to meet liquidity and
capital expenditure requirements; |
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negotiating with a number of banks to secure a borrowing base line of credit,
without a minimum cash requirement as was required under our previous line of credit,
supported by the expected significant increase in our accounts receivable, inventory and
overall working capital; and |
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possibly hedging a portion of our exposure to fluctuations in
the U.S. dollar / Euro exchange rate to limit any adverse impacts; but there can be no
assurance that hedges can be put in place at terms acceptable to us or that such hedging
activities will be effective.
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If additional capital is needed and does not become available on acceptable terms, our ability
to fund operations, further develop and expand our manufacturing operations and distribution
network or otherwise respond to competitive pressures would be significantly limited.
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Sovello Joint Venture
Under our technology licensing and sales support agreements with Sovello, we received royalty
and sales fees of $4.7 million, $16.7 million and $11.5 million sales in 2009, 2008 and 2007,
respectively. Until December 31, 2008, we marketed and sold all solar panels manufactured by
Sovello under the Evergreen Solar brand, as well as managed customer relationships and contracts
related to the sale of Sovello manufactured product. In 2009, Sovello began marketing and selling
products under its own brand. Sovello continued to manufacture some Evergreen Solar-branded
product in 2009, but, with its independent sales and marketing team now in place, our involvement
in marketing and selling Sovello product has ceased. While Sovello is still contractually required
to pay the technology fee for the use of our wafer manufacturing technology, the payment of such
fees was suspended in the fourth quarter of 2009 given Sovellos poor liquidity position.
Despite our success in rapidly expanding Sovellos production capacity and the benefits the
joint venture has provided Evergreen Solar in terms of proving the cost effectiveness of our unique
technology, Sovellos business faced significant financial difficulties as a result of the
overwhelming recent market downturn in demand and pricing for its products. Accordingly, Sovello
has been in default under its bank loan agreement since the end of 2008. In light of this and other
financial difficulties, we recorded an impairment charge of approximately $69.7 million related to our aggregate investment
in Sovello during the third quarter of 2009. In making this assessment, we performed an expected
value calculation that considered a range of scenarios including Sovellos ability to continue as a
going concern, forecasted 2010 EBITDA which included current projections of volumes and selling
prices, and enterprise value multiples of comparable entities. As a result of further
deterioration in Sovellos financial position during the fourth quarter of 2009, we wrote-off our
remaining investment in addition to recording charges associated with our guarantee and for
estimated payments relating to undertakings with Sovellos bank and for other expected costs which
combined totaled approximately $56.3 million (see Note 5 of our
consolidated financial statements). Sovellos shareholders are attempting to negotiate a sale of the business
that would allow Sovello to continue to operate with a small final capital contribution from the
shareholders. If such a transaction cannot be negotiated, Sovello will likely become
insolvent which could result in further financial obligations for us, including payment of
a portion of certain recalled state subsidies.
INDUSTRY BACKGROUND
Overview
The electric power industry is one of the worlds largest industries. Furthermore, electric
power accounts for a growing share of overall energy use. While a majority of the worlds current
electricity supply is generated from fossil fuels such as coal, oil and natural gas, these
traditional energy sources face a number of challenges including rising prices, security concerns
over dependence on imports from a limited number of countries, which have significant fossil fuel
supplies and growing environmental concerns over the climate change risks associated with power
generation using fossil fuels. As a result of these and other challenges facing traditional energy
sources, governments, businesses and consumers are increasingly supporting the development of
alternative energy sources, including solar energy.
The solar power market has grown significantly in the past decade. According to
Solarbuzz, the global solar power market, as measured by annual solar power system installations,
increased from 598 MW in 2003 to 6.3 gigawatts in 2009, representing an approximate of CAGR 48%,
while solar power industry revenues grew to approximately $37.1 billion in 2008. Despite the rapid
growth, solar energy constitutes only a small fraction of the worlds energy output and therefore
may have significant growth potential. Solarbuzz projects that annual solar power industry revenue
could reach between $27 billion and $57 billion by 2013.
Key Growth Drivers and Advantages of Solar Power
Solar power generation has emerged as one of the most rapidly growing renewable sources
of electricity. Solar power generation has several advantages over other forms of electricity
generation that have driven and will continue to drive the growth of the solar power industry:
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An Increase in Solar Power Generation Will Reduce
Dependence on Fossil Fuels. Worldwide demand for
electricity is expected to grow by over 50% from 20.6 billion
MW hours in 2010 to 31.8 billion MW hours in 2030,
according to the U.S. Department of Energy. The
combination of declining finite fossil fuel energy
resources and increasing energy demand is depleting
natural resources as well as driving up electricity costs,
underscoring the need for reliable renewable energy
production. Solar power systems are renewable energy
sources that rely on the sun as an energy source and do
not require a fossil fuel supply. As such, they are well
positioned to offer a sustainable long-term alternative
means of power generation. |
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Environmental Advantages. Solar power is one of the
cleanest electric generation sources, capable of
generating electricity without air or water emissions,
noise, vibration, habitat impact or waste generation. In
particular, solar power does not generate greenhouse gases
that contribute to global climate change or other air
pollutants, as power generation based on fossil fuel
combustion does, and does not generate radioactive or
other wastes as nuclear power and coal combustion do. It
is anticipated that greenhouse gas regulation in the
United States and internationally will increase the costs
and constrain the development of fossil fuel based
electric generation and increase the attractiveness of
solar power as a renewable electricity source. |
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Flexible Locations. From tiny solar cells powering a
hand-held calculator, to an array of rooftop panels
powering an entire home, to acres of panels on a
commercial building roof or field, solar power products
can be deployed in many sizes and configurations and can
be installed almost anywhere in the world. Solar power is
among the best technologies for power generation in urban
areas, environmentally sensitive areas and geographically
remote areas in both developing and developed countries. |
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Government Incentives. Several European countries, China
and the United States presently account for the majority
of world market demand for solar power systems. Government
policies in these countries, in the form of both
regulation and incentives, have accelerated the adoption
of solar technologies by businesses and consumers. Typical
government incentives include capital cost rebates,
feed-in tariffs, tax credits and net metering. |
As a result of solar powers benefits and government support, the solar power market has seen
sustained and rapid growth. PV panel shipments have increased on average 48% per year for the past
six years.
The Solar Power Industry Value Chain
Crystalline silicon-based technologies and thin-film technologies are the two primary
technologies currently used in the solar power industry.
In the conventional crystalline silicon-based processes, silicon feedstock is processed
into ingots, which are then sliced into solar wafers. The wafers are manufactured into solar cells
through a multiple step manufacturing process that entails etching, doping, coating and applying
electrical contacts. Solar cells are then interconnected and packaged to form solar panels, which
together with system components such as batteries and inverters, are installed as solar power
systems.
The conventional crystalline silicon-based wafer manufacturing process differs
substantially from our proprietary wafer manufacturing technology. Our technology is a
cost-effective process for manufacturing thin strips of crystalline silicon that are cut into
wafers. Our wafers are then processed into solar cells and panels in a similar manner to industry
standard processes. With silicon consumption of less than four grams per watt, we believe we are
the industry leader in efficient polysilicon consumption and use about half of the silicon used by
wafer manufacturers utilizing conventional sawing processes.
In contrast to the crystalline silicon-based wafer manufacturing process, thin film
technology involves depositing several thin layers of complex materials such as Copper Indium
Gallium Diselenide, or CIGS, or
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Cadmium Telluride, or CdTe, on a substrate, such as glass, to make
a solar cell. According to Solarbuzz, thin-film-
based solar cells represented approximately 13% of solar cell production in 2008. There will
continue to be significant efforts to develop alternate solar technologies, such as Amorphous
Silicon, CIGS, CdTe, crystalline silicon on glass and polymer and nano technologies. Certain thin
film technologies are gaining commercial acceptance and are important to broadening the demand for
solar energy products for diverse energy generation applications.
Key Challenges for Solar Power
Although solar power can provide a cost-effective alternative for off-grid applications,
we believe the principal challenge to widespread adoption of solar power for on-grid applications
is reducing manufacturing costs so that the cost of installed solar panels is equal to or less than
the cost of grid-generated electricity without impairing product reliability. This concept is known
as reaching grid parity. We believe the following challenges of solar power technology must be
overcome in order to reach grid parity:
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Continued Reliance on Government Support and
Incentives. At present, most renewable energy sources
would not be cost-competitive compared to traditional
energy sources without government support. The PV industry
relies on governmental incentives to encourage production
and consumption, especially for on-grid systems. Changes
in government policies could lead to a reduction in
incentives and subsidies to the renewable energy sector,
which could in turn seriously hinder the growth of the PV
industry. |
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Reduced Manufacturing Cost. The cost of producing PV
panels must be reduced to a point that will enable
manufacturers to produce product to support reaching grid
parity. One of the most dominant costs of producing
crystalline silicon-based solar panels is silicon. The
reduction of raw materials waste, particularly the waste
associated with sawing silicon by conventional crystalline
silicon wafer production technology, known as kerf loss,
is a key factor in lowering wafer manufacturing costs. |
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Reduced Capital Costs. Decrease the costs and risks
associated with new plant investments to lower capital
costs per unit of production. |
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Improved Product Design and Performance. Increase product
conversion efficiency and ease of use. Conversion
efficiency refers to the fraction of the suns energy
converted to electricity. |
We further believe the two principal solar power technologies, conventional crystalline
silicon and thin films, are not adequately addressing these challenges:
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Crystalline Silicon. Crystalline silicon technology was
the earliest practiced solar wafer fabrication technology
and continues to be the dominant technology for the
market, accounting for approximately 87% of solar cell
production in 2008, according to Solarbuzz. Conventional
crystalline silicon technology involves sawing thin wafers
from solid crystalline silicon blocks. Crystalline silicon
products are known for their reliability, performance and
longevity. However, factors such as high materials waste
from sawing, complex processing procedures and high
capital costs have limited the speed at which conventional
crystalline silicon wafer manufacturers can reduce
manufacturing costs. |
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Thin Films. While most major solar power manufacturers
currently rely on crystalline silicon technology for their
solar cell production, these manufacturers, and other new
entrants, are also developing alternative thin film
technologies to achieve lower manufacturing costs. Thin
film technology involves depositing several thin layers of
complex materials such as CIGS or CdTe on a substrate,
such as glass, to make a solar cell. Although thin film
technologies generally use certain key materials more
efficiently than conventional crystalline silicon
manufacturing technology, such technologies have
disadvantages such as lower conversion efficiency and, in
some cases, reduced product performance and reliability. |
OUR BUSINESS
Our Competitive Strengths
We believe we are well-positioned to be a leader in the solar power industry based on the
following competitive strengths:
Proven Wafer Manufacturing Technology. Our wafer manufacturing technology enables
continuous growth of thin multi-crystalline silicon strips that are cut into wafers eliminating the need
for ingot formation, sectioning and wire sawing necessary in the conventional wafer manufacturing
process. The elimination of the need for ingot formation, sectioning and wafer sawing provides us
with significant advantages including increasing the speed of, and reducing costs related to,
building new production facilities. Our proprietary technology enables us to produce wafers at
industry-leading manufacturing cost. We have been developing and enhancing our patented wafer
manufacturing technology since 1994 and have achieved the lowest silicon consumption rates in the
industry with our quad wafer furnace, which currently consumes about 3.9 grams of silicon per watt
produced or approximately half of the silicon used by wafer manufactures utilizing conventional
sawing processes. Large-scale commercial application of our technology, using furnaces that grow
two thin strips of multi-crystalline silicon, began in 2005 with the opening of Sovello. Since its
opening, Sovello has produced and shipped over 200 MW of product.
Through
on-going research and design efforts and process changes, we
continuously improve our wafer manufacturing
technology and our ability to manufacture multi-crystalline silicon wafers. Our manufacturing
facility in Devens, Massachusetts uses our Quad wafer furnace equipment, which grows four thin
strips of multi-crystalline silicon from one furnace and incorporates a state of the art automated
laser cutting technology that further improves our wafer manufacturing process. To date, we have
produced and shipped approximately 113 MW of product from our Devens facility.
Proven ability to execute on new factory expansion. We have consistently proven our ability
to ramp substantial manufacturing operations that utilize our unique technology. Our management
team, engineers and other support staff were responsible for the successful ramp of Sovellos
manufacturing facilities during 2005 to 2007. We also successfully ramped our Devens, Massachusetts
facility which utilizes our quad ribbon furnace technology. Over two years ago, we established a
cost target for our Devens facility of about $2.00 per watt and effectively achieved that cost
during the fourth quarter of 2009.
Leveraging the strength of our Quad technology, we reduced our wafer cost to
$0.69 per watt during the fourth quarter of 2009
from $0.75 per watt in the third quarter of 2009, as we reduced silicon consumption to an industry leading
3.9 grams per watt. We achieved this with a silicon cost of about $90 per kilogram. We believe
Devens is producing wafers that are cost competitive with many of the larger Chinese wafer
manufacturers today. We also believe that we have not yet realized the full benefits of our quad
technology, which is in the early stage of its life cycle. Nor have we obtained the benefits that
larger-scale manufacturing brings. Based upon these past experiences, we are confident in our
ability to successfully ramp our new wafer manufacturing facility in Wuhan, China.
Established brand and recognized leader in quality and performance. Our solar panel
products are globally recognized as leaders in quality and performance. Based upon the power
attributes of our solar panels, our products have consistently performed among the highest in the
industry in terms of electricity delivered per kilowatt installed. Further, our unique
manufacturing process creates silicon wafers using a fraction of the energy required to make
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conventional silicon-based wafers. This means that the amount of carbon dioxide generated by making
our panels is up to 30% less than other solar panels, resulting in a manufacturing process that has
less impact on the environment.
Strong, Experienced Management Team. Richard Feldt, our President and Chief Executive
Officer, and our other executive team members, have guided us from an innovative research and
development-focused company to an emerging manufacturing leader in the solar energy industry.
Mr. Feldt previously served as Senior Vice President and General Manager of Worldwide Operations at
Symbol Technologies where he streamlined the complex supply chain and significantly reduced cycle
times and material costs. His 30-year track record in successfully growing global technology and
manufacturing businesses is instrumental to our long-term development plan to expand manufacturing
capacity. Our executive officers are dedicated to the continuous development of our technologies,
including our proprietary quad wafer furnace design, to enhance our competitive advantage in the
cost-efficient production of solar cells. With this talented group of experienced executives from
various technology manufacturing
and other relevant backgrounds, we expect to execute on our current business plan and drive
continued and rapid growth.
Our Growth Strategies
Our fundamental business objective is to use our technologies to become a leader in
developing, manufacturing and marketing solar panels throughout the world. We are implementing the
following strategies to meet this objective:
Innovate to Lower Cost of Solar to Achieve Grid Parity Cost Structure. The long-term
challenge of solar energy is its higher cost compared to conventional sources of electricity such
as fossil fuels. Solar-power product manufacturers who have the ability to manufacture products
that can generate electricity at or close to grid parity will consequently have a distinct
advantage, including the ability to sell into markets where government subsidies are minimal or
non-existent. We expect that utilizing our proprietary wafer manufacturing technology as an integral part
of solar panel manufacturing will result in industry-leading manufacturing cost and among the first
of multi-crystalline silicon panel producers to achieve grid parity.
Maintain Our Leadership in Wafer Technology, through Continuous Innovation. We employ
approximately 55 research and development employees at an approximately 40,000 square foot facility
in Marlboro, Massachusetts primarily dedicated to wafer and cell development initiatives. We have
also begun hiring technologists in China to also focus on these critical activities. Further
enhancing and improving our manufacturing process is critical in allowing us to be able to produce
solar power products that are at or below grid parity. Today, we are working on two major wafer
projects:
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Optimizing the crystallization characteristics of the wafer to increase power performance,
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Growing wider wafers in line with industry standard sizes. |
We continue to believe we are at the early stages of commercial development of the technology
we use to manufacture String Ribbon wafers and that there is substantial further progress to be
made.
We are also working on projects geared toward improving cell conversion efficiency.
Specifically, we have developed a multiwire and tabbing technology that we will begin piloting in
China that we expect will increase our panel power by about 5%.
Proliferate Our Technology Commensurate With the Growing Demand for Solar. Based upon
the success achieved thus far at our Devens facility, combined with the growing awareness and
support for renewable energy worldwide, we expect to expand our manufacturing capabilities to
accommodate the expected growth of the solar
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industry. While there are many options for expansion,
the current condition of the credit markets has led us to broaden our options for growth, most
notably subcontracting cell and panel manufacturing. We believe employing a subcontracting strategy
for cell and panel manufacturing while maintaining our own wafer manufacturing will allow us to
leverage our already industry-leading manufacturing capability for wafers combined with
best-of-breed capabilities already employed by incumbent cell and panel manufacturers or other
well-experienced subcontract manufacturers. As such, we believe we can increase our access to
panel capacity faster, produce panels at a lower cost, and require substantially less capital than
if we were to build a fully integrated wafer-to-panel factory on our own.
Our Products
Solar panels are generally composed of the following:
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Wafers. A crystalline silicon wafer is a flat piece of
crystalline silicon that can be processed and assembled
into a solar cell. Our rectangular wafers measure
approximately 80 millimeters by 150 millimeters and are
approximately 190 microns thick. We are currently
developing wafers that we expect will be approximately 156
millimeters square, which is in line with industry
standards. |
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Cells. A solar cell is a device made from a silicon wafer
that converts sunlight into electricity by means of a
process known as the PV effect. Each of our solar cells
currently produces approximately 1.8 watts of power. As
the conversion efficiency of the solar cell improves, the
power of the cell improves as well. |
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Panels. A solar panel is an assembly of solar cells that
have been electrically interconnected and laminated in a
durable and weather-tight package. Our solar panels
currently produce up to approximately 215 watts of power. |
One or more solar panels can be assembled in a solar system (or solar array) by
physically mounting and electrically interconnecting the panels, often with batteries or power
electronics, including inverters, to produce electricity. Typical residential on-grid systems
produce 2,000 to 6,000 watts of power. Solar panels are our primary product, although we may in the
future also sell wafers, cells or systems. We believe our String Ribbon solar panels are very
competitive with other products in the marketplace. They are certified to international standards
of safety, reliability and quality. If our development programs are successful, we expect to see
continued increases in conversion efficiency and power output from our solar panels as we rapidly
expand our manufacturing capacity.
Sales, Marketing and Distribution
We sell our solar panels using domestic and international distributors, system
integrators, project developers and other resellers, who often add value through system design by
incorporating our solar panels with inverters and other electronics, mounting structures and wiring
systems. Most of our distribution partners have a geographic or applications focus. Our
distribution partners include companies that are exclusively solar power system resellers as well
as others for whom solar power is an extension of their core business, such as engineering design
firms or other energy product marketers.
Going forward we expect to collaborate closely with a relatively small number of
resellers throughout the world. As of December 31, 2009, we had approximately 10 main resellers
worldwide and are actively working to refine our distribution partners by very careful addition of
a select few new accounts and channel partners. We intend to selectively pursue additional
strategic relationships with other companies worldwide for the joint marketing, distribution and
manufacturing of our products. We believe that these relationships will enable us to leverage the
marketing, manufacturing and distribution capabilities of other companies, explore opportunities
for additional product development and more easily enter new geographic markets in a cost effective
manner, attract new distribution partners and develop advanced solar power applications.
For the year ended December 31, 2009, 10 distribution partners accounted for approximately 77%
of our total product revenues. As we continue to expand manufacturing capacity and sales volumes,
we anticipate developing
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relationships with additional distribution partners and decreasing our
dependence on any single distribution partner. Additional information regarding the geographic
distribution of our sources of revenue may be found in the notes to the consolidated financial
statements included in this Annual Report on Form 10-K.
In addition, we market our products through trade shows, on-going distribution partner
communications, promotional material, our website, direct mail and advertising. Our staff provides
customer service and applications engineering support to our distribution partners while also
gathering information on current product performance and future product requirements.
Manufacturing
Our principal manufacturing objective is to provide for large-scale manufacturing of our solar
power products at low cost, thereby enabling us to penetrate price-sensitive solar power markets.
We have significantly increased our manufacturing capacity with the development of a new
state-of-the-art facility in Devens, Massachusetts. The
Devens factory is a fully integrated wafer-to-panel manufacturing facility that uses our quad
furnace technology to produce wafers. Construction of the first phase of Devens began in September
2007 and the first solar panels produced in the third quarter of 2008. Construction of the second
phase of Devens began in early 2008 and was completed during the fourth quarter of 2009.
We use a special form of high temperature filament in our wafer manufacturing process
that is not used by any other wafer manufacturer. We currently meet our high temperature filament
requirements using a single supplier, and as part of our strategy of securing adequate raw material
supplies and reducing cost, we are developing our own ability to produce high temperature filament.
We began pilot production of high temperature filament at the end of 2009 at our plant in Midland,
Michigan and expect to produce increasing volumes in 2010.
Because the market opportunity for solar power encompasses numerous applications in both
developed and developing nations worldwide, a significant portion of our future sales will be made
outside the United States. Over time, we also expect that our manufacturing will become
increasingly global. We believe there are several advantages to manufacturing close to local
markets, including reduced shipping costs, reduced currency exposure, enhanced brand recognition,
avoidance of import tariffs and access to local private or public sector financing.
Research and Development
Continuously improving our technology is an important part of our overall strategy.
Therefore, we have maintained and intend to maintain a strong research and development effort.
Approximately 40,000 square feet of space is dedicated to research and development and advanced
engineering and contains equipment to support the development, fabrication and evaluation of new
solar power products and technologies. We are also expanding our R&D initiatives in China.
Intellectual Property
Patents
We believe that our commercial success will significantly depend on our ability to
protect our intellectual property rights underlying our proprietary technologies. We seek U.S. and
international patent protection for major elements of our technology platform, including our
manufacturing process and methods and apparatuses for producing crystalline silicon wafers, solar
cells and solar panels. We currently have 24 U.S. patents, five Indian patents, and six European
patents that are enforceable in multiple European jurisdictions. These patents begin to expire in
2016 and will all expire by 2028. In addition, we have 22 U.S. patent applications pending and 80
foreign patent applications pending (including PCT applications) related to our business. We devote
substantial resources to building a strong patent position and we intend to continue to file
additional U.S. and foreign patent applications to seek protection for technology we deem important
to our commercial success. Our patents cover the following areas:
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Crystalline Silicon Wafers. Our wafer fabrication
technology, including methods for automated, high-yield
production techniques, are covered by 13 U.S. patents,
five Indian patents and four European patents that have
been validated with enforceable rights in multiple
European jurisdictions. In addition, for this technology,
we also have 14 pending U.S. patent applications, three
pending PCT applications, and 67 pending national/regional
phase foreign patent applications. |
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Solar Cell Fabrication. Our solar cell processing
technology is covered by four U.S. patents. Among other
things, these patents relate to methods for forming
wrap-around contacts on solar cells and methods for
processing solar cells. In addition, for this technology,
we also have six pending U.S. patent applications and
three pending PCT applications. |
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Solar Panels. For our advanced solar panel designs, we
currently own seven U.S. patents, two European patents
that have been validated with enforceable rights in
multiple European jurisdictions, and four Japanese
patents. The U.S. patents primarily relate to solar cell
panels with an improved backskin, solar cell panels with
an interface mounting system, an encapsulant material for
solar cell panels, and a solar cell roof tile system. In
addition, for this technology, we have two pending
U.S. patent applications and seven pending
national/regional phase foreign patent applications. |
Trademarks and Copyrights
We have one U.S. registered trademark we are currently using and three pending
U.S. trademarks applications we presently intend to continue to pursue. We also own several
foreign trademarks associated with and used in our business, including registrations and
applications for the trademarks Evergreen Solar, the Evergreen Solar logo, Think Beyond and String
Ribbon. Furthermore, we own common law rights in our trademarks and service marks. We are working
to increase, maintain and enforce our rights in our trademark portfolio, the protection of which is
important to our reputation and branding. We also own copyrights relating to our products, services
and business, including copyrights in the software we have developed, in our marketing materials
and in our product manuals.
Trade Secrets and Other Confidential Information
With respect to, among other things, proprietary know-how that is not patentable and
processes for which patents are difficult to enforce, we rely on trade secret protection and
confidentiality agreements to protect our interests. We believe that several elements of our solar
panels and manufacturing processes involve proprietary know-how, technology or data, which are not
covered by patents or patent applications, including selected materials, technical processes,
equipment designs, algorithms and procedures. We have taken security measures to protect our
proprietary know-how, technologies and confidential data, and we continue to explore additional
methods of protection. While we require all employees, key consultants and other third parties to
enter into confidentiality agreements with us, we cannot be assured that proprietary information
will not be disclosed inappropriately, that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or
that we can meaningfully protect our trade secrets. Any material leak of confidential or
proprietary information into the public domain or to third parties could result in the loss of a
competitive advantage in the solar power market.
Competition
The solar power market is intensely competitive and rapidly evolving. According to
Solarbuzz, there are over 300 companies which engaged in PV products manufacturing or have
announced to do so. Our main competitors are, among others, BP Solar International Inc., First
Solar, Inc., Kyocera Corporation, Mitsubishi, Sanyo Corporation, Sharp Corporation, Solar World AG,
SunPower Corporation, Suntech Power Holdings Co., Ltd, Trina Solar, and Yingli. We also expect that
future competition will include new entrants to the solar power market offering new technological
solutions. We may also face competition from semiconductor manufacturers, several of which have
already announced their intention to start production of solar cells.
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Many of our existing and potential competitors have substantially greater financial,
manufacturing and other resources than we currently do. Our competitors greater size and, in some
cases, longer operating histories provide them with a competitive advantage with respect to
manufacturing costs because of their economies of scale, production facilities located in low cost
manufacturing regions and their ability to purchase raw materials at lower prices. For example,
those of our competitors that also manufacture semiconductors may source both semiconductor grade
silicon wafers and solar grade silicon wafers from the same supplier. As a result, such competitors
may have stronger bargaining power with the supplier and have an advantage over us in pricing as
well as securing silicon wafer supplies at times of shortages.
We believe that the cost and performance of our technology will continue to have
advantages compared to competitive technologies. Our products offer the reliability, efficiency and
market acceptance of other crystalline
silicon products. We believe our technology will provide lower manufacturing costs resulting
from significantly better silicon consumption and fewer processing steps, particularly in wafer
fabrication. Compared to thin film products, our products offer generally higher performance. Some
thin film technologies, such as cadmium telluride, use toxic materials that inhibit their market
acceptance, where others, such as copper indium diselenide, rely on raw materials in short supply,
such as indium. Other technologies, including all of the polymer and nanomaterial technologies, are
still being developed and have not yet reached the commercialization stage.
The entire solar industry also faces significant competition from other power generation
sources, both conventional sources as well as other emerging technologies. Solar power has certain
advantages and disadvantages when compared to other power generating technologies. The advantages
include the ability to deploy products in many sizes and configurations, to install products almost
anywhere in the world, to provide reliable power for many applications, to serve as both a power
generator and the skin of a building and to eliminate air, water and noise emissions. Whereas solar
generally is cost effective for off-grid applications, the high up-front cost of solar relative to
most other solutions is the primary market barrier for on-grid applications. Furthermore, unlike
most conventional power generators, which can produce power on demand, solar power cannot generate
power where sunlight is not available, although it is often matched with battery storage to provide
highly reliable on demand power solutions. Historically, difficult financial markets have resulted
in a slowdown for large project builds which directly led to increased availability of solar panels
and has accelerated price reductions of the industry, causing decreased margins and an even more
competitive marketplace.
Environmental, Health and Safety Regulations
We use toxic, volatile or otherwise hazardous chemicals in our research and development
and manufacturing activities and generate and discharge hazardous emissions, effluents and wastes
from these operations. We are subject to a variety of foreign, federal, state and local
governmental regulations related to the storage, use, discharge, emission and disposal of hazardous
materials. We are also subject to occupational health and safety regulations designed to protect
worker health and safety from injuries and adverse health effects from exposure to hazardous
chemicals and working conditions.
We believe that we have all environmental permits necessary to conduct our business. We
believe that we have properly handled our hazardous materials and wastes and have not materially
contributed to any contamination at any of our past or current premises, although historical
contamination may be present at these locations from prior uses. We are not aware of any
environmental, health or safety investigation, proceeding or action by foreign, federal or state
agencies involving our past or current facilities. If we fail to comply with present or future
environmental, health or safety regulations, we could be subject to fines, suspension of production
or a cessation of operations. Any failure by us to control the use of, prevent public or employee
exposure to, or to restrict adequately the emission and discharge of hazardous substances in
accordance with applicable environmental laws and regulations could subject us to substantial
financial liabilities, operational interruptions and adverse publicity, any of which could
materially and adversely affect our business, results of operations and financial condition. In
addition, under some foreign, federal and state statutes and regulations, a governmental agency or
private party may seek recovery of response costs or damages from operators of property where
releases of hazardous substances have occurred or are ongoing, even if the operator was not
responsible for the release or otherwise was not at fault.
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EMPLOYEES
As of December 31, 2009, we had approximately 729 full-time employees, including approximately
52 engaged in research and development and approximately 603 engaged in manufacturing.
Approximately 66 of our employees have advanced degrees, including 18 with Ph.D.s. None of our
employees are represented by any labor union nor are they organized under a collective bargaining
agreement. We have never experienced a work stoppage due to labor disputes and believe that our
relations with our employees are good. We also use a temporary employment agency to supplement our
work force needs. At December 31, 2009, we had 279 temporary employees. Including the temporary
employees, we have 975 employees in the United States, 24 in China and 9 in Germany.
AVAILABLE INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and all amendments to those reports are made available free of charge though our internet website
(http://www.evergreensolar.com) as soon as practicable after such material is electronically filed
with, or furnished to, the Securities and Exchange Commission. Except as otherwise stated in these
documents, the information contained on our website or available by hyperlink from our website is
not incorporated by reference into this report or any other documents we file with or furnish to
the SEC.
ITEM 1A. RISK FACTORS.
Certain Factors Which May Affect Future Results
The factors discussed below are cautionary statements that identify important factors that
could cause actual results to differ materially from those anticipated by the forward-looking
statements contained in this report. For more information regarding the forward-looking statements
contained in this report, see Concerns Regarding Forward-Looking Statements at the beginning of
this report. You should carefully consider the risks and uncertainties described below, together
with all of the other information included in this report, in considering our business and
prospects. The risks and uncertainties described below are not the only ones that we face. Other
factors may also exist that we cannot anticipate or that we currently do not consider to be
significant based on currently available information. The occurrence of any of the following risks
could materially affect our business, financial condition, results of operations, cash flows and
future results.
RISKS RELATING TO OUR INDUSTRY, PRODUCTS, FINANCIAL RESULTS AND OPERATIONS
We may need to raise significant additional capital in order to continue to grow our business and
fund our operations, as planned, which may not be available on acceptable terms or at all.
We will need to generate cash internally or raise significant additional capital to fund our
planned expansion of manufacturing facilities beyond the Devens facility, to acquire complementary
businesses and obtain raw materials or necessary technologies. If adequate capital does not become
available when needed on acceptable terms, our ability to fund our operations, further develop and
expand our manufacturing operations and distribution network, or otherwise respond to competitive
pressures would be significantly limited. In such a case, the stock price of our common stock would
likely be materially and adversely impacted.
Our ability to raise capital will be severely hampered by adverse changes in general economic
market conditions. The U.S. economy has undergone unprecedented turmoil amid stock market
volatility, difficulties in the financial services sector, tightening of the credit markets,
softness in the housing markets, concerns of inflation and deflation, reduced corporate profits and
capital spending, reduced consumer spending, and continuing economic uncertainties. This turmoil
and the uncertainty about future economic conditions could negatively impact our ability to obtain
debt or equity financing of our operations. The cost and availability of credit has been and may
continue to be adversely affected as concerns about the stability of the markets generally and the
strength of counterparties specifically has led many lenders and institutional investors to reduce,
and in some cases, cease, to provide funding to borrowers. If these market and economic conditions
continue, they may limit our ability to access the capital markets to meet liquidity and capital
expenditure requirements. We cannot predict the timing, strength or duration of this severe global
economic downturn.
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We must continue to invest significantly in research and development to support our unique wafer
technology, and these efforts may not result in continued and necessary improvement in our
technology.
If our continuing development efforts regarding our wafer manufacturing technologies are not
successful, and we are unable to increase the efficiency and decrease the costs of our
manufacturing process, including even lower use of silicon beyond the
3.9 grams per watt we use today, we
may not be able to sufficiently reduce the price of our products, which might prevent our products
from gaining wide acceptance, and our gross margins may be negatively impacted.
Evaluating our business and future prospects may be difficult due to the rapidly changing market
landscape.
Although we were formed in 1994 to research and develop crystalline silicon technology for use
in manufacturing solar power products and began shipping product in 1997, we first shipped
commercial products in September 2001. Relative to the entire solar industry, we have shipped only
a limited number of solar power panels and have recognized limited revenues generated by products
we have manufactured.
The solar power market is rapidly evolving and is experiencing technological advances,
manufacturers in low cost manufacturing regions and new market entrants. Our future success will
require us to scale our manufacturing capacity significantly beyond the capacity of our Devens
facility or find third parties to manufacture our products or license our proprietary technologies,
and our business model, technologies and processes are unproven at significantly larger scale. As a
result, you should consider our business and prospects in light of the risks, expenses and
challenges that we will face as an early-stage company seeking to develop and manufacture new
products in a growing and rapidly evolving market.
We have a history of losses, expect to incur substantial further losses and may not achieve or
maintain profitability in the future, which in turn could materially decrease the value of our
common stock.
Since our inception, we have incurred significant net losses. Principally as a result of
ongoing operating losses, we had an accumulated deficit as of December 31, 2009. We expect to incur
additional losses until our Chinese facility reaches full capacity, and if we do not achieve our
expected production targets and cost reductions we may not become profitable. Even if we achieve
profitability, we may be unable to sustain or increase our profitability in the future if we are
not able to sufficiently expand capacity or continue to reduce our costs, which in turn could
materially decrease the market value of our common stock. We expect to continue to make significant
capital expenditures and anticipate that our expenses will increase as we seek to:
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expand our manufacturing operations, whether domestically or internationally; |
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develop our distribution network; |
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continue investing in research and development; |
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implement internal systems and infrastructure to support our growth; and |
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hire additional personnel. |
We do not know whether our revenues will grow at all or grow rapidly enough to absorb these
costs, and our limited operating history makes it difficult to assess the extent of these expenses
or their impact on our operating results.
We are subject to certain liabilities based upon our relationship with Sovello, Sovellos banks and
other parties which may adversely impact our business or our funds available for our operations.
Throughout 2009, Sovello operated under waivers from its bank syndicate of certain loan
covenant violations. On January 28, 2010, Sovellos bank syndicate terminated their loan agreement
but has not yet demanded repayment of the outstanding loan,
approximately 5.8 million Euros of which we have guaranteed.
Further, in light of a European Commission decision, Sovello may be required to repay to the German
government 9.1 million Euros (plus approximately 2.5
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million Euros in interest) which represents a
portion of the grants it received. If these matters are not satisfactorily resolved, Sovello may
need to declare insolvency which could result in further financial obligations for us.
Alternatively, Sovello may be sold which we expect would require us to provide limited additional
funding to Sovello. As such, we recorded charges of approximately $8.1 million for payments under
our bank loan guarantee (that was paid on February 8, 2010) and $7.3 million for estimated payments
relating to undertakings with Sovellos bank and for other expected costs with the Companys
undertaking to pay approximately 2 million Euros to Sovello in connection with Sovellos
repayment of the SME Bonus (as discussed below) representing a portion of the recorded charges.
The European Commission decision will require Sovello to repay amounts paid to Sovello as an
SME Bonus available only to small and medium-sized companies. The European Commission concluded
that Sovello did not qualify for the SME Bonus as had previously been determined by the European
Commission. The European Commission determined that Sovellos application for the SME Bonus was
incomplete and therefore inaccurate, and that Sovellos shareholders intentionally structured
Sovello to qualify for the SME Bonus. Although Sovellos management and shareholders believe that
Sovello appropriately qualified for the SME Bonus and the decision may
be appealed, no assurance can be given that any appeal will be made or that any appeal would
succeed. German authorities are investigating the propriety of the grant
application made by Sovello. European Community authorities may also investigate.
No assurance can be made regarding the additional liabilities for additional funding of
Sovello or otherwise that may be associated with the European Commissions decision or the expected
sale or insolvency of Sovello given the uncertainties associated with these matters and any sale
and the insolvency process.
Our future success depends on our ability to increase our
manufacturing capacity beyond our Devens facility, license our technologies or
otherwise outsource the manufacturing of our products. Our inability to increase our production
capacity directly or successfully outsource the manufacturing of our products will limit our growth
potential and impair our operating results and financial condition.
Our ability to plan, construct and equip additional manufacturing facilities is subject to
significant risk and uncertainty, including:
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the completion of any facilities will be subject to the
risks inherent in the establishment of a new
manufacturing facility, including risks of delays and
cost overruns as a result of a number of factors, many
of which may be out of our control, such as delays in
government approvals, burdensome permit conditions and
delays in the customization, delivery, and installation
of manufacturing equipment from numerous suppliers; and |
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we may be required to depend on third parties or
strategic partnerships that we establish in the
development and operation of additional production
capacity, which may subject us to risks that such third
parties do not fulfill their obligations to us under our
arrangements with them. |
If we are unable to develop and successfully operate additional manufacturing facilities,
establish contract manufacturing relationships or license our technologies, or if we encounter any
of the risks described above, we may be unable to scale our business to the extent necessary to
improve results of operations and achieve profitability. Moreover, there can be no assurance that
if we do expand our manufacturing capacity, establish contract manufacturing relationships or
license our technologies, that we will be able to generate customer demand for our solar power
products at these production levels or that we will increase our revenues or achieve profitability.
Our dependence on a limited number of suppliers for certain materials, including key components for
our solar power products and capital equipment could adversely affect our ability to manufacture
and timely deliver our products.
We manufacture products using materials and components procured from a limited number of suppliers
and certain materials and components we use are proprietary or available only from a limited number
of sources, primarily our wafer furnaces and high temperature filament. Our materials and
components supply chain, therefore, makes us more susceptible to quality issues, shortages and
price changes. If we fail to develop, maintain or expand
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relationships
with suppliers, or if our
suppliers fail to supply good quality materials on time that meet our cost requirements we may be
unable to manufacture our products in a timely and cost-effective manner.
If the market price of polysilicon continues to decrease, we could be at a significant competitive
disadvantage because we have entered into multi-year polysilicon contracts.
The market price for polysilicon has been decreasing steadily since mid-2008. Polysilicon
prices are expected to continue to decline and could fall below the price we have contracted for
with our long-term silicon suppliers. We may not be able to modify the contracted price charged to
us by our suppliers. Other wafer manufacturers may be able to enter into long-term contracts or buy
polysilicon on the spot market at lower prices than those at which we have contracted with our
suppliers. If the price we pay for polysilicon is significantly higher than the price paid by our
competitors, our competitive cost advantage of producing wafers could decrease. Our inability to
reduce a key manufacturing cost to the same degree as our competitors could adversely affect our
ability to price our products competitively and generate favorable profit margins.
Our solar power products may not gain market acceptance, which would prevent us from achieving
increased revenues and market share.
The development of a successful market for our solar power products may be adversely affected
by a number of factors, many of which are beyond our control, including:
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our failure to produce solar power products that compete favorably against other
solar power products on the basis of cost, quality and performance; |
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our failure to produce solar power products that compete favorably against
conventional energy sources and alternative distributed generation technologies,
such as wind and biomass, on the basis of cost, quality and performance; |
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whether or not customers will accept our new panel designs under development; and |
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our failure to develop and maintain successful relationships with distributors,
systems integrators, project developers and other resellers, as well as
strategic partners. |
If our solar power products fail to gain market acceptance, we would be unable to increase our
revenues and market share and to achieve and sustain profitability.
Technological changes in the solar power industry could render our solar power products
uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline.
The solar power market is characterized by continually changing technology requiring improved
features, such as increased efficiency, higher power output and lower price. Our failure to further
refine our wafer manufacturing technology and develop and introduce new lower cost solar power
products could cause our products to become uncompetitive or obsolete, which could reduce our
market share and cause our revenues to decline. A variety of competing solar power technologies are
under development by other companies that could result in lower manufacturing costs or higher
product performance than those expected for our solar power products. Our development efforts may
be rendered obsolete by the technological advances of others, and other technologies may prove more
advantageous for the commercialization of solar power products.
Our ability to increase market share and revenues depends on our ability to successfully maintain
our existing distribution relationships and expand our distribution channels.
We currently sell our solar power products primarily to domestic and international
distributors, system integrators, project developers and other resellers, which typically resell
our products to end users on a global basis. During our year ended December 31, 2009, we sold our
solar power products to approximately 90 distributors, system integrators, project developers and
other resellers. Approximately 77% of our products were sold to just 10
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of these distribution
partners. If we are unable to successfully maintain our existing distribution relationships and
expand our distribution channels, our revenues and future prospects will be materially harmed. As
we seek to grow our revenues by entering new markets in which we have little experience selling our
products, our ability to increase market share and revenues will depend substantially on our
ability to expand our distribution channels by identifying, developing and maintaining
relationships with resellers. We may be unable to enter into relationships with resellers in the
markets we target or on terms and conditions favorable to us, which could prevent us from entering
these markets or entering these markets in accordance with our plans. Our ability to enter into and
maintain relationships with resellers will be influenced by the relationships between these
resellers and our competitors, market acceptance of our products and our lower brand recognition as
a newer entrant and smaller volume producer.
Our dependence on a small number of distribution partners may cause significant fluctuations or
declines in our product revenues.
As of December 31, 2009, approximately 17%, 15% and 14% of our product revenues were generated
from sales to IBC Solar AG, Ralos Vetriebs and Wagner & Co. Solartechnik GmbH. These companies are
in various stages of development and the loss of sales to any of them or the decline of any of
their businesses could materially adversely affect our business, financial condition and results of
operation. We anticipate that sales of our solar power products to a limited number of distribution
partners will continue to account for a significant portion of our total product revenues for the
foreseeable future. Consequently, any one of the following events may cause material fluctuations
or declines in our product revenues and negatively impact our operating results:
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reduction, delay or cancellation of orders from one or more of our significant distribution partners; |
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selection by one or more of our significant distribution partners of products competitive with ours; |
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loss of one or more of our significant distribution partners and our failure to recruit additional
or replacement distribution partners; and |
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failure of any of our significant distribution partners to make timely payment of our invoices. |
Our
current long-term customer contracts for our products will result in a significant portion of
our sales being concentrated among a limited number of customers in 2010 and 2011. The failure of
one or more customers to purchase or pay for our products in accordance with their contractual
commitments could significantly decrease our revenues and harm our business, financial condition
and results of operations.
In 2008, we entered into long-term sales agreement commitments with several customers that
extend until the end of 2013. These customers have agreed to purchase, in the aggregate, a
substantial portion of our estimated total manufacturing output for 2010.
The failure of these customers to purchase product as agreed in our contracts, or pay for
product purchased, could significantly harm our business, financial condition and results of
operations. Given the nature of the market for our products and the terms of our customer
contracts, we were required to reduce our prices, reduce contracted volumes and modify other
payment terms on occasion during 2009. Further price reductions will result in lower revenues and
decreased margins. Our sales contracts allow for customers to request
price changes based upon current market conditions; and we may have
to amend contracts for volumes or pricing, as we did during 2009, in
order to remain competitive in the marketplace in the future.
Problems with product quality or product performance may cause us to incur warranty expenses and
may damage our market reputation and prevent us from achieving increased sales and market share.
Consistent with standard practice in the solar industry, the duration of our product
warranties is lengthy. Our current standard product warranty includes a five-year warranty period
for defects in material and workmanship and a 25-year warranty period for declines in power
performance beyond specified levels. We believe our warranty periods are consistent with industry
practice. Due to the long warranty period, we bear the risk of extensive warranty claims long after
we have shipped product and recognized revenues. Although we have sold solar panels since 1997, the
substantial majority of them have been operating for less than four years. The possibility of
future product
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failures could cause us to incur substantial expenses to repair or replace defective
products. Furthermore, widespread product failures may damage our market reputation and reduce our
market share and cause sales to decline.
The success of our business depends on the continuing contributions of our key personnel and our
ability to attract and retain new qualified employees, especially in China.
If we were to lose the services of any of our executive officers and key employees, our
business could be materially and adversely impacted. In addition, over the next 24 months, we
must hire and retain about 175 employees in China, including 10 in key management and technology
positions.
Because we utilize highly flammable materials in our manufacturing processes, we are subject to the
risk of losses arising from explosions and fires, which could materially adversely affect our
financial condition and results of operations.
We utilize highly flammable materials in our manufacturing processes. By utilizing these
materials, we are subject to the risk of losses arising from explosions and fires. Our inability to
fill customer orders during an extended business interruption could materially adversely impact
existing distribution partner relationships resulting in market share decreases and reduced
revenues.
The reduction or elimination of government subsidies and economic incentives for solar technology
could cause our revenues to decline.
We believe that the growth of the majority of our target markets depends on the availability
and size of government subsidies and economic incentives for solar technology. Today, while
declining, the cost of solar power exceeds the cost of power furnished by the electric utility
grid. As a result, federal, state and local governmental bodies in many countries have provided
subsidies in the form of cost reductions, tax incentives and other incentives to end users,
distributors, systems integrators, other resellers and manufacturers of solar power products to
promote the use of solar energy and to reduce dependency on other forms of energy. In the future,
these government subsidies and economic incentives could be reduced or eliminated altogether. For
example, German subsidies decline at a rate of 7.0% to 10.0% per year (based on the type and size
of the PV system) and the German government recently announced additional declines during mid-2010.
In addition, the Emerging Renewables Program in California has finite funds that may not last
through the current program period. California subsidies have declined in the past and will
continue to decline as cumulative installations exceed stated thresholds. Net metering policies in
California, which currently only require each investor owned utility to provide net metering up to
2.5% of its aggregate customer peak demand, could also limit the amount of solar power installed
within California. In the United States, the 30% Investment Tax Credit for solar energy has been
extended through 2016. The Economic Stimulus Bill just signed by President Obama offers additional
benefits, however, until the details of the implementation of this bill are solidified, it is
unknown how rapidly or to what magnitude the solar industry will be effected. The reduction or
elimination of government subsidies and economic incentives would likely reduce the size of these
markets or result in increased price competition, which could cause our revenues to decline.
If solar power technology is not suitable for widespread adoption or sufficient demand for solar
power products does not develop or takes longer to develop than we anticipate, our revenues would
not significantly increase and we would be unable to achieve or
sustain profitability.
The market for solar power products is emerging and rapidly evolving, and its future success
is uncertain. If solar power technology proves unsuitable for widespread commercial deployment or
if demand for solar power products fails to develop sufficiently, we would be unable to generate
enough revenues to achieve and sustain profitability. In addition, demand for solar power products
in the markets and geographic regions we target may not develop or may develop more slowly than we
anticipate. Many factors will influence the widespread adoption of solar power technology and
demand for solar power products, including:
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cost-effectiveness of solar power technologies as compared with conventional and non-solar alternative
energy technologies; |
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performance and reliability of solar power products as compared with conventional and non-solar alternative
energy products; |
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success of alternative distributed generation technologies such as fuel cells, wind power and micro turbines; |
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fluctuations in economic and market conditions that impact the viability of conventional and non-solar
alternative energy sources, such as increases or decreases in the prices of oil and other fossil fuels; |
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capital expenditures by customers that tend to decrease when the United States or global economy slows; |
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continued deregulation of the electric power industry and broader energy industry; and |
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availability of government subsidies and incentives. |
If we are unable to protect our unique intellectual property adequately, we could lose our
competitive advantage in the solar power market.
Our ability to compete effectively against competing solar power technologies will depend, in
part, on our ability to protect our current and future proprietary technology, product designs and
manufacturing processes by obtaining, maintaining, and enforcing our intellectual property rights
through a combination of patents, copyrights, trademarks, and trade secrets and also through unfair
competition laws. We may not be able to obtain, maintain or enforce adequately our intellectual
property and may need to defend our products against infringement or misappropriation claims,
either of which could result in the loss of our competitive advantage in the solar power market and
materially harm our business and profitability. We face the following risks in protecting our
intellectual property and in developing, manufacturing, marketing and selling our products:
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although we have a number of foreign patents and
applications, the laws of some foreign jurisdictions,
particularly China, do not protect intellectual property
rights to the same extent as laws in the United States,
and we may encounter difficulties in protecting and
defending our rights in such foreign jurisdictions; |
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to the extent we license our technology to third parties
in foreign countries, we may encounter difficulties in
protecting and defending our intellectual property
rights against such third parties and others; and |
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we also rely substantially on trade secret protections
to protect our interests in proprietary know-how and
processes for which patents are difficult to obtain or
enforce; however, we may not be able to protect our
trade secrets adequately. |
We may be unable to protect adequately or enforce our proprietary information, particularly
with its use in our new China manufacturing location and efforts to
partner with a Chinese supplier
to further develop our proprietary technology, which may result in its unauthorized use, reduced
revenues or otherwise reduce our ability to compete.
Our business and competitive position depend upon our ability to protect our proprietary
technology, including any manufacturing processes and solar power products that we develop. Despite
our efforts to protect this information, unauthorized parties may attempt to obtain and use
information that we regard as proprietary. Any patents issued in connection with our efforts to
develop new technology for solar power products may not be broad enough to protect all of the
potential uses of the technology or may provide us with limited ability to restrict third parties
from using our technology in certain jurisdictions like China.
We pursue a policy of having our employees, consultants and advisors execute proprietary
information and invention agreements when they begin working for us. However, these agreements may
not provide meaningful
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protection for our trade secrets or other proprietary information in the
event of unauthorized use or disclosure. If we fail to maintain trade secrets and patent
protection, our potential, future revenues may be decreased.
Licenses for technologies and intellectual property may not be available to us.
We have entered into license agreements for technologies and intellectual property rights,
including an agreement relating to the manufacture of high temperature filament we intend to use to
produce String Ribbon wafers. Any of our license agreements may be subject to terms and conditions
which may limit our ability to use the licensed intellectual property under certain circumstances.
For example, our license to manufacture high temperature filament may terminate if we materially
breach the license agreement or if we abandon the construction of a manufacturing facility to
exploit the licensed technology. We may need to enter into additional license agreements in the
future for other technologies or intellectual property rights of third parties. Such licenses,
however, may not be available to us on commercially reasonable terms or at all.
Existing regulations and changes to such regulations concerning the electrical utility industry may
present technical, regulatory and economic barriers to the purchase and use of solar power
products, which may significantly reduce demand for our products.
The market for electricity generation products is heavily influenced by foreign, federal,
state and local government regulations and policies concerning the electric utility industry, as
well as internal policies and regulations promulgated by electric utilities. These regulations and
policies often relate to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries, these regulations
and policies are being modified and may continue to be modified. Customer purchases of, or further
investment in the research and development of, alternative energy sources, including solar power
technology, could be deterred by these regulations and policies, which could result in a
significant reduction in the potential demand for our solar power products. For example, utility
companies commonly charge fees to larger, industrial customers for disconnecting from the electric
grid or for having the capacity to use power from the electric grid for back-up purposes. These
fees could increase the cost to our customers of using our solar power products and make them less
desirable, thereby harming our business, prospects, results of operations and financial condition.
We anticipate that our solar power products and their installation will be subject to
oversight and regulation in accordance with national, state and local laws and ordinances relating
to building codes, safety, environmental protection, utility interconnection and metering and
related matters. There is also a burden in having to track the requirements of individual states
and design equipment to comply with the varying standards. Any new government regulations or
utility policies pertaining to our solar power products may result in significant additional
expenses to us and our resellers and their customers and, as a result, could cause a significant
reduction in demand for our solar power products.
Compliance with environmental regulations can be expensive, and noncompliance with these
regulations may result in potentially significant monetary damages, penalties, adverse publicity or
interruptions to our business.
If we fail to comply with present or future environmental laws or regulations we may be
required to pay substantial civil or criminal penalties, incur significant capital expenditures,
suspend or limit production or cease operations. We use toxic, volatile and otherwise hazardous
chemicals in our research and development and manufacturing activities, and generate and discharge
hazardous emissions, effluents and wastes from these operations. Any failure by us to control the
use of or generation of, or to restrict adequately the discharge or disposal of, hazardous
substances or wastes or to otherwise comply with the complex, technical environmental regulations
governing our activities could subject us to potentially significant monetary damages and
penalties, criminal proceedings, third party property damage or personal injury claims, natural
resource damage claims, cleanup costs or other costs, or restrictions or suspensions of our
business operations. In addition, under some foreign, federal and state statutes and regulations
governing liability for releases of hazardous substances or wastes to the environment, a
governmental agency or private party may seek recovery of response costs or damages from generators
of the hazardous substances or operators of property where releases of hazardous substances have
occurred or are ongoing, even if such party was not responsible for the release or otherwise at
fault. Also, federal, state or international
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environmental laws and regulations may ban or restrict
the availability and use of certain hazardous or toxic raw materials that are or may be used in
producing our products, and substitute materials may be more costly or unsatisfactory in
performance. We believe that we either have all environmental permits necessary to conduct our
business or have initiated the process to obtain additional or modified environmental permits
needed to conduct our business. While we are not aware of any outstanding, material environmental
claims, liabilities or obligations, future developments such as the implementation of new, more
stringent laws and regulations, more aggressive enforcement policies, or the discovery of unknown
environmental conditions associated with our current or past operations or properties may require
expenditures that could have a material adverse effect on our business, results of operations or
financial condition. Any noncompliance with or incurrence of liability under environmental laws may
subject us to adverse publicity, damage our reputation and competitive position and adversely
affect sales of our products.
Our Devens, Massachusetts manufacturing facility has been constructed on part of the former
Fort Devens Army base, which is associated with contamination caused by prior military activities
on and near the site. Fort Devens closed in the early 1990s and subsequently underwent
environmental remediation according to an agreement between the U.S. Environmental Protection
Agency, or the EPA, and the U.S. Army. As a condition to
the lease for the property, we must not disturb existing groundwater monitoring wells and must
allow the U.S. Army access to the property to conduct testing and remedial activities. If
environmental contamination is found on the Devens site it could be incorrectly attributed to our
activities or the U.S. Army could be required to take additional remedial actions on the Devens
site. Any such activities could disrupt the operation of our manufacturing facility.
Noncompliance with noise regulations at our Devens facility may result in an interruption to our
manufacturing which would have a material adverse affect on our production levels and our business.
We have had difficulty complying with noise limitations at our Devens facility. In late-March
2009, initial complaints regarding noncompliance with applicable noise restrictions were made to
the Devens Enterprise Commission (or the DEC), the governmental authority that regulates
development and zoning within the Devens Enterprise Zone where our Devens, Massachusetts
manufacturing facility is located. After the issuance by the DEC of two noncompliance notices,
initial efforts by us to remedy the noncompliance and various administrative proceedings, on July
14, 2009, the DEC adopted a Resolution which required us to attenuate certain noises being
generated by the Devens facility in violation of the DECs noise regulations by September 2009.
Despite our efforts to meet our obligations under the Resolution, we have still not received a
permanent certificate of occupancy for the facility. Our temporary certificate of occupancy for
the facility has been extended until August 2010 but we cannot be certain when or whether we will
obtain a permanent certificate of occupancy. Failure to obtain a permanent certificate of
occupancy, extend our temporary certificate of occupancy or certain noncompliance with applicable
noise regulations could result in a shutdown of our manufacturing facility and have a material
adverse affect on our production levels and our business.
Litigation against Lehman Brothers and Barclays to recover shares of our common stock loaned to
Lehman Brothers could be expensive, time-consuming and ultimately unsuccessful.
We filed suit in the United States Bankruptcy Court for the Southern District Court of New
York against Barclays and Lehman Brothers entities seeking the return of 12.2 million shares of our
common stock previously loaned by us to Lehman Brothers in July 2008. In February 2009, Lehman
Brothers and Barclays filed motions to dismiss our claims. We have opposed the motions to dismiss
but expect Lehman Brothers and Barclays to vigorously support their motions and to continue to
defend their position against our claims. We may incur significant legal expenses and allocate
management time and attention to the litigation. Despite our expense and efforts, no assurance can
be provided that we will be able to recover any of the shares or be awarded any damages from Lehman
Brothers or Barclays.
If Lehman Brothers claims against us arising out of our capped call agreement are successful, our financial position would be materially adversely affected.
As previously disclosed, we have received notification from Lehman Brothers OTC Derivatives
Inc. (LB OTCD) purporting to terminate the capped call transaction that we entered into
concurrent with our senior convertible debt offering in June 2008. On September 25, 2009, we
received a letter from LB OTCD requesting payment of $19,992,487 (plus $340,673 in interest) as
payment for the purported termination of the capped call transaction. If litigation is commenced,
we have reason to believe that LB OTCD will claim at least $5 million more (plus interest) than
previously claimed amounts. We may incur significant legal expenses and allocate management time
and attention to defend against these claims, and cannot predict the outcome of any such claims. If
LB OTCDs claims are successful, our financial position would be materially adversely affected.
In light of economic uncertainty and extremely difficult credit markets, our expansion plans may be
delayed and we may not be able to fulfill customer contracts for shipments in 2011 and beyond.
Continued economic uncertainty and disarray in the world credit markets may adversely impact
our previously announced long-term expansion plans. While we expect to have enough capacity from
our new facility in Devens to
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meet our long term sales contracts in 2010, we are currently
committed to supply aggregate volumes to customers beginning in 2011 that will exceed the expected
capacity of our Devens facility. We do not know whether we will be able to raise additional
financing or whether we will be able to do so on favorable terms and in the necessary timeframe. If
the cost and availability of capital does not improve significantly in the next few quarters, we
may need to delay our expansion plans. If we delay our expansion plans and cannot increase the
production of our products by engaging contract manufacturers or otherwise outsourcing our
manufacturing requirements, as early as the second quarter of 2011 we may not be able to deliver
the volumes of solar panels we have agreed to supply pursuant to our long-term customer supply
agreements.
The significant amount and the structure of our 2008 offering of senior convertible notes could
adversely affect our business, financial condition and results of operations.
We incurred a significant amount of debt and substantial debt service requirements as a result
of the offering of our senior convertible notes completed in July 2008. As of December 31, 2009, we
had $373.8 million of senior convertible notes outstanding, in addition to $33 million of debt due
to the Chinese government associated with the
financing of our Wuhan, China expansion. Our substantial indebtedness could have significant
consequences on our future operations, including:
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requiring us to use a substantial portion of our cash flow from operations to service our indebtedness, which
would reduce our cash flow available for working capital, capital expenditures, development projects and
other general corporate purposes; |
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limiting our flexibility in planning for or reacting to, and increasing our vulnerability to, changes in our
business, the industry in which we operate and the general economy; and |
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placing us at a competitive disadvantage compared to our competitors who have less debt or are less leveraged. |
Any of the above-listed factors could have an adverse effect on our business, financial
condition and results of operations.
Our ability to meet our payment and other obligations depends on our ability to generate
significant cash flow in the future. This, to some extent, is subject to general economic,
financial, competitive, legislative and regulatory factors as well as other factors that are beyond
our control. We cannot assure you that our business will generate sufficient cash flows from
operations, or that future borrowings will be available to us in amounts sufficient and on terms
reasonable to us to support our liquidity needs. If we are not able to generate sufficient cash
flow to service our debt obligations, we may need to refinance or restructure our debt, including
our senior convertible notes, sell assets, reduce or delay capital investments, or seek to raise
additional capital.
We may incur additional indebtedness. If we do so, our increased debt service requirements may
adversely affect our ability to meet our payment obligations on our currently outstanding senior
convertible notes and otherwise successfully grow and operate our business.
Unfavorable changes in foreign currency exchange rates could increase the cost to manufacture our
products or result in foreign currency exchange losses, which could adversely affect our profits,
product orders and market share.
The expansion of our distribution network internationally has increased our exposure to
fluctuation in currency exchange rates. For the year ended December 31, 2009, approximately 69% of
our product revenues were denominated in Euros. The portion of our product revenues that are
denominated in Euros are expected to increase in future periods based on our multi-year solar panel
supply agreements, a portion of which are denominated in Euros and other expected customers. The
combined estimated current sales value of these agreements is approximately $1.8 billion at
December 31, 2009 exchange rates. These panel supply agreements provide the general terms and
conditions pursuant to which certain customers will purchase from us specified annual quantities of
solar panels which primarily began in the second half of 2008 and continue through 2013. As a
result, a
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strengthening of the U.S dollar will decrease our expected U.S. dollar revenue under
these agreements and thereby adversely affect our gross and net profit margins.
From time to time, we purchase equipment and materials internationally with delivery dates as
much as six to twelve months or more in the future. There have been significant currency
fluctuations in recent periods. To the extent that any purchase obligations are denominated in
foreign currency, we are exposed to potential increased costs if the U.S. dollar currency loses
value relative to the applicable foreign currency, which will adversely impacting our future
financial condition and results of operations.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure
to foreign currency exchange risk. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited and we may not be able to
successfully hedge our exposure at all.
Our ability to use net operating loss carryforwards may be subject to limitation.
Section 382 of the U.S. Internal Revenue Code of 1986, as amended, imposes an annual limit on
the amount of net operating loss carryforwards that may be used to offset taxable income when a
corporation has undergone
significant changes in its stock ownership or equity structure. Our ability to use net
operating losses may be limited by prior changes in our ownership, by the issuance of shares of
common stock under this offering, by the issuance of shares of common stock upon conversion of the
Notes, by the issuance of shares of common stock upon conversion of our senior convertible notes,
or by the consummation of other transactions. As a result, if we earn net taxable income, our
ability to use net operating loss carryforwards to offset U.S. federal taxable income may become
subject to limitations, which could potentially result in increased future tax liabilities for us.
Provisions of our senior convertible notes could discourage an acquisition of us by a third party.
Certain provisions of the senior convertible notes we issued could make it more difficult or
more expensive for a third party to acquire us, or may even prevent a third party from acquiring
us. For example, upon the occurrence of certain transactions constituting a fundamental change,
holders of the notes will have the right, at their option, to require us to repurchase all of their
notes or any portion of the principal amount of such notes, or, upon certain change of control
transactions, holders of the notes may elect to convert all or a portion of the notes. We may also
be required to increase the conversion rate for conversions in connection with certain fundamental
changes. By discouraging an acquisition of us by a third party, these provisions could have the
effect of depriving the holders of our common stock of an opportunity to sell their common stock,
as applicable, at a premium over prevailing market prices.
We face particular commercial, jurisdictional and legal risks associated with our proposed
expansion in China and our subcontracting relationship with Jiawei.
We expect the cells and panels made for us by Jiawei will represent a substantial portion of
our annual capacity by early 2011. Accordingly, our financial condition, results of operations,
business or prospects could be materially adversely affected if we are not successful in our
subcontracting relationship with Jiawei in China. The success of this relationship and our
activities in China in general are subject to the economic, political and legal conditions or
developments in China.
Examples of economic and political developments that could adversely affect us include
government control over capital investments or changes in tax regulations that are applicable to
us. In addition, a substantial portion of the productive assets in China remain government owned.
The Chinese government also exercises significant control over Chinese economic growth through the
allocation of resources, controlling payment of foreign currency denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies.
Additionally, China has historically adopted laws, regulations and policies which impose additional
restrictions on the ability of foreign companies to conduct business in China or otherwise place
them at a competitive disadvantage in relation to domestic companies. Any adverse change in
economic conditions or government policies in China could have a material adverse effect on our
overall economic growth and therefore have an adverse effect on our financial condition, results of
operations, business or prospects.
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We also face risks associated with Chinese laws and the Chinese legal system. Chinas legal
system is rapidly evolving and, as a result, the interpretation and enforcement of many laws,
regulations and rules are not always uniform and legal proceedings in China often involve
uncertainties. The legal protections available to us may therefore be uncertain and may be limited.
Implementation of Chinese intellectual property related laws has historically been lacking,
primarily because of ambiguities in Chinese laws and difficulties in enforcement. Accordingly, the
intellectual property rights and confidentiality protections available to us in China may not be as
effective as in the United States or other countries. In addition, any litigation brought by or
against us in China may be protracted and may result in substantial costs and diversion of
resources and management attention and the anticipated outcome would be highly uncertain.
Although we have completed agreements with Jiawei and have begun construction of a planned 100
MW facility in Wuhan, China, we are subject to significant risk associated with expanding
production in China requiring substantial management by our employees. Our wafer manufacturing
facility in Wuhan or Jiaweis cell and panel manufacturing facilities may take longer or cost more
to complete than anticipated. Further, expansion beyond the first 100 MW facility may be dependent
upon its initial successful execution, and funding from the Chinese government may be less than
anticipated or may not be available at all, potentially requiring significantly more capital
resources by us.
As a result of the foregoing factors, our financial condition, results of operations, business
or prospects may be materially adversely affected.
Our growing international operations and customer base require us to comply with complex,
multi-national income, value-added and other tax rules, our accruals for which may be insufficient.
Significant judgment is required in determining our worldwide liability for U.S. federal,
state and international taxes, including income tax, value added tax, import and export tax.
Although we believe that our estimates of such provisions and accruals are consistent with
applicable laws and our contractual relationships with customers and suppliers, no assurance can be
given that our provisions and accruals for such taxes have been and will be sufficient. If they are
not sufficient, or our exposure to taxes substantially increases, our financial condition, results
of operation, business or prospects may be adversely affected.
RISKS RELATED TO OUR COMMON STOCK
The issuance or sale of equity, convertible or exchangeable securities in the market, or the
perception of such future sales or issuances, could lead to a decline in the price of our common
stock.
Any issuance of equity, convertible or exchangeable securities, including for the purposes of
financing acquisitions and the expansion of our business, may have a dilutive effect on our
existing stockholders. In addition, the perceived risk associated with the possible issuance of a
large number of shares or securities convertible or exchangeable into a large number of shares
could cause some of our stockholders to sell their stock, thus causing the price of our stock to
decline. Subsequent sales of our common stock in the open market or the private placement of our
common stock or securities convertible or exchangeable into our common stock could also have an
adverse effect on the market price of the shares. If our stock price declines, it may be more
difficult for us to or we may be unable to raise additional capital.
In addition, future sales of substantial amounts of our currently outstanding common stock in
the public market, or the perception that such sales could occur, could adversely affect prevailing
trading prices of our common stock and could impair our ability to raise capital through future
offerings of equity or equity-related securities. We cannot predict what effect, if any, future
sales of our common stock, or the availability of shares for future sales, will have on the market
price of our stock. As of December 31, 2009, we had:
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207,809,919 shares of common stock outstanding; |
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4,095,724 shares of common stock underlying options
outstanding at a weighted average exercise price of
$4.20 per share; |
|
|
|
|
1,520,843 shares of common stock available and reserved
for future issuance or future grant under our Amended
and Restated 2000 Stock Option and Incentive Plan; |
|
|
|
|
117,312 shares of common stock available and reserved
for future issuance or future grant under our Amended
and Restated 2000 Employee Stock Purchase Plan; and |
|
|
|
|
30,856,538 shares of common stock issuable upon the
conversion of our outstanding senior convertible notes
in the aggregate principal amount of $373.8 million at
an initial conversion rate of approximately 82.56 shares
of common stock per $1,000 principal amount of notes
(equivalent to a conversion price of approximately
$12.11 per share). |
In connection with a multi-year polysilicon supply agreement and pursuant to a stockholders
agreement, each of which we entered into with OCI Company Ltd., formerly DC Chemical Co., Ltd.
(OCI), in April 2007, OCI owns 10,750,000 transfer restricted shares of our common stock. The
restrictions on the stock will lapse upon the satisfaction of certain conditions related to OCIs
delivery of polysilicon under the supply agreement, at which time we will be obligated to file a
registration statement pursuant to which such shares will become freely tradable. We currently
expect OCI to satisfy this delivery obligation in early 2010.
Three stockholders own, or claim to own, a large portion of our outstanding voting power
and may be able to influence significantly the outcome of any stockholder vote.
OCI owns 15,698,125 shares of our common stock (which number includes 10,750,000 shares of
transfer restricted common stock, which have full voting rights), Invesco Ltd. beneficially owns
11,767,441 shares of our common stock and BlackRock Inc. beneficially owns 11,066,121 shares of our
common stock., representing respectively approximately 7.6%, 5.7% and 5.3% of our voting power
outstanding as of February 12, 2010. Accordingly, these stockholders can significantly influence
matters requiring approval by our stockholders, including the election of directors and the
approval of mergers or other extraordinary transactions. The interests of these investors may
differ from yours and they may vote in a way with which you disagree and which may be adverse to
your interests. In addition, pursuant to the stockholders agreement we entered into with OCI, OCI
has the right to purchase securities in future offerings we may make. This concentration of
ownership may have the effect of delaying, preventing, or deterring a change of control of our
company, and might ultimately affect the market price of our common stock.
The price of our common stock may fluctuate significantly, which could result in substantial losses
for our stockholders and subject us to litigation.
Our common stock is quoted on The Nasdaq Global Market. The trading price of our common stock
has been and may continue to be volatile. The closing sale prices of our common stock, as reported
by The Nasdaq Global Market, have ranged from $1.00 to $2.79 for the 52-week period from
February 14, 2009 to February 12, 2010. Our operating performance will significantly affect the
market price of our common stock. To the extent we are unable to compete effectively and gain
market share or the other factors described in this risk factors section affect us, our stock price
will likely decline. The market price of our common stock also may be adversely impacted by broad
market and industry fluctuations regardless of our operating performance, including general
economic and technology trends. The Nasdaq Global Market has, from time to time, experienced
extreme price and trading volume fluctuations, and the market prices of technology companies such
as ours have been extremely volatile. In addition, some companies that have experienced volatility
in the market price of their stock have been the subject of securities class action litigation. We
may be involved in securities class action litigation in the future. This litigation often results
in substantial costs and a diversion of managements attention and resources.
Our quarterly revenue, operating results and market price of our common stock have fluctuated
significantly in the past and may fluctuate significantly from quarter to quarter in the future due
to a variety of factors, including:
28
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|
|
the size and timing of orders from distribution partners for shipments of our products; |
|
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|
|
the rate and cost at which we are able to expand our manufacturing capacity to meet
product demand, including the rate and cost at which we are able to implement advances
in our manufacturing technology; |
|
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|
|
our ability to establish and expand key distribution partners and supplier relationships; |
|
|
|
|
our ability and the terms upon which we are able to raise capital sufficient to finance
the expansion of our manufacturing capacity and our sales and marketing efforts; |
|
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|
|
our ability to complete our Wuhan, China facility and other potential capacity
expansions within budget and within the time frame that we expect; |
|
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|
|
the amount and timing of expenses associated with our research and development programs
and our ability to develop enhancements to our manufacturing processes and our products; |
|
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|
|
delays associated with the supply of specialized materials necessary for the manufacture
of our solar power products; |
|
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|
|
our ability to execute our cost reduction programs; |
|
|
|
|
charges resulting from replacing existing equipment or technology with new or improved
equipment or technology as part of our strategy to expand our manufacturing capacity and
to decrease our per unit manufacturing cost; |
|
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|
|
developments in the competitive environment, including the introduction of new products
or technological advancements by our competitors; |
|
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|
|
the timing of adding the personnel necessary to execute our growth plan; and |
|
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|
|
the other risks and uncertainties described in Risk Factors. |
We anticipate that our operating expenses will continue to increase significantly,
particularly as we develop our internal infrastructure to support our anticipated growth in China.
If our product revenues in any quarter do not increase correspondingly, our net losses for that
period will increase. Moreover, given that a significant portion of our operating expenses is
largely fixed in nature and cannot be quickly reduced, if our product revenues are delayed or below
expectations, our operating results are likely to be adversely and disproportionately affected. For
these reasons, quarter-to-quarter comparisons of our results of operations are not necessarily
meaningful and you should not rely on results of operations in any particular quarter as an
indication of future performance. If our quarterly revenue or results of operations fall below the
expectations of investors or public market analysts in any quarter, the market value of our common
stock would likely decrease, and it could decrease rapidly and substantially.
Because we do not intend to pay dividends on our common stock, stockholders will benefit from an
investment in our common stock only if it appreciates in value.
We have never declared or paid any cash dividends on our common stock. We anticipate that we
will retain our future earnings, if any, to support our operations and to finance the growth and
development of our business and do not expect to pay cash dividends in the foreseeable future. As a
result, the success of an investment in our common stock will depend upon any future appreciation
in the value of our common stock. There is no guarantee that our common stock will appreciate in
value or even maintain its current price.
We are subject to anti-takeover provisions in our charter and by-laws and under Delaware law that
could delay or prevent an acquisition of our company, even if the acquisition would be beneficial
to our stockholders.
29
Provisions of our certificate of incorporation and by-laws, each as amended, as well as
Delaware law, could make it more difficult and expensive for a third party to pursue a tender
offer, change in control transaction or takeover attempt that is opposed by our board of directors.
Stockholders who wish to participate in these transactions may not have the opportunity to do so.
We also have a staggered board of directors, which makes it difficult for stockholders to change
the composition of our board of directors in any one year. If a tender offer, change in control
transaction, takeover attempt or change in our board of directors is prevented or delayed, the
market price of our common stock could decline. Even in the absence of a takeover attempt, the
existence of these provisions may adversely affect the prevailing market price of our common stock
if they are viewed as discouraging takeover attempts in the future.
We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our
common stock.
Our certificate of incorporation authorizes us to issue up to 27,227,668 shares of preferred
stock with designations, rights and preferences determined from time-to-time by our board of
directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of
stockholders of our common stock. For example, an issuance of shares of preferred stock could:
|
|
|
adversely affect the voting power of the stockholders of our common stock; |
|
|
|
|
discourage bids for our common stock at a premium and make it more
difficult for a third party to acquire a majority of our common stock; |
|
|
|
|
limit or eliminate any payments that the stockholders of our common stock
could expect to receive upon our liquidation; or |
|
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|
|
otherwise adversely affect the market price of our common stock. |
We have in the past and we may in the future issue additional shares of authorized preferred
stock at any time.
ITEM 2. PROPERTIES.
As of December 31, 2009, we own and occupy approximately 450,000 square feet of manufacturing
and office space located on 23.11 acres of land leased in Devens, Massachusetts from a
Massachusetts state agency for an annual rent of $1. We have an option to purchase this property
on or before November 20, 2012 for a purchase price of $2.7 million or thereafter for the remainder
of the initial 30-year term of the lease for the greater of $2.7 million or the fair market value
of the property. In addition, we own and occupy approximately 31,000 square feet of manufacturing
and office space in Midland, Michigan for our high temperature filament facility. We also lease
approximately 85,000 square feet of office and warehouse space in Marlboro, Massachusetts, Berlin,
Germany and Wuhan, China.
Our leases expire on various dates between June 2010 and January 2014 other than our Devens
land lease which continues until 2037 and can be extended to 2057. As of December 31, 2009, we
were productively utilizing substantially all of the space in our Devens and our Midland
facilities.
We believe that our facilities and future plans to lease are suitable and adequate for our
present needs; and we periodically evaluate whether additional
facilities are necessary.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary conduct of our business, we are also subject to periodic lawsuits,
investigations and claims, including, but not limited to, routine employment matters. Although we
cannot predict with certainty the ultimate
30
resolution of lawsuits, investigations and claims
asserted against us or administrative proceedings, we are not a party to any other material legal
proceedings within the meaning of Item 103 of Regulation S-K other than the following:
Litigation with Barclays and Lehman Brothers.
In October 2008 we filed suit in the United States Bankruptcy Court for the Southern District
Court of New York against Barclays PLC and certain of its affiliated entities (or Barclays), and
Lehman Brothers Holdings Inc. and certain of its affiliated entities (or Lehman Brothers) seeking
the return of approximately 12.2 million shares of our common stock previously loaned by us to
Lehman Brothers in July 2008. Those shares were held by Lehman Brothers when it filed for
bankruptcy and purportedly transferred to an affiliate of Barclays, PLC, Barclays Capital Inc. We
have specifically demanded Barclays immediately return the 12.2 million shares it obtained from
Lehman Brothers after Lehman Brothers filed for bankruptcy on the grounds that, among other things,
Lehman Brothers did not hold title to the shares at the time of the purported transfer to Barclays.
In connection with the initiation of the lawsuit, we asked the Court to enjoin any further
transfer of the shares received by Barclays from Lehman. On November 5, the Bankruptcy Court denied
our motion for such an injunction. In February 2009 we agreed to dismiss our claims against
Barclays PLC as it was determined that the 12.2 million shares had been transferred to Barclays
Capital Inc. and Barclays PLC was not needed as a party to the lawsuit. In February 2009, the
remaining defendants filed motions to dismiss all of our claims. In response, we filed our
opposition to the motions to dismiss and a hearing on the motions to dismiss was held on April 22,
2009. At the April 22 hearing, oral arguments were presented by the defendants and us for and
against the defendants motions to dismiss our claims. The court has not yet ruled on the motions
to dismiss or indicated when it will rule. We cannot predict the outcome of this effort to recover
our shares or payment or damages related thereto.
Noise Noncompliance Proceedings for our Devens Manufacturing Facility.
In late-March 2009, initial complaints regarding noncompliance with applicable noise
restrictions were made to the Devens Enterprise Commission, (or the DEC), the governmental
authority that regulates development and zoning within the Devens Enterprise Zone where our Devens,
Massachusetts manufacturing facility is located.
After the issuance by the DEC of two noncompliance notices, initial efforts by us to remedy
the noncompliance and various administrative proceedings, on July 14, 2009, the DEC adopted a
Resolution which required us to attenuate certain noises being generated by the Devens facility in
violation of the DECs noise regulations by September 2009.
At this time, we believe we are operating in compliance with the DECs regulations but the DEC
has extended the deadline for full compliance with the Resolution so that some testing of noise
levels can be completed and certain other requirements from the Resolution can be addressed,
including a worst scenario test to confirm that the facility will comply with the noise
restrictions under all possible operating conditions, possible modifications to the facility to
enable it to pass the worst case scenario test and the approval of and the installation of a
long-term monitoring system. Our temporary certificate of occupancy for the facility has been
extended until August 2010 and we expect to resolve these matters and obtain a permanent occupancy
permit by then.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES:
Market for Our Common Stock
Our common stock is traded on the Nasdaq Global Market under the symbol ESLR. The following
table sets forth for the calendar periods indicated, the high and low sales price of our common
stock on the Nasdaq Global Market.
31
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
18.62 |
|
|
$ |
7.52 |
|
Second Quarter |
|
$ |
12.64 |
|
|
$ |
8.08 |
|
Third Quarter |
|
$ |
10.63 |
|
|
$ |
3.30 |
|
Fourth Quarter |
|
$ |
6.14 |
|
|
$ |
1.89 |
|
Year ended December 31, 2009 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
3.79 |
|
|
$ |
1.00 |
|
Second Quarter |
|
$ |
2.96 |
|
|
$ |
1.70 |
|
Third Quarter |
|
$ |
2.45 |
|
|
$ |
1.57 |
|
Fourth Quarter |
|
$ |
1.86 |
|
|
$ |
1.37 |
|
On February 26, 2010, the last reported sale price for our common stock on the Nasdaq Global
Market was $1.12 per share. As of February 26, 2010, there were 207,875,047 shares of our common
stock outstanding held by approximately 518 holders of record.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We anticipate that we
will retain our earnings to support operations and to finance the growth and development of our
business and do not expect to pay cash dividends on our common stock in the foreseeable future.
Equity Compensation Plan Information
Information about our equity incentive plans can be found in Part III, Item 12 of this Annual
Report on Form 10-K and in Note 11 and Note 19 to our consolidated financial statements contained
within this Annual Report on Form 10-K.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on our common stock
against the cumulative total return of (i) the Hemscott Weighted Nasdaq Index (the NASDAQ Market
Index) and (ii) an SIC Index that includes all organizations in the Hemscott Group 836 Code
Index Diversified Electronics (the Hemscott Group Index) for the five fiscal years beginning
January 1, 2005 and ending December 31, 2009. The comparison assumes $100 was invested at the
close of business on December 31, 2004, the last trading day before the beginning of our fifth
preceding fiscal year, in our common stock and in each of the foregoing indices and assumes
dividends, if any, were reinvested. The comparisons are provided in response to SEC disclosure
requirements and are not intended to forecast or be indicative of future performance.
32
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG EVERGREEN SOLAR, INC.,
NASDAQ MARKET INDEX AND HEMSCOTT GROUP
INDEX (1)(2)
ASSUMES $100 INVESTED ON JAN. 01, 2005
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/04 |
|
12/31/05 |
|
12/31/06 |
|
12/31/07 |
|
12/31/08 |
|
12/31/09 |
Evergreen Solar, Inc. |
|
$ |
100.00 |
|
|
$ |
243.71 |
|
|
$ |
173.23 |
|
|
$ |
395.19 |
|
|
$ |
73.00 |
|
|
$ |
34.55 |
|
HemScott Group Index |
|
$ |
100.00 |
|
|
$ |
98.75 |
|
|
$ |
107.49 |
|
|
$ |
133.60 |
|
|
$ |
63.30 |
|
|
$ |
86.21 |
|
NASDAQ Market Index |
|
$ |
100.00 |
|
|
$ |
102.20 |
|
|
$ |
112.68 |
|
|
$ |
124.57 |
|
|
$ |
74.71 |
|
|
$ |
108.56 |
|
|
|
|
(1) |
|
This Stock Performance Graph is not soliciting
material, is not deemed filed with the Securities
and Exchange Commission and shall not be incorporated
by reference in any of our filings under the
Securities Act of 1933 or the Securities Exchange Act
of 1934, whether made before or after the date hereof
and irrespective of any general incorporation
language in any such filing. |
|
(2) |
|
Information used to prepare this Stock
Performance Graph was obtained from Hemscott, Inc., a
source believed to be reliable, but we are not
responsible for any errors or omissions in such
information. |
33
ITEM 6. SELECTED FINANCIAL DATA.
You should read the data set forth below in conjunction with our financial statements and
related notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this filing. The statement of operations data presented below
for the fiscal years ended December 31, 2007, 2008, and 2009 and the balance sheet data at December
31, 2008 and 2009 have been derived from our audited financial statements which appear elsewhere in
this filing. The statement of operations data presented below for the years ended December 31, 2005
and 2006, and the balance sheet data at December 31, 2005, 2006 and 2007 have been derived from our
audited financial statements, which are not included in this filing. As of December 31, 2005 we
owned 64% of Sovello. On December 19, 2006 we reduced our interest to one-third. As a result of
our reduction in ownership to one-third, effective December 20, 2006, we account for our ownership
interest in Sovello using the equity method of accounting. Under the equity method of accounting,
we report our one-third share of Sovellos net income or loss as a single line item in our income
statement and our investment in Sovello as a single line item on our balance sheet. Prior to
December 20, 2006, we consolidated Sovellos results of operations into our results of operations.
Therefore, our results of operations from prior periods are not comparable with our results of
operations since December 20, 2006. Under our sales agreement with Sovello, until December 31, 2008
we marketed and sold all solar panels manufactured by Sovello under the Evergreen Solar brand, as
well as managed customer relationships and contracts related to those sales for which we receive
fees. We do not report product revenue or cost of revenue for the sale of Sovello manufactured
panels. We also receive royalty payments pursuant to our technology license agreement with Sovello.
Effective January 1, 2009 we adopted the new guidance included in the Consolidation and Debt
Conversion and Other topics of the FASB codification. The impact of these
accounting standards, which required retrospective application, is included in the table below.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
STATEMENT OF OPERATIONS DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
43,627 |
|
|
$ |
102,252 |
|
|
$ |
58,334 |
|
|
$ |
95,245 |
|
|
$ |
267,112 |
|
Royalty and fee |
|
|
|
|
|
|
|
|
|
|
11,532 |
|
|
|
16,714 |
|
|
|
4,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
43,627 |
|
|
|
102,252 |
|
|
|
69,866 |
|
|
|
111,959 |
|
|
|
271,848 |
|
Cost of revenues |
|
|
39,954 |
|
|
|
90,310 |
|
|
|
52,838 |
|
|
|
93,073 |
|
|
|
253,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,673 |
|
|
|
11,942 |
|
|
|
17,028 |
|
|
|
18,886 |
|
|
|
18,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
10,622 |
|
|
|
18,390 |
|
|
|
20,594 |
|
|
|
22,039 |
|
|
|
18,058 |
|
Selling, general and administrative |
|
|
12,708 |
|
|
|
21,890 |
|
|
|
20,608 |
|
|
|
23,868 |
|
|
|
26,260 |
|
Write-off of loan receivable from silicon supplier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,882 |
|
Equipment write-offs |
|
|
|
|
|
|
1,526 |
|
|
|
|
|
|
|
8,034 |
|
|
|
6,008 |
|
Facility start-up |
|
|
|
|
|
|
|
|
|
|
1,404 |
|
|
|
30,623 |
|
|
|
10,107 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,413 |
|
|
|
11,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
23,330 |
|
|
|
41,806 |
|
|
|
42,606 |
|
|
|
114,977 |
|
|
|
116,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(19,657 |
) |
|
|
(29,864 |
) |
|
|
(25,578 |
) |
|
|
(96,091 |
) |
|
|
(97,891 |
) |
Other income (expense), net |
|
|
1,146 |
|
|
|
1,851 |
|
|
|
6,806 |
|
|
|
249 |
|
|
|
(19,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before noncontrolling interest, equity income (loss) and impairment of investment |
|
|
(18,511 |
) |
|
|
(28,013 |
) |
|
|
(18,772 |
) |
|
|
(95,842 |
) |
|
|
(117,493 |
) |
Equity income (loss) from interest in Sovello AG |
|
|
|
|
|
|
495 |
|
|
|
2,170 |
|
|
|
8,435 |
|
|
|
(29,748 |
) |
Impairment and other charges associated with equity investment in Sovello AG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,057 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss including noncontrolling interest |
|
|
(18,511 |
) |
|
|
(27,518 |
) |
|
|
(16,602 |
) |
|
|
(87,407 |
) |
|
|
(265,208 |
) |
Net loss attributable to noncontrolling interest |
|
|
1,195 |
|
|
|
849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Evergreen Solar, Inc. |
|
$ |
(17,316 |
) |
|
$ |
(26,669 |
) |
|
$ |
(16,602 |
) |
|
$ |
(87,407 |
) |
|
$ |
(265,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Evergreen Solar, Inc. (basic and diluted) |
|
$ |
(0.29 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.67 |
) |
|
$ |
(1.41 |
) |
Weighted average shares used in computing basic and
diluted net loss per share |
|
|
59,631 |
|
|
|
65,662 |
|
|
|
86,799 |
|
|
|
130,675 |
|
|
|
187,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities * |
|
$ |
116,207 |
|
|
$ |
49,421 |
|
|
$ |
140,703 |
|
|
$ |
177,509 |
|
|
$ |
112,368 |
|
Investment in and advances to Sovello AG |
|
|
|
|
|
|
70,460 |
|
|
|
87,894 |
|
|
|
115,553 |
|
|
|
|
|
Working capital |
|
|
124,404 |
|
|
|
57,590 |
|
|
|
112,228 |
|
|
|
158,753 |
|
|
|
172,234 |
|
Total assets |
|
|
228,959 |
|
|
|
207,251 |
|
|
|
553,255 |
|
|
|
1,004,907 |
|
|
|
824,309 |
|
Subordinated convertible notes |
|
|
90,000 |
|
|
|
90,000 |
|
|
|
90,000 |
|
|
|
|
|
|
|
|
|
Senior convertible notes, net of discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,531 |
|
|
|
323,276 |
|
Total stockholders equity |
|
|
98,673 |
|
|
|
92,847 |
|
|
|
393,293 |
|
|
|
583,083 |
|
|
|
395,643 |
|
|
|
|
* |
|
Includes restricted cash at December 31, 2007 |
35
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EXECUTIVE OVERVIEW
We develop, manufacture and market String Ribbon solar panels utilizing our proprietary wafer
manufacturing technology. Our technology involves a unique process to produce multi-crystalline
silicon wafers by growing thin strips of silicon that are then cut into wafers.
This process substantially reduces the amount of silicon and other processing costs required to
produce a wafer when compared to conventional sawing processes. Silicon is the key raw material in
manufacturing multi-crystalline silicon wafers. With current silicon consumption of about 3.9 grams
per watt, we believe we are the industry leader in efficient silicon consumption and use
approximately half the silicon used by wafer manufacturers utilizing conventional sawing processes.
The wafers we produce are the primary components of photovoltaic (PV) cells which, in turn, are
used to produce solar panels. We believe that our proprietary and patented technologies offer
significant cost and manufacturing advantages over competing silicon-based wafer manufacturing
technologies.
Our revenues today are primarily derived from the sale of solar panels. We sell our
products using distributors, systems integrators and other value-added resellers, who often add
value through system design by incorporating our panels with electronics, structures and wiring
systems. Applications for our products primarily include on-grid generation, in which supplemental
electricity is provided to an electric utility grid. Our products are currently sold to customers
primarily in Europe and the United States. As of December 31, 2009, we had approximately 830
megawatts (MW) of backlog remaining under our existing long-term contracts with deliveries
scheduled through 2013. Our sales contracts allow for our customers to request price changes based
upon current market conditions, and we may have to amend contracts for volumes or pricing, as we
did during 2009, in order to remain competitive in the marketplace in the future.
Our wafer manufacturing technology is proven. Large-scale commercial application of our
technology, using furnaces that grow two thin strips of multi-crystalline silicon, began in 2005
with the opening of Sovello AG (formally EverQ GmbH), our joint
venture with Renewable Energy
Corporation ASA (REC) and Q-Cells SE (Q-Cells). Since its opening, Sovello has produced and shipped
over 200 MW of product using our wafer technology.
Through
on-going research and design efforts and process changes, we
continuously improve our wafer manufacturing
technology and our ability to manufacture multi-crystalline silicon wafers. Our manufacturing
facility in Devens, Massachusetts uses our Quad wafer furnace equipment, which grows four thin
strips of multi-crystalline silicon from one furnace and incorporates a state of the art automated
laser cutting technology that further improves our wafer manufacturing process. To date, we have
produced and shipped approximately 113 MW of product from our Devens facility.
Our Devens facility has continuously met its key operation goals of rapid sequential
production increases and significantly reduced manufacturing costs since opening in mid-2008. Our
wafer cost at Devens for the fourth quarter 2009 was about $0.69 per watt which we believe is among
the lowest in the industry, even at the relatively small volumes currently produced at our Devens
facility and silicon cost at about $90 per kilogram, proving our competitive advantage in wafer
manufacturing.
Our total panel cost was about $2.05 per watt in the fourth quarter 2009, down from $3.19 in
the first quarter of the year. However, solar panel prices have fallen precipitously since
mid-2008 making it very difficult for manufacturers located in high-cost regions to remain price
competitive. Therefore, we are accelerating our strategic initiative of focusing on our unique
wafer manufacturing technology and will begin to transition our Devens-based panel assembly to
China beginning later in 2010. We expect that by moving panel assembly to China we will be able to
substantially reduce manufacturing costs. We expect the transition of panel assembly to China will
take approximately 12 to 18 months to complete, and that panel production, whether produced at
Devens or in China using cells produced at Devens, will be at least 35 MW each quarter.
After the transition is complete we will continue to produce wafers and cells at Devens and
may increase capacity if market demand warrants. If long-term demand for panels manufactured in the
US significantly increases, we will be well positioned to quickly reintroduce panel assembly at
Devens. We estimate we will incur non-cash
36
charges of approximately $40 million associated with the
accelerated depreciation of panel assembly equipment,
which is expected to be recognized ratably through mid-2011 beginning with the fourth quarter
of 2009 and cash charges, principally compensation costs of about $3 million in 2011.
As part of our strategy of long-term growth and focusing on our core wafer manufacturing
technology, on July 30, 2009, we announced that we had finalized agreements with Jiawei Solarchina
Co., Ltd., and Hubei Science & Technology Investment Co., Ltd., an investment fund sponsored by the
government of Hubei, China (HSTIC) to expand our manufacturing operations into China. Under these
agreements:
|
|
|
We will manufacture String Ribbon wafers using our state-of-the-art Quad furnaces
at a leased facility being built by Jiawei in Wuhan, China on Jiaweis campus. |
|
|
|
|
Jiawei will convert the String Ribbon wafers into Evergreen Solar-branded panels on
a contract manufacturing basis. |
|
|
|
|
We will reimburse Jiawei for its cell and panel conversion costs, plus a contract
manufacturing fee. The actual price paid to Jiawei will be negotiated annually. |
|
|
|
|
Evergreen Solar has invested $17 million in cash and equipment in the Wuhan wafer
manufacturing operation to date. HSTIC has provided us $33 million of 7.5% financing,
which we must repay no later than July 2014. Jiawei will make a similar investment for its
cell and panel operations with the support of HSTIC. |
|
|
|
|
Initial capacity is expected to be approximately 100 MW. Factory construction has
begun and the parties expect that wafer, cell and panel production will begin in mid-2010. |
|
|
|
|
The parties intend to expand production capacity of their respective manufacturing
operations to approximately 500 MW by 2012, the timing and extent of any potential
expansion will be determined in 2010. |
Total cost estimated for the initial 100 MW wafer manufacturing facility is expected to be
approximately $55 to $60 million, the majority of which is for quad wafer furnaces. As the first
phase of our investment in China reaches 20 to 25 MW of capacity per quarter in early 2011, we
expect to initially produce a wafer for about $0.40 per watt, and with Jiaweis low cost cell and
panel manufacturing capabilities, a panel for about $1.25 per watt. As we continue to advance the
technology, make improvements in factory operations and add scale, we expect that we will be
producing Evergreen-branded solar panels for no more than $1.00 per watt by the end of 2012,
including an all in wafer cost of about $0.30 per watt.
On December 29, 2008, as part of ongoing efforts to lower overhead costs and reduce overall
cash requirements, we committed to a plan to cease operations at our pilot manufacturing facility
in Marlboro, Massachusetts. Production at the facility ceased on December 31, 2008. As a result
of the cessation of manufacturing in Marlboro, during 2008 we recorded restructuring costs,
principally non-cash charges, of approximately $30.4 million associated with the write-off of
manufacturing and development equipment, inventory and leasehold improvements of the Marlboro pilot
facility. As exhibited by Devens financial performance in 2009, closing the Marlboro pilot
manufacturing facility and better utilizing existing equipment and facilities at our research and
development center and at our Devens manufacturing facility has resulted in lower overhead costs
and reduced overall cash requirements.
At December 31, 2009, we had approximately $112.4 million of cash and cash equivalents, which
includes approximately $33 million received from HSTIC as part of its funding obligation for our
Wuhan, China factory expansion. Through 2010, our major cash requirements are expected to be
approximately $97 million, comprised of:
|
|
|
Capital required for our Wuhan, China expansion of about $50 million; |
|
|
|
|
Final acceptance payments on equipment for Devens of about $7 million; |
37
|
|
|
First phase of our Midland filament factory of about $3 million; |
|
|
|
|
Sustaining capital of about $7 million; |
|
|
|
|
Estimated payments for Sovello matters of about $15 million; and |
|
|
|
|
Debt service of about $15 million. |
We have sales contracts for approximately 100 MW of product to be manufactured at our Devens
facility for delivery during 2010. Our sales plan assumes there should be sufficient market demand
to sell the expected Devens manufacturing capacity at continually declining selling prices. We will
moderate our production levels depending on changes in market demands during the year.
We believe that our business plan will provide sufficient liquidity to fund our planned
capital programs, our share of any potential funding requirements related to our investment in
Sovello and our operating needs for at least the next 12 months. While our business plan anticipates certain
levels of potential risk, particularly in light of the difficult and uncertain current economic
environment and the continuing reduction of industry panel pricing caused by expanding competition,
especially from China, and the possible excess capacity, we are exposed to additional particular
risks and uncertainties including, but not limited to:
|
|
|
the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per
quarter, and stabilization of panel pricing at about $2.00 per watt, with sales made to
creditworthy customers; |
|
|
|
|
higher than planned manufacturing costs and failing to achieve expected Devens
operating metrics, with any delays in our plan to transition panel assembly to China
resulting in continued higher costs that could impair business operations; |
|
|
|
|
continued significant fluctuation of the Euro against the U.S. dollar, as a
substantial portion of the contracted sales are denominated in Euros; |
|
|
|
|
the ability of Jiawei to execute against its plans to meet our required timetables;
and |
|
|
|
|
increased funding requirements for Sovello to potentially address the loss of any
prior or expected government grant funding for Sovello (see Note 5 of our consolidated
financial statements). |
Although our current business plan indicates we have adequate liquidity to operate under
expected operating conditions, the risks noted above could result in liquidity uncertainty. Our
plan with regard to this uncertainty includes, among other actions:
|
|
|
continually monitoring our operating results against expectations and, if required,
further restricting operating costs and capital spending if events warrant; |
|
|
|
|
if conditions allow, possibly accessing the capital markets to meet liquidity and
capital expenditure requirements; and |
|
|
|
|
negotiating with a number of banks to secure a borrowing base line of credit,
without a minimum cash requirement as was required under our previous line of credit,
supported by the expected significant increase in our accounts receivable, inventory and
overall working capital and possibly hedging a portion of our exposure to fluctuations in
the U.S. dollar / Euro exchange rate to limit any adverse impacts; but there can be no
assurance that hedges can be put in place at terms acceptable to us or that such hedging
activities will be effective. |
38
If additional capital is needed and does not become available on acceptable terms, our ability to
fund operations, further develop and expand our manufacturing operations and distribution network
or otherwise respond to competitive pressures would be significantly limited.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in accordance with generally accepted
accounting principals requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities, if applicable. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated financial
statements.
Accounting for Sovello AG
We own a one-third interest in Sovello AG (Sovello) and therefore apply the equity method of
accounting for our share of Sovellos operating results in accordance with the Investments topic of
the FASB codification. Under the equity method of accounting, we report our one-third share of
Sovellos net income or loss as a single line item in our statement of operations (see Note 5 of
our consolidated financial statements for further information). Our investment in and advances to
Sovello are reported as a single line item in our balance sheet. We regularly monitor the
performance of Sovello and, utilizing several factors, assess the need to record an impairment of
the carrying value of our aggregate investment when the impairment is determined to be other than
temporary in nature. The process of assessing whether our investments net realizable value is less
than its carrying cost requires a significant amount of judgment. In making this judgment, we
carefully consider Sovellos cash position, projected cash flows, financing needs, comparable
market data, the current investing environment, management changes and competition. Based on our
evaluation, we recorded an impairment charge of approximately $126.1 million related to our
aggregate investment in Sovello during the year ended December 31, 2009 as a result of the
deterioration in Sovellos operations, their difficulties in renegotiating their bank financing,
and on-going deterioration in world-wide pricing for their products.
In making this assessment, we considered a range of scenarios
including Sovellos ability to continue as a going concern,
future projections of volumes and selling prices, and enterprise
value multiples of comparable entities.
Until December 31, 2008, we marketed and sold all solar panels manufactured by Sovello under
the Evergreen Solar brand, and managed customer relationships and contracts related to the sale of
Sovello manufactured product. We received selling fees from Sovello and did not report gross
revenue or cost of goods sold resulting from the sale of Sovellos solar panels. In addition, we
receive royalty payments for our ongoing technology license to Sovello. Combined, the sales and
marketing fee and royalties earned totaled approximately $11.5 million, $16.7 million and $4.7
million for the years ended December 31, 2007, 2008 and 2009, respectively. For 2009, we, Q-Cells
and REC, our one-third partners in the Sovello joint venture, agreed to have Sovello begin
marketing and selling its products
39
under its
own brand. With its independent sales and marketing team
now in place, our involvement in marketing and selling Sovello
product will cease. In light of
the sales transition, our selling fee for Sovello product sold under the Evergreen Solar brand was
reduced to 0.5% for 2009 from 1.6% in 2008 and is expected to be
eliminated for 2010.
For the years ended December 31, 2007, 2008 and 2009, we recorded approximately $1.9 million,
$384,000 and $17,000, respectively, for reimbursement of research and development costs, and other
support costs from Sovello. Income statement classification of the research and development
reimbursement payments depends on how we are reimbursed. The best efforts arrangement we maintain
with Sovello allows for the reimbursement to offset expenses whereas a specific performance
arrangement would require us to record both revenue and an offsetting cost of revenue. These
reimbursements are therefore shown as a reduction of our expenses.
Revenue Recognition and Allowance for Doubtful Accounts
We recognize product revenue if there is persuasive evidence of an agreement with the
customer, shipment has occurred, risk of loss has transferred to the customer, the sales price is
fixed or determinable, and collectability is reasonably assured. The market for solar power
products is emerging and rapidly evolving. We currently sell our solar power products primarily to
distributors, system integrators and other value-added resellers within and outside of North
America, who typically resell our products to end users throughout the world. We have not offered
rights to return our products other than for normal warranty conditions. For new customers
requesting credit, we evaluate creditworthiness based on credit applications, feedback from
provided references, and credit reports from independent agencies. However, many of our new
customers are start-up companies and do not have long credit histories. For existing customers, we
evaluate creditworthiness based on payment history and any known changes in their financial
condition. Royalty and fee revenue are recognized at contractual rates upon shipment of product by
Sovello. Product revenues represented 83%, 85% and 98% of total revenues for the years ended
December 31, 2007, 2008 and 2009, respectively. International product sales accounted for
approximately 18%, 42% and 74% of total product revenues for the years ended December 31, 2007,
2008 and 2009, respectively.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. If the financial condition of our customers were to
deteriorate, such that their ability to make payments was impaired, additional allowances could be
required.
Warranty
Our current standard product warranty includes a five-year warranty period for defects in
material and workmanship and a 25-year warranty period for declines
in power performance which are standard in the solar industry. When we
recognize revenue, we accrue a liability for the estimated future costs of meeting our warranty
obligations, our levels of which are consistent with industry ranges. We make and revise this estimate based on the number of solar panels shipped and our
historical experience with warranty claims. During 2008, we re-evaluated potential warranty
exposure as a result of the substantial increase in production volumes at our Devens, Massachusetts
manufacturing facility. As such, we increased our estimated future warranty costs to approximately
$2.4 million as of December 31, 2009.
We engage in product quality programs and processes, including monitoring and evaluating the
quality of component suppliers, in an effort to ensure the quality of our product and reduce our
warranty exposure. Our warranty obligation will be affected not only by our product failure rates,
but also the costs to repair or replace failed products and potential service and delivery costs
incurred in correcting a product failure. If our actual product failure rates, repair or
replacement costs, or service or delivery costs differ from these estimates, accrued warranty costs
would be adjusted in the period that such events or costs become known.
Stock-based Compensation
We measure compensation cost arising from the grant of share-based payments to employees at
fair value and recognize such cost in our operating results over the period during which the
employee is required to provide service in exchange for the award, usually the vesting period, in
accordance with the provisions of the Stock Compensation
40
topic of the FASB codification. Total
equity compensation expense recognized during the years ended December 31, 2007, 2008 and 2009 was
approximately $6.4 million, $7.2 million, and $6.7 million, respectively. For grants of restricted
stock and restricted stock units, stock-based compensation cost is measured at the grant date based
on the fair value of the award and is recognized as expense on a straight-line basis over the
awards service periods, which are the vesting periods, less estimated forfeitures. For grants of
stock options we estimate the fair value using the Black-Scholes option valuation model. Key input
assumptions used to estimate the fair value of stock options include the exercise price of the
award, the expected option term, the expected volatility of our stock over the
options expected term, the risk-free interest rate over the stock options expected term and
the annual dividend yield.
During 2006 and 2007, we granted 800,000 shares and 900,000 shares, respectively, of
performance-based restricted stock, all of which immediately vest upon the achievement of specific
financial performance targets prior to 2011 and 2012, respectively. Of the 1.7 million shares
granted, 400,000 shares have since been cancelled due to employee terminations. We have assumed
that none of these performance-based awards will vest and accordingly have not provided for
compensation expense associated with the awards. We periodically evaluate the likelihood of
reaching the performance requirements and will be required to recognize compensation expense of
approximately $15.1 million associated with these performance-based awards if such awards should
vest.
See Note 11 of our consolidated financial statements for further information regarding our
stock-based compensation assumptions and expenses.
Inventory
Inventory is valued at the lower of cost or market determined on a first-in, first-out basis.
Certain factors may impact the net realizable value of our inventory including, but not limited to,
technological changes, market demand, changes in product mix strategy, new product introductions
and significant changes to our cost structure. Estimates of reserves are made for obsolescence
based on the current product mix on hand and its expected net realizable value. If actual market
conditions are less favorable or other factors arise that are significantly different than those
anticipated by management, additional inventory write-downs or increases in obsolescence reserves
may be required. We consider lower of cost or market adjustments and inventory reserves as an
adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in market
conditions are not recorded to inventory in subsequent periods. In addition, we have made
non-refundable prepayments under several of our multi-year polysilicon supply agreements which are
presented on the balance sheet in Prepaid Cost of Inventory. These prepayments will be amortized
as an additional cost of inventory as we receive and utilize the silicon. The prepayments are
classified as short-term based upon the value of silicon contracted to be delivered during the next
twelve months. We carry these prepayments on our balance sheet at cost and periodically evaluate
the vendors ability to fulfill its obligations under the terms of the silicon contract.
Impairment of Long-lived Assets
Our policy regarding long-lived assets is to evaluate the recoverability or usefulness of
these assets when the facts and circumstances suggest that these assets may be impaired. This
analysis relies on a number of factors, including changes in strategic direction, business plans,
regulatory developments, economic and budget projections, technological improvements, and operating
results. The test of recoverability or usefulness is a comparison of the asset value to the
undiscounted cash flow of its expected cumulative net operating cash flow over the assets
remaining useful life. If such a test indicates that an impairment exists, then the asset is
written down to its estimated fair value. Any write-downs would be treated as permanent reductions
in the carrying amounts of the assets and an operating loss would be recognized. To date, we have
had recurring operating losses and the recoverability of our long-lived assets is contingent upon
executing our business plan that includes further reducing our manufacturing costs and
significantly increasing sales. If we are unable to execute our business plan, we may be required
to write down the value of our long-lived assets in future periods.
41
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate
as part of our consolidated financial statements. This involves estimating the actual current tax
in addition to assessing temporary differences resulting from differing treatments for tax and
financial accounting purposes. These differences together with net operating loss carryforwards and
tax credits may be recorded as deferred tax assets or liabilities on the balance sheet. A judgment
must then be made of the likelihood that any deferred tax assets will be recovered from future
taxable income. To the extent that we determine that it is more likely than not that deferred tax
assets will not be utilized, a valuation allowance is established. Taxable income in future periods
significantly different from that projected may cause adjustments to the valuation allowance that
could materially increase or decrease future income tax expense.
Results of Operations
Description of Our Revenues, Costs and Expenses
Revenues. Our total revenues consist of revenues from the sale of products, royalty revenue
associated with our ongoing technology agreement with Sovello, and fees from Sovello for our
marketing and selling activities associated with sales of product manufactured by Sovello under the
Evergreen Solar brand. Product revenues consist of revenues primarily from the sale of solar
panels. Product revenues represented 83%, 85% and 98% of total revenues in 2007, 2008 and 2009,
respectively. International product sales accounted for approximately 18%, 42% and 74% of total
product revenues for the years ended December 31, 2007, 2008 and 2009, respectively.
Cost of revenues. Cost of product revenues consists primarily of material expenses, salaries
and related personnel costs, including stock based compensation, depreciation expense, maintenance,
rent and other support expenses associated with the manufacture of our solar power products.
Research and development expenses. Research and development expenses consist primarily of
salaries and related personnel costs, including stock based compensation costs, consulting expenses
and prototype costs related to the design, engineering, development, testing and enhancement of our
products, manufacturing equipment and manufacturing technology. We expense our research and
development costs as incurred. We also may receive payments from Sovello and other third parties as
reimbursement of certain research and development costs we will incur. We believe that research
and development is critical to our strategic objectives of enhancing our technology, reducing
manufacturing costs and meeting the changing requirements of our customers.
Selling, general and administrative expenses. Selling, general and administrative expenses
consist primarily of salaries and related personnel costs, including stock based compensation
costs, employee recruiting costs, accounting and legal fees, rent, insurance and other selling and
administrative expenses. We expect that selling expenses will continue to increase substantially in
absolute dollars as we increase our sales efforts to support our anticipated growth, hire
additional sales personnel and initiate additional marketing programs.
Facility start-up. Facility start-up expenses consist primarily of salaries and
personnel-related costs and the cost of operating a new facility before it has been qualified for
full production. It also includes all expenses related to the selection of a new site and the
related legal and regulatory costs and the costs to maintain our plant expansion program, to the
extent we cannot capitalize these expenditures. We expect to incur significant facility start-up
expenses as we continue to plan and qualify new facilities.
Restructuring charges. Restructuring charges consist of costs associated with the closure of
our Marlboro pilot manufacturing facility on December 31, 2008 and the transition of our panel
assembly operation to China. The charges primarily include severance costs, the write-off of
manufacturing equipment, leasehold improvements and inventory, the cost of moving equipment out of
the facility, occupancy expenses and accelerated depreciation expenses.
Other income (expense), net. Other income (expense) consists of interest income primarily from
interest earned on the holding of short-term marketable securities and outstanding loans, finance
charges associated with late customer payments, bond premium amortization (or discount accretion),
interest expense on outstanding debt, and net foreign exchange gains and losses.
42
Equity income (loss) from interest in Sovello AG and impairment of investment. We account for
our one-third share of Sovellos operating results under the equity method of accounting, which
requires us to record our one-third share of Sovellos net income or loss as one line item in our
consolidated statement of operations. We also account for any impairment of the carrying value of
our aggregate investment, including advances, when the impairment is determined to be other than
temporary in nature.
COMPARISON OF YEARS ENDED DECEMBER 31, 2009 AND 2008
Revenues. Our product revenues for the year ended December 31, 2009 increased 180% to $267.1
million from $95.2 million for the year-ended December 31, 2008. This increase in product revenues
resulted from increased sales volume which was generated from our new Devens facility which began
shipping product in the third quarter of 2008. Product revenue for most of 2008 was generated from
our now closed Marlboro facility. During the year ended December 31, 2009 we shipped approximately
103.7 MW compared to 26.4 MW for the year ended December 31, 2008. This increase in volume was
offset by lower selling prices which have declined, on average, by approximately 28% from 2008 as a
result of continued pricing pressures in the market place in addition to a stronger U.S. dollar
during 2009. In addition, we believe that 2009 sales were negatively impacted by the credit
constraints that began with the 2008 worldwide economic downturn. Royalty revenue and marketing
and selling fees earned from Sovello for the year ended December 31, 2009 were $4.7 million, a
decrease of 72% or $12.0 million from $16.7 million for the year ended December 31, 2008. The
decrease in royalty revenue and marketing and selling fees from Sovello was due mainly to
substantially lower sales volume at Sovello which was down approximately 49%. In addition, we did
not recognize royalty revenue during the fourth quarter of 2009 as a result of our impairment of
our investment in Sovello, and we do not expect to recognize royalty revenue from Sovello in the
foreseeable future.
International product revenues accounted for 74% and 42% of total product revenues for the
years ended December 31, 2009 and 2008, respectively. The increase in our capacity, driven by the
completion of our Devens facility, has allowed us to continually adjust our distribution strategy
as the markets for solar energy rapidly develop and change.
The following table summarizes the concentration of our product revenues by geography and
customer:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
By geography: |
|
|
|
|
|
|
|
|
United States |
|
|
58 |
% |
|
|
26 |
% |
Germany |
|
|
28 |
% |
|
|
52 |
% |
All other |
|
|
14 |
% |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
By customer: |
|
|
|
|
|
|
|
|
IBC Solar AG |
|
|
4 |
% |
|
|
17 |
% |
Ralos Vertriebs GmbH |
|
|
15 |
% |
|
|
15 |
% |
Wagner & Co. Solartechnik GmbH |
|
|
1 |
% |
|
|
14 |
% |
SunPower Corporation |
|
|
31 |
% |
|
|
|
|
All other |
|
|
49 |
% |
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Cost of product revenues and gross margin. Our cost of product revenues for the year
ended December 31, 2009 was approximately $253.5 million, an increase of approximately $160.4
million, from $93.1 million for the year ended December 31, 2008. Gross margin for the year ended
December 31, 2009 was 6.8% as compared to 16.9% for the year ended December 31, 2008. The decrease
in gross margin primarily resulted from the significant decline in average selling prices that
began during the early part of 2009. To a lesser extent, gross margins were
43
negatively impacted by higher costs associated with initial production at our Devens facility, the
level of fixed costs in relation to our sales volumes as we ramped capacity at Devens during 2009,
and lower royalty and selling fees from Sovello. The higher initial production costs experienced
at our Devens facility resulted from inefficiencies we anticipated during the early stages of our
significant capacity expansion. We do not expect substantial improvements in gross margin until
our Wuhan, China facility reaches meaningful production levels and we complete the transition of
Devens panel assembly to China, both of which are expected to begin during 2010.
Research and development expenses. Our research and development expenses for the year ended
December 31, 2009 were approximately $18.1 million a decrease of approximately $4.0 million, or
18%, from $22.0 million for the year ended December 31, 2008. The decrease is primarily
attributable to lower depreciation expense of approximately $1.9 million resulting from the
write-off of research and development equipment in December 2008 that supported now-obsolete
technologies, lower allocated manufacturing support costs of approximately $1.1 million, lower
professional fees of approximately $286,000 and lower travel costs of approximately $112,000.
Selling, general and administrative expenses. Our selling, general and administrative expenses
for the year ended December 31, 2009 were approximately $26.3 million, an increase of $2.4 million,
or 10%, from $23.9 million for the year ended December 31, 2008. In general, our selling, general
and administrative costs have increased as a result of our overall expansion of operations. These
increases were primarily attributable to increased compensation and related costs of approximately
$928,000 associated with additional personnel, higher incentive compensation accruals and the
inclusion of Devens related general and administrative support personnel which in the prior year
were partially classified within facility start-up costs. These compensation increases were
partially offset by an organization wide salary reduction which was effective during the second and
third quarters of 2009. In addition, we incurred higher trade show and customer support costs of
approximately $421,000, including sales commissions associated with higher commissionable sales,
increased information technology costs of approximately $597,000 to support the growth of our
operations, higher insurance costs of $380,000 associated with our expanded facilities and
workforce, increased depreciation of $225,000 related to additional equipment needed to support
additional personnel, and higher legal costs of $188,000 in support of our on-going operations.
These increases were partially offset by lower travel related costs of $198,000.
Write-off of loan receivable from silicon supplier. During December 2007, we entered into a
multi-year silicon supply agreement with Silicium De Provence (Silpro) which provided the general
terms and conditions pursuant to which Silpro would supply us with specified annual quantities of
silicon at fixed prices beginning in 2010 and continuing through 2019. In connection with this
supply agreement, we loaned Silpro 30 million Euros, which was scheduled to be repaid in the first
quarter of 2013. The loan carried an interest rate of 3.0% compounded annually. In April 2009 as a
result of its inability to obtain additional financing to continue construction of its factory,
Silpro announced that the French commercial court ordered the filing for judicial settlement
proceedings (redressement judiciaire), a process similar to bankruptcy proceedings in the United
States. As a result, the loan receivable and the related interest from Silpro will not be repaid;
and we recognized a non-cash charge of $43.9 million. In August 2009, the court ordered liquidation
proceedings (liquidation judiciaire) due to Silpros inability to secure further financing.
Equipment write-offs. In our continuing efforts to streamline our operations, we incurred
charges of approximately $6.0 million during the year ended December 31, 2009 as a result of the
write-off of certain Devens equipment in addition to development equipment that was discontinued in
the fourth quarter.
Facility start-up. In preparing for the operations of our Devens, Massachusetts, Midland,
Michigan and Wuhan, China facilities we incurred costs during the year ended December 31, 2009 of
approximately $10.1 million, a decrease of $20.5 million from $30.6 million in 2008. Start-up
costs include salaries and personnel related costs, consulting costs, consumable material costs,
utilities and miscellaneous other costs associated with preparing and qualifying these facilities
for production. Construction of the facility in Devens began in September 2007, and the first
solar panels were produced in the third quarter of 2008. Construction of the facility in Midland
began during the third quarter of 2008 with the first production runs beginning in the fourth
quarter of 2009. Planning for our facility in China, which is expected to be operational during
mid-2010, began during the second quarter of 2009.
44
Restructuring charges. We recorded a charge to continuing operations of approximately $11.9
million for the year ended December 31, 2009. A substantial portion of these charges relate to the
acceleration of our strategic
initiative to focus on our unique wafer manufacturing technology and transition our Devens
based panel assembly to China as was approved in the fourth quarter of 2009. We expect to reduce
manufacturing costs associated with panel assembly once the transition is completed. The charges
associated with beginning this transition were comprised primarily of accelerated depreciation. In
addition to the charges for panel assembly, we incurred on-going costs, including rent,
depreciation, utilities, supplies and professional fees associated with closing our Marlboro,
Massachusetts pilot manufacturing facility in December 2008, part of our ongoing efforts to lower
overhead costs and reduce overall cash requirements. We expect we will continue to incur occupancy
and moving costs through the expiration of the lease in mid-2010 and incur location restoration
costs. For the year ended December 31, 2008 we recorded a charge to continuing operations,
principally non-cash, of approximately $30.4 million associated with closing Marlboro. Nearly all
of the Marlboro pilot manufacturing facility employees transferred to the Devens manufacturing
facility to fill open positions associated with its second phase. The charges we recorded were
comprised primarily of leasehold improvements and other related building costs of $5.4 million,
equipment of approximately $20.9 million, inventory and spare parts of $3.9 million, and salaries
and personal related costs associated with severance of approximately $0.2 million.
Other income (expense) net. Other net expense of $19.6 million for the year ended December 31,
2009 was comprised of approximately $4.7 million in interest income and approximately $2.7 million
of net foreign exchange gains, offset by approximately $27.0 million in interest expense. Other
income, net, of $249,000 for the year ended December 31, 2008 was comprised of approximately $4.1
million of net foreign exchange losses and approximately $8.4 million in interest expense, offset
by approximately $12.7 million in interest income. The increase in net foreign exchange gains was
due to the mark-to-market adjustment on our Euro denominated loan to a silicon supplier during the
first quarter 2009 in addition to the timing of our Euro denominated transactions. The decrease in
interest income is attributable to lower interest rates in addition to our lower average cash
balances that resulted from our use of cash for the construction of the Devens and Midland
facilities, and our operational requirements driven by the growth of our business. The higher
interest expense is attributable to our higher convertible debt obligations which increased by
approximately $284 million during the third quarter of 2008 and lower capitalized interest costs
that resulted from the substantial completion of the Devens facility. This increase was partially
offset by a slightly lower interest coupon rate on the new borrowings. In addition to our
convertible debt, we incurred interest expense on the loan advances we received from HSTIC during
the third and fourth quarters of 2009 associated with our expansion into China.
Equity income (loss) from interest in Sovello AG and impairment of investment. The equity
loss from our interest in Sovello for the year ended December 31, 2009, excluding the impairment
charge, was approximately $29.7 million compared to equity income of $8.4 million, net of
withholding taxes, for the year ended December 31, 2008. The decrease in Sovellos operating
results was primarily due to the substantial decrease in its sales volume. In addition, for the
year ended December 31, 2009 we recorded an impairment charge of approximately $126.1 million
related to our aggregate investment in Sovello, including advances, as a result of the significant
deterioration in Sovellos operations, due in part to the on-going deterioration in world-wide
pricing for their products, and their continued difficulties in renegotiating their bank financing.
During the year ended December 31, 2009 we recorded an $8.1 million income tax benefit in our
statement of operations as a result of the impairment charge recorded against the book basis of our
investment in Sovello. This income tax benefit arose from the reversal of a previously recorded
deferred income tax liability.
Net loss. As a result of the foregoing, our net loss was $265.2 million for the year ended
December 31, 2009 ($1.41 net loss per share, basic and diluted) compared to a net loss of $87.4
million for the year ended December 31, 2008 ($0.67 net loss per share, basic and diluted).
COMPARISON OF YEARS ENDED DECEMBER 31, 2008 AND 2007
Revenues. Our product revenues for the year ended December 31, 2008 were $95.2 million, an
increase of 63% or $36.9 million from $58.3 million for the year ended December 31, 2007. This
increase in product revenues resulted from an increase in sales volume of 61% which was generated
from our new Devens facility which began
45
shipping product late in the third quarter. To a lesser
extent, product revenues benefited from higher average selling prices of approximately 2% that
primarily resulted from a geographic shift in sales to Europe. Royalty revenue and marketing and
selling fees from Sovello for the year ended December 31, 2008 were $16.7 million, an increase of
45% or $5.2 million from $11.5 million for the year ended December 31, 2007. The increase in
royalty revenue and marketing and selling fees from Sovello was mainly due to the increased sales
volume at Sovello which started production at its second facility in the second quarter of 2007.
International product revenues accounted for 42% and 18% of total product revenues for the
years ended December 31, 2008 and 2007, respectively. Throughout most of 2007 orders were largely
fulfilled based upon geography. More than half of the product produced at Sovello was distributed
to customers in Europe and the majority of the product produced at our Marlboro facility was
distributed to customers in the United States which allowed us to efficiently manage worldwide
distribution of product. However, during 2008 approximately 40% of
our product shipments were
to Europe in order to respond to specific customer demand. As we increase our own capacity with
the completion of our Devens facility, we expect that we will continually adjust our distribution
strategy as markets for solar energy rapidly develop and change.
The following table summarizes the concentration of our product revenues by geography and
customer:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2008 |
By geography: |
|
|
|
|
|
|
|
|
United States |
|
|
82 |
% |
|
|
58 |
% |
Germany |
|
|
7 |
% |
|
|
28 |
% |
All other |
|
|
11 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By customer: |
|
|
|
|
|
|
|
|
SunPower Corporation |
|
|
31 |
% |
|
|
31 |
% |
Ralos Vertriebs GmbH |
|
|
1 |
% |
|
|
15 |
% |
SunEdison |
|
|
14 |
% |
|
|
2 |
% |
groSolar |
|
|
12 |
% |
|
|
4 |
% |
All other |
|
|
42 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Cost of product revenues and gross margin. Our cost of product revenues for the year
ended December 31, 2008 was $93.1 million, an increase of approximately $40.2 million, or 76%, from
$52.8 million for the year ended December 31, 2008. Gross margin for the year ended December 31,
2008 was 16.9% as compared to 24.4% for the year ended December 31, 2007. The decrease in gross
margin primarily resulted from higher costs associated with the initial production at our new
Devens facility and lower support costs allocated to research and development supporting pilot
programs. These higher costs were offset by higher royalty and selling fees associated with the
increase in Sovellos sales volume, higher silicon scrap sales and the increase in the volume of
our product sales. These higher initial production costs are temporary and resulted from
inefficiencies we anticipated during the initial stages of our significant capacity expansion. We
do anticipate that gross margins will improve as the Devens facility continues to increase its
output and expects to reach its full production capacity during the second half of 2009; and
selling prices remain relatively stable.
Research and development expenses. Our research and development expenses for the year ended
December 31, 2008 were $22.0 million (net of $384,000 of reimbursements from Sovello), an increase
of $1.4 million, or
approximately 7%, from $20.6 million (net of $1.9 million of reimbursements from Sovello),
for the comparable 2007 period. The increase was primarily attributable to higher depreciation
expense of approximately $4.5 million associated with the expanded R&D facilities and associated
equipment additions. This increase was offset primarily by lower compensation and related costs of
approximately $811,000, the majority of which relates to realignment of
46
personnel to directly support manufacturing and the Devens ramp, lower material usage of
approximately $640,000, lower travel cost of approximately $358,000 in addition to lower allocated
manufacturing support costs.
Selling, general and administrative expenses. Our selling, general and administrative expenses
for the year ended December 31, 2008 were approximately $23.9 million, an increase of $3.3 million,
or approximately 16%, from $20.6 million in 2007. In general, our selling, general and
administrative costs have increased as a result of our overall expansion of operations. As we
continue to execute our expansion plans, we expect our selling, general and administrative expenses
will increase to support such growth. Specifically, the increase in selling, general and
administrative expense was primarily attributable to increased compensation and related costs of
approximately $840,000 associated with additional personnel, higher marketing and communication
costs of $600,000 associated with increased advertising and the grand opening of our new Devens
facility, increased IT costs of approximately $873,000 to support the growth of our operations,
higher insurance costs of $264,000 associated with our expanded facilities, higher depreciation
costs of $192,000, and generally higher public company and regulatory compliance fees.
Equipment write-offs. In conjunction with refocusing our research and development efforts, we
incurred charges of approximately $8.0 million during the year ended December 31, 2008 as a result
of the write-off of R&D equipment that supported now-obsolete technologies.
Facility start-up. Facility start-up costs for the year ended December 31, 2008 were
approximately $30.6 million, an increase of $29.2 million from $1.4 million in 2007. These
expenses, which included salaries and personnel related costs, consulting costs, recruitment costs,
consumable material costs, and miscellaneous other costs, were associated with the start-up of our
new facility in Devens, Massachusetts on which construction began in September 2007 with the first
solar panels produced late in the third quarter of 2008. In addition, these charges include
similar costs associated with the start-up of our new manufacturing facility located in Midland,
Michigan.
Restructuring charges. We recorded a charge to continuing operations, principally non-cash, of
approximately $30.4 million for the year ended December 31, 2008. These charges were incurred in
conjunction with the closing of our Marlboro, Massachusetts pilot manufacturing facility on
December 31, 2008, part of our ongoing efforts to lower overhead costs and reduce overall cash
requirements. Virtually all of the Marlboro pilot manufacturing facility employees have
transferred to the Devens manufacturing facility to fill open positions associated with its second
phase. Advanced manufacturing piloting activities are now performed at our Devens manufacturing
facility. The charges we recorded were comprised primarily of leasehold improvements and other
related building costs of $5.4 million, equipment of approximately $20.9 million, inventory and
spare parts of $3.9 million, and salaries and personal related costs associated with severance of
approximately $0.2 million.
Other income (expense) net. Other income, net of $249,000 for the year ended December 31, 2008
comprised $12.7 million in interest income, offset by $4.1 million of net foreign exchange losses,
and $8.4 million in interest expense. Other income, net of $6.8 million for the year ended
December 31, 2007 comprised of $444,000 net foreign exchange gains, $9.8 million in interest
income, and $3.4 million in interest expense. The increase in net foreign exchange losses was due
to the timing of our Euro denominated transactions in addition to the mark-to-market adjustment on
our Euro denominated loan to a silicon supplier. The increase in interest income is attributable
to our higher average cash balance that resulted from the cash raised from our equity offering in
the first quarter of 2008 and the senior convertible notes offering during the third quarter of
2008, in addition to interest earned on our loans receivable. The higher interest expense is
attributable to our higher debt obligations which increased by approximately $284 million
associated with our new borrowings to support our capacity expansion plans offset by a slightly
lower interest rate on the new borrowings and higher capitalized interest costs resulting primarily
from the on-going construction of our Devens facility and our new facility in Midland, Michigan.
Equity income from interest in Sovello AG. Equity income from our interest in Sovello of $8.4
million, net of withholding taxes, for the year ended December 31, 2008, which represents our
one-third share of Sovellos net income, increased $6.3 million over the year ended December 31,
2007. The increase in Sovellos net income resulted primarily from incremental production volume
associated with its expanded facilities.
47
Net loss. As a result of the foregoing, net loss was $87.4 million for the year ended December
31, 2008 ($0.67 net loss per share, basic and diluted) compared to a net loss of $16.6 million for
the year ended December 31, 2007 ($0.19 net loss per share, basic and diluted).
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations and met our capital expenditure requirements
primarily through sales of our capital stock, issuance of debt and, to a lesser extent, product
revenues; and beginning in 2007, fees from Sovello for our marketing and sale of Sovello panels and
royalty payments for our technology contribution to Sovello. At December 31, 2009, we had working
capital of $172.2 million, including cash and cash equivalents of $112.4 million.
Net cash used in operating activities was $12.0 million, $65.9 million and $37.1 million for
the years ended December 31, 2007, 2008 and 2009, respectively. The use of cash from operating
activities for the year ended December 31, 2009 was primarily due to increases in accounts
receivable of approximately $19.2 million associated with the increase in our sales volume in
addition to slightly longer customer payment cycles, an increase in inventory of $13.5 million
including the prepaid cost of inventory as we ramped up capacity at Devens during 2009, a reduction
in accounts payable and accrued expense of $22.0 million due to timing of payments including
amounts related to Sovello. These uses were offset by the positive cash flow recognized from our
operations of approximately $10.1 million, prior to adjusting
for changes in operating assets and liabilities, and an increase in
our interest payable of approximately $6.3 million. Net cash used in operating activities in the
year ended December 31, 2008 was due primarily to losses from our operations of $27.8 million, net
of non-cash charges, increases in inventory levels of $15.4 million as we began to scale Devens,
increases in prepaid cost of inventory of $43.0 million which was mainly the result of
nonrefundable payments required under our silicon supply agreements, and increases in our accounts
receivable of approximately $26.2 million associated with our increase in revenue. These uses were
offset by the receipt of $19.9 million of grants, an increase in accounts payable and accrued
expenses of $15.9 million due to the timing of payments, and a decrease in other current assets of
$9.3 million, the majority of which relates to the refund of VAT taxes. The use of cash for
operating activities in the year ended December 31, 2007 was due primarily to losses from our
operations of $5.7 million, net of non-cash charges, increases in inventory levels of $3.3 million,
primarily silicon, in addition to prepaid cost of inventory of $23.1 million associated with new
silicon supply agreements, and increases in other current assets, primarily VAT receivables. These
uses were offset by reductions in accounts receivable of approximately $11.0 million associated
with customer payments, and increases in accounts payable and accrued expenses of $18.5 million.
Net cash used in investing activities was $140.5 million, $355.4 million and $57.2 million for
the years ended December 31, 2007, 2008 and 2009, respectively. The net cash used in investing
activities for the year ended December 31, 2009 was due to expenditures of approximately $110.8
million, most of which is associated with the construction of our Devens, Massachusetts, Midland,
Michigan and Wuhan, China manufacturing facilities. Additional advances to Sovello totaled $20.7
million which were made with REC and Q-Cells, our Sovello joint venture partners. In addition,
payments of approximately $2.9 million were made to cash collateralize various letters of credit.
These uses were offset by the proceeds from the sale and maturity of marketable securities of $76.7
million. As of December 31, 2009, our outstanding commitments for capital expenditures were
approximately $14.7 million. The net cash used in investing activities in each of the years ended
December 31, 2007 and 2008 was primarily for purchases of equipment and marketable securities, in
addition to the construction of our manufacturing facility in Devens, Massachusetts most of which
occurred in 2008. These use of funds were offset by proceeds from the sale and maturity of
marketable securities. In addition, during the year ended December 31, 2008 two loans totaling
$23.8 million were advanced to Sovello in conjunction with a shareholder agreement entered into
with them along with REC and Q-cells. As part of our silicon supply agreement with Silpro we
provided a loan to them of Euro 30 million. The first installment of approximately $21.9 million
was advanced to them at the end of 2007 and the second installment of $22.2 million advanced to
them during 2008, all of which has since been written off (see Write-off of loan receivable from
silicon supplier). Also, during the year ended December 31, 2007, we deposited approximately $41.0
million with Deutsche Bank associated with the guarantee of a Sovello loan. The restriction on the
deposit, which was reported as restricted cash on our December 31, 2007 balance sheet, was released
in 2008.
48
Capital expenditures were $50.7 million, $345.3 million and $110.8 million for the years ended
December 31, 2007, 2008 and 2009, respectively. The 2007 and 2008 expenditures were primarily for
facility improvements and equipment for our Marlboro manufacturing facility in addition to
expenditures for the construction of our new Devens, Massachusetts manufacturing facility which
will ultimately increase our production capacity in Massachusetts to approximately 160 MW. The
Commonwealth of Massachusetts support program provided a low-cost, 30-year land lease in addition
to approximately $20.0 million in grants. During 2008, we also began construction of our new high
temperature filament manufacturing facility in Midland, Michigan which began its first production
runs during the fourth quarter of 2009. As of December 31, 2009, we had outstanding commitments for
capital expenditures of approximately $14.7 million. Most of our commitments for capital
expenditures are associated with our Devens and Wuhan facilities.
Net cash provided by financing activities was $175.1 million, $492.8 million and $105.8
million for the years ended December 31, 2007, 2008 and 2009, respectively. During 2009 we sold
42.6 million shares of our common stock in a public offering at $1.80 per share which closed on May
28, 2009 and resulted in net proceeds of approximately $72.4 million. In addition, we received a
loan of approximately $33.0 million from the Chinese government as part of the financing for our
Wuhan, China manufacturing facility. Net cash provided by financing activities for the year ended
December 31, 2008 resulted primarily from the net proceeds of $364.0 million from the issuance of
our senior convertible debt offering which closed during the third quarter of 2008 and the net
proceeds of 18.4 million shares of our common stock sold in a public offering at $9.50 per share
which closed in February 2008. These proceeds were offset by the up-front initial premium payment
of $39.5 million associated with the capped call transaction which was entered into concurrent with
the senior convertible debt offering. Net cash provided by financing activities for the year ended
December 31, 2007 resulted primarily from the net proceeds of 17.3 million shares of our common
stock sold in a public offering at $8.25 per share and which closed on May 30, 2007. An additional
3.0 million shares of our common stock were sold to OCI for $12.07 per share in conjunction with a
stock purchase agreement.
On June 26, 2008, we entered into an underwriting agreement for the sale to the public of
$325.0 million aggregate principal amount of 4% Senior Convertible Notes due 2013 (the Senior
Notes). We granted to the underwriters a 30-day option to purchase up to an additional $48.75
million aggregate principal amount of Senior Notes. On July 2, 2008, we completed the public
offering of $373.8 million aggregate principal amount of Senior Notes which includes the
underwriters exercise of their option. Net proceeds to us from the offering, including the cost
of the capped call transaction, were approximately $325.8 million. Our financing costs associated
with the Senior Notes are being amortized over the five year term.
In June 2005, we issued convertible subordinated notes (or Notes) in the aggregate principal
amount of $90.0 million with interest on the Notes payable semiannually at an annual rate of
4.375%. We had received proceeds of $86.9 million, net of offering costs of approximately $3.1
million. All of the Notes were converted to shares of our common stock; and we issued 12,178,607
shares of common stock to the note holders on July 22, 2008.
For the years ended December 31, 2007, 2008 and 2009, we recorded approximately $4.4 million,
$15.6 million and $28.2 million, respectively, in interest expense associated with the Notes and
Senior Notes, and capitalized interest of approximately $983,000, $7.5 million and $2.6 million,
respectively. In addition we recorded approximately $1.1 in interest expense for the loan received
from HSTIC associated with our expansion into China.
In connection with our Senior Notes offering, we entered into a capped call transaction with
respect to our common stock with an affiliate of Lehman Brothers, Inc., the lead underwriter, in
order to reduce the dilution that would otherwise occur as a result of new common stock issuances
upon conversion of the Senior Notes. The capped call transaction was designed to reduce the
potential dilution resulting from the conversion of the Senior Notes into shares of our common
stock. The total premium for the capped call transaction was approximately $68.1 million of which
$39.5 million was paid contemporaneously with the closing of the Senior Notes offering and the
remaining $28.6 million was required to be paid in nine equal semi annual installments beginning
January 15, 2009. In addition, we entered into a common stock lending agreement with a second
affiliate of the lead underwriter pursuant to which we loaned 30,856,538 shares of our common stock
to this affiliate. These shares were considered issued and outstanding for corporate law purposes
at the time they were loaned; however, at the time of the loan they were
49
not considered outstanding
for the purpose of computing and reporting earnings per share because these shares were to be
returned to us no later than July 15, 2013, the maturity date of the Senior Notes.
On September 15, 2008 and October 3, 2008, respectively, Lehman Brothers Holdings Inc., the
parent company of lead underwriter, and the lead underwriters affiliate that entered into the
capped call transaction with us filed for protection under Chapter 11 of the federal Bankruptcy
Code. The lead underwriters second affiliate that was party to the stock lending agreement was
placed into administration in the United Kingdom shortly thereafter.
The bankruptcy filings represented events of default under the capped call transaction. As a
result of the defaults, our obligations under the agreement were suspended and the remaining
premium liability was reversed against equity. In the event the defaults are cured, the remaining
premium liability would be owed pursuant to the installment payment schedule. Unless we choose to
implement a new capped call arrangement or the defaults are cured and we do not terminate the
capped call transaction as we believe we are entitled to under the terms of the capped call
transaction, the dilutive impact of conversion of the Senior Notes may be greater, based on the
actual conversion price of $12.11 per share. The bankruptcy filing and the placement of the lead
underwriters second affiliate into administration in the United Kingdom also contractually
required the lead underwriters second affiliate to return to us the shares loaned under the common
stock lending agreement. We have since demanded the immediate return of all outstanding borrowed
shares, however, the shares have not yet been returned. While we are exercising all of our legal
remedies, including litigation against various Lehman Brothers entities and Barclays entities, we
have included these shares in our per share calculation on a weighted average basis due to the
uncertainty surrounding the recovery of the shares.
Sovello AG Loans, Debt Guarantees and Undertakings
In January 2007, we, REC and Q-Cells entered into a shareholder loan agreement with Sovello.
Under the terms of the shareholder loan agreement, Sovello repaid all outstanding shareholder loans
at that time, plus accrued interest, in exchange for a shareholder loan of 30 million Euros
(approximately $43.0 million at December 31, 2009 exchange rates) from each shareholder. Since
that time, we, REC and Q-Cells have entered into several other shareholder loan agreements with
Sovello with our share denominated in U.S. dollars. Interest on the January 2007 loan and $18.2
million June 2008 loan is payable quarterly in arrears, however such payments have been suspended.
Interest on the $10.6 million December 2008 loan and $6.7 million March 2009 loan is payable
concurrent with the repayment of the underlying principal amounts. The loans, which in the
aggregate total approximately $78.5 million at December 31, 2009, prior to the impairment charge,
carry interest rates ranging from 5.43% to 7.0% and are included in Investments in and advances to
Sovello AG on the balance sheet. Based upon an agreement between Sovellos shareholders and
Sovellos bank, the loans and interest thereon will not be repaid until the earlier of the
completion of an initial public offering or other liquidity event generating sufficient cash to
repay the loans.
On April 30, 2007, we entered into a Guarantee and Undertaking Agreement (the Old Guarantee)
with Deutsche Bank in connection with Sovello entering into a loan agreement with a syndicate of
lenders led by Duetsche Bank. The loan agreement originally provided Sovello with aggregate
borrowing availability of up to 142.0 million Euros (approximately $203.5 million at December 31,
2009 exchange rates) which was amended to 192.5 million Euros in September 2008 (approximately
$275.9 million at December 31, 2009 exchange rates). Pursuant to the Old Guarantee, we along with
Q-Cells and REC, each agreed to guarantee a one-third portion of the loan outstanding, up to 30.0
million Euros of Sovellos repayment obligations under the loan agreement. At December 31, 2007 we
had $41 million deposited in a Deutsche Bank AG account fulfilling our obligation under the Old
Guarantee, which was classified as restricted cash on the balance sheet. Effective September 30,
2008 the Guarantee and associated restriction on our $41 million of cash deposited with Deutsche
Bank AG were released. As of December 31, 2009, the total amount of debt outstanding under the
loan agreement was 68.3 million Euros (approximately $97.9 million at December 31, 2009 exchange
rates) all of which was current. Repayment of the loan is due in quarterly installments through
December 31, 2011.
In October 2008 in connection with a bank loan to Sovello, we provided an Undertaking to the
bank syndicate that would require us to provide additional funding to Sovello under the following
circumstances:
50
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in the event that the cost of completing Sovello 3 exceeds budget; |
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if any government grants are required to be repaid by Sovello or are not provided to
Sovello as previously approved; or |
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under certain conditions, in the event that Sovello is in violation of its financial
covenants associated with its loan with the bank syndicate. |
On January 29, 2010, the European Commission announced a decision that a certain portion of
the grants known as the SME Bonus which was awarded to Sovello in 2006 should be recalled. The
amount to be recalled, 9.1 million Euros (plus approximately 2.5 million Euros in interest) (in
total approximately $16.2 million at current exchange rates) was paid to Sovello as a special bonus
available only to small and medium-sized companies. The Commission ordered the German authorities
to recover the SME-Bonus from Sovello. We may be required to provide funding to Sovello (approximately 2 million Euros) to repay a
portion of the SME bonus pursuant to an undertaking dated October 6, 2008 made to a consortium of
banks led by Deutsche Bank AG.
In addition, as previously disclosed, Sovello has been in default under its bank loan
agreement since the end of 2008. Throughout 2009, Sovello operated under waivers from its bank
syndicate of certain loan covenant violations, and on January 28, 2010, Sovellos bank syndicate
terminated their loan agreement but has not yet demanded repayment of the outstanding loan.
If the above matters are not satisfactorily resolved, Sovello may need to declare insolvency
which could result in further financial obligations of us, including possible payment of a portion
of the recalled SME bonus under the undertaking previously discussed and other non-cash charges
relating to an impairment in our investments in Sovello. Alternatively, we may provide a small
amount of additional capital to Sovello in connection with the sale of Sovello to a new
shareholder. However, it is difficult to predict exactly the amount of, if any, further costs that
may be incurred by us in the event of an insolvency or sale of Sovello.
During
the third quarter of 2009, we recorded an impairment charge of
approximately $69.7 million on our aggregate investment in
Sovello. In light of developments at Sovello, we recorded a non-cash charge of approximately $40.9
million during the fourth quarter, reflecting the write-off of our remaining investment in Sovello.
Additionally, we recorded charges of approximately $8.1 million for payments under our guarantee
(that was paid on February 8, 2010) and $7.3 million for estimated payments relating to
undertakings with Sovellos bank and for other expected costs. Combined, the fourth quarter
charges of $56.3 million and third quarter charge of $69.7 are reflected in our consolidated
statement of operations.
We and the other shareholders of Sovello are now attempting to sell Sovello. If it cannot be
sold by the shareholders, it will likely become insolvent and will be sold or liquidated to repay amounts outstanding
under Sovellos credit agreement with its banks. The sale we are attempting to negotiate will
require us to make a small additional investment in Sovello. In the case of either a sale or
insolvency we believe our additional obligations that could arise are
limited, but no assurance can be made regarding additional potential costs given the uncertainties
associated with negotiating a sale of a distressed company or the possible insolvency process.
Liquidity Risk and Uncertainty
At December 31, 2009, we had approximately $112.4 million of cash and cash equivalents, which
includes approximately $33 million received from HSTIC as part of its funding obligation for our
Wuhan, China factory expansion and have been approved for a loan of
approximately $5 million from the Commonwealth of Massachusetts. Through 2010, our major cash requirements are expected to be
approximately $97 million, comprised of:
|
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Capital required for our Wuhan, China expansion of about $50 million; |
|
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|
Final acceptance payments on equipment for Devens of about $7 million; |
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First phase of our Midland filament factory of about $3 million; |
|
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Sustaining capital of about $7 million; |
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Estimated payments for Sovello matters of about $15 million; and |
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Debt service of about $15 million. |
We have sales contracts for approximately 100 MW of product to be manufactured at our Devens
facility for delivery during 2010. Our sales plan assumes there should be sufficient market demand
to sell the expected Devens manufacturing capacity at continually declining selling prices. We
expect to continue to moderate our production levels depending on changes in market demands during
the year.
51
We believe that our business plan will provide sufficient liquidity to fund our planned
capital programs, our share of any potential funding requirements related to our investment in
Sovello and our operating needs for the next 12 months. While our business plan anticipates certain
levels of potential risk, particularly in light of the difficult
and uncertain current economic environment and the continuing reduction of industry panel
pricing caused by emerging competition, especially from China, and the resulting excess capacity,
we are exposed to additional particular risks and uncertainties including, but not limited to:
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the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per
quarter, and stabilization of panel pricing at about $2.00 per watt, with sales made to
creditworthy customers; |
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higher than planned manufacturing costs and failing to achieve expected Devens
operating metrics, with any delays in our plan to transition panel assembly to China
resulting in continued higher costs that could impair business operations; |
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continued significant fluctuation of the Euro against the U.S. dollar, as a
substantial portion of the contracted sales are denominated in Euros; |
|
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the ability of Jiawei to execute against its plans to meet our required timetables;
and |
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increased funding requirements for Sovello to potentially address the loss of any
prior or expected government grant funding for Sovello (see Note 5 of our consolidated
financial statements). |
Although our current business plan indicates we have adequate liquidity to operate under
expected operating conditions, the risks noted above could result in liquidity uncertainty. Our
plan with regard to this uncertainty includes, among other actions:
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continually monitoring our operating results against expectations and, if required,
further restricting operating costs and capital spending if events warrant; |
|
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|
if market conditions allow, possibly accessing the capital markets to meet
liquidity and capital expenditure requirements; |
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|
negotiating with a number of banks to secure a borrowing base line of credit,
without a minimum cash requirement as was required under our line of credit, supported by
the expected significant increase in our accounts receivable, inventory and overall
working capital; and |
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|
possibly hedging a portion of our exposure to fluctuations in the U.S. dollar /
Euro exchange rate to limit any adverse exposure; but there can be no assurance that
hedges can be put in place at terms acceptable to us or that such hedging activities will
be effective. |
If additional capital is needed and does not become available on acceptable terms, our ability
to fund operations, further develop and expand our manufacturing operations and distribution
network or otherwise respond to competitive pressures would be significantly limited.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2009 and the
effect such obligations are expected to have on our liquidity and cash flow in future periods (in
thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total |
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
|
|
Years |
|
|
1 Year |
|
|
1-3 Years |
|
|
4-5 Years |
|
|
After 5 Years |
|
Non-cancelable operating leases |
|
$ |
4,638 |
|
|
$ |
2,244 |
|
|
$ |
2,386 |
|
|
$ |
8 |
|
|
$ |
|
|
Maturity of Senior Convertible Debt |
|
|
373,750 |
|
|
|
|
|
|
|
373,750 |
|
|
|
|
|
|
|
|
|
Interest expense associated with
Senior Convertible Debt |
|
|
59,800 |
|
|
|
14,950 |
|
|
|
44,850 |
|
|
|
|
|
|
|
|
|
Capital expenditure obligations |
|
|
14,654 |
|
|
|
14,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sovello
obligations |
|
|
15,425 |
|
|
|
15,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials purchase commitments |
|
|
489,316 |
|
|
|
90,978 |
|
|
|
252,273 |
|
|
|
129,322 |
|
|
|
16,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
obligations |
|
$ |
957,583 |
|
|
$ |
138,251 |
|
|
$ |
673,259 |
|
|
$ |
129,330 |
|
|
$ |
16,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
In January 2008, we entered into a second multi-year silicon supply agreement with one of
our suppliers. The supply agreement provides the general terms and conditions pursuant to which
the supplier will supply us with specified annual quantities of silicon at fixed prices beginning
in 2009 and continuing through 2015. We made non-refundable prepayments totaling approximately
$36.5 million in connection with this Agreement that will be amortized as an additional cost of
inventory as silicon is delivered by the supplier and utilized by us. The prepayment is included
in the balance sheet in Prepaid Cost of Inventory.
During 2007, we entered into four multi-year polysilicon supply agreements with various terms
and conditions. Following is a brief summary of each of these agreements.
On April 17, 2007, we entered into a multi-year polysilicon supply agreement with OCI Company
Ltd., formerly DC Chemical Co., Ltd. (OCI) under which OCI will supply us with polysilicon at
fixed prices beginning in late 2008 and continuing through 2014. Concurrent with the execution of
the supply agreement, we entered into a stock purchase agreement (the Purchase Agreement) with
OCI pursuant to which OCI purchased 3.0 million shares of our common stock for $12.07 per share,
representing the closing price of our common stock on the Nasdaq Global Market on April 16, 2007.
Pursuant to the Purchase Agreement, we issued an additional 4.5 million shares of transfer
restricted common stock and 625 shares of transfer restricted preferred stock to OCI. The preferred
stock automatically converted into 6.25 million shares of transfer restricted common stock in May
2007 upon the termination of the applicable waiting period under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended. The restrictions on the common stock will lapse upon the
delivery of specified quantities of polysilicon to us by OCI. Issuance of the restricted shares
represented a prepayment of inventory cost valued at approximately $119.9 million, based on the
issuance date market price of our common stock adjusted for a discount to reflect the transfer
restriction, and will be amortized as an additional cost of inventory as silicon is delivered by
OCI and utilized by us. When the transfer restriction on these shares lapse, we will record an
additional cost of inventory equal to the value of the discount associated with the restriction at
that time if the stock price on that date is higher than $12.07 which will be amortized as an
incremental cost of inventory as silicon is delivered by OCI and utilized by us.
On July 24, 2007, we entered into a multi-year polysilicon supply agreement with Wacker Chemie
AG (Wacker). This supply agreement provides the general terms and conditions pursuant to which
Wacker will supply us with specified annual quantities of polysilicon at fixed prices beginning in
2010 and continuing through 2018. In connection with the agreement we made a payment of
approximately 9.0 million Euros to Wacker.
On October 24, 2007, we entered into a multi-year polysilicon supply agreement with Solaricos
Trading, LTD (Nitol). This supply agreement provides the general terms and conditions pursuant to
which Nitol will supply us with specified annual quantities of polysilicon at fixed prices
beginning in 2009 and continuing through 2014. In connection with the agreement we made a $10.0
million prepayment to Nitol in 2007. An additional prepayment of $5.0 million was made in 2008.
On December 7, 2007, we entered into a multi-year polysilicon supply agreement with Silpro.
This supply agreement provided the general terms and conditions pursuant to which Silpro would
supply us with specified annual quantities of polysilicon at fixed prices to begin in 2010 and
continuing through 2019. In connection with the supply agreement, we agreed to loan Silpro 30
million Euros at an interest rate of 3.0% compounded annually. The initial 15.0 million euro
installment of the loan was disbursed to Silpro in December 2007. The second 15.0 million euro
installment of the loan was disbursed to Silpro during the first quarter of 2008. The loan and
interest were due within five years from the disbursement date of the second installment. In April
2009 as a result of its inability to obtain additional financing to continue construction of its
factory, Silpro announced that the French commercial court ordered the filing for judicial
settlement proceedings (redressement judiciaire), a process similar to bankruptcy proceedings in
the United States. As a result, the loan receivable from Silpro and the related interest will not
be repaid and we recognized a non-cash charge of $43.9 million. In August 2009, the court ordered
liquidation proceedings (liquidation judiciaire) due to Silpros inability to secure further
financing.
53
INCOME TAXES
As of December 31, 2009, we had federal and state net operating loss carryforwards of
approximately $353.1 million and $300.0 million, respectively, available to reduce future taxable
income which began to expire in 2010.
In addition, we had excess tax deductions related to equity compensation of approximately
$24.4 million of which the benefit will be realized when it results in a reduction of taxable
income in accordance with the guidance of the Stock Compensation topic of the FASB codification.
We also had federal and state research and development tax credit carryforwards of approximately
$3.2 million and $1.4 million, respectively, which begin to expire in 2018 and state investment tax
credit carryforwards of approximately $13.1 million which began to expire in 2010, available to
reduce future tax liabilities. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may result in a limitation on the amount of net operating loss
carryforwards and research and development credit carryforwards which can be used in future years.
We adopted the additional guidance of the Taxes topic of the FASB codification on January 1,
2007. As a result of the implementation of this guidance, there was no adjustment to accumulated
deficit or the liability for uncertain tax positions. As of the adoption date of January 1, 2007
and at December 31, 2009, we had no accrued interest related to uncertain tax positions.
We have evaluated the positive and negative evidence bearing upon the realization of our
deferred tax assets. We have considered our history of losses and, in accordance with the
applicable accounting standards, have fully reserved the deferred tax asset.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2008, an update was made to the Earning Per Share topic of the FASB codification
that clarified that all outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of
this nature are considered participating securities and the two-class method of computing basic and
diluted earnings per share must be applied. The new guidance is effective for fiscal years
beginning after December 15, 2008. We adopted the guidance and due to current and prior period
losses there is no impact as such losses are not attributable or allocated to such securities.
In April 2009, an update was made to the Financial Instruments topic of the FASB codification
Fair Value Measurements and Disclosures that requires disclosures about the fair value of financial
instruments in interim financial statements as well as in annual financial statements. The new
guidance also amends the existing requirements on the fair value disclosures in all interim
financial statements. This guidance is effective for interim periods ending after June 15, 2009,
but early adoption was permitted for interim periods ending after March 15, 2009. The adoption of
this standard did not have a material impact on our consolidated financial position and results of
operations.
In April 2009, an update was made to the Fair Value Measurements and Disclosures topic of the
FASB codification that provides additional guidance in determining fair value when there is no
active market or where price inputs being used represent distressed sales. This guidance is
effective for interim periods ending after June 15, 2009, but early adoption was permitted for
interim periods ending after March 15, 2009. The adoption of this standard did not have an impact
on our consolidated financial position and results of operations.
In April 2009, an update was made to the Debt and Equity topic of the FASB codification that
provides guidance in determining whether impairments of debt securities are other than temporary,
and modifies the presentation and disclosures surrounding such instruments. This guidance is
effective for interim periods ending after June 15, 2009, but early adoption was permitted for
interim periods ending after March 15, 2009. The adoption of this standard did not have an impact
on our consolidated financial position and results of operations.
54
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the FASB Standards Accounting Codification (Codification) as
the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC
as authoritative GAAP for SEC registrants. The Codification supersedes all the existing non-SEC
accounting and reporting standards upon its effective date and subsequently, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. SFAS 168 also replaces FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles given that once in effect, the Codification will carry the same level of
authority. SFAS 168 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009 and is effective for our third quarter filing. The adoption of this
standard did not have a material impact on our consolidated financial statements.
In October 2009, an update was made to the Revenue Recognition topic of the FASB codification
that removes the objective-and-reliable-evidence-of -fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting, replaces references to fair value with selling price to
distinguish from the fair value measurements required under the Fair Value Measurements and
Disclosures topic of the FASB codification, provides a hierarchy that entities must use to estimate
the selling price, eliminates the use of the residual method for allocation, and expands the
ongoing disclosure requirements. This update is effective for fiscal years beginning on or after
June 15, 2010 (early adoption is permitted). We do not expect the adoption of the guidance to have
an impact on our consolidated financial position and results of operations.
In October 2009, an update was made to the Debt topic of the FASB codification that amends the
topic to expand accounting and reporting guidance for own-share lending arrangements issued in
contemplation of convertible debt issuance. This update is effective for fiscal years beginning on
or after December 15, 2009 and interim periods within those fiscal years for arrangements
outstanding as of the beginning of those fiscal years. We are currently evaluating the
impact of this guidance on our consolidated financial statements.
In January 2010, an update was made to the Fair Value Measurements and Disclosures topic of
the FASB codification that requires new disclosures for fair value measurements and provides
clarification for existing disclosure requirements. More specifically, this update will require
(a) an entity to disclose separately the amounts of significant transfers into and out of Level 1
and 2 fair value measurements and to describe the reasons for the transfers; and (b) information
about purchases, sales, issuances, and settlements to be presented separately on a gross basis in
the reconciliation of Level 3 fair value measurements. This update is effective for fiscal years
beginning after December 15, 2009 except for Level 3 reconciliation disclosures which are effective
for fiscal years beginning after December 15, 2010. We do not expect the adoption of the guidance
to have an impact on our consolidated financial position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We do not use derivative financial instruments to manage interest rate risk. Interest income
earned on our cash, cash equivalents and marketable securities is subject to interest rate
fluctuations, but we believe that the impact of these fluctuations will not have a material effect
on our financial position due to the liquidity and short-term nature of these financial
instruments. For these reasons, a hypothetical 100-basis point adverse change in interest rates
would not have a material effect on our consolidated financial position, results of operations or
cash flows.
55
FOREIGN CURRENCY EXCHANGE RATE RISK
As we expand our manufacturing operations and distribution network internationally, our
exposure to fluctuations in currency exchange rates may increase. We endeavor to denominate the
purchase price of our equipment and materials and the selling price for our products in U.S.
dollars but are not always successful in doing so. To the extent that our purchases or sales are
made in foreign currency, we will be exposed to currency gains or losses.
For the year ended December 31, 2009, approximately 69% of our product revenues were
denominated in Euros. The portion of our sales that are denominated in Euros can vary widely in
any one period. As of the year ended December 31, 2009, we have six active multi-year solar panel
supply agreements which we entered into in 2008, a portion of which are denominated in Euros. The
combined current estimated sales value remaining under these six agreements is approximately $1.8
billion at December 31, 2009 exchange rates. These panel supply agreements provide the general
terms and conditions pursuant to which certain customers will purchase from us specified annual
quantities of solar panels which began in the second half of 2008 and continue through 2013.
From time to time, we purchase equipment and materials internationally with delivery dates as
much as six to twelve months or more in the future. There have been significant currency
fluctuations in recent periods. To the extent that any purchase obligations are denominated in
foreign currency, we would be exposed to potential increased costs if the U.S. dollar currency
loses value relative to the applicable foreign currency, which will adversely impact our future
financial condition and results of operations.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure
to foreign currency exchange risk. While we may enter into hedging transactions in the future,
given that the availability and effectiveness of these transactions may be limited, we may not be
able to successfully hedge our exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our Financial Statements and related Notes and the Report of the Independent Registered Public
Accounting Firm are included beginning on page F-1 of this Annual Report on Form 10-K.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as
of December 31, 2009. In designing and evaluating our disclosure controls and procedures, we and
our management recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and
our management necessarily was required to apply its judgement in evaluating and implementing
possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective to provide reasonable assurance.
The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure.
56
Internal Control Over Financial Reporting
During the fiscal quarter ended December 31, 2009, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Managements Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control
system was designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation and fair presentation of published financial statements.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control Integrated
Framework, our management concluded that our internal control over financial reporting was
effective as of December 31, 2009.
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 and
that the degree of compliance with the policies or procedures may deteriorate.
Our internal control over financial reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
ITEM 9B. OTHER INFORMATION.
On December 9, 2009 we held a special meeting of stockholders in Marlboro, Massachusetts. At
the special meeting, the stockholders ratified the increase in the total number of authorized
shares of common stock from 250,000,000 shares to 450,000,000 shares. There were 119,403,916 votes
cast for the ratification, 34,734,055 cast against the ratification, and 1,569,243 abstentions.
We expect to hold our 2010 Annual Meeting of Stockholders on or about June 16, 2010.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding our directors and executive officers. The
age of each director and executive officer listed below is given as of January 31, 2010. Our
stockholders elect members of the Board of Directors to serve until their respective successors are
elected and qualified or until earlier resignation or removal.
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|
|
Name |
|
Age |
|
Position |
Richard M. Feldt
|
|
|
58 |
|
|
Chief Executive Officer, President and Chairman
of the Board of Directors |
Michael El-Hillow
|
|
|
58 |
|
|
Chief Financial Officer, Chief Operations
Officer and Secretary |
Richard G. Chleboski
|
|
|
44 |
|
|
Vice President, Strategy and Business Development |
Dr. Lawrence Felton
|
|
|
48 |
|
|
Vice President, Science and Engineering |
57
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Gary T. Pollard
|
|
|
50 |
|
|
Vice President, Human Resources |
Carl Stegerwald
|
|
|
58 |
|
|
Vice President, Construction Management and
Facilities Engineering |
Dr. Brown F. Williams
|
|
|
69 |
|
|
Chief Technical Officer |
|
|
|
|
|
|
|
Tom L. Cadwell (1)(2)
|
|
|
64 |
|
|
Director |
Allan H. Cohen (1)(3)
|
|
|
59 |
|
|
Director |
Dr. Peter W. Cowden (2)(3)
|
|
|
58 |
|
|
Director |
Edward C. Grady (1)(3)
|
|
|
62 |
|
|
Lead Outside Director |
Dr. Susan F. Tierney (2)
|
|
|
58 |
|
|
Director |
|
|
|
(1) |
|
Member of the Audit Committee. |
|
(2) |
|
Member of the Nominating and Corporate Governance Committee. |
|
(3) |
|
Member of the Compensation Committee. |
Class I Directors (Term Expiring in 2010):
Richard M. Feldt has served as President and Chief Executive Officer and a director since
December 2003 and Chairman of the Board of Directors since January 2007. Previously, he was
employed by Perseid, a developer of optical phased array technology created by Raytheon, where he
served as Chief Executive Officer in 2002. From 2000 to 2001, Mr. Feldt served as Chief Operating
Officer of SupplierMarket.com, a B2B internet supply chain management company that was sold to
Ariba. From 1995 to 2000, Mr. Feldt was Senior Vice President and General Manager of Worldwide
Operations at Symbol Technologies, a data transaction systems company. In addition, Mr. Feldt has
held senior positions at A.T. Cross Company, Eastman Kodak Company and Spectra-Physics, Inc. and
has served as a director of ICF International Inc since March 2008. He received a BS in Industrial
Engineering from Northeastern University.
With a career focused in worldwide operations and manufacturing, Mr. Feldt brings to the Board of Directors and our management team the ability to
transform emerging and unique technologies into products that meet market requirements.
Edward C. Grady has served as a director since September 2005. Mr. Grady was President and
Chief Executive Officer of Brooks Automation, Inc., or Brooks, from October 2004 to September 2007
and a director of Brooks from September 2003 to February 2008. From February 2003 until October
2004, Mr. Grady was President and Chief Operating Officer of Brooks. From October 2001 until
February 2003, Mr. Grady served as a consultant to Brooks. From September 2000 until January 2003,
Mr. Grady was a principal at Propel Partners LLC, an investment firm headquartered in Palo Alto,
California. From December 1994 through February 2003, Mr. Grady served in a variety of positions
for KLA-Tencor Corp., including Executive Senior Business Advisor from September 2001 until
February 2003 and Executive Group Vice President from March 1998 until September 2001. Prior to
joining KLA-Tencor Corp., Mr. Grady was the President and Chief Executive Officer of Hoya Micro
Mask. Mr. Grady also currently serves on the board of directors of the following public companies:
Verigy Ltd, Advanced Energy, Inc., and Electro Scientific Industries Inc. Mr. Grady received his
MBA from the University of Houston in 1980 and a BS in Engineering from Southern Illinois
University in 1972.
Mr. Grady brings to the Board of Directors his experience as a CEO and senior executive at companies in the semiconductor
industry, which uses complex technologies similar to the solar industry, enabling him to provide an
important perspective to an emerging industry.
Class II Director Nominee (Term Expiring in 2011):
Allan H. Cohen has served as a director since September 2005. In April 2008, Mr. Cohen joined
Caturano and Company, P.C., New Englands largest independent CPA firm, initially as its Director
of Risk Management and later becoming its Chief Risk
58
Officer in September 2009. At Caturano, Mr. Cohen manages all aspects of the firms strategic
risks and compliance with its professional and regulatory responsibilities, including independence,
ethics and technical consultation for all practice areas. Since July 2005, Mr. Cohen has served on
the advisory board of Plexus Financial Technologies, LLP, an early-stage software as a service
company for the financial services industry. Mr. Cohen has been since May 2002 a senior member of
the restructuring team of Arthur Andersen LLP, serving on a small team responsible for winding down
Andersens professional services activities. Mr. Cohen also serves as an ERISA Trustee of the
Andersen pension and 401K plans, which currently cover nearly 10,000 former Andersen employees with
approximately $1B in assets. Mr. Cohen was a partner with Andersen from 1984 through August 2002,
serving in a variety of client service, and general and risk management roles. From 1996 to 2000,
he served as the managing partner for Andersens northeast region tax practice of 750 tax
professionals and $150M of annual revenues. From 1997 to 2002, Mr. Cohen served on both U.S. and
global leadership teams; from 1999 he served as the Global Managing Partner / CIO for Andersens
worldwide tax and legal practices and managed Andersens $50M commercial software businesses in the
U.S., U.K. and Australia. In addition, he serves as co-trustee and/or trustee advisor to
charitable and other trusts managed by The Boston Foundation and Mellon Financial and as an officer
(President from 2005 2008) of a major Reform Jewish Congregation in the suburban Boston area.
Mr. Cohen received his MBA from Rutgers Graduate School of Management in 1973 and his BA in
Economics, with honors, from Rutgers College in 1972. Mr. Cohen has been a Certified Public
Accountant since 1975.
Mr. Cohens significant experience and background in the practice of public accounting
qualifies him as a financial expert for the Board. In addition, he brings significant global
management perspective and both large and small organization risk management experience and
insights to the Board. Mr. Cohen is an experienced fiduciary with demonstrated experience on
behalf of shareholders, ERISA participants, beneficiaries and other constituencies.
Dr. Susan F. Tierney has served as a director since August 2008. Dr. Tierney is a Managing
Principal at Analysis Group in Boston, Massachusetts. For the past 15 years, she has consulted to
electric utilities, other energy companies, large energy customers, government agencies, and other
organizations on energy markets, the structure and regulation of the electric industry in the U.S.
and other countries. She has been an advisor, observer or policy maker involved in renewable energy
market developments and relevant national/state policies for many decades. For the past 10 years,
she has been involved with the China Sustainable Energy Program and its interactions with Chinese
government agencies and non-governmental organizations on renewable energy issues, among other
energy topics. Prior to joining Analysis Group in 2003, she was Senior Vice President at Lexecon,
where she consulted on energy and environmental economics and policy. She also served as the
Assistant Secretary for Policy at the U.S. Department of Energy under President Clinton; was the
Secretary for Environmental Affairs in Massachusetts, under Governor William Weld, and a
Commissioner at the Massachusetts Department of Public Utilities. She co-chaired the Department of
Energy Agency Review Team for the Obama/Biden Presidential Transition Team. Dr. Tierney has
authored numerous articles and speaks frequently at industry conferences discussing energy market
developments. She serves on a number of boards of directors and advisory committees involved with
clean energy markets and policy, including as the co-chair of the National Commission on Energy
Policy. She also serves as a director of EnerNOC, Inc. and Ze-gen, Inc. She chairs the board of
directors of the Energy Foundation; and is a director of Clean Air Cool Planet, the World
Resources Institute, the Clean Air Task Force, and the Northeast States Clean Air Foundation. She
chairs the External Advisory Council of the National Renewable Energy Laboratory (NREL); and is a
member of the Environmental Advisory Council of the New York Independent System Operator, and the
China Sustainable Energy Programs Policy Advisory Council. She was previously chair of the
Electricity Innovations Institute, a director of Catalytica Energy Systems Inc., a director of
Renegy Holdings, a director of ThermoEcotek; a director of the Electric Power Research Institute, a
member of the Advisory Council of the New England Independent System Operator, a member of the
Massachusetts Renewable Energy Trust Advisory Council, and a director of ACORE (American Council on
Renewable Energy). She has taught at the University of California at Irvine, and she earned her
Ph.D. and MA degrees in regional planning at Cornell University and her BA at Scripps College.
As a director of Evergreen Solar, Dr. Tierney draws on her vast experience in economics, regulation
and policy in the electric industry and utility sector to provide our Board of Directors and
management team with an in depth understanding of how the nascent alternative energy sector and
Evergreen Solar can compete and expand globally.
59
Class III Directors (Term Expiring in 2012):
Tom L. Cadwell has served as a director since April 2007. Mr. Cadwell is currently President
and Chief Executive Officer of Confluence Solar, Inc., a private company formed to provide
substrate materials to the solar industry. He has also served as the Executive Vice Chairman of the
Board of Directors of Integrated Materials, Inc., a manufacturer of pure polysilicon products vital
to semiconductor diffusion processes, since December 2006. From
December 2002 until November 2006, Mr. Cadwell served as the President and Chief Executive Officer
of Integrated Materials, Inc. From 2000 until February 2002, Mr. Cadwell served as the President
and Chief Executive Officer of Tecstar, Inc., or Tecstar, a leader in metal organic chemical vapor
deposition processes for solar cells for satellite power systems as well as light emitting diodes
for leading edge applications. Prior to joining Tecstar, Mr. Cadwell held executive level positions
in the semiconductor equipment and silicon wafer industries. Mr. Cadwell holds an MBA from Saint
Louis University and a BS in Civil Engineering from the University of Missouri at Rolla.
Mr. Cadwells vast experience in the silicon industry from both a technology perspective and
as a CEO provides the Board of Directors with significant insights as we continue to refine our unique silicon-based wafer
making technology.
Dr. Peter W. Cowden has served as a director since October 2006. Dr. Cowden is the Founder and
President of EDI, an executive level coaching and organizational consulting firm. His clients
include Fortune 500 companies, venture backed startups and private equity firms. He started EDI in
February 1998. Dr. Cowdens corporate career includes five years as a corporate human resource
executive with Eastman Kodak Company. Dr. Cowden has also held senior human resource positions with
Agfa/Compugraphics and Stone & Webster Engineering Corporation. Dr. Cowden received his doctorate
degree from Harvard University in 1977, a masters degree from Yale University in 1976 and a
bachelors degree from Claremont Mens College in 1972.
Dr. Cowdens expertise is assuring organizational strategy (structure, talent and processes) are
developed in a way to maximize the implementation of business strategy. A key component of these
processes is assuring that compensation design and plans are
aligned accordingly. This background is very important to the Board of Directors as the Company seeks to
attract and retain executives and key managers to significantly enhance operations in the United
States and expand rapidly in China.
Non-Director Executive Officers:
Richard G. Chleboski has served as Vice President of Strategy and Business Development since
December 2007. Prior to his current position he served as Vice President of Worldwide Expansion
from February 2006 to December 2007, Treasurer from August 1994 to February 2006 and Secretary from
May 2000 to February 2006. Mr. Chleboski served as Chief Financial Officer from August 1994 until
February 2006. From June 1995 until May 2003, Mr. Chleboski served as one of our directors. From
July 1987 until February 1994, Mr. Chleboski worked at Mobil Solar Energy Corporation, the solar
power subsidiary of Mobil Corporation, where he was a Strategic Planner from March 1991 until
February 1994 and a Process Engineer from 1987 until 1991. Mr. Chleboski received an MBA from
Boston College and a BS in Electrical Engineering from the Massachusetts Institute of Technology.
Dr. Lawrence Felton has served as Vice President, Science and Engineering since June 2009.
Prior to his current position he served as the Senior Director of Wafer Fabrication Science and
Engineering from September 2005 to May 2009. Prior to joining Evergreen, Dr. Felton demonstrated
his ability to effectively lead significant projects and divisions at successful and sophisticated technology
companies like Analog Devices and Foster-Miller. This work experience and his academic credentials in
materials engineering and chemical engineering prepared him well to take a leadership role in Evergreen
Solars Science & Engineering department in 2005. Dr. Felton was the
Advanced Packaging Development Manager for the Micromachined Product Division at Analog Devices
from March 1997 to September 2005. Dr. Felton was also Senior Project Manager for Foster-Miller
from January 1995 to March 1997. Dr. Felton was also Senior Project Manager in the Center for
Manufacturing Productivity and Technology Transfer and Adjunct Assistant Professor of Materials
Engineering at Rensselaer Polytechnic Institute, from June 1991 to January 1995. Dr. Felton
received a Ph.D. in Materials Engineering from Rensselaer Polytechnic Institute and a BS in
Chemical Engineering and a MS in Solid State Science and Technology from Syracuse University.
Michael El-Hillow served as Chairman of the Board of Directors from September 2005 to December
2006, and served as a director from August of 2004 until December 2006. Effective January 2007, Mr.
El-Hillow was appointed Chief Financial Officer and Secretary, and resigned from our Board of
Directors. In September 2009, Mr. El-Hillow was appointed Chief Operations Officer and is also
responsible for worldwide manufacturing and
60
operations, in addition to his duties as CFO.
Prior to joining Evergreen Solar as an executive, Mr. El-Hillow demonstrated his leadership capabilities
as Chairman of the Board of Evergreen Solar, and established his abilities as a public company chief financial
officer at Advanced Energy and Helix Technology, both companies having significant ties to the photovoltaic
products industry.
Mr. El-Hillow was Chief Financial Officer of MTM Technologies, Inc. from January 2006 to September
2006. Mr. El-Hillow was Executive Vice President and Chief Financial Officer of Advanced Energy
from October 2001 to December 2005. Prior to joining Advanced Energy, he was Senior Vice President
and Chief Financial Officer of Helix Technology Corporation, a major supplier of high-vacuum
products principally to the semiconductor capital equipment industry, from 1997 until 2001. Prior
to joining Helix, he was Vice President of Finance, Treasurer and Chief Financial Officer at A.T.
Cross Company and an audit partner at
Ernst & Young. Mr. El-Hillow received an MBA from Babson College and a BS in Accounting from
the University of Massachusetts and he is a Certified Public Accountant.
Gary T. Pollard has served as Vice President, Human Resources since June 2004. Prior to
joining us, Mr. Pollard worked as an independent consultant for regional and international
companies in the high technology, healthcare, pharmaceuticals and food services sectors, developing
hiring, recruitment and human resource programs, and designing benefit plans. From 1996 to 2002, he
served as Vice President of Human Resources for The Mentor Network, a Boston-based company, which
had 6,000 employees spread across 150 locations in 22 states at the time he left such company. He
was also Vice President of Human Resources for Advantage Health Corporation, and Director of Human
Resources for Critical Care America. He has also held positions at Signal Capital Corporation,
Martin Marietta Aerospace and General Electric Information Services. Mr. Pollard received a BA in
Economics from Saint Michaels College.
Carl Stegerwald has served as our Vice President, Construction Management and Facilities
Engineering since December 2007. Prior to joining us, Mr. Stegerwald was the sole owner of North
Bridge Properties, LLC, a real estate investment, development and consulting firm that provided
project management services to our Devens I facility.
Prior to working with Evergreen Solar as a consultant and later as an executive, Mr.
Stegerwald held senior positions with Meridian Investment Management and Digital Equipment
Corporation, managing all aspects of diverse and significant real estate holdings and facilities
management and development.
Mr. Stegerwald served as a Senior Vice
President of Meridian, and directed its real estate
investment and operational activities, including facilities leasing and acquisition and property
management, from 1997 to 2006, and was with Meridians predecessor from 1996 to 1997. Prior to
that, Mr. Stegerwald served for 17 years in corporate real estate planning and acquisition and
design and construction with Digital. Mr. Stegerwald received a BS in Civil
Engineering from Villanova University and an MBA from Northeastern University.
Dr. Brown F. Williams has served as Chief Technical Officer since June 2009. Prior to his
current roll he served as Vice President, Science and Engineering from November 2004 to May 2009.
Dr. Williams served as a director from 1999 and as Chairman of our Board of Directors from January
2004 until resigning from our Board of Directors in November 2004. From 1990 to 2003, Dr. Williams
served as Chief Executive Officer and Chairman of the Board of Directors of Princeton Video Image,
Inc., a company he founded in 1990. From 1988 to 1990, Dr. Williams was an independent consultant
to venture capital firms. Dr. Williams has also held several research and managerial positions at
RCA Laboratories from 1966 to 1998. He received his Ph.D., M.A. and A.B. degrees in Physics from
the University of California Riverside and was both a University of California Regents Fellow and a
National Science Foundation Fellow.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors and
holders of more than 10% of our common stock to file with the SEC initial reports of ownership and
reports of changes in ownership of our common stock. Such persons, the reporting persons, are
required by regulations of the SEC to furnish us with copies of all filings. Based solely on our
review of the copies of such filings received by us with respect to the year ended December 31,
2009, or written representations by the reporting persons that no filings were required, we believe
that all reporting persons complied with their Section 16(a) filing requirements during the year
ended December 31, 2009.
Code of Business Conduct and Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics for
our Chief Executive Officer, Chief Financial Officer and all other members of management, all
directors and all of our employees and agents. This Code of Ethics is intended to promote the
highest standards of honest and ethical conduct throughout our
61
business, full, accurate and timely
reporting, and compliance with law, among other things. A copy of the Code of Business Conduct and
Ethics is available under the Investors section of our
website at www.evergreensolar.com.
The Code of Business Conduct and Ethics prohibits any waiver from its
principles without the prior written consent of the Board of Directors. We intend to post on our
website, www.evergreensolar.com, in accordance with the rules of the Securities and Exchange
Commission any amendment of, and any waiver from, the Code of
Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer,
or any person performing similar functions.
Audit Committee
The Audit Committee of the Board of Directors, established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, currently consists of
Messrs. Cohen (Chair), Cadwell and Grady. Each of the members of the
Audit Committee is independent within the meaning of our director independence standards and the
applicable standards of Nasdaq and the SEC for audit committee membership. The Board of Directors
has determined that Mr. Cohen is an audit committee financial expert under the rules of the SEC.
The Audit Committee met four times during fiscal 2009. The Audit Committee
oversees our accounting and financial functions and periodically meets with our management and
independent registered public accounting firm to review internal controls over financial reporting
and quarterly and annual financial reports.
The primary functions of the Audit Committee are to (i) oversee the
appointment, compensation and retention of our independent registered public accounting firm and to
oversee the work performed by such accountants; (ii) establish policies for finance and accounting
related consulting and advisory work, including but not limited to, tax and internal audit related
issues; (iii) assist the Board of Directors in fulfilling its responsibilities by reviewing: (a)
the financial reports provided by us to the SEC, our stockholders or to the general public, and (b)
our internal controls over financial reporting; (iv) recommend, establish and monitor procedures
designed to improve the quality and reliability of the disclosure of our financial condition and
results of operations; (v) establish procedures designed to facilitate (a) the receipt, retention
and treatment of complaints relating to accounting, internal controls over accounting or auditing
matters and (b) the receipt of confidential, anonymous submissions by employees of concerns
regarding questionable accounting or auditing matters , and (vi) risk oversight.
The Audit Committee operates under a written charter adopted by the Board of
Directors setting out the functions the Audit Committee is to perform, which charter was originally
adopted by the Board of Directors in May 2000 and restated most recently in May 2008. A current
copy of the Audit Committee Charter is available under the Investors section of our website at
www.evergreensolar.com. The charter of the Audit Committee is reviewed on an annual basis by the
Audit Committee.
Director Nominations
No material changes have been made to the procedures by which security holders may recommend
nominees to our board of directors. On February 4, 2009, our Board of Directors amended Article I,
Section 1.10 of our bylaws. The amendment, among other things, (i) eliminates the notice as a means
to properly bring business before an annual meeting of our stockholders, (ii) further clarifies
that the advance notice bylaw provisions apply to all stockholder proposals and nominations and
(iii) requires our stockholders who provide advance notice of proposals or nominations to disclose
additional information as part of such notice, including information as to whether the stockholder
has entered into any hedging, derivative or other transactions with respect to securities issued by
Evergreen Solar.
62
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
Our executive compensation policies are designed to:
|
|
|
provide compensation that attracts, motivates and retains experienced and well-qualified
executives capable of helping us meet our business objectives; |
|
|
|
|
recognize and reward performance of our executive officers, both as individuals and as
members of a cohesive management team, in meeting certain strategic objectives; |
|
|
|
|
align the interests of our executive team with the corporate strategies and our business
objectives; and |
|
|
|
|
align the interests of our executive team with that of stockholders through long-term
equity-based incentives. |
Executive Summary
Our executive officers receive a compensation package consisting of base salary, incentive
cash bonuses, long-term equity incentive awards, and participation in benefit plans generally
available to all of our employees including 401(k), life, health, disability and dental insurance.
We have chosen these elements of compensation to create a flexible package that reflects the
long-term nature of our business and can reward both short and long-term performance of the
business and of each executive officer. We also enter into employment agreements with our
executive officers, after their first year of employment, that provide for certain severance
benefits upon termination of employment following a change of control of the Company.
In setting executive officer compensation levels, the Compensation Committee, which is
comprised entirely of independent directors, is guided by the following considerations:
|
|
|
recommendations from the Chief Executive Officer based on individual executive
performance and appropriate benchmark data; |
|
|
|
|
our goal of having a portion of each executive officers compensation contingent upon
the achievement of specific predetermined corporate and individual objectives; |
|
|
|
|
ensuring compensation levels reflect the Companys past performance and expectations of
future performance; |
|
|
|
|
ensuring compensation levels are competitive with compensation generally being paid to
executives we seek to recruit to ensure our ability to attract and retain experienced and
well-qualified executives; and |
|
|
|
|
ensuring a portion of executive officer compensation is paid in the form of equity-based
incentives to closely link stockholder and executive interests. |
The Compensation Committee sets target and actual compensation for our Chief Executive Officer
using the same considerations it uses for other executive officers.
The Compensation Committee periodically benchmarks all of the compensation components for our
executive officer pay programs with data on individuals in similar positions at other
organizations. In 2009, the Compensation Committee continued to use executive compensation
consulting company, Pearl Meyer & Partners (PM&P) to
63
provide competitive benchmark data that the
Company used to establish pay levels for Evergreen Solars executive management team. PM&P was
retained by the Compensation Committee.
In 2007 the Compensation Committee, with assistance from PM&P, developed a peer group of
public companies for use in setting 2008 compensation. In 2009 the Committee reassessed the peer
group and determined that no changes were needed. The 2009 peer group includes the following
companies:
|
|
|
|
|
Applied Micro Circuits Corp.
|
|
First Solar, Inc.
|
|
Opnext, Inc. |
Atheros Communications
|
|
Hittite Microwave Corporation
|
|
Semtech Corporation |
ATMI, Inc.
|
|
MEMC Electronic Materials, Inc.
|
|
SunPower Corporation |
Cree, Inc.
|
|
Microsemi Corporation
|
|
Tessara Technologies, Inc. |
Energy Conversion Devices, Inc.
|
|
Monolithic Power Systems, Inc. |
|
|
The Compensation Committee, as a matter of practice, will periodically reassess the relevance
of the peer group companies and will make changes when appropriate.
Executive Compensation Philosophy
Our executive compensation philosophy is designed to have strong pay-for-performance features.
The Committee believes salaries at the 50th percentile are appropriate as base
compensation is primarily determined based on, and is representative of, past professional
experience and success. By contrast, establishing target bonus compensation and equity-based
compensation at the 75th percentile accomplishes the objective of providing greater
incentives for the executive team to accomplish the Companys near-term and long-term financial and
strategic goals. Accordingly, the Compensation Committee generally adhered to the following
precepts in establishing pay for its executive officers based on the comprehensive benchmarking
study prepared by PM&P.
|
|
|
Establish base salaries at the 50 th percentile; |
|
|
|
|
Set target total cash compensation at the 75th percentile and set
corresponding financial goals at the 75th percentile of the market consensus
amounts developed from a combination of survey and peer group data; and |
|
|
|
|
Set total direct compensation (base salary, bonus and equity) at the 75th
percentile. |
The Compensation
Committees methodology for establishing base compensation levels and incentive compensation targets in 2009
is consistent with how these compensation levels have been established by the Compensation Committee for at
least the past three years, including the applicable percentiles used to set the base compensation levels and
incentive compensation targets.
Elements of Compensation
Base Salary
Base salaries are used to recognize the experience, skills, knowledge and responsibilities
required of all our employees, including our executive officers. Fiscal 2009 base salaries for our
executive officers were held consistent with 2008 levels due to economic and industry concerns.
Additionally, from April 1, 2009 through October 31, 2009 the base salaries of all executive
officers were reduced by 10% due to these same concerns.
Generally, salary decisions for our executive officers are made in the first quarter of each
fiscal year. Base salary, while reviewed annually, is only adjusted as deemed necessary by the
Compensation Committee in determining total compensation. Base salary levels for each of our
executive officers, other than the Chief Executive Officer, are set based in part upon evaluations
and recommendations made by the Chief Executive Officer. In addition, the Compensation Committee
takes into consideration the benchmarking data presented by PM&P, to generally set the base pay for
each of the executive officer.
In February 2007, the Compensation Committee increased Mr. Feldts base salary based on the
Compensation Committees assessment of PM&Ps comprehensive benchmarking study which indicated that
Mr. Feldts 2006 salary was below the market median salary for chief executive officers. The
Compensation Committee then determined that it was appropriate to move Mr. Feldts salary to the
50th percentile over a two-year period.
64
Accordingly, an additional increase of Mr.
Feldts base salary to $500,000 was approved and went into effect in February 2008. Mr. Feldts
base salary remained at $500,000 for 2009.
The fiscal 2009 annual base salaries of our named executive officers were as follows:
|
|
|
|
|
Name |
|
2009 Base Salary |
Richard M. Feldt |
|
$ |
500,000 |
|
Michael El-Hillow |
|
$ |
338,000 |
|
Richard G. Chleboski |
|
$ |
239,200 |
|
Dr. Lawrence Felton |
|
$ |
225,000 |
|
Dr. Brown F. Williams |
|
$ |
338,000 |
|
Annual base salaries for our executive officers are set by the Compensation Committee and
generally take effect in the first quarter of each year. We believe that the base salaries paid to
our executive officers during our fiscal year 2009 serve our executive compensation objectives,
compare favourably to our comparator group of companies and, in light of our overall compensation
program, are within our target of providing base compensation at the market median.
Annual Incentive Cash Bonuses
Annual incentive cash bonuses are designed to reward our executive officers for short-term financial
performance and achievement of designated strategic and individual objectives. Therefore, in
determining bonus compensation for our executive officers, the Compensation Committee evaluates the
achievement of corporate strategic objectives, generally set on a fiscal-year basis, as well as the
actual performance of each executive officer. Future incentive compensation, if any, will be
awarded based on the factors described above as well as any additional factors the Compensation
Committee deems necessary. In addition the Compensation Committee took into consideration the
survey data presented by PM&P to set the overall target cash compensation at the 75th percentile.
We designed our Management Incentive Plan to focus our executives on achieving key corporate
financial objectives, and to reward substantial achievement of these company financial objectives,
as well as to achieve additional individual, strategic and tactical objectives. The criteria
selected linked the incentive compensation to the achievements of measurable corporate performance
objectives. The following table sets forth the annual target incentive amounts under our Management
Incentive Plan for each of our named executive officers (for 2009 and each year thereafter) as a
percentage of base salary and the actual amounts paid based on performance in 2009.
|
|
|
|
|
|
|
|
|
|
|
Target Annual |
|
2009 Bonus |
Name |
|
Bonus |
|
Paid in 2010 |
Richard M. Feldt |
|
|
100 |
% |
|
$ |
479,991 |
|
Michael El-Hillow |
|
|
75 |
% |
|
$ |
253,500 |
|
Richard G. Chleboski |
|
|
75 |
% |
|
$ |
162,357 |
|
Dr. Lawrence Felton |
|
|
75 |
% |
|
$ |
156,933 |
|
Dr. Brown F. Williams |
|
|
75 |
% |
|
$ |
223,080 |
|
Target cash bonus percentages were initially set in February 2008, and remained constant in
2009, at levels the Compensation Committee determined were appropriate in order to achieve our
objective of retaining those executives who perform at or above the levels necessary for us to
achieve our business plan, which, among other things, involves growing our company in a
cost-effective way. Under our Management Incentive Plan, the Compensation Committee may award
amounts in excess of or below the target bonus awards to all of our named executive officers.
For the 2009 the Compensation Committee established that the Management Incentive Plan (the
Plan) would focus on the following corporate-wide objectives:
|
|
|
Net Cash Provided by Operating Activities |
|
|
|
|
Devens Output (in Watts) |
65
|
|
|
(1) |
|
Defined as all material, labor, overhead and capital costs necessary to produce the
product. |
The table below details the three objectives, a target goal for each objective and the
impact that performance below and above that target goal would have on each executive
officers award
For
2009, payment of 100% of the target bonus payout was dependent upon
attainment of Net Cash
Provided by Operating Activities, Devens Output and Devens Cost per Watt objectives. The objectives were the same
for each executive
officer and the Compensation Committee believes that these objectives are the best indicators
of the progress that the Company has made in advancing its growth objectives.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
|
|
|
|
|
Bonus |
|
|
|
|
|
|
Bonus |
|
|
|
|
|
|
Bonus |
|
|
|
|
|
|
Bonus |
|
|
|
Goal |
|
|
Percent |
|
|
Goal |
|
|
Percent |
|
|
Goal |
|
|
Percent |
|
|
Goal |
|
|
Percent |
|
|
|
Corporate-Wide Goals |
|
Net Cash Provided by (Used in)
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,000 |
|
|
|
15.00 |
% |
|
$ |
25,000 |
|
|
|
15.00 |
% |
Target |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,800 |
) |
|
|
10.00 |
% |
|
$ |
2,300 |
|
|
|
10.00 |
% |
Minimum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(5,000 |
) |
|
|
5.00 |
% |
|
$ |
|
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Devens Output (W in 000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
18,728 |
|
|
|
14.00 |
% |
|
|
30,075 |
|
|
|
10.50 |
% |
|
|
35,000 |
|
|
|
11.75 |
% |
|
|
35,000 |
|
|
|
11.75 |
% |
Target |
|
|
17,025 |
|
|
|
10.00 |
% |
|
|
27,341 |
|
|
|
7.50 |
% |
|
|
33,000 |
|
|
|
8.75 |
% |
|
|
34,000 |
|
|
|
8.75 |
% |
Minimum |
|
|
15,323 |
|
|
|
6.00 |
% |
|
|
24,607 |
|
|
|
4.50 |
% |
|
|
30,000 |
|
|
|
5.75 |
% |
|
|
30,000 |
|
|
|
5.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost per Watt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
$ |
2.49 |
|
|
|
7.00 |
% |
|
$ |
2.00 |
|
|
|
25.00 |
% |
|
$ |
1.90 |
|
|
|
25.00 |
% |
Target |
|
|
|
|
|
|
|
|
|
$ |
2.62 |
|
|
|
5.00 |
% |
|
$ |
2.20 |
|
|
|
10.00 |
% |
|
$ |
2.00 |
|
|
|
20.00 |
% |
Minimum |
|
|
|
|
|
|
|
|
|
$ |
2.82 |
|
|
|
3.00 |
% |
|
$ |
2.25 |
|
|
|
5.00 |
% |
|
$ |
2.10 |
|
|
|
15.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Results |
|
Cash Flow from Operating Activities |
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
$ |
11,217 |
|
|
|
13.9 |
% |
|
$ |
16,949 |
|
|
|
13.2 |
% |
Devens Output |
|
|
18,300 |
|
|
|
13.0 |
% |
|
|
23,612 |
|
|
NONE |
|
|
30,721 |
|
|
|
6.5 |
% |
|
|
33,896 |
|
|
|
8.7 |
% |
Cost per Watt |
|
|
N/A |
|
|
|
|
|
|
$ |
2.70 |
|
|
|
4.20 |
% |
|
$ |
2.24 |
|
|
|
6.0 |
% |
|
$ |
2.05 |
|
|
|
17.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus Earned |
|
By Quarter |
|
|
|
|
|
|
13.0 |
% |
|
|
|
|
|
|
4.2 |
% |
|
|
|
|
|
|
26.4 |
% |
|
|
|
|
|
|
39.4 |
% |
Cumulative |
|
|
|
|
|
|
13.0 |
% |
|
|
|
|
|
|
17.2 |
% |
|
|
|
|
|
|
43.6 |
% |
|
|
|
|
|
|
83.0 |
% |
In addition to the bonus that is earned through achieving the company-wide objectives,
the Committee also agreed that a discretionary bonus pool of 10% of target bonus dollars would be
made available for director-level employees and above, including executive officers, and other key contributors for achieving their individual
objectives. The Committee determined the actual discretionary bonus for an individual can be as
high as 20% or as low as zero, but the total discretionary bonus pool of 10% cannot be exceeded. The
Committee established individual objectives for the Chief Executive Officer and the Chief Executive
Officer established individual objectives for the other named executive officers. The Committee
determined whether the individual objectives for the Chief Executive Officer have been met and the Chief
Executive Officer determined whether the individual objectives for the other named executive officers have
been met. Each of our Chief Executive Officer and the other named executive officers received between 5%
and 17% of their target bonus award based on the accomplishment of his respective individual objectives.
These individual bonus amounts and individual objectives are specified in footnote 2 to the Summary
Compensation Table.
Based on the 2009 quarterly results relative to each of the above referenced objectives the
Compensation Committee determined that each executive officer was entitled to receive 83% of his
target bonus amount, plus any additional payment percentage as a result of achieving individual
objectives. The bonus was paid in February 2010.
66
Further details about our Management Incentive Plan and the payments made to our named
executive officers in 2009 are provided below in the Summary Compensation Table and Grants of
Plan-Based Awards tables and the footnotes to each table.
Long-Term Equity Incentive Awards
Equity-based compensation and ownership ensures that our executive officers have a continuing
stake in the long-term success of the Company. The Compensation Committee believes that equity
award participation aligns the interests of executive officers with those of the stockholders. In
addition, the Compensation Committee believes that equity ownership by executive officers helps to
balance the short-term focus of annual incentive compensation with a longer term view and may help
to retain such persons. Long-term equity incentive compensation, in the form of restricted stock
awards and stock options, allows executive officers to share in any appreciation in the value of
our common stock, while encouraging executive officers to remain with the Company and promote the
Companys success. When establishing equity award grant levels, the Compensation Committee
considers general corporate performance, individual performance, the Chief Executive Officers
recommendations (except with respect to the Chief Executive Officers own equity award grant
levels), level of seniority and experience, the current stock price and a number of other factors.
Consistent with our
target compensation objectives described above, including the overall compensation objective of providing
total direct compensation in the 75th percentile for executives who are performing at expected levels,
in June 2009, our Named
Executive Officers received restricted stock awards and a stock option award as indicated below:
|
|
|
|
|
|
|
|
|
Name |
|
Restricted Stock Award |
|
Stock Option Award |
Richard M. Feldt |
|
185,000 Shares |
|
|
250,000 Options |
|
Michael El-Hillow |
|
87,000 Shares |
|
|
115,000 Options |
|
Richard G. Chleboski |
|
58,000 Shares |
|
|
75,500 Options |
|
Dr. Lawrence Felton |
|
33,500 Shares |
* |
|
33,500 Options |
* |
Dr. Brown F. Williams |
|
87,000 Shares |
|
|
115,000 Options |
|
|
|
|
* |
|
Includes Restricted Stock Award and Stock Options awarded as part of Dr. Feltons promotion to
Vice President, Science & Engineering. |
All of our time-based restricted stock grants and stock option grants, including the
restricted stock and stock option awards made to the named executive officers in 2009, vest in four
equal annual installments over the four year period following the grant date.
As specified above, the long-term equity incentives provided by the Company to our
executive officers consisted of (1) restricted stock awards and (2) stock options.
The mix of restricted stock awards and stock options was approximately 45% restricted
stock and 55% options, on a share basis, but was determined based on the goal of providing
equal amounts of restricted stock and options, on a value basis. To determine the allocation
the awards were valued based on the average share price for the Companys common stock during
the last six months of the prior fiscal year. This allocation methodology did not apply to Dr.
Felton due to awards made in connection with his mid-year promotion. In recent prior years,
either a mix of performance awards and restricted stock or just restricted stock was awarded.
For 2009, the Compensation Committee determined that the mix of awards granted would provide an
appropriate incentive to management to perform well for stockholders and is appropriately aligned to
market comparables.
In February 2006 and 2007, our executive officers were granted performance-based
restricted stock awards which vest 100% upon the achievement of certain financial objectives within
a fiscal year, including certain levels of: (a) revenue, (b) gross margin and (c) net income. These
awards were established to reward our executive officers for the attainment of ambitious
performance objectives. At the present time the Company believes that it is unlikely that the
performance criteria for these performance-based stock awards will be achieved and, accordingly,
does not expect such shares to vest. The 2006 and 2007 performance-based restricted stock awards
will expire on January 1, 2011 and January 1, 2012, respectively, if they have not yet vested.
Further details about the equity awards held by our Chief Executive Officer and other executive
officers are provided below in the Summary Compensation Table, Grants of Plan-Based Awards,
Outstanding Equity Awards at Fiscal Year-End, and Option Exercises and Stock Vested tables and
the footnotes to each table.
Other Compensation
We also offer various broad-based employee benefit plans. Executive officers participate in
these plans on the same terms as eligible, non-executive employees, subject to any legal limits on
the amounts that may be contributed or paid to executive officers under these plans. We offer a
stock purchase plan, under which employees may purchase shares of the Companys common stock at a
discount, and offer a 401(k) Plan, which allows employees to
67
invest in a wide array of funds on a
pre-tax basis. We also have change of control agreements with our executive
officers providing for certain benefits which may be triggered upon a change of control and as a
result of the termination of such officers employment following a change of control under certain
circumstances. We offer no perquisites to our executive officers that are not otherwise available
to all of our employees.
Executive Change of Control Severance Agreements and Other Agreements
In 2007, we entered into change of control severance agreements with each of our executive
officers. We believe these agreements enable us to retain executive officers during times of
unforeseen events when the executives future is uncertain but continued employment of the
executive may be necessary for the company. We periodically review the prevalence of severance and
change-of-control agreements among our comparator groups executives as well as the provisions of
such agreements to benchmark the competitiveness of the Companys agreements. Specifically, we
reviewed the cash severance multiple, equity vesting provisions, benefit continuation practices,
excise tax gross-up prevalence, and the length of the protection period in the event of a change of
control. Based upon our review, we believe our agreements are generally consistent with those of
our comparator groups. None of our executive change of control severance agreements are intended
to provide deferred compensation with the meaning of Section 409A of the Internal Revenue Code
and immaterial modifications were made to these agreements in December 2008 in an effort to comply
with the particular requirements of Section 209A.
Equity Provisions
Our agreement with Mr. Feldt provides that, if we experience a change of control, (i) all of
Mr. Feldts outstanding equity awards will immediately vest and become exercisable or released from
the Companys repurchase or reacquisition right, and (ii) all of the performance targets for all
Mr. Feldts performance-based equity awards will be deemed fully achieved. The agreements with our
other executive officers provide that, if we experience a change of control: (i) all of the
employees outstanding equity awards will immediately vest and become exercisable or released from
the Companys repurchase or reacquisition right as to (A) that number of unvested shares that would
have vested during the period between the equity awards most recent vesting date (or the grant
date, if no vesting date has been reached) and the change of control as if the equity awards had
been granted with a monthly vesting schedule and (B) that number of unvested shares that would have
otherwise vested during the last twelve months of each equity awards vesting schedule, and (ii)
all performance targets for the executive officers performance-based equity awards will be deemed
fully achieved on the first anniversary of the change of control if the employee is employed on
such date.
Cash Severance and Continued Benefits
Each change of control severance agreement also provides severance benefits. If any executive
officers employment is terminated without cause within twelve months of a change of control, or if
an executive officer terminates his employment for certain reasons including a substantial
reduction in salary or geographic movement within twelve months of a change of control, that
executive officer will receive continued payment of his base salary and health benefits for twelve
months (or eighteen months, in the case of Mr. Feldt) and his target bonus amount for the year of
termination. Payment of the severance benefits under the change of control severance agreements
will be delayed as required by Section 409A of the Code.
In the event that the severance and other benefits provided for in the change of control
severance agreements with Messrs. Feldt, El-Hillow and Williams constitute parachute payments
within the meaning of Section 280G of the Code and would be subject to the excise tax imposed by
Section 4999 of the Code, the executive will receive (i) a payment from the Company sufficient to
pay such excise tax, and (ii) an additional payment from the Company sufficient to pay the federal
and state income and employment taxes and additional excise taxes arising from the payments made to
the employee by the Company. In the event that the severance and other benefits provided Messrs.
Felton and Chleboski constitute parachute payments within the meaning of Section 280G of the
Internal Revenue Code and would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, such employees benefits under the Agreement shall be either delivered in
full or delivered as to such lesser extent which would result in no portion of such benefits being
subject to the excise tax, whichever results in the receipt by the employee, on an after-tax basis,
of the greatest amount of benefits.
See Potential Benefits upon Change of Control or Termination following a Change of Control
below for more details regarding severance benefits provided to our named executive officers.
68
We have also entered into indemnification agreements with certain of our executive officers,
providing for indemnification against expenses and liabilities reasonably incurred in connection
with their service for us on our behalf.
Tax Deductibility of Executive Compensation
In general, under Section 162(m) of the Internal Revenue Code, we cannot deduct, for federal
income tax purposes, compensation in excess of $1,000,000 paid to certain executive officers. This
deduction limitation does not apply, however, to compensation that constitutes qualified
performance-based compensation within the meaning of Section 162(m) of the Code and the
regulations promulgated there under. The Compensation Committee considers the limitations on
deductions imposed by Section 162(m) of the Internal Revenue Code, and it is the Compensation
Committees present intention that, for so long as it is consistent with its overall compensation
objectives, executive compensation paid will not be subject to the deduction limitations of Section
162(m) of the Internal Revenue Code.
The Compensation Committee also takes into consideration the Company Stock Ownership
Guidelines which are intended to encourage executive officers to have a portion of their personal
wealth tied to the Companys share value. The Compensation Committee also considers the impact of
accounting for the various elements of compensation when deciding to grant equity awards to
executive officers.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee has reviewed and discussed with management the foregoing
Compensation Discussion and Analysis for the year ended December 31, 2009 that precedes this report
(the CD&A). In reliance on its reviews and discussions, the compensation committee recommended to
the Board of Directors, and the Board of Directors has approved, that the inclusion of the CD&A in
the Companys Annual Report on Form 10-K for the year ended December 31, 2009 for filing with the
SEC.
No portion of this Compensation Committee Report shall 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, through any general statement incorporating by reference in its entirety
the Annual Report of Form 10-K in which this report appears, except to the extent that the Company
specifically incorporates this report or a portion of it by reference. In addition, this report
shall not be deemed filed under either the Securities Act or the Exchange Act.
|
|
|
|
|
Respectfully submitted by the Compensation Committee, |
|
|
|
|
|
THE COMPENSATION COMMITTEE |
|
|
|
|
|
Dr. Peter W. Cowden (Chair)
Edward C. Grady
Allan H. Cohen |
Compensation Committee Interlocks and Insider Participation
No current member of the Compensation Committee or person who was a member of
such committee at any time during the last fiscal year was at any time during the last fiscal year an officer or employee
of the Company (or any of its subsidiaries), was formerly an officer of the Company (or any of its
subsidiaries), or had any relationship with the Company requiring disclosure herein. The
Compensation Committee operates under a written charter adopted by the Board of Directors setting
out the functions the Compensation Committee is to perform.
69
During the last fiscal year, none of our executive officers served as (i) a
member of the compensation committee (or other committee of the Board of Directors performing
equivalent functions or, in the absence of any such committee, the entire Board of Directors) of
another entity, one of whose executive officers served on our
Compensation Committee; (ii) a director of another entity, one of whose executive officers served
on our Compensation Committee; or (iii) a member of the compensation committee (or other committee
of the Board of Directors performing equivalent functions or, in the absence of any such committee,
the entire Board of Directors) of another entity, one of whose executive officers served as a
director of our Board of Directors.
Summary Compensation Table
The following table sets forth the annual and long-term compensation of our Chief Executive
Officer and Chief Financial officer plus each of our three other most highly compensated executive
officers who were serving as executive officers as of December 31, 2009, 2008 and 2007, except for
Dr. Felton who only served as an executive officer in 2009, and whose salary and bonus exceeded
$100,000 for Fiscal years 2009, 2008 and 2007 (collectively, the Named Executive Officers).
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) |
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) |
|
Non-Equity |
|
Deferred |
|
(i) |
|
|
|
|
|
|
|
|
(c) |
|
(d) |
|
(e) |
|
Option |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
(a) |
|
(b) |
|
Salary |
|
Bonus |
|
Stock Awards |
|
Grants |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Name and Principal Position(s) |
|
Year |
|
($)(1) |
|
($)(2) |
|
($)(3)(4)(5)(6)(7) |
|
($)(7) |
|
($) |
|
($) |
|
($)(8)(9) |
|
($) |
|
Richard M. Feldt |
|
|
2009 |
|
|
|
527,885 |
|
|
|
479,990 |
|
|
|
344,100 |
|
|
|
440,200 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
1,792,175 |
|
Chief Executive Officer,
|
|
|
2008 |
|
|
|
507,692 |
|
|
|
332,494 |
|
|
|
778,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
1,618,186 |
|
President and
Chairman of the |
|
|
2007 |
|
|
|
396,154 |
|
|
|
400,000 |
|
|
|
429,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
1,225,154 |
|
Board of Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael El-Hillow,
|
|
|
2009 |
|
|
|
352,300 |
|
|
|
253,500 |
|
|
|
161,820 |
|
|
|
202,492 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
750 |
|
|
|
970,862 |
|
Chief Financial
Officer, Chief Operations Officer and |
|
|
2008 |
|
|
|
351,900 |
|
|
|
168,578 |
|
|
|
311,200 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
57,360 |
|
|
|
889,038 |
|
Secretary |
|
|
2007 |
|
|
|
318,750 |
|
|
|
268,082 |
|
|
|
1,716,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
27,907 |
|
|
|
2,330,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G.
Chleboski,
|
|
|
2009 |
|
|
|
236,900 |
|
|
|
162,357 |
|
|
|
107,880 |
|
|
|
132,940 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
750 |
|
|
|
640,827 |
|
Vice President,
Strategy and |
|
|
2008 |
|
|
|
244,331 |
|
|
|
119,301 |
|
|
|
130,315 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
750 |
|
|
|
494,697 |
|
Business Development |
|
|
2007 |
|
|
|
231,385 |
|
|
|
172,500 |
|
|
|
171,600 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
750 |
|
|
|
576,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lawrence Felton,
|
|
|
2009 |
|
|
|
189,471 |
|
|
|
156,933 |
|
|
|
63,310 |
|
|
|
56,104 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
465,818 |
|
Vice President,
Science and |
|
|
2008 |
|
|
|
179,624 |
|
|
|
58,184 |
|
|
|
103,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
340,808 |
|
Engineering |
|
|
2007 |
|
|
|
160,365 |
|
|
|
80,000 |
|
|
|
80,400 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
320,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Brown F.
Williams,
|
|
|
2009 |
|
|
|
317,850 |
|
|
|
223,080 |
|
|
|
161,820 |
|
|
|
202,492 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
750 |
|
|
|
905,992 |
|
Chief Technology
Officer |
|
|
2008 |
|
|
|
336,500 |
|
|
|
168,578 |
|
|
|
311,200 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
750 |
|
|
|
817,028 |
|
|
|
|
2007 |
|
|
|
321,154 |
|
|
|
243,750 |
|
|
|
214,500 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
779,404 |
|
|
|
|
(1) |
|
Salaries for certain named executive officers include amounts paid in lieu of
paid time off per a Company policy that allowed any employees to cash out paid time off
in light of a busier than usual workload during the year. The base salary in 2009 for each
named executive officer was reduced by a 10% company-wide pay reduction that was in effect from
April through October of 2009. |
|
(2) |
|
Represents bonuses earned during the fiscal year and paid in the following fiscal year. Mr.
El-Hillows 2007 bonus includes a one time sign-on of $25,000. In 2009, Mr. Feldt received
$65,000 of his bonus based on the accomplishment of four individual objectives, including raising
capital, finalizing a subcontract arrangement in China, achieving key manufacturing operating
metrics and managing matters involving Sovello; Mr. El-Hillow received $43,095 of his bonus based
on the accomplishment of four individual objectives, including raising capital, finalizing a
subcontract arrangement in China, assuming responsibility for and managing the Devens noise
problem, and accomplishing key objectives in his new additional role
as Chief Operations Officer;
Mr. Chleboski received $13,455 of his bonus based on the accomplishment of three individual objectives,
including developing a cell and panel expansion strategy, developing Evergreens downstream integration
strategy and managing matters involving Sovello; Dr. Felton received $16,875 of his bonus based on the
accomplishment of four individual objectives, including completion of pilot production for the Midland
factory, design completion of the Quad furnace for the China wafer facility, development of multiwire
and accomplishment of manufacturing yield and efficiency targets; and Dr. Williams received $12,675 of
his bonus based on the accomplishment of one individual objective,
namely establishment of a plan to
implement multiwire production in China. |
|
(3) |
|
We did not grant any stock appreciation rights or make any long-term incentive plan payouts
to the Named Executive Officers during Fiscal 2009. |
|
(4) |
|
Mr. El-Hillows 2007 restricted stock grant was based on his commencement of employment with
the Company and was granted on February 12, 2007. Dr. Feltons 2009 restricted stock awards
and option grants each include 25,000 shares which were granted at the time of his promotion
to Vice President, Science and Engineering, on June 8, 2009. |
|
(5) |
|
The stock awards and option grants include grants to the Named Executive Officers based on
performance for the year ended December 31, 2008, but awarded in 2009. Mr. Feldt received a
restricted stock grant of 185,000 shares, Mr. El-Hillow and Dr. Williams each received
restricted stock grants of 87,000 shares, Mr. Chleboski received a restricted stock grant of
58,000 shares and Dr. Felton received restricted stock grants of 33,500 shares (25,000 shares
of which were based on his promotion to Vice President, Science and Engineering). Mr. Feldt
received a stock option award of 250,000 shares, Mr. El-Hillow and Dr. Williams each received
stock option awards of 115,000, Mr. Chleboski received a stock option award of 75,500 shares
and Dr. Felton received stock option awards of 33,500 shares (25,000 shares of which were
based on his promotion to Vice President, Science and Engineering). These restricted shares
vest over four years with a starting |
70
|
|
|
|
|
vesting date of March 1, 2009. The stock option awards are valued using the Black-Scholes
method and vest over 4 years with a starting vesting date of March 1, 2009. |
|
(6) |
|
Performance-based restricted stock awards were granted to the Named Executive Officers on
February 12, 2007. For fiscal year 2007, Mr. Feldt received 300,000 restricted shares, while
Mr. El-Hillow, Mr. Chleboski and Dr. Williams each received 100,000 restricted shares. The
shares are subject to performance vesting conditions. The shares for fiscal 2007 will vest
only upon the achievement of all of the following accomplishments within a calendar year by
December 31, 2011: (a) $400 million in revenue, (b) 35% gross margin and (c) 10% net income,
as adjusted by the plan. The aggregate fair market value of the grants was $8.58 per share at
time of issuance. At the present time the Company believes that it is unlikely that the
performance criteria for these performance-based stock awards will be achieved and,
accordingly, does not expect such shares to vest. The value of the shares has not been
included in the stock awards column for 2007. |
|
(7) |
|
See Note 11 of our consolidated financial statements for further information on the valuation of equity awards. |
|
(8) |
|
Mr. El-Hillow received $27,157 and $56,610 during fiscal 2007 and 2008, respectively, for
relocation fees as part of his commencement of employment with the company. No Named
Executive Officers received any other perquisites or other personal benefits in excess of
$10,000 during fiscal 2009, 2008 or 2007. The compensation described in this table does not
include medical, group life insurance and other benefits received by the Named Executive
Officers which are available generally to all of our salaried employees. |
|
(9) |
|
Amounts for Messrs. El-Hillow (2007, 2008 and 2009), Chleboski (2007, 2008 and 2009) and
Williams (2008 and 2009) include matching contributions to the 401(k) plan account of the
Named Executive Officer. |
Grants of Plan-Based Awards
The following table sets forth information regarding all equity based incentive plan awards that
were made to the Named Executive Officers during fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
|
|
|
|
|
|
|
|
All Other Stock |
|
|
|
|
|
|
|
|
|
Awards: |
|
(l) |
|
|
|
|
|
|
|
Number of |
|
Grant Date Fair |
|
|
(b) |
|
|
Shares of Stock |
|
Value of Stock and |
(a) |
|
Grant |
|
|
or Units |
|
Option Awards |
Name |
|
Date |
|
|
(#)(1)(2) |
|
($)(3) |
Richard M. Feldt |
|
|
6/1/2009 |
|
|
|
|
435,000 |
|
|
|
784,300 |
|
Michael El-Hillow |
|
|
6/1/2009 |
|
|
|
|
202,000 |
|
|
|
364,312 |
|
Richard G. Chleboski |
|
|
6/1/2009 |
|
|
|
|
133,500 |
|
|
|
240,820 |
|
Dr. Lawrence Felton |
|
|
6/1/2009 |
|
|
|
|
67,000 |
|
|
|
119,414 |
|
Dr. Brown F.
Williams |
|
|
6/1/2009 |
|
|
|
|
202,000 |
|
|
|
364,312 |
|
|
|
|
(1) |
|
Mr. Feldt received restricted stock grants of 185,000 shares, Mr. El-Hillow and Dr.
Williams received restricted stock grants of 87,000 each, Mr. Chleboski received restricted
stock grants of 58,000 and Dr. Felton received restricted stock grants of 33,500 shares
(25,000 were based on his promotion to Vice President, Science and Engineering). These
restricted stock grants vest over four years. |
|
(2) |
|
Mr. Feldt received stock option awards of 250,000 shares, Mr. El-Hillow and Dr. Williams
received stock option awards of 115,000 each, Mr. Chleboski received stock option awards of
75,500 and Dr. Felton received stock option awards of 33,500 shares (25,000 were based on his
promotion to Vice President, Science and Engineering). These option awards vest over four
years. |
|
(3) |
|
Grant date value is used for the valuation of all restricted stock awards. The stock option
awards are valued using the Black-Scholes method. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth all outstanding equity awards as of December 31, 2009. Options
vest equally over a four year period and have an expiration date of 10 years from grant date. Time
based restricted stock awards vest in four equal installments on the anniversary of grant date.
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
Awards: |
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Market or |
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Payout Value |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
Unearned |
|
of Unearned |
|
|
Number of |
|
Number of |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
Market Value |
|
Shares, Units |
|
Shares, Units |
|
|
Securities |
|
Securities |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
of Share or |
|
or Other |
|
or Other |
|
|
Underlying |
|
Underlying |
|
Unexercised |
|
Option |
|
|
|
|
|
Stock That |
|
Units of Stock |
|
Rights That |
|
Rights That |
|
|
Unexercised |
|
Unexercised |
|
Unearned |
|
Exercise |
|
Option |
|
Have Not |
|
That Have |
|
Have Not |
|
Have Not |
|
|
Options (#) |
|
Options (#) |
|
Options |
|
Price |
|
Expiration |
|
Vested |
|
Not Vested |
|
Vested |
|
Vested |
Name |
|
Exercisable |
|
Unexercisable |
|
(#) |
|
($) |
|
Date |
|
(#)(2) |
|
($) |
|
(#)(1) |
|
($) |
|
Richard M. Feldt |
|
|
1,638,000 |
|
|
|
|
|
|
|
|
|
|
|
1.61 |
|
|
|
12/10/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
7.30 |
|
|
|
3/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,500 |
|
|
|
37,500 |
|
|
|
|
|
|
|
15.09 |
|
|
|
2/24/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
2.24 |
|
|
|
6/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
37,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
113,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,000 |
|
|
|
279,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
453,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
453,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael El-Hillow |
|
|
6,192 |
|
|
|
|
|
|
|
|
|
|
|
6.51 |
|
|
|
7/14/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750 |
|
|
|
|
|
|
|
|
|
|
|
11.44 |
|
|
|
12/7/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
|
12.42 |
|
|
|
6/7/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
12.42 |
|
|
|
6/7/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,000 |
|
|
|
|
|
|
|
2.24 |
|
|
|
6/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
151,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
45,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,000 |
|
|
|
131,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
151,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G. Chleboski |
|
|
23,094 |
|
|
|
|
|
|
|
|
|
|
|
2.17 |
|
|
|
1/11/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,928 |
|
|
|
|
|
|
|
|
|
|
|
4.55 |
|
|
|
5/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,642 |
|
|
|
|
|
|
|
|
|
|
|
14.00 |
|
|
|
11/1/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
2.59 |
|
|
|
12/7/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,000 |
|
|
|
|
|
|
|
|
|
|
|
2.00 |
|
|
|
11/17/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
7.30 |
|
|
|
3/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
15.09 |
|
|
|
2/24/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,500 |
|
|
|
|
|
|
|
2.24 |
|
|
|
6/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
15,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,563 |
|
|
|
18,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,000 |
|
|
|
87,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
151,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
151,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lawrence Felton |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
8.00 |
|
|
|
9/26/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,500 |
|
|
|
|
|
|
|
2.24 |
|
|
|
6/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
2.24 |
|
|
|
6/8/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750 |
|
|
|
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
11,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,500 |
|
|
|
12,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
37,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Brown F.
Williams |
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
4.55 |
|
|
|
3/14/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
4.55 |
|
|
|
5/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
4.55 |
|
|
|
7/10/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
6.50 |
|
|
|
8/1/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
6.50 |
|
|
|
8/23/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
6.50 |
|
|
|
9/6/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
6.50 |
|
|
|
9/28/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
19.00 |
|
|
|
11/2/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
7.88 |
|
|
|
12/13/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
10.00 |
|
|
|
2/15/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
10.00 |
|
|
|
2/16/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
11.04 |
|
|
|
4/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
12.65 |
|
|
|
5/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
7.59 |
|
|
|
7/25/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
5.00 |
|
|
|
9/5/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,999 |
|
|
|
|
|
|
|
|
|
|
|
3.36 |
|
|
|
11/11/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
7.30 |
|
|
|
3/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,750 |
|
|
|
16,250 |
|
|
|
|
|
|
|
15.09 |
|
|
|
2/24/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,000 |
|
|
|
|
|
|
|
2.24 |
|
|
|
6/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
18,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
45,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,000 |
|
|
|
131,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
151,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
151,000 |
|
72
|
|
|
(1) |
|
Represents performance-based restricted stock awards under the 2000 Plan granted on
February 27, 2006 and February 12, 2007. The shares are subject to performance vesting
conditions. The shares for fiscal 2006 will vest only upon the achievement of all of the
following accomplishments within a calendar year by December 31, 2010: (a) $300 million in
revenue, (b) 35% gross margin and (c) 7% net income, as adjusted by the plan. The shares for
fiscal 2007 will vest only upon the achievement of all of the following accomplishments within
a calendar year by December 31, 2011: (a) $400 million in revenue, (b) 35% gross margin and
(c) 10% net income, as adjusted by the plan. All amounts will include our pro rata share of
any joint venture operating results. At the present time we believe that it is unlikely that
the performance criteria for these performance-based stock awards will be achieved and,
accordingly, do not expect such shares to vest. For purposes of this table, the performance
based awards are valued based upon our closing stock price on December 31, 2009 ($1.51). |
|
(2) |
|
These restricted stock grants vest over four years. |
Options Exercises and Stock Vested
The following table sets forth all stock options that were exercised or restricted stock
awards that vested in fiscal 2009, including the value realized upon exercise or vesting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value |
|
Number of Shares |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired on |
|
Realized on |
|
Acquired on |
|
Realized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
Exercise |
|
Vesting |
|
on Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
Name of Executive Officer |
|
(#) |
|
($) |
|
(#) |
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Feldt |
|
|
|
|
|
|
|
|
|
|
37,500 |
|
|
|
53,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael El-Hillow (1) |
|
|
1,000 |
|
|
|
280 |
|
|
|
60,000 |
|
|
|
94,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G. Chleboski |
|
|
|
|
|
|
|
|
|
|
9,187 |
|
|
|
13,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lawrence Felton (1) |
|
|
1,000 |
|
|
|
280 |
|
|
|
4,750 |
|
|
|
6,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Brown F. Williams (1) |
|
|
1,000 |
|
|
|
280 |
|
|
|
41,250 |
|
|
|
64,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The shares and value realized include shares purchased through the Companys 2000 Employee
Stock Purchase Plan. |
Potential Benefits upon Change of Control or Termination following a Change of Control
Change of Control Severance Arrangements in General. The Company has entered into change of
control severance agreements with each of its Chief Executive Officer, named executive officers and
other executive officers. The executive change of control and severance agreements described in
the Compensation Discussion and Analysis above provide for accelerated vesting of equity awards
following a change of control and severance payments in the event the executives employment is
terminated within twelve months following a change of control. Mr. Feldt will receive full
acceleration of the vesting of his equity awards upon a change of control and Messrs. El-Hillow and
Chleboski and Drs. Felton and Williams, each will receive 12 months acceleration upon a change of
control. Mr. Feldt will receive 18 months severance in the case of a change of control followed by
termination without cause or resignation for good reason. Mr. El-Hillow, Mr. Chleboski, Dr. Felton
and Dr. Williams each will receive 12 months severance in the case of a change of control followed
by termination without cause or resignation for good reason.
As described below in more detail, our change of control severance agreements with our
executive officers also provide for either (1) an excise tax gross-up reimbursement or (2) a
possible reduction in the level of acceleration of vesting if either the value of the acceleration
on a change of control or the value of the acceleration and other benefits on a change of control
followed by an involuntary termination of employment would constitute parachute payments within
the meaning of Section 280G of the Internal Revenue Code and would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code.
Automatic Acceleration of Vesting Following a Change of Control. The following table provides
the intrinsic value (that is, the value based upon our closing stock price on December 31, 2009
($1.51), less any applicable
73
exercise price) of stock options and restricted stock that would become exercisable or vested as a
result of a change of control as of December 31, 2009. The Value of Unvested Restricted Stock
Awards and Value of Unvested Performance Share Program Awards included in the table are also based
on the closing price of our common stock on December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
Value of |
|
|
|
|
|
Total |
|
|
|
|
|
|
Unvested |
|
Unvested |
|
|
|
|
|
Payments |
|
|
|
|
|
|
Restricted |
|
Performance |
|
280G excise |
|
and Value of |
|
|
Value of |
|
Stock |
|
Share Program |
|
Tax and Gross- |
|
Equity |
|
|
Unvested Stock |
|
Awards |
|
Awards |
|
up Payment |
|
Awards |
|
|
Options ($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
|
|
|
|
|
|
Richard M. Feldt |
|
|
|
|
|
|
430,350 |
|
|
|
906,000 |
|
|
|
|
|
|
|
1,336,350 |
|
Michael El-Hillow |
|
|
|
|
|
|
222,316 |
|
|
|
151,000 |
|
|
|
|
|
|
|
373,316 |
|
Richard G. Chleboski |
|
|
|
|
|
|
63,222 |
|
|
|
302,000 |
|
|
|
|
|
|
|
365,222 |
|
Dr. Lawrence Felton |
|
|
|
|
|
|
32,449 |
|
|
|
|
|
|
|
|
|
|
|
32,449 |
|
Dr. Brown F. Williams |
|
|
|
|
|
|
101,201 |
|
|
|
302,000 |
|
|
|
|
|
|
|
403,201 |
|
Automatic Acceleration of Vesting upon an Involuntary Termination Following a Change of
Control. Assuming the employment of our named executive officers was terminated involuntarily and
without cause, or such officers resigned with good reason, during the twelve months following a
change of control occurring on December 31, 2009, in accordance with the terms of our executive
change of control severance agreements our named executive officers would be entitled to cash
payments in the amounts set forth opposite their names in the below table, subject to any deferrals
required under Section 409A of the Internal Revenue Code of 1986, as amended, and acceleration of
vesting for outstanding equity awards, as set forth in the below table. The following table
provides the value of compensation and benefits payable and intrinsic value (that is, the value
based upon our closing stock price on December 31, 2009 ($1.51), less any applicable exercise
price) of stock options and restricted stock that would become exercisable or vested as a result of
a termination occurring immediately following a change of control as of December 31, 2009. The
Value of Unvested Restricted Stock Awards and Value of Performance Share Program Awards included
are also based on the closing price of our common stock on December 31, 2009.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
Unvested |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
Value of |
|
Unvested |
|
Performance |
|
280G Excise |
|
Payments and |
|
|
|
|
|
|
|
|
|
|
Continuation |
|
Vacation |
|
Unvested |
|
Restricted |
|
Share Program |
|
Tax and Gross- |
|
Value of |
|
|
Base Salary |
|
Bonus |
|
of Benefits |
|
Pay |
|
Stock Options |
|
Stock Awards |
|
Awards |
|
up Payment |
|
Equity |
|
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
Awards ($) |
|
|
|
Richard M. Feldt |
|
|
750,000 |
|
|
|
750,000 |
|
|
|
16,000 |
|
|
|
12,500 |
|
|
|
|
|
|
|
430,350 |
|
|
|
906,000 |
|
|
|
|
|
|
|
2,864,850 |
|
Michael El-Hillow |
|
|
338,000 |
|
|
|
253,500 |
|
|
|
10,667 |
|
|
|
11,700 |
|
|
|
|
|
|
|
327,670 |
|
|
|
151,000 |
|
|
|
|
|
|
|
1,092,537 |
|
Richard G. Chleboski |
|
|
239,200 |
|
|
|
179,400 |
|
|
|
1,658 |
|
|
|
11,960 |
|
|
|
|
|
|
|
121,650 |
|
|
|
302,000 |
|
|
|
|
|
|
|
855,868 |
|
Dr. Lawrence Felton |
|
|
225,000 |
|
|
|
168,750 |
|
|
|
10,483 |
|
|
|
5,257 |
|
|
|
|
|
|
|
68,139 |
|
|
|
|
|
|
|
|
|
|
|
477,629 |
|
Dr. Brown F.
Williams |
|
|
338,000 |
|
|
|
253,500 |
|
|
|
5,943 |
|
|
|
2,600 |
|
|
|
|
|
|
|
195,545 |
|
|
|
302,000 |
|
|
|
|
|
|
|
1,097,588 |
|
Excise Tax Related Change of Control Benefits.
If Evergreen Solar were sold for more than its intrinsic value (that is, the value based upon our
closing stock price on December 31, 2009 ($1.51)), the value of compensation and benefits payable to
our named executive officers would increase and, if the value were high enough, each of the named
executive officers may receive payments that would constitute parachute payments within the
meaning of Section 280G of the Code and would be subject to the excise tax imposed by Section 4999
of the Code.
Pursuant to their change of control severance
agreements with the Company, in the event that acceleration or other benefits provided for in the
change of control severance agreements with Messrs. Feldt, El-Hillow and Dr. Williams constitute
parachute payments within the meaning of Section 280G of the Code and would be subject to the
excise tax imposed by Section 4999 of the Code, such executive will receive (i) a payment from the
Company sufficient to pay such excise tax, and (ii) an additional payment from the Company
sufficient to pay the federal and state income and employment taxes and additional excise taxes
arising from the payments made to the employee by the Company.
In the event that the severance and other benefits provided Mr. Chleboski and Dr. Felton
constitute parachute payments within the meaning of Section 280G of the Internal Revenue Code and
would be subject to the excise tax
74
imposed by Section 4999 of the Internal Revenue Code, such executives benefits under the Agreement
shall be either delivered in full or delivered as to such lesser extent which would result in no
portion of such benefits being subject to the excise tax, whichever results in the receipt by the
employee, on an after-tax basis, of the greatest amount of benefits.
Each of the two forgoing tables sets forth the amount payable by the Company to each named
executive officer to (1) offset the estimated excise tax imposed by Section 4999 of the Internal
Revenue Code that result from 280G parachute payments and (2) provide gross-up payments to
offset the tax amounts that would result from payment of the estimated excise tax imposed on the
executive, based on, in each case, the assumed share value specified above.
NON-EMPLOYEE DIRECTOR COMPENSATION
Our compensation program for non-employee directors is designed to attract and retain
qualified directors by offering compensation that is competitive with other growing technology
companies and recognizes the time, expertise and accountability required by Board service. Each
year, the Compensation Committee reviews the current compensation program as well as director
compensation data prepared by an external consulting firm. Based upon this review, the Compensation
Committee recommends to the full Board of Directors what changes, if any, should be made to the
director compensation program. The Board must approve any changes to the director compensation
program.
In June 2007, our Board of Directors approved a revised Compensation Policy for Directors
effective July 1, 2007. The plan was modified again in March 2008 and June 2009.
Under the current policy, each director serving in July 2007 received a grant of 10,000
restricted shares of our common stock on July 25, 2007 and received a grant of 5,000 restricted
stock units at our annual meeting in 2008. New directors will receive restricted stock units upon
their election to the Board of Directors exercisable for $100,000 worth of shares based on the
average share price during the last six months of the fiscal year preceding the grant date. In addition, upon each annual meeting of our stockholders, each director who has served more than
six months will receive restricted stock units exercisable for $50,000 worth of shares based on the
average share price during the last six months of the fiscal year
preceding the grant date. Each
initial grant of restricted shares and restricted stock units vests on the second anniversary after
the director joins the Board. In the case of initial awards of restricted shares, even after they
are vested, the shares cannot be sold by a director (other than to cover tax obligations resulting
from the vesting) until he or she leaves the Board. In the case of initial and annual awards of
restricted stock units, even after they are vested, the shares subject to those awards will only be
paid when the director leaves the Board of Directors.
The current policy also provides for cash compensation for directors. Each non-employee
director receives an annual retainer of $20,000 ($30,000 for the lead outside director) and $1,500
for each in person meeting and $750 for each telephonic meeting, of the full Board and each
committee. In addition, the committee chairs receive the following annual retainers: Audit
Committee-$12,000; Compensation Committee-$6,000 and Nominating and Corporate Governance
Committee-$6,000. In connection with Board and committee meetings, our non-employee directors are
reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of the Board
of Directors and any committees of the Board of Directors on which they serve.
The following table sets forth information regarding the compensation earned by or awarded to
each non-employee director who served on our Board of Directors for fiscal 2009.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
or Paid in |
|
(c) |
|
(d) |
|
(h) |
(a) |
|
Cash |
|
Option Awards |
|
Stock Awards |
|
Total |
Name |
|
($) |
|
($) |
|
($)(1) |
|
($) |
|
Tom L. Cadwell |
|
|
36,500 |
|
|
|
|
|
|
|
21,228 |
(2) |
|
|
57,728 |
|
Allan H. Cohen |
|
|
53,750 |
|
|
|
|
|
|
|
21,228 |
(3) |
|
|
74,978 |
|
Dr. Peter W. Cowden |
|
|
44,000 |
|
|
|
|
|
|
|
21,228 |
(4) |
|
|
65,228 |
|
Edward C. Grady |
|
|
53,250 |
|
|
|
|
|
|
|
21,228 |
(5) |
|
|
74,478 |
|
Dr. Susan F. Tierney |
|
|
35,000 |
|
|
|
|
|
|
|
21,228 |
(6) |
|
|
56,228 |
|
75
|
|
|
(1) |
|
See Note 11 of our consolidated financial statements for further information on the valuation of equity awards. |
|
(2) |
|
As of December 31, 2009, Mr. Cadwell held 16,270
shares of common stock underlying unexercised
options, 10,000 shares of vested restricted
stock and 13,772 shares of vested restricted
stock units. The grant date fair value of stock
awards granted to Mr. Cadwell during 2009 was
$21,228. |
|
(3) |
|
As of December 31, 2009, Mr. Cohen held
36,875 shares of common stock underlying
unexercised options, 10,000 shares of vested
restricted stock and 13,772 shares of vested
restricted stock units. The grant date fair
value of stock awards granted to Mr. Cohen
during 2009 was $21,228. |
|
(4) |
|
As of December 31, 2009, Dr. Cowden held 19,644
shares of common stock underlying unexercised
options, 10,000 shares of vested restricted
stock and 13,772 shares of vested restricted
stock units. The grant date fair value of stock
awards granted to Dr. Cowden during 2009 was
$21,228. |
|
(5) |
|
As of December 31, 2009, Mr. Grady held 28,125
shares of common stock underlying unexercised
options, 10,000 shares of vested restricted
stock and 13,772 shares of vested restricted
stock units. The grant date fair value of stock
awards granted to Mr. Grady during 2009 was
$21,228. |
|
(6) |
|
As of December 31, 2009, Dr. Tierney held 18,772
shares of restricted stock units of which 10,000
units are vested and 8,772 units are unvested.
The grant date fair value of stock awards
granted to Dr. Tierney during 2009 was $21,228. |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
Equity Compensation Plan Information
The following table provides information as of December 31, 2009 with respect to shares of our
common stock that may be issued under equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
Remaining Available for |
|
|
Number of Securities to |
|
|
|
|
|
Future Issuance Under |
|
|
Be Issued Upon Exercise |
|
Weighted-average |
|
Equity Compensation |
|
|
Of Outstanding Options, |
|
Exercise Price of |
|
Plans (Excluding |
|
|
Stock Awards, Stock Units, |
|
Outstanding Options, |
|
Securities Reflected in |
|
|
Warrants and Rights |
|
Warrants and Rights |
|
Column (a)) |
Plan category |
|
(a)(1) |
|
(b)(2) |
|
(c)(3) |
Equity compensation plans approved by
security holders |
|
|
7,010,198 |
|
|
$ |
4.20 |
|
|
|
1,520,843 |
|
Equity compensation plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,010,198 |
|
|
$ |
4.20 |
|
|
|
1,520,843 |
|
|
|
|
(1) |
|
Includes 2,914,474 shares of restricted
stock awards and restricted stock units granted
under the 2000 Stock |
76
|
|
|
|
|
Option and Incentive Plan.
The remaining balance consists of outstanding
stock option grants. |
|
(2) |
|
The weighted average exercise price does not
take into account the shares issuable upon
vesting of outstanding restricted stock awards
which have no exercise price. |
|
(3) |
|
1,500,000 shares were added to the equity
compensation plan and approved by the
stockholders at our 2008 annual meeting. |
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial ownership of our
common stock as of February 12, 2010, or the measurement date by: (i) each person which is know by
us to own beneficially more than 5% of the outstanding shares of common stock; (ii) each of our
directors; (iii) each of our executive officers named in the Summary Compensation Table below; and
(iv) all of our current directors and executive officers as a group. Unless otherwise indicated
the address for each beneficial owner is c/o Evergreen Solar, Inc. 138 Bartlett Street, Marlboro,
Massachusetts 01752.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Percentage of |
|
|
Beneficially Owned |
|
Shares of |
Name and Address of Beneficial Owner |
|
(1) |
|
Common Stock (2) |
5% Stockholders: |
|
|
|
|
|
|
|
|
OCI Company Ltd. (3)
Oriental Chemical Building 50,
Sogong-dang, Jong-gu, Seoul, 100-718 Korea |
|
|
15,698,125 |
|
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
Invesco Ltd. (4)
1555 Peachtree Street NE
Atlanta, GA 30309 |
|
|
11,767,441 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
Blackrock Inc. (5)
40 East 52nd Street
New York, NY 10022 |
|
|
11,066,121 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
Current Executive Officers and Directors: |
|
|
|
|
|
|
|
|
Richard M. Feldt (6) |
|
|
3,178,490 |
|
|
|
1.5 |
% |
Michael El-Hillow (7) |
|
|
479,316 |
|
|
|
* |
|
Richard G. Chleboski (8) |
|
|
708,615 |
|
|
|
* |
|
Dr. Lawrence Felton (9) |
|
|
119,169 |
|
|
|
* |
|
Gary T. Pollard (10) |
|
|
346,253 |
|
|
|
* |
|
Carl Stegerwald (11) |
|
|
93,275 |
|
|
|
* |
|
Dr. Brown F. Williams (12) |
|
|
598,146 |
|
|
|
* |
|
Tom L. Cadwell (13) |
|
|
40,042 |
|
|
|
* |
|
Allan H. Cohen (14) |
|
|
63,647 |
|
|
|
* |
|
Dr. Peter W. Cowden (15) |
|
|
43,416 |
|
|
|
* |
|
Edward C. Grady (16) |
|
|
68,897 |
|
|
|
* |
|
Dr. Susan F. Tierney |
|
|
18,772 |
|
|
|
* |
|
All current executive officers and directors as a
group (12 persons) (17) |
|
|
5,758,038 |
|
|
|
2.7 |
% |
|
|
|
* |
|
Less than one percent of the outstanding shares of class. |
77
|
|
|
(1) |
|
The persons named in the table have sole voting and investment power with respect to all shares shown as
beneficially owned by them, except as noted in the footnotes below. |
|
(2) |
|
Applicable percentage ownership is based upon 207,810,560 shares of common stock outstanding as of the
measurement date. Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to shares. Shares of common stock
subject to options currently exercisable or exercisable within 60 days after the measurement date are deemed
outstanding for computing the percentage ownership of the person holding such options, as the case may be,
but are not deemed outstanding for computing the percentage ownership of any other person. |
|
(3) |
|
OCI Company Ltd. reported sole voting power and sole dispositive power over 15,698,125 shares beneficially
owned. Includes 10,750,000 shares of restricted common stock. The restrictions on these shares will be
removed when 500,000 kilograms of polysilicon are delivered to us by OCI Company Ltd. |
|
(4) |
|
Invesco Ltd. reported sole voting power and sole dispositive power over 11,767,441 shares beneficially owned. |
|
(5) |
|
Blackrock Inc. reported sole voting power and sole dispositive power 11,066,121 shares beneficially owned. |
|
(6) |
|
Includes 2,100,500 shares of common stock issuable upon the exercise of options that may be exercised within
60 days from the measurement date. |
|
(7) |
|
Includes 51,192 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date. |
|
(8) |
|
Includes 380,445 shares of common stock issuable upon the exercise of options that may be exercised within
60 days from the measurement date. |
|
(9) |
|
Includes 50,800 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date (which includes 8,675 options held by spouse). |
|
(10) |
|
Includes 115,750 shares of common stock issuable upon the exercise of options that may be exercised within
60 days from the measurement date. |
|
(11) |
|
Includes 2,375 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date. |
|
(12) |
|
Includes 169,210 shares of common stock issuable upon the exercise of options that may be exercised within
60 days from the measurement date. |
|
(13) |
|
Includes 16,270 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date. |
|
(14) |
|
Includes 36,875 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date. |
|
(15) |
|
Includes 19,644 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date. |
|
(16) |
|
Includes 28,125 shares of common stock issuable upon the exercise of options that may be exercised within 60
days from the measurement date. Mr. Gradys address is 922 Tyner Way, PO Box 5998, Incline Village, NV
89450. |
|
(17) |
|
Includes 2,962,511 shares of common stock issuable upon the exercise of options that may be exercised within
60 days from the measurement date and 8,675 options held by spouse. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Party Transaction Approval Policy
78
We have adopted a policy that all related party transactions will be on terms no less
favorable to us than could be obtained from unaffiliated third parties, and must be reviewed and
approved on an ongoing basis by the Audit Committee of our Board of Directors. A related party
transaction is a transaction or relationship involving a director, executive officer or 5%
stockholder or their immediate family members that is reportable under the SECs rules regarding
such transactions. Prior to April 2008, related party transactions were subject to the review and
approval of our Nominating and Corporate Governance Committee and our full Board of Directors.
Certain Relationships and Related Party Transactions
Transactions with Mr. Stegerwald. Mr. Feldt, our President, Chief Executive Officer and
Chairman of the Board of Directors, is the brother-in-law of Carl Stegerwald, our Vice President of
Construction Management and Facilities Engineering. Mr. Stegerwalds annual salary is $225,000 and
his target bonus is 75% of his annual salary, which was $140,059 for 2009. He is also eligible for
an equity award in 2010 based on his service in 2009.
Transactions with OCI. Since the beginning of 2007 we have entered into four agreements with
OCI Company Ltd. (formerly DC Chemical Co., Ltd.), a holder of more than 5% of our outstanding
common stock. On April 17, 2007, we entered the following agreements:
|
|
Polysilicon Supply Agreement Our April 2007 polysilicon supply agreement with OCI,
which was subsequently amended, provides the general terms and conditions pursuant to which
OCI will supply us with specified annual quantities of polysilicon at fixed prices
beginning in 2008 and continuing through 2014. In January 2008, we entered into a second
supply agreement with OCI, which was subsequently amended, that provides the general terms
and conditions pursuant to which OCI will supply us with specified annual quantities of
polysilicon at fixed prices beginning in 2009 and continuing through 2015. The January 2008
agreement required us to pay approximately $36.5 million in prepayments during the first
year of the agreement. Under the two supply contracts with OCI, we are obligated to make
cash payments to OCI of approximately $450 million, subject to certain adjustments based on
market related factors. |
|
|
|
Stock Purchase Agreement Concurrently with the April 2007 polysilicon supply
agreement, pursuant to a stock purchase agreement, we sold OCI 3 million shares of our
common stock for $12.07 per share and issued OCI an additional 4.5 million shares of
transfer restricted common stock and 625 shares of transfer restricted preferred stock
(which subsequently converted into 6.25 million shares of transfer restricted common
stock). The restrictions on the common stock will lapse upon the delivery of 500,000
kilograms of polysilicon to the Company. |
|
|
|
Stockholders Agreement Also concurrently with the April 2007 polysilicon supply
agreement, we entered into a stockholder agreement with OCI which prohibits, without our
consent, certain acquisitions of our common stock by OCI, certain proxy solicitation
activities, as well as OCIs ability to publicly announce or make certain proposals
regarding business combinations involving our company, among other things. The stockholders
agreement also provides OCI with the right to participate in certain of our future
securities offerings in order to maintain its pro rata percentage ownership of the Company.
In addition, the stockholders agreement provides OCI with certain registration rights,
including a requirement that we file a registration statement covering the restricted stock
within 15 days of when transfer restrictions on OCIs shares lapse. Finally, the
stockholders agreement prohibits, without our consent, OCI from transferring its shares of
Evergreen Solar common stock to any person who, after the transfer, would have beneficial
ownership of 10% or more of the voting power of the Company. As permitted pursuant to the
stockholders agreement, OCI purchased 525,000 shares of our common stock in February 2008
from our underwriters in connection with a public offering we completed at the public
offering price of $9.50 per share. |
Other Transactions. Other than compensation agreements and other arrangements which are
described in Officer Compensation Compensation Discussion and Analysis and Non-Employee Director
Compensation, in 2009, including immaterial amendments to our change of control severance
agreements with each of our executive officers, there was not, and there is not currently proposed,
any other related party transactions.
79
Independence of Members of the Board of Directors and Committees
The Board of Directors has determined that each of Messrs. Cadwell, Cohen, and Grady and Dr.
Cowden and Dr. Tierney has no relationship with the Company other than as a stockholder and as a
director, and each is independent within the meaning of our director independence standards and the
applicable Nasdaq director independence standards for service on the Board of Directors and the
applicable committees of the Board of
Directors. Our director independence standards are contained in the Board of Directors
Corporate Governance Guidelines, a copy of which is available under the Investors section of our
website at www.evergreensolar.com.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit and Related Fees for Fiscal 2008 and 2009
The following table sets forth a summary of the fees and expenses billed to us by
PricewaterhouseCoopers LLP for professional services rendered for the fiscal years ended December
31, 2008 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
Audit Fees (1) |
|
$ |
644,333 |
|
|
$ |
638,500 |
|
Audit-Related Fees (2) |
|
|
|
|
|
|
|
|
Tax Fees (3) |
|
|
13,550 |
|
|
|
|
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
657,883 |
|
|
$ |
638,500 |
|
|
|
|
(1) |
|
Audit Fees represent fees for professional
services relating to the audit of our financial
statements and the review of the financial
statements included in our quarterly reports,
advice on accounting matters directly related to
the audit and audit services provided in
connection with other regulatory filings. |
|
(2) |
|
Audit-Related Fees represent fees for
consultation and other attestation services and
not reported under Audit Fees. |
|
(3) |
|
Tax Fees principally represent fees for
professional services for tax compliance, tax
advice and tax return preparation relating to
our fiscal year end. |
The Audit Committee meets regularly with PricewaterhouseCoopers LLP throughout the year and
reviews both audit and non-audit services performed by PricewaterhouseCoopers LLP as well as fees
charged by PricewaterhouseCoopers LLP for such services. In engaging PricewaterhouseCoopers LLP for
the services described above, the Audit Committee has determined that the provision of such
services is compatible with maintaining PricewaterhouseCoopers LLPs independence in the conduct of
its auditing functions pursuant to the auditor independence rules of the SEC.
Pre-approval Policies and Procedures. The chairman of the Audit Committee is appointed to
provide pre-approval for audit related and permissible non-audit services proposed by
PricewaterhouseCoopers LLP up to $50,000, subject to presenting such decision to the full Audit
Committee at its next scheduled meeting. Such an appointment allows PricewaterhouseCoopers LLP to
commence an engagement without being delayed due to scheduling. Following an approval of these
services by the Chairman of the Audit Committee, the full Audit Committee, at its next scheduled
meeting, would ratify the pre-approval.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
80
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements. The financial statements which appear beginning on page F-1 of this
Annual Report on Form 10-K.
2. Index to Financial Statements and Schedule. Certain financial statement schedules are
omitted as the information is included in the Consolidated Financial Statements and notes which
appear beginning on page F-1 of this Annual Report on Form 10-K. Schedules not listed in the index
are omitted because they are not required or because the required information is given in the
consolidated financial statements or notes thereto.
3. Exhibits. Exhibits are as set forth in the section entitled Exhibit Index which follows
the section entitled Signatures in this Annual Report on Form 10-K. Exhibits which are
incorporated herein by reference can be inspected and copied at the public reference rooms
maintained by the SEC in Washington, D.C., New York, New York, and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms. SEC filings are
also available to the public from commercial document retrieval services and at the Web site
maintained by the SEC at http://www.sec.gov.
81
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Evergreen Solar, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Evergreen Solar, Inc. and its
subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in
Managements Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements, on the financial statement
schedule, and on the Companys internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in
which it accounts for certain convertible debt instruments effective January 1, 2009.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 8, 2010
F-2
EVERGREEN SOLAR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
|
|
2008 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
100,888 |
|
|
$ |
112,368 |
|
Marketable securities |
|
|
76,621 |
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $80 at
December 31, 2008 and December 31, 2009 |
|
|
35,458 |
|
|
|
53,295 |
|
Due from Sovello AG |
|
|
1,949 |
|
|
|
|
|
Inventory |
|
|
23,500 |
|
|
|
34,890 |
|
Prepaid cost of inventory |
|
|
11,696 |
|
|
|
25,634 |
|
VAT receivable, net |
|
|
1,474 |
|
|
|
8 |
|
Other current assets |
|
|
7,684 |
|
|
|
11,662 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
259,270 |
|
|
|
237,857 |
|
|
|
|
|
|
|
|
|
|
Investment in and advances to Sovello AG |
|
|
115,553 |
|
|
|
|
|
Restricted cash |
|
|
212 |
|
|
|
3,134 |
|
Deferred financing costs |
|
|
6,152 |
|
|
|
4,769 |
|
Loan receivable from silicon supplier |
|
|
41,757 |
|
|
|
|
|
Prepaid cost of inventory |
|
|
172,193 |
|
|
|
147,573 |
|
Fixed assets, net |
|
|
406,191 |
|
|
|
430,681 |
|
Other assets |
|
|
3,579 |
|
|
|
295 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,004,907 |
|
|
$ |
824,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
62,652 |
|
|
$ |
31,420 |
|
Due to Sovello AG and related guarantees |
|
|
22,840 |
|
|
|
17,544 |
|
Accrued employee compensation |
|
|
6,451 |
|
|
|
7,287 |
|
Accrued interest |
|
|
7,392 |
|
|
|
7,004 |
|
Accrued warranty |
|
|
1,182 |
|
|
|
2,368 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
100,517 |
|
|
|
65,623 |
|
|
|
|
|
|
|
|
|
|
Senior convertible notes, net of discount |
|
|
311,531 |
|
|
|
323,276 |
|
Loan and related interest payable |
|
|
|
|
|
|
34,152 |
|
Deferred income taxes |
|
|
9,776 |
|
|
|
5,615 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
421,824 |
|
|
|
428,666 |
|
Commitments
and Contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 250,000,000 and 450,000,000 shares authorized at
December 31, 2008 and December 31, 2009, respectively, 164,874,850 and
207,809,919 issued and outstanding at December 31, 2008 and December 31,
2009, respectively |
|
|
1,649 |
|
|
|
2,078 |
|
Additional paid-in capital |
|
|
803,491 |
|
|
|
882,466 |
|
Accumulated deficit |
|
|
(223,687 |
) |
|
|
(488,895 |
) |
Accumulated other comprehensive income (loss) |
|
|
1,630 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
583,083 |
|
|
|
395,643 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,004,907 |
|
|
$ |
824,309 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
58,334 |
|
|
$ |
95,245 |
|
|
$ |
267,112 |
|
Royalty and fee revenues |
|
|
11,532 |
|
|
|
16,714 |
|
|
|
4,736 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
69,866 |
|
|
|
111,959 |
|
|
|
271,848 |
|
Cost of revenues |
|
|
52,838 |
|
|
|
93,073 |
|
|
|
253,484 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
17,028 |
|
|
|
18,886 |
|
|
|
18,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
20,594 |
|
|
|
22,039 |
|
|
|
18,058 |
|
Selling, general and administrative |
|
|
20,608 |
|
|
|
23,868 |
|
|
|
26,260 |
|
Write-off of loan receivable from silicon supplier |
|
|
|
|
|
|
|
|
|
|
43,882 |
|
Equipment write-offs |
|
|
|
|
|
|
8,034 |
|
|
|
6,008 |
|
Facility start-up |
|
|
1,404 |
|
|
|
30,623 |
|
|
|
10,107 |
|
Restructuring charges |
|
|
|
|
|
|
30,413 |
|
|
|
11,940 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
42,606 |
|
|
|
114,977 |
|
|
|
116,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(25,578 |
) |
|
|
(96,091 |
) |
|
|
(97,891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses), net |
|
|
444 |
|
|
|
(4,078 |
) |
|
|
2,650 |
|
Interest income |
|
|
9,774 |
|
|
|
12,695 |
|
|
|
4,728 |
|
Interest expense |
|
|
(3,412 |
) |
|
|
(8,368 |
) |
|
|
(26,980 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
6,806 |
|
|
|
249 |
|
|
|
(19,602 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before equity income (loss) from interest in Sovello AG,
impairment of equity investment and income tax benefit |
|
|
(18,772 |
) |
|
|
(95,842 |
) |
|
|
(117,493 |
) |
Equity income (loss) from interest in Sovello AG |
|
|
2,170 |
|
|
|
8,435 |
|
|
|
(29,748 |
) |
Impairment and other charges associated with equity investment in Sovello AG |
|
|
|
|
|
|
|
|
|
|
(126,057 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
(8,090 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(16,602 |
) |
|
$ |
(87,407 |
) |
|
$ |
(265,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted) |
|
$ |
(0.19 |
) |
|
$ |
(0.67 |
) |
|
$ |
(1.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and diluted
net loss per share |
|
|
86,799 |
|
|
|
130,675 |
|
|
|
187,777 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
|
Loss |
|
Balance at January 1, 2007 |
|
|
68,066 |
|
|
|
681 |
|
|
|
211,053 |
|
|
|
(119,678 |
) |
|
|
791 |
|
|
|
92,847 |
|
|
|
|
|
Issuance of common stock pursuant to exercise of options |
|
|
1,031 |
|
|
|
10 |
|
|
|
3,289 |
|
|
|
|
|
|
|
|
|
|
|
3,299 |
|
|
|
|
|
Issuance of common stock pursuant to exercise of warrants |
|
|
256 |
|
|
|
3 |
|
|
|
664 |
|
|
|
|
|
|
|
|
|
|
|
667 |
|
|
|
|
|
Shares of common stock issued under ESPP |
|
|
59 |
|
|
|
1 |
|
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
427 |
|
|
|
|
|
Issuance of common stock in connection with OCI Agreement |
|
|
3,000 |
|
|
|
30 |
|
|
|
36,180 |
|
|
|
|
|
|
|
|
|
|
|
36,210 |
|
|
|
|
|
Issuance of restricted stock in connection with OCI Agreement |
|
|
10,750 |
|
|
|
107 |
|
|
|
119,914 |
|
|
|
|
|
|
|
|
|
|
|
120,021 |
|
|
|
|
|
Issuance of common stock in connection with public offering,
net of offering costs |
|
|
17,250 |
|
|
|
173 |
|
|
|
134,254 |
|
|
|
|
|
|
|
|
|
|
|
134,427 |
|
|
|
|
|
Compensation expense associated with equity compensation plans,
including restricted share grants |
|
|
1,841 |
|
|
|
18 |
|
|
|
6,389 |
|
|
|
|
|
|
|
|
|
|
|
6,407 |
|
|
|
|
|
Gain on investment in Sovello AG by REC and Q-Cells |
|
|
|
|
|
|
|
|
|
|
9,526 |
|
|
|
|
|
|
|
|
|
|
|
9,526 |
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,602 |
) |
|
|
|
|
|
|
(16,602 |
) |
|
$ |
(16,602 |
) |
Unrealized gains on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
59 |
|
|
|
59 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,005 |
|
|
|
6,005 |
|
|
|
6,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
102,253 |
|
|
$ |
1,023 |
|
|
$ |
521,695 |
|
|
$ |
(136,280 |
) |
|
$ |
6,855 |
|
|
$ |
393,293 |
|
|
|
|
|
Issuance of common stock pursuant to exercise of options |
|
|
442 |
|
|
|
4 |
|
|
|
1,012 |
|
|
|
|
|
|
|
|
|
|
|
1,016 |
|
|
|
|
|
Issuance of common stock in connection with public offering,
net of offering costs |
|
|
18,400 |
|
|
|
184 |
|
|
|
166,542 |
|
|
|
|
|
|
|
|
|
|
|
166,726 |
|
|
|
|
|
Compensation expense associated with equity compensation plans,
including restricted share grants |
|
|
634 |
|
|
|
7 |
|
|
|
7,686 |
|
|
|
|
|
|
|
|
|
|
|
7,693 |
|
|
|
|
|
Shares of common stock issued under ESPP |
|
|
111 |
|
|
|
1 |
|
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
621 |
|
|
|
|
|
Deferred tax associated with gains on investment in Sovello AG |
|
|
|
|
|
|
|
|
|
|
(7,059 |
) |
|
|
|
|
|
|
|
|
|
|
(7,059 |
) |
|
|
|
|
Shares loaned in connection with share lending agreement |
|
|
30,856 |
|
|
|
308 |
|
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
Debt redemption, net of deferred financing costs write-off |
|
|
12,179 |
|
|
|
122 |
|
|
|
88,137 |
|
|
|
|
|
|
|
|
|
|
|
88,259 |
|
|
|
|
|
Capped call premium, net of financing costs |
|
|
|
|
|
|
|
|
|
|
(64,950 |
) |
|
|
|
|
|
|
|
|
|
|
(64,950 |
) |
|
|
|
|
Capped call reversal |
|
|
|
|
|
|
|
|
|
|
24,237 |
|
|
|
|
|
|
|
|
|
|
|
24,237 |
|
|
|
|
|
Adoption of Debt topic guidance of FASB codification |
|
|
|
|
|
|
|
|
|
|
65,876 |
|
|
|
|
|
|
|
|
|
|
|
65,876 |
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,407 |
) |
|
|
|
|
|
|
(87,407 |
) |
|
$ |
(87,407 |
) |
Unrealized losses on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
(34 |
) |
|
|
(34 |
) |
Foreign currency translation adjustment, net of deferred taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,191 |
) |
|
|
(5,191 |
) |
|
|
(5,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(92,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
164,875 |
|
|
$ |
1,649 |
|
|
$ |
803,491 |
|
|
$ |
(223,687 |
) |
|
$ |
1,630 |
|
|
$ |
583,083 |
|
|
|
|
|
Issuance of common stock pursuant to exercise of options |
|
|
27 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
Issuance of common stock in connection with public offering,
net of offering costs |
|
|
42,550 |
|
|
|
425 |
|
|
|
72,030 |
|
|
|
|
|
|
|
|
|
|
|
72,455 |
|
|
|
|
|
Compensation expense associated with equity compensation plans,
including restricted share grants |
|
|
198 |
|
|
|
2 |
|
|
|
6,793 |
|
|
|
|
|
|
|
|
|
|
|
6,795 |
|
|
|
|
|
Shares of common stock issued under ESPP |
|
|
160 |
|
|
|
2 |
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
282 |
|
|
|
|
|
Costs of
authorized shares increase |
|
|
|
|
|
|
|
|
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
(178 |
) |
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265,208 |
) |
|
|
|
|
|
|
(265,208 |
) |
|
$ |
(265,208 |
) |
Unrealized losses on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
(26 |
) |
|
|
(26 |
) |
Foreign currency translation adjustment, net of deferred taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,610 |
) |
|
|
(1,610 |
) |
|
|
(1,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(266,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
207,810 |
|
|
$ |
2,078 |
|
|
$ |
882,466 |
|
|
$ |
(488,895 |
) |
|
$ |
(6 |
) |
|
$ |
395,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(16,602 |
) |
|
$ |
(87,407 |
) |
|
$ |
(265,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Bad debt expense |
|
|
(1 |
) |
|
|
(7 |
) |
|
|
45 |
|
Imputed interest and accretion of bond premiums |
|
|
(1,210 |
) |
|
|
(2,472 |
) |
|
|
(478 |
) |
Amortization of prepaid cost of inventory |
|
|
|
|
|
|
3,694 |
|
|
|
11,240 |
|
Equity (income) loss from Sovello AG and impairment of investment |
|
|
(2,170 |
) |
|
|
(8,435 |
) |
|
|
155,805 |
|
Amortization of deferred debt financing costs |
|
|
444 |
|
|
|
861 |
|
|
|
1,382 |
|
Loss on loan receivable from silicon supplier |
|
|
|
|
|
|
|
|
|
|
43,882 |
|
Loss on disposal of fixed assets |
|
|
|
|
|
|
34,496 |
|
|
|
5,719 |
|
Depreciation expense |
|
|
7,418 |
|
|
|
18,156 |
|
|
|
46,086 |
|
Provision for warranty |
|
|
58 |
|
|
|
585 |
|
|
|
1,335 |
|
Accretion of capped call discount |
|
|
|
|
|
|
345 |
|
|
|
|
|
Amortization of debt discount |
|
|
|
|
|
|
5,148 |
|
|
|
11,744 |
|
Provision for deferred income taxes |
|
|
|
|
|
|
|
|
|
|
(8,090 |
) |
Compensation expense associated with employee equity awards |
|
|
6,382 |
|
|
|
7,246 |
|
|
|
6,669 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
10,952 |
|
|
|
(26,168 |
) |
|
|
(19,170 |
) |
Grants receivable |
|
|
|
|
|
|
19,908 |
|
|
|
|
|
Inventory |
|
|
(3,327 |
) |
|
|
(15,406 |
) |
|
|
(11,390 |
) |
Prepaid cost of inventory |
|
|
(23,121 |
) |
|
|
(43,012 |
) |
|
|
(2,097 |
) |
Other current assets |
|
|
(10,674 |
) |
|
|
9,263 |
|
|
|
(5,205 |
) |
Accounts payable and accrued expenses |
|
|
18,460 |
|
|
|
15,902 |
|
|
|
(22,019 |
) |
Interest payable |
|
|
1,352 |
|
|
|
(237 |
) |
|
|
6,253 |
|
Other |
|
|
43 |
|
|
|
1,659 |
|
|
|
6,403 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(11,996 |
) |
|
|
(65,881 |
) |
|
|
(37,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed assets and deposits on fixed assets under construction |
|
|
(50,744 |
) |
|
|
(345,256 |
) |
|
|
(110,820 |
) |
Proceeds from the disposal of fixed assets |
|
|
|
|
|
|
12 |
|
|
|
503 |
|
Decrease (increase) in restricted cash |
|
|
(41,000 |
) |
|
|
41,178 |
|
|
|
(2,914 |
) |
Increase in Sovello AG loan |
|
|
|
|
|
|
(23,774 |
) |
|
|
(11,750 |
) |
Capital contribution to Sovello AG |
|
|
|
|
|
|
|
|
|
|
(8,914 |
) |
Increase in other loans |
|
|
(22,386 |
) |
|
|
(22,164 |
) |
|
|
|
|
Purchases of marketable securities |
|
|
(108,386 |
) |
|
|
(98,500 |
) |
|
|
|
|
Proceeds from sale and maturity of marketable securities |
|
|
81,975 |
|
|
|
93,059 |
|
|
|
76,716 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(140,541 |
) |
|
|
(355,445 |
) |
|
|
(57,179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of common stock, net of offering costs |
|
|
170,637 |
|
|
|
166,726 |
|
|
|
72,421 |
|
Proceeds from China government loan |
|
|
|
|
|
|
|
|
|
|
33,000 |
|
Proceeds from issuance of OCI restricted shares |
|
|
107 |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior convertible debt, net of offering costs |
|
|
|
|
|
|
363,963 |
|
|
|
|
|
Payment of capped call up-front premium |
|
|
|
|
|
|
(39,543 |
) |
|
|
|
|
Proceeds from share lending agreement |
|
|
|
|
|
|
3 |
|
|
|
|
|
Proceeds from exercise of stock options and warrants, and shares purchased under Employee
Stock Purchase Plan |
|
|
4,393 |
|
|
|
1,637 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
175,137 |
|
|
|
492,786 |
|
|
|
105,753 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
22,600 |
|
|
|
71,460 |
|
|
|
11,480 |
|
Cash and cash equivalents at beginning of year |
|
|
6,828 |
|
|
|
29,428 |
|
|
|
100,888 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
29,428 |
|
|
$ |
100,888 |
|
|
$ |
112,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
|
986 |
|
|
|
|
|
|
|
12,858 |
|
Gain on investment in Sovello AG by Q-Cells and REC |
|
|
9,526 |
|
|
|
|
|
|
|
|
|
Non-cash cost of prepaid inventory |
|
|
119,914 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
EVERGREEN SOLAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Evergreen Solar, Inc. (the Company), incorporated in August 1994, develops, manufactures and
markets solar power products, including solar cells, panels and systems. In April 1997, the Company
commenced product sales. The Company has incurred losses since inception and has an accumulated
deficit. The Company has historically financed its operations and met its capital expenditure
requirements primarily through sales of its capital stock, issuance of debt and, to a lesser
extent, product revenues.
In January 2005, the Company entered into a strategic partnership agreement with Q-Cells AG
(Q-Cells). The agreement provided for the organization and capitalization of EverQ GmbH
(EverQ), which is a limited liability company incorporated under the laws of Germany. In November
2005, Q-Cells and the Company entered into an agreement with Renewable Energy Corporation ASA
(REC), whereby REC acquired from the Company and Q-Cells for 4.7 million Euros, a 15% ownership
position in EverQ. REC obtained 11.1% of the outstanding equity of EverQ directly from the Company
and 3.9% of the outstanding equity of EverQ directly from Q-Cells. The Company received $4.1
million from REC which resulted in a gain on the sale of EverQ interest of $527,000. In December
2006, REC and Q-Cells purchased additional shares of EverQ, which resulted in a reduction in the
Companys ownership interest in EverQ to one-third and an associated gain on an increase of the
Companys carrying value of its interest in EverQs net assets of approximately $8.5 million. In
connection with the December 2006 transaction, REC and Q-Cells made an additional capital
contribution of approximately 19.6 million Euros in December 2007 resulting in a gain of
approximately $9.5 million to the Company. Both the $8.5 million gain and the $9.5 million gain
are recorded as adjustments to additional paid-in capital. As a result of the December 2006
purchase, the Company, REC and Q-Cells each have equal ownership in EverQ. In November 2008,
EverQ was converted into a German stock corporation and changed its name to Sovello AG (Sovello).
The purpose of Sovello is to operate facilities to manufacture, market and sell solar products
based on the Companys proprietary wafer manufacturing technology.
Until December 31, 2008, the Company marketed and sold all solar panels manufactured by
Sovello under the Evergreen Solar brand, and managed customer relationships and contracts related
to the sale of Sovello manufactured product. In connection with the sale of Sovello manufactured
product, the Company received a selling fee from Sovello and did not report gross revenue or cost
of goods sold that resulted from these sales. Beginning in 2009, the Company, Q-Cells and REC
agreed to have Sovello begin marketing and selling its products under its own brand. Sovello will
continue to manufacture some Evergreen Solar-branded product but, with its independent sales and
marketing team now in place, the Companys involvement in marketing and selling Sovello product has
ceased. In light of the sales transition, its selling fee for Sovello product sold under the
Evergreen Solar brand was reduced to 0.5% for 2009 from 1.6% in 2008. In addition to the selling
fee, the Company receives royalty payments for its ongoing technology contributions to Sovello.
In October 2007, Sovello agreed to license the Companys new wafer furnace technology, the
quad wafer furnace, and the Company and its two Sovello partners approved the construction of
Sovellos third manufacturing facility, Sovello 3, in Thalheim, Germany, which is expected to
increase Sovellos annual production capacity from approximately 100 MW to approximately 180 MW
once fully operational. Sovello agreed to pay the Company a royalty based on actual cost savings
realized using the quad wafer furnaces in Sovello 3 as compared to the Companys earlier dual wafer
growth furnaces, which are in use at Sovellos two current facilities.
In September 2007, the Company began construction on the first phase of a new manufacturing
facility in Devens, Massachusetts and the first solar panels were produced in the third quarter of
2008. Construction of the second phase of Devens began in early 2008 and was completed during the
fourth quarter of 2009. The facility currently has an annual
operating capacity of approximately 140 to 150 megawatts (MW).
On December 29, 2008, as part of ongoing efforts to lower overhead costs and reduce overall
cash requirements, management committed the Company to a plan to cease production at its pilot
manufacturing facility
F-7
in Marlboro, Massachusetts. Production at the facility ceased on December 31, 2008. Advanced
manufacturing piloting activities are now being performed at its Devens manufacturing facility.
Almost all of the Marlboro pilot manufacturing facility employees transferred to the Devens
manufacturing facility to fill open positions associated with the second phase of Devens. As a
result of the cessation of manufacturing in Marlboro, the Company recorded restructuring costs,
principally non-cash charges, of approximately $30.4 million associated with the write-off of
manufacturing and development equipment, inventory and leasehold improvements of the Marlboro pilot
facility. The Company expects to incur occupancy, location restoration and moving costs through
the expiration of the lease in mid-2010. The Company believes that closing the Marlboro pilot
facility and better utilizing existing equipment and facilities at its research and development
center and at its Devens manufacturing facility will result in lower overhead costs and reduce
overall cash requirements.
As part of its strategy of long-term growth and focusing on its core wafer manufacturing
technology, on July 30, 2009, the Company announced that it had finalized its agreements with
Jiawei Solarchina Co., Ltd., and Hubei Science & Technology Investment Co., Ltd., an investment
fund sponsored by the government of Hubei, China (HSTIC) to expand its manufacturing operations
into China.
At December 31, 2009, the Company had approximately $112.4 million of cash and cash
equivalents, which includes approximately $33 million received from HSTIC as part of its funding
obligation for the Companys Wuhan, China factory expansion and
has been approved for a loan of
approximately $5 million from the Commonwealth of Massachusetts. Through 2010, the
Companys major cash requirements are expected to be approximately $97 million which includes the
build-out of its wafer manufacturing facility in Wuhan, China, the completions of its Devens and
Midland factories, payments associated with Sovello, sustaining capital and debt service.
The Company is subject to risks common to companies in the high-technology and energy
industries including, but not limited to, development by the Company or its competitors of new
technological innovations, dependence on key personnel, dependence on key or sole source suppliers
for materials, protection of proprietary technology and compliance with government regulations. Any
delay in the Companys plan to scale its capacity may result in increased costs and could impair
business operations.
The Company believes that its business plan will provide sufficient liquidity to fund its
planned capital programs, its share of any potential funding requirements related to its investment
in Sovello and its operating needs for the next 12 months. While its business plan anticipates
certain levels of potential risk, particularly in light of the difficult and uncertain current
economic environment and the continuing reduction of industry panel pricing caused by emerging
competition, especially from China, and the resulting excess capacity, the Company is exposed to
additional particular risks and uncertainties including, but not limited to:
|
|
|
the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per
quarter, and stabilization of panel pricing at about $2.00 per watt, with sales made to
creditworthy customers; |
|
|
|
|
higher than planned manufacturing costs and failing to achieve expected Devens
operating metrics, with any delays in the Companys plan to transition panel assembly to
China resulting in continued higher costs that could impair business operations; |
|
|
|
|
continued significant fluctuation of the Euro against the U.S. dollar, as a
substantial portion of the contracted sales are denominated in Euros; |
|
|
|
|
the ability of Jiawei to execute against its plans to meet the Companys required
timetables; and |
|
|
|
|
increased funding requirements for Sovello to potentially address the loss of any
prior or expected government grant funding for Sovello (see Note 5). |
Although the Companys current business plan indicates it has adequate liquidity to operate
under expected operating conditions, the risks noted above could result in liquidity uncertainty.
The Companys plan with regard to this uncertainty includes, among other actions:
F-8
|
|
|
continually monitoring its operating results against expectations and, if required,
further restricting operating costs and capital spending if events warrant; |
|
|
|
|
if market conditions allow, possibly accessing the capital markets to meet
liquidity and capital expenditure requirements; |
|
|
|
|
negotiating with a number of banks to secure a borrowing base line of credit,
without a minimum cash requirement as was required under its line of credit, supported by
the expected significant increase in its accounts receivable, inventory and overall
working capital; and |
|
|
|
|
possibly hedging a portion of its exposure to fluctuations in the U.S. dollar /
Euro exchange rate to limit any adverse exposure; but there can be no assurance that
hedges can be put in place at terms acceptable to the Company or that such hedging
activities will be effective. |
If additional capital is needed and does not become available on acceptable terms, the
Companys ability to fund operations, further develop and expand its manufacturing operations and
distribution network or otherwise respond to competitive pressures would be significantly limited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the major accounting policies followed by the Company in the preparation of the
accompanying financial statements is set forth below.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Companys wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated. Operating results
of its foreign subsidiaries are translated into U.S. dollars at the average rates of exchange
during the period, and assets and liabilities are translated into U.S. dollars at the period-end
rate of exchange. The operating results and financial positions of
the foreign subsidiaries are limited in
nature. Evergreen Solar has operated as one reportable segment since 2007.
As a result of the Companys one-third ownership in Sovello, it applies the equity method of
accounting for its share of Sovellos operating results in accordance with the Investments Equity
Method and Joint Ventures topic of the FASB codification. Therefore, the Companys Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for the years ended December 31,
2007, 2008 and 2009 include its one-third share of Sovellos results of operations. The Companys
Consolidated Balance Sheets at December 31, 2008 and 2009 include the Companys investment in
Sovello as a single line item (see Note 5, Impairment). The functional currency for Sovello is the
Euro.
As part of the Companys plan to expand its manufacturing operations into China, on July 24,
2009 the Company and Hubei Science & Technology Investment Co., Ltd., an investment fund sponsored
by the government of Hubei, China (HSTIC) entered into an Increase Registered Capital and Enlarge
Shares Agreement (the Investment Agreement) related to HSTICs investment in the Companys
subsidiary, Evergreen Solar (China) Co., Ltd. (Evergreen Wuhan). Pursuant to the Investment
Agreement, HSTIC invested the RMB equivalent of $33 million in Evergreen Wuhan in exchange for 66%
of Evergreen Wuhans shares. The Company invested $17 million in cash and equipment for the
remaining 34% of Evergreen Wuhans shares. Immediately upon HSTICs investment, the Company agreed
to purchase HSTICs shares and is required to pay for the shares no later than the end of the
five-year period after the investment is received by Evergreen Wuhan. This payment obligation will
require the Company to pay to HSTIC for its shares in Evergreen Wuhan an amount equal to HSTICs
aggregate investment of $33 million plus interest of 7.5% compounded annually, resulting in a
debt-like instrument. Accordingly, the Company has treated its payment obligation as indebtedness
of the Company and fully consolidates Evergreen Wuhan which it
considers to be wholly-owned. The functional currency of Evergreen
Wuhan is the RMB.
The Companys preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosures of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and expenses during the
reported periods. Estimates are used when accounting for the collectability of receivables,
valuing deferred tax assets, provisions for warranty claims and inventory obsolescence.
ACCOUNTING CHANGES
The information contained in these consolidated financial statements include the adoption of
the following standards, each of which were effective January 1, 2009 and required retrospective
application to conform to current accounting:
|
|
|
The Debt topic of the FASB codification, provides guidance that requires issuers of
convertible debt
|
F-9
instruments that may be settled in cash upon conversion
(including partial cash settlement) to separately account for the liability and equity components of the instrument
in a manner that reflects the issuers nonconvertible debt borrowing rate. Upon the original
issuance of its 4% Senior Convertible Notes due 2013 in mid 2008, the Company recorded the
debt obligation as long-term debt in accordance with the applicable accounting standards at
that time. As required by the new standard, the Company estimated the fair value, as of the
date of issuance, of its 4% Senior Convertible Notes as if the instrument was issued without
the conversion option. The difference between the fair value and the principal amount of the
instrument was retrospectively recorded as debt discount and as a component of equity. The
amortization of the debt discount is being recognized over the expected five-year life of
the 4% Senior Convertible Notes as a non-cash increase to interest expense. A portion of the
incremental interest cost is capitalized and added to the cost of qualified assets. The
following table reflects the Companys previously reported December 31, 2008 amounts, along
with the adjusted amounts as required by the standard (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally |
|
|
|
|
|
Effect of |
Balance Sheet Category |
|
Reported |
|
As Adjusted |
|
Change |
Other current assets |
|
$ |
5,723 |
|
|
$ |
7,684 |
|
|
$ |
1,961 |
|
Deferred financing costs |
|
|
7,494 |
|
|
|
6,152 |
|
|
|
(1,342 |
) |
Fixed assets, net |
|
|
403,664 |
|
|
|
406,191 |
|
|
|
2,527 |
|
Senior convertible notes,
net of discount |
|
|
373,750 |
|
|
|
311,531 |
|
|
|
(62,219 |
) |
Deferred income taxes |
|
|
7,815 |
|
|
|
9,776 |
|
|
|
1,961 |
|
Additional paid-in capital |
|
|
737,615 |
|
|
|
803,491 |
|
|
|
65,876 |
|
Accumulated deficit |
|
|
(221,215 |
) |
|
|
(223,687 |
) |
|
|
(2,472 |
) |
|
|
|
The adoption of this new standard also resulted in a change to the Companys consolidated
statement of operations for the year ended December 31, 2008, specifically an increase to
interest expense of approximately $5.0 million, excluding the impact of capitalized
interest. |
CASH AND MARKETABLE SECURITIES
Cash and cash equivalents consist of cash and highly liquid investments with maturities of
three months or less from the date of purchase and whose carrying amount approximates fair value.
The Companys marketable securities are classified as available-for-sale. At December 31,
2008, the Company primarily held commercial paper and corporate bonds. All commercial paper is
rated A-1/P-1 or higher and corporate bonds A/A2 or higher. The investments are carried at market
value. At December 31, 2008 and 2009, there were unrealized gains of $26,000 and $0, respectively,
which are reported as part of stockholders equity.
The Company did not have marketable securities as of December 31, 2009. The following table
summarizes the Companys marketable securities as of
December 31, 2008 all of which matured during
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Amortized |
|
|
Gains |
|
|
Fair |
|
|
|
Cost |
|
|
(Losses) |
|
|
Value |
|
Government Obligations |
|
$ |
9,997 |
|
|
$ |
3 |
|
|
$ |
10,000 |
|
Commercial paper |
|
|
44,852 |
|
|
|
24 |
|
|
|
44,876 |
|
Corporate bonds |
|
|
21,746 |
|
|
|
(1 |
) |
|
|
21,745 |
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities |
|
$ |
76,595 |
|
|
$ |
26 |
|
|
$ |
76,621 |
|
|
|
|
|
|
|
|
|
|
|
F-10
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to significant concentrations of
credit risk consist principally of cash and cash equivalents, investments and accounts receivable.
The Company places its cash and cash equivalents and foreign exchange contracts, when applicable,
with high quality financial institutions. With respect to accounts receivable, such receivables are
primarily from distributors and integrators in the solar power industry located throughout the
world. The Company performs initial credit evaluations of its customers financial conditions. The
Company has historically relied on a small number of customers for a substantial portion of its
business and generally does not require collateral or other security against its accounts
receivable; however, when deemed necessary it maintains reserves for potential credit losses and
such losses have historically been within managements expectations. This customer concentration
increases the Companys exposure to credit risk since the financial insolvency of any of these
customers could have a significant impact on its liquidity and results of operations.
The table below summarizes the Companys concentration of accounts receivable for the years
ended December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
% of accounts receivable |
|
|
|
|
|
|
|
|
Ralos Vertriebs GmbH |
|
|
13 |
% |
|
|
29 |
% |
Solar City |
|
|
14 |
% |
|
|
12 |
% |
Sun & Kim Co., Ltd. |
|
|
|
|
|
|
12 |
% |
SunPower Corporation (formerly PowerLight) |
|
|
20 |
% |
|
|
|
|
Top 5 customers |
|
|
64 |
% |
|
|
67 |
% |
In addition, since April 2007 the Company has entered into multi-year silicon supply
agreements with four suppliers, one of which has since filed for bankruptcy. Under the remaining
silicon supply agreements with OCI, Wacker and Nitol, the Company has silicon under contract that
provides over 7,000 metric tons of silicon through 2015.
INVENTORY
Inventory is valued at lower of cost or market determined on a first-in, first-out basis.
Certain factors may impact the net realizable value of the Companys inventory including, but not
limited to, technological changes, market demand, changes in product mix strategy, new product
introductions and significant changes to its cost
structure. Estimates of reserves are made for obsolescence based on the current product mix on
hand and its expected net realizable value. If actual market conditions are less favorable or other
factors arise that are significantly different than those anticipated by management, additional
inventory write-downs or increases in obsolescence reserves may be required.
During 2007 and 2008, the Company entered into multi-year polysilicon supply agreements with
several suppliers, most of which required a prepayment under the contract. These prepayments,
which are included on the balance sheet in Prepaid Cost of Inventory, are not refundable and would
be difficult to recover if a supplier defaults on its obligations. The amount of prepayments
classified as short-term is based upon the value of the silicon contracted to be delivered during
the upcoming year.
The Company considers
lower of cost or market adjustments and reserves as an adjustment to the cost basis of
the underlying inventory and prepaid cost of inventory. Accordingly, favorable changes in market conditions are not recorded to
inventory in subsequent periods.
F-11
GUARANTOR ARRANGEMENTS
Letters of Credit
The Company maintains letters of credit as collateral for several equipment lease obligations
in addition to the Companys corporate credit card program. In connection with these arrangements,
the Company invested in certificates of deposit pledged to a commercial bank which are classified
as restricted cash in the accompanying balance sheets.
FIXED ASSETS
Fixed assets are recorded at cost. Provisions for depreciation are based on their estimated
useful lives using the straight-line method over a period of three to seven years for all
laboratory and manufacturing equipment, computers, and office equipment, and forty years for
buildings. The costs for constructing assets are recorded in assets under construction and are
depreciated from the date these assets are put into use. For those assets requiring a period of
time to get them ready for their intended use, the Company capitalizes a portion of its interest
costs as part of the historical cost of acquiring the asset. Leasehold improvements are
depreciated over the shorter of the remainder of the lease term or the estimated life of the
improvements. Upon retirement or disposal, the cost of the disposed asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is reflected in net
income or loss.
Expenditures for repairs and maintenance are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Companys policy regarding long-lived assets is to evaluate the recoverability or
usefulness of these assets when the facts and circumstances suggest that these assets may be
impaired. This analysis relies on a number of factors, including changes in strategic direction,
business plans, regulatory developments, economic and budget projections, technological
improvements, and operating results. The test of recoverability or usefulness is a comparison of
the asset value to the undiscounted cash flow of its expected cumulative net operating cash flow
over the assets remaining useful life. If such a test indicates that impairment exists, then the
asset is written down to its estimated fair value. Any write-downs would be treated as permanent
reductions in the carrying amounts of the assets and an operating loss would be recognized. To
date, the Company has had recurring operating losses and the recoverability of its long-lived
assets is contingent upon executing its business plan that includes further reducing its
manufacturing costs and significantly increasing sales. If the Company is unable to execute its
business plan, it may be required to write down the value of its long-lived assets in future
periods.
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company recognizes product revenue if there is persuasive evidence of an agreement with
the customer, shipment has occurred, risk of loss has transferred to the customer, the sales price
is fixed or determinable, and collectability is reasonably assured. The market for solar power
products is emerging and rapidly evolving. The
Company currently sells its solar power products primarily to distributors, system integrators
and other value-added resellers within and outside of North America, who typically resell these
products to end users throughout the world. The Company has not offered rights to return its
products other than for normal warranty conditions. For new customers requesting credit, the
Company evaluates creditworthiness based on credit applications, feedback from provided references,
and credit reports from independent agencies. For existing customers, the Company evaluates
creditworthiness based on payment history and known changes in their
financial condition. Through the third quarter of 2009, royalty
and fee revenue were recognized at contractual rates upon sale of
product by Sovello (see Note 5).
The Company maintains allowances for doubtful accounts when deemed necessary for estimated
losses resulting from the inability of its customers to make required payments. If the financial
condition of the Companys customers were to deteriorate, such that their ability to make payments
was impaired, additional allowances could be required.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-12
INCOME TAXES
The Company accounts for income taxes under the liability method, which requires recognition
of deferred tax assets, subject to valuation allowances, and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and income tax purposes. A valuation
allowance is established if it is more likely than not that all or a portion of the net deferred
tax assets will not be realized.
VALUE-ADDED TAXES
The Company accounts for foreign value-added taxes on a net basis which excludes the amounts
from revenues and costs. Value-added tax receivables and payables are presented net on the balance
sheet.
COMPREHENSIVE LOSS
Other comprehensive loss consists of unrealized gains and losses on available-for-sale
securities and cumulative foreign currency translation adjustments. Other comprehensive income or
loss is reflected in the Consolidated Statement of Stockholders Equity.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted the guidance of the Stock Compensation topic of the
FASB codification. The guidance requires entities to measure compensation cost arising from the
grant of share-based payments to employees at fair value and to recognize such cost in operations
over the period during which the employee is required to provide service in exchange for the award,
usually the vesting period. The Company selected the modified prospective method for implementing
the guidance and began applying the provisions to stock-based awards granted on or after January 1,
2006, plus any unvested awards granted prior to January 1, 2006. Stock-based compensation cost is
measured at the grant date based on the fair value of the award and is recognized as expense on a
straight-line basis over the awards service periods, which are the vesting periods, less estimated
forfeitures. See Note 11 for further information regarding the Companys stock-based compensation
assumptions and expenses.
NET LOSS PER COMMON SHARE
The Company computes net loss per common share in accordance with the Earning Per Share topic
of the FASB codification. Under the guidance, basic net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding during the period.
The calculation of diluted net loss per
common share for the years ended December 31, 2007, 2008 and 2009 does not include
approximately 19.7 million, 38.2 million and 37.9 million potential shares of common stock
equivalents outstanding at December 31, 2007, 2008 and 2009, respectively, as their inclusion would
be anti-dilutive. Common stock equivalents include outstanding common stock options, unvested
restricted stock awards, common stock warrants and convertible debt.
In connection with the sale to the public of $373.8 million of 4% Senior Convertible Notes due
2013 (the Senior Notes) on June 26, 2008, the Company entered into a common stock lending
agreement with an affiliate of Lehman Brothers, Inc., the lead underwriter, pursuant to which the
Company loaned 30,856,538 shares of its common stock to the affiliate (see Note 10). These shares
were considered issued and outstanding for corporate law purposes at the time they were loaned;
however, at the time of the loan they were not considered outstanding for the purpose of computing
and reporting earnings per share because these shares were to be returned to the Company no later
than July 15, 2013, the maturity date of the notes. On September 15, 2008 and October 3, 2008,
respectively, the parent company of the lead underwriter, Lehman Brothers Holdings Inc. and the
lead underwriters affiliate that entered into the capped call transaction filed for protection
under Chapter 11 of the federal Bankruptcy Code. The lead underwriters affiliate that entered
into the stock lending agreement with the Company was placed into administration in the United
Kingdom shortly thereafter. As a result of the bankruptcy filing, the lead underwriters affiliate
was contractually required to return the shares to the Company. The Company has since demanded the
F-13
immediate return of all outstanding borrowed shares, however, the shares have not yet been
returned. While the Company believes it is exercising all of its legal remedies, it has included
these shares in its per share calculation on a weighted average basis due to the uncertainty
regarding the recovery of the borrowed shares.
SEGMENT REPORTING
The Segment Reporting topic of the FASB codification establishes standards for reporting
information about operating segments. The information in this report is provided in accordance with
the requirements of this guidance and is consistent with how business results are reported
internally to management. The Company currently operates as one segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting
principals requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. The Company bases its estimates on historical
experience and various other factors believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Some of these estimates can be subjective and
complex and, consequently, actual results may differ from these estimates under different
assumptions or conditions. While for any given estimate or assumption made by the Companys
management, there may be other estimates or assumptions that are reasonable. The Company believes
that, given the current facts and circumstances, it is unlikely that applying any such other
reasonable estimate or assumption would materially impact the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash equivalents, marketable securities, accounts receivable
and accounts payable are carried in the consolidated financial statements at amounts that
approximate fair value at December 31, 2008 and 2009. Fair values are based on market prices and
assumptions concerning the amount and timing of estimated future cash flows and assumed discount
rates, reflecting varying degrees of perceived risk.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent
accounting pronouncements, not included below, are not expected to
have a material impact on the Companys consolidated financial
position and results of operations.
In June 2008, an update was made to the Earning Per Share topic of the FASB codification that
clarified that all outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of
this nature are considered participating securities and
the two-class method of computing basic and diluted earnings per share must be applied. The
new guidance is effective for fiscal years beginning after December 15, 2008. The Company adopted
this guidance effective January 1, 2009 and with the exception of the fourth quarter of 2007 there
is no impact due to current and prior period losses as such losses are not attributable or
allocated to such securities.
In April 2009, an update was made to the Financial Instruments topic of the FASB codification
Fair Value Measurements and Disclosures that requires disclosures about the fair value of financial
instruments in interim financial statements as well as in annual financial statements. The new
guidance also amends the existing requirements on the fair value disclosures in all interim
financial statements. This guidance is effective for interim periods ending after June 15, 2009,
but early adoption was permitted for interim periods ending after March 15, 2009. The adoption of
this standard did not have a material impact on the Companys consolidated financial position and
results of operations.
In April 2009, an update was made to the Fair Value Measurements and Disclosures topic of the
FASB codification that provides additional guidance in determining fair value when there is no
active market or where price inputs being used represent distressed sales. This guidance is
effective for interim periods ending after June 15, 2009, but early adoption was permitted for
interim periods ending after March 15, 2009. The adoption of this standard did not have an impact
on the Companys consolidated financial position and results of operations.
F-14
In April 2009, an update was made to the Debt and Equity topic of the FASB codification that
provides guidance in determining whether impairments of debt securities are other than temporary,
and modifies the presentation and disclosures surrounding such instruments. This guidance is
effective for interim periods ending after June 15, 2009, but early adoption was permitted for
interim periods ending after March 15, 2009. The adoption of this standard did not have an impact
on the Companys consolidated financial position and results of operations.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the FASB Standards Accounting Codification (Codification) as
the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC
as authoritative GAAP for SEC registrants. The Codification supersedes all the existing non-SEC
accounting and reporting standards upon its effective date and subsequently, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. SFAS 168 also replaces FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles given that once in effect, the Codification will carry the same level of
authority. SFAS 168 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The adoption of this standard did not have a material impact on
the Companys consolidated financial statements.
In October 2009, an update was made to the Revenue Recognition topic of the FASB codification
that removes the objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting, replaces references to fair value with selling price to
distinguish from the fair value measurements required under the Fair Value Measurements and
Disclosures topic of the FASB codification, provides a hierarchy that entities must use to estimate
the selling price, eliminates the use of the residual method for allocation, and expands the
ongoing disclosure requirements. This update is effective for fiscal years beginning on or after
June 15, 2010 (early adoption is permitted). The Company does not expect the adoption of the
guidance to have an impact on its consolidated financial position and results of operations.
In October 2009, an update was made to the Debt topic of the FASB codification that amends the
topic to expand accounting and reporting guidance for own-share lending arrangements issued in
contemplation of convertible debt issuance. This update is effective for fiscal years beginning on
or after December 15, 2009 and interim periods within those fiscal years for arrangements
outstanding as of the beginning of those fiscal years. The Company is currently evaluating the
impact of this guidance on its consolidated financial statements.
In January 2010, an update was made to the Fair Value Measurements and Disclosures topic of
the FASB codification that requires new disclosures for fair value measurements and provides
clarification for existing disclosure requirements. More specifically, this update will require
(a) an entity to disclose separately the amounts
of significant transfers into and out of Level 1 and 2 fair value measurements and to describe
the reasons for the transfers; and (b) information about purchases, sales, issuances, and
settlements to be presented separately on a gross basis in the reconciliation of Level 3 fair value
measurements. This update is effective for fiscal years beginning after December 15, 2009 except
for Level 3 reconciliation disclosures which are effective for fiscal years beginning after
December 15, 2010. The Company does not expect the adoption of the guidance to have an impact on
its consolidated financial position and results of operations.
3. INVENTORY
Inventory consisted of the following at December 31 (in thousands):
F-15
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
Raw materials |
|
$ |
17,928 |
|
|
$ |
18,327 |
|
Work-in-process |
|
|
3,910 |
|
|
|
7,643 |
|
Finished goods |
|
|
1,662 |
|
|
|
8,920 |
|
|
|
|
|
|
|
|
|
|
$ |
23,500 |
|
|
$ |
34,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid cost of inventory |
|
$ |
183,889 |
|
|
$ |
173,207 |
|
Less: current portion |
|
|
11,696 |
|
|
|
25,634 |
|
|
|
|
|
|
|
|
Noncurrent portion |
|
$ |
172,193 |
|
|
$ |
147,573 |
|
|
|
|
|
|
|
|
The Company has entered into multiple multi-year silicon supply agreements, several of which
required advanced funding under the contract. These prepayments, which are non-refundable, are
presented on the balance sheet in Prepaid Cost of Inventory and will be amortized as an additional
cost of inventory as silicon is delivered and utilized by the Company. Prepayments are classified
as short-term based upon the value of silicon contracted to be delivered during the next twelve
months. The Company carries these prepayments on its balance sheet at cost and periodically
evaluates the vendors ability to fulfill the silicon contract.
On December 7, 2007, the Company entered into a multi-year silicon supply agreement with
Silpro. This supply agreement provided the general terms and conditions pursuant to which Silpro
would supply the Company with specified annual quantities of silicon at fixed prices beginning in
2010 and continuing through 2019. In connection with the supply agreement, the Company loaned
Silpro 30 million Euros at an interest rate of 3.0% compounded annually. The difference between
this rate and prevailing market rates at that time was recorded as an adjustment to the cost of
inventory. At December 31, 2008 this loan is presented on the balance sheet as loan receivable from
silicon supplier. In April 2009 as a result of its inability to obtain additional financing to
continue construction of its factory, Silpro announced that the French commercial court ordered the
filing for judicial settlement proceedings (redressement judiciaire), a process similar to
bankruptcy proceedings in the United States. As a result, the loan receivable from Silpro and the
related interest will not be repaid and the Company recognized a non-cash charge of $43.9 million.
In August 2009, the court ordered liquidation proceedings (liquidation judiciaire) due to Silpros
inability to secure further financing.
4. FIXED ASSETS
Fixed assets consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful |
|
December 31, |
|
|
|
Life |
|
2008 |
|
|
2009 |
|
Land |
|
|
|
$ |
119 |
|
|
$ |
119 |
|
Buildings |
|
40 years |
|
|
97,957 |
|
|
|
208,909 |
|
Laboratory and manufacturing
equipment |
|
3-7 years |
|
|
182,109 |
|
|
|
257,186 |
|
Computer and office equipment |
|
3-7 years |
|
|
4,594 |
|
|
|
5,890 |
|
Leasehold improvements |
|
Lesser of 15 to 20 years or lease term |
|
|
16,413 |
|
|
|
16,418 |
|
Assets under construction |
|
|
|
|
175,880 |
|
|
|
34,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477,072 |
|
|
|
522,819 |
|
Less: Accumulated depreciation |
|
|
|
|
(70,881 |
) |
|
|
(92,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
406,191 |
|
|
$ |
430,681 |
|
|
|
|
|
|
|
|
|
|
F-16
During 2007, the Commonwealth of Massachusetts support program awarded the Company
$20.0 million in grants towards the construction of its Devens, Massachusetts manufacturing
facility, virtually all of which has been received as of December 31, 2009. The grants have been
capitalized as a reduction of the construction costs. The funds granted are subject to repayment
by the Company if, among other conditions, the Devens manufacturing facility does not create and
maintain 350 new jobs in Massachusetts through November 20, 2014. The repayment of the grants, if
any, will be proportional to the targeted number of jobs per annum that are not created. Because
the Company has the ability and intent to satisfy the obligations under the awards, the grant
monies received will be amortized over the same period as the underlying assets to which they
relate.
On October 30, 2009, the Board of Directors of the Company committed it to a plan to
transition its panel assembly from its manufacturing facility in Devens, Massachusetts to China.
The transition, which is expected to begin in mid-2010, is anticipated to be completed within 12 to
18 months. The Company estimates it will incur non-cash charges of approximately $40 million
associated with the accelerated depreciation of panel assembly equipment, which is expected to be
recognized ratably over the transition period and began in the fourth quarter of 2009.
In conjunction with the closing of the Companys Marlboro, Massachusetts pilot manufacturing
facility in December 2008, it recorded write-offs of leasehold improvements and other related
building costs with a net book value of approximately $5.4 million and equipment of approximately
$20.9 million. In addition to the closure of Marlboro, the Company incurred charges of
approximately $8.0 million to write-off R&D equipment that supported now-obsolete technologies.
Depreciation expense for the years ended December 31, 2007, 2008 and 2009 was $7.4 million,
$18.2 million and $46.1 million, respectively, exclusive of the write downs noted above.
As of December 31, 2009, the Company had outstanding commitments for capital expenditures of
approximately $14.7 million, primarily for the construction and equipment for its Devens facility
and for its new Midland, Michigan and Wuhan, China facilities.
5. INVESTMENT IN SOVELLO AG
Through December 19, 2006, the Company owned 64% of Sovello and consolidated the financial
statements of Sovello in accordance with the provisions of the Consolidation topic of the FASB. As
a result of the Companys reduction in ownership in Sovello to one-third on December 19, 2006, the
Company has applied the equity method of accounting for its share of Sovellos operating results
from December 20, 2006 forward in accordance with the guidance provided by the Equity Method and
Joint Ventures topic of the FASB Codification.
Evergreen Solar Loans to Sovello
In January 2007, the Company, REC and Q-Cells entered into a new shareholder loan agreement
with Sovello. Under the terms of the shareholder loan agreement, Sovello repaid all outstanding
shareholder loans at that time, plus accrued interest, in exchange for a shareholder loan of 30
million Euros (approximately $43.0 million at December 31, 2009 exchange rates) from each
shareholder. Since that time, the Company, REC and Q-Cells have entered into several other
shareholder loan agreements with Sovello with the Companys share denominated in U.S. dollars.
Interest on the January 2007 loan and the $18.2 million June 2008 loan is payable quarterly in
arrears, however such payments have been suspended. Interest on the $10.6 million December 2008
loan and $6.7 million March 2009 loan is payable concurrent with the repayment of the underlying
principal amounts. The loans, which in the aggregate total approximately $78.5 million at December
31, 2009, prior to the impairment charge, carry interest rates ranging from 5.43% to 7.0% and are
included in Investments in and advances to Sovello AG on the balance sheet. Based upon an
agreement between Sovellos shareholders and Sovellos bank, the loans and interest thereon will
not be repaid until the earlier of the completion of an initial public offering or other liquidity
event generating sufficient cash to repay the bank loans.
The financial information for Sovello for the years ended December 31, 2007, 2008 and 2009 is
as follows (in thousands):
F-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
Revenue |
|
$ |
193,613 |
|
|
$ |
323,911 |
|
|
$ |
158,113 |
|
Cost of goods sold |
|
|
159,781 |
|
|
|
247,567 |
|
|
|
181,312 |
|
Other expenses |
|
|
27,320 |
|
|
|
50,034 |
|
|
|
67,049 |
|
Net income (loss) |
|
|
6,512 |
|
|
|
26,310 |
|
|
|
(90,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2008 |
|
2009 |
Current assets |
|
$ |
241,871 |
|
|
$ |
138,925 |
|
Non-current assets |
|
|
408,347 |
|
|
|
431,941 |
|
Current liabilities |
|
|
181,550 |
|
|
|
412,110 |
|
Non-current liabilities |
|
|
318,627 |
|
|
|
67,067 |
|
On April 30, 2007, the Company, Q-Cells and REC entered into a Guarantee and Undertaking
Agreement in connection with Sovello entering into a loan agreement with a syndicate of lenders led
by Deutsche Bank AG (the Guarantee). The loan agreement originally provided Sovello with
aggregate borrowing availability of up to 142.0 million Euros (approximately $203.5 million at
December 31, 2009 exchange rates) which was subsequently amended to 192.5 million Euros in
September 2008 (approximately $275.9 million at December 31, 2009 exchange rates). Pursuant to the
Guarantee, the Company, Q-Cells and REC each agreed to guarantee a one-third portion of the loan
outstanding, up to 30.0 million Euros of Sovellos repayment obligations under the loan agreement.
As of December 31, 2009, the total amount of debt outstanding under the loan agreement was
68.3 million Euros (approximately $97.9 million at December 31, 2009 exchange rates), all of which
was current, which represents a reduction of approximately 52.7 million Euros from December 31,
2008 (approximately $75.5 million at December 31, 2009 exchange rates). Repayment of the loan is
due in quarterly installments through December 31, 2011 (see Note 5).
Sovello has been in default under its bank loan agreement since the end of 2008. On April 15,
2009, the Company entered into a new guarantee of loan obligations on behalf of Sovello. Pursuant
to the new guarantee, the Company agreed to guarantee up to 10 million Euros (approximately
$14.3 million at December 31, 2009 exchange rates) of Sovellos repayment obligations under a
syndicated loan agreement with a syndicate of lenders led by Deutsche Bank. Sovellos other
shareholders also entered into guarantees for an additional 20 million Euros (approximately $28.7
million at December 31, 2009 exchange rates) with Deutsche Bank on the same terms as the Company.
The shareholder guarantees were provided by the Company and Sovellos other shareholders in
connection with ongoing discussions between Sovello, Deutsche Bank and the shareholders regarding a
restructuring of Sovellos obligations under the Loan Agreement. In connection with the guarantees,
the Company, Q-Cells and REC also entered into a letter agreement with Deutsche Bank. Pursuant to
the letter agreement the three Sovello shareholders made loans to Sovello in the aggregate amount
of 15 million Euros (approximately $21.5 million at December 31, 2009 exchange rates), including
the U.S. dollar equivalent of 5 million Euros (approximately $7.2 million at December 31, 2009
exchange rates) loaned by the Company. Also, pursuant to the letter agreement, the shareholders
initially agreed to provide Sovello through August 15, 2009 with additional liquidity, if needed,
other than payments that might be required pursuant to the Loan Agreement. This date was
subsequently extended to January 2010. In conjunction with the agreement the bank syndicate had
requested that each shareholder put an additional 2.0 million Euro into escrow (approximately
$2.9 million at December 31, 2009 exchange rates) to continue good faith negotiations on
restructuring Sovellos debt. The escrow deposits, which were made by the shareholders during the
third quarter of 2009, have since been contributed as additional equity to Sovello and
remitted to the banks as a loan payment.
F-18
During December 2009, the Company paid approximately 4.2 million Euros (approximately $6.0
million at December 31, 2009 exchange rates) under the guarantee. On January 28, 2010, the bank
terminated the loan agreement with Sovello but has not yet demanded repayment of the outstanding
loan. On February 8, 2010, the Company and Sovellos other shareholders each repaid the remaining
5.8 million Euros (approximately $8.3 million at December 31, 2009 exchange rates) outstanding
under the guarantee.
On January 29, 2010, the European Commission announced a decision that a certain portion of
the grants known as the SME Bonus which had been awarded to Sovello in 2006 should be recalled.
The amount to be recalled, 9.1 million Euros (plus approximately 2.5 million Euros in interest) (in
total approximately $16.6 million at December 31, 2009 exchange rates) was paid to Sovello as a
special bonus available only to small and medium-sized companies. The Commission has ordered the
German authorities to recover the SME-Bonus from Sovello. The Company may be required to provide
funding to Sovello (approximately 2 million Euros) to repay a portion of the SME Bonus pursuant to an undertaking made to a
consortium of banks led by Deutsche Bank AG that have loaned funds to Sovello.
The Commissions decision finds that the application submitted for the SME Bonus was
incomplete and therefore inaccurate, and that Sovellos shareholders intentionally structured
Sovello to qualify for the SME Bonus. However, Sovellos management and shareholders believe that
Sovello appropriately qualified for the SME Bonus. The Company anticipates that Sovello will,
therefore, pursue an appeal against the Commissions decision.
If the above matters are not satisfactorily resolved, Sovello may need to declare
insolvency which could result in further financial obligations for the Company. Alternatively, we
may provide a small amount of additional capital to Sovello in connection with the sale of Sovello
to a new shareholder. However, it is difficult to predict exactly the amount of, if any, further
costs that may be incurred by the Company in the event of an insolvency of Sovello.
Impairment
Despite the
Companys success in rapidly expanding Sovellos production capacity, Sovellos business faced significant
financial difficulties as a result of the overwhelming recent market downturn in demand and pricing for
its products. Accordingly, Sovello has been in default under its bank loan agreement since the end of
2008. In light of this and other financial difficulties, including the on-going deterioration in world-wide
pricing for their products, the Company recorded an impairment charge during the third quarter of 2009 of
approximately $69.7 million related to its aggregate investment in Sovello. In making this assessment, the
Company performed an expected value calculation that considered a range of scenarios including Sovellos
ability to continue as a going concern, forecasted 2010 EBITDA which included current projections of volumes
and selling prices, and enterprise value multiples of comparable entities. As a result of further
deterioration in Sovellos financial position during the fourth quarter of 2009, the Company wrote-off
its remaining investment in addition to recording charges associated with its guarantee and for estimated
payments relating to undertakings with Sovellos bank and for other expected costs which combined totaled
approximately $56.3 million. Sovellos shareholders are attempting to negotiate a sale of the business
that would allow Sovello to continue to operate with a small final capital contribution from the shareholders.
If such a transaction cannot be negotiated, Sovello will likely become insolvent which could result in further
limited financial obligations for the Company, including payment of a portion of certain recalled state
subsidies.
F-19
The Company and the other shareholders of Sovello are now attempting to sell Sovello. If it
cannot be sold by the shareholders, it will likely become insolvent and will be sold or liquidated
to repay amounts outstanding under Sovellos credit agreement with its banks. The sale that the
Company is attempting to negotiate will require it to make a small additional investment in
Sovello. In the case of either a sale or insolvency the Company believes its additional
obligations that could arise are limited, but no assurance can be made regarding additional
potential costs given the uncertainties associated with negotiating a sale of a distressed company
or the possible insolvency process.
6. LONG TERM DEBT
Convertible Subordinated Notes
On June 29, 2005, the Company issued 4.375% convertible subordinated notes due 2012 (Notes)
in the aggregate principal amount of $90.0 million with interest on the Notes payable semiannually.
The Company received proceeds, net of offering costs, of $86.9 million a portion of which was used
to (1) increase research and development spending on promising next generation technologies, (2)
explore further expansion opportunities and (3) fulfill its commitments with Sovello. On July 7,
2008, the Company notified the holders of the Notes that on July 22, 2008 (the Redemption Date)
it would redeem all the outstanding Notes at a redemption price of 100% of the principal amount
thereof, plus accrued and unpaid interest to the Redemption Date. In lieu of redemption, all of
the Notes were converted to common stock of the Company and the Company issued 12,178, 607 shares
of common stock to the note holders on July 22, 2008.
Senior Convertible Notes
On July 2, 2008, the Company completed its public offering of $373.8 million aggregate
principal amount of its Senior Notes. Net proceeds to the Company from the Senior Notes offering,
including the cost of the capped call transaction (see Capped Call), were approximately
$325.8 million. The Companys financing costs associated with the Senior Notes are being amortized
over the five year term.
The Senior Notes bear cash interest at the rate of 4% per year, payable semi-annually in
arrears on January 15 and July 15 of each year, beginning on January 15, 2009, with an effective
interest cost of approximately 8.4% as a result of the adoption of the guidance required by the
Debt Conversion and Other topic of the FASB codification. The Senior Notes will mature on July 15,
2013 unless previously repurchased by the Company or converted in accordance with their terms prior
to such date. The Senior Notes are not redeemable at the Companys option prior to the stated
maturity date. If certain fundamental changes occur at any time prior to maturity, holders of the
Senior Notes may require the Company to repurchase their Senior Notes in whole or in part for cash
equal to 100% of the principal amount of the Senior Notes to be repurchased, plus accrued and
unpaid interest to, but excluding, the date of repurchase. The fair value of the Companys Senior
Notes is estimated based on quoted market prices which were trading at an average of approximately
52% of par value as of December 31, 2009, or approximately $194.4 million.
At maturity and upon certain other events, including a change of control and when the trading
price of the Companys common stock exceeds 130% of the then effective conversion price, the Senior
Notes are convertible into cash up to their principal amount and shares of the Companys common
stock for the remainder, if any, of the conversion value in excess of such principal amount at the
initial conversion rate of 82.5593 shares of common stock per $1,000 principal amount of Senior
Notes (equivalent to an initial conversion price of $12.1125 per share). Subject to certain
exceptions and limitations, the holder of a note for $1,000 principal amount that is converted when
the Companys common stock is trading at the conversion price of $12.1125 (or lower) would receive
$1,000 (or less) in cash, and the holder of a note for $1,000 principal amount that is converted
when the Companys common stock is trading above the conversion price of $12.1125 would receive
$1,000 in cash and shares of the Companys common stock to the extent that the market value of the
Companys common stock multiplied by the conversion rate, which is initially 82.5593, exceeds
$1,000. If a non-stock change of control occurs and a holder elects to convert Senior Notes in
connection with such non-stock change of control, such holder may be entitled to an increase in the
conversion rate. The conversion rate may also be adjusted under certain other circumstances,
including, but not limited to, the issuance of stock dividends and payment of cash dividends. The
Senior Notes were originally accounted for as traditional convertible debt, with no bifurcation of
the conversion feature recognized as a separate asset or liability. However, effective January 1,
2009, in accordance with the Debt topic of the FASB
codification, the Company has separately accounted for the liability and equity components of
the instrument in a manner that reflects the issuers nonconvertible debt borrowing rate (see Note
2 for the impact of the Companys adoption and related retrospective application of the guidance).
F-20
For each of the years ended December 31, 2007, 2008 and 2009, the Company recorded
approximately $4.4 million, $15.6 million and $28.2 million, respectively, in interest expense
associated with its Notes and Senior Notes (which includes non-cash interest of approximately $5.1
million and $11.7 million in 2008 and 2009, respectively, associated with the guidance of the Debt
topic of the FASB codification), and capitalized interest of approximately $983,000, $7.5 million
and $2.6 million, respectively.
Capped Call
In connection with the Companys Senior Notes offering on June 26, 2008, the Company entered
into a capped call transaction with respect to the Companys common stock with an affiliate of
Lehman Brothers Inc., the lead underwriter for the offering, in order to reduce the dilution that
would otherwise occur as a result of new common stock issuances upon conversion of the Senior
Notes. The capped call transaction has an initial strike price of $12.1125 per share, subject to
certain adjustments, which matches the initial conversion price of the Senior Notes, and has a cap
price of $19.00 per share.
The capped call transaction was designed to reduce the potential dilution resulting from the
conversion of the Senior Notes into shares of common stock, and effectively increase the conversion
price of the Senior Notes for the Company to $19.00 per share from the actual conversion price to
the note holders of $12.11 per share. The total premium to be paid by the Company for the capped
call was approximately $68.1 million, of which $39.5 million was paid contemporaneously with the
closing of the Senior Notes offering and the remaining $28.6 million was required to be paid in
nine equal semi annual installments beginning January 15, 2009. In accordance with the guidance in
Distinguishing Liability from Equity topic in the FASB codification and the Derivative and Hedging
topic in the FASB codification, the capped call instrument was classified as equity and therefore
the up-front capped call premium plus the present value of the future installments were recorded in
additional paid-in capital. As this instrument does not qualify as a derivative under Derivatives
and Hedging topic of the FASB codification, it will not be subject to mark-to-market adjustments in
future periods.
On September 15, 2008 and October 3, 2008, respectively, the parent company of the lead
underwriter, Lehman Brothers Holdings Inc. and the lead underwriters affiliate filed for
protection under Chapter 11 of the federal Bankruptcy Code, each an event of default under the
capped call transaction. As a result of the default, the affiliate is not expected to perform its
obligations if such obligations were to be triggered and the Companys obligations under the
agreement have been suspended. The Company believes it has the right to terminate the capped call
transaction based on the defaults that have occurred. Accordingly the remaining premium liability
under the capped call transaction was reversed against equity.
On September 9, 2009, the Company received notification from the lead underwriters affiliate
purporting to terminate the capped call transaction based on the Companys failure to pay certain
amounts under the capped call transaction. On September 25, 2009, the Company received a letter
from the same party requesting payment of $19,992,487 (plus $340,673 in interest) as payment for
the termination of the capped call transaction. If litigation is commenced, the Company has reason to believe the affiliate of the lead underwriter will claim at least $5 million more (plus interest) than it previously demanded.
Despite the letter received, the Company rejects any assertions that (i) the lead
underwriters affiliate has the right to terminate the capped call transaction, (ii) that the
Company has defaulted on any payment obligations under the capped call transaction and (iii) that
any amounts are currently due and payable to the affiliate under the capped call transaction. The
Company intends to vigorously defend against all such claims by the lead underwriters affiliate
and any related parties should they be asserted.
In connection with the sale of the Senior Notes, the Company also entered into a common stock
lending agreement (see Common Stock Lending Agreement within Note 10).
Loan Payable
Pursuant to the Investment Agreement, HSTIC
invested the RMB equivalent of
F-21
$33 million in Evergreen Wuhan in exchange for 66% of Evergreen
Wuhans shares. This payment obligation will require the
Company to pay to HSTIC for its shares in Evergreen Wuhan an amount equal to HSTICs aggregate
investment of $33 million plus interest of 7.5% compounded
annually, no later than 2014, the end of the five year period after
receipt of the investment.
The Investment Agreement also sets forth certain negative and affirmative covenants that must
be complied with to avoid accelerating the Companys obligation to pay for HSTICs shares.
Covenants include, but are not limited to, reporting obligations and approval requirements for
certain affiliate transactions and other extraordinary business activities. If the Company fails to
meet its obligation to pay for HSTICs shares at the end of five years or upon the possible
acceleration of the payment term, the Company will be required to relinquish its Board and
management control over Evergreen Wuhan.
Interest incurred on the loan as of December 31, 2009, which is payable in conjunction with
the loan repayment, was approximately RMB 7.4 million ($1.1 million at December 31, 2009 exchange
rates). The combined loan and related interest amounts have been included in Loan Payable on the
balance sheet.
7. LINE OF CREDIT
On October 16, 2008, the Company entered into a Loan and Security Agreement with a bank for a
credit facility that provides for a $40 million secured revolving line of credit which, provided
the Company is not in default of any covenants, may be used to borrow revolving loans or to issue
letters of credit on its behalf, and includes a foreign exchange sublimit and a cash management
services sublimit. The Company is currently in default as described below and cannot draw on the
credit facility.
This credit facility replaced a $25 million secured revolving line of credit which matured on
July 4, 2008. The interest rates on borrowings under the line of credit will be calculated by
reference to the banks prime rate and will depend on maintenance by the Company of certain amounts
of cash at the bank. The credit facility matures on October 16, 2010, at which time all outstanding
borrowings and any unpaid interest thereon must be repaid, and all outstanding letters of credit
must be cash collateralized. As collateral and support for the loans to be made under the credit
facility, the Company pledged controlling interests in its domestic subsidiaries to the bank, and
the Companys domestic subsidiaries have made unconditional guaranties of the Companys
indebtedness and entered into security agreements with the bank.
The credit facility contains a financial covenant requiring the Company to maintain during the
term of the credit facility a combination of cash and available borrowing base under the line of at
least $80 million, including at least $40 million in cash in an account with the bank. The credit
facility also contains certain other restrictive loan covenants, including covenants limiting the
Companys ability to dispose of assets, make acquisitions, be acquired, incur indebtedness, grant
liens, make investments, pay dividends, and repurchase stock.
The credit facility contains events of default that include, among others, non-payment of
principal or interest, inaccuracy of any representation or warranty, violation of covenants,
bankruptcy and insolvency events, material judgments, cross defaults to certain other indebtedness,
a material adverse change default, and events constituting a change of control. The occurrence of
an event of default could result in the acceleration of the Companys obligations under the credit
facility.
As of December 31, 2009, the Company, which has approximately $2.9 million of outstanding
letters of credit, is in violation of the financial covenant described above and, as a result, does
not have availability under the line. As a result it has segregated cash to collateralize these outstanding letters of credit which
is included in restricted cash on the balance sheet.
In
March 2010, the Company terminated its line of credit.
F-22
8. COMMITMENTS AND CONTINGENCIES
Potential Litigation with Lehman Brothers.
On September 25, 2009, the Company received a letter from an affiliate of the lead underwriter
to its Senior Notes offering requesting payment of $19,992,487 (plus $340,673 in interest) as
payment for the termination of the capped call transaction (see Note 6) which the affiliate
believes it has the right to terminate and purported to terminate in a letter received by the
Company on September 9, 2009. If litigation is commenced, the Company has reason to believe the affiliate of the lead underwriter will claim at least $5 million more (plus interest) than it previously demanded.
Despite the demand for payment and purported termination letter received, the Company rejects
the affiliates assertions that (i) it has the right to terminate the capped call transaction, (ii)
that the Company has defaulted on any payment obligations under the capped call transaction and
(iii) that any amounts are currently due and payable to the affiliate under the capped call
transaction. The Company intends to vigorously defend against all such claims by the affiliate and
any related parties should they be asserted and the Company continues to pursue its related claims
in bankruptcy against the lead underwriter and certain of its affiliates.
Noise Noncompliance Proceedings for the Devens Manufacturing Facility.
In late March 2009, initial complaints regarding noncompliance with applicable noise
restrictions were made to the Devens Enterprise Commission, (the DEC), the governmental authority
that regulates development and zoning within the Devens Enterprise Zone where the Companys Devens,
Massachusetts manufacturing facility is located.
After the issuance by the DEC of two noncompliance notices and initial efforts by the Company
to remedy the noncompliance and various administrative proceedings, on July 14, 2009, the DEC
adopted a Resolution which required the Company to attenuate certain noises being generated by the
Devens facility in violation of the DECs noise regulations by September 2009.
At this time, the Company believes it is operating in compliance with the DECs regulations
but the DEC has extended the deadline for full compliance with the Resolution so that some testing
of noise levels can be completed and certain other requirements from the Resolution can be
addressed, including a worst case scenario test to confirm that the facility will comply with the
noise restrictions under all possible operating conditions, possible modifications to the facility
to enable it to pass the worst case scenario test and the approval and installation of a long-term
monitoring system. The Companys temporary certificate of occupancy for the facility has been
extended until August 2010.
Product Warranty
The Companys current standard product warranty includes a five-year warranty period for
defects in material and workmanship and a 25-year warranty period for declines in power
performance which are standard in the solar industry. When it recognizes revenue, it accrues a liability for the estimated future costs of
meeting its warranty obligations, our levels of which are consistent
with industry ranges. The Company makes and revises this estimate based on the number
of solar panels shipped and its historical experience with warranty claims. During 2008, the
Company re-evaluated potential warranty exposure as a result of the substantial increase in
production volumes at its Devens, Massachusetts manufacturing facility. As such, it increased its
estimated future warranty costs to approximately $2.4 million as of December 31, 2009.
The Company engages in product quality programs and processes, including monitoring and
evaluating the quality of component suppliers, in an effort to ensure the quality of its products
and reduce its warranty exposure. Its warranty obligation will be affected not only by its product
failure rates, but also the costs to repair or replace failed products and potential service and
delivery costs incurred in correcting a product failure. If the Companys actual product failure
rates, repair or replacement costs, or service or delivery costs differ from these estimates,
accrued warranty costs would be adjusted in the period that such events or costs become known.
The following table summarizes the activity regarding the Companys warranty accrual for the
years ended December 31, 2008 and 2009, respectively (in thousands):
F-23
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
Balance at beginning of year |
|
$ |
705 |
|
|
$ |
1,182 |
|
Warranty costs accrued |
|
|
585 |
|
|
|
1,335 |
|
Warranty costs incurred |
|
|
(108 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
1,182 |
|
|
$ |
2,368 |
|
|
|
|
|
|
|
|
Other
As of December 31, 2009, the Company had outstanding commitments for capital expenditures of
approximately $14.7 million, expected to be fulfilled in 2010, primarily for the construction and
equipment for its Devens facility and equipment and construction for its new Wuhan, China facility.
Additionally, the Company had approximately $489.3 million in commitments for raw material
purchases over the next 10 years as of December 31, 2009.
9. FAIR VALUE MEASUREMENTS
In September 2006, the Company adopted the guidance of the Fair Value Measurements and
Disclosures topic of the FASB codification, which was effective for fiscal years beginning after
November 15, 2007 and for interim periods within those years. This statement defines fair value,
establishes a framework for measuring fair value and expands the related disclosure requirements.
This statement applies under other accounting pronouncements that require or permit fair value
measurements. The statement indicates, among other things, that a fair value measurement assumes
that the transaction to sell an asset or transfer a liability occurs in the principal market for
the asset or liability or, in the absence of a principal market, the most advantageous market for
the asset or liability. The guidance defines fair value based upon an exit price model.
Valuation Hierarchy
The Fair Value Measurements and Disclosures topic of the FASB codification, establishes a
valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This
hierarchy prioritizes the inputs into three broad levels as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
Level 2-Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable for the asset or liability (i.e., interest rates,
yield curves, etc.), and inputs that are derived principally from or corroborated by observable
market data by correlation or other means (market corroborated inputs).
Level 3-Unobservable inputs that reflect the Companys views about the assumptions that market
participants would use in pricing the asset or liability. The Company develops these inputs based
on the best information available, including its own data.
A financial asset or liabilitys classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a
recurring basis as of December 31, 2008 and 2009 (in thousands):
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
Quoted Prices |
|
Using Significant |
|
Using Significant |
|
|
Total |
|
in Active |
|
Other Observable |
|
Unobservable |
|
|
Carrying |
|
Markets |
|
Inputs |
|
Inputs |
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
|
Money markets |
|
$ |
65,599 |
|
|
$ |
65,599 |
|
|
$ |
|
|
|
$ |
|
|
Government obligation |
|
|
10,000 |
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
Marketable securities |
|
|
66,621 |
|
|
|
|
|
|
|
66,621 |
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
Quoted Prices |
|
Using Significant |
|
Using Significant |
|
|
Total |
|
in Active |
|
Other Observable |
|
Unobservable |
|
|
Carrying |
|
Markets |
|
Inputs |
|
Inputs |
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
|
Money markets |
|
$ |
20,007 |
|
|
$ |
20,007 |
|
|
$ |
|
|
|
$ |
|
|
Term deposit |
|
|
29,751 |
|
|
|
29,751 |
|
|
|
|
|
|
|
|
|
Valuation Techniques
Money Market funds are measured at fair value using unadjusted quoted prices in active markets
for identical securities and are classified within Level 1 of the
valuation hierarchy. Government obligations and marketable
securities are measured using quoted prices for identical or similar assets in markets that are not
active, inputs other than quoted prices that are observable for the asset or liability (for example
interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment
speeds, loss severities, credit risks, and default rates) and inputs that are derived principally
from or corroborated by observable market data by correlation or other means and are classified
within Level 2 of the valuation hierarchy.
10. STOCKHOLDERS EQUITY
The Company has two classes of capital stock: common and preferred. As of December 31, 2007,
the Company had 150,000,000 shares of common stock authorized and 27,227,668 shares of preferred
stock authorized, of which 26,227,668 shares were designated Series A convertible preferred stock.
At the Companys annual meeting of stockholders on June 18, 2008, the stockholders approved a
resolution increasing the number of authorized shares of common stock from 150,000,000 to
250,000,000, the amount reflected on the Companys balance sheet as of December 31, 2008. In
addition, 1,500,000 shares were authorized for future issuance under the Companys 2000 Stock
Option and Incentive Plan. At the Companys special shareholders meeting on December 9, 2009, an
amendment was approved to the Companys Third Amended and Restated Certificate of Incorporation to
increase the authorized shares of its common stock from 250,000,000 to 450,000,000, the amount
reflected on the Companys balance sheet as of December 31, 2009. At December 31, 2009, 12,150,000
shares of common stock were authorized for issuance under the Companys Amended and Restated 2000
Stock Option and Incentive Plan.
On April 17, 2007, the Company entered into a multi-year polysilicon supply agreement with OCI
under which OCI will supply the Company with polysilicon at fixed prices which began in late 2008
and continuing through
2014. Concurrent with the execution of the supply agreement, OCI purchased 3.0 million shares
of the Companys common stock at the then current market value. In addition the company issued an
additional 10.75 million shares of transfer restricted common stock. The restrictions on the
common stock will lapse upon the delivery of 500
F-25
metric tons of silicon to the Company by OCI.
Issuance of the restricted shares represented a prepayment of inventory cost valued at
approximately $119.9 million, based on the issuance date market price of the Companys common
shares adjusted for a discount to reflect the transfer restriction, and will be amortized as an
additional cost of inventory as silicon is delivered by OCI and utilized by the Company. When the
transfer restriction on these shares lapse, the Company will record an additional cost of inventory
equal to the value of the discount associated with the restriction at that time.
On May 30, 2007, the Company closed a public offering of 17,250,000 shares of its common
stock, which included the exercise of an underwriters option to purchase 2,250,000 additional
shares. The shares of common stock were sold at a per share price of $8.25 (before underwriting
discounts).
Net proceeds to the Company from the combined OCI stock purchase and public offering
transactions were approximately $170.7 million.
On February 15, 2008, the Company closed a public offering of 18.4 million shares of its
common stock, which included the exercise of an underwriters option to purchase 2.4 million
additional shares. The shares of common stock were sold at a per share price of $9.50 (before
underwriting discounts). The net proceeds to the company from the public offering were
approximately $166.7 million.
On May 28, 2009, the Company completed a public offering of $42.6 million share of its common
stock. The shares of common stock were sold at a per share price of $1.80 (before underwriting
discounts). Proceeds to the Company from the public offering were approximately $72.4 million, net
of reimbursed legal fees and the underwriters discount of approximately $3.7 million.
Common Stock Lending Agreement
Concurrent with the offering and sale of the Senior Notes on June 26, 2008, the Company
entered into a common stock lending agreement (the Common Stock Lending Agreement) with an
affiliate (the Common Stock Borrower) of the lead underwriter, pursuant to which the Company
loaned 30,856,538 shares of its common stock (the Borrowed Shares) to the Common Stock Borrower.
The Common Stock Borrower offered the 30,856,538 shares in a separate registered offering. The
Common Stock Borrower received all of the proceeds from the sale of the borrowed common stock. In
consideration for the issuance of the Borrowed Shares, the Common Stock Borrower paid the Company a
nominal loan fee. The Common Stock Borrower is required to deliver to the Company 30,856,538 shares
of its common stock upon the earliest of (i) July 15, 2013, (ii) the Companys election, at such
time that the entire principal amount of notes ceases to be outstanding, (iii) the mutual agreement
of the Company and the Common Stock Borrower, (iv) the Companys election, upon a default by the
Common Stock Borrower, and (v) the Common Stock Borrowers election, at any time. The obligations
of the Common Stock Borrower under the Common Stock Lending Agreement are guaranteed by the parent
company of lead underwriter, Lehman Brothers Holdings Inc.
These shares were considered issued and outstanding for corporate law purposes at the time
they were loaned; however, at the time of the loan they were not considered outstanding for the
purpose of computing and reporting earnings per share because these shares were to be returned to
the Company no later than July 15, 2013, the maturity date of the Senior Notes. On September 15,
2008, Lehman Brothers Holdings Inc., the parent company of the lead underwriter filed for
protection under Chapter 11 of the federal Bankruptcy Code and the Common Stock Borrower was placed
into administration proceeding in the United Kingdom shortly thereafter. As a result of the
bankruptcy filing and the administration proceeding, the Common Stock Lending Agreement
automatically terminated and the Common Stock Borrower was contractually required to return the
shares to the Company. The Company has since demanded the immediate return of all outstanding
borrowed shares, however, the shares have not yet been returned. While the Company believes it is
exercising all of its legal remedies, it has included these shares in its per share calculation on
a weighted average basis due to the uncertainty regarding the recovery of the borrowed shares.
F-26
11. STOCK BASED COMPENSATION
The following table presents stock-based compensation expense included in the Companys
consolidated statements of operations under the guidance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Cost of revenue |
|
$ |
617 |
|
|
$ |
1,214 |
|
|
$ |
1,785 |
|
Research and development expenses |
|
|
1,633 |
|
|
|
1,538 |
|
|
|
1,415 |
|
Selling, general and
administrative expenses |
|
|
4,008 |
|
|
|
3,548 |
|
|
|
3,167 |
|
Facility start-up |
|
|
124 |
|
|
|
946 |
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,382 |
|
|
$ |
7,246 |
|
|
$ |
6,669 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation costs capitalized as part of the construction costs of the Companys
Devens manufacturing facility were approximately $25,000, $447,000 and $112,000 for the years ended
December 31, 2007, 2008 and 2009, respectively.
Stock Incentive Plans
The Company is authorized to issue up to 12,150,000 shares of common stock pursuant to its
Amended and Restated 2000 Stock Option and Incentive Plan (the 2000 Plan), of which 1,520,843
shares are available for future issuance or future grant as of December 31, 2009. The purpose is to
incent employees and other individuals who render services to the Company by providing
opportunities to purchase stock in the Company. The 2000 Plan authorizes the issuance of incentive
stock options, nonqualified stock options, restricted stock awards, stock appreciation rights,
performance units and performance shares. All awards granted will expire 10 years from their date
of issuance. Incentive stock options and restricted stock awards generally have a four-year vesting
period from their date of issuance and nonqualified options generally vest immediately upon their
issuance.
Stock option activity under the 2000 Plan is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
|
(in thousands) |
|
|
|
|
|
Outstanding at January 1, 2007 |
|
|
5,309 |
|
|
$ |
4.20 |
|
Granted |
|
|
16 |
|
|
|
10.63 |
|
Exercised |
|
|
(1,031 |
) |
|
|
3.20 |
|
Forfeited |
|
|
(109 |
) |
|
|
6.02 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
4,185 |
|
|
|
4.43 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(442 |
) |
|
|
2.38 |
|
Forfeited |
|
|
(55 |
) |
|
|
6.44 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
3,688 |
|
|
|
4.65 |
|
Granted |
|
|
872 |
|
|
|
2.24 |
|
Exercised |
|
|
(28 |
) |
|
|
1.81 |
|
Forfeited |
|
|
(436 |
) |
|
|
4.20 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
4,096 |
|
|
$ |
4.20 |
|
|
|
|
|
|
|
|
F-27
The following table summarizes information about stock options outstanding at December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Range of |
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Exercise |
|
|
Number |
|
|
Contractual |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
|
|
Prices |
|
|
Outstanding |
|
|
Life (Years) |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
$ |
1.32 |
|
|
$ |
1.60 |
|
|
|
27 |
|
|
|
3.52 |
|
|
$ |
1.53 |
|
|
|
27 |
|
|
$ |
1.53 |
|
|
|
|
1.61 |
|
|
|
1.61 |
|
|
|
1,638 |
|
|
|
3.94 |
|
|
|
1.61 |
|
|
|
1,638 |
|
|
|
1.61 |
|
|
|
|
1.68 |
|
|
|
2.17 |
|
|
|
322 |
|
|
|
3.61 |
|
|
|
2.01 |
|
|
|
322 |
|
|
|
2.01 |
|
|
|
|
2.24 |
|
|
|
2.24 |
|
|
|
706 |
|
|
|
9.41 |
|
|
|
2.24 |
|
|
|
|
|
|
|
|
|
|
|
|
2.29 |
|
|
|
6.51 |
|
|
|
442 |
|
|
|
4.28 |
|
|
|
4.14 |
|
|
|
442 |
|
|
|
4.14 |
|
|
|
|
6.63 |
|
|
|
8.63 |
|
|
|
425 |
|
|
|
5.25 |
|
|
|
7.50 |
|
|
|
425 |
|
|
|
7.50 |
|
|
|
|
8.88 |
|
|
|
13.97 |
|
|
|
190 |
|
|
|
5.65 |
|
|
|
10.74 |
|
|
|
187 |
|
|
|
10.71 |
|
|
|
|
14.00 |
|
|
|
14.00 |
|
|
|
35 |
|
|
|
0.84 |
|
|
|
14.00 |
|
|
|
35 |
|
|
|
14.00 |
|
|
|
|
15.09 |
|
|
|
15.09 |
|
|
|
295 |
|
|
|
6.15 |
|
|
|
15.09 |
|
|
|
221 |
|
|
|
15.09 |
|
|
|
|
19.00 |
|
|
|
19.00 |
|
|
|
16 |
|
|
|
0.84 |
|
|
|
19.00 |
|
|
|
16 |
|
|
|
19.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,096 |
|
|
|
5.23 |
|
|
$ |
4.20 |
|
|
|
3,313 |
|
|
$ |
4.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was virtually no aggregate intrinsic value of vested outstanding options as of December
31, 2009. The aggregate intrinsic value of outstanding options as of December 31, 2008 was $3.2
million, all of which relates to options that were vested. The aggregate intrinsic value of
outstanding options as of December 31, 2007 was $53.8 million, of which $47.3 million relates to
options that were vested. The intrinsic value of options exercised during the years ended
December 31, 2007, 2008 and 2009 were approximately $11.5 million, $4.3 million and $18,000,
respectively. The weighted average grant-date fair value of stock options granted during the years
ended December 31, 2007 and 2009 was $9.39 and $1.86, respectively. No options were granted during
2008. As of December 31, 2009, there was $1.1 million of total unrecognized compensation cost
related to unvested stock options granted under the Companys stock plans. That cost is expected to
be recognized over a weighted-average period of 0.8 years. Total cash received from the exercise
of stock options was approximately $3.3 million, $1.1 million and $50,000 for the years ended
December 31, 2007, 2008 and 2009, respectively.
The Company estimates the fair value of stock options using the Black-Scholes valuation model.
Key input assumptions used to estimate the fair value of stock options include the exercise price
of the award, the expected option term, the expected volatility of the Companys stock over the
options expected term, the risk-free interest rate over the stock options expected term, and the
Companys expected annual dividend yield. The Company believes that the valuation technique and the
approach utilized to develop the underlying assumptions are appropriate in calculating the fair
values of the Companys stock options granted for the fiscal years ended December 31, 2007 and
2009. Estimates of fair value are not intended to predict actual future events or the value
ultimately realized by persons who receive equity awards. The fair value of each stock option grant
is estimated on the date of grant using the Black-Scholes option valuation model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2009 |
Expected options term (years) |
|
|
6.25 |
|
|
|
4.5 -9.25 |
|
Risk-free interest rate |
|
|
5.1 |
% |
|
|
1.31% - 2.08 |
% |
Expected dividend yield |
|
None |
|
|
None |
|
Volatility |
|
|
155 |
% |
|
|
102% - 127 |
% |
F-28
The Companys expected option term assumption was determined using historical activity for
estimating the expected option life. The expected stock volatility factor was determined using
historical daily price changes of the Companys common stock. The Company bases the risk-free
interest rate that is used in the stock option valuation model on U.S. Treasury securities issued
with maturities similar to the expected term of the options. The Company does not anticipate paying
any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero
in the option valuation model. The Company estimates forfeitures at the time of grant and revises
those estimates in subsequent periods if actual forfeitures differ from those estimates. There were
872,000 options granted for the year ended December 31, 2009.
The Company values restricted stock units and restricted stock awards at the grant date fair
value of the underlying shares, adjusted for expected forfeitures. Restricted stock activity is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
(in thousands) |
|
|
|
|
|
Outstanding at January 1, 2007 |
|
|
1,129 |
|
|
$ |
14.25 |
|
Granted |
|
|
1,986 |
|
|
|
9.39 |
|
Vested |
|
|
(133 |
) |
|
|
10.45 |
|
Forfeited |
|
|
(145 |
) |
|
|
14.39 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
2,837 |
|
|
|
11.02 |
|
Granted |
|
|
696 |
|
|
|
9.21 |
|
Vested |
|
|
(339 |
) |
|
|
8.12 |
|
Forfeited |
|
|
(62 |
) |
|
|
10.64 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
3,132 |
|
|
|
10.94 |
|
Granted |
|
|
861 |
|
|
|
1.93 |
|
Vested |
|
|
(488 |
) |
|
|
1.74 |
|
Forfeited |
|
|
(664 |
) |
|
|
8.38 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
2,841 |
|
|
$ |
10.39 |
|
|
|
|
|
|
|
|
Included in the outstanding restricted shares are 1.3 million shares of performance-based
restricted stock. The Company granted 800,000 shares of performance-based restricted stock to the
Companys executive officers in February 2007 and 100,000 to an executive officer in July 2007, of
which 200,000 shares have since been cancelled due to employee terminations, which immediately vest
upon the achievement of (a) $400 million in annual revenue, such revenue to include 100% of the
Companys revenue and the Companys pro rata share of any joint venture revenue, (b) 35% gross
margin and (c) 10% net income, as adjusted for the results of any joint venture, achieved in one
fiscal year prior to January 1, 2012. Also, in February 2006, the Company granted 800,000 shares of
performance-based restricted stock to the Companys executive officers, of which 200,000 shares
have since been cancelled due to employee terminations, which immediately vest upon the achievement
of (a) $300 million in annual revenue, such revenue to include 100% of the Companys revenue and
the Companys pro rata share of any joint venture revenue, (b) 35% gross margin and (c) 7% net
income, as adjusted for the results of any joint venture, achieved in one fiscal year prior to
January 1, 2011. As of December 31, 2009, the Company has assumed that none
of these performance-based awards will vest and accordingly has not provided for compensation
expense associated with the awards. The Company periodically evaluates the likelihood of reaching
the performance requirements and will be required to recognize $15.1 million of compensation
expense associated with these performance-based awards if such awards should vest. These
Restricted Share Awards expire five years after issuance if they have not vested.
F-29
As of December 31, 2009, there was $6.8 million of unrecognized compensation expense related
to unvested restricted stock awards (excluding performance-based awards that the Company has
assumed will not vest) under the Companys stock plans which is expected to be recognized over a
weighted-average period of 1.7 years. The aggregate intrinsic value of outstanding restricted stock
awards, including performance based awards, as of December 31, 2009 was $4.3 million. During the
years ended December 31, 2007, 2008, and 2009, approximately 133,000, 339,000 and 488,000 shares of
restricted stock vested, respectively, with an aggregate vest-date fair value of approximately $1.4
million, $2.8 million and $849,000, respectively.
12. WRITE-OFF OF LOAN RECEIVABLE FROM SILICON SUPPLIER
On December 7, 2007, the Company entered into a multi-year silicon supply agreement with
Silpro. This supply agreement provided the general terms and conditions pursuant to which Silpro
would supply the Company with specified annual quantities of silicon at fixed prices beginning in
2010 and continuing through 2019. In connection with the supply agreement, the Company agreed to
loan Silpro 30 million Euros at an interest rate of 3.0% compounded annually. The difference
between this rate and prevailing market rates at that time was recorded as an adjustment to the
cost of inventory. At December 31, 2008, this loan is presented on the balance sheet as loan
receivable from silicon supplier. In April 2009, as a result of its inability to obtain additional
financing to continue construction of its factory, Silpro announced that the French commercial
court ordered the filing for judicial settlement proceedings (redressement judiciaire), a process
similar to bankruptcy proceedings in the United States. As a result, the loan receivable from
Silpro and the related interest will not be repaid and the Company recognized a non-cash charge of
$43.9 million. In August 2009, the court ordered liquidation proceedings (liquidation judiciaire)
due to Silpros inability to secure further financing.
13. FACILITY START-UP COSTS
In preparing for the operations of its Devens, Massachusetts, Midland, Michigan and Wuhan,
China facilities, the Company incurred start-up costs of approximately $30.6 million and $10.1
million for the years ended December 31, 2008 and 2009, respectively. Start-up costs include
salaries and personnel related costs, consulting costs, consumable material costs, and other
miscellaneous costs associated with preparing and qualifying the facilities for production.
Construction on the facility in Devens began in September 2007 with the first solar panels produced
late in the third quarter of 2008. Construction of the facility in Midland began during the third
quarter of 2008 with the first production runs beginning in the fourth quarter of 2009. Planning
for its facility in China, which is expected to be operational during mid-2010, began during the
second quarter of 2009.
14. RESTRUCTURING CHARGES
For the year ended December 31, 2009, the Company recorded costs of approximately $11.9
million, a substantial portion of which relates to the acceleration of its strategic initiative to
focus on its unique wafer manufacturing technology and transition its Devens based panel assembly
to China as was approved in the fourth quarter of 2009. The Company expects to reduce
manufacturing costs associated with panel assembly once the transition is completed. The charges
associated with beginning this transition were comprised primarily of accelerated depreciation. In
addition to the charges for panel assembly, the Company incurred on-going costs, including rent,
depreciation, utilities, supplies and professional fees associated with closing its Marlboro,
Massachusetts pilot manufacturing facility in December 2008. On December 31, 2008, the Company
ceased production at its Marlboro pilot manufacturing facility as part of its restructuring plan to
lower overhead costs and reduce overall cash requirements. Ongoing R&D activities continue to be
performed at its research and development facility in Marlboro; and advanced manufacturing piloting
activities are now performed at its Devens manufacturing facility with little to no impact to
overall production capacity. Virtually all of the Marlboro pilot manufacturing facility employees
were transferred to the Devens manufacturing facility. The charges recorded for
December 31, 2008 were comprised of leasehold improvements and other related building costs of
$5.4 million, equipment of approximately $20.9 million, inventory and spare parts of $3.9 million,
and salaries and personal costs associated with severance of approximately $0.2 million. The
Company expects it will continue to incur occupancy and moving costs through the expiration of the
lease in mid-2010 and incur location restoration costs.
F-30
15. INCOME TAXES
Income taxes computed using the federal statutory income tax rate differ from the Companys
effective tax rate primarily due to the following for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Income tax benefit at U.S. federal statutory tax rate |
|
$ |
(5,696 |
) |
|
$ |
(29,769 |
) |
|
$ |
(92,921 |
) |
State income taxes, net of federal tax effect |
|
|
(1,160 |
) |
|
|
(9,633 |
) |
|
|
(20,886 |
) |
Permanent items |
|
|
1,188 |
|
|
|
1,028 |
|
|
|
284 |
|
Other items tax credits, expiration of NOLs, other |
|
|
(207 |
) |
|
|
(288 |
) |
|
|
2,591 |
|
Change in deferred tax asset valuation allowance |
|
|
5,875 |
|
|
|
38,662 |
|
|
|
102,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(8,090 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company had federal and state net operating loss carryforwards of
approximately $353.1 million and $300.0 million, respectively, available to reduce future taxable
income which begin to expire in 2010. In addition, the Company has excess tax deductions related
to equity compensation of approximately $24.4 million of which the benefit will be realized when it
results in a reduction of taxable income in accordance with the Stock Compensation topic of the
FASB codification. The Company also had federal and state research and development tax credit
carryforwards of approximately $3.2 million and $1.4 million, respectively, which begin to expire
in 2018 and state investment tax credit carryforwards of approximately $13.1 million which begin to
expire in 2010, available to reduce future tax liabilities.
Under the provisions of the Internal Revenue Code, certain substantial changes in the
Companys ownership may result in a limitation on the amount of net operating loss carryforwards
and research and development credit carryforwards which can be used in future years.
Management of the Company has evaluated the positive and negative evidence bearing upon the
realization of its deferred tax assets. Management has considered the Companys history of losses
and, in accordance with the applicable accounting standards, has fully reserved the deferred tax
asset.
Deferred tax assets consist of the following at December 31, 2008 and 2009, respectively (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
Gross deferred tax assets |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
57,787 |
|
|
$ |
138,877 |
|
Research and development credit carryforwards |
|
|
7,288 |
|
|
|
11,629 |
|
Capitalized R&D expenses |
|
|
18,044 |
|
|
|
19,995 |
|
Accrued expenses and deferred compensation |
|
|
4,711 |
|
|
|
5,974 |
|
Basis difference in synthetic debt |
|
|
14,876 |
|
|
|
12,453 |
|
Reserve on receivables from Sovello AG |
|
|
|
|
|
|
21,323 |
|
Other, net |
|
|
2,608 |
|
|
|
4,146 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
|
105,314 |
|
|
|
214,397 |
|
|
|
|
|
|
|
|
Less: gross deferred tax liabilities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(2,644 |
) |
|
|
(15,885 |
) |
Basis difference in Sovello AG |
|
|
(7,357 |
) |
|
|
|
|
Basis difference in convertible debt |
|
|
(25,055 |
) |
|
|
(22,399 |
) |
Deferred tax asset valuation allowance |
|
|
(77,615 |
) |
|
|
(176,113 |
) |
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(7,357 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
F-31
On January 1, 2007 the Company adopted the provisions related to uncertain tax positions under
the Income Tax topic of the FASB codification. As a result of the implementation of this guidance,
there was no adjustment to accumulated deficit or the liability for uncertain tax positions. The
Company has approximately $2.1 million of reserves related to uncertain tax positions on research
and development tax credits as of December 31, 2009. The Company is in the process of completing a
study of its research and development tax credits which could result in additional charges to these
credits. Since a full valuation allowance has been provided against these carryforwards, any
adjustment to the carry forwards upon completion of the study would be offset by a corresponding
reduction to the valuation allowance.
A reconciliation of the Companys gross changes to uncertain tax positions from January 1
through December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
Balance at beginning of year |
|
$ |
|
|
|
$ |
1,995 |
|
Additions based on current year tax positions |
|
|
141 |
|
|
|
80 |
|
Additions based on prior year tax positions |
|
|
1,854 |
|
|
|
20 |
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
1,995 |
|
|
$ |
2,095 |
|
|
|
|
|
|
|
|
Interest and penalty charges, if any, related to unrecognized tax benefits would be classified
as income tax expense in the accompanying statement of operations. At December 31, 2008 and
December 31, 2009 the Company had no accrued interest or penalties related to uncertain tax
positions. In many cases, the Companys uncertain tax positions are related to tax years that
remain subject to examination by relevant tax authorities. Since the Company is in a loss
carryforward position, the Company is generally subject to examination by the U.S. federal, state
and local income tax authorities for all tax years in which a loss carryforward is available.
As a result of additional investments made in Sovello by the Companys strategic partners in
2006 and 2007, the Company had recorded a deferred income tax liability of $7.4 million associated
with the gains recognized from these additional investments, in addition to cumulative translation
adjustments. The corresponding amounts were included in shareholders equity for the year ended
December 31, 2008. Certain of these amounts should have been recorded with the corresponding gains
recorded in 2006 and 2007. Management concluded that the impact of these adjustments on the prior
periods was immaterial. During the year ended December 31, 2009 the Company recorded a
$8.1 million income tax benefit in its statement of operations as a result of the impairment charge
recorded against the book basis of its investment in Sovello (see Note 5). This income tax benefit
arose from the reversal of the previously recorded deferred income tax liability.
16. NET LOSS PER COMMON SHARE
The Company computes net loss per common share in accordance with the Earning Per Share topic
of the FASB codification. Under the guidance, basic net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding during the period.
The calculation of diluted net loss per common share for the years ended December 31, 2007, 2008
and 2009 does not include approximately 19.7 million, 38.2 million and 37.9 million potential
shares of common stock equivalents outstanding at December 31, 2007, 2008 and 2009, respectively,
as their inclusion would be anti-dilutive. Common stock equivalents include outstanding common
stock options, unvested restricted stock awards, common stock warrants and convertible debt.
In connection with the sale of Senior Notes on June 26, 2008, the Company entered into a
common stock lending agreement with an affiliate of the lead underwriter pursuant to which the
Company loaned 30,856,538 shares of its common stock to the affiliate (see Note 10). These shares
were considered issued and outstanding for corporate law purposes at the time they were loaned;
however, at the time of the loan they were not considered outstanding for the purpose of computing
and reporting earnings per share because these shares were to be returned
to the Company no later than July 15, 2013, the maturity date of the Senior Notes. On
September 15, 2008 and October 3, 2008, respectively, Lehman Brothers Holdings Inc., the parent
company of the lead underwriter filed for protection under Chapter 11 of the federal Bankruptcy
Code and the lead underwriters affiliate was placed into administration in the United Kingdom
shortly thereafter. As a result of the bankruptcy filing and the administration,
F-32
the lead
underwriters affiliate was contractually required to return the shares to the Company. The Company
has since demanded the immediate return of all outstanding borrowed shares, however, the shares
have not yet been returned. While the Company believes it is exercising all of its legal remedies,
it has included these shares in its basic and diluted per share calculation on a weighted average
basis due to the uncertainty regarding the recovery of the borrowed shares.
17. GEOGRAPHICAL AND CUSTOMER CONCENTRATION OF INFORMATION
Product revenues are attributed to regions based on the location of customers. The following
table summarizes the Companys geographical and customer concentration of total product revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
By geography: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
82 |
% |
|
|
58 |
% |
|
|
26 |
% |
Germany |
|
|
7 |
% |
|
|
28 |
% |
|
|
52 |
% |
All other |
|
|
11 |
% |
|
|
14 |
% |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By customer: |
|
|
|
|
|
|
|
|
|
|
|
|
IBC Solar AG |
|
|
|
|
|
|
4 |
% |
|
|
17 |
% |
Ralos Vertriebs GmbH |
|
|
1 |
% |
|
|
15 |
% |
|
|
15 |
% |
Wagner & Co. Solartechnik GmbH |
|
|
1 |
% |
|
|
1 |
% |
|
|
14 |
% |
groSolar |
|
|
12 |
% |
|
|
4 |
% |
|
|
2 |
% |
SunPower Corporation |
|
|
31 |
% |
|
|
31 |
% |
|
|
|
|
SunEdison |
|
|
14 |
% |
|
|
2 |
% |
|
|
|
|
All other |
|
|
41 |
% |
|
|
43 |
% |
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
18. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company purchases silicon from REC and OCI under
existing supply agreements. For the years ended December 31, 2007, 2008 and 2009 the Company
purchased silicon from REC for approximately $3.0 million, $3.2 million and $3.6 million,
respectively. For the years ended December 31, 2008 and 2009 the Company purchased silicon from
OCI for approximately $9.2 million and $29.2 million, respectively. As of December 31, 2008 and
2009 the Company had $576,000 and $360,000 outstanding to REC. As of December 31, 2008 and 2009
the Company had $1.6 million and $1.4 million outstanding to OCI, respectively.
The Company earns fees from Sovello for its marketing and sale of Sovello panels, as well as
management of customer relationships and contracts, and royalty payments for its technology
contribution to Sovello, which combined totaled approximately $11.5 million, $16.7 million and $4.7
million for the years ended December 31, 2007, 2008 and 2009, respectively. The Company also
receives payments from Sovello as a reimbursement of certain research and development and other
support costs it incurs that benefit Sovello. For the years ended December 31, 2007, 2008 and 2009,
these costs totaled $1.9 million, $384,000 and $17,000, respectively. In addition, during the
normal course of operations, the Company may buy from or sell materials to Sovello. For the years
ended December 31, 2007, 2008 and 2009, the Company purchased $6.7 million, $280,000 and $134,000
in
materials from Sovello, respectively, and sold $88,000, $425,000 and $38,000 in materials to
Sovello, respectively. At December 31, 2008 and 2009 amounts due from Sovello of $1.9 million and
$0 million, respectively, and amounts due to Sovello of $22.8 million and $17.5 million (including
$15.4 million associated with certain guarantees and undertakings), respectively, are included on
the accompanying consolidated balance sheets.
F-33
19. EMPLOYEE STOCK PURCHASE PLAN
In September 2000, the Companys Board of Directors adopted an Employee Stock Purchase Plan
(the ESPP). Under the ESPP, eligible employees of the Company who elect to participate are
granted options to purchase common stock at a 15% discount from the market value of such stock. At
its 2005 Annual Meeting of Stockholders held on July 15, 2005, the Companys stockholders approved
a resolution which amended the ESPP to include the following material changes: (i) an increase to
500,000 in the number of shares of the Companys common stock that may be issued under the 2000
ESPP, (ii) the elimination of the 25-share purchase limitation for each participant for a Purchase
Period and the addition of a provision that instead would allow the Compensation Committee to
establish a limit for each Purchase Period in its discretion and (iii) addition of a provision to
give the Compensation Committee discretion to prospectively increase the discount to purchase
shares under the 2000 ESPP. In February 2009, the Compensation Committee established a limit for
each Purchase Period of 500 shares per employee which was in effect for both 2009 Purchase Periods.
During the year ended December 31, 2009, employees paid the company approximately $282,000 to
purchase approximately 161,000 shares of common stock and the Company recognized approximately
$158,000 of compensation expense related to this ESPP activity. Compensation expense was calculated
using the fair value of the employees purchase rights under the Black-Scholes valuation model. As
of December 31, 2009, there were approximately 383,000 shares issued under the ESPP since its
inception and approximately 117,000 shares of common stock available and reserved for future
issuance or future grant under the ESPP.
20. WARRANTS
In connection with the Companys Common Stock Private Placement consummated on June 21, 2004,
the Company issued warrants to purchase up to 2,298,851 shares of its common stock to the investors
participating in the financing as well as a warrant to purchase 125,000 shares of common stock to
CRT Capital Group LLC, as compensation for CRT Capital Groups services as the placement agent for
the Common Stock Private Placement. The terms of the placement agent warrant are identical to the
terms of the warrants issued to the investors participating in the Common Stock Private Placement.
The warrants entitled the holders to shares of the Companys common stock at an exercise price of
$3.34. The warrants were exercisable at any time prior to June 22, 2009. During the period ended
December 31, 2009, no holders of warrants associated with the Companys Common Stock Private
Placement exercised their warrants to purchase shares of the Companys common stock. As of
December 31, 2009, no warrants remain exercisable.
21. EMPLOYEES SAVINGS PLAN
The Company established a 401(k) plan in 1996 for eligible employees. Under the provisions of
the plan, eligible employees may voluntarily contribute a portion of their compensation up to the
statutory limit. The Companys 401(k) plan provides a matching contribution of 100% of
participating employee contributions, up to a maximum of $750 per year. The Company made matching
contributions of $144,000, $219,000 and $233,000 to participating employees during the fiscal years
ended December 31, 2007, 2008, and 2009, respectively.
F-34
22. LEASES
On March 13, 2000, the Company entered into a ten-year lease commencing July 1, 2000, for
office and manufacturing space in Marlboro, Massachusetts. Pursuant to the terms of the lease
agreement, the Company will pay annual rent ranging from $464,000 in the first year to $534,000
during the last year of the lease. Rent is payable on the first day of each month and was
collateralized by a $414,000 standby letter of credit. In connection with this arrangement, the
Company invested in a certificate of deposit pledged to a commercial bank which is included in
restricted cash on the Companys balance sheet at December 31, 2009.
On January 24, 2004, the Company entered into a six and one-half year lease for additional
office and warehouse space in Marlboro, Massachusetts. The lease was
amended in December 2004 and September 2007 to
assume more office space beginning in 2005 and 2007, respectively, in consideration for a small increase in rent. Pursuant
to the terms of these agreements, which expire in 2010, the Company
will pay rent of approximately $200,000 in 2010.
In January 2006, the Company entered into a seven year lease for additional space dedicated
mainly to research and development in Marlboro, Massachusetts. Pursuant to the terms of the lease
agreement, the Company will pay annual rent ranging from $94,000 in the first year to $171,000
during the last year of the lease. In connection with leasing this additional space, the landlord
agreed to provide the Company with an incentive towards build-out costs of approximately $400,000
which the Company has included as a deferred credit to be amortized over the remaining term of the
lease.
In July 2006, the Company entered into a six and one-half year lease for expansion of
additional space dedicated mainly to research and development in Marlboro, Massachusetts. Pursuant
to the terms of the lease agreement, the Company will pay annual rent ranging from $138,000 in the
first year to $172,000 during the last year of the lease.
In November 2007, the Company entered into a thirty year lease agreement with the
Massachusetts Development Finance Agency to lease approximately 23 acres of land located in Devens,
Massachusetts for the construction of a manufacturing facility. The base rent for the property is
one dollar per year. The Company may extend the lease term for two ten-year periods at the
original base rent and also has the option to purchase the property at any time during the initial
30-year term. On or prior to November 20, 2012, the purchase price shall be $2.7 million. After
November 20, 2012, the purchase price will be the greater of $2.7 million or the appraised fair
market value of the property.
In February 2009, the Company entered into a five year lease agreement for office space in
Berlin, Germany. Pursuant to the terms of the lease agreement, the Company will pay annual rent of
approximately 64,000 Euros (approximately $92,000 at December 31, 2009 exchange rates).
In November 2009, the Company entered into a two year lease agreement for office space in
Wuhan, China. Pursuant to the terms of the lease agreement, the Company will pay annual rent of
approximately 133,000 RMB (approximately $20,000 at December 31, 2009 exchange rates).
The following is a schedule, by year, of future minimum rental payments required under all
leases that have remaining non-cancelable lease terms as of December 31, 2009 (in thousands):
|
|
|
|
|
2010 |
|
$ |
2,244 |
|
2011 |
|
|
1,058 |
|
2012 |
|
|
939 |
|
2013 |
|
|
389 |
|
2014 |
|
|
8 |
|
Thereafter |
|
|
|
|
|
|
|
|
Total |
|
$ |
4,638 |
|
|
|
|
|
The Company recognizes rent expense using a straight-line convention. Occupancy expense,
which includes rent, property taxes, and other operating expenses associated with all of the
Companys locations, was $1.4 million, $1.5 million and $1.5 million for the years ended December
31, 2007, 2008, and 2009, respectively.
F-35
23. UNAUDITED QUARTERLY RESULTS
The following table sets forth unaudited selected financial information for the periods indicated.
This information has been derived from unaudited consolidated condensed financial statements,
which, in the opinion of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. The Companys independent
auditors have not audited this information. The results of operations for any quarter are not
necessarily indicative of the results to be expected for any future period.
QUARTERLY STATEMENT OF OPERATIONS
(In thousands, except per share data)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
Jun 28, |
|
|
Sept 27, |
|
|
Dec 31, |
|
|
Apr 4, |
|
|
Jul 4, |
|
|
Oct 3, |
|
|
Dec 31, |
|
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
18,259 |
|
|
$ |
18,118 |
|
|
$ |
17,803 |
|
|
$ |
41,065 |
|
|
$ |
54,439 |
|
|
$ |
62,697 |
|
|
$ |
75,450 |
|
|
$ |
74,526 |
|
Royalty and fee |
|
|
4,688 |
|
|
|
4,638 |
|
|
|
4,264 |
|
|
|
3,124 |
|
|
|
1,367 |
|
|
|
1,141 |
|
|
|
2,208 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
22,947 |
|
|
|
22,756 |
|
|
|
22,067 |
|
|
|
44,189 |
|
|
|
55,806 |
|
|
|
63,838 |
|
|
|
77,658 |
|
|
|
74,546 |
|
Cost of revenues |
|
|
15,231 |
|
|
|
14,863 |
|
|
|
20,820 |
|
|
|
42,159 |
|
|
|
55,122 |
|
|
|
62,628 |
|
|
|
70,092 |
|
|
|
65,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
7,716 |
|
|
|
7,893 |
|
|
|
1,247 |
|
|
|
2,030 |
|
|
|
684 |
|
|
|
1,210 |
|
|
|
7,566 |
|
|
|
8,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
4,943 |
|
|
|
5,887 |
|
|
|
5,541 |
|
|
|
5,668 |
|
|
|
4,446 |
|
|
|
4,444 |
|
|
|
4,417 |
|
|
|
4,751 |
|
Selling, general and administrative |
|
|
4,992 |
|
|
|
5,894 |
|
|
|
6,174 |
|
|
|
6,808 |
|
|
|
6,376 |
|
|
|
6,742 |
|
|
|
5,872 |
|
|
|
7,270 |
|
Write-off of loan receivable from silicon supplier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment write-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,008 |
|
Facility start-up |
|
|
3,419 |
|
|
|
8,573 |
|
|
|
8,956 |
|
|
|
9,675 |
|
|
|
3,459 |
|
|
|
687 |
|
|
|
2,493 |
|
|
|
3,468 |
|
Restructuring charges |
|
|
1,862 |
|
|
|
2,708 |
|
|
|
2,709 |
|
|
|
23,134 |
|
|
|
1,792 |
|
|
|
825 |
|
|
|
777 |
|
|
|
8,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
15,216 |
|
|
|
23,062 |
|
|
|
23,380 |
|
|
|
53,319 |
|
|
|
59,955 |
|
|
|
12,698 |
|
|
|
13,559 |
|
|
|
30,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(7,500 |
) |
|
|
(15,169 |
) |
|
|
(22,133 |
) |
|
|
(51,289 |
) |
|
|
(59,271 |
) |
|
|
(11,488 |
) |
|
|
(5,993 |
) |
|
|
(21,139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses), net |
|
|
3,814 |
|
|
|
(158 |
) |
|
|
(5,017 |
) |
|
|
(2,717 |
) |
|
|
(699 |
) |
|
|
1,681 |
|
|
|
2,478 |
|
|
|
(810 |
) |
Interest income |
|
|
3,027 |
|
|
|
2,735 |
|
|
|
4,242 |
|
|
|
2,691 |
|
|
|
2,213 |
|
|
|
1,341 |
|
|
|
118 |
|
|
|
1,056 |
|
Interest expense |
|
|
(316 |
) |
|
|
(46 |
) |
|
|
(3,295 |
) |
|
|
(4,711 |
) |
|
|
(5,380 |
) |
|
|
(6,532 |
) |
|
|
(7,430 |
) |
|
|
(7,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
6,525 |
|
|
|
2,531 |
|
|
|
(4,070 |
) |
|
|
(4,737 |
) |
|
|
(3,866 |
) |
|
|
(3,510 |
) |
|
|
(4,834 |
) |
|
|
(7,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity income (loss) from interest in
Sovello AG,
impairment of equity investment and income tax benefit |
|
|
(975 |
) |
|
|
(12,638 |
) |
|
|
(26,203 |
) |
|
|
(56,026 |
) |
|
|
(63,137 |
) |
|
|
(14,998 |
) |
|
|
(10,827 |
) |
|
|
(28,531 |
) |
Equity income (loss) from interest in Sovello AG |
|
|
950 |
|
|
|
3,716 |
|
|
|
1,558 |
|
|
|
2,211 |
|
|
|
(1,152 |
) |
|
|
(5,340 |
) |
|
|
(9,710 |
) |
|
|
(13,546 |
) |
Impairment and other charges associated with
equity investment
in Sovello AG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,713 |
) |
|
|
(56,344 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,805 |
) |
|
|
(285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(25 |
) |
|
$ |
(8,922 |
) |
|
$ |
(24,645 |
) |
|
$ |
(53,815 |
) |
|
$ |
(64,289 |
) |
|
$ |
(20,338 |
) |
|
$ |
(82,445 |
) |
|
$ |
(98,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and
diluted
net loss per share |
|
|
108,816 |
|
|
|
118,327 |
|
|
|
132,034 |
|
|
|
161,678 |
|
|
|
161,888 |
|
|
|
180,745 |
|
|
|
204,790 |
|
|
|
204,914 |
|
F-36
24. VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Companys valuation and qualifying accounts (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
Charged to |
|
|
|
|
|
Adoption of New |
|
Balance at |
Description |
|
of Period |
|
Operations |
|
Deductions |
|
Accounting Standard |
|
End of Period |
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances deducted
from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance |
|
|
42,794 |
|
|
|
5,875 |
|
|
|
(5,279 |
) |
|
|
|
|
|
|
43,390 |
|
Allowance for doubtful accounts |
|
|
100 |
|
|
|
(1 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances deducted
from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance |
|
|
43,390 |
|
|
|
37,731 |
|
|
|
22,567 |
|
|
|
(26,073 |
) |
|
|
77,615 |
|
Allowance for doubtful accounts |
|
|
85 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances deducted
from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance |
|
|
77,615 |
|
|
|
102,842 |
|
|
|
(4,344 |
) |
|
|
|
|
|
|
176,113 |
|
Allowance for doubtful accounts |
|
|
80 |
|
|
|
45 |
|
|
|
(45 |
) |
|
|
|
|
|
|
80 |
|
F-37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned on this 8th
day of March, 2010, thereunto duly authorized.
|
|
|
|
|
|
|
EVERGREEN SOLAR, INC.
|
|
|
By: |
/s/ Richard M. Feldt
|
|
|
|
Richard M. Feldt |
|
|
|
Chief Executive Officer, President and Chairman of the
Board (Principal Executive Officer) |
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THERE PRESENTS, that each person whose signature appears below constitutes
and appoints Richard M. Feldt and Michael El-Hillow, and each of them his attorneys-in-fact, each
with the power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K with all exhibits
thereto and all documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ Richard M. Feldt
|
|
Chief Executive Officer, President and Chairman of the Board
|
|
March 8, 2010 |
Richard M. Feldt
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/
Michael El-Hillow
|
|
Chief Financial Officer and Secretary
|
|
March 8, 2010 |
Michael El-Hillow
|
|
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
/s/ Allan H. Cohen
|
|
Director
|
|
March 8, 2010 |
Allan H. Cohen |
|
|
|
|
|
|
|
|
|
/s/ Edward C. Grady
|
|
Director
|
|
March 8, 2010 |
Edward C. Grady |
|
|
|
|
|
|
|
|
|
/s/
Dr. Peter W. Cowden
|
|
Director
|
|
March 8, 2010 |
Dr. Peter W. Cowden |
|
|
|
|
|
|
|
|
|
/s/
Tom L. Cadwell
|
|
Director
|
|
March 8, 2010 |
Tom L. Cadwell |
|
|
|
|
|
|
|
|
|
/s/
Dr. Susan F. Tierney
|
|
Director
|
|
March 8, 2010 |
Dr. Susan F. Tierney |
|
|
|
|
EXHIBIT INDEX
|
|
|
|
|
Number |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
3.1
|
|
Third Amended and Restated Certificate of
Incorporation
|
|
Exhibit 3.2 to the
Registrants Registration
Statement on Form S-1/A, filed on October 3, 2000 |
|
|
|
|
|
3.2
|
|
Certificate of the Powers, Designations,
Preferences and Rights of the Series A
Convertible Preferred Stock of the Registrant
|
|
Exhibit 4.4 to the
Registrants Registration
Statement on Form S-8, dated June 9, 2003 |
|
|
|
|
|
3.3
|
|
Certificate of Amendment of Third Amended and
Restated Certificate of Incorporation
|
|
Exhibit 3.1 to the
Registrants Current
Report on Form 8-K, dated
December 9, 2009, and
filed on December 14,
2009 |
|
|
|
|
|
3.4
|
|
Second Amended and Restated By-laws
|
|
Exhibit 3.4 to the
Registrants Registration
Statement on Form S-1/A,
filed on October 3, 2000 |
|
|
|
|
|
3.5
|
|
Amendment No. 1 to Second Amended and Restated
By-laws
|
|
Exhibit 3.1 to the
Registrants Current
Report on Form 8-K, dated
February 4, 2009 and
filed on February 5, 2009 |
|
|
|
|
|
4.1
|
|
Indenture between the Company and U.S. Bank
National Association, as Trustee, dated as of
July 2, 2008
|
|
Exhibit 4.1 to the
Registrants Current
Report on Form 8-K, dated
July 2, 2008 and filed on
July 7, 2008 |
|
|
|
|
|
4.2
|
|
First Supplemental Indenture between the
Company and U.S. Bank National Association, as
Trustee, dated as of July 2, 2008
|
|
Exhibit 4.2 to the
Registrants Current
Report on Form 8-K, dated
July 2, 2008 and filed on
July 7, 2008 |
|
|
|
|
|
4.3
|
|
Form of 4% Senior Convertible Note due 2013
|
|
Exhibit 4.2 to the
Registrants Current
Report on Form 8-K, dated
July 2, 2008 and filed on
July 7, 2008 |
|
|
|
|
|
10.1§
|
|
1994 Stock Option Plan
|
|
Exhibit 10.1 to the
Registrants Registration
Statement on Form S-1,
filed on August 4, 2000 |
|
|
|
|
|
10.2§
|
|
Amended and Restated 2000 Stock Option and
Incentive Plan
|
|
Exhibit 10.1 to the
Registrants Current
Report on Form 8-K, dated
June 18, 2008 and filed
on June 23, 2008 |
|
|
|
|
|
10.3§
|
|
First Amendment to Amended and Restated 2000
Stock Option and Incentive Plan
|
|
Exhibit 10.3 filed with
the Registrants Annual
Report on Form 10-K filed
on March 2, 2009 |
|
|
|
|
|
10.4§
|
|
Amended and Restated 2000 Employee Stock
Purchase Plan
|
|
Exhibits 99.2 to the
Registrants Current
Report on Form 8-K, dated
July 15, 2005 and filed
on July 21, 2005 |
|
|
|
|
|
10.5§
|
|
First Amendment to Amended and Restated 2000
Employee Stock Purchase Plan
|
|
Exhibit 10.2 to the
Registrants Registration
Statement on Form S-3,
dated May 16, 2007 |
E-1
|
|
|
|
|
Number |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
10.6
|
|
Lease Agreement between the Registrant and
W9/TIB Real Estate Limited Partnership, dated
January 31, 2000, as amended
|
|
Exhibit 10.5 to the
Registrants Registration
Statement on Form S-1,
initially filed on August
4, 2000 |
|
|
|
|
|
10.7
|
|
Form of Indemnification Agreement between
Registrant and each of its directors and
certain executive officers
|
|
Exhibit 10.9 to the
Registrants Registration
Statement on Form S-1,
initially filed on August
4, 2000 |
|
|
|
|
|
10.8
|
|
Amended and Restated License and Technology
Transfer Agreement by and between the
Registrant and Sovello AG (f/k/a EverQ
GmbH)(Sovello), dated September 29, 2006
|
|
Exhibit 10.18 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended
September 30, 2006, filed
on November 7, 2006 |
|
|
|
|
|
10.9
|
|
Stock Purchase Agreement by and between the
Registrant and OCI Company Ltd. (formerly DC
Chemical Co., Ltd.) (OCI), dated April 17,
2007
|
|
Exhibit 10.1 to the
Registrants Current
Report on Form 8-K, dated
April 17, 2007 and filed
on April 17, 2007 |
|
|
|
|
|
10.10
|
|
Stockholders Agreement by and between the
Registrant and OCI, dated April 17, 2007
|
|
Exhibit 10.2 to the
Registrants Current
Report on Form 8-K, dated
April 17, 2007 and filed
on April 17, 2007 |
|
|
|
|
|
10.11
|
|
Supply Agreement by and between the Registrant
and OCI, dated April 17, 2007
|
|
Exhibit 10.3 to the
Registrants Current
Report on Form 8-K/A,
dated April 17, 2007 and
filed on April 23, 2007 |
|
|
|
|
|
10.12
|
|
Addendum to the Amended and Restated License
and Technology Transfer Agreement between the
Registrant and Sovello, dated April 30, 2007
|
|
Exhibit 10.2 to the
Registrants Current
Report on Form 8-K, dated
April 30, 2007 and filed
on May 4, 2007 |
|
|
|
|
|
10.13
|
|
Supply Agreement between the Registrant and
Wacker Chemie AG, effective as of August 31,
2007
|
|
Exhibit 10.1 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended
September 30, 2007, filed
on November 8, 2007 |
|
|
|
|
|
10.14
|
|
Supply Agreement between the Registrant and
Solaricos Trading Ltd., dated as of October 24,
2007
|
|
Exhibit 10.34 to the
Registrants Annual
Report on Form 10-K for
the period ended December
31, 2007, filed on
February 27, 2008 |
|
|
|
|
|
10.15
|
|
Lease Agreement between the Registrant and the
Massachusetts Development Finance Agency
(MDFA), dated November 20, 2007
|
|
Exhibit 10.36 to the
Registrants Annual
Report on Form 10-K for
the period ended December
31, 2007, filed on
February 27, 2008 |
|
|
|
|
|
10.16
|
|
Project Grant Agreement between the Registrant
and MDFA, dated November 20, 2007
|
|
Exhibit 10.37 to the
Registrants Annual
Report on Form 10-K for
the period ended December
31, 2007, filed on
February 27, 2008 |
|
|
|
|
|
10.17
|
|
Project Grant Agreement between the Registrant
and Massachusetts Technology Park Corporation,
dated November 20, 2007
|
|
Exhibit 10.38 to the
Registrants Annual
Report on Form 10-K for
the period ended December
31, 2007, filed on
February 27, 2008 |
E-2
|
|
|
|
|
Number |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
10.18
|
|
Supply Agreement by and between the Registrant
and OCI, dated January 30, 2008
|
|
Exhibit 10.41 to the
Registrants Annual
Report on Form 10-K/A for
the period ended
December 31, 2007, filed
on August 8, 2008 |
|
|
|
|
|
10.19
|
|
Master Supply Agreement by and between the
Company and Ralos Vertriebs GmbH, dated May 21,
2008
|
|
Exhibit 10.1 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended June 28,
2008, filed on August 4,
2008 |
|
|
|
|
|
10.20
|
|
Master Supply Agreement by and between the
Company and Wagner & Co Solartechnik GmbH,
dated June 18, 2008
|
|
Exhibit 10.2 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended June 28,
2008, filed on August 4,
2008 |
|
|
|
|
|
10.21
|
|
Share Lending Agreement dated as of June 26,
2008 between the Company and Lehman Brothers
International (Europe), through Lehman Brothers
Inc.
|
|
Exhibit 10.5 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended June 28,
2008, filed on August 4,
2008 |
|
|
|
|
|
10.22
|
|
Capped Call Transaction agreement dated June
26, 2008 between the Company and Lehman
Brothers OTC Derivatives Inc.
|
|
Exhibit 10.6 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended June 28,
2008, filed on August 4,
2008 |
|
|
|
|
|
10.23
|
|
Master Supply Agreement by and between the
Company and IBC Solar AG, dated July 14, 2008
|
|
Exhibit 10.32 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.24
|
|
Amended and Restated Sales Representative
Agreement by and Between the Registrant and
Sovello dated October 6, 2008
|
|
Exhibit 10.33 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.25
|
|
Quad Technology License Agreement by and
Between the Registrant and Sovello dated
October 6, 2008
|
|
Exhibit 10.34 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.26
|
|
Addendum to Quad Technology License Agreement
by and Between the Registrant and Sovello dated
October 6, 2008
|
|
Exhibit 10.35 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.27
|
|
Undertaking of Evergreen Solar dated October 6,
2008
|
|
Exhibit 10.36 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.28
|
|
Amended and Restated Master Joint Venture
Agreement by and among the Registrant, Q-Cells,
REC and Sovello AG, dated November 6, 2008
|
|
Exhibit 10.37 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.29§
|
|
Form of Amended and Restated Change of Control
Severance Agreement between the Registrant and
Richard M. Feldt
|
|
Exhibit 10.38 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
E-3
|
|
|
|
|
Number |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
10.30§
|
|
Form of Amended and Restated Change of Control
Severance Agreement between the Registrant and
each of Michael El-Hillow and Brown Williams
|
|
Exhibit 10.39 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.31§
|
|
Form of Amended and Restated Change of Control
Severance Agreement between the Registrant and
each of
Richard G. Chleboski and Lawrence Felton
|
|
Exhibit 10.40 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.32§
|
|
Amended and Restated Management Incentive Policy
|
|
Exhibit 10.41 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.33
|
|
PV License Agreement by and between ESLR1, LLC
and TISICS Ltd. dated September 5,
2007
|
|
Exhibit 10.42 to the
Registrants Annual
Report on Form 10-K for
the period ended
December 31, 2008, filed
on March 2, 2008 |
|
|
|
|
|
10.34
|
|
Frame Agreement between the Registrant, Jiawei
Solar (Wuhan) Co. (Jiawei Wuhan) and the
Wuhan Donghu New Technology Development Zone
Management Committee dated April 30, 2009
|
|
Exhibit 10.3 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended July 4,
2009, filed on August 12,
2009 |
|
|
|
|
|
10.35
|
|
Relationship Agreement by and among Jiawei
Solarchina Co., Ltd. (Jiawei China), Jiawei
Wuhan, the Registrant and Evergreen Solar
(Wuhan) Co., Ltd. (Evergreen Wuhan), dated
July 14, 2009
|
|
Exhibit 10.1 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended October
3, 2009, filed on
November 10, 2009 |
|
|
|
|
|
10.36
|
|
Manufacturing Services Agreement by and among
Jiawei China, Jiawei Wuhan, the Registrant and
Evergreen Wuhan, dated July 14, 2009
|
|
Exhibit 10.2 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended October
3, 2009, filed on
November 10, 2009 |
|
|
|
|
|
10.37
|
|
Increase Registered Capital and Enlarge Shares
Agreement between Hubei Science & Technology
Investment Co., Ltd. and the Registrant on
Evergreen Wuhan dated July 24, 2009
|
|
Exhibit 10.3 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended October
3, 2009, filed on
November 10, 2009 |
|
|
|
|
|
10.38
|
|
Equity Transfer Agreement Among The Registrant,
HSTIC and various other parties dated July 24,
2009 and Delivered September 22, 2009
|
|
Exhibit 10.4 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended October
3, 2009, filed on
November 10, 2009 |
|
|
|
|
|
10.39
|
|
Amendment made on August 5, 2009 to Master
Supply Agreement by and between the Registrant
and Ralos Vertriebs Gmbh, dated May 21, 2008
|
|
Exhibit 10.5 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended October
3, 2009, filed on
November 10, 2009 |
|
|
|
|
|
10.40
|
|
Amendment made on August 3, 2009 to Master
Supply Agreement by and between the Registrant
and Wagner & Co Solartechnik GmbH, dated June
18, 2008
|
|
Exhibit 10.6 to the
Registrants Quarterly
Report on Form 10-Q for
the period ended October
3, 2009, filed on
November 10, 2009 |
E-4
|
|
|
|
|
Number |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
10.41
|
|
Amendment dated on or about October 1, 2009 to
Master Supply Agreement by and between the
Registrant and IBC Solar AG, dated July 14,
2008
|
|
* |
|
|
|
|
|
10.42
|
|
First Amendment entered into October 2, 2009 to
the Supply Agreement by and between the
Registrant and Solaricos Trading, Ltd. dated
October 24, 2007
|
|
* |
|
|
|
|
|
10.43
|
|
First Amendment entered into January 1, 2010 to
the Supply Agreement by and between OCI and the
Registrant dated April 17, 2007
|
|
* |
|
|
|
|
|
10.44
|
|
First Amendment entered into January 1, 2010 to
the Supply Agreement by and between OCI and the
Registrant dated January 30, 2008
|
|
* |
|
|
|
|
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP, an
Independent Registered Public Accounting Firm
|
|
* |
|
|
|
|
|
31.1
|
|
Certification of the Chief Executive Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
* |
|
|
|
|
|
31.2
|
|
Certification of the Chief Financial Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
* |
|
|
|
|
|
32.1
|
|
Certification of the Chief Executive Officer
pursuant to Rule 13a-14(d) and Rule 15d-14(d)
of the Securities Exchange Act of 1934, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
* |
|
|
|
|
|
32.2
|
|
Certification of the Chief Financial Officer
pursuant to Rule 13a-14(d) and Rule 15d-14(d)
of the Securities Exchange Act of 1934, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
* |
|
|
|
|
|
|
|
|
|
|
Confidential treatment granted as to certain portions. |
E-5
|
|
|
|
|
Confidential treatment requested as to certain portions. |
|
§ |
|
Indicates a management contract or compensatory plan, contract or arrangement. |
|
* |
|
Not applicable (filed herewith) |
E-6