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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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As filed with the Securities and Exchange Commission on April 12, 2010

Registration No. 333-165893

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

Amendment No. 1
to

FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

STR Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)

10 Water Street
Enfield, CT 06082
(860) 749-8371
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Barry A. Morris
Executive Vice President and Chief Financial Officer
10 Water Street
Enfield, CT 06082
(860) 749-8371
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 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 "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

CALCULATION OF REGISTRATION FEE

(1)

Includes shares subject to the underwriters' over-allotment option, if any.

(2)

Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457(c) promulgated under the Securities Act of 1933, as amended, based on the average of the high and low sale prices of our common stock on April 9, 2010.

(3)

Previously paid.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 12, 2010

7,000,000 Shares

STR Holdings, Inc.

Common Stock

        All of the shares of common stock are being sold by the selling stockholders, which include entities affiliated with members of our board of directors and an affiliate of Credit Suisse Securities (USA) LLC, an underwriter participating in this offering. In addition, certain of our executive officers and directors are selling a total of 480,417 shares of common stock. We will not receive any proceeds from this offering.

        The underwriters have an option to purchase a maximum of 1,050,000 additional shares of common stock from the selling stockholders to cover over-allotment of shares. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

        Our common stock is listed on the New York Stock Exchange under the symbol "STRI." On April 9, 2010, the last reported sales price of our common stock on the NYSE was $19.44 per share.

        Investing in our common stock involves risks. See "Risk Factors" on page 11.

        Delivery of the shares of common stock in book-entry form only will be made on or about                        , 2010.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is                        , 2010.

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        You should rely only on the information contained in this document and any free writing prospectus prepared by us or on our behalf. We and the selling stockholders have not, and the underwriters have not, authorized anyone to provide you with any additional information or information that is different. This document may only be used where it is legal to sell these securities. The information in this document is only accurate as of the date of this document.

        "STR," "PhotoCap" and their respective logos are our trademarks. Solely for convenience, we refer to our trademarks in this prospectus without the ™ and ® symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners.

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PROSPECTUS SUMMARY

        This section summarizes key information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. You should carefully review the entire prospectus, including the risk factors, the consolidated financial statements and the notes thereto, and the other documents to which this prospectus refers before making an investment decision. Unless the context requires otherwise, references in this prospectus to "STR," "we," "us," "our company" or similar terms refer to STR Holdings, Inc. and its subsidiaries and include the business conducted by us prior to our reorganization to a "C" corporation, which occurred in connection with our initial public offering on November 6, 2009. Unless otherwise indicated, references to our Solar manufacturing and production capacity are to estimated annual capacity.

Our Company

        We are a global leader in each of our businesses: solar power module encapsulant manufacturing and consumer product quality assurance. Our Solar business is a leading global provider of encapsulants, which are specialty extruded sheets and film that hold a solar module together and protect the embedded semiconductor circuit. Encapsulants are a critical component used in solar modules. We supply solar module encapsulants to many of the major solar module manufacturers. We believe we were the primary supplier of encapsulants to each of our top 10 customers in 2009, which we believe is due to our superior product performance and customer service. Our encapsulants are used in both crystalline and thin-film solar modules.

        Our Quality Assurance business is a leader in the consumer products quality assurance market, and we believe our Quality Assurance business is the only global testing services provider exclusively focused on the consumer products market. Our Quality Assurance business provides inspection, testing and audit services that enable retailers and manufacturers to determine whether products and facilities meet applicable safety, regulatory, quality, performance and social standards.

Our Solar Business

        Our Solar business is a leading manufacturer of encapsulants, which are specialty extruded sheets and film that hold a solar module together and protect the embedded semiconductor circuit. We were the first to develop the original ethylene-vinyl-acetate, or EVA, encapsulants used in commercial solar module manufacturing in the 1970s in conjunction with the Jet Propulsion Laboratory of the California Institute of Technology under a NASA contract for the U.S. Energy Research and Development Administration, which later became known as the U.S. Department of Energy. We have no ongoing relationships with any of these agencies. We have sold our EVA encapsulants commercially since the late 1970s. We have continually improved our encapsulants, and we have developed many significant solar encapsulant innovations since we first commercialized our encapsulants, including encapsulants that maintain their dimensional stability and ultra-fast curing formulations. Our encapsulants are used in both of the prevailing solar panel technologies, crystalline and thin-film, and are valued by our customers because they maintain their size and shape throughout the solar module manufacturing process, have fast curing times and have demonstrated long-term stability. These attributes are critical to solar module manufacturers, which typically provide 20- to 25-year warranties of the performance of their solar modules and continually seek to maximize manufacturing yield and optimize efficiency. Despite the critical nature of encapsulant to solar cell applications, the encapsulant represents a small percentage of the overall manufacturing cost of the total solar module.

        Our PhotoCap products consist primarily of EVA, which is modified with additives and put through our proprietary manufacturing process to increase product stability and make the encapsulant suitable for use in extreme, long-term outdoor applications. The inclusion of specific additives results in a limited shelf life before our encapsulants must be integrated into a solar module, making stocking

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impractical. Encapsulants are made-to-order to customer specifications for use in their solar module manufacturing process.

Solar Market Opportunity

        Solar energy has emerged as one of the most rapidly growing renewable energy sources. A number of different technologies have been developed to harness solar energy. The most prevalent technology is the use of inter-connected photovoltaic, or PV, cells to generate electricity directly from sunlight. PV systems are used in industrial, commercial and residential applications. Higher global energy prices, increased environmental awareness and the desire for energy independence are accelerating the adoption of renewable energy sources, including solar. Governments around the world have also implemented various tariffs, tax credits and other incentives designed to encourage the use of renewable energy sources, including solar.

        According to Solarbuzz, an independent solar energy research firm, solar power industry revenues grew to approximately $34 billion in 2009 from approximately $4 billion in 2003.

        Regardless of the technology used to create solar energy from a PV system, the core component of the solar cell is the semiconductor circuit. To protect and preserve the embedded semiconductor circuit, solar module manufacturers typically use an encapsulant. Encapsulants are critical to the proper functioning of solar modules, as they protect cells from the elements, bond the multiple layers of a module (top surface, PV cells, and rear surface) together, and provide electrical insulation. Because encapsulants are a critical and integral component of solar modules, demand for encapsulants is expected to track the strong growth forecasted for the global PV market.

Competitive Strengths of Our Solar Business

        We believe that our Solar business possesses a number of key competitive strengths, including:

•

Primary Supplier to Leading Module Manufacturers.    Because our encapsulants are designed into our customers' manufacturing processes, offer long-term stability and substantial manufacturing efficiencies, and are a small part of the overall cost of the solar module, we believe our customers will continue to be reluctant to switch to other encapsulant suppliers. We believe we were the primary encapsulant supplier to each of our top 10 customers in 2009, which include many of the fastest growing solar module manufacturers. As our customers look to secure materials or access to our production capacity to support their module production, we have recently entered into, or are in negotiations to enter into, contracts that include periods of exclusivity and minimum purchase requirements. Although such contracts provide for the sale of encapsulants at lower prices than our shorter-term arrangements, they will provide greater predictability of demand. We currently have contracts with six of our largest customers, including a renewed contract with a major global solar customer.



•

Superior Product Technology.    Our encapsulants, some of which have been in the field nearly 30 years, play a critical role in permanently bonding and protecting sensitive solar module components while helping to maintain solar module performance for extended periods under extreme environmental conditions. Our encapsulants are manufactured to be non-shrinking so that they maintain their size and shape throughout the solar module manufacturing process, thereby reducing manufacturing defects. In addition to providing dimensional stability, our highly engineered ultra-fast curing encapsulants provide for more rapid and efficient solar module manufacturing, enabling our customers to achieve higher throughput rates and reduce their production costs.



•

History of Innovation.    We have a long history of innovation. We, in conjunction with the predecessor to the U.S. Department of Energy, utilized our experience and technical expertise in

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the field of plastics to invent the original EVA encapsulant formulations used in commercial solar module manufacturing. In addition, we have developed many significant encapsulant innovations since we first introduced our encapsulants commercially in the late 1970s.

•

Global Manufacturing and Distribution Base.    We have invested heavily in developing our global production and distribution capacity through the construction and acquisition of new plants, by increasing the number of our production lines and by upgrading our manufacturing equipment to meet our customers' needs. We currently operate 15 production lines worldwide with total annual production capacity of 5,350 MW. We expect our global production capacity to increase to 6,350 MW by June 30, 2010.



•

Technical and Management Expertise.    Our senior management team includes seasoned veterans with diverse business experiences who provide a broad range of perspectives and have enabled us to proactively manage our rapid organic growth, including the substantial expansion of our manufacturing operations.

Growth Strategy of Our Solar Business

        Our objective is to enhance our position as a leading global provider of encapsulants to solar module manufacturers. Our strategies to meet that objective are:

•

Leverage Global Infrastructure.    Our manufacturing facilities are designed to provide the ability to expand our capacity to meet customer demand. To meet anticipated future growth in demand in the solar module market and increase our market share, we plan to continue to increase capacity by adding new production lines at our existing facilities or opening new facilities. Since 2003, we have invested $47.0 million to expand our production capacity. We added four 500 MW production lines in 2008 and two 500 MW production lines and a 100 MW production line in 2009, bringing our total global capacity to 5,350 MW as of December 31, 2009. We believe we can leverage our existing infrastructure to add capacity in targeted markets. For example, we recently completed the construction of a new manufacturing facility in Malaysia, which has initially been designed for up to 2,000 MW of capacity and can be expanded to accommodate up to 3,000 MW of capacity. The Malaysian facility currently has two 500 MW operational production lines, and we began shipping production quantities of encapsulants from that facility in the third quarter of 2009. During the first quarter of 2010, our Malaysian facility received a 500 MW production line from Connecticut and a 500 MW production line from Spain to meet shifting worldwide module demand from Europe to Asia. We expect our global production capacity to increase to 6,350 MW by June 30, 2010 and further expand in 2011.



•

Continue Product Innovation.    Throughout the history of our Solar business, we have continued to innovate our encapsulant technologies. We intend to leverage our technical experience and the expertise derived from our nearly 30 years of innovation to continue to develop new products and technologies to meet evolving customer needs and to maintain and enhance our competitive position. For example, we recently developed a new material specifically tailored to match the unique needs of thin-film solar technologies with superior moisture resistant properties that we believe surpass those of other commercially available products.



•

Asia Growth Strategy.    Our strategy for growing our Asia business is called 1 + China Growth Strategy. Our plant in Malaysia represents the beginning stages of the execution of this strategy utilizing Malaysia as a conduit to Asia. We provide encapsulants to many of the leading solar module manufacturers worldwide and intend to continue to seek new customer relationships. During 2009, global solar demand shifted as module manufacturers located in Asia, particularly in China, obtained market share from European competitors. Also, many Asian governments announced solar incentive programs in 2009 to increase the demand for solar energy in their respective countries, such as the Golden Sun and Building Integrated Photovoltaic Programs in

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China. Based on these two emerging market patterns, we are actively seeking to increase our market share in the Asia-Pacific region and have recently signed contracts with two top-tier Chinese solar customers.

•

Further Reduce Manufacturing Costs.    We continuously seek to improve our competitive position by reducing our manufacturing costs, and we have identified a number of cost reduction opportunities. For example, we have made modifications to our production process to achieve higher throughput and yield and are developing an encapsulant that eliminates the use of a paper liner, which represents the second largest material-related cost of our encapsulants.

Our Quality Assurance Business

        We have offered quality assurance services since 1973. Our Quality Assurance business helps clients determine whether the products designed and manufactured by them or on their behalf meet applicable safety, regulatory, quality, performance and social standards. The primary clients for quality assurance services are large North American and European retailers that manage global supply chains of manufacturers, vendors and importers. In particular, retailers, importers and manufacturers that choose to outsource production to developing countries rely on our Quality Assurance services to ensure product quality and standards.

        Since forming our Quality Assurance business, we have expanded our Quality Assurance service offerings and have increased the scale of the business to meet the growing worldwide needs of the consumer products manufacturing industry. As of December 31, 2009, our Quality Assurance business had an extensive network of 17 laboratories, 72 inspection and audit offices and 21 sales offices in 36 countries across North America, South America, Europe, Asia, Indian sub-continent and Africa with an experienced team of over 1,000 scientists, technicians, engineers, auditors, trainers and inspectors. We have a broad client base, serving over 5,000 clients in 2009. Our Quality Assurance business's reputation for quality is demonstrated by our more than 40 internationally recognized accreditations and memberships.

Risks Affecting Our Business

        Our business is subject to numerous risks, as discussed more fully in the section entitled "Risk Factors" beginning on page 11 of this prospectus, which you should read in its entirety. In particular:

•

If demand for solar energy in general and solar modules in particular does not continue to develop or takes longer to develop than we anticipate, sales in our Solar business may not grow or may decline, which would negatively affect our financial condition and results of operations.



•

The impact of the current worldwide economic recession as well as volatility and disruption in the credit markets may continue to slow the growth of the solar industry, may continue to cause our customers to experience a reduction in demand for their products and related financial difficulties and may continue to adversely impact our Solar business.



•

A significant reduction or elimination of government subsidies and economic incentives or a change in government policies that promote the use of solar energy could have a material adverse effect on our business and prospects.



•

Our Solar business is dependent on a limited number of customers, which may cause significant fluctuations or result in declines in our Solar net sales.



•

Our Solar business's growth is dependent upon the growth of our key Solar customers and our ability to keep pace with our customers' growth.

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•

Technological changes in the solar energy industry or our failure to develop and introduce or integrate new technologies could render our encapsulants uncompetitive or obsolete, which would adversely affect our business.



•

We typically rely upon trade secrets and contractual restrictions, and not patents, to protect our proprietary rights. Failure to protect our intellectual property rights may undermine our competitive position and protecting our rights or defending against third-party allegations of infringement may be costly.



•

We face competition in our Solar business from other companies producing encapsulants for solar modules.



•

Our failure to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet our customers' requirements could harm our business and damage our customer relationships in the event demand for our encapsulants increases. Conversely, expanding our production in times of overcapacity could have an adverse impact on our results of operations.



•

Our Solar business is exposed to risks related to running our facilities at full production capacity from time to time that could result in decreased net sales and affect our ability to grow our business in future periods.



•

The quality assurance testing markets are highly competitive, and many of the companies with which we compete have substantially greater resources and geographical presence than us.



•

Failure to maintain professional accreditations and memberships may affect our Quality Assurance business's ability to compete or generate net sales.



•

Damage to the professional reputation of our Quality Assurance business would adversely affect our Quality Assurance net sales and the growth prospects of our Quality Assurance business.



•

Our Quality Assurance business's growth depends on our ability to expand our operations and capacity and manage such expansion effectively.



•

Our future success depends on our ability to retain our key employees.



•

Our substantial international operations subject us to a number of risks.



•

We and our results of operations could be materially and adversely affected by violations of applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977.

DLJ Transactions

        On June 15, 2007, DLJ Merchant Banking Partners IV, L.P. and affiliated investment funds, or DLJMB, and its co-investors, together with members of our board of directors, our executive officers and other members of management, acquired 100% of the voting equity interests in our wholly-owned subsidiary, Specialized Technology Resources, Inc. for $365.6 million, including transaction costs. They acquired Specialized Technology Resources, Inc. for investment purposes. In connection with the acquisition, Specialized Technology Resources, Inc., as borrower, and STR Holdings LLC, as a guarantor, entered into a first lien credit facility providing for a fully drawn $185.0 million term loan facility and an undrawn $20.0 million revolving credit facility and a second lien credit facility providing for a fully drawn $75.0 million term loan facility, in each case, with Credit Suisse, as administrative agent and collateral agent.

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        We refer to the foregoing transactions collectively as the "DLJ Transactions." DLJMB is an affiliate of Credit Suisse Securities (USA) LLC, an underwriter participating in this offering, and Credit Suisse, the administrative agent and collateral agent under our first and second lien credit facilities. For further information regarding the DLJ Transactions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—DLJ Transactions."

Corporate Reorganization and Initial Public Offering

        Prior to November 5, 2009, we conducted our business through STR Holdings LLC and its subsidiaries. STR Holdings (New) LLC, or NewCo, a Delaware limited liability company, was formed on September 30, 2009 as an indirect subsidiary of STR Holdings LLC and held no material assets and did not engage in any operations. Pursuant to the corporate reorganization on November 5, 2009, STR Holdings LLC liquidated. A subsidiary of NewCo merged with and into Specialized Technologies Resources, Inc., or STRI, a former subsidiary of STR Holdings LLC, and, as a result, STRI became a wholly-owned subsidiary of NewCo. The unitholders of STR Holdings LLC became unitholders of NewCo. On November 6, 2009, NewCo converted from a limited liability company into a Delaware 'C' corporation, named STR Holdings, Inc., and all outstanding units of NewCo automatically converted into a single class of common stock of STR Holdings, Inc.

        On November 12, 2009, we closed our initial public offering of 12,300,000 shares of common stock at an offering price of $10 per share, of which 3,300,000 shares were sold by the Company and 9,000,000 shares were sold by selling stockholders. On December 7, 2009, we closed the partial exercise of the over-allotment option granted by the selling stockholders given in connection with the initial public offering, which resulted in a total purchase of 1,695,000 shares at the initial public offering price of $10 per share. We did not receive any of the proceeds from the sale of the shares as a result of the exercise of the over-allotment option. For further information regarding the corporate reorganization and our initial public offering, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Corporate Reorganization and Initial Public Offering."

Recent Development

        Although complete financial statements for the three months ended March 31, 2010 are not yet available, on April 5, 2010, we provided updated guidance regarding our projected financial results. We affirmed our 2010 full year guidance of total net sales of $310 million to $330 million and 2010 diluted non-GAAP earnings per share (EPS) of $1.05 to $1.10. We also affirmed our first quarter guidance of total net sales of $77 million to $81 million and first quarter diluted non-GAAP EPS of $0.23 to $0.25. We anticipate that, due to recent strength in the global solar market and reductions in anticipated orders by certain key clients in our Quality Assurance business, the projected revenue mix between segments is expected to change from our previous full year guidance with higher anticipated Solar net sales in the range of $195 million to $205 million and lower anticipated Quality Assurance net sales in the range of $115 million to $125 million. For the first quarter of 2010, the projected revenue mix is expected to change from our previous guidance to a range of $53 million to $55 million for Solar net sales and a range of $24 million to $26 million for Quality Assurance net sales. Diluted GAAP EPS ranges for our 2010 full year and first quarter are $0.73 to $0.78 and $0.12 to $0.14, respectively.

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        The following is a reconciliation of our diluted non-GAAP EPS guidance:

        We use the non-GAAP financial measure called non-GAAP earnings per share (EPS). We define non-GAAP EPS as net income not including the impact of amortization of deferred financing costs, stock-based compensation, intangible asset amortization expense and associated tax effect divided by the weighted average shares outstanding. It should be noted that diluted weighted average shares are determined on a GAAP basis and the resulting share count is used for computing both GAAP and non-GAAP diluted EPS.

        Management believes that non-GAAP EPS provides meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of the core business operating results and may help in comparing current-period results with those of prior periods as well as with our peers. Non-GAAP EPS is one of the main metrics used by management and our board of directors to plan and measure our operating performance. In addition, non-GAAP EPS will be one of the metrics and, in the case of our chief executive officer and chief financial officer, the only metric used to determine annual bonus compensation for our executive officers under our management incentive plan.

        The financial data included in this Recent Development section has been prepared by, and is the responsibility of our management. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has not audited, reviewed, compiled or performed any procedures with respect to the accompanying financial data included in this Recent Development section. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. See "Risk Factors," "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Our Executive Offices

        We are a Delaware corporation. Our principal executive offices are located at 10 Water Street, Enfield, Connecticut 06082, and our telephone number is (860) 749-8371. Our web address is www.strholdings.com. The information that appears on our web site is not part of, and is not incorporated into, this prospectus.

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The Offering

        Unless otherwise indicated, all information in this prospectus:

•

excludes 4,710,000 shares of our common stock reserved for future grants under our compensation plans, including 3,495,685 shares of common stock issuable upon the exercise of options; and



•

assumes no exercise of the underwriters' option to purchase additional shares.

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Summary Consolidated Financial and Other Data

        The following table sets forth our summary consolidated financial and other data for the periods and as of the dates indicated. The balance sheet data as of December 31, 2009 and the statement of operations and other data for each of (i) the years ended December 31, 2009 and 2008, (ii) the period from June 15 to December 31, 2007 and (iii) the period from January 1 to June 14, 2007 are derived from our consolidated financial statements included elsewhere in this prospectus.

        The basic and diluted net income per share and weighted average shares outstanding data for periods including and after June 15, 2007 in the summary consolidated financial and other data table presented below give effect to our corporate reorganization, as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Corporate Reorganization and Initial Public Offering."

        On June 15, 2007, DLJMB and its co-investors, together with members of our board of directors, our executive officers and other members of management, through STR Holdings LLC, acquired Specialized Technology Resources, Inc. All periods prior to June 15, 2007 are referred to as "Predecessor," and all periods including and after such date are referred to as "Successor." The consolidated financial statements for all Successor periods are not comparable to those of the Predecessor periods.

        Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

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(1)

We have retrospectively adjusted our earnings per share and average shares outstanding for the Successor periods to reflect the conversion of units to shares resulting from the reorganization and conversion. See note 3 to our consolidated financial statements included elsewhere in this prospectus. We have not similarly adjusted our earnings per share for the Predecessor period.

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RISK FACTORS

        An investment in our common stock involves a high degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, before making an investment in our company. If any of the following risks actually occurs, our business, results of operations or financial condition may be adversely affected. In such an event, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Solar Business

If demand for solar energy in general and solar modules in particular does not continue to develop or takes longer to develop than we anticipate, sales in our Solar business may not grow or may decline, which would negatively affect our financial condition and results of operations.

        We expect that a significant amount of the growth in our overall business will come from the sale of encapsulants by our Solar business. Because our encapsulants are used in the production of solar modules, our financial condition and results of operations and future growth are tied to a significant extent to the overall demand for solar energy and solar modules. The solar energy market is at a relatively early stage of development and the extent to which solar modules will be widely adopted is uncertain. Many factors may affect the viability and widespread adoption of solar energy technology and demand for solar modules, and in turn, our encapsulants, including:

•

cost-effectiveness of solar modules compared to conventional and non-solar renewable energy sources and products;



•

performance and reliability of solar modules compared to conventional and non-solar renewable energy sources and products;



•

availability and amount of government subsidies and incentives to support the development and deployment of solar energy technology;



•

rate of adoption of solar energy and other renewable energy generation technologies, such as wind, geothermal and biomass;



•

seasonal fluctuations related to economic incentives and weather patterns;



•

fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as increases or decreases in the prices of fossil fuels and corn or other biomass materials;



•

the extent to and shape of, if any, the recovery from the worldwide economic recession, volatility and disruption in the credit markets that was experienced during 2009, which may slow the growth of the solar industry, may cause our customers to experience a reduction in demand for their products and related financial difficulties and may adversely impact our Solar business;



•

fluctuations in capital expenditures by end users of solar modules, which tend to decrease when the overall economy slows down;



•

the extent to which the electric power and broader energy industries are deregulated to permit broader adoption of solar electricity generation; and



•

the cost and availability of polysilicon and other key raw materials for the production of solar modules.

        For example, in 2009, we experienced a decline in our Solar business mainly due to decreased global demand for solar energy as a result of legislative changes, such as the cap in feed-in tariffs in Spain implemented in 2008, the global recession and the worldwide credit crisis.

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        If demand for solar energy and solar modules fails to develop sufficiently, demand for our customers' products as well as demand for our encapsulants will decrease, and we may not be able to grow our business or Solar net sales and our financial condition and results of operations will be harmed.

A significant reduction or elimination of government subsidies and economic incentives or a change in government policies that promote the use of solar energy could have a material adverse effect on our business and prospects.

        Demand for our encapsulants depends on the continued adoption of solar energy and the resultant demand for solar modules. Demand for our products depends, in large part, on government incentives aimed to promote greater use of solar energy. In many countries in which solar modules are sold, solar energy would not be commercially viable without government incentives. This is because the cost of generating electricity from solar energy currently exceeds, and we believe will continue to exceed for the foreseeable future, the costs of generating electricity from conventional energy sources.

        The scope of government incentives for solar energy depends, to a large extent, on political and policy developments relating to environmental and energy concerns in a given country that are subject to change, which could lead to a significant reduction in, or a discontinuation of, the support for renewable energy in such country. Federal, state and local governmental bodies in many of the target markets for our Solar business, including Germany, Italy, Spain, the United States, France, Japan and South Korea, have provided subsidies and economic incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar energy products to promote the use of solar energy and to reduce dependency on other forms of energy. These government economic incentives could be reduced or eliminated earlier than anticipated. For example, the German government recently has announced legislation that is expected to reduce feed-in tariffs beginning in the second half of 2010. This announcement has resulted in the pull-in of demand from solar module manufacturers due to increased end-user demand being driven by the incentive to purchase a solar system prior to the expected enactment of the decreased feed-in tariff incentives. As such, we may see atypical Solar sales during the first half of 2010 that may not occur during the second half of 2010. Also, in September 2008, the Spanish parliament adopted new legislation that decreased the feed-in tariff for solar energy by approximately 27% and capped its subsidized PV installations at 500 MW for 2009. This event drove an over-supply of solar module inventory in the supply chain during the first half of 2009 and was one of the main drivers behind our sales volume decline in 2009 compared to 2008.

        Moreover, electric utility companies, or generators of electricity from fossil fuels or other renewable energy sources, could also lobby for changes in the relevant legislation in their markets to protect their revenue streams. Reduced growth in or the reduction, elimination or expiration of government subsidies and economic incentives for solar energy, especially those in our target markets, could cause our Solar net sales to decline and harm our business.

Our Solar business is dependent on a limited number of customers, which may cause significant fluctuations or result in declines in our Solar net sales.

        The solar module industry is relatively concentrated. As a result, we sell substantially all of our encapsulants to a limited number of solar module manufacturers. We expect that our results of operations will, for the foreseeable future, continue to depend on the sale of encapsulants to a relatively small number of customers. Sales to First Solar accounted for 27.1%, 19.1% and 13.8% of our Solar net sales in the years 2009, 2008 and 2007, respectively. In addition, the top five customers in our Solar segment accounted for approximately 55.0%, 47.0% and 46.0% of our Solar net sales in 2009, 2008 and 2007, respectively. Furthermore, participants in the solar industry, including our customers, are experiencing pressure to reduce their costs. Because we are part of the overall supply chain to our

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customers, any cost pressures experienced by them may affect our business and results of operations. Our customers may not continue to generate significant Solar net sales for us. Conversely, we may be unable to meet the production demands of our customers or maintain these customer relationships. Also, new entrants into the solar module manufacturing industry, primarily from China, could negatively impact the demand for, and pricing of, our customers' products, which could reduce the demand for our encapsulants. We believe our European customers have lost market share to low-cost module manufacturers, primarily from China, that continue to penetrate the European solar market and whom we do not sell encapsulants to. We have lost market share in the European market due to emerging low-cost solar module manufacturers, primarily from China, and if we are not able to supply encapsulants to these new entrants in the future, we could lose further market share and also face competition from new encapsulant manufacturers.

        In addition, a significant portion of our outstanding accounts receivable is derived from sales to a limited number of customers. The accounts receivable from our top five Solar customers with the largest receivable balances represented 38.7% and 34.6% of our accounts receivable balance as of December 31, 2009 and December 31, 2008, respectively. Moreover, many solar companies are facing and may continue to face significant liquidity and capital expenditure requirements, and as a result, our customers may have trouble making payments owed to us, which could affect our business, financial condition and results of operations. Any one of the following events may cause material fluctuations or declines in our Solar net sales and have a material adverse effect on our business, financial condition and results of operations:

•

reduction, postponement or cancellation of orders from one or more of our significant customers;



•

reduction in the price one or more significant solar customers are willing to pay for our encapsulants;



•

selection by one or more solar customers of products competitive with our encapsulants;



•

loss of one or more significant solar customers and failure to obtain additional or replacement customers; and



•

failure of any of our significant solar customers to make timely payment for products.

Our Solar business's growth is dependent upon the growth of our key Solar customers and our ability to keep pace with our customers' growth.

        In addition to relying on a small number of customers, we believe we were the primary supplier to each of our top 10 Solar customers in 2009. The future growth and success in our Solar business depends on the ability of such customers to grow their businesses and our ability to meet any such growth, principally through the addition of manufacturing capacity. If our Solar customers do not increase production of solar modules, there will be no corresponding increase in encapsulant orders. Alternatively, in the event such customers grow their businesses, we may not be able to meet their increased demands, which would require such customers to find alternative sources for encapsulants. In addition, it is possible that customers for whom we are the exclusive supplier of encapsulants will seek to qualify and establish a secondary supplier of encapsulants, which would reduce our share with such customers and could increase that customer's pricing leverage. If our Solar customers do not grow their businesses or they find alternative sources for encapsulants to meet their demands, it could limit our ability to grow our business and increase our Solar net sales.

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Technological changes in the solar energy industry or our failure to develop and introduce or integrate new technologies could render our encapsulants uncompetitive or obsolete, which would adversely affect our business.

        The solar energy market is rapidly evolving and competitive and is characterized by continually changing technology requiring continuous improvements in solar modules to increase efficiency and power output and improve aesthetics. This requires us and our customers to continuously invest significant financial resources to develop new solar module technology and enhance existing solar modules to keep pace with evolving industry standards and changing customer requirements and to compete effectively in the future. Our failure to further refine our encapsulant technology and develop and introduce new or enhanced encapsulants or other products, or our competitors' development of products and technologies that perform better or are more cost effective than our products, could cause our encapsulants to become uncompetitive or obsolete, which would adversely affect our business, financial condition and results of operations. Product development activities are inherently uncertain, and we could encounter difficulties in commercializing new technologies. As a result, our product development expenditures in our Solar business may not produce corresponding benefits.

        Moreover, we produce a component utilized in the manufacturing of solar modules. New solar technologies may emerge or existing technologies may gain market share that do not require encapsulants as we produce them, or at all. Also, manufacturing methods may emerge that could be more advanced or efficient than our current manufacturing capability. Such changes could result in decreased demand for our encapsulants or render them obsolete, which would adversely affect our business, financial condition and results of operations.

We typically rely upon trade secrets and contractual restrictions, and not patents, to protect our proprietary rights. Failure to protect our intellectual property rights may undermine our competitive position and protecting our rights or defending against third-party allegations of infringement may be costly.

        Protection of proprietary processes, methods, documentation and other technology is critical to our business. Failure to protect, monitor and control the use of our existing intellectual property rights could cause us to lose our competitive advantage and incur significant expenses. We typically rely on trade secrets, trademarks, copyrights and contractual restrictions to protect our intellectual property rights and currently do not hold any patents related to our Solar business. However, the measures we take to protect our trade secrets and other intellectual property rights may be insufficient. While we enter into confidentiality agreements with our Solar employees and third parties to protect our intellectual property rights, such confidentiality provisions related to our trade secrets could be breached and may not provide meaningful protection for our trade secrets. Also, others may independently develop technologies or products that are similar or identical to ours. In such case, our trade secrets would not prevent third parties from competing with us.

        Third parties or employees may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could harm our business and operating results. Policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available.

        We are currently in litigation with a former employee, James P. Galica, in our Solar business and his current employer, JPS Elastomerics Corp., for the misappropriation and theft of our trade secrets. In August 2008, the jury determined that the technology for our polymeric sheeting product line is a trade secret. The jury also determined that our former employee and his current employer had not misappropriated our trade secrets. We have not decided if we will appeal the jury's determination. The jury also found that our former employee had breached his confidentiality agreement with us. Subsequently, the judge determined that JPS and Galica had violated the Massachusetts Unfair and Deceptive Trade Practices Act, finding that the technology for our polymeric sheeting product is a trade

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secret and that JPS and Galica had misappropriated our trade secrets. The judge awarded us compensatory and punitive damages, attorneys' fees and costs and issued a temporary injunction preventing JPS from manufacturing, marketing or selling the competing products, which are substantially similar to some of our encapsulants. The final amount of damages to be awarded to us, as well as the scope of a permanent injunction, is still pending before the court and will be determined by the presiding judge. JPS has filed a motion for reconsideration of the court's decision that JPS and Galica had violated the Massachusetts Unfair and Deceptive Trade Practices Act. Final judgment will not be entered until these pending matters are resolved. The court has ordered each party to brief the remaining issues. Upon entry of final judgment, JPS will have the right to appeal the judge's ruling, and we will have the right to appeal the jury's verdict. If JPS or Galica is successful on the appeals from both the jury's verdict and the judge's rulings, the result may be a new trial or a final determination that JPS may compete with us by continuing to sell a product that is substantially similar to some of our encapsulants. JPS may also be allowed to compete with us on some encapsulant products based on the court's ruling on the scope and duration of the permanent injunction. Further, in October 2009, counsel to JPS sent our counsel a letter demanding relief under the Massachusetts Unfair and Deceptive Trade Practices Act, the Sherman Antitrust Act, the Massachusetts Antitrust Act and the Lanham Act.

        We responded to JPS's letter and have had no further contact with JPS regarding their October 2009 letter. On October 20, 2009, JPS moved for reconsideration of the judgment against them under Massachusetts General Laws, chapter 93A. On November 19, 2009, the Court issued a Memorandum and Order Denying Further Modification of the Preliminary Injunction and Associated Directives. On December 10, 2009, JPS filed a petition for relief in the Massachusetts Appeals Court which the court denied. On December 21, 2009, JPS filed a notice of interlocutory appeal with the Massachusetts Appeals Court. On January 20, 2010, the parties filed a stipulation of dismissal of JPS's notice of interlocutory appeal. On March 25, 2010, the Court scheduled a hearing on permanent injunctive relief, attorney's fees and damages to be held on August 23, 2010.

We face competition in our Solar business from other companies producing encapsulants for solar modules.

        The market for encapsulants is highly competitive and continually evolving. We compete with a number of encapsulant manufacturers, some of which are large, global companies with substantial financial, manufacturing and logistics resources and strong customer relationships. If we fail to attract and retain customers for our current and future products, we will be unable to increase our revenues and market share. Our primary encapsulant competitors include Bridgestone Corporation, ETIMEX Primary Packaging GmbH and Mitsui Chemicals, Inc. We also expect to compete with new entrants to the encapsulant market, including those that may offer more advanced technological solutions, possess advanced or more efficient manufacturing capabilities or that have greater financial resources than we do. Further, as the China solar market matures, we expect other encapsulant providers from China and the greater Asian markets will compete with us. Our competitors may develop and produce or may be currently producing encapsulants that offer advantages over our products. A widespread adoption of any of these technologies could result in a rapid decline in our position in the encapsulant market and our revenues and adversely affect our margins.

Our failure to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet our customers' requirements could harm our business and damage our customer relationships in the event demand for encapsulants increases. Conversely, expanding our production in times of overcapacity could have an adverse impact on our results of operations.

        Prior to the fourth quarter of 2008, our manufacturing facilities generally operated at full production capacity, which constrained our ability to meet increased demand from our customers. The future success of our Solar business depends, in part, on our ability to increase production capacity to

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satisfy any increased demand from our customers. We may be unable to expand our Solar business, satisfy customer requirements, maintain our competitive position and improve profitability if we are unable to build and operate new manufacturing facilities and increase production capacity at our existing facilities to meet any increased demand for our Solar products. For example, if there are delays in our new Malaysian facility achieving target yields and output, we will not meet our target for adding capacity, which would limit our ability to increase encapsulant sales and result in lower than expected Solar net sales and higher than expected costs and expenses. Moreover, we may experience delays in receiving equipment and be unable to meet any increases in customer demand. Failure to satisfy customer demand may result in a loss of market share to competitors and may damage our relationships with key customers.

        In addition, due to the lead time required to produce the equipment used in our encapsulant manufacturing process, it can take up to a year to obtain new machines after they are ordered. Accordingly, we are required to order production equipment well in advance of expanding our facilities or opening new facilities and in advance of accepting additional customer orders. If such facilities are not expanded or completed on a timely basis or if anticipated customer orders do not materialize, we may not be able to generate sufficient Solar net sales to offset the costs of new production equipment, which could have an adverse impact on our results of operations. Furthermore, we rely on longer-term forecasts from our Solar customers to plan our capital expenditures. If these forecasts prove to be inaccurate, either we may have spent too much on capacity growth, which could require us to consolidate facilities, in which case our financial results would be adversely affected, or we may have spent too little on capital expenditures, in which case we may be unable to satisfy customer demand, which could adversely affect our business. Furthermore, our ability to establish and operate new manufacturing facilities and expand production capacity is subject to significant risks and uncertainties, including:

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restrictions in the agreements governing our indebtedness that restrict the amount of capital that can be spent on manufacturing facilities;



•

inability to raise additional funds or generate sufficient cash flow from operations to purchase raw material inventory and equipment or to build additional manufacturing facilities;



•

delays and cost overruns as a result of a number of factors, many of which are beyond our control, such as increases in raw material prices and long lead times or delays with equipment vendors;



•

delays or denials of required approvals by relevant government authorities;



•

diversion of significant management attention and other resources;



•

inability to hire qualified personnel; and



•

failure to execute our expansion plan effectively.

        If we are unable to establish or successfully operate additional manufacturing facilities or to increase production capacity at our existing facilities, as a result of the risks described above or otherwise, we may not be able to expand our business as planned and our Solar net sales may be lower than expected. Alternatively, if we build additional manufacturing facilities or increase production capacity at our existing facilities, we may not be able to generate sufficient customer demand for our encapsulants to support the increased production levels, which would adversely affect our business and operating margins.

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Our Solar business is exposed to risks related to running our facilities at full production capacity from time to time that could result in decreased Solar net sales and affect our ability to grow our business in future periods.

        Prior to the fourth quarter of 2008, our manufacturing facilities generally operated at full production capacity. If any of our current or future production lines or equipment were to experience any problems or downtime, such as in 2005 when one of our plants was without electricity for five days following a hurricane, we may not be able to shift production to new lines and may not be able to meet our production targets, which would result in decreased Solar net sales and adversely affect our customer relationships. As a result, our per-unit manufacturing costs would increase, we would be unable to increase sales as planned and our earnings would likely be negatively impacted. In addition, when our encapsulant production lines are running at full capacity, they are generally used solely to meet current customers' orders. As such, there is very limited production line availability to test new technologies or further refine existing technologies that are important for keeping pace with evolving industry standards and changing customer requirements and competing effectively in the future. Limitations in our ability to test new products or enhancements to our existing products could cause our encapsulants to become uncompetitive or obsolete, which would adversely affect our business.

We may be subject to claims that we have infringed, misappropriated or otherwise violated the patent or other intellectual property rights of a third party. The outcome of any such claims is uncertain and any unfavorable result could adversely affect our business, financial condition and results of operations.

        We may be subject to claims by third parties that we have infringed, misappropriated or otherwise violated their intellectual property rights. These claims may be costly to defend, and we ultimately may not be successful. An adverse determination in any such litigation could subject us to significant liability to third parties (potentially including treble damages), require us to seek licenses from third parties (which may not be available on reasonable terms, or at all), make substantial one-time or ongoing royalty payments, redesign our products or subject us to temporary or permanent injunctions prohibiting the manufacture and sale of our products, the use of our technologies or the conduct of our business. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation. In addition, we may have no insurance coverage in connection with such litigation and may have to bear all costs arising from any such litigation to the extent we are unable to recover them from other parties. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.

We generally operate on a purchase order basis with our Solar customers, and their ability to cancel, reduce, or postpone orders could reduce our Solar net sales and increase our costs.

        Sales to our Solar customers are typically made through non-exclusive, short-term purchase order arrangements that specify prices and delivery parameters. The timing of placing these orders and the amounts of these orders are at our customers' discretion. Customers may cancel, reduce or postpone purchase orders with us prior to production on relatively short notice. If customers cancel, reduce or postpone existing orders or fail to make anticipated orders, it could result in the delay or loss of anticipated sales, which could lead to excess inventory and unabsorbed overhead costs. Because our encapsulants have a limited shelf life from the time they are produced until they are incorporated into a solar module, we may be required to sell any excess inventory at a reduced price, or we may not be able to sell it at all and incur an inventory write-off, which could reduce our Solar net sales and increase our costs. During the first half of 2009, we experienced postponements and cancellations in orders and, as a result, incurred approximately $1.0 million of inventory write-offs.

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We may be unable to manage the expansion of our Solar operations effectively.

        We expect to expand our existing facilities and add new facilities to meet future demand for encapsulants. We recently completed expansions in our facilities in Connecticut and Spain. The production line qualification on our Malaysian facility has been completed, and we began shipping production quantities of encapsulants from that facility in the third quarter of 2009. To manage the potential growth of our operations, we will be required to improve operational and financial systems, procedures and controls, increase manufacturing capacity and output and expand, train and manage our growing employee base. Furthermore, management will be required to maintain and expand our relationships with our customers, suppliers and other third parties. Our Solar business's current and planned operations, personnel, systems, internal procedures and controls may not be adequate to support our future growth. If we are unable to manage the growth of our Solar business effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.

Our dependence on a limited number of third-party suppliers for raw materials for our encapsulants and other significant materials used in our process could prevent us from timely delivering encapsulants to our customers in the required quantities, which could result in order cancellations and decreased revenues.

        We purchase resin and paper liner, the two main components used in our manufacturing process, from multiple third-party suppliers. If we fail to develop or maintain our relationships with these suppliers or our other suppliers, or if the suppliers' facilities are affected by events beyond our control, we may be unable to manufacture our encapsulants or our encapsulants may be available only for customers in lesser quantities, at a higher cost or after a long delay. We may be unable to pass along any price increases relating to materials costs to our customers, particularly in circumstances in which we have entered into fixed-price contracts with our customers, in which case our margins could be reduced. In addition, we do not maintain long-term supply contracts with our suppliers. Our inventory of raw materials for our encapsulants, including back-up supplies of resin, may not be sufficient in the event of a supply disruption. In 2005, we encountered a supply disruption when one of our resin suppliers had its facilities damaged by a hurricane, and another supplier had a reactor fire at the same time. This forced us to use our back-up supplies of resin. The failure of a supplier to supply materials and components, or a supplier's failure to supply materials that meet our quality, quantity and cost requirements in a timely manner, could impair our ability to manufacture our products to specifications, particularly if we are unable to obtain these materials and components from alternative sources on a timely basis or on commercially reasonable terms. If we are forced to change suppliers, our customers may require us to undertake testing to ensure that our encapsulants meet the customer's specifications.

Our Solar gross margins and profitability may be adversely affected by rising commodity costs.

        We are dependent on certain raw and other materials, particularly resin and paper, for the manufacture of our encapsulants. In addition, the cost of equipment used to manufacture our encapsulants is affected by steel prices. The prices for resin, paper and steel have been volatile over the past few years and could increase. For example, in 2010 the price of resin has increased. Any increases in the prices for the commodities and equipment we use in our Solar business may adversely affect our gross margins and results of operations, especially where we have entered into fixed-price contracts with our customers.

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As a supplier to solar module manufacturers, disruptions in any other component of the supply chain to solar module manufacturers may adversely affect our customers and consequently limit the growth of our business and revenue.

        We supply a component to solar module manufacturers. As such, if there are disruptions in any other area of the supply chain for solar module manufacturers, it could affect the overall demand for our encapsulants. For example, the increased demand for polysilicon due to the rapid growth of the solar energy and computer industries and the significant lead time required for building additional capacity for polysilicon production led to an industry-wide shortage of polysilicon from 2005 through 2008, which is an essential raw material in the production of most of the solar modules produced by many of our customers. This and other disruptions to the supply chain may force our customers to reduce production, which in turn would decrease customer demand for our encapsulants and could adversely affect our Solar net sales. In addition, reduced orders for our encapsulants could result in underutilization of our production facilities and cause an increase of our marginal production cost. During the first half of 2009, we experienced postponements and cancellations in orders and, as a result, incurred approximately $1.0 million of inventory write-offs.

The sales cycle for our encapsulants can be lengthy, which could result in uncertainty and delays in generating Solar net sales.

        The integration and testing of our encapsulants with prospective customers' solar modules or enhancements to existing customers' solar modules requires a substantial amount of time and resources. A Solar customer may need up to one year to test, evaluate and adopt our encapsulants and qualify a new solar module, before ordering our encapsulants. Our Solar customers then need additional time to begin volume production of solar modules that incorporate our encapsulants. As a result, the complete sales cycle for our Solar business can be lengthy. We may experience a significant delay between the time we increase our expenditures for product development, sales and marketing efforts and inventory for our Solar business and the time we generate Solar net sales, if any, from these expenditures. In addition, because we typically do not have long-term commitments from our Solar customers, we must repeat the sales process on a continual basis even for existing customers that develop new solar modules or enhancements to their existing solar modules.

Our Solar business could be adversely affected by seasonal trends and construction cycles.

        We may be subject to industry-specific seasonal fluctuations in the future, particularly in climates that experience colder weather during the winter months, such as Germany. For example, in 2009, we experienced a decline in our Solar business mainly due to decreased global demand for solar energy as a result of legislative changes, such as the cap in feed-in tariffs in Spain implemented in 2008, the global recession and the worldwide credit crisis. There are various reasons for seasonality fluctuations, mostly related to economic incentives and weather patterns. In Germany, the construction of solar energy systems is concentrated in the second half of the calendar year, largely due to the annual reduction of the applicable minimum feed-in tariff. Recently, the German government has announced potential legislation that will probably reduce feed-in tariffs in the second half of 2010. This announcement has resulted in the pull-in of demand from solar module manufacturers due to increased end-user demand being driven by the incentive to purchase a solar system prior to the expected enactment of the decreased feed-in tariff incentives. As such, we may see atypical Solar sales during the first half of 2010 that may not occur during the second half of 2010. In the United States, solar module customers will sometimes make purchasing decisions towards the end of the year in order to take advantage of tax credits or for budgetary reasons. In addition, construction levels are typically slower in colder months. Accordingly, our business and results of operations could be affected by seasonal fluctuations in the future.

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Problems with product quality or product performance, including defects, could result in a decrease in customers and Solar net sales, unexpected expenses and loss of market share.

        Our encapsulants are complex and must meet stringent quality requirements. Products as complex as our encapsulants may contain undetected defects, especially when first introduced. For example, our encapsulants may contain defects that are not detected until after they are shipped or are installed because we cannot test for all possible scenarios. These defects could cause us to incur significant costs, including costs to service or replace products, divert the attention of our engineering personnel from product development efforts and significantly affect our customer relations and business reputation. If we deliver products with defects, or if there is a perception that our products contain errors or defects, our credibility and the market acceptance and sales of our encapsulants could materially decline. In addition, we could be subject to product liability claims and could experience increased costs and expenses related to significant product liability claims or other legal judgments against us, or a widespread product recall by us or a solar module manufacturer. For example, during the second half of 2008, we recorded an accrual of $5.6 million relating to specific product performance matters, which amount represents management's best estimate of the costs to repair or replace such product. The majority of this accrual relates to a quality claim by one of our customers in connection with a non-encapsulant product that we purchased from a vendor in 2005 and 2006 and resold. We stopped selling this product in 2006 and are currently attempting to resolve this matter. We may increase our accruals in future periods or incur charges in excess of that amount, which would result in increased expenses in future periods that adversely affect our results of operations.

        The manufacturing process for our encapsulants is highly complex. Minor deviations in the manufacturing process can cause substantial decreases in yield and, in some cases, cause production to be suspended. We have from time to time experienced lower than anticipated manufacturing yields. This typically occurs during the production of new encapsulants or the installation and start-up of new process technologies or equipment. As we expand our production capacity, we may experience lower yields initially as is typical with any new equipment or process. If we do not achieve planned yields, our costs of sales could increase, and product availability would decrease resulting in lower Solar net sales than expected.

Changes to existing regulations in the utility sector and the solar energy industry may present technical, regulatory and economic barriers to the purchase and use of solar modules, which in turn may significantly reduce demand for our products.

        The market for power generation products is heavily influenced by government regulations and policies concerning the electric utility industry, as well as the internal policies of electric utility companies. These regulations and policies often relate to electricity pricing and technical interconnection of end user-owned power generation. In a number of countries, these regulations and policies are being modified and may continue to be modified. End users' purchases of alternative energy sources, including solar modules, could be deterred by these regulations and policies. For example, utility companies sometimes charge fees to larger, industrial customers for disconnecting from the electricity transmission grid or relying on the electricity transmission grid for back-up purposes. Such fees could increase the costs of using solar modules, which may lead to reduced demand for solar modules and, in turn, our encapsulants.

        We anticipate that solar modules and their installation will continue to be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters in various countries. Any new government regulations or utility policies pertaining to solar modules may result in significant additional expenses to our Solar customers, and their distributors and end users, which could cause a significant reduction in demand for solar modules and, in turn, our encapsulants.

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Risks Related to Our Quality Assurance Business

The quality assurance testing markets are highly competitive, and many of the companies with which we compete have substantially greater resources and geographical presence than us.

        The quality assurance industry is highly competitive, and our Quality Assurance business competes in the United States and internationally with many well-established quality assurance and certification companies on the basis of technical and industry knowledge, pricing, geographic proximity, client service, timeliness, accuracy, marketing, breadth of service offering, level of consultation and actionable information and technical excellence in a given product category. Our global competitors operate in multiple geographic areas while other competitors operate locally. In addition, we compete with non-profit certification companies and in-house quality assurance programs maintained and operated by manufacturers and retailers themselves. The ability to increase or maintain our Quality Assurance net sales or gross margins in the global market or in various local markets may be limited as a result of actions by competitors.

        Our competitors may be able to provide clients with different or greater capabilities or benefits than we can provide in areas such as geographical presence, technical qualifications, price and the availability of human resources. The inability of our Quality Assurance business to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, financial condition or results of operations. In order to remain competitive in the quality assurance testing industry, we must also keep pace with changing technologies and client preferences. If we are unable to expand our geographic presence and testing capacity, maintain or enter into strategic partnerships or differentiate our services from those of our competitors, our Quality Assurance business may not be able to obtain new clients or it may lose existing clients. Competitors may in the future adopt aggressive pricing policies and diversify their service offerings. In addition, new competitors or alliances among competitors may emerge and compete more effectively than our Quality Assurance business can. There is also a trend towards consolidation in certain markets that our Quality Assurance business serves, which may result in the emergence of new or bigger competitors. If we cannot offer prices, services or a quality of service at least comparable to those offered by our competitors, we could lose market share or our profitability may be affected. These competitive pressures could materially and adversely affect our business, financial condition and results of operations.

Failure to maintain professional accreditations and memberships may affect our Quality Assurance business's ability to compete or generate net sales.

        Our Quality Assurance clients rely on our numerous professional accreditations and memberships, including ISO 9000, ISO 17025, SA 8000 and Underwriters Laboratories, to ensure continued compliance with their quality assurance and social audit standards. Certain accreditations are granted for limited periods of time and are subject to periodic renewal. Any failure to meet our ongoing professional responsibilities could lead us to lose, either temporarily or on a permanent basis, one or more of such accreditations or memberships. In addition, a public authority or professional organization that has granted one or more accreditations or memberships to us could decide to unilaterally withdraw such accreditations and memberships. If our accreditations and memberships with these or other professional organizations are suspended or revoked, our clients may decrease the amount of business that they do with our Quality Assurance business, or stop doing business with us altogether, which would negatively affect our business, financial condition and results of operations.

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Damage to the professional reputation of our Quality Assurance business would adversely affect our Quality Assurance net sales and the growth prospects of our Quality Assurance business.

        Our Quality Assurance business depends on longstanding relationships with our clients, including leading global retailers and consumer product manufacturers, for a significant portion of our Quality Assurance net sales. Product liability claims, poor performance, lax standards, violations of laws or regulations, employee misconduct, information security breaches or other action affecting our Quality Assurance business could damage our reputation. Providing quality assurance services for products for human use or consumption involves inherent legal and reputational risks and our success depends on the ability of our Quality Assurance business to maintain service quality for our existing clients. Service quality issues, real or alleged, or allegations of product defects, contamination, tampering, misbranding, spoliation, or other adulteration, even when false or unfounded, could tarnish the image of our Quality Assurance business and may cause our clients to choose other quality assurance providers. We also provide our clients with limited indemnities for our failure to meet applicable standards. Quality assurance testing protocols only identify known risks, and we have cleared products in the past that later were determined to present a previously unknown risk. No testing protocol can discern unknown risks but we may nevertheless be held liable for those risks. A significant product liability or other legal judgment against our Quality Assurance business, or a widespread product recall of a tested product, may adversely affect our profitability. Moreover, even if a product liability or consumer fraud claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against products or processes that our Quality Assurance business tested could adversely affect our reputation, which in turn could lead to a loss of existing clients or make it more difficult to attract new clients. If our Quality Assurance business's reputation is damaged, our net sales and growth prospects could be adversely affected.

Our Quality Assurance business's growth depends on our ability to expand our operations and capacity and manage such expansion effectively.

        In order to maintain our current clients and grow our Quality Assurance business, we must be able to meet increasing client demand, which requires additional space, equipment and human resources. The future success of our Quality Assurance business depends on our ability to increase our service capacity, and if we are unable to expand our operations, obtain testing equipment and hire additional qualified personnel, we may be unable to expand our Quality Assurance business and satisfy client demands. The testing equipment our Quality Assurance business uses is highly customized and is built to order, which results in significant lead times. Therefore, it can take several months to obtain, install and calibrate new equipment once ordered, and we must have the facilities available to accommodate it. Building a new testing facility can take up to a year.

        We have recently expanded our Quality Assurance operations and plan to continue to expand such operations, which can result in significant demands on administrative, operational and financial personnel and other resources. Additional expansion in existing or new markets could strain these resources and increase capital needs, and our personnel, systems, procedures, controls and existing space may not be adequate to support further expansion. Additionally, international growth in our Quality Assurance business may be limited by the fact that in some countries we are required to operate with a local strategic partner. Finding these partners may be difficult or impossible, and our arrangements with them may negatively affect our Quality Assurance net sales.

        Moreover, we have a limited number of laboratories in which to process engagements and a limited number of trained personnel to conduct inspections and audits. When these laboratories or our personnel resources are at capacity, we cannot accept more engagements. Our Quality Assurance clients may require capacity and resources greater than that which we can provide. If we cannot process engagements in the time our clients require due to capacity or other resource constraints, we may lose clients or experience a decline in engagements.

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Our Quality Assurance business may lose money or experience reduced margins if we do not adequately estimate the cost of our Quality Assurance engagements.

        We perform the majority of our Quality Assurance engagements on a fixed-price basis. Fixed-price contracts require us to price our contracts by predicting expenditures in advance. In addition, some engagements obligate our Quality Assurance business to provide ongoing and other supporting or ancillary services on a fixed-price basis or with limitations on our ability to increase prices. When making proposals for engagements on a fixed-price basis, we rely on our estimates of costs and timing for completing the projects. These estimates reflect management's best judgment regarding our Quality Assurance business's capability to complete the task efficiently. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-price contracts, including delays caused by factors outside our control, such as increased energy and labor costs, could result in losses or reduced margins. Unexpected costs and unanticipated delays may cause our Quality Assurance business to incur losses or reduced margins on fixed-price contracts. In addition, some of our Quality Assurance engagements are on a time-and material basis. While these types of contracts are generally subject to less uncertainty than fixed-price contracts, to the extent that actual labor and other costs are higher than the contract rates, these contracts may be less profitable or unprofitable.

Our failure to establish and maintain partnerships and other strategic alliances with other quality assurance providers may delay the expansion or provision of our services, harm our reputation and cause us to lose clients or prevent us from growing our Quality Assurance business.

        Our Quality Assurance business serves a diverse and global client base, which requires us to operate where such clients operate. We are required to work with a partner in certain countries either because of local laws and regulations or because such arrangements are customary to doing business in such countries. Also, we enter into and will continue to enter into strategic alliances with other quality assurance services in order to meet client demands in countries in which it may not be practicable for us to operate on a stand-alone basis. We do not generally have long-term contracts with our strategic partners, so they may cease doing business with us on relatively short or no notice. Yet if performance issues arise with respect to a strategic partner's services, such issues could damage our Quality Assurance business's reputation and exclusivity arrangements with such partners could prevent us from engaging in new strategic alliances for certain testing and inspection services in particular markets. In addition, we have also entered into joint venture agreements that restrict our ability to enter into certain product testing markets in specified geographic markets, either with another strategic partner or on our own. If we are unable to establish or maintain relationships with strategic partners, if such partners damage our reputation or if contract arrangements with such partners prevent us from entering certain testing markets, we could lose quality assurance clients or may not be able to expand our Quality Assurance business, either of which could have an adverse effect on our results of operations.

Our Quality Assurance business's failure to develop and protect its proprietary systems of design reviews and research processes could negatively affect its business and future growth.

        Similar to our Solar business, our Quality Assurance business does not rely on any patents and relies primarily on trade secrets, trademarks, copyrights and other contractual restrictions to protect our intellectual property. In addition to breaching confidentiality agreements, former employees and others may obtain knowledge of our Quality Assurance business's trade secrets through independent development or other legal means. Policing unauthorized use of proprietary technology can be difficult and expensive, and adequate remedies may not be available in the event of unauthorized use or disclosure of trade secrets. Any lawsuits to protect our Quality Assurance business's intellectual property may be costly and may divert management attention and other resources away from our business, and any such litigation may not be resolved in our favor. An adverse determination in any

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such litigation will impair our Quality Assurance business's intellectual property rights and may harm our business, prospects and competitive position. In addition, we have no insurance coverage against such litigation costs and have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties.

Our Quality Assurance business may be subject to professional liability claims and may not have adequate insurance coverage.

        Quality assurance testing protocols are only designed to identify known risks. In the past, our Quality Assurance business has cleared products that only later were determined to present a previously unknown risk. Testing protocols cannot discern unknown risks, for which we nevertheless may be held liable. Also, there may be a significant delay between the provision of services and the making of a related claim. While we maintain insurance for our Quality Assurance business to protect against losses from professional liability claims, such insurance may not be available, is subject to deductibles and may not be adequate to cover all the costs and expenses related to a significant professional liability or other legal judgment against us, which could adversely affect the results of operations of our Quality Assurance business.

        In addition, the insurance market could evolve in a manner unfavorable to us, resulting in increased premiums or making it impossible or much more expensive to obtain adequate insurance coverage. These factors could result in a substantial increase in our insurance costs, cause us to operate without insurance or cause us to withdraw from certain markets, which could have a significant adverse effect on our Quality Assurance business and related results of operations.

Changes in regulations applicable to our Quality Assurance business could have a significant effect on our business, financial condition, results of operations or future growth.

        Our Quality Assurance business conducts operations in a heavily regulated environment, with regulations differing, sometimes substantially, from one country to another. Regulations applicable to our Quality Assurance business may change either favorably or unfavorably for us. The strengthening or enforcement of regulations, while in some cases creating new business opportunities, may also create operating conditions that increase our operating costs, limit our business areas or more generally slow the development of our Quality Assurance business. In extreme cases, such changes in the regulatory environment could lead us to exit certain markets where we consider the regulation to be overly burdensome. In general, rapid and/or important changes in regulation could have a significant adverse effect on our business, financial condition, results of operations or future growth.

Risks Related to Our Businesses

The global financial crisis and adverse worldwide economic conditions may have significant effects on our business, financial condition and results of operations.

        The global financial crisis—which has included, among other things, significant reductions in available capital and liquidity, substantial reductions and/or fluctuations in equity and currency values and a worldwide recession may materially adversely affect both our Solar and Quality Assurance businesses. Factors such as lack of consumer spending, business investment and government spending, the volatility and weakness of the capital markets, and inflation all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn like the one experienced in 2009, which was characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our products and services may be adversely affected. Continued market disruptions and broader economic downturns may affect our and our customers' access to capital, lead to lower demand for our products and services, increase our exposure to losses from bad debts or result in our customers

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ceasing operations, any of which could materially adversely affect our business, financial condition and results of operations.

        In recent years, the credit markets have experienced unprecedented levels of volatility and disruption. In many cases, the markets still have limited credit capacity for certain issuers, and lenders have requested more restrictive terms. The market for new debt financing is extremely limited and in some cases not available at all. In addition, the markets have increased the uncertainty that lenders will be able to comply with their previous commitments. If current levels of market disruption and volatility continue or worsen, we may not be able to refinance our existing debt, draw upon our revolving credit facility or incur additional debt, which may require us to seek other funding sources to meet our liquidity needs or to fund planned expansion. As such, we may not be able to obtain debt or other financing on reasonable terms, or at all. Furthermore, the tightening of credit in financial markets may delay or prevent our customers from securing funding adequate to operate their businesses and purchase our products and services and could lead to an increase in our bad debt levels.

Our future success depends on our ability to retain our key employees.

        We are dependent on the services of Dennis L. Jilot, our Chairman, President and Chief Executive Officer, Barry A. Morris, our Executive Vice President and Chief Financial Officer, Robert S. Yorgensen, our Vice President and President of STR Solar, Mark A. Duffy, our Vice President and President of STR Quality Assurance and other members of our senior management team. The loss of any member of our senior management team could have a material adverse effect on us. Members of our senior management team may terminate their employment with us upon little or no notice. There is a risk that we will not be able to retain or replace these key employees.

If we are unable to attract, train and retain technical personnel, our businesses may be materially and adversely affected.

        Our future success depends, to a significant extent, on our ability to attract, train and retain qualified technical personnel. There is substantial competition for qualified technical personnel for both our Solar and Quality Assurance businesses, and we may be unable to attract or retain our technical personnel. If we are unable to attract and retain qualified employees, our businesses may be materially and adversely affected.

Our substantial international operations subject us to a number of risks.

        We operate in 36 countries worldwide, we have encapsulant manufacturing facilities operating in Spain and Malaysia, and our Quality Assurance business annually conducts audits or inspections in over 100 countries. Of our total net sales, 44.2%, 49.3% and 57.5% were generated from outside the United States in the years ended December 31, 2009, 2008 and 2007, respectively, and we expect that our international operations will continue to grow. As such, our international operations are subject to a number of risks, including:

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difficulty in enforcing agreements in foreign legal systems;



•

foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade and investment, including currency exchange controls;



•

potentially adverse tax consequences;



•

fluctuations in exchange rates may affect product demand and may adversely affect our profitability in U.S. dollars;

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•

potential noncompliance with a wide variety of laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, and similar non-U.S. laws and regulations;



•

inability to obtain, maintain or enforce intellectual property rights;



•

labor strikes, especially those affecting transportation and shipping;



•

risk of nationalization of private enterprises;



•

changes in general economic and political conditions in the countries in which we operate, including changes in the government incentives our Solar module manufacturing customers and their customers are relying on;



•

unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to environmental protection, export duties and quotas;



•

disruptions in our business operations or damage to strategic assets that may not be recoverable from applicable insurance policies caused by potential unfavorable weather patterns and natural catastrophes in certain locations of the world including, but not limited to, earthquakes, typhoons and hurricanes;



•

difficulty with staffing and managing widespread operations; and



•

difficulty of and costs relating to compliance with the different commercial and legal requirements of the international markets in which we operate.

We and our results of operations could be materially and adversely affected by violations of applicable anti-corruption laws, including the FCPA.

        We operate in a number of countries throughout the world, including countries known to have a reputation for corruption, and are subject to the risk that our employees and agents may take actions that are determined to be in violation of anti-corruption laws, including the FCPA. Any violation of the FCPA or other anti-corruption laws could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. Other requirements can also be imposed on companies that violate the FCPA, including the appointment of a government-approved monitor or the implementation of enhanced compliance procedures. In addition, actual or alleged violations could damage our reputation and ability to do business and, if material, could be deemed a breach or event of default under our credit facilities. Further, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

        In late 2008, in the course of routine monitoring of our internal controls, our internal audit staff discovered certain payments made and expenses for entertainment provided to government officials in India from approximately 2006 to 2008 that may have been in violation of the FCPA as well as Indian law. The payments and entertainment expenses were related to our Quality Assurance business and totaled approximately $26,000. Upon discovering such payments and expenses and performing an initial review and evaluation with the assistance of an outside forensic accounting firm, our Audit Committee directed outside legal counsel to perform an investigation. Our internal audit staff, outside legal counsel or forensic accounting firm performed investigative procedures in 12 of our foreign locations where major international operations are conducted. In the course of that investigation, we discovered up to approximately $74,000 in additional expenses since 2003 in two other jurisdictions that also may be inconsistent with the requirements of the FCPA. Our internal investigation uncovered no evidence that the payments or expenses were related to (i) falsifying, altering or otherwise influencing the conduct of our Quality Assurance tests or test results or (ii) securing any government contracts.

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        After completing our internal investigation, we made personnel changes in India and enhanced our FCPA-related policies and procedures, including providing additional ethical and FCPA training to key employees, enhancing our monitoring of expenses and other internal controls and appointing a chief compliance director. It is possible that despite our efforts, additional FCPA issues, or issues under anti-corruption laws of other jurisdictions, could arise in the future. Any failure by us to comply with the FCPA or anti-corruption laws in the future could have a material adverse effect on our business, financial condition, results of operations and cash flows.

        In early June 2009, we self-reported the results of our inquiry to the U.S. Department of Justice, or the DOJ, and the enforcement division of the U.S. Securities and Exchange Commission, or the SEC. To our knowledge, the DOJ and SEC were not aware of this matter prior to our report. Shortly after our report, we provided additional information requested by the DOJ and SEC. Since providing that additional information, and as of the date of this filing, the DOJ has not responded to our report or requested any additional information from us. As of March 31, 2010, the DOJ has not informed us as to whether it intends to pursue this matter further. In addition, in connection with our initial public offering, the SEC advised us that because it does not appear that we were subject to the SEC's jurisdiction during the relevant period, the SEC does not intend to pursue this matter at this time. We cannot predict the outcome resulting from our report to the DOJ. Any criminal prosecution would be costly and time-consuming to defend and such defense may not be successful and would have a material adverse effect on our business, result in harm to our reputation and negatively impact our results of operations. In addition, any fines or penalties imposed by the DOJ could be substantial and any requirements imposed upon us by the DOJ could be difficult, time-consuming and expensive to implement and comply with and could result in difficulties in conducting business in foreign jurisdictions and maintaining existing and attracting new customer relationships. Any failure to comply with any such requirements could result in further prosecution, fines or penalties. Any adverse determination by the DOJ, if material, could also be deemed to be a breach of covenants and an event of default under our credit facilities, which could result in our being required to immediately repay the principal amount outstanding under such facilities and prevent us from borrowing under our revolving credit facility, and adversely affect our liquidity and financial condition.

Fluctuations in exchange rates could have an adverse effect on our results of operations, even if our underlying business results improve or remain steady.

        Our reporting currency is the U.S. dollar, and we are exposed to foreign exchange rate risk because a significant portion of our net sales and costs are currently denominated in a number of foreign currencies, primarily Euros, Hong Kong dollars, Chinese renminbi and British pounds sterling, which we convert to U.S. dollars for financial reporting purposes. We do not engage in any hedging activities with respect to currency fluctuations. Changes in exchange rates on the translation of the earnings in foreign currencies into U.S. dollars are directly reflected in our financial results. As such, to the extent the value of the U.S. dollar increases against these foreign currencies, it will negatively impact our net sales, even if our results of operations have improved or remained steady. While the currency of our net sales and costs are generally matched, to the extent our costs and net sales are not denominated in the same currency for a particular location, we could experience further exposure to foreign currency fluctuations. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our indebtedness could adversely affect our financial health, harm our ability to react to changes to our business and prevent us from fulfilling our obligations under our indebtedness.

        As a result of the DLJ Transactions, we have a significant amount of indebtedness. As of December 31, 2009, we had total indebtedness of approximately $240.5 million. Based on that level of indebtedness and interest rates applicable at December 31, 2009, our annual interest expense, excluding

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the effect of interest rate swaps, would have been $9.9 million. Although we believe that our current cash flows will be sufficient to cover our annual interest expense, any increase in the amount of our indebtedness or any decline in the amount of cash available to make interest payments could require us to divert funds identified for other purposes for debt service and impair our liquidity position.

        Our indebtedness could also have other significant consequences. For example, it could:

•

increase our vulnerability to general economic downturns and adverse competitive and industry conditions;



•

require us to dedicate a substantial portion, if not all, of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate expenditures;



•

limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate, including our ability to build new facilities or acquire new equipment;



•

place us at a competitive disadvantage compared to competitors that have less debt;



•

limit our ability to raise additional financing on satisfactory terms or at all; and



•

adversely impact our ability to comply with the financial and other restrictive covenants in the agreements governing our credit facilities, which could result in an event of default under such agreements.

Increases in interest rates could increase interest payable under our variable rate indebtedness.

        We are subject to interest rate risk in connection with our variable rate indebtedness. Interest rate changes could increase the amount of our interest payments and thus negatively impact our future earnings and cash flows. We currently estimate that our annual interest expense on our floating rate indebtedness would increase by approximately $2.4 million, before giving effect to our interest rate swap, for each increase in interest rates of 1%. If we do not have sufficient earnings, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell more securities, none of which we can guarantee we will be able to do. Although we have hedging arrangements for a portion of our variable rate debt, they may prove inadequate or ineffective or we may not renew them when they expire in September 2010.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

        We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the agreements governing our credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. For example, we had $20.0 million of borrowings available under our revolving credit facility as of December 31, 2009. If we incur additional debt above the levels currently in effect, the risks associated with our substantial leverage would increase.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

        Our ability to make payments on and to refinance our indebtedness and to fund our operations will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Specific events that might adversely affect our cash flow include the loss of a key customer or declines in orders for our products or decreased use of our services. Accordingly, we may not be able

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to generate cash to service our indebtedness, which could lead to a default under our credit agreements and adversely affect our financial condition.

We are a holding company with no business operations of our own and depend on our subsidiaries for cash.

        We are a holding company with no significant business operations of our own. Our operations are conducted through our subsidiaries. Dividends from, and cash generated by, our subsidiaries are our principal sources of cash to repay indebtedness, fund operations and pay dividends, if any, which such payment is prohibited under the terms of our credit facilities. Accordingly, our ability to repay our indebtedness, fund operations and pay any dividends to our stockholders is dependent on the earnings and the distributions of funds from our subsidiaries. The agreements governing our credit facilities significantly restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. In addition, our subsidiaries are permitted under the agreements governing our credit facilities to incur additional indebtedness that may severely restrict or prohibit the making of distributions, the payment of dividends or the making of loans by our subsidiaries to us.

Restrictive covenants in the agreements governing our credit facilities may restrict our ability to pursue our business strategies.

        The agreements governing our credit facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to pursue our business strategies or undertake actions that may be in our best interests. Our credit facilities include covenants restricting, among other things, our ability to:

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incur or guarantee additional debt;



•

incur liens;



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make loans and investments and complete acquisitions;



•

make capital expenditures;



•

declare or pay dividends, which such payment is prohibited under the terms of our credit facilities, redeem or repurchase common stock or make certain other restricted payments;



•

complete mergers, consolidations and dissolutions;



•

modify or prepay our second lien credit facility or other material subordinated indebtedness;



•

issue redeemable, convertible or exchangeable equity securities;



•

sell assets and engage in sale-leaseback transactions;



•

enter into transactions with affiliates; and



•

alter the nature of our business.

Compliance with environmental and health and safety regulations can be expensive, and noncompliance with these regulations may result in adverse publicity, potentially significant liabilities and monetary damages and fines.

        We are required to comply with federal, state, local and foreign laws and regulations regarding protection of the environment and health and safety. If more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial. If we do not comply with such present or future laws and regulations or related permits, we may be required to pay substantial fines, suspend production or cease operations. We use, generate and discharge hazardous substances, chemicals and wastes in our product development, testing and manufacturing activities. Any failure by us to control the use of, to remediate the presence of, or to

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restrict adequately the discharge of, such substances, chemicals or wastes could subject us to potentially significant liabilities, clean-up costs, monetary damages, fines or suspensions in our business operations.

We may undertake acquisitions, investments, joint ventures or other strategic alliances, which may have a material adverse effect on our ability to manage our business, and such undertakings may be unsuccessful.

        Acquisitions, joint ventures and strategic alliances may expose us to new operational, regulatory, market and geographic risks as well as risks associated with additional capital requirements.

        These risks include:

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our inability to integrate new operations, personnel, products, services and technologies;



•

unforeseen or hidden liabilities, including exposure to lawsuits associated with newly acquired companies;



•

the diversion of resources from our existing businesses;



•

disagreement with joint venture or strategic alliance partners;



•

contravention of regulations governing cross-border investment;



•

failure to comply with laws and regulations, as well as industry or technical standards of the overseas markets into which we expand;



•

our inability to generate sufficient net sales to offset the costs and expenses of acquisitions, strategic investments, joint venture or other strategic alliances;



•

potential loss of, or harm to, employees or customer relationships;



•

diversion of our management's time; and



•

disagreements as to whether opportunities belong to us or the joint venture.

        Any of these events could disrupt our ability to manage our business, which in turn could have a material adverse effect on our financial condition and results of operations. Such risks could also result in our failure to derive the intended benefits of the acquisitions, strategic investments, joint ventures or strategic alliances, and we may be unable to recover our investment in such initiatives.

Risks Related to Our Common Stock and This Offering

As a public company, we are subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy.

        We have historically operated our business as a private company. Since the completion of our initial public offering, we are required to file with the SEC annual and quarterly information and other reports that are specified in Section 13 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We are required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. We are also subject to other reporting and corporate governance requirements, including the requirements of the New York Stock Exchange, or the NYSE, and certain provisions of the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder, which impose significant compliance obligations upon us. As a public company, we are required to:

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prepare and distribute periodic and current public reports and other stockholder communications in compliance with our obligations under the federal securities laws and NYSE rules;



•

create or expand the roles and duties of our board of directors and committees of the board;

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•

institute more comprehensive financial reporting and disclosure compliance functions;



•

supplement our internal accounting and auditing function, including hiring additional staff with expertise in accounting and financial reporting for a public company;



•

enhance and formalize closing procedures at the end of our accounting periods;



•

enhance our internal audit and tax functions;



•

enhance our investor relations function;



•

establish new internal policies, including those relating to disclosure controls and procedures; and



•

involve and retain to a greater degree outside counsel and accountants in the activities listed above.

        These changes require a significant commitment of additional resources. We may not be successful in implementing these requirements and implementing them could adversely affect our business or operating results. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired.

Prior to December 31, 2009, our independent registered public accounting firm reported to us that we had material weaknesses and significant deficiencies in our internal controls.

        Our independent registered public accounting firm previously reported to us that at December 31, 2007, we had material weaknesses with respect to our controls in our financial accounting and reporting and tax functions and significant deficiencies in our internal controls over documentation of our information technology systems, general computer controls, policies and procedures, and the documentation of our overall internal control environment. Such controls are necessary in order to produce Public Company Accounting Oversight Board, or PCAOB, compliant financial statements. Under standards established by the PCAOB, a "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis, and a "significant deficiency" is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant's financial reporting.

        For the year ended December 31, 2008, we remediated the material weakness related to our financial accounting and reporting function and partially remediated the material weakness related to our tax function. Our independent registered public accounting firm reported to us that at December 31, 2008, we had remaining significant deficiencies in our internal controls with respect to our tax function, our overall internal control structure and our information technology general computer controls.

        As of December 31, 2009, all remaining 2008 significant deficiencies have been fully remediated resulting in no remaining significant deficiencies or material weaknesses. Our remediation efforts during 2009 included hiring additional qualified personnel, providing additional training, implementing additional financial accounting controls and procedures and hiring a consultant to assist us in our procedure documentation and development of key controls with respect to our information technology systems.

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We are in the process of implementing the standards required by Section 404 of the Sarbanes-Oxley Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 could have a material adverse effect on us.

        We are in the early stages of documenting and testing our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. If, as a public company, we are not able to implement the requirements of Section 404 by December 31, 2010 or with adequate compliance, our independent registered public accounting firm may not be able to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules and may breach the covenants under our credit facilities. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.

        In addition, we will incur additional costs in order to comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff.

Insiders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control.

        DLJMB, our principal stockholder, and our current directors and executive officers beneficially owned approximately 44.3% of the outstanding shares of our common stock at March 31, 2010 and will beneficially own approximately 35.2% of the outstanding shares of our common stock following this offering (or 33.8% if the underwriters exercise their option to purchase additional shares). As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. In addition, we have elected to opt out of Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder," and we will be able to enter into such transactions with our principal stockholders. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

We expect that our stock price will fluctuate significantly, which could cause the value of your investment to decline, and you may not be able to resell your shares at or above the public offering price.

        Securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock regardless of our operating performance. The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including:

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market conditions in the broader stock market;



•

actual or anticipated fluctuations in our financial and operating results;



•

introduction of new products or services by us or our competitors;



•

issuance of new or changed securities analysts' reports or recommendations;



•

investor perceptions of us and the solar energy industry or quality assurance industry;

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•

sales, or anticipated sales, of large blocks of our stock;



•

additions or departures of key personnel;



•

regulatory or political developments;



•

litigation and governmental investigations; and



•

changing economic conditions.

        These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.

        If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that such stockholders might sell shares of common stock could also depress the market price of our common stock. As of March 31, 2010, we had 41,349,710 shares of common stock outstanding. Of these shares, 20,995,000 will be freely tradable without restriction under the Securities Act upon the completion of this offering (assuming no exercise of the option to purchase additional shares). In connection with this offering, our directors, executive officers and the selling stockholders have entered into lock-up agreements described under "Underwriting" that expire 90 days after the date of this prospectus, subject to extension in certain circumstances. In addition, in connection with our initial public offering, our directors, executive officers, the selling stockholders in our initial public offering and substantially all of our other stockholders at such time entered into lock-up agreements described in "Underwriting" that expire on May 5, 2010, subject to extension in certain circumstances. Sales of these shares are also subject to the Rule 144 holding period requirements described in "Shares Eligible for Future Sale." After the lock-up agreements have expired and holding periods have elapsed and the lock-up periods set forth in our registration rights agreement have expired, 20,354,710 additional shares, some of which will be subject to vesting, will be eligible for sale in the public market. The market price of shares of our common stock may drop significantly when the restrictions on resale by these stockholders lapse. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.

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Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us and diminish the value of our common stock.

        Our certificate of incorporation and bylaws provide for, among other things:

•

restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting;



•

restrictions on the ability of our stockholders to remove a director or fill a vacancy on the board of directors;



•

our ability to issue preferred stock with terms that the board of directors may determine, without stockholder approval;



•

the absence of cumulative voting in the election of directors;



•

a prohibition of action by written consent of stockholders unless such action is recommended by all directors then in office; and



•

advance notice requirements for stockholder proposals and nominations.

        These provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a transaction involving a change of control of our company that is in the best interest of our minority stockholders. 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 future takeover attempts.

We do not anticipate paying any cash dividends for the foreseeable future.

        We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock and the agreements governing our credit facilities prohibit our payment of dividends. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock. See "Dividend Policy."

Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities.

        Our certificate of incorporation provides for the allocation of certain corporate opportunities between us and DLJMB. Under these provisions, neither DLJMB, its affiliates and subsidiaries, nor any of their officers, directors, agents, stockholders, members or partners will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. For instance, a director of our company who also serves as a director, officer or employee of DLJMB or any of its subsidiaries or affiliates may pursue certain acquisition or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by DLJMB to itself or its subsidiaries or affiliates instead of to us. The terms of our certificate of incorporation are more fully described in "Description of Capital Stock."

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FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to inherent risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

        The forward-looking statements, including the projections, contained in this prospectus are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

        Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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USE OF PROCEEDS

        All shares of our common stock offered by this prospectus will be sold by the selling stockholders. We will not receive any proceeds from this offering.

PRICE RANGE OF COMMON STOCK

        Our common stock began trading on the NYSE on November 6, 2009 under the symbol "STRI." Prior to that date, there was no public market for our common stock. At March 31, 2010, there were approximately 1,100 holders of record of our common stock.

        The table below sets forth for the periods indicated the high and low sales prices per share of our common stock reported on the NYSE since our initial public offering.

DIVIDEND POLICY

        Since the DLJ Transactions, we have not declared or paid cash dividends on our shares. We do not anticipate paying any cash dividends on our common stock for the foreseeable future and are currently prohibited from doing so under the terms of our credit facilities. We intend to retain all available funds and any future earnings to fund the development and growth of our business and to reduce debt.

        Any future determination to pay dividends will be at the discretion of our board of directors and will take into account:

•

restrictions in our credit facilities;



•

general economic and business conditions;



•

our financial condition and results of operations;



•

our capital requirements and the capital requirements of our subsidiaries;



•

the ability of our operating subsidiaries to pay dividends and make distributions to us; and



•

such other factors as our board of directors may deem relevant.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2009.

        This table should be read in conjunction with "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

        The following table sets forth our selected historical consolidated financial data for the periods and as of the dates indicated. The balance sheet data as of December 31, 2009 and 2008 and the statement of operations data for each of (i) the years ended December 31, 2009 and 2008, (ii) the period from June 15 to December 31, 2007 and (iii) the period from January 1 to June 14, 2007 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of December 31, 2007, 2006 and 2005 and the statement of operations and other data for the years ended December 31, 2006 and 2005 are derived from our audited financial statements that are not included in this prospectus.

        The basic and diluted net income per share and weighted average shares outstanding data for periods including and after June 15, 2007 in the selected historical consolidated financial data table presented below give effect to our corporate reorganization, as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Corporate Reorganization and Initial Public Offering."

        On June 15, 2007, DLJMB and its co-investors, together with members of our board of directors, our executive officers and other members of management, through STR Holdings LLC, acquired Specialized Technology Resources, Inc. All periods prior to June 15, 2007 are referred to as "Predecessor," and all periods including and after such date are referred to as "Successor." The consolidated financial statements for all Successor periods are not comparable to those of the Predecessor periods.

        The results indicated below and elsewhere in this prospectus are not necessarily indicative of our future performance. You should read this information together with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of the financial condition and results of our operations should be read together with "Selected Historical Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are a leading global provider of encapsulants to the solar module industry. Encapsulants, which are specialty extruded sheets and film that hold a solar module together and protect the embedded semiconductor circuit, are a critical component used in solar modules. Our PhotoCap products consist primarily of ethylene-vinyl-acetate, or EVA, which is modified with additives and put through our proprietary manufacturing process to increase product stability and make the encapsulant suitable for use in extreme, long-term outdoor applications. We supply solar module encapsulants to many of the major solar module manufacturers and we believe we were the primary supplier of encapsulants to each of our top 10 customers in 2009, which we believe is due to our superior products and customer service. Our encapsulants are used in both crystalline and thin-film solar modules. Our Solar segment net sales have increased from $9.9 million in 2003 to $149.5 million in 2009, representing a CAGR of 57.2%. In 2009, our Solar segment was impacted by decreased global demand for solar energy as a result of legislative changes, such as the cap in feed-in tariffs in Spain implemented in late 2008, the global recession and the worldwide credit crisis. Also, our European encapsulant customers have lost market share to emerging low-cost solar module manufacturers, primarily from China, that continue to penetrate the solar market.

        Our Quality Assurance business is a leader in the consumer products quality assurance market, and we believe our Quality Assurance business represents the only global testing service provider exclusively focused on the consumer products market. Our Quality Assurance business provides inspection, testing, auditing and consulting services that enable retailers and manufacturers to determine whether products and facilities meet applicable safety, regulatory, quality, performance and social standards. Our Quality Assurance net sales have increased from $66.5 million in 2003 to $115.4 million in 2009, representing a CAGR of 9.6%.

        We were founded in 1944 as a plastics research and development company. We launched our Quality Assurance business in 1973, and we commenced sales of our Solar encapsulant products in the late 1970s.

DLJ Transactions

        On June 15, 2007, DLJ Merchant Banking Partners IV, L.P. and affiliated investment funds, or DLJMB, and its co-investors, together with members of our board of directors, our executive officers and other members of management, acquired 100% of the voting equity interests in our wholly-owned subsidiary, Specialized Technology Resources, Inc., for $365.6 million, including transaction costs. In connection with the acquisition:

•

DLJMB and its co-investors contributed $145.7 million in cash for approximately 81.6% of the voting equity interests in STR Holdings LLC;



•

Dennis L. Jilot, our Chairman, President and Chief Executive Officer, Barry A. Morris, our Executive Vice President and Chief Financial Officer, and Robert S. Yorgensen, our Vice

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President and President of STR Solar, exchanged a portion of their existing equity investments in Specialized Technology Resources, Inc., valued at approximately $11.5 million, for approximately 6.4% of the voting equity interests in STR Holdings LLC;

•

other stockholders of Specialized Technology Resources, Inc., including some current and former employees and former directors, exchanged a portion of their existing equity investments in Specialized Technology Resources, Inc., valued at approximately $21.5 million, for approximately 12.0% of the voting equity interests in STR Holdings LLC;



•

Specialized Technology Resources, Inc., as borrower, and STR Holdings LLC, as a guarantor, entered into a first lien credit facility providing for a fully drawn $185.0 million term loan facility and an undrawn $20.0 million revolving credit facility and a second lien credit facility providing for a fully drawn $75.0 million term loan facility, in each case, with Credit Suisse, as administrative agent and collateral agent; and



•

with the cash contributed from DLJMB and certain of its co-investors and the borrowings under our first lien and second lien credit facilities, STR Holdings LLC (i) purchased the remaining shares of stock in Specialized Technology Resources, Inc., for $324.7 million, (ii) repaid $61.7 million of debt held by Specialized Technology Resources, Inc., (iii) settled Specialized Technology Resources, Inc. stock options for $1.5 million, (iv) paid financing costs of $7.9 million and transaction costs of $4.4 million; and (v) retained the remaining $5.5 million in proceeds for working capital purposes.

        We refer to the foregoing transactions collectively as the "DLJ Transactions."

Corporate Reorganization and Initial Public Offering

        Prior to November 5, 2009, we conducted our business through STR Holdings LLC and its subsidiaries. STR Holdings (New) LLC , or NewCo, a Delaware limited liability company, was formed on September 30, 2009 as an indirect subsidiary of STR Holdings LLC and held no material assets and did not engage in any operations.

        Pursuant to the corporate reorganization on November 5, 2009, STR Holdings LLC liquidated. A subsidiary of NewCo merged with and into Specialized Technologies Resources, Inc., or STRI, a former subsidiary of STR Holdings LLC, and, as a result, STRI became a wholly-owned subsidiary of NewCo. The unitholders of STR Holdings LLC became unitholders of NewCo. On November 6, 2009, NewCo converted from a limited liability company into a Delaware 'C' corporation, named STR Holdings, Inc., and the outstanding units of NewCo converted into a single class of common stock of STR Holdings, Inc.

        On November 12, 2009, we closed our initial public offering of 12,300,000 shares of common stock at an offering price of $10 per share, of which 3,300,000 shares were sold by us and 9,000,000 shares were sold by selling stockholders, resulting in net proceeds to us of approximately $25.0 million after deducting underwriting discounts, commissions and other offering costs of approximately $7.8 million. Effective with the conversion of NewCo into STR Holdings, Inc., our outstanding units were automatically converted into shares of common stock and restricted common stock. In connection with the initial public offering, we repaid $15.0 million of borrowings under our first lien credit facility, and also paid $2.6 million to terminate an advisory services and monitoring agreement we entered into in connection with the acquisition of STRI by DLJMB. We did not receive any proceeds from the sale of shares by the selling stockholders, which included entities affiliated with members of our board of directors and an affiliate of Credit Suisse Securities (USA) LLC, an underwriter that participated in the initial public offering, and each of our executive officers.

        Under the STR Holdings LLC Agreement, STR Holdings LLC's Class A, B, C, D, E and F units were subject to a priority distribution of shares of common stock in the event of an initial public

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offering. In connection with the initial public offering, the priority distribution of shares was based on our equity value as represented by the initial public offering price. For the units issued in connection with the DLJ Transactions, the shares of common stock were distributed as follows: (i) first, the Class A unitholders received an aggregate amount of common stock equal in value to their aggregate capital contributions; and (ii) second, a pro rata distribution was made with respect to the Class A, B, C, D and F units until the Class A unitholders received an aggregate amount of common stock equal in value to 2.5 times their aggregate capital contributions; and (iii) finally, a pro rata distribution was made of the remaining shares to each Class A, B, C, D, E and F unitholder based upon the number of units held by each unitholder. Class C and D incentive units that were issued in 2008 did not convert nor did any of the Class E incentive units that were issued as a result of not meeting the required aggregate value distribution thresholds.

        The following table presents the number of shares of common stock and unvested restricted common stock issued for the respective units upon conversion. The number of shares of common stock and unvested restricted common stock issued was based upon the vesting provisions of the outstanding units and reflect the units vested and unvested at the date of conversion:

        On December 7, 2009, we closed the partial exercise of the over-allotment option granted by the selling stockholders given in connection with the initial public offering, which resulted in a total purchase of 1,695,000 shares at the initial public offering price of $10 per share. We did not receive any of the proceeds from the sale of the shares as a result of the exercise of the over-allotment option.

Our Business Segments

        We operate in two business segments: Solar and Quality Assurance.

        The following table sets forth our net sales for each segment and the percentage of total net sales by segment for the periods presented.

Solar

        Our Solar segment manufactures encapsulants for sale to solar module manufacturers. Our Solar customer base is comprised of over 130 solar module manufacturers. Our Solar segment grew rapidly

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through 2008 and became our largest segment in terms of net sales beginning in the first quarter of 2008. In 2009, our Solar segment was impacted by decreased global demand for solar energy as a result of legislative changes, such as the cap in feed-in tariffs in Spain implemented in late 2008, the global recession and the worldwide credit crisis. Operations for our Solar segment are conducted in five locations in the United States, Spain and Malaysia. For the years ended December 31, 2009, 2008 and 2007, our Solar net sales were $149.5 million, $182.3 million and $78.6 million, respectively.

        We expect the following factors to affect our Solar segment's results of operations in future periods:

•

Industry trends.  The future performance of our Solar segment depends on the solar power industry as a whole. The solar power industry is impacted by a variety of factors, including environmental concerns, energy costs, worldwide economic conditions, government subsidies and incentives, the availability of polysilicon and other factors. For example, we expect an increase in demand for solar energy in the United States as a result of the American Recovery and Reinvestment Act passed in February 2009, which provides financial incentives for the development of renewable energy, as well as other renewable energy legislative initiatives. China, France, Taiwan, Japan and other countries have also announced significant plans to increase their use of renewable energy, including solar. However, Germany and Italy are proposing additional reductions that we expect to take place in the second half of 2010, which may create additional demand during the first half of 2010 at the expense of the second half of 2010.



•

Customer demand.  The solar module industry is relatively concentrated. As a result, we sell substantially all of our encapsulants to a limited number of solar module manufacturers. We expect that our results of operations will, for the foreseeable future, continue to depend on the sale of encapsulants to a relatively small number of customers and will, in turn, be dependent on their growth. Sales to First Solar accounted for 27.1%, 19.1%, and 13.8% of our Solar net sales in the years ended December 31, 2009, 2008 and 2007, respectively. As of December 31, 2009, we had entered into contracts with five of our largest customers. As a result, we expect sales volume to these customers to increase; however, the increase in volume will be offset, in part, by volume pricing concessions. In addition, the top five customers in our Solar segment accounted for approximately 55.0%, 47.0% and 46.0% of our Solar net sales in the years ended December 31, 2009, 2008 and 2007, respectively. Because we are part of the overall supply chain to our customers, any cost pressures or supply chain disruptions experienced by them may affect our business and results of operations.



•

Pricing.  During 2009, overall solar industry capacity exceeded demand causing an over-supply of inventory in the solar module supply chain. Increased competition from low cost countries, particularly China, and continued vertical integration of many manufacturers in the solar supply chain contributed to the increase in capacity, while the after shocks from the change in feed-in tariff in Spain during 2008, the negative impact from the global recession that persisted during the first half of 2009 and the lack of project financing caused by the credit crisis reduced overall solar module demand. These events caused many module manufacturers to significantly reduce the average selling price of their modules.


From an industry standpoint, the reduction in module selling prices has improved rates of return on solar investments and is a long-term industry trend that we believe will help to bring grid-parity closer to a reality. Since the sale of more modules drives our growth, we will continue to partner with our customers and provide competitively priced, high quality encapsulant to aid them in reducing the overall cost of solar power.

For 2009, we experienced a price decline of 7% from the prior year. Encapsulant pricing has been more resilient than other areas of the solar supply chain. We attribute this to several factors. Namely, our product is differentiated in terms of quality. These differences, which

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include greater dimensional stability, faster curing times and superior long-term stability, can have a substantial impact on factory yields and lifetime module output. And with our encapsulant typically representing less than five percent of the cost of a module, our product continues to present a compelling internal rate of return. However, we do expect pricing pressure to continue throughout the industry and while we expect to be affected to a lesser degree than many other parts of the supply chain, we will not be immune. We are currently anticipating continued pricing pressure during 2010 that will negatively impact our net sales and net income.

•

Production capacity.  To meet anticipated future growth in demand in the solar module market and increase our market share, we plan to continue to increase capacity by adding new production lines at our existing facilities or opening new facilities. We added four 500 MW production lines in 2008 and two 500 MW production lines and a 100 MW production line in 2009, bringing our total global capacity to 5,350 MW. At the end of 2008, we completed the construction of a new manufacturing facility in Malaysia, which has initially been designed for up to 2,000 MW of capacity and can be expanded to accommodate up to 3,000 MW of capacity. The Malaysian facility currently has two 500 MW operational production lines and we began shipping production quantities of encapsulants from that facility in the third quarter of 2009. An increase in capacity allows us to produce and sell more encapsulants and should permit us to decrease our manufacturing costs per unit by leveraging our global management, manufacturing and distribution base. As of December 31, 2009, our encapsulant manufacturing capacity was 5,350 MW. During the first quarter of 2010, our Malaysian facility received a 500 MW production line from Connecticut and a 500 MW production line from Spain to meet shifting worldwide module demand from Europe to Asia. We expect our global production capacity to increase to 6,350 MW by June 30, 2010.

Quality Assurance

        Our Quality Assurance segment offers services that help clients determine whether the products designed and manufactured by them or on their behalf meet applicable safety, regulatory, quality, performance and social standards. These services, which include testing, inspection, auditing and consulting, are provided to retailers and manufacturers worldwide. We have a broad client base, serving over 5,000 clients in 2009. For the years ended December 31, 2009, 2008 and 2007, our Quality Assurance net sales were $115.4 million, $106.3 million and $95.4 million, respectively.

        We expect our Quality Assurance segment to be impacted by the desire of product designers, retailers and manufacturers to meet applicable safety, regulatory, quality, performance and social standards and to ensure that product quality and standards are met as retailers, importers and manufacturers choose to outsource production to developing countries. To meet the demand for quality assurance services, we have developed an extensive network of 17 laboratories, 72 inspection and audit offices and 21 sales offices in 36 countries across North America, South America, Europe, Asia, Indian sub-continent and Africa. In addition, we have more than 40 internationally recognized accreditations and memberships.

        We expect the following factors to affect our Quality Assurance segment's results of operations in future periods:

•

Industry trends.  Manufacturers and consumer products companies are increasingly seeking to determine whether the products designed or manufactured by them or on their behalf meet applicable safety, regulatory, quality, performance and social standards. This growth is expected to result from a variety of factors, including shorter product life-cycles and mass customization, as well as increasing regulatory oversight and requirements. For example, in February 2009, certain provisions of the Consumer Product Safety Improvement Act of 2008 became effective

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with respect to certain children's products, requiring the consumer product industry to have independent testing performed prior to distribution of the products. Additional provisions of this legislation are expected to become effective during 2010. We also expect that growth will be impacted by worldwide economic conditions.

•

Geographic locations.  Consumer products manufacturing occurs on a global basis, and many manufacturers operate in multiple countries on multiple continents. In addition, many retailers, importers and manufacturers are outsourcing production to developing countries. Accordingly, retailers, importers and manufacturers are seeking quality assurance providers with testing capabilities for their specific products in the countries where their products are being manufactured.



•

Competition.  The quality assurance market is highly competitive and our ability to obtain new clients and retain existing clients will be impacted by competitive and other factors.



•

Accreditations.  In order to provide quality assurance services for specific types of products or in specific geographic locations, quality assurance service providers are required to obtain and maintain accreditations and memberships in a variety of countries and geographic regions.

Components of Net Sales and Expenses

Net Sales—Solar

        Our Solar net sales are primarily derived from the sale of encapsulants to both crystalline and thin-film solar module manufacturers. We expect that our results of operations, for the foreseeable future, will depend primarily on the sale of encapsulants to a relatively small number of our existing customers. Sales to First Solar accounted for 27.1%, 19.1%, and 13.8% of our Solar net sales in the years ended December 31, 2009, 2008 and 2007, respectively. The top five customers in our Solar segment accounted for approximately 55.0%, 47.0% and 46.0% of our Solar net sales in the years ended December 31, 2009, 2008 and 2007, respectively.

        Sales to our Solar customers have been typically made through non-exclusive, short-term purchase order arrangements that specify prices and delivery parameters but do not obligate the customer to purchase any minimum amounts. As our customers look to secure materials or access to our production capacity to support their module production, we have recently entered into, or are in negotiations to enter into, contracts that include periods of exclusivity and minimum purchase requirements. Although such contracts provide for the sale of encapsulants at lower prices than our shorter-term arrangements, they will provide greater predictability of demand. As of December 31, 2009, we had entered into contracts with five of our largest customers.

        Our Solar net sales are affected by our ability to meet customer demand, both in terms of encapsulant production and timing of delivery. We have five encapsulant manufacturing facilities, located in the United States, Spain and Malaysia. Our expansion strategy, guided by our customers' forecasts of their demand for our products and independent research on solar energy, is to meet our customers' anticipated growing demands and serve the markets in which they operate by adding production lines and facilities as our customers, and the market for our products generally grow. We expect a larger proportion of our Solar net sales to be in the Asia-Pacific region in 2010 and beyond.

        Demand for our encapsulants depends, in large part, on government incentives aimed to promote greater use of solar energy. The German government recently has announced legislation that we expect to reduce feed-in tariffs in the second half of 2010. We believe this announcement has resulted in the pull-in of demand from solar module manufacturers due to increased end-user demand being driven by the incentive to purchase a solar system prior to the expected enactment of the decreased feed-in tariff incentives. As such, we may see atypical Solar sales during 2010 compared to historical patterns.

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        Pricing of our encapsulants is impacted by the competition faced by our customers, and the quality and performance of our encapsulant formulations, including their impact on improving our customers' manufacturing yields, their history in the field, our ability to meet our customers' delivery requirements, overall supply and demand levels in the industry and our customer service and technical support. While our encapsulant pricing has not decreased as rapidly as other parts of the solar module supply chain, we expect our encapsulant pricing to be negatively impacted by increased competition. We currently anticipate continued price reductions during 2010.

Net Sales—Quality Assurance

        We generate net sales in our Quality Assurance segment primarily by providing inspection, testing and audit services to our clients. We enter into contracts on a fixed price, time and material, or a cost-plus fixed fee basis. We also provide services on a non-contract basis pursuant to a fixed price list.

        We have a broad client base, serving over 5,000 clients in 2009, with our top five clients accounting for approximately 22.1%, 18.0% and 18.2% of our Quality Assurance net sales in the years ended December 31, 2009, 2008 and 2007, respectively. Our Quality Assurance business operates a network of 17 laboratories, 72 inspection and audit offices and 21 sales offices in 36 countries across North America, South America, Europe, Asia, Indian sub-continent and Africa. In addition, because our Quality Assurance business serves a diverse and global client base, we strive to operate where such clients operate and where the products they purchase are manufactured. We are required to work with a partner in certain countries either because of local laws and regulations or because such arrangements are customary to doing business in such countries. Also, we may enter into strategic alliances with other quality assurance providers in order to meet client demands in countries where it may not be practicable for us to operate on a stand-alone basis.

        Net sales in our Quality Assurance segment are typically lower in the first quarter of the year, in part due to the impact of holiday seasons on consumer products businesses. Pricing of our Quality Assurance services is based on pricing in the quality assurance industry, which is generally highly competitive.

Cost of Sales—Solar

        In our Solar segment, we manufacture all of the products that we sell. Our cost of sales in our Solar segment consists of our costs associated with raw materials and other components, direct labor, manufacturing overhead, salaries, other personnel-related expenses, write-off of excess or obsolete inventory, quality control, freight, insurance, disposition of defective product and depreciation and amortization of intangibles as a result of the DLJ Transactions. Resin constitutes the majority of our raw materials and components costs, and paper liner is the second largest cost. The price and availability of resin and paper liner are subject to market conditions affecting supply and demand. In 2010, the price of resin has increased, which could impact our gross profit, especially where we have entered into fixed-price contracts, and generally increases as demand rises and as oil and gas prices rise. Paper prices have also been volatile. We have also experienced price increases in the equipment used in our production lines over the past three years.

        Overall, we expect our Solar cost of sales, as a percentage of Solar net sales, to increase over the next several years due to (i) reduced pricing in response to lower overall solar module industry pricing driven by increased competition faced by our customers and reduced average selling price related to volume discounts and (ii) increased commodity costs, partially offset by more efficient absorption of fixed costs driven by economies of scale, geographic diversification into lower-cost manufacturing regions, production efficiencies and continued cost reduction efforts.

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Cost of Sales—Quality Assurance

        In our Quality Assurance segment, we conduct our testing primarily at our facilities and incur travel expense when performing inspections and audits. Our cost of sales in our Quality Assurance segment consists primarily of our costs associated with direct labor, operational overhead, laboratory supplies, salaries and other personnel-related expenses, travel expenses, insurance, depreciation and amortization of intangibles. Labor and benefits represented our largest cost of Quality Assurance sales in the years 2009, 2008 and 2007 at 29.2%, 30.8% and 41.1% of Quality Assurance net sales, respectively. Although we expect our Quality Assurance cost of sales to increase as we expand our operations, we believe our Quality Assurance cost of sales as a percentage of Quality Assurance net sales will be positively affected by the expansion of operations in sites with lower operating costs, such as China and the Indian sub-continent.

Gross Profit

        Gross profit is affected by numerous factors, including our average selling prices, fluctuations in foreign exchange rates, seasonality, our manufacturing costs and the effective utilization of our facilities. Another factor impacting gross profit is the time required for new production facilities and the expansion of existing facilities to reach full production capacity. As a result, gross profit varies from quarter to quarter and year to year.

Selling, General and Administrative Expenses

        Our selling and marketing expenses consist primarily of salaries, travel, commissions and other personnel-related expenses for employees engaged in sales, marketing and support of our products and services, trade shows and promotions. General and administrative expenses consist of outside professional fees and expenses for our executive, finance, administrative, information technology and human resource functions.

        Our selling, general and administrative expenses have increased in absolute terms over the past three years primarily as a result of increased headcount resulting from the strengthening of our management and corporate infrastructure, particularly in our finance and information technology departments, and increasing marketing and legal costs.

        We expect our selling and marketing expenses to increase in absolute terms as we expand our direct sales force and increase our sales and marketing activities. However, we do not expect them to increase significantly as a percentage of total net sales. We expect our general and administrative expenses will increase in absolute terms and as a percentage of net sales in the shorter term as a result of the additional costs associated with operating as a public company.

Provision for Bad Debt Expense

        We reserve for estimated losses that may result from the inability of our customers to make required payments. We review the collectability of our receivables on an ongoing basis and reserve for uncollectible accounts after reasonable collection efforts have been made and collection is deemed questionable.

Earnings on Equity-Method Investments

        We own 50% of the shares of CTC-Asia, Ltd., a joint venture with Le Centre Technique Cuir Chaussure Maroquinerie, or CTC, which operates a laboratory in Hong Kong primarily involved in the testing of leather products. At December 31, 2009 and December 31, 2008, our investment in CTC-Asia, Ltd. was $0.9 million and $0.6 million, respectively, and classified as Other noncurrent assets in the consolidated balance sheets.

Transaction Costs

        During the period from January 1 to June 14, 2007, we incurred and expensed our transaction costs in connection with the DLJ Transactions, including merger and acquisition advisory fees, bonus payments and professional fees.

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Interest Income

        Interest income is comprised of interest income earned on our cash and cash equivalents and short-term investments.

Interest Expense

        Interest expense consists primarily of interest on borrowings under our credit facilities entered into in connection with the DLJ Transactions.

        On October 5, 2009, we entered into an amendment to the first lien credit agreement and an amendment to the second lien credit agreement. The amendments for both credit agreements permitted us to enter into certain corporate reorganization transactions, including replacing STR Holdings LLC with STR Holdings (New) LLC as a guarantor under each credit agreement. The amendments and the repayment of $15.0 million of borrowings under our first lien credit facility with the proceeds from the initial public offering resulted in deferred financing costs of $1.1 million, which are being amortized to interest expense over the remaining term of the credit agreements.

Other Income (Expense) Items

        Other income (expense) includes foreign currency transaction gains and losses and unrealized gains and losses on our interest rate swap. We were required under the terms of both our first lien and second lien credit facilities to fix our interest costs on at least 50% of the principal amount of our funded indebtedness within three months of entering into the credit facility for a minimum of three years. To manage our interest rate exposure and fulfill the requirements under our credit facilities, effective September 13, 2007, we entered into a $200.0 million notional principal amount interest rate swap agreement with Credit Suisse International that effectively converted a portion of our debt under our credit facilities from a floating interest rate to a fixed interest rate. The notional principal amount decreased to $130.0 million on October 1, 2008 and will remain at that amount until the agreement terminates on September 30, 2010. Under the interest rate swap agreement, we pay interest at 4.622% and receive the floating three-month LIBOR rate from Credit Suisse International on the notional principal amount. As of December 31, 2009, our interest rate swap had a fair value of a liability of $4.0 million. Unrealized gains and losses on this interest rate swap represent the change in the fair value of the interest rate swap based on the floating interest rate and an assessment of counterparty credit risk.

Income Taxes

        Income tax expense is comprised of federal, state, local and foreign taxes based on income in multiple jurisdictions and changes in uncertain tax positions.

Critical Accounting Policies

        Our discussion and analysis of our consolidated financial position and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates including those related to bad debts, valuation of inventory, long-lived intangible and tangible assets, goodwill, product performance matters, income taxes and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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        The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex and subjective management judgments are discussed below.

Revenue Recognition and Accounts Receivable

        We recognize revenue when evidence of an arrangement exists, delivery of the product or service has occurred and title and risk of loss have passed to the customer, the sales price is fixed or determinable and collectibility of the resulting receivable is reasonably assured.

        Our Solar business recognizes revenue from the manufacture and sale of its products either at the time of shipping or at the time the product is received at the customer's port or dock, depending upon terms of the contract.

        Our Quality Assurance business performs testing, quality assurance and compliance consulting on a fixed-price, time and material, or a cost plus fixed-fee basis. The majority of our Quality Assurance contracts provide one service deliverable to the client, and revenue is recognized upon completion of such service when a report is provided to the client.

        A limited number of Quality Assurance contracts include the performance of multiple service offerings in an integrated package and are more long term in nature. The amount of revenue recognized for these contracts amounted to approximately $3.7 million, $5.0 million and $4.5 million in the year ended December 31, 2009, the year ended December 31, 2008 and the year ended December 31, 2007, respectively. These contracts are accounted for under Accounting Standards Codification, or ASC, 605 Revenue Recognition. ASC 605 requires contract consideration in which multiple service offerings are provided under a single contract to be allocated to each specific service offering based on each portion of the contract's respective fair value in proportion to the contract's total fair value. We have determined that each deliverable under these contracts is a separate unit of accounting that possesses fair value that is represented by price lists and historical billing practices. We recognize revenue on each contract deliverable when the services have been completed and communicated to our client. Contractual termination provisions exist by which either party may cancel the contract with written notice. Upon notice, we are contractually entitled to receive compensation for all services performed up to and through the termination period.

        Billing for these contracts occurs on a pre-determined schedule or at the end of the contractual term. Unbilled receivables represent revenue that has been recognized but not billed, while billings in excess of earned revenues represent billings to clients in excess of revenues recognized on contracts.

Allowance for Doubtful Accounts

        We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We review the collectability of our receivables on an ongoing basis and write off accounts receivable after reasonable collection efforts have been made and collection is deemed questionable or the debt uncollectible.

Inventory Valuation

        Our finished goods inventories are made-to-order and possess a shelf life of six to nine months from the date of manufacture. Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis and includes both the costs of acquisition and the costs of manufacturing. These costs include direct material, direct labor and fixed and variable indirect manufacturing costs, including depreciation and amortization.

        We write inventory down to net realizable value when it is probable that our finished goods inventories carrying cost is not fully recoverable through sale or other disposition. Our write down

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considers overall market conditions, customer inventory levels, legal or contractual provisions and age of the finished goods inventories.

        Prior to 2009, obsolescence was not a significant factor in the valuation of inventory. Due to the recessionary economic environment during the early part of 2009, some customers canceled or delayed the delivery of orders after the product was manufactured but not yet shipped. As such, $1.0 million of inventory write downs were recorded during the first half of the year ended December 31, 2009.

Intangible Assets

        We account for business acquisitions using the purchase method of accounting and record definite-lived intangible assets separately from goodwill. Intangible assets are recorded at their estimated fair value based at the date of acquisition.

        Our intangible assets include our customer relationships, trademarks, proprietary technology and accreditations as a result of the DLJ Transactions.

        Our customer relationships consist of the value associated with existing contractual arrangements as well as expected value to be derived from future contract renewals of our Solar and Quality Assurance customers. We determined their value using the income approach. Their useful life was determined by consideration of a number of factors, including our longstanding customer base and historical attrition rates.

        Our trademarks represent the value of our STR and Photocap trademarks. We determined their value using the "relief-from-royalty" method. The useful life of trademarks was determined by consideration of a number of factors, including elapsed time and anticipated future cash flows.

        Our proprietary technology represents the value of our Solar manufacturing processes. We determined its value using the "relief-from-royalty" method. The useful life of proprietary technology was determined by consideration of a number of factors, including elapsed time, prior innovations and potential future technological changes.

        Our accreditations represent the value of our Quality Assurance business's technical skills and ability to provide worldwide product testing, inspection and audits under applicable standards. We determined their value using the cost approach. The useful life for accreditations was determined by consideration of a number of factors, including the duration such accreditations were expected to be in effect and anticipated future cash flows.

        Determining the fair value and useful lives of our intangible assets requires management's judgment and involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates, asset lives and market royalty rates, among other items. While we believe our estimates are reasonable, different assumptions regarding items such as future cash flows and volatility in the markets we serve could affect our evaluations and result in a future impairment charge to the carrying amount of our intangible assets.

        In accordance with ASC 350—Intangibles—Goodwill and Other, we assess the impairment of our definite-lived intangible assets whenever changes in events or circumstances indicate that the carrying value of such assets may not be recoverable. During each reporting period, we assess if the following factors are present, which would cause an impairment review: a significant or prolonged decrease in sales that are generated under our trademarks and accreditations; loss of a significant customer or reduction in our customers' demand for our products driven by competition they encounter, a significant adverse change in the extent to or manner in which we use our accreditations, trademarks or proprietary technology; such assets becoming obsolete due to new technology or manufacturing processes entering the markets or an adverse change in legal factors, such as the change in feed-in tariff policy implemented by the Spanish government in 2008 or any potential plans to divest or dispose

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of such intangible assets. We have assessed these factors during 2009 and concluded that no impairment indicators exist that would require an impairment valuation assessment. However, if we experience significant future reductions in our Solar net sales or a significant reduction of existing government incentives in the solar industry that are not offset by potential increases in solar programs in other countries, such as the United States and China, certain of our intangible assets may be subject to future potential impairment.

Long-Lived Assets

        In accordance with ASC 360—Property, Plant, and Equipment, we evaluate the carrying value of our long-lived assets, including property, plant and equipment, for impairment when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. If a long-lived asset is found to be impaired, the amount recognized for impairment is based on the difference between the carrying value and the asset's fair value. Fair value is estimated based upon discounted future cash flows or other reasonable estimates of fair market value.

Goodwill

        Goodwill represents the excess of the purchase price consideration over the estimated fair value for the individual assets acquired and liabilities assumed. As a result of the DLJ Transactions, we allocated the goodwill to each of our reportable segments, Solar and Quality Assurance, which are our reporting units, based on the acquired net assets and on management's expectations regarding the extent to which each segment would benefit from the synergies of the acquired business. Our two reportable segments were determined to be our reporting units because they are two distinct operating segments, each of which is managed by its own president. Additionally, our board of directors and chief executive officer review financial information and allocate resources at the level of our reporting segments. We do not amortize goodwill, but instead test goodwill for impairment in accordance with the two-step method described in ASC 350. We perform our annual impairment review of goodwill in the fourth quarter, and also perform a review if at any time facts and circumstances warrant. In assessing if there is impairment to goodwill, we first determine the fair value of our two reporting units. We substantially passed the first step of the two-step impairment testing method in the fourth quarter of 2009. At that time, step one of the impairment analysis described in ASC 350 resulted in approximately $107.6 million of excess fair value over the carrying value. The excess of fair value over carrying value was approximately $53.0 million, or 17%, and $54.6 million, or 34%, for our Solar and Quality Assurance segments, respectively. If the fair value of either of our two segments were to be less than its carrying value, we would allocate the current fair value of the segment to the assets and liabilities of the segment to estimate the segment's goodwill. If such implied goodwill was less than the carrying value of such goodwill, we would record an impairment charge for the amount of such difference.

        The estimate of fair value of each reporting unit was derived from the income approach that estimates the fair value of each of the reporting units using a discounted cash flow method. This method was considered the most appropriate technique to estimate the fair value of the reporting units in the absence of market based comparable acquisition transaction activity caused by the global recession. The estimates of future cash flows used were consistent with the objective of measuring fair value and incorporate assumptions that marketplace participants would use in their estimates of fair value, such as growth rates, discount rates and capital structure. In order to derive the fair value of each of the reporting units using the discounted cash flow method, the discount rate for each reporting unit was calculated. A discount rate is generally used in asset valuation as the rate at which a series of future cash flows or earnings is reduced to present value. In the goodwill impairment calculation, we based our assumption of a discount rate on the use of a weighted average cost of capital method. In calculating the weighted average cost of capital for each reporting unit, we believe income risk is best

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determined by comparing it to the risk levels of guideline companies that operate in either of our business segments. Using these guideline companies, we calculated a weighted average cost of capital based on inputs that marketplace participants would use to discount their projected cash flow for each reporting unit.

Product Performance Accrual

        We typically do not provide contractual warranties on our products. However, on limited occasions, we incur costs to service our products in connection with specific product performance matters. Anticipated future costs for product performance matters are recorded as part of cost of sales and accrued liabilities for specific product performance matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. During the second half of 2008, we recorded an accrual of $5.6 million relating to specific product performance matters, which amount represents management's best estimate of the costs to repair or replace such product. The majority of this accrual relates to a quality claim by one of our customers in connection with a non-encapsulant product that we purchased from a vendor in 2005 and 2006 and resold. We stopped selling this product in 2006 and are currently attempting to resolve this matter.

Income Taxes

        We operate in multiple taxing jurisdictions and are subject to the jurisdiction of a number of U.S. and non-U.S. tax authorities and to tax agreements and treaties among those authorities. Operations in these jurisdictions are taxed on various bases, including income before taxes as calculated in accordance with jurisdictional regulations.

        We account for income taxes using the asset and liability method in accordance with ASC 740—Income Taxes. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carry forwards. We estimate our deferred tax assets and liabilities using the enacted tax laws expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, and will recognize the effect of a change in tax laws on deferred tax assets and liabilities in the results of our operations during the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized.

        ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements and how companies should recognize, measure, present and disclose uncertain tax positions that have been or are expected to be taken. Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the appropriate taxing authority has completed its examination even though the statute of limitations remains open, or the statute of limitation expires. Interest and penalties related to uncertain tax positions are recognized as part of our provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

Stock-Based Compensation

        ASC 718—Compensation—Stock Compensation, addresses accounting for share-based awards, including stock options, with compensation expense measured using fair value and recorded over the requisite service or performance period of the award.

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        The fair value of stock options issued in November 2009 in connection with our initial public offering was determined using the Black-Scholes option pricing model. Our assumptions about stock-price volatility have been based exclusively on the implied volatilities of other publicly traded options to buy stock with contractual terms closest to the expected term of options granted to our employees. The expected term represents the estimated time until employee exercise considering vesting schedules and using the Hull-White model. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury 10 year zero-coupon strip yield in effect at the time of grant. The expected dividend yield was based on the assumption that no dividends are expected to be paid in the foreseeable future.

        In 2007 and 2008, we had previously issued restricted incentive units for purposes of equity compensation to members of management, employees and directors. Some of these units were subsequently converted into shares of either common or restricted common stock based on the amounts vested at the time of our initial public offering.

        The fair value of each incentive unit granted during the year ended December 31, 2008 and the period from June 15 to December 31, 2007 was determined on the respective date of the grant using a Black-Scholes option-pricing model that used the assumptions noted in the following table, along with the associated weighted average fair values. The expected volatilities are based on a peer group of companies. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the incentive units. The expected term represented the estimated time until a liquidity event. The expected dividend yield was based on the assumption that no dividends were expected to be distributed in the near future.

Consolidated Results of Operations

        For purposes of the following discussion and analysis of our operating results, our consolidated net sales, costs and expenses for the year ended December 31, 2007 have been presented on a pro forma basis, as if the DLJ Transactions had taken place on January 1, 2007. Pro forma adjustments include amortization expense of acquired intangible assets, increased cost of goods sold expense due to the step up of our inventory to fair value, increased depreciation expense due to the step up to fair value of property, plant and equipment, increased interest expense associated with increased borrowings and the associated tax effect of those adjustments.

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        We believe the presentation of our pro forma results of operations for the year ended December 31, 2007 provides important information on the full year effect of the DLJ Transactions for use in comparing our results of operations during these periods to our results in prior and future periods. The pro forma consolidated results of operations do not purport to represent our actual results of operations for the successor and predecessor periods in 2007 or what our actual consolidated results of operations would have been had the DLJ Transactions actually occurred on January 1, 2007, nor are they necessarily indicative of our future consolidated results of operations.

        The following table sets forth our consolidated results of operations for the predecessor period from January 1 to June 14, 2007, the successor period from June 15 to December 31, 2007 and the pro forma year ended December 31, 2007.