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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
[Fee Required]
For the fiscal year ended December 31, 1999.
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or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[No Fee Required]
For the transition period from _______________ to ________________
Commission file Number 000-23657
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AstroPower, Inc.
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( Exact name of registrant as specified in its charter)
Delaware 51-0315869
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Solar Park, Newark, DE 19716-2000
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (302) 366-0400
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
As of March 20, 2000, 11,330,103 shares of $0.01 par value common stock
were outstanding. The aggregate market value of shares held by non-affiliates as
of March 20, 2000 was $363,357,168 based on the bid price of the Common Stock on
that date.
Documents incorporated by reference and the Part of the Form 10-K into
which the document is incorporated are as follows: Registrant's definitive proxy
statement for its 2000 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission on or before April 30, 2000 (incorporated
by reference under Part III).
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PART I
Cautionary Note Regarding Forward-Looking Statements
This annual report on Form 10-K contains forward-looking statements that are
made pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports, and other periodic reports and filings of the Company filed with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address the Company's expectations of sources of capital
or which express the Company's expectation for the future with respect to
financial performance or operating strategies, can be identified as forward
looking statements. As a result, there can be no assurance that the Company's
future results will not be materially different from those described herein as
"believed", "anticipated", "estimated" or "expected", which reflect the current
views of the Company with respect to future events. We caution readers that
these forward looking statements speak only as of the date hereof. The Company
hereby expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any such statements to reflect any change in the
Company's expectations or any change in events, conditions or circumstances on
which such statement is based.
BUSINESS
Overview
AstroPower develops, manufactures, markets and sells a range of solar electric
power products, including solar cells, modules and panels, for the global
marketplace. Solar cells are semiconductor devices which convert sunlight into
electricity and form the building block for all solar electric power products.
Our products are used to generate electricity for users not connected to the
utility grid. Such applications include electrification of rural homes and
villages, and power supply for equipment in the communications and
transportation industries. Our products are also used by customers already
connected to the utility grid as a clean, renewable source of alternative or
supplemental electricity. Additionally, the Company recently expanded a joint
venture agreement with GPU International to generate and sell wholesale solar
electric power.
The electricity industry is currently experiencing significant structural change
due to federal and state deregulation, which is designed to promote customer
choice of electric power provider and to introduce retail competition. In
addition, state governments are introducing legislation and implementing various
economic incentives to stimulate the use of renewable sources of electricity,
including solar power. We believe increased retail competition and the
introduction of various economic incentives will stimulate providers to
differentiate their power offerings and to include solar electric power among
their power options.
While solar electric power is often the most cost-effective source of electric
power in selected applications off of the utility grid, the broad utilization of
solar electric power on the utility grid has been limited by production costs.
We have optimized several stages in the solar cell manufacturing process to
progressively reduce production costs while increasing mechanical and electrical
yields.
. Silicon wafer sourcing. Our proprietary manufacturing process utilizes
recycled semiconductor wafers that allow us to reduce silicon wafer
cost.
. Equipment and process engineering. Our proprietary equipment and
processes allow us to increase our manufacturing productivity and
ultimately to generate a higher level of power output per production
asset than our competitors. For example, our Silicon-Film(TM)
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technology allows us to produce large area silicon sheets in minutes.
. Product design. Our large solar cell design features allow us to
generate more power per solar cell.
Our focus on silicon wafer sourcing, equipment and process engineering and
product design has allowed us to reduce our production cost per watt and thus to
improve our product gross margins.
The Electricity Industry
The electric power industry comprises one of the world's largest industrial
segments, with annual electricity revenues in excess of $1 trillion.
Approximately $200 billion is spent annually on power generation and delivery
equipment. More than 90% of this equipment is utilized in centralized power
plants where electricity is generated at a large scale and distributed through a
network of conducting cables to end users.
The source and corresponding price of electricity vary based on geographic
location of a user and level of existing electricity infrastructure. Generally,
customers in urban and suburban locations are served by a central utility
network and are considered on-grid customers. In contrast, customers or
applications in rural or underdeveloped areas are generally provided electricity
through various distributed, off-grid sources of electricity, including solar
power.
Structural Change of the Electricity Industry
The electricity industry is currently undergoing significant changes to its
basic structure and operating models. In particular, governments in the United
States and around the world are changing the model of vertically integrated
electric utility monopolies in favor of a deregulated, competitive industry
structure. Furthermore, new power generation technologies have expanded users'
options for procuring electricity. These developments are expected to lead to:
. Increased competition. In the United States, certain states are
planning a phased introduction of competition, starting with
competition among wholesale electricity generators, following with the
establishment of independent common-carrier bulk transmission systems
and finally leading to the introduction of true retail competition at
the end-user level. At the final stage of this process, we expect that
individual customers will have as much choice over their electricity
provider as they do over their long-distance telephone service
provider.
. New entrants. As competition within the electricity business
increases, a number of new companies will emerge and focus on various
elements of electricity delivery, such as power generation and retail
marketing. In response to this shift, we expect existing electricity
providers, as well as new electricity service companies, to develop
and promote a broader array of products and services such as solar
electric power as a means of segmenting customer demand and defining
differentiated brand positioning.
. Increased customer choice of products and services. In the deregulated
environment, customers will have more direct control over the
selection of providers and the means of power generation. Consumers
have already shown a preference for clean, environmentally friendly
renewable energy sources such as solar electric power. We expect this
trend to continue as deregulation progresses.
. Economic incentives. Governments are implementing legislation and
introducing various subsidies and set-asides in order to accelerate
the commercialization of renewable energy
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sources such as solar electric power. Specific state laws, subsidy
programs and other variables such as sunlight availability can have a
significant combined impact on the cost effectiveness of on-grid solar
electric power.
Deregulation of the electricity industry is occurring globally, and the rules
which govern this process differ significantly among countries. In the United
States, deregulation is proceeding on a state-by-state basis. Currently, there
are four states that have passed legislation and opened their retail electricity
markets to competition (California, Massachusetts, Pennsylvania and Rhode
Island), and an additional 19 states have formal deregulation procedures
underway.
As part of the deregulation process, governments in Europe, Japan and the United
States are implementing legislation and introducing various economic incentives.
Renewable energy sources benefit from the following types of governmental
assistance.
. portfolio standards mandating the use of renewable energy sources
. direct purchase subsidies to end users to offset up-front capital
costs
. net metering laws which allow end users to sell electricity back into
the grid at full retail prices
In Europe and Japan, we estimate that these programs have stimulated the
installation of more than 38,000 solar electric power residential systems from
1995 through 1998. In California, which was the first state to fully deregulate
its electricity industry, the legislature set aside $54 million in 1998 for
solar electric power programs, including a five-year direct subsidy program for
homeowners who purchase solar electric power systems.
The Solar Electric Power Industry
A number of new technologies have emerged which can generate electricity in a
distributed or point-of-use fashion. Solar electric power is the only method of
distributed generation that utilizes a renewable energy source. Solar electric
power is highly scalable and reliable, unlike a conventional utility grid that
depends critically on economics of large scale and which is subject to power
delivery constraints or outages during periods of high demand. Distributed
generation can be more cost effective than conventional "central station"
generation in the following cases:
. users live far from urban centers
. only a small amount of electricity is required
. the capacity of the existing power delivery infrastructure prevents
incremental load growth
We also believe that the environmental aspects of the power business will become
increasingly important and that public concern about air pollution and global
warming will be gradually transformed into policies and legislation favorable to
renewable energy sources.
Solar electric power is used in three major market segments:
. On-grid. In this application, solar electric power is used as an
environmentally preferred source of alternative or supplemental
electricity for customers already connected to the utility grid.
Primarily concentrated in Europe, Japan, and the United States, this
application has represented the fastest-growing segment of the solar
electric power market for the last three years.
. Rural electrification. Many of the estimated two billion people still
without electricity live in geographic areas not conducive to
electrification by means of the electrical grid. For these people,
solar electric power can be a cost effective and rapid way in which to
acquire electrical
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service.
. Telecommunications. Solar electric power is used for a wide variety of
applications related to the telecommunications and transportation
industries. Examples of these applications include: cellular telephone
base stations, fiber-optic and radio repeaters, telemetry and data
acquisition systems, traffic information, warning displays, and
emergency call boxes.
PV Energy Systems, an independent solar energy research firm, estimates 1999
worldwide solar electric power industry shipments at 202 megawatts. Since 1994,
industry shipments have increased at a compound annual growth rate of 33%.
During this period, the fastest-growing solar electric power market segment has
been for on-grid applications, where consumers already connected to the utility
grid are choosing solar electric power as an alternative to conventional on-grid
sources. We believe that growth in the on-grid market segment is being driven by
customer preference for non-polluting, carbon-free electric power technologies
and by the worldwide trend toward deregulation within the electric utility
industry.
The Solar Electric Power Challenge
Solar electric power is often the most cost-effective source of electric power
in selected applications off the utility grid. While governmental assistance
and enhanced consumer choice have accelerated the use of solar electric power
for on-grid applications, the utilization of solar electric power for
widespread, multiple applications on the utility grid has been limited by
production costs. The ability to reduce the cost of solar electric power is
driven by three primary factors:
. Materials sourcing. Reducing raw materials cost must be achieved
without compromising product reliability.
. Equipment and process engineering. Increased process throughput must
be achieved while maintaining or improving product performance.
. Product design. Optimizing product design must be achieved to capture
economies of scale and lower production cost per kilowatt hour.
Most of the solar electric power technologies that have been commercialized to
date have not adequately reduced costs while maintaining the requisite levels of
performance and reliability. These technologies fall into two basic classes -
technologies based on ingots of crystalline silicon and technologies based on
thin films of semiconductors other than crystalline silicon. The manufacture of
ingot-based silicon wafers requires expensive equipment, consumes large amounts
of electricity, wastes a significant fraction of the starting material and takes
several days to complete. Although thin films appear to offer the potential for
reduced cost "on paper", low efficiency, poor stability and high capital costs
have hampered the commercialization of thin-film solar electric power
technologies to date.
Our Technology Solution
We have developed an innovative and proprietary set of manufacturing
technologies and processes for the manufacture of the core building block for
solar electric power generation, solar cells. We have optimized several stages
in the solar cell manufacturing process to progressively reduce production costs
while increasing mechanical and electrical yields. We have also introduced
several solar cell design features that allow us to generate more power per
solar cell which ultimately reduces the cost per kilowatt hour. Our
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manufacturing and product approaches address the primary challenges in solar
cell production. These include:
. Silicon wafer sourcing. We have developed two proprietary
manufacturing processes that allow us to effectively reduce wafer
materials cost. Our recycled wafer technology utilizes scrap silicon
wafers from the semiconductor industry for the production of solar
cells. Our Silicon-Film technology does not require high-purity
silicon and produces large area silicon sheets in a fraction of the
time of traditional ingot-based wafer manufacturing. Both of our
processes are based on crystalline silicon and build on this
material's long history of performance and reliability.
. Equipment and process engineering. We have designed a range of
proprietary equipment and processes that allow us to increase our
manufacturing productivity. We believe our manufacturing equipment and
processes allow us to generate a higher level of power output per
production asset. For example, our Silicon-Film(TM) technology is a
continuous high-speed production process that produces silicon wafers
in minutes. In contrast, traditional ingot-based silicon wafer
manufacturing requires expensive wafer formation and sawing equipment
and takes several days to produce the same quantity of solar power.
. Product design. Our technology allows us to produce solar cells in
sizes up to 12", with corresponding power output of up to 10 watts per
solar cell. This is approximately 3 times more powerful than the
largest solar cell currently available. More powerful solar cells
reduce the cost per watt for module assembly and installation because
the fixed costs of these operations can be amortized over more watts.
Our next-generation Silicon-Film solar cell, currently under
development, also incorporates "integrated circuit" concepts that
further increase functionality and reduce cost.
Our focus on wafer materials sourcing, equipment and product engineering, and
product design have allowed us to significantly reduce our production cost per
watt, and has provided us with significant operating leverage to grow our
business.
Strategy
Our goal is to become the leading global solar electric power technology
company. To achieve this, we intend to:
Maintain our manufacturing and technology advantage
We intend to continue to enhance our manufacturing processes and technologies
and to introduce innovative solar based products. We intend to leverage our
recycled semiconductor wafer and Silicon-Film(TM) technology platform in order
to reduce further solar cell manufacturing costs and increase market share. We
have consistently introduced new products to provide our customers with improved
levels of functionality, price and performance, and to access new market
opportunities. We plan to build on this history of innovation through the
continued introduction of new products, including solar cells, modules, systems
and solar electric power.
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Rapidly expand manufacturing capacity
We intend to capitalize on our manufacturing expertise and replicable method of
expanding manufacturing capacity. Since the beginning of 1998 we have increased
our manufacturing output by approximately 190%, from a rate of 5.5 megawatts per
year at the time of our initial public offering, to a rate of 16 megawatts per
year for the fourth quarter of 1999.
Capitalize on deregulation in the on-grid market
We believe that the deregulation of the energy industry is creating a favorable
environment to market residential rooftop solar systems to domestic on-grid
customers. We intend to target states that are implementing favorable
legislation, introducing economic incentives and promoting consumer choice. We
established an office in Concord, California to focus on on-grid systems sales.
Expand relationships with module assemblers
In international markets, local module assemblers are often best positioned to
deliver customized solutions and to compete for local business. We intend to
expand our relationships with selected module assemblers and to offer additional
products and services, including factory design, equipment selection, process
training and quality assurance. We believe this strategy will allow us to
broaden our international reach and to penetrate new markets. We have a joint
venture with Atersa, S.A., a leading Spanish module assembler and systems
integrator, to provide these services.
Pursue strategic relationships
We intend to continue to pursue strategic relationships to introduce new
technologies, enter new geographic markets and attract new customers and pursue
additional revenue opportunities. These relationships may take various forms,
including cooperative agreements, joint ventures and strategic alliances.
Through our GPU Solar joint venture, we are developing capabilities to generate
solar electric power in the United States.
Products
We currently sell five classes of products: solar cells, modules, panels,
systems and solar electricity.
. Solar cells are semiconductor devices that convert sunlight directly
into electricity by means of a solid-state process known as the
photovoltaic effect.
. Modules are assemblies of solar cells connected together and
encapsulated in a weatherproof package.
. Panels are assemblies of several modules wired together in our factory
and mounted on a common support structure. Panels are typically used
to reduce field assembly cost in systems where hundreds or thousands
of individual modules are required.
. Systems typically include a group of modules or panels, an optional
battery and electronic equipment for power conditioning and control.
Our systems are designed for use on residential rooftops.
. Solar electricity. We have a joint venture with GPU International
through which we produce and sell solar electricity to customers under
long-term purchase agreements.
Solar cells. Solar cells are the core component inside every solar electric
power system. We sell most of the solar cells we produce to independent module
assembly companies. These customers assemble our solar cells into modules and
sell the modules under their own brand name into a variety of local market
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applications. We believe that our solar cells are preferred by module assembly
company customers over other manufacturers' solar cells for several reasons:
. our solar cells are significantly thicker than most solar cells,
leading to lower rates of breakage during soldering and packaging
. our solar cells have specially prepared contacts for ease of soldering
. our solar cells are the largest and most powerful solar cells on the
market today
One of our key strategies has been to capture economies of scale by continuously
increasing the size of our solar cells. With our recycled semiconductor wafer
process, utilizing single crystal silicon wafers, we capitalized on the movement
of the computer chip industry to larger wafers sizes. In 1993, we were one of
the first companies to introduce a 5" square single crystal solar cell, which
has gradually replaced the earlier 4" solar cell as the industry standard. In
1995, we were the first company to introduce a 6" square single crystal solar
cell and we are still one of only two companies offering a product of this size.
In 1998, we introduced our first solar cell made using the Silicon-Film(TM)
process which we branded under the name APex(TM). This solar cell is identical
in size and layout to our 6" single crystal solar cell, which makes it easy for
customers already tooled up for this size to add an APex(TM) module to their
product line.
We plan to continue to exploit the economies of scale inherent in the processing
and packaging of large solar cells in order to reduce costs further and to
differentiate us from our competitors, In the first quarter of 2000, we
introduced a 4-watt single crystal solar cell that will be approximately 25%
more powerful than any other solar cell currently on the market. We also plan
to capitalize on the unique large area capability of our Silicon-Film technology
to introduce 8" and 12" square APex(TM) solar cells rated for 4.5 watts and 10
watts, respectively.
Modules. Modules are assemblies of solar cells that can be electrically
interconnected to achieve virtually any combination of required electricity
output. We manufacture modules with power ratings ranging from 30 to 130 watts.
Modules at the lower end of this power range are typically used individually to
provide small quantities of energy for non-electrified homes or for a variety of
small industrial applications in the telecommunications industry. Higher power
modules are typically used in larger arrays. Most of our module sales are at
the higher power ratings. These modules capitalize on our ability to make
larger and more powerful cells than our competitors.
Panels. For systems requiring hundreds or thousands of individual modules, we
sell fully assembled panels. Panels are assemblies of high-power unframed
modules adhesively bonded to a common support structure and electrically
interconnected and tested in our factory. Panels are typically shipped to the
job site in reusable shipping racks. The advantage of this product is that we
perform much of the electrical and mechanical integration in our factory under
controlled conditions, thus lowering our customer's on-site labor costs and
reducing the probability of wiring errors. We believe that we are the only
solar electric power company to offer fully assembled panels as a standard
product.
Systems. Over the past 18 months, we have developed a range of standardized
systems that we sell to homeowners. These systems are all designed to operate in
parallel with the utility grid and typically generate between 50% and 100% of a
home's yearly electricity needs. Solar electric power not consumed on the
premises is sold back into the utility grid. The majority of these systems also
includes a small storage battery, which allows the systems to be used during a
grid outage. We are finding significant customer interest in backup or emergency
power. We believe that this interest reflects broad concern by customers about
the reliability of the electricity network.
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Solar electricity. Through our GPU Solar joint venture, we construct, own, and
operate solar electric power plants, and sell electricity on a wholesale basis
to power marketing companies for resale to end customers. In this case, our
product is electricity, which we sell under a multi-year power purchase
contracts.
Contract Research and Development
We selectively pursue contract research programs funded by third parties to help
support the development of new technical capabilities and products. These
programs have been selected to complement and enhance our long-term development
strategy under conditions that permit us to retain the technology developed. We
have received substantial third-party funding from various agencies of the U.S.
Government. Total sums expended for research, development and manufacturing
engineering in the years ended December 31, 1997 and 1998 and 1999 were $3.5
million, $3.7 million, and $4.4 million, respectively. Of those amounts,
approximately $2.5 million, $2.3 million, and $2.3 million, respectively, were
externally funded and are a component of contract revenue.
Manufacturing
We currently manufacture our products in two facilities in Newark, Delaware, one
located in Solar Park and the other in nearby Pencader Corporate Center. Since
the beginning of 1998 we have increased our manufacturing output by
approximately 190%, from a rate of 5.5 megawatts per year for the first quarter
of 1998 to a rate of 16 megawatts per year for the fourth quarter of 1999.
This increase in production output was due to the addition of our new Pencader
manufacturing facility, which our manufacturing group brought on line in April
1998.
We intend to expand our manufacturing capacity to approximately 30 megawatts by
the end of the year 2000 and to approximately 75 megawatts over the next four
years. We believe that our recent experience of building and operating our
Pencader plant has allowed us to develop a formal, replicable model for capacity
expansion and that this process reduces the risks associated with further
capacity expansion. Some of the key elements contributing to this low risk
approach are:
. utilization of previously proven processes and equipment
. increases in solar cell size which allow for greater power output with
existing production processes
. flexible manufacturing which enables us to run multiple product
configurations through the same line
The manufacturing facilities include a full complement of equipment for wafer,
solar cell and module manufacturing and are continually upgraded to improve
capacity and product quality. Included in both facilities are equipment to
condition wafers by mechanical and chemical means, furnaces for diffusion,
printing and firing equipment for applying electrical contacts to solar cells,
equipment for applying anti-reflection coatings on solar cells and solar cell
testers. Our Pencader facility contains equipment for assembling and testing
modules.
The research and development portion of the Solar Park facility is equipped with
standard semiconductor device development, fabrication and evaluation equipment,
including wafer polishing facilities, seven liquid phase epitaxial growth
systems for silicon and compound semiconductor and furnaces for diffusion,
oxidation, alloying, and heat treatment; photolithography equipment, vacuum
(thermal, e-beam, and magnetron sputtering) deposition for metals and anti-
reflection coatings, plating baths for obtaining low
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resistance contacts, and standard process evaluation equipment including a
scanning electron microscope with energy dispersive spectroscopy
capability.
Sales and Marketing
We pursue both a direct and indirect sales and marketing strategy according
to the dynamics of each targeted market. We currently sell solar cells and
modules in selected international on-grid, rural and telecommunications
markets through our direct sales force. We sell complete systems and intend
to sell solar electricity in selected on-grid markets through our indirect
partners, including value added resellers, distributors, independent agents
and contractors. We currently have relationships with indirect channel
partners which allow us to penetrate selected global markets efficiently.
Direct sales to certain customer classes and applications affords us a
higher level of control and increased participation in downstream margin
opportunities, while our cooperation with indirect partners gives us
coverage of certain international markets which would be difficult or
impossible for us to access directly. The table below explains the
relationship between market segments, product types, customer types and
sales channel and applications as it relates to our business.
<TABLE>
<CAPTION>
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Market On-Grid Off-Grid
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Market Segment Buildings Solar Power Plants Telecommunications
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<S> <C> <C> <C>
Our Products . Solar Cells . Wholesale Solar Electric Power . Modules
. Modules Generated with our Technology
. Complete Systems
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Customer . Residential and Commercial . Power Marketers . Original equipment
Building Owners, Distributors and . Traditional Utilities manufacturers and Systems
Module Assembly Companies Integrators
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Sales Channel . Direct, Internet, Home Builders . Joint Ventures . Direct Sales, Agents,
and Electricians Distributors and value added
resellers
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Applications Solar electric power systems where . Wholesale environmentally friendly . Repeater stations
electricity is already available solar electricity from solar . Monitoring and telemetry
from a utility grid to provide a electric power plants which is systems for highways,
supplemental, environmentally typically sold to power marketers railroads pipelines
friendly power source that can also through long-term purchase . Emergency call boxes on
be resold back into the utility agreements.100% pure solar power highways
grid. . Portable warning signs used
. Blended electricity products at highway construction
. Roof panels for single family homes sites
. Roof panels or exterior panels for . We have an alliance with GPU
commercial buildings International to construct and
jointly operate solar electric power
plants using our panels.
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<CAPTION>
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Market
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Market Segment Rural Electrification
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<S> <C>
Our Products . Solar Cells
. Modules
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Customer . Module Assembly Companies, Systems
Integrators
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Sales Channel . Direct
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Applications . "Solar Home Systems" often located in
developing countries to provide basic
services such as:
- light
- radio
- television
- communications
. Wireless pay telephones
. Pumps for drinking water
. Schools and health clinics
. Vacation cabins
- ---------------------------------------------------------------------
</TABLE>
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The domestic on-grid market. We believe that the deregulation of the energy
industry provides a favorable climate for marketing solar electric power and
solar systems to domestic on-grid customers. In order to focus our marketing
fforts, we have developed a methodology to identify promising near-term target
markets. Factors which we consider in this methodology include:
. The addition of renewable energy sources to portfolio standards
. the existence and extent of direct subsidies or tax benefits for solar
electric power systems
. the existence of net-metering laws
. local retail electricity prices
. the quality of the regional sunlight resource
We established an office in Concord, California to focus on on-grid sales. We
plan to increase our direct marketing efforts to promote our sales to homeowners
in targeted regions and we are developing a web-based on-line shopping tool to
allow customers to choose and purchase the system that meets their requirements.
The international on-grid market. The on-grid market has developed more rapidly
overseas than in the United States, particularly in Europe and Japan. We serve
the international on-grid market primarily through the sale of solar cells,
which are assembled into modules and panels by a small number of module assembly
customers. These products are incorporated into systems and sold directly to
homeowners and building owners or sold through intermediaries such as local
electricians and homebuilders. Several of our customers have also established
subsidiaries to build, own and operate solar electric power plants and to sell
the electricity from these power plants to power marketers and end customers.
Our on-grid module assembly customers have typically established strong brand
identity within their regional market and have in some cases developed unique
products that incorporate solar cells into building materials such as roof tiles
and curtain-wall glazing systems. These building integrated-products are
growing in popularity in Europe.
We believe that customers in Europe and Japan are strongly motivated by
environmental concerns and that their governments will continue to support
renewable energy sources. Therefore, we believe that the international on-grid
market will continue to comprise a major fraction of our product revenues for
the foreseeable future.
The rural electrification market. This market segment addresses the large
number or people throughout the world who are not yet served with electric
power. Within this market segment, we typically sell modules directly to
original equipment manufacturers who assemble their own complete systems and to
systems integrators who design and build systems for end users.
The telecommunications market. This market segment includes a wide variety of
telecommunications and related industrial applications. Within this market
segment, we typically sell modules to module assemblers who manufacture and sell
completed modules and to value added resellers and systems integrators who
design and build systems for end users.
Customers
We use a customer acquisition and growth strategy aimed at acquiring new key
customers while growing volume with existing customers. First, we target new
customers who provide access to high growth market segments while maintaining
geographical diversity. Often a new supply relationship
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with such a customer is as a secondary product supplier. Once a successful
supply relationship has been established, our objective is to become the primary
product supplier to each new key customer, growing volume within each account.
Sales to our ten largest product customers accounted for approximately 68.0%,
73.0% and 73.7% of total revenues in fiscal 1997, 1998 and 1999. During 1997,
sales to Solar Fabrik, an independent module assembler based in Germany, Golden
Genesis Company (now Kyocera Solar), a systems integrater located in Arizona,
and Atersa, an independent Spanish module assembler and systems integrater.
accounted for 17.0%, 12.6% and 12.0% of our total revenues, respectively. During
1998, sales to Atersa and Solar Fabrik accounted for 17.6% and 14.3% of our
total revenues, respectively. During 1999, Solar Fabrik, Atersa and Kyocera
Solar accounted for 23.7% and 13.6% and 10.3% of our total revenues,
respectively. No other product customers represented 10% or more of our total
revenues for any such periods. We expect that sales of our products to a limited
number of customers will continue to result in a high concentration of sales for
the foreseeable future and that the loss of certain of these customers could
have a material adverse effect on our business, results of operations and
financial condition.
A large percentage of our product sales are to international customers. For the
years ended December 31,1999, 1998 and 1997, the approximate geographic
breakdown of product revenue from such customers is shown in the table below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Region Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
North America 36% 22% 27%
----------------------------------------------------------------------------
Europe 54% 63% 56%
----------------------------------------------------------------------------
Africa 4% 9% 5%
----------------------------------------------------------------------------
Asia 6% 6% 12%
----------------------------------------------------------------------------
</TABLE>
We anticipate that international customers will continue to account for the
majority of product sales for the foreseeable future.
Strategic Alliances
- -------------------
GPU Solar. We have expanded the scope of GPU Solar, Inc., our joint venture
with GPU International. This venture was originally formed in July 1997 to
market residential rooftop systems. GPU International and we are planning to
jointly cooperate in the development of products and services that address the
significant business opportunities resulting from electric industry
restructuring. We both believe that electricity restructuring will create an
increasing market for clean solar electric power, and will develop projects to
sell solar power into this market. Solar electricity will be sold by GPU Solar
and we believe that this product will appeal to customers who are interested in
solar electric power, but who may not choose to or be able to install a solar
electric power system on their home. In states with retail electricity choice
programs, such customers may choose to purchase their electricity from a
supplier who offers solar electric power. GPU Solar plans to:
. identify sites where we can build solar electric power plants of
between 100 kilowatt and several megawatts, of capacity. These sites
could include commercial factory rooftops, parking structures or
undeveloped land.
12
<PAGE>
. construct power plants based on our panels.
. enter into long-term power purchase agreements with power marketers to
buy electricity generated by the plant. The typical term for such
agreements is expected to be 15 to 20 years.
. operate the power plants, using subcontracted operating and
maintenance services. Because solar electric power systems use no fuel
and have no moving parts, ongoing regular operating and maintenance
requirements are minimal.
On July 14, 1999, GPU Solar signed its first power purchase agreement with Green
Mountain Energy Resources, one of the leading national environmentally friendly
power marketers. The contract calls for Green Mountain Energy Resources to take
the entire electrical output of a 132 kilowatt power plant located in Northern
California for the next 15 years. The plant was completed in September 1999.
Atersa. During 1999, we and Atersa, one of our ten largest product customers,
formed a joint venture for the purpose of manufacturing and supplying solar
cells to module assemblers worldwide for the off-grid market segment. The joint
venture commenced production in February 2000. Significant Spanish government
subsidies are available to fund the project, and Atersa has identified up to $3
million in low cost loans and grants to fund plant construction, fit-up and
start-up costs. We and Atersa have each contributed $250,000 to the joint
venture.
Atersa manufactures modules based exclusively on our solar cells, integrates
these modules into systems and markets systems primarily in Europe, Africa and
Latin America. As one of the leading systems integrators, Atersa has developed
significant expertise in designing, bidding, winning and implementing off-grid
projects and programs. Atersa also designs, manufactures and sells module
manufacturing equipment and components.
Quality Assurance
We intend to maintain our reputation as a manufacturer and supplier of quality
products and to continuously improve the quality of our products and services.
Quality testing starts with the wafer, is continued at a several steps during
solar cell and module manufacturing and is implemented at each solar cell and
module manufacturing step by the staff directly responsible for the daily
operation of the manufacturing line. Each operator is trained to recognize and
report on the quality of his or her work. Process control issues are
communicated to technicians, engineering personnel, supervisors and co-workers
and this team works together to effect an immediate corrective action and
eliminate the cause of the problem.
Quality assurance measures have enabled us to achieve international and domestic
product certifications for many of its modules. In June 1996, the Commission of
European Communities issued Qualification Certificates for environmental
stability and performance for our standard modules types AP-1106, AP-1206, AP-
6105, and AP-7105. In August 1997, we received the Underwriters Laboratory (UL)
listing for Silicon-Film(TM) module products which confirms that representative
samples of these products have been evaluated by UL and meet applicable UL
standards and requirements. We intend to submit all new module products for such
approval.
13
<PAGE>
Competition
The market for solar electric power components and systems is intensely
competitive. We believe that this market will continue to be intensely
competitive, particularly if products with significant cost and performance
attributes are developed. We also believe that while a single technology,
crystalline silicon, has been dominant throughout the industry's approximately
20 year history, this market will be characterized by future technological
change.
A number of large U.S., Japanese and European companies are actively engaged in
the development, manufacturing and marketing of solar electric power components
and systems. These include BP Solarex, Siemens Solar Industries, Kyocera
Corporation, Sanyo Electric Co., Sharp Corp., Shell Solar Energy B.V., ASE GmbH
and Canon. All of these companies have significantly greater resources to devote
to the research, development, manufacturing and marketing than we do. There are
also a large number of smaller companies involved in both the development of, as
well as the ongoing manufacturing and marketing of, solar electric power
components and systems.
There are a variety of competing technologies currently under active development
by a large number of organizations. These technologies include amorphous
silicon, cadmium telluride and copper indium diselenide as well as advanced
concepts for both bulk, ingot based, and thin film crystalline silicon. Any of
these competing technologies could theoretically achieve manufacturing costs per
watt lower than the Silicon-Film/TM/ technology developed by us.
We believe that the principal competitive factors in the market for solar
electric power components are the following:
. price per watt
. product reliability, quality and reputation
. product performance, primarily conversion efficiency
. ease of handling and installation
In addition to direct competition from other solar electric power manufacturers,
the wholesale market for solar electric power competes with other
environmentally friendly sources of power such as wind and geothermal energy.
Patents and Proprietary Technology
Our success and ability to compete are significantly dependent on our
proprietary technology. Our policy is to protect our technologies by filing
patent applications with respect to technology considered important to business
development. We also rely upon unpatented know-how, continuing technological
innovation and the pursuit of licensing opportunities in order to develop and
maintain our competitive position. We have been awarded fourteen U.S. patents in
the field of photovoltaics and had three patent applications pending as of March
20, 2000. Ten of the fourteen U.S. patents that have been issued and two of the
applications that are pending relate to the Silicon-Film(TM) product design and
manufacturing process. Of the remaining four patents that have been issued,
three protect the design of high performance solar cells using compound
semiconductors, and one protects the design of an optical sensor using a
compound semiconductor that provides for sensor operation at temperatures much
higher than can be employed with conventional elemental materials. The remaining
pending application covers the utilization of a unique device design and
manufacturing process that enhances the optical efficiency of opto-electronic
devices.
14
<PAGE>
We decide on a case-by-case basis whether and in what countries we will file
foreign counterparts of a U.S. patent application. International counterparts of
four issued patents have been filed under the Patent Cooperation Treaty. We will
continue to file other U.S. and international patent applications to protect
technology we consider important in providing a market advantage for our
products. We believe that our patents offer us a competitive advantage, but
there can be no assurance that any patents, issued or in process, will not be
intentionally circumvented or infringed upon by others.
In addition to patent protection, we rely on the law of unfair competition and
trade secrets to protect our proprietary rights, including our proprietary
rights in our Silicon-Film(TM) technology. We consider several elements of the
Silicon-Film(TM) manufacturing process to be trade secrets. We attempt to
protect our trade secrets and other proprietary information through non-
disclosure agreements with our customers and suppliers and limit the
dissemination of information to a need-to-know basis. Although we seek to
protect our proprietary information, it is possible that others will
independently either develop the same or similar information or obtain access to
information that we believe is proprietary.
All of our employees and consultants are required to sign confidential
information non-disclosure agreements upon the commencement of their employment
with us. Our non-disclosure agreements provide that all confidential information
developed or made known to the individual during the course of the individual's
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. These agreements also provide that all
inventions made by the individual shall be our exclusive property. However,
these agreements may not provide meaningful protection for our trade secrets or
adequate remedies in the event of unauthorized use or disclosure of such
information.
Silicon-Film(TM) and APex(TM) are our trademarks.
Environmental Regulations
We use, generate and discharge toxic, volatile or otherwise hazardous chemicals
and wastes in our research and development and manufacturing activities.
Therefore, we are subject to a variety of federal, state and local governmental
regulations related to the storage, use and disposal of these materials. We
believe we have all the permits necessary to conduct our business. However,
failure to comply with present or future regulations could result in fines being
imposed on us, suspension of production or a cessation of operations. We believe
that we have properly handled our hazardous materials and wastes and have not
contributed to any contamination at any of our premises. We are not aware of any
environmental investigation, proceeding or action by federal or state agencies
involving our premises. However, under certain federal and state statutes and
regulations, a governmental agency may seek recovery and response costs from
both operators and owners of property where releases of hazardous substances
have occurred or are ongoing. Any failure by us to control the use of, or to
restrict adequately the discharge of, hazardous substances could subject us to
substantial financial liabilities and could have a material adverse effect on
our business, result of operations and financial condition.
15
<PAGE>
Employees
As of March 20, 2000, we had 350 full time employees, of whom 39 were engaged in
research and development, 269 in manufacturing, 15 in sales and marketing and 27
in administration. None of our employees are covered by collective bargaining
agreements. We have experienced no work stoppages and believe that our employee
relations are good.
Eighteen of our management and professional employees have advanced degrees,
including four Ph.D.s. To date, we have been able to attract the scientific,
engineering, technical and other personnel required by our business. Such
experienced professionals are in demand, and we must compete for their services
with other organizations which may be able to offer more favorable salary and
benefits. Historically, turnover among technical and professional employees has
been low.
16
<PAGE>
ITEM 2. PROPERTIES
From July 1991 through January 1998, all of our administrative, research and
manufacturing facilities were located in a 40,000 square foot building built by
and leased from the University of Delaware, Newark, Delaware. The initial term
of the lease expires on June 2011. However, we may exercise an option to cancel
the lease beginning July 2000. The annual cash rental payment for 1999 was
$220,800 and increases approximately 6% each year.
In January 1998, we entered into a lease with Liberty Property Limited
Partnership for a 60,300 square foot facility to house our Pencader plant. This
facility is part of a 130,000 square foot building located in Newark, Delaware,
which is approximately six miles from our present facility. The term of the
lease is 10 years with two five year renewal options. In January 1999, we
entered into an agreement for an additional 20,100 square feet in this facility.
The commencement date for the amended lease was June 15, 1999. The existing
lease for this facility was extended by one year to become coterminous with the
new lease.
The annual rental payment for the first year of the amended lease for 80,400
square feet is $381,900 and increases an average of approximately 2% each year.
In addition, we are responsible for our share of annual operating expenses of
the building presently estimated at $82,800. The lease also provides for rights
of first refusal by us to lease additional space in the building if it becomes
available and to purchase the entire building if the owner decides to sell it.
In June 1999, our subsidiary, AstroPowerWest, LLC, entered into a lease with
Allied Investments for a 3,000 square foot facility in Concord, California for
office and warehouse space. The term of the lease is for three years commencing
July 1, 1999 at an annual rent of $28,728 and increases approximately 2.5% each
year.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
pending or threatened litigation against the Company that could have a material
adverse affect upon the Company's business, operating results or financial
condition.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company made an initial public offering of its Common Stock on February 12,
1998 and trading on the Nasdaq National Market commenced on February 13, 1998
under the symbol "APWR".
The following table sets forth for the periods indicated the high and low bid
prices for the Company's Common Stock as reported by the Nasdaq National Market.
High Bid Low Bid
- --------------------------------------------------------------------
1998
First Quarter (from February 13, 1998) $10.625 $ 6.000
Second Quarter $10.250 $ 7.625
Third Quarter $ 9.750 $ 6.125
Fourth Quarter $ 9.625 $ 5.875
1999
First Quarter (through March 19, 1999) $14.125 $ 8.500
Second Quarter $18.000 $10.875
Third Quarter $17.125 $11.875
Fourth Quarter $14.125 $10.875
2000
First Quarter (through March 20, 2000) $ 49.313 $12.500
As of March 20, 2000, there were 392 shareholders of record.
Dividend Policy
The Company has not declared or paid any cash dividends, and does not anticipate
that it will do so in the foreseeable future. The Company currently intends to
retain future earnings, if any, to provide funds for the growth and development
of the Company's business. Any future determination to pay dividends will be at
the discretion of the Company's Board of Directors and will be dependent upon
the Company's earnings, capital requirements, operating and financial condition,
and such other factors as the Board of Directors may deem relevant.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each of the three years in the
period ended December 31, 1999 and as of December 31, 1999, 1998 and 1997 have
been derived from the audited Financial Statements of the Company included
elsewhere in this Form 10-K. The selected financial data as of December 31,
1996 and 1995 and for each of the two years in the period ended December 31,
1996 are derived from audited financial statements not included herein. The
information set forth below should be read in conjunction with the Company's
Financial Statements and the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share data)
-------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Product sales......................................................... $31,428 $20,206 $13,095 $ 6,237 $ 5,356
Research contracts.................................................... 3,216 2,953 3,512 4,346 4,589
------- ------- ------- ------- -------
Total revenues..................................................... 34,644 23,159 16,607 10,583 9,945
Cost of revenue:
Cost of product sales................................................ 22,588 14,942 9,311 6,896 4,483
Cost of research contracts........................................... 2,264 2,297 2,540 2,580 3,029
------- ------- ------- ------- -------
Total cost of revenues............................................ 24,852 17,239 11,851 9,476 7,512
------- ------- ------- ------- -------
Gross profit...................................................... 9,792 5,920 4,756 1,107 2,433
Operating expenses:
Product development costs........................................... 2,139 1,392 1,007 776 314
General and administrative expenses................................. 3,567 2,496 1,972 1,859 1,469
Selling expenses.................................................... 1,578 951 854 660 444
------- ------- ------- ------- -------
Operating income (loss)......................................... 2,508 1,081 923 (2,188) 206
Other income (expense):
Interest expense.................................................... (16) (252) (369) (169) (115)
Other income (expense).............................................. 306 598 118 (6) 7
Equity in joint ventures............................................ 62 - - - -
------- ------- ------- ------- -------
Income (loss) before income tax expense (benefit)............... 2,860 1,427 672 (2,363) 98
Income tax expense (benefit)............................................ 594 (985) 20 - -
------- ------- ------- ------- -------
Net income (loss).................................................. 2,266 2,412 $ 652 $(2,363) $ 98
======= ======= ======= ======= =======
Net income (loss) per share:
Basic.............................................................. $ 0.25 $ 0.30 $ 0.18 $ (0.64) $ 0.03
Diluted............................................................ $ 0.22 $ 0.28 $ 0.13 $ (0.64) $ 0.02
Number of shares used in net income (loss) per share calculation:
Basic.............................................................. 9,208 7,956 3,710 3,700 3,697
Diluted............................................................ 10,133 9,572 6,220 3,700 5,362
<CAPTION>
Balance Sheet Data: December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<C> <C> <C> <C> <C>
Working capital (deficiency)............................................ 46,131 14,839 $ 5,608 $ (970) $ 1,420
Total assets............................................................ 64,000 28,366 15,115 7,887 8,615
Short-term debt......................................................... - - 316 955 812
Long-term debt.......................................................... - - 6,277 528 651
Total liabilities....................................................... 6,507 5,103 11,356 4,948 3,894
Redeemable Convertible Preferred Stock.................................. - - 5,798 5,798 5,798
Total stockholders' equity (deficit).................................... 57,493 23,263 (2,039) (2,860) (1,077)
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
We develop, manufacture, market and sell a range of solar electric
power products, including solar cells, modules and panels, for the global
marketplace. Solar cells are semiconductor devices which convert sunlight into
electricity and form the building block for all solar electric power products.
Historically, our products have primarily been used to generate electricity for
users not connected to the utility grid. Such applications include
electrification of rural homes and villages, and power supply for equipment in
the communications and transportation industries. More recently our products are
also being used by customers already connected to the utility grid as a clean,
renewable source of alternative or supplemental electricity. Additionally,
through our joint venture agreement with GPU International, we generate and sell
wholesale solar electric power.
We currently generate product revenues from the sale of solar cells,
modules, and panels. Although we are continuing a significant expension of our
Silicon-Film manufacturing capacity, the predominant source of our product
revenues to date has been recycled wafer products. We recognize product sales
revenue upon shipment. Solar cell prices and manufacturing costs vary depending
upon supply and demand in the market for solar cells and modules, order size,
yields, the costs of raw materials, particularly reclaimed silicon wafers
recycled from the semiconductor industry, and other factors. Product sales
represented 90.7% of total revenues for the year ended December 31, 1999. In
addition, we also generate revenue from contracts with various federal
government agencies to conduct research on advanced Silicon-Film products and
optoelectronic devices. Generally, these contracts last from six months to three
years. We recognize research contract revenue at the time costs benefiting the
contracts are incurred, which approximates the percentage of completion method.
For the year ended December 31, 1999, 64% of our product revenues were
generated by sales to customers located outside of the United States. We
believe that international sales will continue to account for a significant
portion of our product sales for the foreseeable future. Current sales are
denominated in U.S. dollars and foreign exchange rate fluctuations have not had
an impact on our results of operations.
Solar cells that we manufacture are sold to original equipment
manufacturers that assemble the solar cells into modules. We sell modules to
distributors and value-added resellers. The sale of a module results in
substantially more revenue to us than the sale of solar cells due to the value
of the additional materials, labor and overhead added during the module assembly
process. Accordingly, our product sales are affected not just by changes in
total solar cells produced, but by changes in the mix between solar cells and
modules sold. The gross margin percentages for modules are generally less than
those of solar cells and as a result, changes in the mix of solar cells and
modules sold may affect total product gross margin.
Substantially all of our revenues from government contracts are subject
to audit under various federal statutes. Although we have received final
written acceptance of our overhead rates through 1993, the Defense Contract
Audit Agency is now disputing certain elements of those submissions as well as
the overhead rates for 1994 and 1995. The dispute is centered on the effect of
our manufacturing operations on our government contract overhead rates during
the years of transition from a contract research and development organization to
commercial manufacturing. The overhead rates for 1996 have been submitted, but
have not yet been audited. This dispute does not affect our overhead rates for
1997, 1998 and 1999, inasmuch as we revised our methodology for determining
overhead rates. We believe that adjustments to revenue, if any, will not have a
material adverse effect on our business and financial condition, but may impact
results of operations.
22
<PAGE>
Results of Operations
The following table sets forth selected financial data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenues:
Product sales.......................... 90.7% 87.2% 78.9%
Research contracts..................... 9.3 12.8 21.1
------ ------ ------
Total revenues...................... 100.0 100.0 100.0
------ ------ ------
Cost of revenues:
Product sales.......................... 65.2 64.5 56.1
Research contracts..................... 6.5 9.9 15.3
------ ------ ------
Total cost of revenues.............. 71.7 74.4 71.4
------ ------ ------
Gross profit........................ 28.3 25.6 28.6
Operating expenses:
Product development expenses........... 6.2 6.0 6.1
General and administrative expenses.... 10.3 10.8 11.9
Selling expenses....................... 4.6 4.1 5.1
------ ------ ------
Total operating expenses............. 21.1 20.9 23.1
------ ------ ------
Income from operations............... 7.2 4.7 5.5
Other income (expense)................... 1.0 1.5 (1.5)
------ ------ ------
Net income before income taxes........... 8.2 6.2 4.0
Income tax expense (benefit)............. 1.7 (4.2) 0.1
------ ------ ------
Net income............................... 6.5% 10.4% 3.9%
====== ====== ======
</TABLE>
23
<PAGE>
Comparison of years ended December 31, 1999 and 1998
Revenues Our total revenues for the year ended December 31, 1999 were $34.6
million, an increase of $11.5 million or 49.6% from $23.2 million for the year
ended December 31, 1998. Product sales for the year ended December 31, 1999 were
$31.4 million, an increase of $11.2 million or 55.5% from $20.2 million for the
year ended December 31, 1998. Our increase in product sales was due to increased
levels of production from both of our manufacturing facilities, as well as
continued strong customer demand. Research contract revenue for the year ended
December 31, 1999 was $3.2 million, an increase of $263,000 or 8.9% from $3.0
million for the year ended December 31, 1998.
Gross profit Our gross profit for the year ended December 31, 1999 was $9.8
million, an increase of $3.9 million or 65.4% from $5.9 million for the year
ended December 31, 1998. Gross profit on product sales was $8.8 million, an
increase of $3.6 million or 67.9% from $5.3 million for the year ended December
31, 1998. Gross profit margin on product sales for the year ended December 31,
1999 was 28.1%, as compared with 26.1% for the year ended December 31, 1998.
The increase in product gross margin was due to increases in manufacturing
volumes and productivity, which reduced product unit costs.
Gross profit on research contracts for the year ended December 31, 1999 was
$952,000, an increase of $296,000 or 45.1% from the year ended December 31,
1998. Gross profit margin on research contracts for the year ended December 31,
1999 was 29.6% as compared to 22.2% for the year ended December 31, 1998. The
increase in gross profit and gross margin in 1999 is due to higher effective
overhead rates.
Product development expenses Product development expenses for the year ended
December 31, 1999 were $2.1 million, an increase of $747,000 or 53.7% from $1.4
million for the year ended December 31, 1998. The increase in product
development expenses was attributable to increased levels of engineering and
manufacturing support dedicated to the development of our Silicon-Film
production process.
General and administrative expenses Our general and administrative expenses for
the year ended December 31, 1999 were $3.6 million, an increase of $1.1 million
or 42.9% from $2.5 million in 1998. The increase was due to higher levels of bad
debt expense, staffing, professional services, and insurance costs.
Selling expenses Our selling expenses for the year ended December 31, 1999 were
$1.6 million, an increase of $627,000 or 65.9% from $951,000 for the year ended
December 31, 1998. The increase was due to higher levels of staffing, travel
and advertising expenses.
Interest expense Interest expense for the year ended December 31, 1999 was
$16,000, a decrease of $236,000 or 93.7% from $252,000 for the year ended
December 31, 1998. The decrease was due to lower levels of debt outstanding in
1999 as a result of the repayment of a convertible note in the fourth quarter of
1998.
Interest income Interest income for the year ended December 31, 1999 was
$338,000, a decrease of $261,000 or 43.6% from $599,000 for the year ended
December 31, 1998. The decrease was due to a lower level of cash balances
during 1999. However, in the fourth quarter of 1999, the Company completed a
follow-on equity financing, raising net proceeds of $30.2 million.
Equity in joint ventures Equity in the results of joint ventures was $63,000
for the year ended December 31, 1999. There was no comparable amount in 1998.
One of the ventures was formed in 1999, and the other venture did not have
significant operations until 1999.
Income taxes Income tax expense for the year ended December 31, 1999 was
$594,000, as compared to a benefit of $985,000 for the year ended December 31,
1998. The effective tax rate is lower than the statutory rates principally as a
result of research and experimentation tax credits and the benefit of a Foreign
Sales Corporation. The 1998 benefit represents the change in the valuation
allowance pertaining to the Company's net operating loss carryforward. Net
operating loss carryforwards totaling approximately $3.9 million are available
through 2011 to reduce federal and state taxable income as of December 31, 1999.
24
<PAGE>
Comparison of Years Ended December 31, 1998 and 1997.
Revenues. Our total revenues for the year ended December 31, 1998 were $23.2
million, an increase of $6.6 million, or 39.5%, from $16.6 million for the year
ended December 31, 1997. Product sales for the year ended December 31, 1998
were $20.2 million, an increase of $7.1 million, or 54.3%, from $13.1 million
for the year ended December 31, 1997. Our increase in product sales was due to
increased levels of production from the addition of a second manufacturing
facility in the first half of 1998 as well as improvements in manufacturing
technology and manufacturing productivity, allowing us to satisfy a greater
percentage of backlog orders. Research contract revenue for the year ended
December 31, 1998 was $3.0 million, a decline of $559,000, or 15.9%, from $3.5
million for the year ended December 31, 1997. The decline in research contract
revenue, which was expected, was primarily attributable to continued reduction
of our contract overhead rates as a result of the ongoing transformation from a
government contractor to a manufacturing company.
Gross Profit. Our gross profit for the year ended December 31, 1998 was $5.9
million, an increase of $1.2 million, or 24.5% from $4.8 million for the year
ended December 31, 1997. Gross profit on product revenues for the year ended
December 31, 1998 was $5.3 million, an increase of $1.5 million from $3.8
million for the year ended December 31, 1997. Gross profit margin on product
revenues for the year ended December 31, 1998 was 26.1%, as compared to 28.9%
for the year ended December 31, 1997. The change in product gross margin was
affected by our expansion into a second manufacturing facility. During the
first half of 1998, we incurred start-up costs such as the hiring and training
of new employees and facility operating costs, but generated little revenue to
offset such costs. In the second half of 1998, the quantities of product
manufacturing increased and generated revenues, but the gross margins remained
below those of our other manufacturing facility. We expect further improvement
in our product gross margins in 1999 as the production levels in the Solar Park
facility continue to increase. Product gross margins in the fourth quarter were
also affected by disruptions to the manufacturing process caused by the
installation of new manufacturing equipment, the qualification of new vendors
and the large numbers of new employees required to be hired and trained. These
issues are expected to continue to negatively affect our financial results for
the first half of 1999.
Gross profit on research contract revenues for the year ended December 31, 1998
was $656,000, a decrease of $316,000, or 32.5%, from $972,000 for the year ended
December 31, 1997. Gross profit margin on research contracts revenue for the
year ended December 31, 1998 was 22.2% as compared to 27.7% for the year ended
December 31, 1997. The decrease in gross profit and gross profit margin was
attributable to a reduction in our contract overhead rates as a result of our
ongoing transition to a manufacturing company, which reduces the amount of
overhead expenses that we previously allocated and billed to government
contracts.
Product Development Expenses. Our product development expenses for the year
ended December 31, 1998 were $1.4 million, an increase of $385,000, or 38.3%,
from $1.0 million for the year ended December 31, 1997. The increase in product
development expenses was attributable to increased levels of engineering and
manufacturing support dedicated to the development of our Silicon-Film
production process.
General and Administrative Expenses. Our general and administrative expenses
for the year ended December 31, 1998 were $2.5 million, an increase of $524,000,
or 26.6%, from $2.0 million in 1997. The increase was due to increased salary
expense due to additional positions to support our growth and the costs of being
a public company (legal and accounting fees, liability insurance, printing,
stockholders communications) but were offset by a lower level of bonuses.
25
<PAGE>
Selling Expenses. Our selling expenses for the year ended December 31, 1998
were $951,000, an increase of $97,000, or 11.4%, from $854,000 for the year
ended December 31, 1997. The increase in selling expenses was due to increased
salary, advertising and travel expenses offset by the elimination of sales
commissions paid to third parties.
Interest Expense. Interest expense for the year ended December 31, 1998 was
$252,000, a decrease of $117,000, or 31.7% from $369,000 for the year ended
December 31, 1997. The decline in interest expense was attributable to a
reduction in our level of indebtedness, including the repayment of bank debt in
March 1998 and the repayment of the $5.0 million convertible promissory note in
October 1998.
Interest Income. Interest income (principally net interest income) for the year
ended December 31, 1998 was $599,000 as compared with interest income of
$114,000 for the year ended December 31, 1997. The increase was attributable to
increased cash balances and related levels of interest income as a result of the
proceeds of our initial public offering.
Income Taxes. An income tax benefit of $985,000 was recorded for the year ended
December 31, 1998 as compared with $20,000 of expense for the year ended
December 31, 1997. The 1998 benefit represents the change in the valuation
allowance pertaining to the Company's net operating loss carry forwards. The
1997 expense represents the Company's alternative minimum tax liability.
Liquidity and Capital Resources
At December 31, 1999, we had cash of $25.3 million, as compared with $6.5
million at December 31, 1998 and $4.9 million at the end of 1997. Cash used in
operating activities of $8.3 million for the year ended December 31, 1999 was
principally due to increases in accounts receivable and inventory balances.
Cash used in operating activities of $3.1 million for the year ended December
31, 1998 was due principally to increases in accounts receivable and inventory.
Cash used by investing activities of $4.2 million for the year ended December
31, 1999 related to our capital equipment expenditures to increase our
manufacturing capacity and to investments in joint ventures of $600,000. Total
1999 capital equipment expenditures were approximately $3.6 million. In 1998,
cash used in investing activities was $5.5 million and principally was due to
capital expenditures relating to the fit-up of our Pencader plant.
Net cash provided from financing activities of $31.3 million for the year ended
December 31, 1999 was due to a follow-on public offering and to proceeds from
the exercise of stock options. For 1998, net cash provided from financing
activities was $10.2 million, and was comprised of $16.6 million in proceeds
from our initial public offering and reduction in debt balances of $6.6 million.
Our sources of liquidity as of December 31, 1999 consist principally of cash of
$25.3 million, and available bank credit lines of $4 million. Any borrowings
under our bank facilities will be secured by accounts receivable, inventory and
machinery and equipment.
We expect that our available cash balance, project cash generated from
operations and available bank credit lines will be sufficient to fund our
activities for the foreseeable future. In the event we accelerate our
manufacturing expansion plans we may need to seek additional funding.
26
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products in North
America as well as in the Europe and Asia Pacific and Africa regions. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
Because all of our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we
believe that there is not a material risk exposure.
Year 2000
We met our Year 2000 project objectives and completed the project prior to year-
end. We have not experienced any disruption in our operations as a result of
non-compliance of vendors, financial institutions, or other third parties or
external systems. At this time, the possibility of a third-party risk arising,
which could have a material risk on the company, is not reasonably likely to
occur. In 1998 we developed a Year 2000 program to identify, evaluate, test,
upgrade, or replace each of our computer based systems in connection with Year
2000 readiness. We completed the process of modifying, upgrading, remediating
and replacing major computer related systems that were identified as potentially
non-compliant in June 1999. In 1999 we requested letters of compliance from
critical external suppliers to determine the status of their efforts to become
Year 2000 compliant. Total costs associated with our Year 2000 project were
funded with operating cash flow and approximated $400,000, of which
approximately $250,000 was incurred in 1998 and approximately $150,000 was
incurred in 1999.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and the Independent Auditors' Report thereon are listed
under Item 14(a)(1) of this Form 10-K.
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Note: The information pursuant to items 10, 11, 12 and 13 is omitted from this
report (in accordance with Federal Instruction G for Form 10-K), since the
Company is filing with the Commission (by no later than April 30, 1999), a
definitive proxy statement pursuant to Regulation 14A, which involves the
election of directors at the annual shareholders' meeting of the Company,
expected to be held on June 15, 2000.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND
REPORTS OF FORM 8-K
(a) 1. Consolidated Financial Statements
- Independent Auditors' Report
- Consolidated Balance Sheets - December 31, 1999 and 1998
- Consolidated Statements of Income - Years Ended December 31, 1999,
1998, and 1997.
- Consolidated Statements of Stockholders' Equity (Deficit) - Years
ended December 31, 1999, 1998 and 1997.
- Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998 and 1997.
- Notes to Consolidated Financial Statements
2. Financial Schedules attached hereto are as follows:
- Independent Auditors' Report
- Schedule II - Valuation and Qualifying Accounts.
- Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is given in the financial statements or notes thereto.
3. Exhibits
Unless otherwise noted, the following exhibits have been filed with
the Commission and are incorporated by reference to the following:
* Registration Statement (No. 333-42591) on Form S-1 filed on
December 18, 1997.
** Registration Statement (No. 333-86795) on Form S-1 filed on
September 9, 1999.
*** Definitive Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders, filed on May 20, 1998.
**** Definitive Proxy Statement for Registrant's 1999 Annual Meeting of
Stockholders, filed on April 30, 1999.
2.1 Series A Preferred Stock Purchase Agreement dated September 20,
1989 by and among AstroPower, Inc., et al and the Purchasers
named therein.*
2.2 Series B Stock Purchase Agreement dated between August 1993 and
September 1996 by among AstroPower, Inc. et al and the Purchasers
named therein.*
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant, effective on February 6, 1998.*
3.2 Form of Amended and Restated By-Laws of the Registrant, effective
on February 6, 1998.*
4.1 Specimen certificate representing the Common Stock of the
Registrant.*
10.1 1989 Stock Option Plan, as amended.*
10.2 1999 Stock Option Plan****
10.3 1998 Non-Employee Directors Stock Option Plan***
10.4 Lease for premises at Solar Park, Newark, Delaware dated July 1,
1991 between the Company and the University of Delaware.*
31
<PAGE>
10.5 Employment Agreement between the Company and Dr. Allen M.
Barnett dated April 1, 1997.*
10.6 Employment Agreement between the Company and Dr. George W.
Roland dated May 1, 1997.*
10.7 1997 Bonus Plan for Drs. Barnett and Roland.*
10.8 Amended and Restated Loan Agreement between the Company and
Mellon Bank (DE), N.A. dated November 24, 1997.*
10.9 Amended and Restated Security Agreement between the Company and
Mellon Bank (DE), N.A. dated November 24, 1997.*
10.10 Amended and Restated Line of Credit Note between the Company
and Mellon Bank (DE), N.A. dated November 24, 1997.*
10.11 Amended and Restated Term Loan Note between the Company and
Mellon Bank (DE), N.A. dated November 24, 1997.*
10.12 Business Loan Agreement between the Company and Artisans'
Savings Bank dated January 10, 1997.*
10.13 Promissory Note between the Company and Artisans' Savings Bank
dated January 10, 1997.*
10.14 Commercial Security Agreement between the Company and Artisans'
Savings Bank dated January 10, 1997.*
10.15 Commercial Guaranty between Allen M. Barnett and Artisans'
Savings Bank dated January 10, 1997.*
10.16 Operating Agreement between the Company and GPU International
dated July 1, 1997.*
10.17 Performance Agreement between the Company and GPU International
dated July 1, 1997.*
10.18 Note Purchase Agreement between the Company and Corning Inc.
dated August 19, 1997.*
10.19 Security Agreement between the Company and Corning Inc. dated
August 19, 1997.*
10.20 Promissory Note between the Company and Corning Inc. dated
August 19, 1997.*
10.21 Research and Development Umbrella Agreement between the Company
and Corning Inc. dated August 19, 1997.
10.22 Promissory note to Astrosystems, Inc.
10.21 Lease for premises at 231 Lake Drive, Newark, Delaware dated
January 16, 1998 between the Company and Liberty Property
Limited Partnership.
10.23 Letter Agreement between the Company and Corning Inc. dated
October 9, 1998**
10.24 Lease for premises at 231 Lake Drive, Newark, Delaware dated
January 16, 1998 between the Company and Liberty Property
Limited Partnership*
10.25 First Amendment to lease for premises at 231 Lake Drive,
Newark, Delaware dated January 26, 1999 between the Company and
Liberty Property Limited Partnership**
10.26 Second Amendment to lease for premises at 231 Lake Drive,
Newark, Delaware dated June 28, 1999 between the Company and
RREEF America Rait II Corp. E.**
10.27 Lease for premises in Concord, California dated June 18, 1999
AstroPowerWest, LLC and Allied Investments.**
10.28 Guaranty of lease for premises in Concord, California dated
June 18, 1999 by the Company in favor of Allied Investments.**
10.29 Commercial Security Agreement between the Company and
Wilmington Trust Company dated September 21, 1998.**
10.30 Business Loan Agreement dated September 21, 1999 between the
Company and Wilmington Trust Company.**
10.31 Promissory Note between the Company and Wilmington Trust
Company dated September 21, 1998.**
10.32 Business Loan Agreement dated November 4, 1998 between the
Company and Wilmington Trust Company.**
10.33 Promissory Note between the Company and Wilmington Trust
Company dated November 4, 1998.**
10.34 Amended and Restated Employment Agreement between the Company
and Dr. Allen M. Barnett dated January 7, 2000. *****
23 Consent of KPMG LLP.*****
27.1 Financial Data Schedule.******
*****Filed herewith
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AstroPower, Inc.
Date: March 29, 2000 By: /s/ Allen M. Barnett
----------------- ---------------------------------
Allen M. Barnett
Chief Executive Officer,
President and Director
Date: March 29, 2000 By: /s/ Thomas J. Stiner
----------------- ---------------------------------
Thomas J. Stiner
Senior Vice President,
Principal Financial Officer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 29, 2000.
/s/ Allen M. Barnett Director /s/ Gilbert Steinberg Director
- ---------------------------- ------------------------
Allen M. Barnett Gilbert Steinberg
/s/ George S. Reichenbach Director /s/ Clare E. Nordquist Director
- ---------------------------- ------------------------
George S. Reichenbach Clare E. Nordquist
/s/ George W. Roland Director /s/ Charles R. Schaller Director
- ---------------------------- ------------------------
George W. Roland Charles R. Schaller
33
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
AstroPower, Inc.
We have audited the accompanying consolidated balance sheets of AstroPower, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AstroPower, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
--------------------------
Wilmington, Delaware
February 21, 2000
F-1
<PAGE>
ASTROPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------- -------------------------------
ASSETS 1999 1998
- ----------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 25,338,239 6,545,095
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$651,726 in 1999 and $70,695 in 1998............................ 14,106,031 6,531,144
Employee receivables............................................. 102,604 84,121
Other, including amounts due from stockholder.................... 315,570 32,113
Inventories......................................................... 7,823,382 3,596,676
Prepaid expenses.................................................... 747,828 159,948
Deferred tax asset.................................................. 2,280,373 1,796,338
------------ --------------
Total current assets...................................... 50,714,027 18,745,435
INVESTMENT IN JOINT VENTURES........................................... 662,838 -
PROPERTY AND EQUIPMENT:
Machinery and equipment............................................. 12,360,339 10,448,628
Furniture and fixtures.............................................. 458,320 334,186
Leasehold improvements.............................................. 978,209 917,698
Construction in progress............................................ 2,963,202 1,575,163
------------ --------------
16,760,070 13,275,675
Less accumulated depreciation and amortization...................... (4,629,442) (3,654,796)
------------ --------------
12,130,628 9,620,879
------------ --------------
Total assets.............................................. $ 63,507,493 28,366,314
============ ==============
</TABLE>
F-2
<PAGE>
ASTROPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------- -----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- -------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................................... $ 3,349,921 $ 2,629,068
Accrued payroll and payroll taxes (includes
$187,758 in 1999 and $185,910 in 1998 due to the
Company's President and Chief Executive Officer)..................... 1,050,525 963,243
Accrued expenses........................................................... 182,571 313,640
-------------- --------------
Total current liabilities......................................... 4,583,017 3,905,951
OTHER LIABILITIES:
Deferred tax liability..................................................... 1,270,587 801,452
Deferred compensation and other (including amounts due to
officers and a stockholder)........................................... 160,811 396,027
-------------- --------------
1,431,398 1,197,479
-------------- --------------
Total liabilities................................................. 6,014,415 5,103,430
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:........................................................... -
Common Stock, 25,000,000 shares authorized;
11,227,095 in 1999 and 8,572,455 in 1998 shares issued and
outstanding, $.01 per share par value............................... 112,271 85,725
Additional paid-in capital................................................. 57,795,387 25,956,474
Unearned compensation...................................................... (147,693) (245,718)
Accumulated deficit........................................................ (266,887) (2,533,597)
-------------- --------------
Total stockholders' equity.......................................... 57,493,078 23,262,884
-------------- --------------
Total liabilities and stockholders' equity.......................... $ 63,507,493 $ 28,366,314
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ASTROPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
REVENUES: 1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Product sales............................................... $ 31,428,418 20,205,913 13,094,871
Research contracts.......................................... 3,215,659 2,953,196 3,511,898
------------- ------------ -------------
Total revenues..................................... 34,644,077 23,159,109 16,606,769
COST OF REVENUES:
Product sales............................................... 22,587,865 14,942,121 9,311,140
Research contracts.......................................... 2,264,124 2,296,895 2,539,915
------------- ------------ -------------
Total cost of revenues............................. 24,851,989 17,239,016 11,851,055
------------- ------------ -------------
Gross profit....................................... 9,792,088 5,920,093 4,755,714
OPERATING EXPENSES:
Product development expenses................................ 2,139,322 1,392,251 1,006,979
General and administrative expenses......................... 3,567,260 2,495,838 1,972,144
Selling expenses............................................ 1,578,045 951,249 853,812
------------- ------------ -------------
Income from operations............................. 2,507,461 1,080,755 922,779
OTHER INCOME (EXPENSE):
Interest expense............................................ (15,951) (252,200) (369,233)
Interest income............................................. 337,939 598,624 113,730
Other income (expense)...................................... (31,895) 3 4,550
Equity in earnings of joint ventures........................ 62,787 - -
------------- ------------ -------------
Total other income (expense)....................... 352,880 346,427 (250,953)
------------- ------------ -------------
INCOME BEFORE INCOME
TAX EXPENSE (BENEFIT)............................................ 2,860,341 1,427,182 671,826
INCOME TAX EXPENSE (BENEFIT)........................................ 593,631 (984,632) 20,000
------------- ------------ -------------
NET INCOME.......................................................... $ 2,266,710 2,411,814 651,826
============= ============ =============
NET INCOME DATA:
Net income per share - basic................................ $ 0.25 0.30 0.18
============= ============ =============
Net income per share - diluted.............................. $ 0.22 0.28 0.13
============= ============ =============
Weighted average shares
outstanding - basic..................................... 9,207,782 7,956,221 3,710,258
============= ============ =============
Weighted average shares
outstanding - diluted................................... 10,132,844 9,572,194 6,220,161
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ASTROPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
------------------------- --------------------------
Shares Amount Shares Amount Capital
--------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ......................... 328,909 3,289 3,701,775 37,018 2,697,396
Issuance of Series B Convertible
Preferred Stock ................................. 11,250 112 -- -- 89,888
Purchase and retirement of Series B
Convertible Preferred Stock ..................... (3,750) (37) -- -- (29,963)
Common Stock issued ............................. -- -- 67,997 680 113,471
Stock options granted ........................... -- -- -- -- 417,225
Amortization of unearned compensation............ -- -- -- -- --
Net income ...................................... -- -- -- -- --
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 ......................... 336,409 $ 3,364 3,769,772 $ 37,698 $ 3,288,017
Conversion of Series A Convertible
Preferred Stock ................................. -- -- 1,309,626 13,096 5,785,629
Conversion of Series B
Convertible Preferred Stock ..................... (336,409) (3,364) 336,409 3,364 --
Common Stock issued ............................. -- -- 3,156,648 31,567 16,781,488
Amortization of unearned compensation............ -- -- -- -- --
Stock options granted ........................... -- -- -- -- 101,340
Repayment of note receivable .................... -- -- -- -- --
Net income ...................................... -- -- -- -- --
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 ......................... -- $ 0 8,572,455 $ 85,725 $ 25,956,474
----------- ------------ ------------ ------------ ------------
Common Stock issued ................................ -- -- 2,654,640 26,546 31,240,826
Amortization of unearned compensation ..............
Tax benefit from stock options exercised............ -- -- -- -- 598,087
Net income .........................................
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 ......................... -- $ 0 11,227,095 112,271 57,795,387
=========== ============ ============ ============ ============
<CAPTION>
Note Unearned Accumulated
Receivable Compensation Deficit Total
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ................................ -- -- (5,597,237) (2,859,534)
Issuance of Series B Convertible
Preferred Stock ........................................ -- -- -- 90,000
Purchase and retirement of Series B
Convertible Preferred Stock ............................ -- -- (30,000)
Common Stock issued .................................... (79,125) -- -- 35,026
Stock options granted .................................. -- (417,225) --
Amortization of unearned compensation................... -- 73,482 -- 73,482
Net income ............................................. -- -- 651,826 651,826
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 ................................ $ (79,125) $ (343,743) $ (4,945,411) $ (2,039,200)
Conversion of Series A Convertible
Preferred Stock ........................................ -- -- -- 5,798,725
Conversion of Series B
Convertible Preferred Stock ............................ -- -- -- --
Common Stock issued .................................... -- -- 16,813,055
Amortization of unearned compensation................... -- 98,025 -- 98,025
Stock options granted .................................. -- 101,340
Repayment of note receivable ........................... 79,125 -- -- 79,125
Net income ............................................. -- 2,411,814 2,411,814
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 ................................ $ 0 $ (245,718) $ (2,533,597) $ 23,262,884
------------ ------------ ------------ ------------
Common Stock issued ....................................... -- -- -- 31,267,372
Amortization of unearned compensation ..................... 98,025 98,025
Tax benefit from stock options exercised................... -- -- -- 598,087
Net income ................................................ 2,266,710 2,266,710
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 ................................ $ 0 (147,693) (266,887) 57,493,078
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ASTROPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
- --------------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
Net income............................................................. $ 2,266,710 2,411,814 651,826
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred income taxes.............................................. 551,946 (994,886) -
Depreciation and amortization...................................... 1,078,559 796,601 545,066
Equity in earnings of unconsolidated affiliate..................... (62,787) - -
Common stock issued for services................................... - - 18,500
Stock options issued for services.................................. - 50,670 -
Amortization of unearned compensation.............................. 98,025 98,025 73,482
Loss from disposition of property and equipment.................... 31,465 - -
Changes in working capital items:
Accounts receivable........................................... (7,876,827) (3,285,306) (1,313,264)
Inventories................................................... (4,226,706) (1,994,355) (388,133)
Prepaid expenses.............................................. (587,880) 190,523 (291,201)
Accounts payable and accrued expenses......................... 589,784 233,649 719,000
Accrued payroll and payroll taxes............................. 87,282 (15,013) 313,736
Advance from customer......................................... - (610,891) 277,355
Deferred compensation and other............................... (226,924) (16,822) (16,562)
--------------- --------------- --------------
Net cash provided by (used in) operating
activities..................................................... (8,277,353) (3,135,991) 589,805
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (3,596,825) (5,474,689) (893,920)
Investment in joint ventures........................................ (600,050) - -
--------------- --------------- --------------
Net cash used in investing activities........................... (4,196,875) (5,474,689) (893,920)
--------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............................ - - 6,033,076
Net repayments from line of credit.................................. - (203,357) (327,843)
Repayment of long-term debt......................................... - (6,390,174) (594,396)
Proceeds from issuance of common stock-stock options................ 869,957 229,049 16,525
Proceeds from issuance of common stock
- public offering.................................................. 30,182,594 16,612,080 -
Proceeds from issuance of stock-401(k) plan......................... 214,821 -
Proceeds from issuance of preferred stock........................... - - 90,000
Repurchase of preferred stock....................................... - - (30,000)
--------------- --------------- --------------
Net cash provided by financing activities................................. 31,267,372 10,247,598 5,187,362
--------------- --------------- --------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS...................................................... 18,793,144 1,636,918 4,883,247
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR..................................................... 6,545,095 4,908,177 24,930
CASH AND CASH EQUIVALENTS AT END OF
--------------- --------------- --------------
YEAR.................................................................. 25,338,239 6,545,095 4,908,177
=============== =============== ==============
SUPPLEMENTAL DISCLOSURE:
Interest paid......................................................... 14,296 597,190 160,544
=============== =============== ==============
Taxes paid............................................................ 96,700 31,000 -
=============== =============== ==============
</TABLE>
OTHER NONCASH FINANCING AND INVESTING ACTIVITIES:
- - During 1997, the Company issued 34,213 shares of common stock in exchange for
a 6% promissory note in the amount of $79,125, with a maturity date of August
15, 1998.
- - On February 19, 1998, the Company converted all shares of its Series A and
Series B Convertible Preferred Stock into 2,194,709 shares of common stock on
a one-for-one basis.
- - During 1998, the Company issued stock options for 119,000 shares of common
stock to Corning Incorporated.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ASTROPOWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Description of Business
The Company operates in only one business segment, as substantially all
of its combined revenues, net income and assets are derived from the
development, manufacturing, marketing and sale of PV solar cells, modules
and panels for generating solar electric power. Solar cells are
semiconductor devices which convert sunlight directly into electricity.
Solar electric power is used off the electric utility grid for many
applications in the communications and transportation industries and in
remote villages and homes. Solar electric power is also used in on-grid
applications by existing electric utility customers to provide a clean,
renewable source of alternative or supplementary electric power.
Availability of silicon wafers, a significant raw material in the Company's
manufacturing process, is subject to market conditions in the semiconductor
industry, however, the Company is not dependent on a single supplier or
only a few suppliers. See Note 11.
The Company owns 50% interests in two joint ventures. Such investments
are accounted for under the equity method.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. Significant
intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and accrued expenses. The carrying values of
cash, accounts receivable, accounts payable and accrued expenses are
considered to be representative of their respective fair values because of
the short-term nature of these balances.
Inventories
Inventories are reported at lower of cost or market. Cost is
determined using the weighted average method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed
using the straight-line method based on the assets' estimated useful lives,
ranging from 5 to 15 years. Maintenance, repairs and minor renewals are
charged to expense as incurred.
Included in machinery and equipment at December 31, 1999 and 1998 were
$8,934,133 and $8,175,354 respectively, representing self-constructed
assets. In costing the equipment, the Company uses a full cost approach
whereby direct material, direct labor and related overhead costs are
capitalized. The total labor and overhead costs of self-constructed assets
capitalized for the years ended December 31, 1999 and 1998 and 1997, were
$834,640, $828,009, and $176,397 respectively.
F-7
<PAGE>
Revenue Recognition
Revenue from product sales is recognized when products are shipped.
Revenue related to the Company's fixed price, cost-plus and cost-sharing
research contracts are recognized at the time costs benefiting the
contracts are incurred, which approximates the percentage of completion
method. Provisions for estimated losses are made in the period in which
losses are determined. Accounts receivable includes unbilled accounts
receivable consisting of material, labor and overhead expended on
contracts.
Product Development Expenses
These expenses represent the material, labor and overhead costs
incurred to develop processes in support of the Company's Silicon-Film
wafer, solar cell and module engineering effort which are not funded by
research contracts.
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expense, and the disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
(2) Inventories
A summary of inventories is as follows:
December 31,
----------------------
1999 1998
---------- ---------
Raw materials $5,014,912 2,995,166
Work-in-process 550,069 138,927
Finished goods 2,258,401 462,583
---------- ---------
$7,823,382 3,596,676
========== =========
(3) Debt
The Company has a $1 million line of credit agreement with a financial
institution, secured by accounts receivable and bearing interest at the
prime rate and a $3 million revolving line of credit facility with a
financial institution. Security for the facility, which bears interest at
the prime rate, is accounts receivable, inventory and property and
equipment. These facilities expire in September 2001. There were no
borrowings against these facilities at December 31, 1999.
F-8
<PAGE>
(4) Income Taxes
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34% to pretax income as a
result of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense.................................... $ 972,516 485,242 228,421
Utilization of net operating loss carryforwards.................... - (205,266) (17,685)
State income tax expense (benefit), net of federal................. 32,208 (80,651) 20,761
Change in valuation allowance...................................... - (1,809,315) 135,928
Change in tax rates................................................ - 242,107 -
Foreign sales corporation.......................................... (144,777) - -
Tax credits........................................................ (132,462) - -
Tax liability in excess (less than) provision...................... (182,826) 185,579 (347,425)
Other.............................................................. 48,972 197,672 -
---------- ---------- ---------
Actual tax expense (benefit)....................................... $ 593,631 (984,632) 20,000
========== ========== =========
</TABLE>
Income tax expense (benefit) for the years 1999, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................. 41,685 $ 10,254 20,000
State............................... - - -
Deferred:
Federal............................. 504,465 (872,688) -
State............................... 47,481 (122,198) -
--------- --------- --------
Total income tax expense (benefit)....... 593,631 (984,632) 20,000
========= ========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Deferred revenue........................................................... $ - - 242,780
Advances from customer and accrued expenses................................ 416,436 417,159 323,698
Federal and state net operating loss carry forward......................... 1,469,650 1,301,454 2,021,628
Tax credits................................................................ 284,449 - -
Other...................................................................... 109,838 77,725 -
----------- ---------- -----------
Total gross deferred tax assets............................................ 2,280,373 1,796,338 2,588,106
Less valuation allowance................................................... - - (1,809,315)
----------- ---------- -----------
Net deferred tax assets...................................................... 2,280,373 1,796,338 778,791
Deferred tax liabilities:
Plant and equipment, due to differences
in depreciation methods and basis........................................ (1,223,572) (801,452) (778,791)
Other...................................................................... (47,015) - -
----------- ---------- -----------
Deferred tax liabilities................................................... (1,270,587) (801,452) (778,791)
----------- ---------- -----------
Net deferred amount.......................................................... $ 1,009,786 994,886 -
=========== ========== ===========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considered the
scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. The reversal
of the valuation allowance in 1998 resulted from management's assessment
that is was more likely than not
F-9
<PAGE>
that the deferred tax assets would be realized. At December 31, 1999, the
Company has net operating loss carryforwards for federal income tax
purposes of approximately $3.9 million which are available to offset future
federal and state taxable income, if any, through 2011.
(5) Operating Lease Obligations
The Company leases a 40,000 square foot building from the University
of Delaware (the "University"). Although the lease agreement is for a term
of 20 years (expiring June 30, 2011), the Company may cancel the lease
after nine years (June 30, 2000) with twelve months notice of cancellation.
Accordingly, only payments through June 30, 2001 have been included
below. In January 1998, the Company entered into an operating lease
agreement for a 60,300 square foot facility for its second manufacturing
facility. In January 1999, the Company entered into an agreement for an
additional 20,000 square feet in this facility. The scheduled cash payments
over the next five years differ from rental expense calculated under the
straight-line method. The following summarizes expected charges to rent
expense contrasted with expected cash outflow as required by the lease
agreements for all facilities (which includes the University lease payments
through June 2001):
<TABLE>
<CAPTION>
Annual Rent Expected
Expense Cash Payments
----------- -------------
<S> <C> <C>
December 31, 2000.................. $ 737,292 695,592
December 31, 2001.................. 624,606 602,646
December 31, 2002.................. 490,290 476,472
December 31, 2003.................. 475,212 469,434
December 31, 2004 and thereafter... 2,613,666 2,710,914
</TABLE>
Total rent expense charged to operations for the years ended December
31, 1999, 1998 and 1997 amounted to approximately $703,000, $596,000 and
$242,000 respectively.
(6) Related Parties
At December 31, 1999 and 1998, the Company owed its President and
Chief Executive Officer $187,758 and $370,696, respectively, in the form of
salary and automobile reimbursements. The amounts are related to the excess
of the negotiated annual salary and monthly auto allowance under a contract
which ended March 31, 1997 over the amounts actually paid to such person.
On December 15, 1997, the Company agreed that one-third of this amount will
be paid per year in each of 1998, 1999 and 2000, with interest on the
unpaid balance at 6% per year from January 1, 1998.
During the year ended December 31, 1999 the Company's sales to its two
joint ventures totaled $2,135,000. At December 31, 1999 amounts due from
these joint ventures totaled $754,455 and were included in the caption
"Accounts receivable - trade".
(7) Employee Benefit Plan
The Company maintains a defined contribution plan under the provisions
of Internal Revenue Code Section 401(k). Employees having attained the age
of 21 and with one month of service are eligible to participate and make
voluntary contributions to the plan. The amount charged to expense for the
years ended December 31, 1999, 1998 and 1997 was $140,000, $150,000 and
$145,000, respectively. The Company does not provide any postemployment
benefits.
F-10
<PAGE>
(8) Capital Stock
In the first quarter of 1998, the Company completed an initial public
offering of its common stock, raising net proceeds to the Company of
$16,612,000, and converted all the then outstanding shares of Series A and
Series B Preferred Stock into Common Stock so that no shares of Preferred
Stock are currently outstanding. Contemporaneous with the initial public
offering, the Company amended and restated its Certificate of Incorporation
to provide for, among other things, an increase in the number of authorized
shares of Common Stock from 15,000,000 to 25,000,000; authority to issue up
to 5,000,000 shares of one or more series of preferred stock and authorized
the Board of Directors to fix and determine the relative rights,
preferences and limitations of each class or series so authorized without
any further vote or action by the stockholders; and to effect a reverse
stock split in the form of three shares for every four shares outstanding.
All share and per share information in the accompanying financial
statements have been retroactively adjusted to give effect to the reverse
stock split.
In the fourth quarter of 1999, the Company completed a follow-on
public offering of its common stock, raising net proceeds to the Company of
$30,183,000.
(9) Employee Stock Option Plan
The Company adopted a Stock Option Plan ("the 1989 Plan") in 1989
under which a total of 1,920,000 shares are currently reserved for issuance
to employees including officers and directors who are employees or
consultants. The 1989 Plan expired in December 1999. Options granted
pursuant to the 1989 Plan were either incentive stock options or non-
qualified stock options. The Plan was administered by the Board of
Directors which selected the employees to whom the options are granted,
determined the number of shares subject to each option, set the time or
times when the options will be granted, determined the time when the
options may be exercised and established the market value of the shares at
the date of grant and exercise date. The Plan provided that the purchase
price under the option shall be at least 100 percent of the fair market
value of the shares of the Company's Common Stock at the date of grant. The
options are not transferable. There are limitations on the amount of
incentive stock options that an employee can be granted in a single
calendar year. The terms of each option granted under the 1989 Plan are
determined by the Board of Directors, but in no event may such term exceed
ten years. Incentive stock options generally vest over a four-year period,
with vesting occurring 25% per year on the anniversary date of the option
award.
In 1999, the Company adopted the 1999 Stock Option Plan ("the 1999
Plan"), under which a total of 600,000 shares are currently reserved for
issuance. The principal provisions of the 1999 Plan are similar to those
described above for the 1989 Plan, except that options may be transferred
under certain limited circumstances.
In 1998, the Company adopted the 1998 Non-Employee Directors' Stock
Option Plan ("Directors' Plan"), under which a total of 160,000 shares are
currently reserved for issuance to non-employee directors. The Directors'
Plan is administered by a committee of the Board of Directors. The
Directors' Plan provides that the purchase price under the option shall be
the fair market value of the shares of common stock on the date of grant.
In 1999, the Company has granted to an executive officer a separate
stock option for the purchase of 90,000 shares of the Company's common
stock at $12.125 per share. The options vest over a four-year period at 25%
per year on the anniversary date of the option award. In addition, pursuant
to separate stock options, in 1999 the Company has granted to its five
outside directors options to purchase a total of 60,000 shares of the
Company's common stock at $12.125 per share. Of these shares, 15,000 are
immediately vested and the balance vests ratably over the following three
years.
F-11
<PAGE>
Stock option transactions during the years ended December 31, 1997,
1998 and 1999 are summarized below:
<TABLE>
<CAPTION>
Exercise Weighted
Price Range - Average
Shares Per Share Exercise
Price
----------- ------------- --------
<S> <C> <C> <C>
Balance, December 31, 1996 628,912 $ 0.33-$4.00 3.51
Granted...................................... 546,233 $ 3.12-$5.33 4.65
Exercised.................................... (63,352) $ 0.33-$4.00 1.51
Cancelled.................................... (22,846) $ 0.67-$4.00 3.89
----------
Balance, December 31, 1997........................ 1,088,947 4.00
Granted...................................... 801,875 $ 6.00-$10.25 8.74
Exercised.................................... (45,730) $ 6.00-$10.00 3.28
Cancelled.................................... (35,570) $ 6.00-$10.00 6.41
---------- ------
Balance, December 31, 1998........................ 1,809,522 $ 6.07
Granted...................................... 804,333 $9.38 - 17.88 11.91
Exercised.................................... (208,195) $0.33 - 11.88 4.22
Cancelled.................................... (119,154) $0.33 - 16.75 8.03
---------- ------
Balance, December 31, 1999........................ 2,286,506 $ 8.19
========== ======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------- --------------------------------
Range of Weighted average
exercise remaining life Weighted average Weighted average
Prices Shares in years exercise price Shares exercise price
--------------- ----------- ---------------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0.33 - $3.12 150,112 3.87 2.98 150,112 2.98
$ 4.00 - $4.00 486,236 6.17 4.00 391,262 4.00
$ 5.33 - $8.00 392,325 7.83 6.63 121,761 6.29
$ 8.25 - $9.38 262,600 8.36 8.59 58,557 8.60
$ 9.63 - $10.00 229,708 8.76 9.92 94,883 9.97
$10.00 - $10.25 80,000 8.37 10.25 40,000 10.25
$10.31 - $11.88 334,250 9.28 11.83 20,250 11.77
$12.00 - $12.13 258,200 9.93 12.13 20,000 12.13
$12.25 - $17.88 93,075 9.58 13.87 4,875 14.80
-------------------------------------------------------------------------------------------
2,286,506 7.91 8.19 901,700 $ 5.76
=========== ======= ====== ========= =======
</TABLE>
Prior to the adoption of the plans, the Company had a compensatory
stock plan for the issuance of shares to employees and consultants. At
December 31, 1998, the Company had reserved 39,999 shares for a commitment
under this plan. The balance sheet caption "Accrued payroll and payroll
taxes" contains a provision for these shares.
The Company applies APB Opinion 25 and related interpretations in
accounting for stock options issued to employees. During the year ended
December 31, 1997, unearned compensation expense with respect to stock
options granted at less than fair market value at the date of grant was
$417,225, which is being amortized to expense over the periods that the
options vest (4-5 years). The amount amortized to expense during the years
ended December 31, 1999, 1998 and 1997 was $98,025, $98,025 and $73,482
respectively. The unamortized amount of unearned compensation is classified
as a contra equity account in stockholders' equity.
FASB Statement 123 requires the disclosure of certain proforma
information regarding net income and net income per share. This information
is required to be determined as if the Company had accounted for its stock
F-12
<PAGE>
option plans under the fair value method of that statement. The fair value
of options granted reported below has been estimated at the date of grant,
using a Black-Scholes option pricing model with the following assumptions:
1999 1998
---- ----
Expected life of options from date of grant 4 years 5 years
Risk-free interest rate 5.0% 5.5%
Volatility .66 .50
Assumed dividend yield 0.0% 0.0%
As a private entity at December 31, 1997, the Company used the minimum
value method for "valuing options" and an interest rate of 6.5%.
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's proforma information follows (in thousands, except for per share
information):
1999 1998 1997
---- ---- ----
Net income as reported $2,267 2,412 652
Proforma net income $ 569 1,131 464
Proforma basic net income per share $ 0.06 .14 .13
Proforma diluted net income per share $ 0.06 .12 .07
(10) Government Contracts
During the years ended December 31, 1999, 1998 and 1997, substantially
all of the Company's contract revenues were generated by research and
development contracts, principally with the U.S. government. Orders under
government prime or subcontracts are customarily subject to termination at
the convenience of the government, in which event the contractor is
normally entitled to reimbursement for allowable costs and to a reasonable
allowance for profits, unless the termination of a contract was due to a
default on the part of the contractor. No termination of contracts by the
government occurred during the years ended December 31, 1999, 1998 and
1997.
Substantially all of the Company's revenues from government contracts
are subject to audit under various federal statutes. Although the Company
has received final written acceptance of its overhead rates through 1993,
it has been advised that the Defense Contract Audit Agency is disputing
certain elements of those submissions as well as those overhead rates for
1994 and 1995. The dispute is centered on the effect of the Company's
manufacturing operations on its government contract overhead rates during
the years of transition from a contract research and development
organization to commercial manufacturing. The overhead rates for 1996 have
been submitted, but have not yet been audited. This dispute does not affect
the Company's overhead rates for 1997, 1998 and 1999, inasmuch as the
Company revised its methodology for determining overhead rates. It is
management's opinion that adjustments to revenue, if any, will not have a
material adverse effect on the Company's business and financial condition,
but may impact future results of operations.
Certain of the Company's contracts contain retainage provisions. At
December 31, 1999, retainage amounts included in accounts receivable were
approximately $170,000 and $174,000, respectively. The Company estimates
that approximately 30% of the retainage amounts at December 31, 1999 will
be collected during 2000. At December 31, 1999 and 1998, unbilled accounts
receivable were approximately $211,000.
F-13
<PAGE>
(11) Business and Credit Concentrations
The following table shows the percentage of total revenues contributed
by significant customers for the periods presented. A significant customer
is defined as one contributing 10% or more of total revenues:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer A............. 9% 13% 21%
Customer B............. 14% 18% 12%
Customer C............. 24% 14% 17%
Customer D............. 10% - 13%
</TABLE>
Customer A represents the federal government. Research contract
revenues for the year ended December 31, 1999 include a total of 13
contracts aggregating $3,215,659 administered by six agencies of the U.S.
Government, with contract revenues ranging from 0.1% to 3.2% of total
revenues.
During the year ended December 31, 1999, the five largest product
sales customers accounted for approximately 60% of revenues and 66% of
product sales. At December 31, 1999 approximately 66% of accounts
receivable were due from the Company's six largest customers, of which 10%
represented amounts due from agencies of the U.S. government representing
Customer A and 56% represented amounts due from the Company's five largest
product sales customers in 1999. The loss of one or more of these major
customers could have a material adverse effect on the Company's business,
results of operations and financial condition.
(12) Geographic Distribution of Product Revenues
Total product revenues are summarized as a percentage by geographic area as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Domestic:............ 36% 22% 27%
Export:
Europe............... 54% 63% 56%
Asia................. 6% 6% 12%
Africa............... 4% 9% 5%
</TABLE>
All of the Company's research contract revenues are within the United
States.
F-14
<PAGE>
(13) Net Income Per Share
Basic net income per share is based on the weighted average number of
common shares outstanding. Diluted net income per share is based on the
weighted average number of common shares outstanding and potentially
dilutive shares. The dilutive effect of employee stock options is included
in the computation of Diluted net income per share.
The following table presents the computation of basic and diluted income
per share:
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- --------------------------- -------------------------
Income Average Income Average Income Average
Available Common Available Common Available Common
to Common Shares to Common Shares to Common Shares
Stockholders Outstanding Stockholders Outstanding Stockholders Outstanding
------------ ------------ ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Basic $2,266,710 9,207,782 $2,411,814 7,956,221 $ 651,826 3,710,258
Dilutive Effect
Stock Options - 925,062 - 536,609 - 344,786
Convertible Debt - - 239,314 885,448 157,377 518,460
Convertible Preferred Stock - - - 193,916 - 1,646,657
---------- ---------- ---------- ----------- ----------- -----------
Diluted $2,266,710 10,132,844 $2,651,128 9,572,194 $ 809,203 6,220,161
========== ========== ========== =========== =========== ===========
</TABLE>
F-15
<PAGE>
AstroPower, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Charged to Charged Deductions-
Beginning costs and to other Accounts Ending
Period Ended Description balance expenses accounts written-off Balance
----------------- -------------------------------- ------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1999 Allowance for bad debts (70,695) (581,031) - (651,726)
Dec. 31, 1998 Allowance for bad debts (72,962) (30,000) 32,267 (70,695)
Dec. 31, 1997 Allowance for bad debts (47,836) (52,052) 26,926 (72,962)
<CAPTION>
Charged to Charged Deductions-
Beginning costs and to other Accounts Ending
Period Ended Description balance expenses accounts written-off Balance
----------------- -------------------------------- ------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Period Ended
Dec. 31, 1998 Deferred tax valuation allowance (1,809,315) 1,809,315 -
Dec. 31, 1997 Deferred tax valuation allowance (1,673,387) (135,928) (1,809,315)
</TABLE>
F-16
<PAGE>
Exhibit 10.34
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
This Amended and Restated Employment AGREEMENT is made and entered into as of
the 7th day of January 2000 by and between ASTROPOWER, INC. (the "Company"), a
Delaware corporation with offices at Solar Park, Newark, Delaware 19716-2000,
and ALLEN M. BARNETT ("Barnett"), an individual residing at 2 Polaris Drive,
Newark, Delaware 19711.
WITNESSETH:
-----------
WHEREAS, the Company develops and commercially exploits certain inventions and
technology relating to photovoltaic solar cells and related optoelectronic
devices and otherwise engages in the business of developing, manufacturing
marketing and selling solar cells, modules and panels, for generating solar
electric power and optoelectronic devices and performs government-funded and
other research and technology development; and
WHEREAS, the Company intends to further develop and exploit its inventions and
technology and further expand its business; and
WHEREAS, Barnett has extensive experience and abilities in the business of the
Company and has been rendering services to the Company since July 1, 1989; and
<PAGE>
WHEREAS, Barnett is currently employed pursuant to an Employment Agreement
entered into as of April 1, 1997 the initial term of which expires March 31,
2000 (the "1997 Agreement"); and
WHEREAS, the Company wishes to continue to employ Barnett and Barnett wishes to
continue to render services to the Company subject to certain amendments to the
terms and conditions of the 1997 Agreement hereinafter provided;
NOW THEREFORE, in consideration of the mutual promises and covenants set forth
below, the Company and Barnett hereby agree that the text of the Employment
Agreement is hereby amended and restated in its entirety to read as follows,
effective as of January 7, 2000:
2. TERM, POSITION, RESPONSIBILITIES, DUTIES, AUTHORITY, TIME AND LOCATION.
-----------------------------------------------------------------------
(a) Term of Employment. The term of Barnett's employment under this
------------------
Agreement shall commence as of the date first above written for a term ending
March 31, 2005 (the "Term") unless either the Company or Barnett elects to
terminate the Agreement prior thereto by written notice to the other party,
which written notice must be given twelve (12) months in advance of the
effective date of such termination unless this Agreement is terminated prior
thereto in accordance with other provisions of this Agreement. For example, if
the Company or Barnett desires to terminate the Agreement as of April 1, 2003,
the party which desires to terminate the Agreement must furnish written notice
to that effect by March 31, 2002.
(b) Position Responsibilities Duties and Authority. The Company shall
----------------------------------------------
employ Barnett as President and Chief Executive Office of the Company to
develop, manage, administer and direct the business of the Company. Barnett
will have overall operating and management responsibility of the Company
consistent with his background and experience. Barnett shall continue to serve
as a Director of the Company and shall also serve as a Director of any
subsidiaries of the Company if so elected by their respective shareholders.
Barnett shall, at all times, have such executive powers and authority as shall
2
<PAGE>
reasonably be required to enable him to discharge his duties in an efficient
manner, provided, however, that Barnett shall at all times be subject to the
authority of the Board of Directors of the Company.
(c) Time. Except for illness and reasonable vacation periods, Barnett will
----
devote all his business time, attention, skill and efforts to the faithful
performance of his duties hereunder and the promotion of the Company's
interests. Barnett shall not be prevented from participating in charitable and
similar activities and may have personal business investments which may from the
time to time require minor portions of his time so long as such activities are
not done in a manner inconsistent with his obligations hereunder.
Subject to the provisions of paragraph 6(b) herein, Barnett shall not be
prevented from investing or trading in investments for his own account including
real estate, stocks, bonds, securities, commodities or other forms of
investments.
(d) Location. Barnett shall not be required without his consent to perform
---------
his duties hereunder (except for reasonable travel in connection with the
performance of such duties) at any place other than Newark, Delaware, or within
a radius of 20 miles thereof. Barnett shall not be required to perform any
services which will necessitate moving his residence from the greater Newark,
Delaware area.
3. COMPENSATION.
-------------
(a) Base Salary. For the services to be rendered by Barnett during the
------------
period beginning April 1, 2000 and each 12 month period thereafter during the
Term hereof, both as an officer and Director of the Company or any of its
subsidiaries, the Company shall pay to Barnett a Base Salary ("Base Salary") of
$245,000 per annum payable in equal monthly or such other installments in
accordance with the general practice of the Company. The Board of Directors of
the Company (or a Compensation Committee thereof) will review Barnett's salary
from time to time not less than annually, and may, but shall not be obligated
to, award increases in salary without the necessity of an express written
amendment of this Agreement, so long as such increases are in writing and signed
by a member of the Board of Directors who has been so authorized by the Board of
Directors. Any such increase shall remain in effect until the earlier of any
additional increase or the termination of this Agreement.
(b) Incentive Compensation. The Board of Directors will for each calendar
-----------------------
year consider and vote upon incentive compensation for Barnett. As a benchmark,
the incentive compensation will be in the range of 30% of Barnett's base salary
for the year.
Barnett and the Company hereby agree that in lieu of incentive compensation
for the calendar year ending December 31, 2000, Barnett is hereby granted an
individual non-statutory option to purchase 75,000 shares of the Company's
3
<PAGE>
Common Stock at an exercise price of $13.375 per share, vesting on March 31,
2001.
(c) Expenses. The Company agrees to pay or reimburse Barnett for all
---------
reasonable and adequately documented travel, entertainment and other business
expenses incurred by him in performing his obligations under this Agreement in
accordance with company-wide procedures as in effect from time to time.
(d) Automobile. In recognition of Barnett's need for an automobile for
-----------
business purposes, the Company will provide Barnett a monthly automobile
allowance of $450 in connection with his use of an automobile in the performance
of his duties hereunder and Barnett shall pay for all maintenance, repairs,
insurance, oil and gas and all costs incident thereto. The Company will
reimburse Barnett for all business related travel involving the use of his
automobile at a rate per mile in accordance with Company-wide policy as in
effect from time-to-time.
(e) Grant of Stock Options. In addition to: (i) the Base Salary
-----------------------
provided for in paragraph (a) above, (ii) options to purchase 75,000 shares of
the Company's Common Stock at $5.33 per share (which number and price reflect a
1998 three for four (3 for 4) reverse stock split) that were granted under the
Company's 1989 Stock Option Plan, 37,500 of which vest on March 31, 2001 and
37,500 of which vest on March 31, 2002, and (iii) the options granted in lieu of
incentive compensation for the calendar year ending December 31, 2000 in
paragraph (b) above, Barnett is herewith granted an individual non-statutory
option to purchase 227,000 shares of the Company's Common Stock at an exercise
price of $13.375 per share. Such options shall vest as follows:
<TABLE>
<CAPTION>
No. of Shares Date of Vesting
-------------- -----------------
<C> <S>
23,500 March 31, 2001
23,500 March 31, 2002
60,000 March 31, 2003
60,000 March 31, 2004
60,000 March 31, 2005
</TABLE>
Upon vesting the options shall be exercisable at any time and from time to
time in whole or in part for a period of 10 years from the date of grant.
In the event Barnett is employed for less than a full calendar year the
options shall vest as to a pro rata portion of the shares based on the actual
number of months he is employed. The Company agrees to reserve up to 302,000
shares for issuance to Barnett in connection with the options granted hereunder.
This reservation of shares is exclusive of any other shares reserved for
issuance under any Plan or otherwise to Barnett under previously granted
options.
4. PARTICIPATION IN BENEFIT PLANS. The payments provided under this Agreement
------------------------------
for Barnett are in addition to any benefits to which Barnett (or his
4
<PAGE>
beneficiaries or estate) may be or become entitled to under any fringe benefit,
medical, dental or group insurance, pension, profit sharing, welfare or other
benefit plan or program of the Company, and during the period of his employment
under this Agreement, Barnett shall be eligible for all benefits and emoluments
for which key executives are eligible under every such plan or program to the
extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof.
5. ADDITIONAL OBLIGATIONS OF BARNETT.
---------------------------------
(a) Confidential Information. Barnett shall not knowingly disclose or
------------------------
reveal to any unauthorized person or, except on behalf of the company, make use
of any records, contracts, writings, data, knowledge or other information
pertaining to the business of the Company, its divisions, subsidiaries or
affiliates, obtained by him from any source whatsoever as a result of his
relationship with the Company, whether or not in written or other recorded form,
other than information which is a matter of public record, including, without
limitation, any customer or client lists, or information which relates to the
Company's personnel, present operations, or future planning, and Barnett
confirms that such information constitutes the exclusive property of the
Company. Barnett agrees that, at the time of terminating his relationship with
the Company, he will deliver to the Company all notes, notebooks, memoranda,
files, lists, records, documents and, in general, any and all material relating
to the Company's business or that of its divisions, subsidiaries or affiliates.
(b) Competition and Conflicts of Interest. Barnett while employed by the
-------------------------------------
Company and for a period of one year from the date of termination of such
employment, shall not knowingly act or conduct himself to the detriment of the
Company, its subsidiaries or affiliates, or in a manner which is inimical or
contrary to their interests; specifically, but without limitation, he shall not
(i) engage in competition with the Company in any of the businesses in which it
may have been engaged at any time during the period of his employment under this
Agreement, or (ii) (and until the second anniversary from the date of
termination) directly or indirectly solicit, raid, entice, induce, or approach
any person who is or was, within six months prior to Barnett's termination of
employment with the Company, an employee of the Company or of any of its
subsidiaries or affiliates to become employed by any other person, firm or
corporation.
For this purpose, the phrase "engaging in competition" shall mean directly
or indirectly owning, managing, operating, joining, controlling or participating
in or being connected with, as an officer, employee, partner, stockholder, or
otherwise, any business, individual, partnership, firm, corporation or other
entity which is a the time engaged principally or significantly in a business
which is at the time directly or indirectly in competition with the business of
the Company; provided, however, that nothing in this paragraph 6(b) shall
prohibit Barnett from acquiring or holding any issue of stock or securities of
and such entity which has any securities listed or national securities exchange,
or quoted in the daily listing of over-the-counter market securities unless he
and members of his immediate
5
<PAGE>
family collectively own, directly or indirectly, more than 2% of any class of
voting securities of any such entity at any one time.
(c) Discoveries and Inventions. If Barnett, while employed by the Company,
--------------------------
makes, either solely or jointly with others, any discovery, improvement, or
invention which pertains or relates in any way to the business, products,
publications, or processes of the Company, such discovery, improvement, or
invention (whether or not of patentable nature) shall be the exclusive property
of the Company. Barnett shall execute and deliver to the Company, without
further compensation, any and all documents which the Company deems necessary or
appropriate to prepare or prosecute applications for patents upon such
discovery, improvement, or invention, to assign and transfer to the Company his
entire right, title, and interest in and to such discovery, improvement, or
invention, and patents therefor, and otherwise more fully and perfectly to
evidence the Company's ownership thereof.
(d) Failure to Perform Obligations. Barnett recognizes and acknowledges
------------------------------
that the possible restrictions on his activities under this Agreement including,
without limitation, this paragraph 6, are required for the reasonable protection
of the Company.
(e) Life Insurance. At any time during the term of this Agreement, the
--------------
Company shall have the right to insure Barnett's life for the sole benefit of
the Company. The amount of such insurance and the type of policy taken out
shall be determined by the Company, and all premiums payable thereon shall be
the obligation of the Company. Barnett shall have no interest in any such
policy, but shall cooperate with the Company in taking out such insurance by
submitting to physical examination, by supply all information required by the
insurance company, and by executing all necessary documents, provided no
financial obligation is imposed upon him by any such documents.
6. DISABILITY OR DEATH.
-------------------
(a) In the event Barnett shall be unable to perform his duties here under
by virtue of illness or physical or mental incapacity or disability from any
cause or causes whatsoever and Barnett shall fail to perform such duties for a
period aggregating 180 calendar days within any 360 calendar day period, the
Company shall have the right upon 30 days notice, in writing, to terminate
Barnett's employment hereunder. Barnett shall be entitled to receive all
compensation and benefits due hereunder during said 180 calendar day period and
his Base Salary (as that may have been increased as provided herein) for the
longer of what would have been the remaining term of this Agreement or 2 years
from the date of termination pursuant to this paragraph. However, if prior to
the expiration of said 30 day notice Barnett has resumed his duties, he shall
continue to be so employed and continue to receive all compensation and benefits
due hereunder. Barnett agrees that upon request of the Company he will submit
to an appropriate medical examination by a doctor designated by the Company to
confirm his disability, provided, however, that in no event will Barnett be
6
<PAGE>
considered disabled pursuant to any long term disability plan carried by the
Company.
(b) In case of Barnett's death, this Agreement shall terminate and the
Company shall be obligated to pay to his estate, for the longer of what would
have been the remaining term of this Agreement or 2 years from the date of
death: (I) his Base Salary (as that may have been increased as provided
herein), and (ii) a pro rata portion of his incentive compensation or any other
payments which he may have earned pursuant to any benefit plan then in effect,
corresponding to the portion of the twelve month period which elapsed to the
date of death.
Any amounts payable by the Company to Barnett pursuant to paragraph (a) and
(b) shall be reduced by any payments made to Barnett on account of any Workers
Compensation benefits received by Barnett or long term disability insurance
payments made to Barnett pursuant to any disability insurance policies carried
by and paid for by the Company and in the case of death, by any death benefits
paid to Barnett's estate from any life insurance policy on his life carried by
and paid for by the Company.
(c) If Barnett's employment terminates as set forth in this Section 6; any
vested but unexercised options to purchase shares of the Company's Common Stock
shall continue to be exercisable in accordance with their terms and any unvested
options held by Barnett, to purchase shares of the Company's Common Stock that
by their terms vest within one year from such termination shall be exercisable
by Barnett or his legal representative in accordance with their terms.
7. TERMINATION.
-----------
(a) Barnett's employment hereunder shall: (I) automatically terminate upon
the expiration of his term of employment or upon his death, and (ii) may
terminate at the option of the Company upon written notice to Barnett (a)
because of his fraud, misappropriation, or the like with respect to the Company;
(b) because of his disability as set forth in paragraph 7(a) herein, or (c) if
he shall have materially breached any of his covenants herein.
(b) If Barnett's employment is terminated by the Company for any reason
other than as set forth above, which termination can only occur by a 2/3 vote of
the Company's Board of Directors with Barnett not eligible to vote, he shall be
entitled to continue to receive his Base Salary (as that may have been increased
as provided herein) plus 30% of his Base Salary and all employee benefits
consistent with Section 89 of the Internal Revenue Code of 1986, for the shorter
of one year from the date of such termination or what would have been the
remaining term of the Agreement.
In the event of a termination of employment under this Paragraph 8(b),
Barnett shall not be under any obligation to seek other employment and there
shall not be any offset against amounts due Barnett under this Paragraph 8(b) on
7
<PAGE>
account of any remuneration attributable to any subsequent employment that
Barnett may obtain; provided that any health or welfare benefits attributable to
--------
subsequent employment which Barnett may receive shall offset any obligation of
the Company to provide such benefits after termination of Barnett's employment
with the Company. Any amounts due Barnett under this Paragraph 8(b) are in the
nature of severance payments or liquidated damages, or both, and are not in the
nature of a penalty.
(c) If Barnett voluntarily terminates his employment hereunder, he shall
not be entitled to receive any compensation or benefits after the date of such
termination other than as may be required by law.
(d) Barnett agrees that with respect to any termination of his employment
here under, whether by the Company or by Barnett, he shall resign as an officer
of the Company and any of its subsidiaries.
(e) If Barnett's employment terminates as set forth in this Section 7 for
any reason other than (a) because of his fraud, misappropriations, or the like
with respect to the Company; (b) if he shall have materially breached any of his
covenants herein: or (c) if Barnett voluntarily terminates his employment
hereunder: any vested but unexercised options to purchase shares of the
Company's Common Stock shall continue to be exercisable in accordance with their
terms and any unvested options held by Barnett, to purchase shares of the
Company's Common Stock that by their terms vest within two years from such
termination shall be exercisable in accordance with their terms.
8. RIGHTS AND BENEFITS UPON TERMINATION RESULTING FROM A CHANGE IN CONTROL. In
-----------------------------------------------------------------------
the event of involuntary termination resulting from a Change in Control, Barnett
shall be entitled to the following:
(1) Options. Any unexercised options to purchase shares of the Company's
-------
Common Stock shall continue to be exercisable in accordance with their terms and
any unvested options to purchase shares of the Company's Common Stock held by
Barnett shall vest in full upon the occurrence of a Change in Control and shall
be exercisable in accordance with their terms.
(2) Severance Compensation.
----------------------
(a) a lump sum cash payment on the date of termination equal to one
years base salary (as that may have been increased as provided
herein) plus 30% of his Base Salary; and
(b) (i) his Base Salary (as that may have been increased as provided
herein), plus 30% of his Base Salary and (ii) any other payments
which he could have earned pursuant to any benefit plan then in
effect, from the date of termination resulting from a Change in
Control to what would have been the remaining term of this
agreement. All other
8
<PAGE>
benefits and plans shall continue without modification for the term
of this Agreement.
(3) Change in Control. For the purpose of this Agreement, a "Change in
-----------------
Control" shall be deemed to have occurred: If any "person," as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") other than a person or group of persons who are
affiliates (as such term is defined in Rule 12b-2 of the Rules and Regulations
promulgated under the Exchange Act) of the Company on the date hereof is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 33% or
more of the combined voting power of the Company's then outstanding securities;
if as the result of, or in connection with, any tender or exchange offer, merger
or other business combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "Transaction") the persons who were
Directors of the Company immediately before the Transaction shall cease to
constitute a majority of the Board of the Company or any successor to the
Company; or ( c ) if there is a Change in Control of a nature that, in the
opinion of counsel for the Company, would be required to be reported in response
to Item 1 of Form 8-K under the Exchange Act, unless three-quarters of the Board
of Directors, as constituted immediately prior to the date of the Change in
Control, decide in their reasonable discretion that no Change in Control has
occurred, Barnett not being eligible to vote in his capacity as a Director.
9. INJUNCTIVE AND OTHER RELIEF. Barnett and the Company recognize that the
---------------------------
services to be rendered under this Agreement by Barnett are special, unique, and
of extraordinary character, and that in the event of the breach of the
provisions of paragraph 6(a) or 6(b) herein, the Company will be without
adequate remedy at law and will therefore be entitled to specifically enforce
such restrictions by temporary or permanent injunctive or mandatory relief
obtained in an action or proceeding instituted in any court of competent
jurisdiction without the necessity of proving damages and without prejudice to
any other remedies which it may have at law or in equity.
10. BINDING AGREEMENT. This Agreement shall be binding upon, and inure to the
-----------------
benefit of, Barnett and the Company and their heirs, executors, administrators
and, successors and assigns. This Agreement, and Barnett's rights and
obligations here under, may not be assigned by Barnett.
11. MODIFICATION AND WAIVER.
------------------------
(a) Amendment of Agreement. This Agreement may not be modified or
----------------------
amended except by an instrument in writing signed by the parties hereto.
(b) WAIVER. No term or condition of this Agreement shall be deemed to
------
have been waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
9
<PAGE>
continuing waiver unless specifically stated therein, and each such waiver shall
not constitute a waiver of such term continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future or as to any act other than that specifically waived.
12. NOTICES. Any notice or other communication required or permitted to be
-------
given by any party hereto shall be given in writing either by (a) personal
delivery or, (b) by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
To Barnett: 2 Polaris Drive
Newark, Delaware 19711
To Company: AstroPower, Inc.
Solar Park
Newark, Delaware 19716-2000
ATTN: Chief Financial Officer
or to such other address as may be designated in writing by the parties from
time to time during the term of this Agreement. All notices shall be effective
upon receipt after delivery in accordance with the above provisions.
13. EXHIBITS. All Exhibits attached hereto are hereby incorporated by
--------
reference into, and made a part of, this Agreement.
14. PROVISIONS SEPARABLE. The provisions of this Agreement are independent of
--------------------
and separable from each other, and no provisions shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding among
----------------
the parties hereto with respect to the subject matter hereof, and supersedes the
Barnett Agreement, as well as prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written
except as herein contained.
16. PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for
------------------
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
17. GOVERNING LAW. This Agreement has been executed and delivered in the State
-------------
of Delaware, and its validity, interpretation, performance, and enforcement
shall be governed by the laws of said State.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its seal to be affixed hereunto by its officers thereunto duly authorized,
and Barnett has signed this Agreement, all as of the day and year first above
written.
ATTEST: ASTROPOWER, INC,
BY /s/ Thomas J. Stiner
- ------------------------------------
TITLE Senior Vice President
------------------------
WITNESS:
/s/ Allen M. Barnett
- ------------------------------------ ------------------------
Allen M. Barnett
11
<PAGE>
EXHIBIT 23
Auditors' Report and Consent of Independent Auditors
The Board of Directors
AstroPower, Inc.
The audits referred to in our report dated February 21, 2000, included the
related financial statement schedule as of December 31, 1999, 1998 and 1997 and
for each of the years in the three-year period ended December 31, 1999, included
in this annual report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement scheduled based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to incorporation by reference in the registration statements (No.
333-68961 and 333-63021) on Form S-8 of AstroPower, Inc. of our reports dated
February 21, 2000 included herein.
/s/ KPMG LLP
----------------------------
Wilmington, Delaware
March 29, 2000
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,338,239
<SECURITIES> 0
<RECEIVABLES> 14,757,757
<ALLOWANCES> 651,726
<INVENTORY> 7,823,382
<CURRENT-ASSETS> 50,714,027
<PP&E> 16,760,070
<DEPRECIATION> 4,629,442
<TOTAL-ASSETS> 63,507,493
<CURRENT-LIABILITIES> 4,583,017
<BONDS> 0
<COMMON> 112,271
0
0
<OTHER-SE> 57,380,807
<TOTAL-LIABILITY-AND-EQUITY> 63,507,493
<SALES> 31,428,418
<TOTAL-REVENUES> 34,644,077
<CGS> 22,587,865
<TOTAL-COSTS> 32,136,616
<OTHER-EXPENSES> (31,895)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,951
<INCOME-PRETAX> 2,860,341
<INCOME-TAX> 593,631
<INCOME-CONTINUING> 2,266,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,266,710
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.22
</TABLE>
