<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 2000
REGISTRATION NO. 333-43140
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
EVERGREEN SOLAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3674 04-3242254
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
------------------------
211 SECOND AVENUE
WALTHAM, MASSACHUSETTS 02451
(781) 890-7117
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK A. FARBER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
EVERGREEN SOLAR, INC.
211 SECOND AVENUE
WALTHAM, MASSACHUSETTS 02451
(781) 890-7117
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM J. SCHNOOR, JR., ESQ. DAVID F. DIETZ, P.C.
TESTA, HURWITZ & THIBEAULT, LLP ANDREW F. VILES, ESQ.
125 HIGH STREET GOODWIN, PROCTER & HOAR LLP
BOSTON, MASSACHUSETTS 02110 EXCHANGE PLACE
TELEPHONE: (617) 248-7000 BOSTON, MASSACHUSETTS 02109-2881
TELECOPY: (617) 248-7100 TELEPHONE: (617) 570-1000
TELECOPY: (617) 523-1231
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE PRICE(2) FEE(3)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value....................... 3,450,000 $15.00 $51,750,000 $13,662
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares of common stock which may be purchased by the
underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) A registration fee of $10,560 was paid at the time of the initial filing of
this registration statement based on an estimate of the aggregate offering
price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED
WITHOUT NOTICE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
Prospectus (Not Complete)
Issued September 20, 2000
3,000,000 SHARES
[EVERGREEN LOGO]
EVERGREEN SOLAR, INC.
COMMON STOCK
------------------------------
Evergreen Solar, Inc. is offering shares of common stock in a firmly
underwritten offering. This is our initial public offering, and no public market
currently exists for our shares. We anticipate that the initial public offering
price for our shares will be between $13.00 and $15.00 per share. After the
offering, the market price for our shares may be outside of this range.
------------------------------
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "ESLR."
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
------------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Offering Price.............................................. $ $
Discounts and Commissions to Underwriters................... $ $
Offering Proceeds to Evergreen Solar........................ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Evergreen Solar, Inc. has granted the underwriters the right to purchase up
to an additional 450,000 shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within thirty days after
the offering. Banc of America Securities LLC expects to deliver the shares of
common stock to investors on , 2000.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
FAC/EQUITIES
------------------------------
, 2000
<PAGE> 3
[Captions and graphics appearing on gatefold:]
[Heading that reads "EVERGREEN SOLAR SERVING TODAY'S ELECTRIC POWER
APPLICATIONS" beside the Evergreen Solar logo]
[Beside the caption "ON-GRID" appear two photographs: a photograph of solar
panels on a rooftop over the caption "COMMERCIAL - Kawasaki Heavy Industries
rooftop installation, Chiba, Japan." and a photograph of the EverSun AC Module
over the caption "RESIDENTIAL - EverSun AC Module providing supplemental home
power."]
[Beside the caption "OFF-GRID: REMOTE POWER" appear two photographs: a
photograph of a solar panel over the caption "COMMERCIAL - Single panel powering
military instrumentation that requires high reliability." and a photograph of
solar panels on a rooftop over the caption "RESIDENTIAL - Roof-mounted panels
installed at a private lakeside retreat."]
[Beside the caption "OFF-GRID: RURAL ELECTRIFICATION" appear two photographs: a
photograph of solar panels over the caption "COMMERCIAL - Water pumping system
for a business in Tanzania." and a photograph of a single pole-mounted solar
panel over the caption "RESIDENTIAL - A single pole-mounted panel that can power
lighting for a small rural home."]
[Captions and graphics appearing in inside front cover]
[Heading that reads "EVERGREEN SOLAR'S PROPRIETARY TECHNOLOGY - DESIGNED TO
IMPROVE EACH PHASE IN THE MANUFACTURING CYCLE" beside the Evergreen Solar logo]
[Photograph of String Ribbon furnaces over the caption "STRING RIBBON -
Evergreen Solar's proprietary and patented String Ribbon technology uses a
continuous silicon growth process to avoid the conventional slicing of silicon
blocks."]
[Photograph of wrap-around solar cells over the caption "WRAP-AROUND CELLS -
Evergreen Solar's proprietary and patented wrap-around solar cells are being
designed to simplify the process of assembling numerous solar cells into solar
panels."]
[Photograph of solar panels over the caption "POLYMER PANELS - Evergreen
Solar's innovative frameless solar panels, including roofing tiles, are being
designed to be thinner, lighter, easier to ship and install, longer lasting and
more attractive."]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 27
Management.................................................. 42
Principal Stockholders...................................... 48
Certain Transactions........................................ 51
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 58
Legal Matters............................................... 60
Experts..................................................... 60
Where You Can Find More Information......................... 60
Index to Financial Statements............................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects may
have changed since that date.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary provides an overview of the key aspects of the offering.
Because this is a summary, it may not contain all of the information that is
important to you. You should read the entire prospectus carefully, including the
"Risk Factors" section and the financial statements and related notes.
OUR BUSINESS
We develop, manufacture and market solar power cells, panels and systems
that provide reliable and environmentally clean electric power throughout the
world. Solar power products convert the sun's energy into electricity. Our sales
are composed of primarily solar panels. After three years of research and
development and three years of refining our solar power technologies in our
pilot manufacturing facility, we are preparing to begin large-scale
manufacturing of our solar power products in our new manufacturing facility by
early 2001. We believe the proprietary and patented solar power technologies
that we have developed and are currently developing will give us significant
cost and product design advantages. We intend to become a leading producer of
high-quality solar power products by reducing manufacturing costs, developing
innovative solar power products and pursuing strategic relationships, such as
our distribution and marketing relationship with Kawasaki Heavy Industries, Ltd.
of Japan.
OUR MARKET OPPORTUNITY
The electric power industry is one of the world's largest industries, with
1998 annual revenues of approximately $900 billion. Furthermore, electricity
accounts for a growing share of overall energy use. According to The Huber Mills
Digital Power Report, electricity accounted for 25% of domestic energy use 25
years ago and 37% in 1999, and is projected to account for more than 50% of
domestic energy use early in this century. A principal driver of this growth is
increasing reliance on electricity-dependent advanced technologies, such as in
the Internet and telecommunications industries. We believe that deregulation and
technological innovations are creating significant opportunities for new
entrants and technologies within the electric power industry, just as these
changes have created similar opportunities in other regulated industries such as
telecommunications, banking and transportation.
We believe that distributed generation is one of the most promising areas
for growth in the global electric power industry. Distributed generation is
defined as point-of-use electricity generation that either supplements or
bypasses the electric utility grid, and employs technologies such as solar
power, microturbines and fuel cells. Distributed generation is expected to
provide greater portability, reliability, power quality and user control. We
believe capacity constraints, increased demand for power reliability and
quality, and new environmental initiatives will drive the demand for distributed
generation.
The solar power market has experienced significant growth over the past 20
years. According to the National Renewable Energy Laboratory, or NREL, 1998
worldwide shipments of solar panels totaled more than 150 megawatts, resulting
in approximately $1.5 billion in sales. In addition, NREL projects that annual
worldwide sales of solar power products will increase to approximately $27
billion by 2020.
Solar power applications that are not connected to the existing utility
grid, also referred to as off-grid applications, provide remote power for rural
electrification in developing countries, remote homes in developed countries,
water pumping, transportation signals, telecommunications and other uses. Solar
power applications that are connected to the existing utility grid, also
referred to as on-grid applications, are used to supplement power generated by
electric utilities, typically on residential and commercial buildings. PV Energy
Systems, a leading independent market research firm, estimates that on-grid
shipments represented 31% of the total solar power market in 1999 and have grown
at a compound annual growth rate of approximately 47% from 1990 to 1999, while
off-grid shipments, representing 69% of the 1999 solar power market, have grown
approximately 13% per year since 1990.
1
<PAGE> 6
OUR TECHNOLOGY SOLUTION
We believe the principal challenge to the widespread adoption of solar
power is reducing manufacturing without impairing product reliability. We
believe that our proprietary and patented technologies will enable us to meet
these challenges due to the following advantages:
- Efficient material use. Unlike conventional crystalline silicon
technologies, our proprietary and patented String Ribbon technology
avoids the slicing of solid blocks of silicon. Our technology currently
uses approximately half the silicon required by today's market-leading
technologies, which reduces manufacturing costs. We believe we can reduce
this amount to one-fifth over the next few years.
- Simplified and continuous processing. We are developing continuous
manufacturing processes that require fewer and simpler steps, which we
believe will reduce manufacturing costs.
- Reduced manufacturing capital costs. We believe our manufacturing
technologies require significantly lower capital investment than most
existing technologies, enabling us to more easily and quickly scale our
manufacturing capacity to our needs with less capital risk.
- Improved product design and performance. We believe the advanced solar
panels we are developing will be thinner, easier to ship and install,
longer lasting and more attractive.
OUR ALLIANCE WITH KAWASAKI
In December 1999, we formed a five-year strategic distribution and
marketing relationship with Kawasaki for the Japanese market. According to PV
Energy Systems, a leading solar power market research firm, Japan is currently
the largest solar power market in the world and in 1998 accounted for 26% of
worldwide solar power shipments. We have agreed to sell our solar power products
in Japan exclusively through Kawasaki, and Kawasaki has agreed that we will be
Kawasaki's exclusive supplier of specified solar power products for the Japanese
market. We are also collaborating with Kawasaki on technical training, and have
agreed to explore the possibility of joint manufacturing in Japan in the future.
In addition, Kawasaki made a $5 million equity investment in our company. We
believe strategic relationships such as our alliance with Kawasaki will enable
us to more easily and cost-effectively enter new geographic markets, attract new
customers and develop innovative solar power products.
OUR STRATEGY
Our principal objective is to become a leading producer of high-quality
solar power products, primarily for the on-grid market and the off-grid rural
electrification market. We plan to achieve this objective by aggressively
pursuing the following strategies:
- Expanding our manufacturing capacity by relocating to our new 56,250
square foot manufacturing facility by early 2001.
- Reducing manufacturing costs without compromising product quality by
capitalizing on our proprietary and patented technologies in String
Ribbon wafer manufacturing, innovative solar cell fabrication and
advanced solar panel designs.
- Developing innovative solar power products that will be longer lasting,
more attractive, and easier to deliver and install by building on our
technological advantages in solar power product design and performance.
- Pursuing strategic relationships to leverage the marketing, manufacturing
and distribution capabilities of larger companies and to explore
opportunities for additional solar power product development.
- Penetrating international markets through local manufacturing of solar
wafers, cells and panels using our modular manufacturing technology to
achieve economies of scale at smaller capacities than conventional solar
power technologies.
2
<PAGE> 7
OUR HISTORY
Evergreen Solar, Inc. was incorporated in Delaware in August 1994. Our
corporate offices are located at 211 Second Avenue, Waltham, Massachusetts, and
our telephone number is (781) 890-7117. Our web site address is
www.evergreensolar.com. Information contained in our web site does not
constitute a part of this prospectus.
Our registered trademarks include "Evergreen Solar" and the Evergreen Solar
logo. Our trademarks include "EverSun" and "String Ribbon." Other trademarks and
tradenames in this prospectus are the property of their respective owners.
3
<PAGE> 8
THE OFFERING
Common stock offered................ 3,000,000 shares
Common stock outstanding after this
offering............................ 11,057,705 shares
Use of proceeds..................... We intend to use the net proceeds of
this offering to expand our
manufacturing operations and
distribution network, finance research
and development activities, fund
operating losses, and provide working
capital for general corporate
purposes. We may also use a portion of
the net proceeds to expand our
business through strategic alliances
and acquisitions.
Proposed Nasdaq National Market
symbol.............................. "ESLR"
The number of shares of common stock outstanding after this offering:
- includes the conversion of all of our outstanding convertible preferred
stock into an aggregate of 7,248,240 shares of common stock upon the
closing of the offering;
- excludes 617,696 shares issuable upon the exercise of all outstanding
stock options under our 1994 Stock Option Plan as of June 30, 2000 with a
weighted average exercise price of $1.42 per share, 151,603 of which were
exercisable as of June 30, 2000; and
- excludes 636,027 shares issuable upon the exercise of all warrants
outstanding as of June 30, 2000 with an exercise price of $4.33 per
share.
------------------------
Unless otherwise specifically stated, information throughout this
prospectus assumes:
- no exercise of the underwriters' over-allotment option;
- the conversion of all of our outstanding convertible preferred stock into
an aggregate of 7,248,240 shares of common stock upon the closing of the
offering;
- the effectiveness of our third amended and restated certificate of
incorporation, which reflects shares of authorized common stock
and authorizes 1,000,000 shares of undesignated preferred stock, and the
adoption of our amended and restated by-laws, in each case effective as
of the closing of the offering; and
- a 1-for-2.165 reverse stock split to be effected immediately prior to the
consummation of this offering.
4
<PAGE> 9
SUMMARY FINANCIAL DATA
The following tables set forth summary financial data for our company. You
should read this information together with the financial statements and notes to
those statements appearing elsewhere in this prospectus. The pro forma data and
pro forma as adjusted data give effect to the conversion of all of our
outstanding convertible preferred stock into 7,248,240 shares of our common
stock upon the closing of this offering. The pro forma as adjusted data also
reflect the sale of 3,000,000 shares of common stock by us in this offering at
an assumed initial public offering price of $14.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues............................... $ 153 $ 163 $ 189 $ 81 $ 97
Research revenues.............................. 556 1,395 2,113 1,070 1,008
------- ------- ------- ------- -------
Total revenues............................ 709 1,558 2,302 1,151 1,105
Operating expenses:
Cost of product revenues..................... 1,007 955 991 447 970
Research and development expenses............ 2,051 2,373 3,085 1,334 1,682
Selling, general and administrative
expenses.................................. 809 917 1,303 581 733
Stock-based compensation expense............. -- -- 18 -- 110
------- ------- ------- ------- -------
Total operating expenses.................. 3,867 4,245 5,397 2,362 3,495
------- ------- ------- ------- -------
Operating income (loss)........................ (3,158) (2,687) (3,095) (1,211) (2,390)
Net interest income............................ 102 165 163 98 515
------- ------- ------- ------- -------
Net income (loss).............................. (3,056) (2,522) (2,932) (1,113) (1,875)
------- ------- ------- ------- -------
Accretion of redeemable convertible preferred
stock........................................ (537) (953) (1,231) (610) (1,256)
------- ------- ------- ------- -------
Net income (loss) attributable to common
stockholders................................. $(3,593) $(3,475) $(4,163) $(1,723) $(3,131)
======= ======= ======= ======= =======
Net income (loss) per common share (basic and
diluted)..................................... $ (4.47) $ (4.33) $ (5.18) $ (2.15) $ (3.88)
======= ======= ======= ======= =======
Shares used in computing basic and diluted net
income (loss) per common share............... 803 803 803 803 807
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- -------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 16,143 $16,143 $54,153
Working capital........................................ 16,880 16,880 54,890
Total assets........................................... 19,522 19,522 57,532
Total long-term debt................................... -- -- --
Total redeemable convertible preferred stock........... 35,766 -- --
Total stockholders' equity (deficit)................... (16,423) 19,343 57,353
</TABLE>
5
<PAGE> 10
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the other
information included in this prospectus before investing in our common stock.
Our business, financial condition and results of operations could be seriously
harmed if any of the following risks occur. In any such case, the market price
of our common stock could decline and you may lose all or part of the money you
paid to buy our common stock.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties, including those not presently known to us or
that we currently deem immaterial, may also result in decreased revenues,
increased expenses or other events which could result in a decline in the price
of our common stock.
RISKS RELATING TO OUR FINANCIAL RESULTS
YOU MAY HAVE DIFFICULTY EVALUATING OUR BUSINESS AND PROSPECTS DUE TO OUR LIMITED
OPERATING HISTORY.
We are at an early stage of development and there is limited historical
information available upon which you can base your evaluation of whether to
invest in our common stock. We were formed in 1994 to research and develop
crystalline silicon technology for use in manufacturing solar power products.
Although we began shipping product from our pilot manufacturing facility in
1997, the primary objective of our pilot production line was the technical
development and further refinement of our String Ribbon technology and related
manufacturing processes. We have shipped only approximately 3,400 solar power
panels as of June 30, 2000 and have recognized limited revenues since our
inception. Accordingly, there is only a limited basis upon which you can
evaluate our business and prospects.
In addition, our earlier stage of development means that we have less
insight into how market and technology trends may affect our business. The
revenue and income potential of our business is unproven and the market we are
addressing is rapidly evolving. You should consider our business and prospects
in light of the risks, expenses and challenges that we will face as an
early-stage company seeking to develop and manufacture new products in an
emerging and rapidly evolving market.
WE HAVE A HISTORY OF LOSSES, EXPECT TO INCUR SUBSTANTIAL FURTHER LOSSES AND MAY
NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE, WHICH MAY DECREASE THE
MARKET VALUE OF OUR STOCK.
Since our inception, we have incurred significant net losses, including net
losses of $3.1 million in 1997, $2.5 million in 1998, $2.9 million in 1999 and
$1.9 million for the six months ended June 30, 2000. As a result of ongoing
operating losses, we had a cumulative net loss of $12.3 million as of June 30,
2000. We expect to incur substantial losses for the foreseeable future, and may
never become profitable. Even if we do achieve profitability, we may be unable
to sustain or increase our profitability in the future, which could materially
decrease the market value of our common stock. We expect to continue to incur
significant capital expenditures and anticipate that our expenses will increase
substantially in the foreseeable future as we seek to:
- expand our manufacturing operations;
- develop our distribution network;
- continue to research and develop our products and manufacturing
technologies;
- implement internal systems and infrastructure in conjunction with our
growth; and
- hire additional personnel.
We do not know whether our revenues will grow at all or grow rapidly enough to
absorb these expenses, and our limited operating history makes it difficult to
assess the extent of these expenses or their impact on our operating results.
6
<PAGE> 11
OUR STOCK PRICE COULD FALL SUBSTANTIALLY IF OUR QUARTERLY REVENUE OR OPERATING
RESULTS FLUCTUATE OR ARE DISAPPOINTING.
Our quarterly revenue and operating results have fluctuated significantly
in the past and may fluctuate significantly from quarter to quarter in the
future due to a variety of factors, many of which are discussed elsewhere in
this section. These factors also are outside of our control.
We anticipate that our operating expenses will continue to increase
significantly. If sales in any quarter do not increase correspondingly, our net
losses for that period will increase. For these reasons, quarter-to-quarter
comparisons of our results of operations are not necessarily meaningful and you
should not rely on results of operations in any particular quarter as an
indication of future performance. If our quarterly revenue or results of
operations fall below the expectations of investors or public market analysts in
any quarter, the market value of our common stock would likely decrease, and may
decrease rapidly and substantially.
RISKS RELATING TO OUR INDUSTRY, PRODUCTS AND OPERATIONS
IF SOLAR POWER TECHNOLOGY IS NOT SUITABLE FOR WIDESPREAD ADOPTION OR SUFFICIENT
DEMAND FOR SOLAR POWER PRODUCTS DOES NOT DEVELOP OR TAKES LONGER TO DEVELOP THAN
WE ANTICIPATE, OUR SALES WOULD NOT SIGNIFICANTLY INCREASE AND WE WOULD BE UNABLE
TO ACHIEVE OR SUSTAIN PROFITABILITY.
The market for solar power products is emerging and rapidly evolving, and
its future success is uncertain. If solar power technology proves unsuitable for
widespread commercial deployment or if demand for solar power products fails to
develop sufficiently, we would be unable to generate enough revenues to achieve
and sustain profitability. In addition, demand for solar power products in the
markets and geographic regions we target may not develop or may develop more
slowly than we anticipate. Many factors will influence the widespread adoption
of solar power technology and demand for solar power products, including:
- cost-effectiveness of solar power technologies as compared with
conventional and non-solar alternative energy technologies;
- performance and reliability of solar power products as compared with
conventional and non-solar alternative energy products;
- success of alternative distributed generation technologies such as fuel
cells, wind power and microturbines;
- fluctuations in economic and market conditions which impact the viability
of conventional and non-solar alternative energy sources, such as
increases or decreases in the prices of oil and other fossil fuels;
- continued deregulation of the broader energy industry; and
- availability of government subsidies and incentives.
WE MAY FAIL TO SUCCESSFULLY DEVELOP OUR NEW SOLAR POWER PRODUCTS UNDER
DEVELOPMENT, WHICH WOULD PREVENT US FROM ACHIEVING INCREASED SALES AND MARKET
SHARE.
Although we have been selling our solar power products since 1997, we
expect to derive a substantial portion of our revenues from sales of our new
solar power products which are under development and not yet commercially
available. Many of these new products are derived from our innovative cell
fabrication and advanced panel design technologies, which are under development.
If we fail to successfully develop our new solar power products or technologies,
we will likely be unable to recover the losses we will have incurred to develop
these products and technologies and may be unable to increase our sales and
market share and to become profitable. Much of our new product and manufacturing
technologies are novel and represent a departure from conventional solar power
technologies, and it is difficult to predict whether we will be successful in
completing their development. Our manufacturing technologies have been tested
only in our
7
<PAGE> 12
pilot manufacturing facility and, in most cases, only limited pre-production
prototypes of our new products have been field tested.
OUR SOLAR POWER PRODUCTS MAY NOT GAIN MARKET ACCEPTANCE, WHICH WOULD PREVENT US
FROM ACHIEVING INCREASED SALES AND MARKET SHARE.
The development of a successful market for our solar power products may be
adversely affected by a number of factors, many of which are beyond our control,
including:
- our failure to produce solar power products which compete favorably
against other solar power products on the basis of cost, quality and
performance;
- our failure to produce solar power products which compete favorably
against conventional energy sources and alternative distributed
generation technologies, such as fuel cells, on the basis of cost,
quality and performance;
- whether customers accept the thin polymer-frame design of our solar panel
and the new techniques we are developing to mount them;
- our failure to develop and maintain successful relationships with
distributors, systems integrators and other resellers, as well as
strategic partners such as Kawasaki; and
- our inability to sell our products in markets where they do not comply
with local, national and international building and safety codes and
other regulatory requirements.
If our solar power products fail to gain market acceptance, we would be unable
to increase our sales and market share and to achieve and sustain profitability.
TECHNOLOGICAL CHANGES IN THE SOLAR POWER INDUSTRY COULD RENDER OUR SOLAR POWER
PRODUCTS OBSOLETE, WHICH COULD REDUCE OUR MARKET SHARE AND CAUSE OUR SALES TO
DECLINE.
Our failure to further refine our technology and develop and introduce new
solar power products could cause our products to become obsolete, which could
reduce our market share and cause our sales to decline. The solar power industry
is rapidly evolving and competitive. We will need to invest significant
financial resources in research and development to keep pace with technological
advances in the solar power industry and to effectively compete in the future.
We believe that there are a variety of competing solar power technologies under
development by other companies that could result in lower manufacturing costs
than those expected for our solar power products. Our development efforts may be
rendered obsolete by the technological advances of others, and other
technologies may prove more advantageous for the commercialization of solar
power products.
THE COMPLETION OF OUR NEW MANUFACTURING FACILITY MAY BE DELAYED AND WE MAY INCUR
GREATER COSTS THAN WE EXPECT.
If we are unable to successfully complete our new manufacturing facility in
time to commence commercial manufacturing operations there by early 2001, our
business and results of operations could be materially impaired. Our pilot
manufacturing facility in Waltham, Massachusetts is not adequate to accommodate
significant increases in production. As a result, we entered into a lease in
March 2000 for a 56,250 square foot facility in Marlborough, Massachusetts,
which includes approximately 35,000 square feet of manufacturing space, and
expect to relocate our manufacturing and other operations to this new plant by
early 2001. The design and renovation of this plant will require a significant
investment of capital and substantial engineering expenditures, and is subject
to significant risks, including risks of cost overruns, delays, start-up
problems or other operating difficulties. Our manufacturing processes also use
custom-built equipment which may not be timely delivered and installed in our
new facility.
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WE MAY NOT BE ABLE TO MANUFACTURE OUR SOLAR POWER PRODUCTS IN SUFFICIENT
QUANTITIES OR AT ACCEPTABLE COSTS TO MEET CUSTOMER DEMAND.
To date, we have focused primarily on research and development of our solar
power products and have limited experience manufacturing large volumes of our
solar power products on a commercial basis. Furthermore we may not be able to
achieve our manufacturing cost targets. If we cannot achieve our targeted
production volumes or capacity or if we experience capacity constraints, quality
control problems or other disruptions, we may not be able to manufacture our
products in large volumes or at acceptable costs and may be unable to satisfy
the demand of our customers, which would reduce our market share and revenues
and may harm our reputation. The expansion of our manufacturing operations to
achieve targeted production volumes will require the successful deployment of
advanced equipment and technology utilizing manufacturing processes and
components which we are currently developing.
THE SUCCESS OF OUR BUSINESS AND OUR FUTURE PROSPECTS DEPEND SIGNIFICANTLY UPON
OUR STRATEGIC DISTRIBUTION AND MARKETING RELATIONSHIP WITH KAWASAKI.
In December 1999, we entered into a five-year distribution and marketing
agreement with Kawasaki, under which we appointed Kawasaki our exclusive
distributor in Japan. During the first six months of 2000, sales to Kawasaki
accounted for over 70% of our product revenues. We expect that a substantial
portion of our revenues for the foreseeable future will continue to be derived
from sales of our products to Kawasaki. If our relationship with Kawasaki is not
successful, our sales may not increase or may decrease and our reputation may be
harmed. Any change in our relationship with Kawasaki, including any decision by
Kawasaki to reduce its commitment to our solar power technologies or to focus on
a different energy technology, could harm our business by reducing our potential
revenues and diminishing our market share.
OUR ABILITY TO INCREASE MARKET SHARE AND SALES DEPENDS ON OUR ABILITY TO
SUCCESSFULLY MAINTAIN OUR EXISTING DISTRIBUTION RELATIONSHIPS AND EXPAND OUR
DISTRIBUTION CHANNELS.
We currently sell our solar power products primarily to distributors,
system integrators and other value-added resellers within and outside of North
America, which typically resell our products to end users on a global basis.
Through June 30, 2000, we sold our solar power products to more than 10
distributors, system integrators and other value-added resellers. If we are
unable to successfully maintain our existing distribution relationships and
expand our distribution channels, our revenues and future prospects will be
materially harmed. As we seek to grow our sales by entering new markets in which
we have little experience selling our solar power products, our ability to
increase market share and sales will depend substantially on our ability to
expand our distribution channels by identifying, developing and maintaining
relationships with resellers both within and outside of North America. We may be
unable to enter into relationships with resellers in the markets we target or on
terms and conditions favorable to us, which could prevent us from entering these
markets or entering these markets in accordance with our plans. Our ability to
enter into and maintain relationships with resellers will be influenced by the
relationships between these resellers and our competitors, market acceptance of
our solar power products and our low brand recognition as a new entrant.
WE FACE RISKS ASSOCIATED WITH THE MARKETING, DISTRIBUTION AND SALE OF OUR SOLAR
POWER PRODUCTS INTERNATIONALLY, AND IF WE ARE UNABLE TO EFFECTIVELY MANAGE THESE
RISKS, IT COULD IMPAIR OUR ABILITY TO GROW OUR BUSINESS ABROAD.
From our inception through June 30, 2000, approximately 19% of our product
sales have been made to resellers outside North America. Including sales by our
North American resellers, 66% of our product sales were to end users located
outside of North America. We expect that our sales to resellers and distributors
outside of North America and through our resellers and distributors to end users
outside of North America will increase in the future, including sales made in
Japan to Kawasaki. We will require significant management attention and
financial resources to successfully develop our international sales channels. In
addition, the marketing, distribution and sale of our solar power products
internationally exposes us to a number of risks that we have not yet encountered
due to the limited number of products we have sold
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internationally. If we are unable to effectively manage these risks, it could
impair our ability to grow our business abroad. These risks include:
- difficult and expensive compliance with the commercial and legal
requirements of international markets, with which we have only limited
experience;
- inability to obtain intellectual property protection;
- encountering trade barriers such as export requirements, tariffs, taxes
and other restrictions and expenses, which could affect the competitive
pricing of our solar power products and reduce our market share in some
countries; and
- difficulty of enforcing revenue collection internationally.
We expect that our international sales will be generally denominated in
United States dollars. As a result, increases in the value of the United States
dollar relative to foreign currencies would cause our products to become less
competitive in international markets and could result in limited, if any, sales
and profitability. To the extent that we denominate sales in foreign currencies,
we will be exposed to increased risks of currency fluctuations.
Our strategy includes establishing local manufacturing facilities in
international markets, although we have not yet done so. As we implement our
strategy, we may encounter legal and commercial restrictions and incur taxes and
other expenses to establish our manufacturing facilities in certain countries.
In addition, we may potentially forfeit, voluntarily or involuntarily, foreign
assets due to economic or political instability in the countries where our local
manufacturing facilities are located.
OUR DEPENDENCE ON A SMALL NUMBER OF RESELLERS MAY CAUSE SIGNIFICANT FLUCTUATIONS
OR DECLINES IN OUR PRODUCT REVENUES.
From our inception through June 30, 2000, our three largest resellers
accounted for approximately 47% of our product sales and our 10 largest
resellers accounted for approximately 92% of our product sales. We anticipate
that sales of our solar power products to a limited number of key resellers,
including Kawasaki, will continue to account for a significant portion of our
total product revenues for the foreseeable future. Consequently, any one of the
following events may cause significant fluctuations or declines in our product
revenues:
- reduction, delay or cancellation of orders from one or more of our
significant resellers;
- selection by one or more of our significant resellers of products
competitive with ours;
- loss of one or more of our significant resellers and our failure to
recruit additional or replacement resellers; and
- failure of any of our significant resellers to make timely payment of our
invoices.
OUR DEPENDENCE ON A LIMITED NUMBER OF THIRD PARTY SUPPLIERS FOR RAW MATERIALS,
KEY COMPONENTS FOR OUR SOLAR POWER PRODUCTS AND CUSTOM-BUILT EQUIPMENT FOR OUR
OPERATIONS COULD PREVENT US FROM DELIVERING OUR PRODUCTS TO OUR CUSTOMERS WITHIN
REQUIRED TIMEFRAMES AND WE MAY EXPERIENCE ORDER CANCELLATION AND LOSS OF MARKET
SHARE.
We manufacture all of our solar power products using materials and
components procured from a limited number of third-party suppliers. If we fail
to develop or maintain our relationships with these or our other suppliers, we
may be unable to manufacture our products or our products may be available only
at a higher cost or after a long delay, which could prevent us from delivering
our products to our customers within required timeframes and we may experience
order cancellation and loss of market share. We currently do not have contracts
with most of our suppliers and may not be able to procure sufficient quantities
of the materials and components necessary to manufacture our products on
acceptable commercial terms or at all. To the extent the processes that our
suppliers use to manufacture materials and components are proprietary, we may be
unable to obtain comparable materials and components from alternative suppliers.
The failure of a supplier
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to supply materials and components in a timely manner, or to supply materials
and components that meet our quality, quantity and cost requirements could
impair our ability to manufacture our products and/or increase their costs,
particularly if we are unable to obtain substitute sources of these materials
and components on a timely basis or on terms acceptable to us. In addition, our
manufacturing processes utilize custom-built equipment that is currently
produced by a limited number of suppliers. A supplier's failure to supply this
equipment in a timely manner, with adequate quality and on terms acceptable to
us could delay our capacity expansion to our new manufacturing facility and
otherwise, disrupt our production schedule or increase our costs of production.
OUR USE OF FORECASTS TO MANAGE OUR INVENTORY COULD RESULT IN INSUFFICIENT
QUANTITIES TO MEET RESELLER DEMAND OR EXCESS INVENTORY.
We generally do not obtain purchase orders prior to the production of our
solar power products. Instead, we rely on forecasts to determine the timing of
our production schedules and the volume of product to be manufactured. The level
and timing of orders placed by our resellers may vary for many reasons. As a
result, at any particular time, we may not have enough inventory to meet demand
or we may have excess inventory, each of which could negatively impact our
operating results. In addition, as we manufacture more solar power products
without related purchase orders, we increase our risk of loss of revenues due to
the obsolescence of products held in inventory for which we have already
incurred production costs.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUING CONTRIBUTIONS OF OUR KEY
PERSONNEL AND OUR ABILITY TO ATTRACT AND RETAIN NEW QUALIFIED EMPLOYEES IN A
COMPETITIVE LABOR MARKET.
We have attracted a highly skilled management team and specialized
workforce, including scientists, engineers, researchers, and manufacturing and
marketing professionals. If we were to lose the services of Mark A. Farber, our
Chief Executive Officer, President and a director, or Dr. Jack I. Hanoka, our
Chief Technical Officer, or any of our other executive officers and key
employees, our business could be materially and adversely impacted. We had 50
employees as of June 30, 2000, and anticipate that we will need to hire a
significant number of new highly-skilled technical, manufacturing, sales and
marketing, and administrative personnel if we are to successfully develop and
market our products, develop our distribution network, and operate our expanded
manufacturing facility. Competition for personnel is intense, and qualified
technical personnel are likely to remain a limited resource for the foreseeable
future. Locating candidates with the appropriate qualifications, particularly in
the desired geographic location, can be costly and difficult. We may not be able
to hire the necessary personnel to implement our business strategy, or we may
need to provide higher compensation or training to our personnel than we
currently anticipate. Moreover, any officer or employee can terminate his or her
relationship with us at any time.
OUR MANAGEMENT TEAM MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
STRATEGIES BECAUSE IT HAS LIMITED EXPERIENCE MANAGING A RAPIDLY GROWING COMPANY
AND KEY MANAGEMENT POSITIONS HAVE NOT BEEN FILLED.
The existing members of our management team have had only limited
experience managing a rapidly growing company on either a public or private
basis. We are undergoing rapid growth in the size of our physical plant, the
scope of our operations and the number of our employees, which is likely to
place a significant strain on our senior management team and other resources. In
addition, we may encounter difficulties in effectively managing the budgeting,
forecasting and other process control issues presented by our rapid growth. If
our management team is unable to manage the rapid growth of our business
operations, then our product development, the expansion of our manufacturing
operations and distribution network, and our sales and marketing activities
would be materially and adversely affected. In addition, the growing demands of
our business has created the need for increases in the size of our management
team. As a result, we are actively searching for a new chief financial officer
and vice president of marketing and sales to complement our existing management
team and allow current management to focus on business development efforts and
manufacturing expansion. We may not be able to fill either position within the
next few months and we may not be able to successfully integrate these
individuals into our management team and business.
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The success of our business depends upon the successful integration of our new
management members and the ability of our management team to work together to
manage our growing business.
WE ARE LIKELY TO REQUIRE ADDITIONAL FINANCING AND MAY NOT BE ABLE TO RAISE
ADDITIONAL FINANCING OR FINANCING ON FAVORABLE TERMS.
We currently anticipate that the net proceeds of this offering, together
with our current cash, cash equivalents and short-term investments, will be
sufficient to meet our anticipated needs for expanding and developing our
manufacturing and distribution capabilities, funding ongoing research and
development, expanding our sales and marketing activities, and funding our
operating losses and general corporate purposes through at least the next 12
months. We anticipate that we are likely to need additional financing to execute
our business model after that time or sooner if we need to respond to business
contingencies. These contingencies may include the need to:
- enhance our operating infrastructure;
- respond to competitive pressures; and
- acquire complementary businesses or necessary technologies.
We do not know whether we will be able to raise additional financing or
financing on terms favorable to us. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our operations, develop
our manufacturing operations and distribution network, or otherwise respond to
competitive pressures would be significantly limited. In addition, if we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our existing stockholders will be reduced. These
newly-issued securities may have rights, preferences and privileges senior to
those of existing stockholders, including potentially stockholders who acquired
shares in this offering.
WE FACE INTENSE COMPETITION FROM OTHER COMPANIES PRODUCING SOLAR POWER AND OTHER
ENERGY GENERATION PRODUCTS. IF WE FAIL TO COMPETE EFFECTIVELY, WE MAY BE UNABLE
TO INCREASE OUR MARKET SHARE AND SALES.
The solar power market is intensely competitive and rapidly evolving. If
our competitors establish a market position more prominent than ours and we fail
to attract and retain customers and establish a successful distribution network
for our solar power products, we may be unable to increase our sales and market
share. A number of the largest companies in the world, including BP Solar, which
is a division of BP Amoco, Siemens Solar Group, Kyocera Corporation and Sharp
Corporation, as well as a number of other large and small companies, including
AstroPower, Inc., have developed or are developing solar power products that
compete with ours. Other existing and potential competitors in the solar power
market include universities and research institutions. We also expect that
future competition will include new entrants to the solar power market offering
new technological solutions. Further, many of our competitors are developing new
solar power technologies, including other crystalline silicon ribbon and sheet
technologies, that they believe will ultimately have costs similar to or lower
than our projected costs.
Most of our competitors are substantially larger than we are, have longer
operating histories and have substantially greater financial, technical,
manufacturing and other resources than we do. Many also have greater name
recognition, a more established distribution network and a larger installed base
of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our target markets. As a result, our competitors may be able to
devote greater resources to the research, development, promotion and sale of
their products and respond more quickly to evolving industry standards and
changing customer requirements than we can.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE
OUR COMPETITIVE ADVANTAGE IN THE SOLAR POWER MARKET.
Our ability to compete effectively against competing solar power
technologies will depend, in part, on our ability to protect our current and
future proprietary technology, product designs and manufacturing processes
through a combination of patent, copyright, trademark, trade secret and unfair
competition laws. We
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may not be able to adequately protect our intellectual property and may need to
defend our intellectual property against infringement claims, either of which
could result in the loss of our competitive advantage in the solar power market
and materially harm our business and profitability. We face the following risks
in protecting our intellectual property, which are explained in greater detail
in "Business -- Intellectual Property Rights" beginning on page 38:
- we cannot be certain that our pending United States and foreign patent
applications will result in issued patents or that the claims allowed are
or will be sufficiently broad to protect our technology or processes;
- our license, but not our right, to practice the String Ribbon technology
terminates upon expiration of the underlying patents which begin to
expire in 2003 and our historical operating experience with String Ribbon
and our related patented and proprietary manufacturing processes may not
adequately protect our competitive advantage after these patents have
expired;
- third parties may design around our patented technologies or seek to
challenge or invalidate our patented technologies;
- we may incur significant costs and diversion of management resources in
prosecuting or defending patent infringement suits;
- we may not be successful in prosecuting or defending patent infringement
suits and, as a result, may need to seek to obtain a license of the third
party's intellectual property rights; however, a license may not be
available to us or may not be available to us on commercially reasonable
terms; and
- the contractual provisions we rely on to protect our trade secrets and
proprietary information, such as our confidentiality and non-disclosure
agreements with our employees, consultants and other third parties, may
be breached and our trade secrets and proprietary information disclosed
to the public.
EXISTING REGULATIONS AND CHANGES RESULTING FROM ELECTRIC UTILITY DEREGULATION
MAY PRESENT TECHNICAL, REGULATORY AND ECONOMIC BARRIERS TO THE PURCHASE AND USE
OF SOLAR POWER PRODUCTS, WHICH MAY SIGNIFICANTLY REDUCE DEMAND FOR OUR PRODUCTS.
The market for electricity generation products is heavily influenced by
federal, state and local government regulations and policies concerning the
electric utility industry, as well as internal policies and regulations
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries,
these regulations and policies are being modified and may continue to be
modified. Customer purchases of, or further investment in the research and
development of, alternative energy sources, including solar power technology,
could be deterred by these regulations and policies which could result in a
significant reduction in the potential demand for our solar power products.
We anticipate that our solar power products and their installation will be
subject to oversight and regulation in accordance with national and local
ordinances relating to building codes, safety, environmental protection, utility
interconnection and metering and related matters. Any new government regulations
or utility policies pertaining to our solar power products may result in
significant additional expenses to us, our resellers and their customers and, as
a result, could cause a significant reduction in demand for our solar power
products.
THE REDUCTION OR ELIMINATION OF GOVERNMENT SUBSIDIES AND ECONOMIC INCENTIVES FOR
ON-GRID APPLICATIONS COULD CAUSE OUR SALES TO DECLINE.
We believe that the growth of some of our target markets, including the
market for on-grid applications, depends in part on the availability and size of
government subsidies and economic incentives. Accordingly, the reduction or
elimination of government subsidies and economic incentives may adversely affect
the growth of these markets, which could cause our sales to decline. Today, the
cost of solar power substantially exceeds the cost of power furnished by the
electric utility grid. As a result, federal, state and local governmental
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bodies in many countries, most notably the United States, Japan and Germany,
have provided subsidies in the form of cost reductions, tax write-offs and other
incentives to end users, distributors, systems integrators and manufacturers of
solar power products to promote the use of solar energy in on-grid applications
and to reduce dependency on other forms of energy. These government subsidies
and economic incentives could be reduced or eliminated altogether.
THE LACK OR INACCESSIBILITY OF FINANCING FOR OFF-GRID SOLAR POWER APPLICATIONS
COULD CAUSE OUR SALES TO DECLINE.
One of our key markets is off-grid solar power applications to developing
countries. In some developing countries, government agencies and the private
sector have provided from time to time subsidies or financing on preferred terms
for rural electrification programs. We believe that the availability of
financing could have a significant effect on the level of sales of off-grid
solar power applications, particularly in developing countries where users may
not have sufficient resources or credit to otherwise acquire solar power
systems. If existing financing programs for off-grid solar power applications
are eliminated or if financing is inaccessible, the growth of the market for
off-grid applications may be adversely affected, which could cause our sales to
decline.
OUR RELIANCE ON GOVERNMENT CONTRACTS TO PARTIALLY FUND OUR RESEARCH AND
DEVELOPMENT PROGRAMS COULD IMPAIR OUR ABILITY TO COMMERCIALIZE OUR SOLAR POWER
TECHNOLOGIES AND WOULD INCREASE OUR RESEARCH AND DEVELOPMENT EXPENSES.
We intend to continue our policy of selectively pursuing contract research,
product development, and market development programs funded by various agencies
of the United States, state and international governments to complement and
enhance our own resources. The percentage of our total revenues derived from
government-related contracts was approximately 90% in 1998, 92% in 1999 and 91%
for the six months ended June 30, 2000. We currently have four active research
contracts with total estimated revenues of approximately $5.8 million, $5.3
million of which has been authorized by the sponsoring agency and $4.7 million
of which has been recorded as revenue as of June 30, 2000. The remaining $1.1
million of revenue will be recognized over the remaining life of these contracts
which expire at various dates between September 30, 2000 and July 20, 2001.
These government agencies may not continue their commitment to programs to which
our development projects are applicable. Moreover, we may not be able to compete
successfully to obtain funding through these or other programs. A reduction or
discontinuance of these programs or of our participation in these programs would
increase our research and development expenses, which could impair our ability
to develop our solar power technologies.
In addition, contracts involving government agencies may be terminated at
the convenience of the agency. Other risks include potential disclosure of our
confidential information to third parties and the exercise of "march-in" rights
by the government. Our government-sponsored research contracts require that we
provide regular written technical updates on a monthly, quarterly or annual
basis, and, at the conclusion of the research contract, a final report on the
results of our technical research. Because these reports are generally available
to the public, some aspects of our sensitive confidential information may be
obtained by third parties. March-in rights refer to the right of the United
States government or government agency to require us to grant a license to the
technology to a responsible applicant or, if we refuse, the government may grant
the license itself. The government can exercise its march-in rights if it
determines that action is necessary because we fail to achieve practical
application of the technology, or because action is necessary to alleviate
health or safety needs, or to meet requirements of federal regulations, or to
give United States industry preference. Funding from government contracts also
may limit when and how we can deploy our technology developed under those
contracts.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS CAN BE EXPENSIVE AND INADVERTENT
NONCOMPLIANCE MAY RESULT IN ADVERSE PUBLICITY AND POTENTIALLY SIGNIFICANT
MONETARY DAMAGES AND FINES.
We are required to comply with all federal, state and local regulations
regarding protection of the environment. If more stringent regulations are
adopted in the future, the costs of compliance with these new
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regulations could be substantial. We believe that we have all necessary permits
to conduct our business as it is presently conducted. If we fail to comply with
present or future environmental regulations, however, we may be required to pay
substantial fines, suspend production or cease operations. We use, generate and
discharge toxic, volatile and otherwise hazardous chemicals and wastes in our
research and development and manufacturing activities. Any failure by us to
control the use of, or to restrict adequately the discharge of, hazardous
substances could subject us to potentially significant monetary damages and
fines. In addition, under some federal and state statutes and regulations, a
governmental agency may seek recovery and response costs from operators of
property where releases of hazardous substances have occurred or are ongoing,
even if the operator was not responsible for such release or otherwise at fault.
PRODUCT WARRANTY CLAIMS COULD REDUCE OUR PROFITABILITY.
As is consistent with standard practice in our industry, the duration of
our product warranties is lengthy relative to expected product life and has
recently been increasing. Our current standard product warranty includes a
one-year warranty period for defects in material and workmanship and a 20-year
warranty period for declines in power performance. We believe our warranty
periods are consistent with industry practice. Due to the long warranty period,
we bear the risk of extensive warranty claims long after we have shipped product
and recognized revenues.
PRODUCT LIABILITY CLAIMS AGAINST US COULD RESULT IN ADVERSE PUBLICITY AND
POTENTIALLY SIGNIFICANT MONETARY DAMAGES.
Like other retailers, distributors and manufacturers of products that are
used by consumers, we face an inherent risk of exposure to product liability
claims in the event that the use of the solar power products we sell results in
injury. Since our products are electricity producing devices, it is possible
that consumers could be injured or killed by our products, whether by product
malfunctions, defects, improper installation or other causes. In addition, since
sales of our existing products have been modest and the products we are
developing incorporate new technologies and use new installation methods, we
cannot predict whether product liability claims will be brought against us in
the future or the effect of any resulting adverse publicity on our business.
Moreover, we may not have adequate resources in the event of a successful claim
against us. We rely on our general liability insurance to cover product
liability claims; however, if our insurance protection is inadequate, the
successful assertion of product liability claims against us could result in
potentially significant monetary damages.
RISKS RELATING TO THIS OFFERING
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE NET PROCEEDS FROM THIS
OFFERING.
Our board of directors and our management will have broad discretion over
the use of the net proceeds of this offering. You will be relying on the
judgment of our board of directors and our management with only limited
information about our specific intentions regarding the use of proceeds. The
proceeds, once invested or expended, may not yield a favorable return or
increase our profitability.
OUR EXISTING STOCKHOLDERS WILL CONTROL 73% OF OUR COMMON STOCK AFTER THIS
OFFERING AND WILL BE ABLE TO SIGNIFICANTLY INFLUENCE CORPORATE ACTIONS.
Upon the completion of this offering, our existing stockholders will
control approximately 73% of our outstanding common stock. As a result, these
stockholders, acting together, will be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors, the approval of charter and by-law amendments, and the approval of
mergers or other business combination transactions.
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THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND YOU MAY NOT BE
ABLE TO RESELL SHARES OF OUR COMMON STOCK FOR A PROFIT.
Before this offering, there has been no public market for our common stock.
Although our common stock will be quoted on the Nasdaq National Market, an
active trading market for our shares may not develop or be sustained following
this offering. Active trading markets generally result in lower price volatility
and more efficient execution of buy and sell orders for investors. Purchasers in
this offering may not be able to resell their shares at prices equal to or
greater than the initial public offering price. The initial public offering
price for the shares was determined through negotiations between us and the
underwriters and may not be indicative of the market price for these shares
following this offering.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The stock market has, from time to time, experienced extreme price and
trading volume fluctuations, and the market prices of technology companies such
as ours have been extremely volatile. Our operating performance will
significantly affect the market price of our common stock. To the extent we are
unable to compete effectively and gain market share or the other factors
described in this section affect us, our stock price will likely decline. The
market price of our common stock also may be adversely impacted by broad market
and industry fluctuations regardless of our operating performance, including
general economic and technology trends. In addition, companies that have
experienced volatility in the market price of their stock have been the subject
of securities class action litigation. We may be involved in securities class
action litigation in the future. This litigation often results in substantial
costs and a diversion of management's attention and resources.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that these sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and price that we deem appropriate.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BY-LAWS AND UNDER
DELAWARE LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF
THE ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of our certificate of incorporation, our by-laws and Delaware
law could make it more difficult and expensive for a third party to pursue a
tender offer, change in control transaction or takeover attempt which is opposed
by our board of directors. Stockholders who wish to participate in these
transactions may not have the opportunity to do so. We also have a staggered
board of directors which makes it difficult for stockholders to change the
composition of our board of directors in any one year. If a tender offer, change
in control transaction, takeover attempt or change in our board of directors is
prevented or delayed, the market price of our common stock could decline.
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FORWARD-LOOKING STATEMENTS
We have made some statements in this prospectus, including some under
"Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business" and elsewhere which
constitute forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"could", "expects", "intends", "plans", "anticipates", "believes", "estimates",
"predicts", "potential", or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
17
<PAGE> 22
USE OF PROCEEDS
We estimate the net proceeds we will receive from the sale of 3,000,000
shares of our common stock in this offering at an assumed initial public
offering price of $14.00 will be approximately $38 million, after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by us. If the underwriters' over-allotment option is exercised in full,
we estimate that our net proceeds will be approximately $43.9 million.
We anticipate using at least $15 million of the net proceeds of this
offering to expand our manufacturing operations and distribution network and at
least $3 million to finance research and development activities. We intend to
use the remaining net proceeds to fund our operations and for general corporate
purposes, including enhancing our infrastructure, increasing our sales and
marketing activities, and for working capital.
We believe opportunities may exist from time to time to expand our current
business through strategic alliances or acquisitions. We may use a portion of
the proceeds for these purposes. We are not currently a party to any contracts,
letters of intent, commitments or agreements with respect to any strategic
alliances or acquisitions.
Notwithstanding the estimates set forth above, our management will have
significant flexibility in applying the net proceeds of this offering. Moreover,
the amounts and timing of our actual expenditures will depend on a number of
factors, including the status of our manufacturing operations and distribution
network expansion, the status of our infrastructure enhancement, the level of
our sales and marketing activities, the amount of cash generated by or used by
our operations, the status of our research and development activities and the
activities of our competition. Pending the uses described above, we intend to
invest the net proceeds in high-quality, short-term, interest-bearing
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying any cash dividends in the foreseeable future. We
presently intend to retain future earnings, if any, to finance the expansion and
growth of our business. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
18
<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
- on an actual basis;
- on a pro forma basis after giving effect to the conversion of our
redeemable convertible preferred stock outstanding into 7,248,240 shares
of common stock upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect our sale of 3,000,000 shares
of common stock in this offering at an assumed initial public offering
price of $14.00 per share after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
This table excludes 617,696 shares of common stock issuable upon the
exercise of stock options outstanding as of June 30, 2000, 636,027 shares of
common stock issuable upon the exercise of warrants outstanding as of June 30,
2000 and an additional 1,732,101 shares reserved for future stock option grants
and purchases under our equity compensation plans which will be effective upon
the closing of this offering.
You should read this information together with our financial statements and
the notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Long-term portion of notes payable and capital lease
obligations............................................. $ -- $ -- $ --
Redeemable convertible preferred stock:
Series A -- 2,124,968 shares authorized, issued and
outstanding actual; and no shares issued and
outstanding pro forma and pro forma as adjusted.... 3,131 -- --
Series B -- 2,781,666 shares authorized, issued and
outstanding actual; and no shares issued and
outstanding pro forma and pro forma as adjusted.... 5,650 -- --
Series C -- 3,442,547 shares authorized, issued and
outstanding actual; and no shares issued and
outstanding pro forma and pro forma as adjusted.... 8,089 -- --
Series D -- 10,000,000 shares authorized; 7,343,323
issued and outstanding actual; and no shares issued
and outstanding pro forma and pro forma as
adjusted........................................... 18,896 -- --
-------- -------- --------
Total redeemable convertible preferred stock......... 35,766 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, no shares authorized
actual and pro forma; 1,000,000 shares authorized pro
forma as adjusted; no shares issued and outstanding
actual, pro forma and pro forma as adjusted............. -- -- --
Common stock, $.01 par value, 28,000,000 shares authorized
actual; pro forma; and pro forma
as adjusted; 809,465 shares issued and outstanding
actual; 8,057,705 shares issued and outstanding pro
forma; and 11,057,705 shares issued and outstanding pro
forma as adjusted....................................... 8 81 111
Additional paid-in-capital................................ 1,098 32,400 70,380
Accumulated deficit....................................... (12,350) (12,350) (12,350)
Deferred compensation..................................... (788) (788) (788)
Accretion of redeemable convertible preferred stock....... (4,391) -- --
-------- -------- --------
Total stockholders' equity (deficit)................. (16,423) 19,343 57,353
-------- -------- --------
Total capitalization............................... $ 19,343 $ 19,343 $ 57,353
======== ======== ========
</TABLE>
19
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was $19.3 million
or $2.40 per share. Pro forma net tangible book value per share of common stock
represents our total tangible assets less our total liabilities, divided by the
aggregate number of shares of our common stock outstanding, including the effect
of the conversion of our redeemable convertible preferred stock into common
stock. After giving effect to the sale of the 3,000,000 shares of our common
stock in this offering at an assumed initial public offering price of $14.00 and
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us, our net tangible book value as of June 30, 2000
would have been $57.4 million or $5.19 per share. This represents an immediate
increase in net tangible book value of $2.79 per share to existing stockholders
and an immediate dilution of $8.81 per share to new investors. Dilution per
share represents the difference between the amount per share paid by the new
investors in this offering and the net tangible book value per share as of June
30, 2000, giving effect to this offering. The following table illustrates this
per share dilution to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share as of June 30,
2000................................................... $2.40
Increase in net tangible book value per share attributable
to this offering....................................... 2.79
-----
Net tangible book value per share after this offering....... 5.19
------
Dilution per share to new investors......................... $ 8.81
======
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 2000,
the difference between the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by our
existing stockholders and by new investors purchasing shares in this offering at
an assumed initial public offering price of $14.00 per share, before deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 8,057,705 72.9% $31,562,000 42.9% $ 3.92
New investors...................... 3,000,000 27.1 42,000,000 57.1 14.00
---------- ----- ----------- -----
Total......................... 11,057,705 100.0% $73,562,000 100.0%
========== ===== =========== =====
</TABLE>
The discussion and the tables above assume no exercise of stock options or
warrants outstanding as of June 30, 2000 and no issuance of shares reserved for
future issuance under our equity plans. As of June 30, 2000, there were options
outstanding to purchase 617,696 shares of our common stock at a weighted average
exercise price of $1.42 per share and warrants outstanding to purchase 636,027
shares of our common stock at an exercise price of $4.33 per share. To the
extent that any of these options are exercised, there will be further dilution
to new investors. If all outstanding options and warrants had been exercised as
of June 30, 2000, proforma net tangible book value per share after this offering
would be $4.95 per share, and total dilution to new investors would be $9.05 per
share.
If the underwriters' overallotment option is exercised in full, the number
of shares held by new investors will increase to 3,450,000, or 30% of the total
number of shares of common stock outstanding after this offering.
20
<PAGE> 25
SELECTED FINANCIAL DATA
You should read the data set forth below in conjunction with our financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. The statement of operations data presented below for the fiscal
years ended December 31, 1997, 1998 and 1999, and the balance sheet data at
December 31, 1998 and 1999, have been derived from our financial statements
which have been audited by PricewaterhouseCoopers LLP, independent accountants,
and which appear elsewhere in this prospectus. The statement of operations data
presented below for the years ended December 31, 1995 and 1996, and the balance
sheet data at December 31, 1995, 1996 and 1997 have been derived from our
financial statements that have been audited by PricewaterhouseCoopers LLP and
are not included in this prospectus. The financial data for the six month
periods ended June 30, 1999 and 2000 and as of June 30, 2000 have been derived
from our unaudited financial statements appearing elsewhere in this prospectus
which, in the opinion of our management, have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of our operating
results and financial position for those such periods and as of that date. Our
results for the six months ended June 30, 2000 are not necessarily indicative of
our results for the year ending December 31, 2000, and our historical results
are not necessarily indicative of our results for any future period.
Shares used in computing unaudited pro forma basic and diluted net loss per
share give effect to the conversion of all outstanding shares of our preferred
stock into shares of common stock, as if the shares had converted immediately
upon their issuance.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues......................................... $ -- $ -- $ 153 $ 163 $ 189 $ 81 $ 97
Research revenues........................................ 141 587 556 1,395 2,113 1,070 1,008
------ ------- ------- ------- ------- ------- -------
Total revenues....................................... 141 587 709 1,558 2,302 1,151 1,105
Operating expenses:
Cost of product revenues............................... -- -- 1,007 955 991 447 970
Research and development expenses, including cost of
research revenues.................................... 534 1,346 2,051 2,373 3,085 1,334 1,682
Selling, general and administrative expenses........... 273 555 809 917 1,303 581 733
Stock-based compensation expense....................... -- -- -- -- 18 -- 110
------ ------- ------- ------- ------- ------- -------
Total operating expenses............................. 807 1,901 3,867 4,245 5,397 2,362 3,495
------ ------- ------- ------- ------- ------- -------
Operating income (loss).................................. (666) (1,314) (3,158) (2,687) (3,095) (1,211) (2,390)
Net interest income...................................... 31 120 102 165 163 98 515
------ ------- ------- ------- ------- ------- -------
Net income (loss)........................................ (635) (1,194) (3,056) (2,522) (2,932) (1,113) (1,875)
Accretion of redeemable convertible preferred stock...... (91) (415) (537) (953) (1,231) (610) (1,256)
------ ------- ------- ------- ------- ------- -------
Net income (loss) attributable to common stockholders.... $ (726) $(1,609) $(3,593) $(3,475) $(4,163) $(1,723) $(3,131)
====== ======= ======= ======= ======= ======= =======
Net income (loss) per common share (basic and diluted)... $(0.91) $ (2.01) $ (4.47) $ (4.33) $ (5.18) $ (2.15) $ (3.88)
Weighted average shares used in computing basic and
diluted net income (loss) per common share............. 796 801 803 803 803 803 807
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------- --------------
1995 1996 1997 1998 1999 2000
------ ------- ------- ------- -------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $1,160 $ 3,837 $ 2,623 $ 4,805 $ 14,455 $ 16,143
Working capital........................................... 1,196 3,885 426 4,985 14,982 16,880
Total assets.............................................. 1,432 4,441 3,755 5,893 16,318 19,522
Total long-term debt...................................... -- -- -- -- -- --
Total redeemable convertible preferred stock.............. 2,216 6,712 7,250 15,014 29,293 35,766
Total stockholders' equity (deficit)...................... (844) (2,361) (5,955) (9,357) (13,502) (16,423)
</TABLE>
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those described under "Risk Factors" and elsewhere in this prospectus.
You should read the following discussion in conjunction with our financial
statements and related notes included elsewhere in this prospectus.
OVERVIEW
We develop, manufacture and market solar power products for the global
marketplace. Solar cells are semiconductor devices, which convert sunlight into
electricity and form the building block for all solar power products. To date,
our product sales have been primarily solar panels which have been used to
generate electricity for on-grid and off-grid applications. Off-grid
applications have included the electrification of rural homes, lighting for
small, rural schools and power supplies for water pumping. More recently, an
increasing percentage of our products have been used by on-grid customers as a
clean, renewable source of alternative or supplemental electricity.
Product revenues. Product revenues consist of revenues from the sale of
solar cells, panels and systems. These revenues have been limited by our current
production capacity, and we are in the process of relocating our operations to a
new facility to permit greater manufacturing capacity. We recognize product
revenues upon shipment. Product revenues represented 8.8% of total revenues for
the six months ended June 30, 2000 and 8.2% of total revenues for the year ended
December 31, 1999.
In December 1999, we entered into a five-year distribution and marketing
agreement with Kawasaki Heavy Industries, Ltd. For the six months ended June 30,
2000, sales to Kawasaki accounted for approximately $70,000 of our total $97,000
of product revenues. We anticipate that international sales, particularly sales
to Kawasaki, will continue to account for a substantial portion of our product
revenues for the foreseeable future. Accordingly, we anticipate that our
operating results for the foreseeable future will substantially depend upon the
success of our relationship with Kawasaki. Currently, all of our operations are
in the United States. In addition, all product revenues are denominated in
United States dollars and foreign exchange rate fluctuations have not had an
impact on the results of our operations.
Research revenues. Research revenues consist of revenues from various
state and federal government agencies to fund our ongoing research, development,
testing and enhancement of our products and manufacturing technology. We have
not in the past, nor is it our intention in the future, to pursue contracts that
are not part of our ongoing research activities. We recognize research revenues
using the percentage of completion method.
Cost of product revenues. Cost of product revenues consists primarily of
salaries and related personnel costs, materials expenses, depreciation expenses,
maintenance, royalties on licensed technology and other support expenses
associated with the manufacture of our solar power products. We expect to
continue to experience costs in excess of revenues until we achieve higher
production levels.
Research and development expenses, including cost of research
revenues. Research and development expenses, including cost of research
revenues, consist primarily of salaries and related personnel costs, consulting
expenses, and prototype costs related to the design, development, testing and
enhancement of our new products and manufacturing technologies not yet in
commercial production. We expense our research and development expenses as
incurred. We believe that research and development is critical to our strategic
objectives of enhancing our technology, reducing manufacturing costs and meeting
the changing requirements of our customers. As a result, we expect that our
total research and development expenses will increase in the future.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and related personnel
costs, professional fees, rent, insurance and other sales expenses.
22
<PAGE> 27
We expect that selling expenses will increase substantially in absolute dollars
as we increase our sales efforts, hire additional sales personnel and initiate
additional marketing programs. We expect that selling, general and
administrative expenses will increase as we add personnel and incur additional
costs related to the growth of our business and our operations as a public
company.
Stock-based compensation expense. As of June 30, 2000, we had recorded
total cumulative deferred compensation of approximately $916,000, representing
the difference between fair market value of the common stock on the option grant
date and the exercise price. These amounts are presented as a reduction of
stockholders' equity and will be amortized ratably over the vesting period of
the options, which is generally four years. The amortization resulted in charges
to operations of $18,000 for the year ended December 31, 1999 and $110,000 for
the six months ended June 30, 2000. We expect to recognize stock-based
compensation expenses for past grants of approximately $219,000 for each of the
years ended December 31, 2000, 2001, 2002, and 2003 and $22,000 for the year
ended December 31, 2004.
Net interest income. Net interest income consists primarily of interest
earned on the holding of short-term United States government-backed securities,
less any interest paid on our convertible debentures.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues. Our product revenues for the six months ended June 30, 2000 were
$97,000, an increase of $16,000, or 20%, from $81,000 for the same period in
1999. Our increase in product revenues was due to capacity expansions at our
pilot manufacturing facility in Waltham, Massachusetts and the increase of
commercial sales to Kawasaki as a result of our distribution and marketing
arrangement with them. Research revenues for the six months ended June 30, 2000
were $1.0 million, a decrease of $62,000, or 5.8%, from $1.1 million for the
same period in 1999. The decline in research revenues reflects reduced
expenditures on our research contracts, as we focused more resources on internal
research programs.
Cost of product revenues. Our cost of product revenues for the six months
ended June 30, 2000 was $970,000, an increase of $523,000, or 117%, from
$447,000 for the same period in 1999. Approximately half the increase was caused
by increases in materials expense with the remainder of the increase evenly
divided between increases in salary expense and consulting fees. These increases
were associated with our expanded pilot operations and our preparation for
expansion of our manufacturing operations. The increased salary expense included
the addition of our Vice President, Manufacturing in June 1999.
Research and development expenses, including cost of research
revenues. Our research and development expenses, including cost of research
revenues, for the six months ended June 30, 2000 were $1.7 million, an increase
of $348,000, or 26%, from $1.3 million for the same period in 1999. The increase
was due primarily to an increase in consulting fees associated with designing
and developing new processes and equipment for manufacturing expansion, and to a
lesser extent increases in salary and materials expenses.
Selling, general and administrative expenses. Our selling, general and
administrative expenses for the six months ended June 30, 2000 were $733,000, an
increase of $152,000, or 26%, from $581,000 for the same period in 1999.
Approximately half of the increase was due to increased salary expense, with the
remainder nearly evenly divided between increases in professional fees and rent
associated with our growth.
Stock-based compensation expense. Our stock-based compensation expense for
the six months ended June 30, 2000 was $110,000. We recorded no stock-based
compensation expense for the same period in 1999. The expense in the six months
ended June 30, 2000 was due to amortization arising from options granted in
2000.
Net interest income. Our net interest income for the six months ended June
30, 2000 was $515,000, an increase of $417,000, or 426%, from $98,000 for the
same period in 1999. The increase in interest income was due to higher average
cash balances that resulted from the closing of the Series D preferred stock
financing in December 1999 and January 2000.
23
<PAGE> 28
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Our product revenues for the year ended December 31, 1999 were
$189,000, an increase of $26,000, or 16%, from $163,000 for the year ended
December 31, 1998. The increase in product revenues was due to capacity
expansion at our pilot manufacturing facility. Research revenues for the year
ended December 31, 1999 were $2.1 million, an increase of $718,000, or 51%, from
$1.4 million for the year ended December 31, 1998. The increase in research
revenues was primarily attributable to the increased revenues from a three-year
research contract that began in the middle of 1998.
Cost of product revenues. Our cost of product revenues for the year ended
December 31, 1999 was $991,000, an increase of $36,000, or 3.8%, from $955,000
for the year ended December 31, 1998. The increase was due primarily to
increased salary expense for the additional personnel associated with our
increased small manufacturing operations, including the addition of our Vice
President, Manufacturing in June 1999.
Research and development expenses, including cost of research
revenues. Our research and development expenses, including cost of research
revenues, for the year ended December 31, 1999 were $3.1 million, an increase of
$712,000, or 30%, from $2.4 million for the year ended December 31, 1998. Just
under half the increase was due to increased consulting fees, while the
remainder was nearly evenly divided between increases in salary expense and
materials expense.
Selling, general and administrative expenses. Our selling, general and
administrative expenses for the year ended December 31, 1999 were $1.3 million,
an increase of $386,000, or 42%, from $917,000 for the year ended December 31,
1998. The increase was primarily due to increased salary expense, professional
fees and rent expense. Salary expense, which accounted for approximately 20% of
the increase, increased because of higher salaries and the addition of new
personnel. Consulting fees, which accounted for approximately 40% of the
increase, increased because of growth in general administrative requirements and
legal fees associated with marketing contract negotiations. The increase in rent
expense, which accounted for approximately 20% of the increase, was due to a
higher rental rate associated with a lease extension for our Waltham,
Massachusetts facility.
Stock-based compensation expense. Our stock-based compensation expense for
the year ended December 31, 1999 was $18,000. We recorded no stock-based
compensation expense for the year ended December 31, 1998. The expense in 1999
was due to amortization arising from options granted in 1999.
Net interest income. Our net interest income for the year ended December
31, 1999 was $163,000, a decrease of $2,000, or 1.2%, from $165,000 for the year
ended December 31, 1998. The slight decline in interest income was attributable
to a decline in average cash balances in 1999, which was almost entirely offset
by the elimination of interest expense resulting from the conversion of $2.2
million of convertible debentures into preferred stock in April 1998.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Our product revenues for the year ended December 31, 1998 were
$163,000, an increase of $10,000, or 6.5%, from $153,000 for the year ended
December 31, 1997. The increase in product revenues was due to capacity
expansion at our pilot manufacturing facility. Research revenues for the year
ended December 31, 1998 were $1.4 million, an increase of $839,000, or 151%,
from $556,000 for the year ended December 31, 1997. The increase in research
revenues was primarily the result of increased work on new government contracts
begun in late 1997 and in the middle of 1998.
Cost of product revenues. Our cost of product revenues for the year ended
December 31, 1998 was $955,000, a decrease of $52,000, or 5.2%, from $1.0
million for the year ended December 31, 1997. The decrease was due to reductions
in raw materials expense as a result of manufacturing yield improvements that
resulted in more efficient use of raw materials.
Research and development expenses, including cost of research
revenues. Our research and development expenses, including cost of research
revenues, for the year ended December 31, 1998 were $2.4
24
<PAGE> 29
million, an increase of $322,000, or 16%, from $2.1 million for the year ended
December 31, 1997. The increase was due to near equal increases in salary
expense, consulting fees and materials expense.
Selling, general and administrative expenses. Our selling, general and
administrative expenses for the year ended December 31, 1998 were $917,000, an
increase of $108,000, or 13%, from $809,000 for the year ended December 31,
1997. The increase was due to higher professional fees associated with our
growth.
Net interest income. Our net interest income for the year ended December
31, 1998 was $165,000, an increase of $63,000, or 62%, from $102,000 for the
year ended December 31, 1997. The increase was due to higher average cash
balances which resulted from the closing of a private financing in April and May
1998, partially offset by interest paid on $2.2 million of convertible
debentures issued in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations and met our capital
expenditures requirements primarily through sales of our capital stock and to a
lesser extent from funds from operations, including primarily research revenues.
At June 30, 2000, we had working capital of $16.9 million, and cash, cash
equivalents and short-term investments of $16.1 million.
Net cash used in operating activities was $2.9 million for the year ended
December 31, 1997, $2.4 million for the year ended December 31, 1998, $2.6
million for the year ended December 31, 1999, and $2.5 million for the six
months ended June 30, 2000. The increase in net cash used in operating
activities for the six months ended June 30, 2000 was primarily due to increases
in our net loss and working capital associated with our capacity expansion. The
net cash used in operating activities represents primarily net loss plus
depreciation and by changes in working capital.
Net cash from investing activities was $2.5 million for the year ended
December 31, 1997 and net cash used in investing activities was $4.1 million for
the year ended December 31, 1998, $8.7 million for the year ended December 31,
1999 and $1.5 million for the six months ended June 30, 2000. This cash
represents purchases, sales and maturities of United States government-backed
obligations with contractual maturities less than one year and capital
expenditures. Capital expenditures were $641,000 for the year ended December 31,
1997, $123,000 for the year ended December 31, 1998, $383,000 for the year ended
December 31, 1999, and $1.8 million for the six months ended June 30, 2000. The
increase in capital expenditures for the six months ended June 30, 2000 was for
equipment needed for our new manufacturing facility. As of June 30, 2000, our
outstanding commitments for capital expenditures were $1.4 million.
Net cash provided by financing activities was $2.2 million for the year
ended December 31, 1997, $4.6 million for the year ended December 31, 1998,
$12.6 million for the year ended December 31, 1999, and $5.6 million for the six
months ended June 30, 2000. The cash provided by financing activities in the
years ended December 31, 1997, 1998 and 1999 and for the six months ended June
30, 2000 represents private placements of redeemable convertible preferred
stock. In December 1997, we issued $2.2 million in convertible debentures
bearing interest at 8% per annum and maturing in December 1998. The debentures
converted into 1,142,547 shares of redeemable convertible preferred stock in
April 1998.
We believe our current cash, cash equivalents and short-term investments,
combined with the net proceeds from this offering, will be sufficient to satisfy
our projected operating and capital expenditures needs for at least the next 12
months. We anticipate using at least $15 million of the net proceeds of this
offering to expand our manufacturing operations and distribution network.
However, the amounts and timing of our actual expenditures will depend on a
number of factors, including the status of our manufacturing operations and
distribution network expansion, the status of our infrastructure enhancement,
the level of our sales and marketing activities, the amount of cash generated by
or used by our operations, the status of our research and development activities
and the activities of our competition. We anticipate that we are likely to need
additional financing to execute our business model after that time or sooner if
we need to respond to business contingencies. These contingencies may include
the need to enhance our operating infrastructure, respond to competitive
pressures and acquire complementary businesses or necessary technologies.
25
<PAGE> 30
INCOME TAXES
As of June 30, 2000, we had federal net operating loss and tax credit
carryforwards totaling approximately $12.1 million and $530,000 available to
reduce future taxable income and tax liabilities and which expire at various
dates between 2009 and 2015. In addition, as of June 30, 2000 we had state net
operating loss and tax credit carryforwards totaling approximately $12.0 million
and $460,000 available to reduce future taxable income and tax liabilities and
which expire at various dates between 2000 and 2005. Under provisions of the
Internal Revenue Code, substantial changes in our ownership may limit the amount
of net operating loss carryforwards and tax credit carryforwards which can be
used in any future year. As required by Financial Accounting Statement No. 109,
we have evaluated the positive and negative evidence bearing on the
realizability of these assets and we have fully reserved the deferred tax asset.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition Financial Statements", which
provides guidance related to revenue recognition based on interpretations and
practices promulgated by the Commission. We have retroactively adopted the
guidance of SAB 101 for all periods presented in our financial statements
included in this prospectus and this adoption did not have a significant impact
on our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The standard established accounting and reporting
standards requiring the recognition of all derivative instruments as either
assets or liabilities in the statement of financial position and the measure of
those instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
which defers the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. Because we do not currently hold any derivative instruments and
do not currently engage in hedging activities, we expect the adoption of SFAS
No. 133 will not have a material impact on our financial position or operating
results.
In March 2000, FASB issued FASB Interpretation 44, "Accounting for Certain
Transactions Involving Stock Compensation -- an Interpretation of Accounting
Principles Board Opinion 25". FASB Interpretation 44 clarifies the application
of Accounting Principles Board Opinion 25 and among other issues clarifies the
definition of an employee for compensatory plan purposes, the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards, and the accounting for an exchange of stock compensation
awards in a business combination. FASB Interpretation 44 is effective July 1,
2000, but certain conclusions in FASB Interpretation 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We do not
expect the application of FASB Interpretation 44 to have a material impact on
our financial position or results of operations.
MARKET RISK
We do not use derivative financial instruments. We generally place our
marketable security investments in high credit quality instruments, primarily
United States government-backed obligations with contractual maturities of less
than one year. We do not expect any material loss from our marketable security
investments and therefore believe that our potential interest rate exposure is
not material.
All of our sales are denominated in United States dollars. Accordingly, we
have not been materially exposed to fluctuations in currency exchange rates. As
we expand our manufacturing operations and distribution network internationally,
our exposure to fluctuations in currency exchange rates may increase, but we do
not believe this increase will be material.
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<PAGE> 31
BUSINESS
OVERVIEW
We develop, manufacture and market solar power products that provide
reliable and environmentally clean electric power throughout the world. Our
solar power products are targeted at the estimated $1.5 billion global solar
power market, which according to industry sources is projected to grow to
approximately $27 billion by 2020. We believe our proprietary and patented solar
power technologies, including our String Ribbon technology, will offer
significant design, cost and manufacturing advantages over competing solar power
technologies. We intend to become a leading producer of high-quality solar power
products by reducing our manufacturing costs, expanding our manufacturing
capacity, developing innovative solar power products and pursuing strategic
relationships, such as our distribution and marketing relationship with Kawasaki
Heavy Industries, Ltd. of Japan.
We have spent three years on research and development and three years
refining our solar power products and manufacturing processes in our pilot
manufacturing facility. Although we have shipped commercial products since 1997,
we are currently preparing to begin large-scale manufacturing of our solar power
products in our new manufacturing facility by early 2001. We are continuing to
refine, develop and commercialize a number of laboratory-demonstrated
advancements in our solar power technologies, including wider and thinner
crystalline silicon wafers, more efficient solar cells and improved solar panel
designs. To date, we have shipped over 3,400 solar panels for residential,
commercial and industrial applications in the United States and internationally.
We are expanding our manufacturing capacity by relocating our operations to a
56,250 square foot facility that we expect will begin operation by early 2001.
As we begin to increase production volumes, we intend to actively expand
existing and seek new distribution and marketing arrangements.
HISTORICAL MILESTONES
To date we have achieved the following major milestones along our product
development and commercialization schedule:
<TABLE>
<CAPTION>
DATE HISTORICAL MILESTONE
-----------------------------------------------------------------------------
<S> <C>
October 1994 Evergreen Solar founded with four employees in a 2,500
square foot laboratory.
October 1995 First String Ribbon wafers produced.
April 1997 9,400 square foot pilot manufacturing facility operational.
October 1997 First commercial sale of solar panels produced using String
Ribbon technology.
April 1998 First order placed by Kawasaki.
June 1999 Total sales of solar panels of 2,500 units and 100 kilowatts
achieved.
December 1999 Kawasaki investment of $5 million and execution of a
strategic distribution and marketing agreement.
March 2000 56,250 square foot manufacturing facility and headquarters
leased.
August 2000 Renovation of our manufacturing facility and headquarters
begun.
</TABLE>
INDUSTRY BACKGROUND
The Electric Power Industry
The electric power industry is one of the largest industries in the world
and is growing. Growth in the electric power industry is being driven by the
increasing reliance on electricity-dependent advanced technologies and the
expansion of market opportunities for new entrants, spurred by the capacity
constraints of the current electric power grid, and the deregulation and
privatization of the electric power industry worldwide. In addition, many
developing nations are in need of additional sources of electricity. According
to the World Bank, nearly two billion people in the world, or approximately 35%
of the global population, do not have access to modern forms of energy such as
electric power.
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<PAGE> 32
We believe one of the most promising areas for growth in the electric power
industry is the market for distributed generation. The global market for
distributed generation is expected to be driven by the following trends:
Capacity Constraints. We believe that expansion of the existing
electricity infrastructure may not reliably meet growth in the demand for
electricity. According to industry sources capacity reserve margins, which
represent the amount of excess generation capacity available during peak usage
periods, have decreased in the United States from 33% in 1982 to 14% in the
summer of 1999. Increasing the existing and aging infrastructure to meet
capacity constraints will be capital intensive, time consuming and may be
restricted by environmental concerns.
Improved Reliability and High-Quality Power. In addition to capacity
constraints, businesses and individuals are increasingly subjected to power
outages or short interruptions caused by weather, equipment failures or
accidents, which can be particularly disruptive to computers and other sensitive
equipment. According to the Electric Power Research Institute, an electric
utility sponsored research collaborative, the cost of power disruptions in the
United States is approximately $50 billion per year. Devices such as
uninterruptible power supply systems can provide some protection, but we expect
distributed generation's penetration of the electric power market to accelerate
as performance improves and costs decline.
Technological Advancement. We believe advances in technology, design and
manufacturing processes will continue to reduce the cost and increase the
benefits of distributed generation, which should ultimately make distributed
generation attractive to a broader market of consumers.
Reduced Barriers to Entry. Over the past several years, the United States
and many foreign countries have begun to implement regulatory changes in the
electric power industry designed to encourage greater competition and reduce
barriers to entry. We believe that these regulatory changes will promote greater
consumer choice and facilitate increased use of distributed generation
technologies such as solar power. Already in some states, consumers can choose
among competing electric generation technologies and providers much as they now
choose among providers of their long-distance and wireless telephone services.
Electricity providers will increasingly seek to differentiate their product
offerings on the basis of cost, reliability and power generation source.
New Environmental Initiatives. Several countries, including Japan, Germany
and the United States, have introduced economic incentives geared towards the
commercialization and expansion of clean, renewable energy sources. We believe
continuing public and governmental concern regarding environmental issues such
as global warming and air pollution will encourage additional legislative
initiatives in support of renewable energy sources.
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<PAGE> 33
The Solar Power Market
The solar power market has experienced significant growth over the past 20
years and industry sources project that this growth will continue through at
least the year 2020. On-grid applications have been a growing share of world
solar power markets. The following graph reflects the growth and market share of
on-grid and off-grid solar power market shipments from 1990 through 1999.
[CHART]
<TABLE>
<CAPTION>
OFF-GRID ON-GRID
-------- -------
<S> <C> <C>
1990 46.00 48.00
1991 49.70 52.30
1992 53.40 56.70
1993 57.00 61.00
1994 64.30 69.44
1995 71.30 77.60
1996 80.00 89.00
1997 98.00 127.00
1998 116.00 154.00
1999 139.00 201.00
</TABLE>
Source: PV Energy Systems
Japan, the United States, Germany, and India together have markets which
account for over 51% of total solar panel installations worldwide, according to
PV Energy Systems. The following graph reflects total solar panel shipments
during 1998 by region as a percentage of total solar panel shipments worldwide
during the same period.
1998 SOLAR POWER SHIPMENTS BY GEOGRAPHIC REGION
[PIE CHART]
<TABLE>
<S> <C>
Japan 26
Europe 15
India 8
U.S. 11
Other 39
</TABLE>
Source: PV Energy Systems
29
<PAGE> 34
SOLAR POWER APPLICATIONS AND BENEFITS
Unlike many other distributed generation technologies that have been under
development but not in widespread commercial use, solar power technology has had
a growing worldwide market for approximately 20 years in the following
applications:
- On-grid. On-grid applications provide supplemental electricity to
customers that are served by an electric utility grid but choose to
generate a portion of their electricity needs on-site. On-grid
applications have been the fastest growing part of the solar power
market, largely driven by the worldwide trend toward deregulation and
privatization of the electric power industry as well as government
initiatives, including incentive programs to subsidize and promote solar
power systems in several countries including Japan, Germany and the
United States. On-grid applications include residential and commercial
rooftops and building facades, for both new construction and existing
structures.
- Off-grid. Off-grid applications serve markets where access to
conventional electric power is not economical or physically feasible.
Solar power products provide a low cost, reliable alternative for
powering highway call boxes, microwave stations, portable highway road
signs, remote street or billboard lights, vacation homes, rural homes in
developed and developing countries, water pumps and battery chargers for
sailboats and recreational vehicles. Of these applications, we believe
the rural electrification market has significant potential for growth.
Solar power has emerged as one of the primary distributed generation
technologies seeking to capitalize on the opportunities resulting from trends
affecting the electric power industry. Relative to other distributed generation
technologies, solar power benefits include:
- Modular and scaleable. From tiny solar cells powering a hand-held
calculator to an array of roof panels powering an entire home to acres of
panels on a commercial building roof or field, solar power products can
be deployed in many sizes and configurations and can be installed almost
anywhere in the world.
- Reliable. With no moving parts and no fuel supply required, solar power
systems reliably power some of the world's most sensitive applications,
from space satellites to microwave stations in the mountains and other
remote harsh environments. Solar panels typically carry warranties of 20
years or more.
- Dual use. Solar panels are expected to increasingly serve as both a
power generator and the skin of the building. Like architectural glass,
solar panels can be installed on the roofs or facades of residential and
commercial buildings.
- Environmentally cleaner. Solar power systems produce no air or water
emissions.
THE SOLAR POWER CHALLENGE
We believe the principal challenge to widespread adoption of solar power is
reducing manufacturing costs without impairing product reliability. We believe
the following advancements in solar power technology are necessary to meet these
challenges:
- Efficient material use. Reduce raw materials waste, particularly the
waste associated with slicing silicon by conventional crystalline silicon
technology.
- Simplified and continuous processing. Reduce reliance on expensive,
multi-step manufacturing processes.
- Reduced manufacturing capital costs. Decrease the costs and risks
associated with new plant investments as a result of lower capital costs
per unit of production and smaller plant capacity.
- Improved product design and performance. Increase product conversion
efficiency, longevity and ease of use. Conversion efficiency refers to
the fraction of the sun's energy converted to electricity.
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<PAGE> 35
We further believe the two principal solar power technologies, crystalline
silicon and thin films, have not adequately addressed these challenges:
Crystalline Silicon. Crystalline silicon technology was the earliest
practiced solar power technology and remains the foundation for most solar power
applications. Conventional crystalline silicon technology involves slicing thin
wafers from solid crystalline silicon blocks. Crystalline silicon products are
known for their reliability, performance and longevity; however, factors such as
high materials waste from slicing, complicated processing procedures and high
capital costs have limited the ability of conventional crystalline silicon
manufacturers to reduce manufacturing costs.
Thin Films. While most major solar power manufacturers currently rely on
crystalline silicon technology for their solar cell production, they are also
developing alternative thin film technologies to achieve lower manufacturing
costs. Thin film technology involves depositing several thin layers of silicon
or more complex materials on a substrate to make a solar cell. Although thin
film techniques generally use material more efficiently than conventional
crystalline silicon, we believe higher capital costs, lower manufacturing
yields, lower conversion efficiency and reduced product performance and
reliability have resulted in and will continue to result in limited commercial
acceptance. According to PV Energy Systems, 65% of Solar power researchers
worldwide working in crystalline silicon and thin films are working on thin film
technology, while according to Strategies Unlimited, the market share of thin
films has declined from approximately 26% in 1990 to approximately 11% in 1999.
OUR TECHNOLOGY SOLUTION
We believe our technologies and processes are unique among our competitors
and combine the favorable characteristics of crystalline silicon and thin film
technologies. Our proprietary and patented crystalline silicon manufacturing
technologies and processes are designed to reduce manufacturing costs while
improving product performance without impairing product reliability. Our
innovative technologies include:
String Ribbon Wafer Manufacturing. Our String Ribbon technology for the
growth of solar wafers has the following significant advantages:
- Efficient materials use. Unlike conventional crystalline silicon wafer
technology, in which solid blocks of silicon are sliced into thin wafers
at significant expense and silicon waste, our technology grows a
continuous, flat ribbon to the desired thickness. Since our technology
does not involve slicing solid blocks, we currently use about half as
much silicon as conventional crystalline silicon techniques and we
believe we can reduce this amount to about one-fifth over the next few
years.
- Continuous processing. Our technology permits the continuous growth of
crystalline silicon ribbon, which leads to high automation, efficient
equipment use and improved productivity.
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<PAGE> 36
The graphic below depicts the growth of String Ribbon from molten silicon.
As shown below, in the String Ribbon technique, strings are pulled vertically
through a shallow pool of molten silicon, and the silicon solidifies between the
strings to form a continuous ribbon of crystalline silicon. Once the ribbon has
reached the desired length, it is cut and prepared for cell fabrication.
STRING RIBBON CRYSTAL GROWTH PROCESS
[GRAPHIC]
Innovative Solar Cell Fabrication. We believe our innovative solar cell
fabrication techniques will enable us to reduce our manufacturing costs, improve
product appearance and increase design flexibility. Our solar cell fabrication
techniques include:
- "Wrap-around" solar cells. We have patented and are currently developing
a process for manufacturing "wrap-around" solar cells in which the front
metal conductors literally "wrap-around" to the back of the solar cell.
As a result, instead of the conventional practice of electrically wiring
the front of the solar cell to the back of the adjacent cell, our
wrap-around solar cell will allow all of the electrical wiring to be
accomplished on the back of the solar cell. We believe our wrap-around
solar cell will enable us to reduce manufacturing costs, increase
manufacturing output and produce more attractive solar panels in a wider
range of sizes.
- Simplified processing. We have developed an innovative approach of using
fewer, simpler steps combined with simplified and continuous processing
in much of our solar cell fabrication line. We believe this approach will
lower manufacturing costs relative to conventional crystalline silicon
processing which involves clean rooms and requires processing wafers in
batches.
Advanced Solar Panel Designs. We are currently developing innovative solar
panels using improved designs and production processes. We believe our new
technology will ultimately reduce costs, both in the factory and during shipping
and installation, and improve solar panel appearance, performance, ease of use
and longevity. In particular, we are developing a simplified and less expensive
method for interconnecting solar cells, which we call monolithic integration, as
well as better lamination materials and methods.
- Monolithic integration. Monolithic solar panel integration is a
simplified and less expensive method of electrically wiring solar cells
using our "wrap-around" technology. This method allows solar cells to be
electrically wired in a nearly continuous process without front-to-back
electrical wiring. This is a novel approach in crystalline silicon
manufacturing, where expensive front-to-back electrical wiring is
standard practice.
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<PAGE> 37
- Improved lamination materials and methods. We expect our lamination
improvements to include the following:
- Replacement of the two-inch-thick, expensive, aluminum-framed solar
panels with quarter-inch-thick, polymer-based frameless solar panels
that we expect will permit as much as ten-times greater packing
density during shipping and use of less-expensive mounting approaches.
- Replacement of the junction box, which is the conventional box on the
back of a solar panel through which electrical wiring connections are
made, with a thin wire on the edge of one panel to simplify field
wiring.
- Creation of an improved encapsulant, used to seal the solar panel,
which we expect will extend solar panel life.
- Replacement of the conventional lamination process, which requires
processing in batches in a vacuum, with a continuous process which
permits lamination in air.
The following chart lists our current manufacturing technology and our
technology that is under development and which we expect will be commercially
available within the next five years:
<TABLE>
<CAPTION>
TECHNOLOGY UNDER TECHNOLOGY UNDER
DEVELOPMENT: DEVELOPMENT:
INDUSTRIAL APPLICATION INDUSTRIAL APPLICATION
PROCESS STEP CURRENT TECHNOLOGY EXPECTED BY 2001-2002 EXPECTED BY 2003-2005
<S> <C> <C> <C>
String Ribbon - 5.6 cm wide - 8 cm wide - 10 cm wide
Wafer Processing - 250 microns thick - 100 microns thick
----------------
Solar Cell - Streamlined, nearly - Wrap-around technique - Improved conversion
Fabrication continuous processing efficiency
----------------
Solar Panel - Aluminum framed - Monolithic integration - Continuous lamination
Manufacturing two inch thick panel - Frameless quarter inch
- Conventional thick panel
encapsulant - Improved encapsulant
- Conventional wiring - Streamlined wiring
through a junction
box
</TABLE>
OUR STRATEGY
Our principal objective is to become a leading producer of high-quality
solar power products for a wide variety of on-grid and off-grid rural
electrification solar power applications. We plan to achieve this objective by
aggressively pursuing the following strategies:
Expand Manufacturing Capacity. By early 2001, we expect to relocate our
manufacturing operations from our pilot production line to our new 56,250 square
foot facility, which will include approximately 35,000 square feet of
manufacturing space and will enable us to support at least seven megawatts of
annual production capacity using our advanced manufacturing process
technologies, representing a 50-fold increase from our current capacity.
According to industry sources, in 1998, worldwide shipments of solar panels
totaled more than 150 megawatts. We intend to further expand our manufacturing
capacity by establishing manufacturing operations in both United States and
international markets.
Reduce Manufacturing Costs. We believe that the advantages of our
proprietary and patented technologies in the areas of String Ribbon wafer
manufacturing, innovative solar cell fabrication and advanced solar panel
designs will enable us to reduce our manufacturing costs while producing solar
power products with high reliability, high conversion efficiency, improved
product longevity and greater flexibility of use.
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<PAGE> 38
Develop Innovative Solar Power Products. We intend to build upon our
technological advantages in solar power product design and performance to
continue improving and developing our solar power products. The solar power
products we are currently developing are being designed to be thinner, longer
lasting, more attractive and easier to deliver and install. We intend to
primarily target these products for on-grid applications, such as
building-integrated roof tiles, and off-grid applications such as rural
electrification.
Pursue Strategic Relationships. We intend to continue to pursue strategic
relationships to capitalize on the marketing, manufacturing and distribution
capabilities of larger companies and to explore opportunities for additional
solar power product development. In December 1999, we entered into a
distribution and marketing agreement with Kawasaki under which Kawasaki has
exclusive distribution rights for our solar power products in Japan and is
required to promote our solar power products. We believe that strategic
relationships such as our relationship with Kawasaki will enable us to more
easily and cost-effectively enter new geographic markets, attract new customers
and develop innovative solar power products.
Penetrate International Markets Through Local Manufacturing. We believe
our manufacturing advantages will enable us to more easily and cost-effectively
penetrate international markets by building local manufacturing facilities.
While local manufacturing of solar power products is typically limited by
factors such as high capital costs and reduced economies of scale, our String
Ribbon technology offers greater modularity and achieves economies of scale at
smaller capacities than conventional solar power technologies. Since these
facilities can manufacture our full line of solar power products and can be
appropriately scaled to grow as market opportunities dictate, we believe local
manufacturing will also enable us to more readily capitalize on market
opportunities. Further, we believe local manufacturing would assist us in
enhancing brand recognition in local markets, avoiding import tariffs and
accessing local private or public sector financing.
OUR PRODUCTS
Solar power products in general are built-up through four stages of
production:
- Wafers. A crystalline silicon wafer is a flat piece of crystalline
silicon, approximately palm-sized, that can be processed into a
semiconductor device.
- Cells. A solar cell is a semiconductor device made from a wafer that
converts sunlight into electricity by means of a process known as the
photovoltaic effect. A typical solar cell produces from one to three
watts of power and is approximately palm-sized.
- Panels. A solar panel is an assembly of solar cells that have been
electrically interconnected and laminated in a physically durable and
weather-tight package. A typical solar panel can produce from 20 to 120
watts of power and range in size from two to 12 square feet. A 120 watt
solar panel can power a standard 120 watt light bulb, or approximately 3%
of the power requirements of a typical home in the United States. Our
current solar panels range from 25 to 64 watts in power.
- Systems. A solar system is an assembly of one or more solar panels that
have been physically mounted and electrically interconnected, often with
batteries and/or power electronics, to produce electricity.
We sell primarily solar panels. We expect our solar panel technology to
provide us with a number of competitive advantages and, ultimately, lower
manufacturing costs. We believe that the frameless solar panel we are developing
will provide a distinctive advantage in on-grid, building-integrated solar
systems and off-grid rural electrification solar systems, as well as for other
applications where international shipping, remote installation and/or thin solar
panels are required. We expect our frameless solar panel will be thinner,
lighter, easier to ship, easier to install, longer lasting and more attractive
than those of our competitors. We are developing solar roofing tiles and other
building-integrated solar power products that we believe will accelerate the
acceptance and penetration of solar power products in the building industry.
We further believe that our solar panels will be enhanced by our
wrap-around solar cells. We expect our wrap-around cells, currently under
development, to provide simplified interconnection procedures allowing
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<PAGE> 39
greater range in solar panel design and a distinctive, attractive appearance for
on-grid solar systems. We expect our wrap-around solar cells to lower the cost
of higher-voltage small solar panels, which are well-suited for instrumentation
and consumer product applications.
Our current solar panels range from 25 to 64 watts, and we expect to
introduce larger solar panels of approximately 100 watts in 2001. Our solar
panels are certified to international standards for safety and quality. Our 60
and 64 watt solar panels are among the smallest 12/24 dual voltage panels in the
solar power market, are applicable for most solar power applications and are
particularly well-suited for small, high-voltage systems. If our current
development programs are successful, we expect to continue to increase the
conversion efficiency and wattage of our solar panels as we expand manufacturing
capacity and shift from 5.6 centimeter wide String Ribbon wafers to 8 centimeter
wide String Ribbon wafers in 2001.
In addition to solar panels, we sell integrated solar systems. We currently
offer a 112-watt EverSun AC Module and expect to offer several integrated solar
systems that can be standardized to eliminate custom system design and boost
quality. An AC Module is a complete, pre-wired, pre-tested solar power system
with a DC-AC inverter mounted on the back of the solar panels. The EverSun can
be mounted on the ground, the roof of a house, a pole, or the side of a house.
Because our EverSun is one of the smallest-wattage on-grid solar systems
available in the United States, consumers wishing to generate a portion of their
electricity with solar power can start with our smaller-wattage EverSun at a
cost of approximately $1,000, relative to larger-scale, higher-wattage solar
systems which can typically cost between $10,000 and $30,000. Because our
EverSun is one of only a few solar power systems certified to the Underwriters
Laboratory, or UL, safety standard for AC Modules in the United States, it
simplifies customers' obtaining building code approval relative to more complex
systems of individually UL-listed components.
The following chart lists our current solar power products and those
products under development and which we expect will be commercially available
within the next five years:
<TABLE>
<CAPTION>
PRODUCTS UNDER PRODUCTS UNDER
DEVELOPMENT: COMMERCIAL DEVELOPMENT: COMMERCIAL
INTRODUCTION EXPECTED BY INTRODUCTION EXPECTED BY
PRODUCT TYPE CURRENT PRODUCTS 2001-2002 2003-2005
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Solar Panels - 25 to 64 watt solar - Larger solar panels - Frameless roofing
panels, including of approximately 100 tiles and other
one of the smallest watts building-integrated
12/24 dual voltage solar panels
solar panels in the - Frameless quarter
industry inch thick solar
panel with no
aluminum frame and
streamlined wiring
------------------------------------------------------------------------------------------------
Solar Systems - EverSun: a small, - Frameless solar panel - Frameless solar panel
simple to install UL kit for small solar kit for large solar
certified AC Module systems that reduces systems that reduces
shipping and shipping and
installation cost installation cost
</TABLE>
SALES AND MARKETING
Market Focus
We intend to primarily target the on-grid markets and the off-grid rural
electrification market, where we believe growth prospects are the largest and
where we expect our solar power technology will provide us the greatest
competitive advantage. These markets are characterized as follows:
- On-grid. The on-grid market is currently the fastest growing solar power
market. Within the on-grid market, Japan has been the largest market for
several years, but the German market is growing rapidly
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<PAGE> 40
with the recent passage of an additional government subsidy program. We
also expect the Netherlands, Switzerland and the United States to become
large markets.
- Off-grid rural electrification. Within the off-grid market, rural
electrification has the largest potential but is the least penetrated
market as evidenced by the two billion people in the world without
conventional electricity. Marketing, financing, local infrastructure and
support remain the principal challenges to greater expansion of this
market.
Through June 30, 2000, we have shipped over 3,400 solar panels. The
approximate mix of sales by market during this period was as follows:
<TABLE>
<CAPTION>
MARKET SALES MIX
------ ---------
<S> <C>
On-grid market.............................................. 35%
Rural electrification market................................ 47%
Other off-grid markets...................................... 18%
</TABLE>
Competitive Advantage
We expect to gain a competitive advantage in our target markets through
product differentiation, strong marketing, distribution and manufacturing
partners in local markets, and low manufacturing costs.
In the on-grid market, our distinctive solar power products are expected to
include the following:
- building-integrated roofing tiles, both framed and frameless;
- other building-integrated solar power products, such as facade tiles; and
- our EverSun AC Module, a small, simplified, fully-integrated, modular
solar system.
We expect our building-integrated solar power products will include solar
panels with wrap-around solar cells that will offer a distinctive, attractive
appearance, which we believe is particularly important to architects and
homebuilders.
In the off-grid rural electrification market, we expect our frameless
panels to have a competitive advantage because we believe that they will be:
- easier and less expensive to ship due to their thinness and improved
packing density;
- lighter and easier to physically mount and electrically wire; and
- able to be mounted using local mounting materials.
Distribution, Marketing and Other Strategic Relationships
We bring our solar power products to market using distributors, system
integrators and other value-added resellers. Our resellers often add value
through system design by incorporating our panels with batteries, associated
electronics, structures and wiring systems. Most of our resellers have a
geographic or applications focus.
We expect to collaborate closely with a relatively small number of
resellers. We entered into our first of these collaborations with Kawasaki in
December 1999. Under the terms of our strategic distribution and marketing
agreement, we have agreed to sell our solar power products in Japan exclusively
through Kawasaki, and Kawasaki has agreed that we will be Kawasaki's exclusive
supplier of specified solar power products for the Japanese market, unless our
products do not meet Kawasaki's technical requirements for sale in Japan and we
are unable to customize our products to satisfy those requirements. We and
Kawasaki have agreed on minimum sales targets for the two-year period ending
December 2001, and have agreed to negotiate in good faith for minimum sales
targets for each year of the term after December 2001. Our mutually exclusive
distribution arrangement with Kawasaki will automatically continue through
December 2004 so long as Kawasaki achieves the minimum sales targets for the
two-year period ending December 2001 and for each year after December 2001 for
which the parties are able to agree upon sales targets. The exclusivity will
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<PAGE> 41
terminate automatically if we and Kawasaki cannot agree on sales targets after
December 2001. In addition, we have the right to terminate the exclusivity
arrangement if Kawasaki fails to achieve the agreed-upon sales targets in any
period. Under these circumstances, we and Kawasaki have agreed to negotiate new
terms of exclusivity in good faith. In addition, as part of our sales and
marketing collaboration, Kawasaki will dedicate personnel and funding to sales
and marketing and development of our solar power products. We are also
collaborating on technical training, and have agreed to explore the future
possibility of joint manufacturing in Japan.
We intend to selectively pursue additional strategic relationships with
other companies worldwide for the joint marketing, distribution and
manufacturing of our products. These resellers will range from large,
multinational corporations to small, development-stage companies, each chosen
for their particular market expertise. We believe that these relationships will
enable us to leverage the marketing, manufacturing and distribution capabilities
of larger companies, explore opportunities for additional product development,
and more easily and cost-effectively enter new geographic markets, attract new
customers and develop advanced solar power applications. We expect to target
such relationships particularly in the European on-grid and international
off-grid rural electrification markets.
Since initiating our small production line in 1997, our solar power product
sales have been limited by capacity constraints. As a result, we have focused on
smaller resellers whose needs have not vastly exceeded our production levels.
Sales to our ten largest resellers have accounted for more than 92% of our total
product revenues since inception. No one reseller has accounted for more than
20% of total revenues over that period. As we seek to expand manufacturing
capacity and sales volumes, we anticipate developing relationships with
additional resellers.
Through June 30, 2000, approximately 81% of our sales have been made to
resellers in North America. In that same period, the approximate geographic
breakdown of our total sales to end users, including those made by these
resellers, was as follows:
<TABLE>
<CAPTION>
REGION SALES MIX
------ ---------
<S> <C>
United States and Canada.................................. 34%
Africa.................................................... 27%
Latin America............................................. 20%
Japan..................................................... 17%
Europe.................................................... 2%
</TABLE>
We expect that the two largest areas of geographic growth relative to our
historical sales trends will be in Japan, due to our new relationship with
Kawasaki, and in Europe, especially Germany, the Netherlands and Switzerland,
where the on-grid market is growing faster than in other parts of the world due,
in part, to government subsidies.
In addition, we market our products through trade shows, on-going customer
communications, promotional material, direct mail and advertising. Our staff
provides limited customer service and applications engineering support to
customers while also gathering information on current product performance and
future product requirements. All solar power product sales are currently handled
by a small internal sales force based at our facility in Waltham, Massachusetts.
MANUFACTURING
Our principal manufacturing objective is to provide for large-scale
manufacturing of our solar power products at low costs that will enable us to
penetrate price-sensitive solar power markets. We currently manufacture our
solar power products at our headquarters in Waltham, Massachusetts. Our current
manufacturing facility includes a complete line of equipment to manufacture
String Ribbon wafers, fabricate and test solar cells, laminate and test panels,
and assemble and test systems.
In March 2000, we signed a lease agreement for a 56,250 square foot
facility in Marlborough, Massachusetts, which will include approximately 35,000
square feet of manufacturing space. We are
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<PAGE> 42
scheduled to complete the renovation of this facility and to relocate all our
operations there by early 2001. We have designed our new facility to support
seven megawatts of capacity, or an increase in our production capacity of
approximately 50 times, and believe it is ultimately capable of supporting up to
11 megawatts of capacity provided we make equipment upgrades and technological
improvements.
In addition to our current investment in our new Marlborough, Massachusetts
facility for large-scale manufacturing in the United States, we intend to
selectively pursue opportunities to establish local manufacturing arrangements
on a worldwide basis. Because the market opportunity for solar power encompasses
numerous applications in both developed and developing nations worldwide, we
expect a significant portion of our sales to be made outside of the United
States. Despite these opportunities, manufacturing of solar power products has
remained largely concentrated in the United States, northern Europe and Japan
due to factors such as high capital costs, reduced economies of scale and
technical process complexities of establishing local manufacturing facilities.
In spite of these barriers, we believe there are several advantages to
local manufacturing, including enhanced brand recognition in local markets,
avoidance of import tariffs and access to local private or public sector
financing. We believe that our String Ribbon technology and our innovative
manufacturing techniques offer greater modularity and lower per unit capital
costs than other competing technologies, which we believe will enable us to
establish fully integrated factories at a smaller scale that can better grow in
concert with market demands. Consequently, we expect to pursue local
manufacturing of our products in selected target markets. We also expect that
our technologies will allow us to efficiently scale our production to take
advantage of market opportunities as they arise.
RESEARCH AND DEVELOPMENT
Because we believe continuously improving our technology is an important
part of our overall strategy, we have maintained and intend to maintain a strong
research and development effort. To this end, our Marlborough, Massachusetts
facility will have approximately 6,000 square feet dedicated to research and
development. The facility will be equipped with photovoltaic development,
fabrication and evaluation equipment, including String Ribbon crystal growth
furnaces, wafer cutting equipment, wet chemistry equipment, furnaces for
diffusion, oxidation, alloying and heat treatment, interconnection equipment,
lamination equipment, environmental test chambers and optical microscopy
equipment.
We have and will continue to selectively pursue contract research programs
funded by various United States and other governmental agencies to help support
the development of new proprietary technologies. We have four research contracts
that expire on various dates through July 20, 2001. The estimated research
revenues from these contracts from June 30, 2000 through their expiration in
2001, is approximately $1.1 million. These research contracts generally provide
for development of advanced materials and methods for wafer, cell and panel
manufacturing, product development and market development. In all cases, we
retain all rights to any intellectual property and technological developments
resulting from the government funding, with the exception of government
"march-in" rights to practice the technology on its own behalf if we do not
commercialize the technology. These contracts usually require the submission of
technical progress reports, most of which can become publicly available. These
contracts are generally cost shared between us and the funding agency with our
share of the total contract cost ranging form approximately 30% to 70%. The
contracts normally expire between six months and three years from their
initiation. We had research revenues of $556,000 in 1997, $1.4 million in 1998,
$2.1 million in 1999 and $1.0 million in the six months ended June 30, 2000,
from several government-sponsored research contracts. We recorded research and
development expenditures, including the cost of research revenue, of $2.1
million in 1997, $2.4 million in 1998, $3.1 million in 1999 and $1.7 million in
the six months ended June 30, 2000.
INTELLECTUAL PROPERTY RIGHTS
Patents
We believe that our commercial success will significantly depend on our
ability to protect our intellectual property rights underlying our proprietary
technologies. We seek United States and international patent
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<PAGE> 43
protection for major components of our technology platform, including our
crystalline silicon wafers, solar cells and solar panels. We own or have
licensed nine issued United States patents in the solar power field, which
expire beginning in 2003 and ending in 2019. In addition, we have 11 United
States patent applications pending. We decide whether and in what foreign
countries to file counterparts of our United States patent applications. We
devote substantial resources to building a strong patent position, and we intend
to continue to file additional United States and foreign patent applications to
seek protection for technology we deem important to our commercial success.
Crystalline silicon wafers. Our core String Ribbon technology was
developed by Dr. Emanuel Sachs, a tenured Professor of Mechanical Engineering at
the Massachusetts Institute of Technology. Dr. Sachs has been awarded three
issued United States patents for the String Ribbon technology. An additional
issued patent for a related technology, invented by two employees of the United
States National Renewable Energy Laboratory, formerly the Solar Energy Research
Institute, was assigned to Dr. Sachs in 1984.
In September 1994, Dr. Sachs granted us an irrevocable, worldwide,
royalty-bearing license to practice the String Ribbon technology and related
patents under a license and consulting agreement. The patents underlying this
agreement begin to expire in 2003. This agreement permits us to sublicense any
of our license and other rights under the agreement. The license is exclusive
worldwide, subject only to nonexclusive, nontransferable rights held by the
United States Department of Energy to practice the String Ribbon technology on
its own behalf. Our rights to the String Ribbon technology depend upon the
survival of our license from Dr. Sachs. Although our license is by its terms
irrevocable and terminates only upon expiration of the underlying patents, it is
possible that Dr. Sachs could seek to terminate the license if we materially
breach or default on our obligations to Dr. Sachs under the license, in
particular our obligation to pay royalties to Dr. Sachs. The termination of our
license from Dr. Sachs to the String Ribbon technology and our loss of the right
to practice under the String Ribbon patents would substantially impair our
business and prospects.
We have been awarded one issued United States patent and have filed three
patent applications on our own, internally-developed inventions related to
String Ribbon, which are method inventions relating to automated, high-yield
production techniques.
Solar cell fabrication. We have been awarded one issued United States
patent and have filed four additional United States patent applications relating
to our solar cell processing technology. The issued United States patent relates
to the method for forming wrap-around contacts on solar cells. The four pending
patent applications relate to methods for providing an anti-reflective coating
and metallization on a solar cell.
Solar panels. We have been awarded three issued United States patents and
have filed four additional United States patent applications relating to
advanced solar panel designs. The three issued United States patents relate to
solar cell modules with an improved backskin, solar cell modules with an
interface mounting system, and a solar cell roof tile system. The four pending
patent applications relate to a new encapsulant that lowers cost and extends
panel life, an ultraviolet stabilization additive package for the encapsulant,
and an enhancement of the new encapsulant and backskin to substantially enhance
their performance.
Patent positions of companies like ours are generally uncertain and involve
complex legal and factual questions. Furthermore, even if patents are licensed
or issued to us, others may design around the patented technologies. In
addition, we could incur substantial costs in litigation if we are required to
initiate patent litigation to enforce our patent rights, and the outcome of any
patent litigation is uncertain. Our patent positions may be impaired by the
following:
- our pending patent applications may not result in issued patents;
- the claims of patents which are issued may not provide meaningful
protection;
- we may not develop additional proprietary technologies that are
patentable;
- patents licensed or issued to us may not provide a basis for commercially
viable products or may not provide us with competitive advantages and may
be challenged by third parties; or
- patents of others may have an adverse effect on our ability to do
business.
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<PAGE> 44
Although we do not believe that our technologies infringe the rights of
third parties, third parties could in the future assert infringement claims
against us which may result in costly litigation or require us to obtain a
license to third-party intellectual property rights. We may be unable to obtain
required licenses or obtain these licenses on terms which are acceptable to us,
either of which would substantially impair our business.
Trade Secrets and Other Rights
With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, we rely on trade secret
protection and confidentiality agreements to protect our interests. We believe
that several elements of our solar power products and manufacturing processes
involve proprietary know-how, technology or data which are not covered by
patents or patent applications. We have taken security measures to protect
proprietary know-how and technologies and confidential data, and continue to
explore further methods of protection. While we require all employees, key
consultants and other third parties to enter into confidentiality agreements
with us, we cannot assure you that proprietary information will not be disclosed
inappropriately, that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our trade secrets, or that we can meaningfully protect our trade secrets. Any
material leak of confidential information into the public domain or to third
parties could result in the loss of a competitive advantage in the solar power
market.
COMPETITION
The market for solar power products is intensely competitive. There are
over 20 companies in the world that produce solar power products, including a
number of very large United States, Japanese and European companies. According
to Strategies Unlimited, in 1999 the six largest sellers of solar power products
produced approximately 71% of worldwide solar panel shipments. These companies
include BP Solar, Kyocera Corporation, Siemens Solar Group, Sharp Corporation,
AstroPower, Inc. and Photowatt International S.A. All six of these solar power
product producers, as well as several others, derive all or a majority of their
sales from conventional manufacturing technology that involves slicing solid
blocks of crystalline silicon. In addition, most of these companies are
developing advanced crystalline silicon or thin film technologies, including
technologies such as advanced crystalline sheet and ribbon technologies and thin
films of amorphous silicon, cadmium telluride and copper indium diselenide, and
project future cost savings similar to or greater than ours. We believe several
of our competitors are developing crystalline silicon wafer technologies that,
like String Ribbon, do not involve slicing silicon blocks.
Many of our competitors have substantially greater financial resources,
research and development staff, manufacturing facilities, sales and marketing
experience, distribution channels and human resources than we do. In order to
compete effectively against these companies, we will need to demonstrate to
potential customers and partners that our solar power products perform better,
are more reliable or are less expensive than those of our competitors.
In addition, we believe that the market for solar power specifically, and
electric power in general, will be subject to rapid technological development.
This rapid development may result in some of our solar power products becoming
obsolete before we can recover development expenses. We also expect that future
competition will come not only from existing competitors, but also from new
entrants to the market with new technological solutions. We may be unable to
compete successfully against present and future competitors and our failure to
successfully compete could significantly reduce our market share, our revenues
and prospects for profitability.
ENVIRONMENTAL REGULATIONS
We use, generate and discharge toxic, volatile or otherwise hazardous
chemicals and wastes in our research and development and manufacturing
activities. We are subject to a variety of federal, state and local governmental
regulations related to the storage, use and disposal of hazardous materials. If
we fail to comply with present or future environmental regulations, we could be
subject to fines, suspension of production or a cessation of operations.
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<PAGE> 45
We believe that we have all environmental permits necessary to conduct our
business and expect to obtain all necessary environmental permits for our new
facility. 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 current facilities or our newly leased
facilities where we will be relocating our operations. 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, operational
interruptions and adverse publicity, any of which could materially and adversely
affect our business, results of operations and financial condition. In addition,
under some federal and state statutes and regulations, a governmental agency may
seek recovery and response costs from operators of property where releases of
hazardous substances have occurred or are ongoing, even if the operator was not
responsible for the release or otherwise was not at fault.
EMPLOYEES
As of June 30, 2000, we had 50 full-time employees, including 14 engaged in
research and development and 32 engaged in manufacturing. Nine of our employees
have advanced degrees, including three Ph.D.s. None of our employees are
represented by any labor union nor are they organized under a collective
bargaining agreement. We have never experienced a work stoppage and believe that
our relations with our employees are good.
FACILITIES
Our headquarters is currently located in a leased space in Waltham,
Massachusetts, where we currently occupy approximately 9,400 square feet of
administrative, laboratory and manufacturing space. Our lease expires on
December 31, 2000.
In March 2000, we entered into a 10-year lease for approximately 56,250
square feet of office, laboratory and manufacturing space in Marlborough,
Massachusetts. We plan to relocate all of our operations to the Marlborough
facility by early 2001, after the space has been built out to our manufacturing
and other specifications.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table and biographical summaries set forth below contain certain
information with respect to our executive officers and directors as of June 30,
2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark A. Farber....................... 47 Chief Executive Officer, President and Director
Richard G. Chleboski................. 34 Chief Financial Officer, Treasurer, Secretary and
Director
Dr. Jack I. Hanoka................... 64 Chief Technical Officer
John J. McCaffrey, Jr................ 48 Vice President, Manufacturing
Dr. Robert W. Shaw, Jr.(1)........... 58 Chairman of the Board of Directors
Dr. Gordon B. Baty(2)................ 61 Director
William C. Osborn(1)................. 55 Director
Dr. William P. Sommers(2)............ 66 Director
Dr. Brown F. Williams(1)............. 59 Director
Mason Willrich(2).................... 67 Director
</TABLE>
------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
MARK A. FARBER has served as our President and as a director since August
1994 and was elected our first Chief Executive Officer in May 2000. From July
1988 until February 1994, Mr. Farber worked at Mobil Solar Energy Corporation,
the solar power division of Mobil Corporation, where he was responsible for
marketing, sales and corporate partnering activities. From June 1976 until June
1988, Mr. Farber was employed by Temple, Barker and Sloane, now Mercer
Management Consulting, as a management consultant, where he advised electric
utilities, equipment manufacturers and government agencies on economic, business
and policy issues related to energy. Mr. Farber received a B.S. in Industrial
Engineering and Operations Research from Cornell University and an M.S. in
Management from the Sloan School of Management of the Massachusetts Institute of
Technology.
RICHARD G. CHLEBOSKI has served as our Chief Financial Officer and
Treasurer since August 1994, our Secretary since May 2000 and was elected as a
director in June 1995. From July 1987 until February 1994, Mr. Chleboski worked
at Mobil Solar Energy Corporation where he was the Strategic Planner from March
1991 to February 1994 and a Process Engineer from 1987 to 1991. Mr. Chleboski
received a B.S. in Electrical Engineering from the Massachusetts Institute of
Technology and an M.B.A. from Boston College.
DR. JACK I. HANOKA has served as our Chief Technical Officer since August
1994. From December 1978 until February 1994, Dr. Hanoka worked at Mobil Solar
Energy Corporation where he was a Research Associate. Dr. Hanoka received a B.A.
in Liberal Arts and a B.S. in Ceramic Engineering from Rutgers University and an
M.S. in Ceramic Science and a Ph.D. in Solid State Physics from Pennsylvania
State University.
JOHN J. MCCAFFREY, JR. has served as our Vice President, Manufacturing
since June 1999. From June 1979 until June 1999, Mr. McCaffrey worked for
Polaroid Corporation where he worked in various capacities in manufacturing,
equipment engineering and quality control, including factory start-ups and
international operations. Mr. McCaffrey received a B.S. in Chemistry and General
Engineering from The United States Naval Academy, Annapolis.
DR. ROBERT W. SHAW, JR. has served as the chairman of our board of
directors since October 1994. Since 1983, Dr. Shaw has served as President of
Arete Corporation, a venture capital management firm with a focus on the energy
technology sector, and has been General Partner of six venture capital funds.
Prior to that time, Dr. Shaw was a Senior Vice President and director of
Booz-Allen & Hamilton, an international management and technology consulting
firm, where he founded the firm's energy division. Dr. Shaw received
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<PAGE> 47
a B.E.P. degree and an M.S. in Electrical Engineering from Cornell University,
an M.P.A. from American University, and a Ph.D. in Applied Physics from Stanford
University.
DR. GORDON B. BATY has served as a director since June 1995. Since 1982,
Dr. Baty has been a Principal, a managerial role that entails reviewing
investment candidates and participating in day-to-day operations management, of
Zero Stage Capital, a venture capital firm, and a limited partner with several
of its funds. Dr. Baty received a B.S., M.S. and Ph.D. in Finance from the
Massachusetts Institute of Technology. Dr. Baty also serves on the board of
directors of Mercury Computer Systems, Inc., a producer of digital signal and
image processing computer systems.
WILLIAM C. OSBORN has served as a director since September 1996. Since
January 2000, Mr. Osborn has been a Manager and Principal, a managerial role
that entails reviewing investment candidates and participating in day-to-day
operations management, of Common Capital Management, LLC a venture capital fund.
Since January 1999, Mr. Osborn has been a Special Member, an advisory role that
entails reviewing investment candidates and providing insights into market
trends and opportunities, at Venture Investment Management Company, LLC, a
venture capital firm, where he was a Manager from 1996 through January 1999.
Also since January 1999, Mr. Osborn has served as a consultant to Arete
Corporation. From 1994 to 1996, he was a consultant and acting Chief Operating
Officer of Environmental Health and Engineering, Inc., an environmental services
firm specializing in indoor air quality. Mr. Osborn received an A.B. from
Princeton University and a J.D. from The George Washington University Law
School.
DR. WILLIAM P. SOMMERS has served as a director since January 1999. Dr.
Sommers retired in 1998. From 1994 to 1998, Dr. Sommers was President and Chief
Executive Officer of SRI International, formerly Stanford Research Institute, a
contract research and development organization. From 1963 to 1993, he was an
Executive Vice President and director of Booz-Allen & Hamilton. Dr. Sommers
serves on the board of directors of Litton Industries, Inc. and Scudder/Kemper
Investments. Dr. Sommers received a B.S. and M.S. in Mechanical Engineering and
a Ph.D. in Aeronautical Engineering from the University of Michigan, with
highest honors.
DR. BROWN F. WILLIAMS has served as a director since January 1999. Since
July 1990, Dr. Williams has been Chairman of the Board of Directors of Princeton
Video Image, Inc., a computer-generated, virtual advertising for television
company. From 1966 to 1988, he worked at RCA Laboratories in various capacities,
including as a Vice President, where his responsibilities included research in
solar power technology. Dr. Williams received a B.A., M.A. and Ph.D. in Physics
from the University of California, Riverside.
MASON WILLRICH has served as a director since April 1998. From 1996 through
December 1999, Mr. Willrich was a Principal, a managerial role that entails
reviewing investment candidates and participating in day-to-day operations
management, at Nth Power Technologies, Inc., a venture capital firm with a focus
on the energy technology sector. In January 2000, he was made a Special Limited
Partner, an advisory role that entails reviewing investment candidates and
providing insights into market trends and opportunities. Since October 1998 Mr.
Willrich has been a member of the Advisory Council of the National Renewable
Energy Laboratory, formerly the Solar Energy Research Institute, and since 1994
he has been a member of the Advisory Council of the Electric Power Research
Institute. From 1994 to 1996 he was chairman of the board of Energyworks LLC, a
company which develops, owns and operates onsite industrial utility assets such
as electric power and steam plants. From 1989 to 1994, Mr. Willrich was Chief
Executive Officer of PG&E Enterprises, a subsidiary of Pacific Gas and Electric
Company for unregulated business development. Mr. Willrich received a B.A. from
Yale University and a J.D. from the University of California, Berkeley.
ELECTION OF DIRECTORS AND OFFICERS
All of our current directors were elected to the board of directors
pursuant to voting provisions contained in the Series D preferred stock purchase
agreement among us and some of our stockholders and our certificate of
incorporation. These voting provisions will terminate on the closing of this
offering. Effective upon the closing of this offering, our board of directors
will be divided into three classes, with the members of each class serving for
staggered three-year terms. Messrs. Chleboski and Osborn and Dr. Baty will serve
in the class whose term expires in 2001; Drs. Sommers and Williams and Mr.
Willrich will serve in the class
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<PAGE> 48
whose term expires in 2002; and Mr. Farber and Dr. Shaw will serve in the class
whose term expires in 2003. Upon the expiration of the term of a class of
directors, directors for that class will be elected for three-year terms at the
annual meeting of stockholders.
Each of our executive officers is elected by the board of directors
annually and holds office until his successor is elected and qualified or until
his earlier resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established a compensation committee and an
audit committee. Our compensation committee consists of Messrs. Osborn, Shaw and
Williams. The compensation committee reviews and evaluates the compensation and
benefits of all of our officers, reviews general policy matters relating to
compensation and benefits of our employees and makes recommendations concerning
these matters to the board of directors. The compensation committee also
administers our stock option and stock purchase plans.
Our audit committee consists of Messrs. Baty, Sommers and Willrich. The
audit committee reviews with our independent auditors the scope and timing of
the auditors' services, the auditors' report on our financial statements
following completion of our auditors' audit, and our internal accounting and
financial control policies and procedures. In addition, the audit committee will
make annual recommendations to the board of directors for the appointment of
independent auditors for the following year.
DIRECTOR COMPENSATION
Non-employee directors are reimbursed for their reasonable out-of-pocket
expenses incurred in attending meetings of the board of directors and any
committees of the board of directors on which they serve. Prior to the offering,
directors were eligible to participate in the 1994 Stock Option Plan and upon
completion of the offering will be entitled to participate in the 2000 Stock
Option and Incentive Plan. Pursuant to a policy approved by our board of
directors in October 1998, each of our directors who is not an officer or
affiliated with our stockholders, received an immediately exercisable option to
purchase 923 shares of our common stock for each board of directors meeting that
the director attended. Pursuant to this policy, Dr. Sommers has received options
to purchase 10,153 shares of our common stock and Dr. Williams has received
options to purchase 4,615 shares of our common stock, each as of June 30, 2000.
On August 1, 2000, the board of directors voted to terminate this policy
effective as of the closing of the offering and approved our 2000 Director
Compensation Policy. Under the 2000 Director Compensation Policy, non-employee
directors, including directors affiliated with our stockholders, are entitled to
receive an immediately exercisable option to purchase 1,000 shares of our common
stock for each board of directors meeting that the director attends. The per
share exercise price of the automatic option grants will be equal to the fair
market value of a share of our common stock on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the first calendar quarter of 2000, our full board of directors
reviewed salaries and incentive compensation for our employees for the fiscal
year ended December 31, 1999. Messrs. Farber and Chleboski did not participate
in any discussions regarding their respective compensation. No interlocking
relationship exists between our board of directors or compensation committee and
the board of directors or compensation committee of any other company, nor has
any interlocking relationship existed in the past. During the fiscal year ended
December 31, 1999, Messrs. Farber, Shaw and Williams served as members of the
compensation committee.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the total compensation paid or accrued
during the fiscal year ended December 31, 1999 for Mark A. Farber, our Chief
Executive Officer and President, and each of our other
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<PAGE> 49
executive officers whose combined salary and bonus exceeded $100,000 during 1999
for services rendered to us in all capacities. We may refer to these officers as
our named executive officers in other parts of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY ($) BONUS ($) OPTIONS (#)
------------------------------ ---------- --------- ---------------------
<S> <C> <C> <C>
Mark A. Farber....................................... 101,750 10,000 34,642
Chief Executive Officer and President
Dr. Jack I. Hanoka................................... 106,838 10,000 34,642
Chief Technical Officer
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning the stock option
grants made to each of the named executive officers in the fiscal year ended
December 31, 1999. The exercise price per share of each option was equal to the
fair market value of the common stock on the grant date as determined by our
board of directors. We have never granted any stock appreciation rights. These
options were granted under our 1994 Stock Option Plan. Stock options described
below vest over four years, with 25% of the option shares granted vesting on
each of the one-year, two-year, three-year and four-year anniversary of the
grant date, and expire on the tenth anniversary of the date of grant, subject to
earlier termination in certain situations related to resignation or termination
of employment. The percentage of total options granted to employees in 1999
shown in the table below is based on options to purchase an aggregate of 265,100
shares of common stock granted during the year ended December 31, 1999.
Potential realizable values are net of exercise prices and before taxes, and are
based on an assumed initial public offering price of $14.00 per share and the
assumption that our common stock appreciates at the annual rate shown,
compounded annually, from the date of grant until the expiration of the option
term. The potential realizable value is calculated based on the term of the
option at its time of grant which is ten years. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises will depend on the future performance of our common stock
and the date on which the options are exercised.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/ SH) DATE 5% ($) 10% ($)
---- ----------- ------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Farber.................... 34,642 13.1% 0.87 7/26/09 759,856 1,227,795
Dr. Jack I. Hanoka................ 34,642 13.1% 0.87 7/26/09 759,856 1,227,795
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information regarding exercisable and
unexercisable stock options held as of December 31, 1999 by each of the named
executive officers. The value of unexercised in-the-money options represents the
total gain which would be realized if all in-the-money options held at December
31, 1999 were exercised, determined by multiplying the number of shares
underlying the options by the difference between the assumed initial public
offering price of $14.00 per share and the per share option exercise price. An
option is in-the-money if the fair market value of the underlying shares exceeds
the exercise price of the option. None of our named executive officers exercised
stock options in the fiscal year ended December 31, 1999.
45
<PAGE> 50
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark A. Farber................................... 6,618 47,114 87,732 618,887
Dr. Jack I. Hanoka............................... 7,658 47,460 101,845 623,582
</TABLE>
STOCK PLANS
1994 Stock Option Plan
Our 1994 Stock Option Plan was adopted by the board of directors and
approved by our stockholders in October 1994. As of June 30, 2000, options to
purchase 617,696 shares of common stock were outstanding under the 1994 Stock
Option Plan. The board of directors has provided that, effective upon the
closing of the offering, no additional grants will be made under the 1994 Stock
Option Plan. Under the 1994 Stock Option Plan, we are authorized to grant
incentive stock options, within the meaning of Section 422 of the Internal
Revenue Code, to employees and non-qualified stock options, awards of common
stock and opportunities to make direct purchases of common stock to employees,
officers, directors and consultants.
The 1994 Stock Option Plan is currently administered by the board of
directors. Subject to the provisions of the 1994 Stock Option Plan, the board of
directors or its compensation committee has the authority to select the persons
to whom stock options, awards and purchase rights are granted and to determine
the terms of each stock option, award and purchase right.
Options granted under the 1994 Stock Option Plan are exercisable within ten
years of the original grant date. In general, stock options granted under the
1994 Stock Option Plan vest over four years, with 25% of the option shares
vesting on each of the one-year, two-year, three-year and four-year
anniversaries of the grant date. The board of directors or its compensation
committee may specify a different vesting schedule for any particular grant.
An incentive stock option is not transferable by the recipient except by
will or by the laws of descent and distribution. Non-qualified stock options and
other awards are transferable only to the extent provided in the agreement
relating to the option or award. No stock option may be exercised more than
three months following the date the recipient ceases to be a consultant or
employee, and no stock option may be exercised following termination of
employment for cause. The 1994 Stock Option Plan provides that the board of
directors or its compensation committee has the right to accelerate the date
that any installment of an option becomes exercisable.
2000 Stock Option and Incentive Plan
In August 2000, our board of directors and stockholders approved our 2000
Stock Option and Incentive Plan, to become effective on the closing of the
offering. The aggregate number of shares of common stock which may be issued
under the 2000 Stock Option and Incentive Plan is 1,616,628 shares. Under the
2000 Stock Option and Incentive Plan, we are authorized to grant incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code, to
employees and non-qualified stock options, awards of common stock and
opportunities to make direct purchases of common stock to our employees,
officers, directors and consultants. The maximum number of shares that may be
granted to any employee under the 2000 Stock Option and Incentive Plan shall not
exceed 500,000 shares of common stock during any calendar year.
The 2000 Stock Option and Incentive Plan is administered by the board of
directors or its compensation committee. Subject to the provisions of the 2000
Stock Option and Incentive Plan, the board of directors or its compensation
committee each has the authority to select the persons to whom awards are
granted and determine the terms of each award, including the number of shares of
common stock to be granted. Payment of the exercise price of an award may be
made in cash, shares of common stock, a combination of cash or stock, promissory
note or by any other method approved by the board or its compensation committee.
Unless
46
<PAGE> 51
otherwise permitted by us, awards are not assignable or transferable except by
will or the laws of descent and distribution.
The 2000 Stock Option Plan provides, subject to certain conditions, that
upon an acquisition of Evergreen Solar, 25% of each unvested portion of any
awards will accelerate and become exercisable, with the remaining 75% of each
unvested portion to continue vesting throughout the term of the award. In
addition, upon termination of employment by us without course or by the employee
for good reason within one year following a change in control, all unvested
options will become immediately exercisable. Each of the board of directors or
its compensation committee may, in its sole discretion, amend, modify or
terminate any award granted or made under the 2000 Stock Option and Incentive
Plan, so long as such amendment, modification or termination would not
materially and adversely affect the participant. Each of the board of directors
or its compensation committee may also, in its sole discretion, accelerate or
extend the date or dates on which all or any particular option or options
granted under the 2000 Stock Option and Incentive Plan may be exercised.
2000 Employee Stock Purchase Plan
In August 2000, our board of directors and stockholders approved our 2000
Employee Stock Purchase Plan, to become effective on the closing of the
offering. The purchase plan provides for the issuance of a maximum of 115,473
shares of common stock. The purchase plan is administered by the board of
directors or its compensation committee. Employees who are customarily employed
for more than 20 hours per week and for more than five months in any calendar
year and who have completed more than 90 days of employment on or before the
first day of any six-month payment period are eligible to participate in the
purchase plan. Employees who would own 5% or more of the total combined voting
power or value of our stock immediately after the grant may not participate in
the purchase plan. To participate in the purchase plan, an employee must
authorize us to deduct an amount not less than 1% nor more than 10% of a
participant's total cash compensation from his or her pay during six-month
payment periods. The first payment period will commence on the first day of the
first calendar month following effectiveness of the Form S-8 registration
statement filed with the Securities and Exchange Commission covering the shares
to be issued pursuant to the purchase plan and end on the next succeeding
January 31 or July 31, whichever comes first, following at least six months
after the commencement of the first payment period. Thereafter, the payment
periods shall consist of the six-month periods commencing on February 1 and
August 1 and ending January 31 and July 31 of each calendar year. In no case
shall an employee be entitled to purchase more than 25 shares of common stock in
any one payment period. The exercise price for the option granted in each
payment period is 85% of the lesser of the average market price of the common
stock on the first or last business day of the payment period, in either event
rounded up to the nearest cent.
If an employee is not eligible to participate on the last day of the
payment period, such employee is not entitled to exercise his or her option, and
the amount of his or her accumulated payroll deductions will be refunded.
Options granted under the purchase plan may not be transferred or assigned. An
employee's rights under the purchase plan terminate upon his or her voluntary
withdrawal from the plan at any time or upon termination of his or her
employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our third amended and restated certificate of incorporation provides that
our directors and officers shall be indemnified to the fullest extent permitted
by Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with their service
for or on behalf of us. In addition, our certificate of incorporation provides
that our directors will not be personally liable to us or our stockholders for
monetary damages for breaches of their fiduciary duty as directors, unless they
violated their duty of loyalty to us or our stockholders, acted in bad faith,
knowingly or intentionally violated the law, authorized illegal dividends or
redemptions or derived an improper personal benefit from their action as
directors. This provision does not affect the directors' responsibilities under
Delaware law or any other laws, such as the federal securities laws. We intend
to obtain insurance which insures our directors and officers against certain
losses and which insures us against our obligations to indemnify the directors
and officers.
47
<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding beneficial
ownership of our common stock as of June 30, 2000, and as adjusted to reflect
the sale of the shares of common stock offered by this prospectus, by:
- each person known by us to be the beneficial owner of more than 5% of our
common stock;
- each named executive officer;
- each of our directors; and
- all of our executive officers and directors as a group.
Unless otherwise noted below, and subject to applicable community property
laws, to our knowledge, each person has sole voting and investment power over
the shares shown as beneficially owned, except to the extent authority is shared
by spouses under applicable law and except as set forth in the footnotes to the
table.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission and assumes
the underwriters do not exercise their over-allotment option. The information
does not necessarily indicate beneficial ownership for any other purpose. Under
these rules, the number of shares of common stock deemed outstanding includes
shares issuable upon exercise of options and warrants held by the respective
person or group which may be exercised within 60 days after June 30, 2000. For
purposes of calculating each person's or group's percentage ownership, stock
options and warrants exercisable within 60 days after June 30, 2000 are included
for that person or group but not the stock options and warrants of any other
person or group.
Percentage of shares beneficially owned before the offering is based on
8,057,705 outstanding shares of our common stock as of June 30, 2000, assuming
the conversion of our outstanding convertible preferred stock, and includes
shares issuable upon exercise of outstanding options and warrants held by the
respective person or group which may be exercised within 60 days after June 30,
2000. Percentage of shares beneficially owned after the offering is based on
11,057,705 shares of our common stock outstanding as of June 30, 2000, assuming
the conversion of all our outstanding convertible preferred stock and the
issuance of shares of our common stock in this offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUABLE UPON THE PERCENTAGE OF SHARES
EXERCISE OF BENEFICIALLY OWNED
NUMBER OF SHARES OPTIONS WITHIN --------------------
BENEFICIALLY 60 DAYS FROM BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED JUNE 30, 2000 OFFERING OFFERING
--------------------------------------- ---------------- ----------------- -------- --------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Arete Entities(2).......................... 2,154,616 -- 26.3% 19.2%
P.O. Box 1299
Center Harbor, NH 03226
Kawasaki Heavy Industries, Ltd............. 923,787 -- 11.5% 8.4%
World Trade Center Building
4-1 Hamamatsu-cho 2-chome
Minato-ku
Tokyo 105-6116
Japan
Nth Power Technologies Fund I, L.P.(3)..... 1,016,914 -- 12.3% 9.0%
100 Spear Street
Suite 1450
San Francisco, CA 94105
Swiss Reinsurance Company(4)............... 693,522 -- 8.5% 6.2%
Mythenquai 50/60
CH 8022 Zurich
Switzerland
</TABLE>
48
<PAGE> 53
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUABLE UPON THE PERCENTAGE OF SHARES
EXERCISE OF BENEFICIALLY OWNED
NUMBER OF SHARES OPTIONS WITHIN --------------------
BENEFICIALLY 60 DAYS FROM BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED JUNE 30, 2000 OFFERING OFFERING
--------------------------------------- ---------------- ----------------- -------- --------
<S> <C> <C> <C> <C>
Zero Stage Capital Entities(5)............. 1,259,974 -- 15.6% 11.4%
101 Main Street
Cambridge, MA 02142
EXECUTIVE OFFICERS AND DIRECTORS:
Mark A. Farber............................. 184,757 19,474 2.5% 1.8%
Richard G. Chleboski....................... 184,757 19,936 2.5% 1.8%
Dr. Jack I. Hanoka(6)...................... 184,757 20,860 2.5% 1.9%
Dr. Gordon B. Baty(7)...................... 1,259,974 -- 15.6% 11.4%
William C. Osborn(8)....................... 246,231 -- 3.0% 2.2%
Dr. Robert W. Shaw, Jr.(9)................. 2,154,616 -- 26.3% 19.2%
Dr. William P. Sommers..................... -- 10,153 * *
Dr. Brown F. Williams...................... -- 4,615 * *
Mason Willrich(10)......................... 1,035,417 -- 12.6% 9.2%
All executive officers and directors as a
group (10 persons)(11)................... 5,250,509 86,585 62.7% 46.4%
</TABLE>
------------
* Represents beneficial ownership of less than one percent of outstanding
common stock.
(1) Unless otherwise indicated, the address of each person listed on the table
is c/o Evergreen Solar, Inc., 211 Second Avenue, Waltham, Massachusetts
02451.
(2) Includes 693,875 shares held by UVCC Fund II, 693,875 shares held by UVCC
II Parallel Fund, L.P., 338,112 shares held by Micro-Generation Technology
Fund, LLC, and 286,258 shares held by Utech Climate Challenge Fund, L.P.
Also includes 20,893 shares issuable upon exercise of a warrant held by
UVCC Fund II, 20,893 shares issuable upon exercise of a warrant held by
UVCC II Parallel Fund, L.P., 79,817 shares issuable upon exercise of a
warrant held by Micro-Generation Technology Fund, LLC, and 20,893 shares
issuable upon exercise of a warrant held by Utech Climate Challenge Fund,
L.P.
(3) Includes 184,757 shares issuable upon exercise of a warrant held by Nth
Power Technologies Fund I, L.P.
(4) Includes 92,378 shares issuable upon exercise of a warrant held by Swiss
Reinsurance Company.
(5) Includes 760,094 shares owned by Zero Stage Capital V, L.P. and 461,893
shares held by Zero Stage Capital VI, L.P. Also includes 37,987 shares
issuable upon exercise of a warrant held by Zero Stage Capital V, L.P.
(6) Includes 46,189 shares held by Dr. Hanoka and 138,568 shares held by Hanoka
Evergreen Limited Partnership.
(7) Includes 760,094 shares held by Zero Stage Capital V, L.P. and 461,893
shares held by Zero Stage Capital VI, L.P. Also includes 37,987 shares
issuable upon exercise of a warrant held by Zero Stage Capital V, L.P. Dr.
Baty is a General Partner of Zero Stage Capital Associates V, L.P. which is
the General Partner of Zero Stage Capital V, L.P. and is a member of Zero
Stage Capital Associates VI, LLC which is the General Partner of Zero Stage
Capital VI, L.P. Dr. Baty may be deemed to share voting and investment
power with respect to all shares held by Zero Stage Capital V, L.P. and
Zero Stage Capital VI, L.P. Dr. Baty disclaims beneficial ownership of
these shares, other than shares in which he has a pecuniary interest.
(8) Includes 187,066 shares held by VIMAC ES Limited Partnership and 42,261
shares held by VIMAC ES 2 Limited Partnership. Also includes 16,904 shares
issuable upon exercise of a warrant held by VIMAC ES 2 Limited Partnership.
Mr. Osborn is a Special Member at Venture Investment Management Company, LLC
which is the General Partner of VIMAC ES Limited Partnership and the General
Partner of VIMAC ES 2 Limited Partnership. Mr. Osborn may be deemed to share
voting and investment power with respect to all shares held by VIMAC ES
Limited Partnership and VIMAC ES 2 Limited Partnership. Mr. Osborn disclaims
beneficial ownership of these shares, other than shares in which he has a
pecuniary interest.
(9) Includes 693,875 shares held by UVCC Fund II, 693,875 shares held by UVCC II
Parallel Fund, L.P., 338,112 shares held by Micro-Generation Technology
Fund, LLC, and 286,258 shares held by Utech Climate Challenge Fund, L.P.
Also includes 20,893 shares issuable upon exercise of a warrant held by UVCC
Fund II, 20,893 shares issuable upon exercise of a warrant held by UVCC II
Parallel Fund, L.P., 79,817 shares issuable upon exercise of a warrant held
by Micro-Generation Technology Fund, LLC, and 20,893 shares issuable upon
exercise of a warrant held by Utech Climate Challenge Fund, L.P. Dr. Shaw is
a General Partner of Arete Venture Investors II, L.P. which is the General
Partner of UVCC Fund II, a General Partner of Arete Ventures III, L.P. which
is the General Partner of UVCC II Parallel Fund, L.P., the President of
Arete Corporation which is the Manager of Micro-Generation Technology Fund,
LLC, and the Managing Member of Arete Climate Challenge Partners, LLC which
is the General Partner of Utech Climate Challenge Fund, L.P. Dr. Shaw may be
deemed to share voting and investment power with respect to all shares held
by UVCC Fund II, UVCC II Parallel Fund, L.P., Micro-Generation Technology
Fund, LLC and Utech Climate Challenge Fund, L.P. Dr. Shaw disclaims
beneficial ownership of these shares, other than shares in which he has a
pecuniary interest.
49
<PAGE> 54
(10) Includes 832,157 shares held by Nth Power Technologies Fund I, L.P. and
18,503 shares held by Willrich 1995 Trust. Also includes 184,757 shares
issuable upon exercise of a warrant held by Nth Power Technologies Fund I,
L.P. Mr. Willrich is the sole trustee of the Willrich 1995 Trust and is its
sole beneficiary. Mr. Willrich is a Special Limited Partner of Nth Power
Technologies, Inc. which is the General Partner of Nth Power Technologies
Fund I, L.P. and may be deemed to share voting and investment power with
respect to all shares held by Nth Power Technologies Fund I, L.P. Mr.
Willrich disclaims beneficial ownership of these shares, other than shares
in which he has a pecuniary interest.
(11) Includes 382,144 shares issuable upon exercise of warrants.
50
<PAGE> 55
CERTAIN TRANSACTIONS
We believe that all transactions set forth below were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
We have adopted a policy that all future transactions between us and any of our
officers, directors and affiliates will be on terms no less favorable to us than
could be obtained from unaffiliated third parties and will be approved by a
majority of the disinterested members of our board of directors.
SALES OF STOCK, DEBENTURES AND WARRANTS
Convertible Debenture and Warrant Financing. In December 1997, we issued
and sold 8% secured convertible debentures notes in the aggregate amount of
$2,223,000 and warrants to purchase an aggregate of 205,357 shares of our common
stock at an exercise price of $4.33 per share to ten accredited investors.
Pursuant to their terms, the debentures converted into an aggregate of 1,111,500
shares of our Series C redeemable convertible preferred stock upon the closing
of the Series C redeemable convertible preferred stock financing discussed
below. In connection with the Series C redeemable convertible preferred stock
financing discussed below, the warrants were cancelled and replacement warrants
were issued which included the interest earned on the promissory notes in the
calculation of the number of warrant shares issuable upon exercise of the
warrants. Investors owning five percent or more of our shares who participated
in this transaction include:
<TABLE>
<CAPTION>
INVESTOR PROMISSORY NOTE WARRANT SHARES
-------- --------------- --------------
<S> <C> <C>
Arete Entities......................................... $1,160,000 107,159
Zero Stage Capital Entities............................ $ 400,000 36,951
</TABLE>
UVCC Fund II, UVCC II Parallel Fund L.P., Micro-Generation Technology Fund,
LLC and Utech Climate Challenge Fund, L.P. are affiliated entities which
collectively own greater than 10% of our shares, and are collectively referred
to in this prospectus as the Arete Entities. Zero Stage Capital V, L.P. and Zero
Stage Capital VI, L.P. are affiliated entities which collectively own greater
than 10% of our shares, and are collectively referred to in this prospectus as
the Zero Stage Entities.
Dr. Robert W. Shaw, Jr., the chairman of our board of directors, is a
General Partner of Arete Venture Investors II, L.P. which is the General Partner
of UVCC Fund II; a General Partner of Arete Ventures III, L.P. which is the
General Partner of UVCC II Parallel Fund, L.P.; the President of Arete
Corporation which is the Manager of Micro-Generation Technology Fund, LLC; and
the Managing Member of Arete Climate Challenge Partners, LLC which is the
General Partner of Utech Climate Challenge Fund, L.P. Dr. Baty, one of our
directors, is a General Partner of Zero Stage Capital Associates V, L.P. which
is the General Partner of Zero Stage Capital V, L.P. and is a General Partner of
Zero Stage Capital Associates VI, LLC which is the General Partner of Zero Stage
Capital VI, L.P.
Series C Preferred Stock Financing. In April 1998, we issued and sold
3,067,547 shares of our Series C redeemable convertible preferred stock at a
price per share of $2.00 and warrants to purchase up to an aggregate of 566,745
shares of our common stock at an exercise price of $4.33 per share to thirteen
accredited investors and one non-United States person. In May 1998, we issued
and sold an additional 375,000 shares of our Series C redeemable convertible
preferred stock at a price per share of $2.00 and warrants to purchase up to an
aggregate of 69,282 shares of our common stock at an exercise price of $4.33 per
share to three non-United States persons. The Series C shares will be converted
into an aggregate 1,590,080 shares of our common stock upon the closing of this
offering. Investors owning five percent or more of our shares who purchased
shares of our Series C redeemable convertible preferred stock and the
51
<PAGE> 56
number of shares each purchased, including shares issued upon conversion of the
debentures discussed under the heading "Convertible Debenture and Warrant
Financing" above, include:
<TABLE>
<CAPTION>
NUMBER OF
SERIES C SHARES NUMBER OF
ISSUED UPON NUMBER OF SHARES OF
CONVERSION OF SERIES C COMMON
PROMISSORY SHARES ISSUED STOCK UPON WARRANT
INVESTOR NOTES FOR CASH CONVERSION SHARES
-------- --------------- ------------- ----------- -------
<S> <C> <C> <C> <C>
Arete Entities.......................... 596,271 175,000 356,243 142,496
Nth Power Technologies Fund I, L.P. .... -- 1,000,000 461,893 184,757
Swiss Reinsurance Company............... -- 500,000 230,946 92,378
Zero Stage Capital V, L.P. ............. 205,610 -- 94,969 37,987
</TABLE>
Mason Willrich, one of our directors, is a Special Limited Partner of Nth
Power Technologies, Inc. which is the General Partner of Nth Power Technologies
Fund I, L.P.
Series D Preferred Stock Financing. In December 1999, we issued and sold
5,243,323 shares of our Series D redeemable convertible preferred stock at a
price per share of $2.50 to eleven accredited investors and two non-United
States persons. In January 2000, we issued and sold an additional 2,100,000
shares of our Series D redeemable convertible preferred stock at a price per
share of $2.50 to two accredited investors and three non-United States persons.
The Series D shares will be converted into an aggregate of 3,391,827 shares of
our common stock upon the closing of this offering. Investors owning five
percent or more of our shares and one director who participated in this
transaction include:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NUMBER OF COMMON STOCK
INVESTOR SERIES D SHARES UPON CONVERSION
-------- --------------- ---------------
<S> <C> <C>
Arete Entities........................................ 1,020,000 471,130
Kawasaki Heavy Industries, Ltd. ...................... 2,000,000 923,787
Nth Power Technology Fund I, L.P. .................... 801,623 370,264
Swiss Reinsurance Company............................. 801,479 370,198
Willrich 1995 Trust................................... 40,059 18,503
Zero Stage Capital Entities........................... 1,200,000 554,271
</TABLE>
Mason Willrich, one of our directors, is the sole trustee and sole
beneficiary of the Willrich 1995 Trust.
Registration Rights. In connection with the preferred stock financings, we
granted registration rights to the preferred stockholders. See "Shares Eligible
for Future Sale -- Registration Rights".
RELATIONSHIP WITH KAWASAKI HEAVY INDUSTRIES, LTD.
In December 1999, we entered into a distribution and marketing agreement
with Kawasaki under which Kawasaki has exclusive distribution rights for our
solar power products in Japan and Kawasaki is required to promote our solar
power products. Kawasaki purchased $70,000 of solar power products from us
during the first six months of 2000. Kawasaki also purchased 2,000,000 shares of
our Series D convertible preferred stock in December 1999. The Series D shares
issued to Kawasaki will convert into 923,787 shares of our common stock upon the
closing of this offering. For a description of our relationship with Kawasaki,
please see "Business -- Sales and Marketing -- Distribution and Marketing and
Strategic Relationships".
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our third
amended and restated certificate of incorporation and amended and restated
by-laws are summaries and are qualified by reference to the certificate of
incorporation and the by-laws that will become effective upon the closing of
this offering. Copies of these documents have been filed with the Securities and
Exchange Commission as exhibits to our registration statement, of which this
prospectus forms a part. The descriptions of the common stock and preferred
stock reflect changes to our capital structure that will occur upon the closing
of this offering.
Upon the completion of this offering, our authorized capital stock will
consist of shares of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share.
COMMON STOCK
As of June 30, 2000, there were 809,465 shares of common stock outstanding
held by nine stockholders of record. Based upon the number of shares outstanding
as of that date and giving effect to the issuance of the 3,000,000 shares of
common stock offered by us in this offering and the conversion of the
outstanding shares of preferred stock, there will be 11,057,705 shares of common
stock outstanding upon the closing of this offering. In addition we have
reserved an aggregate of 617,696 shares of common stock for issuance under our
1994 Stock Option Plan, 1,616,628 shares of common stock for issuance under our
2000 Stock Option and Incentive Plan and 115,473 shares of common stock for
issuance under our 2000 Employee Stock Purchase Plan.
Holders of common stock are entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Directors are elected by a plurality of the votes of
the shares present in person or by proxy at the meeting and entitled to vote in
the election. Holders of common stock are entitled to receive ratably any
dividends as may be declared by our board of directors out of funds legally
available for distribution, after provision has been made for any preferential
dividend rights of outstanding preferred stock. Upon our the liquidation,
dissolution or winding up, the holders of common stock are entitled to receive
ratably the net assets available after the payment of all of our debts and other
liabilities, and after the satisfaction of the rights of any outstanding
preferred stock. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of common stock are, and the shares offered
by us in this offering will be, when issued and paid for, validly issued, fully
paid and non-assessable. The rights, powers, preferences and privileges of
holders of common stock are subordinate to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock which we
may designate and issue in the future. Upon the closing of this offering, there
will be no shares of preferred stock outstanding.
PREFERRED STOCK
Upon the closing of this offering, our board of directors will be
authorized, without further vote or action by the stockholders, to issue from
time to time up to an aggregate of 1,000,000 shares of preferred stock in one or
more series. Each series of preferred stock shall have the number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by our board of directors, which may
include, dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights.
Our stockholders have granted our board of directors authority to issue the
preferred stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. The
issuance of preferred stock, while providing desired flexibility in connection
with possible acquisitions and other corporate purposes, could adversely affect
the voting power or other rights of the holders of our common stock, and could
make it more difficult for a third party to acquire, or could discourage a third
party from attempting to acquire, a majority of our outstanding voting stock. We
have not issued and have no present plans to issue any shares of preferred
stock.
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<PAGE> 58
WARRANTS
In 1998, we issued warrants to purchase an aggregate of 636,027 shares of
our common stock at an exercise price of $4.33 per share, exercisable at any
time prior to the earlier to occur of:
- December 22, 2002;
- the closing of the sale of shares of our common stock, at a price of at
least $21.65 per share in a public offering resulting in at least
$15,000,000 of gross proceeds to the Company;
- any sale of all or substantially all of our assets; or
- any merger, consolidation, sale of stock or other transaction or series
of related transactions in which the holders of our capital stock before
the transaction no longer hold at least 50% of our capital stock.
These warrants include a cashless exercise feature, and the holders are entitled
to customary antidilution protection, including adjustments to the number of
shares of common stock issuable upon exercise of the warrants in the event of a
subdivision or combination of our common stock or payment of a stock dividend on
our common stock. The holders of the warrants are entitled to registration
rights with respect to the shares of common stock issuable upon exercise of the
warrants.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BY-LAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 of Delaware law
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" is defined as a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% or more of a corporation's voting
stock. This statute could prohibit or delay the accomplishment of mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
In addition, some provisions of our certificate and by-laws may be deemed
to have an anti-takeover effect and may delay, defer or prevent a tender offer
or takeover attempt that a stockholder might deem to be in his or her best
interest. The existence of these provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock. These
provisions include:
Stockholder Action; Special Meeting of Stockholders. Our certificate of
incorporation provides that stockholders may not take action by written consent,
but only at a duly called annual or special meeting of stockholders. The
certificate of incorporation further provides that special meetings of our
stockholders may be called by the President, the chairman of the board of
directors or a majority of the board of directors, and in no event may the
stockholders call a special meeting. Thus, without approval by the board of
directors, the Chairman or the President, the stockholders may take no action
between meetings.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our by-laws provide that a stockholder seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice of
this intention in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices not less
than 120 days prior to the first anniversary of the date of our notice of annual
meeting provided with respect to the previous year's annual meeting of
stockholders. However, if no annual meeting of stockholders was held in the
previous year or the date of the annual meeting of stockholders has been changed
to be more than 30 calendar days from the time of the previous year's proxy
statement, then a proposal shall be received no later than the close of business
on the tenth day following the date on which notice of the date of the meeting
was mailed or a public announcement was made, whichever occurs first. The
by-laws also include a similar requirement for making nominations at special
meetings and
54
<PAGE> 59
specify requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual or
special meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to any limitations imposed by the Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could make more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Super-majority Voting. Delaware law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws requires a
greater percentage. We have provisions in our certificate of incorporation and
by-laws which require the 75% vote of the stockholders to amend, revise or
repeal any anti-takeover provisions.
Staggered Board. Our certificate of incorporation and by-laws provide for
the division of our board of directors into three classes, as nearly equal in
size as possible, with staggered three-year terms. In addition, our certificate
of incorporation and by-laws provide that directors may be removed only for
cause by the affirmative vote of the holders of 75% of the shares of capital
stock entitled to vote for the election of directors. Under our certificate of
incorporation and by-laws, any vacancy on the board of directors, for the
election of directors, including a vacancy resulting from an enlargement of the
board, may only be filled by vote of a majority of the directors then in office.
The classification of the board of directors and the limitations on the removal
of directors and filling of vacancies would have the effect of making it more
difficult for a third party to acquire control of us, or of discouraging a third
party from acquiring control of us.
TRANSFER AGENT AND REGISTRAR
Upon the closing of this offering, the transfer agent and registrar for the
common stock will be American Stock Transfer and Trust Company.
55
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Based on the number of shares outstanding at June 30, 2000, upon completion of
this offering, we will have outstanding an aggregate of 11,057,705 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, all of the
shares sold in this offering will be freely tradable without restrictions or
further registration under the Securities Act, unless these shares are purchased
by our affiliates as that term is defined in Rule 144 under the Securities Act.
SALES OF RESTRICTED SECURITIES
The remaining 8,057,705 shares of common stock outstanding after the
offering are restricted shares under Rule 144 or Rule 701. Restricted shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144, 144(k) or 701 promulgated under the
Securities Act, each of which is summarized below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year and has complied with the requirements described
below would be entitled to sell a specified number of shares within any
three-month period. That number of shares cannot exceed the greater of one
percent of the number of shares of common stock then outstanding, which will
equal approximately 110,577 shares immediately after this offering, or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144
reporting the sale. Sales under Rule 144 are also restricted by manner of sale
provisions, notice requirements and the availability of current public
information about Evergreen Solar. Rule 144 also provides that our affiliates
who are selling shares of our common stock that are not restricted shares must
comply with the same restrictions applicable to restricted shares with the
exception of the holding period requirement.
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Accordingly, unless otherwise
restricted, these shares may be sold upon the expiration of the lock-up period
described below.
Rule 701 provides that the shares of common stock acquired upon the
exercise of currently outstanding options or pursuant to other rights granted
under our stock plans may be resold, to the extent not restricted by the terms
of the lock-up agreements, by persons, other than affiliates, beginning 90 days
after the date of this prospectus, subject only to the manner of sale provisions
of Rule 144, and by affiliates under Rule 144, without compliance with its
one-year minimum holding period. As of June 30, 2000, options to purchase a
total of 617,696 shares of common stock were outstanding, 151,603 of which
options are exercisable. Of the total shares issuable upon exercise of these
options, all of these shares are subject to 180-day lock-up agreements.
As of June 30, 2000, we had outstanding warrants to purchase up to an
aggregate of 636,027 shares of our common stock, all of which are exercisable.
All of these shares are subject to a 180 day lock-up following the offering.
As a result of lock-up agreements and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
- no restricted shares will be eligible for immediate sale on the date of
this prospectus; and
- approximately 8,057,705 additional restricted shares will be eligible for
sale beginning 180 days after the effective date of this offering upon
expiration of the lock-up agreements, subject in some cases to compliance
with Rule 144.
We also intend to file one or more registration statements on Form S-8
under the Securities Act following this offering to register all shares of
common stock which are issuable upon exercise of outstanding
56
<PAGE> 61
stock options or other rights granted under our stock plans and common stock
issuable under our stock option and stock purchase plans. Shares covered by
these registration statements will be eligible for sale in the public markets,
upon the expiration or release from the terms of the lock-up agreements, to the
extent applicable.
LOCK-UP AGREEMENTS
Except for sales of our common stock to the underwriters in accordance with
the terms of the underwriting agreement, our executive officers, directors,
stockholders and optionholders have agreed not to directly or indirectly sell or
otherwise dispose of any shares of our common stock or any securities
convertible into or exchangeable or exercisable for shares of our common stock,
without the prior written consent of Banc of America Securities LLC for a period
of 180 days after the effective date of our registration statement. In addition,
for a period of 180 days after the effective date of our registration statement,
we have agreed not to, directly or indirectly, offer for sale, sell or otherwise
dispose of any shares of our common stock or any securities convertible into or
exchangeable or exercisable for shares of our common stock, or announce the
offering of or file a registration statement for any shares of our common stock
without the prior written consent of Banc of America Securities LLC. Banc of
America Securities LLC, in its sole discretion, at any time or from time to time
and without notice, may release for sale in the public market all or any portion
of the shares restricted by the terms of the lock-up agreements.
REGISTRATION RIGHTS
Under the terms of an agreement between us and the holders of our preferred
stock and warrants, the holders of 7,884,267 shares of common stock that will be
outstanding after this offering, including shares issuable upon the exercise of
our outstanding warrants, are entitled to require us to register the sale of
their shares under the Securities Act. If we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, those holders
are entitled to notice of and to include their shares of common stock in the
registration statement, subject to the ability of the underwriters to limit the
number of shares included in the offering in view of market conditions.
Additionally, these holders of our common stock are also entitled to specified
demand registration rights as follows:
- The holders of at least 35% of the then outstanding registrable
securities may require, on three occasions beginning six months after the
effective date of any registration statement, including this registration
statement, that we use our best efforts to register the registrable
securities for public resale, provided that the proposed aggregate
offering price is at least $5,000,000.
- The holders of at least 25% of the then outstanding registrable
securities may require us, on up to four occasions, to register all or a
portion of their registrable securities on Form S-3 when use of such form
becomes available to us, provided that the proposed aggregate selling
price is at least $2,500,000.
We are generally required to bear the expenses of registration, except
underwriting discounts and commissions.
EFFECTS OF SALES OF SHARES
Prior to this offering, there has been no public market for our common
stock. No predictions can be made as to the effect, if any, that sales of shares
of our common stock from time to time, or the availability of shares for future
sale, may have on the market price for our common stock. Sales of substantial
amounts of common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for our common stock and could impair
our future ability to obtain capital through an offering of equity securities.
57
<PAGE> 62
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, CIBC World
Markets Corp. and FAC/Equities, a division of First Albany Corporation, are the
representatives of the underwriters. Subject to the terms and conditions of an
underwriting agreement dated , we have agreed to sell to each of the
underwriters, and each of the underwriters has agreed to purchase, the number of
shares of common stock listed next to its name in the following table:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- -------
<S> <C>
Banc of America Securities LLC..............................
CIBC World Markets Corp. ...................................
FAC/Equities, a division of First Albany Corporation........
-------
Total..................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters must buy all of
the shares if they buy any of them. The underwriters will sell the shares to the
public when and if the underwriters buy the shares from us. The underwriters
initially will offer the shares to the public at the price specified on the
cover page of this prospectus. The underwriters may allow to some dealers a
concession of not more than $ per share. The underwriters also may allow,
and any dealers may reallow, a concession of not more than $ per share to
some other dealers. If all the shares are not sold at the initial public
offering price, the underwriters may change the offering price and the other
selling terms. The common stock is offered subject to a number of conditions,
including:
- receipt and acceptance of our common stock by the underwriters; and
- the right on the part of the underwriters to reject orders in whole or in
part.
We have granted an option to the underwriters to buy up to 450,000
additional shares of common stock. These additional shares would cover sales of
shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. These amounts are shown
assuming no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
PAID BY EVERGREEN SOLAR
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share........................................... $ $
Total............................................... $ $
</TABLE>
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,050,000.
We and all of our directors, officers, stockholders and optionholders have
entered into lock-up agreements with the underwriters. Under those agreements,
we may not announce an offering of or file a registration statement for any
shares of our common stock, and we and those holders of stock and options may
not, directly or indirectly, sell or otherwise dispose of any shares of our
common stock or securities convertible into or exchangeable or exercisable for
shares of our common stock. These restrictions will be in effect for a period of
180 days after the effective date of our registration statement. At any time and
without
58
<PAGE> 63
notice, Banc of America Securities LLC may, in its sole discretion, release all
or some of the shares from these lock-up agreements.
We will indemnify the underwriters against some liabilities, including
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of our common stock in the open market. These transactions may include
stabilizing transactions, short sales and purchases to cover positions created
by short sales. Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market price of our
common stock while this offering is in progress. Short sales involve the sale by
the underwriters of a greater number of shares than they are required to
purchase in this offering.
Short sales can be either "covered" or "naked." "Covered" short sales are
sales made in an amount not greater than the underwriters' option to purchase
additional shares in this offering. The underwriters may close out any covered
short position by either exercising their over-allotment option or purchasing
shares in the open market. In determining the source of shares to close out the
covered short position, the underwriters will consider, among other things, the
price of shares available for purchase in the open market as compared to the
price at which they may purchase shares through the over-allotment option.
"Naked" short sales are sales in excess of the over-allotment option. The
underwriters must close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing of this offering that could
adversely affect investors who purchase in this offering.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
These activities by the underwriters may have the effect of raising or
maintaining the market price of our common stock or preventing or retarding a
decline in the market price of our common stock. As a result of these
activities, the price of our common stock may be higher than the price that
might otherwise exist in the open market. If the underwriters commence these
activities, they may discontinue them at any time. The underwriters may carry
out these transactions on the Nasdaq National Market, in the
over-the-counter-market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between us and the
underwriters. Among the factors to be considered in the negotiations are:
- our history and prospects, and the history and prospects of the industry
in which we compete;
- our past and present financial performance;
- an assessment of our management;
- the present state of our development;
- our prospects for future earnings;
- the prevailing market conditions of the United States securities market
at the time of this offering;
- market valuations of publicly traded companies that we and the
underwriters believe to be comparable to us; and
- other factors deemed relevant by the underwriters.
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<PAGE> 64
The underwriters, at our request, have reserved for sale to our employees,
affiliates and strategic partners at the initial public offering price up to 5%
percent of the shares being offered by this prospectus. The sale of these
reserved shares to our employees, affiliates and strategic partners will be made
by Banc of America Securities LLC. We do not know if our employees, affiliates
or strategic partners will choose to purchase all or any portion of the reserved
shares, but any purchases they do make will reduce the number of shares
available to the general public. If all of the reserved shares are not
purchased, the underwriters will offer the remainder to the general public on
the same terms as the other shares offered by this prospectus. All of the
reserved shares purchased by our employees, affiliates and strategic partners
will be subject to 30 day lock-up agreements with the underwriters in the same
form as those entered into by our directors, officers, stockholders and
optionholders.
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "ESLR."
LEGAL MATTERS
The validity of the shares of common stock to be issued in this offering
will be passed upon for us by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Goodwin, Procter & Hoar LLP, Boston, Massachusetts, represented
the underwriters in this offering.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the years
ended December 31, 1997, 1998 and 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act registering the common stock to
be sold in this offering. As permitted by the rules and regulations of the
Commission, this prospectus does not contain all of the information included in
the registration statement and the exhibits and schedules filed as a part of the
registration statement. For further information concerning Evergreen Solar and
the common stock to be sold in this offering, you should refer to the
registration statement and to the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance
reference is made to the copy of the agreement filed as an exhibit to the
registration statement each statement being qualified by this reference. The
registration statement, including the exhibits and schedules filed as a part of
the registration statement, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained from those offices upon payment of the prescribed fees. You may call
the Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms and you can request copies of the documents upon payment
of a duplicating fee, by writing to the Commission. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants, including Evergreen Solar, that file
electronically with the Commission which can be accessed at http://www.sec.gov.
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<PAGE> 65
EVERGREEN SOLAR, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999, as of June
30, 2000 (unaudited) and pro forma as of June 30, 2000
(unaudited)............................................... F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999 and for the six months ended June 30,
1999 (unaudited) and 2000 (unaudited)..................... F-4
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999 and for the six
months ended June 30, 2000 (unaudited).................... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and for the six months ended June 30,
1999 (unaudited) and 2000 (unaudited)..................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Evergreen Solar, Inc.
The reverse stock split described in Note 2 to the financial statements has not
been consummated at September 20, 2000. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Evergreen Solar, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ending December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Evergreen Solar, Inc.'s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above."
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 31, 2000, except as to Note 14
for which the date is March 13, 2000
F-2
<PAGE> 67
EVERGREEN SOLAR, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK
AND STOCKHOLDERS'
EQUITY (DEFICIT)
DECEMBER 31, JUNE 30, AT JUNE 30,
------------------ -------- -----------------
1998 1999 2000 2000 (NOTE 2)
------- -------- -------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 162 $ 1,466 $ 3,097
Short-term investments..................................... 4,643 12,989 13,046
Accounts receivable, net of allowance for doubtful accounts
of $0, $10 and $10 at December 31, 1998 and 1999 and June
30, 2000 (unaudited)..................................... 369 299 99
Unbilled grant receivable.................................. -- 96 139
Subscription receivable for Series D preferred stock....... -- 400 --
Inventory.................................................. 39 134 181
Other current assets....................................... 8 125 497
------- -------- --------
Total current assets................................. 5,221 15,509 17,059
Fixed assets, net........................................... 672 809 2,463
------- -------- --------
Total assets......................................... $ 5,893 $ 16,318 $19,522
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................... $ 97 $ 253 $ 97
Accrued expenses........................................... 129 252 56
Accrued warranty........................................... 10 22 26
------- -------- --------
Total current liabilities............................ 236 527 179
Commitments (Note 11)
Redeemable convertible preferred stock:
Series A redeemable convertible preferred stock, $0.01 par
value, 2,124,968 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and June 30,
2000 (unaudited), respectively; and none outstanding at
June 30, 2000 on a pro forma basis (unaudited):
Series A paid-in capital................................. 2,125 2,125 2,125 --
Accretion to redemption value............................ 666 889 1,006 --
------- -------- -------- -------
2,791 3,014 3,131 --
Series B redeemable convertible preferred stock, $0.01 par
value, 2,781,666 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and June 30,
2000 (unaudited), respectively; and none outstanding at
June 30, 2000 on a pro forma basis (unaudited):
Series B paid-in capital................................. 4,173 4,173 4,173 --
Accretion to redemption value............................ 865 1,268 1,477 --
------- -------- -------- -------
5,038 5,441 5,650 --
Series C redeemable convertible preferred stock, $.01 par
value, 3,442,547 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and June 30,
2000 (unaudited), respectively; and none outstanding at
June 30, 2000 on a pro forma basis (unaudited):
Series C paid-in capital................................... 6,812 6,812 6,812 --
Accretion to redemption value.............................. 373 966 1,277 --
------- -------- -------- -------
7,185 7,778 8,089 --
Series D redeemable convertible preferred stock, $.01 par
value, 10,000,000 shares authorized, and 5,243,323 and
7,343,323 issued and outstanding at December 31, 1999 and
June 30, 2000 (unaudited), respectively; and none
outstanding at June 30, 2000 on a pro forma basis
(unaudited):
Series D paid-in capital................................... -- 13,048 18,265 --
Accretion to redemption value.............................. -- 12 631 --
------- -------- -------- -------
-- 13,060 18,896 --
------- -------- -------- -------
Total redeemable convertible preferred stock......... 15,014 29,293 35,766 --
------- -------- -------- -------
Stockholders' equity (deficit):
Common stock, $0.01 par value, 28,000,000 shares
authorized, 802,537, 802,537, 809,465 and 8,057,705
shares issued and outstanding at December 31, 1998 and
1999, June 30, 2000 (unaudited), and June 30, 2000 on a
pro forma basis (unaudited), respectively................ 8 8 8 81
Additional paid-in capital................................. 82 400 1,098 32,400
Accumulated deficit:
Cumulative net income (loss) since inception............. (7,543) (10,475) (12,350) (12,350)
Deferred compensation.................................... (300) (788) (788)
Accretion of redeemable convertible preferred stock...... (1,904) (3,135) (4,391) --
------- -------- -------- -------
Total stockholders' equity (deficit)................. (9,357) (13,502) (16,423) 19,343
------- -------- -------- -------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit)............. $ 5,893 $ 16,318 $19,522
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 68
EVERGREEN SOLAR, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product revenues......................... $ 153 $ 163 $ 189 $ 81 $ 97
Research revenues........................ 556 1,395 2,113 1,070 1,008
------- ------- ------- ------- -------
Total revenues................... 709 1,558 2,302 1,151 1,105
Operating expenses:
Cost of product revenues (excluding
stock-based compensation of $0 for the
year ended December 31, 1999 and $8
(unaudited) for the six months ended
June 30, 2000)........................ 1,007 955 991 447 970
Research and development expenses,
including costs of research revenues
(excluding stock-based compensation of
$3 for the year ended December 31,
1999 and $49 (unaudited) for the six
months ended June 30, 2000............ 2,051 2,373 3,085 1,334 1,682
Selling, general and administrative
expenses (excluding stock-based
compensation of $15 for the year ended
December 31, 1999 and $53 (unaudited)
for the six months ended June 30,
2000)................................. 809 917 1,303 581 733
Stock-based compensation expense......... -- -- 18 -- 110
------- ------- ------- ------- -------
Total operating expenses......... 3,867 4,245 5,397 2,362 3,495
------- ------- ------- ------- -------
Operating income (loss).................... (3,158) (2,687) (3,095) (1,211) (2,390)
Net interest income........................ 102 165 163 98 515
------- ------- ------- ------- -------
Net income (loss).......................... (3,056) (2,522) (2,932) (1,113) (1,875)
Accretion of redeemable convertible
preferred stock.......................... (537) (953) (1,231) (610) (1,256)
------- ------- ------- ------- -------
Net income (loss) attributable to common
stockholders............................. $(3,593) $(3,475) $(4,163) $(1,723) $(3,131)
======= ======= ======= ======= =======
Net income (loss) per common share (basic
and diluted)............................. $ (4.47) $ (4.33) $ (5.18) $ (2.15) $ (3.88)
Shares used in computing basic and diluted
net income (loss) per common share....... 803 803 803 803 807
Unaudited pro forma basic and diluted net
income (loss) per common share........... $ (0.36) $ (0.23)
Weighted average shares used in computing
unaudited pro forma basic and diluted net
income (loss) per common share........... 8,051 8,055
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 69
EVERGREEN SOLAR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
----------------------------------------
ACCRETION OF
CUMULATIVE REDEEMABLE
COMMON STOCK ADDITIONAL NET LOSS CONVERTIBLE TOTAL
--------------- PAID-IN DEFERRED SINCE PREFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION INCEPTION STOCK DEFICIT
------ ------ ---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996........................ 803 $8 $ 9 $ -- $ (1,965) $ (414) $ (2,362)
Accretion of redeemable
convertible preferred
stock....................... (537) (537)
Net income (loss)............. (3,056) (3,056)
--- -- ------ ------- -------- ------- --------
BALANCE AT DECEMBER 31,
1997........................ 803 8 9 -- (5,021) (951) (5,955)
Issuance of warrants.......... 73 73
Accretion of redeemable
convertible preferred
stock....................... (953) (953)
Net income (loss)............. (2,522) (2,522)
--- -- ------ ------- -------- ------- --------
BALANCE AT DECEMBER 31,
1998........................ 803 8 82 -- (7,543) (1,904) (9,357)
Deferred compensation......... 318 (318) --
Compensation expense
associated with stock
options..................... 18 18
Accretion of redeemable
convertible preferred
stock....................... (1,231) (1,231)
Net income (loss)............. (2,932) (2,932)
--- -- ------ ------- -------- ------- --------
BALANCE AT DECEMBER 31,
1999........................ 803 8 400 (300) (10,475) (3,135) (13,502)
Issuance of common stock
pursuant to exercise of
options..................... 6 3 3
Issuance and revaluation of
stock options to
consultants................. 97 97
Deferred compensation......... 598 (598) --
Compensation expense
associated with stock
options..................... 110 110
Accretion of redeemable
convertible preferred
stock....................... (1,256) (1,256)
Net income (loss)............. (1,875) (1,875)
--- -- ------ ------- -------- ------- --------
BALANCE AT JUNE 30, 2000
(UNAUDITED)................. 809 $8 $1,098 $ (788) $(12,350) $(4,391) $(16,423)
=== == ====== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 70
EVERGREEN SOLAR, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FOR OPERATING ACTIVITIES:
Net income (loss)............................ $(3,056) $(2,522) $(2,932) $(1,113) $(1,875)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation expense...................... 237 320 246 128 117
Accrued investment income................. (102) (94) (16) (30) (335)
Interest expense converted to equity...... -- 58 -- -- --
Issuance and revaluation of stock options
to consultants.......................... -- -- -- -- 97
Compensation expense associated with
employee stock options.................. -- -- 18 -- 110
Changes in operating assets and
liabilities:
Inventory and other current............. (36) (6) (212) 1 (419)
Accounts receivable..................... (88) (149) (26) (10) 157
Accounts payable and accrued expenses... 147 3 291 (122) (348)
------- ------- ------- ------- -------
Net cash used in operating activities... (2,898) (2,390) (2,631) (1,146) (2,496)
CASH FLOW FOR INVESTING ACTIVITIES:
Purchases of fixed assets.................... (641) (123) (383) (112) (1,771)
Purchases of investments..................... (2,385) (7,842) (16,809) (3,000) (3,299)
Proceeds from sale and maturity of
investments............................... 5,505 3,881 8,479 4,832 3,577
------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities........................... 2,479 (4,084) (8,713) 1,720 (1,493)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible
debenture................................. 2,223 -- -- -- --
Proceeds from the issuance of Series C
Redeemable Convertible Preferred Stock and
related warrants.......................... -- 4,600 -- -- --
Proceeds from the issuance of Series D
Redeemable Convertible Preferred Stock.... -- -- 12,648 5,617
Proceeds from the exercise of stock
options................................... -- -- -- -- 3
------- ------- ------- ------- -------
Net cash flow provided by financing
activities................................... 2,223 4,600 12,648 -- 5,620
Net (decrease) increase in cash and cash
equivalents.................................. 1,804 (1,874) 1,304 574 1,631
Cash and cash equivalents at beginning of
year......................................... 232 2,036 162 162 1,466
------- ------- ------- ------- -------
Cash and cash equivalents at end of year....... $ 2,036 $ 162 $ 1,466 $ 736 $ 3,097
======= ======= ======= ======= =======
Supplemental cash flow information:
Interest paid................................ $ 4 $ -- $ -- $ -- $ --
Noncash transactions:
Bridge loan and accrued interest converted to
Series C Redeemable Convertible Preferred
Stock..................................... -- 2,281 -- -- --
Deferred compensation........................ -- -- 318 -- 598
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 71
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Evergreen Solar, Inc. (the "Company"), incorporated in August 1994,
develops, manufactures and markets solar power products, including solar cells,
panels and systems. In April 1997 the Company commenced product sales. The
Company has incurred losses since inception and has an accumulated deficit which
has been funded by issuing debt and equity securities. In the opinion of
management, the Company will need to raise additional financing to permit the
required investment in equipment, materials and resources necessary to further
develop and commercialize the Company's products. However, no assurances can be
provided that such financing will be available when needed or on terms
acceptable to the Company, if at all.
The Company is subject to risks common to companies in the high technology
and energy industries including, but not limited to, development by the Company
or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology and compliance with government
regulations. In addition, the Company currently expects to relocate into new
office and manufacturing space in early 2001. Any delay in this move may result
in increased costs and could impair business operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the major accounting policies followed by the Company in the
preparation of the accompanying financial statements is set forth below. Certain
previously reported amounts may have been reclassified to conform to the current
method of presentation.
Reverse Stock Split
In September 2000, the Company's board of directors declared a reverse
stock split of 1 share for every 2.165 shares of common stock then outstanding.
The reverse stock split will become effective at the date the Company's
registration statement for its initial public offering is declared effective.
Accordingly, the accompanying financial statements and footnotes have been
restated to reflect the stock split.
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 and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Investments
Cash and cash equivalents consist of cash and highly liquid investments
with maturities of three months or less from the date of purchase and whose
carrying amount approximates fair value.
The Company's investments are classified as available-for-sale. At December
31, 1999 and 1998, the Company held US government agency bonds and treasury
notes. The investments mature within one year from the date of purchase and are
carried at amortized cost, on a specific identification basis, which
approximates fair value. No realized or unrealized gains or losses were
recognized during any of the periods presented.
Cash and investments are financial instruments which potentially subject
the Company to concentrations of credit risk. At December 31, 1999,
substantially all the Company's cash and investments was invested in short-term
government agency securities.
F-7
<PAGE> 72
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventory
Inventory is stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Fixed Assets
Fixed assets are recorded at cost. Provisions for depreciation are based on
their estimated useful lives using the straight-line method over three to five
years for all laboratory equipment, computers, and office equipment. Leasehold
improvements are depreciated over the shorter of the remainder of the lease's
term or the life of the improvements. Upon retirement or disposal, the cost of
the asset disposed of and the related accumulated depreciation are removed from
the accounts and any gain or loss is reflected in income.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets,
primarily fixed assets, in accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets to be
Disposed of." SFAS 121 requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the estimated future
undiscounted cash flows attributable to such assets. No impairments were
required to be recognized during the years ended December 31, 1997, 1998, and
1999 or the six months ended June 30, 1999 and 2000.
Revenue Recognition
Research grant revenue is recognized as the services are performed.
Research contract revenue is recognized on the percentage of completion method
based on the ratio that total cost incurred to date bears to total estimated
cost at completion. For all periods presented, costs of research contract
revenues equaled research revenues. Revenue from product sales is recognized at
shipment provided that no significant obligations remain outstanding and the
resulting receivable is deemed collectible by management. Unbilled grant
receivable relates to work that has recently been performed for which no invoice
has been made as of period end. While the Company's accounting for these
contract costs are subject to audit by the sponsoring agency, in the opinion of
management, no material adjustments are expected as a result of such audits.
Research and Development
All research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets, subject to valuation allowances,
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and income tax
purposes. A valuation allowance is established if it is more likely than not
that all or a portion of the net deferred tax assets will not be realized.
Comprehensive Loss
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. No differences exist between net loss and
comprehensive loss.
F-8
<PAGE> 73
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
The Company applies the accounting provisions of Accounting Principles
Board ("APB") Opinion 25 and has elected the disclosure-only alternative
permitted under Statement of Financial Accounting Standards Board ("SFAS") No.
123, Accounting for Stock-Based Compensation. The Company has disclosed herein
pro forma net income in the footnotes using the fair value based method. All
stock-based awards to non-employees are accounted for at their fair market
value, as calculated using the Black-Scholes model in accordance with SFAS No
123.
Net Income (Loss) per Common Share -- Historical
The Company computes net income (loss) per common share in accordance with
SFAS No. 128, "Earnings Per Share" ("SFAS 128"), and SEC Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic
net income (loss) per common share is computed by dividing net income (loss)
attributable to common stockholders by the weighted average number of common
shares outstanding. The calculation of diluted net income (loss) per common
share for the years ended December 31, 1997, 1998 and 1999 and the six months
ended June 30, 2000 does not include 2,568,431, 4,665,385, 7,346,308 and
8,501,963 potential shares of common stock equivalents including common stock
options, common stock warrants and redeemable convertible preferred stock,
respectively, as their inclusion would be antidilutive.
Net Income (Loss) per Common Share -- Pro Forma (Unaudited)
Pro forma net income (loss) per common share is calculated assuming the
automatic conversion of all preferred stock outstanding at December 31, 1999 and
June 30, 2000, which converts automatically into 6,278,266 and 7,248,240 shares
of common stock, respectively, upon the completion of the Company's initial
public offering (Note 7). Therefore, accretion of redeemable convertible
preferred stock is excluded from the calculation of pro forma net income (loss)
per common share. The calculation of pro forma net income (loss) per common
share for the year ended December 31, 1999 and the six months ended June 30,
2000 does not include 432,043 and 617,696 potential shares of common stock
equivalents, respectively, as their inclusion would be antidilutive.
Unaudited Interim Financial Statements
The financial statements and related notes as of June 30, 2000 and for the
six months ended June 30, 1999 and 2000 are unaudited. In the opinion of the
Company's management, the June 30, 2000 unaudited interim financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for the interim period. The results of operations for the six months
ended June 30, 2000 are not necessarily indicative of the results of operations
for the year ended December 31, 2000 or any other future period.
Unaudited Pro Forma Balance Sheet
Under the terms of the Company's redeemable convertible preferred stock
(Note 7), all of such preferred stock will be converted automatically into
shares of common stock upon the closing of an initial public offering of common
stock with an offering price of at least $6.50 per share and proceeds to the
Company of at least $25,000,000 or upon the vote of the holders 60% of the
outstanding shares of redeemable convertible preferred stock. The unaudited pro
forma balance sheet reflects the conversion of each share of Series A, Series B,
Series C and Series D Redeemable Convertible Preferred Stock into one share of
common stock as if the conversions had occurred on June 30, 2000.
F-9
<PAGE> 74
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Segment Reporting
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). This statement requires companies to report information about
operating segments consistent with management's internal view of the Company.
SFAS 131 also requires major customer and geographic area revenue disclosures.
These are presented in Note 13. The Company operates in a single segment: the
sale of solar energy. The Company has no organizational structure dictated by
product lines, geography or customer type.
Recent Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices promulgated by the SEC. The Company has
retroactively adopted the guidance of SAB 101 for all periods presented in these
financial statements and such adoption did not have a significant impact on the
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board, ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The standard established accounting and reporting standards requiring the
recognition of all derivative instruments as either assets or liabilities in the
statement of financial position and the measure of those instruments at fair
value. In June 1999, the FASB issued SFAS No. 137, which defers the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. Because the
Company does not currently hold any derivative instruments and does not
currently engage in hedging activities, we expect the adoption of SFAS No. 133
will not have a material impact on our financial position or operating results.
In March 2000, the FASB issued FASB Interpretation ("FIN") 44, "Accounting
for Certain Transactions Involving Stock Compensation -- an interpretation of
Accounting Principles Board ("APB") Opinion 25." FIN 44 clarifies the
application of APB Opinion 25 and among other issues clarified the following:
the definition of an employee for purposes of applying APB opinion 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modification to the terms of previously
fixed stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on the Company's financial
position or results of operations.
3. INVENTORY
Inventory consists of finished goods of $36,000, $124,000 and $166,000 and
raw materials of $3,000, $10,000 and $15,000, at December 31, 1998, 1999 and
June 30, 2000, respectively.
F-10
<PAGE> 75
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. FIXED ASSETS
Fixed assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
USEFUL LIFE 1998 1999 2000
----------- ------ ------ --------
<S> <C> <C> <C> <C>
Laboratory equipment............. 3-5 $1,150 $1,241 $ 2,037
Computer and office equipment.... 3-5 56 79 106
Leasehold improvements........... Lesser of 3-5 years or lease term 123 123 117
Assets under construction........ -- 269 1,223
------ ------ -------
1,329 1,712 3,483
Less accumulated depreciation.... (657) (903) (1,020)
------ ------ -------
$ 672 $ 809 $ 2,463
====== ====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
and for the six months ended June 30, 1999 and 2000, was $237,000, $320,000,
$246,000, $133,000 and $117,000, respectively. As of June 30, 2000, the Company
had outstanding commitments for capital expenditures of $1.4 million
(unaudited).
5. CONVERTIBLE DEBENTURES
In December 1997, the Company issued convertible debentures in the total
amount of $2,223,000 bearing interest at 8% per annum and maturing in December
1998. Pursuant to the Loan and Security Agreement dated as of December 23, 1997
(the "Agreement"), the debentures were automatically convertible into Series C
Redeemable Convertible Preferred Stock upon the closing of at least $2,000,000
of additional equity or with a 66% affirmative vote of the debenture holders as
of June 30, 1998 and on the terms specified within the Agreement. The
convertible debentures were collateralized by the assets of the Company.
Contemporaneously with the closing of the sale of Series C Redeemable
Convertible Preferred Stock in April 1998 (see also Note 6), the $2,223,000
debentures and $58,094 of accrued interest were converted into 1,142,547 shares
of the Company's Series C Redeemable Convertible Preferred Stock at $2.00 per
share.
6. INCOME TAXES
Income taxes computed using the federal statutory income tax ratio differ
from the Company's effective tax rate primarily due to the following (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax expense (benefit) at US federal
statutory tax rate......................... (1,026) (855) (997) (378) (567)
State income taxes, net of federal tax
effect..................................... (486) (221) (313) (103) (166)
Permanent items.............................. 6 7 2 1 1
Other........................................ (26) (41) (160) (80) (81)
Change in deferred tax asset valuation
allowance.................................. 1,532 1,110 1,468 560 813
------- ------ ------ ------ -------
Provision for income taxes................... $ -- $ -- $ -- $ -- $ --
======= ====== ====== ====== =======
</TABLE>
At December 31, 1999, the Company has federal and state net operating loss
carryforwards of approximately $10,395,000 and $10,220,000 available to reduce
future taxable income and which expire at various dates between 2000 through
2015. The Company also has federal and state research and development
F-11
<PAGE> 76
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tax credit carryforwards of approximately $449,000 and $369,000, respectively,
available to reduce future tax liabilities and which expire at various dates
between 2002 and 2014. Under the provisions of the Internal Revenue Code,
certain substantial changes in the Company's ownership may result in a
limitation on the amount of net operating loss carryforwards and research and
development credit carryforwards which can be used in future years.
As required by Financial Accounting Statement No. 109, management of the
Company has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets. Management has considered the
Company's history of losses and, in accordance with the applicable accounting
standards, has fully reserved the deferred tax asset.
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1998 1999 2000
---- ---- --------
<S> <C> <C> <C>
Net operating loss carry forwards........................... 3,007 4,175 4,850
Research and development credit carry forwards.............. 533 818 952
Other....................................................... 37 52 56
------- ------- -------
Deferred tax assets....................................... 3,577 5,045 5,858
Deferred tax valuation allowance.......................... (3,577) (5,045) (5,858)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
7. STOCKHOLDERS' EQUITY
The Company has two classes of capital stock: common and preferred. At
December 31, 1999, 1,235,565 shares of common stock were authorized for issuance
under the Company's 1994 Stock Option Plan and 7,248,240 shares were reserved
for issuance upon conversion of Series A, Series B, Series C and Series D
Redeemable Convertible Preferred Stock.
In December 1999, the Company increased the authorized common stock to
28,000,000 and completed an initial closing of its Series D Redeemable
Convertible Preferred Stock financing of 10,000,000 authorized shares, resulting
in the issuance of 5,243,323 shares at $2.50 per share for $13,108,308 cash
proceeds. As of December 31, 1999, the Company has a subscription receivable of
$400,000 in relation to Series D issuance which was fully collected in January
2000. As part of the December financing described above, Kawasaki Heavy
Industries, Ltd. ("Kawasaki") purchased 2,000,000 shares of Series D Redeemable
Convertible Preferred Stock at $2.50 per share. In 1998, 3,442,547 shares of
Series C Redeemable Convertible Preferred Stock were issued at $2.00 per share.
In 1996, 2,781,666 shares of Series B Redeemable Convertible Preferred Stock
were issued at $1.50 per share.
In connection with the issuance of the Series D Redeemable Convertible
Preferred Stock, the financing round remained open until January 31, 2000. From
January 1, 2000 through January 31, 2000, the Company sold to new and existing
shareholders an additional 2,100,000 shares at $2.50 per share for $5,250,000
cash proceeds. Upon completion of the Series D financing, a total of 7,343,323
shares were issued at $2.50 per share with cash proceeds of $18,358,308.
Shares of the preferred stock are convertible into common stock at the
option of the holder under a conversion formula resulting in a 1-for-2.165
exchange. This conversion formula is subject to adjustment based on antidilution
provisions. Mandatory conversion is required under certain circumstances, such
as an initial public offering in which the aggregate proceeds to the Company
shall be at least $25,000,000 and the price paid is at least $6.50 per share or
upon the authorization of such conversion by 60% of the then outstanding shares
of preferred stock.
F-12
<PAGE> 77
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In the event of a liquidation, dissolution or winding up of the Company,
the shareholders of the preferred stock are entitled to receive a liquidation
preference. The liquidation preference equals the original issuance price plus
an amount equal to eight percent (8%) of the issuance price per annum
(compounded annually) for each year in which dividends are not declared and
paid. No dividends have been declared as of December 31, 1999.
On December 31, 2005, December 31, 2006 and December 31, 2007,
respectively, and at any time after these respective dates, each holder of
preferred shall have the right to compel the Company to redeem 33 1/3%, 50% and
100%, respectively, of the shares of preferred stock then held by such holder.
The redemption price equals the liquidation preference. Total redemption
requirements at December 31, 2005 will be $15,522,330. The right of any holder
to compel the Company to repurchase its shares shall terminate in the event that
at least holders of 60% of the outstanding shares of preferred stock approve
such termination or in the event of a qualified public offering. Prior to the
issuance of Series D Redeemable Convertible Preferred Stock, the mandatory
redemption dates were December 31, 2002, 2003 and 2004 and the termination of
such conversion rights could be made by 60% of the outstanding shares of
preferred stock.
8. STOCK OPTION PLANS
On October 24, 1994, the Board of Directors approved the Company's 1994
Stock Option Plan (the "Plan"), whose purpose is to encourage employees and
other individuals who render services to the Company, by providing opportunities
to purchase stock in the Company. The Plan authorizes the issuance of incentive
stock options and nonqualified stock options. All options granted will expire
ten years from their date of issuance. Incentive stock options granted generally
have a four-year vesting period from their date of issuance and nonqualified
options granted vest immediately upon their issuance.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE OPTION PRICE
------- -----------------------------
<S> <C> <C>
Outstanding at December 31, 1996.................. 91,893 $0.47
Granted......................................... 4,848 0.65
-------
Outstanding at December 31, 1997.................. 96,741 0.48
Granted......................................... 76,204 0.87
-------
Outstanding at December 31, 1998.................. 172,945 0.65
Granted......................................... 265,100 0.87
Terminated...................................... (6,002) 0.80
-------
Outstanding at December 31, 1999.................. 432,043 0.79
Granted......................................... 192,582 2.81
Exercised....................................... (6,929) 0.35
-------
Outstanding at June 30, 2000 (unaudited).......... 617,696 1.42
=======
</TABLE>
F-13
<PAGE> 78
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Summarized information about stock options outstanding is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0.22 25,396 5.66 $0.22 25,396 $0.22
0.43 24,702 6.09 0.43 18,869 0.43
0.65 44,794 6.94 0.65 32,721 0.65
0.87 337,148 9.38 0.87 30,010 0.87
------------ --------- ------- -----
December 31, 1999 $0.22 - 0.87 432,040 8.72 0.78 106,996 0.57
------------ --------- ------- -----
0.22 - 0.87 (6,926) 6.00 0.35 28,915 0.54
2.17 140,412 9.53 2.17 1,846 2.17
4.55 52,170 9.91 4.55 13,846 4.55
------------ --------- -------
June 30, 2000 (unaudited) $0.22 - 4.55 617,696 9.04 $1.42 151,603 $0.95
============ ========= =======
</TABLE>
At December 31, 1997, 1998 and 1999, and at June 30, 2000, options
exercisable were 43,277, 60,133 106,996, and 151,603, respectively. Estimated
weighted average fair value of options granted in fiscal years 1997, 1998 and
1999 and during the six month periods ended June 30, 1999 and 2000, were $0.30,
$0.37, $1.47, $0.26 and $4.52, respectively, on the date of grant.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Had compensation expense for the employee
stock option plan been determined based on the fair value at the grant dates for
options granted under the plan consistent with the method of SFAS 123,
Accounting for Stock-Based Compensation, the net income (loss) would have been
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------- ------------------------- -------------------------
NET INCOME NET INCOME NET INCOME
(LOSS) NET INCOME (LOSS) NET INCOME (LOSS) NET INCOME
ATTRIBUTABLE (LOSS) PER ATTRIBUTABLE (LOSS) PER ATTRIBUTABLE (LOSS) PER
TO COMMON COMMON TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ ------------ ------------ ---------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
As reported.......... $(3,593) $(4.47) $(3,475) $(4.33) $(4,163) $(5.18)
Pro forma............ $(3,598) $(4.48) $(3,485) $(4.34) $(4,181) $(5.21)
<CAPTION>
JUNE 30, 1999 JUNE 30, 2000
------------------------- -------------------------
NET INCOME NET INCOME
(LOSS) NET INCOME (LOSS) NET INCOME
ATTRIBUTABLE (LOSS) PER ATTRIBUTABLE (LOSS) PER
TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ ---------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
As reported.......... $(1,723) $(2.15) $(3,131) $(3.88)
Pro forma............ $(1,734) $(2.16) $(3,156) $(3.91)
</TABLE>
The fair value of employee options at the date of grant were estimated
using the minimum value option pricing model with the following assumptions.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ----------------
1997 1998 1999 1999 2000
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Expected option term...................... 10 10 7 7 7
Risk-free interest rate................... 6.5% 5.8% 5.4% 5.4% 6.4%
Expected dividend yield................... None None None None None
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made and most options will vest over
several years, the above effects of applying SFAS 123 in this pro forma
disclosure are not likely to be representative of the effects on reported net
income for future years. SFAS 123 does not apply to awards granted prior to
fiscal year 1996.
F-14
<PAGE> 79
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1999 and the six months ended June 30, 2000, the Company recorded
$318,000 and $598,000, respectively, of deferred compensation related to stock
option grants to employees. The deferred compensation represents differences
between the estimated fair value of common stock on the date of grant and the
exercise price. The deferred compensation is being amortized and charged to
operations over the vesting period of the related options. Total employee stock
option-related compensation expense was $18,000 for the year ended December 31,
1999, and $110,000 for the six months ended June 30, 2000.
9. WARRANTS
On December 23, 1997 and December 31, 1997, the Company issued 205,357
warrants to the convertible debenture holders (see Note 4) at the ratio of one
warrant for every $10.83 invested. These warrants vested on April 30, 1998 and
were exercisable into an aggregate of 205,357 common shares of the Company.
These warrants were cancelled on April 30, 1998 and contemporaneously with this
cancellation new warrants were issued as outlined below.
On April 30, 1998 and May 29, 1998, pursuant to the Series C Redeemable
Convertible Preferred Stock financing, the Company granted the purchasers of
Series C Redeemable Convertible Preferred Stock warrants to purchase an
aggregate of 636,027 shares of common stock at a ratio of one warrant for every
$10.83 invested. The warrants are exercisable at $4.33 per share. The warrants
expire on December 22, 2002 or upon the closing of an initial public offering
resulting in at least $15,000,000 in gross proceeds to the Company and at a
value of at least $21.65 per share, whichever is earlier. The relative fair
value of these warrants was $73,000 based upon the Black-Scholes valuation
model. Accordingly, $73,000 of the proceeds raised from the Series C Redeemable
Convertible Preferred Stock has been allocated to these warrants and recorded as
an increase to additional paid-in capital. Therefore, the preferred stock will
be accreted by $73,000 over its redemption period.
10. EMPLOYEES' SAVINGS PLAN
The Company established a 401(k) plan in 1996 for eligible employees. Under
the provisions of the plan, eligible employees may voluntarily contribute up to
15% of their compensation up to the statutory limit. In addition, the Company
can make a matching contribution at its discretion. The Company has not made any
contribution to the plan.
11. COMMITMENTS
Distribution and Marketing Relationship
In December 1999, the Company formed a strategic distribution and marketing
relationship with Kawasaki whereby Kawasaki has agreed to exclusively distribute
the Company's solar power products in Japan and integrate the Company's solar
panels into solar systems that Kawasaki will design, market and install. In
addition, the Company has agreed to sell solar power products in Japan
exclusively through Kawasaki.
Lease
The Company currently leases its office and laboratory facility under an
operating lease extending to December 31, 2000. The lease can be canceled by the
Company as of the last day of any calendar month on or after July 1, 2000, by
providing written notice of intent to terminate at least 90 days in advance of
the proposed termination date. Lease expense for the facility was $71,000,
$111,000, $141,000, $71,000 and $71,000 for the years ended December 31, 1997,
1998 and 1999 and the six months ended June 30, 1999 and 2000, respectively. The
annual future minimum lease and rental commitments as of December 31, 1999 under
the aforementioned lease is $141,000 in 2000.
F-15
<PAGE> 80
EVERGREEN SOLAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
License Agreement
In September 1994, the Company signed an agreement to license String Ribbon
technology from a professor at Massachusetts Institute of Technology.
Concurrently, the Company hired the professor as a consultant. This agreement
provides the Company, its successors, assigns, and legal representatives an
irrevocable, worldwide right and license in and to the technology and licensed
patents, including the right to make, have made, use, lease, sub-license, and
sell products and to enforce any of the patent rights of the licensed patents.
The license is exclusive except for rights to the licensed patents held by the
U.S. Department of Energy. In exchange for these rights, the consultant will
earn royalties on sales of products through 2004. The Company incurred $0,
$5,000, $6,000, $3,000 and $0 in royalty expense for the years ended December
31, 1997, 1998, and 1999 and the six months ended June 30, 1999 and 2000,
respectively. The Company can, at any time, cease utilization of the technology
with no further royalty payments.
12. NET INTEREST INCOME
Interest income was $106,000, $223,000, $163,000, $98,000 and $515,000 for
the years ended December 31, 1997, 1998, and 1999, and the six months ended June
30, 1999 and 2000, respectively. Interest expense was $4,000 and $58,000 for the
years ended December 31, 1997 and 1998, respectively, and none for the year
ended December 31, 1999 and the six months ended June 30, 1999 and 2000.
13. SEGMENT INFORMATION
For the years ended December 31, 1997, 1998, and 1999, and the six months
ended June 30, 1999 and 2000, revenues generated from within the United States
represented $696,000, $1,520,000, $2,265,000, $1,124,000 and $1,025,000; and
research revenues generated from outside the United States represented $13,000,
$38,000, $37,000, $27,000 and $80,000, respectively.
For the years ended December 31, 1997, 1998, and 1999, and the six months
ended June 30, 1999 and 2000, revenues from the Commonwealth of Massachusetts,
National Institute of Standards and Technology, and National Renewable Energy
Laboratory accounted for 19%, 10% and 47%; 41%, 21% and 22%; 19%, 21% and 53%;
20%, 16% and 57%; and 20%, 25% and 45% of total revenues, respectively.
14. SUBSEQUENT EVENTS
On March 13, 2000, the Company entered into a ten-year lease commencing
July 1, 2000, for office and manufacturing space in Marlborough, Massachusetts.
Pursuant to the terms of the lease agreement, the Company will pay annual rent
ranging from $464,000 in the first year to $534,000 during the last year of the
lease. Rent is payable on the first day of each month and is secured by a
$464,000 standby letter of credit that was paid subsequent to year-end. In
connection with this arrangement, the Company invested in a certificate of
deposit pledged to a commercial bank. This certificate of deposit was classified
in "other current assets" on the June 30, 2000 balance sheet.
F-16
<PAGE> 81
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3,000,000 SHARES
[Evergreen Logo]
------------------------------
Prospectus
, 2000
------------------------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
FAC/EQUITIES
Until , 2000, all dealers that buy, sell or trade the common
stock may be required to deliver a prospectus, regardless of whether they are
participating in the offering. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of the common stock being registered
under this registration statement are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,662
NASD filing fee............................................. 5,675
Nasdaq National Market listing fee.......................... 90,000
Printing and engraving expenses............................. 200,000*
Legal fees and expenses..................................... 450,000*
Accounting fees and expenses................................ 250,000*
Blue Sky fees and expenses (including legal fees)........... 5,000*
Transfer agent and registrar fees and expenses.............. 10,000*
Miscellaneous............................................... 25,663*
----------
Total.................................................. $1,050,000*
==========
</TABLE>
------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and our charter and by-laws provide
for indemnification of our directors and officers for liabilities and expenses
that they may incur in such capacities. In general directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, our best interests and, with respect to
any criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. Reference is made to our amended and restated
charter and amended and restated by-laws filed as Exhibits 3.2 and 3.3 to this
registration statement, respectively.
The underwriting agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify our directors, officers and
controlling persons against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed as
Exhibit 1.1 to this registration statement.
In addition, we plan to obtain a directors and officers liability insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act:
(a) ISSUANCES OF DEBENTURES AND CAPITAL STOCK.
In December 1997, we issued and sold secured convertible debentures in the
aggregate amount of $2,223,000 to ten accredited investors.
In April 1998, we issued and sold 3,067,547 shares of Series C preferred
stock at a price per share of $2.00 to thirteen accredited investors and one
non-United States person.
In May 1998, we issued and sold 375,000 shares of Series C preferred stock
at a price per share of $2.00 to three non-United States persons.
In December 1999, we issued and sold 5,243,323 shares of Series D preferred
stock at a price per share of $2.50 to thirteen accredited investors.
II-1
<PAGE> 83
In January 2000, we issued and sold 2,100,000 shares of our Series D
Preferred Stock at a price per share of $2.50 to two accredited investors and
three non-United States persons.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder for transactions by an issuer not involving a public
offering or the exemption from registration provided by Regulation S promulgated
under the Securities Act.
(b) ISSUANCES OF WARRANTS.
In December 1997, we issued warrants to ten accredited investors to
purchase an aggregate of 205,357 shares of our common stock at an exercise price
of $4.33 per share. These warrants were cancelled in April 1998 and were never
exercised.
In April 1998, we issued warrants to thirteen accredited investors and one
non-United States person to purchase an aggregate of 566,745 shares of our
common stock at an exercise price of $4.33 per share.
In May 1998, we issued warrants to three non-United States persons to
purchase an aggregate of 69,282 shares of our common stock at an exercise price
of $4.33 per share.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder for transactions by an issuer not involving a public
offering or the exemption from registration provided by Regulation S promulgated
under the Securities Act.
(c) GRANTS AND EXERCISES OF STOCK OPTIONS.
Since June 30, 1997, we have granted stock options to purchase 530,422
shares of our common stock with exercise prices ranging from $0.22 to $4.55 per
share, to employees, directors and consultants pursuant to our 1994 Stock Option
Plan. Of these options, 12,699 have been exercised for an aggregate
consideration of $2,350 as of June 30, 2000. The issuance of common stock upon
exercise of the options was exempt from registration either pursuant to Rule
701, as a transaction pursuant to a compensatory benefit plan, or pursuant to
Section 4(2), as a transaction by an issuer not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1*** Second Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Certificate of Amendment to Certificate of Incorporation of
the Registrant.
3.3* Third Amended and Restated Certificate of Incorporation of
the Registrant.
3.4*** Amended and Restated By-laws of the Registrant.
3.5*** Second Amended and Restated By-laws of the Registrant.
4.1* Specimen Certificate for Shares of the Registrant's Common
Stock.
4.2 Description of Capital Stock (contained in the Certificate
of Incorporation filed as Exhibits 3.1, 3.2 and 3.3).
5.1 Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1*** 1994 Stock Option Plan.
10.2** 2000 Stock Option and Incentive Plan.
10.3*** 2000 Employee Stock Purchase Plan.
10.4*** Lease between Registrant and 211 Second Avenue Realty L.P.
dated as of September 15, 1995, as amended.
</TABLE>
II-2
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.5*** Lease Agreement between Registrant W9/TIB Real Estate
Limited Partnership dated as of January 31, 2000, as
amended.
10.6+ Distribution and Marketing Agreement between Registrant and
Kawasaki Heavy Industries, Ltd. dated as of December 24,
1999.
10.7+*** Agreement between Registrant and Emanuel M. Sachs dated as
of September 30, 1994, as amended.
10.8*** Series D Preferred Stock Purchase Agreement dated as of
December 28, 1999.
10.9* Form of Indemnification Agreement between Registrant and
each of its directors.
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (contained in
Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.1*** Power of Attorney (contained on page II-4).
27.1 Financial Data Schedule.
</TABLE>
------------
* To be filed by amendment.
** Indicates a management contract or any compensatory plan, contract or
arrangement.
*** Previously filed.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(b) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been are omitted because they are not
applicable or the required information is shown in the other financial
Statements or related notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Waltham, Massachusetts
on September 20, 2000.
EVERGREEN SOLAR, INC.
By: /s/ MARK A. FARBER
------------------------------------
Mark A. Farber
Chief Executive Officer, President
and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ MARK A. FARBER Chief Executive Officer, September 20, 2000
--------------------------------------------------- President and Director
Mark A. Farber (Principal Executive
Officer)
/s/ RICHARD G. CHLEBOSKI Chief Financial Officer, September 20, 2000
--------------------------------------------------- Treasurer, Secretary and
Richard G. Chleboski Director (Principal
Financial Officer)
* Director September 20, 2000
---------------------------------------------------
Dr. Gordon B. Baty
* Director September 20, 2000
---------------------------------------------------
William C. Osborn
* Chairman of the Board September 20, 2000
---------------------------------------------------
Dr. Robert W. Shaw, Jr.
* Director September 20, 2000
---------------------------------------------------
Dr. William P. Sommers
* Director September 20, 2000
---------------------------------------------------
Dr. Brown F. Williams
* Director September 20, 2000
---------------------------------------------------
Mason Willrich
</TABLE>
* By: /s/ MARK A. FARBER
--------------------------------------------------
Mark A. Farber
Attorney-in-Fact
II-4
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Evergreen Solar, Inc:
Our audits of the financial statements referred to in our report dated January
31, 2000, except as to Note 14 for which the date is March 13, 2000, appearing
in this Registration Statement on Form S-1 (File No. 333-43140) of Evergreen
Solar, Inc. also included an audit of the financial statement schedule listed in
Item 16(b) of this Registration Statement. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 31, 2000
S-1
<PAGE> 87
EVERGREEN SOLAR, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from asset
accounts
Valuation allowance for deferred tax
assets................................. $ 934,000 1,533,333 - 2,467,000
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from asset
accounts
Valuation allowance for deferred tax
assets................................. 2,467,000 1,110,000 - 3,577,000
Accrued warranty reserve.................. - 10,000 - 10,000
YEAR ENDED DECEMBER 31, 1999
Reserves and allowances deducted from asset
accounts
Valuation allowance for deferred tax
assets................................. 3,577,000 1,486,000 - 5,045,000
Allowance for doubtful accounts........... - 10,000 - 10,000
Accrued warranty reserve.................. 10,000 12,000 - 22,000
</TABLE>
S-2
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
DESCRIPTION
--------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1*** Second Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Certificate of Amendment to Certificate of Incorporation of
the Registrant.
3.3* Third Amended and Restated Certificate of Incorporation of
the Registrant.
3.4*** Amended and Restated By-laws of the Registrant.
3.5*** Second Amended and Restated By-laws of the Registrant.
4.1* Specimen Certificate for Shares of the Registrant's Common
Stock.
4.2 Description of Capital Stock (contained in the Certificate
of Incorporation filed as Exhibits 3.1, 3.2 and 3.3).
5.1 Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1*** 1994 Stock Option Plan.
10.2** 2000 Stock Option and Incentive Plan.
10.3*** 2000 Employee Stock Purchase Plan.
10.4*** Lease between Registrant and 211 Second Avenue Realty L.P.
dated as of September 15, 1995, as amended.
10.5*** Lease Agreement between Registrant W9/TIB Real Estate
Limited Partnership dated as of January 31, 2000, as
amended.
10.6+ Distribution and Marketing Agreement between Registrant and
Kawasaki Heavy Industries, Ltd. dated as of December 24,
1999.
10.7+*** Agreement between Registrant and Emanuel M. Sachs dated as
of September 30, 1994, as amended.
10.8*** Series D Preferred Stock Purchase Agreement dated as of
December 28, 1999.
10.9* Form of Indemnification Agreement between Registrant and
each of its directors.
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (contained in
Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountant.
24.1*** Power of Attorney (contained on page II-4).
27.1 Financial Data Schedule.
</TABLE>
------------
* To be filed by amendment.
** Indicates a management contract or any compensatory plan, contract or
arrangement.
*** Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions will be filed separately with the
Securities and Exchange Commission.
