UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________
FORM 10-K
________________________________________________________________________
(Mark One)
þ
¨
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended: December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ____________
Commission File Number 001-38598
________________________________________________________________________
BLOOM ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
________________________________________________________________________
Delaware
77-0565408
(Sate or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
4353 North First Street, San Jose, California
(Address of principal executive offices)
95134
(Zip Code)
(408) 543-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
Title of Each Class(1)
Class A Common Stock $0.0001 par value
Trading Symbol
BE
(1) Our Class B Common Stock is not registered but is convertible into shares of Class A Common Stock at the election of the holder.
________________________________________________________________________
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
The aggregate market value of the registrant’s Class A common stock held by non-affiliates of the registrant was $659.7 million based upon the closing price of $12.27 per share
of our Class A common stock on the New York Stock Exchange on June 28, 2019 (the last trading day of the registrant’s most recently completed second quarter). Shares of
Class A common stock held by each executive officer, director and holder of 5% of more of the outstanding Class A common stock have been excluded in that such persons may
be deemed to be affiliates. The determination of affiliate status if not necessarily a conclusive determination for other purposes.
The number of shares of the registrant’s common stock outstanding as of March 16, 2020 was as follows:
Portions of the registrant’s proxy statement for the 2020 Annual Meeting of Stockholders (2020 Proxy Statement) are incorporated into Part III hereof. The 2020 Proxy Statement will be filed
with the U.S. Securities and Exchange Commission within 120 days after the registrant’s year ended December 31, 2019.
Class A Common Stock $0.0001 par value 90,231,067 shares
Class B Common Stock $0.0001 par value 34,872,888 shares
________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Bloom Energy Corporation
Annual Report on Form 10-K for the Years Ended December 31, 2019
Table of Contents
Item 1 - Business
Item 1A - Risk Factors
Item 1B - Unresolved Staff Comments
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Mine Safety Disclosures
Part I
Part II
Item 5 - Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6 - Selected Financial Data
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Item 8 - Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit and Noncontrolling Interest
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A - Controls and Procedures
Item 9B - Other Information
Item 10 - Directors, Executive Officers and Corporate Governance
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 - Certain Relationships and Related Transactions and Director Independence
Item 14 - Principal Accounting Fees and Services
Part III
Item 15 - Exhibits, Financial Statement Schedules
Item 16 - Form 10-K Summary
Signatures
Part IV
Page
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Unless the context otherwise requires, the terms "we," "us," "our," "Bloom Energy," and the "Company" each refer to Bloom Energy Corporation and all of its subsidiaries.
3
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, . All statements contained in this Annual Report on Form 10-K other than statements of historical
fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations,
are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “predict,” “project,” “potential,” ”seek,” “intend,”
“could,” “would,” “should,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, our plans and expectations regarding future financial
results, including the potential impact of our restatement, the impact of the COVID-19 pandemic, expected operating results, business strategies, the sufficiency of
our cash and our liquidity, projected costs and cost reductions, development of new products and improvements to our existing products, the impact of recently
adopted accounting pronouncements, our manufacturing capacity and manufacturing costs, the adequacy of our agreements with our suppliers, legislative actions
and regulatory compliance, competitive position, management’s plans and objectives for future operations, our ability to obtain financing, our ability to comply
with debt covenants or cure defaults, if any, our ability to repay our obligations as they come due, trends in average selling prices, the success of our power
purchase agreement entities, expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk,
general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, risks related to privacy and data
security, the likelihood of any impairment of project assets, long-lived assets and investments, trends in revenue, cost of revenue and gross profit (loss), trends in
operating expenses including research and development expense, sales and marketing expense and general and administrative expense and expectations regarding
these expenses as a percentage of revenue, future deployment of our Bloom Energy Servers, expansion into new markets, our ability to expand our business with
our existing customers, our ability to increase efficiency of our product, our ability to decrease the cost of our product, our future operating results and financial
position, our business strategy and plans and our objectives for future operations.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this
Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business,
financial condition, operating results and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and
other factors including those discussed in Item 1A - Risk Factors and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive
and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties or the
extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements we may
make in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be
achieved or occur. Actual results, events or circumstances could differ materially and adversely from those described or anticipated in the forward-looking
statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We
undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of
this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve
the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors
including those discussed under Item 1A - Risk Factors and elsewhere in this Annual Report on Form 10-K.
4
General
Explanatory Note
On February 11, 2020, our management, in consultation with the Audit Committee of our Board of Directors, determined that Bloom's previously issued
consolidated financial statements as of and for the year ended December 31, 2018, as well as the unaudited interim financial statements for the three-month period
ended March 31, 2019, the three- and six-month periods ended June 30, 2019 and 2018 and the three- and nine-month periods ended September 30, 2019 and 2018,
should no longer be relied upon due to misstatements related to our Managed Services Agreements and similar arrangements, and we would restate such financial
statements to make the necessary accounting corrections. The revenue for the Managed Services Agreements and similar transactions will now be recognized over
the duration of the contract instead of upfront. In addition, management determined that the impact of these misstatements to periods prior to the three months
ended June 30, 2018 was not material to warrant restatement of reported figures, however, our consolidated financial statements as of and for the year ended
December 31, 2017, selected financial data as of and for the year ended December 31, 2016 and the relevant unaudited selected quarterly financial data for the
three month period ended March 31, 2018 would be revised to correct these misstatements.
The misstatements are described in greater detail below.
Restatement Background
As described in our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on February 12, 2020, there were certain
misstatements in prior periods financial statements relating to the accounting treatment for our Managed Services Agreements. Under our Managed Services
program, we sell our equipment to a bank financing party under a sale-leaseback agreement, which pays us for the Energy Server and takes title to the Energy
Server. We then enter into a service contract with an end customer, who pays the bank a fixed, monthly fee for its use of the Energy Server and pays us for our
maintenance and operation of the Energy Server.
The majority of these Managed Services Agreements and similar transactions were originally recorded as sales, subject to an operating lease, in which
revenues and associated costs were recognized at the time of installation and acceptance of the Bloom Energy Server at the customer site.
In December 2019, in the course of reviewing a Managed Services transaction that closed on November 27, 2019 under a Managed Services Agreements
financing (as reported in our Current Report on Form 8-K filed with the SEC on December 5, 2019), an issue was identified related to the accounting for our
Managed Services Agreements transactions. The issue primarily related to whether the terms of our Managed Services Agreements and similar arrangements,
including the events of default provisions, satisfied the requirements for sales under the revenue accounting standards or instead required us to follow lease
accounting standards (ASC 840). Subsequently, it was determined that the previous accounting for the Managed Services Agreements and similar transactions
resulted in material misstatements, as the Managed Services Agreements and similar transactions should have been accounted for as financing transactions under
lease accounting standards.
The impact of the correction of the misstatement is to recognize amounts received from the bank financing party as a financing obligation, and the Energy
Server is recorded within property, plant and equipment, net on our consolidated balance sheets. In addition, payments received by the bank from the customer now
cover amounts owed to the bank based on the power generated by the systems. We recognize revenue for the electricity generated by the systems, based on these
payments, and the corresponding financing obligation to the bank is also amortized as payments are received from the customer, with interest thereon being
calculated on an effective interest rate basis. Depreciation expense is also recognized over the estimated useful life of the Energy Server.
In addition, another error was identified related to stock-based compensation costs associated with manufacturing employees that were previously
expensed, but should have been capitalized as a component of Energy Server manufacturing costs to inventory, deferred cost of revenues, construction-in-progress
and property, plant and equipment as per ASC 330 and SEC Staff Accounting Bulletin Topic 14. These costs will now be expensed on consumption of the related
inventory and over the economic useful life of the property, plant and equipment, as applicable.
Also, as part of a review of historical revenue agreements as a result of the issues above, it was noted that the Company failed to identify embedded
derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to its customers. As a result, the Company has recorded a
derivative liability, with an offset to revenue, to account for the fair value of this feature at inception and will record the liability at its then fair value at each period
end.
Finally, there were certain other immaterial misstatements identified or which had been previously identified which are also being corrected in connection
with the restatement and/or revision of previously issued financial statements.
5
The correction of the misstatements resulted in a cumulative overstatement of revenue totaling $192.1 million through September 30, 2019,
including $178.8 million relating to the cumulative period from April 1, 2018 through September 30, 2019 that is being restated in this Annual Report on Form 10-
K, and $13.3 million relating to the cumulative period from January 1, 2016 through March 31, 2018 that is being revised in this Annual Report on Form 10-K. The
corresponding cumulative overstatement of cost of revenue totaled $166.1 million through September 30, 2019, including $149.4 million relating to the cumulative
period from April 1, 2018 through September 30, 2019 that is being restated in this Annual Report on Form 10-K, and additionally $16.7 million relating to the
cumulative period from January 1, 2016 through March 31, 2018 that is being revised in this Annual Report on Form 10-K. We do not believe that the
misstatements are material to any period prior to the three month period ended June 30, 2018.
Restatement, Revision and Recasting of Previously Issued Consolidated Financial Statements
This Annual Report on Form 10-K restates and revises previously filed amounts included in the 2018 Annual Report, including the consolidated financial
statements as of December 31, 2018 and for the fiscal years ended December 31, 2018, 2017 and 2016.
The relevant unaudited Selected Quarterly Financial Data for the quarterly periods ended September 30, 2019, June 30, 2019, March 31, 2019, December
31, 2018, September 30, 2018, and June 30, 2018 has also been restated, and March 31, 2018 has been revised. Additionally, the 2019 unaudited Selected Quarterly
Financial Data included in this Annual Report on Form 10-K have also been recast for the effects of ASC 606 which we adopted with effect from January 1, 2019,
using the modified retrospective method.
See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, and Note 3, Revenue Recognition, and Note 18, Unaudited
Selected Quarterly Financial Data, in Item 8, Financial Statements and Supplementary Data for additional information.
The restatement and revision resulted in the following impacts to our previously reported results (in thousands, except per share data):
Total revenues
Gross profit (loss)
Net loss available to common stockholders (increase)
Basic and diluted loss per common share (increase)
Internal Control Considerations
Nine Months
Ended September
30,
2019
Restatement
Impact
Year Ended December 31,
2018
Restatement
Impact
2017
Revision Impact
$
(70,156) $
(109,390) $
(17,233)
(36,793)
(0.32)
(11,320)
(31,787)
(0.60)
(10,373)
1,733
(13,763)
(1.34)
In connection with the restatement, our management has assessed the effectiveness of our internal control over financial reporting. Based on this assessment,
management identified a material weakness in our internal control over financial reporting resulting in the conclusion by our Chief Executive Officer and Chief
Financial Officer that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2019.
Management is taking steps to remediate the material weakness in our internal control over financial reporting, as described in Item 9A.
See Item 9A, Controls and Procedures, for additional information related to the identified material weakness in internal control over financial reporting and
the related remediation measures.
6
Table of Contents
Index to Financial Statements
ITEM 1 - BUSINESS
Overview
Part I
Bloom Energy’s mission is to make clean, reliable, and affordable energy for everyone in the world. Our product, the Bloom Energy Server, is a stationary
power generation platform built for the digital age and capable of delivering highly reliable, always-on, 24x7 constant power that is also clean and sustainable. The
Bloom Energy Server converts standard low-pressure natural gas or biogas into electricity through an electrochemical process without combustion, resulting in
very high conversion efficiencies and lower harmful emissions than conventional fossil fuel generation. A typical configuration produces 250 kilowatts of power in
a footprint roughly equivalent to that of half of a standard thirty-foot shipping container, or approximately 125 times more space-efficient than solar power
generation. 250 kilowatts of power is roughly equivalent to the constant power requirement of a typical big box retail store. Any number of these Energy Server
systems can be clustered together in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts. These solutions can also be
configured as Bloom Energy AlwaysON Microgrids, providing the capability to power facilities independently of the main electrical grid indefinitely.
Our team has decades of experience in the various specialized disciplines and systems engineering concepts embedded in this technology. We had 240
issued patents in the United States and 124 issued patents internationally as of December 31, 2019.
Our solution is capable of addressing customer needs across a wide range of industry verticals. The industries we currently serve consist of banking and
financial services, cloud services, technology and data centers, communications and media, consumer packaged goods and consumables, education, government,
healthcare, hospitality, logistics, manufacturing, real estate, retail and utilities.
We currently have installations in eleven states in the United States (California, Connecticut, Delaware, Maryland, Massachusetts, North Carolina, New
Jersey, New York, Pennsylvania, Utah and Virginia) as well as in Japan, India and the Republic of Korea.
The United States is our largest market and installed base of Bloom Energy Servers. Some of our largest customers in the U.S. include AT&T, Caltech,
Delmarva Power & Light Company, Equinix, The Home Depot, Kaiser Permanente, and The Wonderful Company. We also work actively with U.S. financing
partners such as Southern PowerSecure Holdings, Inc. ("The Southern Company"), Duke Energy One, Inc., Key Equipment Finance, a division of KeyBank
National Association, and Assured Guaranty Municipal Corporation. These finance partners purchase our systems and deploy the systems at end-customers’
facilities in order to provide the electricity as a service.
South Korea is a world leader in the deployment of fuel cells for utility-scale electric power generation with approximately 300 megawatts ("MW")
deployed. We entered this market with a first deployment of an 8.35 MW Bloom Energy Server solution for a Korean utility that began commercial operation in
2018 and it now represents our second largest market. SK Engineering and Construction, a subsidiary of the SK Group, serves as the distributor of our systems in
South Korea. We are operating smaller deployments in India and Japan with commercial customers and these markets are still developing.
Our headquarters is located at 4353 North First Street, San Jose, California 95134 and our telephone number is (408) 543-1500. Our website address is
www.bloomenergy.com. The information contained on any website referred to in this Annual Report on Form 10-K does not form any part of this Annual Report
on Form 10-K and is not incorporated by reference herein unless expressly noted.
Our History
We were incorporated in the state of Delaware on January 18, 2001 as Ion America Corporation. On September 20, 2006, we changed our name to Bloom
Energy Corporation.
Our most significant deployment milestones to date include:
• Our first commercial deployment: 400 kilowatt deployment for a major internet company in August 2008;
• Our first deployment under a PPA financing: Completion of the first deployment that was financed pursuant to a PPA in October 2010;
• The largest commercial customer deployment of fuel cell technology in the United States: 10 megawatt deployment at a major consumer technology
company’s data center completed in December 2012;
7
• The first large scale deployment of fuel cell technology to provide mission critical, primary power to a data center, without traditional backup
power from diesel generators, batteries and UPS systems: 9.8 megawatt deployment in Utah in two phases completed in September 2013 and March
2015;
• The largest utility scale deployment of fuel cell technology in the United States: 30 megawatt deployment in Delaware for Delmarva completed in
November 2013;
• The first international deployments: First site deployed in Japan to provide uninterruptible power completed in June 2013; first site deployed in India
in the second quarter of 2016; first site deployed in South Korea and first Power Tower deployment in the fourth quarter of 2018; and
• Major cumulative deployment milestones: Cumulative deployment of 50 megawatts by September 2012, cumulative deployment of 100 megawatts by
September 2013, cumulative deployment of 200 megawatts by June 2016, cumulative deployment of 300 megawatts by March 2018, 85th microgrid
installed in May 2019, and cumulative deployment of 380 megawatts by December 2019.
In July 2018, we completed an initial public offering of our common shares and sold 20,700,000 shares of our Class A common stock into the market.
Industry Background
According to Marketline, the market for electric power is one of the largest sectors of the global economy with total revenues of $2.5 trillion in 2017, and is
projected to grow to $3.4 trillion in 2022.
There are numerous challenges facing producers of electricity. We believe these challenges will be the foundation of a transformation in how electricity is
produced, delivered and consumed. We believe this transformation will be similar to the seismic shifts seen in the computer and telecommunications industries -
similar to its centralized mainframe computing and landline telephone systems' shift to the ubiquitous and highly personalized distributed technologies seen today.
Increasing capital costs to maintain and operate the existing electric grid. The electric power grid has suffered from insufficient investment in critical
infrastructure as a result of complexities surrounding the ownership, operation and regulation of grid infrastructure, compounded by the challenges of large capital
costs and lack of adequate innovation. We believe that U.S. electric utilities will be required to make substantial capital expenditures simply to maintain the
electrical grid infrastructure.
Inherent vulnerability of existing grid design. The existing electric grid architecture features centralized, monolithic power plants and mostly above-ground
transmission and distribution wires. The limits of this design, coupled with aging and underinvested infrastructure, leaves the grid vulnerable to natural disasters
such as hurricanes, earthquakes, drought, wildfires, flooding and extreme temperature variations, which have increased in number and severity in recent years. In
2019, California’s major utilities shut off power to millions of people and businesses as part of their Public Power Safety Shutoff program to reduce the risk of their
electric equipment sparking fires, which left some customers without power for nearly six days. These outages result in annual losses to American businesses of as
much as $150 billion with weather-related disruptions costing the most per event. In addition to potential disruptions to the grid, there is also an increasing concern
over the threat of cyber-attack and physical sabotage to the centralized grid infrastructure.
Intermittent generation sources such as wind and solar are negatively impacting grid stability. As the penetration of wind and solar resources increases,
balancing real-time supply and demand becomes more challenging and costly. Due to these challenges, solutions are needed that provide constant base load 24x7
electric power that is reliable, clean and without the shortcomings of the existing grid infrastructure or intermittent sources such as wind and solar. This need is
especially acute in the commercial and industrial customer segments, which represent 68% of global electricity consumption, according to Marketline, where cost
and reliability can have a direct impact on profitability and business sustainability.
Increasing focus on reducing harmful emissions. The electric power sector, which today produces more greenhouse gases than any other sector of the
global economy, is under increasing pressure to do its part to reduce such emissions. Policy initiatives to reduce harmful emissions from power generation are
widespread, including the adoption of renewable portfolio standards or mandated targets for low- or zero-carbon power generation.
Lack of access to affordable and reliable electricity in developing countries. Building a centralized grid system, in addition to its inherent limitations, can
also be infeasible in developing countries due to the lack of adequate capital for upfront investment. We believe these countries are likely to develop a hybrid
solution consisting of both centralized and distributed electrical power infrastructure to accelerate the availability of power.
8
Our Solution
The Bloom Energy Server delivers reliable, resilient, clean and affordable energy, particularly in areas of high electricity costs, through its advanced
distributed power generation system that is customizable, always-on and a source of primary base load power.
The Bloom Energy Server is based on our proprietary solid oxide fuel cell technology which converts fuel into electricity through an electrochemical
process without combustion. The primary input to the system is standard low-pressure natural gas or biogas from local gas lines. The high-quality electrical output
of our Energy Server is connected to the customer’s main electrical feed thereby avoiding the transmission and distribution losses associated with a centralized grid
system. Each Bloom Energy Server is modular and composed of independent 50-kilowatt power modules. A typical configuration includes multiple power modules
in a single Energy Server and can produce 250 kilowatts of power in a footprint roughly equivalent to that of half a standard 30 foot shipping container, or
approximately 125 times more space-efficient than solar power generation. Any number of these Energy Server systems can be clustered together in various
configurations to form solutions from hundreds of kilowatts to many tens of megawatts. The Bloom Energy Server is easily integrated into corporate environments
due to its aesthetically attractive design, compact space requirement, and minimal noise profile.
Our Value Proposition
Our value proposition has five key elements which allow us to deliver a better electron: reliability, resiliency, cost savings and predictability, sustainability
and personalization. We provide a complete, integrated “behind-the-meter” solution including installation, equipment, service, maintenance and, in some cases,
bundled fuel. The five elements of our value proposition emphasize those areas where there is a strong customer need and where we believe we can deliver superior
performance.
Reliability. Our Energy Servers deliver always-on, 24x7 base load power with very high availability of power, mission-critical reliability and grid-
independent capabilities. The Bloom Energy Server can be configured to eliminate the need for traditional backup power equipment such as diesel generators,
batteries and uninterruptible power systems.
Resiliency. Our Energy Servers avoid the vulnerabilities of conventional transmission and distribution lines by generating power on-site where the
electricity is consumed. The system operates at very high availability due to its modular and fault-tolerant design which includes multiple independent power
generation modules that can be hot-swapped. Importantly, our systems utilize the existing natural gas infrastructure which is a redundant underground mesh
network.
Cost Predictability. In contrast to the rising and unpredictable cost outlook for grid electricity, we offer our customers the ability to lock in cost for electric
power (other than the price of natural gas) over the long-term. In the regions where the majority of our Energy Servers are deployed, our solution typically provides
electricity to our customers at a cost that is competitive with traditional grid power prices. In addition, our solution provides greater cost predictability versus rising
grid prices. Moreover, we provide customers with a solution that includes all of the fixed equipment and maintenance costs for the life of the contract.
Sustainability. In operation, Bloom’s Energy Servers uniquely address both the causes and consequences of climate change. Our projects lower carbon
emissions by displacing less efficient grid alternatives. We improve air quality, often in vulnerable communities, by generating electricity without combustion, and
our microgrid deployments provide critical resilience from grid instability, driven increasingly by climate related extreme weather events. Our products achieve
this all while using no water during operation and at very high power density, which optimizes land use.
We are focused on constant product innovation, including the continued reduction of carbon emissions from our products and are engaged in multiple efforts
to align Bloom’s product roadmap with a zero emission trajectory. Already we are developing new applications and market opportunities in sectors with dirtier
grids and higher marginal emissions displacement. We are focused on scaling use of renewable natural gas ("RNG") which is derived from biogas produced from
decomposing organic waste from landfills, agricultural waste, and wastewater from treatment facilities, as fuel for our Energy Servers and building capacity within
the market to further broader adoption. RNG is a biogas that has been upgraded to a quality similar to fossil natural gas and has a methane concentration of 90% or
greater.
Additionally, we are pushing technology and business model boundaries to pioneer carbon emissions capture, utilization & storage ("CCUS") potential.
Because carbon and nitrogen never mix in Bloom’s Servers, it is both feasible and cost effective to capture CO2 emissions, which can be stored in underground
geologic formations or utilized in new products or processes. Finally, our research and development efforts continue to focus on preparing our Energy Servers to
utilize renewable hydrogen fuel, a 100% clean fuel which is produced by breaking down water into hydrogen and oxygen using electrolysis. No new greenhouse
gases would be produced when Energy Servers run on hydrogen, and using excess renewable capacity to create hydrogen would also help support further
renewable adoption, compounding emissions benefits.
9
With our distributed, always-on, non-combustion process of generating clean electricity, Bloom works every day to reduce emissions, build resilience, and
promote sustainable communities.
Personalization. The Bloom Energy Server is designed as a platform which can be customized to the needs of each customer to deliver the level of
reliability, resiliency, sustainability, and cost predictability. For example, our Energy Server can be enhanced with AlwaysON Microgrid components to deliver
higher levels of reliability and grid independent operation.
Technology
The fuel cells in our Energy Servers convert fuel, such as natural gas or biogas, into electricity through an electrochemical reaction without burning the fuel.
Each individual fuel cell is composed of three layers: an electrolyte sandwiched between a cathode and an anode. The electrolyte is a solid ceramic material, and
the anode and cathode are made from inks that coat the electrolyte. Unlike other types of fuel cells, no precious metals, corrosive acids or molten materials are
required. These fuel cells are the foundational building block of our Bloom Energy Server. We combine a number of the fuel cells into a stack, and then combine a
number of the stacks to form 50 kilowatt power modules (depending upon the generation required by the customer). Any number of these Energy Server systems
can be arranged in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts. Regardless of the starting size of a solution,
further scaling can be accomplished after the initial solution deployment, creating on-going flexibility and scalability for the customer.
In a primary power configuration, the Bloom Energy Server is interconnected to the customer’s electric grid connection. By regulation, the Bloom Energy
Server must stop exporting power in case of a grid outage. However, Energy Servers can be upgraded to AlwaysON Microgrid solutions as add-on options at any
point in time to enable continuous operation in the event of grid interruption. When in an always-on configuration, the Energy Server continually powers critical
loads while the grid serves as a backup. Should there be a disruption to grid power, the critical load, which is already receiving primary power from the Energy
Server, experiences no disruption. The combination of always-on power from our Energy Server, utilizing the natural gas infrastructure, and secondary feed from
the independent electric grid results in a very highly available and reliable solution.
Research and Development
Our research and development organization has addressed complex applied materials, processing and packaging challenges through the invention of many
proprietary advanced material science solutions. Over more than a decade, Bloom has built a world-class team of solid oxide fuel cell scientists and technology
experts. Our team comprises technologists with degrees in Materials Science, Electrical Engineering, Chemical Engineering, Mechanical Engineering, Civil
Engineering and Nuclear Engineering, and includes more than 46 PhDs. This team has continued to develop innovative technology improvements for our Energy
Servers, achieving increased power density and electrical efficiency, reduced cost and improved reliability.
We have invested and will continue to invest a significant amount in research and development. See our discussion of research and development expenses
in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K for further information.
Competition
We primarily compete against the utility grid based on superior reliability, resiliency, cost savings, predictability and sustainability, all of which can be
customized to the needs of individual customers. The customer has no single alternative solution that provides all of these important attributes in one platform. As
we are able to drive our costs down, we expect our economic value proposition to continue to improve relative to grid power in additional markets.
Other sources of attributes competition include:
• Intermittent solar power. Solar power is intermittent and best suited for addressing peak power requirements, while Bloom provides stable base load
generation. Storage technology is intended to address the intermittency of solar power, but the low power density and efficiency of solar technology
makes the combined solution impractical for most commercial and industrial customers. As a point of comparison, our Energy Servers provide the same
power output in 1/125th of the footprint of a solar installation, allowing us to serve far more of a customer’s energy requirements based on a customer’s
available space.
• Intermittent wind power. Power from wind turbines is intermittent, similar to solar power. Typically wind power is deployed for utility-side, grid-scale
applications in remote locations but not as a customer-side, distributed power alternative due to prohibitive space requirements and permitting issues.
Remote wind farms feeding into the grid are dependent upon the vulnerable transmission and distribution infrastructure to transport power to the point of
consumption.
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• Traditional co-generation systems. These systems deliver a combination of electric power and heat. We believe that we compete favorably because of our
superior electrical efficiencies, significantly less complex deployment (avoiding heating systems integration), better performance on emissions and noise,
superior availability, aesthetic appeal and reliability.
• Traditional backup equipment. As our Energy Servers deliver always-on power, they can obviate the need for traditional backup equipment such as diesel
generators. We generally compete by offering a better integrated, more reliable and cost-effective solution versus these grid-plus-backup systems.
• Other commercially available fuel cells. Basic fuel cell technology is over 100 years old. The Bloom Energy Server uses advanced solid oxide fuel cell
technology which produces electricity directly from oxidizing a fuel. The solid oxide fuel cell that we compete against has a solid oxide or ceramic
electrolyte. The advantages of our technology include higher efficiency, long-term stability, elimination of the need for an external fuel reformer, ability
to use biogas or natural gas as a fuel, low emissions and relatively low cost. There are a variety of fuel cell technologies, characterized by their electrolyte
material, including:
Proton exchange membrane fuel cells ("PEM"). PEM fuel cells typically are used in on-board transportation applications, such as powering forklifts,
because of their compactness and ability for quick starts and stops. However, PEM technology requires an expensive platinum catalyst which is
susceptible to poisoning by trace amounts of impurities in the fuel or exhaust products. These fuel cells require hydrogen as an input source of energy
or an external fuel reformer, which adds to the cost, complexity and electrical inefficiency of the product. As a result, they are not an economically
viable option for stationary base load power generation.
Molten carbonate fuel cells ("MCFC"). MCFCs are high-temperature fuel cells that use an electrolyte composed of a molten carbonate salt mixture
suspended in a porous, chemically inert ceramic matrix of beta-alumina solid electrolyte. The primary disadvantages of current MCFC technology are
durability and lower electrical efficiency compared to solid oxide fuel cells. Current versions of the product are built for 300 kilowatts systems, and
they are monolithic. Smaller sizes are not economically viable. In many applications where the heat produced by these fuel cells is not commercially
or internally useable continuously, mitigating the heat buildup also becomes a liability.
Phosphoric acid fuel cells ("PAFC"). PAFCs are a type of fuel cell that uses liquid phosphoric acid as an electrolyte. Developed in the mid-1960s and
field-tested since the 1970s, they were the first fuel cells to be commercialized. PAFCs have been used for stationary power generators with output in
the 100 kilowatt to 400 kilowatt range. PAFCs are best suited to combined heat and power output applications which require carefully matching and
constant monitoring of power and heat requirements, often making the technology difficult to implement. Further disadvantages include low power
density and poor system output stability.
Intellectual Property
Intellectual property is an essential differentiator for our business, and we seek protection for our intellectual property whenever possible. We rely upon a
combination of patents, copyrights, trade secrets, and trademark laws, along with employee and third party non-disclosure agreements and other contractual
restrictions to establish and protect our proprietary rights.
We have developed a significant patent portfolio to protect elements of our proprietary technology. As of December 31, 2019, we had 240 issued patents and 83
patent applications pending in the United States and we had an international patent portfolio comprised of 124 issued patents and 50 patent applications pending.
Our U.S. patents are expected to expire between 2023 and 2036. While patents are an important element of our intellectual property strategy, our business as a
whole is not dependent on any one patent or any single pending patent application.
We continually review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our
domain names and trademarks and service marks in the United States and in some locations abroad. "Bloom Energy" and the "BE" logo are our registered
trademarks in certain countries for use with Energy Servers and our other products. We also hold registered trademarks for, among others, “Bloom Box," "Bloom
Electrons," "BloomConnect," and “Energy Server" in certain countries. In an effort to protect our brand, as of December 31, 2019, we had 8 registered trademarks
in the United States, 34 registered trademarks in Australia, the European Union, United Kingdom, Japan, South Korea, and Taiwan, and 3 pending applications in
China.
When appropriate, we enforce our intellectual property rights against other parties. For more information about risks related to our intellectual property,
please see the risk factors set forth under the caption "Item 1A. Risk Factors" including the following risks disclosed under the heading "Risks Related to Our
Intellectual Property": "Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual
property rights may be costly," "Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection,
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either of which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours," and "We may need to
defend ourselves against claims that we infringed, misappropriated, or otherwise violated the intellectual property rights of others, which may be time-consuming
and would cause us to incur substantial costs."
Manufacturing Facilities
Our primary manufacturing facilities for the fuel cells and Energy Servers assembly are in Newark, Delaware and Sunnyvale, California. The 226,600
square foot manufacturing facility that we own in Newark is our first purpose-built Bloom Energy manufacturing center and was designed specifically for copy-
exact duplication as we expand, which we believe will help us scale more efficiently. Additionally, we lease various manufacturing facilities in Sunnyvale and
Mountain View, California. Our current lease for our Sunnyvale manufacturing facilities, entered into in April 2005, expires in 2020 and is in the process of being
extended, and our current lease for our manufacturing facility in Mountain View, entered into in December 2011, expires in December 2020. Our California
facilities comprise approximately 281,265 square feet of manufacturing space.
We believe our current manufacturing facilities are adequate to support our business for the next few years. Our Newark facility includes an additional 50
acres available for factory expansion and/or the co-location of supplier plants. Both of our two principal manufacturing facilities are powered by Bloom Energy
Servers.
Supply Chain
Our supply chain has been developed, since our early days as a company, with a group of high quality suppliers that support automotive, semiconductor and
other traditional manufacturing organizations. Many of the components that they produce for us are customized and have long lead time components. We have
been working to mitigate these long lead times by developing second sources and have developed an active business continuity program. We, along with our
suppliers, also purchase long lead items to assure component supply for continuity.
Services
We offer operations and maintenance services agreements for our Energy Servers which are renewable at the election of the customer on an annual basis.
The customer agrees to pay an on-going service fee and in return Bloom monitors, maintains and operates the Bloom Energy Servers systems on the customer's
behalf.
Our in-house service organization had 114 dedicated field service personnel in 17 locations as of December 31, 2019. Standard customer contracts include
service covering all on-going system operation, maintenance, including the periodic refresh and replacement of power modules, and 24x7 remote monitoring and
control.
Each Bloom Energy Server includes a secure connection to redundant Remote Monitoring and Control Center ("RMCC") facilities that are geographically
well separated. There are two RMCC facilities which provide constant monitoring of over 500 system performance parameters and predictive factors. Using
proprietary, internally developed software, the RMCC operators can optimize fleet performance remotely from either RMCC facility. As needed, operators can
dispatch field services to the site to locally restore and enhance performance. The RMCC facilities communicate through a secure network and can operate together
or independently to provide full services for the fleet.
We currently service and maintain all of our Energy Servers.
Customer Financing
We assist our customers by providing innovative financing options which, in addition to aiding in customer purchase, provides us an expanded addressable
customer base. We have developed multiple options for our customers to acquire the power our Energy Servers produce. These offerings provide a range of options
that include the purchase of our systems outright with operations and maintenance services contracts, or the purchase of electricity that our Energy Servers produce
without any upfront costs through various financing vehicles including leases and power purchase agreements ("PPAs") that combine the cost of our systems,
warranty and service, financing, and in some cases fuel into monthly payments based on the electricity produced.
Our largest PPA financing partner, through our Third-Party PPA Program, is the Southern Company, one of the largest utility companies in the United
States. Other project financing partners include Key Bank, Wells Fargo, Credit Suisse, Duke Energy, and Constellation Energy (a subsidiary of Exelon
Corporation).
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Sales, Marketing and Partnerships
We market our Energy Servers primarily through a single direct sales organization supported by project finance, business development, government affairs
and marketing teams. In addition to our internal resources, we work with multiple partners to generate customer leads and develop projects. In 2017, we announced
our first distributorship agreement with SK Group, a company located in the Republic of Korea. Pursuant to this agreement, SK Engineering and Construction is a
distributor of Bloom Energy Servers in the Republic of Korea.
Sustainability
Bloom Energy Servers reduce carbon emissions and save water compared to traditional coal power generation systems, and save water compared to
traditional natural gas power generation systems. Thus, our primary sustainability goal is to maximize sales of Bloom Energy Servers and provide the longest and
most economically sustainable life cycle possible for the fuel cells comprising our Bloom Energy Servers through reliability enhancement programs.
We seek to minimize our environmental footprint with research and development initiatives designed to extend system operating life while reducing
consumption of new material in our Energy Servers. We have an end-to-end recycling approach to recover components from end-of-life units for reuse or recycling
and we have dedicated facilities in our manufacturing locations in Delaware and California to inspect and dismantle components removed during scheduled
maintenance. We have an audit program to identify improvement opportunities at suppliers and also work to reduce their one-way packaging to minimize materials
going to landfills.
These initiatives in combination provide a robust and comprehensive sustainability strategy that focuses both externally on our impact on the wider
environment and internally on responsible design, materials management and recycling.
Permits and Approvals
Each Bloom Energy Server installation must be designed, constructed and operated in compliance with applicable federal, state, international and local
regulations, codes, standards, guidelines, policies and laws. To install and operate our systems, we, our customers and our partners are required to obtain applicable
permits and approvals from local authorities for the installation of Bloom Energy Servers and for the interconnection systems with the local electrical utility.
Government Policies and Incentives
There are varying policy frameworks across the United States and abroad designed to support and accelerate the adoption of clean and/or reliable distributed
power generation technologies such as Bloom Energy Servers. These policy initiatives come in the form of tax incentives, cash grants, performance incentives
and/or specific gas or electric tariffs.
The U.S. federal government provided businesses with an Investment Tax Credit ("ITC") under Section 48 of the Internal Revenue Code, available to the
owner of our Energy Server for systems purchased and placed into service. The credit was equal to 30% of expenditures for capital equipment and installation and
the credit for fuel cells is capped at $1,500 per 0.5 kilowatt of capacity in 2019 and will decrease to 26% in 2020. For more information on the reinstated ITC,
please see Investment Tax Credits in Note 1 of the Notes to the Consolidated Financial Statements.
Our Energy Servers are currently installed at customer sites in eleven states in the United States, each of which has its own enabling policy framework.
Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. Our Energy Servers currently qualify for
tax exemptions, incentives or other customer incentives in many states including the states of California, New Jersey, Connecticut and New York. These policy
provisions are subject to change.
Although we generally are not regulated as a utility, federal, state, international and local government statutes and regulations concerning electricity heavily
influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition
with utilities and the interconnection of customer-owned electricity generation. Federal, state, international and local governments continuously modify these
statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt different rates for commercial customers
on a regular basis. These changes can have a positive or negative impact on our ability to deliver cost savings to customers for the purchase of electricity.
To operate our systems, we obtain interconnection agreements from the applicable local primary electricity and gas utilities. In almost all cases,
interconnection agreements are standard form agreements that have been pre-approved by the local public utility commission or other regulatory body with
jurisdiction over interconnection agreements. As such, no additional regulatory approvals are typically required once interconnection agreements are signed.
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Product safety standards for stationary fuel cell generators have been established by the American National Standards Institute ("ANSI"). These standards
are known as ANSI/CSA FC-1. Our products are designed to meet this standard. Further, we utilize the Underwriters' Laboratory, or UL, to certify compliance with
the standard. Energy Server installation guidance is provided by NFPA 853: Standard for the Installation of Stationary Fuel Cell Power Systems. Installations at
sites are carried out to meet the requirements of this standard.
Government Regulations
Our business is subject to a changing patchwork of environmental laws and regulations that prevail at the federal, state, regional, and local level as well as in
those foreign jurisdictions in which we operate. Most existing environmental laws and regulations preceded the introduction of our innovative fuel cell technology
and were adopted to apply to technologies existing at the time, namely large coal, oil, or gas-fired power plants. Currently, there is generally little guidance from
these agencies on how certain environmental laws and regulations may or may not be applied to our technology. These laws can give rise to liability for
administrative oversight costs, cleanup costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with
environmental laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages. In addition, ensuring we
are in compliance with applicable environmental laws, such as the comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) in the
United States, requires significant time and management resources.
At the federal level, the Federal Energy Regulatory Commission ("FERC") has authority to regulate under various federal energy regulatory laws, wholesale
sales of electric energy, capacity, and ancillary services, and the delivery of natural gas in interstate commerce. Also, several of our power purchase agreement
entities ("PPA Entities") are subject to regulation under FERC with respect to market-based sales of electricity, which requires us to file notices and make other
periodic filings with FERC, which increases our costs and subjects us to additional regulatory oversight.
Several states in which we currently operate, including California, require permits for emissions of hazardous air pollutants based on the quantity of
emissions, most of which require permits only for quantities of emissions that are higher than those observed from our Energy Servers. Other states in which we
operate, including New York, New Jersey, and North Carolina, have specific exemptions for fuel cells. In addition, our project with Delmarva Power & Light
Company is subject to laws and regulations relating to electricity generation, transmission, and sale in Delaware and at the federal level.
Although we generally are not regulated as a utility, federal, state, and local government statutes and regulations concerning electricity heavily influence the
market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, and the rules surrounding
the interconnection of customer-owned electricity generation for specific technologies. In the United States, governments frequently modify these statutes and
regulations. Governments, often acting through state utility or public service commissions, change and adopt different requirements for utilities and rates for
commercial customers on a regular basis.
For more information about the regulations to which we are subject and the risks to our operations related thereto, please see the risk factors set forth under
the caption "Item 1A - Risk Factors - “Risks Related to Legal Matters and Regulations.”
Backlog
The timing of delivery and installations of our products have a significant impact on the timing of the recognition of product revenue. Many factors can
cause a lag between the time that a customer signs a purchase order and our recognition of product revenue. These factors include the number of Energy Servers
installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, and customer facility construction schedules.
Many of these factors are unpredictable and their resolution is often outside of our or our customers’ control. Customers may also ask us to delay an installation for
reasons unrelated to the foregoing, including delays in their obtaining financing. Further, due to unexpected delays, deployments may require unanticipated
expenses to expedite delivery of materials or labor to ensure the installation meets the timing objectives. These unexpected delays and expenses can be exacerbated
in periods in which we deliver and install a larger number of smaller projects. In addition, if even relatively short delays occur, there may be a significant shortfall
between the revenue we expect to generate in a particular period and the revenue that we are able to recognize. For our installations, revenue and cost of revenue
can fluctuate significantly on a periodic basis depending on the timing of acceptance and the type of financing used by the customer.
See Item 7, Management's Discussion & Analysis of Financial Condition and Results of Operations - Purchase Options -- Delivery and Installation for
additional information on backlog.
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Legal Proceedings
From time to time, we are involved in various legal proceedings or subject to claims arising in the ordinary course of our business. Although the results of
legal proceedings and claims cannot be predicted with certainty, we are not currently party to any legal proceedings the outcome of which, in the opinion of our
management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial
condition or cash flows. For a discussion of legal proceedings, see "Legal Matters" under Note 14, Commitments and Contingencies, in the notes to our
consolidated financial statements.
Employees
As of December 31, 2019, we had 1,518 employees and contractors. We had approximately 1,252 full-time employees worldwide, of which 979 were
located in the United States, 256 were located in India and 17 were located in other countries. We have never experienced a work stoppage, and we believe our
relations with our employees to be good.
Seasonal Trends and Economic Incentives
Our business and results of financial operations are not subject to industry-specific seasonal fluctuations. The desirability of our solution can be impacted by
the availability and value of various governmental, regulatory and tax based incentives which may change over time.
Corporate Facilities
Our corporate headquarters and principal executive offices are located at 4353 North First Street, San Jose, CA 95134, and our telephone number is (408)
543-1500. We entered into the lease for our new corporate headquarters, consisting of 181,000 square feet of multi-floor office space, which commenced in
January 2019 and expires in December 2028. Our headquarters is used for administration, research and development, and sales and marketing and also houses one
of our RMCC facilities.
Please see Item 2 - "Properties" for additional information regarding our facilities.
Available Information
Our website address is www.bloomenergy.com and our investor relations website address is https://investor.bloomenergy.com. Information contained on our
website is not a part of this Annual Report on Form 10-K. Through a link on our website, we make available the following filings as soon as reasonably practicable
after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, of the Exchange
Act, as well as proxy statements and certain filings relating to beneficial ownership of our securities. The SEC also maintains a website at www.sec.gov that
contains all reports that we file or furnish with the SEC electronically. All such filings, including those on our website, are available free of charge.
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ITEM 1A - RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, as well as the other
information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” before you decide to purchase our securities. Many of these risks and uncertainties are beyond our
control, and the occurrence of any of the events or developments described below, or of additional risks and uncertainties not presently known to us or that we
currently deem immaterial, could materially and adversely affect our business, financial condition, operating results and prospects. In such an event, the market
price of our Class A common stock could decline and you could lose all or part of your investment.
This Risk Factor section is divided by topic for ease of reference as follows: Risks Relating to Our Business, Industry and Sales; Risks Related to Our
Products and Manufacturing; Risks Relating to Government Incentive Programs; Risks Related to Legal Matters and Regulations; Risks Relating to Our
Intellectual Property; Risks Relating to Our Financial Condition and Operating Results; Risks Related to Our Liquidity; Risks Related to Our Operations; and Risks
Related to Ownership of Our Common Stock.
Risks Relating to Our Business, Industry and Sales
The distributed generation industry is an emerging market and distributed generation may not receive widespread market acceptance.
The distributed generation industry is still relatively nascent in an otherwise mature and heavily regulated industry, and we cannot be sure that potential
customers will accept distributed generation broadly, or our Energy Server products specifically. Enterprises may be unwilling to adopt our solution over
traditional or competing power sources for any number of reasons including the perception that our technology is unproven, they lack confidence in our business
model, the perceived unavailability of back-up service providers to operate and maintain the Energy Servers, and lack of awareness of our product or their
perception of regulatory or political headwinds. Because this is an emerging industry, broad acceptance of our products and services is subject to a high level of
uncertainty and risk. If the market develops more slowly than we anticipate, our business will be harmed.
Our limited operating history and our nascent industry make evaluating our business and future prospects difficult.
From our inception in 2001 through 2009, we were focused principally on research and development activities relating to our Energy Server technology. We
did not deploy our first Energy Server and did not recognize any revenue until 2009. Since that initial deployment, our business has expanded significantly over a
comparatively short time, given the characteristics of the electric power industry. As a result, we have a limited history operating our business at its current scale.
Furthermore, our Energy Server is a new type of product in the nascent distributed energy industry. Consequently, predicting our future revenue and appropriately
budgeting for our expenses is difficult, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates
or if we adjust our estimates in future periods, our operating results and financial position could be materially and adversely affected.
Our products involve a lengthy sales and installation cycle and if we fail to close sales on a regular and timely basis, our business could be harmed.
Our sales cycle is typically 12 to 18 months but can vary considerably. In order to make a sale, we must typically provide a significant level of education to
prospective customers regarding the use and benefits of our product and our technology. The period between initial discussions with a potential customer and the
eventual sale of even a single product typically depends on a number of factors, including the potential customer’s budget and decision as to the type of financing it
chooses to use as well as the arrangement of such financing. Prospective customers often undertake a significant evaluation process which may further extend the
sales cycle. Once a customer makes a formal decision to purchase our product, the fulfillment of the sales order by us requires a substantial amount of time.
Generally, the time between the entry into a sales contract with a customer and the installation of our Energy Servers can range from nine to twelve months or
more. This lengthy sales and installation cycle is subject to a number of significant risks over which we have little or no control. Because of both the long sales and
long installation cycles, we may expend significant resources without having certainty of generating a sale.
These lengthy sales and installation cycles increase the risk that an installation may be delayed and/or may not be completed. In some instances, a customer
can cancel an order for a particular site prior to installation, and we may be unable to recover some or all of our costs in connection with design, permitting,
installation and site preparations incurred prior to cancellation. Cancellation rates can be between 10% and 20% in any given period due to factors outside of our
control including an inability to install an Energy Server at the customer’s chosen location because of permitting or other regulatory issues, delays or unanticipated
costs in securing interconnection approvals or necessary utility infrastructure, unanticipated
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changes in the cost, or other reasons unique to each customer. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If
we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business could be materially and
adversely affected. Since we do not recognize revenue on the sales of our products until installation and acceptance, a small fluctuation in the timing of the
completion of our sales transactions could cause operating results to vary materially from period to period.
Our Energy Servers have significant upfront costs, and we will need to attract investors to help customers finance purchases.
Our Energy Servers have significant upfront costs. In order to assist our customers in obtaining financing for our products, we have traditional lease
programs with two leasing partners who have prequalified our product and provide financing for customers through various leasing arrangements. In addition to the
traditional lease model, we also offer Power Purchase Agreement Programs, including Third-Party PPAs, in which financing the cost of the Energy Server is
provided by an entity that owns the Energy Servers (an "Operating Company") and funded by a subsidiary investment entity (an "Investment Company") which is
financed by us and/or in combination with Equity Investors. We refer to the Operating Company and its subsidiary Investment Company collectively as a PPA
Entity. In recent periods, the substantial majority of our end customers have elected to finance their purchases, typically through Third Party PPAs.
We will need to grow committed financing capacity with existing partners or attract additional partners to support our growth. Generally, at any point in
time, the deployment of a portion of our backlog is contingent on securing available financing. Our ability to attract third-party financing depends on many factors
that are outside of our control, including the investors’ ability to utilize tax credits and other government incentives, interest rate and/or currency exchange
fluctuations, our perceived creditworthiness and the condition of credit markets generally. Our financing of customer purchases of our Energy Servers is subject to
conditions such as the customer’s credit quality and the expected minimum internal rate of return on the customer engagement, and if these conditions are not
satisfied, we may be unable to finance purchases of our Energy Servers, which would have an adverse effect on our revenue in a particular period. If we are unable
to help our customers arrange financing for our Energy Servers generally, our business will be harmed. Additionally, the Managed Services and Traditional Lease
options, as with all leases, are also limited by the customer’s willingness to commit to making fixed payments regardless of the performance of the Energy Servers
or our performance of our obligations under the customer agreement.
Further, our sales process for transactions that require financing require that we make certain assumptions regarding the cost of financing capital. Actual
financing costs may vary from our estimates due to factors outside of our control, including changes in customer creditworthiness, macroeconomic factors, the
returns offered by other investment opportunities available to our financing partners, and other factors. If the cost of financing ultimately exceeds our estimates, we
may be unable to proceed with some or all of the impacted projects or our revenue from such projects may be less than our estimates.
If we are unable to procure financing partners willing to finance such deployments or if the cost of such financing exceeds our estimates, our business would
be negatively impacted.
The economic benefits of our Energy Servers to our customers depend on the cost of electricity available from alternative sources including local
electric utility companies, which cost structure is subject to change.
We believe that a customer’s decision to purchase our Energy Servers is significantly influenced by the price, the price predictability of electricity generated
by our Energy Servers in comparison to the retail price and the future price outlook of electricity from the local utility grid and other energy sources. The economic
benefit of our Energy Servers to our customers includes, among other things, the benefit of reducing such customer’s payments to the local utility company. The
rates at which electricity is available from a customer’s local electric utility company is subject to change and any changes in such rates may affect the relative
benefits of our Energy Servers. Even in markets where we are competitive today, rates for electricity could decrease and render our Energy Servers uncompetitive.
Several factors could lead to a reduction in the price or future price outlook for grid electricity, including the impact of energy conservation initiatives that reduce
electricity consumption, construction of additional power generation plants (including nuclear, coal or natural gas) and technological developments by others in the
electric power industry which could result in electricity being available at costs lower than those that can be achieved from our Energy Servers. If the retail price of
grid electricity does not increase over time at the rate that we or our customers expect, it could reduce demand for our Energy Servers and harm our business.
Further, the local electric utility may impose “departing load,” “standby,” or other charges, including power factor charges, on our customers in connection
with their acquisition of our Energy Servers, the amounts of which are outside of our control and which may have a material impact on the economic benefit of our
Energy Servers to our customers. Changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed or
incentives granted by such utilities on customers acquiring our Energy Servers could adversely affect the demand for our Energy Servers.
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In some states and countries, the current low cost of grid electricity, even together with available subsidies, does not render our product economically
attractive. If we are unable to reduce our costs to a level at which our Energy Servers would be competitive in such markets, or if we are unable to generate demand
for our Energy Servers based on benefits other than electricity cost savings, such as reliability, resilience, or environmental benefits, our potential for growth may
be limited.
Furthermore, an increase in the price of natural gas or curtailment of availability (e.g., as a consequence or physical limitations or adverse regulatory
conditions for the delivery of production of natural gas) or the inability to obtain natural gas service could make our Energy Servers less economically attractive to
potential customers and reduce demand.
We rely on interconnection requirements and net metering arrangements that are subject to change.
Because our Energy Servers are designed to operate at a constant output twenty-four hours a day, seven days a week, and our customers’ demand for
electricity typically fluctuates over the course of the day or week, there are often periods when our Energy Servers are producing more electricity than a customer
may require, and such excess electricity must be exported to the local electric utility. Many, but not all, local electric utilities provide compensation to our
customers for such electricity under “net metering” programs. Utility tariffs and fees, interconnection agreements and net metering requirements are subject to
changes in availability and terms and some jurisdictions do not allow interconnections or export at all. At times in the past, such changes have had the effect of
significantly reducing or eliminating the benefits of such programs. Changes in the availability of, or benefits offered by, utility tariffs, the net metering
requirements or interconnection agreements in place in the jurisdictions in which we operate on in which we anticipate expanding into in the future could adversely
affect the demand for our Energy Servers.
We currently face and will continue to face significant competition.
We compete for customers, financing partners, and incentive dollars with other electric power providers. Many providers of electricity, such as traditional
utilities and other companies offering distributed generation products, have longer operating histories, have customer incumbency advantages, have access to and
influence with local and state governments, and have access to more capital resources than do we. Significant developments in alternative technologies, such as
energy storage, wind, solar, or hydro power generation, or improvements in the efficiency or cost of traditional energy sources, including coal, oil, natural gas used
in combustion, or nuclear power, may materially and adversely affect our business and prospects in ways we cannot anticipate. We may also face new competitors
who are not currently in the market. If we fail to adapt to changing market conditions and to compete successfully with grid electricity or new competitors, our
growth will be limited which would adversely affect our business results.
We derive a substantial portion of our revenue and backlog from a limited number of customers, and the loss of or a significant reduction in orders from
a large customer could have a material adverse effect on our operating results and other key metrics.
In any particular period, a substantial amount of our total revenue could come from a relatively small number of customers. As an example, in the year
ended December 31, 2019, two customers, The Southern Company and SK (Korea) accounted for approximately 34% and 23% of our total revenue, respectively.
In the year ended December 31, 2018, one customer, The Southern Company accounted for approximately 51% of our total revenue. A unit of The Southern
Company wholly owns a Third-Party PPA, and that entity purchases Energy Servers which are then provided to various end customers under PPAs. The loss of any
large customer order or any delays in installations of new Energy Servers with any large customer would materially and adversely affect our business results.
Our business has been and will continue to be adversely affected by the COVID-19 pandemic.
Risks Relating to Our Products and Manufacturing
We have been and will continue monitoring and adjusting as appropriate our operations in response to the COVID-19 pandemic. Although we have been
able to maintain some of our operations as an “Essential Business” in California and Delaware, other operations have been delayed or suspended under applicable
government orders and guidance. Our remaining operations could be delayed or suspended at any time in the event of changes to applicable government orders or
the interpretation of existing orders.
Our headquarters and certain of our manufacturing facilities are located in Santa Clara County, California. On March 17, 2020, Santa Clara County became
subject to a government mandated “shelter in place” order, which was superseded by an Executive Order issued by the Governor of California that extends
indefinitely. Similarly, effective March 25, 2020, our manufacturing facilities in Newark, Delaware became subject to the Governor of Delaware’s Declaration of a
State of Emergency Due to a Public Health Threat initially issued on March 12, 2020 and in effect until further notice. Additionally our installation activities in all
areas, but especially New York, Connecticut, New Jersey, California and Massachusetts, are
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adversely impacted by similar mandates in these jurisdictions. In response, we have closed our headquarters building and directed employees, unless they are
directly supporting essential manufacturing production operations or maintenance activities, to work from their homes. This has caused and may continue to cause
disruptions in certain of our operations, including our research and development, sales, marketing, installation and operations and maintenance activities. Although
our affected manufacturing facilities continue to operate while these orders are in effect, we cannot provide assurances that the COVID-19 pandemic or additional
governmental actions in response thereto will not further impact our operations (in California, Delaware or elsewhere). For example, if our management,
employees, contractors, customers or affiliates, such as the third party general contractors with which we partner for installations, are affected by illness or by
preventative measures such as social distancing, our operations, demand for our product, and installation, maintenance and oversight activities may be disrupted or
we may be required to incur additional costs in order to maintain operations. In addition, to the extent that any of our employees separate from us in response to the
pandemic or governmental responses to the pandemic, it may be difficult or impossible to replace them.
We are also experiencing delays from certain vendors and suppliers that have been affected more directly by COVID-19, which, in turn, could cause delays
in the manufacturing and installation of our Energy Servers. It may not be possible to find replacement products or supplies, and ongoing delays could affect our
business and growth. For example, our international operations, including in South Korea and India, have been disrupted by the COVID-19 pandemic and by
governmental responses to the pandemic. In India, orders by the National Disaster Management Authority and the Ministry of Home Affairs issued March 24, 2020
have “prescribed a lockdown for containment of COVID-19 Epidemic in the country,” according to the Press Information Bureau of the Government of India.
These orders have had the effect of disrupting the supply chain on which we rely for certain parts critical to our manufacturing and maintenance capabilities, which
impacts both our sale and installation of new products and our operations and maintenance of previously-sold Energy Servers. For example, both the primary and
secondary sources of a particular part on which we rely are in India. We are working on measures to address or mitigate the effect of these circumstances, but we
cannot guarantee that we will succeed in finding alternate suppliers that are able to meet our needs.
Even if we are able to identify alternate suppliers that are able to meet our needs, the international air and sea logistics systems have been heavily impacted
by the COVID-19 pandemic. Air carriers have significantly reduced their passenger and air freight capacity, and many ports are either temporarily closed or have
reduced their hours of operation. Actions by government agencies may further restrict the operations of freight carriers, which would negatively impact our ability
to receive the parts and supplies we need to manufacture our Energy Servers or to deliver them to our customers.
Our 5% Notes and 6% Notes mature in December 2020. We have actively been working on extending the maturity date of these Notes or securing
refinancing, and our efforts have been negatively impacted by the COVID-19 pandemic, which has decreased the availability of credit. If we are unable to secure
an extension or refinancing for the 5% Notes and/or 6% Notes before they mature, we may have insufficient cash to repay such Notes and our financial condition
could be adversely impacted.
We also rely on third party financing for our customer’s purchases of our Energy Servers. If these financiers experience liquidity problems or elect to
suspend or cancel investments in our projects, we may be unable to secure financing for our customer purchases, which in turn impacts our ability to deploy our
Energy Servers and receive cash and recognize revenue. We have already experienced one delayed closing due to a financier’s inability to close in light of its own
liquidity concerns, and we may experience more.
Our installation operations have also been adversely impacted by the COVID-19 pandemic, and these adverse impacts may increase in severity or continue
indefinitely, including following the lifting of “shelter in place” orders. For example, our projects have experienced delays and may continue to experience delays
relating to, among other things, shortages in available labor for design, installation and other work; the effects on the COVID-19 pandemic on our suppliers in
general but especially our general contractors, their sub-contractors, medium-voltage electrical gear suppliers, and a wide range of engineering and construction
related specialist suppliers on whom we rely for successful and timely installations; the completion of work required by gas and electric utilities on which we are
critically dependent; necessary civil and utility inspections; and the review of our permit submissions and issuance of permits with multiple authorities that have
jurisdiction over our activities. Additionally we have experienced delays and interruptions to our installation activities where customers have shut down or
otherwise limited access to their facilities. This may continue to affect our ability to install our systems or increase in severity as the pandemic continues to affect
key markets such as New York, Connecticut, New Jersey, Massachusetts and California.
We are not the only business impacted by these shortages and delays, which means that we may in the future face increased competition for scarce
resources, which may result in continuing delays or increases in the cost of obtaining such services, including increased labor costs and/or fees to expedite
permitting. Additionally, while construction activities have to date been deemed “essential business” and allowed to proceed in many jurisdictions, we have
experienced interruptions and
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delays caused by confusion related to exemptions for “essential business” amongst our suppliers and their sub-contractors. Future changes in applicable
government orders or regulations, or changes in the interpretation of existing orders or regulations, could result in reductions in the scope of permitted construction
activities or prohibitions on such activities. An inability to install our Energy Servers would negatively impact our acceptances, our cash and our revenue.
Additionally, our maintenance activities may be negatively impacted by COVID-19, including heightened health and safety protocols mandated by
governmental orders or our customers that may increase our cost in performing such activities and/or delays or denials of access to customer sites to perform
necessary maintenance activities on previously-sold Energy Servers. If we are delayed in, or unable to, performing scheduled or unscheduled maintenance, our
previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty
and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard
maintenance schedule, we may be subject to increased costs in the future.
We cannot predict at this time the full extent to which COVID-19 will impact our business, results and financial condition, which will depend on many
factors. These include, among others, the extent of harm to public health, the willingness of our employees to travel and work in our manufacturing facilities and at
installation sites even if permitted to do so, the disruption to the global economy and to our potential customer base, and impacts on liquidity and the availability of
capital. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers and partners, and acting to mitigate the impact
of this dynamic and evolving situation, but there is no guarantee that we will be able to do so.
Our future success depends in part on our ability to increase our production capacity, and we may not be able to do so in a cost-effective manner.
To the extent we are successful in growing our business, we may need to increase our production capacity. Our ability to plan, construct, and equip
additional manufacturing facilities is subject to significant risks and uncertainties, including the following:
• The expansion or construction of any manufacturing facilities will be subject to the risks inherent in the development and construction of new facilities,
including risks of delays and cost overruns as a result of factors outside our control such as delays in government approvals, burdensome permitting
conditions, and delays in the delivery of manufacturing equipment and subsystems that we manufacture or obtain from suppliers.
• In order for us to expand internationally, we have entered into joint venture agreements that have allowed us to add manufacturing capability outside of
the United States. Adding manufacturing capacity in any international location will subject us to new laws and regulations including those pertaining to
labor and employment, environmental and export import. In addition, it brings with it the risk of managing larger scale foreign operations.
• We may be unable to achieve the production throughput necessary to achieve our target annualized production run rate at our current and future
manufacturing facilities.
• Manufacturing equipment may take longer and cost more to engineer and build than expected, and may not operate as required to meet our production
plans.
• We may depend on third-party relationships in the development and operation of additional production capacity, which may subject us to the risk that
such third parties do not fulfill their obligations to us under our arrangements with them.
• We may be unable to attract or retain qualified personnel.
If we are unable to expand our manufacturing facilities, we may be unable to further scale our business. If the demand for our Energy Servers or our
production output decreases or does not rise as expected, we may not be able to spread a significant amount of our fixed costs over the production volume, resulting
in a greater than expected per unit fixed cost, which would have a negative impact on our financial condition and our results of operations.
If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.
We must continue to reduce the manufacturing costs for our Energy Servers to expand our market. Additionally, certain of our existing service contracts
were entered into based on projections regarding service costs reductions that assume continued advances in our manufacturing and services processes which we
may be unable to realize. While we have been successful in reducing our manufacturing and services costs to date, the cost of components and raw materials, for
example, could increase in the future. Any such increases could slow our growth and cause our financial results and operational metrics to suffer. In addition, we
may face increases in our other expenses including increases in wages or other labor costs as well as installation, marketing, sales or related costs. We may
continue to make significant investments to drive growth in the future. In
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order to expand into new electricity markets (in which the price of electricity from the grid is lower) while still maintaining our current margins, we will need to
continue to reduce our costs. Increases in any of these costs or our failure to achieve projected cost reductions could adversely affect our results of operations and
financial condition and harm our business and prospects. If we are unable to reduce our cost structure in the future, we may not be able to achieve profitability,
which could have a material adverse effect on our business and our prospects.
If our Energy Servers contain manufacturing defects, our business and financial results could be harmed.
Our Energy Servers are complex products and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects only
discovered once the Energy Server is deployed in the field. Changes in our supply chain or the failure of our suppliers to otherwise provide us with components or
materials that meet our specifications could also introduce defects into our products. In addition, as we grow our manufacturing volume, the chance of
manufacturing defects could increase. Any manufacturing defects or other failures of our Energy Servers to perform as expected could cause us to incur significant
re-engineering costs, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer
satisfaction, market acceptance, and our business reputation.
Furthermore, we may be unable to correct manufacturing defects or other failures of our Energy Servers in a manner satisfactory to our customers, which
could adversely affect customer satisfaction, market acceptance, and our business reputation.
The performance of our Energy Servers may be affected by factors outside of our control, which could result in harm to our business and financial
results.
Field conditions, such as the quality of the natural gas supply and utility processes which vary by region and may be subject to seasonal fluctuations, have
affected the performance of our Energy Servers and are not always possible to predict until the Energy Server is in operation. Although we believe we have
designed new generations of Energy Servers to better withstand the variety of field conditions we have encountered, as we move into new geographies and deploy
new service configurations, we may encounter new and unanticipated field conditions. Adverse impacts on performance may require us to incur significant re-
engineering costs or divert the attention of our engineering personnel from product development efforts. Furthermore, we may be unable to adequately address the
impacts of factors outside of our control in a manner satisfactory to our customers. Any of these circumstances could significantly and adversely affect customer
satisfaction, market acceptance, and our business reputation.
If our estimates of the useful life for our Energy Servers are inaccurate or we do not meet service and performance warranties and guaranties, or is we
fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
We offer certain customers the opportunity to renew their operations and maintenance service agreements on an annual basis, for up to 30 years, at prices
predetermined at the time of purchase of the Energy Server. We also provide performance warranties and guaranties covering the efficiency and output
performance of our Energy Servers. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of
our Energy Servers and their components, including assumptions regarding improvements in power module life that may fail to materialize. We do not have a long
history with a large number of field deployments, and our estimates may prove to be incorrect. Failure to meet these performance warranties and guaranty levels
may require us to replace the Energy Servers at our expense or refund their cost to the customer, or require us to make cash payments to the customer based on
actual performance, as compared to expected performance, capped at a percentage of the relevant equipment purchase prices. We accrue for product warranty costs
and recognize losses on service or performance warranties when required by U.S. GAAP based on our estimates of costs that may be incurred and based on
historical experience. However, as we expect our customers to renew their maintenance service agreements each year, the total liability over time may be more
than the accrual. Actual warranty expenses have in the past been and may in the future be greater than we have assumed in our estimates, the accuracy of which
may be hindered due to our limited history operating at our current scale.
As of December 31, 2019, we had a total of 35 megawatts in total deployed early generation servers, including our first and second generation servers, out
of our total installed base of 456 megawatts. None of these early generation servers are recognized as our property, plant and equipment. We expect that our
deployed early generation Energy Servers, if not upgraded with our more current generation power modules, may continue to perform at a lower output and
efficiency level and, as a result, the maintenance costs may exceed the contracted prices that we expect to generate if our customers continue to renew their
maintenance service agreements with respect to those servers. Further, the Energy Servers held on our consolidated financial statements, including those acquired
through our Managed Services and PPA programs, could be impaired or have their useful life shortened in the future if adequate maintenance services are not
performed or if a determination is made to upgrade the Energy Servers.
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Our business is subject to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining
government permits and other contingencies that may arise in the course of completing installations.
Because we generally do not recognize revenue on the sales of our Energy Servers until installation and acceptance except where a third party is responsible
for installation (such as in our sales in the Republic of Korea), our financial results depend to a large extent on the timeliness of the installation of our Energy
Servers. Furthermore, in some cases, the installation of our Energy Servers may be on a fixed price basis, which subjects us to the risk of cost overruns or other
unforeseen expenses in the installation process.
The construction, installation, and operation of our Energy Servers at a particular site is also generally subject to oversight and regulation in accordance with
national, state, and local laws and ordinances relating to building codes, safety, environmental protection, and related matters, and typically require various local
and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and
permits require periodic renewal. It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations, to design
our Energy Servers to comply with these varying standards, and to obtain all applicable approvals and permits. We cannot predict whether or when all permits
required for a given project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit or utility connection
essential to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, we cannot predict whether the
permitting process will be lengthened due to complexities and appeals. Delay in the review and permitting process for a project can impair or delay our and our
customers’ abilities to develop that project or may increase the cost so substantially that the project is no longer attractive to us or our customers. Furthermore,
unforeseen delays in the review and permitting process could delay the timing of the installation of our Energy Servers and could therefore adversely affect the
timing of the recognition of revenue related to the installation, which could harm our operating results in a particular period.
In addition, the completion of many of our installations depends on the availability of and timely connection to the natural gas grid and the local electric
grid. In some jurisdictions, local utility companies or the municipality have denied our request for connection or have required us to reduce the size of certain
projects. In addition, some municipalities have recently adopted restrictions that prohibit any new construction that allows for the use of natural gas. For more
information regarding these restrictions, please see the risk factor entitled "As a fossil fuel-based technology, we may be subject to a heightened risk of regulation,
to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies." Any delays in our ability to connect with utilities,
delays in the performance of installation-related services, or poor performance of installation-related services by our general contractors or sub-contractors will
have a material adverse effect on our results and could cause operating results to vary materially from period to period.
Furthermore, we rely on the ability of our third-party general contractors to install Energy Servers at our customers’ sites and to meet our installation
requirements. We currently work with a limited number of general contractors, which has impacted and may continue to impact our ability to make installations as
planned. Our work with contractors or their sub-contractors may have the effect of us being required to comply with additional rules (including rules unique to our
customers), working conditions, site remediation, and other union requirements, which can add costs and complexity to an installation project. The timeliness,
thoroughness, and quality of the installation-related services performed by some of our general contractors and their sub-contractors in the past have not always
met our expectations or standards and may not meet our expectations and standards in the future.
Any significant disruption in the operations at our manufacturing facilities could delay the production of our Energy Servers, which would harm our
business and results of operations.
We manufacture our Energy Servers in a limited number of manufacturing facilities, any of which could become unavailable either temporarily or
permanently for any number of reasons, including equipment failure, material supply, public health emergencies or catastrophic weather or geologic events. For
example, several of our manufacturing facilities are located in an area prone to earthquakes. In the event of a significant disruption to our manufacturing process,
we may not be able to easily shift production to other facilities or to make up for lost production, which could result in harm to our reputation, increased costs, and
lower revenues.
The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Servers in a timely manner could prevent
us from delivering our products within required time frames, and could cause installation delays, cancellations, penalty payments, and damage to our
reputation.
We rely on a limited number of third-party suppliers for some of the raw materials and components for our Energy Servers, including certain rare earth
materials and other materials that may be of limited supply. If our suppliers provide insufficient inventory at the level of quality required to meet customer demand
or if our suppliers are unable or unwilling to
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provide us with the contracted quantities (as we have limited or in some case no alternatives for supply), our results of operations could be materially and
negatively impacted. If we fail to develop or maintain our relationships with our suppliers, or if there is otherwise a shortage or lack of availability of any required
raw materials or components, we may be unable to manufacture our Energy Servers or our Energy Servers may be available only at a higher cost or after a long
delay. Such delays could prevent us from delivering our Energy Servers to our customers within required time frames and cause order cancellations. We have had
to create our own supply chain for some of the components and materials utilized in our fuel cells. We have made significant expenditures in the past to develop
our supply chain. In many cases, we entered into contractual relationships with suppliers to jointly develop the components we needed. These activities are time
and capital intensive. Accordingly, the number of suppliers we have for some of our components and materials is limited and, in some cases, sole sourced. Some of
our suppliers use proprietary processes to manufacture components. We may be unable to obtain comparable components from alternative suppliers without
considerable delay, expense, or at all, as replacing these suppliers could require us either to make significant investments to bring the capability in-house or to
invest in a new supply chain partner. Some of our suppliers are smaller, private companies, heavily dependent on us as a customer. If our suppliers face difficulties
obtaining the credit or capital necessary to expand their operations when needed, they could be unable to supply necessary raw materials and components needed to
support our planned sales and services operations, which would negatively impact our sales volumes and cash flows.
Moreover, we have in the past and may in the future experience unanticipated disruptions to operations or other difficulties with our supply chain or
internalized supply processes due to exchange rate fluctuations, volatility in regional markets from where materials are obtained (particularly China and Taiwan),
changes in the general macroeconomic outlook, global trade disputes, political instability, expropriation or nationalization of property, public health emergencies
such as the recent Covid-19 viral outbreak, civil strife, strikes, insurrections, acts of terrorism, acts of war, or natural disasters. The failure by us to obtain raw
materials or components in a timely manner or to obtain raw materials or components that meet our quantity and cost requirements could impair our ability to
manufacture our Energy Servers or increase their costs or service costs of our existing portfolio of Energy Servers under maintenance services agreements. If we
cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our Energy Servers to our
customers within required time frames, which could result in sales and installation delays, cancellations, penalty payments, or damage to our reputation, any of
which could have a material adverse effect on our business and results of operations. In addition, we rely on our suppliers to meet quality standards, and the failure
of our suppliers to meet or exceed those quality standards could cause delays in the delivery of our products, cause unanticipated servicing costs, and cause damage
to our reputation.
Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify suppliers to deliver new
materials and components on a timely basis.
We continue to develop products for emerging markets and, as we move into those markets, must qualify new suppliers to manufacture and deliver the
necessary components required to build and install those new products. Identifying new manufacturing partners is a lengthy process and is subject to significant
risks and uncertainties. If we are unable to identify reliable manufacturing partners in a new market, our ability to expand our business could be limited and our
financial conditions and results of operations could be harmed.
We have, in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of
operations.
We have entered into long-term supply agreements with certain suppliers. Some of these supply agreements provide for fixed or inflation-adjusted pricing,
substantial prepayment obligations and in a few cases, supplier purchase commitments. These arrangements could mean that we end up paying for inventory that
we did not need or that was at a higher price than the market. Further, we face significant specific counterparty risk under long-term supply agreements when
dealing with suppliers without a long, stable production and financial history. Given the uniqueness of our product, many of our suppliers do not have a long
operating history and are private companies that may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may
be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments. We do not know whether we will be able to
maintain long-term supply relationships with our critical suppliers or whether we may secure new long-term supply agreements. Additionally, many of our parts
and materials are procured from foreign suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes
in applicable international trade regulations such as taxes, tariffs or quotas. Any of the foregoing could materially harm our financial condition and our results of
operations.
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We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively
affect our results of operations.
Certain of our suppliers also supply parts and materials to other businesses including businesses engaged in the production of consumer electronics and other
industries unrelated to fuel cells. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of
the items in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers, which could materially harm our
financial condition and our results of operations.
We, and some of our suppliers, obtain capital equipment used in our manufacturing process from sole suppliers and, if this equipment is damaged or
otherwise unavailable, our ability to deliver our Energy Servers on time will suffer.
Some of the capital equipment used to manufacture our products and some of the capital equipment used by our suppliers have been developed and made
specifically for us, are not readily available from multiple vendors, and would be difficult to repair or replace if they did not function properly. If any of these
suppliers were to experience financial difficulties or go out of business or if there were any damage to or a breakdown of our manufacturing equipment and we
could not obtain replacement equipment in a timely manner, our business would suffer. In addition, a supplier’s failure to supply this equipment in a timely manner
with adequate quality and on terms acceptable to us could disrupt our production schedule or increase our costs of production and service.
Possible new tariffs could have a material adverse effect on our business.
Our business is dependent on the availability of raw materials and components for our Energy Servers, particularly electrical components common in the
semiconductor industry, specialty steel products / processing and raw materials. Tariffs imposed on steel and aluminum imports have increased the cost of raw
materials for our Energy Servers and decreased the available supply. Additional new tariffs or other trade protection measures which are proposed or threatened
and the potential escalation of a trade war and retaliation measures could have a material adverse effect on our business, results of operations and financial
condition.
To the extent practicable, given the limitations in supply chain previously discussed, although we currently maintain alternative sources for raw materials,
our business is subject to the risk of price fluctuations and periodic delays in the delivery of certain raw materials, which tariffs may exacerbate. Disruptions in the
supply of raw materials and components could temporarily impair our ability to manufacture our Energy Servers for our customers or require us to pay higher
prices in order to obtain these raw materials or components from other sources, which could affect our business and our results of operations. While it is too early
to predict how the recently enacted tariffs on imported steel will impact our business, the imposition of tariffs on items imported by us from China or other
countries could increase our costs and could have a material adverse effect on our business and our results of operations.
A failure to properly comply (or to comply properly) with foreign trade zone laws and regulations could increase the cost of our duties and tariffs.
We have established two foreign trade zones, one in California and one in Delaware, through qualification with U.S. Customs, and are approved for "zone to
zone" transfers between our California and Delaware facilities. Materials received in a foreign trade zone are not subject to certain U.S. duties or tariffs until the
material enters U.S. commerce. We benefit from the adoption of foreign trade zones by reduced duties, deferral of certain duties and tariffs, and reduced processing
fees, which help us realize a reduction in duty and tariff costs. However, the operation of our foreign trade zones requires compliance with applicable regulations
and continued support of U.S. Customs with respect to the foreign trade zone program. If we are unable to maintain the qualification of our foreign trade zones, or
if foreign trade zones are limited or unavailable to us in the future, our duty and tariff costs would increase, which could have an adverse effect on our business and
results of operations.
Risks Relating to Government Incentive Programs
Our business currently depends on the availability of rebates, tax credits and other financial incentives, and the reduction, modification, or elimination
of such benefits could cause our revenue to decline and harm our financial results.
The U.S. federal government and some state and local governments provide incentives to end users and purchasers of our Energy Servers in the form of
rebates, tax credits, and other financial incentives, such as system performance payments and payments for renewable energy credits associated with renewable
energy generation. In addition, some countries outside the U.S. also provide incentives to end users and purchasers of our Energy Servers. We currently have
operations and sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"), where Renewable Portfolio
Standards ("RPS") are in place to promote the adoption of renewable power generation, including fuel cells. Our Energy Servers have qualified for tax exemptions,
incentives, or other customer incentives in many states including the states of
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California, Connecticut, Massachusetts, New Jersey and New York. Some states have utility procurement programs and/or renewable portfolio standards for which
our technology is eligible. Our Energy Servers are currently installed in eleven U.S. states, each of which may have its own enabling policy framework. We rely on
these governmental rebates, tax credits, and other financial incentives to significantly lower the effective price of the Energy Servers to our customers in the U. S.
and the Asia Pacific region. Our financing partners and Equity Investors in Bloom Electrons programs may also take advantage of these financial incentives,
lowering the cost of capital and energy to our customers. However, these incentives or RPS may expire on a particular date, end when the allocated funding is
exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
For example, the previous federal ITC, a federal tax incentive for fuel cell production, expired on December 31, 2016. Without the availability of the ITC
benefit incentive, we lowered the price of our Energy Servers to ensure the economics to our customers would remain the same as it was prior to losing the ITC
benefit, adversely affecting our gross profit. While the ITC was reinstated by the U.S Congress on February 9, 2018 and made retroactive to January 1, 2017, under
current law it will phase out on December 31, 2022, as noted below:
•
•
•
•
•
the 30% ITC credit was reinstated retroactive to January 1, 2017;
installations that commence construction before January 1, 2020 are eligible for a 30% credit;
installations that commence construction in 2020 are eligible for a 26% credit;
installations that commence construction in 2021 are eligible for a 22% credit; and
installations have to be placed in service by January 1, 2024 or the installations become ineligible for the credit.
The ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit
property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives. In the case of Energy Servers purchased
by PPA Entities, the PPA Entities bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.
As another example, the California Self Generation Incentive Program ("SGIP") is a program administered by the California Public Utilities Commission
("CPUC") which provides incentives to investor-owned utility customers that install eligible distributed energy resources. In July 2016, the CPUC modified the
SGIP to provide a smaller allocation of the incentives available to generating technologies such as our Energy Servers and a larger allocation to storage
technologies. As modified, the SGIP will require all eligible power generation sources consuming natural gas to use a minimum 50% biogas to receive SGIP funds
in 2019 and 100% in 2020. In addition, the CPUC provided a further limitation on the available allocation of funds that any one participant may claim under the
SGIP. The SGIP has been extended until January 1, 2026. Our customer sites accepted benefiting from the SGIP represented approximately 3% and 4% of total
sites accepted for the years ended December 31, 2019 and 2018, respectively.
Changes in federal, state, or local programs or the RPS in the Asia Pacific region could reduce demand for our Energy Servers, impair sales financing, and
adversely impact our business results. The continuation of these programs depends upon political support which to date has been bipartisan and durable.
Nevertheless, one set of political activists aggressively seeks to eliminate these programs while another set seeks to deny access to these programs for any
technology that relies on natural gas, regardless of the technology’s positive contribution to reducing air pollution, reducing carbon emissions or enabling electric
service to be more reliable and resilient.
We rely on tax equity financing arrangements to realize the benefits provided by investment tax credits and accelerated tax depreciation and in the event
these programs are terminated, our financial results could be harmed.
We expect that any Energy Server deployments through financed transactions (including our Bloom Electrons programs, our leasing programs and any
Third-Party PPA Programs) will receive capital from financing parties ("Equity Investors") who derive a significant portion of their economic returns through tax
benefits. Equity Investors are generally entitled to substantially all of the project’s tax benefits, such as those provided by the ITC and Modified Accelerated Cost
Recovery System ("MACRS") or bonus depreciation, until the Equity Investors achieve their respective agreed rates of return. The number of and available capital
from potential Equity Investors is limited, we compete with other energy companies eligible for these tax benefits to access such investors, and the availability of
capital from Equity Investors is subject to fluctuations based on factors outside of our control such as macroeconomic trends and changes in applicable taxation
regimes. Concerns regarding our limited operating history, lack of profitability and that we are only the party who can perform operations and maintenance on our
Energy Servers have made it difficult to attract investors in the past. Our ability to obtain additional financing in the future depends on the continued confidence of
banks and other financing sources in our business model, the market for our Energy Servers, and the continued availability of tax benefits applicable to our Energy
Servers. In addition, conditions in the general economy and financial and credit markets may result in the contraction of available tax equity financing. If we are
unable to enter into tax equity financing agreements with attractive pricing terms, or at all, we may not be able to obtain the
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capital needed to fund our financing programs or use the tax benefits provided by the ITC and MACRS depreciation, which could make it more difficult for
customers to finance the purchase of our Energy Servers. Such circumstances could also require us to reduce the price at which we are able to sell our Energy
Servers and therefore harm our business, our financial condition, and our results of operations.
Risks Related to Legal Matters and Regulations
We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in the delivery and
installation of our Energy Servers.
We are subject to national, state, and local environmental laws and regulations as well as environmental laws in those foreign jurisdictions in which we
operate. Environmental laws and regulations can be complex and may often change. These laws can give rise to liability for administrative oversight costs, cleanup
costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be
significant, and violations may result in substantial fines and penalties or third-party damages. In addition, ensuring we are in compliance with applicable
environmental laws requires significant time and management resources and could cause delays in our ability to build out, equip and operate our facilities as well
as service our fleet, which would adversely impact our business, our prospects, our financial condition, and our operating results. In addition, environmental laws
and regulations such as the Comprehensive Environmental Response, Compensation and Liability Act in the United States impose liability on several grounds
including for the investigation and cleanup of contaminated soil and ground water, for building contamination, for impacts to human health and for damages to
natural resources. If contamination is discovered in the future at properties formerly owned or operated by us or currently owned or operated by us, or properties to
which hazardous substances were sent by us, it could result in our liability under environmental laws and regulations. Many of our customers who purchase our
Energy Servers have high sustainability standards, and any environmental noncompliance by us could harm our reputation and impact a current or potential
customer’s buying decision. Additionally, in many cases we contractually commit to performing all necessary installation work on a fixed-price basis, and
unanticipated costs associated with environmental remediation and/or compliance expenses may cause the cost of performing such work to exceed our revenue.
The costs of complying with environmental laws, regulations, and customer requirements, and any claims concerning noncompliance or liability with respect to
contamination in the future, could have a material adverse effect on our financial condition or our operating results.
The installation and operation of our Energy Servers are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty
with respect to the interpretation of certain environmental laws and regulations to our Energy Servers, especially as these regulations evolve over time.
Bloom is committed to compliance with applicable environmental laws and regulations including health and safety standards, and we continually review the
operation of our Energy Servers for health, safety, and environmental compliance. Our Energy Servers, like other fuel cell technology-based products of which we
are aware, produce small amounts of hazardous wastes and air pollutants, and we seek to ensure that these are handled in accordance with applicable regulatory
standards.
Maintaining compliance with laws and regulations can be challenging given the changing patchwork of environmental laws and regulations that prevail at
the federal, state, regional, and local level. Most existing environmental laws and regulations preceded the introduction of our innovative fuel cell technology and
were adopted to apply to technologies existing at the time (i.e., large coal, oil, or gas-fired power plants). Currently, there is generally little guidance from these
agencies on how certain environmental laws and regulations may or may not be applied to our technology.
For example, natural gas, which is the primary fuel used in our Energy Servers, contains benzene, which is classified as a hazardous waste if it exceeds 0.5
milligrams per liter. A small amount of benzene found in the public natural gas supply (equivalent to what is present in one gallon of gasoline in an automobile fuel
tank which are exempt from federal regulation) is collected by the gas cleaning units contained in our Energy Servers which are typically replaced once every 18 to
24 months by us from customers’ sites. From 2010 to late 2016 and in the regular course of maintenance of the Energy Servers, we periodically replaced the units
in our servers relying upon a federal environmental exemption that permitted the handling of such units without manifesting the contents as containing a hazardous
waste. Although over the years and with the approval of two states, we believed that we operated under the exemption, the U.S. Environmental Protection Agency
("EPA") issued guidance for the first time in late 2016 that differed from our belief and conflicted with the state approvals we had obtained. We have complied
with the new guidance and, given the comparatively small quantities of benzene produced, we do not anticipate significant additional costs or risks from our
compliance with the revised 2016 guidance. However, the EPA has asked us to show cause why it should not collect approximately $1.0 million in fines from us
for the prior period, which we are contesting. Additionally, we paid a nominal fine to an agency in a different state under that state’s environmental laws relating to
the operation of our Energy Server under the exemption prior to the issuance of the revised EPA guidance.
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Another example relates to the very small amounts of chromium in hexavalent form ("CR+6") which our Energy Servers emit at nanometer scale. This
occurs any time a steel super alloy is exposed to high temperatures. CR+6 is found in small concentrations in the air generally. However, exposure to high or
significant concentrations over prolonged periods of time can be carcinogenic. While the small amount of chromium emitted by our Energy Servers is initially in
the hexavalent form, it converts to a non-toxic trivalent form, or CR+3, rapidly after it leaves the Energy Server. In tests we have conducted, air measurements
taken 10 meters from an Energy Server show that the CR+6 is largely converted.
Our Energy Servers do not present any significant health hazard based on our modeling, testing methodology, and measurements. There are several
supporting elements to this position including that the emissions from our Energy Servers are in very low concentrations, are emitted as nano-particles that convert
to the non-hazardous form CR+3 rapidly, are quickly dispersed into the air, and are not emitted in close proximity to locations where people would be expected to
have a prolonged exposure. Nevertheless, we have engineered a technology solution that we are deploying.
Several states in which we currently operate, including California, require permits for emissions of hazardous air pollutants based on the quantity of
emissions, most of which require permits only for quantities of emissions that are higher than those observed from our Energy Servers. Other states in which we
operate, including New York, New Jersey, and North Carolina, have specific exemptions for fuel cells. Some states in which we operate have CR+6 limits which
are an order of magnitude over our operating range. Within California, the Bay Area Air Quality Management District ("BAAQMD") requires a permit for
emissions that are more than 0.00051 lbs/year. Other California regulations require that levels of CR+6 be below 0.00005 µg/m³, which is the level required by
Proposition 65 and which requires notification of the presence of CR+6 unless it can be shown to be at levels that do not pose a significant health risk. We have
determined that the standards applicable in California in this regard are more stringent than those in any other state or foreign location in which we have installed
Energy Servers to date, therefore, deployment of our solution has been focused on California's standards.
There are generally no relevant environmental testing methodology guidelines for a technology such as ours. The standard test method for analyzing
emissions cannot be readily applied to our Energy Servers because it would require inserting a probe into an emission stack. Our servers do not have emission
stacks; therefore, we have to construct an artificial stack on top of our server in order to conduct a test. If we used the testing methodology similar to what the air
districts have used in other large scale industrial products, it would show that we would need to reduce the emissions of CR+6 from our Energy Servers to meet the
most stringent requirements. However, we employed a modified test method that is designed to capture the actual operating conditions of our Energy Servers and
its distinctly different design from legacy power plants and industrial equipment. Based on our modeling, measured results and analysis, we believe we are in
compliance with State of California air regulations. However, it is possible that the California Air Districts will require us to abate or shut down the operations
of certain of our existing Energy Servers on a temporary basis or will seek the imposition of monetary penalties.
While we seek to comply with air quality and emission standards in every region in which we operate, it is possible that certain customers in other regions
may request that we provide the new technology solution for their Energy Servers to comply with the stricter standards imposed by California even though they are
not applicable and even though we are under no contractual obligation to do so. We plan to satisfy these requests from customers. Failure or delay in attaining
regulatory approval could result in our not being able to operate in a particular local jurisdiction.
These examples illustrate that our technology is moving faster than the regulatory process in many instances. It is possible that regulators could delay or
prevent us from conducting our business in some way pending agreement on, and compliance with, shifting regulatory requirements. Such actions could delay the
installation of Energy Servers, could result in penalties, could require modification or replacement or could trigger claims of performance warranties and defaults
under customer contracts that could require us to repurchase their Energy Servers, any of which could adversely affect our business, our financial performance, and
our reputation. In addition, new laws or regulations or new interpretations of existing laws or regulations could present marketing, political or regulatory challenges
and could require us to upgrade or retrofit existing equipment, which could result in materially increased capital and operating expenses.
Furthermore, we have not yet determined whether our Energy Servers will satisfy regulatory requirements in the other states in the U.S. and in international
locations in which we do not currently sell Energy Servers but may pursue in the future.
As a fossil fuel-based technology, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in
our customers’ energy procurement policies.
Although the current generation of Energy Servers running on natural gas produce nearly 50% less carbon emissions compared to the average of U.S.
combustion power generation, the operation of our Energy Servers does produce carbon dioxide ("CO2"), which has been shown to be a contributing factor to
global climate change. As such, we may be negatively impacted by CO2-related changes in applicable laws, regulations, ordinances, rules, or the requirements of
the incentive programs on which we and our customers currently rely. Changes (or a lack of change to comprehensively recognize the risks
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of climate change and recognize the benefit of our technology as one means to maintain reliable and resilient electric service with a lower greenhouse gas emission
profile) in any of the laws, regulations, ordinances, or rules that apply to our installations and new technology could make it illegal or more costly for us or our
customers to install and operate our Energy Servers on particular sites, thereby negatively affecting our ability to deliver cost savings to customers, or we could be
prohibited from completing new installations or continuing to operate existing projects. Certain municipalities in California have already banned the use of
distributed generation products that utilize fossil fuel. Additionally, our customers’ and potential customers’ energy procurement policies may prohibit or limit their
willingness to procure our Energy Servers. Our business prospects may be negatively impacted if we are prevented from completing new installations or our
installations become more costly as a result of laws, regulations, ordinances, or rules applicable to our Energy Servers, or by our customers’ and potential
customers’ energy procurement policies.
Existing regulations and changes to such regulations impacting the electric power industry may create technical, regulatory, and economic barriers
which could significantly reduce demand for our Energy Servers or affect the financial performance of current sites.
The market for electricity generation products is heavily influenced by U.S. federal, state, local, and foreign government regulations and policies as well as
by internal policies and regulations of electric utility providers. These regulations and policies often relate to electricity pricing and technical interconnection of
customer-owned electricity generation. These regulations and policies are often modified and could continue to change, which could result in a significant
reduction in demand for our Energy Servers. For example, utility companies commonly charge fees to larger industrial customers for disconnecting from the
electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could change, thereby increasing the cost to our
customers of using our Energy Servers and making them less economically attractive.
In addition, our project with Delmarva Power & Light Company ("the Delaware Project") is subject to laws and regulations relating to electricity generation,
transmission, and sale in Delaware and at the federal level.
A law governing the sale of electricity from the Delaware Project was necessary to implement part of several incentives that Delaware offered to Bloom to
build our major manufacturing facility ("Manufacturing Center") in Delaware. Those incentives have proven controversial in Delaware, in part because our
Manufacturing Center, while a significant source of continuing manufacturing employment, has not expanded as quickly as projected. A citizen-antagonist
continues to oppose the Delaware Project and seeks support from Delaware officials and others. In 2018, he unsuccessfully petitioned the Delaware Public Service
Commission. Most recently, he unsuccessfully appealed a favorable Order of the Secretary of Delaware’s Department of Natural Resources and Environmental
Control to Delaware’s Environmental Appeals Board (EAB), an administrative entity with authority to review the Secretary’s Orders. The Secretary’s Order at
issue approved permits that enable the upgrade of the Delaware Project. As we expected, the EAB upheld the Secretary’s Order as the appeal was without merit
and raised issues that were outside the scope of the permits and beyond the jurisdiction of the EAB. The Appeal and the opposition to the Delaware Project are
examples of potentially material risks associated with electric power regulation.
At the federal level, FERC has authority to regulate under various federal energy regulatory laws, wholesale sales of electric energy, capacity, and ancillary
services, and the delivery of natural gas in interstate commerce. Also, several of our PPA Entities are subject to regulation under FERC with respect to market-
based sales of electricity, which requires us to file notices and make other periodic filings with FERC, which increases our costs and subjects us to additional
regulatory oversight.
Although we generally are not regulated as a utility, federal, state, and local government statutes and regulations concerning electricity heavily influence the
market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, and the rules surrounding
the interconnection of customer-owned electricity generation for specific technologies. In the United States, governments frequently modify these statutes and
regulations. Governments, often acting through state utility or public service commissions, change and adopt different requirements for utilities and rates for
commercial customers on a regular basis. Changes, or in some cases a lack of change, in any of the laws, regulations, ordinances, or other rules that apply to our
installations and new technology could make it more costly for us or our customers to install and operate our Energy Servers on particular sites and, in turn, could
negatively affect our ability to deliver cost savings to customers for the purchase of electricity.
We may become subject to product liability claims which could harm our financial condition and liquidity if we are not able to successfully defend or
insure against such claims.
We may in the future become subject to product liability claims. Our Energy Servers are considered high energy systems because they use flammable fuels
and may operate at 480 volts. Although our Energy Servers are certified to meet ANSI, IEEE, ASME, and NFPA design and safety standards, if an Energy Server
is not properly handled in accordance with our servicing and handling standards and protocols, there could be a system failure and resulting liability. These claims
could require us to
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incur significant costs to defend. Furthermore, any successful product liability claim could require us to pay a substantial monetary award. Moreover, a product
liability claim could generate substantial negative publicity about our Company and our Energy Servers, which could harm our brand, our business prospects, and
our operating results. While we maintain product liability insurance, our insurance may not be sufficient to cover all potential product liability claims. Any lawsuit
seeking significant monetary damages either in excess of our coverage or outside of our coverage may have a material adverse effect on our business and our
financial condition.
Current or future litigation or administrative proceedings could have a material adverse effect on our business, our financial condition and our results
of operations.
We have been and continue to be involved in legal proceedings, administrative proceedings, claims, and other litigation that arise in the ordinary course of
business. Purchases of our products have also been the subject of litigation. For information regarding pending legal proceedings, please see Item 3 in this Annual
Report on Form 10-K captioned "Legal Proceedings" and footnote 14 to our consolidated financial statements entitled "Commitments and Contingencies." In
addition, since our Energy Server is a new type of product in a nascent market, we have in the past needed and may in the future need to seek the amendment of
existing regulations, or in some cases the development of new regulations, in order to operate our business in some jurisdictions. Such regulatory processes may
require public hearings concerning our business, which could expose us to subsequent litigation.
Unfavorable outcomes or developments relating to proceedings to which we are a party or transactions involving our products such as judgments for
monetary damages, injunctions, or denial or revocation of permits, could have a material adverse effect on our business, our financial condition, and our results of
operations. In addition, settlement of claims could adversely affect our financial condition and our results of operations.
Risks Relating to Our Intellectual Property
Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights
may be costly.
Although we have taken many protective measures to protect our trade secrets including agreements, limited access, segregation of knowledge, password
protections, and other measures, policing unauthorized use of proprietary technology can be difficult and expensive. For example, many of our engineers reside in
California where it is not legally permissible to prevent them from working for a competitor if and when one should exist. Also, litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation may
result in our intellectual property rights being challenged, limited in scope, or declared invalid or unenforceable. We cannot be certain that the outcome of any
litigation will be in our favor, and an adverse determination in any such litigation could impair our intellectual property rights, our business, our prospects, and our
reputation.
We rely primarily on patent, trade secret, and trademark laws and non-disclosure, confidentiality, and other types of contractual restrictions to establish,
maintain, and enforce our intellectual property and proprietary rights. However, our rights under these laws and agreements afford us only limited protection and
the actions we take to establish, maintain, and enforce our intellectual property rights may not be adequate. For example, our trade secrets and other confidential
information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, invalidated,
circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us with a competitive advantage, any of which could
have a material adverse effect on our business, financial condition, or operating results. In addition, the laws of some countries do not protect proprietary rights as
fully as do the laws of the United States. As a result, we may not be able to protect our proprietary rights adequately abroad.
Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, either of which may have a
material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a
competitor. The status of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. As a result, we cannot be certain that
the patent applications that we file will result in patents being issued or that our patents and any patents that may be issued to us in the future will afford protection
against competitors with similar technology. In addition, patent applications filed in foreign countries are subject to laws, rules, and procedures that differ from
those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued in other regions. Furthermore,
even if these patent applications are accepted and the associated patents issued, some foreign countries provide significantly less effective patent enforcement than
in the United States.
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In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around,
either of which would increase costs and may adversely affect our business, our prospects, and our operating results.
We may need to defend ourselves against claims that we infringed, misappropriated, or otherwise violated the intellectual property rights of others,
which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations, or individuals, including our competitors, may hold or obtain patents, trademarks, or other proprietary rights that they may in the
future believe are infringed by our products or services. Although we are not currently subject to any claims related to intellectual property, these companies
holding patents or other intellectual property rights allegedly relating to our technologies could, in the future, make claims or bring suits alleging infringement,
misappropriation, or other violations of such rights, or otherwise assert their rights and by seeking licenses or injunctions. Several of the proprietary components
used in our Energy Servers have been subjected to infringement challenges in the past. We also generally indemnify our customers against claims that the products
we supply infringe, misappropriate, or otherwise violate third party intellectual property rights, and we therefore may be required to defend our customers against
such claims. If a claim is successfully brought in the future and we or our products are determined to have infringed, misappropriated, or otherwise violated a third
party’s intellectual property rights, we may be required to do one or more of the following:
• cease selling or using our products that incorporate the challenged intellectual property;
• pay substantial damages (including treble damages and attorneys’ fees if our infringement is determined to be willful);
• obtain a license from the holder of the intellectual property right, which may not be available on reasonable terms or at all; or
• redesign our products or means of production, which may not be possible or cost-effective.
Any of the foregoing could adversely affect our business, prospects, operating results, and financial condition. In addition, any litigation or claims, whether
or not valid, could harm our reputation, result in substantial costs and divert resources and management attention.
We also license technology from third parties and incorporate components supplied by third parties into our products. We may face claims that our use of
such technology or components infringes or otherwise violates the rights of others, which would subject us to the risks described above. We may seek
indemnification from our licensors or suppliers under our contracts with them, but our rights to indemnification or our suppliers’ resources may be unavailable or
insufficient to cover our costs and losses.
We have incurred significant losses in the past and we may not be profitable for the foreseeable future.
Risks Relating to Our Financial Condition and Operating Results
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2019, we had an
accumulated deficit of $2.9 billion. We expect to continue to expand our operations, including by investing in manufacturing, sales and marketing, research and
development, staffing systems, and infrastructure to support our growth. We anticipate that we will incur net losses for the foreseeable future. Our ability to achieve
profitability in the future will depend on a number of factors, including:
• growing our sales volume;
• increasing sales to existing customers and attracting new customers;
• expanding into new geographical markets and industry market sectors;
• attracting and retaining financing partners who are willing to provide financing for sales on a timely basis and with attractive terms;
• continuing to improve the useful life of our fuel cell technology and reducing our warranty servicing costs;
• reducing the cost of producing our Energy Servers;
• improving the efficiency and predictability of our installation process;
• improving the effectiveness of our sales and marketing activities;
• attracting and retaining key talent in a competitive marketplace; and
• the amount of stock-based compensation recognized in the period.
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Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.
Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause
our results for a particular period to fall below expectations, resulting in a severe decline in the price of our Class A common stock.
Our financial condition and results of operations and other key metrics have fluctuated significantly in the past and may continue to fluctuate in the future
due to a variety of factors, many of which are beyond our control. For example, the amount of product revenue we recognize in a given period is materially
dependent on the volume of installations of our Energy Servers in that period and the type of financing used by the customer.
In addition to the other risks described herein, the following factors could also cause our financial condition and results of operations to fluctuate on a
quarterly basis:
• the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting
requirements, utility requirements, environmental, health, and safety requirements, weather, and customer facility construction schedules;
• size of particular installations and number of sites involved in any particular quarter;
• the mix in the type of purchase or financing options used by customers in a period, the geographical mix of customer sales, and the rates of return required
by financing parties in such period;
• whether we are able to structure our sales agreements in a manner that would allow for the product and installation revenue to be recognized upfront at
acceptance;
• delays or cancellations of Energy Server installations;
• fluctuations in our service costs, particularly due to unexpected costs of servicing and maintaining Energy Servers;
• weaker than anticipated demand for our Energy Servers due to changes in government incentives and policies or due to other conditions;
• fluctuations in our research and development expense, including periodic increases associated with the pre-production qualification of additional tools as
we expand our production capacity;
• interruptions in our supply chain;
• the length of the sales and installation cycle for a particular customer;
• the timing and level of additional purchases by existing customers;
• unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements by local authorities at
particular sites, utility requirements and environmental, health, and safety requirements;
• disruptions in our sales, production, service or other business activities resulting from disagreements with our labor force or our inability to attract and
retain qualified personnel; and
• unanticipated changes in federal, state, local, or foreign government incentive programs available for us, our customers, and tax equity financing parties.
Fluctuations in our operating results and cash flow could, among other things, give rise to short-term liquidity issues. In addition, our revenue, key operating
metrics, and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have an adverse effect on
the price of our Class A common stock.
If we fail to manage our growth effectively, our business and operating results may suffer.
Our current growth and future growth plans may make it difficult for us to efficiently operate our business, challenging us to effectively manage our capital
expenditures and control our costs while we expand our operations to increase our revenue. If we experience a significant growth in orders without improvements
in automation and efficiency, we may need additional manufacturing capacity and we and some of our suppliers may need additional and capital intensive
equipment. Any growth in manufacturing must include a scaling of quality control as the increase in production increases the possible impact of manufacturing
defects. In addition, any growth in the volume of sales of our Energy Servers may outpace our ability to engage sufficient and experienced personnel to manage the
higher number of installations and to engage contractors to complete installations on a timely basis and in accordance with our expectations and standards. Any
failure to manage our growth
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effectively could materially and adversely affect our business, our prospects, our operating results, and our financial condition. Our future operating results depend
to a large extent on our ability to manage this expansion and growth successfully.
The accounting treatment related to our revenue-generating transactions is complex, and if we are unable to attract and retain highly qualified
accounting personnel to evaluate the accounting implications of our complex or non-routine transactions, our ability to accurately report our financial results
may be harmed.
Our revenue-generating transactions include traditional leases, Managed Services Agreements, sales to international channel partners and PPA transactions,
all of which are accounted for differently in our financial statements. Many of the accounting rules related to our financing transactions are complex and require
experienced and highly skilled personnel to review and interpret the proper accounting treatment with respect thereto. Competition for senior finance and
accounting personnel in the San Francisco Bay Area who have public company reporting experience is intense, and if we are unable to recruit and retain personnel
with the required level of expertise to evaluate and accurately classify our revenue-producing transactions, our ability to accurately report our financial results may
be harmed.
We reached a determination to restate certain of our previously issued consolidated financial statements as a result of the identification of material
misstatements in previously issued financial statements, which resulted in unanticipated costs and may affect investor confidence and raise reputational issues.
As discussed in the Explanatory Note, in Note 2, Restatement and Revision of Previously Issued Financial Statements, and in Note 18, Unaudited Selected
Quarterly Financial Data, in this Annual Report on Form 10-K for the year ended December 31, 2019, we reached a determination to restate our consolidated
financial statements and related disclosures for the periods disclosed in those notes after misstatements in our accounting treatment of some of our complex or non-
routine transactions were identified. The restatement also included corrections for previously identified immaterial uncorrected misstatements in the impacted
periods. As a result, we have incurred unanticipated costs for accounting and legal fees in connection with or related to the restatement, and have become subject to
a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational risks
for our business, both of which could harm our business and financial results.
We recently identified a material weakness in our internal control over financial reporting related to the accounting for complex or non-routine
transactions. If we do not effectively remediate the material weakness or if we otherwise fail to maintain effective internal control over financial reporting, our
ability to report our financial results on a timely and an accurate basis may adversely affect the market price of our Class A common stock.
The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") requires, among other things, that public companies evaluate the effectiveness of their internal
control over financial reporting and disclosure controls and procedures. As a recently public company and as an emerging growth company, we elected to delay
adopting the requirements of the Sarbanes-Oxley Act as is our option under the Sarbanes-Oxley Act. While we have not yet adopted the requirements under
Section 404B of the Sarbanes-Oxley Act, we did identify a material weakness in internal control over financial reporting at December 31, 2019, as we did not
design and maintain an effective control environment with a sufficient complement of resources with an appropriate level of accounting knowledge, expertise and
training to evaluate the accounting implications of complex or non-routine transactions commensurate with our financial reporting requirements. Please see Item
9A, Controls and Procedures, in this Annual Report on Form 10-K for additional information regarding the identified material weakness and our actions to date to
remediate the material weakness. Subsequent testing by us or our independent registered public accounting firm, which has not yet performed an audit of our
internal control over financial reporting, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material
weaknesses.
To comply with Section 404B, we may incur substantial costs, expend significant management time on compliance-related issues, and hire additional
accounting, financial, and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404B in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal
control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory
authorities, which would require additional financial and management resources. Any failure to maintain effective disclosure controls and procedures or internal
control over financial reporting could have a material adverse effect on our business and operating results and cause a decline in the price of our Class A common
stock. For further discussion on Section 404 compliance, see our Risk Factor: "We are an 'emerging growth company' and we cannot be certain if the reduced
disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors and may make it more difficult
to compare our performance with other public companies."
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Our ability to use our deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax
liability.
We may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal and state income
tax purposes. Our net operating loss carryforwards ("NOLs") will expire, if unused, beginning in 2022 and 2028, respectively. A lack of future taxable income
would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), a
corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Changes in our stock
ownership as well as other changes that may be outside of our control could result in ownership changes under Section 382 of the Code, which could cause our
NOLs to be subject to certain limitations. Our NOLs may also be impaired under similar provisions of state law. Our deferred tax assets, which are currently fully
reserved with a valuation allowance, may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
Risks Relating to Our Liquidity
We must maintain customer confidence in our liquidity, including in our ability to timely service our debt obligations, and long-term business prospects
in order to grow our business.
Currently, we are the only provider able to fully support and maintain our Energy Servers. If potential customers believe we do not have sufficient capital or
liquidity to operate our business over the long-term or that we will be unable to maintain their Energy Servers and provide satisfactory support, customers may be
less likely to purchase or lease our products, particularly in light of the significant financial commitment required. In addition, financing sources may be unwilling
to provide financing on reasonable terms. Similarly, suppliers, financing partners, and other third parties may be less likely to invest time and resources in
developing business relationships with us if they have concerns about the success of our business.
Accordingly, in order to grow our business, we must maintain confidence in our liquidity and long-term business prospects among customers, suppliers,
financing partners, and other parties. This may be particularly complicated by factors such as:
• our limited operating history at a large scale;
• the size of our debt obligations;
• our lack of profitability;
• unfamiliarity with or uncertainty about our Energy Servers and the overall perception of the distributed generation market;
• prices for electricity or natural gas in particular markets;
• competition from alternate sources of energy;
• warranty or unanticipated service issues we may experience;
• the environmental consciousness and perceived value of environmental programs to our customers;
• the size of our expansion plans in comparison to our existing capital base and the scope and history of operations;
• the availability and amount of tax incentives, credits, subsidies or other incentive programs; and
• the other factors set forth in this “Risk Factors” section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if unfounded,
would likely harm our business.
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Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our
financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
As of December 31, 2019, we and our subsidiaries had approximately $636.8 million of total consolidated indebtedness, of which an aggregate of $401.4
million represented indebtedness that is recourse to us, of which $325.4 million is classified as current and $76.0 million is classified as non-current. Of this $401.4
million debt, $273.4 million represented debt under our 6% Notes, $90.0 million represented debt under our 10% Notes, and $36.5 million represented debt under
our 5% Notes. In addition, our PPA Entities’ outstanding indebtedness of $235.4 million represented indebtedness that is non-recourse to us. The agreements
governing our and our PPA Entities’ outstanding indebtedness contain, and other future debt agreements may contain, covenants imposing operating and financial
restrictions on our business that limit our flexibility including, among other things:
• borrow money;
• pay dividends or make other distributions;
• incur liens;
• make asset dispositions;
• make loans or investments;
• issue or sell share capital of our subsidiaries;
• issue guaranties;
• enter into transactions with affiliates;
• merge, consolidate or sell, lease or transfer all or substantially all of our assets;
• require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, thereby reducing the
funds available for other purposes such as working capital and capital expenditures;
• make it more difficult for us to satisfy and comply with our obligations with respect to our indebtedness;
• subject us to increased sensitivity to interest rate increases;
• make us more vulnerable to economic downturns, adverse industry conditions, or catastrophic external events;
• limit our ability to withstand competitive pressures;
• limit our ability to invest in new business subsidiaries that are not PPA Entity-related;
• reduce our flexibility in planning for or responding to changing business, industry, and economic conditions; and/or
• place us at a competitive disadvantage to competitors that have relatively less debt than we have.
Our debt agreements and our PPA Entities’ debt agreements require the maintenance of financial ratios or the satisfaction of financial tests such as debt
service coverage ratios and consolidated leverage ratios. Our and our PPA Entities’ ability to meet these financial ratios and tests may be affected by events beyond
our control and, as a result, we cannot assure you that we will be able to meet these ratios and tests. Upon the occurrence of events such as a change in control of
our Company, significant asset sales or mergers or similar transactions, the liquidation or dissolution of our Company or the cessation of our stock exchange
listing, holders of our 6% Notes have the right to cause us to repurchase for cash any or all of such outstanding notes at a repurchase price in cash equal to 100% of
the principal amount thereof, plus accrued and unpaid interest thereon. We cannot provide assurance that we would have sufficient liquidity to repurchase such
notes. Furthermore, our financing and debt agreements, such as our 6% Notes and our 10% Notes, contain events of default. If an event of default were to occur,
the trustee or the lenders could, among other things, terminate their commitments and declare outstanding amounts due and payable and our cash may become
restricted. We cannot provide assurance that we would have sufficient liquidity to repay or refinance our indebtedness if such amounts were accelerated upon an
event of default. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may, as a result, be accelerated and become
due and payable as a consequence. We may be unable to pay these debts in such circumstances. If we were unable to repay those amounts, lenders could proceed
against the collateral granted to them to secure repayment of those amounts. We cannot assure you that the collateral will be sufficient to repay in full those
amounts. We cannot provide assurance that the operating and financial restrictions and covenants in these agreements will not adversely affect our ability to
finance our future operations or capital needs, or our ability to engage in other business activities that may be in our interest or our ability to react to adverse market
developments.
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As of December 31, 2019, we and our subsidiaries have approximately $636.8 million of total consolidated indebtedness, including $337.6 million in short-
term debt and $299.2 million in long-term debt. In addition, our 10% Notes contain restrictions on our ability to issue additional debt and both the 6% Notes and
10% Notes limit our ability to provide collateral for any additional debt. Given our current level of indebtedness, the restrictions on additional indebtedness
contained in the 10% Notes and the fact that most of our assets serve as collateral to secure existing debt, it may be difficult for us to secure additional debt
financing at an attractive cost, which may in turn impact our ability to expand our operations and our product development activities and to remain competitive in
the market.
In addition, our substantial level of indebtedness could limit our ability to obtain required additional financing on acceptable terms or at all for working
capital, capital expenditures, and general corporate purposes. Any of these risks could impact our ability to fund our operations or limit our ability to expand our
business, which could have a material adverse effect on our business, our financial condition, our liquidity, and our results of operations. Our liquidity needs could
vary significantly and may be affected by general economic conditions, industry trends, performance, and many other factors not within our control.
We may not be able to generate sufficient cash to meet our debt service obligations.
Our ability to generate sufficient cash to make scheduled payments on our debt obligations will depend on our future financial performance, which will be
affected by a range of economic, competitive, and business factors, many of which are outside of our control.
We finance a significant volume of Energy Servers and receive equity distributions from certain of the PPA Entities that purchase the Energy Servers and
other project intangibles through a series of milestone payments. The milestone payments and equity distributions contribute to our cash flow. These PPA Entities
are separate and distinct legal entities, do not guarantee our debt obligations, and have no obligation, contingent or otherwise, to pay amounts due under our debt
obligations or to make any funds available to pay those amounts, whether by dividend, distribution, loan, or other payments. It is possible that the PPA Entities may
not contribute significant cash to us.
If we do not generate sufficient cash to satisfy our debt obligations, including interest payments, or if we are unable to satisfy the requirement for the
payment of principal at maturity or other payments that may be required from time to time under the terms of our debt instruments, we may have to undertake
alternative financing plans such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments, or seeking to raise additional
capital. We cannot provide assurance that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales and
the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be
available or permitted under the terms of our various debt instruments then in effect. Furthermore, the ability to refinance indebtedness would depend upon the
condition of the finance and credit markets at the time which have in the past been, and may in the future be, volatile. Our inability to generate sufficient cash to
satisfy our debt obligations or to refinance our obligations on commercially reasonable terms or on a timely basis would have an adverse effect on our business, our
results of operations and our financial condition.
Certain of our outstanding convertible debt securities may be required to be settled in cash, which could have a material effect on our financial position.
Certain listing standards of The New York Stock Exchange limit the number of shares we may deliver upon conversion of our outstanding convertible notes
that we amended in March of 2020 unless we first obtain the approval of our stockholders to issue shares in excess of that amount. We may never obtain such
stockholder approval. To comply with these listing standards, the number of shares that we may issue upon conversion of our outstanding convertible notes will be
limited to an amount that does not exceed these limitations, until we have obtained stockholder approval to issue additional shares. Any shares that would
otherwise have been deliverable upon conversion in the absence of this limitation will instead be settled in cash based on the applicable daily conversion values
during the relevant period. We may not have the funds available to settle such conversions in cash. Our inability to settle such conversions in cash by the required
conversion date would be a default under the agreements that govern our convertible notes.
Under some circumstances, we may be required to or elect to make additional payments to our PPA Entities or the Power Purchase Agreement Program
Equity Investors.
Three of our PPA Entities are structured in a manner such that, other than the amount of any equity investment we have made, we do not have any further
primary liability for the debts or other obligations of the PPA Entities. All of our PPA Entities that operate Energy Servers for end customers have significant
restrictions on their ability to incur increased operating costs, or could face events of default under debt or other investment agreements if end customers are not
able to meet their payment
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obligations under PPAs or if Energy Servers are not deployed in accordance with the project’s schedule. In three cases, if our PPA Entities experience unexpected,
increased costs such as insurance costs, interest expense or taxes or as a result of the acceleration of repayment of outstanding indebtedness, or if end customers are
unable or unwilling to continue to purchase power under their PPAs, there could be insufficient cash generated from the project to meet the debt service obligations
of the PPA Entity or to meet any targeted rates of return of Equity Investors. If a PPA Entity fails to make required debt service payments, this could constitute an
event of default and entitle the lender to foreclose on the collateral securing the debt or could trigger other payment obligations of the PPA Entity. To avoid this, we
could choose to contribute additional capital to the applicable PPA Entity to enable such PPA Entity to make payments to avoid an event of default, which could
adversely affect our business or our financial condition. Under PPA Company IV’s note purchase agreement, PPA Company IV is obligated to offer to repay all
outstanding debt in the event that at any time we fail to own (directly or indirectly) at least 50.1% of the equity interest of PPA Company IV not owned by the
Equity Investor(s). Upon receipt of such offer, the lenders may waive that obligation or elect to require PPA Company IV to prepay all remaining amounts owed
under PPA Company IV’s project debt. The obligations under PPA Company IV have not been triggered as of December 31, 2019.
We may have conflicts of interest with our PPA Entities.
Risks Relating to Our Operations
In most of our PPA Entities, we act as the managing member and are responsible for the day-to-day administration of the project. However, we are also a
major service provider for each PPA Entity in our capacity as the operator of the Energy Servers under an operations and maintenance agreement. Because we are
both the administrator and the manager of our PPA Entities, as well as a major service provider, we face a potential conflict of interest in that we may be obligated
to enforce contractual rights that a PPA Entity has against us in our capacity as a service provider. By way of example, the PPA Entity may have a right to payment
from us under a warranty provided under the applicable operations and maintenance agreement, and we may be financially motivated to avoid or delay this liability
by failing to promptly enforce this right on behalf of the PPA Entity. While we do not believe that we had any conflicts of interest with our PPA Entities as of
December 31, 2019, conflicts of interest may arise in the future which cannot be foreseen at this time. In the event that prospective future Equity Investors and debt
financing partners perceive there to exist any such conflicts, it could harm our ability to procure financing for our PPA Entities in the future, which could have a
material adverse effect on our business.
If we are unable to attract and retain key employees and hire qualified management, technical, engineering, and sales personnel, our ability to compete
and successfully grow our business could be harmed.
We believe that our success and our ability to reach our strategic objectives are highly dependent on the contributions of our key management, technical,
engineering, and sales personnel. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our
products and services and negatively impact our business, prospects, and operating results. In particular, we are highly dependent on the services of Dr. Sridhar, our
Chairman and President and Chief Executive Officer, and other key employees. None of our key employees is bound by an employment agreement for any specific
term. In addition, Randy Furr, our Chief Financial Officer, has announced his intention to retire effective March 31, 2020 and we have identified his successor who
is expected to join us on April 1, 2020. We cannot assure you that we will be able to successfully attract and retain senior leadership necessary to grow our
business. Furthermore, there is increasing competition for talented individuals in our field, and competition for qualified personnel is especially intense in the San
Francisco Bay Area where our principal offices are located. Our failure to attract and retain our executive officers and other key management, technical,
engineering, and sales personnel could adversely impact our business, our prospects, our financial condition, and our operating results. In addition, we do not have
“key person” life insurance policies covering any of our officers or other key employees.
A breach or failure of our networks or computer or data management systems could damage our operations and our reputation.
Our business is dependent on the security and efficacy of our networks and computer and data management systems. For example, all of our Energy Servers
are connected to and controlled and monitored by our centralized remote monitoring service, and we rely on our internal computer networks for many of the
systems we use to operate our business generally. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our
infrastructure, including the network that connects our Energy Servers to our remote monitoring service, may be vulnerable to breaches, unauthorized access,
misuse, computer viruses, or other malicious code and cyber-attacks that could have a material adverse impact on our business and our Energy Servers in the field.
A breach or failure of our networks or computer or data management systems due to intentional actions such as cyber-attacks, negligence, or other reasons could
seriously disrupt our operations or could affect our ability to control or to assess the performance in the field of our Energy Servers and could result in disruption to
our business and potentially legal liability. In addition, if certain of our IT systems failed, our production line might be affected,
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which could impact our business and operating results. These events, in addition to impacting our financial results, could result in significant costs or reputational
consequences.
Our headquarters and other facilities are located in an active earthquake zone, and an earthquake or other types of natural disasters or resource
shortages, including public safety power shut-offs that have occurred and will continue to occur in California, could disrupt and harm our results of
operations.
We conduct a majority of our operations in the San Francisco Bay area in an active earthquake zone, and certain of our facilities are located within known
flood plains. The occurrence of a natural disaster such as an earthquake, drought, flood, fire, localized extended outages of critical utilities (such as California's
public safety power shut-offs) or transportation systems, or any critical resource shortages could cause a significant interruption in our business, damage or destroy
our facilities, our manufacturing equipment, or our inventory, and cause us to incur significant costs, any of which could harm our business, our financial condition,
and our results of operations. The insurance we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any
particular case.
Expanding operations internationally could expose us to additional risks.
Although we currently primarily operate in the United States, we will seek to expand our business internationally. We currently have operations in Japan,
China, India, and the Republic of Korea (collectively, our "Asia Pacific region"). Managing any international expansion will require additional resources and
controls including additional manufacturing and assembly facilities. Any expansion internationally could subject our business to risks associated with international
operations, including:
• conformity with applicable business customs, including translation into foreign languages and associated expenses;
• lack of availability of government incentives and subsidies;
• challenges in arranging, and availability of, financing for our customers;
• potential changes to our established business model;
• cost of alternative power sources, which could be meaningfully lower outside the United States;
• availability and cost of natural gas;
• difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customers, and the increased travel, infrastructure,
and legal and compliance costs associated with international operations;
• installation challenges which we have not encountered before which may require the development of a unique model for each country;
• compliance with multiple, potentially conflicting and changing governmental laws, regulations, and permitting processes including environmental,
banking, employment, tax, privacy, and data protection laws and regulations such as the EU Data Privacy Directive;
• compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act;
• difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
• restrictions on repatriation of earnings;
• compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and compliance with applicable U.S. tax
laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to
changes in such tax laws; and
• regional economic and political conditions.
As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will
make our Class A common stock less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an emerging growth company ("EGC") as defined in the U.S. legislation Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we
intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGC, including not
being required to comply with the auditor attestation
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requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. We may take advantage of these exemptions for so long as we are an EGC, which could be until December 31, 2023,
the last day of the fiscal year following the fifth anniversary of our IPO. We cannot predict if investors will find our Class A common stock less attractive because
we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A
common stock, and our stock price may be more volatile.
An EGC may elect to provide financial statements in conformance with the U.S. GAAP requirement for transition periods to comply with new or revised
accounting standards. With our not making this election, Section 102(b)(2) of the JOBS Act allows us to delay our adoption of new or revised accounting standards
until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company
revised accounting standards effective dates.
The stock price of our Class A common stock has been and may continue to be volatile.
Risks Relating to Ownership of Our Common Stock
The market price of our Class A common stock has been and may continue to be volatile. In addition to factors discussed in this Risk Factors section, the
market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
• overall performance of the equity markets;
• actual or anticipated fluctuations in our revenue and other operating results;
• changes in the financial projections we may provide to the public or our failure to meet these projections;
• failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company or
our failure to meet these estimates or the expectations of investors;
• the issuance of reports from short sellers that may negatively impact the trading price of our Class A common stock;
• recruitment or departure of key personnel;
• the economy as a whole and market conditions in our industry;
• new laws, regulations, subsidies, or credits or new interpretations of them applicable to our business;
• negative publicity related to problems in our manufacturing or the real or perceived quality of our products;
• rumors and market speculation involving us or other companies in our industry;
• announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, or capital commitments;
• lawsuits threatened or filed against us;
• other events or factors including those resulting from war, incidents of terrorism or responses to these events;
• the expiration of contractual lock-up or market standoff agreements; and
• sales or anticipated sales of shares of our Class A common stock by us or our stockholders.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those
companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. We are currently involved in securities
litigation which may subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur, could cause the market price
of our Class A common stock to decline.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the public
market as and when our Class B common stock converts to Class A common stock. The perception that these sales might occur may also cause the market price of
our common stock to decline. We had a total of 84,549,511 shares of our Class A common stock and 36,486,778 shares of our Class B common stock outstanding
as of
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December 31, 2019. The lock up for our Class B shares expired on January 21, 2019 and these shares are now freely tradeable once converted into Class A shares,
except for any shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act of 1933, as amended ("Securities Act").
Further, as of December 31, 2019, we had an aggregate of $289.3 million in convertible debt, our 6% Notes, under which the outstanding principal and
interest may be converted, at the option of the holders, into an aggregate of 25,715,496 shares of Class B common stock. Upon conversion into Class A common
stock, these shares are freely tradeable, except to the extent these shares are held by our “affiliates” as defined in Rule 144 under the Securities Act.
In addition, as of December 31, 2019, we had options and RSUs outstanding that, if fully exercised or settled, would result in the issuance of 9,454,578
shares of Class A common stock and 18,495,004 shares of Class B common stock. We have filed a registration statement on Form S-8 to register shares reserved
for future issuance under our equity compensation plans. Subject to the satisfaction of applicable vesting requirements, the shares issued upon exercise of
outstanding stock options or settlement of outstanding RSUs will be available for immediate resale in the United States in the open market.
Moreover, certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of
such shares or to include such shares in registration statements that we may file for us or other stockholders.
The dual class structure of our common stock and the voting agreements among certain stockholders have the effect of concentrating voting control of
our Company with KR Sridhar, our Chairman and Chief Executive Officer, and also with those stockholders who held our capital stock prior to the completion
of our IPO including our directors, executive officers and significant stockholders, which limits or precludes your ability to influence corporate matters
including the election of directors and the approval of any change of control transaction, and may adversely affect the trading price of our Class A common
stock.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of December 31, 2019, and after giving effect
to the voting agreements between KR Sridhar, our Chairman and Chief Executive Officer, and certain holders of Class B common stock, our directors, executive
officers, significant stockholders of our common stock, and their respective affiliates collectively held a substantial majority of the voting power of our capital
stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue
to control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval
until the earliest to occur of (i) immediately prior to the close of business on July 27, 2023, (ii) immediately prior to the close of business on the date on which the
outstanding shares of Class B common stock represent less than five percent (5%) of the aggregate number of shares of Class A common stock and Class B
common stock then outstanding, (iii) the date and time or the occurrence of an event specified in a written conversion election delivered by KR Sridhar to our
Secretary or Chairman of the Board to so convert all shares of Class B common stock, or (iv) immediately following the date of the death of KR Sridhar. This
concentrated control limits or precludes Class A stockholders’ ability to influence corporate matters while the dual class structure remains in effect, including the
election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major
corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock
that Class A stockholders may feel are in their best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions
such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time,
of increasing the relative voting power of those remaining holders of Class B common stock who retain their shares in the long-term.
The conversion of the 6% Convertible Promissory Note could result in a significant stockholder with substantial voting control.
The holders of the 6% Convertible Promissory Notes have the option to convert the outstanding principal and interest under the 6% Convertible Promissory
Note to Class B common stock at a conversion price of $11.25 per share at any time after the IPO and prior to maturity of the 6% Convertible Promissory Note in
December 2020. As of December 31, 2019, an aggregate of 21,321,100 shares of Class B common stock is issuable to the Canada Pension Plan Investment Board
(“CPPIB”) upon the conversion of the outstanding principal and interest under the 6% Convertible Promissory Note. This, along with 312,575 shares of Class B
common stock which CPPIB acquired from the exercise of a warrant at IPO, would result, as of December 31, 2019, in CPPIB having approximately 32.50% of the
total voting power with respect to all shares of our Class A common stock (which has one vote per share) and Class B common stock (which has ten votes per
share), voting as a single
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class, and would provide CPPIB significant influence over matters presented to the stockholders for approval and may result in voting decisions by CPPIB that are
not in the best interests of our stockholders generally.
The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
S&P Dow Jones and FTSE Russell have implemented changes to their eligibility criteria for inclusion of shares of public companies on certain indices,
including the S&P 500, namely, to exclude companies with multiple classes of shares of common stock from being added to such indices. In addition, several
shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may
prevent the inclusion of our Class A common stock in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate
governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for
our Class A common stock. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also
adversely affect the value of our Class A common stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price of our
Class A common stock and trading volume could decline.
The market price for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our
business. If industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. In addition, if one or more of the
analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price
would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could
decrease, which might cause our Class A common stock price and trading volume to decline. In addition, certain short sellers of our Class A common stock have
published reports that we believe have negatively impacted the trading price of our Class A common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate
that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in
the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation,
which may never occur, as the only way to realize any future gains on their investments.
Provisions in our charter documents and under Delaware law could make an acquisition of our Company more difficult, may limit attempts by our
stockholders to replace or remove our current management, may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our
directors, officers, or employees, and may limit the market price of our Class A common stock.
Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or
changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:
• require that our board of directors is classified into three classes of directors with staggered three year terms;
• permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
• require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;
• authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
• only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors are authorized to call a special meeting of
stockholders;
• prohibit stockholder action by written consent, which thereby requires all stockholder actions be taken at a meeting of our stockholders;
• establish a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters
requiring stockholder approval even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of
directors and significant corporate transactions such
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as a merger or other sale of our Company or substantially all of our assets;
• expressly authorize the board of directors to make, alter, or repeal our bylaws; and
• establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by
stockholders at annual stockholder meetings.
In addition, our restated certificate of incorporation and our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will
be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim
against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action
asserting a claim against us that is governed by the internal affairs doctrine. Our restated certificate of incorporation and our amended and restated bylaws provide
that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for
the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholder’s ability to
bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which thereby may discourage
lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation and
our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could harm our business, our operating results, and our financial condition.
Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our Company. Section 203
imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.
41
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
The table below presents details for each of our principal properties3:
Facility
Corporate headquarters1
Manufacturing
Manufacturing
Manufacturing
Manufacturing2
Location
San Jose, CA
Sunnyvale, CA
Mountain View, CA
Newark, DE
Newark, DE
Approximate
Square Footage
Held
Lease
Term
181,000 Leased
192.975 Leased
88,290 Leased
148,809 Leased
75,609 Owned
2028
2020
*
**
n/a
* Month to month arrangement.
** Lease terms expire over the period December 2021 through December 2026.
1 Our corporate headquarters is used for administration, research and development, and sales and marketing.
2 Our first purpose-built Bloom Energy manufacturing center for the fuel cells and Energy Servers assembly, and was designed specifically for copy-exact duplication as
we expand, which we believe will help us scale more efficiently.
3 We lease additional office space as field offices in the United States and office and manufacturing space around the world including in India, the Republic of Korea,
China and Taiwan.
We believe our office space and our manufacturing facilities are adequate to support our business for at least the next twelve months.
ITEM 3 - LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Legal Matters" under Note 14 - Commitments and Contingencies, in the notes to our consolidated financial
statements.
We are, and from time to time we may become, involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are
not presently a party to any other legal proceedings that in the opinion of our management and if determined adversely to us, would individually or taken together
have a material adverse effect on our business, operating results, financial condition or cash flows.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
42
Part II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY
SECURITIES
Our Class A common stock is listed on The New York Stock Exchange ("NYSE") under the symbol “BE”. There is no public trading market for our Class B
common stock. On March 16, 2020, there were 637 registered holders of record of our Class A common stock and 363 registered holders of record of our Class B
common stock, and the closing price of our Class A common stock was $5.31 per share as reported on the NYSE.
We have not declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future.
For information about our stock-based compensation plans, see Note 12 - Stock-Based Compensation and Employee Benefit Plans of the financial
statements contained in this Annual Report on Form 10-K.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
We derived the selected consolidated statements of operations data for 2019, 2018 and 2017 and the selected consolidated balance sheet data as
of December 31, 2019 and 2018 from our audited consolidated financial statements included in this Annual Report on Form 10-K. Our historical results are not
necessarily indicative of the results that may be expected in the future. You should read this data together with Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data included in this Annual Report on Form 10-K. The
selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the
consolidated financial statements and related notes included in this Annual Report on Form 10-K.
The Selected Consolidated Financial Statements Data as of and for the year ended December 31, 2018 have been restated, and as of and for the years ended
December 31, 2017 and 2016 have been revised for the correction of misstatements described in Note 2, Restatement and Revision of Previously Issued
Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data. This information should be read in conjunction with the “Explanatory
Note” immediately preceding Item 1 of this Annual Report on Form 10-K, and with Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Selected data from our consolidated statements of operations1 for the years ended December 31, 2019, 2018, 2017 and 2016 are as follows:
Years Ended December 31,
2019 1
2018
2017
2016
As Restated2
As Revised2
(in thousands, except per share amounts)
Total revenue
Total cost of revenue
Gross profit (loss)
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Net loss attributable to Class A and Class B common stockholders
less: deemed dividend to noncontrolling interest
Net loss available to Class A and Class B common stockholders
Net loss per share available to Class A and Class B common stockholders, basic and diluted
$
785,177
$
687,590
97,587
104,168
73,573
152,650
330,391
(232,804)
$
632,648 $
526,898
105,750
365,623 $
381,934
(16,311)
89,135
62,807
118,817
270,759
(165,009) $
51,146
31,926
55,689
138,761
(155,072) $
206,391
309,025
(102,634)
46,849
28,547
61,544
136,940
(239,574)
(304,414)
$
(273,540) $
(276,362) $
(285,843)
(2,454)
(306,868)
(2.67)
$
$
—
(273,540) $
(5.14) $
—
(276,362) $
(26.97) $
—
(285,843)
(28.45)
$
$
$
$
43
1 We adopted ASC 606 in the year ended December 31, 2019 using the modified retrospective method. As a policy election, Topic ASC 606 was applied only to contracts that were not substantially completed as of the date of adoption.
We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the January 1, 2019 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively
adjusted and continue to be reported under the accounting standards in effect for those periods. See Note 1, Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies, in Item 8, Financial
Statements and Supplementary Data, for additional information.
2 We have restated previously disclosed consolidated financial data for the year ended December 31, 2018 and have revised previously disclosed consolidated financial data for the years ended December 31, 2017 and 2016 to correct
misstatements principally related to managed services contracts with customers contracts and related arrangements, as well as other misstatements. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial
Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.
Selected data from our consolidated balance sheets1 as of December 31, 2019, 2018, 2017 and 2016 are as follows:
Cash and cash equivalents
Working capital (deficit)
Total assets
Long-term portion of debt
Total liabilities
Convertible redeemable preferred stock 3
Redeemable noncontrolling interest and noncontrolling interest
Stockholders’ deficit
$
December 31,
2019 1
2018
2017
2016
As Restated2
As Revised2
202,823 $
(101,256)
1,322,591
299,229
1,490,451
—
91,734
(259,594)
(in thousands)
220,728 $
406,632
1,521,794
711,433
1,482,033
—
182,371
(142,610)
103,828 $
143,240
1,248,813
921,205
1,769,367
1,465,841
213,526
(2,199,921)
156,577
111,824
1,214,336
773,346
1,479,602
1,465,841
234,988
(1,966,095)
1 We adopted ASC 606 in the year ended December 31, 2019 using the modified retrospective method. As a policy election, Topic ASC 606 was applied only to contracts that were not substantially completed as of the date of adoption.
We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the January 1, 2019 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively
adjusted and continue to be reported under the accounting standards in effect for those periods. See Note 1, Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies, in Item 8, Financial
Statements and Supplementary Data, for additional information.
2 We have restated previously disclosed consolidated financial data as of December 31, 2018 and have revised previously disclosed consolidated financial data as of December 31, 2017 and 2016 to correct misstatements principally
related to managed services contracts with customers contracts and related arrangements, as well as other misstatements. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, in Item
8, Financial Statements and Supplementary Data, for additional information.
3 All convertible redeemable preferred stock was converted into Class B common stock at the time of our IPO.
Selected Key Operating Metrics
Please see “Key Operating Metrics” included in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for
information regarding how we define our product accepted during the period, billings for product accepted in the period, billings for installation on product
accepted in the period, billings for annual maintenance services agreements, product costs of product accepted, period costs of manufacturing related expenses not
included in product costs and installation costs on product accepted in the period.
Product accepted during the period
44
Years Ended
December 31,
2019
2018
2017
2016
(in 100 kilowatt systems)
1,194
809
622
687
Product costs of product accepted in the period
(per kilowatt)
Period costs of manufacturing related expenses
not included in product costs
Installation costs on product accepted in the
period (per kilowatt)
Dec. 31,
2019
Sept. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Sept. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
Three Months Ended
(in thousands)
$
2,592 $
2,850 $
3,045 $
3,206 $
2,995 $
3,351 $
3,485 $
3,855
4,762
1,969
3,321
6,937
4,191
6,300
3,018
10,785
568
733
627
676
653
1,713
1,967
526
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and
the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere
in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that
involve risks and uncertainties as described under the heading Special Note Regarding Forward-Looking Statements following the Table of Contents of this Annual
Report on Form 10-K. You should review the disclosure under Item 1A - Risk Factors in this Annual Report on Form 10-K for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion
and analysis.
Overview
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial
statements and related notes contained in Item 8 Financial Statements and Supplementary Data.
Restatement and Revision of Previously Issued Consolidated Financial Statements
In this Annual Report on Form 10-K, we have restated our previously issued consolidated financial statements as of and for the year ended December 31,
2018 and revised our previously issued consolidated financial statements as of and for the year ended December 31, 2017. Refer to the “Explanatory Note”
preceding Item 1, Business for background on the restatement and revision, the fiscal periods impacted, control considerations, and other information. As a result,
we have also restated certain previously reported financial information as of and for the year ended December 31, 2018 and revised certain previously reported
financial information as of and for the year ended December 31, 2017 in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations, including but not limited to information within the Results of Operations and Liquidity and Capital Resources sections to conform the discussion with
the appropriate restated and/or revised amounts. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, in Item 8 Financial
Statements and Supplementary Data, for additional information related to the restatement and revision, including descriptions of the misstatements and the impacts
on our consolidated financial statements.
Description of Bloom Energy
Our solution, the Bloom Energy Server, is a stationary power generation platform built for the digital age and capable of delivering highly reliable,
uninterrupted, 24x7 constant power that is also clean and sustainable. The Bloom Energy Server converts standard low-pressure natural gas, biogas or hydrogen
into electricity through an electrochemical process without combustion, resulting in very high conversion efficiencies and lower harmful emissions than
conventional fossil fuel generation. A typical configuration produces 250 kilowatts of power in a footprint roughly equivalent to that of half of a standard thirty-
foot shipping container, or approximately 125 times more space-efficient than solar power generation. 250 kilowatts of power is roughly equivalent to the constant
power requirement of a typical big box retail store. Any number of our Energy Server systems can be clustered together in various configurations to form solutions
from hundreds of kilowatts to many tens of megawatts. We currently primarily target commercial and industrial customers.
We market and sell our Energy Servers primarily through our direct sales organization in the United States, and also have direct and indirect sales channels
internationally. Recognizing that deploying our solutions requires a material financial commitment, we have developed a number of financing options to support
sales of our Energy Servers to customers who lack
45
the financial capability to purchase our Energy Servers directly, who prefer to finance the acquisition using third party financing or who prefer to contract for our
services on a pay-as-you-go model.
Our typical target commercial or industrial customer has historically been either an investment-grade entity or a customer with investment-grade attributes
such as size, assets and revenue, liquidity, geographically diverse operations and general financial stability. We have recently expanded our product and financing
options to the below-investment-grade customers and have also expanded internationally to target customers with deployments on a wholesale grid. Given that our
customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.
Purchase and Lease Options
Initially, we only offered our Energy Servers on a direct purchase basis, in which the customer purchases the product directly from us. In order to expand
our offerings to customers who lack the financial capability to purchase our Energy Servers directly (including customers who are unable to monetize the tax
credits available to purchasers of our Energy Servers) and/or who prefer to lease the product or contract for our services on a pay-as-you-go model, we
subsequently developed the traditional lease ("Traditional Lease"), Managed Services, and power purchase agreement programs ("PPA Programs").
Our capacity to offer our Energy Servers through any of these financed arrangements depends in large part on the ability of the financing party or parties
involved to monetize the related investment tax credits, accelerated tax depreciation and other incentives. Interest rate fluctuations may also impact the
attractiveness of any financing offerings for our customers, and currency exchange fluctuations may also impact the attractiveness of international offerings. The
Traditional Lease, Managed Services and PPA Program options are limited by the creditworthiness of the customer. Additionally, the Managed Services and
Traditional Lease options, as with all leases, are also limited by the customer’s willingness to commit to making fixed payments regardless of the performance of
the Energy Servers or our performance of our obligations under the customer agreement.
In each of our purchase options, we typically perform the functions of a project developer, including identifying end customers and financiers, leading the
negotiations of the customer agreements and financing agreements, securing all necessary permitting and interconnections approvals, and overseeing the design
and construction of the project up to and including commissioning the Energy Servers.
Under each purchase option, we provide warranties and performance guaranties for the Energy Servers’ efficiency and output. We refer to a “warranty” as a
commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to repair or replace the Energy Servers as necessary to
improve performance. If we fail to complete such repair or replacement, or if repair or replacement is impossible, we may be obligated to repurchase the Energy
Servers from the customer or financier. We refer to a “guaranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level
obligates us to make a payment to compensate the beneficiary of such guaranty for the resulting increased cost or diminution in benefits resulting from such failure.
Our obligation to make payments under the guaranty is always contractually capped and represents a contingency linked to our services obligation with no
economic incentive for us to default and force an exercise of the payment obligation.
Under direct purchase and Traditional Lease, the warranties and guaranties are typically included in the price of our Energy Server for the first year. The
warranties and guaranties may be renewed annually at the customer’s option, as an operations and maintenance services agreement, at predetermined prices for a
period of up to 30 years. Historically, our customers and financiers have almost always exercised their option to renew the warranties and guaranties under these
operations and maintenance services agreements.
Under the Managed Services Program, the warranties and guaranties are included for the fixed period specified in the customer agreement. This period is
typically 10 years, which may be extended at the option of the parties for additional years.
Under the PPA Programs, we typically provide warranties and guaranties regarding our Energy Servers’ efficiency to the customer (i.e., the end user of the
electricity generated by our Energy Servers, who is also responsible for the purchase of the fuel required for our Energy Servers’ operations), and we provide
warranties and guaranties regarding our Energy Servers’ output to the financier(s) that purchases our Energy Servers. The warranties and guaranties are typically
included in the price of our Energy Server for the first year and may be renewed annually at the financier’s option, as an operations and maintenance services
agreement, at predetermined prices for a period of up to 30 years. Historically, our financiers have almost always exercised their option to renew the warranties and
guaranties under these operations and maintenance services agreements. We also provide a fixed schedule of prices for each year of the term of our agreements
with our Customers and none of our Customers have failed to renew our operations and maintenance agreements.
46
The substantial majority of bookings made in recent periods are pursuant to the PPA and the Managed Services Programs.
Each of our financing structures is described in further detail below.
Traditional Lease
Under the Traditional Lease arrangement, the customer enters into a lease directly with a financier, which pays us for our Energy Servers purchased
pursuant to a sales agreement (see the description of the Financing Agreement below). We recognize product and installation revenue upon acceptance. After the
standard one-year warranty period, our customers have almost always exercised the option to enter into operations and maintenance services agreements with us,
under which we receive annual service payments from the customer. The price for the annual operations and maintenance services is set at the time we enter into
the Financing Agreement. The term of a lease in a Traditional Lease ranges from 5 to 8 years.
Under a Financing Agreement, we are generally paid the full price of our Energy Servers as if sold as a purchase by the customer based on four milestones.
The four payment milestones are typically as follows: (i) 15% upon execution of the financier's entry into the lease with a customer, (ii) 25% on the day that is 180
days prior to delivery of the Energy Servers, (iii) 40% upon shipment of the Energy Servers, and (iv) 20% upon acceptance of the Energy Servers. The financier
receives title to the Energy Servers upon installation at the customer site and the financier has risk of loss while our Energy Server is in operation on the customer’s
site.
The Financing Agreement provides for the installation of our Energy Servers and includes a standard one-year warranty, to the financier, which includes the
performance guaranties described below, with the warranty offered on an annually renewing basis at the discretion of, and to, the customer. The customer must
provide fuel for the Bloom Energy Servers to operate.
Our direct lease deployments typically provide for warranties and guaranties of both the efficiency and output of our Energy Servers, all of which are written
in favor of the customer and contained in the operations and maintenance services agreement. These warranties and guaranties may be measured on a monthly,
annual, cumulative or other basis. As of December 31, 2019, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these
warranties. Our obligation to make payments for underperformance against the performance guaranties for Traditional Lease projects was capped contractually
under the sales agreements between us and each customer at an aggregate total of approximately $6.0 million (including payments both for low output and for low
efficiency), and, our aggregate remaining potential liability under this cap was approximately $4.8 million.
Remarketing at Termination of Lease
In the event the customer does not renew or purchase our Energy Servers to the end of any customer lease, we may remarket any such Energy Servers to a
third party. Any proceeds of such sale would be allocated between us and the applicable financing partner as agreed between them at the time of such sale.
47
Managed Services Financing
In a Managed Services financing, we enter into a Managed Services Agreement with a customer, pursuant to which the customer is able to use the Energy
Server for a certain term. Under the Managed Services Agreement, the customer makes a monthly payment for the use of the Energy Server. The customer
payment typically has two components: (1) a fixed monthly capacity-based payment and (2) a performance-based payment based on the output of electricity that
month from the Energy Server. The fixed capacity-based payments made by the customer under the Managed Services Agreement are applied toward our
obligation to pay down our liability under the master lease with the financier. The performance payment is transferred to us as compensation for operations and
maintenance services and recorded as services revenue within the consolidated statements of operations. In some cases, the customer’s monthly payment consists
solely of the first component, a fixed monthly capacity-based payment.
Once a financier is identified and the Energy Server’s installation is complete, we sell the Energy Server contemplated by the Managed Services Agreement
directly to a financier and the financier, as lessor, leases it back to us, as lessee, pursuant to a master lease in a sale-leaseback transaction. The proceeds from the
sale are recorded as a financing obligation within the consolidated balance sheets. Any ongoing operations and maintenance service payments are scheduled in the
Managed Services Agreement in the form of the performance-based payment described above. The financier typically pays the financing proceeds for the Energy
Server contemplated by the Managed Services Agreement on or shortly after acceptance.
The fixed capacity payments made by the customer under the Managed Services Agreement are recognized as electricity revenue when billed and applied
toward our obligation to pay the financing obligation under the master lease. Our Managed Services financings have historically shifted customer credit risk to the
financier, as lessor, by providing in the master lease agreement that we have no liability for payment of rent except in certain enumerated circumstances, including
in the event we are in breach of the Managed Services Agreement between us and the customer.
The duration of the master lease in a Managed Services financing is typically 10 years. The term of the master lease is typically the same as the term of the
related Managed Services Agreement, but in some cases the term of the master lease is shorter than that of the Managed Services Agreement.
Our Managed Services deployments typically provide only for warranties of both the efficiency and output of the Energy Server(s), all of which are written
in favor of the customer and contained in the operations and maintenance services agreement. These warranties may be measured on a monthly, annual, cumulative
or other basis. Managed Services projects typically do not include guaranties above the warranty commitments, but in projects where the customer agreement
includes a service payment for our operations and maintenance, that payment is typically proportionate to the output generated by the Energy Server(s) and our
pricing assumes service revenues at the 95% output level. This means that our service revenues may be lower than expected if output is less than 95% and higher if
output exceeds 95%. As of December 31, 2019, we had
48
incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these warranties and the fleet of our Energy Servers deployed pursuant to
the Managed Services Program was performing at a lifetime average output of approximately 88%.
Power Purchase Agreement Programs
*Under the Third Party PPA arrangements, there is no link with an investment company, as we do not have an equity investment in these arrangements.
In each Power Purchase Agreement, we sell our Energy Servers to an Operating Company which sells the electricity generated by the Energy Servers to the
ultimate end customers pursuant to a Power Purchase Agreement, energy services agreement, or similar contract. Because the end customer's payment is stated on a
dollar-per-kilowatt-hour ("$/kWh") basis, we refer to these agreements as Power Purchase Agreements ("PPAs"). Currently, our offerings for PPA Programs
primarily include our Third-Party PPA Programs pursuant to which we recognize revenue on acceptance. Through 2017, as part of our PPA Programs, we had also
offered the Bloom Electrons Program which included an equity investment by us in the Operating Company and in which we recognized revenue as the electricity
was produced. For further discussion on our Bloom Electrons Programs, see Note 13 of our Notes to Consolidated Financial Statements.
In our Power Purchase Agreement Program, we enter into an Energy Server sales, operations and maintenance agreement ("EPC and O&M Agreement")
with the Operating Company that will own the Energy Servers. The Operating Company then enters into the PPA with the end customer which purchases
electricity generated by the Energy Servers. The Operating Company receives all cash flows generated under the PPA(s), in addition to all investment tax credits,
all accelerated tax depreciation benefits, and any other cash flows generated by the operation of the Energy Servers not allocated to the end customer under the
PPA.
The sales of our Energy Servers to the Operating Company in connection with the various Power Purchase Agreement Programs have many of the same
terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to
shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is
installed and running at full power as defined in the applicable EPC and O&M Agreement. A one-year service warranty is provided with the initial sale. After the
expiration of the initial standard one-year warranty, the Operating Company has the option to extend our operations and maintenance services under the EPC and
O&M Agreement on an annual basis at a price determined at the time of purchase of our Energy Server, which may be renewed annually for each Energy Server
for up to 30 years. After the
49
standard one-year warranty period, the Operating Company has almost always exercised the option to renew our operations and maintenance obligations under the
EPC and O&M Agreement.
We typically provide output warranties and output guaranties to the Operating Company pursuant to the applicable EPC and O&M Agreement with the
Operating Company. The end customer agreement between the Operating Company and the end customer also provides efficiency warranties and efficiency
guaranties to the end user, and we provide a backstop of all of the Operating Company’s obligations under those agreements, including both the repair or
replacement obligations pursuant to the warranties and any payment liabilities under the guaranties.
As of December 31, 2019, we had incurred no liabilities due to failure to repair or replace Energy Servers pursuant to these warranties. Our obligation to
make payments for underperformance against the performance guaranties for Power Purchase Agreement projects was capped at an aggregate total of
approximately $75.0 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was
approximately $59.4 million.
Obligations to Operating Companies
In addition to our obligations to the end customers, our Power Purchase Agreement Programs involve many obligations to the Operating Company that
purchases our Energy Servers. These obligations are set forth in the applicable EPC and O&M Agreement(s), and may include some or all of the following
obligations:
• designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Operating Company,
• obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Bloom Energy Servers, and
maintaining such permits and approvals throughout the term of the EPC and O&M Agreements,
• operating and maintaining the Bloom Energy Servers in compliance with all applicable laws, permits and regulations,
• satisfying the efficiency and output warranties set forth in such EPC and O&M Agreements and the PPAs ("performance warranties"), and
• complying with any specific requirements contained in the PPAs with individual end-customers.
The EPC and O&M Agreements obligate us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance
warranties and in the event we otherwise breach the terms of the applicable EPC and O&M Agreements and we fail to remedy such failure or breach after a cure
period, or in the event that a PPA terminates as a result of any failure by us to comply with the applicable EPC and O&M Agreements. In some PPA Program
projects, our obligation to repurchase Energy Servers extends to the entire fleet of Energy Servers sold pursuant to the applicable EPC and O&M Agreements in the
event such failure affects more than a specified number of Energy Servers.
In some PPA Programs, we have also agreed to pay liquidated damages to the applicable Operating Company in the event of delays in the manufacture and
installation of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.
Both the upfront purchase price for the Energy Servers and the ongoing fees for our operations and maintenance are paid on a fixed dollar-per-kilowatt
($/kW) basis.
Indemnification of Performance Warranty Expenses Under PPAs - In addition to the performance warranties and guaranties in the EPC and O&M
Agreements, we also have agreed to indemnify certain Operating Companies for any expenses they incur to any of the end customers resulting from failures of the
applicable Energy Servers to satisfy any of the performance warranties and guaranties set forth in the applicable PPAs.
Administration of Operating Companies - In each of the Bloom Electrons programs, we perform certain administrative services on behalf of the applicable
Operating Company, including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of the Operating Company in
accordance with the requirements of the financing arrangements, interfacing with applicable regulatory agencies, and other similar obligations. We are
compensated for these services on a fixed dollar-per-kilowatt ($/kW) basis.
The Operating Company in each of the Bloom Electrons Programs (other than PPA I) has incurred debt in order to finance the acquisition of Energy
Servers. The lenders for these projects are a combination of banks and/or institutional investors. In each case, the debt is secured by all of the assets of the
applicable Operating Company, such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which the
Operating Company is a party, including the O&M Agreement entered into with us and the offtake agreements entered into with the Operating Company’s
customers, and is senior to all other debt obligations of the Operating Company. As further collateral,
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the lenders receive a security interest in 100% of the membership interest of the Operating Company. However, as is typical in structured finance transactions of
this nature, although the project debt is secured by all of the Operating Company’s assets, the lenders have no recourse to us or to any of the other equity investors
in the project. The applicable debt agreements include provisions that implement a customary “payment waterfall” that dictates the priority in which the Operating
Company will use its available funds to satisfy its payment obligations to us, the lenders, the tax equity investors and other third parties.
We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions (see
Note 13, Power Purchase Agreement Programs). Accordingly, we consolidate 100% of the assets, liabilities and operating results of these entities, including the
Energy Servers and lease income, in our consolidated financial statements. We recognize the tax equity investors’ share of the net assets of the investment entities
as noncontrolling interests in subsidiaries in our consolidated balance sheet. We recognize the amounts that are contractually payable to these investors in each
period as distributions to noncontrolling interests in our consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest,
stockholders' deficit and noncontrolling interest. Our consolidated statements of cash flows reflect cash received from these investors as proceeds from investments
by noncontrolling interests in subsidiaries. Our consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling
interests in subsidiaries. We reflect any unpaid distributions to these investors as distributions payable to noncontrolling interests in subsidiaries on our
consolidated balance sheets. However, the PPA Entities are separate and distinct legal entities, and Bloom Energy Corporation may not receive cash or other
distributions from the PPA Entities except in certain limited circumstances and upon the satisfaction of certain conditions, such as compliance with applicable debt
service coverage ratios and the achievement of a targeted internal rate of return to the tax equity investors, or otherwise.
For further information about our Power Purchase Agreement Programs, see Note 13, Power Purchase Agreement Programs, to our consolidated financial
statements included in this Annual Report on Form 10-K.
Delivery and Installation
The timing of delivery and installations of our products have a significant impact on the timing of the recognition of product revenue. Many factors can cause
a lag between the time that a customer signs a purchase order and our recognition of product revenue. These factors include the number of Energy Servers installed
per site, local permitting and utility requirements, environmental, health and safety requirements, weather, and customer facility construction schedules. Many of
these factors are unpredictable and their resolution is often outside of our or our customers’ control. Customers may also ask us to delay an installation for reasons
unrelated to the foregoing, including delays in their obtaining financing. Further, due to unexpected delays, deployments may require unanticipated expenses to
expedite delivery of materials or labor to ensure the installation meets the timing objectives. These unexpected delays and expenses can be exacerbated in periods
in which we deliver and install a larger number of smaller projects. In addition, if even relatively short delays occur, there may be a significant shortfall between
the revenue we expect to generate in a particular period and the revenue that we are able to recognize. For our installations, revenue and cost of revenue can
fluctuate significantly on a periodic basis depending on the timing of acceptance and the type of financing used by the customer. As described in the Power
Purchase Agreements section above, we offered the Bloom Electrons purchase program through the end of 2016 and no longer offer this financing structure to
potential customers.
Our product sales backlog was $1.1 billion, equivalent to 1,983 systems, or 198 megawatts, as of December 31, 2019. Our product sales backlog was $0.8
billion, equivalent to 1,384 systems, or 138 megawatts, as of December 31, 2018.
We define product sales backlog as signed customer product sales orders received prior to the period end, but not yet accepted, excluding site cancellations.
The timing of the deployment of our backlog depends on the factors described above. However, as a general matter, at any point in time, we expect at least 50% of
our backlog to be deployed within the next 12 months. The portion of our backlog in the year ended December 31, 2019 attributable to each payment option was as
follows: Direct Purchase (including Third Party PPAs) 93% and Managed Services 7%. The portion of our backlog in the year ended December 31, 2018
attributable to each payment option was as follows: Direct Purchase (including Third Party PPAs) 98% and Managed Services 2%.
International Channel Partners
Prior to 2018, we consummated a small number of sales outside the United States of America, including in India and Japan. In India, sales activities are
currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly-owned indirect subsidiary; however, we are currently evaluating the Indian market to determine
whether the use of channel partners would be a beneficial go-to-market strategy to grow our India market sales.
Japan. In Japan, sales are conducted pursuant to a Japanese joint venture established between us and subsidiaries of SoftBank Corp, called Bloom Energy
Japan Limited ("Bloom Energy Japan"). Under this arrangement, we sell Energy Servers to Bloom Energy Japan and we recognize revenue once the Energy
Servers leave the port of the U.S. as Bloom Energy Japan
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enters into the contract with the end customer and performs all installation work as well as some of the operations and maintenance work.
South Korea. In 2018, Bloom Energy Japan consummated a sale of Energy Servers in the Republic of Korea to Korea South-East Power Company.
Following this sale, we entered into a Preferred Distributor Agreement with SK Engineering & Construction Co., Ltd. ("SK E&C") to enable us to sell directly into
the Republic of Korea.
Under our agreement with SK E&C, SK E&C has a right of first refusal during the term of the agreement, with certain exceptions, to serve as distributor of
Energy Servers for any fuel cell generation project in the Republic of Korea, and we have the right of first refusal to serve as SK E&C’s supplier of generation
equipment for any Bloom Energy fuel cell project in the Republic of Korea. Under the terms of each purchase order, title, risk of loss and acceptance of the Energy
Servers pass from us to SK E&C upon delivery at the named port of lading for shipment in the United States for the Energy Servers shipped in 2018 and thereafter
upon delivery at the named port of unlading in the Republic of Korea, prior to unloading subject to final purchase order terms. The Preferred Distributor Agreement
has an initial term expiring on December 31, 2021, and thereafter will automatically be renewed for three-year renewal terms unless either party terminates the
Preferred Distributor Agreement by written notice under certain circumstances.
Under the terms of the Preferred Distributor Agreement, we (or our subsidiary) contract directly with the customer to provide operations and maintenance
services for the Energy Servers. We have established a subsidiary in the Republic of Korea, Bloom Energy Korea, LLC, to which we subcontract such operations
and maintenance services. The terms of the operations and maintenance are negotiated on a case-by-case basis with each customer, but are generally expected to
provide the customer with the option to receive services for at least 10 years, and for up to the life of the Energy Servers, with terms specified below.
SK E&C Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK E&C to establish a light-assembly facility in
South Korea for sales of certain portions of the Bloom Server for the stationary utility and commercial and industrial market in South Korea. The joint venture is
majority controlled and managed by us. We expect the facility to be operational by mid-2020 subject to the completion of certain conditions precedent to the
establishment of the joint venture company. Other than a nominal initial capital contribution by Bloom, the joint venture will be funded by SK E&C. SK E&C, who
currently acts as a distributor for Bloom Servers for the stationary utility and commercial and industrial market in Korea, will be the primary customer for the
products assembled by the joint venture.
Community Distributed Generation Programs
In July 2015, the state of New York introduced its Community Distributed Generation program, which extends New York’s net metering program in order
to allow utility customers to receive net metering credits for electricity generated by distributed generation assets located on the utility’s grid but not physically
connected to the customer’s facility. This program allows for the use of multiple generation technologies, including fuel cells.
In December 2019, we entered into fuel cell sales, installation, operations and maintenance agreements with two developers for the deployment of fuel cells
pursuant to this Community Distributed Generation program. These agreements have many of the same terms and conditions as a direct sale. Payment of the
purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy
Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is installed and running at full power as defined in each
contract. A one-year service warranty is provided with the initial sale. After the expiration of the initial standard one-year warranty, the owner has the option to
renew our operations and maintenance services for subsequent quarterly or annual periods for up to 30 years. We provide warranties and guaranties regarding both
efficiency and output to the owners of the Energy Servers pursuant to the operations and maintenance services agreement with the Operating Company.
As of December 31, 2019, we had not yet completed the sale of any Energy Servers in connection with the New York Community Distributed Generation
program.
Key Operating Metrics
In addition to the measures presented in the consolidated financial statements, we use the following key operating metrics to evaluate business activity, to
measure performance, to develop financial forecasts and to make strategic decisions:
• Product accepted - the number of customer acceptances of our Energy Servers in any period. We recognize revenue when an acceptance is achieved. We
use this metric to measure the volume of deployment activity. We measure each Energy Server manufactured, shipped and accepted in terms of 100
kilowatt equivalents.
• Billings for product accepted in the period - the total contracted dollar amount of the product component of all Energy Servers that are accepted in a
period. We use this metric to gauge the dollar value of the product acceptances and to evaluate the change in dollar amount of acceptances between
periods.
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• Billings for installation on product accepted in the period - the total contracted dollar amount billable with respect to the installation component of all
Energy Servers that are accepted. We use this metric to gauge the dollar value of the installations of our product acceptances and to evaluate the change in
dollar value associated with the installation of our product acceptances between periods.
• Billings for annual maintenance service agreements - the dollar amount billable for one-year service contracts that have been initiated or renewed. We
use this metric to measure the cumulative billings for all service contracts in any given period. As our installation base grows, we expect our billings for
annual maintenance service agreements to grow, as well.
• Product costs of product accepted in the period (per kilowatt) - the average unit product cost for the Energy Servers that are accepted in a period. We
use this metric to provide insight into the trajectory of product costs and, in particular, the effectiveness of cost reduction activities.
• Period costs of manufacturing expenses not included in product costs - the manufacturing and related operating costs that are incurred to procure parts
and manufacture Energy Servers that are not included as part of product costs. We use this metric to measure any costs incurred to run our manufacturing
operations that are not capitalized (i.e., absorbed, such as stock-based compensation) into inventory and therefore, expensed to our consolidated statement
of operations in the period that they are incurred.
• Installation costs on product accepted (per kilowatt) - the average unit installation cost for Energy Servers that are accepted in a given period. This
metric is used to provide insight into the trajectory of install costs and, in particular, to evaluate whether our installation costs are in line with our
installation billings.
Comparison of the Years Ended December 31, 2019, 2018 and 2017
A discussion regarding our key operating metrics for fiscal 2019 compared to fiscal 2018 and fiscal 2018 compared to fiscal 2017 is presented below.
Acceptances
We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. We
typically define an acceptance as when an Energy Server is installed and running at full power as defined in the customer contract or the financing agreements. For
orders where a third party performs the installation, acceptances are generally achieved when the Energy Servers are shipped.
The product acceptances in the periods were as follows:
Years Ended
December 31,
Change
2019
2018
Amount
%
Product accepted during the period
(in 100 kilowatt systems)
1,194
809
385
47.6%
Product accepted increased by approximately 385 systems, or 47.6%, for 2019 compared to 2018. Acceptance volume increased as we installed more
systems from backlog as demand increased for our Bloom Energy servers, in addition to enhancing our ability and capacity to install more energy servers with our
installation team.
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As discussed in the Purchase and Lease Programs above, our customers have several purchase options for our Energy Servers. The portion of acceptances
attributable to each purchase option in the years ended December 31, 2019 and 2018 was as follows:
Direct Purchase (including Third Party PPAs and International Channels)
Traditional Lease
Managed Services
Years Ended
December 31,
2019
2018
93%
—%
7%
100%
89%
1%
10%
100%
As discussed in the Purchase and Lease Programs above, our customers have several purchase options for our Energy Servers. The portion of total revenue
attributable to each purchase option in the period was as follows:
Direct Purchase (including Third Party PPAs and International Channels)
Traditional Lease
Managed Services
Bloom Electrons
Billings Related to Our Products
Years Ended
December 31,
Years Ended
December 31,
2019
2018
79%
2%
5%
14%
100%
85%
1%
5%
9%
100%
Change
2019
2018
Amount
%
(dollars in thousands)
Billings for product accepted in the period
$
681,034 $
458,290 $
Billings for installation on product accepted in the period
Billings for annual maintenance services agreements
61,270
76,852
78,927
82,881
222,744
(17,657)
(6,029)
48.6 %
(22.4)%
(7.3)%
Billings for product accepted increased by approximately $222.7 million, or 48.6%, for 2019 compared to 2018. The increase was primarily driven by the
increase in product accepted, including billings for product accepted under Managed Services agreements. Product accepted increased by approximately 385
systems, or 47.6%, for 2019 compared to 2018. Billings for installation on product accepted decreased $17.7 million for 2019, as compared to 2018. Although
product acceptances in the period increased 48.6%, billings for installation on product accepted decreased due to the change in mix in installation billings driven by
international sales, where our partners perform the installation, as well as site complexity, site size, customer financing option, and customer option to complete the
installation of our Energy Servers themselves. In general, when we do not perform the installation function for a customer, such as SK E&C in the Republic of
Korea, we will not have any installation billings for those orders. Billings for annual maintenance service agreements decreased $6.0 million for 2019 compared to
2018. This decrease was driven primarily by the relatively high number of PPA upgrades performed in 2019. When an upgrade occurs, new systems are installed
and there are typically no billings for service during the first year after the upgrade as the first year period is covered under our standard warranty.
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Costs Related to Our Products
Years Ended
December 31,
Change
2019
2018
Amount
%
Product costs of product accepted in the period
$2,881/kW
$3,372/kW
$(491)/kW
Period costs of manufacturing related expenses not included in
product costs (in thousands)
Installation costs on product accepted in the period
$16,989
$644/kW
$24,294
$1,189/kW
$(7,305)
$(545)/kW
(14.6)%
(30.1)%
(45.8)%
Product costs of product accepted decreased by approximately $491 per kilowatt, or 14.6%, for 2019 compared to 2018. The product cost reduction was
driven generally by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs
through improved processes and automation at our manufacturing facilities.
Period costs of manufacturing related expenses decreased by approximately $7.3 million, or 30.1%, for 2019 compared to 2018. Our period costs of
manufacturing related expenses decreased primarily as a result of higher absorption of fixed manufacturing costs into product costs due to a larger volume of builds
through our factory tied to our acceptance growth, which resulted in higher factory utilization.
Installation costs on product accepted decreased by approximately $545 per kilowatt, or 45.8%, for 2019 compared to 2018. Each customer site is different
and installation costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such, installation on a per kW basis can vary
significantly from period-to-period. When we achieve international acceptances, our partners are responsible for the installation, and therefore we do not incur
installation costs. When we achieve acceptances for upgrading customer sites to our latest technology, installation costs are minimal as most of the installation
work and costs were incurred when the site was initially installed. The mix of international acceptances, the PPA II upgrade and the PPA IIIb upgrade of Energy
Servers contributed to the lower installation cost for 2019 compared to 2018.
Comparison of the Years Ended December 31, 2018 and 2017
Acceptances
Years Ended
December 31,
Change
2018
2017
Amount
%
Product accepted during the period
(in 100 kilowatt systems)
809
622
187
30.1%
Product accepted increased by approximately 187 systems, or 30.1%, for 2018 compared to 2017. Acceptance volume increased as we installed more
systems from backlog as demand increased for our Bloom Energy servers, in addition to enhancing our ability and capacity to install more energy servers with our
installation team.
As discussed in the Purchase and Lease Programs above, our customers have several purchase options for our Energy Servers. The portion of acceptances
attributable to each purchase option in the period was as follows:
Direct Purchase (including Third Party PPAs and International Channels)
Traditional Lease
Managed Services
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Years Ended
December 31,
2018
2017
89%
1%
10%
100%
72%
6%
22%
100%
The portion of total revenue attributable to each purchase option in the period was as follows:
Direct Purchase (including Third Party PPAs and International Channels)
Traditional Lease
Managed Services
Bloom Electrons
Billings Related to Our Products
Years Ended
December 31,
Years Ended December 31,
2018
2017
63%
7%
6%
24%
100%
79%
2%
5%
14%
100%
Change
2018
2017
Amount
%
(dollars in thousands)
Billings for product accepted in the period
$
458,290 $
248,102 $
Billings for installation on product accepted in the period
Billings for annual maintenance services agreements
78,927
82,881
96,452
79,881
210,188
(17,525)
3,000
84.7 %
(18.2)%
3.8 %
Billings for product accepted increased by approximately $210.2 million, or 84.7%, for 2018 as compared to 2017. The increase was primarily due to three
factors.
First, product accepted increased by approximately 187 systems, or 30.1%, for 2018 compared to 2017.
Second, ITC was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, so our billings for product accepted for 2017 only
included $1.3 million in benefit from ITC. Due to the reinstatement of ITC in 2018, billings for product accepted now includes the benefit of ITC. For 2018,
billings for product accepted included $132.9 million in benefits from ITC, of which $45.1 million was retroactive ITC for 2017 acceptances.
Third, the adoption of customer personalized applications, such as batteries and grid-independent solutions, increased in 2018 compared to 2017. Products
that incorporate these personalized applications have, on average, a higher billings rate than our standard platform products that do not incorporate these
personalized applications.
Billings for installation on product accepted decreased $17.5 million for 2018, as compared to 2017. Although product acceptances in the period increased
30.1%, billings for installation on product accepted decreased due to the mix in installation billings driven by site complexity, size, customer purchase option and
one large customer in particular in 2018 where the installation was performed by the customer and therefore, we did not have any installation billing for that
customer. In general, when we do not perform the installation function for a customer, such as SK E&C in the Republic of Korea, we will not have any installation
billings for those orders.
When we analyze changes between the years ended 2018 and 2017, we take into account the impact of ITC that was available in 2018 as a result of the
reinstatement of the ITC through December 2021. The effect of the reinstatement of ITC was higher billings in the periods eligible for ITC. For 2018, the combined
total for billings for product and installation accepted was $537.2 million, an increase of 55.9% from the billings for product and installation accepted combined of
$344.6 million for 2017. The increase was significantly greater than the 30.1% increase in associated acceptances during the same periods due to the reinstatement
of the ITC benefit, including the one-time fiscal 2017 retroactive ITC benefit recognized in 2018 that is included in the 2018 billings numbers.
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Costs Related to Our Products
Years Ended
December 31,
Change
2018
2017
Amount
%
Product costs of product accepted in the period
$3,372/kW
$3,292/kW
$80/kW
Period costs of manufacturing related expenses not included in
product costs (in thousands)
Installation costs on product accepted in the period
$24,294
$1,189/kW
$32,437
$1,271/kW
$(8,143)
$(82)/kW
2.4 %
(25.1)%
(6.5)%
Product costs of product accepted increased by approximately $80 per kilowatt, or 2.4%, for 2018 compared to 2017. This increase in cost is primarily
related to the reinstatement of the ITC program in February 2018, in which we were required to repay certain suppliers for previously negotiated contractual
discounts. This resulted in a one-time payment of $116 per kilowatt or $9.4 million, which was recorded to cost of product revenue.
Period costs of manufacturing related expenses decreased by approximately $8.1 million, or 25.1%, for 2018 as compared to 2017. Our period costs of
manufacturing related expenses decreased primarily as a result of higher absorption of fixed manufacturing costs into product costs due to a larger volume of builds
through our factory tied to our acceptance growth, which resulted in higher factory utilization.
Installation costs on product accepted decreased by approximately $82 per kilowatt, or 6.5%, for 2018 compared to 2017. Each customer site is different and
installation costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such, installation on a per kW basis can vary
significantly from period-to-period. In addition, some customers do their own installation, or, as is the case for SK E&C in the Republic of Korea orders, we have a
partner who performs the installation. In those instances, we have little to no installation cost.
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Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S.
GAAP") The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations below are based on
our audited results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these financial statements, we make assumptions,
judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our
estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the
accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our
management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual
results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical
accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the
most critical to understanding and evaluating the consolidated financial condition and results of operations.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results
of operations, include:
Revenue Recognition
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under
operations and maintenance services contracts and electricity revenue by selling electricity to customers under power purchase agreements. We offer our customers
several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose
to purchase our Energy Servers outright. Customers may also lease our Energy Servers through one of our financing partners via our Managed Services Program or
as a traditional lease. Finally, customers may purchase electricity through our Power Purchase Agreement Programs.
Prior to Adoption of ASC 606 Revenue from Contracts with Customers
Prior to the adoption of ASC 606 Revenue from Contracts with Customers, we recognized revenue from contracts with customers for the sales of products,
installation and services in accordance with ASC 605-25, Revenue Recognition for Multiple-Element Arrangements.
Revenue from the sale and installation of Energy Servers was recognized when all of the following criteria are met:
• Persuasive evidence of an arrangement exists. We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an
arrangement.
• Delivery and acceptance has occurred. We use shipping documents and confirmation from our installations team that the deployed systems are running
at full power as defined in each contract to verify delivery and acceptance.
• The fee is fixed or determinable. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
• Collectability is reasonably assured. We assess collectability based on the customer’s credit analysis and payment history.
When these criteria are met, we allocate revenue to each element of the customer arrangement (product, installation and services) based on an estimated
selling price at the arrangement inception. The estimated selling price for each element is based upon the following hierarchy: vendor-specific objective evidence
("VSOE") of selling price, if available; third-party evidence ("TPE") of selling price, if VSOE of selling price is not available; or best estimate of selling price
("BESP") if neither VSOE of selling price nor TPE of selling price are available. We limit the amount of revenue recognized for delivered elements to an amount
that is not contingent upon future delivery of additional products or services or upon meeting any specified performance conditions.
We have not been able to obtain reliable evidence of the selling price of the standalone Energy Server. Given that we typically sell an Energy Server with a
maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, we have no evidence of
selling prices for either and virtually no customers have elected to cancel their maintenance service agreements while continuing to operate the Energy Servers. Our
objective is to determine the price at which we would transact business if the items were being sold separately. As a result, our estimate of our selling price is
driven primarily by our expected margin on both the Energy Server and installation based on
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their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred during the expected service period.
Costs for Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e.,
variances). We then apply a margin to the Energy Servers and to expected installation costs to determine the selling price to be used in our BESP model. Costs for
maintenance service arrangements are estimated over the expected life of the maintenance contracts and include estimated future service costs and future material
costs. Material costs over the expected period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering
the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations. As our
business offerings and eligibility for the Investment Tax Credit ("ITC") evolve over time, we may be required to modify our estimated selling prices in subsequent
periods and our revenue could be adversely affected.
Subsequent to adoption of ASC 606 Revenue from Contracts with Customers
We adopted ASC 606 Revenue from Contracts with Customers as of January 1, 2019 using the modified retrospective method and present the impacts for the
first time in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
In applying ASC 606, we frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance service
contracts and account for them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined
when the customer for the sale and installation of the Energy Server is different to the maintenance service contract customer. We also assess whether any contract
terms including default provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the
scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these
performance obligations, we allocate revenue to each performance obligation based on the total transaction price for each contract. Our maintenance service
contracts are typically subject to renewal by customers on an annual basis. We assess these maintenance service renewal options at contract inception to determine
whether they provide customers with material rights that give rise to a separate performance obligation.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a
production guarantee payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable
consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These
estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method
requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance
obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the
portfolio method. We also consider the customers’ rights of return in determining the transaction price where applicable.
We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-
producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. We allocate
the transaction price to each performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for
transferring and installing the Energy Server and providing associated maintenance services.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does
not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect
manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which
may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. As our business offerings and eligibility for the
Investment Tax Credit ("ITC") evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be adversely
affected.
Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs
for maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs.
Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service
costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable
historical industry service margins.
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As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance service agreements
based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred. We recognize product and installation revenue
at the point in time that the Customer obtains control of the Energy Server. We recognize service revenue, including revenue associated with any related customer
material rights, over time as we perform service maintenance activities.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of
the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract that is recognized within costs of goods sold.
The following is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase, including financing partners on
Third-Party PPAs, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers
at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which is when the system has been installed
and is running at full power or, in the case of sales to our international channel providers, based upon shipment terms.
Under our traditional leases financing option, we sell our Energy Servers through a direct sale to a financing partner who, in turn, leases the Energy
Servers to the customer under a lease agreement. With our sales to our international channel providers, our international channel providers typically sell
the Energy Servers to, or sometimes provide a PPA to, an end customer. In both traditional lease and international channel providers transactions, we
contract directly with the end customer to provide extended maintenance services after the end of the standard warranty period. As a result, since the
customer that purchases the server is a different and unrelated party to the customer that purchases extended warranty services, the product and
maintenance service contract are not combined.
Payments received from customers are recorded within deferred revenue and customer deposits in the consolidated balance sheets until the
acceptance criteria as defined within the customer contract are met. The related cost of such product and installation is also deferred as a component of
deferred cost in the consolidated balance sheets until acceptance.
Installation Revenue - Nearly all of our installation revenue relates to the installation of Energy Servers sold to direct purchase, including financing
partners on Third-Party PPAs and traditional lease customers. Generally, we recognize installation revenue when the system has been installed and is
running at full power.
Service Revenue - Service revenue is generated from maintenance services agreements. We typically provide to our customers a standard one-year
warranty against manufacturing or performance defects in our Energy Servers. We also sell to these customers extended annual maintenance services that
effectively extend the standard one-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the
extended maintenance services on an annual basis and nearly every customer has renewed historically. The contractual renewal price may be less than the
standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right.
Revenue is recognized over the term of the renewed one-year service period. Given our customers' renewal history, we anticipate that almost all of
our customers will continue to renew their maintenance services agreements each year through their expected use of the Energy Server. As a result, we
estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional
operations and maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This
reflects that our additional performance obligations in any contractual renewal period are consistent with the services provided under the initial
maintenance service contract.
Payments from customers for the extended maintenance contracts are received at the beginning of each service year. Accordingly, the customer
payment received is recorded as a customer deposit and revenue is recognized over the related period as the services are performed using a cost-to-cost
basis that reflects the cost of providing these services.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA entities. Our PPA
Entities purchase Energy Servers from us and sell electricity produced by these systems to customers through long-term power purchase agreements
("PPAs"). Customers are required to purchase all of the electricity produced by those Energy Servers at agreed-upon rates over the course of the PPAs'
contractual term.
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In addition, in certain product sales, we are a party to master lease agreements that provide for the sale of our Energy Servers to third-parties and
the simultaneous leaseback of the systems, which we then sublease to our customers. In sale-leaseback sublease arrangements ("Managed Services"), we
first determine whether the Energy Servers under the sale-leaseback arrangement are “integral equipment”. As the Energy Servers are determined not to
be integral equipment, we determine if the leaseback is classified as a capital lease or an operating lease.
Our managed services arrangements with the financing party are classified as capital leases and are recorded as financing transactions, while the sub-lease
arrangements with the end customer are classified as operating leases. Payments received from the financier are recorded as financing leases. We then recognize
revenue for the electricity generated by allocating the total proceeds based on the relative standalone selling prices to electricity revenue and to service revenue.
Electricity revenue relating to power purchase agreements is typically accounted for in accordance with ASC 840 Leases and service revenue in accordance with
ASC 606.
We recognize revenue from the PPAs and Managed Services contracts as the electricity is provided over the term of the agreement.
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If
the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and
the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with
the original contract and either an increase or decrease in revenue is recognized on the modification date. During fiscal 2019, we did not recognize any material
revenue for contracts modified during the period that had performance obligations satisfied in prior periods.
We recognize a contract liability (deferred revenue) when we have an obligation to transfer products or services to a customer in advance of us satisfying a
performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The related cost of such product is
deferred as a component of deferred cost of goods sold in the consolidated balance sheets. Prior to shipment of the product or the commencement of performance
of maintenance services, any prepayment made by the customer is recorded as a customer deposit.
Property, Plant and Equipment - Property, plant and equipment, including leasehold improvements are stated at cost less accumulated depreciation. Energy
Servers are depreciated to their residual values over their useful economic lives which reflect consideration of the terms of their related power purchase and tariff
agreements. These useful lives are reassessed when there is an expected change in the use of the Energy Servers. Leasehold improvements are depreciated over the
shorter of the lease term or their estimated depreciable lives. The carrying amounts of our long-lived assets are periodically reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.
Inventories - Inventories consist principally of raw materials, work-in-process and finished goods and are stated on a first-in, first-out basis at the lower of
cost or net realizable value.
We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, including inventory from purchase commitments,
equal to the difference between the cost of inventory and estimated net realizable value based upon assumptions about market conditions and future demand for
product generally expected to be utilized over the next 12 to 24 months, including product needed to fulfill our warranty obligations. If actual future demand for
our products is less than currently forecasted, additional inventory provisions may be required. Once a provision is recorded, it is maintained until the product to
which it relates to is sold or otherwise disposed.
Derivative Financial Instruments
We enter into derivative natural gas fixed price forward contracts to manage our exposure to the fluctuating price of natural gas under certain of our power
purchase agreements entered in connection with the Bloom Electrons program. In addition, we enter into fixed forward interest rate swap arrangements to convert
variable interest rates on debt to a fixed rate and on occasion have committed to certain utility grid price protection guarantees in sales agreements. We do not enter
into derivative transactions for trading or speculative purposes.
We account for our derivative instruments as either an asset or a liability which are carried at fair value on the consolidated balance sheets. Changes in the
fair value of the derivatives that are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the consolidated
balance sheets and for those that do not qualify for hedge accounting or are not designated hedges are recorded through earnings in the consolidated statements of
operations.
While we hedge certain of our natural gas purchase requirements under our power purchase agreements, we do not classify these natural gas fixed price
forward contracts as designated hedges for accounting purposes. Therefore, we record the change in the fair value of our natural gas fixed price forward contracts
in cost of revenue on the consolidated statements of
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operations. The fair value of the natural gas fixed price forward contracts is recorded on the consolidated balance sheets as a component of accrued expenses and
other current liabilities and as derivative liabilities. As these forward contracts are considered economic hedges, the changes in the fair value of these forward
contracts are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
Our interest rate swap arrangements qualify as cash flow hedges for accounting purposes as they effectively convert variable rate obligations into fixed rate
obligations. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change is recorded in accumulated other comprehensive
income (loss) and will be recognized as interest expense on settlement. As of January 1, 2019, we adopted Accounting Standards Update ("ASU") 2017-12
Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). Per ASU 2017-12, ineffectiveness is no
longer required to be measured or disclosed. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is
discontinued prospectively and any unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive income (loss) and is
reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The fair value of the swap arrangement is recorded on
the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative liabilities. The changes in fair value of swap
agreement are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
Stock-based Compensation
We measure stock options and other stock-based awards such as restricted stock units, granted to employees and directors based on the fair value on the date
of the grant and recognize compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting
period of the respective award. Generally, we issue stock options with only service-based vesting conditions and record the expense for these awards using the
straight-line method. The liability related to these awards is recognized over the period during which services are rendered until completed. The fair value of the
stock-based compensation liability is estimated using the Black-Scholes option pricing model and are recorded in our consolidated statements of operations. The
Black-Scholes option-pricing model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the
expected term of the award, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.
Principles of Consolidation
These consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest.
We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIE"), which we refer to as our power purchase
agreement entities ("PPA Entities"). This approach focuses on determining whether we haves the power to direct those activities of the PPA Entities that most
significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be
significant to the PPA Entities.
Noncontrolling Interests and Redeemable Noncontrolling Interests
We generally allocate profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance
sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPE Entities.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the
entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the
consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling
interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming
exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable
to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported
at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary
equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
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Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 ("JOBS Act") provides that an “emerging growth company” can take advantage of the extended transition
period afforded by the JOBS Act for the implementation of new or revised accounting standards. However, we have elected not to “opt out” of such extended
transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new
or revised standard at the time private companies adopt the new or revised standard, provided that we continue to be an emerging growth company.
Results of Operations
Revenue
We primarily recognize revenue from the sale and installation of Energy Servers, by providing services under maintenance contracts, and from electricity
sales by our PPA Entities and from our Managed Services agreements.
Product Revenue
All of our product revenue is generated from the sale of our Energy Servers to direct purchase, Third-Party PPAs and traditional lease customers. We
generally recognize product revenue from contracts with customers for the sales of our Energy Servers once we achieve acceptance; that is, generally when the
system has been installed and is running at full power as defined in each contract or, for sales to some of our International Channel Partners, based upon shipment
terms.
The amount of product revenue we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers and on
the type of financing used by the customer.
Installation Revenue
The majority of our installation revenue is generated from the installation of our Energy Servers to direct purchase Third-Party PPAs and traditional lease
customers. The amount of installation revenue we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers
in a given period, whether the customer chooses to do the installation themselves, and on the type of financing used by the customer.
Service Revenue
Service revenue is generated from operations and maintenance services agreements to support and maintain the Energy Servers in the field. Customers of
our direct purchase, Third Party PPA and lease programs can renew their operating and maintenance services agreements on an annual basis for the life of the
contract at prices predetermined at the time of purchase of the Energy Server. We anticipate that almost all of our customers will continue to renew their operations
and maintenance services agreements each year throughout their expected use of the Energy Server.
Electricity Revenue
Our PPA Entities and financiers in our Managed Services contracts purchase Energy Servers from us and sell the electricity produced by these systems to
end customers. Customers are required to purchase all of the electricity produced by the Energy Servers at agreed-upon rates over the course of the contract term.
We generally recognize revenue from such PPA Entities and managed services customers as the electricity is provided over the term of the agreement.
Cost of Revenue
Our total cost of revenue consists of cost of product revenue, cost of installation revenue, cost of service revenue and cost of electricity revenue. It includes
personnel costs associated with our operations and global customer support organizations consisting of salaries, benefits, bonuses, stock-based compensation and
allocated facilities costs.
Cost of Product Revenue
Cost of product revenue consists of costs of Energy Servers that we sell to direct, Third Party PPA and traditional lease customers, including costs of
materials, personnel costs, allocated costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of our equipment. We expect our
cost of product revenue to increase in absolute dollars as we deliver and install more Energy Servers and our product revenue increases.
Cost of Installation Revenue
Cost of installation revenue consists of the costs to install the Energy Servers that we sell to direct, Third Party PPA and traditional lease customers,
including costs of materials and service providers, personnel costs, and allocated costs. In our Asia Pacific region, the cost of the installations and resulting revenue
is attributable to our channel partners. Notwithstanding the use of channel partners, for the next twelve months, we expect our cost of installation revenue to
increase in absolute dollars as we deliver and install more Energy Servers, though it will be subject to variability as a result of the timing of installation and other
factors.
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Cost of Service Revenue
Cost of service revenue consists of costs incurred under maintenance service contracts for all customers including direct sales, Third Party PPA, traditional
lease, managed services and PPA customers. Such costs include personnel costs for our customer support organization, allocated costs and extended maintenance-
related product repair and replacement costs. We expect our cost of service revenue to increase in absolute dollars as our base of megawatts deployed grows, and
we expect our cost of service revenue to fluctuate period by period depending on the timing of maintenance of Energy Servers.
Cost of Electricity Revenue
Cost of electricity revenue primarily consists of the depreciation of the cost of the Energy Servers owned by our PPA Entities and by us through our
managed services agreements and the cost of gas purchased in connection with our first PPA Entity. The cost of depreciation of the Energy Servers is reduced by
the amortization of any U.S. Treasury grant payment in lieu of the energy investment tax credit associated with these systems. We expect our cost of electricity
revenue to be correlated in absolute dollars to our base of megawatts deployed by our PPA entities and by us through our managed services agreements.
Gross Profit (Loss)
Gross profit (loss) has been and will continue to be affected by a variety of factors, including the sales price of our products, manufacturing costs, the costs
to install the products, the costs to maintain the systems in the field, the mix of financing options used and the mix of revenue between product, service and
electricity. We expect our gross profit to fluctuate over time depending on the factors described above.
Operating Expenses
Research and Development
Research and development costs are expensed as incurred and consist primarily of personnel costs. Research and development expense also includes
prototype related expenses and allocated facilities costs. We expect research and development expense to increase in absolute dollars as we continue to invest in
our future products and services, and we expect our research and development expense to fluctuate as a percentage of total revenue.
Sales and Marketing
Sales and marketing expense consists primarily of personnel costs, including commissions. We expense commission costs as each performance obligation
occurs over the duration of the contract. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs,
travel costs, office equipment and software, depreciation, professional services and allocated facilities costs. We expect sales and marketing expense to continue to
increase in absolute dollars as we increase the size of our sales and marketing organizations and as we expand our international presence, and we expect our sales
and marketing expense to fluctuate as a percentage of total revenue.
General and Administrative
General and administrative expense consists of personnel costs, fees for professional services and allocated facilities costs. General and administrative
personnel include our executive, finance, human resources, information technology, facilities, business development and legal organizations. We expect general
and administrative expense to increase in absolute dollars due to additional legal fees and costs associated with accounting, insurance, investor relations, SEC and
stock exchange compliance and other costs associated with being a public company, and we expect our general and administrative expense to fluctuate as a
percentage of total revenue.
Stock-Based Compensation
We measure and recognize compensation costs for all stock-based awards, including stock options and purchase rights issued to employees based on the
estimated fair value of the awards on the grant date. We use the Black-Scholes-Merton ("Black-Scholes") option pricing model to estimate the fair value of stock
options and employee stock purchase plan ("ESPP") rights. The fair value of stock options is recognized as expense on a straight-line basis over the requisite
service period, which is generally four years. The fair value of restricted stock units ("RSUs"), is measured using the fair value of our common stock on the date of
the grant. The fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which generally ranges from two to four years.
For stock-based awards granted to employees with a performance condition, we recognize stock-based compensation costs using the accelerated attribution method
over the requisite service period when management determines it is probable that the performance condition will be satisfied. For stock-based awards granted to
employees with market conditions, we recognize stock-based compensation costs over the requisite service period and use the Monte Carlo simulation option
pricing model to estimate the fair value of the awards at the time of grant. The fair value of the 2018 ESPP purchase rights is recognized as expense on the vesting
period of each offering period. Stock-based compensation costs are recorded net of estimated forfeitures such that expense is recorded only for those stock-based
awards that are expected to vest.
64
Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function. Additionally,
stock-based compensation costs relating to manufacturing employees are capitalized as a component of Energy Server manufacturing costs to inventory, deferred
cost of revenues, construction-in-progress and property, plant and equipment as per ASC 330 and SEC Staff Accounting Bulletin Topic 14. These costs are
expensed on consumption of the related inventory and over the economic useful life of the property, plant and equipment, as applicable.
Interest Expense
Interest expense primarily consists of interest charges associated with our secured line of credit, long-term debt facilities, financing obligations and capital
lease obligations.
Other Income (Expense), Net
Other income (expense), net primarily consists of gains or losses associated with foreign currency fluctuations, net and of income earned on our cash and
cash equivalents holdings in interest-bearing accounts. We have historically invested our cash in money-market funds.
Gain (Loss) on Revaluation of Warrant Liabilities and Embedded Derivatives
Warrants issued to investors and lenders that allow them to acquire our convertible preferred stock have been classified as liability instruments on our
balance sheet. Since the warrants issued were mandatorily convertible into common stock at the completion of our IPO, the liability related to these mandatorily
converted warrants was reclassified to additional paid-in capital on the IPO date and total gains and losses for revaluation of warrant liabilities was recorded in the
consolidated statement of operations. We estimate the fair value of embedded derivatives in certain sales contracts using a Monte Carlo simulation model which
considers various potential natural gas forward curves over the sales contract term. We record any changes in the fair value of these instruments between reporting
dates in our consolidated statements of operations.
Provision for Income Taxes
Provision for income taxes consists primarily of federal and state income taxes in the United States and income taxes in foreign jurisdictions in which we
conduct business. We have provided a full valuation allowance on our U.S. deferred tax assets because we believe it is more likely than not that the deferred tax
assets will not be realized. At December 31, 2019, we had federal and state net operating loss carryforwards of $1.8 billion and $1.6 billion, respectively, which
will expire, if unused, beginning in 2022 and 2028, respectively.
Net Income (Loss) Attributable to Noncontrolling Interests
We allocate profits and losses to the noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-
oriented approach for applying the equity method of accounting when there is a complex structure, such as our PPA entities. Net income (loss) attributable to
noncontrolling interests is deducted from our net income (loss) in determining our net income (loss) attributable to common stockholders.
Deemed Dividend to Noncontrolling Interests
We recognized a deemed dividend of $2.4 million on November 26, 2019 related to our buyout of the tax equity partner’s equity interest in PPA IIIb. The
deemed dividend was recorded as a result of the buyout amount exceeding the hypothetical liquidation book value of the tax equity investor's equity interest in PPA
IIIb on the date the buyout occurred. This charge impacted net income attributable to common stockholders and earnings per share in the year ended December 31,
2019.
A discussion regarding our financial condition and results of operations for fiscal 2019 as compared to fiscal 2018 and for fiscal 2018 compared to fiscal
2017 is presented below.
We adopted new revenue guidance, Accounting Standards Codification ("ASC") 606, Revenue From Contracts With Customers ("ASC 606"), which was
effective from January 1, 2019 under the modified retrospective method which has limited the comparability of prior year results. The comparative information for
periods prior to 2019 has not been recast for the impact of ASC 606. Additional comparative information is provided in Note 3 of the Notes to Consolidated
Financial Statements for the adoption of ASC 606 and our proforma financial results under ASC 605, Revenue Recognition ("ASC 605"), for fiscal 2019.
65
Comparison of the Years Ended December 31, 2019 and 2018
Revenue
Years Ended
December 31,
2019
2018
As Restated
Change
Amount
%
$
557,336 $
400,638 $
156,698
(dollars in thousands)
60,826
95,786
71,229
68,195
83,267
80,548
(7,369)
12,519
(9,319)
$
785,177 $
632,648 $
152,529
39.1 %
(10.8)%
15.0 %
(11.6)%
24.1 %
Product
Installation
Service
Electricity
Total revenue
Total Revenue
Total revenue increased by approximately $152.5 million, or 24.1%, for 2019 as compared to 2018. Revenue in 2019 included a revenue recognition timing
adjustment decrease of $34.6 million associated with the adoption of ASC 606. Excluding this adjustment in 2019, revenue would have increased in 2019 by
approximately $187.1 million, or 29.6%.
Revenue in 2018 included a one-time benefit of $45.5 million associated with the 2017 retroactive ITC benefit recognized in the same period in 2018. In
early 2018, the ITC law was retroactively reinstated, extending and phasing-out the ITC through 2021. Future application of ITC to new installations is subject to a
phase-out schedule, see Note 14, Commitments and Contingencies - Investment Tax Credits for additional information.
Excluding this one-time retroactive ITC benefit in 2018 and the adjustment in connection with the adoption of ASC 606, revenue would have increased in
2019 by approximately $232.6 million, or 39.6%, as compared to 2018. This increase was driven primarily by the increase in product acceptances of approximately
385 systems, or 47.6%, for 2019, as compared to 2018.
Product Revenue
Product revenue increased by approximately $156.7 million, or 39.1%, for 2019, as compared to 2018. This increase was driven by the increase in
acceptances of 385 systems. Product revenue in 2018 included a one-time benefit of $45.5 million associated with the 2017 retroactive ITC benefit recognized in
the same period in 2018 and product revenue in 2019 included an adjustment in connection with the adoption of ASC 606 of $44.5 million. Excluding these
adjustments in 2018 and 2019, revenue increased during 2019 by approximately $246.7 million, or 69.5%, as compared to 2018, driven primarily by the increase in
product acceptances of approximately 385 systems, or 47.6%, for 2019.
Installation Revenue
Installation revenue decreased by approximately $7.4 million, or 10.8%, for 2019, as compared to 2018. Installation revenue in 2019 included an adjustment
in connection with the adoption of ASC 606 of $6.1 million. Excluding the adjustment in connection with the adoption of ASC 606, installation revenue would
have decreased by approximately $13.5 million, or 19.8%. This decrease was generally driven by the higher mix of international acceptances, where we typically
do not perform the installation service.
Service Revenue
Service revenue increased by approximately $12.5 million, or 15.0% for 2019, as compared to 2018. Service revenue in 2019 included an adjustment in
connection with the adoption of ASC 606 of $3.8 million. Excluding the adjustment in connection with the adoption of ASC 606, service revenue would have
increased by approximately $8.7 million, or 10.4%. This was primarily due to the increase in the number of annual maintenance contract renewals driven by our
growing fleet of installed Energy Servers.
Electricity Revenue
Electricity revenue decreased by approximately $9.3 million, or 11.6%, for 2019, as compared to 2018, due to a reduction in electricity revenues resulting
from the decommissioning and deconsolidation of the existing Energy Servers during the PPA II and PPA IIIb upgrades of Energy Servers. Electricity revenue is
driven from our former Bloom Electrons program, which included PPA II and PPA IIIb. When these PPAs were decommissioned, we no longer recognized
electricity revenue for them.
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Cost of Revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Total Cost of Revenue
Years Ended
December 31,
2019
2018
As Restated
Change
Amount
%
(dollars in thousands)
$
435,479 $
281,275 $
76,487
100,238
75,386
95,306
100,689
49,628
$
687,590 $
526,898 $
154,204
(18,819)
(451)
25,758
160,692
54.8 %
(19.7)%
(0.4)%
51.9 %
30.5 %
Total cost of revenue increased by approximately $160.7 million, or 30.5%, for 2019, as compared to 2018. Total cost of revenue in 2019 included an
adjustment in connection with the adoption of ASC 606 of $7.1 million. Excluding the adjustment in connection with the adoption of ASC 606, total cost of
revenue increased by approximately $167.8 million, or 31.9%. Further, included as a component of total cost of revenue, stock-based compensation increased
approximately $15.7 million for 2019, as compared to 2018. Total cost of revenue, excluding stock-based compensation, increased approximately $144.9 million,
or 29.2%, for 2019, as compared to 2018. Cost of revenue for 2019 included $94.8 million in expenses associated with the PPA II and PPA IIIb upgrades of Energy
Servers transactions. See Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers for further details. Cost of revenue for 2018 included
a payment of $9.4 million driven by the reinstatement of the ITC program in February 2018 where we were required to repay certain suppliers for previously
negotiated contractual discounts.
Total cost of revenue, excluding stock-based compensation, the adjustment in connection with the adoption of ASC 606, the expenses associated with the
PPA upgrades and the ITC reinstatement, increased approximately 66.7 million, or 13.7%, to $554.5 million for 2019, as compared to $487.8 million for 2018,
primarily driven by higher volume of product acceptances.
Cost of Product Revenue
Cost of product revenue increased by approximately $154.2 million, or 54.8%, for 2019, as compared to 2018. Included as a component of cost of product
revenue, stock-based compensation increased approximately $14.6 million for 2019, as compared to 2018. Cost of product revenue, excluding stock-based
compensation, increased approximately $139.6 million, or 53.4%, for 2019, as compared to 2018. This increase was driven primarily by the increase in product
acceptances of approximately 385 systems, or 47.6%, for 2019, as compared to 2018. There was also a $70.5 million write-off associated with the PPA upgrade
projects in 2019, partially offset by a payment of $9.4 million recorded to cost of product revenue in 2018. This $9.4 million cost was driven by the reinstatement
of the ITC program in February 2018 where we were required to repay certain suppliers for previously negotiated contractual discounts.
Cost of Installation Revenue
Cost of installation revenue decreased by approximately $18.8 million, or 19.7%, for 2019, as compared to 2018. This decrease was generally driven by the
higher mix of international acceptances in 2019 where we do not perform the installation service and due to lower install cost associated with the PPA II and the
PPA IIIb upgrades of Energy Servers.
Cost of Service Revenue
Cost of service revenue decreased by approximately $0.5 million, or 0.4%, for 2019, as compared to 2018. Cost of service revenue in 2019 included an
adjustment in connection with the adoption of ASC 606 of $6.5 million. This adjustment is associated with performance guarantees to our customers and with the
adoption of ASC 606, these costs are recorded as a reduction to service revenue. Excluding the adjustment in connection with the adoption of ASC 606, cost of
service revenue increased by approximately $6.1 million, or 6.1%. This increase in service cost was primarily due to more power module replacements required in
the fleet as our fleet of installed Energy Servers grows with acceptances and additional extended service contracts are executed and renewed.
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Cost of Electricity Revenue
Cost of electricity revenue increased by approximately $25.8 million, or 51.9%, for 2019, as compared to 2018, mainly due to a $24.4 million charge related
to the decommissioning and deconsolidation of Energy Servers associated with the PPA II and PPA IIIb upgrades of Energy Servers.
Gross Profit (Loss)
Gross Profit:
Product
Installation
Service
Electricity
Total Gross Profit
Gross Margin:
Product
Installation
Service
Electricity
Total Gross Margin
Total Gross Profit
Years Ended
December 31,
2019
2018
As Restated
(dollars in thousands)
Change
$
121,857
$
119,363
$
(15,661)
(4,452)
(4,157)
(27,111)
(17,422)
30,920
$
97,587
$
105,750
$
2,494
11,450
12,970
(35,077)
(8,163)
22 %
(26)%
(5)%
(6)%
12 %
30 %
(40)%
(21)%
38 %
17 %
Gross profit decreased $8.2 million in 2019, as compared to 2018. During 2018, gross profit included a one-time benefit of $36.1 million associated with the
2017 retroactive ITC benefit and 2019 included an adjustment in connection with the adoption of ASC 606 of $27.4 million. Excluding the one-time retroactive
ITC benefit in 2018 and the adjustment in connection with the adoption of ASC 606 in 2019, gross profit increased approximately $55.4 million, or 79.5% in 2019,
as compared to 2018. This increase was generally due to the increase in product acceptances and lower product cost driven by ongoing cost reduction activities.
Product Gross Profit
Product gross profit increased $2.5 million in 2019, as compared to 2018. Excluding the one-time retroactive ITC benefit of $36.1 million in 2018 and the
adjustment in connection with the adoption of ASC 606 in 2019 of $43.9 million, gross profit increased approximately $82.5 million, or 99.1% in 2019, as
compared to 2018. This increase was generally due to the increase in product acceptances and lower product cost driven by ongoing cost reduction activities.
Installation Gross Loss
Installation gross loss decreased $11.5 million in 2019, as compared to 2018. Excluding the adjustment in connection with the adoption of ASC 606 in 2019
of $6.1 million, installation gross loss decreased by $5.4 million, or 19.7%. This improvement was due to lower installation costs due to a higher mix of
international customer sites accepted in 2019, as compared to 2018. Our installation costs are driven by the complexity of each site at which we are installing an
Energy Server, including personalized applications, the size of each installation, which can cause variability in installation costs, and whether we or our
international partners perform the installation.
Service Gross Loss
Service gross loss decreased $13.0 million in 2019, as compared to 2018. Excluding the adjustment in connection with the adoption of ASC 606 in 2019 of
$10.4 million, service gross loss decreased by $2.6 million, or 14.8%. This improvement was primarily due to an increase in service revenue outpacing the increase
in service cost required for maintaining the fleet of installed Energy Servers.
68
Electricity Gross Profit
Electricity gross profit decreased $35.1 million, or 113.4% in 2019, as compared to 2018, mainly due to charges related to the decommissioning and
deconsolidation of Energy Servers associated with the PPA II and PPA IIIb upgrades of Energy Servers.
Operating Expenses
Years Ended
December 31,
2019
2018
As Restated
Change
Amount
%
$
104,168 $
(dollars in thousands)
89,135 $
73,573
152,650
62,807
118,817
$
330,391 $
270,759 $
15,033
10,766
33,833
59,632
16.9%
17.1%
28.5%
22.0%
Research and development
Sales and marketing
General and administrative
Total operating expenses
Total Operating Expenses
Total operating expenses increased $59.6 million, or 22.0%, in 2019, as compared to 2018. Included as a component of total operating expenses, stock-based
compensation expenses increased approximately $12.1 million for 2019, as compared to 2018. The increase in stock-based compensation expense is primarily
attributable to a one-time employee grant of restricted stock units ("RSUs") awarded prior to IPO with a performance condition of an IPO of the Company's
securities. These RSUs have a two-year vesting period starting on the day of IPO and were issued as an employee retention vehicle to bring our stock-based
compensation in line with our peer group. In addition to the one-time grant, the stock-based compensation includes some previously granted RSUs with vesting
beginning upon the completion of our IPO. Total operating expenses, excluding stock-based compensation, increased approximately $47.6 million, or 36.1%, in
2019, as compared to 2018. This increase was primarily due to compensation related expenses associated with hiring new employees, investments for next
generation servers and customer personalized application technology development, expenses related to our demand generation functions, expenses related to our
public company readiness and a $5.9 million debt payoff make-whole penalty associated with the PPA II upgrade of Energy Servers.
Research and Development
Research and development expenses increased by approximately $15.0 million, or 16.9%, in 2019, as compared to 2018. Included as a component of
research and development expenses, stock-based compensation expenses increased by approximately $1.9 million for 2019, as compared to 2018. Total research
and development expenses, excluding stock-based compensation, increased by approximately $13.1 million, or 26.2%, for 2019, as compared to 2018. This
increase was primarily due to compensation-related expenses for hiring new employees and investments made for our next generation technology development,
sustaining engineering projects for the current Energy Server platform, and investments made for customer personalized applications, such as microgrid and
storage solutions, and new fuel solutions utilizing biogas.
Sales and Marketing
Sales and marketing expenses increased by approximately $10.8 million, or 17.1%, in 2019, as compared to 2018. Included as a component of sales and
marketing expenses, stock-based compensation expenses increased by approximately $0.2 million for 2019, as compared to 2018. Total sales and marketing
expenses, excluding stock-based compensation, increased by approximately $10.6 million, or 34.6%, for 2019, as compared to 2018. This increase was primarily
due to compensation expenses related to hiring new employees and expenses related to efforts to increase demand and raise market awareness of our Energy Server
solutions, expanding outbound communications, as well as efforts to attract new customer financing partners.
69
General and Administrative
General and administrative expenses increased by approximately $33.8 million, or 28.5%, in 2019, as compared to 2018. Included as a component of
general and administrative expenses, stock-based compensation expenses increased by approximately $9.9 million for 2019, as compared to 2018. The majority of
this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total general and administrative expenses,
excluding stock-based compensation, increased by approximately $23.9 million, or 46.5% for 2019, as compared to 2018. The increase in general and
administrative expenses was due to an increase in compensation related expenses associated with hiring new employees to support public company readiness across
accounting and legal functions, expenses related to becoming a public company and information technology related expenses for infrastructure and security
support, as well as $5.9 million for a debt payoff make-whole penalty associated with the PPA II upgrade of Energy Servers and a production insurance write-off of
$1.8 million associated with the PPA IIIb upgrade of Energy Servers.
Stock-Based Compensation
Years Ended
December 31,
2019
2018
As Restated
Change
Amount
%
Cost of revenue
Research and development
Sales and marketing
General and administrative
$
45,429 $
40,949
32,478
77,435
(dollars in thousands)
29,680 $
39,029
32,284
67,489
Total stock-based compensation
$
196,291 $
168,482 $
15,749
1,920
194
9,946
27,809
53.1%
4.9%
0.6%
14.7%
16.5%
Total stock-based compensation increased $27.8 million, or 16.5%, in 2019, as compared to 2018. Of the $196.3 million in stock-based compensation for
2019, approximately $91.3 million was related to one-time employee grants of RSUs that were issued at the time of our IPO and that have a two-year vesting
period. These RSUs provided us an employee retention vehicle to bring our stock-based compensation in line with our peer group. In addition, the stock-based
compensation included some previously granted RSUs that vested upon the completion of our IPO.
Other Income and Expense
Interest income
Interest expense
Interest expense, related parties
Other income (expense), net
Loss on revaluation of warrant liabilities and embedded derivatives
Total
Total Other Expense
Years Ended
December 31,
2019
2018
Change
As Restated
(in thousands)
$
5,661 $
4,322 $
(87,480)
(6,756)
706
(2,160)
(97,021)
(8,893)
(999)
(22,139)
$
(90,029) $
(124,730) $
1,339
9,541
2,137
1,705
19,979
34,701
Total other expense decreased $34.7 million in 2019, as compared to 2018. This decrease was primarily due to the change in accounting for warrant
liabilities and embedded derivatives that occurred at the time of the IPO removing the re-measurement requirement for these instruments, as well as due to a
decrease in interest expense following the conversion of a portion of our debt into equity at the time of the IPO and the reduction of debt due to the PPA II and PPA
IIIb upgrades.
Interest Income
Interest income increased $1.3 million in 2019, as compared to 2018. This increase was primarily due to the increase in interest on the cash and short-term
investment balances which increased from proceeds from the IPO.
70
Interest Expense
Interest expense decreased $9.5 million in 2019, as compared to 2018. This decrease was primarily due to lower amortization expense of our debt
derivatives and a decrease in interest expense with the debt buy-out due to the PPA II and PPA IIIb upgrades.
Interest Expense, Related Parties
Interest expense, related parties decreased $2.1 million due to the conversion of $40.1 million of our 8% Notes from related parties into equity at the time of
the IPO.
Other Income (Expense), net
Other income (expense), net increased $1.7 million in 2019, as compared to 2018, due to changes in foreign currency translation expense.
Loss on Revaluation of Warrant Liabilities and Embedded Derivatives
Upon the IPO in 2018, the final valuation of the embedded derivatives related to the 6% Notes was reclassified from a derivative liability to additional paid-
in capital and as a result, we did not record any valuation adjustments in 2019. In 2018, we recognized net loss of $22.1 million primarily due to an increase in the
value of our derivatives of $31.2 million, which was partially offset by gains recognized from the revaluation of the preferred warrant liability of $9.1 million.
Provision for Income Taxes
Years Ended
December 31,
Change
2019
2018
Amount
%
Income tax provision
$
633 $
(dollars in thousands)
1,537 $
(904)
(58.8)%
Income tax provision decreased in 2019, as compared to 2018, and was primarily due to fluctuations in the effective tax rates on income earned by
international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
Years Ended
December 31,
Change
2019
2018
Amount
%
Less: net loss attributable to noncontrolling interests and redeemable
noncontrolling interests
$
(19,052) $
(17,736) $
(1,316)
(7.4)%
Total loss attributable to noncontrolling interests increased $1.3 million, or 7.4%, in 2019, as compared to 2018. The net loss increased due to increased
losses in our PPA Entities which are allocated to our noncontrolling interests.
(dollars in thousands)
71
Comparison of the Years Ended December 31, 2018 and 2017
Revenue
Product
Installation
Service
Electricity
Total revenue
Total Revenue
Years Ended
December 31,
Change
2018
2017
Amount
%
As Restated
As Revised
$
400,638 $
157,192 $
(dollars in thousands)
68,195
83,267
80,548
57,937
74,892
75,602
243,446
10,258
8,375
4,946
$
632,648 $
365,623 $
267,025
154.9%
17.7%
11.2%
6.5%
73.0%
Total revenue increased by approximately $267.0 million, or 73.0%, for 2018, as compared to 2017. There were four principal drivers of this revenue
increase.
First, product acceptances increased by approximately 187 systems, or 30.1%, for 2018, as compared to 2017.
Second, we achieved a higher mix of orders from customers where revenue is recognized on acceptance compared to orders where revenue is recognized
ratably over the term of the agreement. In 2018, we recognized 89.6% of our orders at acceptance, whereas only 77.4% of total acceptances in 2017 were
recognized at acceptance.
Third, the Federal Investment Tax Credit ("ITC") was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, however, our
revenue in 2018 includes the benefit of the reinstatement.
Lastly, the adoption of customer personalized applications, such as batteries and grid-independent solutions, increased in 2018, as compared to 2017.
Customer orders that include these personalized applications generated, on average, higher revenue than our standard orders that do not include these personalized
applications.
Product Revenue
Product revenue increased by approximately $243.4 million, or 154.9%, for 2018, as compared to 2017. This increase was driven by the increase in
acceptances, higher mix of orders where revenue is recognized on acceptance, the ITC reinstatement, and an increase in the sales of customer personalized
applications.
Installation Revenue
Installation revenue increased by approximately $10.3 million, or 17.7%, for 2018, as compared to 2017. This increase was driven by the increase in
acceptances, higher mix of orders where revenue is recognized on acceptance, and an increase in the sales of customer personalized applications, partially offset by
the lower installation revenue associated with one large customer in 2018 where the installation was performed by the customer and as a result, we did not have any
installation revenue for that customer. In general, when a customer or, in the case of SK E&C in the Republic of Korea, a partner performs the installation service,
we do not generate significant revenue for the installation.
Service Revenue
Service revenue increased by approximately $8.4 million, or 11.2% for 2018, as compared to 2017. This was primarily due to the increase in the number of
annual maintenance contract renewals driven by our growing fleet of installed Energy Servers.
Electricity Revenue
Electricity revenue increased by approximately $4.9 million, or 6.5%, for 2018, as compared to 2017, due primarily to a growing fleet of installed Energy
Servers related to our managed service customers where revenue is recognized over the term of the agreement, as well as Bloom Electrons customers whose
contracts were initiated in 2017 and therefore only recognized revenue for a partial year versus a full year in 2018.
72
Cost of Revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Total Cost of Revenue
Years Ended
December 31,
Change
2018
2017
Amount
%
As Restated
As Revised
(dollars in thousands)
$
281,275 $
192,361 $
95,306
100,689
49,628
54,970
85,128
49,475
88,914
40,336
15,561
153
$
526,898 $
381,934 $
144,964
46.2%
73.4%
18.3%
0.3%
38.0%
Total cost of revenue increased by approximately $145.0 million, or 38.0%, for 2018, as compared to 2017. Included as a component of total cost of
revenue, stock-based compensation increased approximately $23.3 million for 2018, as compared to 2017. Total cost of revenue, excluding stock-based
compensation, increased approximately $121.6 million, or 32.4%, to $497.2 million for 2018, as compared to $375.6 million for 2017. This increase in total cost of
revenue was primarily attributable to higher product and install cost of revenue which was driven by an increase in the volume of product acceptances and a higher
mix of orders with customers in which cost of revenue is recognized on acceptance, instead of ratably over the life of the agreement. Additionally there was an
increase in the sales of customer personalized applications for 2018. These applications generally have a cost associated with them and therefore cause an increase
in the cost of revenue.
Cost of Product Revenue
Cost of product revenue increased by approximately $88.9 million, or 46.2%, for 2018, as compared to 2017. This increase was driven by the increase in
acceptances, higher mix of orders where cost of revenue is recognized on acceptance, increased costs from the sales of customer personalized applications, and an
increase in stock-based compensation. Additionally, as a result of the reinstatement of the ITC program in February 2018, we were required to repay certain
suppliers for previously negotiated contractual discounts. This payment of $9.4 million was recorded to cost of product revenue.
Cost of Installation Revenue
Cost of installation revenue increased by approximately $40.3 million, or 73.4%, for 2018, as compared to 2017. This increase was driven by the increase in
acceptances, higher mix of orders where cost of revenue is recognized on acceptance, and increased costs from the sales of customer personalized applications
where the installation is more complex, partially offset by the lower cost of installation associated with one large customer in 2018 where the installation was
performed by the customer and as a result, we did not have any installation cost for that customer. In general, when we do not perform the installation function for
a customer, such as in SK E&C in the Republic of Korea, we do not incur any significant installation costs on those orders.
Cost of Service Revenue
Cost of service revenue increased by approximately $15.6 million, or 18.3%, for 2018, as compared to 2017. This increase in service cost was primarily due
to more power module replacements required in the fleet as a result of a larger fleet of installed Energy Servers, as well as replacing older generation power
modules during the normal service process.
Cost of Electricity Revenue
Cost of electricity revenue increased by approximately $0.2 million, or 0.3%, for 2018, as compared to 2017, due to a growing fleet of installed Energy
Servers related to our managed service customers where cost is recognized over the term of the agreement, as well as Bloom Electrons customers whose contracts
were initiated in 2017 and therefore, we only recognized cost for a partial year versus a full year in 2018. These increases were offset by a gain recorded as a result
of the fair value adjustment on our natural gas fixed price forward contract.
73
Gross Profit (Loss)
Gross Profit (Loss):
Product
Installation
Service
Electricity
Total Gross Profit (Loss)
Gross Margin
Product
Installation
Service
Electricity
Total Gross Margin
Total Gross Profit
Years Ended
December 31,
2018
2017
Change
As Restated
As Revised
(dollars in thousands)
$
119,363
$
(35,169)
$
(27,111)
(17,422)
30,920
2,967
(10,236)
26,127
$
105,750
$
(16,311)
$
154,532
(30,078)
(7,186)
4,793
122,061
30 %
(40)%
(21)%
38 %
17 %
(22)%
5 %
(14)%
35 %
(4)%
Gross profit improved $122.1 million in 2018, as compared to 2017. This improvement was generally as a result of higher product margins due to the
increase in product acceptances which drove higher volume, a higher mix of orders recognized at acceptance versus ratably over the life of the agreement, and the
reinstatement of the ITC.
Product Gross Profit
Product gross profit improved $154.5 million in 2018, as compared to 2017. This increase was due to the increase in product acceptances which drove
higher volume, a higher mix of orders recognized at acceptance versus ratably over the life of the Bloom Electrons' or managed service contracts and the
reinstatement of the ITC.
Installation Gross Loss
Installation gross amount worsened $30.1 million in 2018, as compared to 2017. This decrease from profit to a loss was due to higher installation costs
associated with the initial installations for the new customer personalized applications. Our installation costs are driven by the complexity of each site at which we
are installing an Energy Server, including personalized applications, as well as the size of each installation, which can cause variability in installation costs from
year-to-year.
Service Gross Loss
Service gross loss worsened $7.2 million in 2018, as compared to 2017. This increased loss was primarily due to more power module replacements required
in the fleet as a result of a larger fleet of installed Energy Servers, as well as replacing older power modules during the normal service process.
Electricity Gross Profit
Electricity gross profit increased $4.8 million, or 18.3%, in 2018, as compared to 2017 due to a gain recorded as a result of the fair value adjustment on a
natural gas fixed price forward contract and a growing fleet of installed Energy Servers related to our managed service customers.
74
Operating Expenses
Research and development
Sales and marketing
General and administrative
Total operating expenses
Total Operating Expenses
Years Ended
December 31,
Change
2018
2017
Amount
%
As Restated
As Revised
$
$
89,135 $
62,807
118,817
(dollars in thousands)
51,146 $
31,926
55,689
37,989
30,881
63,128
270,759 $
138,761 $
131,998
74.3%
96.7%
113.4%
95.1%
Total operating expenses increased $132.0 million, or 95.1%, in 2018, as compared to 2017. Included as a component of total operating expenses, stock-
based compensation expenses increased approximately $116.1 million for 2018, as compared to 2017, accounting for much of the year-over-year increase. The
increase in stock-based compensation is primarily attributable to a one-time employee grant of restricted stock units ("RSUs") at the time of our IPO and that have
a two-year vesting period. These RSUs provided us with a market equity employee retention vehicle to help us compete for talent across our peer group.
Additionally, the stock-based compensation included some previously granted RSUs that vested upon the completion of our IPO. Total operating expenses,
excluding stock-based compensation, increased approximately $15.9 million, or 13.7%, in 2018, as compared to 2017. This increase was primarily due to
compensation related expenses associated with hiring new employees, investments for next generation servers and customer personalized application technology
development, and expenses related to our efforts to increase demand and raise market awareness of our Energy Server solutions, as well as to drive new customer
financing partners.
Research and Development
Research and development expenses increased by approximately $38.0 million, or 74.3%, in 2018, as compared to 2017. Included as a component of
research and development expenses, stock-based compensation expenses increased by approximately $33.5 million for 2018, as compared to 2017. The majority of
this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total research and development expenses,
excluding stock-based compensation, increased by approximately $4.5 million, or 9.9%, for 2018, as compared to 2017. This increase was primarily due to
compensation-related expenses related to hiring new employees and investments made for customer personalized applications, such as a battery solution, sustaining
engineering projects for the current Energy Server platform and investments made for our next generation technology development.
Sales and Marketing
Sales and marketing expenses increased by approximately $30.9 million, or 96.7%, in 2018, as compared to 2017. Included as a component of sales and
marketing expenses, stock-based compensation expenses increased by approximately $27.6 million for 2018, as compared to 2017. The majority of this increase
was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total sales and marketing expenses, excluding stock-based
compensation, increased by approximately $3.3 million, or 12.0%, for 2018, as compared to 2017. This increase was primarily due to compensation expenses
related to hiring new employees and expenses related to efforts to increase demand and raise market awareness of our Energy Server solutions, expanding
outbound communications, as well as efforts to attract new customer financing partners.
General and Administrative
General and administrative expenses increased by approximately $63.1 million, or 113.4%, in 2018, as compared to 2017. Included as a component of
general and administrative expenses, stock-based compensation expenses increased by approximately $55.0 million for 2018, as compared to 2017. The majority of
this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total general and administrative expenses,
excluding stock-based compensation, increased by approximately $8.1 million, or 18.8%, for 2018, as compared to 2017. The increase in general and
administrative expenses was due to an increase in compensation related expenses associated with hiring new employees to support public company readiness across
accounting and legal functions, expenses related to becoming a public company and information technology related expenses for infrastructure and security
support.
75
Stock-Based Compensation
Cost of revenue
Research and development
Sales and marketing
General and administrative
Years Ended
December 31,
Change
2018
2017
Amount
%
As Restated
As Revised
$
29,680 $
39,029
32,284
67,489
(dollars in thousands)
6,355 $
5,560
4,685
12,501
23,325
33,469
27,599
54,988
Total stock-based compensation
$
168,482 $
29,101 $
139,381
367%
602%
589%
440%
479%
Total stock-based compensation increased $139.4 million, or 479%, in 2018, as compared to 2017. Of the $168.5 million in stock-based compensation for
2018, approximately $139.1 million was related to one-time employee grant of RSUs that were issued at the time of our IPO and that have a two-year vesting
period. These RSUs provided us with a market equity employee retention vehicle necessary to compete for talent across our peer group. In addition, the stock-
based compensation included some previously granted RSUs that vested upon completion of our IPO.
Other Income and Expense
Interest income
Interest expense
Interest expense, related parties
Other expense, net
Loss on revaluation of warrant liabilities and embedded derivatives
Total
Total Other Expense
Years Ended
December 31,
2018
2017
Change
As Restated
As Revised
(in thousands)
$
4,322 $
759 $
(97,021)
(8,893)
(999)
(22,139)
(112,039)
(12,265)
(491)
(15,284)
$
(124,730) $
(139,320) $
3,563
15,018
3,372
(508)
(6,855)
14,590
Total other expense decreased $14.6 million in 2018, as compared to 2017. This decrease was primarily due to the decrease in interest expense following the
conversion of a portion of our debt into equity at the time of the IPO.
Interest Income
Interest income increased $3.6 million in 2018, as compared to 2017. This increase was primarily due to the increase in interest on the short-term investment
balances which increased from proceeds from the IPO.
Interest Expense
Interest expense decreased $15.0 million in 2018, as compared to 2017. This decrease was primarily due to lower amortization expense of our debt
derivatives and due to the conversion of a portion of our debt into equity at the time of the IPO.
Interest Expense, Related Parties
Interest expense, related parties decreased $3.4 million due to the conversion of $40.1 million of our 8% Notes from related parties into equity at the time of
the IPO.
Other Income (Expense), net
Other expense decreased $0.5 million in 2018, as compared to 2017. This change was primarily due to an increase in interest income, partially offset by
foreign currency translation.
76
Revaluation of Warrant Liabilities and Embedded Derivatives
For 2018, we recognized net loss of $22.1 million primarily due to an increase in the value of our derivatives of $31.2 million, which was partially offset by
gains recognized from the revaluation of the preferred warrant liability of $9.1 million. The loss on revaluation of warrant liabilities and embedded derivatives
increased $6.9 million when compared to 2017.
Provision for Income Taxes
Years Ended
December 31,
Change
2018
2017
Amount
%
Income tax provision
$
1,537 $
636 $
901
141.7%
(dollars in thousands)
Income tax provision increased in 2018, as compared to 2017 and was primarily due to fluctuations in the effective tax rates on income earned by
international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
Years Ended
December 31,
Change
2018
2017
Amount
%
Net loss attributable to noncontrolling interests and redeemable
noncontrolling interests
$
(17,736) $
(18,666) $
930
5.0%
Total loss attributable to noncontrolling interests decreased $0.9 million, or 5.0%, in 2018, as compared to 2017. The net loss decreased due to the allocation
(dollars in thousands)
of our lower net loss using HLBV allocation methodology.
Liquidity and Capital Resources
As of December 31, 2019, we had an accumulated deficit of approximately $2.9 billion. We have financed our operations, including the costs of acquisition
and installation of Energy Servers, mainly through a variety of financing arrangements and PPA Entities, credit facilities from banks, sales of our common stock,
debt financings and cash generated from our operations. As of December 31, 2019, we had $401.4 million of total outstanding recourse debt, $235.4 million of
non-recourse debt and $28.0 million other long term liabilities. See Note 7, Outstanding Loans and Security Agreements for a complete description of our
outstanding debt. As of December 31, 2019 and 2018, we had cash and cash equivalents and short-term investments of $202.8 million and $325.1 million,
respectively.
In July 2018, we successfully completed an initial public offering ("IPO") of our securities with the sale of 20,700,000 shares of our Class A common stock
at a price of 15.00 per share, resulting in cash proceeds of $282.3 million, net of underwriting discounts, commissions and estimated offering costs.
We believe that our existing cash and cash equivalents will be sufficient to meet our operating and capital cash flow requirements and other cash flow needs
for at least the next 12 months from the date of this Annual Report on Form 10-K. As of December 31, 2019, the current portion of our total debt is $337.6 million,
which would require cash payments of $353.5 million in the next 12 months. On March 31, 2020, we extended the maturity for all but $70.0 million of current debt
as follows:
We entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners (the “Noteholders”) of our
outstanding 6.0% Convertible Notes due 2020 (the “Convertible Notes”) pursuant to which such Noteholders have agreed, subject to certain conditions set forth
therein, to consent to, among other things, certain amendments to the indenture (the “Proposed Amendments”) dated as of December 15, 2015, as supplemental by
the First Supplemental Indenture dated as of September 20, 2016, the Second Supplemental Indenture dated as of June 29, 2017 and the Third Supplemental
Indenture dated as of January 18, 2018, each among us, the guarantor party thereto and U.S. Bank National Association, as trustee and collateral agent (as so
supplemented, the “Original Indenture”), pursuant to which the Convertible Notes were issued to extend the maturity date of the Convertible Notes to December 1,
2021.
In connection with the execution and delivery of the Amendment Documents, on March 31, 2020, we entered into an Amended and Restated Subordinated
Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”)
pursuant to which certain terms of our outstanding Amended and Restated Subordinated Secured Convertible Note issued to Constellation were modified to extend
the maturity date to December 31, 2021.
Furthermore, on March 31, 2020, we entered into a note purchase agreement and convertible note purchase agreement, as follows:
We entered into a note purchase agreement (the “Note Purchase Agreement”) with certain investors pursuant to which such investors have agreed to
purchase, and we have agreed to issue, $70.0 million of 10.25% Senior Secured Notes due 2027 (the “Senior Secured Notes”) in a private placement (the “Senior
Secured Notes Private Placement”). The funding of the Note Purchase Agreement is subject to certain conditions including obtaining a rating from a rating agency.
We entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with Foris Ventures, LLC and New Enterprise
Associates 10, Limited Partnership (together, the “Purchasers”), pursuant to which such Purchasers were issued $30.0 million aggregate principal amount of
additional Convertible Notes (the “Additional Convertible Notes”) under the Amended and Restated Indenture.
The combination of our existing cash and cash equivalents, the extension of the Convertible Notes and Constellation Note Modification to December 2021,
the proceeds from the convertible note agreement and operating cash flows are expected to be sufficient to meet our operational and capital cash flow requirements
and other cash flows for the next 12 months from the date of this Annual Report on Form 10-K, including the current portion of our total debt.
Our future cash flow requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth,
the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds, the
expansion of sales and marketing activities, market acceptance of our products, the timing of receipt by us of distributions from our PPA Entities and overall
economic conditions including the impact of COVID-19 on our future operations. We do not expect to receive significant cash distributions from our PPA Entities.
During June 2019, we completed a transaction for the PPA II upgrade of Energy Servers and we repaid all the PPA II outstanding debt of $76.8 million. During
November 2019, we
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completed a transaction for the PPA IIIb upgrade of Energy Servers and we repaid all the PPA IIIb outstanding debt of $23.9 million. For additional information
refer to Note 13, Power Purchase Agreement Programs.
Cash Flows
A summary of our sources and uses of cash, cash equivalents and restricted cash is as follows (in thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Years Ended
December 31,
2019
2018
2017
As Restated
As Revised
$
163,770 $
(91,948) $
53,447
(120,314)
(125,375)
317,196
(91,966)
(88,247)
142,910
Net cash provided by (used in) our variable interest entities (the PPA Entities) which are incorporated into the consolidated statements of cash flows for
December 31, 2019, 2018 and 2017, is as follows (in thousands):
Years Ended
December 31,
2019
2018
2017
PPA Entities ¹
Net cash provided by PPA operating activities
Net cash used in PPA financing activities
$
279,402 $
(167,259)
30,612 $
(38,813)
24,797
(30,525)
1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and represents the stand-alone cash flows prepared in accordance with U.S. GAAP.
Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing
activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrollling partnership interests. We believe this presentation of net cash
provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a minority interest.
Operating Activities
Net cash provided by operating activities for the twelve months ended December 31, 2019 was $163.8 million and was primarily the result of net cash
earnings of $67.3 million plus the net decrease in working capital of $96.5 million. Net cash earnings is primarily comprised of a net loss of $323.5 million,
adjusted for non-cash benefit items including: (i) depreciation and amortization of $78.6 million; (ii) PPA II and PPA IIIb decommissioning costs of $70.5 million;
(iii) write-off of property, plant and equipment net of $3.1 million; (iv) impairment of assets of $11.3 million; (v) a loss on revaluation of derivative contracts of
$2.8 million; (vi) stock-based compensation of $196.3 million; (vii) amortization of debt issuance cost of $22.1 million, plus (viii) an expense reclass to financing
activities related to a debt make-whole expense of $5.9 million. Net cash provided from changes in working capital consisted primarily of decreases in: (i) accounts
receivable of $52.0 million; (ii) inventories of $18.4 million; (iii) customer financing receivable of $5.5 million; (iv) prepaid expenses and other current assets of
$8.6 million; and (v) other long-term assets of $3.6 million; plus increases in: (vi) accrued expenses and other current liabilities of $6.7 million; and (vii) other
long-term liabilities of $4.4 million, and (viii) deferred revenue and contract liabilities of $37.1 million. These sources of cash from working capital were partially
offset by increases in: (i) deferred cost of revenue of $22.0 million; and (ii) decreases in: accounts payable of $11.3 million and (iii) accrued warranty of $6.6
million.
Net cash used in operating activities for the twelve months ended December 31, 2018 was $91.9 million and was the result of net cash loss of $22.4 million
and the net increase in working capital of $69.5 million. Net cash loss is primarily comprised of a net loss of $291.3 million, adjusted for non-cash benefit items
including: (i) depreciation and amortization of approximately $53.9 million; (ii) write-off of property, plant and equipment net of $0.9 million; (iii) a loss on
revaluation of derivative contracts of $29.0 million; (iv) stock-based compensation of $168.5 million; and (v) amortization of debt issuance cost of $25.4 million;
partially offset by (vi) a gain on revaluation of stock warrants of $9.1 million. Net cash used by changes in working capital consisted primarily of increases in: (i)
accounts receivable of $55.0 million; (ii) inventory of $37.0 million; and (iii) prepaid expenses and other current assets of $8.0 million; plus a decrease in: (iv)
accrued expenses and other current liabilities of $6.0 million; and (v) deferred revenue
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and contract liabilities of $21.8 million. These uses of cash for working capital were partially offset by decreases in: (i) deferred cost of revenue of $14.2 million;
and (ii) customer financing receivable and other of $4.9 million; plus increases in: (iv) accounts payable of $18.3 million; (v) accrued warranty of $1.5 million; and
(vi) other long term liabilities of $19.6 million.
Net cash used in operating activities for the twelve months ended December 31, 2017 was $92.0 million and was the result of net cash loss of $152.2 million
partially offset by the net increase in working capital of $60.2 million. Net cash loss is primarily comprised of a net loss of $295.0 million, adjusted for non-cash
benefit items including: (i) depreciation and amortization of approximately $54.4 million; (ii) a loss on revaluation of derivative contracts of $15.0 million; (iii)
stock-based compensation of $29.1 million; and (iv) amortization of debt issuance cost of $47.3 million; partially offset by (v) a gain on revaluation of stock
warrants of $3.0 million. Net cash provided by changes in working capital consisted primarily of decreases in: (i) accounts receivable of $3.2 million; (ii) customer
financing receivable and other of $5.5 million, and (iii) other long-term assets of $0.8 million; plus an increase in: (iv) accrued expenses and other current liabilities
of $8.0 million; (v) deferred revenue and contract liabilities of $48.3 million; and (vi) other long term liabilities of $37.6 million. These sources of cash from
working capital were partially offset by increases in: (i) inventory of $10.6 million; (ii) deferred cost of revenue of $31.3 million; and (iii) prepaid expenses and
other current assets of $1.0 million; plus decrease in: (iv) accrued warranty of $7.4 million.
Investing Activities
Net cash provided by investing activities in the twelve months ended December 31, 2019 was $53.4 million which included proceeds from maturity of
marketable securities of $104.5 million, partially offset by $51.1 million used for the purchase of long-lived assets. Our use of cash in the twelve months ended
December 31, 2019 for the purchase of property, plant and equipment increased, as compared to the same period in 2018, due to completing a move to our new
corporate headquarters which is used for administration, research and development, and sales and marketing.
Net cash used in investing activities in the twelve months ended December 31, 2018 was $125.4 million which was primarily the result of net purchase of
marketable securities of $76.9 million, plus $48.5 million used for the purchase of long-lived assets.
Net cash used in investing activities in the twelve months ended December 31, 2017 was $88.2 million which was primarily the result of net purchase of
marketable securities of $26.8 million, plus $61.5 million used for the purchase of long-lived assets.
Financing Activities
Net cash used in financing activities in the twelve months ended December 31, 2018 was $120.3 million which included payments to noncontrolling and
redeemable noncontrolling interest of $56.5 million, distributions paid to our PPA Equity Investors of $12.5 million, repayments of debt of $121.5 million, and a
debt make-whole payment of $5.9 million related to our PPA II upgrade of Energy Servers, partially offset by proceeds from issuance of common stock of $12.7
million.
Net cash provided by financing activities in the twelve months ended December 31, 2018 was $317.2 million resulted primarily from our initial public
offering netting $292.5 million plus proceeds from the issuance of common stock of $1.5 million, partially offset by distributions paid to our PPA Equity Investors
of $15.3 million, repayments of long-term debt of $20.2 million, and payments of initial public offering issuance costs of $5.5 million.
Net cash provided by financing activities in the twelve months ended December 31, 2017 was $142.9 million resulted from net proceeds from the issuance
of debt of $93.9 million and net proceeds from noncontrolling and redeemable noncontrolling interests of $13.7 million, partially offset by distributions paid to our
PPA Equity Investors of $23.7 million, repayments of long-term debt of $21.4 million, and costs related to our initial public offering of $1.1 million.
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Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 2019 (in thousands):
Unpaid
Principal
Balance
Net Carrying Value
Current
Long-
Term
Total
Unused
Borrowing
Capacity
LIBOR + 4% term loan due November 2020
$
1,571 $
1,536 $
— $
1,536 $
5% convertible promissory note due December 2020
6% convertible promissory notes due December 2020
10% notes due July 2024
Total recourse debt
7.5% term loan due September 2028
6.07% senior secured notes due March 2030
LIBOR + 2.5% term loan due December 2021
Available letters of credit, expires December 2021
Total non-recourse debt
Total debt
33,104
36,482
289,299
273,410
—
—
36,482
273,410
93,000
14,000
75,962
89,962
416,974
325,428
75,962
401,390
38,338
80,988
121,784
—
3,882
3,151
5,122
—
31,088
76,865
34,970
80,016
115,315
120,437
—
—
241,110
12,155
223,268
235,423
$
658,084 $
337,583 $
299,230 $
636,813 $
—
—
—
—
—
—
—
—
1,220
1,220
1,220
Recourse debt refers to debt that Bloom Energy Corporation has an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified
assets or our subsidiaries. The differences between the unpaid principal balances and the net carrying values are due to debt discounts and deferred financing costs.
We were in compliance with all of our financial covenants as of December 31, 2019 and 2018.
Recourse Debt Facilities
LIBOR + 4% Term Loan due November 2020 - In May 2013, we entered into a $5.0 million credit agreement and a $12.0 million financing agreement to
help fund the building of a new facility in Newark, Delaware. The $5.0 million credit agreement expired in December 2016. The $12.0 million financing agreement
has a term of 90 months, payable monthly at a variable rate equal to one month LIBOR plus the applicable margin. The year-to-date weighted average interest rate
as of December 31, 2019 and 2018 was 6.3% and 5.9%, respectively. The loan requires monthly payments and is secured by the manufacturing facility. In addition,
the credit agreement includes a cross-default provision which provides that the remaining balance of borrowing under the agreement will be due and payable
immediately if a lien is placed on the Newark facility in the event we default on any indebtedness in excess of $100,000 individually or $300,000 in the aggregate.
Under the terms of the financing agreement, we are required to comply with various restrictive covenants. As of December 31, 2019 and 2018, the debt outstanding
was $1.6 million and $3.3 million, respectively.
5% Convertible Promissory Notes due 2020 (Originally 8% Convertible Promissory Notes due December 2018) - Between December 2014 and June 2016,
we issued $193.2 million of three-year convertible promissory notes ("8% Notes") to certain investors. The 8% Notes had a fixed interest rate of 8% compounded
monthly, due at maturity or at the election of the investor with accrued interest due in December of each year.
On January 18, 2018, amendments were finalized to extend the maturity dates for all the 8% Notes to December 2019. At the same time, the portion of the
notes that was held by Constellation NewEnergy, Inc. ("Constellation") was extended to December 2020 and the interest rate decreased from 8% to 5% ("5%
Notes").
Investors held the right to convert the unpaid principal and accrued interest of both the 8% Notes and 5% Notes to Series G convertible preferred stock at
any time at the price of $38.64 per share. In July 2018, upon our IPO, the $221.6 million of principal and accrued interest of outstanding 8% Notes automatically
converted into additional paid-in capital, the conversion of which included all the related-party noteholders. The 8% Notes converted to shares of Series G
convertible preferred stock and, concurrently, each such share of Series G convertible preferred stock converted automatically into one share of Class B common
stock. Upon our IPO, 5,734,440.0 shares of Class B common stock were issued from conversions and the 8% Notes were retired. Constellation, the holder of the
5% Notes, has not elected to convert as of December 31, 2019. The outstanding unpaid principal and accrued interest debt balance of the 5% Notes of $36.5 million
was classified as current as of December 31, 2019, and the outstanding unpaid principal and accrued interest debt balance of the 5% Notes of $36.5 million was
classified as non-current as of December 31, 2018.
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6% Convertible Promissory Notes due December 2020 - Between December 2015 and September 2016, we issued $260.0 million convertible promissory
notes due December 2020, ("6% Notes") to investors. The 6% Notes bore a 5% fixed interest rate, payable monthly either in cash or in kind, at our election. We
amended the terms of the 6% Notes in June 2017 to reduce the collateral securing the notes and to increase the interest rate from 5% to 6%.
As of December 31, 2019 and 2018, the amount outstanding on the 6% Notes, which includes interest paid in kind through the IPO date, was $289.3 million
and $296.2 million, respectively. Upon the IPO, the debt was convertible at the option of the holders at the conversion price of $11.25 per share into common stock
at any time through the maturity date. In January 2018, we amended the terms of the 6% Notes to extend the convertible put option, which investors could elect
only if the IPO did not occur prior to December 2019. After the IPO, we paid the interest in cash when due and no additional interest accrued on the consolidated
balance sheet on the 6% Notes. In November 2019, one note holder exchanged a portion of their 6% Notes at the conversion price of $11.25 per share into 616,302
shares of common stock.
On or after July 27, 2020, we may redeem, at our option, all or part of the 6% Notes if the last reported sale price of our common stock has been at least
$22.50 for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the three trading days immediately
preceding the date on which we provide written notice of redemption In certain circumstances, the 6% Notes are also redeemable at our option in connection with a
change of control.
Under the terms of the indenture governing the 6% Notes, we are required to comply with various restrictive covenants, including meeting reporting
requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on investments. In addition, we are required to
maintain collateral which secures the 6% Notes in an amount equal to 200% of the principal amount of and accrued and unpaid interest on the outstanding notes.
This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum collateral test does restrict us with
respect to investing in non-PPA subsidiaries. If we do not meet the minimum collateral test, we cannot invest cash into any non-PPA subsidiary that is not a
guarantor of the notes. The 6% Notes also include a cross-acceleration provision which provides that the holders of at least 25% of the outstanding principal
amount of the 6% Notes may cause such notes to become immediately due and payable if we or any of our subsidiaries default on any indebtedness in excess of
$15.0 million such that the repayment of such indebtedness is accelerated.
In connection with the issuance of the 6% Notes, we agreed to issue to J.P. Morgan and CPPIB, upon the occurrence of certain conditions, warrants to
purchase our common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. On August 31, 2017, J.P. Morgan transferred its rights to
CPPIB. Upon completion of the IPO, the 312,888 warrants were net exercised for 312,575 shares of Class B Common stock.
10% Notes due July 2024 - In June 2017, we issued $100.0 million of senior secured notes ("10% Notes"). The 10% Notes mature in 2024 and bear a 10.0%
fixed rate of interest and with principal amortization started July 2019, payable semi-annually. The 10% Notes have a continuing security interest in the cash flows
payable to us as servicing, operations and maintenance fees and administrative fees from certain active power purchase agreements. Under the terms of the
indenture governing the notes, we are required to comply with various restrictive covenants including, among other things, to maintain certain financial ratios such
as debt service coverage ratios, to incur additional debt, issue guarantees, incur liens, make loans or investments, make asset dispositions, issue or sell share capital
of our subsidiaries and pay dividends, meet reporting requirements, including the preparation and delivery of audited consolidated financial statements, or maintain
certain restrictions on investments and requirements in incurring new debt. As of December 31, 2019, we were in compliance with all of such covenants. In
addition, we are required to maintain collateral which secures the 10% Notes based on debt ratio analyses. This minimum collateral test is not a negative covenant
and does not result in a default if not met. However, the minimum debt service coverage ratio test does restrict our access to the excess cash escrowed in a
collection account which would otherwise be released to us on a bi-annual basis after principal amortization and interest payment. The outstanding unpaid principal
and accrued interest debt balance of the 10% Notes of $14.0 million and $7.0 million were classified as current as of December 31, 2019 and 2018, respectively
and the outstanding unpaid principal and accrued interest debt balances of the 10% Notes of $76.0 million and $88.6 million were classified as non-current as of
December 31, 2019 and 2018, respectively.
Non-recourse Debt Facilities
5.22% Senior Secured Term Notes - In March 2013, PPA Company II refinanced its existing debt by issuing 5.22% Senior Secured Notes due March 30,
2025 (the "5.22% Notes"). During the year ended December 31, 2019, there was a decommissioning in PPA II, including the retirement of the 5.22% Notes
outstanding unpaid debt and interest of $77.6 million, which included the accumulated unpaid interest on the debt. See Note 13, Power Purchase Agreement
Programs - PPA II Upgrade of Energy Servers for additional information.
81
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to help
fund the purchase and installation of Energy Servers. The loan bears a fixed interest rate of 7.5% payable quarterly. The loan requires quarterly principal payments
which began in March 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $3.8 million and
$3.7 million as of December 31, 2019 and 2018, respectively, and which was included as part of long-term restricted cash in the consolidated balance sheets. The
loan is secured by all assets of PPA IIIa.
LIBOR + 5.25% Term Loan due October 2020 - In September 2013, PPA IIIb entered into a credit agreement to help fund the purchase and installation of
Energy Servers. The aggregate amount of the debt facility was $32.5 million. During the year ended December 31, 2019, there was a decommissioning in PPA IIIb,
including the retirement of this outstanding unpaid debt of $24.2 million, which included the accumulated unpaid interest on the debt. See Note 13, Power
Purchase Agreement Programs - PPA IIIb Upgrade of Energy Servers for additional information.
6.07% Senior Secured Notes - In July 2014, PPA IV issued senior secured notes amounting to $99.0 million to third parties to help fund the purchase and
installation of Energy Servers. The notes bear a fixed interest rate of 6.07% payable quarterly which began in December 2015 and ends in March 2030. The notes
are secured by all the assets of the PPA IV. The Note Purchase Agreement requires us to maintain a debt service reserve, the balance of which was $8.0 million as
of December 31, 2019 and $6.5 million as of December 31, 2018, and which was included as part of long-term restricted cash in the consolidated balance sheets.
LIBOR + 2.5% Term Loan due December 2021 - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation
of Energy Servers. The lenders are a group of five financial institutions and the terms included commitments to a letter of credit (LC) facility (see below). The loan
was initially advanced as a construction loan during the development of the PPA V Project and converted into a term loan on February 28, 2017 (the “Term
Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted.
In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used
for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. The loan is secured by all the assets of the PPA
V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July 2015 the PPA V entered
into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of credit due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The agreement also included
commitments to a letter of credit ("LC") facility, with the characteristics of a line of credit, with the aggregate principal amount of $6.4 million, later adjusted down
to $6.2 million. The amount reserved under the letter of credit as of December 31, 2019 and 2018 was $5.0 million. The unused capacity as of December 31, 2019
and 2018 was $1.2 million.
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Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations and the debt of our consolidated PPA entities that is non-recourse to Bloom as of December 31,
2019:
Contractual Obligations and Other Commitments:
Recourse debt1
Non-recourse debt2
Operating leases
Service arrangements
Financing obligations
Natural gas fixed price forward contracts
Grant for Delaware facility
Interest rate swap
Supplier purchase commitments
Renewable energy credit obligations
Asset retirement obligations
Payments Due By Period
Total
Less than
1 Year
1-3 Years
3-5 Years
(in thousands)
More than
5 Years
$
416,974 $
337,974 $
34,000 $
45,000 $
241,110
43,411
3,255
312,862
6,968
10,469
9,130
2,324
1,109
500
12,155
7,250
1,397
37,840
4,052
—
782
1,225
761
500
131,416
9,662
1,858
78,406
2,916
10,469
2,384
1,099
348
—
20,391
8,586
—
79,024
—
—
2,486
—
—
—
—
77,148
17,913
—
117,592
—
—
3,478
—
—
—
Total
$
1,048,112 $
403,936 $
272,558 $
155,487 $
216,131
1 Our 6% Notes and our credit agreements related to the building of our facility in Newark, Delaware each contain cross-default or cross-acceleration provisions. See “Recourse
Debt Facilities” above for more details.
2 Each of the debt facilities entered into by PPA IIIa, PPA IV and PPA V contain cross-default provisions. See “Non-recourse Debt Facilities” above for more details.
Off-Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have entered into and over
which we have substantial control. For additional information, see Note 13, Power Purchase Agreement Programs.
We have not entered into any other transactions that have generated relationships with unconsolidated entities or financial partnerships or special purpose
entities. Accordingly, as of December 31, 2019 and 2018, we had no off-balance sheet arrangements.
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ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily by exposure to changes in interest rates, in commodity fuel prices and
in foreign currency.
Interest Rate Risk
Our cash is maintained in interest-bearing accounts, our cash equivalents are invested in money market funds and our short-term investments are invested in
U.S. Treasury Bills. Lower interest rates would have an adverse impact on our interest income. Due to the short-term investment nature of our cash, cash
equivalents and short-term investments, we believe that we do not have material financial statement exposure to changes in fair value as a result of changes in
interest rates. Since we believe we have the ability to liquidate substantially all of this portfolio, we do not expect our operating results or cash flows to be
materially affected to any significant degree by a sudden change in market interest rates on our investment portfolio.
To provide a meaningful assessment of the interest rate risk associated with our cash, cash equivalents and short-term investments, we performed a
sensitivity analysis to determine the impact a change in interest rates would have on income statement and in investment fair values assuming a 1% decline in
yield. Based on investment positions in both December 31, 2019 and 2018, a hypothetical 1% decrease in interest rates across all maturities would result in a $3.8
million decline in interest income on an annualized basis. As these investments have maturities of less than twelve months, changes with respect to the portfolio
fair value would be limited to these amounts and only be realized if we were to terminate the investments prior to maturity.
We are exposed to interest rate risk related to our indebtedness that bears interest based on a floating LIBOR rate. We generally hedge such interest rate
risks with the use of hedging instruments, and for these loans, changes in interest rates are generally offset by interest rate derivative swap contracts. For our fixed-
rate debt, interest rate changes do not affect our earnings or cash flows.
To provide a meaningful assessment of the interest rate risk for that portion of our outstanding loans associated with floating LIBOR and not covered by
interest rate derivative swaps, we performed a sensitivity analysis to determine the impact a change in interest rates would have on our consolidated statements of
operations assuming a 1% interest rate increase. Based on monthly floating-rate loan positions for the years ended December 31, 2019 and 2018, a hypothetical 1%
increase in LIBOR would have resulted in a $0.3 million and a $0.2 million increase to our interest expense, respectively. These losses would be directly
attributable to our PPA Entities.
Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to customers to operate our Energy Servers under
certain power purchase agreements. While we entered into a natural gas fixed price forward contract with our gas supplier in 2011, the fuel forward contract meets
the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value is recorded within cost of revenue in the statements of operations. The
fair value of the contract is determined using a combination of factors including our credit rating and future natural gas prices.
To provide a meaningful assessment of the commodity price risk arising from price movements in the commodity futures contracts for natural gas, we
performed a sensitivity analysis to determine the impact a change in natural gas commodity pricing would have on our consolidated statements of operations
assuming a 10% change in the commodity contracts held. Based on monthly commodity positions for the years ended December 31, 2019 and 2018, a hypothetical
10% increase in the price of natural gas futures would have resulted in a $0.6 million and a $1.0 million adjustment to their balance sheet fair values, respectively.
Foreign Currency Risk
Our sales contracts are primarily denominated in U.S. dollars and, therefore, substantially all of our revenue is not subject to foreign currency market risk.
Our supply contracts are primarily denominated in U.S. dollars and our corporate operations are domiciled in the U.S. However, we conduct some internationally
domiciled field operations and therefore, find it necessary to transact in foreign currencies for limited operational purposes, necessitating that we hold foreign
currency bank accounts.
To provide a meaningful assessment of the risk associated with our foreign currency holdings, we performed a sensitivity analysis to determine the impact a
currency devaluation would have on our balance sheet assuming a 20% decline in the value of the U.S. dollar. Based on our foreign currency holdings as
of December 31, 2019 and 2018, a hypothetical 20% devaluation of the U.S. dollar against foreign currencies would not be material to our reported cash position.
84
However, an increasing portion of our operating expenses are incurred outside the United States, are denominated in foreign currencies and are subject to
such risk. Although not yet material, if we are not able to successfully hedge against the risks associated with currency fluctuations in our future activities, our
financial condition and operating results could be adversely affected.
Actual future gains and losses associated with our investment portfolio, debt and derivative positions and foreign currency may differ materially from the
sensitivity analyses performed as of December 31, 2019 and 2018 due to the inherent limitations associated with predicting the timing and amount of changes in
interest rates, foreign currency exchange rates and our actual commodity derivative exposures and positions.
85
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit and Noncontrolling
Interest
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
86
Page
87
88
89
90
91
93
94
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bloom Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2019 and
2018, and the related consolidated statements of operations, of comprehensive loss, of convertible redeemable preferred stock, redeemable noncontrolling interest,
stockholders' deficit and noncontrolling interest and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements as of and for the year ended
December 31, 2018 to correct misstatements.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers
in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 2020
We have served as the Company’s auditor since 2009.
87
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents1
Restricted cash1
Short-term investments
Accounts receivable1
Inventories
Deferred cost of revenue
Customer financing receivable1
Prepaid expenses and other current assets1
Total current assets
Property, plant and equipment, net1
Customer financing receivable, non-current1
Restricted cash, non-current1
Deferred cost of revenue, non-current
Other long-term assets1
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable1
Accrued warranty
Accrued expenses and other current liabilities1
Deferred revenue and customer deposits1
Financing obligations
Current portion of recourse debt
Current portion of non-recourse debt1
Current portion of recourse debt from related parties
Current portion of non-recourse debt from related parties1
Total current liabilities
Derivative liabilities1
Deferred revenue and customer deposits, net of current portion1
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt1
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties1
Other long-term liabilities1
Total liabilities
Commitments and contingencies (Note 14)
Redeemable noncontrolling interest
Stockholders’ deficit:
Common stock: $0.0001 par value; Class A shares, 600,000,000 shares authorized at both December 31, 2019 and 2018,
and 84,549,511 shares and 20,868,286 shares issued and outstanding at December 31, 2019 and 2018, respectively; Class
B shares, 600,000,000 shares authorized at both December 31, 2019 and 2018, and 36,486,778 shares and 88,552,897
shares issued and outstanding at December 31, 2019 and 2018, respectively.
Additional paid-in capital
Accumulated other comprehensive income
December 31,
2019
2018
As Restated
$
202,823 $
30,804
—
37,828
109,606
58,470
5,108
28,068
472,707
607,059
50,747
143,761
6,665
41,652
220,728
28,657
104,350
88,784
135,265
43,809
5,594
36,747
663,934
716,751
67,082
31,100
45
42,882
$
1,322,591 $
1,521,794
$
55,579 $
10,333
70,284
89,192
10,993
304,627
8,273
20,801
3,882
573,964
17,551
125,529
446,165
75,962
192,180
—
31,087
28,013
66,889
17,968
66,838
67,632
8,128
8,686
18,962
—
2,200
257,303
14,143
87,308
385,650
360,339
289,241
27,734
34,119
26,196
1,490,451
1,482,033
443
57,261
12
2,686,759
19
11
2,481,352
131
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
(2,946,384)
(259,594)
91,291
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
$
1,322,591 $
(2,624,104)
(142,610)
125,110
1,521,794
1We have variable interest entities which represent a portion of the consolidated balances are recorded within these financial statement line items in the Consolidated Balance Sheets (see
Note 13, Power Purchase Agreement Programs).
The accompanying notes are an integral part of these consolidated financial statements.
88
Bloom Energy Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended December 31,
2019
2018
2017
As Restated
As Revised
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit (loss)
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other income (expense), net
Gain (loss) on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Less: deemed dividend to noncontrolling interest
Net loss available to Class A and Class B common stockholders
Net loss per share available to Class A and Class B common stockholders, basic and diluted
Weighted average shares used to compute net loss per share attributable to Class A and Class B
common stockholders, basic and diluted
$
557,336 $
400,638 $
60,826
95,786
71,229
785,177
435,479
76,487
100,238
75,386
687,590
97,587
104,168
73,573
152,650
330,391
(232,804)
5,661
(87,480)
(6,756)
706
(2,160)
(322,833)
633
(323,466)
(19,052)
(304,414)
(2,454)
68,195
83,267
80,548
632,648
281,275
95,306
100,689
49,628
526,898
105,750
89,135
62,807
118,817
270,759
(165,009)
4,322
(97,021)
(8,893)
(999)
(22,139)
(289,739)
1,537
(291,276)
(17,736)
(273,540)
—
$
$
(306,868) $
(273,540) $
(2.67) $
(5.14) $
157,192
57,937
74,892
75,602
365,623
192,361
54,970
85,128
49,475
381,934
(16,311)
51,146
31,926
55,689
138,761
(155,072)
759
(112,039)
(12,265)
(491)
(15,284)
(294,392)
636
(295,028)
(18,666)
(276,362)
—
(276,362)
(26.97)
115,118
53,268
10,248
The accompanying notes are an integral part of these consolidated financial statements.
89
Bloom Energy Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
Years Ended December 31,
2019
2018
2017
As Restated
As Revised
Net loss
$
(323,466) $
(291,276) $
(295,028)
Other comprehensive income (loss), net of taxes:
Unrealized gain (loss) on available-for-sale securities
Change in effective portion of interest rate swap
Other comprehensive income
Comprehensive loss
14
(295)
(281)
26
267
293
(13)
393
380
$
(323,747) $
(290,983) $
(294,648)
The accompanying notes are an integral part of these consolidated financial statements.
90
Bloom Energy Corporation
Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit and Noncontrolling Interest
(in thousands, except shares)
Balances at December 31, 2016
(as Reported)
Adjustments to accumulated deficit
and total stockholders' deficit
Balances at December 31, 2016
(as Revised)
Contributions from noncontrolling
interests
Issuance of common stock warrant
Issuance of common stock
Exercise of stock options
Issuance of restricted stock awards
Stock-based compensation
Unrealized gain on available-for-
sale securities
Change in effective portion of
interest rate swap agreement
Distributions to noncontrolling
interests
Net income (loss) (as revised)
Balances at December 31, 2017
(as Revised)
Issuance of Class A common stock
upon public offering, net
Issuance of Class B common stock
on convertible notes
Issuance of Class A and B common
stock upon exercise of warrants
Conversion of redeemable
convertible preferred stock Series
A-G
Reclassification of redeemable
convertible preferred stock warrant
liability to additional paid-in capital
Reclassification of derivative
liability into additional paid-in
capital (as restated)
Issuance of common stock
Issuance of restricted stock awards
Exercise of stock options
Stock-based compensation
Unrealized loss on available-for-
sale securities
Change in effective portion of
interest rate swap agreement
Convertible Redeemable
Preferred Stock
Redeemable
Noncontrolling
Interest
Class A and Class B
Common Stock¹
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Deficit
Noncontrolling
Interest
71,740,162
$ 1,465,841
$
59,320
10,132,220
$
1
$
108,647
$
(542)
$ (2,068,048)
$ (1,959,942)
$
175,668
—
—
—
—
—
—
—
(6,154)
(6,154)
—
71,740,162
1,465,841
59,320
10,132,220
1
108,647
(542)
(2,074,202)
(1,966,096)
175,668
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
71,740,162
1,465,841
—
—
—
—
—
—
—
—
—
—
—
—
—
1
(5,104)
3,937
58,154
—
—
—
—
—
64,000
123,153
33,896
—
—
—
—
—
10,353,269
20,700,000
5,734,440
312,575
—
9,410
1,981
432
1,254
29,080
—
—
—
—
—
—
—
—
—
—
(13)
393
—
—
—
13,652
—
—
—
—
—
—
—
—
—
9,410
1,981
432
1,254
29,080
(13)
393
—
150,804
(162)
(2,350,564)
(2,199,921)
(276,362)
(276,362)
—
—
—
—
—
—
—
—
—
—
1
2
1
282,274
221,579
—
—
—
—
—
—
—
—
500
(11,845)
(22,603)
155,372
—
—
—
—
—
—
—
—
—
—
—
1,829
—
—
—
—
—
—
—
—
—
—
26
267
—
—
—
—
—
—
—
—
—
—
—
—
282,276
221,580
—
1,465,841
882
177,963
2,500
349
1,521
177,646
26
267
(71,740,162)
(1,465,841)
—
71,740,162
7
1,465,834
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
166,667
17,793
396,277
—
—
—
91
—
—
—
—
—
—
—
—
882
177,963
2,500
349
1,521
177,646
—
—
Convertible Redeemable
Preferred Stock
Shares
Amount
Redeemable
Noncontrolling
Interest
Class A and Class B
Common Stock¹
Shares
Amount
Additional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Deficit
Noncontrolling
Interest
Distributions to noncontrolling
interests
Net loss (as restated)
Balances at December 31, 2018
(as Restated)
Cumulative effect upon adoption
of new accounting standard (Note
3)
Buyout of equity investors in PPA
IIIb (Note 13)
Conversion of Notes
Issuance of restricted stock awards
ESPP purchase
Exercise of stock options
Stock-based compensation
Unrealized loss on available-for-
sale securities
Change in effective portion of
interest rate swap agreement
Distributions to noncontrolling
interests
Mandatory redemption of
noncontrolling interests
Cumulative effect of hedge
accounting
Net income (loss)
Balances at December 31, 2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
(6,788)
5,893
—
—
57,261
109,421,183
—
—
616,302
8,921,807
1,718,433
358,564
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,011)
(55,684)
—
2,877
—
—
11
—
—
—
1
—
—
—
—
—
—
—
—
—
—
2,481,352
—
(2,454)
6,933
—
11,183
1,529
188,114
—
—
102
—
—
—
—
131
—
169
—
—
—
—
—
14
(295)
—
—
—
(273,540)
(273,540)
(2,624,104)
(142,610)
(17,996)
(17,996)
—
(2,285)
—
—
—
—
—
—
—
—
—
130
6,933
1
11,183
1,529
188,114
14
(295)
102
—
130
(8,462)
(23,629)
125,110
—
—
—
—
—
—
—
—
(5,790)
(5,970)
—
(130)
—
—
—
—
(304,414)
(304,414)
(21,929)
443
121,036,289
$
12
$ 2,686,759
$
19
$ (2,946,384)
$
(259,594)
$
91,291
¹ Common Stock issued and converted to Class A Common and Class B Common effective July 2018.
² Amounts are less than $0.5 thousand and round down to zero.
The accompanying notes are an integral part of these consolidated financial statements.
92
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Write-off of customer financing receivable
Write-off of PPA II and PPA IIIb decommissioned assets
Debt make-whole expense
Revaluation of derivative contracts
Stock-based compensation
Loss (gain) on long-term REC purchase contract
Revaluation of stock warrants
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Payments for acquisition of intangible assets
Purchase of marketable securities
Proceeds from maturity of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Borrowings from issuance of debt
Repayment of debt
Repayment of debt to related parties
Debt make-whole payment
Debt issuance costs
Proceeds from financing obligations
Repayment of financing obligations
Proceeds from noncontrolling and redeemable noncontrolling interests
Payments to noncontrolling and redeemable noncontrolling interests
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Proceeds from public offerings, net of underwriting discounts and commissions
Payments of initial public offering issuance costs
Net cash provided by (used in) financing activities
Years Ended December 31,
2019
2018
2017
As Restated
As Revised
$
(323,466) $
(291,276) $
(295,028)
78,584
3,117
11,302
70,543
5,934
2,779
196,291
53
—
22,130
51,952
18,425
(21,992)
5,520
8,643
3,618
(11,310)
(6,603)
6,728
37,146
4,376
163,770
(51,053)
—
—
104,500
53,887
939
—
—
—
29,021
168,482
200
(9,108)
25,437
(55,023)
(36,974)
14,223
4,878
(8,032)
(202)
18,307
1,498
(5,984)
(21,774)
19,553
(91,948)
(45,205)
(3,256)
(103,914)
27,000
53,447
(125,375)
—
(119,277)
(2,200)
(5,934)
—
72,334
(8,954)
—
(56,459)
(12,537)
12,713
—
—
(120,314)
—
(18,770)
(1,390)
—
—
70,265
(6,188)
—
—
(15,250)
1,521
292,529
(5,521)
317,196
54,376
48
—
—
—
15,042
29,101
(70)
(2,975)
47,312
3,242
(10,636)
(31,278)
5,459
(982)
756
7,076
(7,365)
7,997
48,322
37,637
(91,966)
(61,454)
—
(29,043)
2,250
(88,247)
100,000
(20,507)
(912)
—
(6,108)
84,314
(3,210)
13,652
—
(23,659)
432
—
(1,092)
142,910
Net increase (decrease) in cash, cash equivalents, and restricted cash
96,903
99,873
(37,303)
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Non-cash investing and financing activities:
Liabilities recorded for property, plant and equipment
Liabilities recorded for intangible assets
Issuance of common stock warrant
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in
capital
Conversion of redeemable convertible preferred stock into additional paid-in capital
Conversion of 8% convertible promissory notes into additional paid-in capital
Conversion of 6% and 8% convertible promissory notes into additional paid-in capital to related
parties
Reclassification of derivative liability into additional paid-in capital
Reclassification of prior year prepaid initial public offering costs to additional paid-in capital
Issuance of common stock
Issuance of restricted stock
Accrued distributions to Equity Investors
Accrued interest for notes
Accrued interest for notes to related parties
280,485
180,612
$
377,388 $
280,485 $
217,915
180,612
$
69,851 $
59,549 $
860
1,748
1,745
—
—
—
—
—
6,933
—
—
—
—
373
1,812
—
12,236
3,180
—
882
1,465,841
181,469
40,110
177,208
4,732
—
—
576
19,041
2,733
37,628
616
975
2,138
9,410
—
—
—
—
—
—
1,981
1,254
576
29,705
4,368
The accompanying notes are an integral part of these consolidated financial statements.
93
Bloom Energy Corporation
Notes to Consolidated Financial Statements
1. Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies
Nature of Business
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers
utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to
conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved
energy security while providing a path to energy independence. We were originally incorporated in Delaware under the name of Ion America Corporation on
January 18, 2001 and on September 16, 2006, we changed our name to Bloom Energy Corporation.
Liquidity
We have incurred operating losses and negative cash flows from operations since our inception. Additionally, as disclosed in Note 17, Subsequent Events,
the impact of COVID-19 on our ability to execute our business strategy and on our financial position and results of operations is uncertain. Additionally, as of
December 31, 2019, the current portion of our total debt was $337.6 million, which would require cash payments of $353.5 million in the next 12 months. Cash and
cash equivalents and other liquidity was insufficient to satisfy the above current debt obligations as well as operating cash flow requirements as of December 31,
2019. As a result, on March 31, 2020, we extended the maturity for our current debt as follows:
• We entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners (the “Noteholders”) of its
outstanding 6.0% Convertible Notes due 2020 (the “Convertible Notes”) pursuant to which such Noteholders have agreed, to extend the maturity date of
the Convertible Notes to December 1, 2021. In connection with the extension, the interest rate was increased to 10% and the strike price on the conversion
feature was reduced to $8/share. The Amendment Support Agreement requires that we repay at least $70.0 million of the Convertible Notes on or before
September 1, 2020.
• On March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note
Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”) pursuant to which certain terms of our outstanding Amended and
Restated Subordinated Secured Convertible Note issued to Constellation were modified to extend the maturity date to December 31, 2021.
• On March 31, 2020, we entered into a note purchase agreement pursuant to which certain investors have agreed to purchase, and we have agreed to issue,
$70.0 million of 10.25% Senior Secured Notes due 2027 (the “Senior Secured Notes”) in a private placement (the “Senior Secured Notes Private
Placement”). The funding of the Note Purchase Agreement, which is expected to occur no later than May 29, 2020, is subject to certain conditions,
including obtaining a rating from a rating agency which is dependent upon providing audited financial statements as of and for the year ended December
31, 2019. Upon funding by the purchasers, 100% of any funds received is required to be utilized to pay one holder of the Convertible Notes discussed
above. This payment will be used to extinguish the $70.0 million due as of September 1, 2020.
• Also on March 31, 2020, we entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with Foris Ventures, LLC
and New Enterprise Associates 10, Limited Partnership (together, the “Purchasers”), pursuant to which such Purchasers were issued $30.0 million
aggregate principal amount of additional Convertible Notes.
Our future cash flow requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth,
the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds, the
expansion of sales and marketing activities, market acceptance of our products, the timing of receipt by us of distributions from our PPA Entities and overall
economic conditions including the impact of COVID-19 on our future operations. However, in the opinion of management, the combination of our existing cash
and cash equivalents, the extension of the Convertible Notes and Constellation Note Modification to December 2021, the proceeds from the convertible note
agreement, and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next
12 months from the date of this Annual Report on Form 10-K.
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For additional information on the terms of the amended Notes and the terms and provision of the new notes obtained, see Note 17, Subsequent Events.
Basis of Presentation
We have prepared the consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission ("SEC").
The consolidated balance sheets as of December 31, 2019 and 2018, the consolidated statements of operations, the consolidated statements of comprehensive
loss, the consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest,
and the consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017, as well as other information disclosed in the accompanying
notes have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP").
Restatement and Revision of Previously Issued Consolidated Financial Statements
In this Annual Report on Form 10-K, we have restated our consolidated financial statements for the year ended December 31, 2018, as well as the unaudited
financial statements for the three month period ended March 31, 2019, the three and six month periods ended June 30, 2019 and 2018 and the three and nine month
periods ended September 30, 2019 and 2018, to correct misstatements in those prior periods primarily related to (i) misstatements identified in improperly applying
accounting guidance on certain managed services and similar transactions and recognizing them as sales, rather than financing transactions, under the guidance of
Accounting Standards Codification ("ASC") Topic 840 - Leases, (ii) misstatements relating to not capitalizing stock-based compensation expenses directly
associated with the product manufacturing operations process and expensed when the capitalized asset is used in the normal course of the sales or services process
under the provisions of SEC Staff Accounting Bulletin Topic 14, (iii) misstatements related to not recording derivative liabilities for embedded derivatives in
certain revenue agreements for an escalator price protection (“EPP”) feature given to our customers, and (iv) certain other identified misstatements which were not
material individually or in the aggregate.
In addition, management determined that the impact of these misstatements to periods prior to the three months ended June 30, 2018 was not material to
warrant restatement of reported figures; however, our consolidated financial statements as of and for the year ended December 31, 2017 and the unaudited interim
condensed consolidated financial information for the three month period ended March 31, 2018 are revised to correct these misstatements.
See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements for additional information regarding the errors identified in
this Annual Report on Form 10-K and the restatement and revision adjustments made to the Consolidated Financial Statements.
Principles of Consolidation
These consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest.
We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIE"), which we refer to as our power purchase
agreement entities ("PPA Entities"). This approach focuses on determining whether we haves the power to direct those activities of the PPA Entities that most
significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be
significant to the PPA Entities. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA Entities other than
with respect to the PPA II Entity, as discussed below.
We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continue to be the primary beneficiary. All intercompany
transactions and balances have been eliminated in consolidation. On June 14, 2019, we entered into a transaction with SP Diamond State Class B Holdings, LLC
(“SPDS”), a wholly owned subsidiary of Southern Power Company, in which SPDS will purchase a majority interest in PPA II, which operates in Delaware
providing alternative energy generation for state tariff rate payers (the "PPA II upgrade of Energy Servers"). PPA II will use the funds received to purchase current
generation Bloom Energy Servers in connection with the upgrade of its energy generation assets fleet. In connection with the closing of this transaction, SPDS was
admitted as a member of Diamond State Generation Partners, LLC ("DSGP"). DSGP, an operating company, is now owned by Diamond State Generation
Holdings, LLC ("DSGH") and SPDS. As a result of the PPA II upgrade of Energy Servers, we determined that we no longer retain a controlling interest in PPA II
and therefore DSGP was no longer consolidated as a VIE into our consolidated financial statements as of June 30, 2019. On November 27, 2019, we entered into a
PPA IIIb upgrade of Energy Servers transaction such that the Project Company became indirectly wholly-owned by us and therefore, it was no longer a VIE.
For additional information, see Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers.
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Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the accompanying notes. The most significant estimates include the determination of the best estimate of
selling price under ASC 605, and stand-alone selling price under ASC 606, including material rights estimates, inventory valuation, specifically excess and
obsolescence provisions for obsolete or unsellable inventory and, in relation to property, plant and equipment (specifically Energy Servers), assumptions relating to
economic useful lives and impairment assessments.
Other accounting estimates include variable consideration relating to product performance guaranties, assumptions to compute the fair value of lease and
non-lease components and related financing obligations such as incremental borrowing rates, estimated output, efficiency and residual value of the Energy Servers,
warranty, product performance guaranties and extended maintenance, derivative valuations, estimates for recapture of U.S. Treasury grants and similar grants,
estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, and stock-based compensation
costs . Actual results could differ materially from these estimates under different assumptions and conditions.
Concentration of Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented.
Additionally, we sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"). In the year ended
December 31, 2019 and 2018, total revenue in the Asia Pacific region was 23% and 14%, respectively, of our total revenue.
Credit Risk - At December 31, 2019, two customers, Costco Wholesale Corporation and The Kraft Group LLC accounted for approximately 19% and 17%,
respectively, of accounts receivable. At December 31, 2018, SK (Korea) accounted for approximately 64% of accounts receivable. At December 31, 2019 and
2018, we did not maintain any allowances for doubtful accounts as we deemed all of our receivables fully collectible. To date, we have neither provided an
allowance for uncollectible accounts nor experienced any credit loss.
Customer Risk - In the year ended December 31, 2019, revenue from two customers, The Southern Company and SK (Korea) accounted for approximately
34% and 23%, respectively, of our total revenue. In the year ended December 31, 2018, revenue from customer The Southern Company accounted for
approximately 51% of our total revenue. The Southern Company wholly owns a Third-Party PPA which purchases Energy Servers from us, however such
purchases and resulting revenue are made on behalf of various customers of this Third-Party PPA.
Cybersecurity Risk
All of our installed Energy Servers are connected to and controlled and monitored by our centralized remote monitoring service. Additionally, we rely on
internal computer networks for many of the systems used to operate the business generally. We may be vulnerable to breaches, unauthorized access, misuse,
computer viruses or other malicious code and cyber-attacks. We take protective measures and endeavors to modify these internal systems as circumstances warrant
to prevent unauthorized intrusions or disruptions.
Summary of Significant Accounting Policies
Revenue Recognition
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under
operations and maintenance services contracts and electricity revenue by selling electricity to customers under power purchase agreements. We offer our customers
several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose
to purchase our Energy Servers outright. Customers may also lease our Energy Servers through one of our financing partners via our Managed Services Program or
as a traditional lease. Finally, customers may purchase electricity through our Power Purchase Agreement Programs.
Prior to Adoption of ASC 606 Revenue from Contracts with Customers
Prior to the adoption of ASC 606 Revenue from Contracts with Customers, we recognized revenue from contracts with customers for the sales of products,
installation and services in accordance with ASC 605-25, Revenue Recognition for Multiple-Element Arrangements.
Revenue from the sale and installation of Energy Servers was recognized when all of the following criteria are met:
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• Persuasive evidence of an arrangement exists. We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an
arrangement.
• Delivery and acceptance have occurred. We use shipping documents and confirmation from our installations team that the deployed systems are running
at full power as defined in each contract to verify delivery and acceptance.
• The fee is fixed or determinable. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
• Collectability is reasonably assured. We assess collectability based on the customer’s credit analysis and payment history.
When these criteria are met, we allocate revenue to each element of the customer arrangement (product, installation and services) based on an estimated
selling price at the arrangement inception. The estimated selling price for each element is based upon the following hierarchy: vendor-specific objective evidence
("VSOE") of selling price, if available; third-party evidence ("TPE") of selling price, if VSOE of selling price is not available; or best estimate of selling price
("BESP") if neither VSOE of selling price nor TPE of selling price are available. We limit the amount of revenue recognized for delivered elements to an amount
that is not contingent upon future delivery of additional products or services or upon meeting any specified performance conditions.
We have not been able to obtain reliable evidence of the selling price of the standalone Energy Server. Given that we typically sell an Energy Server with a
maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, we have no evidence of
selling prices for either and virtually no customers have elected to cancel their maintenance service agreements while continuing to operate the Energy Servers. Our
objective is to determine the price at which we would transact business if the items were being sold separately. As a result, our estimate of our selling price is
driven primarily by our expected margin on both the Energy Server and installation based on their respective costs and, in the case of maintenance service
agreements, the estimated costs to be incurred during the expected service period.
Costs for Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e.,
variances). We then apply a margin to the Energy Servers and to expected installation costs to determine the selling price to be used in our BESP model. Costs for
maintenance service arrangements are estimated over the expected life of the maintenance contracts and include estimated future service costs and future material
costs. Material costs over the expected period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering
the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations. As our
business offerings and eligibility for the Investment Tax Credit ("ITC") evolve over time, we may be required to modify our estimated selling prices in subsequent
periods and our revenue could be adversely affected.
Subsequent to adoption of ASC 606 Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board "FASB" issued Accounting Standards Update "ASU" No. 2014-09, "Revenue from Contracts with
Customers ("ASU 2014-09")." This standard superseded most of the previous revenue recognition guidance under U.S. GAAP and is intended to improve and
converge with international standards' related financial reporting requirements for revenue recognition. The core principle of the new guidance is that an entity
should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows
arising from contracts with customers are also required. Subsequently, the FASB issued several standards that clarified certain aspects of ASU 2014-09, but did not
significantly change the original standard. We adopted ASU 2014-09 and its related amendments (collectively “ASC 606”) as of January 1, 2019 using the
modified retrospective method. Under the modified retrospective method, results for reporting periods beginning after December 31, 2018 are presented under ASC
606 while prior period financial information is not adjusted and continues to be reported under prior guidance (“ASC 605”). See “Accounting Guidance
Implemented in Fiscal Year 2019” below for additional information on the impact of adopting ASC 606.
In applying ASC 606, Revenue related to contracts with customers is recognized by following a five-step process:
• Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the terms and conditions of a
distributor, reseller, purchase, use and maintenance agreement, maintenance service agreements or energy supply agreement.
• Identify the performance obligations in the contract. Performance obligations are identified in our contracts and include transferring control of an
Energy Server, installation of Energy Servers, providing maintenance services and maintenance service renewal options which provide customers with
material rights.
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• Determine the transaction price. The purchase price stated in an agreed upon purchase order or contract is generally representative of the transaction
price. When determining the transaction price, we consider the effects of any variable consideration, which include performance penalties that may be
payable to our customers.
• Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated based upon the relative
standalone selling price of each distinct performance obligation identified in the contract.
• Recognize revenue when (or as) we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time as
discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the
promised products or services to a customer.
We frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance service contracts and account for
them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined when the customer for the
sale and installation of the Energy Server is different to the maintenance service contract customer. We also assess whether any contract terms including default
provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these
performance obligations, we allocate revenue to each performance obligation based on the total transaction price for each contract. Our maintenance service
contracts are typically subject to renewal by customers on an annual basis. We assess these maintenance service renewal options at contract inception to determine
whether they provide customers with material rights that give rise to a separate performance obligation.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a
production guarantee payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable
consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These
estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method
requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance
obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the
portfolio method. We also consider the customers’ rights of return in determining the transaction price where applicable.
We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-
producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. We allocate
the transaction price to each performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for
transferring and installing the Energy Server and providing associated maintenance services.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does
not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect
manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which
may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. As our business offerings and eligibility for the
Investment Tax Credit ("ITC") evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be adversely
affected.
Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs
for maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs.
Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service
costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable
historical industry service margins.
As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance service agreements
based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred. We recognize product and installation revenue
at the point in time that the Customer obtains control of the Energy Server. We recognize maintenance service revenue, including revenue associated with any
related customer material rights, over time as we perform service maintenance activities.
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Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of
the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract that is recognized within costs of goods sold.
The following is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase, including financing partners on Third-
Party PPAs, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers at the point
that control is transferred to the customers. This occurs when we achieve customer acceptance which is when the system has been installed and is running at full
power or, in the case of sales to our international channel providers, based upon shipment terms.
Under our traditional leases financing option, we sell our Energy Servers through a direct sale to a financing partner who, in turn, leases the Energy Servers
to the customer under a lease agreement. With our sales to our international channel providers, our international channel providers typically sell the Energy Servers
to, or sometimes provide a PPA to, an end customer. In both traditional lease and international channel providers transactions, we contract directly with the end
customer to provide extended maintenance services after the end of the standard warranty period. As a result, since the customer that purchases the server is a
different and unrelated party to the customer that purchases extended warranty services, the product and maintenance service contract are not combined.
Payments received from customers are recorded within deferred revenue and customer deposits in the consolidated balance sheets until the acceptance
criteria as defined within the customer contract are met. The related cost of such product and installation is also deferred as a component of deferred cost in the
consolidated balance sheets until acceptance.
Installation Revenue - Nearly all of our installation revenue relates to the installation of Energy Servers sold to direct purchase, including financing partners
on Third-Party PPAs and traditional lease customers. Generally, we recognize installation revenue when the system has been installed and is running at full power.
Service Revenue - Service revenue is generated from maintenance services agreements. We typically provide to our customers a standard one-year warranty,
against manufacturing or performance defects in our Energy Servers. We also sell to these customers extended annual maintenance services that effectively extend
the standard one-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the extended maintenance services
on an annual basis and nearly every customer has renewed historically. The contractual renewal price may be less than the standalone selling price of the
maintenance services and consequently the contract renewal option may provide the customer with a material right.
Revenue is recognized over the term of the renewed one-year service period. Given our customers' renewal history, we anticipate that almost all of our
customers will continue to renew their maintenance services agreements each year through their expected use of the Energy Server. As a result, we estimate the
standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional operations and
maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects that our additional
performance obligations in any contractual renewal period are consistent with the services provided under the initial maintenance service contract.
Payments from customers for the extended maintenance contracts are received at the beginning of each service year. Accordingly, the customer payment
received is recorded as a customer deposit and revenue is recognized over the related service period as the services are performed using a cost-to-cost basis that
reflects the cost of providing these services.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA entities. Our PPA Entities
purchase Energy Servers from us and sell electricity produced by these systems to customers through long-term power purchase agreements ("PPAs"). Customers
are required to purchase all of the electricity produced by those Energy Servers at agreed-upon rates over the course of the PPAs' contractual term.
In addition, in certain product sales, we are a party to master lease agreements that provide for the sale of our Energy Servers to third-parties and the
simultaneous leaseback of the systems, which we then sublease to our customers. In sale-leaseback sublease arrangements ("Managed Services"), we first
determine whether the Energy Servers under the sale-leaseback arrangement are “integral equipment”. As the Energy Servers are determined not to be integral
equipment, we determine if the leaseback is classified as a capital lease or an operating lease.
Our managed services arrangements with the financing party are classified as capital leases and are recorded as financing transactions, while the sub-lease
arrangements with the end customer are classified as operating leases. Payments received from the financier are recorded as financing leases. We then recognize
revenue for the electricity generated by allocating the total proceeds based on the relative standalone selling prices to electricity revenue and to service revenue.
Electricity revenue
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relating to power purchase agreements is typically accounted for in accordance with ASC 840 Leases and service revenue in accordance with ASC 606.
We recognize revenue from the PPAs and Managed Services contracts as the electricity is provided over the term of the agreement.
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If
the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and
the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with
the original contract and either an increase or decrease in revenue is recognized on the modification date. During fiscal 2019, we did not recognize any material
revenue for contracts modified during the period that had performance obligations satisfied in prior periods.
We recognize a contract liability (deferred revenue) when we have an obligation to transfer products or services to a customer in advance of us satisfying a
performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The related cost of such product is
deferred as a component of deferred cost of goods sold in the consolidated balance sheets. Prior to shipment of the product or the commencement of performance
of maintenance services, any prepayment made by the customer is recorded as a customer deposit.
A description of the principal activities from which we recognize cost of revenues associated with each of our revenue streams are classified as follows:
Cost of Product Revenue - Cost of product revenue consists of costs of our Energy Servers that we sell to direct customers, including financing partners on
Third-Party PPA, international channel providers and traditional lease customers. It includes costs paid to our materials suppliers, direct labor,
manufacturing and other overhead costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of our equipment. Estimated
standard one-year warranty costs are also included in cost of product revenue for those contracts that do not contain material rights, see Warranty Costs
below.
Cost of Installation Revenue - Cost of installation revenue primarily consists of the costs to install our Energy Servers that we sell to direct, including
financing partners on Third-Party PPAs and lease customers. It includes costs paid to our materials and service providers, personnel costs, shipping costs,
and allocated costs.
Cost of Service Revenue - Cost of service revenue consists of costs incurred under maintenance service contracts for all customers. It includes personnel
costs for our customer support organization, certain allocated costs and extended maintenance-related product repair and replacement costs.
Cost of Electricity Revenue - Cost of electricity revenue primarily consists of the depreciation of the cost of the Energy Servers owned by us or the
consolidated PPA Entities and the cost of gas purchased in connection with our first PPA Entity. The cost of electricity revenue is generally recognized over
the term of the Managed Services agreement or customer’s PPA contract. The cost of depreciation of the Energy Servers is reduced by the amortization of
any U.S. Treasury Department grant payment in lieu of the energy investment tax credit associated with these systems.
Revenue Recognized from Power Purchase Agreement Programs (See Note 13 - Power Purchase Agreement Programs)
In 2010, we began offering our Energy Servers through our Bloom Electrons financing program. This program is financed via a special purpose Investment
Company and Operating Company, collectively referred to as a PPA Entity, and are owned partly by us and partly by third-party investors. The investors contribute
cash to the PPA Entity in exchange for an equity interest, which then allows the PPA Entity to purchase our Energy Server from us. The cash contributions held are
classified as short-term or long-term restricted cash according to the terms of each power purchase agreement. As we identify end customers, the PPA Entity enters
into a PPA with the end customer pursuant to which the customer agrees to purchase the power generated by the Bloom Energy Server at a specified rate per
kilowatt hour ("kWh") for a specified term, which can range from 10 to 21 years. The PPA Entity typically enters into a maintenance services agreement with us
following the first year of service to extend the standard one-year warranty service and performance guaranties. This intercompany arrangement is eliminated in
consolidation. Those power purchase agreements that qualify as leases are classified as either sales-type leases or operating leases and those that do not qualify as
leases are classified as tariff agreements. For both operating leases and tariff agreements, income is recognized as contractual amounts are due when the electricity
is generated and presented within electricity revenue on the consolidated statements of operations.
Sales-Type Leases - Certain arrangements entered into by certain PPA entities, including Bloom Energy 2009 PPA Project Company, LLC ("PPA I"), 2012
ESA Project Company, LLC ("PPA IIIa") and 2013B ESA Project Company, LLC ("PPA IIIb"), qualify as sales-type leases in accordance with FASB ASC Topic
840, Leases ("ASC 840"). We are responsible for
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the installation, operation and maintenance of the Energy Servers at the customers' sites, including running the Energy Servers during the term of the PPA which
ranges from 10 to 15 years. Based on the terms of the customer contracts, we may also be obligated to supply fuel for the Energy Servers. The amount billed for the
delivery of the electricity to PPA I’s customers primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue
for certain arrangements.
We are obligated to supply fuel to the Energy Servers that deliver electricity under the PPA I agreements. Based on the customer offtake agreements, the
customers pay an all-inclusive rate per kWh of electricity produced by the Energy Servers. The consideration received under the PPA I agreements primarily
consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue on the consolidated statements of operations.
As the Power Purchase Agreement Programs contain a lease, the consideration received is allocated between the lease elements (lease of property and
related executory costs) and non-lease elements (other products and services, excluding any derivatives) based on relative fair value. Lease elements include the
leased system and the related executory costs (i.e. installation of the system, electricity generated by the system, maintenance costs). Non-lease elements include
service, fuel and interest related to the leased systems.
Service revenue and fuel revenue are recognized over the term of the PPA as electricity is generated. The interest component related to the leased system is
recognized as interest revenue over the life of the lease term. The customer has the option to purchase the Energy Servers at the then fair market value at the end of
the PPA contract term.
Service revenue related to sales-type leases of $2.9 million, $3.4 million and $4.0 million for the years ended December 31, 2019, 2018 and 2017,
respectively, is included in electricity revenue in the consolidated statements of operations.
Product revenue associated with the sale of the Energy Servers under the PPAs that qualify as sales-type leases is recognized at the present value of the
minimum lease payments, which approximates fair value, assuming all other conditions for revenue recognition noted above have also been met. A sale is typically
recognized as revenue when an Energy Server begins generating electricity and has been accepted, which is consistent across all purchase options in that
acceptance generally occurs after the Energy Server has been installed and is running at full power as defined in each contract. There was no product revenue
recognized under sales-type leases for the years ended December 31, 2019, 2018 and 2017.
Operating Leases - Certain Power Purchase Agreement Program leases entered into by PPA IIIa, PPA IIIb, 2014 ESA Holdco, LLC ("PPA IV") and 2015
ESA Holdco, LLC ("PPAV") that are leases in substance, but do not meet the criteria of sales-type leases or direct financing leases in accordance with ASC 840,
are accounted for as operating leases. Revenue under these arrangements is recognized as electricity sales and service revenue and is provided to the customer at
rates specified under the contracts. During the years ended December 31, 2019, 2018 and 2017, revenue from electricity sales from these PPA arrangements
amounted to $29.7 million, $30.9 million and $29.9 million, respectively. During the years ended December 31, 2019, 2018 and 2017, service revenue amounted to
$14.6 million, $15.2 million and $15.6 million, respectively.
Financing Leases Under Managed Services Agreements - Certain of our customers use managed services agreements to finance their lease of Bloom Energy
Servers which are accounted for as operating leases with the end customer. As a result, revenue is recognized over the life of the managed service agreements as
power is generated by the Energy Servers. The Managed Services Program is one of several financing vehicles we use to sell our Energy Servers. Under our
Managed Services Program, we sell our equipment to a bank financing party, which pays us for the Energy Server and takes title to the Energy Server. We then
enter into a sublease contract with an end customer, which pays us a fixed, monthly fee for its use of the Energy Server and pays us for our maintenance services on
the Energy Server. The fees we receive for the maintenance services on the Energy Server is recognized as services revenue. In addition, the payments received
from our customers under our Managed Services program for power generated by our Energy Servers are also recorded as services revenue, as well as electricity
revenue over the term of the agreement using our standalone selling price model allocation.
The fixed, monthly fee for the use of the Energy Server is then paid to the bank to pay down the lease obligation, with interest thereon being calculated on
an effective interest rate basis.
Incentives and Grants
Tariff Agreement - PPA II entered into an agreement with Delmarva, PJM Interconnection (PJM), a regional transmission organization, and the State of
Delaware under which PPA II provided the energy generated from its Energy Servers to PJM and received a tariff as collected by Delmarva.
Revenue at the tariff rate was recognized as electricity sales and service revenue as it was generated over the term of the arrangement until the final
repowering in December 2019. Revenue relating to power generation at the Delmarva sites of $11.3 million, $23.0 million and $23.3 million for the years ended
December 31, 2019, 2018 and 2017, respectively, is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation
at the Delmarva sites of $6.8
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million, $13.7 million and $13.9 million for the years ended December 31, 2019, 2018 and 2017, respectively, is included in service revenue in the consolidated
statements of operations.
Investment Tax Credits ("ITCs") - Through December 31, 2016, our Energy Servers were eligible for federal ITCs that accrued to eligible property under
Internal Revenue Code Section 48. Under our Power Purchase Agreement Programs, ITCs are primarily passed through to Equity Investors with approximately 1%
to 10% of incentives received by us. These incentives are accounted for by using the flow-through method. On February 9, 2018, the U.S. Congress passed
legislation to extend the federal investment tax credits for fuel cell systems applicable retroactively to January 1, 2017. Due to this reinstatement of ITC in 2018,
the benefit of ITC to total revenue was $45.5 million of revenue benefit related to the retroactive ITC for 2017 acceptances.
The ITC program has operational criteria for the first five years after the qualified equipment is placed in service. If the qualified energy property is disposed
or otherwise ceases to be investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the
incentives. No ITC recapture has occurred during the years ended December 31, 2019, 2018 and 2017.
Recapture of U.S. Treasury Grants and Similar Grants and Indemnifications
Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service.
However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment
credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives. Our purchase of Energy Servers
were by the PPA Entities and, therefore, the PPA Entities bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the
future. As part of our upgrade of Energy Servers during 2019, we have agreed to indemnify our customer for up to $108.7 million should benefits expected from
anticipated ITC grants and established tariffs fail to occur. Based on outside expert guidance, we believe these events to be less than likely to occur and have not
established financial reserves.
Warranty Costs
We generally warrant our products sold to our direct customers for one year following the date of acceptance of the products (the “standard one-year
warranty”). To estimate the product warranty costs, we continuously monitor product returns for warranty failures and maintains the reserve for the related
warranty expense based on various factors including historical warranty claims, field monitoring and results of lab testing. Our performance obligations under our
standard product warranty and managed services agreements are generally in the form of product replacement, repair or reimbursement for higher customer
electricity costs. The standard one-year warranty covers defects in materials and workmanship under normal use and service conditions and against manufacturing
or performance defects. Prior to adoption of ASC 606 Revenue From Contracts With Customers, our warranty accrual represents our best estimate of the amount
necessary to settle future and existing claims during the warranty period as of the balance sheet date. We accrue for warranty costs based on estimated costs that
may be incurred including material costs, labor costs and higher customer electricity costs should the units not work for extended periods.
With the adoption of ASC 606 Revenue From Contracts With Customers for the year ended 2019, we only recognize warranty costs for those contracts that
are considered to be assurance-type warranties and consequently do not give rise to performance obligations or for those maintenance service contracts that were
previously in the scope of ASC 605-20-25, Separately Priced Extended Warranty and Product Maintenance Contracts.
As part of both our standard one-year warranty and managed services agreements obligations, we monitor the operations of the underlying systems and
provide output and efficiency guaranties (collectively “product performance guaranties”). If the Energy Servers run at a lower efficiency or power output than we
committed under our product performance guaranty, we will reimburse the customer for this underperformance. Our performance obligation includes ensuring the
customer’s equipment operates at least at the efficiency and power output levels set forth in the customer agreement. Our aggregate reimbursement obligation for
this performance guaranty for each customer is capped based on the purchase price of the underlying energy server. Product performance guaranty payments are
accounted for as a reduction in service revenue. We accrue for product performance guaranties based on the estimated amounts reimbursable at each reporting
period and recognize the costs as a reduction to revenue.
Shipping and Handling Costs
We record costs related to shipping and handling in cost of revenue, as they are incurred.
Sales and Utility Taxes
We recognize revenue on a net basis for taxes charged to our customers and collected on behalf of the taxing authorities.
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Operating Expenses
Advertising and Promotion Costs - Expenses related to advertising and promotion of products are charged to sales and marketing expense as incurred. We
did not incur any material advertising or promotion expenses during the years ended December 31, 2019, 2018 and 2017.
Research and Development - We conduct internally funded research and development activities to improve anticipated product performance and reduce
product life-cycle costs. Research and development costs are expensed as incurred and include salaries and expenses related to employees conducting research and
development.
Stock-Based Compensation - We account for stock options and restricted stock units ("RSUs") awarded to employees and non-employee directors under the
provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718 - Compensation-Stock Compensation ("ASC 718") using the
Black-Scholes valuation model to estimate fair value. The Black-Scholes valuation model requires us to make estimates and assumptions regarding the underlying
stock’s fair value, the expected life of the option and RSUs, the risk-free rate of return interest rate, the expected volatility of our common stock price and the
expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options and RSUs, as well as
expected forfeiture rates, based on the historical settlement experience and after giving consideration to vesting schedules. Stock-based compensation costs are
recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. Previously recognized costs are
reversed for the portion of awards forfeited prior to vesting as and when the forfeitures occurred. We typically record stock-based compensation costs under the
straight-line attribution method over the vesting term, which is generally four years for options, and record stock-based compensation costs for performance-based
awards using the graded-vesting method. Stock issued to grantees in our stock-based compensation is from authorized and previously unissued shares. Stock-based
compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function. Stock-based compensation costs
directly associated with the product manufacturing operations process are capitalized into inventory and expensed when the capitalized asset is used in the normal
course of the sales or services process.
Stock-based compensation cost for RSUs is measured based on the fair value of the underlying shares on the date of grant. Up to the date of our IPO, RSUs
were subject to a time-based vesting condition and a performance-based vesting condition, both of which require satisfaction before the RSUs vest and settle for
shares of common stock. The performance-based condition was tied to a liquidity event such as a sale event of Bloom or the completion of our IPO. The time-
based conditions range between six months and four years from the end of the lock-up period after our IPO. Upon completion of our IPO in July 2018, the
performance-based condition of our RSUs was satisfied and we began recognizing stock-based compensation over the remaining time-based vesting condition,
which ranges from six months and up to four years from IPO.
We use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under our 2018 ESPP. The fair value of the 2018 ESPP
purchase rights is recognized as expense under the multiple options approach. Forfeitures are estimated at the time of grant and revised in subsequent periods, if
necessary, if actual forfeitures differ from initial estimates. Stock-based compensation expense is recorded in the consolidated statements of operations based on
the employees’ respective function.
For performance-based awards, stock-based compensation costs are recognized over the expected performance achievement period of individual's
performance milestone(s) as the achievement of each individual performance milestone become probable. For performance-based awards with a vesting schedule,
based entirely on the attainment of market conditions, stock-based compensation costs are recognized for performance and market conditions when the relevant
market condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations, see Note 12,
Stock-Based Compensation and Employee Benefit Plans.
Compensation costs for equity instruments granted to non-employees is measured on the date of performance at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of the equity instruments is expensed over the term of the
non-employee's service period.
We record deferred tax assets for awards that result in deductions on our income tax returns, unless we cannot realize the deduction (i.e., we are in a net
operating loss, or NOL, position), based on the amount of compensation cost recognized and our statutory tax rate. With our adoption of ASU 2016-
09 Improvements to Employee Share-Based Payment Accounting (Topic 718) ("ASU 2016-09") in the first quarter of 2017 on a prospective basis, stock-based
compensation excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. No tax
benefit or expense for stock-based compensation has been recorded for the years ended December 31, 2019, 2018 and 2017 since we remain in an NOL position.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates for the inputs used in the Black-Scholes valuation
model to calculate the grant-date fair value of stock options. We use weighted-average assumptions in applying the Black-Scholes valuation model.
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The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury zero-coupon issues in effect at the grant date for
periods corresponding with the expected term of option. Our estimate of an expected term is calculated based on our historical share option exercise data. We have
not and do not expect to pay dividends in the foreseeable future. The estimated stock price volatility is derived based on historical volatility of our peer group,
which represents our best estimate of expected volatility.
The amount of stock-based compensation costs recognized during a period is based on the value of that portion of the awards that are ultimately expected to
vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. The term “forfeitures”
is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We review historical forfeiture data and
determines the appropriate forfeiture rate based on that data. We reevaluate this analysis periodically and adjust the forfeiture rate as necessary and ultimately
recognize the actual expense over the vesting period only for the shares that vest.
Refer to Note 12, Stock-Based Compensation and Employee Benefit Plans for further discussion of our stock-based compensation arrangements.
Income Taxes
We account for income taxes using the liability method under FASB ASC Topic 740 - Income Taxes ("ASC 740"). Under this method, deferred tax assets
and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from
the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in
effect when the differences reverse. Additionally, we must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income.
We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not
be realized.
We follow the accounting guidance in ASC 740-10, which requires a more-likely-than-not threshold for financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured pursuant to ASC
740-10 and the tax position taken or expected to be taken on our tax return. To the extent that the assessment of such tax positions change, the change in estimate is
recorded in the period in which the determination is made. We established reserves for tax-related uncertainties based on estimates of whether, and the extent to
which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that the tax return
positions are fully supportable. The reserves are adjusted in light of changing facts and circumstances such as the outcome of a tax audit. The provision for income
taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. We recognize interest and penalties related to unrecognized
tax benefits in income tax expense.
Refer to Note 10, Income Taxes for further discussion of our income tax expense.
Comprehensive Loss
Our comprehensive loss is comprised of net loss attributable to Class A and Class B common stock shareholders, unrealized gain (loss) on available-for-sale
securities, change in the effective portion of our interest rate swap agreements and comprehensive (income) loss attributable to noncontrolling interest and
redeemable noncontrolling interest.
Fair Value Measurement
FASB ASC Topic 820 - Fair Value Measurements and Disclosures ("ASC 820"), defines fair value, establishes a framework for measuring fair value under
U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principle or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize
the use of unobservable inputs. The guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and
the last unobservable, that may be used to measure fair value:
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Level 1
Quoted prices in active markets for identical assets or liabilities. Financial assets utilizing Level 1 inputs typically include money market
securities and U.S. Treasury securities.
Level 2
Level 3
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices
in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities. Financial instruments utilizing Level 2 inputs include interest rate swaps.
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Financial liabilities utilizing Level 3 inputs include natural gas fixed price forward contracts derivatives, warrants issued to purchase our
preferred stock and embedded derivatives in sales contracts and bifurcated from convertible notes. Derivative liability valuations are
performed based on a binomial lattice model and adjusted for illiquidity and/or non-transferability and such adjustments are generally based
on available market evidence. Contract embedded derivatives valuations are performed using a Monte Carlo simulation model which
considers various potential electricity price curves over the sales contracts terms.
Other Balance Sheet Components
Cash, Cash Equivalents, Short-Term Investments and Restricted Cash - Cash equivalents consist of highly liquid short-term investments with maturities of
90 days or less at the date of purchase.
Short-term investments consist of highly liquid investments with maturities of greater than 90 days at the reporting period end date. Short-term investments
are reported at fair value with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). Short-term investments are
anticipated to be used for current operations and are, therefore, classified as available-for-sale in current assets even though their maturities may extend beyond one
year. We periodically review short-term investments for impairment. In the event a decline in value is determined to be other-than-temporary, an impairment loss is
recognized. When determining if a decline in value is other-than-temporary, we take into consideration the current market conditions and the duration and severity
of and the reason for the decline as well as considering the likelihood that it would need to sell the security prior to a recovery of par value.
The specific identification method is used to determine the cost of any securities disposed with any realized gains or losses recognized as income or expense
in the consolidated statements of operations.
As of December 31, 2019, we held no short-term investments. As of December 31, 2018, short-term investments consisted of $104.4 million of U.S.
Treasury Bills. The cost of these securities approximated fair value and there was no material gross realized or unrealized gains or losses in the years ended
December 31, 2019, 2018 and 2017. There were also no impairments in the investments' value in the years ended December 31, 2019, 2018 and 2017.
Restricted cash is held as collateral to provide financial assurance that we will fulfill obligations and commitments primarily related to our power purchase
agreement financings, third party PPA and managed services arrangements. Restricted cash also includes debt service reserves, maintenance service reserves and
facility lease agreements. Restricted cash that is expected to be used within one year of the balance sheet date is classified as a current asset, whereas restricted cash
expected to be used more than one year from the balance sheet date is classified as a non-current asset.
Derivative Financial Instruments - We enter into derivative natural gas fixed price forward contracts to manage our exposure to the fluctuating price of
natural gas under certain of our power purchase agreements entered in connection with the Bloom Electrons program (refer to Note 13, Power Purchase Agreement
Programs). In addition, we enter into fixed forward interest rate swap arrangements to convert variable interest rates on debt to a fixed rate and on occasion have
committed to certain utility grid price protection guarantees in sales agreements. We also issued derivative financial instruments embedded in our 6% Notes as a
means by which to provide additional incentive to investors and to obtain a lower cost cash-source of funds.
Derivative transactions are governed by procedures covering areas such as authorization, counterparty exposure and hedging practices. Positions are
monitored based on changes in the spot price in the commodity market and their impact on the market value of derivatives. Credit risk on derivatives arises from
the potential for counterparties to default on their contractual obligations to us. We limit our credit risk by dealing with counterparties that are considered to be of
high credit quality. We do not enter into derivative transactions for trading or speculative purposes.
We account for our derivative instruments as either an asset or a liability which are carried at fair value on the consolidated balance sheets. Changes in the
fair value of the derivatives that are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the consolidated
balance sheets and for those that do not qualify for hedge accounting or are not designated hedges are recorded through earnings in the consolidated statements of
operations.
While we hedge certain of our natural gas purchase requirements under our power purchase agreements, we do not classify these natural gas fixed price
forward contracts as designated hedges for accounting purposes. Therefore, we record the
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change in the fair value of our natural gas fixed price forward contracts in cost of revenue on the consolidated statements of operations. The fair value of the natural
gas fixed price forward contracts is recorded on the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative
liabilities. As these forward contracts are considered economic hedges, the changes in the fair value of these forward contracts are classified as operating activities
within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
Our interest rate swap arrangements qualify as cash flow hedges for accounting purposes as they effectively convert variable rate obligations into fixed rate
obligations. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change is recorded in accumulated other comprehensive
income (loss) and will be recognized as interest expense on settlement. As of January 1, 2019, we adopted Accounting Standards Update ("ASU") 2017-12
Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). Per ASU 2017-12, ineffectiveness is no
longer required to be measured or disclosed. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is
discontinued prospectively and any unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive income (loss) and is
reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The fair value of the swap arrangement is recorded on
the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative liabilities. The changes in fair value of swap
agreement are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
We issued convertible notes with conversion features. These conversion features were evaluated under ASC topic 815-40, were determined to be embedded
derivatives and were bifurcated from the debt and were classified prior to the IPO as liabilities on the consolidated balance sheets. We recorded these derivative
liabilities at fair value and adjusted the carrying value to their estimated fair value at each reporting date with the increases or decreases in the fair value recorded as
a gain (loss) on revaluation of warrant liabilities and embedded derivatives in the consolidated statements of operations. Upon the IPO, the final valuation of the
embedded derivative was calculated as of the date of the IPO and was reclassified from a derivative liability to additional paid-in capital.
Customer Financing Receivables - The contractual terms of our customer financing receivables are primarily contained within the PPA Entities' customer
lease agreements. Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines and customer financing
receivables are generated by Energy Servers leased to PPA Entities’ customers in leasing arrangements that qualify as sales-type leases. Customer financing
receivables represents the gross minimum lease payments to be received from customers and the system’s estimated residual value, net of unearned income and
allowance for estimated losses. Initial direct costs for sales-type leases are recognized as cost of revenue when the Energy Servers are placed in service.
We review our customer financing receivables by aging category to identify significant customer balances with known disputes or collection issues. In
determining the allowance, we make judgments about the credit worthiness of a majority of our customers based on ongoing credit evaluations. We also consider
our historical level of credit losses as well as current economic trends that might impact the level of future credit losses. We write off customer financing
receivables when they are deemed uncollectible. We do not maintain an allowance for doubtful accounts to reserve for potentially uncollectible customer financing
receivables as historically all of our receivables on the consolidated balance sheets have been collected in full.
Accounts Receivable - Accounts receivable primarily represents trade receivables from sales to customers recorded at net realizable value. As we do for our
customer financing receivables, we review our accounts receivable by aging category to identify significant customer balances with known disputes or collection
issues. In determining the allowance, we make judgments about the creditworthiness of a majority of our customers based on ongoing credit evaluations. We also
consider our historical level of credit losses as well as current economic trends that might impact the level of future credit losses. We write off accounts receivable
when they are deemed uncollectible. We do not maintain an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable as
historically all of our receivables on the consolidated balance sheets have been collected in full.
Inventories - Inventories consist principally of raw materials, work-in-process and finished goods and are stated on a first-in, first-out basis at the lower of
cost or net realizable value.
We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, including inventory from purchase commitments,
equal to the difference between the cost of inventory and estimated net realizable value based upon assumptions about market conditions and future demand for
product generally expected to be utilized over the next 12 to 24 months, including product needed to fulfill our warranty obligations. If actual future demand for
our products is less than currently forecasted, additional inventory provisions may be required. Once a provision is recorded, it is maintained until the product to
which it relates to is sold or otherwise disposed. The inventory reserves were $14.6 million and $13.0 million as of December 31, 2019 and 2018, respectively.
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Property, Plant and Equipment - Property, plant and equipment, including leasehold improvements are stated at cost less accumulated depreciation. Energy
Servers are depreciated to their residual values over their useful economic lives which reflect consideration of the terms of their related power purchase and tariff
agreements. These useful lives are reassessed when there is an expected change in the use of the Energy Servers. Leasehold improvements are depreciated over the
shorter of the lease term or their estimated depreciable lives. Buildings are amortized over the shorter of the lease or property term or their estimated depreciable
lives. Assets under construction are capitalized as costs are incurred and depreciation commences after the assets are put into service within their respective asset
class.
Depreciation is calculated using the straight-line method over the estimated depreciable lives of the respective assets as follows:
Energy Servers
Computers, software and hardware
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Buildings
Depreciable Lives
15-21 years
3-5 years
5-10 years
3-5 years
1-10 years
35 years
When assets are retired or disposed, the assets and related accumulated depreciation and amortization are removed from our general ledger and the resulting
gain or loss is reflected in the consolidated statements of operations.
Foreign Currency Transactions - The functional currency of our foreign subsidiaries is the U.S. dollar since they are considered financially and
operationally integrated with their domestic parent. Foreign currency monetary assets and liabilities are remeasured into U.S. dollars at end-of-period exchange
rates. Any currency transaction gains and losses are included as a component of other income (expense), net in our consolidated statements of operations and have
not been significant for any period presented.
Preferred Stock Warrants - We accounted for freestanding warrants to purchase shares of our convertible preferred stock as liabilities on the consolidated
balance sheets at fair value upon issuance. In accordance with ASC 480 - Distinguishing Liability from Equity ("ASC 480"), these warrants were classified within
warrant liability in the consolidated balance sheets as the underlying shares of convertible preferred stock were contingently redeemable which, therefore, may
have obligated us to transfer assets at some point in the future. These warrants were valued on the date of issuance, using the Probability-Weighted Expected
Return Model ("PWERM"). The warrants were subject to remeasurement to fair value at each balance sheet date or immediately prior to exercise. Any change in
fair value was recognized in the consolidated statements of operations. Our convertible preferred stock warrants were converted into common stock warrants upon
the completion of our IPO in July 2018. At that time, the convertible preferred stock warrant liability was reclassified to additional paid-in capital.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests - We generally allocate profits and losses to noncontrolling interests
under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when
there is a complex structure, such as the flip structure of the PPE Entities. Refer to Note 13, Power Purchase Agreement Programs for more information.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the
entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the
consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling
interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming
exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable
to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported
at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary
equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
For income tax purposes, the Equity Investors of the PPA Entities receive a greater proportion of the share of losses and other income tax benefits. This
includes the allocation of investment tax credits which are distributed to the Equity Investors through an Investment Company subsidiary of Bloom. Allocations are
initially based on the terms specified in each respective partnership agreement until either a specific date or the Equity Investors' targeted rate of return specified in
the partnership agreement is met (the "flip" of the flip structure) whereupon the allocations change. In some cases after the Equity Investors
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receive their contractual rate of return, we receive substantially all of the remaining value attributable to the long-term recurring customer payments and the other
incentives.
Recent Accounting Pronouncements
Other than the adoption of the accounting guidance mentioned below, there have been no other significant changes in our reported financial position or
results of operations and cash flows resulting from the adoption of new accounting pronouncements.
Accounting Guidance Implemented in Fiscal Year 2019
Revenue Recognition - In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (Topic 606), as amended ("ASC 606"). The
guidance provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects
to be entitled in exchange for those goods or services, as well as guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The
guidance also requires expanded disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from customer contracts,
including significant judgments and changes in judgments. ASC 606 is effective for our annual period beginning January 1, 2019, and for our interim periods
beginning on January 1, 2020. ASC 606 can be adopted using either of two methods: (i) retrospective to each prior reporting period presented with the option to
elect certain practical expedients as defined within the guidance (“full retrospective method”); or (ii) retrospective with the cumulative effect of initially applying
the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance (“modified retrospective
method”). We adopted ASC 606 in the year ended December 31, 2019 using the modified retrospective method. As a policy election, Topic ASC was applied only
to contracts that were not complete as of the date of adoption. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the January 1,
2019 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported
under the accounting standards in effect for those periods.
As part of our adoption of ASC 606, we elected to apply the following practical expedients:
• We have not restated contracts that begin and are completed within the same annual reporting period;
• For completed contracts that have variable consideration, we used the transaction price at the date upon which the contract was completed rather than
estimating variable consideration amounts in the comparative reporting periods;
• We have excluded disclosures of transaction prices allocated to remaining performance obligations and when we expect to recognize such revenue for
all periods prior to the date of initial application;
• We have not retrospectively restated our contracts to account for those modifications that were entered into before January 1, 2019, the earliest
reporting period impacted by ASC 606;
See Note 3 Revenue Recognition for additional information.
Statement of Cash Flows - In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230) ("ASU
2016-15"), which clarifies the classification of the activity in the consolidated statements of cash flows and how the predominant principle should be applied when
cash receipts and cash payments have more than one class of cash flows. Adoption will be applied retrospectively to all periods presented. We adopted ASU 2016-
15 on January 1, 2019. Adoption of ASU 2016-15 had no impact on our consolidated financial statements.
Hedging Activities - As of January 1, 2019, we adopted Accounting Standards Update ("ASU") 2017-12 Derivatives and Hedging (Topic 815), Targeted
Improvements to Accounting for Hedging Activities ("ASU 2017-12") to help entities recognize the economic results of their hedging strategies in the financial
statements so that stakeholders can better interpret and understand the effect of hedge accounting on reported results. It is intended to more clearly disclose an
entity’s risk exposures and how we manage those exposures through hedging, and it is expected to simplify the application of hedge accounting guidance. The new
guidance is effective for annual periods beginning after December 15, 2018, with early adoption permitted. There was not a material impact to our consolidated
financial statements upon adoption of ASU 2017-12.
Income Taxes - As of January 1, 2019, we adopted ASU 2016-16, Income Taxes-Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) ("ASU
2016-16"), which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.
ASU 2016-16 is effective for us in our Annual Report on Form 10-K for the year ended December 31, 2019 and is required to be applied on a modified
retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the adoption period. Adoption of ASU 2016-16 had
no impact on our consolidated financial statements.
Income Taxes - As of January 1, 2019, we adopted ASU 2018-02 Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income, which permits reclassification of certain tax effects in Other Comprehensive Income ("OCI")
caused by the U.S. tax reform enacted in
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December 2017 to retained earnings. We do not have any tax effect (due to full valuation allowance) in our OCI account, thus this guidance has no impact on our
consolidated financial statements.
Codification Improvements - In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses;
Topic 815, Derivatives and Hedging; and Topic 825, Financial Instruments ("ASU 2019-04"), that clarifies and improves areas of guidance related to the recently
issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01), respectively.
The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are
effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of a company’s next annual
reporting period. Early adoption is permitted. As discussed above, we adopted ASU 2017-12 on January 1, 2019 and the amendments of ASU 2019-04 did not have
a material impact on our consolidated financial statements.
Cloud Computing - In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), to clarify the guidance on the
costs of implementing a cloud computing hosting arrangement that is a service contract. Under ASU 2018-15, the entity is required to follow the guidance in
Subtopic 350-40, Internal-Use Software, to determine which implementation costs under the service contract to be capitalized as an asset and which costs to
expense. ASU 2018-15 is effective for us for the annual periods beginning in 2021 and the interim periods in 2022 on a retrospective or prospective basis and early
adoption is permitted. We adopted ASU 2018-15 on a prospective basis in the fiscal year ended December 31, 2019 and ASU 2018-15 did not have a material
impact on the consolidated financial statements and related disclosures.
Accounting Guidance Not Yet Adopted
Leases - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended (“ASC 842”), which provides new authoritative guidance on
lease accounting. Among its provisions, the standard changes the definition of a lease, requires lessees to recognize right-of-use assets and lease liabilities on the
balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. All leases in scope will be
classified as either operating or financing. Operating and financing leases will require the recognition of an asset and liability to be measured at the present value of
the lease payments. ASC 842 also makes a distinction between operating and financing leases for purposes of reporting expenses on the income statement. We are
the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases and expect to continue to enter into new such
leases. Additionally, we expect to continue to enter into Managed Services related financing leases in the future and are the lessor of Energy Servers that are
subject to power purchase arrangements with customers under our PPA and Managed Services programs that are currently accounted for as leases.
We are currently evaluating the impact of the adoption of this update on our financial statements. We expect that the most significant impacts will be
assessing whether new power purchase arrangements with customers meet the new definition of a lease and recognizing right of use assets and lease liabilities for
arrangements currently accounted for as operating leases where we are the lessee. We expect to adopt this guidance on a prospective basis on January 1, 2021.
Financial Instruments - In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326). The pronouncement was issued to
provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. This
pronouncement will be effective for us from fiscal year 2021. A prospective transition approach is required for debt securities for which an other than temporary
impairment had been recognized before the effective date. We are currently evaluating the impact of the adoption of this update on our financial statements.
Stock Compensation - In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based
Payment Accounting ("ASU 2018-07") which aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of
equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. ASU
2018-07 also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the performance
condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability
classification for nonemployee awards upon vesting, except for certain award types. ASU 2018-07 is effective for us for interim and annual reporting periods
beginning after December 15, 2019. Early adoption is permitted. We plan to adopt ASU 2018-07 on a modified retrospective approach in January 2020. We do not
expect the adoption of ASU 2018-07 to have a material effect on our financial statements and related disclosures.
Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 has eliminated, amended and added disclosure requirements for fair value
measurements. Entities will no longer be required to
109
disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair
value hierarchy and the valuation processes for Level 3 fair value measurements. Companies will be required to disclose the range and weighted average used to
develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for annual and interim periods beginning after December
15, 2019. Early adoption is permitted. ASU 2018-13 will have an impact on our disclosures. We are evaluating the effect on our financial statements and related
disclosures.
2. Restatement and Revision of Previously Issued Consolidated Financial Statements
We have restated herein our consolidated financial statements as of and for the year ended December 31, 2018 and revised herein our consolidated financial
statements as of and for the year ended December 31, 2017. We have also restated and revised related amounts within the accompanying footnotes to the
consolidated financial statements to conform to the corrected amounts in the financial statements.
Restatement Background
On February 11, 2020, our management, in consultation with the Audit Committee of our Board of Directors, determined that Bloom's previously issued
consolidated financial statements as of and for the year ended December 31, 2018, as well as financial statements for the three month period ended March 31, 2019,
the three and six month periods ended June 30, 2019 and 2018 and the three and nine month periods ended September 30, 2019 and 2018 should no longer be relied
upon due to misstatements related to our Managed Services Agreements and similar arrangements and we would restate such financial statements to make the
necessary accounting corrections. The revenue for the Managed Services Agreements and similar transactions will now be recognized over the duration of the
contract instead of upfront. In addition, management determined that the impact of these misstatements to periods prior to the three months ended June 30, 2018
was not material to warrant restatement of reported figures, however, our consolidated financial statements as of and for the year ended December 31, 2017 and the
relevant unaudited selected quarterly financial data for the three month period ended March 31, 2018 would be revised to correct these misstatements. The
restatement also includes corrections for additional identified immaterial misstatements in certain of the impacted periods.
The misstatements are described in greater detail below.
Description of Misstatements
Under our Managed Services program, we sell our equipment to a bank financing party under a sale-leaseback transaction, which pays us for the Energy
Server and takes title to the Energy Server. We then enter into a service contract with an end customer, who pays the bank a fixed, monthly fee for its use of the
Energy Server and pays us for our maintenance and operation of the Energy Server.
The majority of these Managed Services Agreements and similar transactions were originally recorded as sales, subject to an operating lease, in which
revenues and associated costs were recognized at the time of installation and acceptance of the Bloom Energy Server at the customer site.
In December 2019, in the course of reviewing a Managed Services transaction that closed on November 27, 2019, an issue was identified related to the
accounting for our Managed Services transactions. The issue primarily related to whether the terms of our Managed Services Agreements and similar
arrangements, including the events of default provisions, satisfied the requirements for sales under the revenue accounting standards. Subsequently, it was
determined that the previous accounting for the Managed Services Agreements and similar transactions was misstated, as the Managed Services Agreements and
similar transactions should have been accounted for as financing transactions under lease accounting standards.
The impact of the correction of the misstatement is to recognize amounts received from the bank financing party as a financing obligations, and the Energy
Server is recorded within property, plant and equipment, net on our consolidated balance sheets. We recognize revenue for the electricity generated by the systems,
based on payments received by the bank from the customer, and the corresponding financing obligations to the bank is also amortized as these payments are
received by the bank from the customer, with interest thereon being calculated on an effective interest rate basis. Depreciation expense is also recognized over the
estimated useful life of the Energy Server.
In addition, it was determined that stock-based compensation costs relating to manufacturing employees that were previously expensed as incurred
incorrectly, should have been capitalized as a component of Energy Server manufacturing costs to inventory, deferred cost of revenues, construction-in-progress
and property, plant and equipment in accordance with SEC Staff Accounting Bulletin Topic 14. These costs will now be expensed on consumption of the related
inventory and over the economic useful life of the property, plant and equipment, as applicable.
Also, as part of a review of historical revenue agreements as a result of the above errors, it was noted that the Company failed to identify embedded
derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to our customers. As a result, the Company has recorded a
derivative liability, with an offset to revenue, to
110
account for the fair value of this feature at inception and will record the liability at its then fair value at each period end with any changes in fair value recognized
in other income (expense).
Finally, there were certain other immaterial misstatements identified or which had been previously identified which are also being corrected in connection
with the restatement and/or revision of previously issued financial statements.
Description of Restatement and Revision Reconciliation Tables
In the following tables, we have presented a reconciliation of our consolidated balance sheets, statement of operations and cash flows from our prior periods
as previously reported to the restated and revised amounts as of and for the years ended December 31, 2018 and 2017, respectively. The Consolidated Statements
of Comprehensive Loss and the Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit
and Noncontrolling Interest for the years ended December 31, 2018 and 2017 have been restated and revised, respectively, for the restatement and revision impacts
to Net Loss and, for the latter statements, for the correction of an uncorrected misstatement within Additional Paid-In Capital for $0.8 million in 2018. See the
statement of operations reconciliation tables below for additional information on the restatement and revision impacts to Net Loss. For the misstatements arising in
periods commencing prior to 2017, the cumulative impact of all periods prior to January 1, 2017 has been reflected as an adjustment to opening accumulated deficit
as of that date in the Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ Deficit and
Noncontrolling Interest.
111
Bloom Energy Corporation
Consolidated Balance Sheet
(in thousands, except share and per share data)
December 31, 2018
As Previously
Reported
Restatement
Impacts
Restatement
Reference
As Restated
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash, non-current
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interest
Stockholders’ deficit:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
$
$
$
$
$
$
220,728 $
28,657
104,350
84,887
132,476
62,147
5,594
33,742
672,581
481,414
67,082
31,100
102,699
34,792
1,389,668 $
66,889 $
19,236
69,535
—
94,158
8,686
18,962
2,200
279,666
10,128
241,794
—
360,339
289,241
27,734
34,119
55,937
1,298,958
—
—
—
3,897
2,789
(18,338)
—
3,005
(8,647)
235,337
—
—
(102,654)
8,090
132,126
—
(1,268)
(2,697)
8,128
(26,526)
—
—
—
(22,363)
4,015
(154,486)
385,650
—
—
—
—
(29,741)
183,075
57,261
—
11
2,480,597
131
—
755
—
1
2
3
4
5
3
6
7
8
9
10
11
10
9
8
12
220,728
28,657
104,350
88,784
135,265
43,809
5,594
36,747
663,934
716,751
67,082
31,100
45
42,882
1,521,794
66,889
17,968
66,838
8,128
67,632
8,686
18,962
2,200
257,303
14,143
87,308
385,650
360,339
289,241
27,734
34,119
26,196
1,482,033
57,261
11
2,481,352
131
112
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
As Previously
Reported
(2,572,400)
(91,661)
125,110
1,389,668 $
$
December 31, 2018
Restatement
Impacts
Restatement
Reference
(51,704)
(50,949)
—
132,126
As Restated
(2,624,104)
(142,610)
125,110
1,521,794
$
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation cost of $8.1 million, reclassification of inventories of $6.0 million
held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net and an increase to inventory to correct a misstatement related to an
in-transit shipment of $0.7 million.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed
Services Agreements and similar sale-leaseback arrangements of $19.6 million current and $102.7 million non-current, net capitalization of stock-based compensation costs of $2.2 million into current deferred cost of revenue together
with the correction of an immaterial misstatements identified to reduce deferred cost of revenue of $0.9 million.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install cost of revenues are now
recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $232.1 million. This includes a net capitalization of stock-based compensation cost for
these assets of $3.2 million.
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term
deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements,
reducing accrued warranty by $0.5 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued
warranty by $0.7 million.
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities
recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed, and an increase to accrued liabilities to correct a misstatement related to an in-transit inventory shipment of $0.7 million.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront
proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10 Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are
now recorded as derivative liabilities and were previously treated as an accrued liability.
12 APIC — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million.
113
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Bloom Energy Corporation
Consolidated Statement of Operations
(in thousands, except per share data)
As Previously
Reported
For the year ended December 31, 2018
Restatement
Reference
Restatement
Impacts
As Restated
$
512,322 $
91,416
82,385
55,915
742,038
(111,684) a
(23,221) a
882 a
24,633 a
(109,390)
374,590
119,474
94,639
36,265
624,968
117,070
89,135
62,975
118,817
270,927
(153,857)
4,322
(76,935)
(8,893)
(999)
(21,590)
(257,952)
1,537
(259,489)
(93,315) c, d
(24,168) c
6,050 b, d
13,363 c
(98,070)
(11,320)
—
(168) e
—
(168)
(11,152)
—
(20,086) f
—
—
(549) g
(31,787)
—
(31,787)
—
(31,787)
$
400,638
68,195
83,267
80,548
632,648
281,275
95,306
100,689
49,628
526,898
105,750
89,135
62,807
118,817
270,759
(165,009)
4,322
(97,021)
(8,893)
(999)
(22,139)
(289,739)
1,537
(291,276)
(17,736)
(273,540)
(5.14)
$
$
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling
interests
Net loss attributable to Class A and Class B common stockholders
Net loss per share available to Class A and Class B common stockholders, basic and diluted
(17,736)
(241,753) $
(4.54)
$
$
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a decrease in service cost of revenue of $0.5 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change of from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $75.0 million and
installation cost of revenue of $25.1 million, offset by an increase in electricity cost of revenue of $13.3 million, together with the correction of another immaterial misstatements identified to record installation cost of revenue of$0.9
million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $18.3
million and an increase in service cost of revenue of $6.5 million, due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing — The correction of these misstatements resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services
Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligations and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
114
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The liability has reduced in value by $0.2 million in 2018, resulting in a credit to this line item. In addition, we corrected a
misstatement in the valuation of our 6% Notes derivative, resulting in $0.8 million of additional expense in the period.
115
Bloom Energy Corporation
Consolidated Statement of Operations
(in thousands, except per share data)
For the year ended December 31, 2017
As Previously
Reported
Revision Impacts
Revision
Reference
As Revised
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross loss
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other income (expense), net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests
$
179,768
$
63,226
76,904
56,098
375,996
210,773
59,929
83,597
39,741
394,040
(18,044)
51,146
32,415
55,674
139,235
(157,279)
759
(96,358)
(12,265)
(491)
(14,995)
(280,629)
636
(281,265)
(18,666)
a
a
a, b
a
c, d
c
b, d
c
e
e
f
g
(22,576)
(5,289)
(2,012)
19,504
(10,373)
(18,412)
(4,959)
1,531
9,734
(12,106)
1,733
—
(489)
15
(474)
2,207
—
(15,681)
—
—
(289)
(13,763)
—
(13,763)
—
$
157,192
57,937
74,892
75,602
365,623
192,361
54,970
85,128
49,475
381,934
(16,311)
51,146
31,926
55,689
138,761
(155,072)
759
(112,039)
(12,265)
(491)
(15,284)
(294,392)
636
(295,028)
(18,666)
Net loss attributable to Class A and Class B common stockholders
$
(262,599)
$
(13,763)
$
(276,362)
Net loss per share available to Class A and Class B common stockholders, basic and diluted
$
(25.62)
$
(26.97)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation
by $1.1 million.
b Service revenue and service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a decrease in service cost of revenue of $0.3 million and a decrease of service revenue of
$3.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in product cost of revenue of $15.2 million, installation cost of revenue
of $5.0 million and electricity cost of revenue of $9.7 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $3.2
million and an increase in service cost of revenue of $1.8 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the
term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligations and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
116
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives —The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The liability has increased in value by $0.3 million resulting in a loss on revaluation of embedded derivatives.
117
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
For the year ended December 31, 2018
As Previously
Reported
Restatement
Impacts
Restatement
Reference
As Restated
$
(259,489) $
(31,787)
$
(291,276)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Revaluation of stock warrants
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expense and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Payments for acquisition of intangible assets
Purchase of marketable securities
Proceeds from maturity of marketable securities
Net cash used in investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Proceeds from financing obligations
Repayment of financing obligations
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Proceeds from public offerings, net of underwriting discounts and commissions
Payments of initial public offering issuance costs
Net cash provided by financing activities
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
43,459
939
28,471
180,284
200
(9,108)
25,437
(54,570)
(42,216)
88,324
4,878
(7,064)
1,897
18,307
2,426
(6,800)
(91,996)
18,204
(58,417)
(14,659)
(3,256)
(103,914)
27,000
(94,829)
(18,770)
(1,390)
—
—
(15,250)
1,521
292,529
(5,521)
253,119
99,873
A
B
C
D
E
F
G
H
I
J
K
L
M
N
N
10,428
—
550
(11,802)
—
—
—
(453)
5,242
(74,101)
—
(968)
(2,099)
—
(928)
816
70,222
1,349
(33,531)
(30,546)
—
—
—
(30,546)
—
—
70,265
(6,188)
—
—
—
—
64,077
—
180,612
280,485 $
—
—
$
39,465 $
1,748
20,084
N
$
—
$
$
118
53,887
939
29,021
168,482
200
(9,108)
25,437
(55,023)
(36,974)
14,223
4,878
(8,032)
(202)
18,307
1,498
(5,984)
(21,774)
19,553
(91,948)
(45,205)
(3,256)
(103,914)
27,000
(125,375)
(18,770)
(1,390)
70,265
(6,188)
(15,250)
1,521
292,529
(5,521)
317,196
99,873
180,612
280,485
59,549
1,748
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were
previously treated as a contingent liability and recorded as an accrued liability. We now consider the commitments a derivative liability, with the initial value recorded as a reduction in product revenue and then any changes in the value
adjusted through other expense, net each period thereafter, resulting in a credit of $0.2 million, with $0.8 million of additional expense recorded to correct a misstatement in the valuation of our 6% Notes derivative.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $10.3 million.
The correction of this misstatement also resulted in the capitalization of $1.5 million of stock-based compensation costs related to assets, under the Managed Services Program now recorded as construction in progress within property,
plant and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and
the payments received from the financing entity is recorded within accounts receivable.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories, held for shipments planned to customers under the Managed Services Program and other similar arrangements now accounted
for as construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $71.9 million, and the net capitalization of stock-based compensation costs of $2.2 million in current deferred cost of revenue.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end
customers of $0.1 million, payments received from the financing entity now recorded within long term receivables of $1.9 million, and commission payments now classified within long term commission expenses of $0.1 million.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements.
The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent
liability that was considered remote and therefore, no accrual was made. We now consider $0.3 million accrual has made, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted
through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of
recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the
bank financing loan proceeds received and due beyond the next twelve months are classified as lease loan liability.
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the
upfront proceeds received from the bank as revenue, the bank proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of
financing obligations and interest paid.
119
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
For the year ended December 31, 2017
As Previously
Reported
Revision Impacts
Revision
Reference
As Revised
$
(281,265) $
(13,763)
$
(295,028)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Revaluation of derivative contracts
Stock-based compensation
Gain on long-term REC purchase contract
Revaluation of stock warrants
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expense and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of marketable securities
Proceeds from maturity of marketable securities
Net cash used in investing activities
Cash flows from financing activities:
Borrowings from issuance of debt
Repayment of debt
Repayment of debt to related parties
Debt issuance costs
Proceeds from financing obligations
Repayment of financing obligations
Proceeds from noncontrolling and redeemable noncontrolling interests
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Payments of initial public offering issuance costs
Net cash provided by financing activities
Net decrease in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
46,105
48
14,754
30,479
(70)
(2,975)
47,312
4,849
(7,105)
(70,979)
5,459
(2,175)
4,625
7,076
(7,045)
8,599
91,893
43,239
(67,176)
(5,140)
(29,043)
2,250
(31,933)
100,000
(20,507)
(912)
(6,108)
—
—
13,652
(23,659)
432
(1,092)
61,806
(37,303)
A
B
C
D
E
F
G
H
I
J
K
L
M
N
N
8,271
—
288
(1,378)
—
—
—
(1,607)
(3,531)
39,701
—
1,193
(3,869)
—
(320)
(602)
(43,571)
(5,602)
(24,790)
(56,314)
—
—
(56,314)
—
—
—
—
84,314
(3,210)
—
—
—
—
81,104
—
$
$
217,915
180,612 $
—
—
$
21,948 $
616
15,680
N
$
—
54,376
48
15,042
29,101
(70)
(2,975)
47,312
3,242
(10,636)
(31,278)
5,459
(982)
756
7,076
(7,365)
7,997
48,322
37,637
(91,966)
(61,454)
(29,043)
2,250
(88,247)
100,000
(20,507)
(912)
(6,108)
84,314
(3,210)
13,652
(23,659)
432
(1,092)
142,910
(37,303)
217,915
180,612
37,628
616
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and other similar arrangements that would have been product
and install costs of goods sold, but are now recorded as property, plant and equipment, and depreciated over their useful lives of 21 years.
120
B Revaluation of derivative contracts - The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were
previously treated as a contingent liability and recorded as an accrued liability. We now consider the commitments a derivative liability, with the initial value recorded as a reduction in product revenue and then any changes in the value
adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $0.6 million.
The correction of this misstatement also resulted in the capitalization of $0.7 million of stock-based compensation, cost related to assets, under the Managed Services Program now recorded as construction in progress within property,
plant and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and
the payments received from the financing entity is recorded within accounts receivable.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories, held for shipments planned to customers under the Managed Services Program and other similar arrangements now
accounted for as construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers
under the Managed Services Agreements and similar sale-leaseback arrangements of $39.1 million, and the net capitalization of stock-based compensation costs of $0.6 million in current deferred cost of revenue.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end
customers of $1.7 million, payments received from the financing entity now recorded within long term receivables of $1.8 million, and commission payments now classified within long term commission expenses of $0.4 million.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements.
The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent
liability that was considered remote and therefore, no accrual was made. We now consider $0.3 million accrual has made, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted
through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of
recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the
bank financing loan proceeds received and due beyond the next twelve months are classified as lease loan liability.
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the
upfront proceeds received from the bank as revenue, the bank proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of
financing obligations and interest paid.
121
3. Revenue Recognition
Adoption of ASC 606
The cumulative effect of the changes made to our consolidated January 1, 2019 consolidated balance sheet for the adoption of ASC 606 was as follows (in
thousands):
Balances at
December 31,
2018
As Restated
Adjustments
from Adoption
of ASC 606
Balances at
January 1, 2019
As Recast
$
$
$
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (non-current)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interest
Stockholders’ deficit:
Common stock: $0.0001 par value; Class A shares and, Class B shares
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
$
220,728 $
28,657
104,350
88,784
135,265
43,809
5,594
36,747
663,934
716,751
67,082
31,100
45
42,882
1,521,794 $
66,889 $
17,968
66,838
8,128
67,632
8,686
18,962
2,200
257,303
14,143
87,308
385,650
360,339
289,241
27,734
34,119
26,196
1,482,033
57,261
11
2,481,352
131
(2,624,104)
(142,610)
125,110
1,521,794 $
— $
—
—
995
—
—
—
140
1,135
—
—
—
—
2,472
3,607
220,728
28,657
104,350
89,779
135,265
43,809
5,594
36,887
665,069
716,751
67,082
31,100
45
45,354
$
1,525,401
— $
(1,032)
—
—
4,653
—
—
—
3,621
—
17,982
—
—
—
—
—
—
21,603
—
—
—
—
(17,996)
(17,996)
—
3,607
$
66,889
16,936
66,838
8,128
72,285
8,686
18,962
2,200
260,924
14,143
105,290
385,650
360,339
289,241
27,734
34,119
26,196
1,503,636
57,261
11
2,481,352
131
(2,642,100)
(160,606)
125,110
1,525,401
122
In accordance with the ASC 606 requirements, the impact of adoption on our consolidated balance sheet was as follows as of December 31, 2019 (in
thousands):
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash, non-current
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of recourse debt from related parties
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interest
Stockholders’ deficit:
Common stock: $0.0001 par value; Class A shares and, Class B shares
Additional paid-in capital
123
December 31, 2019
Balances Without
Adoption of ASC
606
Effect of Change
Higher / (Lower)
As Reported
$
202,823
$
30,804
37,828
109,606
58,470
5,108
28,068
472,707
607,059
50,747
143,761
6,665
41,652
$
1,322,591
$
$
55,579
$
10,333
70,284
10,993
89,192
304,627
8,273
20,801
3,882
573,964
17,551
125,529
446,165
75,962
192,180
31,087
28,013
1,490,451
443
12
2,686,759
202,823 $
30,804
47,442
109,606
58,470
5,108
27,860
482,113
607,059
50,747
143,761
6,665
37,849
1,328,194 $
55,579 $
11,952
70,284
10,993
90,075
304,627
8,273
20,801
3,882
576,466
17,551
84,594
446,165
75,962
192,180
31,087
28,013
1,452,018
443
12
2,686,759
—
—
(9,614)
—
—
—
208
(9,406)
—
—
—
—
3,803
(5,603)
—
(1,619)
—
—
(883)
—
—
—
—
(2,502)
—
40,935
—
—
—
—
—
38,433
—
—
—
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
As Reported
19
(2,946,384)
(259,594)
91,291
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
$
1,322,591
$
124
December 31, 2019
Balances Without
Adoption of ASC
606
Effect of Change
Higher / (Lower)
19
(2,902,348)
(215,558)
91,291
1,328,194 $
—
(44,036)
(44,036)
—
(5,603)
In accordance with ASC 606 requirements, the impact of adoption on our consolidated statement of operations for the year ended December 31, 2019 was
as follows (in thousands):
Year ended December 31, 2019
As Reported
Balances Without
Adoption of ASC
606
Effect of Change
Higher / (Lower)
$
557,336
$
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other income (expense), net
60,826
95,786
71,229
785,177
435,479
76,487
100,238
75,386
687,590
97,587
104,168
73,573
152,650
330,391
(232,804)
5,661
(87,480)
(6,756)
706
(2,160)
(322,833)
633
(323,466)
(19,052)
(304,414)
(2,454)
(306,868)
(2.67)
$
$
601,857 $
54,716
91,944
71,229
819,746
436,064
76,487
106,782
75,386
694,719
125,027
104,168
74,973
152,650
331,791
(206,764)
5,661
(87,480)
(6,756)
706
(2,160)
(296,793)
633
(297,426)
(19,052)
(278,374)
(2,454)
(280,828) $
(2.44) $
(44,521)
6,110
3,842
—
(34,569)
(585)
—
(6,544)
—
(7,129)
(27,440)
—
(1,400)
—
(1,400)
(26,040)
—
—
—
—
—
(26,040)
—
(26,040)
—
(26,040)
—
(26,040)
(0.23)
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Less: deemed dividend to noncontrolling interest
Net loss available to Class A and Class B common stockholders
Net loss per share available to Class A and Class B common stockholders, basic and diluted
$
$
The impact of the adoption of ASC 606 on our consolidated statement of cash flows for the year ended December 31, 2019, relating to cash flows from operating
activities was an increase to net loss of $26.0 million which was offset by a decrease in accounts receivable of $10.6 million, increases in prepaid expenses and
other current assets of $0.1 million, and increases in other long-term assets of $1.3 million. These sources of cash from changes in operating assets were partially
offset by increases in deferred revenue and customer deposits of $17.4 million and a decrease in accrued warranty of $0.6 million. There is no net impact on
operating activities and no impact in investing and financing activities.
125
Contract Liabilities
Deferred revenue and customer deposits activity related to the adoption of ASC 606 consisted of the following (in thousands):
Deferred revenue
Customer deposits
Deferred revenue and customer deposits
Year ended
12/31/2018
(As Restated)
Impacts of ASC606
Adoption
As of 1/1/2019
(As Recast)
As of 12/31/2019
(As Recast)
$
$
(141,458)
$
(13,482)
(154,940)
$
(8,154) $
(14,481)
(22,635) $
(149,612) $
(27,963)
(177,575) $
(175,619)
(39,101)
(214,720)
Deferred revenue activity during the year ended December 31, 2019 after the ASC 606 adoption consisted of the following (in thousands):
Deferred revenue on January 1, 2019
Additions
Revenue recognized
Deferred revenue on December 31, 2019
Year Ended
December 31, 2019
As Reported
$
$
149,612
709,843
(683,836)
175,619
Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of
December 31, 2019. These performance obligations relate to the provision of maintenance services under current contracts and future renewal periods which
provide customers with material rights over a period that we estimate will be largely commensurate with the period of their expected use of the associated Energy
Server. As a result we expect to recognize these amounts as revenue over a period of up to 21 years, predominantly on a cost-to-cost basis that reflects the cost of
providing these services.
Revenue by source
We disaggregate revenue from contracts with customers into four revenue categories: (i) product, (ii) installation, (iii) services and (iv) electricity, as shown
below (in thousands):
Revenue from contracts with customers:
Product revenue
Installation revenue
Services revenue
Electricity revenue
Total revenue from contract with customers
Revenue from contracts accounted for as leases:
Electricity revenue
Total revenue
Years Ended December 31,
2019
2018
As Reported, With
Adoption of ASC 606
As Reported, Under
ASC 605
$
$
557,336 $
60,826
95,786
10,840
724,788
60,389
785,177 $
400,638
68,195
83,267
23,023
575,123
57,525
632,648
For the year ended December 31, 2019, approximately 77% of our revenues are from the United States and 23% comes from the Asia Pacific region.
126
4. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The carrying value of cash and cash equivalents approximate fair value and are as follows (in thousands):
As Held:
Cash
Money market funds
As Reported:
Cash and cash equivalents
Restricted cash
Restricted cash consisted of the following (in thousands):
Current:
Restricted cash
Restricted cash related to PPA Entities
Restricted cash, current
Non-current:
Restricted cash
Restricted cash related to PPA Entities 1
Restricted cash, non-current
December 31,
2019
2018
100,773 $
276,615
377,388 $
202,823 $
174,565
377,388 $
136,642
143,843
280,485
220,728
59,757
280,485
December 31,
2019
2018
28,494 $
2,310
30,804 $
10 $
143,751
143,761
174,565 $
25,740
2,917
28,657
3,246
27,854
31,100
59,757
$
$
$
$
$
$
$
$
1 We have variable interest entities which represent a portion of the consolidated balances are recorded within the "restricted cash," and other financial statement line items in the Consolidated
Balance Sheets (see Note 13, Power Purchase Agreement Programs). This amount includes $108.7 million and $20.0 million of restricted cash non-current, held in PPA II and PPA IIIb entities,
respectively. As of December 31, 2019, such entities are no longer considered variable interest entities.
Short-Term Investments
As of December 31, 2019, we had no short-term investments. As of December 31, 2018, we had short-term investments in U.S. Treasury Bills of $104.4
million.
Derivative Instruments
We have derivative financial instruments related to natural gas fixed price forward contracts and interest rate swaps. See Note 8, Derivative Financial
Instruments for a full description of our derivative financial instruments.
5. Fair Value
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below set forth, by level, our financial assets that were accounted for at fair value for the respective periods. The table does not include assets and
liabilities that are measured at historical cost or any basis other than fair value (in thousands):
Fair Value Measured at Reporting Date Using
Level 1
Level 2
Level 3
Total
December 31, 2019
Assets
Cash equivalents:
Money market funds
Interest rate swap agreements
Liabilities
Accrued expenses and other current liabilities
Derivatives:
$
$
$
276,615 $
—
276,615 $
— $
3
3 $
— $
—
— $
996 $
— $
— $
276,615
3
276,618
996
6,968
Natural gas fixed price forward contracts
—
—
6,968
Embedded EPP derivatives
Interest rate swap agreements
December 31, 2018
Assets
Cash equivalents:
Money market funds
Short-term investments
Interest rate swap agreements
Liabilities
Accrued expenses and other current liabilities
Derivatives:
Natural gas fixed price forward contracts
Embedded EPP derivatives
Interest rate swap agreements
—
—
996 $
—
9,241
9,241 $
6,176
—
13,144 $
6,176
9,241
23,381
Fair Value Measured at Reporting Date Using
Level 1
Level 2
Level 3
Total
143,843 $
104,350
—
248,193 $
— $
—
82
82 $
— $
—
—
— $
143,843
104,350
82
248,275
1,331 $
— $
— $
1,331
$
$
$
$
—
—
—
$
1,331 $
—
—
3,630
3,630 $
9,729
4,015
—
13,744 $
9,729
4,015
3,630
18,705
Money Market Funds - Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial
assets.
Short-Term Investments - Short-term investments, which are comprised of U.S. Treasury Bills with maturities of 12 months or less from the purchase date,
are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.
Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2
financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our consolidated balance sheets. As of December 31,
2019, $0.6 million of the gain on the interest rate swaps accumulated in other comprehensive income (loss) is expected to be reclassified into earnings in the next
twelve months.
127
Natural Gas Fixed Price Forward Contracts - Natural gas fixed price forward contracts are valued using a combination of factors including the
counterparty's credit rating and estimates of future natural gas prices and therefore, as no observable inputs to support market activity are available, are classified as
Level 3 financial assets.
The following table provides the number and fair value of our natural gas fixed price forward contracts (in thousands):
December 31,
2019
2018
Number of
Contracts
(MMBTU)²
Fair
Value
Number of
Contracts
(MMBTU)²
Fair
Value
Liabilities¹
Natural gas fixed price forward contracts (not under hedging
relationships)
1,991 $
6,968
3,096 $
9,729
¹ Recorded in current liabilities and derivative liabilities in the consolidated balance sheets.
² One MMBTU is a traditional unit of energy used to describe the heat value (energy content) of fuels.
For the years ended December 31, 2019 and 2018, we marked-to-market the fair value of our natural gas fixed price forward contracts and recorded a loss of
$0.8 million and a gain of $2.2 million, respectively, and recorded gains on the settlement of these contracts of $3.6 million and $3.4 million, respectively, in cost
of revenue on our consolidated statement of operations.
Embedded Derivative on 6% Convertible Promissory Notes - Between December 2015 and September 2016, we issued $260.0 million of 6% Convertible
Promissory Notes (6% Notes) that mature in December 2020. The 6% Notes are convertible at the option of the holders at a conversion price of $11.25 per share.
The embedded redemption feature of the 6% Notes was therefore classified as an embedded derivative.
The embedded redemption feature of the 6% Notes was valued using the binomial lattice method, which utilizes significant inputs that are unobservable in
the market. The fair value was determined by estimated event dates with probabilities of likely events under the scenario based upon facts existing through the date
of our IPO. It was therefore classified as a Level 3 financial liability. Upon the expiration of embedded derivative features triggered by the IPO, we reclassified the
fair value of the derivative liability into additional paid-in capital. The final valuation of the conversion feature was calculated as of the date of the IPO to be
$178.0 million and was reclassified from derivative liability to additional paid-in capital on the balance sheet.
Embedded EPP Derivatives in Sales Contracts - We estimated the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo
simulation model which considers various potential electricity price curves over the sales contracts' terms. We use historical grid prices and available forecasts of
future electricity prices to estimate future electricity prices. We have classified these derivatives as a Level 3 financial liability.
Preferred Stock Warrants - We estimated the fair value of the preferred stock warrants using a probability-weighted expected return model which considers
various potential liquidity outcomes and assigned probabilities to each to arrive at the weighted equity value. As there were no observable inputs supported by
market activity, the preferred stock warrants were therefore classified as a Level 3 financial liability.
The preferred stock warrants were converted to common stock warrants effective with the IPO and reclassified to additional paid-in capital. The fair value of
the preferred stock warrants was zero as of December 31, 2019 and 2018. The changes in fair value were recorded in gain (loss) on revaluation of warrant liabilities
in our consolidated statements of operations.
128
There were no transfers between fair value measurement classifications during the years ended December 31, 2019 and 2018. The changes in the Level 3
financial assets were as follows (in thousands):
Balances at December 31, 2017
$
15,368 $
9,825 $
140,771 $
4,217 $
170,181
Natural
Gas
Fixed Price
Forward
Contracts
Preferred
Stock
Warrants
Embedded
Derivative
Liability
Embedded EPP
Derivative
Total
Settlement of natural gas fixed price forward contracts
Embedded derivative on notes and sales contracts
Changes in fair value
Reclassification of preferred stock warrants liability to common
stock warrants and derivative liability into additional paid-in-
capital
Balances at December 31, 2018
Settlement of natural gas fixed price forward contracts
Changes in fair value
Balances at December 31, 2019
(3,412)
—
(2,227)
—
9,729
(3,605)
844
$
6,968 $
—
—
(8,943)
—
6,288
30,904
(882)
(177,963)
—
—
—
— $
—
—
—
0
3
(205)
—
4,015
—
2,161
(3,412)
6,291
19,529
(178,845)
13,744
(3,605)
3,005
13,144
— $
6,176 $
Significant changes in any assumption input in isolation can result in a significant change in fair value measurement. Generally, an increase in the market
price of our shares of common stock, an increase in natural gas prices, an increase in the volatility of our shares of common stock and an increase in the remaining
term of the conversion feature would each result in a directionally similar change in the estimated fair value of our derivative liability. Increases in such assumption
values would increase the associated liability while decreases in these assumption values would decrease the associated liability. An increase in the risk-free
interest rate or a decrease in the market price of our shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease
in the associated liability.
Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
Customer Receivables and Debt Instruments - We estimate fair value for customer financing receivables, senior secured notes, term loans and convertible
promissory notes based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values
and carrying values of customer receivables and debt instruments (in thousands):
December 31, 2019
December 31, 2018
Net Carrying
Value
Fair Value
Net Carrying
Value
Fair Value
Customer receivables:
Customer financing receivables
$
55,855 $
44,002 $
72,676 $
51,541
Debt instruments:
Recourse
LIBOR + 4% term loan due November 2020
5% convertible promissory note due December 2020
6% convertible promissory notes due December 2020
10% notes due July 2024
Non-recourse
5.22% senior secured notes due March 2025
7.5% term loan due September 2028
LIBOR + 5.25% term loan due October 2020
6.07% senior secured notes due March 2030
LIBOR + 2.5% term loan due December 2021
1,536
36,482
273,410
89,962
—
34,969
—
80,016
120,436
1,590
32,070
302,047
97,512
—
41,108
—
87,618
120,510
3,214
34,706
263,284
95,555
78,566
36,319
23,916
82,337
3,311
31,546
353,368
99,260
80,838
39,892
25,441
85,917
123,384
123,040
Long-Lived Assets - Our long-lived assets include property, plant and equipment and Energy Servers capitalized in connection with our Managed Services
Program and other similar arrangements. The carrying amounts of our long-lived assets
129
are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or
that the useful life is shorter than originally estimated. During the year ended December 31, 2019 we upgraded the 30 megawatts of Energy Servers in PPA II and
the 5.4 megawatts of Energy Servers in PPA IIIb by decommissioning these systems and selling and installing new Energy Servers. As a result of these upgrades,
the useful lives of all other remaining Energy Servers included within our long-lived assets were reassessed and we concluded that no change in the useful lives or
impairment of these remaining Energy Servers was identified in the year ended December 31, 2019. See Note 13, Purchase Power Agreement Programs for further
information.
6. Balance Sheet Components
Inventories
The components of inventory consisted of the following (in thousands):
Raw materials
Work-in-progress
Finished goods
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
Government incentives receivable
Prepaid HW & SW maintenance
Receivables from employees
Other prepaid expense and other current assets
Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following (in thousands):
Energy Servers
Computers, software and hardware
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Building
Construction in progress
Less: Accumulated depreciation
130
December 31,
2019
2018
As Restated
$
$
67,829 $
21,207
20,570
109,606 $
50,856
18,676
65,733
135,265
December 31,
2019
2018
As Restated
$
893 $
3,763
6,130
17,282
$
28,068 $
1,001
1,464
5,922
28,360
36,747
December 31,
2019
2018
As Restated
$
650,600 $
757,574
20,275
101,650
8,339
35,694
40,512
12,611
869,681
(262,622)
$
607,059 $
16,536
99,209
4,337
18,629
40,512
41,180
977,977
(261,226)
716,751
Construction in progress decreased $28.6 million from 2018, primarily due to our move to our new corporate headquarters during the first quarter of 2019.
After the move was completed, $17.6 million was reclassified to leasehold improvements within property, plant and equipment. In addition, the remaining decrease
of $11.0 million was due to acceptances of Energy Servers under our Managed Services sale-leaseback program which are reclassified from construction in
progress to Energy Servers within property, plant and equipment upon acceptance.
Depreciation expense related to property, plant and equipment was $78.6 million, $53.1 million and $54.4 million for the years ended December 31, 2019,
2018 and 2017, respectively.
Property, plant and equipment under operating leases by the PPA Entities was $371.4 million and $397.5 million as of December 31, 2019 and 2018,
respectively. The accumulated depreciation for these assets was $95.5 million and $77.4 million as of December 31, 2019 and 2018, respectively. Depreciation
expense related to our property, plant and equipment under operating leases by the PPA Entities was $27.1 million, $25.5 million and $25.5 million for the years
ended December 31, 2019, 2018 and 2017 respectively.
During the year ended December 31, 2019, there was a decommissioning in PPA II, including the replacement during 2019 of 30.0 megawatts of installed
Energy Servers with 27.5 megawatts of new systems sold, resulting in product cost of goods sold due to $52.5 million for the write-off of Energy Servers and $78.4
million for the cost of new systems sold, and electricity cost of revenue of $22.6 million of accelerated depreciation charged.
During the year ended December 31, 2019, there was a decommissioning in PPA IIIb, including the replacement during 2019 of 5.0 megawatts of installed
Energy Servers, resulting in product cost of goods sold of $18.0 million for the write-off of Energy Servers, and electricity cost of revenue of $1.7 million of
accelerated depreciation charged in fourth quarter of 2019 related to the revised expected lives of installed systems, which we recognized in our consolidated
statement of operations
See Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers and PPA IIIb Upgrade of Energy Servers for additional
information.
Customer Financing Receivable
The components of investment in sales-type financing leases consisted of the following (in thousands):
December 31,
2019
2018
Total minimum lease payments to be received
Less: Amounts representing estimated executing costs
Net present value of minimum lease payments to be received
Estimated residual value of leased assets
Less: Unearned income
Net investment in sales-type financing leases
Less: Current portion
$
76,886 $
(19,931)
56,955
890
(1,990)
55,855
(5,108)
Non-current portion of investment in sales-type financing leases
$
50,747 $
The future scheduled customer payments from sales-type financing leases were as follows as of December 31, 2019 (in thousands):
100,816
(25,180)
75,636
1,051
(4,011)
72,676
(5,594)
67,082
Future minimum lease payments, less
interest
$
5,108 $
5,428 $
5,784 $
6,155 $
6,567 $
25,923
2020
2021
2022
2023
2024
Thereafter
131
Other Long-Term Assets
Other long-term assets consisted of the following (in thousands):
Prepaid and other long-term assets
Deferred commissions
Equity-method investments
Long-term deposits
Accrued Warranty
Accrued warranty liabilities consisted of the following (in thousands):
Product warranty
Product performance
Maintenance services contracts
Changes in the product warranty and product performance liabilities were as follows (in thousands):
Balances at December 31, 2016 (As Revised)
Accrued warranty, net (As Revised)
Warranty expenditures during period (As Revised)
Balances at December 31, 2017 (As Revised)
Accrued warranty, net (As Restated)
Warranty expenditures during period (As Restated)
Balances at December 31, 2018 (As Restated)
Cumulative effect upon adoption of ASC 606
Accrued warranty, net
Warranty expenditures during period
Balances at December 31, 2019
132
December 31,
2019
2018
As Restated
$
29,153 $
5,007
5,733
1,759
$
41,652 $
34,093
1,083
6,046
1,660
42,882
December 31,
2019
2018
As Restated
$
$
2,345 $
7,536
453
10,334 $
$
$
3,378
6,290
8,300
17,968
8,082
5,979
(6,740)
7,321
9,301
(6,954)
9,668
1,032
1,849
(2,668)
9,881
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Compensation and benefits
Current portion of derivative liabilities
Sales related liabilities
Accrued installation
Sales tax liabilities
Interest payable
Other
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
Delaware grant
Other
December 31,
2019
2018
As Restated
$
17,173 $
4,834
416
10,348
3,849
3,875
29,789
$
70,284 $
16,742
3,232
1,421
6,859
1,798
4,675
32,111
66,838
December 31,
2019
2018
As Restated
$
$
10,469 $
17,544
28,013 $
10,469
15,727
26,196
In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million to us as an incentive
to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. We have
received $12.0 million of the grant which is contingent upon us meeting certain milestones related to the construction of the manufacturing facility and the
employment of full-time workers at the facility through September 30, 2023. As of December 31, 2019, we have paid $1.5 million in October 2017 for recapture
provisions and have recorded $10.5 million in other long-term liabilities for potential repayments. See Note 14, Commitments and Contingencies for a full
description of the grant.
133
7. Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 2019 (in thousands):
Unpaid
Principal
Balance
Net Carrying Value
Current
Long-
Term
Total
Unused
Borrowing
Capacity
$
1,571
$
1,536
$
— $
1,536 $
33,104
36,482
—
36,482
289,299
93,000
273,410
14,000
—
75,962
273,410
89,962
—
—
—
—
416,974
325,428
75,962
401,390
—
Interest
Rate
LIBOR
plus margin
5.0%
6.0%
10.0%
Maturity Dates
Entity
Recourse
November 2020
Company
December 2020
Company
December 2020
July 2024
Company
Company
38,337
80,988
121,784
3,882
3,151
5,122
31,087
34,969
76,865
80,016
115,315
120,437
—
—
—
7.5%
September 2028
PPA IIIa
6.1%
LIBOR plus
margin
March 2030
PPA IV
December 2021
PPA V
—
—
—
—
1,220
2.25%
December 2021
PPA V
Yes
Yes
Yes
Yes
No
No
No
No
LIBOR + 4% term loan due
November 2020
5% convertible promissory
note due December 2020
6% convertible promissory
notes due December 2020
10% notes due July 2024
Total recourse
debt
7.5% term loan due
September 2028
6.07% senior secured notes
due March 2030
LIBOR + 2.5% term loan
due December 2021
Letters of Credit due
December 2021
Total non-
recourse debt
241,109
12,155
Total debt $
658,083
$
337,583
$
223,267
299,229 $
235,422
636,812 $
1,220
1,220
134
The following is a summary of our debt as of December 31, 2018 (in thousands):
Unpaid
Principal
Balance
Net Carrying Value
Current
Long-
Term
Total
Unused
Borrowing
Capacity
Interest
Rate
Maturity Dates
Entity
Recourse
LIBOR + 4% term loan due
November 2020
5% convertible promissory
note due December 2020
6% convertible promissory
notes due December 2020
10% notes due July 2024
Total recourse
debt
5.22% senior secured term
notes due March 2025
7.5% term loan due
September 2028
LIBOR + 5.25% term loan
due October 2020
6.07% senior secured notes
due March 2030
LIBOR + 2.5% term loan
due December 2021
Letters of Credit due
December 2021
Total non-
recourse debt
$
3,286
$
1,686
$
1,528 $
3,214 $
33,104
296,233
100,000
432,623
79,698
40,538
24,723
83,457
125,456
—
—
7,000
8,686
11,994
2,200
827
2,469
3,672
34,706
34,706
263,284
88,555
263,284
95,555
—
—
—
—
LIBOR
plus margin
November 2020
Company
8.0%
6.0%
10.0%
December 2020
Company
December 2020
July 2024
Company
Company
388,073
396,759
—
66,572
78,566
34,119
36,319
23,089
23,916
79,868
82,337
119,712
123,384
—
—
—
—
—
5.2%
March 2025
PPA II
7.5%
LIBOR
plus margin
6.1%
LIBOR plus
margin
September 2028
PPA IIIa
October 2020
PPA IIIb
March 2030
PPA IV
December 2021
PPA V
—
—
—
—
1,220
2.25%
December 2021
PPA V
Yes
Yes
Yes
Yes
No
No
No
No
No
No
353,872
21,162
Total debt $
786,495
$
29,848
$
323,360
711,433 $
344,522
741,281 $
1,220
1,220
Recourse debt refers to debt that Bloom Energy Corporation has an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified
assets or our subsidiaries. The differences between the unpaid principal balances and the net carrying values apply to debt discounts and deferred financing costs.
We were in compliance with all financial covenants as of December 31, 2019 and 2018.
Recourse Debt Facilities
LIBOR + 4% Term Loan due November 2020 - In May 2013, we entered into a $5.0 million credit agreement and a $12.0 million financing agreement to
help fund the building of a new facility in Newark, Delaware. The $5.0 million credit agreement expired in December 2016. The $12.0 million financing agreement
has a term of 90 months, payable monthly at a variable rate equal to one month LIBOR plus the applicable margin. The weighted average interest rate as of
December 31, 2019 and 2018 was 6.3% and 5.9%, respectively. The loan requires monthly payments and is secured by the manufacturing facility. In addition, the
credit agreements also include a cross-default provision which provides that the remaining balance of borrowings under the agreements will be due and payable
immediately if a lien is placed on the Newark facility in the event we default on any indebtedness in excess of $100,000 individually or $300,000 in the aggregate.
Under the terms of these credit agreements, we are required to comply with various restrictive covenants. As of December 31, 2019 and 2018, the unpaid principal
balance of debt outstanding was $1.6 million and $3.3 million, respectively.
5% Convertible Promissory Notes due 2020 (Originally 8% Convertible Promissory Notes due December 2018) - Between December 2014 and June 2016,
we issued $193.2 million of three-year convertible promissory notes ("8% Notes") to certain investors. The 8% Notes had a fixed interest rate of 8% compounded
monthly, due at maturity or at the election of the investor with accrued interest due in December of each year.
On January 18, 2018, amendments were finalized to extend the maturity dates for all the 8% Notes to December 2019. At the same time, the portion of the
notes that was held by Constellation NewEnergy, Inc. ("Constellation") was extended to December 2020 and the interest rate decreased from 8% to 5% ("5%
Notes").
Investors held the right to convert the unpaid principal and accrued interest of both the 8% Notes and 5% Notes to Series G convertible preferred stock at
any time at the price of $38.64 per share. In July 2018, upon our IPO, the $221.6 million of
135
principal and accrued interest of outstanding 8% Notes automatically converted into additional paid-in capital, the conversion of which included all the related-
party noteholders. The 8% Notes converted to shares of Series G convertible preferred stock and, concurrently, each such share of Series G convertible preferred
stock converted automatically into one share of Class B common stock. Upon our IPO, conversions of 5,734,440 shares of Class B common stock were issued and
the 8% Notes were retired. Constellation, the holder of the 5% Notes, have not elected to convert as of December 31, 2019. The outstanding unpaid principal and
accrued interest debt balance of the 5% Notes of $36.5 million was classified as current as of December 31, 2019, and the outstanding unpaid principal and accrued
interest debt balances of the 5% Notes of $34.7 million was classified as non-current as of December 31, 2018.
6% Convertible Promissory Notes due December 2020 - Between December 2015 and September 2016, we issued $260.0 million convertible promissory
notes due December 2020, ("6% Notes") to certain investors. The 6% Notes bore a 5.0% fixed interest rate, payable monthly either in cash or in kind, at our
election. We amended the terms of the 6% Notes in June 2017 to increase the interest rate from 5% to 6% and to reduce the collateral securing the notes.
As of December 31, 2019 and 2018, the amount outstanding on the 6% Notes, which includes interest paid in kind through the IPO date, was $289.3 million
and $296.2 million, respectively. Upon our IPO, the debt is convertible at the option of the holders at the conversion price of $11.25 per share into common stock at
any time through the maturity date. In January 2018, we amended the terms of the 6% Notes to extend the convertible put option, which investors could elect only
if the IPO did not occur prior to December 2019. After the IPO, we paid the interest in cash when due and no additional interest accrued on the consolidated
balance sheet on the 6% Notes. In November 2019, one note holder exchanged a portion of their 6% Notes at the conversion price of $11.25 per share into 616,302
shares of common stock.
On or after July 27, 2020, we may redeem, at our option, all or part of the 6% Notes if the last reported sale price of our common stock has been at least
$22.50 for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the three trading days immediately
preceding the date on which we provide written notice of redemption In certain circumstances, the 6% Notes are also redeemable at our option in connection with a
change of control.
Under the terms of the indenture governing the 6% Notes, we are required to comply with various restrictive covenants, including meeting reporting
requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on investments. In addition, we are required to
maintain collateral which secures the 6% Notes in an amount equal to 200% of the principal amount of and accrued and unpaid interest on the outstanding notes.
This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum collateral test does restrict us with
respect to investing in non-PPA subsidiaries. If we do not meet the minimum collateral test, we cannot invest cash into any non-PPA subsidiary that is not a
guarantor of the notes. The 6% Notes also include a cross-acceleration provision which provides that the holders of at least 25% of the outstanding principal
amount of the 6% Notes may cause such notes to become immediately due and payable if we or any of our subsidiaries default on any indebtedness in excess of
$15.0 million such that the repayment of such indebtedness is accelerated.
10% Notes due July 2024 - In June 2017, we issued $100.0 million of senior secured notes ("10% Notes"). The 10% Notes mature in 2024 and bear a 10.0%
fixed rate of interest and with principal amortization started July 2019, payable semi-annually. The 10% Notes have a continuing security interest in the cash flows
payable to us as servicing, operations and maintenance fees and administrative fees from certain active power purchase agreements in our Bloom Electrons
program. Under the terms of the indenture governing the notes, we are required to comply with various restrictive covenants including, among other things, to
maintain certain financial ratios such as debt service coverage ratios, to incur additional debt, issue guarantees, incur liens, make loans or investments, make asset
dispositions, issue or sell share capital of our subsidiaries and pay dividends, meet reporting requirements, including the preparation and delivery of audited
consolidated financial statements, or maintain certain restrictions on investments and requirements in incurring new debt. In addition, we are required to maintain
collateral which secures the 10% Notes based on debt ratio analyses. This minimum collateral test is not a negative covenant and does not result in a default if not
met. However, the minimum debt service coverage ratio test does restrict our access to the excess cash escrowed in a collection account which would otherwise be
released to us on a bi-annual basis after principal amortization and interest payment. The outstanding unpaid principal and accrued interest debt balance of the 10%
Notes of $14.0 million and $7.0 million were classified as current as of December 31, 2019 and 2018, respectively and the outstanding unpaid principal and
accrued interest debt balances of the 10% Notes of $76.0 million and $88.6 million were classified as non-current as of December 31, 2019 and 2018, respectively.
136
Non-recourse Debt Facilities
5.22% Senior Secured Term Notes - In March 2013, PPA Company II refinanced its existing debt by issuing 5.22% Senior Secured Notes due March 30,
2025. The total amount of the loan proceeds was $144.8 million, including $28.8 million to repay outstanding principal of existing debt, $21.7 million for debt
service reserves and transaction costs and $94.3 million to fund the remaining system purchases. In June 2019, as part of the PPA II upgrade of Energy Servers, we
paid off the outstanding debt and interest of these notes for the outstanding amount of $77.6 million. The Note Purchase Agreement required us to maintain a debt
service reserve, the balance of $11.2 million which was written off in June 2019 and was $11.2 million as of December 31, 2018, which was included as part of
long-term restricted cash in the consolidated balance sheets.
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to help
fund the purchase and installation of our Energy Servers. The loan bears a fixed interest rate of 7.5% payable quarterly. The loan requires quarterly principal
payments which began in March 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $3.8
million and $3.7 million as of December 31, 2019 and 2018, respectively, and which was included as part of long-term restricted cash in the consolidated balance
sheets. The loan is secured by all assets of PPA IIIa.
LIBOR + 5.25% Term Loan due October 2020 - In September 2013, PPA IIIb entered into a credit agreement to help fund the purchase and installation of
our Energy Servers. In accordance with that agreement, PPA IIIb issued floating rate debt based on LIBOR plus a margin of 5.2%, paid quarterly. The aggregate
amount of the debt facility was $32.5 million. In December 2019, as part of the PPA IIIa upgrade of Energy Servers, we paid off the outstanding debt and interest
of these notes for the outstanding amount of $24.2 million. The credit agreement required us to maintain a debt service reserve for all funded systems, the balance
of which was $1.8 million which was written off in December 2019 and was $1.7 million as of December 31, 2018 and which was included as part of long-term
restricted cash in the consolidated balance sheets.
6.07% Senior Secured Notes due March 2025 - In July 2014, PPA IV issued senior secured notes amounting to $99.0 million to third parties to help fund the
purchase and installation of our Energy Servers. The notes bear a fixed interest rate of 6.07% payable quarterly which began in December 2015 and ends in March
2030. The notes are secured by all the assets of the PPA IV. The Note Purchase Agreement requires us to maintain a debt service reserve, the balance of which was
$8.0 million as of December 31, 2019 and $7.5 million as of December 31, 2018, and which was included as part of long-term restricted cash in the consolidated
balance sheets.
LIBOR + 2.5% Term Loan due December 2021 - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation
of our Energy Servers. The lenders are a group of five financial institutions and the terms included commitments to a letter of credit ("LC") facility (see below).
The loan was initially advanced as a construction loan during the development of the PPA V Project and converted into a term loan on February 28, 2017 (the
“Term Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted.
In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used
for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. For the Lenders’ commitments to the loan and
the commitments to the LC loan, the PPA V also pays commitment fees at 0.50% per annum over the outstanding commitments, paid quarterly. The loan is secured
by all the assets of the PPA V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July
2015 the PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of Credit due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The agreement also included
commitments to a LC facility with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. The amount reserved under the letter of
credit as of December 31, 2019 and 2018 was $5.0 million. The unused capacity as of December 31, 2019 and 2018 was and $1.2 million and $1.2 million,
respectively.
Related Party Debt
Portions of the above described recourse and non-recourse debt are held by various related parties. See Note 16, Related Party Transactions for a full
description.
137
Repayment Schedule and Interest Expense
The following table presents detail of our entire outstanding loan principal repayment schedule as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
Thereafter
$
350,129
139,370
26,046
29,450
35,941
77,147
$
658,083
Interest expense of $94.2 million, $105.9 million and $124.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, was recorded in
interest expense on the consolidated statements of operations.
8. Derivative Financial Instruments
Interest Rate Swaps
We use various financial instruments to minimize the impact of variable market conditions on our results of operations. We use interest rate swaps to
minimize the impact of fluctuations of interest rate changes on our outstanding debt where LIBOR is applied. We do not enter into derivative contracts for trading
or speculative purposes.
The fair values of the derivatives designated as cash flow hedges as of December 31, 2019 and 2018 on our consolidated balance sheets were as follows (in
thousands):
Assets
Prepaid expenses and other current assets
Other long-term assets
Liabilities
Accrued expenses and other current liabilities
Derivative liabilities
December 31,
2019
2018
$
$
$
$
3 $
—
3 $
782 $
8,459
9,241 $
42
40
82
4
3,626
3,630
PPA Company IIIb - In September 2013, PPA IIIb entered into an interest rate swap arrangement to convert a variable interest rate debt to a fixed rate. We
designated and documented its interest rate swap arrangement as a cash flow hedge. The swap’s term ends on October 1, 2020, which is concurrent with the final
maturity of the debt floating interest rates reset on a quarterly basis. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective
change was recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swap
were zero, $24.7 million and $25.6 million as of December 31, 2019, 2018 and 2017 respectively. We measure the swap at fair value on a recurring basis. Fair
value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk.
We recorded a loss of $82,000, a loss of $68,000 and a loss of $64,000 during the years ended December 31, 2019, 2018 and 2017, respectively, attributable
to the change in swap’s fair value. These gains and losses were included in other income (expense), net in the consolidated statement of operations.
Pursuant to the PPA IIIb upgrade of Energy Servers, the debt was paid off along with any interest accrued and the interest swap was settled for $0.2 million
in 2019 and recorded to interest expense in the consolidated statement of operations.
PPA Company V - In July 2015, PPA Company V entered into nine interest rate swap agreements to convert a variable interest rate debt to a fixed rate. The
loss on the swaps prior to designation was recorded in current-period earnings. In July 2015, we designated and documented its interest rate swap arrangements as
cash flow hedges. Three of these swaps matured in 2016, three will mature on December 21, 2021 and the remaining three will mature on September 30, 2031. We
evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other
138
comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swaps were $184.2 million, $186.6 million and
$188.5 million as of December 31, 2019, 2018 and 2017, respectively.
We measure the swaps at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate
adjustment for credit risk. We recorded a gain of $0.2 million, a gain of $0.1 million and a gain of $0.1 million attributable to the change in valuation during the
years ended December 31, 2019, 2018 and 2017, respectively. These gains were included in other income (expense), net in the consolidated statement of
operations.
The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive
income (loss) and in earnings were as follows (in thousands):
Beginning balance
Loss (gain) recognized in other comprehensive loss
Amounts reclassified from other comprehensive loss to earnings
Net loss (gain) recognized in other comprehensive income (loss)
Gain recognized in earnings
Ending balance
Natural Gas Derivatives
Year ended December 31,
2019
2018
$
3,548 $
6,131
(216)
5,915
(225)
$
9,238 $
5,852
(1,729)
(369)
(2,098)
(206)
3,548
On September 1, 2011, we entered into a natural gas fixed price forward contract with a gas supplier. This fuel forward contract is used as part of our
program to manage the risk for controlling the overall cost of natural gas. Our PPA I is the only PPA Company for which natural gas was provided by us. This fuel
forward contract meets the definition of a derivative under U.S. GAAP. We have not elected to designate this contract as a hedge and, accordingly, any changes in
its fair value is recorded within cost of revenue in the statements of operations. The fair value of the contract is determined using a combination of factors including
the counterparty’s credit rate and estimates of future natural gas prices.
For the years ended December 31, 2019, 2018 and 2017, we marked-to-market the fair value of our natural gas fixed price forward contract and recorded a
loss of $0.8 million, a gain of $2.2 million and a loss of $1.0 million, respectively. For the years ended December 31, 2019, 2018 and 2017, we recorded gains of
$3.6 million, $3.4 million and $4.2 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the consolidated
statement of operations.
Embedded Derivatives
6% Convertible Promissory Notes - On December 15, 2015, January 29, 2016, and September 10, 2016, we issued $160.0 million, $25.0 million, and $75.0
million, respectively, of 6% Convertible Promissory Notes ("6% Notes") that mature in December 2020. The 6% Notes were contractually convertible at the option
of the holders at a conversion price per share equal to the lower of $20.61 or 75% of the offering price of our common stock sold in an initial public offering. Upon
the IPO, the options were convertible at the option of the holders at the conversion price of $11.25 per share.
The valuation of this embedded put feature was recorded as a derivative liability in the consolidated balance sheet, measured each reporting period. Fair
value was determined using the binomial lattice method. We recorded a gain of $31.5 million and a loss of $18.2 million attributable to the change in valuation for
the years ended December 31, 2018 and 2017, respectively. These gains and losses were included within loss on revaluation of warrant liabilities and embedded
derivatives in the consolidated statement of operations. Upon the IPO, the final valuation of the conversion feature was calculated as of the date of the IPO and was
reclassified from a derivative liability to additional paid-in capital. The fair value of the embedded derivatives within the notes was $178.0 million upon
reclassification.
Embedded EPP Derivatives in Sales Contracts - We estimated the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo
simulation model which considers various potential electricity price forward curves over the sales contracts' terms. We use historical grid prices and available
forecasts of future electricity prices to estimate future electricity prices. The grid pricing Escalation Protection Plan ("EPP") guarantees that we provided in some of
our sales arrangements represent an embedded derivative, with the initial value accounted for as a reduction in product revenue and any changes, reevaluated
quarterly, in the fair market value of the derivative recorded in other income (expense), net. We recorded a loss of $2.2 million, a gain of $0.2 million and a loss of
$0.3 million attributable to the change in fair value for the years ended December 31, 2019, 2018 and 2017, respectively. These gains and losses were included
within loss on revaluation of warrant
139
liabilities and embedded derivatives in the consolidated statements of operations. The fair value of these derivatives was $6.2 million, $4.0 million and $4.2 million
as of December 31, 2019, 2018 and 2017, respectively.
9. Common Stock Warrants
Common Stock Warrants
During 2018, all of the preferred and common stock warrants we issued in connection with loan agreements and a dispute settlement converted to warrants
to purchase shares of Class B common stock. As of December 31, 2019, we had Class B common stock warrants outstanding to purchase 481,181 and 12,940
shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively. As of December 31, 2018, we had Class B common stock warrants
outstanding to purchase 481,181 and 312,939 shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively.
10. Income Taxes
The components of income (loss) before the provision for income taxes are as follows (in thousands):
United States
Foreign
Total
The provision for income taxes is comprised of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision for income taxes
$
$
$
Years Ended
December 31,
2018
2017
2019
As Restated
As Revised
(324,467) $
(291,574) $
1,634
1,835
(322,833) $
(289,739) $
(297,473)
3,081
(294,392)
Years Ended
December 31,
2018
2017
2019
— $
26
595
621
—
—
12
12
— $
191
1,407
1,598
—
—
(61)
(61)
—
25
621
646
—
—
(10)
(10)
636
$
633 $
1,537 $
140
A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate is as follows (in thousands):
Tax at federal statutory rate
State taxes, net of federal effect
Impact on noncontrolling interest
Non-U.S. tax effect
Nondeductible expenses
Stock-based compensation
U.S. tax reform impact
U.S. tax on foreign earnings (GILTI)
Change in valuation allowance
Provision for income taxes
2019
Years Ended
December 31,
2018
2017
As Restated
As Revised
$
(67,795) $
(60,845) $
(100,093)
26
4,001
264
144
6,484
—
221
191
3,725
960
6,796
3,892
—
127
$
57,288
633 $
46,691
1,537 $
25
6,347
(437)
5,698
4,854
239,117
—
(154,875)
636
For the year ended December 31, 2019, we recorded a provision for income taxes of $0.6 million on a pre-tax loss of $322.8 million, for an effective tax
rate of (0.2)%. For the year ended December 31, 2018, we recorded a provision for income taxes of $1.5 million on a pre-tax loss of $289.7 million, for an effective
tax rate of (0.5)%. For the year ended December 31, 2017, we recorded a provision for income taxes of $0.6 million on a pre-tax loss of $294.4 million, for an
effective tax rate of (0.2)%. The effective tax rate for 2019, 2018 and 2017 is lower than the statutory federal tax rate primarily due to a full valuation allowance
against U.S. deferred tax assets.
Significant components of our deferred tax assets and liabilities consist of the following (in thousands):
Tax credits and NOLs
Leased liabilities
Depreciation and amortization
Deferred revenue
Accruals and reserves
Stock-based compensation
Other items - DTA
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Investment in PPA entities
Debt issuance cost
Leased assets
Other items - DTL
Gross deferred tax liabilities
Net deferred tax asset
December 31,
2019
2018
As Restated
$
494,084 $
122,145
8,523
6,688
5,874
61,808
24,443
723,565
(633,591)
89,974
(13,494)
(4,055)
(65,978)
(5,803)
(89,330)
$
644 $
468,402
108,113
9,631
457
4,462
62,793
17,863
671,721
(571,277)
100,444
(21,587)
(8,586)
(62,681)
(6,817)
(99,671)
773
Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
141
A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, is not more-likely-than-not to be realized.
Management believes that, based on available evidence, both positive and negative, it is not more likely than not that the net U.S. deferred tax assets will be
utilized. As a result, a full valuation allowance has been recorded.
The valuation allowance for deferred tax assets was $633.6 million and $571.3 million as of December 31, 2019 and 2018, respectively. The net change in
the total valuation allowance for the years ended December 31, 2019 and 2018 was an increase of $62.3 million and an increase of $24.0 million, respectively.
At December 31, 2019, we had federal and state net operating loss carryforwards of $1.8 billion and $1.6 billion, respectively, to reduce future taxable
income. Of the federal net operating loss carryforwards, $1.7 billion will begin to expire in 2022 and $125.2 million will carryforward indefinitely, while state net
operating losses begin to expire in 2028. In addition, we had approximately $20.5 million of federal research credit, $6.6 million of federal investment tax credit,
and $14.0 million of state research credit carryforwards. The federal tax credit carryforwards begin to expire in 2022.The state credit carryforwards may be carried
forward indefinitely. We have not reflected deferred tax assets for the federal and state research credit carryforwards as the entire amount of the carryforwards
represent unrecognized tax benefits.
Internal Revenue Code Section 382 (“Section 382”) limits the use of net operating loss and tax credit carryforwards in certain situations in which changes
occur in our capital stock ownership. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If we should have an
ownership change, as defined by the tax law, utilization of the net operating loss and credit carryforwards could be significantly reduced. We completed a
Section 382 analysis through December 31, 2019. Based on this analysis, Section 382 limitations will not have a material impact on our net operating loss and
credit carryforwards related to any ownership changes which occurred during the period covered by the analysis.
During the year ended December 31, 2019, the amount of uncertain tax positions increased by $4.2 million. We have not recorded any uncertain tax
liabilities associated with its tax positions.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits were as follows (in thousands):
Unrecognized tax benefits beginning balance
Gross decrease for tax positions of prior year
Gross increase for tax positions of prior year
Gross increase for tax positions of current year
Unrecognized tax benefits end balance
Years Ended
December 31,
2019
2018
30,311 $
(93)
615
3,647
34,480 $
28,331
(468)
353
2,095
30,311
$
$
If fully recognized in the future, there would be no impact to the effective tax rate, and $31.5 million would result in adjustments to the valuation allowance.
We do not have any tax positions that are expected to significantly increase or decrease within the next 12 months.
Interest and penalties, to the extent there are any, are included in income tax expense and there were no interest or penalties accrued during or for the years
ended December 31, 2019 and 2018.
We are subject to taxation in the United States and various states and foreign jurisdictions. We currently do not have any income tax examinations in
progress nor have we had any income tax examinations since our inception. All of our tax years will remain open for examination by federal and state authorities
for three and four years from the date of utilization of any net operating losses and tax credits.
The Tax Cuts and Jobs Act of 2017 ("Tax Act") includes a provision referred to as Global Intangible Low-Taxed Income ("GILTI") which generally
imposes a tax on foreign income in excess of a deemed return on tangible assets. FASB guidance issued in January 2018 allows companies to make an accounting
policy election to either (i) account for GILTI as a component of tax expense in the period in which the tax is incurred ("period cost method"), or (ii) account for
GILTI in the measurement of deferred taxes ("deferred method"). We elected to account for the tax effects of this provision using the period cost method.
Our accumulated undistributed foreign earnings as of December 31, 2019 have been subject to either the deemed one-time mandatory repatriation under the
Tax Act or the current year income inclusion under GILTI regime for U.S. tax purposes. If we were to make actual distributions of some or all of these earnings,
including earnings accumulated after December 31, 2017, we would generally incur no additional U.S. income tax but could incur U.S. state income tax and
foreign withholding taxes. We have not accrued for these potential U.S. state income tax and foreign withholding taxes because we intend to permanently reinvest
our foreign earnings in our international operations. However, any additional income tax associated with the distribution of these earnings would be immaterial.
142
11. Net Loss per Share Attributable to Common Stockholders
Net loss per share (basic) attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-
average shares of common stock outstanding for the period. Net loss per share (diluted) is computed by using the "if-converted" method when calculating the
potential dilutive effect, if any, of convertible shares whereby net loss attributable to common stockholders is adjusted by the effect of dilutive securities such as
awards under equity compensation plans and inducement awards under separate restricted stock unit, or RSUs, award agreements. Net loss per share (diluted)
attributable to common stockholders is then calculated by dividing the resulting adjusted net loss attributable to common stockholders by the combined weighted-
average number of fully diluted common shares outstanding.
In July 2018, we completed an initial public offering of our common shares wherein 20,700,000 shares of Class A common stock were sold into the market.
Added to existing shares of Class B common stock were shares mandatorily converted from various financial instruments as a result of the IPO. See Note 9,
Common Stock Warrants.
There were no adjustments to net loss attributable to common stockholders in determining net loss attributable to common stockholders (diluted). Equally,
there were no adjustments to the weighted average number of outstanding shares of common stock (basic) in arriving at the weighted average number of
outstanding shares (diluted), as such adjustments would have been antidilutive.
We recognized a deemed dividend of $2.5 million on November 26, 2019 related to our buyout of the tax equity partner’s equity interest in PPA IIIb. The
deemed dividend was recorded as a result of the buyout amount exceeding the hypothetical liquidation book value of the tax equity investor's equity interest in PPA
IIIb on the date the buyout occurred. This charge impacted net income attributable to common stockholders and earnings per share in the year ended December 31,
2019.
Net loss per share is the same for each class of common stock as they are entitled to the same liquidation and dividend rights with the exception of voting
rights. As a result, net loss per share (basic) and net loss per share (diluted) attributed to common stockholders are the same for both Class A and Class B common
stock and are combined for presentation. The following table sets forth the computation of our net loss per share (basic) and net loss per share (diluted) attributable
to common stockholders (in thousands, except per share amounts):
Numerator:
Net loss attributable to Class A and Class B common stockholders
Less: deemed dividend to noncontrolling interest
Net loss available to Class A and Class B common stockholders
Denominator:
Years Ended
December 31,
2019
2018
2017
As Restated
As Revised
$
$
(304,414) $
(273,540) $
(276,362)
(2,454)
—
—
(306,868) $
(273,540) $
(276,362)
Weighted average shares of common stock, basic and diluted
115,118
53,268
10,248
Net loss per share available to Class A and Class B common stockholders, basic and diluted
$
(2.67) $
(5.14) $
(26.97)
143
The following common stock equivalents (in thousands) were excluded from the computation of our net loss per share attributable to common stockholders
(diluted) for the periods presented as their inclusion would have been antidilutive:
Convertible and non-convertible redeemable preferred stock and convertible notes
Stock options to purchase common stock
Convertible redeemable preferred stock warrants
Convertible redeemable common stock warrants
12. Stock-Based Compensation and Employee Benefit Plans
2002 Stock Plan
Years Ended
December 31,
2019
2018
2017
27,213
4,631
—
—
27,230
4,962
—
—
31,844
32,192
85,476
2,950
60
312
88,798
Our 2002 Stock Plan (the "2002 Plan") was approved in April 2002 and amended in June 2011. In August 2012 and in connection with the adoption of the
2012 Plan, shares authorized for issuance under the 2002 Plan were cancelled, except for those shares reserved for issuance upon exercise of outstanding stock
options. Any outstanding stock options granted under the 2002 Plan remain outstanding, subject to the terms of the 2002 Plan, until such shares are issued under
those awards (by exercise of stock options) or until the awards terminate or expire by terms.
Grants under the 2002 Plan generally vest ratably over a four-year period from the vesting commencement date and expire ten years from grant date.
Original grants under the 2002 Plan were for "common stock". Pursuant to the Twelfth Amended and Restated Articles of Incorporation authorized in July 2018,
all such shares automatically converted to Class B shares of common stock.
As of December 31, 2019, options to purchase 1,856,154 shares of Class B common stock were outstanding with a weighted average exercise price of
$23.21 per share.
2012 Equity Incentive Plan
Our 2012 Equity Incentive Plan (the "2012 Plan") was approved in August 2012. The 2012 Plan provided for the grant of incentive stock options, non-
statutory stock options, stock appreciation rights and restricted stock awards ("RSUs"), all of which may be granted to employees, including officers, and to non-
employee directors and consultants except we may grant incentive stock options only to employees.
Grants under the 2012 Plan generally vest ratably over a four-year period from the vesting commencement date and expire ten years from grant date.
Original grants under the 2012 Plan were for "common stock". Pursuant to the Twelfth Amended and Restated Articles of Incorporation authorized in July 2018,
all such shares automatically converted to Class B shares of common stock. As of December 31, 2019, options to purchase 9,982,756 shares of Class B common
stock were outstanding with a weighted average exercise price of $27.12 per share and no shares were available for future grant. As of December 31, 2019, we had
outstanding RSUs that may be settled for 6,656,094 shares of Class B common stock under the plan.
2018 Equity Incentive Plan
The 2018 Equity Incentive Plan (the "2018 Plan") was approved in April 2018. The 2018 Plan became effective upon the IPO and will serve as the successor
to the 2012 Plan. We have reserved 20,278,268 shares of Class A common stock under the 2018 Plan and no more than 26,666,667 shares of Class A common
stock will be issued pursuant to the exercise of incentive stock options.
The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and stock bonuses. The
2018 Plan provides for the grant of awards to employees, directors, consultants, independent contractors and advisors provided the consultants, independent
contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock
options is at least equal to the fair market value of Class A common stock on the date of grant. Grants under the 2018 Plan generally vest ratably over a four-year
period from the vesting commencement date and expire ten years from grant date.
144
As of December 31, 2019, options to purchase 5,998,406 shares of Class A common stock were outstanding with a weighted average exercise price of $9.42
per share and 3,456,172 shares of outstanding RSUs that may be settled for Class A common stock which were granted pursuant to the plan. As of December 31,
2019, we had 17,233,144 shares of Class A common stock available for future grant.
Stock-Based Compensation Expense
We used the following weighted-average assumptions in applying the Black-Scholes valuation model:
Risk-free interest rate
Expected term (years)
Expected dividend yield
Expected volatility
2019
Years Ended
December 31,
2018
1.7% - 2.6%
6.4 - 6.7
—
2.5% - 3.1%
6.2 - 6.7
—
2017
2.0% - 2.1%
6.1 - 6.6
—
45.7% - 50.2%
52.4% - 56.1%
55.6% - 61.0%
The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations (in thousands):
Cost of revenue
Research and development
Sales and marketing
General and administrative
Years Ended
December 31,
2019
2018
2017
As Restated
As Revised
$
45,429 $
29,680 $
40,949
32,478
77,435
39,029
32,284
67,489
$
196,291 $
168,482 $
6,355
5,560
4,685
12,501
29,101
Stock-based Compensation - During the years ended December 31, 2019, 2018 and 2017, we recognized $196.3 million, $168.5 million and $29.1 million of
total stock-based compensation costs, respectively. As of December 31, 2019, 2018 and 2017, we capitalized $7.3 million, $13.6 million and $1.8 million of stock-
based compensation cost, respectively, into inventory and property, plant and equipment.
145
Stock Option and RSU Activity
The following table summarizes the stock option activity under our stock plans during the reporting period (in thousands), except per share amounts:
Balances at December 31, 2017
Granted
Exercised
Cancelled
Balances at December 31, 2018
Granted
Exercised
Cancelled
Balances at December 31, 2019
Vested and expected to vest at December 31, 2019
Exercisable at December 31, 2019
Outstanding Options
Number of
Shares
Weighted
Average
Exercise
Price
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
11,604,403 $
4,202,284
(398,704)
(849,563)
14,558,420
4,956,064
(358,564)
(1,318,604)
17,837,316
17,159,824
9,161,918
26.42
19.79
3.98
12.51
25.93
5.6
4.26
25.33
20.76
21.17
28.82
(in thousands)
6.01 $
52,682
6.78
3,084
6.94
6.85
4.89
14,964
13,471
500
Stock Options - During the years ended December 31, 2019, 2018 and 2017, we recognized $36.2 million, $33.3 million and $29.2 million of stock-based
compensation costs for stock options, respectively.
During the years ended December 31, 2019, 2018 and 2017, the intrinsic value of stock options exercised was $2.6 million, $9.2 million and $3.4 million,
respectively.
We granted 4,956,064 options for Class A common stock during the year ended December 31, 2019 and 4,202,284 options for Class A and Class B common
stock during the year ended December 31, 2018. The weighted-average grant-date fair value of the awards was $5.60 and $19.79, respectively.
As of December 31, 2019 and 2018, we had unrecognized compensation costs related to unvested stock options of $41.9 million and $70.4 million,
respectively. This cost is expected to be recognized over the remaining weighted-average period of 2.8 years and 2.8 years, respectively. We had no excess tax
benefits in the years ended December 31, 2019 and 2018. Cash received from stock options exercised totaled $1.5 million and $1.6 million for the years ended
December 31, 2019 and 2018, respectively.
146
A summary of our RSUs activity and related information is as follows:
Unvested Balance at December 31, 2017
Granted
Vested
Forfeited
Unvested Balance at December 31, 2018
Granted
Vested
Forfeited
Unvested Balance at December 31, 2019
Number of
Awards
Outstanding
Weighted
Average Grant
Date Fair
Value
3,140,578 $
13,873,506
(17,793)
(211,491)
16,784,800
3,219,959
(8,921,807)
(970,686)
10,112,266
30.95
16.02
19.67
21.22
18.74
11.81
18.03
17.34
17.29
Restricted Stock Units (RSUs) - The estimated fair value of RSU awards is based on the fair value of our common stock on the date of grant. The total
weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2019, 2018 and 2017, was $11.81, $16.02 and $30.96, respectively.
During the years ended December 31, 2019, 2018 and 2017, we recognized $141.3 million, $142.4 million and $1.3 million of stock-based compensation
costs for RSUs, respectively.
As of December 31, 2019, we had $52.0 million of unrecognized stock-based compensation cost related to unvested RSUs. This cost is expected to be
recognized over a weighted average period of 1.1 years. As of December 31, 2018, we had $163.8 million of unrecognized stock-based compensation cost related
to unvested RSUs. This expense was expected to be recognized over a weighted average period of 0.8 years.
The following table presents the stock activity and the total number of shares available for grant under our stock plans as of December 31, 2019:
Balances at December 31, 2017
Added to plan
Granted
Cancelled
Expired
Balances at December 31, 2018
Added to plan
Granted
Cancelled
Expired
Balances at December 31, 2019
147
Plan Shares Available
for Grant
1,037,616
40,924,861
(18,075,790)
1,061,054
(7,489,894)
17,457,847
7,585,422
(8,176,023)
2,289,290
(1,923,392)
17,233,144
2018 Employee Stock Purchase Plan
In April 2018, we adopted the 2018 Employee Stock Purchase Plan ("ESPP"). The ESPP became effective upon our IPO in July 2018. The ESPP is intended
to qualify under Section 423 of the Internal Revenue Code. The aggregate number of our shares that may be issued over the term of our ESPP is 33,333,333 Class
A common stock. A total of 3,333,333 shares of our Class A common stock were initially reserved for issuance under the plan. The number of shares reserved for
issuance under our ESPP will increase automatically on the 1st day of January of each of the first nine years following the first offering date by the number of
shares equal to 1% of the total outstanding shares of our common stock and common stock equivalents as of the immediately preceding December 31 (rounded to
the nearest whole share). For the year ended December 31, 2019, we added 1,415,507 shares to the ESPP under these provisions.
The ESPP allows eligible employees to purchase shares, subject to purchase limits of 2,500 shares during each six month period or $25,000 worth of stock
for each calendar year, of our Class A common stock through payroll deductions at a price per share equal to 85% of the lesser of the fair market value of our Class
A common stock (i) on the first trading day of the applicable offering date and (ii) the last trading day of each purchase date.
During the years ended December 31, 2019 and 2018, we recognized $10.3 million and $4.6 million of stock-based compensation costs for the ESPP,
respectively. We issued 1,718,433 shares in 2019 and there were 3,030,407 shares available for issuance under the ESPP as of December 31, 2019.
We use the Black-Scholes option pricing model to determine the fair value of shares purchased under the 2018 ESPP with the following weighted average
assumptions on the date of grant:
Risk-free interest rate
Expected term (years)
Expected dividend yield
Expected volatility
2019 Executive Awards
Year Ended
December 31,
2019
2018
1.5% - 2.6%
2.2% - 2.7%
0.5 - 2.0
—
0.6 - 2.0
—
45.9% - 54.0%
47.0% - 52.7%
In November 2019, the Board of Directors approved stock option awards ("2019 Executive Awards") to certain executive staff. The 2019 Executive Awards
consist of three vesting tranches with a vesting schedule based on the attainment of market conditions and assuming continued employment and service through
each vesting date.
Stock-based compensation costs associated with the 2019 Executive Awards is recognized over the service period, even though no tranches of the 2019
Performance Awards vest unless a market condition is achieved. The grant date fair value of the options is determined using a Monte Carlo simulation.
Employee Benefit Plan
We maintain a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements including requirements relating to age.
Under the 401(k) plan, employees may elect to defer up to 60% of eligible compensation, subject to applicable annual IRS Code limits. We do not match any
contributions made by employees, including executives, but have the discretion to do so. Therefore, the costs of the plan were immaterial for the years ended
December 31, 2019 and 2018. We intend for the 401(k) plan to qualify under Section 401(a) and 501(a) of the Internal Revenue Code so that contributions and
income earned on contributions are not taxable to employees until withdrawn from the plan.
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13. Power Purchase Agreement Programs
Overview
In mid-2010, we began offering our Energy Servers through our Bloom Electrons program, which we denote as Power Purchase Agreement Programs,
financed via investment entities. Under these arrangements, an operating entity is created (the "Operating Company") which purchases our Energy Servers from us.
The end customer then enters into a power purchase agreement ("PPA") with the Operating Company to purchase the power generated by our Energy Servers at a
specified rate per kilowatt hour for a specified term which can range from 10 to 21 years. In some cases, similar to direct purchases and leases, the standard one-
year warranty and performance guaranties are included in the price of the product. The Operating Company also enters into a master services agreement with us
following the first year of service to extend the warranty services and guaranties over the term of the PPA. In other cases, the master services agreements including
warranties and guaranties are billed on a quarterly basis starting in the first quarter following the placed-in-service date of the Energy Server(s) and continuing over
the term of the PPA. The first of such arrangements was considered a sales-type lease and the product revenue from that agreement was recognized upfront in the
same manner as direct purchase and lease transactions. Substantially all of our subsequent PPAs have been accounted for as operating leases with the related
revenue under those agreements recognized ratably over the PPA term as electricity revenue. We recognize the cost of revenue, primarily product costs and
maintenance service costs, over the shorter of the estimated useful life of the Energy Server or the term of the PPA.
We and our third-party equity investors (together "Equity Investors") contribute funds into a limited liability investment entity ("Investment Company") that
owns and is parent to the Operating Company (together, the "PPA Entities"). These PPA Entities constitute variable investment entities ("VIEs") under U.S.
GAAP. We have considered the provisions within the contractual agreements which grant us power to manage and make decisions affecting the operations of these
VIEs. We consider that the rights granted to the Equity Investors under the contractual agreements are more protective in nature rather than participating.
Therefore, we have determined under the power and benefits criterion of ASC 810 - Consolidations that we are the primary beneficiary of these VIEs. As the
primary beneficiary of these VIEs, we consolidate in our financial statements the financial position, results of operations and cash flows of the PPA Entities, and all
intercompany balances and transactions between us and the PPA Entities are eliminated in the consolidated financial statements.
On June 14, 2019, we entered into a PPA II upgrade of Energy Servers transaction, and as a result we determined that we no longer retained a controlling
interest in the Operating Company in PPA II and therefore, the Operating Company was no longer consolidated as a VIE into our consolidated financial statements
as of June 30, 2019. See further discussion below. On November 27, 2019, we entered into a PPA IIIb upgrade of Energy Servers transaction where we bought out
the equity interest of the third-party investor, decommissioned the Energy Servers in the Operating Company and sold new Energy Servers deployed at customer
sites through our managed services financing option. The PPA IIIb Investment Company and Operating Company became wholly-owned by us but no longer met
the definition of a VIE. However, we continue consolidating PPA IIIb in our consolidated financial statements. See further discussion below.
In accordance with our Power Purchase Agreement Programs, the Operating Company acquires Energy Servers from us for cash payments that are made on
a similar schedule as if the Operating Company were a customer purchasing an Energy Server from us outright. In the consolidated financial statements, the sale of
Energy Servers by us to the Operating Company are treated as intercompany transactions and as a result eliminated in consolidation. The acquisition of Energy
Servers by the Operating Company is accounted for as a non-cash reclassification from inventory to Energy Servers within property, plant and equipment, net on
our consolidated balance sheets. In arrangements qualifying for sales-type leases, we reduce these recorded assets by amounts received from U.S. Treasury
Department cash grants and from similar state incentive rebates.
The Operating Company sells the electricity to end customers under PPAs. Cash generated by the electricity sales, as well as receipts from any applicable
government incentive program, is used to pay operating expenses (including the management and services we provide to maintain the Energy Servers over the term
of the PPA) and to service the non-recourse debt with the remaining cash flows distributed to the Equity Investors. In transactions accounted for as sales-type
leases, we recognize subsequent customer billings as electricity revenue over the term of the PPA and amortize any applicable government incentive program
grants as a reduction to depreciation expense of the Energy Server over the term of the PPA. In transactions accounted for as operating leases, we recognize
subsequent customer payments and any applicable government incentive program grants as electricity revenue and service revenue over the term of the PPA.
Upon sale or liquidation of a PPA Entity, distributions would occur in the order of priority specified in the contractual agreements.
We have established six different PPA Entities to date. The contributed funds are restricted for use by the Operating Company to the purchase of our Energy
Servers manufactured by us in our normal course of operations. All six PPA Entities utilized their entire available financing capacity and have completed the
purchase of their Energy Servers. Any debt incurred by
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the Operating Companies is non-recourse to us. Under these structures, each Investment Company is treated as a partnership for U.S. federal income tax purposes.
Equity Investors receive investment tax credits and accelerated tax depreciation benefits. In 2016, we purchased the tax equity investor’s interest in PPA I, which
resulted in a change in our ownership interest in PPA I while we continued to hold the controlling financial interest in this company. In 2019, we bought out the tax
equity investors' interest in DSGH, the PPA II Investment Company, and admitted two new equity investors as a member of the PPA II Operating Company,
retaining only a minor contingent future equity interest in the Operating Company. One of the new equity investors became the managing member which resulted
in a change in our ownership interest in the Operating Company and discontinued our controlling financial interest in the PPA II Operating Company. In December
2019, we purchased the tax equity investors' interest in PPA IIIb, which resulted in a change in the ownership structure from a variable interest entity to a wholly
owned subsidiary indirectly owned by the Company.
PPA II Upgrade of Energy Servers
Original Transaction
A wholly-owned subsidiary of Bloom and a wholly-owned subsidiary of Credit Suisse Group AG (“Mehetia”) jointly owned Diamond State Generation
Holdings, LLC (“Class A Holdco”). Class A Holdco owned 100% of the membership interests in Diamond State Generation Partners, LLC ("DSGP"). Pursuant to
an earlier transaction, DSGP owned and operated 30 megawatts of Energy Servers across two sites in Delaware that achieved operations in 2012 and 2013 and
provided alternative energy generation for state tariff rate payers (the “Original Project”). The Original Project had been financed in part by the issuance of non-
recourse promissory notes to DSGP (the “Project Debt”).
Overall Upgrade
We upgraded the existing 30 megawatts of Energy Servers used in the Original Project by replacing them with 27.5 megawatts of new Energy Servers. To
effect the full upgrade we repurchased all of existing Energy Servers, the proceeds of which were used by DSGP to pay down the Project Debt and to enable Class
A Holdco to buy out Mehetia’s interests. To finance the new Energy Servers used in the upgrade, DSGP raised capital from two new members: SP Diamond State
Class B Holdings, LLC (“Class B Holdco”), a wholly owned subsidiary of Southern Power Company (“Southern”) and Assured Guaranty Municipal Corporation
(“Class C Holdco”). The existing Energy Servers were removed after we repurchased them from DSGP, prior to selling and installing the new Energy Servers. The
upgrade was done across two phases.
First Upgrade
On June 14, 2019, the Company entered into an agreement committing to repurchase 30 megawatts of existing Energy Servers. The repurchases happened
over time in installments, in each case immediately prior to the installation of corresponding new Energy Servers. Mehetia’s equity interests were redeemed in part
in connection with each repurchase. The Project Debt was repaid in connection with the first repurchase installment. 19 megawatts of existing Energy Servers were
repurchased during the second and third quarter of 2019.
At the same time that Bloom entered into the repurchase agreement, Class B Holdco committed to acquire a majority interest in DSGP. DSGP entered into
an agreement governing the engineering, procurement, construction and sale of the new Energy Servers (the “EPC Agreement”). DSGP used the funds contributed
by Class B Holdco to purchase 17.7 megawatts of new Energy Servers from the Company in accordance with the EPC Agreement (the “First Upgrade”).
Second Upgrade
On December 23, 2019, we repurchased and removed the remaining 11 megawatts of the existing older generation Energy Servers from DSGP. The
proceeds of the repurchase were used to redeem Mehetia’s remaining equity interest in Class A Holdco. After the repurchase, the remaining existing Energy
Servers were removed.
At the same time, to finance the purchase of 9.8 megawatts of new Energy Servers, Class C Holdco was admitted to DSGP as a member of DSGP and
DSGP entered into another EPC Agreement with the Company for the installation of the new Energy Servers. DSGP used the funds contributed by Class C Holdco
to purchase the new Energy Servers from Bloom under the EPC Agreement (the “Second Upgrade”).
As of December 31, 2019, there are three members of DSGP: Class B Holdco which financed the First Upgrade, Class C Holdco, which financed the Second
Upgrade, and Class A Holdco, an indirectly wholly owned subsidiary of the Company, which retains a de minimis contingent future equity interest in DSGP.
As of December 31, 2019, 27.5 megawatts of new Energy Servers in Delaware were commissioned.
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Commercial Documents
The Company also entered into an operations and maintenance agreement for the ongoing care of all of the new Energy Servers (the “O&M Agreement”).
The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.
The terms and conditions of the EPC Agreement and the O&M Agreement, including the suite of guaranties and warranties provided with respect to the
performance of the Energy Servers are customary for our transactions of this type. The performance related guaranty and warranty were provided for each
investor’s Energy Servers, while the efficiency guaranties and warranties were measured across the entire 27.5 megawatts of Energy Servers.
Credit Support
In the First Upgrade, in addition to standard indemnifications, we agreed to indemnify Class B Holdco for (i) losses incurred in the event of certain
regulatory, legal, or legislative developments in connection with the Tariff capped at an aggregate amount of $97.2 million, which cap steps down each year until it
is an amount equal to zero after June 30, 2025 and (ii) for the loss of certain federal tax benefits, up to $7.5 million. We posted letters of credit as credit support for
both indemnities (“Class B Credit Support”).
In the Second Upgrade, in addition to standard indemnifications, we agreed to indemnify Class C Holdco for (i) losses incurred in the event of certain
regulatory, legal, or legislative developments in connection with the Tariff capped at an aggregate amount of $45 million, which cap steps down each year until it is
an amount equal to zero after December, 2025. We also indemnified Class C Holdco for the loss of certain federal tax benefits, losses incurred as a result of certain
environmental risks and certain failures under the O&M Agreement with respect to the Energy Servers it financed. We amended the initial Class B Credit Support
letter of credits and reissued a single letter of credit for the benefit of DSGP (“DSGP Credit Support”) in an amount of $108.7 million which amount will decrease
over time. The DSGP Credit Support partially collateralizes our indemnity obligations to Class B Holdco and Class C Holdco. We expect the DSGP Credit Support
to be extinguished by 2025.
At the time of the First Upgrade and the Second Upgrade, and as of December 31, 2019, we believe the events giving rise to these indemnifications to be
remote and, therefore, no liability has been recorded in our consolidated financial statements with respect thereto.
Impact of First Upgrade and Second Upgrade of Energy Servers on Consolidated Financial Statements
As a result of the First Upgrade, we reconsidered whether we should continue to consolidate DSGP. We use a qualitative approach in assessing the
consolidation requirement for each of our PPA Entities. This approach focuses on determining whether we have the power to direct those activities of the PPA
Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could
potentially be significant to the PPA Entities. We determined that we no longer retain a controlling interest in DSGP and therefore it will no longer be consolidated
as a variable interest entity into our consolidated financial statements as of June 30, 2019. The First Upgrade and Second Upgrade resulted in the following impacts
on our consolidated balance sheet as of December 31, 2019: (i) cash, cash equivalents and restricted cash increased by $113.9 million, of which $108.7 million is
included in restricted cash. The increase is comprised of approximately $253.9 million cash receipts for the sale of 27.5 megawatts new systems to DSGP, offset by
$83.5 million used for the repayment of project debt including $77.6 million of outstanding principal and interest, as well as a make-whole payment fee of $5.9
million, and $56.5 million distribution to Mehetia related to the redemption of noncontrolling interest; (ii) property, plant and equipment, net decreased by $75.1
million due to the depreciation and write-off of 30 megawatts of existing Energy Servers; (iii) noncontrolling interest in Mehetia went down by $56.5 million
related to the First Upgrade and Second Upgrade.
Impacts on our consolidated statement of operations for the year ended December 31, 2019 are summarized as follows: (i) net product and installation
revenue recognized of $223.9 million, as the result of selling 27.5 megawatts of new Energy Servers to DSGP; (ii) cost of revenue of $153.5 million including both
the write-off of decommissioned Energy Systems $52.5 million, accelerated depreciation of $22.6 million of the Energy Servers prior to decommissioning, and the
cost of new Energy Servers of $78.4 million; (iii) $5.9 million of administrative costs due to debt payoff make-whole expense; and (iv) $1.2 million of interest
expense due to write-off of debt issuance cost.
Impacts on our consolidated statements of cash flows for the year ended December 31, 2019 are summarized as follows: net cash used by financing
activities increased $139.2 million due to the repayment of debt of $76.8 million, a debt make-whole payment of $5.9 million, and payments to noncontrolling and
redeemable noncontrolling interests of $56.5 million.
151
PPA IIIb Upgrade of Energy Servers
Transaction Overview
As part of the PPA IIIb project established in 2013, the Company, through a special purpose subsidiary (the “Project Company”), had previously entered
into certain agreements for the purpose of developing, financing, owning, operating, maintaining and managing a portfolio of 5.4 megawatts of Energy Servers.
On November 27, 2019, the Company entered into certain agreements through a wholly-owned subsidiary to (i) buy out the existing debt and equity
investors in Project Company such that Project Company became indirectly wholly-owned by the Company, and (ii) upgrade 5.4 megawatts of the existing Energy
Servers owned and managed by Project Company by selling and installing new Energy Servers.
Immediately following the buyout, Project Company repaid all outstanding loans and indebtedness to Project Company’s lenders in the approximate amount
of $24.2 million plus swap breakage costs estimated at approximately $0.2 million, and terminated its agreements, including related liens on Project Company
assets, with such lenders. Project Company subsequently entered into a sale-leaseback transaction under our Managed Services Program with Key Equipment
Finance, a division of KeyBank National Association, a national banking association (“KeyBank”), to finance the upgrade of the PPA IIIb project Energy Servers,
pursuant to which KeyBank will own the assets and Bloom will service them. The sale-leaseback transaction is subject to Bloom’s standard warranties and
guaranties.
Previously, the Company had financed multiple Energy Servers with KeyBank by entering into sale-leaseback transactions. As of December 31, 2019,
KeyBank has financed approximately 39.9 megawatts of Energy Servers. $20.0 million of the proceeds from the current upgrade financing has been pledged for a
seven-year period to secure the Company's operations and maintenance obligations with respect to the totality of the Company's obligations to KeyBank. All or a
portion of such funds would be released if we meets certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If the
Company does not meet the required criteria within a five-year period, the funds would be released over the following two years as long as the Energy Servers
continue to perform in compliance with their warranties.
As of December 31, 2019, 5 megawatts of the PPA IIIb project have been decommissioned and written-off by us, with the remaining 0.4 megawatts located
at one site decommissioned during the first quarter of 2020. As of December 31, 2019, we have sold and deployed 5 megawatts of new Energy Servers to the PPA
IIIb project, bought out the original PPA IIIb investor, and have paid off the outstanding debt related to the original PPA IIIb project.
Obligations to the PPA IIIb Financiers
We have restricted cash of $20.0 million of the proceeds from the phase two upgrade financing which has been pledged for a seven-year period to secure our
operations and maintenance obligations with respect to the totality of our obligations to KeyBank. All or a portion of such funds would be released if we meet
certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within a five-year period,
the funds would be released to us over the following two years as long as the Energy Servers continue to perform in compliance with their warranties.
Impact of PPA IIIb Upgrade of Energy Servers on Consolidated Financial Statements
The PPA IIIb upgrade was executed and mostly completed during December 2019, resulting in the following summarized impacts on our consolidated
balance sheet as of December 31, 2019: (i) cash, cash equivalents and restricted cash increased by $25.2 million, mainly due to $52.0 million received from the
financing of new Energy Servers, offset by debt and interest settlement of $24.4 million, and equity buyout of $2.4 million; (ii) other assets decreased $14.6 million
primarily due to customer financing lease receivable write-off of $11.3 million associated with 1.6 megawatts of old Energy Servers and decommissioning and
write-off costs of $18.0 million associated with 3.4 megawatts of old Energy Servers, offset by $14.7 million increase in property, plant and equipment due to 5
megawatts of new Energy Servers; (iii) liabilities increased by $28 million due to $51.9 million lease liability for new Energy Servers of the Managed Services
Program, offset by $23.9 million decrease due to the settlement of all outstanding debt; and (iv) the payment of a deemed dividend to the investor of $2.4 million.
Impacts on our consolidated statement of operations for the year ended December 31, 2019 are summarized as follows: (i) $11.3 million decrease in revenue
due to the write-off of the customer financing lease receivable; (ii) an increase in cost of revenue of $19.7 million primarily due to the write-off of decommissioned
operating lease Energy Servers of $18.0 million and
152
accelerated depreciation of $1.7 million; and (iii) administrative costs of $1.8 million primarily due to the write-off of production insurance expense on the
decommissioned Energy Servers.
Impacts on our consolidated statement of cash flows for the year ended December 31, 2019 are summarized as follows: net cash used by financing activities
increased $26.3 million due to the repayment of debt principal of $23.9 million and the payment of a deemed dividend to the investor of $2.4 million.
PPA Entities' Activities Summary
The table below shows the details of the five Investment Companies' VIEs that were active during 2019 and their cumulative activities from inception to the
periods indicated (dollars in thousands):
Overview:
Maximum size of installation (in megawatts)
Installed size (in megawatts) 1
Term of power purchase agreements (in years)
First system installed
Last system installed
Income (loss) and tax benefits allocation to Equity Investor
Cash allocation to Equity Investor
Income (loss), tax and cash allocations to Equity Investor after the flip
date
Variable Investment Entity termination
Equity Investor 2
Put option date 3
Company cash contributions
Company non-cash contributions 4
Equity Investor cash contributions
Debt financing
Activity as of December 31, 2019:
Distributions to Equity Investor
Debt repayment—principal
Activity as of December 31, 2018:
Distributions to Equity Investor
Debt repayment—principal
Activity as of December 31, 2017:
Distributions to Equity Investor
Debt repayment—principal
PPA II
PPA IIIa
PPA IIIb
PPA IV
PPA V
30
—
21
Jun-12
Nov-13
99%
99%
5%
June
2019
N/A
N/A
10
10
15
Feb-13
Jun-14
99%
99%
5%
N/A
6
—
15
Aug-13
Jun-15
99%
99%
5%
November 2019
21
19
15
Sep-14
Mar-16
90%
90%
No flip
N/A
40
37
15
Jun-15
Dec-16
99%
90%
No flip
N/A
US Bank
1st anniversary of
flip point
N/A
N/A
Exelon Corporation Exelon Corporation
N/A
N/A
$
$
$
$
$
$
$
$
$
$
22,442 $
— $
139,993 $
144,813 $
176,364 $
144,813 $
116,942 $
65,114 $
111,296 $
53,726 $
32,223 $
8,655 $
36,967 $
44,968 $
4,803 $
6,631 $
4,063 $
4,431 $
3,324 $
3,041 $
22,658 $
2,082 $
20,152 $
28,676 $
4,462 $
28,676 $
1,807 $
3,953 $
1,404 $
3,077 $
11,669 $
— $
84,782 $
99,000 $
6,692 $
18,012 $
4,568 $
15,543 $
2,565 $
13,697 $
27,932
—
227,344
131,237
70,591
9,453
66,745
5,780
60,286
2,834
1 Installed base decreased from December 31, 2018 due to the repurchase of 36 megawatts of our Energy Servers during 2019 under the PPA II and PPA IIIb upgrade of Energy Servers. See disclosures above.
2 Investor name represents ultimate parent of subsidiary financing the project.
3 Investor right on the certain date, upon giving us advance written notice, to sell the membership interests to us or resign or withdraw from the investment partnership.
4 Non-cash contributions consisted of warrants that were issued by us to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are amortized using the effective interest
method over the debt term.
Some of our PPA Entities contain structured provisions whereby the allocation of income and equity to the Equity Investors changes at some point in time
after the formation of the PPA Entity. The change in allocations to Equity Investors (or the "flip") occurs based either on a specified future date or once the Equity
Investors reaches its targeted rate of return. For PPA Entities with a specified future date for the flip, the flip occurs January 1 of the calendar year immediately
following the year that includes the fifth anniversary of the date the last site achieves commercial operation.
The noncontrolling interests in PPA IIIa are redeemable as a result of the put option held by the Equity Investors as of December 31, 2019. The
noncontrolling interests in PPA II, IIIa and PPA IIIb were redeemable as a result of the put option held
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by the Equity Investors as of December 31, 2018. The redemption value is the put amount. At December 31, 2019, and 2018, the carrying value of redeemable
noncontrolling interests of $0.4 million and $57.3 million, respectively, exceeded the maximum redemption value.
PPA Entities’ Aggregate Assets and Liabilities
Generally, Operating Company assets can be used to settle only the Operating Company obligations and Operating Company creditors do not have recourse
to us. The aggregate carrying values of our VIEs for their assets and liabilities in our consolidated balance sheets, after eliminations of intercompany transactions
and balances, were as follows (in thousands):
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Customer financing receivable, non-current
Restricted cash
Other long-term assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Current portion of debt
Total current liabilities
Derivative liabilities
Deferred revenue
Long-term portion of debt
Other long-term liabilities
Total liabilities
December 31,
2019 1
2018 2
$
1,894 $
$
$
2,244
4,194
5,108
3,587
17,027
275,481
50,747
15,045
607
358,907 $
— $
1,391
662
12,155
14,208
8,459
6,735
223,267
2,355
$
255,024 $
5,295
2,917
7,516
5,594
4,909
26,231
399,060
67,082
27,854
2,692
522,919
724
1,442
786
21,162
24,114
3,626
8,696
323,360
1,798
361,594
1 These amounts include our VIEs: PPA IIIa, PPA IV and PPA V.
2 These amounts include our VIEs: PPA II, PPA IIIa, PPA IIIb, PPA IV and PPA V.
As stated above, we are a minority shareholder in the PPA Entities for the administration of our Bloom Electrons program. PPA Entities contain debt that is
non-recourse to us. The PPA Entities also own Energy Server assets for which we do not have title. Although we will continue to have Power Purchase Agreement
Program entities in the future and offer customers the ability to purchase electricity without the purchase of our Energy Servers, we do not intend to be a minority
investor in any new Power Purchase Agreement Program entities.
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We believe that by presenting assets and liabilities separate from the PPA Entities, we provide a better view of the true operations of our core business. The
table below provides detail into the assets and liabilities of Bloom Energy separate from the PPA Entities. The following table shows Bloom Energy's stand-alone,
the PPA Entities combined and these consolidated balances as of December 31, 2019, and December 31, 2018 (in thousands):
December 31, 2019
December 31, 2018
Bloom Energy
PPA Entities
Consolidated
Bloom Energy
PPA Entities
Consolidated
As Restated
As Restated
Assets
Current assets
Long-term assets
Total assets
Liabilities
Current liabilities
Current portion of debt
Long-term liabilities
Long-term portion of debt
$
$
$
455,680 $
508,004
17,027 $
472,707 $
637,703 $
26,231 $
341,880
849,884
361,172
496,688
663,934
857,860
963,684 $
358,907 $
1,322,591 $
998,875 $
522,919 $
1,521,794
234,328 $
2,053 $
236,381 $
224,503 $
2,952 $
325,428
599,709
75,962
12,155
17,549
223,267
337,583
617,258
299,229
8,686
499,177
388,073
21,162
14,120
323,360
227,455
29,848
513,297
711,433
Total liabilities
$
1,235,427 $
255,024 $
1,490,451 $
1,120,439 $
361,594 $
1,482,033
14. Commitments and Contingencies
Commitments
Facilities Leases
We lease most of our facilities, office buildings and equipment under operating leases that expire at various dates through December 2028. Our lease for our
former corporate offices in Sunnyvale, California expired in December 2018. We entered into a lease for our corporate headquarters located in San Jose, California,
for 181,000 square feet of office space commencing January 2019 and expiring in December 2028. Our headquarters is used for administration, research and
development and sales and marketing.
Additionally, we lease various manufacturing facilities in Sunnyvale, California and Mountain View, California. Our current lease for our Sunnyvale
manufacturing facilities, entered into in April 2005, expires in 2020. Our current lease for our manufacturing facilities at Mountain View, entered into in December
2011, expired in December 2019 and is extended on a month to month arrangement. These plants together comprise approximately 281,265 square feet of space.
We lease additional office space as field offices in the United States and around the world including in India, the Republic of Korea, China and Taiwan.
During the years ended December 31, 2019, 2018 and 2017, rent expense for all occupied facilities was $7.8 million, $6.3 million and $5.2 million,
respectively.
Equipment Leases
Beginning in December 2015, we are a party to master lease agreements that provide for the sale of our Energy Servers to third parties and the simultaneous
leaseback of the systems which we then sublease to customers. The lease agreements expire on various dates through 2025 and there was no recorded rent expense
for the years ended December 31, 2019, 2018 and 2017.
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At December 31, 2019, future minimum lease payments under operating leases and financing obligations were as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total lease obligations
Less: current obligations
Long-term lease obligations
Operating Leases
Obligations
Financing
Obligations
Sublease Payments1
$
$
7,250 $
37,840 $
5,495
4,168
4,230
4,357
17,913
43,413
$
38,726
39,680
40,582
38,442
117,592
312,862 $
(184,184)
128,678
(10,993)
117,685
(37,840)
(38,726)
(39,680)
(40,582)
(38,442)
(117,592)
(312,862)
1 Sublease Payments primarily represents the fees received by the bank from our end customer for the electricity generated by our Energy Servers leased under our Managed Services and other
similar arrangements, which also pay down our financing obligation to the bank.
Managed Services Financing Obligations - Our managed services arrangements are classified as capital leases and are recorded as financing transactions,
while the sublease arrangements with the end customer are classified as operating leases. Payments received from the financier are recorded as financing
obligations. These obligations are included in each agreements' contract value and are recorded as short-term or long-term liabilities based on the estimated
payment dates. The long-term financing obligations were $446.2 million and $385.6 million as of December 31, 2019 and 2018, respectively. The difference
between these obligations and the principal obligations in the table above will be offset against the carrying value of the related Energy Servers at the end of the
lease and the remainder recognized as a gain at that point. We recognize revenue for the electricity generated by allocating the total proceeds of the sublease
payments based on the relative standalone selling prices to electricity revenue and to service revenue.
Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of
inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a
rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with
its forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we issue purchase orders to our component
suppliers and third-party manufacturers that may not be cancelable. As of December 31, 2019 and 2018, we had no material open purchase orders with our
component suppliers and third-party manufacturers that are not cancelable.
Power Purchase Agreement Program - Under the terms of the Bloom Electrons program (see Note 13, Power Purchase Agreement Programs), customers
agree to purchase power from our Energy Servers at negotiated rates, generally for periods of up to twenty-one years. We are responsible for all operating costs
necessary to maintain, monitor and repair the Energy Servers, including the fuel necessary to operate the systems under certain PPA contracts. The risk associated
with the future market price of fuel purchase obligations is mitigated with commodity contract futures.
The PPA Entities guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA
Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or
between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable
under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the consolidated statements of
operations. We paid $3.5 million, $0.9 million and $3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of our Energy Servers. The lenders have
commitments to a letter of credit ("LC") facility with the aggregate principal amount of $6.2 million. The LC facility is to fund the Debt Service Reserve Account.
The amount reserved under the LC as of December 31, 2019 and 2018 was $5.0 million and $5.0 million, respectively.
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In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify SPDS for losses that may be incurred in the event of certain regulatory,
legal or legislative development and established a cash-collateralized letter of credit for this purpose. As of December 31, 2019, the balance of this cash-
collateralized letter of credit was $108.7 million.
In 2019, pursuant to the PPA IIIb upgrade of Energy Servers, we have restricted cash of $20.0 million which has been pledged for a seven-year period to
secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. All or a portion of such funds would be released if
we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within the first
five-year period, the funds would still be released to us over the following two years as long as the Energy Servers continue to perform in compliance with our
warranty obligations.
Contingencies
Indemnification Agreements - We enter into standard indemnification agreements with our customers and certain other business partners in the ordinary
course of business. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To
date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future
as a result of these indemnification obligations.
Delaware Economic Development Authority - In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide
a grant of $16.5 million as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a
certain period of time. The grant contains two types of milestones that we must complete to retain the entire amount of the grant proceeds. The first milestone was
to provide employment for 900 full time workers in Delaware by the end of the first recapture period of September 30, 2017. The second milestone was to pay
these full-time workers a cumulative total of $108.0 million in compensation by September 30, 2017. There are two additional recapture periods at which time we
must continue to employ 900 full time workers and the cumulative total compensation paid by us is required to be at least $324.0 million by September 30, 2023.
As of December 31, 2019, we had 323 full time workers in Delaware and paid $120.1 million in cumulative compensation. As of December 31, 2018, we had 335
full time workers in Delaware and paid $92.0 million in cumulative compensation. We have so far received $12.0 million of the grant which is contingent upon
meeting the milestones through September 30, 2023. In the event that we do not meet the milestones, we may have to repay the Delaware Economic Development
Authority, including up to $3.1 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of December 31, 2019, we paid $1.5
million for recapture provisions and have recorded $10.5 million in other long-term liabilities for potential recapture.
Self-Generation Incentive Program ("SGIP") - Our PPA Entities’ customers receive payments under the SGIP which is a program specific to the State of
California that provides financial incentives for the installation of qualifying new self-generation equipment that we own. The SGIP program issues 50% of the
fully anticipated amount in the first year the equipment is placed into service. The remaining incentive is then paid based on the size of the equipment (i.e.,
nameplate kilowatt capacity) over the subsequent five years.
The SGIP program has operational criteria primarily related to fuel mixture and minimum output for the first five years after the qualified equipment is
placed in service. If the operational criteria are not fulfilled, it could result in a partial refund of funds received. However, for certain PPA Entities, we make SGIP
reservations on behalf of the PPA Entity and, therefore, the PPA Entity bears the risk of loss if these funds are not paid.
Investment Tax Credits ("ITCs") - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code
Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise
ceases to be qualified investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives.
Ours purchase of Energy Servers were by the PPA Entities and, therefore, the PPA Entities bear the risk of repayment if the assets placed in service do not meet the
ITC operational criteria in the future.
Legal Matters - From time to time, we are involved in disputes, claims, litigation, investigations, proceedings and/or other legal actions consisting of
commercial, securities and employment matters that arise in the ordinary course of business. We review all legal matters at least quarterly and assesses whether an
accrual for loss contingencies needs to be recorded. The assessment reflects the impact of negotiations, settlements, rulings, advice of legal counsel and other
information and events pertaining to a particular situation. We record an accrual for loss contingencies when management believes that it is both probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so
the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a
material adverse impact on our consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future
periods.
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In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a Statement of Claim with the American
Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and
affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27,
2014 (the “Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a Second Amended Statement of Claim
was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition
law. On July 16, 2019, we filed our Answering Statement and Affirmative Defenses. On September 27, 2019, we filed a motion to dismiss the Statement of Claim.
On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that Claimant’s relief is limited to rescission of the Confidential Agreement or
remedies consistent with rescission, and not expectation damages. We do not believe Claimant’s claims supporting rescission have merit nor that Claimants can
remit to us the monetary benefits they already obtained under the Confidential Agreement. We have recorded no loss contingency related to this claim.
In June 2019, Messrs. Daubenspeck and Badger filed a complaint against our CEO, our CFO and our former CFO in the United States District Court for the
Northern District of Illinois, Case No. 1:19-cv-04305, asserting nearly identical claims as those in the pending arbitration discussed above. The lawsuit has been
stayed pending the outcome of the arbitration. We believe the complaint to be without merit and, as a result, we have recorded no loss contingency related to this
claim.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara,
against us, certain members of our senior management, certain of our directors and the underwriters in our initial public offering alleging violations under Sections
11 and 15 of the Securities Act of 1933, as amended, for alleged misleading statements or omissions in our Form S-1 Registration Statement filed with the
Securities and Exchange Commission in connection with our July 25, 2018 initial public offering. Two related class action cases were subsequently filed in the
Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al. was filed on April 22, 2019 and
Evans vs Bloom Energy et al. was filed on May 7, 2019. These cases have been consolidated. Plaintiffs' Consolidated Amended Complaint was filed with the court
on September 12, 2019. On October 4, 2019, defendants moved to stay the lawsuit pending the federal district court action discussed below. On December 7, 2019,
the Superior Court issued an order staying the action through resolution of the parallel federal litigation mentioned below. We believe the complaint to be without
merit and we intend to vigorously defend.
In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of
our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act of 1933, as amended, for alleged
misleading statements or omissions in our Form S-1 Registration Statement filed with the Securities and Exchange Commission in connection with our July 25,
2018 initial public offering. On September 3, 2019, James Hunt was appointed as lead plaintiff and Levi & Korsinsky was appointed as plaintiff’s counsel. On
November 4, 2019, plaintiffs filed an amended complaint adding the underwriters in our initial public offering, claims under Sections 10b and 20a of the Securities
Exchange Act of 1934 and extending the class period to September 16, 2019. We believe the complaint to be without merit and we intend to vigorously defend.
In November 2019, Michael Bolouri filed a class action complaint in the federal district court for the Northern District of California against us, certain
members of our senior management, certain of our directors and the underwriters in our initial public offering, alleging violations under Section 11 and 15 of the
Securities Act of 1933, as amended, and violations under Sections 10b and 20a of the Securities Exchange Act of 1934 for alleged misleading statements or
omissions in our Form S-1 Registration Statement filed with the Securities and Exchange Commission in connection with our July 25, 2018 initial public offering
and continuing through September 16, 2019. On December 11, 2019, a notice of voluntary dismissal was filed by the plaintiff and the case has now been dismissed.
In September 2019, we received a books and records demand from purported Company stockholder Dennis Jacob (“Jacob Demand”). The Jacob Demand
cites allegations from the September 17, 2019 report prepared by admitted short seller Hindenburg Research. In November 2019, we received a substantially
similar books and records demand from the same law firm on behalf of purported Company stockholder Michael Bolouri (“Bolouri Demand” and, together with the
Jacob Demand, the “Demands”). On January 13, 2020, Messrs. Jacob and Bolouri filed a complaint in the Delaware Court of Chancery to enforce the Demands in
the matter styled Jacob v. Bloom Energy Corp., C.A. No. 2020-0023-JRS. On March 9, 2020, Messrs. Jacob and Bolouri filed an amended complaint in the
Delaware Court of Chancery to add allegations regarding the restatement.
In March 2020, Francisco Sanchez filed a class action complaint in Santa Clara County Superior Court against us alleging certain wage and hour
violations under the California Labor Code and Industrial Welfare Commission Wage Orders and that we engaged in unfair business practices under the California
Business and Professions Code. We are still investigating the allegations but believe the complaint to be without merit and, as a result, we have recorded no loss
contingency related to this claim.
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15. Segment Information
Segment and the Chief Operating Decision Maker
Our chief operating decision makers ("CODMs"), our Chief Executive Officer and the Chief Financial Officer, review financial information presented on a
consolidated basis for purposes of allocating resources and evaluating financial performance. The CODMs allocate resources and make operational decisions based
on direct involvement with our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of
each function reporting to the Chief Executive Officer. The CODMs assess performance, including incentive compensation, based upon consolidated operations
performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.
Concentration of Geographic Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented.
Additionally, we sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"). In the year ended
December 31, 2019 and 2018, total revenue in the Asia Pacific region was 23% and 14%, respectively, of our total revenue.
16. Related Party Transactions
Our operations included the following related party transactions (in thousands):
Years Ended
December 31,
2019
2018
2017
Total revenue from related parties
$
228,100 $
32,381 $
Interest expense to related parties
Consulting expenses paid to related parties 1 (included in general and administrative expense)
1As of July 2019, we no longer have a consultant considered to be a related party.
6,756
—
8,893
125
2,176
12,265
206
As of December 31, 2019 and 2018, we had $55.8 million and $64.1 million, respectively, in debt and convertible notes from investors considered to be
related parties.
Bloom Energy Japan Limited
In May 2013, we entered into a joint venture with Softbank Corp., which is accounted for as an equity method investment. Under this arrangement, we sell
Energy Servers and provide maintenance services to the joint venture. For the year ended December 31, 2019 and 2018, we recognized related party total revenue
of $4.2 million and $32.4 million, respectively. Accounts receivable from this joint venture was $2.4 million as of December 31, 2019 and $3.3 million as of
December 31, 2018.
Diamond State Generation Partners, LLC
On June 14, 2019, we entered into a transaction with SP Diamond State Class B Holdings (SPDS) for the PPA II upgrade of Energy Servers. In connection
with the closing of this transaction, SPDS was admitted as a member of Diamond State Generation Partners, LLC ("DSGP"). DSGP, an operating company was a
wholly owned subsidiary of DSGH prior to June 14, 2019. As a result of the PPA II upgrade of Energy Servers transaction, we determined that we no longer retain
a controlling interest in DSGP and therefore it will no longer be consolidated as a variable interest entity, or VIE, into our consolidated financial statements as of
June 30, 2019. DSGP is considered to be a related party as, through our interest in DSGH, we held an interest in DSGP through December 23, 2019. As a result of
the PPA II Upgrade, we recognized related party revenue of approximately $223.9 million, comprised of product revenue of approximately $216.9 million and
installation revenue of $7.0 million, for the year ended December 31, 2019. See Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy
Servers. We had no accounts receivable from DSGP as of December 31, 2019.
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Consulting Arrangement
In January 2009, we entered into a consulting agreement with General Colin L. Powell, a member of our board of directors, pursuant to which General
Powell performs certain strategic planning and advisory services for us. In 2018, General Powell's compensation was revised to $125,000.0 per year, plus
reimbursement for reasonable expenses. In July 2019, the consulting agreement was amended to further reduce the compensation payable to General Powell such
that he is no longer designated as a related party for reporting purposes.
Debt to Related Parties
The following is a summary of our debt and convertible notes from investors considered to be related parties as of December 31, 2019 (in thousands):
Unpaid
Principal
Balance
Net Carrying Value
Current
Long-
Term
Total
Recourse debt from related parties:
6% convertible promissory notes due December 2020 from related parties
$
20,801 $
20,801 $
— $
20,801
Non-recourse debt from related parties:
7.5% term loan due September 2028 from related parties
38,337
3,882
31,088
Total debt from related parties
$
59,138 $
24,683 $
31,088 $
34,970
55,771
The following is a summary of our debt and convertible notes from investors considered to be related parties as of December 31, 2018 (in thousands):
Unpaid
Principal
Balance
Net Carrying Value
Current
Long-
Term
Total
Recourse debt from related parties:
6% convertible promissory notes due December 2020 from related parties
$
27,734 $
— $
27,734 $
27,734
Non-recourse debt from related parties:
7.5% term loan due September 2028 from related parties
40,538
2,200
34,119
Total debt from related parties
$
68,272 $
2,200 $
61,853 $
36,319
64,053
In November 2019, one related party note holder exchanged $6.9 million of their 6% Notes at the conversion price of $11.25 per share into 616,302 shares
of common stock. We repaid $2.2 million and $1.4 million of the non-recourse 7.5% term loan principal balance in the years December 31, 2019 and 2018,
respectively, and we paid $3.0 million and $3.1 million of interest in the years December 31, 2019 and 2018, respectively. See Note 7, Outstanding Loans and
Security Agreements for additional information on our debt facilities.
17. Subsequent Events
Senior Secured Notes Private Placement
On March 31, 2020, we entered into a note purchase agreement (the “Note Purchase Agreement”) with certain investors pursuant to which such investors
have agreed to purchase, and we have agreed to issue, $70.0 million of 10.25% Senior Secured Notes due 2027 (the “Senior Secured Notes”) in a private placement
(the “Senior Secured Notes Private Placement”). The Senior Secured Notes will be governed by an indenture (the “Senior Secured Notes Indenture”) entered into
among us, the guarantors party thereto and U.S. Bank National Association, in its capacity as trustee and collateral agent. The Senior Secured Notes are secured by
certain of our operations and maintenance agreements.
The Note Purchase Agreement contains customary representations, warranties and covenants of the parties. Pursuant to the Note Purchase Agreement, the
issuance of the Senior Secured Notes and related funding is expected to be consummated no later than May 29, 2020, and is conditioned upon the satisfaction of
certain closing conditions set forth in the Note Purchase Agreement, including the release of certain collateral by the 6% Convertible Noteholders, a satisfactory
rating by a rating agency and receipt by the Purchasers of customary certificates, legal opinions and other documents.
Interest on the Notes will be payable on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2020. The Indenture will
contain customary events of default and covenants relating to, among other things, the incurrence of debt, affiliate transactions, liens and restricted payments. On or
after March 27, 2022, we may redeem all of the Notes at a price equal to 108.00% of the principal amount of the Notes plus accrued and unpaid interest, with such
optional redemption prices decreasing to 104.00% on and after March 27, 2023, 102.00% on and after March 27, 2024 and 100.00% on and after March 27, 2026.
Before March 27, 2022, we may redeem the Notes upon repayment of a make-whole premium. If we experience a change of control, we must offer to purchase for
cash all or any part of each holder’s Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest.
Amendment of Convertible Notes
Amendment Support Agreement
On March 31, 2020, we entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners (the
“Noteholders”) of our outstanding 6.0% Convertible Notes due 2020 (the “Convertible Notes”) pursuant to which such Noteholders have agreed to consent to,
among other things, certain amendments to the indenture (the “Proposed Amendments”).
The Proposed Amendments will, among other things:
• Increase the interest rate of the Convertible Notes to 10% per annum,
• Extend the maturity date of the Convertible Notes to December 1, 2021, except that $70.0 million will remain due and payable on September 1, 2020;
• Amend the conversion price applicable to the Convertible Notes to $8.00, representing an initial conversion rate of 125.0000 shares of Class B Common
Stock per $1,000 principal amount of Notes (subject to customary adjustments);
• Add covenants relating to, among other things, the redemption of the Convertible Notes with the proceeds of certain transactions (including equity and
debt financings or sales of intellectual property), repayment of outstanding indebtedness and restricted payments and a provision requiring KR Sridhar to
remain as CEO of Bloom Energy unless caused by illness, incapacity or death;
• Release certain collateral securing the Convertible Notes that will secure the Senior Secured Notes; and
• Require that we repay at least $70.0 million of the Convertible Notes on or before September 1, 2020.
Pursuant to the Amendment Support Agreement, the Proposed Amendments were implemented by (i) amending and restating the Original Indenture (as so
amended and restated, the “Amended and Restated Indenture”), (ii) amending and restating the Convertible Notes in the form to be attached to the Amended and
Restated Indenture, and (iii) executing and delivering an amendment to the security agreement governing the collateral securing the Convertible Notes (the
“Security Agreement Amendment” and together with the Amended and Restated Indenture and the Security Agreement Amendment, the “Amendment
Documents”), and (iv) executing and delivering certain other documents, instruments, certificates and agreements in connection with and/or as required by the
foregoing, in each case on or prior to April 20, 2020 and subject to the satisfaction
160
of certain customary and other conditions set forth in the Amendment Support Agreement, including the payment of expenses and the delivery of customary
certificates, legal opinions and other documents.
On March 31, 2020, we also entered into a Support Agreement (the “Stockholder Support Agreement”) with KR Sridhar, the Chief Executive Officer of the
Company (in such capacity, the “Stockholder”) and the beneficial owner of a majority of the voting power of the Company, pursuant to which the Stockholder has
agreed to vote in favor of permitting us to settle all conversions of Convertible Notes in shares of our Class A Common Stock or Class B Common Stock, as
applicable, in compliance with all applicable rules of the New York Stock Exchange (the “Stockholder Approval”).
Convertible Note Purchase Agreement
In connection with the execution and delivery of the Amendment Documents, on March 31, 2020, we entered into a convertible note purchase agreement
(the “Convertible Note Purchase Agreement”) with Foris Ventures, LLC and New Enterprise Associates 10, Limited Partnership (together, the “Purchasers”), both
affiliates of ours, pursuant to which such Purchasers were issued $30 million aggregate principal amount of additional Convertible Notes (the “Additional
Convertible Notes”) under the Amended and Restated Indenture. The issuance of the Additional Convertible Notes is expected to occur substantially concurrently
with the execution and delivery of the Amendment Documents.
Constellation Note Modification Agreement
In connection with the execution and delivery of the Amendment Documents, on March 31, 2020, we entered into an Amended and Restated Subordinated
Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”)
pursuant to which certain terms of our outstanding Amended and Restated Subordinated Secured Convertible Note issued to Constellation were modified to be no
less favorable than the corresponding terms of the Convertible Notes as amended by the Amended and Restated Indenture.
COVID-19 Pandemic
The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to
adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand.
Although we have been able to maintain certain of our operations as an “Essential Business” in California and Delaware, other operations have been delayed or
suspended under applicable government orders and guidance.
Our headquarters and certain of our manufacturing facilities are located in Santa Clara County, California. On March 17, 2020, Santa Clara County became
subject to a government mandated “shelter in place” order, which was superseded by an Executive Order issued by the Governor of California that extends
indefinitely. Similarly, effective March 25, 2020, our manufacturing facilities in Newark, Delaware became subject to the Governor of Delaware’s Declaration of a
State of Emergency Due to a Public Health Threat initially issued on March 12, 2020 and in effect until further notice. As our manufacturing operations have been
designated as “Essential Businesses”, both manufacturing facilities are continuing to operate. However, our installation activities in all areas, but especially New
York, Connecticut, New Jersey, California and Massachusetts, are adversely impacted by similar mandates in these jurisdictions, as well as where certain of our
customers have shut down or otherwise limited access to their facilities. Additionally, while construction activities have to date been deemed “Essential
Businesses” and allowed to proceed in many jurisdictions, we have experienced interruptions and delays caused by confusion related to exemptions for “Essential
Businesses” amongst our suppliers and their sub-contractors.
In response, we have closed our headquarters building and directed employees, unless they are directly supporting essential manufacturing production
operations or maintenance activities, to work from their homes. This has caused disruptions in certain of our operations, including our research and development,
sales, marketing, installation and operations and maintenance activities.
We are also experiencing delays from certain vendors and suppliers that have been affected more directly by COVID-19. Our international operations,
including in South Korea and India, have been disrupted by the COVID-19 pandemic and by governmental responses to the pandemic. In India, orders by the
National Disaster Management Authority and the Ministry of Home Affairs issued March 24, 2020 have “prescribed a lockdown for containment of COVID-19
Epidemic in the country,” according to the Press Information Bureau of the Government of India. These orders have had the effect of disrupting the supply chain
on which we rely for certain parts critical to our manufacturing and maintenance capabilities, which impacts both our sale and installation of new products and our
operations and maintenance of previously-sold Energy Servers. Both the primary and secondary sources of a particular part on which we rely are in India. As of the
filing of this Form 10-K, we have identified an alternative supplier based in China which is expected to be able to provide the necessary parts by the end of April
161
2020. Relative to South Korea, we have not seen significant impacts to date in orders and as we do not perform installation services in South Korea, our risks in
South Korea are further limited.
We also rely on third party financing for our customer’s purchases of our Energy Servers. We have already experienced one delayed closing due to a
financier’s inability to close in light of its own liquidity concerns.
We have also experienced delays and interruptions to our installation activities where customers have shut down or otherwise limited access to their
facilities. Additionally, while construction activities have to date been deemed “essential business” and allowed to proceed in many jurisdictions, we have
experienced interruptions and delays caused by confusion related to exemptions for “Essential Businesses” amongst our suppliers and their sub-contractors.
The COVID-19 pandemic is expected to negatively impact our results of operations, financial position, and liquidity, but we cannot reasonably estimate the
future impact at this time.
Other Events
There have been no other subsequent events that occurred during the period subsequent to the date of these financial statements that would require
adjustment to our disclosure in the financial statements as presented.
162
18. Unaudited Selected Quarterly Financial Data
The consolidated statements of operations data, presented on a quarterly basis for the years ended December 31, 2019 and 2018, are unaudited. These data
have been prepared in accordance with U.S. GAAP for interim financial information and, in the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.
We have restated herein our previously issued unaudited selected quarterly financial data for the quarters ended March 31, 2019, June 30, 2019 and 2018,
September 30, 2019 and 2018, and December 31, 2018 and revised our unaudited selected quarterly financial data for the quarter ended March 31, 2018. See Note
2, Restatement and Revision of Previously Issued Consolidated Financial Statements, for further information.
In addition, our unaudited selected quarterly financial data for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019, as previously
reported, did not originally reflect the adoption of ASU 2014-09 related to the presentation of ASC 606 Revenue From Contracts With Customers. ASC 606 was
adopted in the fourth quarter of 2019 and was applied on the modified retrospective method for periods commencing January 1, 2019. Our condensed consolidated
statements of operations data for the interim periods within fiscal year 2019 have been recast accordingly. See Note 1, Accounting Guidance Implemented in Fiscal
Year 2019, Revenue Recognition, for additional information related to our adoption of ASU 2014-09.
163
The following presents our consolidated statements of operations by quarter (in thousands) (unaudited):
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Interest income
Interest expense
Interest expense to related parties
Other income (expense), net
Gain (loss) on revaluation of warrant liabilities and embedded
derivatives
Loss before income taxes
Income tax provision (benefit)
Net loss
Less: net loss attributable to noncontrolling interests and
redeemable noncontrolling interests
Net loss attributable to Class A and Class B common
stockholders
Less: deemed dividend to noncontrolling interest
Net loss available to Class A and Class B common
stockholders
Net loss per share attributable to Class A and Class B common
stockholders, basic and diluted
Weighted average shares used to compute net loss per share
attributable to Class A and Class B common stockholders,
basic and diluted
$
$
2019
2018
Three Months Ended
Dec. 31
Sept. 30
June 30
March 31
Dec. 31
Sept. 30
June 30
As Restated and Recast
As Restated
March 31
As Revised
$
158,427
$
163,902
$
144,081
$
90,926
$
103,937
$
102,433
$
78,497
$
115,771
14,429
25,628
15,059
21,102
23,665
15,638
13,076
23,026
20,143
12,219
23,467
20,389
11,066
21,778
20,364
24,691
21,056
20,439
19,643
20,299
19,863
12,795
20,134
19,882
213,543
224,307
200,326
147,001
157,145
168,619
138,302
168,582
141,782
16,901
17,127
12,785
188,595
24,948
22,148
17,357
33,315
72,820
91,697
26,141
36,427
27,317
181,582
42,725
23,389
17,649
36,599
77,637
113,228
17,685
18,763
22,300
171,976
28,350
29,772
18,194
43,662
91,628
88,772
15,760
27,921
12,984
86,154
20,651
31,818
11,601
145,437
150,224
1,564
6,921
28,859
20,373
39,074
88,306
32,970
24,951
47,471
105,392
69,053
35,506
24,470
12,180
141,209
27,410
27,021
21,396
40,999
89,416
49,603
29,951
19,702
12,062
111,318
26,984
14,413
8,167
15,359
37,939
862
(21,635)
(1,933)
138
(540)
1,214
(21,323)
(1,605)
525
(540)
1,700
(22,722)
(1,606)
(222)
(540)
1,885
(21,800)
(1,612)
265
(540)
1,996
(21,757)
(1,628)
636
192
1,467
(22,125)
(1,966)
(705)
900
(70,980)
(56,641)
(86,668)
(108,544)
(119,032)
(84,435)
31
136
258
208
1,079
(3)
444
(27,147)
(2,672)
(855)
(19,197)
(60,382)
128
76,465
9,198
24,699
13,785
124,147
44,435
14,731
8,293
14,988
38,012
6,423
415
(25,992)
(2,627)
(75)
(4,034)
(25,890)
333
(71,011)
(56,777)
(86,926)
(108,752)
(120,111)
(84,432)
(60,510)
(26,223)
(5,178)
(5,027)
(5,015)
(3,832)
(4,662)
(3,930)
(4,512)
(4,632)
(65,833)
(2,454)
(68,287)
(0.58)
(51,750)
(81,911)
(104,920)
(115,449)
(80,502)
(55,998)
(21,591)
—
—
—
—
—
—
$
$
(51,750)
(0.44)
$
$
(81,911)
(0.72)
$
$
(104,920)
(0.94)
$
$
(115,449)
(1.06)
$
$
(80,502)
(0.99)
$
$
(55,998)
(5.31)
$
$
—
(21,591)
(2.08)
118,588
116,330
113,624
111,842
109,416
81,321
10,536
10,404
164
Income (loss) from operations
(47,872)
(34,912)
(63,278)
(86,742)
(98,471)
(62,006)
(10,955)
Restatement and Recasting and Revision of Previously Issued Unaudited Financial Data
Following are the restatement and recasting of previously reported condensed consolidated balance sheets for the quarters ended March 31, 2019, June 30,
2019, and September 30, 2019, restatement of previously reported condensed consolidated balance sheets for the quarters ended June 30, 2018 and September 30,
2018, and revision of previously reported condensed consolidated balance sheet for the quarter ended March 31, 2018.
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (noncurrent)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
March 31, 2019
$
320,414
$
18,419
84,070
116,544
66,316
5,717
28,362
639,842
475,385
65,620
31,101
72,516
34,386
—
—
3,995
3,327
(13,405)
—
1,582
(4,501)
236,246
—
—
(70,583)
8,486
1
2
3
4
5
3
6
$
320,414
$
18,419
88,065
119,871
52,911
5,717
29,944
635,341
711,631
65,620
31,101
1,933
42,872
— $
—
(2,418)
—
—
—
129
(2,289)
—
—
—
—
2,575
320,414
18,419
85,647
119,871
52,911
5,717
30,073
633,052
711,631
65,620
31,101
1,933
45,447
$
1,318,850
$
169,648
$
1,488,498
$
286
$
1,488,784
$
64,425
16,736
67,966
—
89,557
15,683
19,486
2,341
276,194
11,166
201,863
—
357,876
284,541
27,734
33,417
165
$
—
$
64,425
$
— $
(1,219)
(3,893)
8,819
(16,153)
7
8
10
11
—
—
—
(12,446)
4,556
(115,432)
394,037
11
10
—
—
—
—
15,517
64,073
8,819
73,404
15,683
19,486
2,341
263,748
15,722
86,431
394,037
357,876
284,541
27,734
33,417
(1,280)
—
—
1,665
—
—
—
385
—
17,320
—
—
—
—
—
64,425
14,237
64,073
8,819
75,069
15,683
19,486
2,341
264,133
15,722
103,751
394,037
357,876
284,541
27,734
33,417
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interest
Stockholders’ deficit:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
As Previously
Reported
Restatement
Impacts
March 31, 2019
As Restated
58,032
(29,062)
8
28,970
ASC 606
Adoption Impacts As Restated &
—
28,970
Recast
1,250,823
241,653
1,492,476
17,705
1,510,181
58,802
11
2,551,256
5
(2,656,711)
(105,439)
114,664
—
—
12
755
—
58,802
11
2,552,011
5
—
—
—
—
58,802
11
2,552,011
5
(72,760)
(72,005)
(2,729,471)
(17,419)
(2,746,890)
(177,444)
(17,419)
(194,863)
—
114,664
—
114,664
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
$
1,318,850
$
169,648
$
1,488,498
$
286
$
1,488,784
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation cost of $3.8 million and reclassification of inventories of $0.5 million
held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed
Services Agreements and similar sale-leaseback arrangements of $13.9 million (short-term) and $70.6 million (long-term), net capitalization of stock-based compensation costs of $2.1 million into current deferred cost of revenue, and
the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $1.7 million.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements prepaid property tax and insurance payments are
now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now
recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $232.6 million. This includes a net capitalization of stock-based compensation cost for
these assets of $3.6 million.
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term
deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements,
reducing accrued warranty by $0.4 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued
warranty by $0.8 million.
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities
recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront
proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are
now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within
other expense, net.
166
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (noncurrent)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interest
Stockholders’ deficit:
167
As
Previously
Reported
Restatement
Impacts
June 30, 2019
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
$
$
308,009
23,706
38,296
104,934
86,434
5,817
25,088
592,284
406,610
64,146
39,351
59,213
60,975
1,222,579 $
61,427
12,393
109,722
—
129,321
15,681
7,654
2,889
339,087
13,079
$
—
—
$
1
2
3
4
5
3
6
4,172
1,955
(6,127)
—
1,252
1,252
234,649
—
—
(55,367)
9,118
189,652
—
(1,154)
(4,329)
10,027
(13,847)
7
8
10
11
—
—
—
(9,303)
5,096
181,221
(95,840)
—
400,078
11
10
362,424
219,182
27,734
32,643
58,417
1,233,787
—
—
—
—
8
(28,438)
271,593
308,009 $
23,706
42,468
106,889
80,307
5,817
26,340
593,536
641,259
64,146
39,351
3,846
70,093
1,412,231 $
61,427
11,239
105,393
10,027
115,474
15,681
7,654
2,889
329,784
18,175
85,381
400,078
362,424
219,182
27,734
32,643
29,979
1,505,380
— $
—
(2,430)
—
—
—
143
(2,287)
—
—
—
—
2,743
308,009
23,706
40,038
106,889
80,307
5,817
26,483
591,249
641,259
64,146
39,351
3,846
72,836
456
$
1,412,687
—
(999)
—
—
61,427
10,240
105,393
10,027
3,264
118,738
—
—
—
15,681
7,654
2,889
2,265
332,049
—
25,369
—
—
—
—
—
—
18,175
110,750
400,078
362,424
219,182
27,734
32,643
29,979
27,634
1,533,014
505
—
505
—
505
As
Previously
Reported
Restatement
Impacts
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
11
2,603,279
(148)
(2,718,927)
(115,785)
104,072
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
$
1,222,579
$
12
—
755
—
(82,696)
(81,941)
—
189,652
June 30, 2019
As Restated
11
2,604,034
(148)
(2,801,623)
(197,726)
104,072
1,412,231 $
$
ASC 606
Adoption
Impacts
As Restated &
Recast
—
—
—
(27,178)
(27,178)
—
11
2,604,034
(148)
(2,828,801)
(224,904)
104,072
456
$
1,412,687
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $2.0 million.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed
Services Agreements and similar sale-leaseback arrangements of $7.4 million (short-term) and $55.4 million (long-term), and net capitalization of stock-based compensation costs of $3.7 million into current deferred cost of revenue,
and the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $2.5 million.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install cost of revenue are now
recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $230.9 million. This includes a net capitalization of stock-based compensation costs for
these assets of $3.7 million.
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term
deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements,
reducing accrued warranty by $0.2 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued
warranty by $0.9 million.
8 Accrued expenses and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities
recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront
proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are
now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within
other expense, net.
168
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (noncurrent)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expense and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interest
September 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
226,499
$
14,486
26,737
140,372
50,707
5,919
25,639
490,359
384,377
62,615
116,890
57,286
58,400
$
1,169,927
$
—
—
4,216
(7,765)
(9,665)
—
2,830
(10,384)
243,008
—
—
(53,562)
9,319
188,381
1
2
3
4
5
3
6
$
226,499
$
14,486
30,953
132,607
41,042
5,919
28,469
479,975
627,385
62,615
116,890
3,724
67,719
— $
—
(4,600)
—
—
—
173
(4,427)
—
—
—
—
3,232
226,499
14,486
26,353
132,607
41,042
5,919
28,642
475,548
627,385
62,615
116,890
3,724
70,951
$
1,358,308
$
(1,195)
$
1,357,113
$
81,060
$
—
$
81,060
$
— $
15,295
82,150
—
88,060
15,678
7,983
3,500
293,726
14,648
179,712
—
359,959
217,334
27,734
31,781
56,117
(1,159)
(2,534)
10,420
(13,856)
7
8
10
11
—
—
—
(7,129)
5,636
(92,390)
397,272
11
10
—
—
—
—
(27,264)
8
14,136
79,616
10,420
74,204
15,678
7,983
3,500
286,597
20,284
87,322
397,272
359,959
217,334
27,734
31,781
28,853
(1,274)
—
—
3,347
—
—
—
2,073
—
34,954
—
—
—
—
—
(1)
81,060
12,862
79,616
10,420
77,551
15,678
7,983
3,500
288,670
20,284
122,276
397,272
359,959
217,334
27,734
31,781
28,852
1,181,011
276,125
1,457,136
37,026
1,494,162
557
—
557
—
557
169
Stockholders’ deficit:
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
September 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
12
2,647,118
(147)
(2,753,830)
(106,847)
95,206
—
12
756
—
(88,500)
(87,744)
—
12
2,647,874
(147)
(2,842,330)
(194,591)
95,206
—
—
—
(38,221)
(38,221)
12
2,647,874
(147)
(2,880,551)
(232,812)
—
95,206
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
$
1,169,927
$
188,381
$
1,358,308
$
(1,195)
$
1,357,113
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $3.7 million, and reclassification of inventories of $11.5
million on held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed
Services Agreements and similar sale-leaseback arrangements of $7.4 million (short-term) and $53.6 million (long-term), and net capitalization of stock-based compensation costs of $0.8 million into current deferred cost of revenue,
and the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $3.1 million.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now
recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $239.3 million. This includes a net capitalization of stock-based compensation costs for
these assets of $3.7 million.
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term
deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements,
reducing accrued warranty by $0.1 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued
warranty by $1.1 million.
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities
recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront
proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are
now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within
other expense, net.
170
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (noncurrent)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
March 31, 2018
As Previously
Reported
Revision
Impacts
As Revised
$
$
88,227
22,998
20,138
58,520
97,079
81,229
5,303
27,836
401,330
487,169
71,337
32,367
155,658
36,773
$
1,184,634
$
—
—
—
1
2
3
4
5
3
6
3,476
(3,047)
(37,814)
—
1,108
(36,277)
215,059
—
—
(155,605)
6,406
29,583
$
88,227
22,998
20,138
61,996
94,032
43,415
5,303
28,944
365,053
702,228
71,337
32,367
53
43,179
$
1,214,217
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Preferred stock warrant liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
$
—
$
47,755
$
47,755
16,723
57,683
(329)
(4,029)
6,556
(27,963)
7
8
10
11
—
—
—
(25,765)
—
4,217
(216,652)
321,682
11
10
—
—
—
—
(30,107)
8
16,394
53,654
6,556
71,486
6,017
17,583
1,525
220,970
6,554
168,071
89,501
321,682
517,483
302,345
70,202
35,312
21,753
—
99,449
6,017
17,583
1,525
246,735
6,554
163,854
306,153
—
517,483
302,345
70,202
35,312
51,860
1,700,498
53,375
1,753,873
171
Redeemable noncontrolling interest
Convertible redeemable preferred stock
Stockholders’ deficit:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
March 31, 2018
As Previously
Reported
Revision
Impacts
58,176
1,465,841
1
158,605
117
(2,348,363)
(2,189,640)
149,759
—
—
—
—
—
(23,792)
(23,792)
—
As Revised
58,176
1,465,841
1
158,605
117
(2,372,155)
(2,213,432)
149,759
Total liabilities, redeemable noncontrolling interest, convertible redeemable preferred stock, stockholders' deficit and noncontrolling interest
$
1,184,634
$
29,583
$
1,214,217
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $0.3 million, and reclassification of inventories of $3.4
million held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed
Services Agreements and similar sale-leaseback arrangements of $38.2 million (short-term) and $155.6 million (long-term), and net capitalization of stock-based compensation costs of $0.3 million into current deferred cost of revenue.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now
recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $214.1 million. This includes a net capitalization of stock-based compensation costs for
these assets of $0.9 million.
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term
deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative
liabilities of $0.3 million.
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities
recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront
proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are
now recorded as derivative liabilities and were previously treated as an accrued liability.
172
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (noncurrent)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, convertible redeemable preferred stock, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Preferred stock warrant liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
173
June 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
$
$
91,596 $
25,860
15,703
36,804
136,433
55,476
5,398
23,003
390,273
477,765
69,963
32,416
148,934
38,386
1,157,737 $
53,798 $
14,928
54,832
—
94,582
10,351
18,025
1,630
248,146
2,369
188,199
301,550
—
524,934
298,048
72,087
35,054
52,153
1,722,540
—
—
—
1
2
3
4
5
3
6
3,638
(7,149)
(19,822)
—
1,817
(21,516)
219,579
—
—
(148,874)
6,855
56,044
$
91,596
25,860
15,703
40,442
129,284
35,654
5,398
24,820
368,757
697,344
69,963
32,416
60
45,241
$
1,213,781
—
$
53,798
7
8
10
11
(641)
(4,900)
6,792
(28,528)
—
—
—
(27,277)
—
4,217
(212,920)
356,727
11
10
—
—
—
—
(30,589)
8
14,287
49,932
6,792
66,054
10,351
18,025
1,630
220,869
2,369
192,416
88,630
356,727
524,934
298,048
72,087
35,054
21,564
90,158
1,812,698
Redeemable noncontrolling interest
Convertible redeemable preferred stock
Stockholders’ deficit:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
June 30, 2018
As Previously
Reported
Restatement
Impacts
54,940
1,465,841
1
166,805
217
(2,394,040)
(2,227,017)
141,433
—
—
—
—
—
(34,114)
(34,114)
—
As Restated
54,940
1,465,841
1
166,805
217
(2,428,154)
(2,261,131)
141,433
Total liabilities, redeemable noncontrolling interest, convertible redeemable preferred stock, stockholders' deficit and noncontrolling interest
$
1,157,737 $
56,044
$
1,213,781
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced
for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation expenses of $0.9 million, and reclassification of
inventories of $8.0 million held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net, a
decrease for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $20.1 million (short-term) and $148.9 million (long-term), and the cumulative net absorption in
current deferred cost of revenue for overhead in related to stock-based compensation expenses of $0.3 million.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the cumulative net change of accounting for Managed Services Agreements and similar arrangements where prepaid property
tax and insurance payments are now classified within prepaid expenses.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods
sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $218.6 million. This includes a net capitalization of stock-
based compensation costs for these assets of $1.0 million.
6 Other long-term assets — The correction of these misstatements resulted from the cumulative net change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity
billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within long term prepaid
expenses, rather than offset against long-term deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar
arrangements of $0.4 million and also includes the cumulative net change of accounting for the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements of $0.3
million.
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued
liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing
the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the cumulative change of accounting for the recognition of product and installation revenue from
upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the cumulative net change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales
arrangements. These commitments were previously treated as an accrued liability.
174
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Customer financing receivable, non-current
Restricted cash (noncurrent)
Deferred cost of revenue, non-current
Other long-term assets
Total assets
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Financing obligations
Deferred revenue and customer deposits
Current portion of recourse debt
Current portion of non-recourse debt
Current portion of non-recourse debt from related parties
Total current liabilities
Derivative liabilities
Deferred revenue and customer deposits, net of current portion
Financing obligations, non-current
Long-term portion of recourse debt
Long-term portion of non-recourse debt
Long-term portion of recourse debt from related parties
Long-term portion of non-recourse debt from related parties
Other long-term liabilities
Total liabilities
175
September 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
$
$
395,516 $
17,931
4,494
41,485
134,725
66,009
5,496
32,876
698,532
471,074
68,535
30,779
139,217
37,008
1,445,145 $
59,818 $
17,975
66,873
—
105,265
1,686
18,499
1,737
271,853
9,441
290,481
—
358,363
293,593
32,168
34,765
48,161
1,338,825
—
—
—
1
2
3
4
5
3
6
3,776
3,053
(20,826)
—
3,623
(10,374)
227,049
—
—
(139,172)
7,389
84,892
$
395,516
17,931
4,494
45,261
137,778
45,183
5,496
36,499
688,158
698,123
68,535
30,779
45
44,397
$
1,530,037
—
$
59,818
7
8
10
11
(663)
(2,887)
7,780
(32,527)
—
—
—
(28,297)
4,217
(201,277)
375,254
11
10
—
—
—
—
(29,724)
8
17,312
63,986
7,780
72,738
1,686
18,499
1,737
243,556
13,658
89,204
375,254
358,363
293,593
32,168
34,765
18,437
120,173
1,458,998
Redeemable noncontrolling interest
Stockholders’ deficit:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ deficit
Noncontrolling interest
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
September 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
56,446
—
56,446
11
2,387,361
272
(2,472,619)
(84,975)
134,849
—
755
—
(36,036)
(35,281)
—
11
12
2,388,116
272
(2,508,655)
(120,256)
134,849
$
1,445,145 $
84,892
$
1,530,037
1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $7.2 million, and reclassification of inventories of $4.1
million held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed
Services Agreements and similar sale-leaseback arrangements of $23.8 million (short-term) and $139.2 million (long-term), and net capitalization of stock-based compensation costs of $3.0 million into current deferred cost of revenue.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now
recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $224.6 million. This includes a net capitalization of stock-based compensation costs for
these assets of $2.4 million.
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and
the payments received from the financing entity is recorded within long term receivables and where prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term
deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements,
reducing accrued warranty by $0.4 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities of $0.3 million.
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities
recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront
proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are
now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within
other expense, net.
.
176
The following tables contain the restatement and recasting of previously reported unaudited condensed consolidated statements of operations for the three-
month period ended March 31, 2019, the three- and six-month periods ended June 30, 2019 and the three- and nine-month periods ended September 30, 2019, the
restatement of previously reported unaudited condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2018 and the
three- and nine-month periods ended September 30, 2018 and the revision of the previously reported unaudited condensed consolidated statement of operations for
the three-month period ended March 31, 2018. Reconciliation to the previously reported unaudited condensed consolidated statements of comprehensive loss is not
provided, as there is no change to those statements for any period, with the exception of the change to net loss, described in the tables below. Reconciliation to the
previously reported unaudited condensed consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders'
deficit and noncontrolling is not provided, as there is no change to those statements for any period, with the exception of the correction of an uncorrected
misstatement within additional paid-in capital for $0.8 million in the three months ended September 30, 2018.
Three Months Ended March 31, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Interest income
Interest expense
Interest expense to related parties
Other income (expense), net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
$
141,734
$
22,258
23,290
13,425
(48,171)
(11,195)
(574)
6,964
a
a
a
a
200,707
(52,976)
124,000
24,166
27,557
9,229
184,952
15,755
28,859
20,463
39,074
88,396
(34,980) c, d
(8,406)
c
1,331
b, d
3,755
c
(38,300)
(14,676)
e
—
2
—
2
(72,641)
(14,678)
1,885
(15,962)
(1,612)
265
—
—
(5,838)
f
—
—
(540)
g
(88,065)
(21,056)
208
(88,273)
(3,832)
—
(21,056)
—
Net loss attributable to Class A and Class B common stockholders
$
(84,441)
$
(21,056)
$
177
$
93,563
$
(2,637) $
11,063
22,716
20,389
147,731
89,020
15,760
28,888
12,984
146,652
1,156
751
—
(730)
(248)
—
(967)
—
(1,215)
1,079
485
28,859
20,465
39,074
88,398
(87,319)
1,885
(21,800)
(1,612)
265
(540)
(109,121)
208
(109,329)
(3,832)
(105,497) $
—
(92)
—
(92)
577
—
—
—
—
—
577
—
577
—
90,926
12,219
23,467
20,389
147,001
88,772
15,760
27,921
12,984
145,437
1,564
28,859
20,373
39,074
88,306
(86,742)
1,885
(21,800)
(1,612)
265
(540)
(108,544)
208
(108,752)
(3,832)
577
$
(104,920)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in the accounting for our grid escalation guarantees that resulted in a decrease in service cost of
revenue of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $37.5 million and
installation cost of revenue of $9.2 million, offset by an increase in electricity cost of revenue of $3.7 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.8
million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net increase to product cost of revenue of $2.5
million and an increase in service cost of revenue of $1.4 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $0.5 million.
178
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other income (expense), net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Three Months Ended June 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
179,899
$
(22,757)
17,285
23,659
12,939
(5,900)
(586)
7,204
a
a
a
a
$
157,142
$
(13,061)
$
144,081
11,385
23,073
20,143
1,691
(47)
—
13,076
23,026
20,143
233,782
(22,039)
211,743
(11,417)
200,326
(19,005) c, d
112,947
131,952
22,116
19,599
18,442
192,109
41,673
29,772
18,359
43,662
91,793
(4,431)
c
920
b, d
3,858
c
(18,658)
(3,381)
e
—
17
—
17
(50,120)
(3,398)
1,700
(16,725)
(1,606)
(222)
—
(5,997)
f
—
—
—
(540)
g
17,685
20,519
22,300
173,451
38,292
29,772
18,376
43,662
91,810
(53,518)
1,700
(22,722)
(1,606)
(222)
(540)
281
—
(1,756)
—
(1,475)
(9,942)
—
(182)
—
(182)
(9,760)
—
—
—
—
—
113,228
17,685
18,763
22,300
171,976
28,350
29,772
18,194
43,662
91,628
(63,278)
1,700
(22,722)
(1,606)
(222)
(540)
(66,973)
(9,935)
(76,908)
(9,760)
(86,668)
258
(67,231)
(5,015)
—
(9,935)
—
258
(77,166)
(5,015)
—
(9,760)
—
$
(62,216)
$
(9,935)
$
(72,151)
$
(9,760)
$
258
(86,926)
(5,015)
(81,911)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue
of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $18.1 million and
installation cost of revenue of $5.2 million, offset by an increase in electricity cost of revenue of $3.8 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.8
million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.9
million and an increase in service cost of revenue of $1.0 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
179
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $0.5 million.
180
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Interest income
Interest expense
Interest expense to related parties
Other income, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Three Months Ended September 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
182,616
$
19,010
23,597
8,248
233,471
94,056
26,162
36,539
23,249
180,006
53,465
23,389
18,125
36,599
78,113
(24,648)
1,214
(15,280)
(1,605)
525
—
a
a
a
a
(1,292)
(460)
(779)
7,390
4,859
(2,085) c, d
(21)
c
2,073
b, d
c
e
4,068
4,035
824
—
43
—
43
781
—
(6,043)
f
—
—
(540)
g
$
181,324
$
(17,422)
$
163,902
18,550
22,818
15,638
2,552
847
—
21,102
23,665
15,638
238,330
(14,023)
224,307
91,971
26,141
38,612
27,317
184,041
54,289
23,389
18,168
36,599
78,156
(274)
—
(2,185)
—
91,697
26,141
36,427
27,317
(2,459)
181,582
(11,564)
42,725
—
(519)
—
(519)
23,389
17,649
36,599
77,637
(23,867)
(11,045)
(34,912)
1,214
(21,323)
(1,605)
525
(540)
—
—
—
—
—
1,214
(21,323)
(1,605)
525
(540)
(39,794)
(5,802)
(45,596)
(11,045)
(56,641)
136
(39,930)
(5,027)
—
(5,802)
—
136
—
(45,732)
(11,045)
(5,027)
—
$
(34,903)
$
(5,802)
$
(40,705)
$
(11,045)
$
136
(56,777)
(5,027)
(51,750)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue
of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $1.1 million, a decrease of
installation cost of revenue of $0.6 million, offset by an increase in electricity cost of revenue of $4.0 million together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.6
million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $1.0
million and an increase in service cost of revenue of $2.2 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
181
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $0.5 million.
182
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other income, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Six Months Ended June 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
321,633
$
39,543
46,949
26,364
(70,928)
(17,095)
(1,160)
14,168
a
a
a
a
$
250,705
$
(15,698)
$
235,007
22,448
45,789
40,532
2,847
704
—
25,295
46,493
40,532
434,489
(75,015)
359,474
(12,147)
347,327
255,952
46,282
47,156
27,671
377,061
57,428
58,631
38,822
82,736
180,189
(53,985) c, d
201,967
(12,837)
c
2,251
b, d
7,613
c
(56,958)
(18,057)
e
—
19
—
19
33,445
49,407
35,284
320,103
39,371
58,631
38,841
82,736
33
—
(2,723)
—
(2,690)
(9,457)
—
(274)
—
202,000
33,445
46,684
35,284
317,413
29,914
58,631
38,567
82,736
180,208
(274)
179,934
(122,761)
(18,076)
(140,837)
(9,183)
(150,020)
3,585
(32,687)
(3,218)
43
—
—
(11,835)
f
—
—
(1,080)
g
3,585
(44,522)
(3,218)
43
(1,080)
—
—
—
—
—
3,585
(44,522)
(3,218)
43
(1,080)
(155,038)
(30,991)
(186,029)
(9,183)
(195,212)
466
—
466
—
466
(155,504)
(30,991)
(186,495)
(9,183)
(195,678)
(8,847)
—
(8,847)
—
(8,847)
$
(146,657)
$
(30,991)
$
(177,648)
$
(9,183)
$
(186,831)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue
of $0.2 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $55.6 million and
installation cost of revenue of $14.4 million, offset by an increase in electricity cost of revenue of $7.5 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of
$1.6 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net increase to product cost of revenue of $1.6
million, and an increase in service cost of revenue of $2.4 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
183
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $1.1 million.
184
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other income, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Nine Months Ended September 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated
& Recast
$
504,249
$
58,553
70,546
34,612
$
(72,220)
(17,555)
(1,939)
21,558
a
a
a
a
667,960
(70,156)
350,008
72,444
83,695
50,920
557,067
110,893
82,020
56,947
119,335
258,302
(147,409)
4,799
(47,967)
(4,823)
568
—
(194,832)
602
(195,434)
(13,874)
(56,070) c, d
(12,858)
c
4,324 b, d
11,681
c
(52,923)
(17,233)
—
e
62
—
62
(17,295)
—
(17,878)
f
—
—
g
(1,620)
(36,793)
—
(36,793)
—
(36,793)
$
432,029 $
40,998
68,607
56,170
597,804
293,938
59,586
88,019
62,601
504,144
93,660
82,020
57,009
119,335
258,364
(164,704)
4,799
(65,845)
(4,823)
568
(1,620)
(231,625)
602
(232,227)
(13,874)
(218,353) $
(33,120) $
398,909
5,399
1,551
—
(26,170)
(241)
—
(4,908)
—
(5,149)
(21,021)
—
(793)
—
(793)
(20,228)
—
—
—
—
—
(20,228)
—
(20,228)
—
(20,228) $
46,397
70,158
56,170
571,634
293,697
59,586
83,111
62,601
498,995
72,639
82,020
56,216
119,335
257,571
(184,932)
4,799
(65,845)
(4,823)
568
(1,620)
(251,853)
602
(252,455)
(13,874)
(238,581)
Net loss attributable to Class A and Class B common stockholders
$
(181,560)
$
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue
of $0.3 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $56.7 million and
installation cost of revenue of $15.0 million, offset by an increase in electricity cost of revenue of $11.6 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of
$2.1 million
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net increase to product cost of revenue of $0.6
million and an increase in service cost of revenue of $4.6 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
185
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $1.6 million.
186
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Three Months Ended March 31, 2018
As Previously
Reported
Revision
Impacts
As Revised
$
121,307
$
14,118
19,907
14,029
169,361
80,355
10,438
24,253
10,649
125,695
43,666
14,731
8,262
14,988
37,981
5,685
415
(21,379)
(2,627)
(75)
(4,034)
(22,015)
333
(22,348)
(4,632)
a
a
a
a
(5,536)
(1,323)
227
5,853
(779)
(3,890) c, d
c
d
c
(1,240)
446
3,136
(1,548)
769
—
31
—
e
31
738
—
(4,613)
f
—
—
—
(3,875)
—
(3,875)
—
$
115,771
12,795
20,134
19,882
168,582
76,465
9,198
24,699
13,785
124,147
44,435
14,731
8,293
14,988
38,012
6,423
415
(25,992)
(2,627)
(75)
(4,034)
(25,890)
333
(26,223)
(4,632)
$
(17,716)
$
(3,875)
$
(21,591)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $3.6 million and installation
cost of revenue of $1.2 million, offset by an increase in electricity cost of revenue of $3.1 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.3
million and an increase in service cost of revenue of $0.4 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
187
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
188
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Three Months Ended June 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
$
108,654
26,245
19,975
14,007
(30,157)
(6,602)
324
5,856
a
a
a
a
$
78,497
19,643
20,299
19,863
168,881
(30,579)
138,302
70,802
37,099
19,260
8,949
136,110
32,771
14,413
8,254
15,359
38,026
(5,255)
444
(22,525)
(2,672)
(855)
(19,197)
(50,060)
128
(50,188)
(4,512)
(45,676) $
(21,199) c, d
c
d
c
e
(7,148)
442
3,113
(24,792)
(5,787)
—
(87)
—
(87)
(5,700)
—
49,603
29,951
19,702
12,062
111,318
26,984
14,413
8,167
15,359
37,939
(10,955)
444
(4,622)
f
(27,147)
—
—
—
(10,322)
—
(10,322)
—
(10,322)
(2,672)
(855)
(19,197)
(60,382)
128
(60,510)
(4,512)
$
(55,998)
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
$
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which impacted our service revenue allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation costs of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $20.3 million and
installation cost of revenue of $7.1 million, offset by an increase in electricity cost of revenue of $3.1 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.9
million and an increase in service cost of revenue of $0.4 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
189
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
190
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Three Months Ended September 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
125,690
$
29,690
20,751
14,059
(23,257)
(4,999)
305
6,380
a
a
a
a
$
102,433
24,691
21,056
20,439
190,190
(21,571)
168,619
95,357
40,118
22,651
8,679
166,805
23,385
27,021
21,476
40,999
89,496
(66,111)
1,467
(16,853)
(1,966)
(705)
1,655
(26,304) c, d
c
d
c
(4,612)
1,819
3,501
(25,596)
4,025
—
e
(80)
—
(80)
4,105
—
(5,272)
f
—
—
(755)
g
69,053
35,506
24,470
12,180
141,209
27,410
27,021
21,396
40,999
89,416
(62,006)
1,467
(22,125)
(1,966)
(705)
900
(82,513)
(1,922)
(84,435)
(3)
(82,510)
(3,930)
—
(1,922)
—
(3)
(84,432)
(3,930)
$
(78,580)
$
(1,922)
$
(80,502)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $14.0 million and
installation cost of revenue of $4.6 million, offset by an increase in electricity cost of revenue of $3.5 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $12.3
million and an increase in service cost revenue of $1.8 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
191
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the correction of a misstatement in the valuation of our 6% Notes derivative, resulting in $0.8 million of
additional loss in the period.
192
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Three Months Ended December 31, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
$
156,671
21,363
21,752
13,820
(52,734)
(10,297)
26
6,544
a
a
a
a
$
103,937
11,066
21,778
20,364
213,606
(56,461)
157,145
128,076
31,819
28,475
7,988
196,358
17,248
32,970
24,983
47,471
105,424
(88,176)
1,996
(16,178)
(1,628)
636
(14)
(103,364)
1,079
(104,443)
(4,662)
(99,781) $
(41,922) c, d
(11,168)
c
3,343 b, d
3,613
c
(46,134)
(10,327)
—
(32)
e
— e
(32)
(10,295)
—
(5,579)
f
—
—
g
206
(15,668)
—
(15,668)
—
(15,668)
86,154
20,651
31,818
11,601
150,224
6,921
32,970
24,951
47,471
105,392
(98,471)
1,996
(21,757)
(1,628)
636
192
(119,032)
1,079
(120,111)
(4,662)
$
(115,449)
Gain (loss) on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
$
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease of service cost of revenue
of $0.5 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $37.1 million and
installation cost of revenue of $12.1 million, offset by an increase in electricity cost of revenue $3.6 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.9
million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $4.8
million and an increase in service cost of $3.8 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
193
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives —The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales
arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value of the liability decreased resulting in a gain of $0.2 million.
194
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
Six Months Ended June 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
229,961
$
40,363
39,882
28,036
(35,693)
(7,925)
551
11,709
a
a
a
a
$
194,268
32,438
40,433
39,745
338,242
(31,358)
306,884
151,157
47,537
43,513
19,598
261,805
76,437
29,144
16,516
30,347
76,007
430
859
(43,904)
(5,299)
(930)
(23,231)
(72,075)
461
(72,536)
(9,144)
(25,089) c, d
126,068
c
d
c
(8,388)
888
6,249
(26,340)
(5,018)
—
e
(56)
—
(56)
(4,962)
—
(9,235)
f
—
—
—
(14,197)
—
(14,197)
—
39,149
44,401
25,847
235,465
71,419
29,144
16,460
30,347
75,951
(4,532)
859
(53,139)
(5,299)
(930)
(23,231)
(86,272)
461
(86,733)
(9,144)
$
(63,392)
$
(14,197)
$
(77,589)
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which impacted our service revenue allocation.
b .Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in decreases in product cost of revenue of $23.9 million and
installation cost of revenue of $8.4 million, offset by an increase in electricity cost of revenue of $6.2 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $1.2
million and an increase in service cost of revenue of $0.9 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
195
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
196
Revenue:
Product
Installation
Service
Electricity
Total revenue
Cost of revenue:
Product
Installation
Service
Electricity
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Interest expense to related parties
Other expense, net
Nine Months Ended September 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
$
355,651
70,053
60,633
42,095
(58,950)
(12,924)
856
18,089
a
a
a
a
$
296,701
57,129
61,489
60,184
528,432
(52,929)
475,503
246,514
87,655
66,164
28,277
428,610
99,822
56,165
37,992
71,346
165,503
(65,681)
2,326
(60,757)
(7,265)
(1,635)
(21,576)
(154,588)
458
(155,046)
(13,074)
(141,972) $
(51,393) c, d
195,121
(13,000)
2,707
9,750
c
d
c
(51,936)
(993)
—
(136)
e
— e
(136)
(857)
—
74,655
68,871
38,027
376,674
98,829
56,165
37,856
71,346
165,367
(66,538)
2,326
(14,507)
f
(75,264)
—
—
(755)
(16,119)
—
(16,119)
—
(16,119)
(7,265)
(1,635)
g
(22,331)
(170,707)
458
(171,165)
(13,074)
$
(158,091)
Loss on revaluation of warrant liabilities and embedded derivatives
Loss before income taxes
Income tax provision
Net loss
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
Net loss attributable to Class A and Class B common stockholders
$
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received
from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue
allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation
expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $37.9 million and
installation cost of revenue of $13.0 million, offset by an increase in electricity cost of revenue of $9.7 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $13.5
million and an increase in service cost of revenue of $2.7 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the
expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
197
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing
party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the correction of a misstatement in the valuation of our 6% Notes derivative, resulting in $0.8 million of
additional expense in the period.
198
The following tables contain the restatement and recasting of previously reported unaudited condensed consolidated statements of cash flows for the three-
month period ended March 31, 2019, the six-month periods ended June 30, 2019 and the nine-month period ended September 30, 2019, the restatement of
previously reported unaudited condensed consolidated statements of cash flows for the six-month period ended June 30, 2018 and the nine-month period ended
September 30, 2018 and the revision of the previously reported unaudited condensed consolidated statement of cash flows for the three-month period ended March
31, 2018.
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Payments for acquisition of intangible assets
Proceeds from maturity of marketable securities
Net cash provided by investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Proceeds from financing obligations
Repayment of financing obligations
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
199
Three Months Ended March 31, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
(88,273)
$
(21,056)
$
(109,329)
$
577
$
(108,752)
11,271
2,954
A
1
(453)
63,882
59
5,152
816
15,932
26,014
1,339
5,194
83
(2,464)
(2,500)
823
(44,533)
3,487
(4,170)
(8,543)
(848)
104,500
95,109
(5,016)
(778)
—
—
(3,189)
7,493
—
540
3,940
—
—
(98)
(4,845)
(37,098)
—
1,423
(396)
—
50
(1,196)
49,428
679
(5,675)
B
C
D
E
F
G
H
I
J
K
L
(3,403) M
—
—
(3,403)
—
—
10,961
(1,883)
N
N
—
—
14,225
1
87
67,822
59
5,152
718
11,087
(11,084)
1,339
6,617
(313)
(2,464)
(2,450)
(373)
4,895
4,166
(9,845)
(11,946)
(848)
104,500
91,706
(5,016)
(778)
10,961
(1,883)
(3,189)
7,493
—
—
—
—
—
—
3,413
—
—
—
11
(103)
—
(247)
—
(3,651)
—
—
—
—
—
—
—
—
—
—
—
—
14,225
1
87
67,822
59
5,152
4,131
11,087
(11,084)
1,339
6,628
(416)
(2,464)
(2,697)
(373)
1,244
4,166
(9,845)
(11,946)
(848)
104,500
91,706
(5,016)
(778)
10,961
(1,883)
(3,189)
7,493
Net cash provided by (used in) financing activities
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Three Months Ended March 31, 2019
As Previously
Reported
Restatement
Impacts
(1,490)
89,449
280,485
$
369,934
$
9,078
—
—
—
As Restated
7,588
89,449
ASC 606
Adoption
Impacts
As Restated &
Recast
—
—
7,588
89,449
280,485
$
369,934
$
—
— $
280,485
369,934
$
14,545
$
5,838
N $
20,383
$
222
—
222
— $
—
20,383
222
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were
previously treated as a contingent liability that was considered remote. We now consider the commitments a derivative liability, with the initial value of recorded as a reduction in product revenue and then any changes in the value
adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $4.4 million.
The correction of this misstatement also resulted in the capitalization of $0.5 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property,
plant and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as
construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $37.2 million, and the net capitalization of stock-based compensation expenses of $0.1 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance
payments are now classified within prepaid expenses.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-
term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements.
The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent
liability that was considered remote and therefore, no accrual was made. We now have a $0.1 million accrual, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted through other
expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead
of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue,
the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
200
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the
upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of
financing obligations and interest paid.
201
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Write-off of PPA II and PPA IIIb decommissioned assets
Debt make-whole expense
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Payments for acquisition of intangible assets
Proceeds from maturity of marketable securities
Net cash provided by investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Debt make-whole payment
Proceeds from financing obligations
Repayment of financing obligations
Payments to noncontrolling and redeemable noncontrolling interests
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Net cash used in financing activities
Net increase in cash, cash equivalents, and restricted cash
Six Months Ended June 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
(155,504)
$
(30,991)
$
(186,495)
$
(9,183)
$
(195,678)
31,023
2,704
25,613
5,934
555
115,100
60
11,255
46,591
27,542
19,198
2,713
8,477
1,028
(5,461)
(6,843)
7,213
(25,411)
3,419
115,206
(18,882)
(970)
104,500
84,648
(83,997)
(1,220)
(5,934)
6,011
A
—
—
—
1,081
4,086
—
—
(274)
(5,345)
(57,991)
—
1,752
(1,029)
—
114
(1,632)
71,325
1,303
B
C
D
E
F
G
H
I
J
K
L
37,034
2,704
25,613
5,934
1,636
119,186
60
11,255
46,317
22,197
(38,793)
2,713
10,229
(1)
(5,461)
(6,729)
5,581
45,914
4,722
(11,590)
103,616
(4,737) M
—
—
(4,737)
—
—
—
(23,619)
(970)
104,500
79,911
(83,997)
(1,220)
(5,934)
20,333
(4,006)
(18,690)
(7,753)
8,321
(92,946)
90,581
—
—
20,333
(4,006)
N
N
(18,690)
(7,753)
8,321
—
—
—
(109,273)
16,327
90,581
—
202
—
—
—
—
—
—
—
—
3,424
—
—
—
(2)
(271)
—
33
—
5,999
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37,034
2,704
25,613
5,934
1,636
119,186
60
11,255
49,741
22,197
(38,793)
2,713
10,227
(272)
(5,461)
(6,696)
5,581
51,913
4,722
103,616
(23,619)
(970)
104,500
79,911
(83,997)
(1,220)
(5,934)
20,333
(4,006)
(18,690)
(7,753)
8,321
(92,946)
90,581
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Six Months Ended June 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
280,485
$
371,066
$
—
—
280,485
$
371,066
$
—
— $
280,485
371,066
$
23,867
$
11,835
N $
35,702
$
497
—
497
— $
—
35,702
497
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were
previously treated as a contingent liability that was considered remote. We now consider the commitments a derivative liability, with the initial value recorded as a reduction in product revenue and then any changes in the value
adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $4.7 million.
The correction of this misstatement resulted in the capitalization of $0.6 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant
and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as
construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $56.5 million, and the net capitalization of stock-based compensation costs of $1.5 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end
customers and the payments received from the financing entity, is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset
against long-term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements.
The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent
liability that was considered remote. We now maintain a $0.3 million accrual, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period
thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead
of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue,
the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the
upfront proceeds received from the bank as revenue, the bank proceeds received are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing
obligations and interest paid.
203
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Write-off of PPA II and PPA IIIb decommissioned assets
Debt make-whole expense
PPA I decommissioning, net
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred managed services revenue
Deferred revenue and customer deposits
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Payments for acquisition of intangible assets
Proceeds from maturity of marketable securities
Net cash provided by investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Debt make-whole payment
Proceeds from financing obligations
Repayment of financing obligations
Payments to noncontrolling and redeemable noncontrolling interests
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Nine Months Ended September 30, 2019
As Previously
Reported
Restatement
Impacts
As Restated
ASC 606
Adoption
Impacts
As Restated &
Recast
$
(195,434)
$
(36,793)
$
(232,227)
$
(20,228)
$
(252,455)
55,816
2,987
25,613
5,934
—
1,335
154,955
61
16,295
58,150
(7,896)
56,854
4,142
7,928
3,281
14,171
(3,941)
5,029
—
(68,180)
2,083
139,183
(23,474)
(1,478)
104,500
79,548
(93,263)
(1,691)
(5,934)
9,132
A
—
—
—
—
1,620
5,278
—
—
(318)
6,121
(59,198)
—
176
(1,229)
—
109
162
—
74,765
2,477
2,302
B
C
D
E
F
G
H
I
J
K
L
(16,216) M
—
—
(16,216)
—
—
—
—
—
20,333
(6,419)
N
N
(43,713)
(9,363)
12,623
—
—
—
204
64,948
2,987
25,613
5,934
—
2,955
160,233
61
16,295
57,832
(1,775)
(2,344)
4,142
8,104
2,052
14,171
(3,832)
5,191
—
6,585
4,560
141,485
(39,690)
(1,478)
104,500
63,332
(93,263)
(1,691)
(5,934)
20,333
(6,419)
(43,713)
(9,363)
12,623
—
—
—
—
—
—
—
—
—
5,594
—
—
—
(33)
(758)
—
(242)
—
—
15,667
—
—
—
—
—
—
—
—
—
—
—
—
—
—
64,948
2,987
25,613
5,934
—
2,955
160,233
61
16,295
63,426
(1,775)
(2,344)
4,142
8,071
1,294
14,171
(4,074)
5,191
—
22,252
4,560
141,485
(39,690)
(1,478)
104,500
63,332
(93,263)
(1,691)
(5,934)
20,333
(6,419)
(43,713)
(9,363)
12,623
Net cash used in financing activities
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Nine Months Ended September 30, 2019
As Previously
Reported
Restatement
Impacts
(141,341)
13,914
77,390
280,485
$
357,875
$
—
—
—
As Restated
(127,427)
77,390
ASC 606
Adoption
Impacts
As Restated &
Recast
—
—
(127,427)
77,390
280,485
$
357,875
$
—
— $
280,485
357,875
$
35,894
$
17,878
N $
53,772
$
715
—
715
— $
—
53,772
715
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were
previously treated as a contingent liability that was considered remote. We now consider the commitments a derivative liability, with the initial value of recorded as a reduction in product revenue and then any changes in the value
adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $5.9 million.
The correction of this misstatement also resulted in the capitalization of $0.6 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property,
plant and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as
construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $60.6 million and the net capitalization of stock-based compensation expenses of $1.4 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-
term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements.
The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent
liability that was considered remote. We now maintain a $0.4 million accrual, with the initial value treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead
of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue,
the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
205
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the
upfront proceeds received from the bank as revenue, the bank proceeds received are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing
obligations and interest paid.
206
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Revaluation of preferred stock warrants
Common stock warrant valuation
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of marketable securities
Proceeds from maturity of marketable securities
Net cash provided by investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Repayment of financing obligations
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Payments of initial public offering issuance costs
Net cash used in financing activities
Net decrease in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
Beginning of period
Three Months Ended March 31, 2018
As Previously
Reported
Revision
Impacts
As Revised
$
(22,348)
$
(3,875)
$
(26,223)
10,847
2,457
A
13,304
7,157
7,956
12
(3,271)
(100)
7,168
(28,203)
(6,818)
16,282
1,306
(446)
1,266
(827)
(87)
(10,083)
(22,347)
8,049
(34,487)
(223)
(8,991)
15,750
6,536
(4,489)
(290)
—
(3,832)
120
(578)
(9,069)
(37,020)
—
191
—
—
—
—
(32)
3,291
(3,541)
—
929
(418)
B
C
D
E
F
G
—
10
H
(515)
6,620
I
J
7,157
8,147
12
(3,271)
(100)
7,168
(28,235)
(3,527)
12,741
1,306
483
848
(827)
(77)
(10,598)
(15,727)
981
K
9,030
6,098
(28,389)
(4,635)
L
—
—
(4,635)
—
—
(1,463) M
—
—
—
(1,463)
—
(4,858)
(8,991)
15,750
1,901
(4,489)
(290)
(1,463)
(3,832)
120
(578)
(10,532)
(37,020)
207
180,612
—
180,612
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Three Months Ended March 31, 2018
As Previously
Reported
Revision
Impacts
As Revised
$
143,592
$
—
$
143,592
11,216
401
4,613 M
—
15,829
401
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $0.6 million.
The correction of this misstatement also resulted in the capitalization of costs of $0.8 million related to assets under the Managed Services Program now recorded as construction in progress within property, plant and equipment, net.
C Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
D Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for
as construction in progress within property, plant and equipment, net.
E Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $3.2 million and the net capitalization of stock-based compensation expenses of $0.3 million.
F Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
G Other long-term assets —The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-
term deferred revenue.
H Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements.
I Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead
of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
J Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
K Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue,
the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
L Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
M Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the
upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of
financing obligations and interest paid.
208
.
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Revaluation of stock warrants
Revaluation of preferred stock warrants
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of marketable securities
Proceeds from maturity of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Proceeds from financing obligations
Repayment of financing obligations
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Payments of initial public offering issuance costs
Net cash provided by (used in) financing activities
Net decrease in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
209
Six Months Ended June 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
(72,536)
$
(14,197)
$
(86,733)
4,912
A
26,466
21,554
661
28,611
15,773
100
(7,456)
(166)
14,420
2,439
4,544
15
5,217
(1,883)
(12,815)
(31,817)
18,652
—
—
(292)
B
—
—
—
—
C
D
E
F
G
—
220
(866)
—
661
28,611
15,481
100
(7,456)
(166)
14,420
(6,681)
(38,257)
20,398
2,439
4,764
(851)
5,217
(6,486)
(46,172)
(195)
7,915
48,760
(28,362)
(300)
H
(2,183)
(1,386)
9,787
I
J
(14,201)
(22,030)
497
K
19,149
(18,585)
(22,267)
(40,852)
(1,595)
(11,550)
L
(13,145)
(15,732)
27,000
9,673
(9,201)
(627)
—
—
(11,582)
742
(1,160)
(21,828)
(30,740)
—
—
(11,550)
—
—
(15,732)
27,000
(1,877)
(9,201)
(627)
36,799 M
36,799
(2,982) M
—
—
—
33,817
—
(2,982)
(11,582)
742
(1,160)
11,989
(30,740)
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Six Months Ended June 30, 2018
As Previously
Reported
Restatement
Impacts
180,612
$
149,872
$
—
—
As Restated
180,612
$
149,872
$
16,540
$
9,233 M $
25,773
625
—
625
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $1.0 million.
The correction of this misstatement also resulted in the capitalization of $0.7 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property,
plant and equipment, net.
C Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
D Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for
as construction in progress within property, plant and equipment, net.
E Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $28.1 million and the net capitalization of stock-based compensation costs of $0.3 million.
F Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses, rather than offset against deferred revenue.
G Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers
and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-
term deferred revenue.
H Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements.
I Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead
of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
J Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
K Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the
bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
L Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
M Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the
upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of
financing obligations and interest paid.
210
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Write-off of property, plant and equipment, net
Revaluation of derivative contracts
Stock-based compensation
Loss on long-term REC purchase contract
Revaluation of stock warrants
Amortization of debt issuance cost
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred cost of revenue
Customer financing receivable and other
Prepaid expenses and other current assets
Other long-term assets
Accounts payable
Accrued warranty
Accrued expenses and other current liabilities
Deferred revenue and customer deposits
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Payments for acquisition of intangible assets
Purchase of marketable securities
Proceeds from maturity of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of debt
Repayment of debt to related parties
Proceeds from financing obligations
Repayment of financing obligations
Distributions to noncontrolling and redeemable noncontrolling interests
Proceeds from issuance of common stock
Proceeds from public offerings, net of underwriting discounts and commissions
Payments of initial public offering issuance costs
Net cash provided by financing activities
Net increase in cash, cash equivalents, and restricted cash
211
Nine Months Ended September 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
$
(155,046)
$
(16,119)
$
(171,165)
7,616
A
39,757
32,141
901
26,761
87,451
150
(9,109)
20,279
(11,168)
(44,465)
47,945
3,736
(6,514)
1,052
11,236
1,164
1,885
(32,203)
10,156
—
755
(10,777)
—
—
—
(332)
4,037
(34,343)
—
(1,585)
(1,398)
—
(324)
626
17,431
1,362
B
C
D
E
F
G
H
I
J
K
L
(13,648)
(33,051)
(4,333)
(2,762)
(15,732)
38,250
15,423
(14,036)
(990)
(20,283) M
—
—
—
(20,283)
—
—
—
—
57,897
(4,563)
N
N
(14,192)
1,456
292,529
(2,928)
261,839
263,614
—
—
—
—
53,334
—
901
27,516
76,674
150
(9,109)
20,279
(11,500)
(40,428)
13,602
3,736
(8,099)
(346)
11,236
840
2,511
(14,772)
11,518
(46,699)
(24,616)
(2,762)
(15,732)
38,250
(4,860)
(14,036)
(990)
57,897
(4,563)
(14,192)
1,456
292,529
(2,928)
315,173
263,614
Cash, cash equivalents, and restricted cash:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for taxes
Nine Months Ended September 30, 2018
As Previously
Reported
Restatement
Impacts
As Restated
180,612
$
444,226
$
—
—
180,612
$
444,226
$
30,601
$
1,052
14,505
N $
45,106
—
1,052
A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and
install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of this misstatement resulted from the cumulative net change in the valuation of our embedded derivatives in our 6% Notes. The change in the valuation was recorded in loss on
revaluation of embedded derivatives.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $10.1 million.
The correction of this misstatement also resulted in the capitalization of $0.7 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property,
plant and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity
billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as
construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased
Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $31.4 million and the net capitalization of stock-based compensation expenses of $3.0 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance
payments are now classified within prepaid expenses.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers
and payments received from the financing entity is recorded within long term receivables and commission payments are now classified within long term prepaid commissions.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead
of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable
recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end
customers and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset
against long-term deferred revenue.
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product
and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the
upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of
financing obligations and interest paid.
212
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit
under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC
rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive
officer) and Chief Financial Officer (our principal financial officer) as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2019. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that as of December 31, 2019, our disclosure controls and procedures were not effective because of the material
weakness described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act). Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting
principles.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control -- Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our management has concluded that, as of
December 31, 2019, our internal control over financial reporting was not effective because of the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified a material weakness,
whereby we did not design and maintain an effective control environment with a sufficient complement of resources with an appropriate level of accounting
knowledge, expertise and training to evaluate the accounting implications of complex or non-routine transactions commensurate with our financial reporting
requirements. This material weakness resulted in errors in the accounting for certain transactions, which resulted in a restatement of our consolidated financial
statements as of and for the year ended December 31, 2018, as of and for the three month period ended March 31, 2019, as of and for the three and six month
periods ended June 30, 2019 and 2018 and as of and for the three and nine month periods ended September 30, 2019 and 2018, and revisions to our consolidated
financial statements as of and for the year ended December 31, 2017 and as of and for the three month period ended March 31, 2018. Additionally, this material
weakness could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim
consolidated financial statements that would not be prevented or detected.
Remediation Activities
We are currently in the process of remediating the material weakness and have taken and continue to take steps that we believe will address the underlying
causes of the material weakness which resulted from an insufficient complement of resources with an appropriate level of accounting knowledge, expertise and
training to evaluate the accounting implications of complex or non-routine transactions commensurate with our financial reporting requirements. Steps we are
taking include increasing the use of qualified internal or third-party technical resources with accounting expertise on complex or non-routine transactions who will
provide accounting interpretation guidance to assist us in identifying and addressing any issues that affect our consolidated financial statements.
213
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
214
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Part III
The information required by this Item 10 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 2020 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the year ended December 31, 2019.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item 11 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 2020 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the year ended December 31, 2019.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 403 of Regulation S-K is incorporated by reference herein to the information set forth under the caption “Security
Ownership of Certain Beneficial Owners and Management” in our 2020 Proxy Statement to be filed with the Securities and Exchange Commission within 120 days
of the year ended December 31, 2019.
Securities Authorized for Issuance under Equity Compensation Plans
Plan Category
Equity compensation plans approved by stockholders 3
Equity compensation plans not approved by stockholders
Totals
Number of Securities
to Be Issued
Upon Exercise
of Outstanding
Options, Warrants and
Rights
Weighted Average
Exercise Price of
Outstanding
Options, Warrants and
Rights 1
28,443,704
—
28,443,704
20.96
—
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans 2
20,263,551 4
—
20,263,551
1 The weighted average exercise price does not take into account outstanding restricted stock units (RSUs) since those units vest without any cash consideration or other payment required for such shares.
2 Included in this amount are 3,030,407 shares available for future issuance under the 2018 Employee Stock Purchase Plan ("2018 ESPP").
3 Includes our 2002 Plan, 2012 Plan, 2018 EIP and our 2018 ESPP.
4 The number of shares of Class A common stock available for grant and issuance under the 2018 EIP shall be increased on January 1, of each of 2019 through 2028, by the lesser of (a) four percent (4%) of the number of
the Company's Class A common stock, the Company’s Class B common stock and common stock equivalents (including options, RSUs, warrants and preferred stock on an as-converted basis) issued and outstanding on each
December 31 immediately prior to the date of increase and (b) such number Class A common shares determined by the Board. On each January 1 of each calendar year, the aggregate number of shares of Class A common
stock reserved for issuance under the 2018 ESPP shall be increased automatically by the number of shares equal to one percent (1%) of the total number of outstanding shares of Class A common stock, Class B common
stock of the Company, and common stock equivalents (including options, restricted stock units, warrants and preferred stock on an as converted basis) outstanding on the immediately preceding December 31 (rounded down
to the nearest whole share); provided, that the Board or its Compensation Committee may in its sole discretion reduce the amount of the increase in any particular year.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item 13 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 2020 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the year ended December 31, 2019.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 2020 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the year ended December 31, 2019.
215
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
Part IV
(a) The following documents are filed as part of this report:
1. Financial Statements
See "Index to Consolidated Financial Statements and Supplementary Data" within the Consolidated Financial Statements herein.
2. Financial Statement Schedules
All financial statement schedules have been omitted since the required information was not applicable or was not present in amounts sufficient to require
submission of the schedules, or because the information required is included in the consolidated financial statements or the accompanying notes.
3. Exhibits
See the following Index to Exhibits.
The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
Index to Exhibits
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Description
Restated Certificate of Incorporation.
Amended and Restated Bylaws, effective August 8, 2019
Form of Common Stock Certificate of the Registrant
Indenture by and among the Registrant, certain guarantors party
thereto and U.S. Bank National Association, as trustee, dated as of
December 15, 2015
Form of 5% Convertible Senior Secured PIK Note due 2020 (included
in Exhibit 4.2)
Security Agreement by and among the Registrant, certain guarantors
party thereto and U.S. Bank National Association, as collateral agent,
dated as of December 15, 2015
Plain English Warrant Agreement by and between Triplepoint Capital
LLC, a Delaware limited liability company, and the Registrant, dated
December 31, 2010
Amended and Restated Plain English Warrant Agreement by and
between Triplepoint Capital LLC, a Delaware limited liability
company, and the Registrant, dated December 15, 2011
Agreement and Warrant to Purchase Series F Preferred Stock by and
between PE12GVVC (US Direct) Ltd. and the Registrant, dated July
1, 2014
Agreement and Warrant to Purchase Series F Preferred Stock by and
between PE12PXVC (US Direct) Ltd. and the Registrant, dated July 1,
2014
216
Incorporated by Reference
Form
10-Q
10-Q
S-1/A
S-1
S-1
S-1
File No.
001-38598
001-38598
333-225571
333-225571
333-225571
333-225571
S-1
333-225571
Exhibit
Filing Date
3.1
3.2
4.1
4.4
4.4
4.6
4.9
9/7/2018
8/14/2019
7/9/2018
6/12/2018
6/12/2018
6/12/2018
6/12/2018
S-1
333-225571
4.10
6/12/2018
S-1
333-225571
4.11
6/12/2018
S-1
333-225571
4.12
6/12/2018
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
10.1
10.2
10.3
10.4
10.5
10.6
Warrant to Purchase Preferred Stock by and between Atel Ventures,
Inc., in its capacity as Trustee for its assignee affiliated funds, and the
Registrant, dated December 31, 2012
Agreement and Warrant to Purchase Series G Preferred Stock by and
between Keith Daubenspeck and the Registrant, dated June 27, 2014
Agreement and Warrant to Purchase Series G Preferred Stock by and
between Dwight Badger and the Registrant, dated June 27, 2014
First Supplemental Indenture by and among Registrant, certain
guarantor party thereto and U.S. Bank National Association, as trustee,
dated as of September 20, 2016
Indenture by and among the Registrant, certain guarantors party
thereto and U.S. Bank National Association, as trustee, dated as of
June 29, 2017
Form of 10% Senior Secured Note due 2024 (included in Exhibit 4.15)
Security Agreement by and among the Registrant, U.S. Bank National
Association, as trustee and U.S. Bank National Association, as
collateral agent, dated as of June 29, 2017
Second Supplemental Indenture, Omnibus Amendment to Notes and
Limited Waiver by and among the Registrant, certain guarantors party
thereto and U.S. Bank National Association, as trustee, dated as of
June 29, 2017
Third Supplemental Indenture and Omnibus Amendment to Notes by
and among the Registrant, certain guarantors party thereto and U.S.
Bank National Association, as trustee, dated as of January 18, 2018
Form of Holder Voting Agreement, between KR Sridhar and certain
parties thereto
Amended and Restated Subordinated Secured Convertible Promissory
Note by and between the Registrant and Constellation NewEnergy,
Inc., dated as of January 18, 2018
Description of Company's securities registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended
^
^
^
^
2002 Equity Incentive Plan and form of agreements used thereunder
2012 Equity Incentive Plan and form of agreements used thereunder
2018 Equity Incentive Plan and form of agreements used thereunder
2018 Employee Stock Purchase Plan and form of agreements used
thereunder
Standard Industrial Lease dated April 5, 2005 by and between the
Registrant and The Realty Associates Fund III, L.P., as amended as of
April 22, 2005, January 12, 2010, April 30, 2015 and December 7,
2015
Ground Lease by and between 1743 Holdings, LLC and the Registrant
dated as of March 2012
10.7
^
Offer Letter by and between the Registrant and Randy Furr, dated
April 9, 2015
217
S-1
333-225571
4.13
6/12/2018
S-1
S-1
S-1
333-225571
333-225571
333-225571
4.15
4.16
4.19
6/12/2018
6/12/2018
6/12/2018
S-1
333-225571
4.20
6/12/2018
S-1
S-1
333-225571
333-225571
4.20
4.22
6/12/2018
6/12/2018
S-1
333-225571
4.24
6/12/2018
S-1
333-225571
4.25
6/12/2018
S-1/A
333-225571
S-1
333-225571
S-1
S-1
S-1
S-1/A
333-225571
333-225571
333-225571
333-225571
S-1
333-225571
4.26
4.28
10.2
10.3
10.4
10.5
10.7
7/9/2018
6/12/2018
Filed herewith
6/12/2018
6/12/2018
7/9/2018
7/9/2018
6/12/2018
S-1
S-1
333-225571
10.8
6/12/2018
333-225571
10.10
6/12/2018
10.8
10.9
†
Guaranty by the Registrant, dated as of March 16, 2012 (PPA II)
Equity Contribution Agreement by and among the Registrant,
Diamond State Generation Partners, LLC, and Deutsche Bank Trust
Company Americas, dated as of March 20, 2013 (PPA II)
S-1
S-1
333-225571
333-225571
10.13
10.15
6/12/2018
6/12/2018
10.10
† Master Energy Server Purchase Agreement between the Registrant and
S-1
333-225571
10.17
6/12/2018
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
^
^
^
^
†
†
10.22
x
10.23
10.24
10.25
10.26
x
x
x
x
Diamond State Generation Partners, LLC, dated as of April 13, 2012
(PPA II)
Omnibus First Amendment to MESPA, MOMA and ASA by and
among the Registrant, Diamond State Generation Partners, LLC and
Diamond State Generation Holdings, LLC, dated as of March 20, 2013
(PPA II)
Net Lease Agreement, dated as of April 4, 2018, by and between the
Registrant and 237 North First Street Holdings, LLC
Consulting Agreement between the Registrant and Colin L. Powell,
dated as of January 29, 2009
Amendment to Consulting Agreement between the Registrant and
Colin L. Powell, dated as of July 31, 2019
Grant Agreement by and between the Delaware Economic
Development Authority and the Registrant, dated March 1, 2012
Form of Indemnification Agreement
Form of Offer Letter
Preferred Distributor Agreement by and between Registrant and SK
Engineering & Construction Co., Ltd dated November 14, 2018
Third Amended and Restated Purchase, Use and Maintenance
Agreement between Registrant and 2016 ESA Project Company, LLC,
dated as of September 26, 2018
Amendment No.1 to Third Amended and Restated Purchase, Use and
Maintenance Agreement by and between Registrant and 2016 ESA
Project Company, LLC dated as of September 28, 2018
Amendment No.2 to Third Amended and Restated Purchase, Use and
Maintenance Agreement by and between Registrant and 2016 ESA
Project Company, LLC dated as of December 19, 2018
Equity Capital Contribution Agreement between the Company, SP
Diamond State Class B Holdings, LLC, Diamond State Generation
Partners, LLC, and Diamond State Generation Holdings, LLC, dated
June 14, 2019
Third Amended and Restated Limited Liability Company Agreement
of Diamond State Generation Partners LLC dated June 14, 2019
Fuel Cell System Supply and Installation Agreement between the
Company and Diamond State Generation Partners LLC, dated June 14,
2019
Amended and Restated Master Operations and Maintenance
Agreement between the Company and Diamond State Generation
Partners LLC, dated June 14, 2019
Repurchase Agreement between the Company and Diamond State
Generation Partners LLC, dated June 14, 2019
218
S-1
333-225571
10.18
6/12/2018
S-1
S-1
333-225571
10.29
6/12/2018
333-225571
10.31
6/12/2018
Filed herewith
S-1
333-225571
99.1
6/12/2018
10-Q
10-K
10-K
10-K
001-38598
001-38598
001-38598
10.1
10.27
10.28
9/7/2018
3/22/2019
3/22/2019
001-38598
10.29
3/22/2019
10-K
001-38598
10.30
3/22/2019
10-K
001-38598
10.31
3/22/2019
10-Q
001-38598
10.1
8/14/2019
10-Q
10-Q
001-38598
001-38598
10.2
10.3
8/14/2019
8/14/2019
10-Q
001-38598
10.4
8/14/2019
10-Q
001-38598
10.5
8/14/2019
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
x
x
x
x
^
x
x
x
x
10.36
x
^
^
^
^
10.37
10.38
10.39
10.40
10.41
21.1
23.1
31.1
Third Amended and Restated Limited Liability Company Agreement
of Diamond State Generation Holdings, LLC dated June 14, 2019
Annex 1 (Definitions) to Equity Capital Contribution Agreement (Ex
10.1) and Limited Liability Agreements (Exs. 10.2 and 10.6)
Purchase, Use and Maintenance Agreement between the Company and
2018 ESA Project Company, LLC dated June 28, 2019
Annexes to Purchase, Use and Maintenance Agreement between the
Company and 2018 ESA Project Company, LLC dated June 28, 2019
Bloom Energy Corporation 2020 Non-Employee Director Deferred
Compensation Plan
Fourth Amended and Restated Limited Liability Company Agreement
of Diamond State Generation Partners, LLC dated as of December 23,
2019
Fuel Cell System Supply and Installation Agreement between Bloom
Energy Corporation and Diamond State Generation Partners, LLC
dated as of December 23, 2019
Second Amended and Restated Administrative Services Agreement by
and between Bloom Energy Corporation and Diamond State
Generation Partners, LLC dated as of December 23, 2019
Equity Capital Contribution Agreement with respect to Diamond State
Generation Partners, LLC by and among Bloom Energy Corporation,
Diamond State Generation Holdings, LLC, SP Diamond State Class B
Holdings LLC, Assured Guaranty Municipal Corp. and Diamond State
Generation Partners LLC, dated as of December 23, 2019
Second Amended and Restated Master Operations and Maintenance
Agreement between Bloom Energy Corporation as Operator and
Diamond State Generation Partners, LLC dated as of December 23,
2019
First Amendment to Repurchase Agreement between the Company
and Diamond State Generation Partners LLC, dated June 14, 2019
Offer Letter between the Company and Chris White, dated April 16,
2019
Change of Control and Severance Agreement between the Company
and Chris White dated April 16, 2019
Offer Letter between the Company and Hari Pillai dated December 3,
2018.
Change of Control and Severance Agreement between the Company
and Hari Pillai dated December 3, 2018.
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and 15d-14(a) of the Securities and Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
219
10-Q
10-Q
10-Q
10-Q
001-38598
001-38598
001-38598
001-38598
10.6
10.7
10.8
10.9
8/14/2019
8/14/2019
8/14/2019
8/14/2019
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
31.2
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and 15d-14(a) of the Securities and Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1
** Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
101.DEF
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
^
Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
**
†
x
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed "filed" for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated
by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Confidential treatment requested with respect to portions of this exhibit.
Portions of this exhibit are redacted as permitted under Regulation S-K, Rule 601.
220
ITEM 16 - FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BLOOM ENERGY CORPORATION
Date:
March 31, 2020
Date:
March 31, 2020
By: /s/ KR Sridhar
KR Sridhar
Founder, President, Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ Randy Furr
Randy Furr
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints KR Sridhar and Randy Furr,
and each of them individually, as his or her attorney-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
221
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
Date:
March 31, 2020
/s/ KR Sridhar
KR Sridhar
Founder, President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Randy Furr
Randy Furr
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Michael Boskin
Michael Boskin
Director
/s/ Mary K. Bush
Mary K. Bush
Director
/s/ John T. Chambers
John T. Chambers
Director
/s/ L. John Doerr
L. John Doerr
Director
/s/ Jeffrey Immelt
Jeffrey Immelt
Director
/s/ Colin L. Powell
Colin L. Powell
Director
/s/ Scott Sandell
Scott Sandell
Director
/s/ Peter Teti
Peter Teti
Director
/s/ Eddy Zervigon
Eddy Zervigon
Director
222
Exhibit 4.20
DESCRIPTION OF REGISTRANT’S SECURITIES REGISTERED UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED
The following brief description of the capital stock of Bloom Energy Corporation (“us”, “our”, “we”, or the “Company”) is a summary. This summary is
not complete and is subject to and qualified in its entirety by reference to the complete text of our Restated Certificate of Incorporation (“Certificate of
Incorporation”) and our Amended and Restated By-Laws (“By-Laws”). We encourage you to read the Certificate of Incorporation and By-Laws carefully.
General
Our authorized capital stock consists of 600,000,000 shares of Class A common stock, $0.0001 par value per share, 600,000,000 shares of Class B common
stock, $0.0001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001 par value per share.
Class A Common Stock and Class B Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive
dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that
our board of directors may determine.
Voting Rights
Holders of our Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of
stockholders and holders of our Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of
stockholders. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters (including the election of
directors) submitted to a vote of stockholders, unless otherwise required by Delaware law or our Certificate of Incorporation. Delaware law could require either
holders of our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances:
•
•
if we were to seek to amend our Certificate of Incorporation to increase or decrease the par value of a class of our capital stock, then that class would
be required to vote separately to approve the proposed amendment; and
if we were to seek to amend our Certificate of Incorporation in a manner that alters or changes the powers, preferences, or special rights of a class of
our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed
amendment.
Our Certificate of Incorporation does not provide for cumulative voting for the election of directors. As a result, the holders of a majority of our voting
shares can elect all of the directors then standing for election. Our Certificate of Incorporation establishes a classified board of directors, which is divided into three
classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for
the remainder of their respective three-year terms.
KR Sridhar, our Chief Executive Officer and Chairman, has entered into voting agreements with certain of our stockholders who hold Class B common
stock. Under the voting agreement (a form of which is filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2019), stockholders
agreed to vote all of their shares as directed by, and granted an irrevocable proxy to, Mr. Sridhar at his discretion on all matters to be voted upon by stockholders.
Each of the voting agreements will automatically terminate:
Exhibit 4.20
(i)
upon the liquidation, dissolution or winding up of our business operations;
(ii)
(iii)
upon the execution by us of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of our
property and assets;
following our initial public offering, as to (a) any shares of Class B common stock that are converted to Class A common stock pursuant to our
restated Certificate of Incorporation and (b) the Class A common stock resulting from such conversion (but such voting agreement shall remain
effective as to any Class B common stock not so converted);
(iv)
from and after the third anniversary of our initial public offering, at any time upon such resolution by our board of directors;
(v)
upon the fifth anniversary of our initial public offering;
(vi)
(vii)
upon the date that is 60 days following the date on which KR Sridhar, or his successor under the voting agreement, ceases to provide services to
us as one of our officers;
upon such date as of which none of the parties, other than KR Sridhar or his successor, to the then-outstanding voting agreements, was one of the
five largest holders of our capital stock (which entered into a voting agreement) as of the date of our initial public offering; or
(viii)
at such time following the date of our initial public offering when there is no Class B common stock outstanding.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the
holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and
the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Change of Control Transactions
In the case of any distribution or payment in respect of the shares of our Class A common stock or Class B common stock upon a merger or consolidation
with or into any other entity, or other substantially similar transaction, the holders of our Class A common stock and Class B common stock will be treated equally
and identically with respect to shares of Class A common stock or Class B common stock owned by them, unless the only difference in the per share distribution to
the holders of the Class A common stock and Class B common stock is that any securities distributed to the holder of a share of Class B common stock have ten
times the voting power of any securities distributed to the holder of a share of Class A common stock, or, if there are other differences, then
Exhibit 4.20
such merger, consolidation, or other transaction is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock
and 80% of the outstanding shares of Class B common stock, each voting as a separate class.
Subdivisions and Combinations
If we subdivide or combine in any manner outstanding shares of Class A common stock or Class B common stock, the outstanding shares of the other class
will be subdivided or combined in the same manner, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a
majority of the outstanding shares of Class A common stock and 80% of the outstanding shares of Class B common stock, each voting as a separate class.
Conversion
Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition,
each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which occurs
after the date of our initial public offering, except for certain permitted transfers described in our Certificate of Incorporation, including transfers to family
members, trusts solely for the benefit of the stockholder or their family members, and partnerships, corporations, and other entities exclusively owned by the
stockholder or their family members.
In addition, partnerships or limited liability companies that hold shares of Class B common stock as of the ate of our initial public offering may distribute
their Class B common stock to their respective partners or members (who may further distribute the Class B common stock to their respective partners or members)
without triggering a conversion to Class A common stock. Such distributions must be conducted in accordance with the ownership interests of such partners or
members and the terms of any agreements binding the partnership or limited liability company.
All the outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the date that is the earliest
to occur of (i) immediately prior to the close of business on the fifth anniversary of our initial public offering, (ii) immediately prior to the close of business on the
date on which the outstanding shares of Class B common stock represent less than five percent (5%) of the aggregate number of shares of Class A common stock
and Class B common stock then outstanding, (iii) the date and time, or the occurrence of an event, specified in a written conversion election delivered by KR
Sridhar to our Secretary or Chairman of the Board to so convert all shares of Class B common stock, or (iv) immediately following the date of the death of KR
Sridhar. Following such conversion, each share of Class A common stock will have one vote per share and the rights of the holders of all outstanding common
stock will be identical. Once converted or transferred and converted into Class A common stock, the Class B common stock may not be reissued.
Preferred Stock
Our board of directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time
to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its
qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the
number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our
stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect
the market price of our common stock and the voting and other rights of the holders of our Class A common stock and Class B common stock. We currently have
no shares of preferred stock issued and outstanding.
Exhibit 10.14
BLOOM ENERGY CORPORATION
AMENDMENT TO CONSULTING AGREEMENT
This Amendment to Consulting Agreement (the “Amendment”) between Bloom Energy Corporation (the “Company”) and The Honorable
Colin L. Powell (the “Consultant”) is entered into this 31st day of July, 2019. The Company and the Consultant previously entered into a
Consulting Agreement dated January 29, 2009 (the “Consulting Agreement”) pursuant to which the Consultant was retained by the Company
as an independent contractor to perform consulting services for the Company on the terms set forth in the Consulting Agreement. The
Company and the Consultant desire to amend the terms of the Consulting Agreement as follows:
1. Exhibit A, paragraph 3, of the Consulting Agreement is hereby amended in full to read as follows:
“3. Compensation.
A. As consideration for Services rendered, the Company shall pay the Consultant an annual retainer of $120,000 paid quarterly
on April 30, July 31, October 30 and January 31, plus reimbursement for actual travel and other incurred costs.
B. Expenses. The Company will reimburse Consultant for all reasonable expenses incurred by Consultant in performance the
Services pursuant to the Agreement; provided that Consultant submits receipts for such expenses to the Company in
accordance with Company Policy.
C. Rates and Invoicing. Compensation will be due and payable based upon the pay rates described in Section 3(A). Once a
quarter, Consultant shall submit to the Company a written invoice for Services and Expenses, and such statement shall be
subject to approval of the Company’s Contact Person listed above, or other designated agent of the Company.”
2. All capitalized terms used in this Amendment shall be as defined in the Consulting Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
CONSULTANT
/s/ Colin L. Powell
_____________________________
BLOOM ENERGY CORPORATION
/s/ Shawn Soderberg
_____________________________
Shawn Soderberg, EVP General Counsel and Secretary
Exhibit 10.31
BLOOM ENERGY CORPORATION
2020 NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
1. Purpose. The purpose of the Bloom Energy Corporation 2020 Non-Employee Director Deferred Compensation Plan is to provide non-employee
members of the Board of Directors of Bloom Energy Corporation, a Delaware corporation (the “Company”), with the opportunity to elect to defer all or a portion
of (i) the cash retainer fees otherwise payable to them by the Company into deferred stock units and (ii) the restricted stock units granted to them by the Company.
2. Definitions. For purposes of the Plan:
(a)
“Account” shall mean the separate account maintained on the books of the Company for each Participant pursuant to Section 7, consisting of
the Cash Retainer Sub-Account and the RSU Sub-Account.
(b)
(c)
“Board” shall mean the Board of Directors of the Company.
“Committee” shall mean the Compensation and Organization Development Committee of the Board, or a subcommittee thereof, or such
other committee designated by the Board to administer the Plan.
(d)
(e)
“Common Stock” shall mean the Class A common stock, par value $0.0001 per share, of the Company, and all rights appurtenant thereto.
“Deferred Stock Units” shall mean deferred restricted stock units credited to a Participant’s Account pursuant to elections by the Participant
under Sections 5 and 6.
(f)
(g)
(h)
“Director” shall mean any member of the Board who is not an employee of the Company or any of its subsidiaries or affiliates.
“Effective Date” shall mean December 31, 2019.
“Fair Market Value” means as of any date the closing price of the Common Stock as reported on the New York Stock Exchange for that
date or, if no closing price is reported for that date, the closing price on the next preceding date for which a closing price is reported, unless otherwise determined
by the Committee.
(i)
(j)
“Participant” shall mean a Director who makes a deferral election under Section 5 or 6 of the Plan.
“Plan” shall mean the Bloom Energy Corporation 2020 Non-Employee Director Deferred Compensation Plan, as set forth herein and as
amended from time to time.
(k)
(l)
(m)
“Restricted Stock Units” or “RSUs” shall mean restricted stock units granted to the Participant under the Stock Plan.
“Section 409A” shall mean Section 409A of the Internal Revenue Code of 1986, as amended.
“Separation from Service” shall mean a “separation from service” from the Company, within the meaning of Section 409A and the
regulations promulgated thereunder.
(n)
“Stock Plan” shall mean the Bloom Energy Corporation 2018 Equity Incentive Plan, as amended from time to time, or any successor equity
plan adopted by the Company.
3. Administration. The Plan shall be administered by the Committee. The Committee shall, subject to the terms of this Plan, interpret this Plan and the
application thereof and establish, amend and revoke rules and regulations as it deems necessary or desirable for the administration of the Plan. All such
interpretations, rules,
regulations and conditions shall be final, binding and conclusive upon the Participants and all other persons having or claiming any right or interest in the Plan or
the Deferred Stock Units.
A majority of the Committee shall constitute a quorum. The Committee shall take action either by (i) a majority of the members of the Committee present
at any meeting at which a quorum is present or (ii) written approval by all of the members of the Committee without a meeting. The Committee may authorize any
one or more of its members or any officer of the Company to execute and deliver documents on behalf of the Committee.
No member of the Board or Committee, and no officer of the Company to whom the Committee delegates any of its power and authority hereunder, shall
be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board and the
Committee and such officers shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including
attorneys’ fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Company’s Certificate of Incorporation and/or
By-laws) and under any directors’ and officers’ liability insurance that may be in effect from time to time.
4. Eligibility. Each Director shall be eligible to participate in the Plan and to make the elections provided under Sections 5 and 6.
5. Deferral of Cash Retainer.
(a)
Annual Elections. Prior to the first day of each calendar year beginning on or after January 1, 2020, each Director may elect to defer payment
of all or a portion of the Director’s cash retainer fees to be earned in such calendar year that will be credited to the Cash Retainer Sub-Account of the Participant’s
Account. Any election made under this Section shall become irrevocable as of December 31 of the year prior to the year in which the services relating to the cash
retainer fee are performed.
(b)
Initial Participant Elections. An individual who becomes a Director for the first time after a calendar year has commenced may make a
deferral election, not later than the 30th day following the date the individual becomes a Director, with respect to all or a portion of the Director’s annual cash
retainer that is earned after the date of such election that will credited to the Cash Retainer Sub-Account of the Participant’s Account.
(c)
Effect of Elections. Any election made pursuant to this Section shall remain in effect for future calendar years unless and until the Participant
makes a new election in accordance with Section 5(a). In order to change the amount of a deferral for any subsequent calendar year (or to cease deferrals), a
Participant must make a new election prior to the calendar year for which the new election is to be effective.
6. Deferral of Restricted Stock Units.
(a)
Annual Elections. Prior to the first day of each calendar year beginning on or after January 1, 2020, each Director may elect, in accordance
with rules and procedures established by the Committee, to defer payment of all or a portion of the Restricted Stock Units granted to the Director in such calendar
year that will be credited to the RSU Sub-Account of the Participant’s Account. Any election made under this Section shall become irrevocable as of December 31
of the year prior to the year in which the RSUs relating to the election are granted.
(b)
Initial Participant Elections. An individual who becomes a Director for the first time after a calendar year has commenced may make a
deferral election, not later than the earlier of (i) the 30th day following the date the individual becomes a Director and (ii) to the extent permitted by Section 409A,
the day prior to the grant of Restricted Stock Units in such calendar year to the Director, with respect to all or a portion of the RSUs granted to the Director in such
calendar year that will credited to the RSU Sub-Account of the Participant’s Account.
(c)
Effect of Elections. Any election made pursuant to this Section shall remain in effect for future calendar years unless and until the Participant
makes a new election in accordance with Section 6(a). In order to
2
change the number of Restricted Stock Units deferred for any subsequent calendar year (or to cease deferrals), a Participant must make a new election prior to the
calendar year for which the new election is to be effective.
7. Account.
(a)
Cash Retainers. The crediting of Deferred Stock Units to the Cash Retainer Sub-Account of the Participant’s Account with respect to the
deferral of cash retainer fees pursuant to Section 5 shall be made as of the dates the fees earned by the Participant during the applicable calendar year would
otherwise have been payable to the Participant. The number of Deferred Stock Units to be credited shall be equal to the result of dividing the amount deferred as of
each such date by the Fair Market Value of one share of Common Stock on such date.
(b)
Restricted Stock Units. The crediting of Deferred Stock Units to the RSU Sub-Account of the Participant’s Account with respect to the
deferral of Restricted Stock Units pursuant to Section 6 shall be made as of the dates the RSUs granted to the Participant during the applicable calendar year
become vested. The number of Deferred Stock Units to be credited shall be equal to the number of RSUs that are deferred by the Participant as of such date.
(c)
Cash Dividends. Whenever any cash dividends are declared on the Common Stock, the Company will credit the Cash Retainer and RSU Sub-
Accounts of the Account of each Participant on the date such dividend is paid with a number of additional Deferred Stock Units equal to the result of dividing (i)
the product of (x) the total number of Deferred Stock Units credited to the Participant’s Sub-Account on the record date for such dividend and (y) the per share
amount of such dividend by (ii) the Fair Market Value of one share of Common Stock on the date such dividend is paid by the Company to the holders of Common
Stock.
(d)
Capitalization Adjustments. In the event of (i) any change in the Common Stock through a merger, consolidation, reorganization,
recapitalization or otherwise, (ii) a stock dividend, or (iii) a stock split, combination or other changes the Common Stock, all as described in Section 2.6 of the
Stock Plan, the Deferred Stock Units credited to the Cash Retainer and RSU Sub-Accounts of the Account of each Participant shall be increased or decreased
proportionately in accordance with Section 2.6 of the Stock Plan.
8. Payment of Account. Payment of the Cash Retainer and RSU Sub-Accounts of the Participant’s Account shall be paid to the Participant (or, in the event
of the Participant’s death, to the Participant’s beneficiary, as provided in Section 10) in shares of Common Stock equal to the number of Deferred Stock Units
credited to each Sub-Account (provided that any fractional Deferred Stock Units shall be paid in cash based on the Fair Market Value of one share of Common
Stock on the payment date), as provided below. Deferred Stock Units issued and settled under this Plan shall be granted under the Stock Plan and shall be
considered “Restricted Stock Units” granted pursuant to Section 9 of the Stock Plan.
(a)
the Participant, as follows:
Cash Retainer Sub-Account. Amounts credited to the Cash Retainer Sub-Account with respect to a deferral year shall be paid, as elected by
(i) in a single lump sum on the January 1st following the date the Director incurs a Separation from Service for any reason other than his or her
death;
(ii) in up to three annual installments beginning on the January 1st following the date the Director incurs a Separation from Service for any
reason other than his or her death, as irrevocably designated by the Director with respect to the applicable deferral year;
(iii) in a single lump sum on the January 1st following a specified payment date that is no more than five years following the deferral year, as
irrevocably designated by the Director with respect to the applicable deferral year; or
3
(iv) in up to three annual installments beginning on the January 1st following a specified payment date that is no more than five years
following the deferral year, as irrevocably designated by the Director with respect to the applicable deferral year.
In the absence of an effective election with respect to a deferral year, payment shall be made in accordance with sub-paragraph (i) above for such
deferral year.
(b)
RSU Sub-Account. RSUs credited to the RSU Sub-Account with respect to a deferral year shall be paid, as elected by the Participant, as
follows:
death;
(i) in a single lump sum on the January 1st following the date the Director incurs a Separation from Service for any reason other than his or her
(ii) in up to three annual installments beginning on the January 1st following the date the Director incurs a Separation from Service for any
reason other than his or her death, as irrevocably designated by the Director with respect to the applicable deferral year;
(iii) in a single lump sum on the January 1st following a specified payment date that is no more than five years following the deferral year, as
irrevocably designated by the Director with respect to the applicable deferral year; or
(iv) in up to three annual installments beginning on the January 1st following a specified payment date that is no more than five years
following the deferral year, as irrevocably designated by the Director with respect to the applicable deferral year.
In the absence of an effective election with respect to a deferral year, payment shall be made in accordance with sub-paragraph (i) above for such deferral
year.
(c)
Distribution upon Death. If a Director incurs a Separation from Service due to death or his or her death occurs after Separation from Service
but before payment to him or her of the entire balance of his or her Cash Retainer Sub-Account or RSU Sub-Account, all or the remaining balance of his or her
Cash Retainer Sub-Account or RSU Sub-Account shall be paid to such Director’s beneficiaries in a lump sum on the 10th business day following the date of death.
(d)
Redeferral Election. A Director may modify a prior election regarding the time of distribution under this Section 8, provided that any such
election (i) shall not be effective until twelve (12) months after the date on which the new election is made; (ii) must be made at least twelve (12) months in
advance of the first scheduled payment date; and (iii) must provide for a new payment date that is at least five years after the first scheduled payment date.
9. Corporate Transaction. In the event of a Corporate Transaction (as defined in the Stock Plan as in effect at the time of the deferral election) that
constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets under Section 409A,
the Account of each Participant shall be settled in shares of the successor entity in accordance with the terms of the Stock Plan or, if elected by the Board, shall be
paid to the Participant in a lump sum in cash within ten business days after the date of the Corporate Transaction, with such cash amount equal to the result of
multiplying (i) the number of Deferred Stock Units credited to the Participant’s Account on the Corporate Transaction date by (ii) the Fair Market Value of one
share of Common Stock on the Corporate Transaction date.
10. Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons as his beneficiary or beneficiaries to
whom payment under the Plan shall be paid in the event of his or her death prior to payment to the Participant of his or her Account. Any beneficiary designation
may be made or changed by a Participant by a written instrument, in such form prescribed by the Committee, which is filed with the
4
Company prior to the Participant’s death. If a Participant fails to designate a beneficiary, or if all designated beneficiaries predecease the Participant, the Account
shall be paid to the Participant’s estate.
11. Amendment and Termination. The Board may amend or terminate the Plan at any time in whole or in part; provided, however, that no amendment or
termination shall reduce the Deferred Stock Units credited to a Participant’s Account (except in the case of any adjustments in accordance with Section 2.6 of the
Stock Plan) or adversely affect the rights of a Participant to such Deferred Stock Units, without the consent of the Participant (or the Participant’s beneficiary in the
event of the Participant’s death). Notwithstanding the foregoing, the Plan may be amended at any time, without the consent of any Participant (or beneficiary) if
necessary or desirable to comply with the requirements, or avoid the application, of Section 409A.
12. General Provisions.
(a)
Unfunded Plan. The Company’s obligation to make payment under the Plan shall be contractual only and all payments hereunder shall be
made by the Company from its general assets at the time and in the manner provided for in the Plan. No funds, securities or other property of any nature shall be
segregated or earmarked for any current or former Participant, beneficiary or other person, and his or her sole right is as a general creditor of the Company with an
unsecured claim against its general assets.
(b)
Non-Alienation of Benefits. Neither a Participant nor any other person shall have any rights to sell, assign, transfer, pledge, anticipate, or
otherwise encumber the amounts, if any, payable under the Plan to the Participant or any other person. Any attempted sale, assignment, transfer or pledge shall be
null and void and without any legal effect. No part of the amounts payable under the Plan shall be subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any
other person’s bankruptcy or insolvency.
(c)
Section 409A. Notwithstanding any provision of the Plan to the contrary, the Plan will be construed, administered or deemed amended as
necessary to comply with the requirements of Section 409A to avoid taxation under Section 409A to the extent Section 409A applies to the Plan. Each payment and
benefit hereunder shall constitute a “separately identified” amount within the meaning of Treasury Regulation §1.409-2(b)(2). The Committee, in its sole discretion
shall determine the requirements of Section 409A that are applicable to the Plan and shall interpret the terms of the Plan in a manner consistent therewith. Under no
circumstances, however, shall the Company or any affiliate or any of its or their employees, officers, directors, service providers or agents have any liability to any
person for any taxes, penalties or interest due on amounts paid or payable under the Plan, including any taxes, penalties or interest imposed under Section 409A.
(d)
No Stockholder Rights. Neither the Participant nor any other person shall have any rights as a stockholder of the Company with respect to
the Deferred Stock Units credited to the Participant’s Account until the shares of Common Stock are issued to the Participant (or the beneficiary of the Participant).
(e)
Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Plan, and the Plan shall be enforced as if the invalid provisions had never been set forth therein.
(f)
Successors in Interest. The obligation of the Company under the Plan shall be binding upon any successor or successors of the Company,
whether by merger, consolidation, sale of assets or otherwise, and for this purpose reference herein to the Company shall be deemed to include any such successor
or successors.
(g)
Governing Law; Interpretation. The Plan shall be construed and enforced in accordance with, and governed by, the laws of the State of
Delaware, without giving effect to principles of conflict of laws.
5
Redacted Exhibit: This Exhibit contains certain identified information that has been excluded because it is both (i) not
material and (ii) would be competitively harmful if publicly disclosed. Redacted information is identified by [*],
Exhibit 10.32
FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DIAMOND STATE GENERATION PARTNERS, LLC
dated as of December 23, 2019
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TABLE OF CONTENTS
Page
Article I
2
DEFINITIONS
1.1 Definitions 2
Article II
2
FORMATION; OFFICES; TERM
Formation of the Company 2
2.1
2.2 Name 2
Term 2
2.3
Purpose 2
2.4
2.5
Powers 3
2.6 Offices 3
2.7
Title to Company Assets 3
2.8 No Partnership Intended 3
Article III
3
RIGHTS AND OBLIGATIONS OF THE MEMBERS
3.1 Membership Interests. 3
3.2 Actions by the Members. 5
3.3 Management Rights 6
3.4 Other Activities 6
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TABLE OF CONTENTS
Page
Limitation of Liability of Members. 7
Liability for Deficits 10
Company Property 10
Retirement, Resignation, Expulsion, Bankruptcy or Dissolution of a Member 10
3.5 No Right to Withdraw 7
3.6
3.7
3.8
3.9
3.10 Withdrawal of Capital 10
3.11 [Reserved]. 10
3.12 Covenants. 10
3.13 Closing Obligations 11
3.14 Events of Default 11
3.15 Separateness 12
Article IV
13
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
4.1
4.2
Capital Contributions. 13
Capital Accounts. 13
Article V
15
ALLOCATIONS
5.1 Maintenance of Separate Records for Phase 1 New Systems and Phase 2 New Systems 15
5.2
Revenue and Expense Statement. 18
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Page
5.3 Allocations 19
5.4 Adjustments 20
5.5
5.6
5.7
Tax Allocations. 21
Transfer or Change in Company Interest 22
Timing of Allocations 22
Article VI
22
DISTRIBUTIONS
6.1 Distributions. 22
6.2 Withholding Taxes 25
6.3
6.4 No Return of Distributions 26
Limitation upon Distributions 26
Article VII
26
ACCOUNTING AND RECORDS
7.1
7.2
7.3
7.4
7.5
7.6
Reports. 26
Books and Records and Inspection. 27
Bank Accounts, Notes and Drafts. 29
Intentionally Omitted. 29
Partnership Status and Tax Elections. 29
Company Tax Returns. 30
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TABLE OF CONTENTS
Page
7.7
7.8
7.9
Tax Audits. 31
Cooperation 32
Fiscal Year 32
Article VIII
33
MANAGEMENT
8.1 Management 33
8.2 Managing Member. 33
8.3 Major Decisions. 35
8.4
Insurance. 35
8.5 Notice of Material Breach 36
8.6
Letter of Credit. 36
Article IX
37
TRANSFERS, CHANGES OF CONTROL AND INDEMNIFICATION
9.1
9.2
9.3
9.4
9.5
9.6
Restrictions Applicable to All Transfers by Members. 37
Conditions to Transfers of Membership Interests 38
[Reserved]. 39
Conditions to Changes of Control of Upstream Entities. 39
Certain Permitted Transfers 40
Regulatory and Other Authorizations and Consents 40
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TABLE OF CONTENTS
Page
Security Interest Consent 41
Tag-along Rights. 41
9.7 Admission 40
9.8
9.9
9.10 Indemnification; Other Rights of the Members. 43
9.11 Indemnification of Members by the Company 45
9.12 Direct Claims 45
9.13 Third Party Claims 45
9.14 No Duplication 46
9.15 Sole Remedy 47
9.16 Final Date for Assertion of Indemnity Claims 47
9.17 Reasonable Steps to Mitigate 47
9.18 Net of Insurance Benefits 47
9.19 No Consequential Damages 47
9.20 Payment of Indemnification Claims 48
9.21 Repayment; Subrogation 48
Article X
48
DISSOLUTION AND WINDING-UP
10.1 Events of Dissolution 48
10.2 Distribution of Assets. 49
10.3 In-Kind Distributions 50
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Page
10.4 Certificate of Cancellation. 50
Article XI
50
MISCELLANEOUS
11.1 Notices 50
11.2 Amendment 50
11.3 Partition 51
11.4 Waivers and Modifications 51
11.5 Severability 51
11.6 Successors; No Third-Party Beneficiaries 51
11.7 Entire Agreement 52
11.8 Governing Law 52
11.9 Further Assurances 52
11.10 Counterparts 52
11.11 Dispute Resolution 52
11.12 Confidentiality. 52
11.13 Joint Efforts 54
11.14 Specific Performance 54
11.15 Survival 55
11.16 Effective Date 55
11.17 Recourse Only to Member 55
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TABLE OF CONTENTS
Page
Definitions
Membership Interests
Member Names and Addresses
Revenue and Expense Statement Information
Required Insurance
Form of Class A Membership Interests Certificate
Form of Class B Membership Interests Certificate
Form of Class C Membership Interests Certificate
Form of Assignment Agreement
Major Decisions
Form of Operations Report
Form of Class B Draw Request
Form of Class C Draw Request
ANNEXES
Annex I
Annex II
SCHEDULES
Schedule 4.2(d)
Schedule 5.2
Schedule 8.4
EXHIBITS
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Exhibit H
DM_US 164459608-9.107145.0012
FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DIAMOND STATE GENERATION PARTNERS, LLC
THIS FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this
“Agreement”) of DIAMOND STATE GENERATION PARTNERS, LLC, a Delaware limited liability company (the “Company”), is
made and entered into as of December 23, 2019 by and among Diamond State Generation Holdings, LLC, a Delaware limited
liability company (the “Class A Member”), SP Diamond State Class B Holdings, LLC, a Delaware limited liability company
(“Southern” or the “Class B Member”) and Assured Guaranty Municipal Corp., a New York insurance company (“Class C
Member”), and acknowledged and agreed for purposes of Section 8.6(g), the Company. This Agreement amends and restates the
Third Amended and Restated Limited Liability Company Agreement of the Company, dated as of June 14, 2019, including all
amendments thereto (the “Third A&R LLCA”), in its entirety in accordance with the following terms and conditions.
Preliminary Statements
WHEREAS, the Company is organized under the provisions of the Delaware Limited Liability Company Act (as
amended from time to time, the “Act”). The Certificate of Formation (as amended and restated from time to time, the “Certificate” or
“Certificate of Formation”) was filed on April 14, 2011 with the Secretary of State of the State of Delaware. Pursuant to that certain
Certificate of Amendment of Certificate of Formation of Germinis 2011 Generation Partners, LLC, filed on May 26, 2011 with the
Secretary of State of the State of Delaware by an authorized person under Section 18-202 of the Act, the Certificate was amended on
May 27, 2011 to reflect a change in name from “Germinis 2011 Generation Partners, LLC” to “Diamond State Generation Partners,
LLC”;
WHEREAS, pursuant to the Equity Capital Contribution Agreement among Bloom, the Company, the Class A
Member, the Class B Member and the Class C Member, dated as of the date hereof (the “ECCA”), the Class C Member has agreed
to make capital contributions to the Company, including one on the date hereof, in return for the issuance of 100% of the Class C
Membership Interests in the Company; and
WHEREAS, upon issuance of the Class C Membership Interests in the Company, the Members desire to amend and
restate the Third A&R LLCA.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which
DM_US 164459608-9.107145.0012
are hereby acknowledged, the parties agree, effective as of the date hereof (the “Effective Date”), that:
Interests and Class C Membership Interests, as set forth on Annex II;
A.
There shall be three classes of Membership Interests, Class A Membership Interests, Class B Membership
C Member are the sole Members of the Company on the date hereof; and
B.
The Class C Member is admitted to the Company, and the Class A Member, the Class B Member and the Class
and restated in its entirety as set forth herein.
C.
The Third Amended and Restated Limited Liability Company Agreement of the Company is hereby amended
-2-
DM_US 164459608-9.107145.0012
1.1 Definitions. Capitalized terms used but not otherwise defined in this Agreement have the meanings given to such terms
in Annex I.
Article I
DEFINITIONS
ARTICLE II
FORMATION; OFFICES; TERM
2.1 Formation of the Company. The Company is organized under the provisions of the Act. The Certificate was filed on
April 14, 2011 with the Secretary of State of the State of Delaware and amended as set forth above to reflect a change in name from
“Germinis 2011 Generation Partners, LLC” to “Diamond State Generation Partners, LLC.”
2.2 Name. The name of the Company is, and the business of the Company shall be conducted under the name of, “Diamond
State Generation Partners, LLC.” The name of the Company may be changed from time to time by amendment of the Certificate.
The Company may transact business under an assumed name by filing an assumed name certificate in the manner prescribed by
Applicable Law.
2.3 Term. The Company’s existence shall be perpetual unless earlier terminated pursuant to the provisions of this
Agreement.
2.4 Purpose. The Company has been formed for the object and purpose of: (i) installing, owning and operating a number of
Systems having an aggregate nameplate capacity of up to 27.5 MW, and consisting of 17.7 MW of Phase 1 New Systems and 9.8
MW of Phase 2 New Systems, (ii) entering into the Southern ECCA, the ECCA, the Phase 1 CapEx Agreement, the Phase 2 CapEx
Agreement, the MOMA, the Site Leases, and all other contracts necessary or useful in connection with the purchase, installation,
ownership and operation of the Systems and Project, (iii) making tax filings, (iv) requesting Capital Contributions on each
Subsequent Funding Date from the Class C Member through Funding Notices and as set forth herein, and (v) all such other actions
reasonably related to carrying out the foregoing.
2.5 Powers. The Company shall have the power and authority to do any and all acts necessary or convenient to or for the
furtherance of the purposes described herein, and shall have and may exercise all powers and authorities, statutory or otherwise,
conferred upon limited liability companies under the laws of the State of Delaware.
2.6 Offices. The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the
office of the registered agent named in the Certificate or such other office (which need not be a place of business of the Company) as
the Managing Member may designate in the manner provided by Applicable Law. The registered agent of the Company in the
-3-
DM_US 164459608-9.107145.0012
State of Delaware shall be the registered agent named in the Certificate or such other Person or Persons as the Managing Member
may designate in the manner provided by Applicable Law. The principal office of the Company shall be 30 Ivan Allen Jr. Blvd.,
NW, Atlanta, GA 30308, or at such other location as may be from time to time determined by the Managing Member. The Company
may have such other offices as the Managing Member may designate.
2.7 Title to Company Assets. Title to Company assets, whether real, personal or mixed and whether tangible or intangible,
shall be deemed to be owned by the Company as an entity, and no Member, Managing Member or officer of the Company,
individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of
the Company assets shall be held in the name of the Company. All Company assets shall be recorded as the property of the Company
in its books and records, irrespective of the name in which record title to such Company assets is held.
2.8 No Partnership Intended. The Members intend that the Company not be a partnership, limited partnership, joint venture
or other arrangement other than for tax purposes under the Code, the applicable Treasury Regulations and any state, municipal or
other income tax law or regulation, and this Agreement shall not be construed to suggest otherwise.
ARTICLE III
RIGHTS AND OBLIGATIONS OF THE MEMBERS
3.1 Membership Interests.
(a) The Membership Interests comprise 5 Class A Membership Interests, all of which are issued and held by the
Class A Member on the Effective Date, 100 Class B Membership Interests, all of which are issued and held by the Class B Member
on the Effective Date, and 100 Class C Membership Interests, all of which are issued and held by the Class C Member on the
Effective Date. For the avoidance of doubt, the Members intend that the number of Membership Interests of any class shall have no
bearing on the aggregate voting, economic or other rights of holders of Membership Interests of that class relative to the aggregate
voting, economic or other rights of holders of any other class of Membership Interests, and this Agreement shall be construed
consistently with that intent.
(b) The Class A Membership Interests, the Class B Membership Interests and the Class C Membership Interests
shall: (i) have the rights and obligations ascribed to such Membership Interests in this Agreement and the Act; (ii) with respect to the
Class A Membership Interests, the Class B Membership Interests and the Class C Membership Interests, be evidenced solely by
certificates in the forms annexed hereto as Exhibit A, Exhibit B, and Exhibit C respectively, or such other form as may be prescribed
from time to time by any Legal Requirements; (iii) be recorded in a register of Membership Interests, which register the Managing
Member shall maintain; (iv) be transferable only on recordation of such Transfer in the register of Membership Interest,
-4-
DM_US 164459608-9.107145.0012
which recordation the Managing Member shall make, upon compliance with the provisions of Article IX hereof and upon
presentation of the certificates duly endorsed for Transfer, or accompanied by assignment documentation in accordance with
Article IX; (v) be “securities” governed by Article 8 of the UCC in any jurisdiction (x) that has adopted revisions to Article 8 of the
UCC substantially consistent with the 1994 revisions to Article 8 adopted by the American Law Institute and the National
Conference of Commissioners on Uniform State Laws and (y) whose laws may be applicable, from time to time, to the issues of
perfection, the effect of perfection or non-perfection, and the priority of a security interest in Membership Interests in the Company;
and (vi) be personal property.
(c) The Company shall be entitled to treat the registered holder of a Membership Interest, as shown in the register of
Membership Interests referred to in Section 3.1(b), as the Member owning such Membership Interest for all purposes of this
Agreement, except that the Managing Member may record in the register of Membership Interest any security interest of a secured
party pursuant to any security interest permitted by this Agreement.
(d) If a Member Transfers all of its Membership Interest to another Person pursuant to and in accordance with the
terms in Article IX (other than a Transfer solely constituting a pledge, mortgage, encumbrance or hypothecation), the transferor shall
automatically cease to be a Member.
(e) Notwithstanding anything to the contrary in this Agreement, in the event the Class C Membership Interests are
Transferred pursuant to Section 7.1(f) of the ECCA:
(i) Any Phase 1 New Systems Income and Losses that otherwise would be allocated to the Class A Member
(in its capacity as the Class A Member) with respect to any period or portion thereof beginning after the date of such Transfer shall
instead be allocated to the Class B Member;
Member after the date of such Transfer shall instead be distributed to the Class B Member;
(ii) Any amounts that otherwise would be distributed to the Class A Member in its capacity as the Class A
(iii) Any decision, action, approval or consent of the Members after such Transfer that would require the
approval or consent of the Class C Member or of holders of any of the Class C Membership Interests but for the application of this
Section 3.1(e) shall not require such approval or consent and shall only require the approval or consent of Members holding a
majority of the outstanding Class B Membership Interests, if such decision, action, approval or consent relates to any contract or
other agreement between the Company and Bloom or any Affiliate of Bloom, to any claims the Company may have against Bloom
or any Affiliate of Bloom or to the selection or terms of engagement of a Successor Operator (including, for the avoidance of doubt,
any decision, action, approval or consent with respect to any termination of any services under the Administrative Services
Agreement, any removal or replacement of the Administrator, any removal
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or replacement of the Operator pursuant to the MOMA, any termination of the MOMA, any extension of the Warranty Period
beyond the Tariff Date pursuant to the MOMA and any agreement to set off any amounts owed by or to the Company under any
Transaction Documents, the Phase 1 CapEx Agreement or the Phase 2 CapEx Agreement); and
(iv) If so requested by the Class B Member, the Class B Member and the Class C Member shall work
together in good faith to amend this Agreement to the extent necessary to cause the aggregate voting, consent and approval rights
possessed by the Class A Member and the Class C Member to be substantially the same as the voting, consent and approval rights
possessed by the Class A Member pursuant to the Third A&R LLCA as in effect prior to the amendment and restatement of the
Third A&R LLCA by this Agreement.
3.2 Actions by the Members.
(a) Except as otherwise permitted by this Agreement (including Section 3.2(e) below), all actions of the Members
shall be taken at meetings of the Members which may be requested by any Class B Member or Class C Member for any reason and
shall be called by the Managing Member within 10 days following the written request of a Class B Member or a Class C Member.
The Members may conduct any Company business at any such meeting that is permitted under the Act or this Agreement. Meetings
shall be at a reasonable time and place. Accurate minutes of any meeting shall be taken and filed with the minute books of the
Company. Following each meeting, the minutes of the meeting shall be sent promptly to each Member.
(b) Members may participate in any meeting of the Members by means of conference telephone or other
communications equipment so that all persons participating in the meeting can hear each other or by any other means permitted by
law. Such participation shall constitute presence in person at such meeting.
(c) The presence in person or by proxy of Members owning more than 50% of the aggregate Class B Membership
Interests and more than 50% of the aggregate Class C Membership Interests shall constitute a quorum for purposes of transacting
business at any meeting of the Members; provided that, in the event that a quorum is not present at or otherwise represented at a
meeting of the Members duly called in accordance of this Section 3.2, the Managing Member may call a second meeting to occur no
sooner than five (5) Business Days nor later than ten (10) Business Days after such notice from the Managing Member, and if a
quorum is not present at such second meeting, the Members in attendance may, nonetheless, approve any actions reasonably
necessary to protect the assets or ongoing revenue of the Company. For the avoidance of doubt, no decision or action of the
Members (including any Major Decision) shall be agreed at any meeting, or otherwise taken, without a Class Majority Vote.
(d) Written notice stating the place, day and hour of the meeting of the Members, and the purpose or purposes for
which the meeting is called, shall be delivered by or at the direction of the Managing Member or of the Member calling such
meeting, to each Member of record entitled
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to vote at such meeting not less than 5 Business Days nor more than 30 days prior to the meeting. Notwithstanding the foregoing,
meetings of the Members may be held without notice so long as all the Class B Members and Class C Members are present in person
or by proxy.
(e) Any action may be taken by the Members without a meeting if such action is authorized or approved by the
written consent of Members representing Members owning more than 50% of the outstanding Class B Membership Interests plus
more than 50% of the outstanding Class C Membership Interests. The Members may conduct any Company business or take any
action required of Members under this Agreement through written consent. Where action is authorized by written consent no prior
notice is required and no meeting of Members needs to be called or noticed. A copy of any action taken by written consent must be
sent promptly to all Members and all actions by written consent shall be filed with the minute books of the Company.
(f) (i) No Class A Membership Interest shall be entitled to vote, (ii) each Class B Membership Interest shall be
entitled to one vote, and (iii) each Class C Membership Interest shall be entitled to one vote, in each case for purposes of any vote,
consent or approval of Members required under this Agreement or the Act. With respect to those matters required or permitted to be
voted upon by the Members, or for which a consent or approval of Members is required or permitted (including Major Decisions),
the affirmative vote, consent or approval of Members owning more than 50% of the outstanding Class B Membership Interests plus
more than 50% of the outstanding Class C Membership Interests shall be required to authorize or approve such matters (including
Major Decisions) (a “Class Majority Vote”).
3.3 Management Rights. No Member other than the Managing Member shall have any right, power or authority to take part
in the management or control of the business of, or transact any business for, the Company, to sign for or on behalf of the Company
or to bind the Company in any manner whatsoever. Except as otherwise provided herein, the Managing Member shall not hold out or
represent to any third party that any other Member has any such power or right or that any other Member is anything other than a
member in the Company. A Member, other than a Member who is the Managing Member, shall not be deemed to be participating in
the control of the business of the Company by virtue of its possessing or exercising any rights set forth in this Agreement or the Act
or any other agreement relating to the Company.
3.4 Other Activities. Notwithstanding any duty otherwise existing at law or in equity, any Member may engage in or
possess an interest in other business ventures of every nature and description, independently or with others, even if such activities
compete directly with the business of the Company, and neither the Company nor any of the Members shall have any rights by virtue
of this Agreement in and to such independent ventures or any income, profits or property derived from them.
3.5 No Right to Withdraw. Except in the case of Transfers in accordance with Article IX, no Member shall have any right to
resign voluntarily or otherwise withdraw from the Company
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without the prior written consent of each of the remaining Class B Members and Class C Members in their sole and absolute
discretion.
3.6 Limitation of Liability of Members.
(a) Each Member and its officers, directors, shareholders, Affiliates, employees and agents (each, a “Member
Party”) shall (i) have liability limited as described in the Act and other applicable Legal Requirements and (ii) not be liable to the
Company or any Member for and be defended, indemnified and held harmless by the Company from any and all judgments, awards,
causes of action, lawsuits, suits, proceedings, governmental investigations or audits, losses (including amounts paid in settlement of
claims), assessments, fines, penalties, administrative orders or injunctions (including any loss of profits, consequential, punitive,
incidental or special damages recovered by any Person other than a Member or an Affiliate of a Member), including interest,
penalties, reasonable attorney’s fees, disbursements and costs of investigations, deficiencies, levies, duties and imposts (“Claims”)
arising out of the performance by such Member Party of its obligations under this Agreement so long as (A) the Member Party acted
in good faith and in a manner reasonably believed by it to be in the best interest of or not opposed to the interest of the Company and
(B) the Member Party’s actions did not constitute willful misconduct, fraud or gross negligence or willful breach of any of its
covenants under this Agreement. Except as otherwise required by the Act, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be the debts, obligations and liabilities solely of the Company, and the Members
shall not be obligated personally for any of such debts, obligations or liabilities solely by reason of being a Member of the Company.
(b) Each of the Members shall be fully protected in relying in good faith upon the records of the Company and upon
such information, opinions, reports or statements presented to the Company by any other Person who is a Member or any officer or
employee of the Company, or by any other individual as to matters that such Member reasonably believes are within such other
Person’s professional or expert competence, including information, opinions, reports or statements as to the value and amount of the
assets, liabilities, profits or losses of the Company or any other facts pertinent to the existence and amount of assets from which
distributions to the Members might properly be paid. Without limiting the foregoing and notwithstanding anything to the contrary in
this Agreement, (i) the Managing Member shall be fully protected in relying on the directions of any other Member (other than any
Member holding the same class of Membership Interests as the Managing Member) in connection with any action taken or direction
given in accordance with this Agreement and (ii) shall have no liability to the Company or any other Member with respect to any
action, omission or decision with respect to the management or operations of the Company if the Managing Member notifies the
holders of each class of Membership Interests (other than Class A Membership Interests and any class of Membership Interests held
by the Managing Member) of such action, omission or decision as proposed by the Managing Member (such notice, a “Proposed
Action Notice”) and does not receive written notice of objection to such proposed action, omission or decision from holders of
greater than fifty (50%) of each class of Membership Interests required to be so notified within ten (10) Business Days of delivery of
such Proposed Action Notice.
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(c) To the extent that, at law or in equity, a Member, in its capacity as a member or the Managing Member of the
Company or otherwise, has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any Member or
other Person bound by this Agreement, such Member, acting under this Agreement, shall not be liable to the Company or to any
Member or other Person bound by this Agreement for its good faith reliance on the provisions of this Agreement; provided that this
Section 3.6(c) shall not be construed as limiting the obligations or liabilities of such Member in any capacity other than a member or
the Managing Member, whether pursuant to this Agreement or otherwise. The provisions of this Agreement, to the extent that they
restrict or eliminate the duties and liabilities of a Member, in its capacity as a member or the Managing Member of the Company,
otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Member.
(d) Except as otherwise provided in Section 9.10 hereof with respect to liability resulting from fraud or willful
misconduct, with respect to its failure to pay any amount due to any Indemnified Parties under the Transaction Documents or with
respect to Third Party claims, no Member, in its capacity as Managing Member or otherwise, shall have any liability of any kind to
any other Member under this Agreement for monetary damages in an amount that would exceed its aggregate obligation to
indemnify the Class A Indemnified Parties, the Class B Indemnified Parties or the Class C Indemnified Parties, as applicable,
pursuant to Section 9.10.
(e) No Member, in its capacity as Managing Member, as long as such capacity shall exist, shall have any liability to
the Company, a Member, or any other Person bound by this Agreement for damages resulting from any actions by the Operator
(including any breach or breaches of any of the Operator’s obligations, covenants or agreements under the MOMA or from any
actions by any other Successor Operator engaged to operate and maintain the Project pursuant to Section 8.2(d)).
(f) Powers and Immunities of Managing Member under Section 8.6.
(i) Powers and Immunities. Managing Member shall not have any duties or responsibilities under Section 8.6
except those expressly set forth in Section 8.6. Managing Member shall take action under Section 8.6 only upon receipt of a
completed Draw Request as set forth in Section 8.6. Whenever in the administration of Section 8.6 the Managing Member shall
deem it necessary or desirable that a factual matter be proved or established in connection with Managing Member taking, suffering
or omitting to take any action under Section 8.6, such matter may be deemed to be conclusively proved or established by a certificate
of an authorized officer of the Class B Member in the case of any action relating to a Class B Draw Request or the Class C Member
in the case of any action relating to a Class C Draw Request. Managing Member shall have the right at any time to seek instructions
concerning the administration of Section 8.6 from a Class Majority Vote or any court of competent jurisdiction. Managing Member
shall have no obligation to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its
duties under Section 8.6.
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(ii) Reliance. Under Section 8.6, Managing Member shall be entitled to conclusively rely upon and shall not
be bound to make any investigation into the facts or matters stated in any Draw Request believed by it to be genuine and to have
been signed or sent by or on behalf of the proper Person or Persons and shall have no liability for its actions taken, suffered or
omitted in good faith reliance thereon. Managing Member shall in all cases be fully protected in acting, or in refraining from acting,
under Section 8.6 in accordance with a request of a Class Majority Vote, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Members and the Company. Managing Member shall be fully justified in failing or
refusing to take any action under Section 8.6 if (a) such action would be contrary to Applicable Law, the requirements of the Issuing
Bank, or the terms of Section 8.6, (b) such action is not specifically provided for in Section 8.6, or (c) the taking of any such action
could expose it to potential liability.
(iii) Court Orders. Managing Member is hereby authorized to obey and comply with all writs, orders,
judgments, subpoenas, summons or decrees issued by any court or administrative agency affecting any money, documents or things
held by Managing Member pursuant to Section 8.6. Managing Member shall not be liable to any of the parties under Section 8.6,
their successors, or personal representatives by reason of Managing Member’s compliance with such writs, orders, judgments or
decrees, notwithstanding that such writ, order, judgment or decree is later reversed, modified, set aside or vacated.
(iv) No Fiduciary Obligations. Managing Member shall not have any fiduciary obligations or trust
obligations with respect to the Letter of Credit and nothing in this Agreement shall be deemed or construed to impose any liability,
responsibility, or obligation on Managing Member for payment of any of the expenses in connection with the Letter of Credit.
(v) Indemnification. The Class B Members shall indemnify and hold harmless the Managing Member from
any and all liabilities, losses, damages, costs, and expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel) which may be incurred by the Managing Member relating to or arising out of actions taken by the
Managing Member pursuant to Section 8.6 in connection with a Class B Draw Request, except to the extent that any such liabilities,
losses, damages, costs or expenses are caused by gross negligence, willful misconduct or bad faith of the Managing Member, as
determined pursuant to a final, non-appealable judgment of a court of competent jurisdiction. The Class C Members shall indemnify
and hold harmless the Managing Member from any and all liabilities, losses, damages, costs, and expenses of any kind (including,
without limitation, the reasonable fees and disbursements of counsel) which may be incurred by the Managing Member relating to or
arising out of actions taken by the Managing Member pursuant to Section 8.6 in connection with a Class C Draw Request, except to
the extent that any such liabilities, losses, damages, costs or expenses are caused by gross negligence, willful misconduct or bad faith
of the Managing Member, as determined pursuant to a final, non-appealable judgment of a court of competent jurisdiction. Each of
the Members shall indemnify and hold harmless Managing Member from any and all liabilities, losses, damages, costs, and expenses
of any kind (including, without limitation, the reasonable fees and disbursements of counsel) which
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may be incurred by Managing Member relating to or arising out of Section 8.6 and not described in either of the two preceding
sentences, except to the extent that any such liabilities, losses, damages, costs or expenses are caused by gross negligence, willful
misconduct or bad faith of Managing Member, as determined pursuant to a final, non-appealable judgment of a court of competent
jurisdiction.
3.7 Liability for Deficits. None of the Members shall be liable to the Company for any deficit in its Capital Account, nor
shall such deficits be deemed assets of the Company, except to the extent otherwise provided by law with respect to third-party
creditors of the Company.
3.8 Company Property. All property owned by the Company, whether real or personal, tangible or intangible and wherever
located, shall be deemed to be owned by the Company, and no Member, individually, shall have any ownership of such property.
3.9 Retirement, Resignation, Expulsion, Bankruptcy or Dissolution of a Member. The retirement, resignation, expulsion,
Bankruptcy or dissolution of a Member shall not, in and of itself, dissolve the Company. Subject to Section 8.2(g), the successors in
interest to the bankrupt Member shall, for the purpose of settling the estate, have all of the rights of such Member, including the
same rights and subject to the same limitations that such Member would have had under the provisions of this Agreement to Transfer
its Membership Interest. A successor in interest to a Member shall not become a substituted Member except as provided in this
Agreement.
3.10 Withdrawal of Capital. No Member shall have the right to withdraw capital from the Company or to receive or demand
distributions (except distributions described in Article VI) or return of its Capital Contributions until the Company is dissolved in
accordance with this Agreement and applicable provisions of the Act. No Member shall be entitled to demand or receive any interest
on its Capital Contributions.
3.11 [Reserved].
3.12 Covenants.
(a) Each Member represents and covenants to the Company and each other Member that (i) it is and will remain a
“United States person,” as defined in Section 7701(a)(30) of the Code and will not be subject to withholding under Section 1446 of
the Code and (ii) it is not and will not become a Disqualified Entity.
(b) The Managing Member covenants to the Company and each other Member that no part of the assets of the
Company is or will be used predominantly outside of the United States.
(c) Each Member covenants to the Company and each other Member that it will not take any action that would (i)
cause the assets of the Company to become subject to the alternative depreciation system within the meaning of Section 168(g) of
the Code or “tax-exempt use property”
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within the meaning of Section 168(h) of the Code; or (ii) result in the “recapture” under Section 50(a) of the Code of any ITC with
respect to the Systems.
(d) The Managing Member shall be required to perform its duties and obligations hereunder in good faith and in a
manner reasonably believed to be in the best interest of the Company.
(e) The Managing Member shall cause the Company to file (i) any applications, reports or other filings required to
be made by the Company under any federal, state or local Legal Requirements applicable to the Members, the Company or the
Project relating to the ownership, control and operation of the Project by the Company and (ii) any further filings that may be
necessary, proper or advisable in connection with the matters referred to in clause (i) above; provided that the Managing Member
shall provide the Class B Member and the Class C Member a reasonable opportunity to review and comment on any such filing that
is outside of the normal course of operation of the Company or the Project prior to the submission thereof to the applicable
Governmental Authority and shall consider in good faith all comments received from the Class B Member and the Class C Member.
Each Member shall make their respective required filings under any other applicable Legal Requirements. In connection with the
transactions contemplated by this Agreement, each of the Members and the Company shall: (A) cooperate with each other in
connection with the making of all filings, notifications and any other material actions pursuant to this Section 3.12(e), including,
subject to applicable Legal Requirements, by permitting counsel for the other Parties to review in advance, and consider in good
faith the views of the other Parties in connection with, any proposed written communication to any Governmental Authority
addressing the terms of this Agreement; and (B) furnish to the other Parties such information and assistance as such Parties may
reasonably request in connection with (x) the preparation of any submissions to, or agency proceedings by, any Governmental
Authority, or (y) obtaining any consents, approvals or waivers required by any Governmental Authority.
3.13 Closing Obligations. The obligation of the Class C Member to make its Capital Contributions is unconditional, except
as provided herein and in the ECCA, and subject to full recourse.
3.14 Events of Default. An event of default with respect to a Member shall occur upon the occurrence of any of the
following with respect to such Member: (i) failure by such Member to make any Capital Contribution required to be made by such
Member when due or perform any other obligation with respect to such payment and the same is not cured within 5 Business Days
after notice that the same is due, (ii) such Member makes a material representation or warranty which was untrue or inaccurate when
made, or (iii) a material breach by such Member of any provision in this Agreement. Without in any way limiting any other remedies
available to the Class A Member, the Class B Member or the Class C Member hereunder, upon an event of default by any such
Member, the other Members shall have the right to suspend performance of its obligations that are prevented by such default.
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3.15 Separateness. Each Member and the Company are separate and distinct entities, and the Members agree that the
Company shall maintain its existence separate and distinct from any other Person, including, without limitation, adhering to the
following:
(a) The Company has not formed, acquired or held and shall not form, acquire or hold any Subsidiary;
(b) The Company has not engaged in, sought, consented to or permitted and shall not engage in, seek, consent to or
permit any dissolution, winding up, liquidation, consolidation or merger or any sale or other transfer of all or substantially all of its
assets or any sale of assets outside the ordinary course of its business;
(c) The Company shall not incur any debt or contingent liabilities except as permitted by this Agreement;
(d) The Company shall not commingle assets with those of any other Person and shall hold its assets in its own
name;
any Member;
(e) The Company shall conduct its own business in its own name and not in the name of any other Person, including
(f) The Company shall maintain bank accounts (if any), books and records separate from any other Person;
(g) The Company shall observe all formalities of this Agreement and the Certificate of Formation;
(h) The Company shall not identify itself as a department or division of any other Person;
(i) The Company shall not acquire obligations or securities of its Members;
(j) The Company shall pay its own liabilities out of its own funds;
(k) The Company shall maintain adequate capital in light of its contemplated business operations and liabilities;
(l) The Company shall use its own stationery, invoices and checks separate from those of any other Person,
including any Member;
(m) The Company shall pay the salaries of its own employees, if any, and maintain a sufficient number of
employees in light of its contemplated business operations;
(n) The Company shall not guarantee or become obligated for the debts of any other entity or hold out its credit as
being available to satisfy the obligations of any other Person;
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(o) The Company shall not make any loans to any other Person other than in accordance with this Agreement;
(p) The Company shall conduct all transaction and maintain relationship with any Affiliates on an arm's length basis
and on commercially reasonable terms;
(q) The Company shall not pledge its assets for the benefit of any other Person; and
(r) The Company shall hold itself out as a separate entity, and shall use commercially reasonable efforts to correct
any known misunderstanding regarding its separate identity.
ARTICLE IV
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
4.1 Capital Contributions.
(a) The Class C Member will make Capital Contributions to the Company at the times and in the amounts required
under the ECCA. No Member will be obligated to make any Capital Contributions to the Company, except for the Capital
Contributions of the Class C Member as required under the ECCA.
(b) The Managing Member shall be entitled to cause the Company to enforce the obligations of the Class C Member
with respect to the Initial Capital Contribution or either Subsequent Capital Contribution to be made on or after the Effective Date,
and the Company shall have all remedies available at law or in equity in the event any such obligation is not satisfied.
4.2 Capital Accounts.
(a) A Capital Account will be established and maintained for each Member in the manner required by the Treasury
Regulations under Section 704(b) of the Code. If there is more than one Member in a class, then each of the Members in that class
will have a separate Capital Account.
(b) A Member’s Capital Account will be increased by (i) the amount of money the Member contributes to the
Company, (ii) the Gross Asset Value of any property the Member contributes to the Company (net of liabilities secured by the
property that the Company is considered to assume or take subject to under Section 752 of the Code), and (iii) the income and gain
(or items thereof) that the Member is allocated by the Company, including any income and gain exempted from tax and gain
described in Section 4.2(c). A Member’s Capital Account will be decreased by (iv) the amount of money distributed to the Member
by the Company, (v) the Gross Asset Value of any property distributed to the Member by the Company (net of liabilities secured by
the property
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that the Member is considered to assume or take subject to under Section 752 of the Code), (vi) any expenditures of the Company
described in Section 705(a)(2)(B) of the Code (i.e., expenditures that cannot be capitalized or deducted in computing taxable
income) that are allocated to the Member, and (vii) losses and deductions (or items thereof) that are allocated by the Company to the
Member, including losses described in Section 4.2(c), but the Capital Account will not be reduced again under this clause (vii) for
expenditures that already reduced it under clause (vi).
(c) The Gross Asset Values of all the Company assets will be adjusted to equal their respective Gross Fair Market
Values upon the occurrence of any of the following events: (i) if any new or existing Member contributes more than a de minimis
amount of money or property, (ii) if more than a de minimis amount of money or other property is distributed by the Company to a
or (iii) if the Company is liquidated within the meaning of Treasury
Member to redeem its Membership Interest,
Regulations Section 1.704-1(b)(2)(ii)(g). Following the occurrence of an event in clauses (i) and (ii) the Managing Member will
make an adjustment to Gross Asset Value only if it reasonably determines, after Consultation with the other Members, that the
adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. In addition, the
Gross Asset Value of any Company asset that is distributed to a Member will be adjusted to equal the Gross Fair Market Value of the
asset on the applicable date of distribution. In the event the Gross Asset Value of any item of the Company’s property is adjusted as
described in this Section 4.2(c), then the amount of the adjustment will be treated as an item of gain (if the adjustment increases the
Gross Asset Value) or an item of loss (if the adjustment decreases the Gross Asset Value) from the disposition of such property.
(d) Within thirty (30) days after the Effective Date, the Managing Member shall determine the Capital Account
balance of each Member as of the Effective Date and shall deliver to each of the Members a schedule setting forth such balances. If
any Member disputes the Managing Member’s determination of such Capital Account balances and notifies the Managing Member
and the other Members in writing of such dispute within ten (10) Business Days after receiving the schedule setting forth the
Managing Member’s determination, the Members will work together in good faith to resolve such dispute.
(e) If all or a portion of a Membership Interest in the Company is Transferred in accordance with the terms of this
Agreement (other than a Transfer solely constituting a pledge, mortgage, encumbrance or hypothecation), then the transferee will
succeed to the Capital Account of the transferor to the extent it relates to the Membership Interest so Transferred.
(f) The provisions of this Agreement relating to maintenance of Capital Accounts are intended to comply with
Treasury Regulation Sections 1.704-1(b) and 1.704-2, and will be interpreted and applied in a manner consistent with such Treasury
Regulations or any successor provisions.
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ARTICLE V
ALLOCATIONS
5.1 Maintenance of Separate Records for Phase 1 New Systems and Phase 2 New Systems. In order to properly carry out
the allocations of income and loss as provided in this Article V, the income and loss from the ownership and operation of each of the
Phase 1 New Systems and the Phase 2 New Systems during each Accounting Period shall be determined as set forth below and in
Section 5.2.
(a) For purposes of this Agreement, “Phase 1 New Systems Income and Losses” shall mean, for any Accounting
Period, the net income or loss attributable to the Phase 1 New Systems, and all constituent items of income, gain, loss, and deduction
included therein, determined by assigning to the Phase 1 New Systems (i) a pro rata share of all Operating Revenue, Extraordinary
Shared Facility Revenue, and Extraordinary Shared Facility Maintenance Expenses for such Accounting Period based upon the
Phase 1 New Systems Output Percentage for such Accounting Period, (ii) all Specially Allocated Phase 1 New System Items for
such Accounting Period, and (iii) a pro rata share of Indirect Operating Expense for such Accounting Period based upon the Phase 1
New Systems Capacity Percentage for such Accounting Period.
(b) For purposes of this Agreement, “Phase 2 New Systems Income and Losses” shall mean, for any Accounting
Period, the net income or loss attributable to the Phase 2 New Systems, and all constituent items of income, gain, loss, and deduction
included therein, determined by assigning to the Phase 2 New Systems (i) a pro rata share of all Operating Revenue, Extraordinary
Shared Facility Revenue, and Extraordinary Shared Facility Maintenance Expenses for such Accounting Period based upon the
Phase 2 New Systems Output Percentage for such Accounting Period, (ii) all Specially Allocated Phase 2 New System Items for
such Accounting Period, and (iii) a pro rata share of Indirect Operating Expense for such Accounting Period based upon the Phase 2
New Systems Capacity Percentage for such Accounting Period.
(c) The Members acknowledge and agree that the intent of the definitions of Phase 1 New Systems Income and
Losses and Phase 2 New Systems Income and Losses under Section 5.1(a) and 5.1(b) and the special allocations of Phase 1 New
Systems Income and Losses and Phase 2 New Systems Income and Losses under Section 5.3(a)(i) is to ensure that (i) 100% of the
results of operation of the Phase 1 New Systems will be allocated either to the Class A Member or the Class B Member, in
accordance with Section 5.3, and 100% of the results of operation of the Phase 2 New Systems will be allocated to the Class C
Member, (ii) that 100% of the ITC and any state income tax credits attributable to the Phase 1 New Systems will be allocated to the
Class B Member and 100% of the ITC and any state tax credits attributable to the Phase 2 New Systems will be allocated to the
Class C Member, and (iii) that no ITC with respect to the Phase 1 New Systems and the Phase 2 New Systems will be subject to
recapture under Code section 50, and the provisions of this Article V shall be interpreted in a manner that is consistent with that
intent.
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(d) For purposes of this Agreement, the following terms shall have the following meanings:
(i) “Accounting Period” means each calendar month.
(ii) “Extraordinary Shared Facility Maintenance Expenses” shall mean, for any Accounting Period, any
expenses recognized under GAAP during such Accounting Period that are not due to a casualty or damages to equipment for which
insurance proceeds will be available and are either “exclusions” to repairs of the Shared Facilities under Section 4.8 of the MOMA,
or that relate to replacement or repair of the Shared Facilities that are not merely ordinary maintenance and that are expected to
extend the useful life of any portion of the Shared Facilities for more than one year.
(iii) “Extraordinary Shared Facility Revenue” shall mean, for any Accounting Period, any revenues
recognized under GAAP during such Accounting Period (A) from any insurance proceeds due to damage or destruction of any
Shared Facilities, to the extent that any such amounts received are in excess of the amount required to repair or replace such Shared
Facilities, and (B) from any Governmental Authority as a result of payment for compensation due to any action in condemnation or
eminent domain of all or any portion of the Shared Facilities.
(iv) “Indirect Operating Expenses” shall mean, for any Accounting Period, all expenses recognized under
GAAP during such Accounting Period that do not directly relate solely to the operation of the Phase 1 New Systems or solely to the
operation of the Phase 2 New Systems, including, without limitation, the charges for all common utility services, rent, common
permit fees, PJM meter charges and administrative fees and expenses (including, without limitation, bank charges, legal fees, and
accounting and auditor fees), but excluding any items included in Extraordinary Shared Facility Maintenance Expenses, Specially
Allocated Phase 1 New System Items or Specially Allocated Phase 2 New System Items; provided, however, that Indirect Operating
Expenses shall not include charges for natural gas required by the Systems at the Site and for which reimbursement has or will be
sought or advance payment has been made.
(v) “Operating Revenue” shall mean, for any Accounting Period all revenues recognized under GAAP during
such Accounting Period from the operation of the Project including net revenues from the sale of power, capacity and ancillary
services into the PJM Market, revenues recognized from Delmarva or any successor in accordance with the Tariffs or any
replacement thereof, interest and investment income, revenues from the Efficiency Guaranty (as defined in the MOMA), and any
business interruption insurance proceeds or similar revenue replacement or revenue substitution insurance or other contracts, but
excluding (A) any items included in Extraordinary Shared Facility Revenue, any Specially Allocated Phase 1 New System Items,
and any Specially Allocated Phase 2 New System Items, (B) tax credits or tax benefits of any kind otherwise governed by Section
5.1(d)(x) or Section 5.1(d)(xi), (C) reimbursements or “pass-throughs” for the purchase of natural gas, (D) insurance proceeds
otherwise governed by Section 5.1(d)(iii) (other than business interruption insurance proceeds), (E) warranty or guaranty
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payments by any manufacturer, contractor or operator of the Facilities or any part thereof otherwise governed by Section 5.1(d)(x) or
Section 5.1(d)(xi), or (F) indemnification otherwise governed by Section 5.1(d)(x) or Section 5.1(d)(xi).
(vi) “Phase 1 New Systems Output Percentage” shall mean, for any Accounting Period in which Phase 1
New Systems are in operation, the percentage determined by dividing the total output of the Phase 1 New Systems (measured in
kWh as determined by the Bloom System Meters (as defined in the MOMA)) for such Accounting Period by the total combined
output of the Phase 1 New Systems and the Phase 2 New Systems (measured in kWh as determined by the Bloom System Meters (as
defined in the MOMA)) for such Accounting Period.
(vii) “Phase 2 New Systems Output Percentage” shall mean, for any Accounting Period in which Phase 2
New Systems are in operation, the percentage determined by dividing the total output of the Phase 2 New Systems (measured in
kWh as determined by the Bloom System Meters (as defined in the MOMA)) for such Accounting Period by the total combined
output of the Phase 1 New Systems and the Phase 2 New Systems (measured in kWh as determined by the Bloom System Meters (as
defined in the MOMA)) for such Accounting Period.
(viii) “Phase 1 New Systems Capacity Percentage” shall mean, for any Accounting Period in which Phase 1
New Systems are in operation, the percentage determined by dividing the total nameplate capacity of the Phase 1 New Systems
(measured in MW) for such Accounting Period by the total nameplate capacity of the Phase 1 New Systems and the Phase 2 New
Systems (measured in MW) for such Accounting Period; provided, if during a given Accounting Period the total nameplate capacity
of either the Phase 1 New Systems or the Phase 2 New Systems at the beginning of such Accounting Period differs from the total
nameplate capacity of such Systems at the end of such Accounting Period, then the nameplate capacity of such Systems shall be
calculated as the average of the daily nameplate capacity of such Systems during such Accounting Period.
(ix) “Phase 2 New Systems Capacity Percentage” shall mean, for any Accounting Period in which Phase 2
New Systems are in operation, the percentage determined by dividing the total nameplate capacity of the Phase 2 New Systems
(measured in MW) for such Accounting Period by the total nameplate capacity of the Phase 1 New Systems and the Phase 2 New
Systems (measured in MW) for such Accounting Period; provided, if during a given Accounting Period the total nameplate capacity
of either the Phase 1 New Systems or the Phase 2 New Systems at the beginning of such Accounting Period differs from the total
nameplate capacity of such Systems at the end of such Accounting Period, then the nameplate capacity of such Systems shall be
calculated as the average of the daily nameplate capacity of such Systems during such Accounting Period.
(x) “Specially Allocated Phase 1 New System Items” shall mean, for any Accounting Period, all revenue,
expenses, tax credits, depreciation, income, gains and losses recognized under GAAP during such Accounting Period that are unique
or related only to the operation, ownership or disposition of the Phase 1 New Systems, such as, without limitation, fees under the
MOMA for the Phase 1 New Systems, other costs and expenses specifically related to
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the Phase 1 New Systems, revenue and income in respect of recoveries under the other Transaction Documents that are unique to the
Phase 1 New Systems (including, without limitation, payments pursuant to the Output Guaranty and the Output Warranty (in each
case as defined in the MOMA) pertaining only to the Phase 1 New Systems and any indemnification payments pertaining only to the
Phase 1 New Systems), and gain or loss from the sale or disposition of Phase 1 New Systems.
(xi) “Specially Allocated Phase 2 New System Items” shall mean, for any Accounting Period, all revenue,
expenses, tax credits, depreciation, income, gains and losses recognized under GAAP during such Accounting Period that are unique
or related only to the operation, ownership or disposition of the Phase 2 New Systems, such as, without limitation, fees under the
MOMA for the Phase 2 New Systems, other costs and expenses specifically related to the Phase 2 New Systems, revenue and
income in respect of recoveries under the other Transaction Documents that are unique to the Phase 2 New Systems (including,
without limitation, payments pursuant to the Output Guaranty and the Output Warranty (in each case as defined in the MOMA)
pertaining only to the Phase 2 New Systems and indemnification payments pertaining only to the Phase 2 New Systems), and gain or
loss from any sale or disposition of Phase 2 New Systems.
(e) For purposes of determining the Phase 1 New Systems Output Percentage and the Phase 2 New Systems Output
Percentage for any Accounting Period, in the event of a Bloom Systems Meter (as defined in the MOMA) malfunction, the parties
hereto will cooperate in good faith to develop appropriate adjustments.
5.2 Revenue and Expense Statement.
(a) Notwithstanding anything in this Agreement to the contrary, the Managing Member shall cause the
Administrator to prepare and deliver to Class B Member and the Class C Member within twenty (20) days after the end of each
Accounting Period a statement (the “Revenue and Expense Statement”) setting forth the Administrator’s good faith determination of
each of the Members’ allocated (in accordance with Section 5.1 and 5.3) revenues, expenses, income, gains and losses for such
Accounting Period including the information set forth in Schedule 5.2, and prepared in accordance with GAAP.
(b) After receipt of each Revenue and Expense Statement from the Administrator, the Class B Member and the Class
C Member shall have thirty (30) days to review the Revenue and Expense Statement. During each such thirty (30) day period, each
such Member and its Representatives shall have reasonable access to the accounting records of the Company and to such historical
financial information relating to the Revenue and Expense Statement as such Member may reasonably request for the purpose of
reviewing the Revenue and Expense Statement and preparing a Statement of Objections (as defined below).
(c) On or prior to the thirtieth (30th) day after the receipt of each Revenue and Expense Statement by the Class B
Member and the Class C Member, each such Member may object to the Revenue and Expense Statement by delivering to the other
such Member a written statement
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setting forth the objecting Member’s objections in reasonable detail, indicating each disputed item or amount and the basis for such
objecting Member’s disagreement therewith (the “Statement of Objections”). If either the Class B Member or the Class C Member
timely delivers the Statement of Objections, the Class B Member and the Class C Member shall negotiate in good faith to resolve
such objections within thirty (30) days after the delivery of the Statement of Objections. If the Class B Member and the Class C
Member are able to resolve such objections within such thirty (30) day period, the Revenue and Expense Statement and the
calculation of the Phase 1 New Systems Income and Losses and the Phase 2 New Systems Income and Losses (and all components
thereof), with such changes as may have been previously agreed upon in writing by such Members, shall be final and binding.
(d) If the Class B Member and the Class C Member fail to reach an agreement with respect to all of the matters set
forth in the Statement of Objections within the thirty (30) day period following delivery of the Statement of Objections, then any
amounts remaining in dispute shall be submitted for resolution to the Independent Accountant who, acting as an expert and not an
arbitrator, shall resolve the amounts in dispute only and make any resulting adjustments to the Revenue and Expense Statement and
the calculation of the Phase 1 New Systems Income and Losses and/or the Phase 2 New Systems Income and Losses (and all
applicable components thereof remaining in dispute) contained therein in each case in accordance with the terms of this Agreement.
The Independent Accountant shall only decide the specific items under dispute by the Class B Member and the Class C Member, and
may engage any engineers or other professionals as the Independent Accountant deems necessary to assist with such determination.
(e) The fees and expenses of the Independent Accountant (and any third parties engaged by the Independent
Accountant) shall be paid fifty percent (50%) by the Class B Member and fifty percent (50%) by the Class C Member; provided,
however, that if either, but not both, such Member’s initial submission as to net income or net income allocations varies by more
than five percent (5%) from the determination of the Independent Accountant, that party will pay the fees and expenses of the
Independent Accountant.
(f) The Independent Accountant shall make a determination as soon as reasonably practicable within thirty (30) days
(or such other time as the Class B Member and the Class C Member may agree in writing) after its engagement, and the Independent
Accountant’s resolution of the disputed items and its adjustments to the Revenue and Expense Statement and the calculation of the
Phase 1 New Systems Income and Losses and/or the Phase 2 New Systems Income and Losses (and any applicable components
thereof) contained therein shall be conclusive and binding upon the Members, absent fraud.
5.3 Allocations. After giving effect to the allocations in Section 5.4, for purposes of maintaining Capital Accounts, all items
of Company income, loss, gain, deduction and credit for any Fiscal Year will be allocated among the Members as follows:
(a) Subject to Section 5.3(b) and Section 3.1(e):
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(i) on and after the date hereof and until the Tariff Date, 100% of Phase 1 New Systems Income and Losses
shall be allocated to the Class B Member, and 100% of Phase 2 New Systems Income and Losses shall be allocated to the Class C
Member; and
(ii) on and after the Tariff Date, 5% of Phase 1 New Systems Income and Losses shall be allocated to the
Class A Member, 95% of Phase 1 New Systems Income and Losses shall be allocated to the Class B Member, and 100% of Phase 2
New Systems Income and Losses shall be allocated to the Class C Member.
Notwithstanding anything to the contrary in this Section 5.3(a), 100% of any gain or loss resulting from any sale or other disposition
of the Phase 1 New Systems shall be allocated to the Class B Member and 100% of any gain or loss resulting from any sale or other
disposition of the Phase 2 New Systems shall be allocated to the Class C Member.
(b) No losses or deductions may be allocated to a Member pursuant to this Section 5.3 to the extent the allocation
would lead to or increase a deficit in such Member’s Adjusted Capital Account. Losses or deductions that cannot be allocated to a
Member by reason of this Section 5.3(b) will be allocated to the other Members.
5.4 Adjustments. The following adjustments will be made in the allocations in Section 5.3 to comply with Treasury
Regulation Section 1.704-1(b):
(a) In any Fiscal Year in which there is a net decrease in Company Minimum Gain, income and gain in the amount
of the net decrease will be allocated to Members in the ratio required by Treasury Regulation Section 1.704-2. This provision is
intended to comply with the minimum gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and will be
interpreted consistently therewith.
(b) In any Fiscal Year in which there is a net decrease in Minimum Gain Attributable to Member Nonrecourse Debt,
income and gain in the amount of the net decrease will be allocated to each Member who was considered to have had a share of such
minimum gain at the beginning of the Fiscal Year in the ratio required by Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)
(2)(ii). This provision is intended to comply with the partner nonrecourse debt minimum gain chargeback requirement in Treasury
Regulation Section 1.704-2(i)(4) and will be interpreted consistently therewith.
(c) In the event any Member unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), gross income will be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, any deficit in the Member’s Adjusted
Capital Account as quickly as possible. However, an allocation will be made under this Section 5.4(c) only if and to the extent that
the Member would have a deficit in its Adjusted Capital
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Account after all other allocations provided for in Sections 5.3 and 5.4 have been tentatively made as if this Section 5.4(c) were not
in this Agreement.
(d) In the event that any Member has a deficit in its Adjusted Capital Account at the end of any Fiscal Year after all
the other allocations in Section 5.3 and 5.4 have been taken into account, then the Member will be specially allocated items of
Company income and gain as quickly as possible to eliminate the deficit.
(e) Nonrecourse Deductions for any Fiscal Year will be allocated to the Members in the same ratio as other income
and loss under Section 5.3(a).
(f) Any Member Nonrecourse Deductions for any Fiscal Year will be allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which the Member Nonrecourse Deductions are attributable
in accordance with Treasury Regulation Section 1.704-2(i)(1).
(g) If the Company distributes property to a Member in liquidation of the Membership Interest of the Member and
there is an adjustment in the adjusted tax basis of Company property under Section 734(b) of the Code, there will be a corresponding
adjustment to the Capital Account of the Member receiving the distribution. If the Company distributes cash to a Member in excess
of its outside basis in its Membership Interest, leading to an adjustment in the inside basis of the Company property under
Section 734(b) of the Code, solely for purposes of adjusting Capital Accounts of the Members, the adjustment in the inside basis will
be treated as gain or loss and be allocated among the Members in the same ratio as other gain or loss for the Fiscal Year in which the
adjustment occurs. This provision is intended to comply with Treasury Regulation Sections 1.704-1(b)(2)(iv)(m)(2) and (4) and will
be interpreted consistently therewith.
(h) The allocations in this Section 5.4 are required to comply with the Treasury Regulations. To the extent the
Company can do so consistently with the Treasury Regulations, the net amount of the allocations under this Article V and
Section 10.2 to each Member will be the net amount that would have been allocated to each Member if this Agreement did not have
this Section 5.4.
5.5 Tax Allocations.
(a) All tax items of Company income, gain, deductions and losses for each Fiscal Year will be allocated in the same
proportions as the allocations of book items of Company income, gain, deductions and losses were made for such Fiscal Year
pursuant to Sections 5.3 and 5.4, provided, however, that (i) all state and federal tax credits (including, without limitation, the ITC)
pertaining to the Phase 1 New Systems shall be allocated to the Class B Member in accordance with its 100% interest in Phase 1
New Systems Income and Losses and (ii) all state and federal tax credits (including, without limitation, the ITC) pertaining to the
Phase 2 New Systems shall be
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allocated to the Class C Member in accordance with its 100% interest in Phase 2 New Systems Income and Losses.
(b) Notwithstanding Section 5.5(a), if, as a result of contributions of property by a Member to the Company or an
adjustment to the Gross Asset Value of Company assets pursuant to this Agreement, there exists a variation between the adjusted
basis of an item of Company property for United States federal income tax purposes and as determined under the definition of Gross
Asset Value, allocations of income, gain, loss, and deduction will be allocated among the Members so as to take into account any
variation between the adjusted basis of such property to the Company for United States federal income tax purposes and its initial
Gross Asset Value using the traditional method pursuant to Treasury Regulation Section 1.704-3(b).
(c) To the extent that an adjustment to the adjusted tax basis of any Company asset is made pursuant to
Section 743(b) of the Code as the result of a purchase of a Membership Interest in the Company, any adjustment to the depreciation,
amortization, gain or loss resulting from such adjustment will affect the transferee only and will not affect the Capital Account of the
transferor or transferee. In such case, the transferee will be required to agree to provide to the Company (i) information about the
allocation of any step-up or step-down in basis to the Company’s assets and (ii) the depreciation or amortization method for any
step-up in basis to the Company’s assets.
(d) Solely for purposes of determining a Member’s proportionate share of the “excess non-recourse liabilities” of the
Company within the meaning of Treasury Regulation Section 1.752-3(a)(3), each Member’s share of such liability shall be
consistent with the ratio of the Phase 1 New Systems Income and Losses over the sum of the Phase 1 New Systems Income and
Losses and the Phase 2 New Systems Income and Losses, as to the Class B Member, and the ratio of the Phase 2 New Systems
Income and Losses over the sum of the Phase 1 New Systems Income and Losses and the Phase 2 New Systems Income and Losses,
as to the Class C Member, then in effect.
5.6 Transfer or Change in Company Interest. If the respective Membership Interests or allocation ratios described in this
Article V of the existing Members in the Company change or if a Membership Interest is Transferred in compliance with this
Agreement to any other Person, then, for the Fiscal Year in which the change or Transfer occurs, all income, gains, losses,
deductions, credits and other tax incidents resulting from the operations of the Company shall be allocated, as between the Members
for the Fiscal Year in which the change occurs or between the transferor and transferee, by taking into account their varying interests
using the proration method permitted by Treasury Regulation Section 1.706-1(c)(2)(ii), unless otherwise agreed by all the Members.
5.7 Timing of Allocations. Items of income, gain, loss, deduction and credit will be allocated to the Members pursuant to
this Article V as of the last day of each Fiscal Year; provided that such items shall also be allocated at such times as the Gross Asset
Values of the Company’s assets are adjusted pursuant to Section 4.2(c) and prior to any distribution under Section 10.2.
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ARTICLE VI
DISTRIBUTIONS
6.1 Distributions.
(a) With respect to all periods prior to the Tariff Date, except as provided otherwise in Sections 6.1(d) through
6.1(h) or Section 10.2, Company Distributable Cash will be distributed to the Members on each Distribution Date as follows:
Systems or otherwise arising solely from the Phase 1 New Systems Income and Losses;
(i) to the Class B Member, any such Company Distributable Cash specifically relating to the Phase 1 New
Systems or otherwise arising solely from the Phase 2 New Systems Income and Losses; and
(ii) to the Class C Member, any such Company Distributable Cash specifically relating to the Phase 2 New
(iii) with respect to any Company Distributable Cash received with respect to an Accounting Period that
does not specifically relate to either the Phase 1 New Systems or the Phase 2 New Systems and does not otherwise arise solely from
either the Phase 1 New Systems Income and Losses or the Phase 2 New Systems Income and Losses, (A) a percentage equal to the
Phase 1 New Systems Capacity Percentage for such Accounting Period to the Class B Member and (B) a percentage equal to the
Phase 2 New Systems Capacity Percentage for such Accounting Period to the Class C Member;
with respect to clauses (i) through (iii), exclusive of any depreciation or amortization.
(b) With respect to all periods on and after the Tariff Date, except as provided otherwise in Section 3.1(e), Sections
6.1(c) through 6.1(h) or Section 10.2, Company Distributable Cash will be distributed to the Members on each Distribution Date as
follows:
New Systems or otherwise arising solely from the Phase 1 New Systems Income and Losses;
(i) to the Class A Member, 5% of any such Company Distributable Cash specifically relating to the Phase 1
New Systems or otherwise arising solely from the Phase 1 New Systems Income and Losses; and
(ii) to the Class B Member, 95% of any such Company Distributable Cash specifically relating to the Phase 1
2 New Systems or otherwise arising solely from the Phase 2 New Systems Income and Losses; and
(iii) to the Class C Member, 100% of any such Company Distributable Cash specifically relating to the Phase
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(iv) with respect to any Company Distributable Cash received with respect to an Accounting Period that does
not specifically relate to either the Phase 1 New Systems or the Phase 2 New Systems and does not otherwise arise solely from either
the Phase 1 New Systems Income and Losses or the Phase 2 New Systems Income and Losses, (A) a percentage equal to 5% of the
Phase 1 New Systems Capacity Percentage for such Accounting Period to the Class A Member, (B) a percentage equal to 95% of the
Phase 1 New Systems Capacity Percentage for such Accounting Period to the Class B Member and (C) a percentage equal to the
Phase 2 New Systems Capacity Percentage for such Accounting Period to the Class C Member;
with respect to clauses (i) through (iv), exclusive of any depreciation or amortization.
(c) The Managing Member shall determine the amount of Company Distributable Cash arising solely from the Phase
1 New Systems Income and Losses and the amount of Company Distributable Cash arising solely from Phase 2 New Systems
Income and Losses for such purposes by only using (A) cash flows from items of income, revenue and gain included in Phase 1 New
Systems Income and Losses to pay expenses and losses included in Phase 1 New Systems Income and Losses, and (B) cash flows
from items of income, revenue and gain included in Phase 2 New Systems Income and Losses to pay expenses and losses included in
Phase 2 New Systems Income and Losses.
(d) Notwithstanding Section 6.1(a) or 6.1(b) or anything else to the contrary contained herein, before the Tariff
Date:
(i) (A) any proceeds derived from any sale or other disposition of any of the Phase 1 New Systems, (B) any
proceeds released from any reserves held for the benefit of the Phase 1 New Systems, (C) any insurance proceeds related to the
Phase 1 New Systems or (D) any warranty or guaranty payments related to the Phase 1 New Systems shall be distributed 100% to
the Class B Member; and
(ii) (A) any proceeds derived from any sale or other disposition of any of the Phase 2 New Systems, (B) any
proceeds released from any reserves held for the benefit of the Phase 2 New Systems, (C) any insurance proceeds related to the
Phase 2 New Systems or (D) any warranty or guaranty payments related to the Phase 2 New Systems shall be distributed 100% to
the Class C Member;
provided that to the extent any such proceeds or payments are not specifically related to or are not derived from either the Phase 1
New Systems or the Phase 2 New Systems, then such proceeds or payments shall be applied as Company Distributable Cash
pursuant to Section 6.1(a)(iii).
(e) Notwithstanding Section 6.1(a) or 6.1(b) or anything else to the contrary contained herein but subject to Section
3.1(e), on or after the Tariff Date:
after the Tariff Date shall be distributed 100% to the Class B
(i) (A) any proceeds derived from any sale or other disposition of any of the Phase 1 New Systems on or
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Member, (B) any proceeds released from any reserves held for the benefit of the Phase 1 New Systems shall be distributed 5% to the
Class A Member and 95% to the Class B Member to the extent such reserves were created on or after the Tariff Date and 100% to
the Class B Member to the extent such reserves were created before the Tariff Date, (C) any insurance proceeds related to claims
arising with respect to the Phase 1 New Systems on or after the Tariff Date shall be distributed 100% to the Class B Member and (D)
any warranty or guaranty payments related to claims for acts on or after the Tariff Date to the Phase 1 New Systems shall be
distributed 5% to the Class A Member and 95% to the Class B Member to the extent such payments relate to performance or
earnings on or after the Tariff Date and 100% to the Class B Member to the extent such payments relate to performance or earnings
before the Tariff Date; and
(ii) (A) any proceeds derived from any sale or other disposition of any of the Phase 2 New Systems, (B) any
proceeds released from any reserves held for the benefit of the Phase 2 New Systems, (C) any insurance proceeds related to the
Phase 2 New Systems and (D) any warranty or guaranty payments related to the Phase 2 New Systems shall be distributed 100% to
the Class C Member;
provided that to the extent any such proceeds or payments are not specifically related to or are not derived from either the Phase 1
New Systems or the Phase 2 New Systems, then such proceeds or payments shall be applied as Company Distributable Cash
pursuant to Section 6.1(b)(iv).
(f) Notwithstanding Section 6.1(a) or 6.1(b) or anything else to the contrary contained herein, (i) any
indemnification payments or payments for damages made to the Company shall be distributed 100% to the Class B Member if
related to the Phase 1 New Systems, the Class B Member or any of its members (or their Affiliates), (ii) any indemnification
payment or payments for damages made to the Company shall be distributed 100% to the Class C Member if related to the Phase 2
New Systems, the Class C Member or any of its members or shareholders (or their Affiliates) and (iii) any other indemnification
payment or payments for damages made to the Company shall be applied by the Managing Member toward remedying or addressing
the issues or events giving rise to such payment or payments to the extent necessary as determined by the Managing Member in good
faith, and any amounts not so applied shall be distributed pro rata between the Class B Member and the Class C Member based upon
the Phase 1 New Systems Capacity Percentage and the Phase 2 New Systems Capacity Percentage for the Accounting Period(s) to
which such indemnification or payments relate.
(g) Notwithstanding Section 6.1(a) or 6.1(b) or anything else to the contrary contained herein, within three Business
Days of receipt by the Company:
(i) The proceeds of a Class B Draw Request shall be distributed 100% to the Class B Member; and
(ii) The proceeds of a Class C Draw Request shall be distributed 100% to the Class C Member.
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(h) Notwithstanding Section 6.1(a) or 6.1(b) or anything else to the contrary contained herein, any Company
Distributable Cash determined by the Managing Member to specifically relate to, or to otherwise arise solely from, the Existing
Systems (as defined in the Repurchase Agreement) shall be distributed to the Class A Member within thirty (30) days of the receipt
of such Company Distributable Cash, to the extent not needed to pay expenses or other liabilities determined by the Managing
Member to specifically relate to, or otherwise arise solely from, the Existing Systems (as defined in the Repurchase Agreement).
6.2 Withholding Taxes. If the Company is required to withhold taxes with respect to any allocation or distribution to any
Member pursuant to any applicable federal, state or local tax laws, the Company may, after first notifying the Member and
permitting the Member, if legally permitted, to contest the applicability of such taxes, withhold such amounts and make such
payments to taxing authorities as are necessary to ensure compliance with such tax laws. Any funds withheld by reason of this
Section 6.2 shall nonetheless be deemed distributed to the Member in question for all purposes under this Agreement. If the
Company fails to withhold from actual distributions any amounts it was required to withhold, the Company may, at its option, as
determined by Managing Member, (a) require the Member to which the withholding was credited to reimburse the Company for
such withholding, or (b) reduce any subsequent distributions by the amount of such withholding. This obligation of a Member to
reimburse the Company for taxes that were required to be withheld shall continue after such Member Transfers its Membership
Interests in the Company. Each Member agrees to furnish the Company with any representations and forms as shall reasonably be
requested by the Company or Managing Member to assist it in determining the extent of, and in fulfilling, any withholding
obligations it may have.
6.3 Limitation upon Distributions. No distribution of Company Distributable Cash will be made if the distribution would
violate any contract or agreement to which the Company is then a party (unless entered into in violation of this Agreement), the Act
or any other Legal Requirement then applicable to the Company.
6.4 No Return of Distributions. Any distribution of Company Distributable Cash or property pursuant to this Agreement
shall be treated as a compromise within the meaning of Section 18-502(b) of the Act and, to the full extent permitted by law, any
Member receiving the payment of any such money or distribution of any such property shall not be required to return any such
money or property to any Person, the Company or any creditor of the Company. However, if any court of competent jurisdiction
holds that, notwithstanding the provisions of this Agreement, any Member is obligated to return such money or property; such
obligation shall be the obligation of such Member and not of the other Members. Without limiting the generality of the foregoing, a
deficit Capital Account of a Member shall not be deemed to be a liability of such Member nor an asset or property of the Company.
ARTICLE VII
ACCOUNTING AND RECORDS
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7.1 Reports.
(a) The Managing Member shall cause the Administrator to prepare and deliver to each Member as soon as practical,
but in no event later than thirty (30) days after the end of each calendar month, a written report in the form of Exhibit F (each, an
“Operations Report”) that will include a summary of the kilowatt hours produced and sold by the Company during such month with
respect to each of the Phase 1 New Systems and the Phase 2 New Systems, information regarding the availability during such month
of each of the Phase 1 New Systems, the Phase 2 New Systems and the Shared Assets, notice of material events, including but not
limited to, defaults under Material Contracts, notice of cancellation, termination or other material change in the insurance provided
pursuant to the MOMA, any Material Adverse Effect that has occurred at the Company, any regulatory (including FERC) filings,
and such other relevant operational information as may from time to time be reasonably requested by any other Member.
(b) No later than November 1st of each calendar year, the Managing Member shall prepare or cause the
Administrator to prepare, and shall submit to each Member, an annual capital and operating budget for the Company for the
following Fiscal Year, which budget shall contain separate budgeting line items for each of the Phase 1 New Systems, the Phase 2
New Systems and the Shared Assets (the “Annual Budget”).
7.2 Books and Records and Inspection.
(a) The Managing Member shall provide, or cause the Administrator to provide, to the Members:
(i) monthly, within thirty (30) days after the end of each calendar month, unaudited monthly financial
statements of the Company, prepared by the Managing Member or the Administrator, prepared on a GAAP basis (subject to normal
year-end audit adjustments and lack of footnotes) as of the end of the immediately-preceding calendar month, including a balance
sheet and statements of income and changes in members’ equity;
(ii) quarterly, within forty-five (45) days after the end of each Quarter, unaudited quarterly financial
statements of the Company, prepared by the Managing Member or the Administrator, prepared on a GAAP basis (subject to normal
year-end audit adjustments and lack of footnotes) as of the end of the immediately-preceding Quarter, including a balance sheet and
statements of income and changes in members’ equity; and
(iii) annually, within one hundred twenty (120) days after the end of each Fiscal Year (as such dates may be
extended or waived by the Members), audited annual financial statements and report for the Company, prepared by the Independent
Accountant or such other accountant selected by the Class C Member, prepared on a GAAP basis as of the end of the immediately-
preceding Fiscal Year, including a balance sheet and statements of income, changes in members’ equity and cash flows and related
footnotes and accompanied by a report of the
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Independent Accountant or other accountant, as applicable, stating that their examination was made in accordance with generally
accepted auditing standards and whether in its opinion such financial statements and report fairly present the Company’s cash flows,
results of operations and changes in financial position on a GAAP basis; provided that the Class A Member shall be responsible for
coordinating the preparation of audited financial statements for the Fiscal Year ending December 31, 2019 and for providing, or
cause the Administrator to provide, to the Members audited annual financial statements and report for the Company for such Fiscal
Year, and the Managing Member shall have no responsibility for preparing or delivering or causing the preparation or delivery of
audited financial statements for such Fiscal Year; and provided further that all costs and expenses of the accountant in connection
with such audited annual financial statements shall be paid by the Class C Member.
(b) The Managing Member shall use commercially reasonable efforts to cause the Administrator to provide to the
Managing Member such information as may be necessary for the Managing Member to keep and maintain full and accurate books of
account, financial records and supporting documents that reflect, completely, accurately and in reasonable detail in all material
respects, each transaction of the Company and such other matters as are usually entered into the records or maintained by Persons
engaged in a business of like character or as are required by law, and to prepare annual unaudited financial statements (including an
income statement, balance sheet and statement of cash flows) with respect to the Company in accordance with GAAP. No Member
shall have an obligation to provide to the Company or the other Member(s) any reports, statements or records prepared by the
respective Member for its own internal reporting. The Managing Member shall ensure that financial records and reports of the
Company shall be kept on an accrual basis and kept in accordance with GAAP.
(c) In addition to and without limiting the generality of Section 7.2(a), the Managing Member shall cause the
Company to keep and shall, on behalf of the Company, maintain at the Company’s principal office:
(i) true and full information regarding the status of the financial condition of the Company, including any
financial statements until the applicable statute of limitations expires with respect to the Company tax year to which such
information and financial statements relate;
(ii) promptly after becoming available, a copy of the Company’s federal, state, and local income Tax Returns
for each year;
(iii) minutes of the proceedings of the Members;
(iv) a current list of the name and last known business, residence or mailing address of each Member;
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(v) a copy of this Agreement and the Company’s Certificate of Formation, and all amendments thereto,
together with executed copies of any written powers of attorney pursuant to which this Agreement and such Certificate of Formation
and all amendments thereto which have been executed and copies of written consents of Members;
value of any other property and services contributed by each Member, and the date upon which each became a Member;
(vi) true and full information regarding the amount of cash and a description and statement of the agreed
Distributable Cash under Section 6.1 and the Members’ relative voting rights; and
(vii) copies of records that would enable a Member to determine the Member’s share of Company
Systems and the Phase 2 New Systems, respectively.
(viii) all records related to the production and sale of Energy by the Company as it relates to the Phase 1 New
(d) Upon receiving reasonable prior notice to Managing Member, all books and records of the Company shall be
open to inspection and copying by any of the Members or their Representatives during business hours and at such Member’s
expense, for any purpose reasonably related to such Member’s interest in the Company; provided that any such inspection or copying
is conducted in a manner which does not unreasonably interfere with the Company’s business.
7.3 Bank Accounts, Notes and Drafts.
(a) All funds not required for the immediate needs of the Company shall be placed in Permitted Investments, which
investments shall have a maturity appropriate for the anticipated cash flow needs of the Company. All Company funds shall be
deposited and held in accounts which are separate from all other accounts maintained by the Members, and the Company’s funds
shall not be commingled with any funds of any other Person, including any Member or any Affiliate of a Member.
(b) The Members acknowledge that the Managing Member may maintain Company funds in accounts, money
market funds, certificates of deposit, other liquid assets in excess of the insurance provided by the Federal Deposit Insurance
Corporation, or other depository insurance institutions and that the Managing Member shall not be accountable or liable for any loss
of such funds resulting from failure or insolvency of the depository institution, so long as any such maintenance of funds is in
compliance with the first sentence of Section 7.3(a).
(c) Checks, notes, drafts and other orders for the payment of money shall be signed by such Persons as the Managing
Member from time to time may authorize. When the Managing Member so authorizes, the signature of any such Person may be a
facsimile.
7.4 Intentionally Omitted.
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7.5 Partnership Status and Tax Elections.
(a) The Members intend that the Company will be taxed as a partnership for United States federal, state and local
income tax purposes. The Members agree not to elect to be excluded from the application of Subchapter K of Chapter 1 of Subtitle A
of the Code or any similar state statute and agree not to elect for the Company to be treated as a corporation, or an association
taxable as a corporation, under the Code or any similar state statute.
(b) The Company will make the following elections on the appropriate Tax Returns:
year;
(i) to the extent permitted under Section 706 of the Code, to adopt as the Company’s fiscal year the calendar
(ii) to adopt the accrual method of accounting or otherwise change its method of accounting;
(iii) if a distribution of the Company’s property as described in Section 734 of the Code occurs or a transfer
of Membership Interest as described in Section 743 of the Code occurs, to elect pursuant to Section 754 of the Code to adjust the
basis of the Company’s properties;
eighty (180) months as permitted by Section 709(b) of the Code; and
(iv) to elect to amortize the organizational expenses of the Company ratably over a period of one hundred
(v) if approved in writing by Members representing a Class Majority Vote, any other election the Managing
Member may deem appropriate.
7.6 Company Tax Returns.
(a) The United States federal income Tax Returns for the Company and all other Tax Returns of the Company shall
be prepared as directed by the Member chosen by the Managing Member (the “Tax Return Member”), which initially shall be the
Class B Member. With respect to each period for which the Company is required to file income Tax Returns (each such period, a
“Tax Year”), the Tax Return Member will cause the Company to prepare preliminary income Tax Returns and issue preliminary
Schedules K-1 to the Members no later than March 1 of the following Tax Year. The Tax Return Member, with the consent of the
Class B Member and the Class C Member, may extend the time for filing any such Tax Returns as provided for under applicable
statutes; provided that, in the event of any such extension, the Tax Return Member shall provide each of the other Members with an
estimate of such Member’s distributive share of each category of tax items of the Company described in Section 702(a) of the Code
for such Tax Year within 20 days of the filing of such extension. At the Company’s expense, the Tax Return Member may cause the
Company to retain an Accounting Firm to prepare or review and sign the necessary federal and state income
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Tax Returns and information returns for the Company. Each Member shall provide such information possessed by such Member, if
any, as may be reasonably requested by the Company for purposes of preparing such Tax Returns. At least 30 days prior to filing the
federal and state income Tax Returns of the Company, which shall be filed no later than September 15th of each calendar year, the
Tax Return Member shall deliver to the Class B Member and the Class C Member for their review a copy of the Company’s federal
and state income Tax Returns in the form proposed to be filed for each Fiscal Year and shall incorporate all reasonable changes to
such proposed Tax Returns as are requested by such Members (who shall be required to make reasonable efforts to provide such
changes at least 10 days prior to the filing date for such returns). The dispute provisions under Section 11.11 shall be invoked if
either the Class B Member or the Class C Member requests any changes to any such Tax Return that are not accepted by the Tax
Return Member; provided that the Accounting Firm preparing the Tax Return still must be willing to sign the Tax Return consistent
with the resolution of the dispute; provided, further that if the dispute process would not be completed by the date that the Tax
Return must be filed under this Section 7.6, then the Tax Return Member will file the Tax Return as prepared by the Tax Return
Member (with all changes requested by the other Member that are accepted by the Tax Return Member) by the required date and will
amend the Tax Return after a conclusion is reached in the dispute process if any issues in dispute are not resolved in favor of the Tax
Return Member. Within 20 days after filing such federal and state income Tax Returns and information returns, the Tax Return
Member shall cause the Company to deliver to each Member a copy of the Company’s federal and state income Tax Returns and
information returns as filed for each Fiscal Year, together with any additional tax-related information in the possession of the
Company that such Member may reasonably and timely request in order to properly prepare its own income Tax Returns.
(b) If a Member notifies the Managing Member that any real property Taxes with respect to the Project were
assessed against or invoiced to such Member, then the Managing Member will cause the Company to pay such Taxes in full and in a
timely manner and, as appropriate, allocate such cost to either the Phase 1 New Systems Income and Losses or the Phase 2 New
Systems Income and Losses.
7.7 Tax Audits.
(a) The Class B Member is hereby designated as the initial “partnership representative,” as that term is used in
Section 6223 of the Code (the “Partnership Representative”), of the Company, with all of the rights, duties and powers provided for
in Sections 6221 through 6241 of the Code, inclusive. The Class B Member is hereby directed and authorized to take whatever steps
the Class B Member, in its reasonable discretion, deems necessary or desirable to perfect such designation, including filing any
forms or documents with the IRS, taking such other action as may from time to time be required under the Treasury Regulations. The
Class B Member shall remain as the Partnership Representative so long as it remains a Member and retains any ownership interests
in the Company, unless the Class B Member elects to no longer serve as Partnership Representative, in which event the Class C
Member, at its election, shall either serve as the Partnership Representative or select another Person to serve as the Partnership
Representative.
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(b) The Partnership Representative shall direct the defense of any claims made by the IRS to the extent that such
claims relate to the adjustment of Company items at the Company level, except that the strategy to be taken in connection with any
such defense and the selection of counsel shall be approved by the Member most likely to be impacted by the outcome of the audit
(for example, if the matter at issue is primarily the Phase 2 New Systems, the Class C Member shall directly assist with the oversight
of the defense and the Class B Member will reasonably cooperate). The Partnership Representative shall cause the Company to
retain and to pay the fees and expenses of counsel approved as described in the preceding sentence and to pay the fees and expenses
of other advisors chosen by the Partnership Representative. The Partnership Representative shall promptly deliver to each Member a
copy of all notices, communications, reports and writings received from the IRS by the Company relating to or potentially resulting
in an adjustment of Company items, shall promptly advise each Member of the substance of any conversations with the IRS in
connection therewith and shall keep the Members advised of all developments with respect to any proposed adjustments that come to
its attention. In addition, the Partnership Representative shall (A) provide each Member with a draft copy of any correspondence or
filing to be submitted by the Company in connection with any administrative or judicial proceedings relating to the determination of
Company items at the Company level reasonably in advance of such submission, (B) incorporate all reasonable changes or
comments to such correspondence or filing requested by any other Member and (C) provide each Member with a final copy of
correspondence or filing. The Partnership Representative will provide each Member with notice reasonably in advance of any
meetings or conferences with respect to any administrative or judicial proceedings relating to the determination of Company items at
the Company level (including any meetings or conferences with counsel or advisors to the Company with respect to such
proceedings) and each Member shall have the right to participate, at its sole cost and expense, in any such meetings or conferences.
Without the consent of the Class B Member and the Class C Member, which consent shall not be unreasonably withheld, conditioned
or delayed, the Partnership Representative shall not (i) commence a judicial action with respect to a federal income tax matter or
appeal any adverse determination of a judicial tribunal; (ii) enter into a settlement agreement with the IRS; (iii) file any request
contemplated by Section 6227 of the Code; (iv) enter into an agreement extending the period of limitations as contemplated in
Section 6235(b) of Code; or (v) file any election pursuant to Section 6221(b) of the Code. Notwithstanding anything in this
Agreement to the contrary, in the event the Company receives a notice of final partnership adjustment under Section 6231 of the
Code, the Company shall make, and the Partnership Representative is hereby authorized and directed to make on behalf of the
Company, the election described in Section 6226 of the Code. It is the intent of the Members that if and to the extent a claim made
by the IRS relates solely to the Phase 1 New Systems, the Class B Member shall control the resolution of such dispute, and if and to
the extent such a claim relates solely to the Phase 2 New Systems, the Class C Member shall control the resolution of such dispute,
even if the Class B Member or Class C Member, as applicable, is not the Partnership Representative, and each Member will
reasonably cooperate with the other consistent with such intent.
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(c) Any cost or expense incurred by the Partnership Representative in connection with its duties as Partnership
Representative and shall be paid by the Company.
(d) Notwithstanding anything to the contrary in this Section 7.7, each Member shall have the right to control any
administrative or judicial proceedings relating to the amount of the ITC with respect to investments in the Phase 1 New Systems, as
to the Class B Member, and the Phase 2 New Systems, as to the Class C Member or the eligibility of such investments for the ITC,
and the Partnership Representative shall act as directed by such Member in connection with any such proceeding.
7.8 Cooperation. Subject to the provisions of this Article VII, each Member shall provide the other Members with such
assistance as may reasonably be requested by such other Members in connection with the preparation of any Tax Return, any audit or
other examination by any Governmental Authority, or any judicial or administrative proceedings relating to the liability for any
Taxes with respect to the operations of the Company.
7.9 Fiscal Year. The fiscal year of the Company (the “Fiscal Year”) shall be the same as the taxable year of the Company.
The taxable year of the Company will be a year that ends on December 31st of each calendar year, or such other year as may be
required by applicable federal income tax law.
ARTICLE VIII
MANAGEMENT
8.1 Management. Each of the Members acknowledges and agrees that the Managing Member shall have the authority,
powers and responsibilities described herein; provided that the Managing Member shall not (i) take or permit any action that would
be a Major Decision hereunder without the prior occurrence of a Class Majority Vote approving such action, or (ii) refrain from
taking any action that has been approved as a Major Decision hereunder. Except for (a) Major Decisions, and (b) as otherwise
required by applicable Legal Requirements, the powers of the Company shall be exercised by or under the authority of, and the
business and affairs of the Company shall be managed under the direction of, the Managing Member, who shall take all actions for
and on behalf of the Company not otherwise provided for in this Agreement. In addition, the Members may, with the consent of the
Managing Member, vest in the Managing Member the authority to take actions for and on behalf of the Company not otherwise
provided for in this Agreement. Any such vested authority shall require a Class Majority Vote.
8.2 Managing Member.
(a) The Managing Member shall be the Member designated to act as such hereunder from time to time in accordance
with the provisions of this Section 8.2 (the “Managing Member”). The initial Managing Member shall be the Class B Member.
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(b) If the Class B Member notifies the Class C Member that the Class B Member desires to resign as Managing
Member and desires for the Company to engage an independent manager to manage the Company, the Class B Member and the
Class C Member shall work together in good faith to engage an independent third party to manage the Company and any such third
party so engaged shall have all rights, powers and obligations of the Managing Member under this Agreement (or such additional or
different rights, powers and obligations as the Class B Member, the Class C Member and such third party may agree) and all
references to the “Managing Member” in this Agreement shall be deemed to refer to such third party; provided that the resignation of
the Class B Member as Managing Member shall not become effective until a third party so approved by the Class B Member and the
Class C Member has been engaged by the Company.
(c) Notwithstanding anything to contrary in Section 8.2(a), upon a material breach by the Class B Member
(including in its capacity as Managing Member, Tax Return Member, Partnership Representative or otherwise) under this
Agreement, which material breach has not been cured within thirty (30) days of the Class B Member being notified of such material
breach by the Class A Member or the Class C Member, as the case may be, the Class C Member shall have the sole and exclusive
authority to remove the Class B Member as the Managing Member, Tax Return Member and Partnership Representative, subject to
obtaining any necessary approvals from the Federal Energy Regulatory Commission; provided, however, that if such material breach
cannot be cured within such period and such material breach does not result in a Material Adverse Effect, and as long as the
Managing Member is proceeding with diligence to cure such material breach and has notified the Class C Member in writing of the
actions being taken to so cure, the thirty (30) day cure period shall be extended by an additional sixty (60) days, for a total cure
period of ninety (90) days; provided, further, that, for the avoidance of doubt, during such cure period in the case of the preceding
clause, the Class B Member may continue as the Managing Member. Upon any such removal of the Class B Member as Managing
Member, the Class C Member or, with the approval of the Class B Member (which the Class B Member may give or withhold in its
sole and absolute discretion), the Class C Member’s designee shall be deemed to be the replacement Managing Member, in which
event all references to the “Managing Member” in this Agreement shall be deemed to refer to the Class C Member or such designee.
The Class B Member and the Class C Member shall cooperate respecting the transition of Managing Member duties and
responsibilities, including in securing any necessary approvals from the Federal Energy Regulatory Commission.
(d) The Managing Member will be responsible for and coordinate the operation and maintenance of the Project and
shall operate and maintain the Project, or cause the Project to be operated and maintained, in accordance with the Prudent Operator
Standard; provided, however, that the requirement related to the Prudent Operator Standard will be satisfied so long as Bloom or an
Affiliate of Bloom is retained to provide operation and maintenance services for the Project (including under the MOMA). If Bloom
ceases to operate and maintain the Project, including as a result of termination of the MOMA, the Class B Member and Class C
Member shall work together in good faith to select a third party to operate and maintain the Project (a “Successor Operator”), and
Class B Member will take reasonable actions necessary to facilitate the Successor Operator’s full access to all intellectual property
rights contemplated under the IP License as necessary for the
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operation and maintenance of the Project. The selection of a Successor Operator and any corresponding agreement for the operation
and maintenance of the Project shall require the approval of both the Class B Member and the Class C Member, and the requirement
to operate and maintain the Project or cause the Project to be operated and maintained in accordance with the Prudent Operator
Standard will be deemed satisfied by any Successor Operator so approved performing under an operation and maintenance
agreement for the Project so approved. Notwithstanding anything to the contrary in this Agreement, the Managing Member shall
have no obligation to operate and maintain, or to coordinate the operation and maintenance of, the Project for any time period with
respect to which neither Bloom nor any Successor Operator approved by the Class B Member and the Class C Member has been
engaged by the Company to operate and maintain the Project.
(e) The Managing Member hereby covenants to cause the Company to implement any Major Decisions approved
under this Agreement, and not to take any Major Decisions without a Class Majority Vote.
(f) The Managing Member shall be obligated to administer, enforce and diligently pursue all rights and remedies of
the Company pursuant to all contracts to which the Company is a party in a commercially reasonable manner in accordance with
their respective terms and the Prudent Operator Standard.
(g) In addition to the rights of the Class C Member as set forth in Section 8.2(a) above, the other Members (other
than the Class A Member) may at any time (i) remove a Managing Member following any Bankruptcy of the Managing Member or
foreclosure or involuntary transfer of the Membership Interests held by the Managing Member (or any Bankruptcy of any Person
that Controls the Managing Member), and (ii) fill any vacancy as Managing Member caused by such removal.
(h) The Managing Member may, from time to time, designate one or more officers with such titles as may be
designated by the Managing Member to act in the name of the Company with such authority as is delegated to the Managing
Member hereunder and as may be delegated to such officer(s) by the Managing Member. Any such officers appointed by the Class A
Member, acting as the Managing Member under the Third A&R LLCA, shall be deemed to be automatically removed from any such
office upon the effectiveness of this Agreement, without any further action of any Person and any actions taken by such officers
following such removal shall not have the power or authority to bind the Company. Any such officers appointed by the Class B
Member, acting as the Managing Member, shall be deemed to be automatically removed from any such office upon the change of
Managing Member pursuant to Section 8.2(a) or Section 8.2(g), without any further action of any Person and any actions taken by
such officers following such date shall not have the power or authority to bind the Company; provided that all such officers shall
cooperate with any such transition and shall provide written resignations or any further assurances regarding their removal as are
reasonably requested by Southern.
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8.3 Major Decisions.
(a) In addition to any other approval required by Applicable Law or this Agreement, Major Decisions are reserved to
the Members, and none of the Company, the Managing Member, or any officer thereof shall do or take or make or approve any
Major Decisions with respect to the Company without a Class Majority Vote.
(b) The Managing Member will submit proposed Major Decisions to the Class B Members and the Class C
Members in writing in accordance with Section 11.1 for their approval, with each submission setting forth in reasonable detail the
Major Decision proposed and the basis for the Managing Member’s recommendation. Any Class B Member or Class C Member who
fails to notify the Managing Member that it is approving or rejecting a proposed Major Decision within 10 Business Days after the
date on which the Managing Member submits such proposed Major Decision to such Member shall be deemed to have approved the
Major Decision.
8.4 Insurance.
(a) The Managing Member shall cause the Company to acquire and maintain (including making changes to coverage
and carriers) casualty, general liability (including product liability), property damage and/or other types of insurance consistent with
the Prudent Operator Standard and in compliance with the insurance requirements set forth on Schedule 8.4 and as otherwise
required under the Transaction Documents. The Managing Member shall cause the Class B Member and the Class C Member to be
included as additional insured to all insurance policies required in accordance with the provisions of this Agreement. Each required
insurance policy must be written as a primary policy not contributing to or in excess of any policies carried by the Class B Member
or the Class C Member, and each must contain waivers of subrogation in favor of the Class B Member and the Class C Member.
(b) Notwithstanding anything to the contrary in Section 8.4(a), the Managing Member shall be deemed to have
satisfied its obligations under Section 8.4(a) if it contracts with Administrator to obtain and maintain on behalf of the Company
insurance meeting the requirements set forth in Section 8.4(a), notwithstanding any failure by the Administrator to comply with its
obligations.
8.5 Notice of Material Breach. The Managing Member shall promptly notify the Members (but in no event more than within
5 Business Days of obtaining actual knowledge) of any (a) notice of default delivered by a party to a Material Contract to the
Company or the Managing Member or (b) default by a party to a Material Contract (other than the Company or any Affiliate thereof
) under such Material Contract, in the case of either clause (a) or (b), which default could reasonably be expected to cause material
harm to the Company.
8.6 Letter of Credit.
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(a) In the event that the Class B Member has (i) upon the occurrence of a Tariff Event (as defined in the Southern
ECCA as in effect on the date hereof), a claim for Tariff Damages (as defined in the Southern ECCA as in effect on the date hereof)
under Section 7.1(c) of the Southern ECCA or (ii) a claim for Assumed Tax Benefits Damages (as defined in the Southern ECCA as
in effect on the date hereof) under Section 7.1(d) of the Southern ECCA, and, in either case, Bloom fails to pay such claim when due
and payable, the Class B Member may request the Managing Member to cause the Company to draw on the Letter of Credit by
delivering to Managing Member (with a copy to the Class C Member) a notice in the form of Exhibit G (with the items in brackets
therein completed) along with a draft sight draft in the form of Exhibit A to the Letter of Credit (a “Class B Draw Request”);
provided, no Class B Draw Request may exceed the Class B LC Cap.
(b) In the event that the Class C Member has (i) a claim for Indemnified Costs under Section 7.1(b) of the ECCA,
(ii) upon the occurrence of a Tariff Event, a claim for payment of Tariff Damages under Section 7.1(c) of the ECCA, (iii) a claim for
Assumed Tax Benefits Damages under Section 7.1(d) of the ECCA, or (iv) a claim for Losses under Section 7.1(e) or Section 7.1(f)
of the ECCA, and, in any case, Bloom fails to pay such claim when due and payable, the Class C Member may request the Managing
Member to cause the Company to draw on the Letter of Credit by delivering to Managing Member (with a copy to the Class B
Member) a notice in the form of Exhibit H (with the items in brackets therein completed), along with a draft sight draft in the form of
Exhibit A to the Letter of Credit (a “Class C Draw Request”); provided, no Class C Draw Request may exceed the Class C LC Cap.
(c) Upon receipt of an executed Draw Request, Managing Member shall complete and submit the sight draft to the
Issuing Bank within 1 Business Day for the draw amount specified in the Draw Request (the “Draw Amount”) and take all other
actions required to cause payment thereof by the Issuing Bank. The Draw Amount, upon receipt by the Company, will be treated as
Company Available Cash and will be distributed in accordance with Section 6.1(g). If the Draw Amount is in excess of the
Aggregate LC Cap, Managing Member will notify the Members thereof but will have no obligation to take any further action under
this Section 8.6; provided, Managing Member shall have no obligation to calculate the Aggregate LC Cap and may rely on the
certification in a Draw Request delivered in accordance with Section 8.6(a) or Section 8.6(b).
(d) Until the date the LC Cap is reduced to $0.00, the Class A Member will renew the Letter of Credit annually
either at least 15 days prior to expiration thereof or have it annually renewed automatically by its terms. If the Letter of Credit is not
renewed as set forth in this Section 8.6(d), the Managing Member shall cause the Company to draw the full available amount of the
Letter of Credit and cause the Company to hold such funds in escrow as cash security until an alternative letter of credit arrangement
is instituted; provided that the Managing Member may cause amounts of such funds to be distributed to the Class B Member and the
Class C Member equal to the Draw Amounts the Class B Member or the Class C Member, respectively, would have been entitled to
request pursuant to Draw Requests if the Letter of Credit had not terminated, upon receipt of certification from the Class B Member
or the Class C Member, as applicable (with a copy to the
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Class B Member or the Class C Member, as applicable), that such Member would have been so entitled.
(e) Any cash collateral under the Letter of Credit or cash security held by the Company pursuant to Section 8.6(d)
above as of December 31, 2025, will be released in full to the Class A Member to the extent funds remain.
(f) Each of the parties will cooperate with each other to amend the Letter of Credit each month to reflect the reduced
Aggregate LC Cap for such month, if any.
(g) The Company is acting solely as the Members’ agent with respect to the Letter of Credit. The Company has and
will have no legal or equitable interest in the Letter of Credit or the proceeds thereof at any time, and neither the Letter of Credit nor
the proceeds thereof shall be property of the Company’s bankruptcy estate if the Company becomes a debtor under the Bankruptcy
Code.
ARTICLE IX
TRANSFERS, CHANGES OF CONTROL AND INDEMNIFICATION
9.1 Restrictions Applicable to All Transfers by Members.
(a) Each Member may sell, transfer, assign, convey, pledge, mortgage, encumber, hypothecate or otherwise dispose
of all or any part of its Membership Interests or any interest, rights or obligations with respect thereto, or permit a Change of Control
of any entity subject to a restriction on Change of Control under this Article IX (any such action, a “Transfer”), only in accordance
with this Article IX.
(b) A Member shall not Transfer or permit any Transfer of any Membership Interests if such Transfer would:
(i) constitute a violation of any securities laws or any other applicable federal or state laws rules or
regulations, or the order of any court or administrative body having jurisdiction over the Company or any of its assets or any material
contract, lease, security, indenture or agreement binding on the Company or its assets;
(ii) result in any adverse Tax effects on any non-transferring Member, unless the transferor has agreed to
indemnify the other Members or the Company, as applicable, against any such adverse tax effects in a manner reasonably acceptable
to the other Members;
(iii) require the Company to register as an investment company under the 1940 Investment Company Act; or
(iv) result in a transfer to a Disqualified Entity.
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Any attempted Transfer of a Membership Interest that does not comply with this Article IX shall be null and void and not recognized
by the Company for any purpose and, for the avoidance of doubt, the Company and the non-transferring Member hereby reserve all
of their respective remedies and recourse under contract and law with respect to any such Transfer, including (without limitation) the
right to seek and obtain injunctive relief.
9.2 Conditions to Transfers of Membership Interests. Except as otherwise provided in this Article IX, all Transfers of
Membership Interests must satisfy the following conditions in addition to the conditions set forth in Section 9.1:
(a) The transferring Member must give written notice of the proposed Transfer to each of the other Members not less
than 30 days prior to the effective date of the proposed Transfer;
(b) The transferring Member and the prospective transferee must each execute, acknowledge and deliver to the
Company (as applicable) an assignment agreement substantially in the form of Exhibit D and such other instruments as the other
Members may reasonably deem necessary or appropriate to confirm the transferor’s intention that the transferee become a Member
in its place and the transferee’s undertaking to be bound by the terms of this Agreement and to assume the obligations of the
transferor under this Agreement and, to the extent the transferor is to be released from such obligations, the ECCA. The prospective
transferee shall make the representations and warranties in such assignment agreement and be bound by this Agreement as of the
date of such Transfer; provided that, unless the transferee becomes the Managing Member the covenants in Sections 3.12(b), (d) and
(e) shall not apply;
(c) The transferring Member and the prospective transferee shall pay any out-of-pocket expenses of the Company
and the other Members resulting from the Transfer;
(d) The transferring Member and the prospective transferee shall have all permits and consents required for such
Transfer;
(e) Such Transfer by a Member, other than a Transfer to an Affiliate of the transferring Member, shall not be a
Transfer of less than such Member’s entire Membership Interests;
(f) If the transferring Member is the Managing Member at such time, then the Transferee must be a Qualified
Manager;
(g) In the case of any Transfer by the Class B Member, the Class B Member shall assign to the transferee, and the
transferee shall assume, all rights of Southern Power Company under the IP License;
(h) The transferee of a Membership Interest and its Affiliates must not be in litigation or other material dispute with
any of the other Members or their respective Affiliates;
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(i) The transferring Member shall have obtained the prior written consent of the other Members (other than the Class
A Member) to such transfer, not to be unreasonably withheld, conditioned or delayed; and
(j) Such Transfer does not result in a material breach of a Project Document.
9.3 [Reserved].
9.4 Conditions to Changes of Control of Upstream Entities.
(a) With respect to any Transfer that is a Change of Control of a Member (other than the Class C Member, so long
as Assured Guaranty Municipal Corp. is the Class C Member), in addition to the conditions set forth in Section 9.1:
Company or the other Members resulting from the Transfer;
(i) The transferring Person and the prospective transferee shall pay any out-of-pocket expenses of the
such Transfer as they apply to the Company; and
(ii) The transferring entity and the prospective transferee shall have all permits and consents required for
Class C Member.
(iii) The transferring Member shall have obtained the prior written consent of the Class B Member and the
(b) Upon any Change of Control of the Class B Member (other than a Change of Control of Southern Company or
Southern Power Company), the Class B Member shall cease to be the Managing Member immediately upon receipt of any required
Governmental Approvals and the Class C Member shall be entitled to appoint a new Managing Member.
(c) For the avoidance of doubt, (1) a Change of Control of Bloom Energy Corporation shall not be deemed to be a
Change of Control of the Class A Member, and (2) neither a Change of Control of Southern Company nor a Change of Control of
Southern Power Company shall be deemed to be a Change of Control of the Class B Member.
9.5 Certain Permitted Transfers. Except as otherwise provided in Section 9.1 and this Section 9.5, notwithstanding the
provisions set forth in Section 9.3, the following Transfers (the “Permitted Transfers”) may be made at any time and from time to
time, without restriction and without notice to, approval of, filing with, consent by, or other action of or by, any Member or other
Person:
(a) The grant of any security interest in any Membership Interest pursuant to any security agreement any Member
may enter into with lenders;
(b) any Transfer in connection with any foreclosure or other exercise of remedies in respect of any Class B
Membership Interest or Class C Membership Interest subject to a security
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interest referred to in Section 9.5(a); provided, however, that the requirements in Sections 9.2(a), (b), (d), (f), (g) and (j) shall be
satisfied in respect of any such Transfer of such Membership Interests; and
(c) any Transfer of any Class C Membership Interests in accordance with Section 7.1(f) of the ECCA.
9.6 Regulatory and Other Authorizations and Consents. In connection with any Transfer pursuant to Section 9.5 (the
“Designated Transfer”), each Member involved shall use all commercially reasonable efforts to obtain all authorizations, consents,
orders and approvals of, give all notices to and make all filings with, all Governmental Authorities and third parties that may be or
become necessary for the Designated Transfer, and will cooperate fully with the other Members in promptly seeking to obtain all
such authorizations, consents, orders and approvals, giving such notices and making such filings, including the provision to such
third parties and Governmental Authorities of such financial statements and other publicly available financial information with
respect to such Member, as such third parties or Governmental Authorities may reasonably request; provided, however, that no
Member involved shall have any obligation to pay any consideration to obtain any such consents. In addition, the Members involved
shall keep each other reasonably apprised of their efforts to obtain necessary consents and waivers from third parties or
Governmental Authorities and the responses of such third parties and Governmental Authorities to requests to provide such consents
and waivers.
9.7 Admission. Any transferee of all or part of any Membership Interests pursuant to a Transfer made in accordance with
this Agreement shall be admitted to the Company as a substitute Member upon its execution of a counterpart to this Agreement.
9.8 Security Interest Consent. If any Member grants a security interest in any Membership Interest in a Permitted Transfer,
upon request by such Member, each other Member will execute and deliver to any person holding such security interest (for itself
and/or for the benefit of other lenders) such acknowledgments, consents or other instruments as such person may reasonably request
to confirm that such grant and any foreclosure or other exercise of remedies in respect of such Membership constitutes a Permitted
Transfer under, and subject to the terms of, this Agreement.
9.9 Tag-along Rights.
(a) Participation. If the Class B Member (the “Selling Member”) proposes to Transfer any portion of its Membership
Interest (including any indirect Transfer of such Membership Interest effected by a direct or indirect Transfer by Southern Power
Company of its membership interest in the Class B Member, but, for the avoidance of doubt, excluding any direct or indirect
Transfer of any interests in Southern Company or Southern Power Company) to any Person that is not an Affiliate of the Class B
Member (a “Proposed Transferee”), the Class C Member (the “Tag-
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along Member”) shall be permitted to participate in such sale (a “Tag-along Sale”) on the terms and conditions set forth in this
Section 9.9.
(b) Sale Notice. Prior to the consummation of any Tag-along Sale, the Selling Member shall deliver to the Company
and the Tag-along Member a written notice (a “Sale Notice”) of the proposed Tag-along Sale no more than ten (10) Business Days
after the execution and delivery by all of the parties thereto of the definitive agreement entered into with respect to the Tag-along
Sale and, in any event, no later than twenty (20) Business Days prior to the closing date of such Tag-along Sale. The Sale Notice
shall make reference to the Tag-along Member’ rights hereunder and shall describe in reasonable detail: (i) the aggregate number of
Class B Membership Interests the Proposed Transferee proposes to purchase; (ii) the identity of the Proposed Transferee; (iii) the
proposed date, time and location of the closing of the Tag-along Sale; (iv) the purchase price per Class B Membership Interest, the
form of consideration (cash or otherwise) and the other material terms and conditions of the Transfer; and (v) a copy of any form of
agreement proposed to be executed in connection therewith.
(c) Exercise of Tag-along Right.
(i) The Tag-along Member shall have the right to Transfer in the Tag-along Sale such percentage of the Class
C Membership Interests then held by the Tag-along Member as is equal to the percentage of the Class B Membership Interests
proposed to be sold by the Selling Member in such Tag-along Sale (such amount, the “Tag-along Portion”).
(ii) The Tag-along Member may exercise its right to participate in a Tag-along Sale by delivering to the
Selling Member a written notice (a “Tag-along Notice”) stating its election to do so by no later than twenty (20) Business Days after
receipt of the Sale Notice (the “Tag-along Period”).
(iii) The election of the Tag-along Member set forth in a Tag-along Notice shall be irrevocable, and, to the
extent such election is made, the Tag-along Member shall be bound and obligated to consummate the Transfer on the terms and
conditions set forth in this Section 9.9.
(d) Waiver. If the Tag-along Member does not deliver a Tag-along Notice in compliance with Section 9.9(c)(ii) it
shall be deemed to have waived all of the Tag-along Member’s rights to participate in the Tag-along Sale with respect to the
Membership Interests owned by the Tag-along Member, and the Selling Member shall thereafter be free to sell to the Proposed
Transferee the Class B Membership Interests identified in the Sale Notice at a per Class B Membership Interest price that is no
greater than the applicable per Class B Membership Interest price set forth in the Sale Notice and on other terms and conditions
which are not materially more favorable to the Class B Member than those set forth in the Sale Notice, without any further obligation
to the non-accepting Tag-along Member.
(e) Conditions of Sale.
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(i) In any Tag-along Sale in which the Tag-along Member elects to participate, the price per Class C
Membership Interest purchased (prior to deduction of the Tag-along Member’s share of related expenses) shall equal the price per
Class B Membership Interest purchased in such Tag-along Sale (prior to deduction of the Selling Member’s share of related
expenses) multiplied by a fraction in which the numerator is the total nameplate capacity of the Phase 2 New Systems (measured in
MW) and the denominator is the total nameplate capacity of the Phase 1 New Systems (measured in MW) as of the date of delivery
of the Sale Notice.
(ii) The Tag-along Member shall make or provide the same representations, warranties, covenants,
indemnities and agreements as the Selling Member makes or provides in connection with the Tag-along Sale; provided, that the Tag-
along Member shall only be obligated to make individual representations and warranties with respect to its title to and ownership of
the applicable Membership Interests, authorization, execution and delivery of relevant documents, enforceability of such documents
against the Tag-along Member, and other matters relating to the Tag-along Member, but not any of the foregoing with respect to any
other Members or their Membership Interests or the Company; provided, further, that all representations, warranties, covenants and
indemnities shall be made by the Selling Member and the Tag-along Member severally and not jointly and any indemnification
obligation shall be pro rata based on the consideration received by the Selling Member and the Tag-along Member, in each case in
an amount not to exceed the aggregate proceeds received by the Selling Member and the Tag-along Member in connection with the
Tag-along Sale.
(f) Cooperation. The Tag-along Member shall take all actions as may be reasonably necessary to consummate the
Tag-along Sale, including, without limitation, entering into agreements and delivering certificates and instruments, in each case,
consistent with the agreements being entered into and the certificates being delivered by the Selling Member, but subject to Section
9.9(e)(ii).
(g) Expenses. Fees and expenses incurred by the Company or by the Managing Member in connection with a Tag-
along Sale in which the Tag-along Member elects to participate and for the benefit of both the Selling Member and the Tag-along
Member (it being understood that costs incurred by or on behalf of a Selling Member for its sole benefit will not be considered to be
for the benefit of the Tag-along Member), to the extent not paid or reimbursed by the Company or the Proposed Transferee, shall be
borne by the Selling Member and the participating Tag-along Member on a pro rata basis, based on the consideration received by
each such Member; provided, that no Tag-along Member shall be obligated to make any out-of-pocket expenditure prior to the
consummation of the Tag-along Sale and neither the Managing Member nor the Company shall be obligated to incur any fees or
expenses solely for the benefit of the Class C Member.
(h) Consummation of Sale. The Selling Member shall have sixty (60) days following the expiration of the Tag-along
Period in which to consummate the Tag-along Sale, on terms not more favorable to the Selling Member than those set forth in the
Tag-along Notice (which such sixty (60) day period may be extended for a reasonable time not to exceed ninety (90) days to
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the extent reasonably necessary to obtain required approvals or consents from any Governmental Authority). If at the end of such
period the Selling Member has not completed the Tag-along Sale, the Selling Member may not then effect a Transfer that is subject
to this Section 9.9 without again fully complying with the provisions of this Section 9.9.
(i) Transfers in Violation of the Tag-along Right. If the Selling Member sells or otherwise Transfers to the Proposed
Transferee any of its Membership Interests in breach of this Section 9.9, then the Tag-along Member shall have the right to sell to
the Selling Member, and the Selling Member undertakes to purchase from the Tag-along Member, the number of Membership
Interests that the Tag-along Member would have had the right to sell to the Proposed Transferee pursuant to this Section 9.9, for a
per Class C Membership Interest amount equal to the price per Class B Membership Interest multiplied by a fraction in which the
numerator is the total nameplate capacity of the Phase 2 New Systems (measured in MW) and the denominator is the total nameplate
capacity of the Phase 1 New Systems (measured in MW) as of the date of the sale or Transfer and for the form of consideration and
upon the terms and conditions on which the Proposed Transferee bought such Class B Membership Interests from the Selling
Member, but without indemnity being granted by any Tag-along Member to the Selling Member. The Selling Member shall also
reimburse the Tag-along Member for any and all reasonable and documented out-of-pocket fees and expenses, including reasonable
legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Tag-along Member’s rights under this
Section 9.9(i). Such right to sell and to be reimbursed shall be the Tag-along Member’s sole remedy for such breach.
9.10 Indemnification; Other Rights of the Members.
(a) The Class A Member agrees to indemnify, defend and hold harmless the Class B Indemnified Parties, the Class
C Indemnified Parties, and the Company from and against any and all Indemnified Costs (as determined by treating the Class A
Member and the Managing Member (so long as the Class A Member or its Affiliate is serving as the Managing Member) as the
“Indemnifying Party” for purposes of the definition of such term); provided, however, except with respect to Indemnified Costs (w)
resulting from a breach of Sections 3.12(a), 9.1, 9.2, or 9.4, (x) resulting from fraud or willful misconduct, (y) resulting from failure
to pay any amount due to Class B Indemnified Parties or Class C Indemnified Parties or the Company, as the case may be, under this
Agreement or the ECCA or (z) resulting from a Third Party Claim, in no event will the Class A Member’s aggregate obligations
(including any prior indemnity payments by the Class A Member under this Agreement or under the ECCA) to collectively
indemnify the Class B Indemnified Parties, the Class C Indemnified Parties and the Company hereunder exceed the aggregate
amount of distributions received by the Class A Member from the Effective Date through the date of such claim for indemnification.
(b) Beginning on the Effective Date (or, with respect to any additional Member that becomes a Member after the
Effective Date, on the first date on which such Person becomes a Member hereunder) and continuing thereafter, the Class B Member
agrees to indemnify, defend and hold harmless the Class A Indemnified Parties and the Class C Indemnified Parties from and
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against any and all Indemnified Costs (as determined by treating the Class B Member and the Managing Member (so long as the
Class B Member or its Affiliate is serving as the Managing Member) as the “Indemnifying Party” for purposes of the definition of
such term); provided, however, except with respect to Indemnified Costs (x) resulting from fraud or willful misconduct, (y) resulting
from failure to pay any amount due to Class A Indemnified Parties or the Class C Indemnified Parties, as the case may be, under this
Agreement or the ECCA, or (z) resulting from a Third Party Claim, in no event will the Class B Member’s aggregate obligation
(including any prior indemnity payments by the Class B Member under this Agreement or under the ECCA) to indemnify the Class
C Indemnified Parties hereunder exceed the Capital Contributions of the Class C Member as of the date of such claim for
indemnification or will the Class B Member’s aggregate obligation (including any prior indemnity payments by the Class B Member
under this Agreement or under the ECCA) to indemnify the Class A Indemnified Parties exceed the aggregate amount of
distributions received by the Class A Member from the Effective Date through the date of such claim for indemnification.
(c) Beginning on the Effective Date (or, with respect to any additional Member that becomes a Member after the
Effective Date, on the first date on which such Person becomes a Member hereunder) and continuing thereafter, the Class C Member
agrees to indemnify, defend and hold harmless the Class A Indemnified Parties and the Class B Indemnified Parties from and against
any and all Indemnified Costs (as determined by treating the Class C Member and the Managing Member (so long as the Class C
Member or its Affiliate is serving as the Managing Member) as the “Indemnifying Party” for purposes of the definition of such
term); provided, however, except with respect to Indemnified Costs (x) resulting from fraud or willful misconduct, (y) resulting from
failure to pay any amount due to Class A Indemnified Parties or Class B Indemnified Parties under this Agreement or the ECCA or
(z) resulting from a Third Party Claim, in no event will the Class C Member’s aggregate obligations (including any prior indemnity
payments by the Class C Member under this Agreement or under the ECCA) to indemnify the Class B Indemnified Parties hereunder
exceed the Capital Contributions of the Class B Member as of the date of such claim for indemnification or will the Class C
Member’s aggregate obligation (including any prior indemnity payments by the Class C Member under this Agreement or under the
ECCA) to indemnify the Class A Indemnified Parties exceed the aggregate amount of distributions received by the Class A Member
from the Effective Date through the date of such claim for indemnification.
(d) Other than with respect to Indemnified Costs resulting from Third Party Claims, no claim for indemnification
may be made with respect to any Indemnified Costs (other than fraud, willful misconduct, or failure to pay any amount due to
Indemnified Parties under any Transaction Document) until the aggregate amount of such costs for which indemnification is (or
previously has been) sought by the Indemnified Party under all Transaction Documents exceeds One Hundred Thousand Dollars
($100,000) and once such threshold amount of claims has been reached, the relevant Indemnified Party and its Affiliates shall have
the right to be indemnified for all such Indemnified Costs. Claims for indemnification under this Agreement and the other
Transaction Documents shall not be duplicative of one another and shall not allow for duplicative recoveries.
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9.11 Indemnification of Members by the Company. Each Member Party shall be exculpated from liability for and defended,
indemnified and held harmless by the Company as set forth in Section 3.6(a).
9.12 Direct Claims. In any case in which an Indemnified Party seeks indemnification under Section 9.10 that is not subject
to Section 9.13 because no Third Party Claim is involved, the Indemnified Party shall promptly notify the Indemnifying Party in
writing of any amounts that the Indemnified Party claims are subject to indemnification under the terms of this Article IX. The
failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim, except to the
extent the resulting delay materially and adversely prejudices the position of the Indemnifying Party with respect to such claim.
9.13 Third Party Claims. An Indemnified Party shall give written notice to the Indemnifying Party within 10 days after it
has actual knowledge of commencement or assertion of any Third Party Claim in respect of which the Indemnified Party may seek
indemnification under Section 9.10. Such notice shall state the nature and basis of such Third Party Claim and the events and the
amounts thereof to the extent known. Any failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party from
any liability that the Indemnifying Party may have to the Indemnified Party under this Article IX, except to the extent the failure to
give such notice materially and adversely prejudices the Indemnifying Party. In case any such action, proceeding or claim is brought
against an Indemnified Party, so long as it has acknowledged in writing to the Indemnified Party that it is liable for such Third Party
Claim pursuant to this Section 9.13, the Indemnifying Party shall be entitled to participate in and, unless in the reasonable judgment
of the Indemnified Party a conflict of interests between it and the Indemnifying Party may exist in respect of such Third Party Claim
or such Third Party Claim entails a material risk of criminal penalties or civil fines or non-monetary sanctions being imposed on the
Indemnified Party or a risk of materially adversely affecting the Indemnified Party’s business (a “Third Party Penalty Claim”), to
assume the defense thereof, with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party,
and after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof; provided the Parties agree that the handling of any Tax contests involving the Company will be
governed by Section 7.7. In the event that (i) the Indemnifying Party advises an Indemnified Party that the Indemnifying Party will
not contest a claim for indemnification hereunder, (ii) the Indemnifying Party fails, within 30 days of receipt of any indemnification
notice to notify, in writing, such Indemnified Party of its election, to defend, settle or compromise, at its sole cost and expense, any
such Third Party Claim (or discontinues its defense at any time after it commences such defense) or (iii) in the reasonable judgment
of the Indemnified Party, a conflict of interests between it and the Indemnifying Party exists in respect of such Third Party Claim or
the action or claim is a Third Party Penalty Claim, then the Indemnified Party may, at its option, defend, settle or otherwise
compromise or pay such action or claim or Third Party Claim in each case, at the sole cost and expense of the Indemnifying Party. In
any event, unless and until the Indemnifying Party elects in writing to assume and does so assume the defense of any such claim,
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proceeding or action, the Indemnifying Party shall be liable for the Indemnified Party’s reasonable costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding. The Indemnified Party shall cooperate to the extent
commercially reasonable with the Indemnifying Party in connection with any negotiation or defense of any such action or claim by
the Indemnifying Party. The Indemnifying Party shall keep the Indemnified Party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the Indemnifying Party elects to defend any such action or claim, then
the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense unless
otherwise specified herein; provided that any such participation of the Indemnified Party shall be at the Indemnifying Party’s sole
cost and expense to the extent such participation relates to a Third Party Penalty Claim. If the Indemnifying Party does not assume
such defense, the Indemnified Party shall keep the Indemnifying Party apprised at all times as to the status of the defense; provided,
however, that the failure to keep the Indemnifying Party so informed shall not affect the obligations of the Indemnifying Party
hereunder. The Indemnifying Party shall not be liable for any settlement of any action, claim or proceeding effected without its
written consent; provided, however, that the Indemnifying Party shall not unreasonably withhold, delay or condition any such
consent. Notwithstanding anything in this Section 9.13 to the contrary, the Indemnifying Party shall not, without the Indemnified
Party’s prior written consent, (i) settle or compromise any claim or consent to entry of judgment in respect thereof which involves
any condition other than payment of money by the Indemnified Party, (ii) settle or compromise any claim or consent to entry of
judgment in respect thereof without first demonstrating to Indemnified Party the ability to pay such claim or judgment, or (iii) settle
or compromise any claim or consent to entry of judgment in respect thereof that does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the Indemnified Party, a full and complete release from all liability in respect of such
claim.
9.14 No Duplication. Any liability for indemnification under this Article IX shall be determined without duplication of
recovery. Without limiting the generality of the prior sentence, if a statement of facts, condition or event constitutes a breach of more
than one representation, warranty, covenant or agreement which is subject to the indemnification obligation in Section 9.10, only one
recovery of Indemnified Costs per Indemnified Party shall be allowed.
9.15 Sole Remedy. Except in the case of fraud, willful misconduct or failure to pay, the enforcement of the claims of the
Parties under Article IX of this Agreement are the sole and exclusive remedies that a Party shall have under this Agreement and the
ECCA for the recovery of Indemnified Costs; provided, however, that notwithstanding anything to the contrary in this Agreement,
each Party hereby reserves all equitable remedies.
9.16 Final Date for Assertion of Indemnity Claims. All claims by an Indemnified Party for indemnification pursuant to this
Article IX resulting from breaches of representations or warranties in Article III of the ECCA shall be forever barred unless the other
Party is notified within the time periods provided in Section 7.7 of the ECCA, provided that if written notice of a claim for
indemnification has been given by an Indemnified Party on or prior to the last day of the applicable
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period, then the obligation of the other Party to indemnify such Indemnified Party pursuant to this Article IX shall survive with
respect to such claim until such claim is finally resolved.
9.17 Reasonable Steps to Mitigate. Each Indemnified Party will take, at the Indemnifying Party’s own reasonable cost and
expense, all reasonable commercial steps identified by Indemnifying Party to the Indemnified Parties to mitigate all Indemnified
Costs (other than any such Indemnified Costs that are Taxes), which steps may include availing itself of any defenses, limitations,
rights of contribution, claims against third Persons and other rights at law or equity. The Indemnified Parties will provide such
evidence and documentation of the nature and extent of the Indemnified Costs as may be reasonably requested by the Indemnifying
Party.
9.18 Net of Insurance Benefits. All Indemnified Costs shall be net of insurance recoveries from insurance policies of the
Company (including under the existing title policies) to the extent that any proceeds of such policies, less any costs, expenses or
premiums incurred by the Company in connection therewith, are distributed by the Company to the Indemnified Party; provided,
however, such amount shall account for any costs or expenses incurred by the Indemnified Party in connection with obtaining
insurance proceeds with respect to any breach or nonperformance hereunder.
9.19 No Consequential Damages. Indemnified Costs shall not include, and an Indemnifying Party shall have no obligation
to indemnify any Indemnified Party for or in respect of, any punitive, consequential or exemplary damages of any nature including
but not limited to damages for lost profits or revenues or the loss or use of such profits or revenue, loss by reason of plant shutdown
or inability to operate at rated capacity, increased operating expenses of plant or equipment, increased costs of purchasing or
providing equipment, materials, labor, services, costs of replacement, power or capital, debt service fees or penalties, inventory or
use charges, damages to reputation, damages for lost opportunities, or claims of the Company’s customers, Members or Affiliates,
regardless of whether said claim is based upon contract, warranty, tort (including negligence and strict liability) or other theory of
law unless payable by such Indemnified Party as part of a Third Party Claim; provided, however, that the lost profits or revenues
(and the loss or use thereof) language set forth in this Section 9.19 shall not be interpreted to exclude from Indemnified Costs any
damages, losses, claims, liabilities, demands charges, suits, Taxes, penalties, costs or expenses that would otherwise be included
within the definition of Indemnified Costs because they result from a reduction in the profits of the Company.
9.20 Payment of Indemnification Claims. All claims for indemnification shall be paid by the Indemnifying Party in
immediately available funds in U.S. dollars. Any undisputed portion of an indemnification claim shall be paid promptly by the
Indemnifying Party to the Indemnified Parties involved. An Indemnifying Party may dispute any portion of an indemnification
claim; provided, however, that such disputed indemnification claim shall be paid promptly by the Indemnifying Party to the
Indemnified Party together with interest at a market rate upon the final determination of the payable amount of the claim (if any) by
a court of competent jurisdiction.
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9.21 Repayment; Subrogation. If the amount of any Indemnified Costs, at any time after the making of an indemnity
payment in respect thereof, is reduced by recovery, settlement or otherwise under any insurance coverage (excluding any proceeds
from self-insurance or flow through insurance policies) or under any claim, recovery, settlement or payment by or against any other
entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith, must promptly be
repaid by the Indemnified Party to the Indemnifying Party net of any Taxes imposed upon the Indemnified Party in respect of such
amounts, but taking into account any Tax benefit the Indemnified Party receives as a result of such repayment. Upon making any
indemnity payment (other than any indemnity payment relating to Taxes), the Indemnifying Party will, to the extent of such
indemnity payment, be subrogated to all rights of the Indemnified Party against any third party, except third parties that provide
insurance coverage to the Indemnified Party or its Affiliates, in respect of the Indemnified Costs to which the indemnity payment
relates. Without limiting the generality or effect of any other provision hereof, each such Indemnified Party and the Indemnifying
Party shall duly execute upon request all instruments reasonably necessary to evidence and perfect the above described subrogation
rights, and otherwise cooperate in the prosecution of such claims at the direction of the Indemnifying Party. Nothing in this Section
9.21 will be construed to require any Party to obtain or maintain any insurance coverage.
ARTICLE X
DISSOLUTION AND WINDING-UP
10.1 Events of Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the first to occur of any
of the following:
(a) the written consent of the Members representing a Class Majority Vote to dissolve and terminate the Company;
(b) the entry of a decree of judicial dissolution under Section 18-802 of the Act;
(c) the disposition of all or substantially all of the Company’s business and assets;
(d) the issuance of a final, nonappealable court order which makes it unlawful for the business of the Company to be
carried on; or
with the Act.
(e) at any time there are no members of the Company unless the business of the Company is continued in accordance
10.2 Distribution of Assets.
(a) The Members hereby appoint the Managing Member to act as the liquidator upon the occurrence of one of the
events in Section 10.1. Upon the occurrence of such an event, the liquidator will proceed diligently to wind up the affairs of the
Company and make final distributions as provided herein and in the Act. The liquidator may sell, and will use commercially
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reasonable efforts to obtain the best possible price for, any or all Company property, including to Members. In no event, without the
approval of Members by a Class Majority Vote, will a sale to a Member be for an amount that is less than fair market value
(determined by the Appraisal Method if the Members (by a Class Majority Vote) are unable to agree on the fair market value).
(b) The liquidator will first pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations
of the Company (including all expenses incurred in liquidation) or otherwise make adequate provision for payment and discharge
thereof (including the establishment of a cash escrow fund for contingent, conditional or unmatured liabilities in such amount and for
such term as the liquidator may reasonably determine) in the order of priority as provided by law.
(c) All assets of the Company will be treated as if sold.
(d) Items of income, gain, loss and deduction for the taxable year of liquidation, including any gain or loss upon the
deemed sale of a Company asset under Section 10.2(c) hereof, will be allocated among the members as provided under Section 5.3
after giving effect to the allocations in Section 5.4.
(e) After the allocations in clause (d) have been made, then cash and property will be distributed pro rata to the
Members in the amount of the positive balances in their Capital Accounts by the end of the taxable year during which the liquidation
occurs (or, if later, within ninety (90) days after the date of such liquidation).
(f) The distribution of cash and property to a Member under this Section 10.2 constitutes a complete return to the
Member of its Capital Contributions and a complete distribution to the Member on its Membership Interests in the Company of all
the Company’s property and constitutes a compromise to which all Members have consented within the meaning of Section 18-
502(b) of the Act. If the assets of the Company remaining after the payment or discharge of the debts and liabilities of the Company
are insufficient to return Capital Contributions of each Member, such Member shall have no recourse against the Company or any
other Member, except as provided in Section 9.10.
10.3 In-Kind Distributions. There shall be no distribution of assets of the Company in kind without a prior Class Majority
Vote.
10.4 Certificate of Cancellation.
(a) When all debts, liabilities and obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to the Members, a certificate of cancellation shall be
executed and filed by the liquidator with the Secretary of State of the State of Delaware, which certificate shall set forth the
information required by Section 18-203 of the Act.
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(b) Upon the filing of the certificate of cancellation, the existence of the Company shall cease.
(c) All costs and expenses in fulfilling the obligations under this Section 10.4 shall be borne by the Company.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. Unless otherwise provided herein, any offer, acceptance, election, approval, consent, certification, request,
waiver, notice or other communication required or permitted to be given hereunder (collectively referred to as a “Notice”), shall be
in writing and delivered (a) in person, (b) by registered or certified mail with postage prepaid and return receipt requested, (c) by
recognized overnight courier service with charges prepaid or (d) by facsimile transmission, directed to the intended recipient at the
address of such Member on Schedule 4.2(d) or at such other address as any Member hereafter may designate to the others in
accordance with a Notice under this Section 11.1. A Notice or other communication will be deemed delivered on the earliest to occur
of (i) its actual receipt when delivered in person, (ii) the fifth (5th) Business Day following its deposit in registered or certified mail,
with postage prepaid, and return receipt requested, (iii) the second (2nd) Business Day following its deposit with a recognized
overnight courier service or (iv) the date of receipt of a facsimile or, if such date of receipt is not a Business Day, the next Business
Day following such date of receipt; provided the sender can and does provide evidence of successful transmission. Any Notice or
other communication received on a day that is not a Business Day or later than 5:00 p.m. on a Business Day shall be deemed to be
received on the next Business Day.
11.2 Amendment. Except for an amendment of Schedule 4.2(d), an amendment of Annex II to reflect the issuance of
additional Membership Interests or a Transfer of Membership Interests, or an amendment in connection with the admission of a new
Member, in each case in accordance with the terms of this Agreement, this Agreement may be changed, modified or amended only
by an instrument in writing duly executed by all Members.
11.3 Partition. Each of the Members hereby irrevocably waives, to the extent it may lawfully do so, any right that such
Member may have to maintain any action for partition with respect to the Company property.
11.4 Waivers and Modifications. Any waiver or consent, express, implied or deemed, to or of any breach or default by any
Person in the performance by that Person of its obligations with respect to the Company or any action inconsistent with this
Agreement is not a consent or waiver to or of any other breach or default in the performance by that Person of the same or any other
obligations of that Person with respect to the Company or any other such action. Failure on the part of a Person to insist in any one or
more instances upon strict performance of any provisions of
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this Agreement, to take advantage of any of its rights hereunder, or to declare any other Person in default with respect to the
Company, irrespective of how long that failure continues, does not constitute a waiver by the Person so failing of its rights with
respect to that other Person or its rights with respect to that default until the applicable statute of limitations period has lapsed. All
waivers and consents hereunder shall be in writing duly executed by all Members affected by such waiver or consent and shall be
delivered to the other Members in the manner described in Section 11.1.
11.5 Severability. Except as otherwise provided in the succeeding sentence, every term and provision of this Agreement is
intended to be severable, and if any term or provision of this Agreement is illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the legality or validity of the remainder of this Agreement. The preceding sentence shall be of
no force or effect if the consequence of enforcing the remainder of this Agreement without such illegal or invalid terms or provision
would be to cause any Party to lose the benefit of its economic bargain.
11.6 Successors; No Third-Party Beneficiaries. This Agreement is binding on and inures to the benefit of the Members and
their respective heirs, legal representatives, successors and permitted assigns. Nothing in this Agreement shall provide any benefit to
any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the Members
that this Agreement shall not be construed as a third-party beneficiary contract. To the full extent permitted by Legal Requirements,
no creditor or other third party having dealings with the Company shall have the right to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may
be enforced solely by, the parties hereto and their respective successors and permitted assigns. None of the rights of the Members
herein set forth to make Capital Contributions or loans to the Company shall be deemed an asset of the Company for any purpose by
any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Company or pledged or
encumbered by the Company to secure any debt or other obligation of the Company or of any of the Members.
11.7 Entire Agreement. This Agreement, including the Schedules, Annexes and Exhibits attached hereto or incorporated
herein by reference, and the ECCA constitute the entire agreement of the Members with respect to the matters covered herein. This
Agreement supersedes all prior agreements and oral understandings among the parties hereto with respect to such matters.
11.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of
Delaware, excluding any conflict of laws rule or principle that might refer the governance or construction of this Agreement to the
law of another jurisdiction.
11.9 Further Assurances. In connection with this Agreement and the transactions contemplated hereby, each Member shall
execute and deliver any additional documents and instruments and perform any additional acts that may be reasonably required or
useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.
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11.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but
all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not
have executed the same counterpart.
11.11 Dispute Resolution. In the event a dispute, controversy or claim arises hereunder, the aggrieved party will promptly
provide written notification of the dispute to the other party within 10 days after such dispute arises. A meeting will be held promptly
between the parties, attended by representatives of the parties with decision-making authority regarding the dispute, to attempt in
good faith to negotiate a resolution of the dispute. If the parties are not successful in resolving a dispute within twenty-one (21) days,
the parties will thereafter be entitled to pursue all such remedies as may be available to them; provided that the parties hereby
irrevocably submit to the exclusive jurisdiction of any state or federal court in New York county, New York or any state of federal
court in the State of Delaware with respect to any action or proceeding arising out of or relating to this Agreement. For the avoidance
of doubt, no Member waives its right to maintain a legal action or proceeding in the courts of the State of Delaware with respect to
matters relating to the organization or internal affairs of the Company.
11.12 Confidentiality.
(a) Each of the Members shall, and shall cause their Affiliates and their respective stockholders, members,
subsidiaries and Representatives to, hold confidential all information they may have or obtain concerning the Class C Member, the
Class B Member, any other Member, the Company and their respective assets, business, operations or prospects or this Agreement
(the “Confidential Information”); provided, however, such Confidential Information shall not include information that (i) becomes
generally available to the public other than as a result of a disclosure by such Member or any of its Representatives, (ii) becomes
available to such Member or any of its Representatives on a nonconfidential basis prior to its disclosure by the Company or its
Representatives, (iii) is required or requested to be disclosed by such Member or any of its Affiliates or their respective stockholders,
members, subsidiaries or Representatives as a result of any applicable Legal Requirement or rule or regulation of any stock
exchange, the Financial Industry Regulatory Authority, Inc., the New York Department of Financial Services or other regulatory
authority or self-regulatory authority having jurisdiction over such Member, (iv) is required or requested by the IRS in connection
with the Project, including in connection with a request for any private letter ruling, any determination letter or any audit, (v) is
required to be disclosed by such Member to its auditors and advisers (including, without limitation, legal and financial advisers) who
need to know such information in connection with the transactions contemplated hereby and who are subject to duties of
confidentiality or bound by confidentiality obligations consistent with those set forth in this Section 11.12(a) restricting further
disclosure of such Confidential Information, (vi) is required to be disclosed to rating agencies requesting such information, or (vii) is
independently developed by Member or any of its Representatives; provided that with respect to clauses (iii), (iv), (v) and (vi), if
such Confidential Information remains or is reasonably believed to remain generally unavailable to the public, such information will
remain Confidential Information
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in all other respects and for all other purposes. If such party becomes compelled by legal or administrative process to disclose any
Confidential Information, such party will provide the other Members (to the extent it is legally able to do so) with prompt notice of
any such disclosure (other than any disclosure in connection with routine regulatory filings, reviews or audits, or requests for
regulatory approvals in the ordinary course of the recipient’s business, which, in each case, may be made without notice or
restriction) so that the other Members may seek a protective order or other appropriate remedy or waive compliance with the non-
disclosure provisions of this Section 11.12(a) with respect to the information required to be disclosed. If such protective order or
other remedy is not obtained, or such other Members waive compliance with the non-disclosure provisions of this Section 11.12(a)
with respect to the information required to be disclosed, the first party will furnish only that portion of such information that it is
advised, by opinion of counsel, is legally required to be furnished and will exercise reasonable efforts, at the other Members’
expense, to obtain reliable assurance that confidential treatment will be accorded such information, including, in the case of
disclosures to the IRS described in clause (iv) above, to obtain reliable assurance that, to the maximum extent permitted by
applicable Legal Requirements, such information will not be made available for public inspection pursuant to Section 6110 of the
Code.
(b) Except to the extent necessary for the exercise of its rights and remedies and the performance of its obligations
under this Agreement, the Project Documents and Transaction Documents (including without limitation, the ownership, operation
and administration of the Company), the Class A Member, the Class B Member, the Class C Member and their respective Affiliates
will hold confidential and not disclose directly or indirectly, any of the economic terms particular to this Agreement and the ECCA,
including the amount of any Member’s Capital Contribution, economic returns thereon or the identity of any Member other than with
respect to the disclosures of the type described in clause (a)(i) through (vii) above or in clause (c) below that are permitted for the
other Members and their respective Affiliates. The foregoing shall not restrict either the Class B Member or the Class C Member (or
any Affiliate) from using project data related to the Project in connection with the development of other energy projects by such
Member (or any of its Affiliates).
(c) Nothing in Section 11.12(a) and (b) shall be construed as prohibiting a party hereunder or its Affiliates from
using such Confidential Information in connection with (i) any claim against another Member or the Managing Member hereunder or
under any other Transaction Document or Project Document, (ii) any exercise by a party hereunder of any of its rights hereunder and
under any other Transaction Document or Project Document (including without limitation, the ownership, operation and
administration of the Company) and (iii) a disposition by a Member of all or a portion of its Membership Interest or a disposition of
an equity interest in such Member or its Affiliates, or a potential financing of the Project; provided that such potential purchaser or
lender shall have entered into a confidentiality agreement with respect to Confidential Information on customary terms used in
confidentiality agreements in connection with corporate acquisitions before any such information may be disclosed. In addition, each
Member hereby acknowledges that the United States federal securities laws, among other things, prohibit certain persons in
possession of material, non-public information concerning companies or securities from buying or selling
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DM_US 164459608-9.107145.0012
securities issued by those companies or disclosing that material, non-public information to others who buy or sell those securities
while in possession of that information (or disclose that information to others who buy or sell). Notwithstanding anything herein to
the contrary, the Parties and their respective Representatives may disclose to any and all Persons, without limitation of any kind, the
U.S. federal income tax treatment and tax structure of the transaction and all materials of any kind (including opinions and other tax
analyses) that are provided to such Party relating to such tax treatment and tax structure, except where confidentiality is reasonably
necessary to comply with securities laws. For this purpose, “tax structure” is limited to facts relevant to the U.S. federal income tax
treatment of the transaction and does not include information relating to the identity of the Parties, their Affiliates, agents or
advisors.
(d) Notwithstanding Section 11.12(a), (b) and (c), Class C Member may issue a press release or disclose on its
website or marketing materials the fact of its investment in the Company and the nature of its investment; provided (i) that the Class
C Member must provide a copy of any such press release or the details of any such disclosure to the Class B Member at least two (2)
Business Days prior to publication or disclosure thereof and (ii) that any such press release mentioning or referring to the Class B
Member or any of its Affiliates (other than the Company) by name or setting forth the amount invested shall require the prior written
consent of the Class B Member, not to be unreasonably withheld, condition or delayed.
11.13 Joint Efforts. To the full extent permitted by applicable Legal Requirements, neither this Agreement nor any
ambiguity or uncertainty herein will be construed against any of the parties hereto, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been prepared by the joint efforts of the respective attorneys for, and has been
reviewed by, each of the parties hereto.
11.14 Specific Performance. The Members agree that irreparable damage will result if this Agreement is not performed in
accordance with its terms, and the Members agree that any damages available at law for a breach of this Agreement would not be an
adequate remedy. Therefore, to the full extent permitted by law, the provisions hereof and the obligations of the Members hereunder
shall be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate
injunctive relief may be applied for and granted in connection therewith. Such remedies and all other remedies provided for in this
Agreement shall, however, be cumulative and not exclusive and shall be in addition to any other remedies that a Member may have
under this Agreement, at law or in equity.
11.15 Survival. All representations, warranties, covenants and obligations made or undertaken by a Party in this Agreement
or in any other Transaction Document are material, have been relied upon by the other Parties and, except as otherwise provided
elsewhere in this Agreement (or, with respect to any representations, warranties, covenants and obligations made or undertaken in
any other Transaction Document, in such Transaction Document), shall continue in full force and effect, together with the associated
rights of indemnification, indefinitely; provided that all indemnities and reimbursement obligations made pursuant to this Agreement
shall survive
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DM_US 164459608-9.107145.0012
dissolution and liquidation of the Company until expiration of the longest applicable statute of limitations (including extensions and
waivers) with respect to the matter for which a Person would be entitled to be indemnified or reimbursed, as the case may be.
11.16 Effective Date. This Agreement shall have no force or effect unless and until the transactions contemplated by the
ECCA to take place on the Closing Date occur, at which time this Agreement shall automatically and without any further action,
other than the execution hereof, become effective simultaneously with the other actions occurring on the Closing Date.
11.17 Recourse Only to Member. The sole recourse of the Company for performance of the obligations of any Member
hereunder shall be against such Member and its assets and not against any assets or property of any present or future stockholder,
partner, member, officer, employee, servant, executive, director, agent, authorized representative or Affiliate of such Member.
[Remainder of this page left intentionally blank. Signature page follows.]
IN WITNESS WHEREOF, each Member has caused this Fourth Amended and Restated Limited Liability Company
Agreement to be signed by a duly authorized officer as of the date first above written.
CLASS A MEMBER:
DIAMOND STATE GENERATION HOLDINGS, LLC
By:
Name:
Title:
CLASS B MEMBER:
SP DIAMOND STATE CLASS B HOLDINGS, LLC
By:
Name:
Title:
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DM_US 164459608-9.107145.0012
CLASS C MEMBER:
ASSURED GUARANTY MUNICIPAL CORP.
By:
Name:
Title:
DM_US 163650105-10.107145.0012
DM_US 164459608-9.107145.0012
ACKNOWLEDGED AND AGREED FOR PURPOSES OF SECTION 8.6(g):
COMPANY
DIAMOND STATE GENERATION PARTNERS, LLC
By:
Name:
Title:
DM_US 164459608-9.107145.0012
ANNEX I
DEFINITIONS
[See attached]
DM_US 164459608-9.107145.0012
ANNEX II
MEMBERSHIP INTERESTS
CLASS A MEMBERSHIP INTERESTS
Class A Member
Number of Class A
Membership Interests Owned
Percentage of Class A
Membership Interests
Owned
Diamond State Generation
Holdings, LLC
5
100%
CLASS B MEMBERSHIP INTERESTS
Class B Member
Number of Class B Membership
Interests Owned
Percentage of Class B
Membership Interests
Owned
SP Diamond State Class B
Holdings, LLC
100
100%
CLASS C MEMBERSHIP INTERESTS
Class C Member
Number of Class C Membership
Interests Owned
Percentage of Class C
Membership Interests
Owned
Assured Guaranty Municipal
Corp.
100
100%
DM_US 164459608-9.107145.0012
Annex II - 1
SCHEDULE 4.2(d)
MEMBER NAMES AND ADDRESSES
Member Name and Address
Diamond State Generation Holdings, LLC
4353 North 1st Street
San Jose, CA 95134
Attn: Mark Mesler
Email: [*]
SP Diamond State Class B Holdings, LLC
c/o Southern Power Company
30 Ivan Allen Jr. Blvd., NW
Bin SC 1108
Atlanta, GA 30308
Attention: Adam Houston, Assistant Comptroller
E-mail: [*]
with copies to:
Southern Power Company
30 Ivan Allen Jr. Blvd., NW
Bin SC 1108
Atlanta, GA 30308
Attention: John Pemberton, General Counsel
Attention: Sonnet Edmonds, Corporate Secretary
E-mail: [*][*]
Telephone: (404) [*]
Assured Guaranty Municipal Corp.
1633 Broadway
New York, New York 10019
Attention: General Counsel
Email: g[*]
DM_US 164459608-9.107145.0012
Schedule 4.2(d) - 1
Schedule 5.2
Revenue and Expense Statement Information
i. Revenue allocation % calculation (including the Phase 1 New Systems Output Percentage and the Phase 2 New Systems Output
Percentage)
ii. Total revenue calculation (including Operating Revenue and Extraordinary Shared Facility Revenue)
iii. PJM charges support
iv. Total Red Lion and Brookside rental expense calculation
v. Other COGS – utilities/communication line expenses supports
vi. Professional Services Expenses – legal fees, etc. supports
vii. Other Miscellaneous Expenses
viii. Operating Expenses of the Project
ix. Specially Allocated Phase 1 New System Items and Specially Allocated Phase 2 New System Items
x. Phase 1 New Systems Income and Loss and Phase 2 New Systems Income and Loss
DM_US 164459608-9.107145.0012
Schedule 5.2 - 1
Schedule 8.4
Required Insurance
Insurance. At all times the Company shall maintain in force and effect the following insurance with insurance companies rated “A-”
or better, with a minimum size rating of “X” by AM Best’s Insurance Guide and Key Ratings (or an equivalent rating by another
nationally recognized insurance rating agency of similar standing if AM Best’s Insurance Guide and Key Ratings shall no longer be
published), which insurance shall not be subject to cancellation, termination or other material adverse changes unless the insurer
delivers to the Managing Member written notice of the cancellation, termination or change at least thirty (30) days in advance of the
effective date of the cancellation, termination or material adverse change or if notice from the insurer to the Managing Member of
material adverse change is not available on commercially reasonable terms then Managing Member shall provide the Members with
such notice as soon as reasonably possible after becoming aware of such change.
(a) Commercial General Liability Insurance, including bodily injury and property damage liability (arising from premises,
operations, contractual liability endorsements, products liability, or completed operations) with limits not less than One Million
Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) annual aggregate limit at policy inception;
(b) If there is exposure, automobile liability insurance in accordance with prudent industry practice with a limit of not less
than One Million Dollars ($1,000,000.00), combined single limit per occurrence;
(c) Umbrella liability insurance acting in excess of underlying employer’s liability, commercial general liability and
automobile liability policies with limits not less than Twenty Five Million Dollars ($25,000,000.00) per occurrence;
(d) All Risk Property insurance shall be provided for all property and equipment with a limit of not less than the aggregate
full replacement cost of the Project;
(e) Business interruption coverage insuring the loss of expected gross revenues for a period of not less than 12 months; and
(f) Environmental/pollution liability insurance with a limit of not less than Ten Million Dollars ($10,000,000.00) per claim.
DM_US 164459608-9.107145.0012
Schedule 8.4
EXHIBIT A
FORM OF CERTIFICATE FOR CLASS A MEMBERSHIP INTEREST
THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES LAWS. ACCORDINGLY, SUCH INTERESTS
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT COMPLIANCE WITH SUCH ACT AND
SUCH STATE SECURITIES LAWS, AND DIAMOND STATE GENERATION PARTNERS, LLC MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO IT THAT NO VIOLATION OF SUCH ACT AND SUCH STATE SECURITIES
LAWS WILL RESULT FROM ANY PROPOSED SALE, TRANSFER OR OTHER DISPOSITION OF SUCH INTERESTS.
THIS CERTIFICATE EVIDENCES AN INTEREST IN DIAMOND STATE GENERATION PARTNERS, LLC AND SHALL BE
A SECURITY FOR THE PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE
STATE OF NEW YORK.
No. [A-[_]] Class A Membership Interests
Diamond State Generation Partners, LLC
a Delaware Limited Liability Company
Certificate of Interest
This certifies that [___________________] is the owner of [5] Class A Membership Interests in Diamond State
Generation Partners, LLC (the “Company”), which membership interests are subject to the terms of the Fourth Amended and
Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC, dated as of December 23, 2019, as the
same may be further amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof
(the “Limited Liability Company Agreement”).
This Certificate of Interest may be transferred by the lawful holders hereof only in accordance with the provisions of
the Limited Liability Company Agreement.
IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly
authorized signatory this [__] day of [_______], 2019.
Diamond State Generation Partners, LLC
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit A - 1
[Reverse]
INSTRUMENT OF TRANSFER OF
MEMBERSHIP INTEREST IN
Diamond State Generation Partners, LLC
FOR
RECEIVED,
_______________________________________________
VALUE
undersigned
the
does
hereby
sell,
assign
and
transfer
unto
(print or type name of assignee)
the membership interest evidenced by and within the Certificate of Interest herewith, and does hereby irrevocably constitute and
appoint __________________ as attorney to transfer said interest on the books of Diamond State Generation Partners, LLC, with
full power of substitution in the premises.
Dated as of:
[____________________]
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit A - 2
EXHIBIT B
FORM OF CERTIFICATE FOR CLASS B MEMBERSHIP INTEREST
THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES LAWS. ACCORDINGLY, SUCH INTERESTS
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT COMPLIANCE WITH SUCH ACT AND
SUCH STATE SECURITIES LAWS, AND DIAMOND STATE GENERATION PARTNERS, LLC MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO IT THAT NO VIOLATION OF SUCH ACT AND SUCH STATE SECURITIES
LAWS WILL RESULT FROM ANY PROPOSED SALE, TRANSFER OR OTHER DISPOSITION OF SUCH INTERESTS.
THIS CERTIFICATE EVIDENCES AN INTEREST IN DIAMOND STATE GENERATION PARTNERS, LLC AND SHALL BE
A SECURITY FOR THE PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE
STATE OF NEW YORK.
No. [B-[_]] Class B Membership Interests
Diamond State Generation Partners, LLC
a Delaware Limited Liability Company
Certificate of Interest
This certifies that [_____________________] is the owner of [100] Class B Membership Interests in Diamond State
Generation Partners, LLC (the “Company”), which membership interests are subject to the terms of the Fourth Amended and
Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC, dated as of December 23, 2019, as the
same may be further amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof
(the “Limited Liability Company Agreement”).
This Certificate of Interest may be transferred by the lawful holders hereof only in accordance with the provisions of
the Limited Liability Company Agreement.
IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly
authorized signatory this [___] day of [______], 2019.
Diamond State Generation Partners, LLC
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit B - 1
DM_US 164459608-9.107145.0012
[Reverse]
INSTRUMENT OF TRANSFER OF
MEMBERSHIP INTEREST IN
Diamond State Generation Partners, LLC
FOR
RECEIVED,
_______________________________________________
VALUE
undersigned
the
does
hereby
sell,
assign
and
transfer
unto
(print or type name of assignee)
the membership interest evidenced by and within the Certificate of Interest herewith, and does hereby irrevocably constitute and
appoint __________________ as attorney to transfer said interest on the books of Diamond State Generation Partners, LLC, with
full power of substitution in the premises.
Dated as of:
[____________________]
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit B - 2
EXHIBIT C
FORM OF CERTIFICATE FOR CLASS C MEMBERSHIP INTEREST
THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES LAWS. ACCORDINGLY, SUCH INTERESTS
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT COMPLIANCE WITH SUCH ACT AND
SUCH STATE SECURITIES LAWS, AND DIAMOND STATE GENERATION PARTNERS, LLC MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO IT THAT NO VIOLATION OF SUCH ACT AND SUCH STATE SECURITIES
LAWS WILL RESULT FROM ANY PROPOSED SALE, TRANSFER OR OTHER DISPOSITION OF SUCH INTERESTS.
THIS CERTIFICATE EVIDENCES AN INTEREST IN DIAMOND STATE GENERATION PARTNERS, LLC AND SHALL BE
A SECURITY FOR THE PURPOSES OF ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE
STATE OF NEW YORK.
No. [C-[_]] Class C Membership Interests
Diamond State Generation Partners, LLC
a Delaware Limited Liability Company
Certificate of Interest
This certifies that [___________________] is the owner of [100] Class C Membership Interests in Diamond State
Generation Partners, LLC (the “Company”), which membership interests are subject to the terms of the Fourth Amended and
Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC, dated as of December 23, 2019, as the
same may be further amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof
(the “Limited Liability Company Agreement”).
This Certificate of Interest may be transferred by the lawful holders hereof only in accordance with the provisions of
the Limited Liability Company Agreement.
IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly
authorized signatory this [__] day of [_______], 2019.
Diamond State Generation Partners, LLC
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit C - 1
[Reverse]
INSTRUMENT OF TRANSFER OF
MEMBERSHIP INTEREST IN
Diamond State Generation Partners, LLC
FOR
RECEIVED,
_______________________________________________
VALUE
undersigned
the
does
hereby
sell,
assign
and
transfer
unto
(print or type name of assignee)
the membership interest evidenced by and within the Certificate of Interest herewith, and does hereby irrevocably constitute and
appoint __________________ as attorney to transfer said interest on the books of Diamond State Generation Partners, LLC, with
full power of substitution in the premises.
Dated as of:
[____________________]
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit C - 2
EXHIBIT D
FORM OF ASSIGNMENT AGREEMENT
This ASSIGNMENT OF MEMBERSHIP INTERESTS, dated as of [_________] [__], 20[__] (this “Assignment Agreement”), is by
and between [____________________], a [___________] (the “Assignor”) and [____________________], a [___________] (the
“Assignee”).
W I T N E S S E T H :
WHEREAS, Diamond State Generation Partners, LLC, a Delaware limited liability company (the “Company”), was
formed by virtue of its Certificate of Formation filed with the Secretary of State of the State of Delaware on [___________], and is
governed by the Fourth Amended and Restated Limited Liability Company Agreement of the Company, dated as of December 23,
2019, executed by the Assignor and [_______________], a [_________], with all amendments thereto (the “LLC Agreement”);
WHEREAS, the Assignor is currently a [Class A Member][Class B Member][Class C Member] of the Company;
WHEREAS, pursuant to the LLC Agreement, the Assignor has agreed to transfer to Assignee and Assignee has
agreed to accept from the Assignor, on the terms and subject to the conditions set forth in the LLC Agreement, [Class A] [Class B]
[Class C] Membership Interests of the Company;
WHEREAS, pursuant to the LLC Agreement, the parties thereto have agreed to admit the Assignee as a [Class A]
[Class B][Class C] Member of the Company; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned do hereby agree as follows:
1. Defined Terms. All capitalized terms not defined herein are used herein as defined in the LLC Agreement.
2. Instructions to Transfer to Assignee. As of the date hereof, the Assignor hereby assigns and transfers unto Assignee
complete record and beneficial ownership of [__] [Class A][Class B][Class C] Membership Interests in the Company, together with
all rights and benefits associated therewith and the Assignee hereby assumes from Assignor complete record and beneficial
ownership of [__] [Class A][Class B][Class C] Membership Interests in the Company, together with all rights and benefits associated
therewith. The Assignor hereby irrevocably instructs the Company to register on the books of the Company the transfer to Assignee
of complete record and beneficial ownership of [__][Class A][Class B][Class C] Membership Interests in the Company previously
owned by Assignor.
DM_US 164459608-9.107145.0012
Exhibit D - 1
3. Further Assurances. Subject to the terms and conditions of the LLC Agreement, at any time, or from time to time
after the date hereof, the Assignor and Assignee shall, at the other’s reasonable request, and at the requesting party’s expense,
execute and deliver such instruments of transfer, conveyance, assignment and assumption, in addition to this Assignment Agreement,
and take such other action as either of them may reasonably request in order to evidence the transfer effected hereby.
4. Successors and Assigns. This Assignment Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns.
5. Counterparts. This Assignment Agreement may be signed in any number of counterparts, each of which shall be
deemed an original, with the same effect as if the signatures hereto were upon the same instrument. This Assignment Agreement
shall become effective when each party hereto shall have received a counterpart hereof signed by the other party.
6. Governing Law. This Assignment Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York applicable to contracts performed in that State.
[Remainder of page intentionally left blank. Signature page to follow.]
DM_US 164459608-9.107145.0012
Exhibit D - 2
IN WITNESS WHEREOF, each party hereto has caused this Assignment of Membership Interests to be signed on its
behalf as of the date first written above.
[______________________]
as the Assignor
By:
Name:
Title:
[_____________________]
as the Assignee
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit D - 3
EXHIBIT E
MAJOR DECISIONS
1.
Engage in any business or activity that is not related or incidental to, or consistent with, operation of the Phase 1 New
Systems and Phase 2 New Systems and the activities contemplated by the Phase 1 CapEx Agreement, the Phase 2 CapEx
Agreement, the MOMA and the Administrative Services Agreement;
2. Merge, consolidate, convert, or otherwise reorganize the Company with or into another entity or change the state or
other jurisdiction where the Company is organized;
3.
Convert or reorganize the Company into another entity form (including a corporation) or cause the Company to be
taxed as a corporation for federal income tax purposes;
4.
5.
Amend or otherwise modify the LLC Agreement;
Dissolve the Company;
6.
Adopt a business plan and/or budget, or amend, substitute, or modify any previously adopted business plan or budget,
other than in accordance with Section 7.1(b);
7.
Other than with respect to (i) transactions contemplated by the Phase 1 CapEx Agreement or the Phase 2 CapEx
Agreement or (ii) as necessary to keep the Phase 1 New Systems and the Phase 2 New Systems in full operation or to comply with
Applicable Laws or the Tariff, or (iii) transactions having a value or potential cost to the Company that is less than $500,000,
individually or in the aggregate, either (A) purchase, lease, or otherwise acquire or improve property of any kind or nature, or
purchase, lease, or otherwise acquire any additional interest therein, or (B) dispose of any property;
8.
Guarantee the obligations of any Person;
9.
Institute, prosecute, or settle any claim, litigation or other proceeding involving the Company in excess of $500,000,
individually or in the aggregate, other than any claim, litigation or other proceeding by and among the Parties to the Transaction
Documents in connection therewith;
10.
Release any Person or Persons from any liability or potential liability to the Company in excess of $500,000,
individually or in the aggregate;
11.
Confess judgment against the Company;
12.
File for Bankruptcy or make an assignment for the benefit of creditors or consent to the institution of any proceedings
in bankruptcy against the Company, including any liquidation, dissolution or reorganization in Bankruptcy;
DM_US 164459608-9.107145.0012
Exhibit F - 1
13.
Course of Business;
Agree to indemnify, defend, or hold harmless any person except as part of commercial arrangements in the Ordinary
14.
Other than entering into, and binding or obligating the Company with respect to, the Phase 1 CapEx Agreement, the
Phase 2 CapEx Agreement, the ECCA, the Administrative Services Agreement and the MOMA (and any contracts specifically
contemplated by those agreements), or as necessary to keep the Phase 2 New Systems and the Phase 1 New Systems in full operation
or to comply with Applicable Laws or the Tariffs, enter into any transaction, or bind or obligate the Company with respect to any
agreement (or series of related agreements), that has (or have) a potential value or cost to the Company of more than $500,000,
individually or in the aggregate, or agree on behalf of the Company to any material amendment, modification, alteration, waiver, or
adjustment with respect to any such transaction (including any material amendment, modification, alteration, waiver, or adjustment
with respect to, the Phase 1 CapEx Agreement, the Phase 2 CapEx Agreement, the ECCA, the Administrative Services Agreement
and the MOMA);
15.
Other than entering into the Phase 1 CapEx Agreement, the Phase 2 CapEx Agreement, the ECCA, the Administrative
Services Agreement and the MOMA, enter into, amend, restate, substitute, or modify, or make any other decision with respect to,
any contract, agreement, transaction, or other arrangement between the Company and any Member or any affiliate of any Member;
16.
Issue additional equity interests in the Company;
17.
Grant any option, conversion right, right of first offer or refusal, or similar right to purchase any of the Company’s
assets or any equity interest in the Company, with the exception of the sale of scrap, damaged or obsolete equipment;
18.
19.
20.
21.
22.
Incur any indebtedness for borrowed money or loan any funds of the Company to any Person;
Create any Encumbrance on all or part of the Company’s assets, other than Permitted Liens;
Redeem or otherwise liquidate all or any portion of any equity interest in the Company;
Submit any regulatory filings, except in the ordinary course of business consistent with past practice;
Establish any reserves from Company Distributable Cash other than in accordance with an established budget;
DM_US 164459608-9.107145.0012
Exhibit E - 2
23.
Enter into, amend, modify or terminate any energy marketing agreement or scheduling agreement, including that
certain Energy Management Services Agreement dated as of March 2, 2012 between the Company and White Pine Energy
Consulting, LLC;
24.
Terminate any services required to be provided to the Company under the Administrative Services Agreement or
remove or replace the Administrator thereunder;
25.
Remove or replace the Operator pursuant to the MOMA or terminate or extend beyond the Tariff Date the Warranty
Period pursuant to (and as defined in) the MOMA;
26.
Agree to setoff any amounts owed by or to the Company under any Transaction Documents, the Phase 1 CapEx
Agreement or the Phase 2 CapEx Agreement;
27.
(a) Cause the Company to pay or incur any expense if the amount of such expense would exceed one hundred ten
percent (110%) of the amount budgeted therefor in the Base Case Model; provided that the foregoing shall not restrict the ability of
the Managing Member to pay or incur any expense needed to remedy any emergency or force majeure situation or (b) modify or
vary the Base Case Model or the amount of any expenses budgeted therefor in the Base Case Model;
28.
29.
30.
Consent to any waiver or amendment of the IP License;
Consent to any waiver or amendment of the Letter of Credit; or
Agree to do any of the foregoing.
DM_US 164459608-9.107145.0012
Exhibit E - 3
EXHIBIT F
FORM OF OPERATIONS REPORT
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Exhibit F - 1
Exhibit G
Form of Class B Draw Request
[Managing Member]
c/o Diamond State Generation Partners, LLC
[Address]
[Address]
[Address]
Attention: [___]
E-Mail: [___]
With a copy to:
Assured Guaranty Municipal Corp.
1633 Broadway
New York, New York 10019
Attention: General Counsel
Email: [*]
[Date]
RE:
Fourth Amended and Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC, dated as
of December 23, 2019 (as amended, modified for supplemented from time to time, the “LLCA”), by and between Diamond
State Generation Holdings, LLC, a Delaware limited liability company, SP Diamond State Class B Holdings, LLC, a
Delaware limited liability company (the “Class B Member”) and Assured Guaranty Municipal Corp., a New York insurance
company. Capitalized terms used herein but undefined have the meanings set forth in the LLCA.
This Class B Draw Request is made pursuant to Section 8.6(a) of the LLCA for a Draw Amount of $[___].
The undersigned, an authorized representative of the Class B Member, hereby certifies that (i) it has a claim under Section 7.1 of the
Southern ECCA for which Bloom has not paid when such claim was due and payable and (ii) the Draw Amount set forth above does
not exceed the Class B LC Cap.
On behalf of the Class B Indemnified Parties the Class B Member directs the Company to draw an amount equal to the Draw
Amount set forth above.
Attached hereto is a draft sight draft in the form of Exhibit A to the Letter of Credit for the Draw Amount set forth above.
CLASS B MEMBER:
DM_US 164459608-9.107145.0012
Exhibit G - 1
SP DIAMOND STATE CLASS B HOLDINGS, LLC
By:
Name:
Title:
DM_US 164459608-9.107145.0012
Exhibit G - 2
Exhibit H
Form of Class C Draw Request
[Managing Member]
c/o Diamond State Generation Partners, LLC
[Address]
[Address]
[Address]
Attention: [___]
E-Mail: [___]
With a copy to:
SP Diamond State Class B Holdings, LLC
c/o Southern Power Company
30 Ivan Allen Jr. Blvd., NW
Bin SC 1108
Atlanta, GA 30308
Attention: Adam Houston, Assistant Comptroller
E-mail: [*]
and
Southern Power Company
30 Ivan Allen Jr. Blvd., NW
Bin SC 1108
Atlanta, GA 30308
Attention: John Pemberton, General Counsel
Attention: Sonnet Edmonds, Corporate Secretary
E-mail: [*][*]
Telephone: (404) [*]
[Date]
RE:
Fourth Amended and Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC, dated as
of December 23, 2019 (as amended, modified for supplemented from time to time, the “LLCA”), by and between Diamond
State Generation Holdings, LLC, a Delaware limited liability company, SP Diamond State Class B Holdings, LLC, a
Delaware limited liability company and Assured Guaranty Municipal Corp., a New York insurance company (“Class C
Member”). Capitalized terms used herein but undefined have the meanings set forth in the LLCA.
DM_US 164459608-9.107145.0012
Exhibit H - 1
This Class C Draw Request is made pursuant to Section 8.6(b) of the LLCA for a Draw Amount of $[___].
The undersigned, an authorized representative of the Class C Member, hereby certifies that (i) it has a claim under Section 7.1 of the
ECCA for which Bloom has not paid when such claim was due and payable and (ii) the Draw Amount set forth above does not
exceed the Class C LC Cap.
On behalf of the Class C Indemnified Parties the Class C Member directs the Company to draw an amount equal to the Draw
Amount set forth above.
Attached hereto is a draft sight draft in the form of Exhibit A to the Letter of Credit for the Draw Amount set forth above.
CLASS C MEMBER:
ASSURED GUARANTY MUNICIPAL CORP.
By:
Name:
Title:
Exhibit H - 2
DM_US 164459608-9.107145.0012
Exhibit 10.33
Redacted Exhibit: This Exhibit contains certain identified information that has been excluded because it is both (i) not
material and (ii) would be competitively harmful if publicly disclosed. Redacted information is identified by [*],
FUEL CELL SYSTEM SUPPLY AND INSTALLATION AGREEMENT
between
BLOOM ENERGY CORPORATION,
as Seller
and
DIAMOND STATE GENERATION PARTNERS, LLC,
as Buyer
dated as of December 23, 2019
DM_US 164459518-11.107145.0012
TABLE OF CONTENTS
Page
DM_US 164459518-11.107145.0012
ii
CONFIDENTIAL
ARTICLE I. DEFINITIONS1
Section 1.1
Section 1.2
Definitions. 1
Other Definitional Provisions. 15
ARTICLE II. PURCHASE AND SALE16
Section 2.1
Section 2.2
Section 2.3
Section 2.4
Section 2.5
Section 2.6
Section 2.7
Appointment of Seller. 16
Conceptual Design. 16
Purchase Order. 16
Invoicing of Purchase Price 16
Payment of Purchase Price. 18
Purchase and Sale of Phase 2 New Systems. 20
Delay Liquidated Damages; Failure to Complete by Commissioning Date Deadline. 20
ARTICLE III. DELIVERY AND INSTALLATION OF PHASE 2 NEW SYSTEMS AND NEW BALANCE OF FACILITIES21
Section 3.1
Section 3.2
Section 3.3
Section 3.4
Section 3.5
Section 3.6
Section 3.7
Access to Site. 21
Delivery; Title; Risk of Loss. 21
Installation Services. 22
Commissioning Date Deadline. 23
Insurance. 23
Disposal; Right of First Refusal. 24
Third Party Warranties. 24
i
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TABLE OF CONTENTS
Page
Section 3.8
Section 3.9
Section 3.10
Access; Cooperation. 24
Performance Standards. 25
Coordination of Relationship. 25
ARTICLE IV. WARRANTIES26
Section 4.1
Section 4.2
Section 4.3
Section 4.4
Pre-Commissioning Equipment Warranty; Manufacturer’s Warranty. 26
Exclusions. 27
Disclaimers. 28
Title. 28
ARTICLE V. RECORDS AND AUDITS28
Section 5.1
Section 5.2
Record-Keeping Documentation; Audit Rights. 28
Reports; Other Information. 30
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER30
Section 6.1
Section 6.2
Representations and Warranties of Seller. 30
Survival Period. 35
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF BUYER35
Section 7.1
Section 7.2
Representations and Warranties of Buyer. 35
Survival Period. 37
ARTICLE VIII. CONFIDENTIALITY37
Section 8.1
Section 8.2
Confidential Information. 37
Restricted Access. Subject to Section 10.8: 37
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ii
TABLE OF CONTENTS
Page
Section 8.3
Permitted Disclosures. 38
ARTICLE IX. LICENSE AND OWNERSHIP; SOFTWARE40
Section 9.1
Section 9.2
Section 9.3
Section 9.4
Section 9.5
Section 9.6
IP License to Use. 40
Grant of Third Party Software License; Data Rights. 41
Effect on Licenses. 41
No Software Warranty. 42
IP Related Covenants. 42
Representations and Warranties. 42
ARTICLE X. EVENTS OF DEFAULT AND TERMINATION43
Section 10.1
Section 10.2
Section 10.3
Section 10.4
Section 10.5
Section 10.6
Section 10.7
Section 10.8
Seller Default. 43
Buyer Default. 44
Buyer’s Remedies Upon Occurrence of a Seller Default. 44
Seller’s Remedies Upon Occurrence of a Buyer Default. 45
Preservation of Rights. 45
Force Majeure. 45
No Duplication of Claims; Cumulative Limitation of Liability Caps. 45
Actions to Facilitate Continued Operations After a Buyer Termination. 46
ARTICLE XI. INDEMNIFICATION47
Section 11.1
Section 11.2
IP Indemnity. 47
Indemnification of Seller by Buyer. 48
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iii
TABLE OF CONTENTS
Page
Section 11.3
Section 11.4
Section 11.5
Section 11.6
Section 11.7
Indemnification of Buyer by Seller. 49
Indemnification Procedure. 50
Limitation of Liability. 50
Survival. 51
After-Tax Basis 51
ARTICLE XII. MISCELLANEOUS PROVISIONS51
Section 12.1
Section 12.2
Section 12.3
Section 12.4
Section 12.5
Section 12.6
Section 12.7
Section 12.8
Section 12.9
Section 12.10
Section 12.11
Section 12.12
Section 12.13
Section 12.14
Section 12.15
Section 12.16
Amendment and Modification. 51
Waiver of Compliance; Consents. 51
Notices. 51
Assignment. 52
Dispute Resolution; Service of Process. 54
Governing Law, Jurisdiction, Venue. 54
Counterparts. 54
Interpretation. 55
Entire Agreement. 55
Construction of Agreement. 55
Severability. 55
Further Assurances. 55
Independent Contractor. 55
Service Providers. 56
Rights to Deliverables. 56
Limitation on Export. 57
DM_US 164459518-11.107145.0012
iv
TABLE OF CONTENTS
Page
Section 12.17
Section 12.18
Section 12.19
Time of Essence. 57
No Rights in Third Parties. 57
No Modification or Alteration of DSGP Operating Agreement or Phase 1 CapEx Agreement. 57
DM_US 164459518-11.107145.0012
v
TABLE OF CONTENTS
Page
ANNEXES
Annex A Conceptual Design
Annex B Insurance
EXHIBITS
Exhibit A Specifications for Phase 2 New Systems
Exhibit B Form of Bill of Sale
Exhibit C Seller Deliverables
Exhibit D Form of Payment Notice
Exhibit E Form of Purchase Order
Exhibit F Intentionally Omitted
Exhibit G Form of Seller’s Certificate of Delivery Milestone Completion
Exhibit H Form of Seller’s Certificate of Commissioning
Exhibit I Form of Conditional Lien Waiver and Final Lien Waiver
Exhibit J Seller Corporate Safety Plan
Exhibit K Subcontractor Quality Plan
Exhibit L Parties’ Managers
Exhibit M Form of Independent Engineer’s Certificate
SCHEDULES
Schedule 3.3(a)(ii) Commissioning Procedures
Schedule 5.2(b) Section 5.2(b) Knowledge Parties
Schedule 12.14 Approved Major Service Providers
DM_US 164459518-11.107145.0012
vi
FUEL CELL SYSTEM SUPPLY AND INSTALLATION AGREEMENT
This Fuel Cell System Supply and Installation Agreement (this “Agreement”), dated as of December 23, 2019 (the
“Agreement Date”), is entered into by and between BLOOM ENERGY CORPORATION, a Delaware corporation (“Seller”), and
DIAMOND STATE GENERATION PARTNERS, LLC, a Delaware limited liability company (“Buyer”). Seller and Buyer are
referred to in this Agreement individually, as a “Party” and, collectively, as the “Parties.”
RECITALS
WHEREAS, Seller is in the business of designing, engineering, constructing, commissioning, operating, and maintaining
solid oxide fuel cell power generating facilities;
WHEREAS, Buyer owns a group of Bloom Systems and the applicable BOF, of which seventeen and seven-tenths
megawatts (17.7 MW) have been newly upgraded (the “Phase 1 New Systems”) pursuant to that certain Fuel Cell System Supply
and Installation Agreement, by and between Buyer and Seller, dated June 14, 2019 (the “Phase 1 CapEx Agreement”) and other
agreements;
WHEREAS, Buyer desires to purchase an additional nine and eight-tenths megawatts (9.8 MW) of new Bloom Systems and
New BOF on a full turn-key basis (upon completion, the “Phase 2 New Systems”, and collectively, with the Phase 1 New Systems,
the “Project”), pursuant to the terms herein;
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set
forth, and intending to be legally bound hereby, the Parties agree as follows:
DM_US 164459518-11.107145.0012
AGREEMENT
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, capitalized terms not otherwise defined shall have the meanings set
forth below:
“A&R Administrative Services Agreement” means that certain Second Amended and Restated Administrative Services
Agreement, amended and restated as of even date herewith, by and between Seller, as “Administrator,” and Buyer, as
“Project Company.”
“A&R MOMA” means that certain Second Amended and Restated Master Operations and Maintenance Agreement, dated as
of even date herewith, by and between Seller, as “Operator,” and Buyer as “Owner.”
“Affiliate” of any Person means a Person that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified, provided that notwithstanding anything in this
Agreement to the contrary, Seller is not an Affiliate of Buyer. For purposes of this Agreement, the direct or indirect
ownership of over fifty percent (50%) of the outstanding voting securities of an entity, or the right to receive over fifty
percent (50%) of the profits or earnings of an entity shall be deemed to constitute control. Such other relationships as in fact
results in actual control over the management, business and affairs of an entity, shall also be deemed to constitute control.
“Agreement” is defined in the preamble.
“Agreement Date” is defined in the preamble.
“Appraisal Procedure” means within fifteen (15) days of a Party invoking the procedure described in this definition Buyer
and Seller shall engage a Qualified Appraiser, mutually acceptable to them, to conclusively determine within fifteen (15)
days after appointment the Fair Market Value of a Phase 2 New System.
“Bankruptcy” as to any Person means (a) such Person admits in writing its inability to pay its debts generally as they become
due; (b) such Person files a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or
any other Legal Requirements of the United States of America or any State, district or territory thereof; (c) such Person
makes an assignment for the benefit of creditors; (d) such Person consents to the appointment of a receiver of the whole or
any substantial part of its assets; (e) such Person has a petition in bankruptcy filed against it, and such petition is not
dismissed within sixty (60) days after the filing thereof; (f) a court of competent jurisdiction enters an order, judgment, or
decree appointing a receiver of the whole or any substantial part of such Person’s assets, and such order, judgment or decree
is not vacated or set aside or stayed within sixty (60) days from the date of entry thereof; or (g) under the provisions of any
other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the whole or
any substantial part of such Person’s assets and such custody or control is not terminated or stayed within sixty (60) days
from the date of assumption of such custody or control.
DM_US 164459518-11.107145.0012
2
“Bankruptcy Laws” is defined in Section 9.3.
“Base Case Model” means the economic model titled “Project Leone Model_2nd Single Investor_12.7.19 Blue Mountain
(Current LLCA) v03” posted to the Electronic Data Room on December 21, 2019.
“Bill of Sale” means a bill of sale substantially in the form set forth in Exhibit B.
“Bloom System” means a solid oxide fuel cell power generating system, capable of being powered by natural gas, which is
designed, constructed and installed by Bloom Energy Corporation. For the avoidance of doubt, each Phase 2 New System
constitutes a “Bloom System” for purposes of this Agreement.
“Bloom System Meter” means, with respect to a Bloom System, the internal electricity generation meter located within such
Bloom System, which is designed to measure the actual electricity output in kWh produced by such Bloom System and
which has the specifications listed on Exhibit A.
“BOF” means, for each Site, the (a) existing balance of facility items included in each Facility as of the Agreement Date,
including, as applicable, Electrical Interconnection Facilities, the natural gas supply facilities, the water supply facilities, the
data communications facilities, the foundations formerly used for the Removed Systems or currently used for the Phase 1
New Systems and any other facilities and equipment formerly ancillary to the Removed Systems or currently ancillary to the
Phase 1 New Systems and installed in connection with the Facility at each Site and all other things ancillary to the Facility
and required on or in the vicinity of the Site which were necessary for operation of the Removed Systems prior to their
decommissioning, which are necessary for operation of the Phase 1 New Systems or which are otherwise required by the
Tariff or Site Lease for such Site (“Existing BOF”), and (b) any new balance of facility items installed in a Facility after the
Agreement Date, including, as applicable, any new components in respect of Electrical Interconnection Facilities, the natural
gas supply facilities, the water supply facilities, or the data communications facilities, the foundations for the Phase 2 New
Systems and any other facilities and equipment ancillary to the Phase 2 New Systems and installed in connection with the
Facility at each Site and all other things ancillary to the Facility and required on or in the vicinity of the Site which are
necessary to achieve Commissioning with respect to any Phase 2 New System at each such Site or which are otherwise
required by the Tariff or Site Lease for any Phase 2 New System or Site (“New BOF”). For clarity, “BOF” excludes any
Existing BOF item that is removed from a Facility as part of the Installation Services as of the date of such removal.
“Brookside Facility” means the Bloom Systems and BOF at 512 E. Chestnut Hill Road, Newark, DE 19713.
“BTUs” means British Thermal Units.
“Business Day” means a day other than a Saturday, Sunday or other day on which banks in New York, New York, or San
Francisco, California, are authorized or required to close.
DM_US 164459518-11.107145.0012
3
“Buyer” is defined in the preamble.
“Buyer Default” is defined in Section 10.2.
“Buyer Indemnitee” is defined in Section 11.3(a).
“Buyer Manager” is defined in Section 3.10(a).
“Claiming Party” is defined in Section 10.6.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commissioned” and “Commissioning” means, with respect to any Phase 2 New System, the completion and the
performance of all of the following activities:
(a) such Phase 2 New System has been installed at the applicable Facility specified in the Purchase Order, and has
been Placed in Service;
(b) (i) such Phase 2 New System, based on a [*] period of operation, (A) is producing power at one hundred percent
(100%) of the System Capacity of such Phase 2 New System, as measured by the Bloom System Meter and (B) is
operating at or above the Minimum Efficiency Level and (ii) Seller has provided Buyer with evidence reasonably
satisfactory to Buyer of each of the foregoing;
(c) Seller has (i) performed and successfully completed all necessary acts required under the applicable
Interconnection Agreement (e.g., performance testing), if any, and (ii) obtained any required permission from the
applicable Person granting Buyer permission to interconnect such Phase 2 New System with the distribution or
transmission facilities of such applicable Person;
(d) Seller shall have delivered Seller’s Certificate of Commissioning to Buyer; and
(e) Seller shall have delivered to Buyer each of the Seller Deliverables indicated on Exhibit C as items for delivery
prior to or at Commissioning.
“Commissioning Date Deadline” means January 31, 2020.
“Commissioning Milestone” means, with respect to any Phase 2 New System, the completion of all of the requirements of
Commissioning.
“Confidential Information” is defined in Section 8.1.
“Construction Report” is defined in Section 5.1(a)(iii).
“DDP (Incoterms 2010)” means Delivered Duty Paid (DDP) as such term is used in the International Rules for the
Interpretation of Trade Terms (identified as “INCOTERMS® 2010”) as prepared by the International Chamber of
Commerce.
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“Delay LDs” is defined in Section 2.7(a).
“Delayed Phase 2 New System(s)” is defined in Section 2.7.
“Delivery” means the physical delivery of all New BOF materials or equipment or all material components of a Phase 2 New
System to the applicable Site. Upon achievement of Delivery, such material components of a Phase 2 New System or New
BOF materials shall have been “Delivered.”
“Delivery Date” means for each Phase 2 New System, the date upon which the Delivery Milestone is achieved for such Phase
2 New System, as set forth in Seller’s Certificate of Delivery Milestone Completion.
“Delivery Milestone” means, with respect to any Phase 2 New System, the completion of the following activities:
(a) all material components comprising a complete Phase 2 New System have been Delivered;
(b) such Phase 2 New System has been placed upon its applicable concrete pad in an approved location pursuant
to the applicable Site Lease and is available for installation, startup, and Commissioning;
(c) if required by the applicable Site Lease, Buyer has received approval of the Site plans and/or single line
drawings from the applicable Site Landlord in respect of the Phase 2 New Systems and New BOF to be installed, and
Existing BOF to be reconfigured, at such Site; and
(d) Seller shall have delivered Seller’s Certificate of Delivery Milestone Completion to Buyer.
“Deposit” is defined in Section 2.4(a)(i).
“Documentation” means Phase 2 New System documentation for a Facility, including testing, engineering, specifications,
and operations and maintenance manuals, Training Materials, drawings, reports, standards, schematics, directions, samples
and patterns, including any such Documentation required to be delivered prior to Commissioning under Section 3.3(a)(v).
“DPL” means Delmarva Power & Light Company, d/b/a Delmarva Power, an investor owned utility company regulated by
the Delaware Public Service Commission.
“DPL Agreements” means the service applications between Buyer and DPL with respect to the REPS Act, the Tariff and the
Gas Tariff, whereby DPL shall (a) serve as the agent for collection of amounts due from Buyer (if any) and for disbursement
of amounts due to Buyer under the Tariff and (b) sell to Buyer natural gas under the Gas Tariff.
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“DSGP Operating Agreement” means that certain Fourth Amended and Restated Limited Liability Company Agreement of
Diamond State Generation Partners, LLC, as amended and restated as of even date herewith, between Diamond State
Generation Holdings, LLC, SP Diamond State Class B Holdings, LLC, and Assured Guaranty Municipal Corp.
“ECCA” means that certain Equity Capital Contribution Agreement, dated as of the date hereof, among Seller, Diamond
State Generation Holdings, LLC, SP Diamond State Class B Holdings, LLC, Assured Guaranty Municipal Corp. and Buyer.
“Efficiency” means, with respect to a Phase 2 New System, the quotient of F/E, where (a) F = the fuel consumed by such
Bloom System measured in BTUs on a higher heating value basis, as measured by the mass flow controller, which has the
specifications listed on Exhibit A and which is included in such Phase 2 New System, and (b) E = the electricity produced by
such Bloom System, measured in kWh, as measured by the Bloom System Meter.
“Electrical Interconnection Facilities” means the equipment and facilities required to safely and reliably interconnect a
Facility to the transmission system of DPL or distribution system of PJM pursuant to the Interconnection Agreement for such
Facility, including the collection system between each Phase 2 New System, transformers and all switching, metering,
communications, control and safety equipment, including the facilities described in any applicable Interconnection
Agreement.
“Electronic Data Room” means the electronic data room known as “Project Leone Dataroom” established by the Seller and
made available to the Investor.
“Environmental Law” means any Legal Requirement which pertains to health, safety, any Hazardous Material, or the
environment (including ground or air or water or noise pollution or contamination, and underground or above ground tanks)
and shall include without limitation, the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., as amended by the Superfund
Amendments and Reauthorization Act of 1986; the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; the
Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Toxic
Substances Control Act, 15 U.S.C. § 2601 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 300f et seq.; and any other local,
state or federal environmental statutes, and all rules, regulations, orders and decrees now or hereafter promulgated under any
of the foregoing, as any of the foregoing now exist or may be changed or amended or come into effect in the future.
“Environmental Requirements” means any Environmental Law, agreement or restriction (including any condition or
requirement imposed by any insurance or surety company), as the same now exists or may be changed or amended or come
into effect in the future, which pertains to health, safety, any Hazardous Material, or the environment.
“Existing BOF” has the meaning set forth in the definition of “BOF.”
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“Facility” means, with respect to each of the Brookside Facility and the Red Lion Facility, the Phase 1 New Systems, Phase 2
New Systems and BOF at such Site, as may at any point in time share a single Interconnection Point and be operated as a
unified whole.
“Facility Services” has the meaning afforded to such term in the A&R MOMA.
“Fair Market Value” means, with respect to any Phase 2 New System, the price at which such asset would change hands
between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having
reasonable knowledge of the relevant facts, and specifically with respect to a Phase 2 New System or any portion thereof, as
determined consistently with Section 4.05 of Revenue Procedure 2007-65.
“FERC” means the Federal Energy Regulatory Commission and any successor.
“Force Majeure Event” means any event or circumstance that (a) prevents a Party from performing its obligations under this
Agreement; (b) was not reasonably foreseeable by such Party; (c) was not within the reasonable control of, or the result of the
negligence of such Party or a breach of this Agreement by such Party; and (d) such Party is unable to reasonably mitigate,
avoid or cause to be avoided with the exercise of due diligence. “Force Majeure Event” may include, provided that the
conditions in (a) through (d) in the foregoing sentence are met, a failure or interruption of performance due to an act of God,
civil or military authority, war, civil disturbances, terrorist activities, fire, explosions, the external power delivery system
(a/k/a the grid) being out of the required specifications or totally failing (a/k/a brownout or blackout), or electric grid
curtailment. Notwithstanding the foregoing, Force Majeure Event does not include the lack of economic resources of a Party.
Force Majeure Events do not include the failure of a Party’s contractor, subcontractor or supplier to furnish sufficient or
proper labor, services, materials or equipment in accordance with its contractual obligations (unless such failure is caused
solely by a Force Majeure Event). A Force Majeure Event includes fire and explosion, if the fire or explosion does not occur
as a result of the failure of a Bloom System or BOF.
“Fundamental Representation” means the representations provided in Section 6.1(b), Section 6.1(h), Section 6.1(k), Section
6.1(o), Section 6.1(s), and Section 9.6.
“GAAP” means United States generally accepted accounting principles consistently applied.
“Gas Supply Agreement” means, with respect to (a) the Brookside Facility, that certain Large Volume Gas Qualified Fuel
Cell Provider – Renewable Capable Service Agreement, dated as of June 19, 2012, by and between DPL and Buyer; and (b)
the Red Lion Facility, that certain Large Volume Gas Qualified Fuel Cell Provider – Renewable Capable Service Agreement,
dated as of December 12, 2012, by and between DPL and Buyer.
“Gas Tariff” means DPL’s Service Classification “LVG-QFCP-RC” filed for gas service applicable to REPS Qualified Fuel
Cell Provider Projects and approved by the DPSC in Order no. 8062 dated October 18, 2011, as adopted and supplemented
by DPSC’s Findings, Opinion and Order No. 8079, dated December 1, 2011.
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“Governmental Approvals” means (a) any authorizations, consents, approvals, licenses, rulings, permits, tariffs, rates,
certifications, variances, orders, judgments, decrees by or with a relevant Governmental Authority and (b) any required notice
to, any declaration of, or with, or any registration or filing by, or with, any relevant Governmental Authority.
“Governmental Authority” means any foreign, federal, state, local or other governmental, regulatory or administrative
agency, court, commission, department, board, or other governmental subdivision, legislature, rulemaking board, court,
tribunal, arbitrating body or other governmental authority, or the applicable Regional Transmission Organization or
Independent System Operator subject to the jurisdiction of FERC (i.e., PJM as of the Agreement Date).
“Hazardous Material” means and includes those elements or compounds which are contained or regulated as a hazardous
substance, toxic pollutant, pesticide, air pollutant, or as defined in any Environmental Law, order or decree of any
Governmental Authority for the protection of human health, water, safety or the environment or is otherwise included in the
definition of “Hazardous Materials,” “Hazardous Substance” or a similar term in a Site Lease.
“Indemnifiable Loss” means any claim, demand, suit, loss, liability, damage (including any losses arising as a result of the
loss, reduction, deferral or recapture of any ITC), obligation, payment, penalty, fine, cost or expense (including the cost and
expense of any investigation, action, suit, proceeding, assessment, judgment, settlement or compromise relating thereto and
reasonable attorneys’ fees and reasonable disbursements in connection therewith).
“Indemnified Party” is defined in Section 11.4.
“Indemnifying Party” is defined in Section 11.4.
“Installation Services” is defined in Section 3.3(a).
“Intellectual Property” shall mean any or all of the following and all rights therein, whether arising under the laws of the
United States or any other jurisdiction: (a) all patents and patent applications (and all reissues, divisions, re-examinations,
renewals, extensions, provisionals, continuations and continuations-in-part thereof), patent disclosures and inventions
(whether patentable or not); (b) all trade secrets, know-how and confidential and proprietary information; (c) all copyrights
and copyrightable works (including computer programs) and registrations and applications therefor and any renewals,
modifications and extensions thereof; (d) all moral and economic rights of authors and inventors, however denominated,
throughout the world; (e) unregistered and registered design rights and any registrations and applications for registration
thereof; (f) trademarks, service marks, trade names, service names, brand names, trade dress, logos, slogans, corporate
names, trade styles, domain names and other source or business identifiers, whether registered or not, together with all
applications therefor and all extensions and renewals thereof and all goodwill associated therewith; (g) semiconductor chip
“mask” works, and registrations and applications for registration thereof; (h) database rights; (i) all other forms of intellectual
property, including
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waivable or assignable rights of publicity or moral rights; and (j) any similar, corresponding or equivalent rights to any of the
foregoing anywhere in the world.
[*]
“Interconnection Agreement” means, with respect to (a) the Brookside Facility, that certain Standard Agreement for
Interconnection and Parallel Operation of Generation Facilities, dated as of March 27, 2012, by and between DPL and Buyer,
with respect to PJM Generation Interconnection Request Queue Position X2-083; and (b) the Red Lion Facility, that certain
Interconnection Service Agreement, dated as of June 19, 2012, by and among PJM Interconnection, L.L.C., Buyer, and DPL,
with respect to PJM Generation Interconnection Request Queue Position X1-097.
“Interconnection Point” means, with respect to (a) the Brookside Facility, the “Point of Interconnection” specified in the
Interconnection Agreement for such Facility; and (b) the Red Lion Facility, the “Point of Interconnection” specified in the
Interconnection Agreement for such Facility.
“Investor” means each of Southern Power Company and Assured Guaranty Municipal Corp., as the case may be.
“Invoice Due Date” means the date specified on a Payment Notice duly delivered by Seller to Buyer and accepted by Buyer
for the Phase 2 New Systems.
“IP License” is defined in Section 9.1.
“IRS” means the Internal Revenue Service.
“ITC” means an investment tax credit pursuant to Code Sections 38(b)(1), 46 and 48(a).
“Knowledge” means (a) as to any Person other than a natural person, the actual knowledge (including any knowledge which
would reasonably have been obtained after due inquiry) of such Person and its managers, directors officers and employees
who have responsibility for the transactions contemplated by this Agreement, and (b) in respect of any Person who is a
natural Person, the actual knowledge (including any knowledge which would reasonably have been obtained after due
inquiry) of such Person.
“kW” means kilowatt.
“kWh” means kilowatt-hour.
“Legal Requirement” means any law, statute, act, decree, ordinance, rule, directive (to the extent having the force of law),
tariff, order, treaty, code or regulation or any interpretation of any of the foregoing, including Environmental Requirements,
as enacted, issued or promulgated by any Governmental Authority, NERC, any Person that NERC has delegated its authority
to under the Federal Power Act or any Person that operates an interstate electric transmission system, including all
amendments, modifications, extensions, replacements or
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re-enactments thereof, in each case applicable to or binding upon such Person or any of its properties or to which such Person
or any of its property is subject.
“Liens” means any lien, security interest, mortgage, hypothecation, encumbrance or other restriction on title or property
interest.
“Major Service Provider” is defined in Section 12.14.
“Managers” means Seller Manager and Buyer Manager.
“Manufacturer’s Warranty” is defined in Section 4.1(b).
“Manufacturer’s Warranty Period” means, for (a) each Phase 2 New System, the period beginning on the Commissioning
Date of such Phase 2 New System and ending on the first (1st) anniversary thereof, and (b) the New BOF at a Facility, the
period beginning on the date that installation and commissioning of such BOF has been completed and ending on the first
(1st) anniversary of the Commissioning Date of last Phase 2 New System Commissioned at such Facility.
“Material Adverse Effect” means, for any Person or any Facility, as applicable, any change, effect or occurrence that,
individually or in the aggregate, is or could reasonably be expected to be materially adverse to (a) the business, earnings,
assets, results of operations, property or condition (financial or otherwise) of such Person or any Facility, as applicable, (b)
the validity or enforceability of the Tariff, any Transaction Document, any Site Lease or the transactions contemplated by this
Agreement, or (c) any Person’s ability to perform its obligations under any Transaction Document or any Site Landlord’s
ability to perform its obligations under the applicable Site Lease.
“Maximum Liability” means, with respect to each Party, [*].
“Milestone(s)” means each of the (a) Delivery Milestone, and (b) the Commissioning Milestone.
“Minimum Efficiency Level” means an Efficiency equal to 7,550 BTU/kWh.
“MW” means megawatt.
“Nameplate Capacity” means the maximum electrical output of a generator as rated by the manufacturer determined at the
normal operating conditions designated by the manufacturer.
“NERC” means the North American Electric Reliability Corporation or any successor.
“New BOF” has the meaning set forth in the definition of “BOF.”
“Party” and “Parties” have the meanings set forth in the preamble.
“Payment Notice” means a notice delivered from Seller to Buyer pursuant to Section 2.5(c) substantially in the form set forth
in Exhibit D.
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“Performance Standards” is defined in Section 3.9.
“Permits” means all Governmental Approvals that are necessary under applicable Legal Requirements or this Agreement to
have been obtained at such time in light of the stage of development of the Project to perform the Installation Services for the
Phase 2 New Systems as contemplated in this Agreement or for a Party to enter into this Agreement or to consummate any
transaction contemplated hereby, in each case in accordance with all applicable Legal Requirements.
“Permitted Liens” means any (a) Liens that are released or otherwise terminated at or prior to the date of achievement of the
Delivery Milestone of the encumbered assets; (b) obligations or duties to any Governmental Authority arising in the ordinary
course of business (including under licenses and Permits held by Buyer and under all Legal Requirements); (c) obligations or
duties under easements, leases or other property rights; and (d) any other Liens agreed to in writing by Seller and Buyer.
“Person” means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated
organization, or governmental entity or any department or agency thereof.
“Phase 1 CapEx Agreement” is defined in the Recitals.
“Phase 1 New Systems” is defined in the Recitals.
“Phase 2 New Systems” is defined in the Recitals.
“PJM” means PJM Interconnection, LLC.
“PJM Agreements” is defined in the Tariff.
“PJM Market Rules” means (a) the rules and obligations set forth in Section C (Sales of Energy, Capacity, Other Available
Product) of the Tariff, and (b) the provisions of all applicable PJM rules and procedures pertaining to generation and
transmission, including the rules and procedures concerning the dispatch of generation or scheduling transmission set forth in
the applicable PJM tariff, the PJM operating agreement, and applicable PJM manuals.
“Placed in Service” means, with respect to any Phase 2 New System, the completion and performance of all of the following
activities: (a) obtaining the necessary licenses and Permits (if any) for the operation of such Phase 2 New System and the sale
of power generated by the Phase 2 New System in accordance with clause (d) of this definition, (b) satisfactory completion of
all tests necessary for the proper operation of such Facility in accordance with clause (d) of this definition, (c) if necessary,
synchronization of such Phase 2 New System onto the electric distribution and transmission system of DPL or PJM, as
applicable, and (d) the commencement of regular, continuous, daily operation of such Phase 2 New System.
“Pre-Commissioning Equipment Warranty” is defined in Section 4.1(a).
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“Pre-Commissioning Equipment Warranty Period” is defined in Section 4.1(a).
“Project” is defined in the Recitals.
“Prudent Electrical Practices” means those practices, methods, equipment, specifications and standards of safety and
performance, as the same may change from time to time, as are commonly used by a significant portion of the grid-tied fuel
cell electrical generation industry operating in the United States and/or approved or recommended by the NERC as good, safe
and prudent engineering practices in connection with the design, construction, operation, maintenance, repair and use of
electrical and other equipment, facilities and improvements of electrical generating facilities, including any applicable
practices, methods, acts, guidelines, standards and criteria of FERC and all applicable Legal Requirements.
“Purchase Date” means, with respect to a Phase 2 New System, the date that the conditions set forth in Section 2.6(b) (as
such conditions may be waived by Buyer in its sole discretion) are satisfied with respect to such Phase 2 New System, as
such date is evidenced in the Bill of Sale for such Phase 2 New System.
“Purchase Order” means Buyer’s purchase order for the Phase 2 New Systems to be purchased by Buyer in substantially the
form of Exhibit E.
“Purchase Price” means, with respect to all Phase 2 New Systems, the price for the design, installation and purchase of each
Phase 2 New System, of $[*] per kW, equal, in aggregate, to $[*].
“Qualified Appraiser” means a nationally recognized third-party appraiser reasonably acceptable to Buyer and Seller which
shall (a) be qualified to appraise power systems similar to the Phase 2 New Systems, and experienced in such businesses in
the general geographic region of the relevant Facility, and (b) not be associated with either Buyer or Seller or any Affiliate
thereof. If the Parties cannot agree on a third-party appraiser within fifteen (15) days of a Party invoking the Appraisal
Procedure, then Marshall & Stevens Incorporated shall act as the Qualified Appraiser.
“Qualified Fuel Cell Provider” shall have the meaning afforded such term in Section 352(16) of the Renewable Energy
Portfolio Standards Act, as amended by S.B. 124, enacted July 10, 2011 (Title 26, Chap. 1, section 351 et seq. of the Code of
the State of Delaware).
“Qualified Fuel Cell Provider Project” shall have the meaning afforded such term in Section 352(17) of the Renewable
Energy Portfolio Standards Act, as amended by S.B. 124, enacted July 10, 2011 (Title 26, Chap. 1, section 351 et seq. of the
Code of the State of Delaware).
“Red Lion Facility” means the Bloom Systems and BOF at 1493 River Road, New Castle, DE 19720.
“Removed Systems” means those Bloom Systems at each Site which are owned by Seller and scheduled for removal by
Seller.
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“Representatives” of a Party means such Party’s authorized representatives, including its professional and financial advisors.
“REPS Act” means the Renewable Energy Portfolio Standards Act, as amended by S.B.124, enacted July 10, 2011 (Title 26,
Chap. 1, section 351 et seq. of the Code of the State of Delaware).
“Repurchase Amount” means, with respect to any Phase 2 New System, (a) the sum of (i) the applicable Repurchase Value,
and (ii) one hundred percent (100%) of any Taxes, if any, that are required to be paid by Seller in connection with the return
and repurchase of such Phase 2 New System, minus (b) the amount of any Delay LDs paid by Seller pursuant to Section 2.7,
in respect of such Phase 2 New System.
“Repurchase Value” means, with respect to any Phase 2 New System, the greater of (a) the Fair Market Value of such Phase
2 New System (as determined under the Appraisal Procedure if Buyer and Seller cannot agree as to that Fair Market Value
within ten (10) days), and (b) 100% of the Purchase Price for such Phase 2 New System until the first anniversary of
Commissioning, declining by [*] on such first anniversary and on each anniversary of such date thereafter (for example, on
the fourth anniversary of Commissioning, the Repurchase Value will decline to [*]% of the Purchase Price), in each case as
calculated as of the date that Seller becomes obligated to pay such amount to Buyer.
“Seller” is defined in the preamble.
“Seller Default” is defined in Section 10.1.
“Seller Deliverables” means, with respect to each Phase 2 New System, the items listed in Exhibit C.
“Seller Indemnitee” is defined in Section 11.2.
“Seller Manager” is defined in Section 3.10(a).
“Seller Personnel” means any Person who is performing any Installation Services at the direction (or on behalf) of Seller,
including the Seller Manager, any subcontractors (at any tier), Service Providers (including Major Service Providers),
Representatives, or agents (irrespective if such Person is employed or engaged by Seller, Buyer, an Affiliate of Seller or any
other Person).
“Seller’s Certificate of Commissioning” means a certificate, substantially in the form set forth in Exhibit H, issued by Seller
to Buyer pursuant to paragraph (d) of the definition of Commissioning.
“Seller’s Certificate of Delivery Milestone Completion” means a certificate, substantially in the form set forth in Exhibit G,
issued by Seller to Buyer pursuant to paragraph (d) of the definition of Delivery Milestone.
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“Seller’s Intellectual Property” is defined in Section 9.1.
“Service Provider” means an installation contractor appointed by Seller and, if required, approved by Buyer pursuant to
Section 12.14.
“Shipment” means for each Phase 2 New System, shipment of such Phase 2 New System from Seller’s manufacturing facility
to the Site.
“Site” means, with respect to the Brookside Facility and the Red Lion Facility, the real property leased to Buyer for the use of
such Facility pursuant to the Site Lease for such Facility.
“Site Landlord” means the applicable landlord under a Site Lease.
“Site Lease” means, with respect to (a) the Brookside Facility, that certain Lease Agreement, dated as of April 19, 2012, by
and between the Delaware Department of Transportation and Buyer; and (b) the Red Lion Facility, that certain Amended and
Restated Lease Agreement, dated as of June 26, 2012, by and between DPL and Buyer.
“Software” shall mean all computer software that is necessary for Buyer to own and operate the Phase 2 New Systems in
compliance with the terms of this Agreement, the Tariff, PJM Market Rules, the PJM Agreements, the DPL Agreements, the
DSGP Operating Agreement, and the Site Leases.
“Software License” is defined in Section 9.2(a).
“Specifications” means the specifications for the Phase 2 New Systems, as applicable, as set forth in Exhibit A.
“System Capacity” means, with respect to a Phase 2 New System, the “System Capacity” set forth on the applicable
specification sheet provided by the manufacturer of such Phase 2 New System.
“Tariff” means Service Classification “QFCP-RC” as administered by DPL, as approved by the DPSC in Order no. 8062
dated October 18, 2011, as adopted and supplemented by DPSC’s Findings, Opinion and Order No. 8079, dated December 1,
2011.
“Tax” (and, with correlative meaning, “Taxes”) means:
(a) any taxes, customs, duties, charges, fees, levies, penalties or other assessments imposed by any federal, state,
local or foreign taxing authority, including income, gross receipts, windfall profit, severance, property, production,
sales, use, license, excise, franchise, net worth, employment, occupation, payroll, withholding, social security,
alternative or add-on minimum, ad valorem, transfer, stamp, or environmental tax, or any other tax, custom, duty, fee,
levy or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax, or
additional amount attributable thereto; and
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(b) any liability for the payment of amounts with respect to payment of a type described in clause (a), including as a
result of being a member of an affiliated, consolidated, combined or unitary group, as a result of succeeding to such
liability as a result of merger, conversion or asset transfer or as a result of any obligation under any tax sharing
arrangement or tax indemnity agreement.
“Term” means the period which (a) shall commence on the Agreement Date and (b) shall, unless terminated earlier under
ARTICLE X of this Agreement or unless extended by mutual agreement of the Parties, terminate on the date on which the
last Phase 2 New System in the Project achieves Commissioning.
“Third Party Claim” means any claim, action, or proceeding made or brought by any Person who is not (a) a Party to this
Agreement, or (b) an Affiliate of a Party to this Agreement.
“Third Party Warranty” is defined in Section 3.7.
“Training Materials” is defined in Section 12.15.
“Transaction Documents” means the ECCA, DSGP Operating Agreement, the A&R MOMA, this Agreement and the A&R
Administrative Services Agreement.
Section 1.2 Other Definitional Provisions.
(a) All exhibits, annexes, and schedules attached to this Agreement are incorporated herein by this reference and
made a part hereof for all purposes. References to sections, exhibits, annexes and schedules are, unless otherwise
indicated, references to sections, exhibits, annexes and schedules to this Agreement. References to a section shall mean the
referenced section and all sub-sections thereof.
(b) As used in this Agreement and in any certificate or other documents made or delivered pursuant hereto or
thereto, financial and accounting terms not defined in this Agreement or in any such certificate or other document, and
financial and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent
not defined, will have the respective meanings given to them under GAAP. To the extent that the definitions of financial
and accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of
such terms under GAAP, the definitions contained in this Agreement or in any such certificate or other document will
control.
(c) The words “hereof,” “herein,” “hereunder,” and words of similar import when used in this Agreement will
refer to this Agreement as a whole and not to any particular provision of this Agreement. The terms “including” and
“includes” mean “including without limitation” and “includes without limitation,” respectively.
(d) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter genders of such terms.
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(e) Any agreement or instrument defined or referred to herein or in any instrument or certificate delivered in
connection herewith means (unless otherwise indicated herein) such agreement or instrument as from time to time
amended, amended and restated, modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein.
(f) Any references to a Person are also to its permitted successors and assigns.
(g) References to any statute, code or statutory provision are to be construed as a reference to the same as it exists
as of the Agreement Date or Purchase Date, as applicable, and include references to all bylaws, instruments, orders and
regulations for the time being made thereunder or deriving validity therefrom unless the context otherwise requires.
ARTICLE II.
PURCHASE AND SALE
Section 2.1 Appointment of Seller. Subject to Section 12.13, Buyer hereby appoints Seller to act as Buyer’s provider of
Phase 2 New Systems and Installation Services, and Seller hereby accepts such appointment and agrees to provide all such Phase 2
New Systems and Installation Services, inclusive of all labor, equipment, materials, supplies, and tests therefor, in accordance with
the terms and conditions set forth in this Agreement. Seller’s entire consideration for supplying the Phase 2 New Systems, the
associated BOF therefor, and the Installation Services for such Phase 2 New Systems shall be the Purchase Price for such Phase 2
New Systems. Seller shall bear the financial risk regarding any cost overruns, claims for subcontractors or other liabilities in respect
of the Phase 2 New Systems and the associated Installation Services.
Section 2.2 Conceptual Design. Each Phase 2 New System and BOF to be installed hereunder shall be installed in
accordance with the conceptual design for the Project, as set forth hereto as Annex A.
Section 2.3 Purchase Order.
(a) On the Agreement Date, Buyer will submit to Seller an executed Purchase Order for the Phase 2 New Systems
and Seller shall promptly accept the Purchase Order by countersigning and returning it to Buyer; provided that the failure
of Seller to countersign or return to Buyer the Purchase Order shall not invalidate the Purchase Order and Seller shall be
obligated to deliver the Phase 2 New Systems under the Purchase Order as contemplated by this Agreement.
(b) Accordingly, in furtherance and not in limitation of the foregoing, Seller shall not provide Buyer with a
Payment Notice for, and Buyer shall have no obligation to issue a Purchase Order or otherwise pay any portion of the
Purchase Price unless Buyer has received the corresponding Initial Funding (as defined in the ECCA) or Subsequent
Funding (as defined in the ECCA).
Section 2.4 Invoicing of Purchase Price.
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(a) Seller shall invoice Buyer hereunder in three (3) separate installments as follows:
(i) on the Agreement Date, the initial Deposit for all Phase 2 New Systems to be purchased hereunder in the
amount of $[*] (the “Deposit”);
(ii) upon Commissioning of Phase 2 New Systems with an aggregate Nameplate Capacity of at least six
megawatts (6.0 MW), the (A) Purchase Price for such Phase 2 New Systems less (B) such Phase 2 New System’s pro-
rata share of the Deposit; and
(iii) upon Commissioning of any other Phase 2 New Systems prior to the Commissioning Date Deadline, the
(A) Purchase Price for such Phase 2 New Systems less (B) such Phase 2 New System’s pro-rata share of the Deposit.
(b) Each invoice issued pursuant to Section 2.4(a)(ii) and Section 2.4(a)(iii) shall:
(i) include the following information for each applicable Phase 2 New System:
(1) Buyer’s Purchase Order number;
(2) the Facility and location (e.g., the Bloom “Site ID”) within such Facility in which such Phase 2
New System is installed;
(3) the serial number and System Capacity of each Phase 2 New System;
(4) the Purchase Price, including details of (x) all amounts previously paid towards or credited
against the Purchase Price, and (y) all amounts remaining due and payable on the Purchase Price;
(5) the Delivery Date;
(6) the Purchase Date;
(7) Seller wiring instructions/ACH instructions and contact information for a Seller Representative
or Seller’s bank to confirm the validity of such instructions; and
(8) the date of achievement of Commissioning.
(ii) include a final waiver and release of Liens for such Phase 2 New System, conditioned only upon final
payment of the Purchase Price for such Phase 2 New System, executed by Seller in substantially the form set forth in
Exhibit I.
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(c) In the event that more than six megawatts (6.0 MW) but less than the full nine and eight-tenths megawatts (9.8
MWs) of Phase 2 New Systems (in each case as measured by aggregate Nameplate Capacity) are Commissioned by the
Commissioning Date Deadline, then Seller shall refund the pro-rata portion of the Deposit for such Phase 2 New Systems
that were not Commissioned.
(d) Buyer shall, promptly following receipt of an invoice and reasonable supporting documentation thereof, remit
to Seller all deposits, performance assurance, or amounts otherwise posted or provided by Seller in connection with any
Governmental Approvals, or interconnection applications, in each case with respect to a Phase 2 New System that has
been Commissioned and to the extent that such amounts are returned by such counterparty to Buyer and not Seller.
(e) The Purchase Price includes, and Seller shall be solely liable for payment of, all state and local sales, use or
other transfer Taxes attributable to the transfer of the Phase 2 New System that has been Commissioned and any Taxes
arising as a result of any components of such Phase 2 New System or any Phase 2 New System being acquired from a
source outside of the United States.
(f) Seller shall consider in good faith any requests made by Buyer following the Agreement Date to include
additional information related to any Phase 2 New Systems to be purchased hereunder in connection with invoices issued
with respect to Phase 2 New Systems that have been Commissioned.
Section 2.5 Payment of Purchase Price.
(a) Buyer shall pay the Deposit on the Agreement Date and shall pay all other outstanding Purchase Price
invoices in accordance with the terms of this Section 2.5.
(b) Not less than five (5) Business Days prior to the Invoice Due Date for all invoices to be paid by Buyer, Seller
shall deliver to Buyer:
(i) A draft Payment Notice, setting forth the anticipated aggregate Purchase Price for all Phase 2 New
Systems to be paid;
(ii) Seller’s Certificates of Commissioning evidencing the achievement of the Commissioning Milestone
achieved by the applicable Phase 2 New Systems prior to the date of such draft Payment Notice; and
(iii) A statement of any estimated Delay LDs to be deducted for any Delayed Phase 2 New System(s).
(c) Not less than one (1) Business Days prior to the applicable Invoice Due Date for all invoices issued pursuant
to Section 2.4(a)(ii) and Section 2.4(a)(iii) that are to be paid by Buyer, Seller shall deliver to Buyer:
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(i) An executed Payment Notice, setting forth the actual aggregate Purchase Price for all Phase 2 New
Systems to be paid by Buyer, which amount shall in no event exceed the amount notified by Seller to Buyer in the
applicable draft Payment Notice;
(ii) Seller’s Certificates of Commissioning, to the extent not previously delivered, evidencing the
achievement of the Commissioning Milestones achieved as of such date by the applicable Phase 2 New Systems
between the date on which the draft Payment Notice and accompanying Seller’s Certificates of Commissioning were
delivered and the date on which the executed Payment Notice was delivered;
(iii) Written confirmation of any Delay LDs payable; provided that Buyer shall have the right, in good faith,
to dispute Seller’s calculation of any Delay LDs; and
(iv) A duly executed certificate from Leidos Engineering, LLC in the form attached hereto as Exhibit M.
(d) Buyer shall, on the applicable Invoice Due Date indicated in the executed Payment Notice delivered by Seller
pursuant to Section 2.5(c), make Purchase Price payments for each Phase 2 New System included in such undisputed
Payment Notice for which Seller has issued invoices pursuant to Section 2.4(a)(ii) and Section 2.4(a)(iii) and delivered
Seller’s Certificates of Commissioning evidencing the satisfaction of the Commissioning Milestone.
(e) [Reserved]
(f) Seller shall promptly pay all subcontractors working on the Phase 2 New Systems (including, for clarification,
subcontractors working off-Site), and shall, at the time of each payment made to any such subcontractor, obtain a partial or
final Lien waiver, as applicable, in a form approved by Buyer, and promptly provide Buyer with a copy of each such Lien
waiver for any payments made to (i) a subcontractor in excess of [*] for any invoice or [*] in the aggregate or (ii) a Major
Service Provider. Seller shall discharge any Liens by such subcontractors within thirty (30) days of receiving notice
thereof. Seller shall release all Liens in favor of Seller on each Facility upon final payment of the Purchase Price for the
final Phase 2 New System installed at such Facility. Upon the failure of Seller to discharge a Lien required to be
discharged under this Section 2.5, or else promptly to provide a bond in an amount and from a surety acceptable to Buyer
to protect against such Lien, in each case, within thirty (30) days after Seller is aware of the existence thereof, Buyer may,
but shall not be obligated to, pay, discharge or obtain a bond or security for such Lien and, upon such payment, discharge
or posting of security therefor, shall be entitled immediately to recover from Seller the amount thereof, together with all
reasonable and necessary expenses actually incurred by Buyer in connection with such payment or discharge, or to set off
all such amounts against any amounts owed by Buyer to Seller hereunder or under the A&R MOMA.
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(g) With respect to any payment due from one party to the other pursuant to this Agreement, unless being
contested in good faith, interest shall accrue daily at the lesser of a monthly rate of one percent (1.0%) or the highest rate
permissible by law on the unpaid balance.
(h) Buyer at its sole option is hereby authorized to setoff any undisputed amounts owed Buyer under the A&R
MOMA or this Agreement, as applicable, and which are past due against any amounts owed by Buyer to Seller under the
A&R MOMA or this Agreement. The rights provided by this paragraph are in addition to and not in limitation of any other
right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) to which Buyer may be
entitled (whether by operation of law, contract or otherwise).
Section 2.6 Purchase and Sale of Phase 2 New Systems. Upon the satisfaction of the conditions set forth in Section 2.6(b)
(as may be waived by Buyer in its sole discretion) with respect to a Phase 2 New System, Seller shall sell, assign, convey, transfer
and deliver to Buyer, and Buyer shall purchase, assume and acquire from Seller, all of Seller’s right, title and interest in and to such
Phase 2 New System, effective as of the Purchase Date.
(a) Conditions Precedent to the Purchase Date. Buyer’s obligation to purchase, assume, and acquire a Phase 2
New System from Seller shall be subject to Seller’s satisfaction of the following conditions precedent (as may be waived
by Buyer in its sole discretion):
(i) such Phase 2 New System has not been Placed in Service;
(ii) Seller has delivered Seller’s Certificate of Delivery Milestone Completion for such Phase 2 New System
to Buyer;
(iii) Seller has delivered a Bill of Sale for such Phase 2 New System to Buyer, dated as of the date set forth
in Seller’s Certificate of Delivery Milestone Completion for such Phase 2 New System; and
(iv) each representation and warranty made by Seller on such Purchase Date is true and correct as of such
Purchase Date; and
(v) each of the Transaction Documents remains in full force and effect.
(b) Should Phase 2 New Systems with an aggregate Nameplate Capacity of at least six megawatts (6.0 MW) not
be Commissioned by the Commissioning Date Deadline, then (i) the provisions of Section 7.1(f) of the ECCA shall apply
to the applicable parties thereto and (ii) Seller will refund to Buyer the Deposit plus an amount equal to 5% thereof (the
“Refund Price”). Upon receipt of the Refund Price, Buyer may terminate this Agreement by written notice. Payment of the
Refund Price by Seller under this Section 2.6(c) or under Section 7.1(f) of the ECCA to the Class C Member, when paid,
will constitute full and complete satisfaction of all amounts due and payable as a result of
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Seller’s failure to Commission at least six megawatts (6.0 MW) aggregate Nameplate Capacity of Phase 2 New Systems
by the Commissioning Date Deadline.
Section 2.1 Delay Liquidated Damages; Failure to Complete end of 2019. To the extent Phase 2 New Systems are Placed in
Service on or after January 1, 2020 (the “Delayed Phase 2 New System(s)”):
(a) Failure by Seller to have caused the Delayed Phase 2 New System(s) to be Placed in Service prior to January
1, 2020 will have directly caused substantial damage to Buyer, which damage cannot be ascertained with reasonable
certainty. Accordingly, Seller agrees to pay liquidated damages for any such delays in accordance with this Section 2.7
(“Delay LDs”).
(b) Delay LDs will be calculated as $4.00 per kW of System Capacity of each Delayed Phase 2 New Systems for
each day beginning on January 1, 2020 and continuing thereafter until, but excluding the date that Seller causes each such
Delayed Phase 2 New System to be Placed in Service.
(c) Any Delay LDs that Seller is obligated to pay to Buyer pursuant to this Section 2.7 shall be deducted from the
Purchase Price payment made pursuant to Section 2.4(a)(ii) and Section 2.4(a)(iii). In no event shall Seller’s failure to
cause a Phase 2 New System to be Placed in Service before January 1, 2020 excuse Seller from its obligation to cause such
Phase 2 New Systems to be Placed in Service or the performance of any of its other obligations hereunder; provided, if
Buyer has elected to terminate this Agreement pursuant to Section 2.6(c) above, then neither the final payment of purchase
price nor the Delay LDs will be due and payable for such Phase 2 New Systems.
(d) The Parties agree that Buyer’s actual damages in the event of such delays or failures would be extremely
difficult or impracticable to determine and that Buyer’s estimate of its costs and lost revenues in the event of such delays
or failure may be different than the amount of Delay LDs provided herein. After negotiation, the Parties have agreed that
the Delay LDs provided for in this Section 2.7 are in the nature of liquidated damages and are a reasonable and appropriate
measure of the damages that Buyer would incur as a result of such delays or failures, and do not represent a penalty. In no
event shall Delay LDs be considered to be claims, for indirect, punitive, special or consequential damages or loss of
profits.
(e) Except for Buyer’s termination rights set forth in Section 10.3, Delay LDs will be Buyer’s sole remedy for
Seller’s failure to Place in Service one or more Phase 2 New Systems by January 1, 2020.
ARTICLE III.
DELIVERY AND INSTALLATION OF PHASE 2 NEW SYSTEMS AND NEW BALANCE OF FACILITIES
Section 3.1 Access to Site. Seller shall be responsible for ascertainment of the suitability of the Facilities, the environment
around the Facilities, the Facilities’ soil condition and other ground
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conditions for installation of the Phase 2 New Systems. Buyer shall provide Seller with access to the Facilities as necessary to permit
Seller to deliver each Phase 2 New System to the applicable Site and to install and Commission such Phase 2 New System in the
applicable Project in accordance with the applicable Site Lease.
Section 3.2 Delivery; Title; Risk of Loss. Delivery of each Phase 2 New System shall be DDP (Incoterms 2010) to its Site,
in accordance with the Uniform Commercial Code then in effect. Title to each Phase 2 New System and to any related New BOF (to
the extent the Cost Segregation Report reflects that such New BOF is part of the “fuel cell power plant” of such Phase 2 New System
within the meaning of Section 48(c)(1)(C) of the Code) shall pass to Buyer upon the Purchase Date of such Phase 2 New System,
and such title shall be good and marketable and free of all Liens, except for Permitted Liens. From and after the Purchase Date of
each Phase 2 New System all risk of loss or damage to such Phase 2 New System and such related New BOF shall be borne by
Buyer. Title and risk of loss or damage to all other New BOF at a Facility that is not part of the “fuel cell power plant” of any Phase
2 New System at such Facility within the meaning of Section 48(c)(1)(C) of the Code shall pass to Buyer on the date that installation
and commissioning of such New BOF has been completed, and such title shall be good and marketable and free of all Liens, except
for Permitted Liens.
Section 3.3 Installation Services.
(a) Seller shall perform all development, design, engineering, procurement, construction, and commissioning
services necessary in connection with the installation, interconnection, testing, start-up, and commissioning the Phase 2
New Systems to achieve Commissioning (collectively, “Installation Services”), including the following activities:
(i) Seller shall be solely responsible for the means, methods, techniques, sequences, and procedures
employed for execution and completion of the engineering, procuring, constructing, installing, and commissioning
any New BOF and for reconfiguring any Existing BOF required for Phase 2 New Systems to achieve Commissioning,
and Seller shall cause each Phase 2 New System to achieve Commissioning without any compensation or
reimbursement by Buyer, other than the Purchase Price under this Agreement;
(ii) Within thirty (30) days following Commissioning of the last Phase 2 New System Purchased hereunder
and installed at a Facility, Seller shall remove and dispose of any Existing BOF that is unnecessary for operation of
the Phase 2 New Systems at a Facility; provided, that Seller may leave in place any properly stubbed and undamaged
natural gas, water and/or electrical stub-ups and any undamaged concrete pads if such items in the condition that
Seller leaves them are permitted to be so left in place under the applicable Site Lease, Prudent Electrical Practices,
and applicable Legal Requirements;
(iii) Seller shall obtain and maintain, or cause to be obtained and maintained (where required, in the name of
Buyer), all Permits necessary to design,
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install, commission, construct, occupy, and operate each Phase 2 New System at each Site;
(iv) Seller shall cause to be performed any and all studies, reports and applications (in the name of Buyer)
that are necessary for interconnection to the distribution and transmission facilities of DPL or PJM, as applicable to
the particular Facility;
(v) Seller shall perform all commissioning work in accordance with the provisions of Schedule 3.3(a)(ii).
(vi) If requested by Buyer, Seller shall provide operator training and associated training materials to
personnel and Representatives of Buyer sufficient to instruct Buyer on operation of such Phase 2 New System in
connection with safety requirements and in conformance with Prudent Electrical Practices;
(vii) [Reserved]
(viii) Seller shall deliver to Buyer each of the Seller Deliverables set forth on Exhibit C in accordance with
the timing for each such item as set forth on such Exhibit C;
(ix) Following Commissioning of all Phase 2 New Systems to be installed in a Facility, Seller shall promptly
remove all waste materials and rubbish from and around the Site as well as all of its tools, construction equipment,
machinery, and surplus materials as reasonably necessary to restore each Site to a condition reasonably satisfactory to
the applicable Site Landlord or as otherwise required by the applicable Site Lease;
(x) Seller’s supply of the Phase 2 New Systems hereunder, and performance of the Installation Services
therefor, shall be fully comprehensive of all services, labor, and equipment necessary to complete installation of a
fully commissioned and operating Phase 2 New System in accordance with this Agreement, the applicable
Interconnection Agreement, and the applicable Site Lease;
(xi) Seller shall, and shall cause each of its subcontractors to, install the Phase 2 New Systems at each Site
using items that are new, and undamaged at the time of such use or installation; and
(xii) Seller shall pay all amounts owed to its subcontractors and vendors in connection with the performance
of the Installation Services on a timely basis and shall hold Buyer harmless against any claims asserted by such
subcontractors and vendors.
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(b) Seller shall be responsible, at its sole cost and expense, for maintaining and complying with all Permits
required to perform the Installation Services under this Agreement. Buyer agrees to cooperate with and assist Seller in
obtaining such Permits.
(c) Seller shall cause all Installation Services to be performed in a good and workmanlike manner, free from
defective materials, and in accordance with the Performance Standards, free and clear of all Liens other than Permitted
Liens.
Section 3.4 Commissioning Date Deadline. Seller shall cause all Phase 2 New Systems to be Placed in Service and
Commissioned by the Commissioning Date Deadline.
Section 3.5 Insurance. Seller shall maintain the insurance described in Annex B.
Section 3.6 Disposal; Right of First Refusal.
(a) Except as set forth in Section 12.4 of this Agreement and Section 11.9 of the MOMA, in the event that Buyer
decides to scrap, abandon or otherwise dispose of any Bloom System, Buyer shall notify Seller and Seller shall have the
right but not the obligation to obtain title to the Bloom System and remove the Bloom System at Seller’s cost; provided,
however, that Seller will not be responsible for remediation of the Site in which the Bloom System was located.
(b) Except as set forth in Section 12.4, in the event that Buyer or its Affiliates desire to sell or otherwise transfer
title to any Bloom System to a transferee other than an Affiliate of Buyer, Buyer shall notify Seller and Seller shall have
the right of first refusal to purchase or acquire the Bloom System on the same terms and conditions of such sale. In the
event that Seller exercises such right of first refusal, Seller shall, promptly following payment of the purchase price of
such Bloom System, remove the Bloom System at Seller’s cost, including the remediation of the Site in which the Bloom
System was located in accordance with the terms of the applicable Site Lease.
(c) Notwithstanding the foregoing, Seller shall not be permitted to exercise any right under this Section 3.6 if
Seller (as Operator) is exercising the corresponding right pursuant to Section 2.4 of the A&R MOMA.
Section 3.7 Third Party Warranties. If any express or implied warranties, indemnities, guaranties, remedies, covenants and
other rights which any subcontractor or supplier has made to Seller with respect to any good, service, or other deliverable furnished
under this Agreement in respect of a Phase 2 New System or New BOF (each a “Third Party Warranty”) would provide any
additional rights to Buyer beyond the warranties under ARTICLE IV, then (a) such Third Party Warranty providing additional rights
will be for the benefit of and passed through to Buyer to the fullest extent possible, (b) Seller transfers and assigns to Buyer all of
Seller’s right, title and interest under such Third Party Warranty to exercise such additional rights, and (c) Seller hereby appoints
Buyer as attorney-in-fact coupled with an interest to exercise and enforce all such additional rights in the name of either Buyer or
Seller. Nothing in this Section 3.7 will limit Seller’s obligations to Buyer under ARTICLE IV.
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Section 3.8 Access; Cooperation. Seller shall provide to Buyer such other information that is in the possession of Seller or
its Affiliates or is reasonably available to Seller regarding the permitting, engineering, construction, or operations of Seller, its
subcontractors or the Facilities, and other data concerning Seller, its subcontractors or the Facilities that Buyer may, from time to
time, reasonably request in writing, subject to Seller’s obligations of confidentiality to third parties with respect to such information.
Seller shall not knowingly take any action or omit to take any action as would cause Buyer to violate any Legal Requirements, and to
the extent that Seller has knowledge of any such existing or prospective violation take, or cause to be taken, commercially reasonable
actions, to redress or mitigate any such violation, which action shall be at Seller’s sole expense if Seller is obligated to perform such
action as part of this Agreement, and otherwise shall be at Buyer’s sole expense. For the avoidance of doubt, Seller shall not be
excused from any indemnification obligations, claims for damages or Indemnifiable Losses suffered by Buyer to the extent caused
by Seller’s violation of Legal Requirements or Buyer’s violation of Legal Requirements to the extent relating to, resulting from or
arising out of or in connection with any act or omission by Seller, Seller Affiliate or any Seller Personnel in respect of Installation
Services or any Operator Personnel in respect of Facility Services that Seller is obligated to perform on behalf of Buyer. Seller shall
give to Buyer prompt written notice of any material disputes with Governmental Authorities. Seller shall furnish, or cause to be
furnished, to Buyer copies of all material documents furnished to Seller by any Governmental Authority in respect of Buyer or any
Phase 2 New System.
Section 3.9 Performance Standards. For the purpose of this Agreement, Seller shall perform under this Agreement in
accordance and consistent with each of the following to the extent applicable to the sale of the Phase 2 New Systems and New BOF
and the performance of the Installation Services (unless the context requires otherwise): (A) plans and specifications subject to
Permits under Legal Requirements and applicable to each Phase 2 New System; (B) the manufacturer’s recommendations with
respect to all equipment and all maintenance and operating manuals or service agreements, whenever furnished or entered into,
including any subsequent amendments or replacements thereof, issued by the manufacturer, provided they are consistent with
generally accepted practices in the fuel cell industry; (C) the requirements of all applicable insurance policies; (D) preserving all
rights to any incentive payments, warranties, indemnities or other rights or remedies, and enforcing or assisting with the enforcement
of the applicable warranties, making or assisting in making all claims with respect to all insurance policies; (E) the Tariff, the PJM
Market Rules, the DPL Agreements and the PJM Agreements; (F) all Legal Requirements and all Permits/Governmental Approvals;
(G) any applicable provisions of the Site Leases; (H) Prudent Electrical Practices; (I) the relevant provisions of each Interconnection
Agreement; (J) the Seller Corporate Safety Plan provided in Exhibit J (as updated by Seller from time to time, with a copy provided
promptly to Buyer); (K) the Seller Subcontractor Quality Plan provided in Exhibit K (as updated by Seller from time to time, with a
copy provided promptly to Buyer); and (L) all Environmental Requirements (collectively, the “Performance Standards”); provided,
however, that meeting the Performance Standards shall not relieve Seller of its other obligations under this Agreement.
Section 3.10 Coordination of Relationship.
(a) Managers. Seller will appoint an individual to serve as its primary contact person with regard to this
Agreement (the “Seller Manager”), and Buyer will appoint an
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individual to serve as its primary contact person with regard to this Agreement (the “Buyer Manager”). Seller’s initial
Seller Manager and Buyer’s initial Buyer Manager are each set forth on Exhibit L. Each Party may, from time to time,
designate another individual as a proposed replacement for its respective Manager by notice to the other Party.
(b) Manager Meetings. The Buyer Manager and the Seller Manager will serve as each Party’s main contact to,
and for, the other Party with regard to day-to-day matters affecting the Parties’ relationship in relation to Installation
Services. The Buyer Manager and the Seller Manager (or their designees) will meet, by phone or in person, as often as
they feel necessary to monitor and manage such day-to-day activities. Such managers shall operate by consensus to the
extent practicable but shall have no authority to amend or waive compliance with the terms and conditions of this
Agreement, or to approve actions of the Parties that are inconsistent with this Agreement. Any such waivers or
amendments shall be implemented only as described in Section 12.1 or Section 12.2, as the case may be. Seller will not be
relieved of any obligations to perform in accordance with this Agreement by its performance or failure to perform
pursuant to any direction verbally or in writing provided by the Buyer Manager. This Agreement may only be amended
under Sections 12.1 or 12.2 by a written agreement executed by authorized officers of the Parties.
Section 3.11 Beginning of Construction Requirements. Seller shall perform on-site physical work with respect to the Phase
2 New Systems in each of the Red Lion Facility and the Brookside Facility after the Agreement Date and on or before December 31,
2019. Such physical work will constitute “physical work of a significant nature” within the meaning of IRS Notice 2018-59, 2018-59
IRB 196, and will cause construction of the facility to be considered to have begun, within the meaning of Section 48(a)(7) of the
Code, after the Agreement Date and on or prior to December 31, 2019. On-site physical work undertaken after the Agreement Date
and on or before December 31, 2019 will include, among other things, (i) delivery and installation of components of the Phase 2
New Systems, such as interconnecting module subcomponents such as power modules, fuel processing modules, inverter modules,
telemetry cabinets, water distribution ancillary modules, electronic distribution ancillary modules, and other subcomponents together
to integrate each 200-250 kilowatt Phase 2 New System, (ii) interconnecting each Phase 2 New System (or group of Phase 2 New
Systems) to underground gas and water utilities, (iii) interconnecting each Phase 2 New System (or group of Phase 2 New Systems)
to electrical interconnection points, (iv) performing pre-commissioning inspections of Bloom Systems and BOF, (v) performing
commissioning inspections of Bloom Systems and BOF as set forth in Schedule 3.3(A)(II) hereto, (vi) performance testing, and (vii)
if applicable, testing and troubleshooting (including replacement of parts, as needed).
ARTICLE IV.
WARRANTIES
Section 4.1 Pre-Commissioning Equipment Warranty; Manufacturer’s Warranty.
(a) Subject to Section 4.2 and Section 11.5(a), Seller warrants to Buyer that, during the period commencing on
the achievement of the Delivery Milestone and
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continuing until achievement of Commissioning for a Phase 2 New System (the “Pre-Commissioning Equipment
Warranty Period”), (i) such Phase 2 New System shall conform to the Specifications for Phase 2 New Systems set forth on
Exhibit A, and (ii) such Phase 2 New System and any associated New BOF shall be free from defects in design, materials
and workmanship that would prevent such Phase 2 New System for achieving Commissioning (collectively, the “Pre-
Commissioning Equipment Warranty”).
(b) Subject to Section 4.2 and Section 11.5(a), Seller warrants to Buyer that, during the Manufacturer’s Warranty
Period, (i) each Phase 2 New System shall conform to the Specifications for Phase 2 New Systems set forth on Exhibit A,
and (ii) each Phase 2 New System, any New BOF, and any Existing BOF that was reconfigured as part of the Installation
Services shall be free from defects in design, materials and workmanship (collectively, the “Manufacturer’s Warranty”).
(c) Seller shall correct (including, in Seller’s sole discretion, through replacement thereof), as promptly as
reasonably practical (and in any case within thirty (30) days), at Seller’s sole expense, all Phase 2 New Systems or BOF
provided, or Installation Services performed, by it or its subcontractors under this Agreement which proves to be (i) in
breach of the Pre-Commissioning Equipment Warranty during the Pre-Commissioning Equipment Warranty Period for
such Phase 2 New System, or (ii) in breach of the Manufacturer’s Warranty during the Manufacturer’s Warranty Period.
WITHOUT LIMITING (I) SELLER’S OBLIGATION TO INDEMNIFY BUYER PURSUANT TO SECTION 11.3(A)
IN RESPECT OF A BREACH OF A SITE LICENSE OR INTERCONNECTION AGREEMENT ATTRIBUTABLE TO
DEFECTIVE PHASE 2 NEW SYSTEMS, BOF, OR INSTALLATION SERVICES AS STATED ABOVE, AND/OR
WITH RESPECT TO THIRD PARTY CLAIMS PURSUANT TO SECTION 11.3, AND/OR (II) ANY OTHER
EXPRESS REMEDY SET FORTH IN THIS AGREEMENT THAT MAY BE AVAILABLE IN CONNECTION WITH
A SELLER FAILURE TO TIMELY CORRECT DEFECTIVE PHASE 2 NEW SYSTEMS, BOF, OR INSTALLATION
SERVICES (INCLUDING A SELLER OBLIGATION TO REMOVE OR REPURCHASE A DEFECTIVE PHASE 2
NEW SYSTEM, IF APPLICABLE), BUYER’S SOLE REMEDY FOR A BREACH OF THE PRE-COMMISSIONING
EQUIPMENT WARRANTY SHALL BE THE CORRECTION OF DEFECTIVE PHASE 2 NEW SYSTEM
PURSUANT TO THIS SECTION 4.1(C).
(d) The Pre-Commissioning Equipment Warranty and Manufacturer’s Warranty is not transferable to any third
person, including any Person who buys a Phase 2 New System from Buyer, without Seller’s prior written consent (which
shall not unreasonably be withheld).
(e) Any period of time in which the Pre-Commissioning Equipment Warranty or Manufacturer’s Warranty is in
breach for a Phase 2 New System shall not extend the Pre-Commissioning Equipment Warranty Period or Manufacturer’s
Warranty Period for such Phase 2 New System; provided that to the extent a Phase 2 New System is Placed in Service but
thereafter is not capable of operation for any period in excess of ten (10)
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consecutive days due to the breach of Manufacturer’s Warranty, the Manufacturer’s Warranty shall be extended by all
such periods in excess of ten (10) consecutive days.
Section 4.2 Exclusions. The Pre-Commissioning Equipment Warranty and Manufacturer’s Warranty, as applicable, shall
not cover any obligations on the part of Seller to the extent caused by or arising from (a) the Phase 2 New Systems or New BOF
being affected by vandalism or other third-party’s actions or omissions occurring after Commissioning (other than to the extent that
Seller, Seller Affiliate, the Service Provider or a subcontractor thereof fails to properly protect the Phase 2 New Systems or New
BOF and Seller was required to do so under the A&R MOMA); (b) any interruption in the supply of natural gas or interconnection
services, or a failure of the interconnection services supplied to the applicable Facility to comply with Seller’s specifications, in each
case as confirmed and agreed to by DPL under the terms of the Gas Tariff and the Gas Supply Agreement (unless caused by Seller,
Seller Affiliate, the Service Provider or a subcontractor thereof); (c) the removal of any safety device by Buyer or its Representatives
(as opposed to removal by Seller, Seller Affiliate, the Service Provider or a subcontractor thereof); (d) any conditions caused by
unforeseeable movement in the environment in which the Phase 2 New Systems are installed (provided that normal soil settlement,
shifting, subsidence or cracking will not constitute ‘unforeseeable movement’); (e) accidents, abuse, improper third party testing
(unless caused by Seller, Seller Affiliate, the Service Provider or a subcontractor thereof) or Force Majeure Events; or (f) installation,
operation, repair or modification of the Phase 2 New Systems or BOF by anyone other than Seller or Seller’s authorized agents.
SELLER SHALL HAVE NO OBLIGATION UNDER THE PRE-COMMISSIONING EQUIPMENT WARRANTY NOR THE
MANUFACTURER’S WARRANTY AND MAKES NO REPRESENTATION AS TO PHASE 2 NEW SYSTEMS OR BOF
WHICH HAVE BEEN OPENED OR MODIFIED BY ANYONE OTHER THAN SELLER, SELLER’S AFFILIATE, A SERVICE
PROVIDER OR A SUBCONTRACTOR THEREOF, OR ANY OF SUCH PERSON’S REPRESENTATIVES, IN EACH CASE
TO THE EXTENT OF ANY DAMAGE OR OTHER NEGATIVE CONSEQUENCE OF SUCH OPENING OR MODIFICATION.
Section 4.3 Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
ARTICLE IV, ARTICLE VI, AND SECTION 9.6, THE PHASE 2 NEW SYSTEMS ARE TRANSFERRED “AS IS, WHERE IS,”
AND SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE,
EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE FACILITIES, VALUE OR QUALITY OF THE
FACILITIES OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE
FACILITIES, AND SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY,
USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE FACILITIES, OR ANY
PART THEREOF. NO PERSON IS AUTHORIZED TO MAKE ANY OTHER WARRANTY OR REPRESENTATION
CONCERNING THE PERFORMANCE OF THE FACILITIES (PROVIDED, THAT THE FOREGOING DISCLAIMER SHALL
NOT NEGATE OR DISCLAIM ANY REPRESENTATIONS OR WARRANTIES PROVIDED UNDER ANY OF THE OTHER
TRANSACTION DOCUMENTS).
Section 4.4 Title. Title to all replacement items, parts, materials and equipment supplied under or pursuant to the Pre-
Commissioning Equipment Warranty shall transfer to Buyer upon
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transfer of title of the affected Phase 2 New System or New BOF pursuant to Section 3.2. Title to all replacement items, parts,
materials and equipment supplied under or pursuant to the Manufacturer’s Warranty shall transfer to Buyer upon installation or
inclusion in a Phase 2 New System or in the BOF for the applicable Facility. Upon replacement of an item or part as part of the Pre-
Commissioning Equipment Warranty or Manufacturer’s Warranty provided hereunder, Seller shall remove such item or part, shall
take title to such removed item or part upon removal, and shall have the right and obligation to dispose of such replaced property in
any lawful manner that it chooses in its sole discretion at the Seller’s cost.
Section 5.1 Record-Keeping Documentation; Audit Rights.
ARTICLE V.
RECORDS AND AUDITS
(a) Seller shall ensure that records concerning Seller’s Installation Services activities hereunder are properly
created and maintained at all times in accordance with all Legal Requirements, including FERC requirements regarding
record retention for Holding Companies in 18 C.F.R. Part 368 and any successor regulations to the extent applicable to
Seller. Such records shall include the following:
(i) records and documentation in respect of each Phase 2 New System’s satisfaction of each Milestone,
including records and documentation regarding the Delivery of Phase 2 New Systems, the achievement of
Commissioning, and the fact and date(s) such Phase 2 New System has achieved each of the four separate criteria set
forth the definition of “Placed in Service”;
(ii) any other records, reports, or other documentation reasonably requested by Buyer to support the
representations set forth in Section 6.1(k) with respect to a Phase 2 New System. Seller agrees to promptly provide
such documentation to Buyer; and
(iii) until the date of achievement of Commissioning of the final Phase 2 New System for the Project, a
“Construction Report” delivered in connection with the Payment Notice corresponding to each invoice delivered
pursuant to Section 2.4(a)(ii) and Section 2.4(a)(iii), specifying for each Phase 2 New System individually (A) the
forecasted commencement of construction, Delivery Date, and date of Commissioning of such Phase 2 New System
projected to be included in the Project, (B) the actual commencement of construction, Delivery Date and date of
Commissioning of such Phase 2 New System included in the Project as of the date of such Construction Report, and
(C) a summary narrative regarding the source of any delays in the achievement of any of the foregoing milestones as
compared to the dates forecasted in the immediately prior Construction Report; and
(iv) any other records, reports, or other documentation reasonably requested by Buyer unless such records
contain information that contains highly confidential information and/or trade secrets of Seller.
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(b) All such records required to be created and maintained pursuant to Section 5.1(a) shall (i) be kept available at
Seller’s office and made available for Buyer’s inspection upon request at all reasonable times, and (ii) be retained for the
relevant retention period provided in 18 C.F.R. § 368.3 or any successor regulation as amended from time, to the extent
applicable to Seller, or any longer period required under the Tariff, or by DPL or PJM. Any documentation prepared by
Seller during the Term for the purposes of this Agreement shall be directly prepared for Buyer’s benefit and immediately
become Buyer’s property. Any such documentation shall be stored by Seller on behalf of Buyer until its final delivery to
Buyer. Seller may retain a copy of all records related to each Facility for future analysis.
(c) Buyer shall have the right no more than once during any calendar year and going back no more than two (2)
calendar years preceding the calendar year in which an audit takes place, upon reasonable prior written notice, including
using an independent public accounting firm reasonably acceptable to Seller, to examine such records during regular
business hours in the location(s) where such records are maintained by Seller for the purposes of verifying Buyer’s
compliance with its obligations hereunder. Buyer shall pay its own cost and the costs of any third party consultants
engaged by Buyer in connection with the audit unless such audit reveals that inaccuracies in Seller’s records have resulted
in an overpayment by Buyer of two and one-half percent or more (2.5%) than the amount that would have otherwise been
payable by Buyer during the period being audited, in which case Seller shall pay all of Buyer’s costs and the costs of any
third party consultants engaged by Buyer in connection with such audit.
Section 5.2 Reports; Other Information. Without in any way limiting Seller’s other reporting, notification, and other similar
obligations under this Agreement, during the Term, Seller shall furnish to Buyer the following reports, notices, and other information
regarding the Phase 2 New Systems and Installation Services (which may be effected by e-mail communication to the Buyer
Manager or other appropriate Buyer Representative):
(a) Promptly upon Seller’s knowledge of the occurrence of any damage to any Phase 2 New System or Site,
notice of such damage in reasonable detail;
(b) Details of any event or circumstance which could reasonably be expected to prevent Buyer from being able to
fully benefit from the Tariff, promptly upon either (i) Seller’s receipt of any written notice or communication from DPL or
any other Governmental Authority notifying Seller, including a copy of such notice or communication, or (ii) upon the
Knowledge of the Seller Manager, any Vice President of Project Finance, or C-Level officer of Seller, or any individual
listed on Schedule 5.2(b); and
(c) Seller will provide any information that Buyer may reasonably request in connection with any claim filed by
Buyer under any insurance maintained with respect to the Facilities and any information such insurance providers may
reasonably request in connection with such claim; provided, Seller is not obligated to provide highly
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confidential information and/or trade secrets, so long as it provides Buyer an adequate explanation of the highly
confidential nature of such information.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 6.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer as of the Agreement Date and
as of each Purchase Date as follows:
(a) Incorporation; Qualification. Seller is a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease, and operate its
business as currently conducted. Seller is duly qualified to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction that its business, as currently being conducted, shall require it to be so qualified, except
where the failure to be so qualified would not have a Material Adverse Effect on Seller or its ability to perform its
obligations hereunder.
(b) Authority. Seller has full corporate power and authority to execute and deliver this Agreement and the other
Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Seller of the Transaction Documents to which it is a party and the consummation by Seller of
the transactions contemplated thereby have been duly and validly authorized by all necessary corporate action required on
the part of Seller, and the Transaction Documents to which it is a party have been duly and validly executed and delivered
by Seller. Each of the Transaction Documents to which Seller is a party and the [*] Agreement constitute the legal, valid
and binding agreement of Seller, enforceable against Seller in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights
generally and by general principles of equity (regardless of whether considered in a proceeding in equity or at law).
(c) Consents and Approvals; No Violation. Neither the execution, delivery and performance of this Agreement
nor the other Transaction Documents to which it is a party nor the consummation by Seller of the transactions
contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the certificate of
incorporation or bylaws of Seller, (ii) with or without the giving of notice or lapse of time or both, conflict with, result in
any violation or breach of, constitute a default under, result in any right to accelerate, result in the creation of any Lien
(other than Permitted Liens) on Seller’s assets, or create any right of termination under the conditions or provisions of any
note, bond, mortgage, indenture, any material agreement or other instrument or obligation to which Seller is a party or by
which it, or any material part of its assets may be bound, in each case that would individually or in the aggregate result in a
Material Adverse Effect on Seller or its ability to perform its obligations hereunder or (iii) constitute violations of any law,
regulation, order, judgment or decree applicable to Seller, which violations, individually or in the aggregate, would result
in a Material Adverse Effect on Seller or its ability to perform its obligations hereunder.
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(d) Legal Proceedings. There are no pending or, to Seller’s Knowledge, threatened claims, disputes, governmental
investigations, suits, actions (including non-judicial real or personal property foreclosure actions), arbitrations, legal,
administrative or other proceedings of any nature, domestic or foreign, criminal or civil, at law or in equity, against Seller
that challenge the enforceability of this Agreement or any of the other Transaction Documents to which Seller is a party or
the ability of Seller to consummate the transactions contemplated hereby or thereby, in each case, that could reasonably be
expected to result in a Material Adverse Effect on Seller or its ability to perform its obligations hereunder.
(e) U.S. Person. Seller is not a “foreign person” within the meaning of Section 1445(b)(2) of the Code and has
provided a Certificate of Non-Foreign Status in the form and substance required by Section 1445 of the Code and the
regulations thereunder.
(f) Purchase Price of Phase 2 New System. The Purchase Price paid for each Phase 2 New System does not
exceed an amount that is equal to the Fair Market Value of each Phase 2 New System, as determined on an arm’s length
basis.
(g) Title; Liens. As of each date title is required to pass to Buyer hereunder with respect to any assets comprising
a Phase 2 New System, Seller has and will convey good and marketable title to such assets to be sold to Buyer on such
date and all such assets are free and clear of all Liens other than Permitted Liens. Except to the extent arising by law,
neither Seller nor any of its subcontractors have placed any Liens on the Sites or the Facilities other than Permitted Liens.
To the extent that Seller has actual knowledge that any of its subcontractors has placed any Lien on a Phase 2 New System
or Site, then Seller shall cause such Liens to be discharged, or shall provide a bond in an amount and from a surety
acceptable to Buyer to protect against such Lien, in each case, within thirty (30) days after Seller is aware of the existence
thereof. Seller shall indemnify Buyer against any such Lien claim, provided that if the applicable Site Lease requires
additional or more stringent action, Seller shall also indemnify Buyer for the costs and expenses of such actions.
(h) Intellectual Property. No Phase 2 New System and no other product or service marketed, sold or provided (or
proposed to be marketed, sold or provided) by Seller hereunder violates or will violate any license or infringes or will
infringe any Intellectual Property rights of any other Person. Seller owns or has the right to use and to authorize Buyer to
use all Intellectual Property and Software associated with the Phase 2 New Systems so as to grant the license rights and
other rights granted by Seller to Buyer in respect of the Phase 2 New Systems. Seller has received no written
communications alleging, and has no Knowledge of, any claim that Seller has violated, infringed or misappropriated, or by
conducting its business, would violate, infringe or misappropriate, or that the Phase 2 New Systems violate, infringe or
misappropriate, any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other
proprietary rights or processes of any other Person. No such claims or allegations are reasonably anticipated or foreseen by
Seller.
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(i) Consents and Approvals. Seller has received all material third party consents which are required as of such
date for the consummation and performance of the transactions contemplated hereunder.
(j) Real Property. The real property referred to in each Site Lease is all the real property that is necessary for the
construction, installation, operation and maintenance of the Facilities other than those real property interests that can be
reasonably expected to be available on commercially reasonable terms as and to the extent required. Each Site has been
leased to Buyer pursuant to the terms of the applicable Site Lease.
(k) Tax Representations.
(i) Each Phase 2 New System is a fuel cell power plant that has a Nameplate Capacity of at least 0.5
kilowatts of electricity using an electrochemical process and has an electricity-only generation efficiency greater than
30 percent. Each Facility will function independently of each other Facility in the Project to generate electricity for
transmission and sale and is an integrated system comprised of a fuel cell stack assembly and associated balance of
plant components that has all the necessary components to convert a fuel into electricity using electrochemical means.
(ii) As of Purchase Date for each Phase 2 New System, no federal, state, or local Tax credit (including the
ITC) has been claimed with respect to any property that is part of such Phase 2 New System.
(iii) No application has been submitted for a grant provided under Section 1603 of the American Recovery
and Reinvestment Tax Act of 2009, as amended by the Tax Relief, Unemployment Insurance Reauthorization and Job
Creation Act of 2010, with respect to any property that is part of any Phase 2 New System.
(iv) No private letter ruling has been obtained for the transactions contemplated hereunder from the IRS.
(v) As of the Purchase Date of each Phase 2 New System, such Phase 2 New System was not Placed in
Service and, specifically but without limitation, clauses (c) and (d) of the definition of the term “Placed in Service”
have not been met with respect to such New System.
(vi) As of the Purchase Date, the cost of the Phase 2 New System that is energy property for purposes of
Section 48 of the Code is accurately listed in the Base Case Model.
(vii) No Phase 2 New System is comprised of any property that (A) is “used predominately outside of the
United States” within the meaning of Code Section 168(g), (B) is imported property of the kind described in Code
Section 168(g)(6), (C) except due to the status of any member of Buyer (other than Seller or its Affiliate), is “tax-
exempt use property” within the meaning of Code
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Section 168(h), or (D) except due to the status of any member of Buyer (other than Seller or its Affiliate), is property
described in Code Section 50(b).
(viii) Other than de minimis property, material or parts, each Facility consists of property, materials or parts
not used by any Person prior to having been first placed in a state of readiness and availability for their specific design
function as part of the Facility.
(ix) No portion of the basis of the Phase 2 New System is attributable to “qualified rehabilitation
expenditures” within the meaning of Section 47(c)(2)(A) of the Code.
(x) No grants (for purposes of this paragraph, “grants” shall not include any credits, benefits, emissions
reductions, offsets or allowances, howsoever entitled, attributable to the generation from the Facilities, and its
respective avoided emission of pollutants) have been provided by the United States, a state, a political subdivision of
a state, or any other Governmental Authority for use in constructing or financing any Phase 2 New System or with
respect to which Seller is the beneficiary. No proceeds of any issue of state or local government obligations have been
used to provide financing for any Phase 2 New System the interest on which is exempt from tax under Code Section
103. No subsidized energy financing (within the meaning of Code Section 45(b)(3)) has been provided, directly or
indirectly, under a federal, state, or local program provided in connection with any Phase 2 New System.
(xi) Seller is not related to DPL within the meaning of Code Section 267 or Code Section 707.
(xii) Physical work undertaken on-site by Seller pursuant to this Agreement with respect to each of the Red
Lion Facility and the Brookside Facility after the Agreement Date and on or prior to December 31, 2019 constitutes
“physical work of a significant nature” within the meaning of IRS Notice 2018-59, 2018-59 IRB 196 and otherwise
satisfies the requirements for beginning of construction as set forth in Section 48(a)(7) of the Code and IRS Notice
2018-59, 2018-59 IRB 196.
(xiii) The Phase 2 New Systems qualify as “energy property” within the meaning of Section 48 of the Code.
(l) Bankruptcy. No event of Bankruptcy has occurred with respect to Seller.
(m) [Reserved].
(n) Material Adverse Effect.
(i) As of the Agreement Date, no Material Adverse Effect has occurred with respect to Seller or, to the
Knowledge of Seller, PJM, DPL, or any Site Landlord.
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(ii) As of each Purchase Date, no Material Adverse Effect has occurred between the Agreement Date and the
applicable Purchase Date (A) with respect to the applicable Facility in which the Phase 2 New System would be
installed and Commissioned, (B) with respect to Seller, or (C) to the Knowledge of Seller, with respect to PJM, DPL,
or the Site Landlord for the applicable Facility in which the Phase 2 New System would be installed and
Commissioned.
(o) Governmental Approvals. Seller, as applicable on behalf of Buyer, has obtained all Governmental Approvals
required as of Delivery Date to install and Commission the applicable Phase 2 New System(s) in compliance with
Applicable Law. As of each of the dates each Phase 2 New System is Placed in Service and achieves Commissioning,
Seller, as applicable on behalf of Buyer, has obtained all Governmental Approvals required for such operation of such
Phase 2 New System and each of the Governmental Approvals obtained as of such date is validly issued, final and in full
force and effect and is not subject to any current legal proceeding or to any unsatisfied condition. On each of such dates,
Seller, as applicable on behalf of Buyer, is in compliance in all material respects with all applicable Governmental
Approvals and has not received any written notice from a Governmental Authority of an actual or potential violation of
any such Governmental Approval, and none of the persons referenced in Section 5.2(b)(ii) has received any other
communication from a Governmental Authority of an actual or potential violation of any such Governmental Approval.
(p) Compliance. Seller has performed in all respects all obligations, and complied in all material respects with the
agreements and covenants, required to be performed by or complied with by Seller hereunder.
(q) No Breaches. As of the Agreement Date, each Interconnection Agreement, Gas Supply Agreement, and Site
Lease is a legal, valid, binding and enforceable obligation of Buyer and, to Seller’s Knowledge, of each other party
thereto, and each Interconnection Agreement, Gas Supply Agreement, and Site Lease is in full force and effect. To Seller’s
Knowledge, neither Buyer nor any other Person party thereto is in material breach or violation of any Interconnection
Agreement, Gas Supply Agreement, or Site Lease, and no event has occurred, is pending or is threatened, which, after the
giving of notice, with lapse of time, or otherwise, would constitute any such breach or default by Buyer or any other party
thereto.
(r) Insurance. Seller has obtained the insurance described in Annex B, all such policies remain in full force and
effect, and all insurance premiums that are due and payable have been paid in full with no premium overdue.
(s) QFCP-RC Tariff. During the term of this Agreement, the Portfolio shall not fail to receive full payment and
service under the Tariff for any of the following reasons:
(i) Seller shall not be a Qualified Fuel Cell Provider throughout the original term of the Tariff due to any
action or inaction of Operator in violation of this Agreement; or
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(ii) Seller shall take any action in violation of the A&R MOMA or this Agreement which causes: (A) Buyer
not to qualify (or to lose qualification) for service under the Tariff or (B) the Portfolio not to qualify (or to lose
qualification) as a Qualified Fuel Cell Provider Project.
Section 6.2 Survival Period. All claims by Buyer hereunder relating to breaches of representations and warranties contained
in ARTICLE VI with respect to a Phase 2 New System shall be forever barred unless the Seller is notified in writing within twelve
(12) months following the date of achievement of Commissioning for such Phase 2 New System, except for breaches and warranties
contained in (a) Section 6.1(a), Section 6.1(b), Section 6.1(c), Section 6.1(g), and Section 6.1(o), which shall survive indefinitely,
and (b) Section 6.1(k) and Section 6.1(h), which will survive until six (6) months following the expiration of the applicable statute of
limitations. For the avoidance of doubt, the Parties hereby agree and acknowledge that the foregoing survival periods are a
contractual statute of limitations and any claims based upon a breach of representations and warranties in ARTICLE VI must be
noticed to Seller or brought or filed prior to the expiration of such survival period.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 7.1 Representations and Warranties of Buyer. Buyer represents and warrants to Seller as of the Agreement Date and
as of each Purchase Date, as follows.
(a) Organization. Buyer is a limited liability company duly formed, validly existing and in good standing under
the laws of the State of Delaware and has all requisite limited liability company power and authority to own, lease, and
operate its business as currently conducted.
(b) Authority. Buyer has full limited liability company power and authority to execute and deliver this Agreement
and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Buyer of this Agreement and the other Transaction Documents to which it is a
party and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action required on the part of Buyer and the Transaction Documents to which Buyer
is a party have been duly and validly executed and delivered by Buyer. Each of the Transaction Documents to which
Buyer is a party constitutes the legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ rights generally and by general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
(c) Consents and Approvals; No Violation. Neither the execution, delivery and performance of this Agreement
nor the other Transaction Documents to which Buyer is a party nor the consummation by Buyer of the transactions
contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the articles of
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formation of Buyer nor Buyer’s limited liability company agreement, (ii) with or without the giving of notice or lapse of
time or both, conflict with, result in any violation or breach of, constitute a default under, result in any right to accelerate,
result in the creation of any Lien on Buyer’s assets, or create any right of termination under the conditions or provisions of
any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Buyer is a party or by
which it, or any material part of its assets may be bound, in each case that would individually or in the aggregate result in a
Material Adverse Effect on Buyer or its ability to perform its obligations hereunder or (iii) constitute violations of any law,
regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would result
in a Material Adverse Effect on Buyer or its ability to perform its obligations hereunder.
(d) Legal Proceedings. There are no pending or, to Buyer’s Knowledge, threatened claims, disputes,
governmental investigations, suits, actions (including non-judicial real or personal property foreclosure actions),
arbitrations, legal, administrative or other proceedings of any nature, domestic or foreign, criminal or civil, at law or in
equity, by or against Buyer that challenge the enforceability of this Agreement or the other Transaction Documents to
which Buyer is a party or the ability of Buyer to consummate the transactions contemplated hereby or thereby, in each
case, that could reasonably be expected to result in a Material Adverse Effect on Buyer or its ability to perform its
obligations hereunder.
(e) Consents and Approvals. Buyer has received all material third party consents which are required as of such
date for the consummation and performance of the transactions contemplated hereunder.
(f) Bankruptcy. No event of Bankruptcy has occurred with respect to Buyer.
(g) No Other Representations. Buyer is not relying on any representations or warranties whatsoever, express,
implied, at common law, statutory or otherwise, except for the representations or warranties expressly set out in the
Transaction Documents.
Section 7.2 Survival Period. All claims by Seller hereunder relating to breaches of representations and warranties contained
in ARTICLE VII with respect to a Phase 2 New System shall be forever barred unless the Seller is notified in writing within twelve
(12) months following the date of achievement of Commissioning for such Phase 2 New System, except for breaches and warranties
contained in Section 7.1(a), Section 7.1(b), Section 7.1(c), which shall survive indefinitely. For the avoidance of doubt, the Parties
hereby agree and acknowledge that the foregoing survival periods are a contractual statute of limitations and any claims based upon
a breach of representations and warranties in ARTICLE VII must be brought or filed prior to the expiration of such survival period.
ARTICLE VIII.
CONFIDENTIALITY
37
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Section 8.1 Confidential Information. Subject to the other terms of this ARTICLE VIII each Party shall, and shall cause its
Affiliates and its respective stockholders, members, subsidiaries and Representatives to, hold confidential the terms of this
Agreement and all information it has obtained or obtains from the other Party in connection with this Agreement concerning Seller
and Buyer and their respective assets, business, operations or prospects (the “Confidential Information”), including all materials and
information furnished by Seller in performance of this Agreement, regardless of form conveyed or whether financial or technical in
nature, including any trade secrets and proprietary know how and Software whether such information bears a marking indicating that
they are proprietary or confidential or not; provided, however, that Confidential Information shall not include information that (i) is
or becomes generally available to the public other than as a result of any breach of this ARTICLE VIII by a Party or any of its
Representatives, (ii) is or becomes available to a Party or any of its Representatives on a non-confidential basis from a source other
than the other Party or its Representatives, provided that such source was not and is not bound by any contractual, legal or fiduciary
obligation of confidentiality with respect to such information or (iii) was or is independently developed or conceived by a Party or its
Representatives without use of or reliance upon the Confidential Information of the other Party, as evidenced by sufficient written
record.
Section 8.2 Restricted Access. Subject to Section 10.8:
(a) Buyer agrees that the Phase 2 New Systems themselves contain Seller’s valuable trade secrets. Buyer agrees
(i) to restrict the use of such information to matters relating to the Facilities, and such other purposes, if any, expressly
provided herein, and (ii) to restrict access to such information as provided in Section 8.3(b).
(b) Seller’s Confidential Information will not be reproduced without Seller’s prior written consent, and following
termination of this Agreement all copies of such written information will be returned to Seller upon written request (not to
be made while materials are still of use to the operation of a Phase 2 New System and no Buyer Default has occurred and
is continuing) or shall be certified by Buyer as having been destroyed, unless otherwise agreed by the Parties. Buyer’s
Confidential Information will not be reproduced by Seller without Buyer’s prior written consent, and following
termination of this Agreement all copies of such written information will be returned to Buyer upon written request or
shall be certified by Seller as having been destroyed. Notwithstanding the foregoing, each Party and its Representatives
may each retain archival copies of any Confidential Information to the extent required by law, regulation or professional
standards or copies of Confidential Information created pursuant to the automatic backing-up of electronic files where the
delivery or destruction of such files would cause undue hardship to the receiving Party, so long as any such archival or
electronic file back-up copies are accessible only to legal or information technology personnel, provided that such
Confidential Information will continue to be subject to the terms of this Agreement.
(c) Subject to ARTICLE IX, Section 8.2(a), and Section 8.2(b), the Phase 2 New Systems are offered for sale and
are sold by Seller subject to the condition that such sale does not convey any license, expressly or by implication, to
manufacture, reverse engineer, duplicate or otherwise copy or reproduce any part of the Facilities,
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documentation or Software without Seller’s express advance written permission. Subject to ARTICLE IX hereof, Buyer
agrees not to remove the covering of any Phase 2 New System, not to access the interior or to reverse engineer, or cause or
knowingly allow any third party to open, access the interior or reverse engineer any Phase 2 New System or Software
provided by Seller. Subject to ARTICLE IX hereof, and anything contemplated pursuant to this Agreement, only Seller or
its Representatives may open or access the interior of a Phase 2 New System.
Section 8.3 Permitted Disclosures.
(a) Legally Compelled Disclosure. Confidential Information may be disclosed (i) as required or requested to be
disclosed by a Party or any of its Affiliates or their respective stockholders, members, subsidiaries or Representatives as a
result of any applicable Legal Requirement or rule or regulation of any stock exchange, the Financial Industry Regulatory
Authority, Inc., the New York Department of Financial Services or other regulatory authority or self-regulatory authority
having jurisdiction over such Party, (ii) as required or requested by the IRS, the Department of Justice or the Office of the
Inspector General in connection with a Phase 2 New System, cash grant, or tax credits relating thereto, including in
connection with a request for any private letter ruling, any determination letter or any audit, or (iii) as required under any
Interconnection Agreement or any of the other Transaction Documents. If a Party becomes compelled by legal or
administrative process to disclose any Confidential Information, such Party shall, to the extent permitted by Legal
Requirements, provide the other Party with prompt notice of any such disclosure (other than any disclosure in connection
with routine regulatory filings, reviews or audits, or requests for regulatory approvals in the ordinary course of the
recipient’s business, which, in each case, may be made without notice or restriction) so that the other Party may seek a
protective order or other appropriate remedy with respect to the information required to be disclosed. If such protective
order or other remedy is not obtained with respect to the information required to be disclosed, the first Party shall furnish
only that portion of such information that it is advised by counsel is legally required to be furnished and shall exercise
reasonable efforts, at the expense of the Party whose Confidential Information is being disclosed, to obtain reliable
assurance that confidential treatment will be accorded such information, including, in the case of disclosures to the IRS
described in clause (ii) above, to obtain reliable assurance that, to the maximum extent permitted by applicable Legal
Requirements, such information will not be made available for public inspection pursuant to Section 6110 of the Code.
(b) Disclosure to Representatives. Notwithstanding the foregoing, and subject always to the restrictions in Section
8.2, a Party may disclose Confidential Information received by it (i) to its and its Affiliates’ (x) actual or potential
investors or financing parties, underwriters and insurers and its and their employees, consultants, legal counsel or agents
who have a need to know such information and (y) auditors and advisers (including, without limitation, legal and financial
advisers) who need to know such information in connection with the transactions contemplated hereby, or (ii) as required
to be disclosed to rating agencies requesting such information; provided that such Party informs each such Person who has
access to the Confidential Information of the
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confidential nature of such Confidential Information, the terms of this Agreement, and that such terms apply to them. The
Parties shall use commercially reasonable efforts to ensure that each such Person complies with the terms of this
Agreement and that any Confidential Information received by such Person is kept confidential.
(c) Securities Filings. A Party may file this Agreement as an exhibit to any relevant filing with the Securities
Exchange Commission (or equivalent foreign agency) in accordance with Legal Requirements only after complying with
the procedure set forth in this Section 8.3(c). In such event, the Party seeking such disclosure shall prepare a draft
confidential treatment request and proposed redacted version of this Agreement to request confidential treatment for this
Agreement, and the other Party agrees to promptly (and in any event, no less than fourteen (14) days after receipt of such
confidential treatment request and proposed redactions) give its input in a reasonable manner in order to allow the Party
seeking disclosure to file its request within the time lines prescribed by Legal Requirements. The Party seeking such
disclosure shall exercise commercially reasonable efforts to obtain confidential treatment of the Agreement from the
Securities Exchange Commission (or equivalent foreign agency) as represented by the redacted version reviewed by the
other Party. Each Party shall bear its own costs in connection with such efforts. Either Party may, without the consent of
the other Party, describe the transaction contemplated herein as required by Legal Requirements pursuant to the filing of a
form 8-K, 10-K, 10-Q, or similar filing with the Securities and Exchange Commission.
(d) Other Permitted Disclosures. Nothing herein shall be construed as prohibiting a Party hereunder from using
such Confidential Information in connection with (i) any claim against the other Party, (ii) any exercise by a Party
hereunder of any of its rights hereunder, (iii) a financing or proposed financing by Seller or Buyer or their respective
Affiliates, (iv) a disposition or proposed disposition by any direct or indirect Affiliate of Buyer of all or a portion of such
Person’s equity interests in Buyer, (v) a disposition or proposed disposition by Buyer of any Phase 2 New System, or (vi)
any disclosure required to be made pursuant to the Tariff, an Interconnection Agreement, a Gas Supply Agreement, or a
Site Lease, provided that, in the case of items (iii), (iv) and (v), the potential financing party or purchaser has entered into a
confidentiality agreement with respect to Confidential Information on customary terms used in confidentiality agreements
in connection with corporate financings or acquisitions before any such information may be disclosed and a copy of such
confidentiality agreement has been provided to the non-disclosing party for informational purposes, which copy of such
confidentiality agreement may contain redactions of confidential information relating to the potential financing source or
purchaser. No disclosures of Confidential Information shall be made by Buyer in exercise of its rights under this Section
8.3(d) until Seller has first had the opportunity to exercise its right to take or purchase the Phase 2 New System in
question, if applicable.
ARTICLE IX.
LICENSE AND OWNERSHIP; SOFTWARE
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Section 9.1 IP License to Use. Subject to Section 9.2, Seller grants to Buyer a limited (as described herein), non-exclusive,
royalty-free, perpetual (except as described in ARTICLE X hereof), irrevocable (except as described in ARTICLE X hereof), non-
terminable (except as described in ARTICLE X hereof), non-transferable (except as described herein) license to use the Intellectual
Property, including Seller’s proprietary Software, contained in the Documentation and the Phase 2 New Systems purchased
hereunder (collectively, “Seller’s Intellectual Property”) in conjunction with the purchase, use, operation, maintenance, repair and
sale of the Phase 2 New Systems and in conjunction with each Phase 2 New System in accordance with the terms hereof, the Tariff,
and each Interconnection Agreement (the “IP License”); provided, that (a) such license may be transferred or sub-licensed upon a
transfer of a Phase 2 New System to any Person who acquires such Phase 2 New System, subject to Buyer’s compliance with
provisions of the A&R MOMA applicable to such transfer, (b) such license may be transferred or sub-licensed by Buyer to any third
party Buyer is entitled to engage to maintain any Phase 2 New System pursuant to Section 8.2(c), (c) such license may be transferred
by Buyer to any successor or assign of Buyer permitted pursuant to Section 12.4, and (d) in the event of a voluntary or involuntary
Bankruptcy of Buyer, Seller hereby expressly consents to the assumption and assignment of the IP License by Buyer as necessary to
allow Buyer’s continued use of each Phase 2 New System and/or Facility in accordance with the terms hereof and, as applicable, the
Tariff and each Interconnection Agreement. Seller shall retain all right, title and ownership of any and all Intellectual Property
licensed by Seller hereunder. No right, title or interest in any such Intellectual Property is granted, transferred or otherwise conveyed
to Buyer under this Agreement except as otherwise expressly set forth herein. Buyer shall not, except as otherwise provided herein,
modify, network, rent, lease, loan, sell, distribute or create derivative works based upon Seller’s Intellectual Property in whole or
part, or cause or knowingly allow any third party to do so.
Section 9.2 Grant of Third Party Software License; Data Rights.
(a) Seller grants to Buyer a limited (as described herein), non-exclusive, royalty-free, perpetual (except as
described in ARTICLE X hereof), irrevocable (except as described in ARTICLE X hereof), non-terminable (except as
described in ARTICLE X hereof), non-transferable (except as described herein) license to use the third party Software (the
“Software License”); provided, that (i) such license may be transferred or sub-licensed upon a transfer of a Phase 2 New
System to any Person who acquires such Phase 2 New System, (ii) such license may be transferred or sub-licensed by
Buyer to any third party Buyer is entitled to engage to maintain any Phase 2 New System pursuant to Section 8.2(c), and
(iii) such license may be transferred by Buyer to any successor or assign of Buyer permitted pursuant to Section 12.4. No
right, title or interest in any Software provided to Buyer (including all copyrights, patents, trade secrets or other
intellectual or intangible property rights of any kind contained therein) is granted, transferred, or otherwise conveyed to
Buyer under this Agreement except as expressly set forth herein. Buyer agrees not to reverse engineer or decompile the
Software or otherwise use the Software for any purpose other than in connection with the use of the Facilities. Further,
Buyer shall not modify, network, rent, lease, loan, sell, distribute or create derivative works based upon the Software in
whole or part, or cause or knowingly allow any third party to do so.
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(b) All data collected on the Facilities by Seller using the Software and data collected on the Facilities using
Seller’s internal proprietary Software are the sole property of Seller to be used by Seller in accordance with Legal
Requirements, but may not be disclosed by Seller directly to any competitors of Buyer. Seller hereby grants to Buyer a
limited, non-exclusive, irrevocable (except as set forth in ARTICLE X hereof), royalty-free license to use the data
collected on the Facilities using such Software or Seller’s internal proprietary software only for purposes of using such
Facilities and administering the Transaction Documents or as required pursuant to the terms of the Tariff, any Site Lease
or Interconnection Agreement, provided the provisions of ARTICLE VIII on confidentiality are maintained.
Section 9.3 Effect on Licenses. All rights and licenses granted under or pursuant to this Agreement by Seller are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code and of any similar provisions of applicable
laws under any other jurisdiction (collectively, the “Bankruptcy Laws”), licenses of rights to “intellectual property” as defined under
the Bankruptcy Laws. If a case is commenced by or against Seller under the Bankruptcy Laws (excluding a reorganization
proceeding under Chapter 11 of the U.S. Bankruptcy Code if Seller is continuing to perform all of its obligations under this
Agreement), Seller (in any capacity, including debtor-in-possession) and its successors and assigns (including a trustee under the
Bankruptcy Laws) shall, as Buyer may elect in a written request, immediately upon such request:
(a) perform all of the obligations provided in this Agreement to be performed by Seller including, where
applicable, providing to Buyer portions of such intellectual property (including embodiments thereof) held by Seller and
such successors and assigns or otherwise available to them and to which Buyer is entitled to have access under this
Agreement; and
(b) not interfere with the rights of Buyer under this Agreement, or the other Transaction Documents, to such
intellectual property (including such embodiments), including any right to obtain such intellectual property (or such
embodiments) from another entity, to the extent provided in the Bankruptcy Laws.
Section 9.4 No Software Warranty. Buyer acknowledges and agrees that the use of the Software is at Buyer’s sole risk. The
Software and related documentation are provided “AS IS” and without any warranty of any kind and Seller EXPRESSLY
DISCLAIMS ALL WARRANTIES,
INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Notwithstanding the foregoing provision of this
Section 9.4, nothing in this Section 9.4 shall limit, modify or otherwise excuse Seller’s obligations with respect to the warranties of
Seller provided under ARTICLE IV, ARTICLE VI or Section 9.6.
EXPRESS OR IMPLIED,
Section 9.5 IP Related Covenants. If Seller grants, bargains, sells, conveys, mortgages, assigns, pledges, warrants or
transfers any Intellectual Property or Software that is required (a) for Seller or its Affiliates to perform their respective obligations
under the Transaction Documents or (b) for the continued maintenance and operation of the Facilities without a material decrease in
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performance of the Facilities, Seller shall cause such act or transaction to be subject to the grant of the IP License and Software
License under this Agreement.
Section 9.6 Representations and Warranties. Seller represents and warrants to Buyer as of the Agreement Date and as of
each Commissioning Date as follows with respect to the Software and all other Intellectual Property that is (A) required (i) for Seller
or its Affiliates to perform their respective obligations under this Agreement and each other Transaction Document, and (ii) for the
continued operation of the Phase 2 New Systems in accordance with the A&R MOMA, the Tariff, and the Interconnection
Agreements without a material decrease in performance of the Phase 2 New Systems, or (B) licensed, provided or otherwise made
available by Seller to Buyer:
(a) Seller owns or has the right to use and to authorize Buyer to use all such Intellectual Property and Software;
(b) Seller and its Affiliates are not infringing on any Intellectual Property of any third party with respect to the
actions described in subsection (A)(i) and (A)(ii) of Section 9.6 and the Phase 2 New Systems do not infringe on any
Intellectual Property of any third party;
(c) [*];
(d) [*];
(e) the Software does not include, is free of, and does not contain or include any virus, time bombs, Trojan horses,
worms, traps or other mechanisms which are designed to deny access to the Software by Buyer or to otherwise disable,
erase, destroy, damage, alter or render meaningless, useless or ineffective the Software, or otherwise harm any Buyer data,
programs or applications;
(f) the Software is not derived from, is not distributed with, and/or was not developed using any Open Source
Code licensed under any terms that: (i) impose or could impose a requirement or condition that the Software, or any
software or source code used or integrated therewith: (A) be disclosed or distributed in source code form; (B) be licensed
for the purpose of making modifications or derivative works; or (C) be redistributable at no charge; or (ii) otherwise
impose or could impose any other material limitation, restriction, or condition on the right or ability of Buyer to use or
distribute the Software or any software or source code used or integrated therewith; and
(g) the Software will, for a period of one (1) year following installation, conform to the functional specifications
set forth in the Documentation. Seller shall promptly repair or replace any Software or media that does not meet the
foregoing warranty. The foregoing remedy is without prejudice to any rights, claims or remedies that Buyer may have
either under this Agreement or otherwise at law or in equity.
ARTICLE X.
EVENTS OF DEFAULT AND TERMINATION
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Section 10.1 Seller Default. The occurrence at any time of any of the following events shall constitute a “Seller Default”:
(a) Failure to Pay. The failure of Seller to pay any undisputed amounts owing to Buyer on or before the day
following the date on which such amounts are due and payable under the terms of this Agreement or the A&R MOMA and
Seller’s failure to cure each such failure within ten (10) Business Days after Seller receives written notice from Buyer of
each such failure;
(b) Failure to Perform Other Obligations. Unless due to a Force Majeure Event, the failure of Seller to perform or
cause to be performed any other material obligation required to be performed by Seller under this Agreement or the A&R
MOMA, or the failure of any representation and warranty set forth herein or therein to be true and correct as and when
made; provided, however, that if such failure by its nature can be cured, then Seller shall have a period of thirty (30) days
after receipt of written notice of such failure to cure the same and a Seller Default shall not be deemed to exist during such
period; provided, further, that if Seller commences to cure such failure during such period and is diligently and in good
faith attempting to effect such cure, said period shall be extended for sixty (60) additional days; notwithstanding the
foregoing, the cure period set forth above will in no event exceed (and will be deemed modified as necessary to match) the
cure period applicable to any particular failure or breach under the Tariff or the applicable Interconnection Agreement, if
any;
(c) Failure to Remedy Injunction. The failure of Seller to remedy any injunction that prohibits Buyer’s use of any
Phase 2 New System as contemplated by Section 11.1 within sixty (60) days of Seller’s receipt of written notice of Buyer
being enjoined therefrom; or
(d) Bankruptcy. If Seller is subject to a Bankruptcy.
Section 10.2 Buyer Default. The occurrence at any time of the following events with respect to Buyer shall constitute a
“Buyer Default”:
(a) Failure to Pay. The failure of Buyer to pay any undisputed amounts owing to Seller on or before the day
following the date on which such amounts are due and payable under the terms of this Agreement and Buyer’s failure to
cure each such failure within ten (10) Business Days after Buyer receives written notice of each such failure;
(b) Failure to Perform Other Obligations. Unless due to a Force Majeure Event, the failure of Buyer to perform or
cause to be performed any material obligation required to be performed by Buyer under this Agreement or the failure of
any representation and warranty set forth herein to be true and correct as and when made; provided, however, that if such
failure by its nature can be cured, then Buyer shall have a period of thirty (30) days after receipt of written notice of such
failure to cure the same and a Buyer Default shall not be deemed to exist during such period; provided, further, that if
Buyer commences to cure such failure during such period and is diligently and in good faith
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attempting to effect such cure, said period shall be extended for sixty (60) additional days; or
(c) Bankruptcy. If Buyer is subject to a Bankruptcy.
Section 10.3 Buyer’s Remedies Upon Occurrence of a Seller Default. If a Seller Default has occurred under Section 10.1(d),
Buyer may terminate this Agreement by written notice, and assert all rights and remedies available to Buyer under Legal
Requirements subject to the limitations of liability set forth in Section 11.5. If a Seller Default has occurred under Section 10.1(a),
Section 10.1(b) or Section 10.1(c), Buyer may terminate this Agreement only with respect to those Phase 2 New Systems for which
such Seller Default has occurred by written notice, and (i) assert all rights and remedies available to Buyer under Legal
Requirements with respect to those Phase 2 New Systems for which a Seller Default has occurred, subject to the limitations of
liability set forth in Section 11.5, or (ii) require that Seller and, if so required, Seller shall repurchase the relevant Phase 2 New
System in respect of which this Agreement is being terminated from Buyer on an AS IS basis by paying the Repurchase Amount in
respect of any such Phase 2 New System, calculated as of the date of such payment, in which case Seller shall take title to such
Phase 2 New System upon paying the Repurchase Amount, and such Phase 2 New System shall no longer constitute a portion of the
Project. If a Phase 2 New System will be removed pursuant to this Section 10.3, Seller shall at its sole cost and expense remove the
Phase 2 New System and any other ancillary equipment (including the concrete pad and any other improvements to the applicable
Site to the extent required under the applicable Site Lease) from the applicable Site, restoring the relevant portion of the Site to its
condition before the installation, including closing all utility connections and properly sealing any Site penetrations in the manner
required by all Legal Requirements and the applicable Site Lease.
Section 10.4 Seller’s Remedies Upon Occurrence of a Buyer Default. If a Buyer Default has occurred Seller may terminate
this Agreement by written notice only with respect to those Phase 2 New Systems for which a Buyer Default has occurred and
remains uncured, and assert all rights and remedies available to Seller under Legal Requirements with respect to those Phase 2 New
Systems for which a Buyer Default has occurred, subject to the limitations of liability set forth in Section 11.5, including retaining
any prior payments with respect to such Phase 2 New Systems and selling such Phase 2 New Systems to another buyer.
Section 10.5 Preservation of Rights. Termination of this Agreement shall not affect any rights or obligations as between the
Parties which may have accrued prior to such termination or which expressly or by implication are intended to survive termination
whether resulting from the event giving rise to termination or otherwise, including Section 3.6, Section 3.7, Section 3.8,
ARTICLE V, ARTICLE VI, ARTICLE VII, ARTICLE VIII, ARTICLE IX, and ARTICLE XI, and ARTICLE XII. The list of the
Knowledge persons referenced in Section 5.2(b)(ii), and any Seller or Seller Affiliate successor employees to such persons in such
capacities, shall survive the termination or expiration of this Agreement for purposes of the A&R MOMA until the expiration or
termination of the A&R MOMA.
Section 10.6 Force Majeure. If either Party is rendered wholly or partially unable to perform any of its obligations under this
Agreement by reason of a Force Majeure Event, that Party
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(the “Claiming Party”) will be excused from whatever performance is affected by the Force Majeure Event to the extent so affected;
provided, however, that (a) the Claiming Party, within a reasonable time after the occurrence of such Force Majeure Event gives the
other Party notice describing the particulars of the occurrence; (b) the suspension of performance shall be of no greater scope and of
no longer duration than is reasonably required by the Force Majeure Event; (c) no liability of either Party for an event that arose
before the occurrence of the Force Majeure Event shall be excused as a result of the Force Majeure Event; (d) the Claiming Party
shall exercise commercially reasonable efforts to correct or cure the event or condition excusing performance and resume
performance of all its obligations; and (e) when the Claiming Party is able to resume performance of its obligations under this
Agreement, the Claiming Party shall promptly give the other Party notice to that effect and shall promptly resume performance.
Section 10.7 No Duplication of Claims; Cumulative Limitation of Liability Caps. Notwithstanding anything to the contrary
in this Agreement, (a) the Parties acknowledge and agree that no claiming or indemnified party shall be entitled to a double recovery
for the same monetary loss or damage under the provisions of this Agreement and the provisions of any other Transaction
Document; (b) to the extent that all or any portion of the Pre-Commissioning Equipment Warranty, Manufacturer’s Warranty or any
other warranty, guarantee or indemnification provision set forth herein is duplicative of any warranty, guarantee or indemnification
coverage provided under the A&R MOMA, the Parties acknowledge and agree that Buyer shall be entitled to pursue recovery for
money damages in respect of a single event or circumstance, at its sole option, under either this Agreement or the A&R MOMA, as
applicable, and that limitation of liability caps set forth in each such agreement are to be calculated on an aggregate basis taking into
account all claims for indemnification, warranty or otherwise (if any) made under this Agreement or the A&R MOMA, and (c) if an
“Indemnifiable Loss” or other amount paid for any event(s) or circumstance(s) under this Agreement or (to the extent relating to a
Phase 2 New System) the A&R MOMA, as the case may be, would be taken into account for purposes of calculating the “Maximum
Liability” under such agreement, then such amount will also be taken into account for purposes of calculating the “Maximum
Liability” under the other such agreement. For the avoidance of doubt, the provisions of subsections (b) and (c) of this Section 10.7
shall not limit Seller’s liability under any other Transaction Document or the Phase 1 CapEx Agreement with respect to any Phase 1
New System.
Section 10.1 Actions to Facilitate Continued Operations After a Buyer Termination. Notwithstanding anything else herein
to the contrary, and without limitation of the rights set forth in this ARTICLE X hereof, if any Phase 2 New System is no longer
covered by the A&R MOMA or another agreement between Buyer and Seller (or any Affiliate of Seller) regarding the operation and
maintenance of such Facility as a result of the termination of the A&R MOMA with respect to such Phase 2 New System (A) in
connection with a Seller Default or (B) in connection with the expiration of the Extended Warranty Period (as defined in the A&R
MOMA), Buyer shall be entitled to maintain, or cause a third party to maintain, such Phase 2 New System (each such maintainer, a
“Third Party Operator”), including replacing consumables and components as needed or desired, including, if applicable, electricity
sales pursuant to the Tariff; provided that:
(a) No less than thirty (30) calendar days prior to the event of such termination pursuant to subsection (B) above,
to the extent Buyer requires any maintenance services for such Phase 2 New System following such termination, Buyer
shall notify Seller of
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such requirements in writing. If Seller desires to perform such maintenance services, Seller shall provide within five (5)
Business Days to Buyer the material terms and conditions (including the scope of services offered, the price(s) quoted for
such services, and the terms of any performance warranties to be provided in connection with such services) pursuant to
which it is willing to provide such maintenance services for such Phase 2 New System, which shall be no less favorable to
Buyer than Seller’s standard rates, terms and warranties as of such date. If Buyer declines to engage Seller to perform such
services, or the Parties are unable to execute appropriate documentation to reflect such services, Buyer may (subject to
Section 10.8(b)) seek to engage a Third Party Operator to perform such services, provided that, prior to engaging any such
Third Party Operator to maintain such Phase 2 New System, Buyer shall provide written notice to Seller of the material
terms and conditions on which such third party has offered to provide such service (including (X) the scope of services
offered, (Y) the price(s) quoted for such services, and (Z) the terms of any performance warranties to be provided in
connection with such services). Seller shall have ten (10) Business Days to notify Buyer if Seller will agree to perform the
applicable services for a price not to exceed the quoted amount and otherwise on terms no less favorable to Buyer than
those included in the notice required hereunder. If Seller agrees to provide such services, the Parties will negotiate in good
faith regarding appropriate documentation to reflect such services. If Seller declines to provide such services, Buyer may
engage a Third Party Operator on terms no more favorable to such Third Party Operator than those provided in the notice
to Seller.
(b) Without in any way limiting the provisions of the foregoing Section 10.8(a), Buyer shall in all events use
commercially reasonable efforts to engage a Third Party Operator to provide such maintenance that is not a competitor of
Seller or its Affiliates and is not in litigation or other material dispute with Seller.
Section 11.1 IP Indemnity.
ARTICLE XI.
INDEMNIFICATION
(a) Except as expressly limited below, Seller agrees to indemnify, defend and hold Buyer, its members and its
permitted successors and assigns, and their Affiliates and their respective managers, officers, directors, employees and
agents harmless from and against any and all Third Party Claims and Indemnifiable Losses (including in connection with
obtaining any Intellectual Property necessary for continuation of completion, operation and maintenance of Phase 2 New
Systems purchased by Buyer from Seller), arising from or in connection with any alleged infringement, conflict, violation,
misappropriation or misuse of any patents, copyrights, trade secrets or other third party Intellectual Property rights by the
Phase 2 New Systems purchased by Buyer from Seller (or the use, operation or maintenance thereof) or the exercise of the
IP License or the Software License granted pursuant to Section 9.1 and Section 9.2 hereunder. Buyer shall give Seller
prompt notice of any such claims. Seller shall be entitled to participate in, and, unless in the opinion of counsel for Seller a
conflict of interest between the Parties may exist with respect to such claim, assume control of the defense of such claim
with
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counsel reasonably acceptable to Buyer. Buyer authorizes Seller to settle or defend such claims in its sole discretion on
Buyer’s behalf, without imposing any monetary or other obligation or liability on Buyer and subject to Buyer’s
participation rights set forth in this Section 11.1 and further provided that any such settlement: (i) includes a full and
complete release in favor of Buyer; and (ii) does not require any admission of fault or liability on the part of Buyer. Buyer
shall assist Seller upon reasonable request by Seller and, at Seller’s reasonable expense, in defending any such claim. If
Seller does not assume the defense of such claim, or if a conflict precludes Seller from assuming the defense, then Seller
shall reimburse Buyer on a monthly basis for Buyer’s reasonable defense expenses of such claim through separate counsel
of Buyer’s choice reasonably acceptable to Seller. Even if Seller assumes the defense of such claim, Buyer may, at its sole
option, participate in the defense, at Buyer’s expense, without relieving Seller of any of its obligations hereunder. Should
Buyer be enjoined from selling or using any Phase 2 New System as a result of such claim, or should Buyer reasonably
and in good faith conclude that Buyer is likely to be so enjoined, Seller will, at its sole option and discretion, either (i)
procure or otherwise obtain for Buyer the right to use or sell the Phase 2 New System in the form purchased by Buyer; (ii)
modify the Phase 2 New System so that it becomes non-infringing but still substantially meets the original functional
specifications of the Phase 2 New System (in which event, for the avoidance of doubt, all warranties hereunder shall
continue to apply unmodified); (iii) upon return of the Phase 2 New System to Seller, as directed by Seller, provide to
Buyer a non-infringing Phase 2 New System meeting the functional specifications of the Phase 2 New System, or (iv)
when and if none of the first three options is reasonably available to Seller after having exercised good faith efforts to
pursue such options, authorize the return of the Phase 2 New System to Seller and, upon receipt thereof, return to Buyer all
monies paid by Buyer to Seller for the cost of the Phase 2 New Systems and BOF, net of any monies paid by Seller to
Buyer pursuant to the Phase 2 New System Portfolio Output Warranty, Efficiency Guaranty and/or Output Guaranty to the
extent such Seller payments are allocable to such Phase 2 New System; provided that Seller shall not elect the option in
the preceding clause (i) without Buyer’s written consent if such election could reasonably be expected to materially
decrease Buyer’s revenues or materially increase Buyer’s operating expenses.
(b) THIS INDEMNITY SHALL NOT COVER ANY CLAIM:
(i) for Intellectual Property infringement, conflict, violation or misuse that would not have been caused but
for any combination made by Buyer of any Phase 2 New System with any other product or products or modifications
made by or on behalf of Buyer to any part of the Phase 2 New System, unless (A) such combination or modification is
in accordance with Seller’s specifications for the Phase 2 New System or is otherwise contemplated in the
Documentation, (B) such combination or modification is made by or on behalf of or at the written request of Seller
where Seller has requested the specific combination or modification giving rise to the claim by Buyer, or (C) such
other product or products would not infringe the Intellectual Property rights of a third party but for the combination
with any part of the Phase 2 New System; or
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(ii) for infringement of any Intellectual Property rights arising in whole or in part from any aspect of the
Phase 2 New System which was designed by or requested by Buyer on a custom basis (unless Seller knew or had
reason to know that such design would cause such infringement).
Section 11.2 Indemnification of Seller by Buyer. Buyer shall indemnify, defend and hold harmless Seller, its officers,
directors, employees, shareholders, Affiliates and agents (each, a “Seller Indemnitee”) from and against any and all Indemnifiable
Losses asserted against or suffered by any Seller Indemnitee arising out of a Third Party Claim (other than a claim for a Seller
Indemnitee’s breach of any contract to which a Seller Indemnitee is a party) and in any way relating to, resulting from or arising out
of or in connection with any Third Party Claims against a Seller Indemnitee to the extent arising out of or in connection with (a) (1)
the negligent or intentional acts or omissions of Buyer or its subcontractors, agents or employees or others under Buyer’s control
(excluding any act or omission by Seller, any Seller Indemnitee or any Seller Personnel), (2) breach by Buyer of its representations,
warranties or obligations under this Agreement (except to the extent caused by any Seller Indemnitee or Seller Personnel), or (3) any
breach of a Site Lease or Interconnection Agreement, except to the extent relating to, resulting from or arising out of or in connection
with any act or omission by Seller, any Seller Indemnitee or any Seller Personnel, or (b) the operation of Phase 2 New Systems by
any Person other than Seller or an Affiliate or subcontractor of Seller after such Phase 2 New Systems have been Purchased by
Buyer pursuant to this Agreement (but subject to Seller’s warranties, covenants and indemnities under this Agreement and any other
Transaction Document to which Seller is a party); provided that Buyer shall have no obligation to indemnify Seller to the extent
caused by or arising out of any (i) negligence, fraud or willful misconduct of any Seller Indemnitee or the breach by Seller or any
Seller Indemnitee of its covenants, representations and warranties under this Agreement or in any Seller’s Certificate of
Commissioning or (ii) operation of Bloom Systems by a party outside of Buyer’s control or direction (including any Seller
Personnel) or by a party taking such action despite Buyer’s reasonable efforts to prevent the same.
Section 11.3 Indemnification of Buyer by Seller.
(a) Seller shall indemnify, defend and hold harmless Buyer, its members, managers, officers, directors,
employees, Affiliates and agents (each, a “Buyer Indemnitee”) from and against any and all Indemnifiable Losses (other
than Indemnifiable Losses addressed in Section 11.1) asserted against or suffered by any Buyer Indemnitee arising out of a
Third Party Claim, and in any way relating to, resulting from or arising out of or in connection with any Third Party
Claims against a Buyer Indemnitee to the extent arising out of or in connection with (i) the negligent or intentional acts or
omissions of Seller or any Seller Personnel (other than matters addressed separately in Section 11.1, which shall be
governed by the terms thereof), (ii) a breach by Seller of its representations, warranties or obligations under this
Agreement or in any Seller’s Certificate of Commissioning, or any breach of a Site Lease or Interconnection Agreement,
to the extent relating to, resulting from or arising out of or in connection with any act or omission by Seller or any Seller
Personnel, (iii) any alleged violation by Seller of Environmental Requirements resulting in claims, penalties, fines, or other
enforcement actions or (iv) any injury, death, or damage to property caused by a defect in a Phase 2 New System;
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provided that, Seller shall have no obligation to indemnify Buyer to the extent caused by or arising out of (x) any
negligence, fraud or willful misconduct of a Buyer Indemnitee, except to the extent caused by any Seller Personnel, (y) the
breach by Buyer or any Buyer Indemnitee of its covenants, representations and warranties under this Agreement or any
Site Lease or Interconnection Agreement, except to the extent such a breach is caused by Seller’s (or any Seller
Personnel’s) breach of this Agreement (including any failure to perform obligations on behalf of Buyer in accordance with
the terms of this Agreement), or (z) the inability of Buyer to ultimately utilize any tax benefits solely as a result of
insufficient taxable income or tax liability.
(b) Except as otherwise set forth in this Agreement, in the event that Buyer incurs any liability, cost, loss or
expense to a Site Landlord (including relating to a breach of a Site Lease) in relation to the repurchase by or return to
Seller of any Phase 2 New System under this Agreement, Seller shall indemnify and hold Buyer harmless for any such
liability, cost, loss or expense incurred by Buyer.
(c) Seller acknowledges and agrees that each Site Landlord is an intended third party beneficiary of Seller’s
indemnification obligations in favor of the Buyer Indemnitees and that Buyer may, with Seller’s reasonable consent
following cooperative discussions between the Parties regarding the least disruptive manner of resolving the applicable
Site Landlord claim, elect to assign to a Site Landlord the right to seek indemnification directly from Seller in the event
that Buyer owes to such Site Landlord any indemnification obligations arising out of or in connection with any breach of a
Site Lease arising out of any actions or inactions of Seller under this Agreement that give rise to an indemnification
obligation of Seller in favor of any Buyer Indemnitee.
Section 11.1 Indemnification Procedure. Except as otherwise provided in Section 11.1, if any indemnifiable claim is
brought against a Party (the “Indemnified Party”), then the other Party (the “Indemnifying Party”) shall be entitled to participate in,
and, unless in the reasonable opinion of counsel for the Indemnifying Party a conflict of interest between the Parties may exist with
respect to such claim, assume the defense of such claim, with counsel reasonably acceptable to the Indemnifying Party. If the
Indemnifying Party does not assume the defense of the Indemnified Party or if a conflict precludes the Indemnifying Party from
assuming the defense, then the Indemnifying Party shall reimburse the Indemnified Party on a monthly basis for the Indemnified
Party’s reasonable defense expenses through separate counsel of the Indemnified Party’s choice. Even if the Indemnifying Party
assumes the defense of the Indemnified Party with acceptable counsel, the Indemnifying Party, at its sole option, may participate in
the defense, at its own expense, with counsel of its own choice without relieving the Indemnifying Party of any of its obligations
hereunder.
Section 11.2 Limitation of Liability.
(a) Notwithstanding anything to the contrary in this Agreement, in no event shall a Party be liable to the other
Party for an amount in excess of the Maximum Liability unless and to the extent such liability is the result of (A) fraud,
willful default, willful misconduct, or gross negligence of a Party or that Party’s employees, agents,
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subcontractors (except that for the purposes of this provision, Seller and any applicable Seller Personnel will not be
deemed to be employees, agents or subcontractors of Buyer), (B) a Third Party Claim, (C) a claim of Seller against Buyer
for Buyer’s failure to pay the Purchase Price for any Facility (which amounts shall not be included in calculating Buyer’s
Maximum Liability), (D) a claim with respect to injury to or death of any individual, (E) Seller’s abandonment to the
extent constituting a repudiation of this Agreement in respect of all or any part of the Facilities, (F) events or
circumstances in respect of which insurance proceeds are available or that would have been available but for a failure by
Seller to maintain, or comply with the terms of, insurance that it is required to obtain and maintain under this Agreement,
and any amounts so received will not be included when calculating Seller’s Maximum Liability, (G) a claim of Buyer
against Seller for Seller’s breach of a Fundamental Representation, or (H) a claim brought pursuant to Section 11.1.
Subject always to the Maximum Liability limitations set forth in the preceding sentence, except for damages or amounts
specifically provided for in this Agreement, including liquidated damages, or in connection with the indemnification for
damages awarded to a third party under a Third Party Claim, damages hereunder are limited to direct damages, and in no
event shall a Party be liable to the other Party, and the Parties hereby waive claims, for indirect, punitive, special or
consequential damages or loss of profits; provided, however, that the loss of profits language set forth in this Section
11.5(a) shall not be interpreted to exclude from Indemnifiable Losses (X) any losses arising as a result of the loss or
recapture of any ITC or (Y) recovery for any losses merely because such losses would result in a reduction in the profits of
Buyer, Assured Guaranty Municipal Corp., SP Diamond State Class B Holdings, LLC, or any or all of such Persons.
Notwithstanding anything to the contrary set forth herein, in no event shall the limitation of liability set forth above as it
pertains to Seller limit Seller’s obligations to Buyer for any payments owed by Seller to Buyer regarding (i) the
Repurchase Amount in respect of any Phase 2 New Systems, or (ii) Indemnifiable Losses arising from the loss or
recapture of any ITC. Any amounts paid or payable by Seller to Buyer as described in the preceding sentence will not be
included when calculating Seller’s Maximum Liability.
(b) Each Party hereby agrees that any claim for damages against the other Party under this ARTICLE XI shall be
reduced to the extent of any related insurance proceeds actually received by such claiming Party.
Section 11.3 Survival. The Parties’ respective rights and obligations under this ARTICLE XI shall survive any total or
partial termination of this Agreement.
Section 11.4 After-Tax Basis. All tax-related indemnity payments pursuant to this ARTICLE XI which are taxable to the
recipient shall be made on a grossed-up, after-tax basis, assuming for this purpose that all such indemnity payments are taxable at the
highest applicable marginal rate in effect each year under Code Section 11(b)(1).
ARTICLE XII.
MISCELLANEOUS PROVISIONS
51
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Section 12.1 Amendment and Modification. This Agreement may be amended, modified or supplemented only by written
agreement of Buyer and Seller.
Section 12.2 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the
Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits
thereof only by a written instrument signed by the Party granting such waiver, but any such waiver of such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith.
Section 12.3 Notices. All notices, provisions of Documentation, reports, certifications, or other documentation, and other
communications hereunder shall be in writing and shall be deemed given when received if delivered personally or by facsimile
transmission with completed transmission acknowledgment or by electronic mail, or when delivered if mailed by overnight delivery
via a nationally recognized courier or registered or certified first class mail (return receipt requested), postage prepaid, to the
recipient Party at its below address (or at such other address or facsimile number for a Party as shall be specified by like notice;
provided, however, that notices of a change of address shall be effective only upon receipt thereof and that any notice provided by
electronic mail will be followed promptly by another form of notice consistent with this Section 12.3 and will be effective when such
follow-up notice is deemed effective):
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To Seller:
To Buyer:
Bloom Energy Corporation
4353 N. 1st Street
San Jose, CA 95134
Attention: [*]Email: [*]
and to:
Bloom Energy Corporation
4353 N. 1st Street
San Jose, CA 95134
Attention: General Counsel
Diamond State Generation Partners, LLC
c/o SP Diamond State Class B Holdings, LLC
30 Ivan Allen Jr. Blvd.
Atlanta, GA 30308
Attention: General Counsel and Corporate Secretary
with a copy to (which copy shall not constitute notice):
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
150 Fayetteville Street, Suite 2300
Raleigh, NC 27601
Attention: [*]
Telephone: [*]
Email: [*]
with a copy to (which copy shall not constitute notice):
Assured Guaranty Municipal Corp.
1633 Broadway
New York, New York 10019
Attention: General Counsel
Email: [*]
Section 12.4 Assignment.
(a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties
and their respective successors and permitted assigns (including by operation of law), but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any Party without the prior written consent of the other
Party (to be granted in the other Party’s sole discretion), provided that (i) Buyer may assign its indemnification rights to
each Site Landlord as set forth in Section 11.3(c) upon notice to Seller, (ii) Buyer may assign all of its right, title and
interest in and to this Agreement to an Affiliate wholly owned (directly or indirectly) by either Investor without the prior
consent of Seller (provided that such assignee Affiliate shall assign this Agreement back to the Buyer at any future date
that such assignee is no longer an Affiliate of the Buyer), (iii) Buyer may make such an assignment without Seller’s
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consent to a successor to substantially all of Buyer’s business, whether in a merger, sale of stock, sale of membership
interests, sale of assets or other transaction (other than a transaction with an entity that is a competitor of Seller or its
Affiliates, unless consented to under the provisions of Section 12.4(b)), and (iv) Seller shall be entitled to subcontract any
of its obligations under this Agreement without consent (except as set forth in Section 12.14) or to assign its obligations
under this Agreement to an Affiliate under common ownership with Seller, provided further that (X) such assignment or
subcontracting shall not excuse Seller from the obligation to competently perform any subcontracted or assigned
obligations or any of its other obligations under the Agreement and (Y) nothing in this Agreement shall be deemed to
require the consent of any Party with respect to any change in control, merger or sale of all or substantially all of the assets
of either Investor or Seller. Any purported assignment or delegation in violation of this Section shall be null and void.
(b) In the event of an assignment by Buyer or other transaction described in clause (iii) of Section 12.4(a), Buyer
shall notify Seller of the identity of the proposed assignee or successor in writing, and Seller shall have the right to consent
to such assignment or transaction in the event that Seller reasonably believes such proposed assignee to be a competitor of
Seller. Seller shall notify Buyer of its determination within ten (10) Business Days of receipt of notice from Buyer
hereunder. If Seller notifies Buyer that it has determined that the proposed assignee is a competitor of Seller and that Seller
is electing to withhold consent, then Buyer shall be prohibited from consummating the proposed transaction unless it has
been finally determined that such proposed assignee is not a competitor of Seller.
(c) Any disputes regarding Seller’s determination of a proposed assignee as a competitor to Seller shall be
resolved as follows:
(i) Buyer will promptly provide written notification of the dispute to Seller within five (5) Business Days
after notice by Seller that it has determined the proposed assignee to be a competitor and that it is withholding its
consent. Thereafter, a meeting shall be held promptly between the Parties, attended by Seller’s Chief Financial
Officer and Buyer’s Chief Financial Officer, to attempt in good faith to negotiate a resolution of the dispute, provided,
that either Party may elect to escalate the dispute to the Parties’ respective Chief Executive Officer at any time.
(ii) If the Parties are not successful in resolving a dispute within ten (10) Business Days of the meeting called
for above, the dispute shall be submitted, within ten (10) Business Days thereafter, to a mediator with energy industry
experience. The Parties shall cooperate with and provide such documents, information and other assistance as is
requested by the mediator to assist in efforts to resolve the dispute. The costs of the mediator shall be borne equally
by the Parties.
(iii) If efforts to mediate are not successful within thirty (30) days of submitting the dispute to the mediator,
both Parties will retain all legal remedies available to them.
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Section 12.5 Dispute Resolution; Service of Process.
(a) Except as provided in Section 12.4(c), in the event a dispute, controversy or claim arises hereunder, including
any claim whether in contract, tort (including negligence), strict product liability or otherwise, the aggrieved Party will
promptly provide written notification of the dispute to the other Party within ten (10) days after such dispute arises.
Thereafter, a meeting shall be held promptly between the Parties, attended by Representatives of the Parties with decision-
making authority regarding the dispute, to attempt in good faith to negotiate a resolution of the dispute. If the Parties are
not successful in resolving a dispute within twenty-one (21) days of such meeting, then, subject to the limitations on
remedies set forth in Section 10.3 and Section 10.4 and ARTICLE XI, either Party may pursue whatever rights it has
available under this Agreement, at law or in equity in accordance with Section 12.6 herein.
(b) In the event of any dispute arising out of or relating to this Agreement, each Party hereby consents to service
of process made to the addressees set forth in Section 12.3 herein either by overnight delivery by a nationally recognized
courier or by certified first class mail, return receipt requested, and hereby acknowledges that service by such means shall
constitute valid and lawful service of process against the Party being served.
Section 12.6 Governing Law, Jurisdiction, Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
ANY CONFLICTS OF LAW OR OTHER PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW). THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY DISPUTE ARISING OUT OF OR RELATING
TO THIS AGREEMENT. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
ACTION, SUIT OR PROCEEDING RELATING TO ANY SUCH DISPUTE AND FOR ANY COUNTERCLAIM WITH
RESPECT THERETO.
Section 12.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. Signatures delivered by facsimile, portable document
format or other electronic means (including services such as DocuSign) will be considered original signatures, and each Party shall
thereafter promptly deliver original signatures to the other Party.
Section 12.8 Interpretation. The article, section and schedule headings contained in this Agreement are solely for the
purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this
Agreement.
Section 12.9 Entire Agreement. This Agreement, the other Transaction Documents, the [*], and the exhibits, schedules,
documents, certificates and instruments referred to therein, embody
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the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. Each Party
acknowledges that, in agreeing to enter into this Agreement, it has not relied on any representation, warranty, collateral contract or
other assurance (except those in this Agreement or any other agreement entered into on the date of this Agreement between the
Parties) made by or on behalf of any other Party at any time before the signature of this Agreement. Each Party waives all rights and
remedies which, but for the immediately preceding sentence, might otherwise be available to it in respect of any such representation,
warranty, collateral contract or other assurance.
Section 12.10 Construction of Agreement. The terms and provisions of this Agreement represent the results of negotiations
between Buyer and Seller, each of which has been represented by counsel of its own choosing, and neither of which has acted under
duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary meanings, and Buyer and Seller hereby waive the application
in connection with the interpretation and construction of this Agreement of any rule of law to the effect that ambiguous or conflicting
terms or provisions contained in this Agreement shall be interpreted or construed against the Party whose attorney prepared the
executed draft or any earlier draft of this Agreement.
Section 12.11 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any Party.
Section 12.12 Further Assurances. Each Party agrees to execute and deliver such additional documents and instruments and
to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions,
and conditions of this Agreement and the transactions contemplated by this Agreement.
Section 12.13 Independent Contractor. Seller shall perform the Installation Services and act at all times as an independent
contractor, and shall be solely responsible for the means, methods, techniques, sequences, and procedures employed for execution
and completion of the Installation Services. Nothing in this Agreement shall be interpreted or applied so as to make the relationship
of any of the Parties that of partners, joint venturers or anything other than the relationship of customer and independent contractor.
Notwithstanding anything to the contrary herein, including Seller’s obligation to perform on behalf of Buyer certain of Buyer’s
obligations under the Tariff, Interconnection Agreements, and Site Leases, neither Seller nor any of its employees, agents,
subcontractors or Representatives shall be considered an employee, agent, subcontractor or Representative of, nor under the control
of, Buyer under this Agreement. Seller shall at all times maintain supervision, direction and control over its employees, agents,
subcontractors and Representatives as is consistent with and necessary to preserve its independent contractor status, and Seller shall
be responsible to Buyer for the acts and omissions of each such employee or subcontractor.
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Section 12.14 Service Providers. Seller may appoint one or more unrelated third party(ies), who is appropriately qualified,
licensed, and financially responsible, to perform Installations Services throughout the Term. Seller shall submit such appointment of
any Major Service Provider to Buyer for its prior written approval, which approval shall not be unreasonably withheld or delayed.
No such appointment nor the approval thereof by Buyer, however, shall relieve Seller of any liability, obligation, or responsibility
resulting from a breach of this Agreement. “Major Service Provider” means any Service Provider that Seller proposes to engage to
perform any Installations Services for which the aggregate compensation to such Service Provider in respect of Installation Services
is expected to be greater than ten percent (10%) of Seller’s budgeted amounts for all Installation Services for all the Phase 2 New
Systems pursuant to this Agreement. The Parties agree that each of the Major Service Providers set forth on Schedule 12.14 hereof
are approved for all purposes by Buyer as of the Agreement Date. Each subcontractor (of any tier, Service Providers, Major Service
Providers, and Service Technicians) must be a reputable, qualified firm with an established record of successful performance in its
trade, and shall obtain and maintain such insurance coverages having such terms as set forth in Annex B to the extent applicable to
the work to be performed by such subcontractor. Seller shall not be relieved from its obligation to provide any services hereunder if a
subcontractor agrees to provide any or all of such services. No subcontractor is intended to be or will be deemed a third-party
beneficiary of this Agreement. Nothing contained herein shall create any contractual relationship between any subcontractor and
Buyer or obligate Buyer to pay or cause the payment of any amounts to any subcontractor, including any payment due to any third
party. Seller shall not permit any subcontractor to assert any Lien against any Phase 2 New System or Bloom System, or attach any
Lien other than a Permitted Lien. None of Seller’s employees, subcontractors or any such subcontractor’s employees will be or will
be considered to be employees of Buyer. To the extent that any Site Landlord has the right to request removal of any Seller or
subcontractor personnel under a Site Lease, Seller shall cooperate with Buyer in complying with the terms and conditions of such
Site Lease including by, upon written notification by Buyer that the performance, conduct or behavior of any Person employed by
Seller or one of its subcontractors is unacceptable to the applicable Site Landlord, promptly stopping such Person from performing
any obligations hereunder and/or removing such Person from the applicable Site. Additionally, Buyer may bring to Seller’s attention
any concerns regarding the performance, conduct or behavior of any Person employed by Seller or one of its subcontractors, which
concerns Seller shall consider in good faith and thereafter take such action as Seller deems appropriate under the circumstances.
Seller will be fully responsible for the payment of all wages, salaries, benefits and other compensation to its employees and for
payment of any Taxes due because of its work hereunder.
Section 12.15 Rights to Deliverables. Buyer agrees that Seller shall, except as expressly set forth herein, retain all rights,
title and interest, including Intellectual Property rights, in any Training Materials provided to Buyer in connection with the services
performed hereunder. “Training Materials” means any and all materials, documentation, notebooks, forms, diagrams, manuals and
other written materials and tangible objects, describing how to operate and maintain the Facilities or perform any of the Installation
Services and/or Facility Services (if applicable), including any corrections, improvements and enhancements which are delivered by
Seller to Buyer, but excluding any Documentation or other data and reports delivered to Buyer in respect of any Facilities.
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Section 12.16 Limitation on Export. Buyer agrees that it will not export, re-export, resell, ship or divert directly or indirectly
any Facility or any part thereof in any form or technical data or Software furnished hereunder to any country prohibited by the
United States Government or any other Governmental Authority, or for which an export license or other Governmental Approval is
required, without first obtaining such license or approval.
Section 12.17 Time of Essence. Time is of the essence with respect to all matters contained in this Agreement.
Section 12.18 No Rights in Third Parties. Except as otherwise specified herein, (a) nothing in this Agreement nor any action
taken hereunder shall be construed to create any duty, liability or standard of care to any Person that is not a Party, (b) no Person that
is not a Party shall have any rights or interest, direct or indirect, in this Agreement or the services to be provided hereunder and (c)
this Agreement is intended solely for the benefit of the Parties, and the Parties expressly disclaim any intent to create any rights in
any third party as a third-party beneficiary to this Agreement or the services to be provided hereunder.
Section 12.19 No Modification or Alteration of DSGP Operating Agreement or Phase 1 CapEx Agreement.
Notwithstanding anything to the contrary herein and for the avoidance of doubt, (a) nothing in this Agreement shall affect or modify
the rights or obligations of the members of Buyer under the DSGP Operating Agreement or of Buyer or Seller under the Phase 1
CapEx Agreement, and (b) no Buyer Manager shall have authority to take any action or agree to take any action that would violate
the DSGP Operating Agreement or that would require the consent or approval of any member or the managing member of Buyer
under the DSGP Operating Agreement (unless such consent or approval is first obtained).
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, Buyer and Seller have caused this Fuel Cell System Supply and Installation Agreement to be
signed by their respective duly authorized officers as of the Agreement Date.
BUYER:
SELLER:
DIAMOND STATE GENERATION PARTNERS, LLC
a Delaware limited liability company
BLOOM ENERGY CORPORATION
a Delaware corporation
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
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Annex A
Conceptual Design
ANNEX A-1
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Annex B
Insurance
Insurance. At all times during the Term, without cost to Buyer, Seller shall maintain in force and effect the following insurance with
insurance companies rated “A-” or better, with a minimum size rating of “X” by AM Best’s Insurance Guide and Key Ratings (or an
equivalent rating by another nationally recognized insurance rating agency of similar standing if AM Best’s Insurance Guide and
Key Ratings shall no longer be published) or other companies reasonably satisfactory to Buyer, which insurance shall not be subject
to cancellation, termination or other material adverse changes unless the insurer delivers to Buyer written notice of the cancellation,
termination or change at least thirty (30) days in advance of the effective date of the cancellation, termination or material adverse
change or if notice from the insurer to Buyer of material adverse change is not available on commercially reasonable terms then
Seller shall provide Buyer with such notice as soon as reasonably possible after becoming aware of such change:
(a)
Worker's Compensation Insurance as required by the laws of the state in which Operator’s employees are
manufacturing Phase 2 New Systems or performing Installation Services;
(b)
Employer's liability insurance with limits at policy inception not less than [*] per occurrence;
(c)
Commercial General Liability Insurance, including bodily injury and property damage liability (arising from
premises, operations, contractual liability endorsements, products liability, or completed operations) with limits not less than [*] per
occurrence and [*] annual aggregate limit at policy inception;
(d)
If there is exposure, automobile liability insurance in accordance with prudent industry practice with a limit of not
less than [*], combined single limit per occurrence;
(e)
Umbrella liability insurance acting in excess of underlying employer’s liability, commercial general liability and
automobile liability policies with limits not less than [*] per occurrence, except that any subcontractors shall be required to maintain
such insurance with limits of not less than [*];
(f)
(g)
Professional errors and omission insurance with a limit of not less than [*] per occurrence;
Environmental/pollution liability insurance with a limit of not less than [*] per claim;
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ANNEX B-1
(h)
Builder’s Risk/Installation Coverage for each Phase 2 New System, with replacement costs and a delay in startup
component (for avoidance of doubt, this requirement is only applicable, with respect to each Phase 2 New System, until the date of
Commissioning of such Phase 2 New System); and
(i)
Marine Cargo - Transit coverage (including air, land and ocean cargo, as applicable) on an “all-risk” basis and a
“warehouse to warehouse” basis with a per occurrence limit equal to not less than [*]% of the value including transit and insurance
of such shipment involving the Facility at all times for which the Seller bears or has accepted risk of loss or has responsibility for
providing insurance. Coverage shall include loading, unloading and temporary storage (as applicable). Coverage shall be maintained
in accordance with prudent industry practice in all regards with per occurrence deductibles of not more than $50,000 for physical
damage and other terms and conditions acceptable to the Buyer. For avoidance of doubt, (i) this requirement is only applicable
during installation and is not required to be maintained with respect to any Phase 2 New System after the date of Commissioning of
such Phase 2 New System, and (ii) this requirement shall not apply to any subcontractor except those engaged to transport materials
owned by Seller during such transit.
Seller shall cause Buyer to be included as additional insured to all insurance policies required in accordance with the provisions of
this Agreement except for worker’s compensation. The required insurance must be written as a primary policy not contributing to or
in excess of any policies carried by Buyer, and each must contain a waiver of subrogation in favor of Buyer.
Additionally, Seller shall procure and maintain any insurance coverages (if any) with respect to commercial general liability and
excess liability required to be carried by Buyer’s contractors and service providers pursuant to a Site Lease pursuant to policies that
comply with all requirements set forth in such Site Lease.
Additional Insurance. To the extent that a Material Contract (as defined in the ECCA) requires Seller to maintain additional
insurance coverage, higher limits or any other insurance requirement because of Seller’s undertakings pursuant to this Agreement
(“Required Insurance”), Seller shall obtain and maintain the Required Insurance for as long as required under such Material
Contract.
Seller shall provide Buyer with evidence of compliance with these insurance requirements when requested by Buyer from time to
time on a reasonable basis.
DM_US 164459518-11.107145.0012
ANNEX B-2
Exhibit A
Specifications for Phase 2 New Systems
PHASE 2 NEW SYSTEM SPECIFICATIONS
System Capacity: 250kW or 200kW
Electrical Connection: 480 V, 3-phase, 60 Hz
Fuels: Natural Gas
Input Fuel Pressure: 10-18 psig (15 psig nominal)
Water: None during normal operation following Commissioning
NOx: < 0.01 lbs/MWh
SO2: 0.0002 lbs/MWh
CO: <0.05 lbs/MWh
VOCs: < 0.02 lbs/MWh
Weight: 13.6 tons for 250kW and 12.2 tons for 200kW
Dimensions (variable layouts): 14'9" x 8'9" x 7' or 29'6" x 4'5" x 7'5"
Temperature Range: -20° to 45° C
Humidity: 0% to 100%
Location: Outdoor
Noise: < 70 dBA @ 6 feet
BLOOM SYSTEM METER SPECIFICATIONS
Voltage: +/- 1.0%
Current: +/- 1.5%
Power: +/- 2.0%
Bloom System Meter specifications reflect nominal ratings and 25o C ambient
MASS FLOW CONTROLLER SPECIFICATIONS
Fuel Scale Range (N2): 250SLM
Accuracy: +/- 1.0% S.P (>/= 35% F.S.); +/- 0.35% (<35% F.S.)
Linearity: +/- 0.5% F.S.
Repeatability: +/- 0.2% F.S.
Response Time: