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Index to Financial Statements

As filed with the Securities and Exchange Commission on July 9, 2018

Registration No. 333-225571

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

FORM S-1

REGISTRATION STATEMENT

Under

the Securities Act of 1933

 

 

BLOOM ENERGY CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   3620   77-0565408

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

1299 Orleans Drive

Sunnyvale, California 94089

(408) 543-1500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

KR Sridhar

Chief Executive Officer

Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, California 94089

(408) 543-1500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Gordon K. Davidson, Esq.

Sayre E. Stevick, Esq.

Jeffrey R. Vetter, Esq.

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, California 94041

(650) 988-8500

 

Shawn M. Soderberg, Esq.

Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, California 94089

(408) 543-1500

 

Alan F. Denenberg, Esq.

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, CA 94025

(650) 752-2000

 

 

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

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

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

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

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

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  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging Growth Company  

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 to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
  Amount to be
Registered (1)
 

Proposed

Maximum

Offering Price

per Share

  Proposed
Maximum
Aggregate
Offering Price (1)
  Amount of
Registration Fee (2)

Class A Common Stock, par value $0.0001 per share

  20,700,000   $15.00  

$310,500,000

  $38,658

 

 

(1)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes additional shares that the underwriters have the option to purchase.
(2)   The Registrant previously paid $12,450 of this amount in connection with the initial filing of this Registration Statement.

 

 

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

 

 

 


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

 

Subject to Completion, dated July 9, 2018

18,000,000 SHARES

 

 

LOGO

CLASS A COMMON STOCK

 

 

This is an initial public offering of Bloom Energy Corporation’s shares of Class A common stock.

We are offering to sell 18,000,000 shares of our Class A common stock in this offering.

We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 98% of the voting power of our outstanding capital stock immediately following the completion of this offering, with our directors, executive officers, and 5% stockholders, and their respective affiliates, holding approximately 95%, assuming in each case the purchase of shares pursuant to the indications of interest described below and no exercise of the underwriters’ option to purchase additional shares.

Prior to this offering, there has been no public market for the Class A common stock. It is currently estimated that the initial public offering price per share will be between $13.00 and $15.00.

We have applied to list the Class A common stock on the New York Stock Exchange under the symbol “BE.”

 

 

We are an “emerging growth company” as defined under federal securities laws and, as such, will be subject to reduced public company reporting requirements. Investing in our Class  A common stock involves risks. See “ Risk Factors ” on page 22 to read about factors you should consider before buying shares of Class A common stock.

 

     Per
Share
     Total  

Initial public offering price

   $      $  

Underwriting discount (1)

   $      $  

Proceeds, before expenses, to us

   $      $  

 

(1)   See “Underwriting” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than 18,000,000 shares of Class A common stock, the underwriters have the option to purchase up to an additional 2,700,000 shares of Class A common stock from us at the initial public offering price less the underwriting discount within 30 days from the date of this prospectus.

Certain of our directors and certain of our current stockholders affiliated with our directors have indicated an interest in purchasing an aggregate of up to $50.0 million in shares of our Class A common stock in this offering at the initial public offering price per share. Because these indications of interest are not binding agreements or commitments to purchase, such individuals and entities may determine to purchase more, less, or no shares in this offering. In addition, the underwriters have reserved up to 9% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to our directors, executive officers and other individuals associated with them, and our employees, to the extent permitted by local securities laws and regulations. Any shares purchased in this offering by our directors, executive officers or stockholders who have entered into lock-up agreements described in “Underwriting” will be subject to the provisions of such lock-up agreements.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2018.

 

 

 

J.P. Morgan       Morgan Stanley

 

Credit Suisse

 

  

 

KeyBanc Capital Markets

 

  

 

BofA Merrill Lynch

 

Baird   Cowen   HSBC    Oppenheimer & Co.    Raymond James

Prospectus dated                     , 2018


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LOGO

Better electrons for a digital planet The Bloom Energy Server


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Index to Financial Statements

LOGO

OUR MISSION: to make clean, reliable energy affordable for everyone in the world Customer Site Photos 200kW Retail Store 600 kW Medical Facility 1 MW Mission Critical Data Center 27 MW Utility-Scale Substation Customer sites shown represent a typical range of solution sizes


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     22  

Special Note Regarding Forward-Looking Statements

     51  

Industry and Market Data

     52  

Use of Proceeds

     53  

Dividend Policy

     53  

Capitalization

     54  

Dilution

     58  

Letter from our Chief Financial Officer

     61  

Selected Consolidated Financial Data

     64  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     73  

Business

     137  

Management

     161  

Executive Compensation

     170  

Related Party Transactions

     179  

Principal Stockholders

     182  

Description of Capital Stock

     187  

Shares Eligible for Future Sale

     197  

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders

     200  

Underwriting

     205  

Experts

     216  

Legal Matters

     216  

Where You Can Find More Information

     216  

Index to Consolidated Financial Statements

     F-1  

 

 

We are responsible for the information contained in this prospectus and in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We and the underwriters are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who obtain this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside of the United States.

Through and including                     , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our Class A common stock in this offering. Therefore, you should read this entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes contained elsewhere in this prospectus. Unless the context requires otherwise, the words “we,” “us,” “our” and “Bloom Energy” refer to Bloom Energy Corporation and its subsidiaries.

BLOOM ENERGY CORPORATION

Overview

Our mission is to make clean, reliable, and affordable energy for everyone in the world. To fulfill this mission, we have developed a distributed, on-site electric power solution that is redefining the $2.4 trillion electric power market and transforming how power is generated and delivered. The commercial and industrial (C&I) segments are our initial focus. 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 (or base load) 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 30 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. Some of our largest customers are AT&T, Caltech, Delmarva Power & Light Company, Equinix, The Home Depot, Kaiser Permanente and The Wonderful Company. We also work actively with financing partners, such as The Southern Company, that purchase our systems that are deployed at end customers’ facilities in order to provide the electricity as a service. In 2017, our largest customers were Southern Company, which finances our Energy Servers for a large number of end customers, and Delmarva. Our customer base included 25 of the Fortune 100 companies as of March 31, 2018.

Grid power prices continue to rise in most regions where we serve customers. The traditional centralized electric grid infrastructure requires significant investment for its maintenance, upgrade and operation, which has been continually driving up the cost of grid power. The U.S. Energy Information Administration (EIA) projects that grid power prices for all classes of customers including commercial and industrial are expected to increase by over 40% in nominal terms through 2030 in the U.S. By contrast, in the regions where the majority of our Energy Servers are deployed, our solution typically provides a lower cost of electricity to our customers than traditional grid power. In addition, our solution provides greater cost predictability versus rising grid prices. Through a relentless focus on cost reduction, we have driven down materials cost of our Energy Servers by approximately 75% since 2009. This cost reduction, coupled with the use of abundant, low-cost natural gas as a fuel source and very high conversion efficiencies, has allowed us to expand our market opportunity.

The traditional grid is vulnerable to natural disasters as well as cyber-attacks and physical sabotage, which have become more frequent. The topology of the centralized grid has a tendency to cascade outages rather than to contain them. Because our on-site stationary power systems are located at the point of consumption, our Energy Servers, when configured to provide uninterruptible power, largely avoid the existing electric power grid’s inherent vulnerability to outages from weather events and other threats, as well as the additional losses of efficiency associated with the transmission of power over long distances. Our Energy Servers are able to deliver this very high level of availability to our customers in part because they are modular, redundant, and can be “hot swapped,” or serviced without interruption.



 

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The electric grid typically delivers power generated by sources with a high carbon footprint, and there is increasing pressure to reduce resulting carbon dioxide and other harmful emissions. There is also a rising demand for clean electric power solutions that overcome the challenges of the traditional grid, and can address the requirements of the digital economy by delivering 24x7 electric power, with very high availability and quality. Our Energy Servers address these requirements and operate on-site at very high efficiencies using natural gas or biogas, offering significant emissions reductions, and, unlike prevalent renewable technologies such as wind and solar, provide a viable alternative to the constant base load electricity generated by a central power plant.

We have continuously innovated and evolved our technology over time. The latest generation Energy Server delivers five times the energy output of the first generation in a constant footprint. Similarly, we have also improved the beginning-of-life electrical efficiency (the rate at which fuel is converted into electricity) of our Energy Servers from 45% to 65% today, representing the highest delivered power efficiency of any commercially available power solution. In addition, we have expanded the range of available accessories which extend the capability and functionality of our Energy Servers to meet additional customer requirements, such as an uninterruptable power capability. Our team has decades of experience in the various specialized disciplines and systems engineering concepts unique to this technology. We had 209 issued patents in the United States and 90 issued patents internationally as of March 31, 2018.

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 believe that we are capturing only a small percentage of our largest customers’ total energy spend, which gives us a significant opportunity for expansion and growth. Moreover, as the price of our products decreases and the price of grid power increases, more markets will become available for our products. As of March 31, 2018, we had 312 megawatts in total deployed systems, representing an average annual growth rate of approximately 25% since 2014. In addition, as of March 31, 2018, we had an additional product sales backlog of 108.2 megawatts.

Industry Background

People around the world depend upon access to reliable and affordable electric power for a healthy, functioning economy and for delivery of essential services. According to Marketline, the market for electric power is one of the largest sectors of the global economy with total revenues of $2.4 trillion in 2016, and is projected to continue to grow at a compound annual growth rate of 4.3% to $2.9 trillion in 2021. There are numerous challenges driving a transformation in how electricity is produced, delivered and consumed. We believe that this transformation will be similar to the seismic shifts seen in the computer and telecommunications industries, from centralized mainframe computing and landline telephone systems to ubiquitous and highly personalized distributed technologies. Some of the key challenges facing the electric power market are:

Increasing costs to maintain and operate the existing electric grid

The U.S. Department of Energy has described the U.S. electricity grid as “aging, inefficient, congested, and incapable of meeting the future energy needs of the information economy,” while the American Society of Civil Engineers gave the U.S. energy infrastructure a grade of D+ in 2017. 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. The Edison Electric Institute estimated that between 2017 and 2019, U.S. investor-owned electric utilities will need to make total capital expenditure investments of approximately $336 billion. EIA data



 

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demonstrates that the average commercial and industrial electricity prices have both increased at 2.4% and 2.7% CAGR from 2000 to 2015, respectively. According to this data, the average commercial and industrial electricity prices are expected to continue to rise.

Inherent vulnerability of existing grid design

The existing electric grid architecture features centralized, monolithic power plants and mostly above-ground transmission and distribution wires. This design has numerous points of failure and limited redundancy, and the daisy-chain topology can cascade outages rather than contain them. For example, in 2003, an initial failure blamed on a tree branch in Ohio set off outages that cascaded across eight states and parts of Canada, cutting power for 50 million people. Similarly, in 2011, a dropped transmission line in Arizona cascaded and created a massive outage across Southern California.

Furthermore, 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 temperatures. According to data from the U.S. Department of Energy (DOE), the United States electric grid loses power 285% more often than in 1984, when data collections on blackouts began. These outages result in an annual loss 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. In 2017, Accenture Consulting published the report “Outsmarting Grid Security Threats,” which stated that “57% of utility executives believe their countries could see interruption of electricity supply due to cyber-attacks within five years” and that “only 48% of utility executives think they are well prepared for the challenges of an interruption from cyber-attack”.

Intermittent generation sources such as wind and solar are negatively impacting grid stability

Electricity generation from wind and solar has grown dramatically over recent years and is expected to account for a greater percentage of total generation going forward. While these renewable sources help to reduce greenhouse gas emissions, they provide only intermittent power to the grid, which compromises the grid’s ability to deliver 24x7 reliable electric power. As the penetration of these resources increases, balancing real-time supply and demand becomes more challenging and costly.

Due to these challenges, solutions are needed which provide constant base load 24x7 electric power which is reliable, clean and without the shortcomings of the existing grid infrastructure or intermittent sources such as wind or solar. This need is especially acute in the C&I segments, representing 68% of global electricity consumption, according to Marketline, where cost and reliability have a direct impact on profitability and business sustainability.

Increasing focus on reducing harmful emissions

In response to rising concern over harmful emissions, the 2015 United Nations Climate Change Conference climate talks resulted in a global consensus that the rate of release of carbon dioxide and other greenhouse gases must be reduced with an increased sense of urgency. 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. 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.



 

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Lack of access to affordable and reliable electricity in developing countries

According to the International Energy Agency (IEA) in its 2017 World Energy Outlook, 1.1 billion people worldwide live without electricity. For developing countries to grow their economies, they must expand access to reliable and affordable electric power. Building a centralized grid system, in addition to its inherent limitations, can also be infeasible due to the lack of adequate capital for upfront investment. Moreover, in dense urban areas, the costs of building this infrastructure are compounded by a lack of urban planning. In rural areas, using the centralized model to transmit and distribute electricity to low-density populations is economically unviable. As a result, we believe these countries are likely to develop a hybrid solution consisting of both centralized and distributed electrical power infrastructure to accelerate availability of power.

Our Solution

The Bloom Energy Server delivers reliable, resilient, clean and affordable energy, particularly in areas of high electricity costs, by 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 the Energy Server is connected to the customer’s main electrical feed, which avoids the transmission and distribution losses associated with the 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, which produces 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 parallels the example of smart phones – a single core platform that can be highly personalized to the needs of its user through the addition of any of a wide variety of applications that extend features and provide benefits to the user. Like a smart phone, the Bloom Energy Server is easily customizable and upgradeable to add new energy accessories and capabilities. The Bloom Energy Server is easily integrated into corporate environments due to its aesthetically attractive design, compact space requirement, minimal noise profile and lack of harmful emissions.

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. While the relative importance of these attributes can vary by customer, our ability to deliver these attributes is a significant differentiator for us in the marketplace. 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. The output of our Energy Servers is designed to meet the requirements of the digital economy, with very high availability of power, mission-critical reliability and grid-independent capabilities. Bloom provides power quality, voltage, and current, which can be tuned to specific customer requirements. The Bloom Energy Server can be configured to eliminate the need for traditional backup power equipment such as diesel generators, batteries or uninterruptible power systems (UPS).

Resiliency. Our Energy Servers can 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



 

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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 natural gas infrastructure, which is a mesh network buried underground, unlike the above-ground electric grid architecture. A failure at one point in the natural gas system does not necessarily cause the same kind of cascading failure that can occur on the electrical grid.

Cost Savings and 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 a lower cost of electricity to our customers than traditional grid power. 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. With the addition of an optional integrated storage solution, Bloom can also help customers to load shift and peak shave – reducing their exposure to peak power costs from the grid. We also enable our customers to scale from a few hundred kilowatts to many megawatts on a “pay-as-you-grow” basis.

Sustainability. Bloom Energy Servers provide clean power and because they are fuel-flexible, customers can choose the fuel source that best fits their needs based on availability, cost and carbon footprint. Bloom Energy Servers deployed since 2012 running on natural gas produce nearly 60% less carbon emissions compared to the average of U.S. combustion power generation. Bloom Energy Servers can also utilize renewable biogas to generate carbon-neutral electricity. As of March 31, 2018, approximately 9% of our deployed fleet of Energy Servers, by megawatts deployed, utilized biogas. In both cases, our Energy Servers emit virtually no criteria air pollutants, including NOx or SOx. Bloom Energy Servers also use virtually no water in normal operation. By comparison, to produce one megawatt per hour for a year, thermoelectric power generation for the U.S. grid withdraws approximately 156 million gallons of water more than Bloom Energy Servers.

Personalization. The Bloom Energy Server is designed as a platform which can be customized to the needs of each individual customer delivering the level of reliability, resiliency, sustainability as well as cost savings and predictability required by that customer. Analogous to a smart phone, the base Energy Server platform can easily accommodate accessories that extend capabilities and provide for customization. For example, the Energy Server can be customized with uninterruptible power components to deliver higher levels of reliability and grid independent operation, or storage can be added to reduce peak power consumption and improve the predictability of economics for the customer.

Our Market Opportunity

Economic growth and development worldwide will increasingly be powered by electricity. Global electricity demand is forecasted to rise by 60% between 2015 and 2040, accounting for 55% of the world’s energy demand growth. In addition, as the world consistently accelerates the adoption of digital technologies (i.e., widespread deployment of data centers, electric and autonomous cars, intelligent home systems, additive manufacturing), overall energy use will continue to increase. These facts offer challenges alongside opportunities, and will alter the global energy landscape. The retail electricity market represents the market for power delivered to the end-customers or the consumer of electricity. The price of retail electricity generally reflects the cost of generation, transmission and distribution. Generating power onsite (i.e., at the point of consumption, rather than centrally) eliminates the cost, complexity, interdependencies, and inefficiencies associated with electrical transmission and distribution.

According to data from MarketLine, the total addressable market (TAM) for electricity at the point of customer consumption was approximately $2.4 trillion in 2016. Of this market, MarketLine determined that 68% consisted of commercial, industrial and public services (CI&P), or $1.6 trillion.



 

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We believe that the current global serviceable addressable market (SAM) for Bloom is the retail electricity market for CI&P customers in the world’s ten largest electricity markets. These markets include, in order of decreasing size, the United States, India, Japan, Germany, Canada, Brazil, South Korea, France, the United Kingdom and Mexico. We do not include China or Russia in calculating our SAM due to a lack of reliable market data in these markets. Based on country-by-country generation data from the U.S. EIA and publicly-available retail power prices in each of these countries, we believe that our SAM is approximately $800 billion. Bloom primarily participates in the retail market for CI&P customers, and on that basis has calculated the TAM and SAM. From time to time, Bloom also selectively participates in wholesale market opportunities which have not been incorporated into this TAM and SAM analysis.

We currently have installations or purchase orders 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 South Korea. According to the EIA, the total size of the retail markets for C&I customers in these eleven U.S. states is approximately $76 billion. In addition, we estimate that the combined retail market for C&I customers in Japan, the Indian state of Karnataka (the state in India where we currently have deployed our solution) and the available market for new-build fuel cell generation in South Korea is approximately $99 billion. Collectively, we estimate that the size of our current market is approximately $175 billion.

In order to assess the market opportunity for our Energy Servers in the U.S., we have used EIA data to estimate the potential addressable market. The total size of the electricity market for C&I customers in all fifty states is currently estimated to be $212 billion. Outside of the U.S., we estimate our market opportunity by focusing on the ten largest international electricity markets (Japan, Germany, United Kingdom, India, Brazil, France, South Korea, Mexico, Canada and Saudi Arabia). We exclude China and Russia from this analysis as we have no plans to enter these markets for the foreseeable future. Based on information published by IEA, as well as select energy regulatory authorities regarding C&I demand and power prices, we estimate that the market opportunity in these ten international markets is approximately $608 billion.

Our Customers

To date, the breadth, depth and scale of Bloom’s commercial customer adoption is significant for a new product in the electric power industry. As of March 31, 2018, we have installed 312 megawatts of Bloom Energy Servers at customer sites across the U.S., Japan, India and South Korea.

Factors Driving Customer Adoption

Key factors that are driving the rapid adoption of our solution include:

Customers are driving a growing requirement for customized, high-quality and reliable power in the increasingly pervasive digital economy. The proliferation of cloud services and big data, and the associated rapid increase in demand for computing power, is reshaping the type and quality of power demanded by the digital economy. For providers and users of cloud services, uninterruptible, high-quality power is essential—requirements that the legacy grid is struggling to meet. Our highly available and scalable solution can replace the current patchwork of solutions, which include batteries, UPS and back-up generators.

Customers are seeking an alternative to the unpredictable and rising price of grid power. Grid costs in the United States have been rising for decades and are expected to continue to rise over the long-term. In the shorter-term, grid prices can be volatile, driven by regulatory judgments, commodity prices and the impact of external events such as weather. In contrast, we offer a complete turn-key solution, including equipment, installation, operations and maintenance that is designed to provide customers with a competitive and predictable cost for their electricity for periods of up to 20 years in the regions where the majority of our Energy Servers are



 

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deployed. The only component of cost of Bloom’s solution that is not fixed at time of contracting is fuel supply—usually natural gas, which typically represents about 25% of Bloom’s delivered cost of electricity to the customer. However, even if there are significant variations in natural gas commodity prices, wholesale prices of electricity are also highly dependent on the price of natural gas and our current generation Energy Server is 14% to 31% more efficient than natural gas power plants. Customers also have the option to enter into long-term natural gas contracts at fixed prices for up to ten years, which is not an option available for grid electricity.

According to the EIA, the average U.S. commercial and industrial electricity rate increased at a 2.7% CAGR from 2000 to 2015. According to data from the EIA, the average C&I electricity prices will continue to rise. As a result, we expect Bloom’s market opportunity to continue to expand.

Our technology is proven with industry-leading customers. Our approach to innovation is evolutionary—every generation of our technology builds on a proven core and factors in lessons learned from our broadly deployed fleet. Our systems have been deployed with Fortune 500 customers since 2008 and have reached 312 megawatts in total as of March 31, 2018. The Bloom Energy Server has performed for our customers without disruption through natural disasters such as Hurricane Sandy and the 6.0 Richter scale earthquake near Napa, California in 2014.

The natural gas revolution has provided an economically attractive means for achieving carbon reduction. Natural gas is now in abundant supply at economically attractive prices. This abundance, coupled with new technologies such as our Energy Servers that convert this fuel into electricity at high efficiency, will play a major role in replacing high-carbon fuels such as coal and oil. The United States’ abundant supply of recoverable natural gas is expected to last over 80 years, according to data from the Potential Gas Committee and the EIA.

Our Growth Strategy

Our growth strategies include:

Maintain technology leadership and leverage first-mover advantage

Our technology leadership is considerable and we have a well-established track record of continuous improvement. Our priority is to continue to advance our technology and build on this leadership position.

Significant and sustained improvements in “power density.” We have continually added more generation capacity into the same footprint and expect to continue to do so with successive generations of our technology. Today’s Bloom Energy Servers are capable of delivering five times the power of our first-generation system introduced only nine years ago, while staying within approximately the same service footprint.

Continual increases in electrical efficiency . Efficiency is defined as the percentage of the energy in the fuel that is converted to electricity. The higher the efficiency, the less fuel used to generate a given unit of electric power output, resulting in lower fuel costs. Today, our Energy Servers are significantly more efficient than the average of the U.S. grid. The latest generation of our Energy Servers, which began shipping in 2015, is capable of beginning-of-life (BOL) efficiencies of 65%, and we expect to further improve the efficiency in succeeding generations. While the Bloom Energy Server is capable of operating at peak efficiency, typically efficiency of the latest generation of Energy Servers can range from 53% to 65% over the project term depending on environmental conditions and the age of the power modules. We have the flexibility to maintain efficiency at specific levels to comply with customer sustainability, regulatory compliance, or other requirements by managing the replacement cycle of the power modules in the Energy Server.



 

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Expanded feature sets and sizing options to address new market opportunities . The Bloom Energy Server was designed as a technology platform which can support extended capabilities from Bloom and other suppliers. The Bloom Energy Server platform provides the hardware and software building blocks that can be deployed in different configurations to provide customer-specific solutions. For example, we are now offering the option of adding a storage solution provided by PowerSecure (a unit of The Southern Company) to help customers avoid peak grid electricity power rates, and to provide greater resiliency to grid outages. We may also provide smaller or custom solutions which could allow us to address additional markets, such as powering cell sites in the mobile telephony market and franchise retail, in the future. Our current offering is well suited for multi-tenant housing, a segment that we intend to address in emerging economies as we expand to international markets. The platform components can also be configured to provide larger systems for utility or large industrial applications.

Acquire new customers and grow wallet share with existing customers

We currently target industry leading Fortune 500 companies, along with public and private organizations that are large consumers of electric power. Our success in landing industry leading customers has encouraged other new customers—companies and organizations in those industries, with similar scale and electricity demand—to follow suit. We employ a “land and expand” model through our direct sales force, which recognizes that new customers typically pilot a limited scale solution initially to gain experience with our fuel cell solutions. As we prove the value of Bloom solutions through these pilot projects, our customers will often expand their Bloom deployments by adding more capacity at existing sites and by adding new facilities from across their real estate portfolio. Our sales mix illustrates this dynamic: since 2011, over half of our sales contracts, or the number of purchase orders signed, are with new customers, while approximately two thirds of our sales volume has been derived from repeat customers as they utilize our Energy Servers as a larger share of their energy wallet and create more value across more of their facilities over time. These repeat orders provide better visibility into our sales pipeline and also lower our cost of sales. The quality and staying power of our customers are important factors contributing to our confidence in this strategy. Since we target customers with very significant electric power spend, we view the current low penetration rate as a significant opportunity for growth.

Drive production cost reductions to expand our market

Since our initial commercial deployments eight years ago, we have continually reduced the production cost of our systems, enabling us to expand into new markets. We believe our technology innovation will drive further cost reductions as each successive generation of Bloom Energy Servers builds on the design and field experience of all previous generations. In addition, increased production volumes should lead to further cost reductions based on economies of scale, enabling market expansion and improved margins. On a per unit basis, which we measure in dollars-per-kilowatt, we have reduced our material costs by approximately 75% from the first generation Energy Server to our current generation Energy Server. We drove these material costs per unit down by over 50% over the life of our second generation system and by over 35% over the life of our fifth generation system to date. With each successive new generation, we have been able to reduce the material costs compared to the prior generation’s material costs.

Expand into international markets and new fast-growing segments

International . Most of our current and target customers have global footprints, which we expect will be another avenue for growth while also lowering the cost and risk of new market entry. Today, we have installations or purchase orders in the United States, Japan, India, and South Korea, and we are actively targeting additional international markets such as Ireland and Great Britain.

We also target fast-growing markets where we believe we can deliver significant value including data centers and critical facilities such as healthcare organizations and distribution centers, which cannot suffer even a momentary disruption to power without significant negative consequences.



 

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Data Centers . When configured to provide uninterruptible power, we can provide primary power for data centers with up to Tier III availability and reliability without reliance on traditional back up or power conditioning equipment. A customer-commissioned study by the University of Illinois, Urbana-Champaign projects that a Bloom Energy solution configured to provide mission-critical power would be significantly more reliable than a traditional topology of grid power plus uninterruptible power systems and diesel backup. According to Technavio, the total worldwide cost of power for data centers was $17.4 billion in 2016. This figure is expected to grow by 12.9% annually over the next three years. Within the U.S., the total cost of power for data centers was $3.3 billion. This cost is expected to rise by 8.0% annually over the same forecast period.

Healthcare. According to the EIA, the healthcare industry in the U.S. accounts for approximately 6% of total commercial energy consumption. Based on our estimate of the total C&I market opportunity in the U.S. ($212 billion), this implies that the healthcare industry in the U.S. spends approximately $12 billion annually on energy purchases.

Microgrids . New segments like microgrids, when powered by our Energy Servers, offer our customers the opportunity to disconnect from the traditional grid, protection from prolonged grid outages and mitigation of the rising risk of cyber-attacks against the grid. As communities and organizations look to mitigate the risk of grid power outages, there is significant and growing interest in microgrids, which combine distributed power generation and storage into a network that can be isolated from the larger grid. Our flexible architecture allows integration of our systems with other distributed generation sources and technologies, such as solar and storage, while Bloom provides the stable always-on primary power—a key requirement for a microgrid solution. According to Technavio, the global microgrid market was valued at $14.6 billion in 2017 and is expected to reach $23.1 billion by 2022, growing at a compound annual growth rate of 9.7%.

Provide innovative financing options to our customers

We intend to continue to assist our customers by providing innovative financing options to purchase our solution and grow our market opportunity. We have developed multiple options for our customers to acquire the power our Energy Servers produce. These offerings provide a range of options that enable customers to do business with us and secure power best customized to their needs. Our customers can purchase our systems outright, with operations and maintenance services contracts, or purchase the 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.

RISK FACTORS

Our business is subject to many risks and uncertainties, as more fully described under “Risk Factors” and elsewhere in this prospectus. For example, you should be aware of the following before investing in our common stock:

 

    our limited operating history and our nascent industry makes evaluating our business and future prospects difficult;

 

    the distributed generation industry is an emerging market and distributed generation may not receive widespread market acceptance;

 

    we have incurred significant losses in the past and we do not expect to be profitable for the foreseeable future;

 

    our Energy Servers have significant upfront costs, and we will need to attract investors to help customers finance purchases;


 

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    if our Energy Servers contain manufacturing defects, our business and financial results could be harmed;

 

    if our estimates of useful life for our Energy Servers are inaccurate or we do not meet service and performance warranties and guarantees, our business and financial results could be harmed;

 

    our business currently depends on the availability of rebates, tax credits and other tax benefits, and other financial incentives. The reduction, modification, or elimination of government economic incentives could cause our revenue to decline and harm our financial results;

 

    it will be difficult for us to raise additional debt financing;

 

    we rely on tax equity financing arrangements to realize the benefits provided by investment tax credits and accelerated tax depreciation;

 

    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;

 

    our products involve a lengthy sales and installation cycle, and if we fail to close sales on a regular and timely basis it could harm our business;

 

    our business is subject to risks associated with construction, cost overruns and delays, including those related to obtaining government permits, and other contingencies that may arise in the course of completing installations;

 

    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;

 

    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;

 

    we must maintain customer confidence in our liquidity and long-term business prospects in order to grow our business;

 

    a material decrease in the retail price of utility-generated electricity or an increase in the price of natural gas would affect demand for our Energy Servers; and

 

    the dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our directors, executive officers, and 5% stockholders holding approximately 95% of the voting power of our outstanding capital stock immediately following the completion of this offering, assuming the purchase of shares pursuant to indications of interest described in this prospectus and no exercise of the underwriters’ option to purchase additional shares.

Recent Developments

We are in the process of finalizing our financial results for the three months ended June 30, 2018 and therefore final results are not yet available. The preliminary estimates set forth below in the form of a low and high range regarding acceptances, total revenue, gross profit (loss), non-GAAP gross profit (loss), gross margin, non-GAAP gross margin, profit (loss) from operations, non-GAAP profit (loss) from operations, and stock-based compensation and cash and cash equivalents and short-term investments are the responsibility of management and are subject to management’s review and to review by our independent registered public accounting firm. Consequently, actual results may differ from the estimated ranges set forth below and these changes may be material. Our expectations regarding acceptances, total revenue, gross profit (loss), non-GAAP gross profit (loss), gross margin, non-GAAP gross margin, profit (loss) from operations, non-GAAP profit (loss) from operations, and stock-based compensation for the three months ended June 30, 2018 and cash and cash equivalents and short-term investments as of June 30, 2018 are not necessarily indicative of results expected in future periods.



 

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     Three Months
Ended June 30,
 
     2017
Actual
    2018
Low
Estimate
    2018
High
Estimate
 
     ($ in thousands)  

Acceptances

     162       180       181  

Total revenue

   $ 86,784     $ 167,000     $ 170,000  

Gross profit (loss)

   $ (5,806   $ 30,950     $ 34,050  

Non-GAAP gross profit (loss)*

   $ (3,927   $ 33,000     $ 36,000  

Gross margin

     (6.7 %)      18.5     20.0

Non-GAAP gross margin*

     (4.5 %)      19.8     21.2

Profit (loss) from operations

   $ (41,161   $ (6,900   $ (4,200

Non-GAAP profit (loss) from operations*

   $ (33,143   $ 1,000     $ 3,500  

 

* excludes stock-based compensation as noted below:

 

     Stock-Based Compensation
Three Months
Ended June 30,
 
     2017
Actual
    2018
Low
Estimate
    2018
High

Estimate
 
     ($ in thousands)  

Non-GAAP gross profit (loss)

   $ 1,879     $ 1,950     $ 2,050  

Non-GAAP gross margin

     2.2     1.2     1.2

Non-GAAP profit (loss) from operations

   $ 8,018     $ 7,700     $ 7,900  

We anticipate cash and cash equivalents and short-term investments as of June 30, 2018 will be between $161.0 million to $166.0 million, including restricted cash of $55.0 million to $60.0 million, as compared to $163.7 million as of March 31, 2018, including restricted cash of $55.4 million.

The above preliminary financial estimates have been prepared by, and are the responsibility of, our management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to these preliminary financial estimates. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

Corporate Information

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 principal executive offices are located at 1299 Orleans Drive, Sunnyvale, California 94089, and our telephone number is (408) 543-1500. Our website address is www.bloomenergy.com. The information on, or that can be accessed through, our website is not incorporated by reference into, and is not part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

“Bloom Energy” is our registered trademark in the United States and is registered in Japan, India, Australia, the European Union and under the Madrid Protocol. Our other registered trademarks and service marks in the United States include: Energy Server, Bloom Electrons, Bloomconnect, Bloomenergy, Bloom Box and BE. This prospectus also contains trademarks, service marks and trade names of other companies. We do not intend for our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of, us by these other companies.



 

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Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These reduced reporting requirements include:

 

    an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about our executive compensation arrangements;

 

    an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements; and

 

    extended transition periods for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest to occur of: (1) the end of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (2) the end of the first fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the end of the fiscal year during which the fifth anniversary of this offering occurs. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We intend to take advantage of the exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.



 

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THE OFFERING

 

Class A common stock offered

18,000,000 shares

 

Option to purchase additional shares of Class A common stock

2,700,000 shares

 

Class A common stock outstanding after this offering

18,000,000 shares (20,700,000 shares if the option to purchase additional shares is exercised in full)

 

Class B common stock outstanding after this offering

88,066,537 shares

 

Total Class A and Class B common stock to be outstanding after this offering

106,066,537 shares

 

Use of proceeds

We estimate that the net proceeds from the sale of shares of our Class A common stock will be approximately $229.8 million, based on an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

 

  We intend to use the net proceeds from this offering for general corporate purposes, including research and development and sales and marketing activities, general and administrative matters and capital expenditures. See “Use of Proceeds.”

 

Voting rights

Shares of Class A common stock are entitled to one vote per share. Shares of Class B common stock are entitled to ten votes per share.

 

 

Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our restated certificate of incorporation. Following the completion of this offering, each share of our Class B common stock will be convertible into one share of our Class A common stock at any time and will convert automatically upon certain transfers and upon the earliest to occur of (i) immediately prior to the close of business on the fifth anniversary of the closing of this 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



 

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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, our Chairman and Chief Executive Officer, to our Secretary or Chairperson of our Board of Directors to so convert all shares of Class B common stock, or (iv) immediately following the date of the death of KR Sridhar.

 

  The holders of our outstanding Class B common stock will hold approximately 98% of the voting power of our outstanding capital stock following this offering, with our directors, executive officers, and 5% stockholders and their respective affiliates holding 95% in the aggregate assuming in each case the purchase of shares pursuant to the indications of interest described below and no exercise of the underwriters’ option to purchase additional shares. Additionally, following this offering, and after giving effect to voting agreements between KR Sridhar, our Chief Executive Officer and Chairman, and certain holders of Class B common stock, KR Sridhar will hold an aggregate of approximately 46% of the voting power of our outstanding capital stock. These holders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change of control transaction. See the sections titled “Principal Stockholders” and “Description of Capital Stock” for additional information.

 

Directed share program

At our request, the underwriters have reserved up to 9% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to our directors, executive officers and other individuals associated with them, and our employees, to the extent permitted by local securities laws and regulations. The sales will be made at our direction by Morgan Stanley & Co. LLC, an underwriter of this offering, and its affiliates through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered by this prospectus. Any shares sold in the directed share program to our directors, executive officers or stockholders who have entered into lock-up agreements described in “Underwriting” will be



 

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subject to the provisions of such lock-up agreements. Employees and family members of employees who participate in the directed share program will be subject to substantially similar lock-up provisions with respect to any shares sold to them pursuant to the directed share program.

 

Indications of interest from directors and affiliated stockholders

In addition to the directed share program referenced above, certain of our directors and certain of our current stockholders affiliated with our directors have indicated an interest in purchasing up to an aggregate of up to $50.0 million in shares of our Class A common stock in this offering at the initial public offering price per share. Because these indications of interest are not binding agreements or commitments to purchase, such individuals and entities may determine to purchase more, less, or no shares in this offering. Any shares purchased by our directors, executive officers or stockholders who have entered into lock-up agreements described in “Underwriting” will be subject to the provisions of such lock-up agreements.

 

New York Stock Exchange symbol

“BE”

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our Class A common stock.

The number of shares of our Class A and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 88,066,537 shares of our Class B common stock outstanding, in each case, as of March 31, 2018, and excludes:

 

    11,545,119 shares of our Class B common stock issuable upon exercise of outstanding stock options as of March 31, 2018 with a weighted average exercise price of $26.61 per share under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan, of which an aggregate of 1,500,673 shares were subject to options with an exercise price less than $14.00, the midpoint of the price range on the cover of this prospectus;

 

    3,147,093 shares of our Class B common stock issuable upon settlement of restricted stock units (RSUs) outstanding as of March 31, 2018 under our 2012 Equity Incentive Plan;

 

    29,604 shares of our Class B common stock issuable upon settlement of RSUs granted after March 31, 2018, and up to approximately 12,500,000 shares of Class B common stock issuable upon the settlement of RSUs to be granted to our employees on the date of this prospectus, under our 2012 Equity Incentive Plan;

 

    33,333 shares of our Class B common stock issuable upon the exercise of outstanding warrants to purchase common stock as of March 31, 2018, with an exercise price of $38.64 per share;

 

   

760,789 shares of our Class B common stock issuable upon the exercise of outstanding warrants to purchase Series F convertible preferred stock and Series G convertible preferred stock as of March 31,



 

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2018, with a weighted average exercise price of $31.77 per share, which, if not exercised prior to the completion of this offering, shall convert in accordance with their terms into warrants to purchase Class B common stock;

 

    up to 144,000 shares of our Class B common stock issuable to one of our customers on the occurrence of future bookings from that customer and the achievement of certain installation milestones on those future bookings;

 

    133,333 shares of Class B common stock issuable 180 days from the date of this prospectus. These shares will be issued as part of a dispute settlement with a securities placement agent as described in “Description of Capital Stock—Securities Acquisition Agreement;”

 

    27,656,148 shares of our Class B common stock issuable upon the conversion of our outstanding 6.0% Convertible Senior Secured PIK Notes due 2020 (6% Notes) as of March 31, 2018, based on the conversion of $290.4 million aggregate principal amount as of March 31, 2018 at a conversion price of 75% of the initial public offering price, assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, which notes will be convertible at the option of the holders thereof following the completion of this offering (for each $1.00 increase or decrease in the public offering price per share, the number of shares issuable upon such conversion would decrease or increase, as applicable, by 1,843,743 or 2,127,388, respectively);

 

    865,060 shares of our Class B common stock issuable upon the conversion of $33.4 million aggregate principal amount of our outstanding Subordinated Senior Convertible Promissory Note (Constellation Note) as of March 31, 2018, which may be converted, at the option of the holder, prior to the completion of this offering, into shares of Series G convertible preferred stock or, following the completion of this offering, into shares of Class B common stock;

 

    approximately 800,000 shares of our Class B common stock issuable upon the conversion of accrued interest payable on our 6% Notes, 8% Notes and Constellation Note after March 31, 2018; and

 

    35,685,337 shares of common stock reserved for future issuance under our equity-based compensation plans, consisting of 5,685,338 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan as of March 31, 2018, an additional 13,333,333 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan subsequent to March 31, 2018, which number will be reduced as a result of the grant of RSUs covering up to approximately 12,500,000 shares of Class B common stock on the date of this prospectus, 13,333,333 shares of Class A common stock reserved for issuance under our 2018 Equity Incentive Plan, and 3,333,333 shares of Class A common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, and excluding shares that become available under the 2018 Equity Incentive Plan and 2018 Employee Stock Purchase Plan pursuant to provisions of these plans that automatically increase the share reserves each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

Because the conversion price of the 6% Notes will depend upon the actual initial public offering price per share in this offering, the actual number of shares issuable upon such conversion will likely differ from the number of shares set forth above. In this regard, a $1.00 increase in the assumed initial public offering price of $14.00 per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease the number of shares of our Class B common stock issuable on conversion of the 6% Notes by 1,843,743 shares. A $1.00 decrease in the assumed initial public offering price would increase the number of shares of our Class B common stock issuable on conversion of the 6% Notes by 2,127,388 shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Credit Facilities—Bloom Energy Indebtedness” for more information.



 

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Except as otherwise indicated, all information in this prospectus assumes:

 

    the automatic conversion of all outstanding shares of our convertible redeemable preferred stock into an aggregate of 71,740,162 shares of Class B common stock, effective upon the closing of this offering;

 

    the automatic conversion of $215.9 million aggregate principal amount of our outstanding 8% Subordinated Secured Convertible Promissory Notes (8% Notes) into shares of our Series G convertible redeemable preferred stock at a per share price of $38.64 as of March 31, 2018, and the subsequent automatic conversion of such shares of Series G convertible redeemable preferred stock into an aggregate of 5,588,504 shares of Class B common stock effective upon the closing of this offering;

 

    no issuance of shares upon the exercise or settlement of outstanding stock options, warrants or restricted stock units subsequent to March 31, 2018;

 

    the issuance and exercise of warrants to purchase 312,889 shares of our Class B common stock at an exercise price of $0.015 per share to certain purchasers of our 6% Notes, as described in “Description of Capital Stock—6.0% Convertible Senior Secured PIK Notes due 2020,” which warrants will automatically be deemed exercised pursuant to their terms immediately prior to the completion of this offering;

 

    a 3-to-2 reverse stock split of our Class B common stock, which we expect to be effected in July 2018 and prior to the date of this prospectus, and all share, option, RSU, warrant, and per share information in this prospectus has been adjusted to reflect the split on a retroactive basis;

 

    the filing of our restated certificate of incorporation and adoption of our amended and restated bylaws immediately prior to the closing of this offering; and

 

    the underwriters will not exercise their option to purchase additional shares of Class A common stock from us in this offering.


 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

You should read the summary consolidated financial data set forth below in conjunction with our consolidated financial statements, the notes to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus.

The summary consolidated statements of operations data for the years ended December 31, 2016 and 2017 are derived from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the three months ended March 31, 2017 and 2018 and the summary consolidated balance sheet data as of March 31, 2018 from our unaudited consolidated financial statements included elsewhere in this prospectus. You should read the following summary consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future and our results for the three months ended March 31, 2018 are not necessarily indicative of results to be expected for the full year. 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 elsewhere in this prospectus.



 

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Please see the section titled “Selected Consolidated Financial Data—Key Operating Metrics” for information regarding how we define our product accepted during the period, megawatts deployed, billings for product accepted in the period, billings for installation on product accepted, 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.

 

    Years Ended
December 31,
    Three Months
Ended March 31,
 
        2016             2017             2017             2018      
    (in thousands, except for per share data)  
                (unaudited)  

Consolidated Statements of Operations

       

Revenue

       

Product

  $ 76,478     $ 179,768     $ 27,665     $ 121,307  

Installation

    16,584       63,226       12,293       14,118  

Service

    67,622       76,904       18,591       19,907  

Electricity

    47,856       56,098       13,648       14,029  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    208,540       375,996       72,197       169,361  

Cost of revenue

       

Product

    103,283       210,773       38,855       80,355  

Installation

    17,725       59,929       13,445       10,438  

Service

    155,034       83,597       18,219       24,253  

Electricity

    35,987       39,741       10,876       10,649  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    312,029       394,040       81,395       125,695  
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

    (103,489     (18,044     (9,198     43,666  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

       

Research and development

    46,848       51,146     11,223       14,731  

Sales and marketing

    29,101       32,415       7,845       8,262  

General and administrative

    61,545       55,674       12,879       14,988  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    137,494       139,235       31,947       37,981  
 

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) from operations

    (240,983     (157,279     (41,145     5,685  

Interest expense

    (81,190     (108,623     (24,363     (23,037

Other income (expense), net

    (379     268       119       (629

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

    (13,035     (14,995     215       (4,034
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

    (335,587     (280,629     (65,174     (22,015

Income tax provision

    729       636       214       333  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (336,316     (281,265     (65,388     (22,348

Net loss per share attributable to noncontrolling interests and redeemable noncontrolling interests

    (56,658     (18,666     (5,856     (4,632
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (279,658   $ (262,599   $ (59,532   $ (17,716
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

  $ (27.84   $ (25.62   $ (5.87   $ (1.70
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted

    10,046       10,248       10,143       10,403  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders basic and diluted (unaudited)

    $ (2.99     $ (0.20
   

 

 

     

 

 

 

Pro forma weighted average shares used to compute pro forma net loss per share attributable to common stockholders basic and diluted (unaudited)

      87,836         87,203  
   

 

 

     

 

 

 


 

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Key operating metrics:

 

     Years Ended December 31,      Three Months Ended March 31,  
         2016              2017          2017      2018  

Product accepted during the period (in 100 kilowatt systems)

     687        622        119     

 

166

 

Megawatts deployed as of period end

     235        297        247        312  

 

    Years Ended December 31,     Three Months Ended March 31,  
          2016                 2017                 2017                   2018          
          (in thousands)  

Billings for product accepted in the period

  $ 522,543     $ 248,102     $ 48,105     $ 121,143  

Billings for installation on product accepted in the period

    114,680       96,452       23,027       11,896  

Billings for annual maintenance services agreements

    67,820       79,881       14,882       14,122  

Ratable value of contracts accepted in the period

    384,229       21,653       9,566       (17,140

 

    Three Months Ended  
    Mar. 31,
2016
    Jun. 30,
2016
    Sep. 30,
2016
    Dec. 31,
2016
    Mar. 31,
2017
    Jun. 30,
2017
    Sep. 30,
2017
    Dec. 31,
2017
    Mar. 31,
2018
 

Product costs of product accepted in the period (per kilowatt)

  $ 5,086     $ 4,809     $ 4,383     $ 3,826     $ 3,999     $ 3,121     $ 3,386     $ 2,944     $ 3,855  

Period costs of manufacturing related expenses not included in product costs (in thousands)

    4,302       4,586       6,869       6,143       7,397       8,713       7,152       9,174       10,785  

Installation costs on product accepted in the period (per kilowatt)

    1,280       1,481       1,056       1,170       1,974       1,306       1,263       829       526  

For a discussion of these key operating metrics, see “Summary Consolidated Financial and Other Data—Key Operating Metrics” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics”.

Our consolidated balance sheet as of March 31, 2018 is presented on:

 

    an actual basis;

 

    a pro forma basis to give effect to (i) the automatic conversion of all outstanding shares of our preferred stock into 71,740,162 shares of Class B common stock immediately prior to the closing of this offering, (ii) the automatic conversion of $215.9 million aggregate principal amount of our outstanding 8% Notes to Series G convertible preferred stock at a per share price of $38.64, and the conversion of such Series G convertible preferred stock into 5,588,504 shares of Class B common stock immediately prior to the completion of this offering, (iii) the issuance and exercise of warrants to purchase 312,889 shares of our Class B common stock at an exercise price of $0.015 per share to certain purchasers of our 6% Notes, as described in “Description of Capital Stock—6.0% Convertible Senior Secured PIK Notes due 2020,” which warrants will automatically be deemed exercised pursuant to their terms immediately prior to the completion of this offering, and (iv) the effectiveness of our restated certificate of incorporation immediately prior to the completion of this offering; and

 

    a pro forma as adjusted basis to give effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of 18,000,000 shares of Class A common stock by us in this offering at an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.


 

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     As of March 31, 2018  
     Actual     Pro Forma     Pro Forma As
Adjusted(1)
 
     (in thousands)  

Consolidated balance sheet data:

      

Cash and cash equivalents

   $ 88,227     $ 88,232     $ 318,008  

Working capital

     154,595       158,927       388,703  

Total assets

     1,184,634       1,184,639       1,414,415  

Long-term portion of debt

     925,342       713,729       713,729  

Total liabilities

     1,700,498       1,483,539       1,483,539  

Convertible redeemable preferred stock

     1,465,841       —       —    

Redeemable noncontrolling interest and noncontrolling interest

     207,935       207,935       207,935  

Stockholders’ deficit

     (2,189,640     (506,835     (277,059

 

(1)   Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share of Class A common stock, the midpoint of the price range on the cover of this prospectus, would increase or decrease, as applicable, our cash and cash equivalents, working capital, total assets and stockholders’ deficit by approximately $16.7 million, assuming that the number of shares we offer, as stated on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.


 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider these risk factors, together with all of the other information included in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes, before you decide to purchase shares of our Class A common stock. While we believe the risks and uncertainties described below include all material risks currently known by us, it is possible that these may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Business and Industry

Our limited operating history and our nascent industry makes evaluating our business and future prospects difficult.

From our inception in 2001 through 2008, 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 2008. As a result, we have a limited history operating our business at its current scale, and therefore a limited history upon which you can base an investment decision.

Our Energy Server is a new type of product in the nascent distributed energy industry. 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 we adjust our estimates in future periods, our operating results and financial position could be materially and adversely affected. You should consider our prospects in light of the risks and uncertainties emerging companies encounter when introducing a new product into a nascent industry.

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, and we cannot be sure that potential customers will accept distributed generation more broadly, or our Energy Server products more 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, lack of confidence in our business model, unavailability of back-up service providers to operate and maintain the Energy Servers, and lack of awareness of our product. Because this is an emerging industry, broad acceptance of our products and service is subject to a high level of uncertainty and risk. If the market develops more slowly than we anticipate, our business will be harmed.

Certain estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate.

This prospectus includes several estimates by us and third parties of the potential addressable market for electricity and for our products and services, both internationally and in the United States. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. In particular, estimates and forecasts relating to the size and expected growth of electricity demand in our target markets, the adoption of our products, our capacity to address this demand, and our pricing may prove to be inaccurate. In addition, third-party estimates of the addressable market for commercial, industrial and public services electricity reflect the opportunity available from all participants and potential participants in the market.

 

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Any inaccuracies or errors in third-party estimates of market opportunity may cause us to misallocate capital and other business resources, which could divert resources from more valuable alternative projects and harm our business.

The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasts in this prospectus, our business could fail to grow at similar rates, if at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market size or growth included in this prospectus should not be taken as indicative of our future growth.

We have incurred significant losses in the past and we do not expect to be profitable for the foreseeable future.

Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of March 31, 2018, we had an accumulated deficit of $2.3 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 on a GAAP basis 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;

 

    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; and

 

    attracting and retaining key talent in a competitive marketplace.

Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.

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 leasing programs with two leasing partners who have prequalified our product and provide financing for customers through various leasing arrangements. In addition to the leasing model, we also offer power purchase agreements (PPAs) in which the cost of the Energy Server is funded by an investment entity which is financed by us and/or third-party investors (PPA entities). In recent periods, the substantial majority of our end customers have elected to finance their purchases, typically through a third-party PPA.

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, 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

 

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period. If we are unable to help our customers arrange financing for our Energy Servers generally, our business will be harmed. For example, we have been working with financing sources to arrange for additional third-party PPA entities, one of which will need to be finalized in order for our customers to arrange financing so that we can complete our planned installations for 2018.

We do not currently have a committed financing partner willing to finance deployments with poor credit-quality customers. If we are unable to procure financing partners willing to finance such deployments, our ability to grow our business may be negatively impacted.

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, 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 adequately address the impacts of factors outside of our control in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance and our business reputation.

If our estimates of useful life for our Energy Servers are inaccurate or we do not meet service and performance warranties and guarantees, 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 20 years, at prices predetermined at the time of purchase of the Energy Server. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the life of our Energy Servers and their components, including assumptions regarding improvements in useful life that may fail to materialize. We also provide performance warranties and guarantees covering the efficiency and output performance of our Energy Servers. 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 guarantee 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. Early generations of our Energy Server did not have the useful life and did not perform at an output and efficiency level that we expected. As

 

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further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we implemented a fleet decommissioning program for our early generation Energy Servers in our PPA I program, which resulted in a significant adjustment to revenue in the quarter ended December 31, 2015, as we would otherwise have failed to meet efficiency and output warranties. As of March 31, 2018, we had a total of 58.5 megawatts in total deployed early generation servers, including our first and second generation servers, out of our total installed base of 312 megawatts. We accrue for product warranty costs and recognize losses on service or performance warranties based on our estimates of costs that may be incurred and historical experience; however, 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 operating history operating at our current scale. We accrue for extended warranty costs that we expect to incur under the maintenance service agreements that our customers renew for a term of typically one year. In addition, we expect that our deployed early generation Energy Servers 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 in respect of those servers if our customers continue to renew their maintenance service agreements in respect of those servers.

Our business currently depends on the availability of rebates, tax credits and other financial incentives . The reduction, modification, or elimination of government economic incentives 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. 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 United States, including by lowering the cost of capital to our customers, as our financing partners and PPA tax equity investors may take advantage of these financial incentives. However, these incentives 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 federal ITC benefit expired on December 31, 2016 and without the availability of the ITC benefit incentive, we lowered the price of our Energy Servers to ensure the economics to our customers 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, it is possible in the future that this incentive could be repealed.

Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states including the states of 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. There is no guarantee that these policies will continue to exist in their current form, or at all. Such state programs may face increased opposition on the U.S. federal, state and local levels in the future. Changes in federal or state programs could reduce demand for our Energy Servers, impair sales financing and adversely impact our business results.

For 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 of 10% biogas to receive SGIP funds beginning in 2017, with this minimum biogas requirement increasing to 25% in 2018, 50% 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 will expire on January 21, 2021 absent extension. Our billings for product accepted derived from customers benefiting from the SGIP represented approximately 36%, 12%, and 18% of total billings for product accepted for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2018, respectively.

 

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We rely on tax equity financing arrangements to realize the benefits provided by investment tax credits and accelerated tax depreciation.

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 who derive a significant portion of their economic returns through tax benefits (tax equity investors). Tax equity investors are generally entitled to substantially all of the project’s tax benefits, such as those provided by the ITC and MACRS depreciation, until these investors achieve their respective agreed rates of return. The number of and available capital from potential tax 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 tax 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 and lack of profitability 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 financial and credit markets generally 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 attract the 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 or require us to reduce the price at which we are able to sell our Energy Servers and therefore harm our business, financial condition and results of operations.

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, for the year ended December 31, 2016, approximately 89% of our revenue came from our top 20 customers, with two customers accounting for approximately 29% of our total revenue. In 2017, our top 20 customers accounted for approximately 91% of our total revenue and two customers accounted for approximately 53% of our total revenue. For the three months ended March 31, 2018, our top 20 customers accounted for 94% of our total revenue and two customers accounted for 70% of our total revenue. Since we recognize the product revenue for customer-financed purchases at the time that the Energy Server is accepted, rather than recognizing the product revenue ratably over the life of the contract, a customer that self-finances a purchase could have an outsize effect on revenue in the period in which that customer’s Energy Server is accepted.

In addition, four customers accounted for approximately one-half of our backlog as of March 31, 2018. The loss of any large customer order, or delays in installations of new Energy Servers with any large customer, could materially and adversely affect our business results.

Our products involve a lengthy sales and installation cycle, and if we fail to close sales on a regular and timely basis it could harm our business.

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 its technology. The period between initial discussions with a potential customer and the 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. Currently, we believe the time between the entry into a sales contract with a customer and the

 

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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 installation cycles, we may expend significant resources without having certainty of generating a sale.

These lengthy sales and installation cycles increase the risk that our customers fail to satisfy their payment obligations or cancel orders before the completion of the transaction or delay the planned date for installation. Generally, a customer can cancel an order 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, unanticipated changes in the cost or availability of alternative sources of electricity available to the customer, 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.

We rely on 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. Net metering programs are subject to changes in availability and terms. 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, the net metering programs in place in the jurisdictions in which we operate could adversely affect the demand for our Energy Servers.

The economic benefits of our Energy Servers to our customers depends on the cost of electricity available from alternative sources including local electric utility companies, which cost structure is subject to change.

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. Further, the local electric utility may impose “departing load,” “standby” or other 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 by such utilities on customers acquiring our Energy Servers could adversely affect the demand for our Energy Servers.

Additionally, the electricity produced by our Energy Servers is currently not cost competitive in many geographic markets, and we may be unable to reduce our costs to a level at which our Energy Servers would be competitive in such markets. As such, unless the cost of electricity in these markets rises or we are able to generate demand for our Energy Servers based on benefits other than electricity cost savings, our potential for growth may be limited.

 

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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 do not recognize revenue on the sales of our Energy Servers until installation and acceptance, our financial results are dependent, 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.

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.

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 requires 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 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 is dependent upon the availability of and timely connection to the natural gas grid and the local electric grid. In some jurisdictions, the local utility company(ies) or the municipality has denied our request for connection or required us to reduce the size of certain projects. 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 third party general contractors to install Energy Servers at our customers’ sites. 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 our general contractors and their sub-contractors in the past have not always met our expectations or standards and in the future may not meet our expectations and standards.

 

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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 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 timeframes 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 were 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 supplier 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 may 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, political instability, expropriation or nationalization of property, 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 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 timeframes, 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, unanticipated servicing costs and damage to our reputation.

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 in this “Risk Factors” section, 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;

 

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    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, 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 up front at acceptance;

 

    delays or cancellations of Energy Server installations;

 

    fluctuations in our service costs, particularly due to unaccrued costs of servicing and maintaining Energy Servers;

 

    weaker than anticipated demand for our Energy Servers due to changes in government incentives and policies;

 

    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; and

 

    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.

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.

We must maintain customer confidence in our liquidity 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 among customers, suppliers, financing partners and other parties in our liquidity and long-term business prospects. This may be particularly complicated by factors such as:

 

    our limited operating history at a large scale;

 

    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;

 

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    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 programs; and

 

    the other factors set forth in this 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.

A material decrease in the retail price of utility-generated electricity or an increase in the price of natural gas would affect demand for our Energy Servers.

We believe that a customer’s decision to purchase our Energy Servers is significantly influenced by the price, and price predictability of electricity generated by our Energy Servers in comparison to the retail price and future price outlook of electricity from the local utility grid and other renewable energy sources. In some states and countries, the current cost of grid electricity, even together with available subsidies, does not render our product economically attractive. Furthermore, if the retail prices of grid electricity do 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. 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.

Furthermore, an increase in the price of natural gas or curtailment of availability could make our Energy Servers less economically attractive to potential customers and reduce demand.

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, customer incumbency advantages, access to and influence with local and state governments, and more capital resources than we do. 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, we will limit our growth and adversely affect our business results.

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

 

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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.

 

    It may be difficult to expand our business internationally without additional manufacturing facilities located outside 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, thereby increasing our per unit fixed cost, which would have a negative impact on our financial condition and results of operations.

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 and substantial prepayment obligations. 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 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. 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 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 results of operations.

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 results of operations.

 

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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.

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 order to expand into 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 prospects.

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 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 effectively could materially and adversely affect our business, prospects, operating results and financial condition. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully.

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 and it is not legally permissible to prevent them from working for a competitor, if and when one should exist.

 

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Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets, or 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 and may harm our business, prospects and 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, 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.

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, prospects, and operating results.

We may need to defend ourselves against claims that we infringe, have misappropriated or otherwise violate 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 asserting their rights and 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 may therefore 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;

 

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    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 license 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.

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 President and Chief Executive Officer, and other key employees. None of our key employees is bound by an employment agreement for any specific term. 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 technology, sales, marketing and support personnel, could adversely impact our business, prospects, financial condition, and operating results. In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities.

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 change often. 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 could require 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, prospects, financial condition and 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 for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. If, in the future, contamination is discovered at properties formerly owned or operated by us or owned or operated by us, or properties to which hazardous substances were sent by us, it could result in liability for us 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.

 

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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 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 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 they 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, 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.

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 (mg) per liter. A small amount of benzene (equivalent to what is present in one gallon of gasoline in an automobile fuel tank which is exempt from federal regulation) found in the public pipeline natural gas is collected by gas cleaning units contained in our Energy Servers and is typically replaced once every 18 to 24 months by us from customers’ sites. From 2010 to late 2016, in the regular course of maintenance of the Energy Servers, we periodically replaced the units in our servers under a federal environmental exemption that permitted the handling of such units without manifesting the contents as containing a hazardous waste. Although at the time we believed that we operated under the exemption with the approval of two states that had adopted the federal exemption, the federal Environmental Protection Agency issued guidance for the first time in late 2016 that differed from our belief and the state approvals we had obtained, even though we had operated under the exemption since 2010. 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 such guidance. However, the EPA is seeking to collect approximately $1.0 million in fines from us for the prior period, which we are contesting.

Another example relates to the very small amounts of chromium in hexavalent form, or CR+6 which our Energy Servers emit. 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 to them.

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

 

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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, or BAAQMD, requires a permit for emissions that are more than .00051 lbs/year and other California regulations require that levels of CR+6 be below .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.

There are generally no relevant 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 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.

We will work with the California Air Districts and seek to obtain their agreement that we are in compliance. Should the regulators disagree, we have engineered a technology solution that provides an alternate route to compliance. We are already deploying this technology solution in new Energy Servers in California and we are ready to deploy it in existing Energy Servers. It will cost less than 0.1% of our product cost. 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 seek the imposition of monetary fines.

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 will comply with these requests. 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, result in fines, require their modification or replacement, or 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, financial performance and reputation. In addition, new laws or regulations or new interpretations of existing laws or regulations 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 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, potential the loss of certain incentives to changes in our customers’ energy procurement policies.

Although the current generation of Bloom Energy Servers running on natural gas produce nearly 60% 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,

 

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ordinances or other rules, or the requirements of the incentive programs on which we currently rely. 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 illegal or more costly for us or our customers to install and operate our Energy Servers on particular sites, 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 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 other 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.

The market for electricity generation products is heavily influenced by U.S. federal, state, local, and foreign government regulations and policies, as well as 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, and this 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, 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 (Delmarva) is subject to laws and regulations relating to electricity generation, transmission and sale, such as Federal Energy Regulatory Commission (FERC) regulation under various federal energy regulatory laws, and requires FERC authorization to make wholesale sales of electric energy, capacity, and ancillary services. 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.

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 and processing and raw materials for our Energy Servers. The United States has recently imposed tariffs on steel and aluminum imports which may increase the cost of raw materials for our Energy Servers and decrease the available supply. The United States is also considering tariffs on additional items, which could include items imported by us from China or other countries.

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 thereby affect our business and 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 results of operations.

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

 

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certified to meet ANSI, IEEE, ASME and NFPA design and safety standards, if 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 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, business, prospects, and 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 financial condition.

Current or future litigation or administrative proceedings could have a material adverse effect on our business, financial condition and 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 example, in 2011, an amendment to the Delaware Renewable Energy Portfolio Statute was enacted to permit the Delaware public service utility, Delmarva, to meet its renewable energy standards using energy generated by fuel cells manufactured and operated in Delaware. This statute required Delmarva to charge a tariff to its ratepayors to pay for certain costs of providers of such energy generated by fuel cells. In 2012, plaintiffs FuelCell Energy Inc. and John A. Nichols filed suit against Delaware Governor Jack Markell and the Delaware Public Service Commission in the U.S. District Court for Delaware, claiming that the 2011 amendment to the statute discriminated against interstate fuel cell providers and subsidized us for building a manufacturing facility in Delaware to manufacture fuel cells. We were not named as a party to this lawsuit, and the litigation was ultimately settled. 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 creation 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, financial condition, and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations.

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, 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. These events 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 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

 

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earthquake, drought, flood, localized extended outages of critical utilities or transportation systems, or any critical resource shortages, could cause a significant interruption in our business, damage or destroy our facilities, manufacturing equipment, or inventory, and cause us to incur significant costs, any of which could harm our business, financial condition, and 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 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 South Korea. 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 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.

If we discover a material weakness in our internal control over financial reporting or otherwise fail to maintain effective internal control over financial reporting, our ability to report our financial results on a timely and accurate basis and the market price of our Class A common stock may be adversely affected.

The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) requires, among other things, that we evaluate the effectiveness of our internal control over financial reporting and disclosure controls and procedures. Although we

 

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did not discover any material weaknesses in internal control over financial reporting at December 31, 2017, subsequent testing by us or our independent registered public accounting firm, which has not performed an audit of our internal control over financial reporting, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. To comply with Section 404A, we may incur substantial cost, 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 404A 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 Securities and Exchange Commission (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.

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. At December 31, 2017, we had federal and state net operating loss carryforwards (NOLs) of $1.7 billion and $1.5 billion, respectively, which will expire, if unused, beginning in 2022 and 2018, 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, including this offering or future offerings, 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 these limitations. Our NOLs may also be impaired under similar provisions of state law. In addition, as of December 31, 2017, we had approximately $16.1 million of federal research credit, $6.6 million of federal investment tax credit, and $12.2 million of state research credit carryforwards. Our deferred tax assets may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

Our substantial indebtedness may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs .

As of March 31, 2018, we and our subsidiaries had approximately $950.5 million of total consolidated indebtedness, of which an aggregate of $593.7 million represented indebtedness that is recourse to us. Of this amount, $249.4 million represented debt under our 8% Notes, $215.9 million of which will convert automatically into Class B common stock immediately prior to completion of this offering, $4.5 million represented operating debt, $356.8 million represented debt of our PPA entities, $245.0 million represented debt under our 6% Notes which could remain outstanding following this offering and $94.8 million represented debt under our 10% Notes which also could remain outstanding following this offering. Our substantial indebtedness and any new indebtedness could:

 

    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;

 

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    limit our ability to withstand competitive pressures;

 

    limit our ability to invest in new business subsidiaries that are not PPA-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.

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, financial condition, liquidity and 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.

In addition, we conduct a significant volume of our operations through, and receive equity allocations from, our PPA entities, which contribute to our cash flow. These PPA entities are separate and distinct legal entities, do not guarantee our debt obligations and will 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. Distributions by such PPA entities to us are precluded under these arrangements if there is an event of default or if financial covenants such as maintenance of applicable debt service coverage ratios are not met, even if there is not otherwise an event of default. Furthermore, under the terms of our equity financing arrangements for PPA Company II, PPA Company IIIa and PPA Company IIIb, substantially all of the cash flows generated from these PPA entities in excess of debt service obligations are distributed to tax equity investors until the investors achieve a targeted internal rate of return or until a fixed date in the future, which is expected to be after a period of five or more years (the flip date), after which time we will receive substantially all of the remaining income (loss), tax and tax allocation attributable to the long-term customer payments and other incentives. In the case of PPA Company IV and PPA Company V, tax equity investors receive 90% of all cash flows generated in excess of its debt service obligations and other expenses for the duration of the applicable PPA entity without any flip date or other time- or return-based adjustment. Moreover, even after the occurrence of the flip date for the PPA entities, we do not anticipate distributions to be material enough independently to support our ongoing cash needs and therefore, we will still need to generate significant cash from our product sales. Therefore, it is possible that the PPA entities may not contribute significant cash to us even if we are in compliance with the financial covenants under the project debt incurred by the PPA entities.

Future borrowings by our PPA entities may contain restrictions or prohibitions on the payment of dividends to us. The ability of our PPA entities to make such payments to us may be subject to applicable laws, including surplus, solvency and other limits imposed on the ability of companies to pay dividends.

If we do not generate sufficient cash to satisfy our debt obligations, including interest payments, 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 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 permitted under the terms of our various debt

 

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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, results of operations and financial condition.

We may not be able to secure additional debt financing.

As of March 31, 2018, we and our subsidiaries had approximately $950.5 million of total consolidated indebtedness, including $25.1 million in short-term debt and $925.3 million in long-term debt. In addition, our 10% Notes (the “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 product development activities and remain competitive in the market.

Under some circumstances, we may be required to or elect to make additional payments to our PPA entities or the PPA entity investors.

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. However, we are required to guarantee the obligations of our wholly-owned subsidiary which invests alongside other investors in the PPA entities. These obligations typically include the capital contribution obligations of such subsidiary to the PPA entity as well as the representations and warranties made by and indemnification obligations of such subsidiary to other investors in the applicable PPA entity. As a result, we may be obligated to make payments on behalf of our wholly-owned subsidiary to other investors in the PPA entities in the event of a breach of these representations, warranties or covenants.

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 obligations under power purchase agreements or Energy Servers are not deployed in accordance with the project’s schedule. For example, under PPA Company IIIa’s credit agreement, on or before February 19, 2019 PPA Company IIIa is obligated to offer its lenders an insurance policy or performance bond, the cost of which is not expected to be material, to mitigate the risk that we will fail to perform our obligations under our operation and maintenance obligations to PPA Company IIIa. Upon receipt of such an offer, the lenders may elect to require PPA Company IIIa to obtain such insurance policy or performance bond, at PPA Company IIIa’s expense, or elect to require PPA Company IIIa to prepay all remaining amounts owed under PPA Company IIIa’s project debt. 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 to continue to purchase power under their power purchase agreements, 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 investors. If this were to occur, 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 make additional payments to avoid an event of default, which could adversely affect our business or financial condition. Additionally, under PPA Company II’s credit agreement, PPA Company II is obligated to offer to repay all outstanding debt in the event that we obtain an investment grade credit rating unless we provide a guarantee of the debt obligations of the PPA Company II. Upon receipt of such offer, the lenders may elect to require PPA Company II to prepay all remaining amounts owed under PPA Company II’s project debt. 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 tax

 

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equity investor(s). Upon receipt of such offer, the lenders may elect to require PPA Company IV to prepay all remaining amounts owed under PPA Company IV’s project debt.

Restrictions imposed by the agreements governing of our and our PPA entities’ outstanding indebtedness contain covenants that significantly limit our actions.

The agreements governing our outstanding indebtedness contain, and any of our other future debt agreements may contain, covenants imposing operating and financial restrictions on our business that limit our flexibility including, among other things, to:

 

    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 guarantees;

 

    enter into transactions with affiliates; and

 

    merge, consolidate, or sell, lease or transfer all or substantially all of our assets.

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 the Notes. Furthermore, our financing and debt agreements, such as our 6% Notes and our 8% 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. 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 assure you 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 engage in other business activities that may be in our interest, or react to adverse market developments.

If our PPA entities default on their obligations under non-recourse financing agreements, we may decide to make payments to prevent such PPA entities’ creditors from foreclosing on the relevant collateral as such a foreclosure would result in our losing our ownership interest in the PPA entity or in some or all of its assets, or a material part of our assets, as the case may be. To satisfy these obligations, we may be required to use amounts distributed by our other PPA entities as well as other sources of available cash, reducing the cash available to develop our projects and to our operations. The loss of a material part of our assets, or our ownership interest in one or more of our PPA entities or some or all of their assets, or any use of our resources to support our obligations or the obligations of our PPA entities, could have a material adverse effect on our business, financial

 

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condition and results of operations. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities” for additional information and a description of these debt agreements, financial ratios and financial tests.

We may have conflicts of interest with our PPA entities.

In each PPA entity, 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 its capacity as the operator of the Energy Servers under an operations and maintenance agreement. Because we are both the administrator and the manager of the 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 March 31, 2018, conflicts of interest may arise in the future which cannot be foreseen at this time. In the event that prospective future tax 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.

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,” as defined in 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 “emerging growth companies,” including not being required to comply with the auditor attestation 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 “emerging growth company,” which could be as long as five years following the completion of this offering. We cannot predict if investors will find our Class A common stock less attractive because we will 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.

As an “emerging growth company”, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

Risks Related to this Offering and Ownership of our Class A Common Stock

There has been no prior public market for our Class A common stock, the stock price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our Class A common stock prior to this offering. The initial public offering price for our Class A common stock will be determined through negotiations among the underwriters and us, and may vary from the market price of our Class A common stock following this offering. The market prices of the securities of newly public companies such as us have historically been highly volatile. An active or liquid market in our Class A common stock may not develop following this offering or, if it does develop, may

 

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not be sustainable. 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;

 

    recruitment or departure of key personnel;

 

    the economy as a whole and market conditions in our industry;

 

    new laws, regulations or 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. If we were to become involved in securities litigation, it could 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.

Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the market price of our common stock to decline.

Substantially all of our securities outstanding prior to this offering are currently restricted from resale as a result of lock-up and market standoff agreements. See the section titled “Shares Eligible for Future Sale” for additional information. These securities will become available to be sold 181 days after the date of this prospectus. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC may, in their discretion, permit our security holders to sell shares prior to the expiration of the restrictive provisions contained in the lock-up agreements. Shares held by directors, executive officers, and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

In addition, as of March 31, 2018, we had options and RSUs outstanding that, if fully exercised or settled, would result in the issuance of 14,692,212 shares of Class B common stock. Subsequent to March 31, 2018, we

 

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also issued restricted stock units that may be settled for 29,604 shares of our Class B common stock, and up to approximately 12,500,000 shares of Class B common stock issuable upon the settlement of RSUs to be granted to employees on the date of this prospectus. All of the shares of Class B common stock issuable upon the exercise of stock options or settlement of RSUs, and the shares reserved for future issuance under our equity incentive plans, will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to the lock-up agreements described above, existing lock-up or market standoff agreements and applicable vesting requirements.

Immediately following this offering, the holders of 71,740,162 shares of our Class B common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders.

Participation in this offering by members of our Board of Directors, affiliated entities and other entities, could reduce the public float for our shares.

Certain members of our Board of Directors and certain of our current stockholders affiliated with members of our Board of Directors have indicated an interest in purchasing up to an aggregate of up to $50.0 million of shares of our Class A common stock in this offering at the initial public offering price per share. Because this indication of interest is not a binding agreement or commitment to purchase, such individuals and entities could determine to purchase more, less, or no shares in this offering. If these individuals and entities purchase all or a portion of the shares in which they have indicated an interest in this offering, such purchase could reduce the available public float for our shares if such entities hold these shares long-term.

The dual class structure of our common stock and the voting agreements among certain stockholders will have the effect of concentrating voting control with KR Sridhar, our Chief Executive Officer and Chairman, and also with those stockholders who held our capital stock prior to the completion of this offering, including our directors, executive officers, and 5% stockholders who collectively will hold an aggregate of     % of the voting power of our outstanding capital stock following the completion of this offering, which will limit or preclude 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, which is the stock we are offering in this offering, has one vote per share. Following this offering, and after giving effect to the indications of interest described above and voting agreements between KR Sridhar, our Chief Executive Officer and Chairman, and certain holders of Class B common stock, our directors, executive officers, 5% holders of our common stock, and their respective affiliates collectively will hold an aggregate of 95% of the voting power of our outstanding capital stock, including 46% of the voting power of our outstanding capital stock that will be held individually by KR Sridhar. 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 be 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 the fifth anniversary of the closing of this 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. This concentrated control will limit or preclude 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.

 

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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. See the section titled “Description of Capital Stock—Anti-Takeover Provisions” for additional information.

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 recently announced 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 will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. 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.

Because the initial public offering price of our Class A common stock will be substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding Class A common stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price will be substantially higher than the pro forma as adjusted net tangible book value per share of our Class A common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Class A common stock in this offering, based on the midpoint of the price range set forth on the cover page of this prospectus, and the issuance of 18,000,000 shares of Class A common stock in this offering, you will experience immediate dilution of $14.63 per share, the difference between the price per share you pay for our Class A common stock and its pro forma as adjusted net tangible book value per share as of March 31, 2018. In addition, as of March 31, 2018, options to purchase 11,545,119 shares of our Class B common stock with a weighted-average exercise price of approximately $26.61 per share were outstanding as well as 3,147,093 shares of our Class B common stock subject to RSUs. In addition, we anticipate that we will grant RSUs covering up to approximately 12,500,000 shares of Class B common stock on the date of this prospectus. The exercise of any of these options and settlement of any of these RSUs or the conversion of our outstanding 6% Notes into shares of our Class B common stock could result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive less than the purchase price paid in this offering, if anything, in the event of our liquidation. See the section titled “Dilution” for additional information.

 

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We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in investment-grade rated, interest-bearing instruments, such as money market funds, certificates of deposit, commercial paper, direct or guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our investors.

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, limit attempts by our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and limit the market price of our Class A common stock.

Provisions in our restated certificate of incorporation and amended and restated bylaws that will be in effect immediately following the completion of this offering 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:

 

    provide that our board of directors will be 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;

 

    provide that only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;

 

    prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

 

    provide for 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 as a merger or other sale of our company or substantially all of its assets;

 

    provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and

 

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    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 will 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. This choice of forum provision 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 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 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, operating results, and 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. See the section titled “Description of Capital Stock” for additional information.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this prospectus 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,” “intend,” “could,” “would,” “should,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus 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 the section titled “Risk Factors” and elsewhere in this prospectus. 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 prospectus. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and 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 prospectus 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 prospectus to reflect events or circumstances after the date of this prospectus 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.

 

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INDUSTRY AND MARKET DATA

This prospectus contains statistical data, estimates and forecasts that are based on independent industry publications or reports or other publicly available information, as well as other information based on our internal sources. This information involves a number of assumptions and limitations, is subject to risks and uncertainties, and is subject to change based on various factors, including those discussed in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

The sources of statistical data, estimates and forecasts contained in this prospectus include the following independent industry publications or reports:

 

    United Nations Development Programme (UNDP) and Action 4 Energy, “Climate and disaster resilience, Sustainable energy,” March 2016.

 

    MarketLine, “MarketLine Industry Profile: Global Electricity Retailing,” January 2017.

 

    United States Department of Energy, “Quadrennial Energy Review: Energy Transmission, Storage, and Distribution Infrastructure,” April 2015.

 

    American Society of Civil Engineers, “2017 Report Card for America’s Infrastructure,” 2017.

 

    Edison Electric Institute, “EEI Finance Department, Company Reports, S&P Global Market Intelligence,” August 2017.

 

    Technavio, “Global Microgrid Market 2016-2020,” September 2016.

 

    Technavio, “Global Data Center Power Market 2016-2020,” April 2017.

 

    Eaton, “Blackout Tracker: United States Annual Report 2016,” 2017.

 

    United States Energy Information Administration, “Annual Energy Outlook,” July 2017.

 

    Accenture Consulting, “Outsmarting Grid Security Threats,” 2017.

 

    International Energy Agency, “Key World Energy Statistics,” September 2016.

 

    Exxon Mobile, “2017 Outlook for Energy: A View to 2040,” 2017.

 

    Potential Gas Committee, “Potential Gas Committee Reports Record Future Supply of Natural Gas,” July 2017.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our Class A common stock that we are selling in this offering will be approximately $229.8 million, based on an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $264.9 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share would increase or decrease the net proceeds that we receive from this offering by approximately $16.7 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

The principal purposes of the offering are to invest in our business, create a public market for our securities in the United States and facilitate our access to the public equity markets.

We currently have no specific plans for the use of the net proceeds that we receive from this offering, although we may use the net proceeds that we receive from this offering for general corporate purposes, including research and development and sales and marketing activities, general and administrative matters and capital expenditures. Accordingly, we will have broad discretion in using these proceeds. Pending their use as described above, we plan to invest the net proceeds from this offering in investment-grade rated, interest-bearing instruments, such as money market funds, certificates of deposit, commercial paper, direct or guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions including compliance with covenants under our credit facilities and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2018 on:

 

    an actual basis;

 

    a pro forma basis to give effect to (1) the redesignation of our outstanding common stock as Class B common stock in July 2018, (2) the automatic conversion of all outstanding shares of our preferred stock into 71,740,162 shares of Class B common stock immediately prior to the closing of this offering, (3) the effectiveness of our restated certificate of incorporation immediately prior to the completion of this offering, (4) the automatic conversion of $215.9 million aggregate principal amount of our outstanding 8% Notes to Series G convertible preferred stock at a per share price of $38.64, and the conversion of such Series G convertible preferred stock into 5,588,504 shares of Class B common stock immediately prior to the completion of this offering and (5) the issuance and exercise of warrants to purchase 312,889 shares of our Class B common stock at an exercise price of $0.015 per share to certain purchasers of our 6% Notes, as described in “Description of Capital Stock—6.0% Convertible Senior Secured PIK Notes due 2020,” which warrants will automatically be deemed exercised pursuant to their terms immediately prior to the completion of this offering; and

 

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    a pro forma as adjusted basis to give effect to (1) the pro forma adjustments set forth above and (2) the sale and issuance of 18,000,000 shares of Class A common stock by us in this offering at an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     As of March 31, 2018  
     (Unaudited)  
     Actual     Pro Forma     Pro Forma,
As Adjusted (1)
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 88,227     $ 88,232     $ 318,008  
  

 

 

   

 

 

   

 

 

 

Indebtedness (long-term):

      

6% Convertible Senior Secured PIK Notes

   $ 245,039     $ 245,039     $ 245,039  

8% Subordinated Convertible Secured Promissory Notes

     245,038       33,425       33,425  

Other indebtedness—recourse

     97,608       97,608       97,608  

Other indebtedness—non-recourse

     337,657       337,657       337,657  
  

 

 

   

 

 

   

 

 

 

Total indebtedness (long-term)

     925,342       713,729       713,729  
  

 

 

   

 

 

   

 

 

 

Warrant liabilities

     6,554       5,530       5,530  

Convertible redeemable preferred stock, $0.0001 par value: 80,461,609 shares authorized and 71,740,162 issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     1,465,841       —        
—  
 

Stockholders’ deficit:

      

Preferred stock, $0.0001 par value: no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding pro forma and pro forma as adjusted

     —         —         —    

Common stock, $0.0001 par value: 113,333,333 shares authorized, 10,424,982 shares issued and outstanding, actual; 113,333,333 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     1       —         —    

Class A common stock, $0.0001 par value: no shares authorized, issued and outstanding, actual; 600,000,000 shares authorized, no shares issued and outstanding, pro forma; 600,000,000 shares authorized, 18,000,000 shares issued and outstanding, pro forma as adjusted

     —         —         2  

Class B common stock, $0.0001 par value: no shares authorized, issued and outstanding, actual; 600,000,000 shares authorized, 88,066,537 shares issued and outstanding, pro forma; 600,000,000 shares authorized, 88,066,537 shares issued and outstanding, pro forma as adjusted

     —         9       9  

Additional paid-in capital

     158,604       1,841,402       2,071,176  

Accumulated other comprehensive loss

     117       117       117  

Accumulated deficit

     (2,348,363     (2,348,363     (2,348,363
  

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

     (2,189,640     (506,835     (277,059
  

 

 

   

 

 

   

 

 

 

Redeemable noncontrolling interest and noncontrolling interest

     207,935       207,935       207,935  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 416,032     $ 420,359     $ 650,135  
  

 

 

   

 

 

   

 

 

 

 

(1)   Each $1.00 increase or decrease in the assumed initial public offering price of $ 14.00 per share, the midpoint of the price range on the cover of this prospectus, would increase or decrease, respectively, the amount of cash and cash equivalents additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $16.7 million, assuming the number of shares we offer, as stated on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

 

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The preceding table is based on the number of shares of our common stock outstanding as of March 31, 2018, and excludes:

 

    11,545,119 shares of our Class B common stock issuable upon exercise of outstanding stock options as of March 31, 2018 with a weighted average exercise price of $26.61 per share under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan, of which an aggregate of 1,500,673 shares were subject to options with an exercise price less than $14.00, the midpoint of the price range on the cover of this prospectus;

 

    3,147,093 shares of our Class B common stock issuable upon settlement of RSUs outstanding as of March 31, 2018 under our 2012 Equity Incentive Plan;

 

    29,604 shares of our Class B common stock issuable upon settlement of RSUs granted after March 31, 2018, and up to approximately 12,500,000 shares of Class B common stock issuable upon the settlement of RSUs to be granted to our employees on the date of this prospectus, under our 2012 Equity Incentive Plan;

 

    33,333 shares of our Class B common stock issuable upon the exercise of outstanding warrants to purchase Class B common stock as of March 31, 2018, with an exercise price of $38.64 per share;

 

    760,789 shares of our Class B common stock issuable upon the exercise of outstanding warrants to purchase Series F convertible preferred stock and Series G convertible preferred stock as of March 31, 2018, with a weighted average exercise price of $31.77 per share, which, if not exercised prior to the completion of this offering, will convert in accordance with their terms into warrants to purchase Class B common stock;

 

    up to 144,000 shares of our Class B common stock issuable to one of our customers on the occurrence of future bookings from that customer and the achievement of certain installation milestones on those future bookings;

 

    133,333 shares of Class B common stock issuable 180 days from the date of this prospectus. These shares will be issued as part of a dispute settlement with a securities placement agent, as described in “Description of Capital Stock—Securities Acquisition Agreement”;

 

    27,656,148 shares of our Class B common stock issuable upon the conversion of our outstanding 6% Notes as of March 31, 2018, based on an assumed initial public offering price of $14.00 per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, which notes will be convertible at the option of the holders thereof following the completion of this offering;

 

    865,060 shares of our Class B common stock issuable upon the conversion of our outstanding Constellation Note, which may be converted, at the option of the holder, prior to the completion of this offering, into shares of Series G convertible preferred stock or, following the completion of this offering, into shares of Class B common stock;

 

    approximately 800,000 shares of our Class B common stock issuable upon the conversion of accrued interest payable on our 6% Notes, 8% Notes and Constellation Note after March 31, 2018; and

 

    35,685,337 shares of common stock reserved for future issuance under our equity-based compensation plans, consisting of 5,685,338 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan as of March 31, 2018, an additional 13,333,333 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan subsequent to March 31, 2018, which number will be reduced as a result of the grant of RSUs covering up to approximately 12,500,000 shares of Class B common stock on the date of this prospectus, 13,333,333 shares of Class A common stock reserved for issuance under our 2018 Equity Incentive Plan, and 3,333,333 shares of Class A common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, and excluding shares that become available under the 2018 Equity Incentive Plan and 2018 Employee Stock Purchase Plan pursuant to provisions of these plans that automatically increase the share reserves each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

 

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Because the conversion price of the 6% Notes will depend upon the actual initial public offering price per share in this offering, the actual number of shares of Class B common stock issuable upon such conversion will likely differ from the number of shares set forth above. In this regard, a $1.00 increase in the assumed initial public offering price of $14.00 per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease the number of shares of our Class B common stock issuable on conversion of the 6% Notes by 1,843,743 shares. A $1.00 decrease in the assumed initial public offering price would increase the number of shares of our Class B common stock issuable on conversion of the 6% Notes by 2,127,388 shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Credit Facilities—Bloom Energy Indebtedness” for more information.

 

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DILUTION

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock after this offering.

Our pro forma net tangible book value (deficit) as of March 31, 2018 was $(298.9) million, or $(3.39) per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of March 31, 2018, after giving effect to (i) the automatic conversion of all outstanding shares of our preferred stock into 71,740,162 shares of Class B common stock immediately prior to the closing of this offering, (ii) the effectiveness of our restated certificate of incorporation immediately prior to the completion of this offering, (iii) the automatic conversion of $215.9 million aggregate principal amount of our outstanding 8% Notes to Series G convertible preferred stock at a per share price of $38.64, and the conversion of such Series G convertible preferred stock into 5,588,504 shares of Class B common stock immediately prior to the completion of this offering, and(iv) the issuance and exercise of warrants to purchase 312,889 shares of our Class B common stock at an exercise price of $0.015 per share to certain purchasers of our 6% Notes, as described in “Description of Capital Stock—6.0% Convertible Senior Secured PIK Notes due 2020,” which warrants will automatically be deemed exercised pursuant to their terms immediately prior to the completion of this offering. Our pro forma as adjusted net tangible book value per share gives further effect to our sale of our Class A common stock in this offering at the assumed initial public offering price of $14.00 per share, the midpoint of the price range on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. Our pro forma as adjusted net tangible book value (deficit) as of March 31, 2018 would have been $(69.1) million, or $(0.65) per share. This represents an immediate increase in net tangible book value of $2.74 per share to our existing stockholders and an immediate dilution of $14.65 per share to new investors purchasing shares of Class A common stock in this offering. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $ 14.00  

Pro forma net tangible book value (deficit) per share as of March 31, 2018

     (3.39  

Increase in pro forma net tangible book value per share attributable to new investors purchasing shares in this offering

     2.74    
  

 

 

   

Pro forma as adjusted net tangible book value (deficit) per share after giving effect to this offering

       (0.65
    

 

 

 

Dilution per share to new investors in this offering

     $ 14.65  
    

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value (deficit) per share after this offering by $0.16, and would increase or decrease dilution per share to investors in this offering by $0.84, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The following table illustrates, on a pro forma as adjusted basis described above, as of March 31, 2018 the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our Class A common stock in this offering based on an assumed initial public offering price of $14.00 per share, the midpoint of the price range on the cover of this prospectus, and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total
Consideration
    Average
Price Per
Share
 
   Number      Percent     Amount      Percent    
     (dollars in millions, except per share amounts)  

Existing stockholders

     88,066,537        83.0   $ 1,671        86.9   $ 18.97  

New investors

     18,000,000        17.0       252        13.1       14.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     106,066,537        100.0   $ 1,923        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

If the underwriters exercise their option to purchase additional shares of Class A common stock in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately 81% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will be increased to 20,700,000, or approximately 19% of the total number of shares of our common stock outstanding after this offering.

To the extent holders of our outstanding 6% Notes or Constellation Note convert such notes into shares of our common stock, options or warrants are exercised, or RSUs settle, or we issue additional shares of Class A or Class B common stock in the future, there will be further dilution to new investors.

The preceding table is based on the number of shares of our common stock outstanding on a pro forma basis as of March 31, 2018, and excludes:

 

    11,545,119 shares of our Class B common stock issuable upon exercise of outstanding stock options as of March 31, 2018 with a weighted average exercise price of $26.61 per share under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan, of which an aggregate of 1,500,673 shares were subject to options with an exercise price less than $14.00, the midpoint of the price range on the cover of this prospectus;

 

    3,147,093 shares of our Class B common stock issuable upon settlement of RSUs outstanding as of March 31, 2018 under our 2012 Equity Incentive Plan;

 

    29,604 shares of our Class B common stock issuable upon settlement of RSUs granted after March 31, 2018, and up to approximately 12,500,000 shares of Class B common stock issuable upon the settlement of RSUs to be granted to employees on the date of this prospectus, under our 2012 Equity Incentive Plan;

 

    33,333 shares of our Class B common stock issuable upon the exercise of outstanding warrants to purchase common stock as of March 31, 2018, with an exercise price of $38.64 per share;

 

    760,789 shares of our Class B common stock issuable upon the exercise of outstanding warrants to purchase Series F convertible preferred stock and Series G convertible preferred stock as of March 31, 2018, with a weighted average exercise price of $31.77 per share, which, if not exercised prior to the completion of this offering, shall convert in accordance with their terms into warrants to purchase common stock;

 

    up to 144,000 shares of our Class B common stock issuable to one of our customers on the occurrence of future bookings from that customer and the achievement of certain installation milestones on those future bookings;

 

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    133,333 shares of Class B common stock issuable 180 days from the date of this prospectus. Those shares will be issued as part of a dispute settlement with a securities placement agent, as described in “Description of Capital Stock—Securities Acquisition Agreement”;

 

    27,656,148 shares of our Class B common stock issuable upon the conversion of our outstanding 6% Notes as of March 31, 2018, based on an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, which notes will be convertible at the option of the holders thereof following the completion of this offering;

 

    865,060 shares of our Class B common stock issuable upon the conversion of our outstanding Constellation Note, which may be converted, at the option of the holder, prior to the completion of this offering, into shares of Series G convertible preferred stock or, following the completion of this offering, into shares of Class B common stock;

 

    approximately 800,000 shares of our Class B common stock issuable upon the conversion of accrued interest payable on our 6% Notes, 8% Notes and Constellation Note after March 31, 2018; and

 

    35,685,337 shares of common stock reserved for future issuance under our equity-based compensation plans, consisting of 5,685,338 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan as of March 31, 2018, an additional 13,333,333 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan subsequent to March 31, 2018, which number will be reduced as a result of the grant of RSUs covering up to approximately 12,500,000 shares of Class B common stock on the date of this prospectus, 13,333,333 shares of Class A common stock reserved for issuance under our 2018 Equity Incentive Plan, and 3,333,333 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, and excluding shares that become available under the 2018 Equity Incentive Plan and 2018 Employee Stock Purchase Plan pursuant to provisions of these plans that automatically increase the share reserves each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

Because the conversion price of the 6% Notes will depend upon the actual initial public offering price per share in this offering, the actual number of shares of Class B common stock issuable upon such conversion will likely differ from the number of shares set forth above. In this regard, a $1.00 increase in the assumed initial public offering price of $14.00 per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease the number of shares of our common stock issuable on conversion of the 6% Notes by 1,843,743 shares of Class B common stock. A $1.00 decrease in the assumed initial public offering price would increase the number of shares of our Class B common stock issuable on conversion of the 6% Notes by 2,127,388 shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Credit Facilities—Bloom Energy Indebtedness” for more information.

 

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LETTER FROM OUR CHIEF FINANCIAL OFFICER

We think of Bloom Energy as a technology company that develops, manufactures, and sells a product that sits on our customers’ sites and delivers clean, reliable, and affordable energy personalized to the customer’s needs. Our product, the Bloom Energy Server, provides a distributed energy solution to our customers so that they can generate 24/7, always-on electric power on-site for their own consumption.

A typical customer contract includes our product, installation, and ongoing operations and maintenance or “service”. We measure performance in these three parts of our business:

 

    product;

 

    installation; and

 

    service.

Our product strategy is to innovate and enhance our product’s performance with each new generation, while continuously driving down the cost to manufacture our systems. Our product has consistently improved in performance and efficiency since we rolled out our first generation Energy Server in 2008. We are generally able to offer competitive pricing versus the grid in our target markets, allowing our customers to save money by deploying our Energy Servers. Based on historical trends and current regulatory and infrastructure requirements, we believe that the long-term trajectory of the cost of electricity is increasing in our target markets. In parallel, our technology improvements and cost reduction efforts should continue to reduce our cost and allow us to improve our profitability in existing markets and to expand into new markets. Furthermore, we expect that expanding into new markets should strengthen our profitability by increasing the operating leverage through economies of scale.

Our installation strategy is pretty simple—we want to break-even and continuously drive down our installation cost. Installation costs vary from site to site and are dependent on the customization required for a given customer’s set-up and size of installation. Our goal is to be margin neutral on installation across our portfolio, as we pass installation costs directly to our customers.

Our service strategy reflects our focus on investing the capital necessary to become a market pioneer and leader in distributed energy generation. In the early days of our commercial shipments, we recognized that we needed a statistically meaningful “field installed base” and real-time data from those installations to understand the performance of our Energy Servers in real-world conditions, and then use this learning to improve the reliability and robustness of our systems. This learning was also necessary to drive innovation and performance improvements throughout our entire value chain. For this reason, in the early years of shipping our product, we installed Energy Servers that had a lifespan below break-even, relative to service revenue versus service cost.

Therefore, we experienced losses, particularly during the period between 2013 and 2016, which represented the investment we were willing to make in order to execute our strategy to become the market leader in distributed energy generation. To date, we have seen progress in service financial performance driven by two primary events:

 

    “time to stack replacement” primarily driven by our fuel cell stack lives—in the early years, replacement was typically 12 to 18 months. Over the years we have made steady improvements in our fuel cell lives, and from 2017 onwards we expect to average over five years between replacements; and

 

    the cost to refurbish (which include our fuel cells) is coming down. Since 2014, we have driven this cost down by approximately 40%.

At today’s pricing, we believe we can break-even in our service business provided the time between stack replacements across all of our fleet is five years or better. Longer term, like many companies with an operation and maintenance business, our strategy is to make our service business a profitable part of our overall business, with predictable annual recurring revenue.

 

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We consider ourselves to be an innovative technology “product” company. Our business model to deliver our product is fairly straightforward. We book an order at the time of contract signing and at that time the order is recorded in our backlog. On a quarter-over-quarter basis, booked orders may tend to be lumpy. For example, a big-box retailer might place an order for Energy Servers for hundreds of stores at one time. However, we deploy our Energy Servers (installations, translating to revenue) in a more linear manner. Deployments might span nine to 12 months from the time the order is booked. Once we have the design completed and permits in hand, it typically takes us about three months to manufacture, install, and commission a system. This generally allows us well over six months to diligence, design, permit, and construct the site installation infrastructure necessary to deploy our systems. The product sales price and installation price is set for each system at the time of the contracted order. When an order comes out of our backlog at the time of system commissioning, we refer to it as an “acceptance.”

At Bloom Energy, we offer several customer purchase options through which we sell our Energy Servers. This is consistent with our philosophy of customizing our solution to meet our customer’s needs. In general, we sell our Energy Servers to customers through a direct sale, through a lease or managed services contract, or through one of our Bloom Electrons financing programs (where the customer pays based on the energy delivered). For some customers we sell our Energy Servers through a combination of these purchase options.

Historically, depending on the customer purchase option, the timing of revenue recognition varied significantly. Our product and installation revenue recognition varied from either recognized ratably over the contract term for some purchase options, or recognized upfront at the time of acceptance. We have increased the proportion of our product revenue that comes from acceptances that are recognized as revenue upfront, rather than on a ratable basis, and expect to continue to do so in the future. Therefore, starting in 2018, the vast majority of our revenue is recognized at the time of acceptance. Furthermore, we generally recognize service revenue ratably over each contract year.

Due to the variability that the customer purchase options can have on our revenue recognition in any given period, we believe that a useful way to understand the historical performance of our business, is to analyze our key operating metrics, including: volume (acceptances), billings (product, installation, and service), and unit level costs (product and installation). These operating metrics provide useful insight into the operational trajectory, cash generation, and cost profile of the business.

Generally, under any of our customer purchase options, we receive a certain amount of our sales price in advance, which helps us offset a portion of our working capital requirements. This may include upfront deposits and/or advanced payments prior to manufacturing and site construction. This improves our working capital position and our overall cash conversion cycle. In all customer purchase options, we generally receive 100% of the product and installation sales as cash in the form of these various milestone payments no later than within 30-days of the acceptance date. Separately, we also get paid for service contracts annually at the beginning of each service contract year. For direct sales contracts, the warranty period expires at the end of the first year, at which time our customers enter into an annual service contract with us. For managed services contracts, the service contract starts at the time of acceptance.

Earlier, I had mentioned how we view and measure the performance of our business. Now, I would like to focus on how we analyze and forecast our performance. Our P&L has three general components:

 

    product plus installation (revenue and cost);

 

    ratable (revenue and cost); and

 

    service plus electricity (revenue and cost).

The product plus installation component of the P&L has three key drivers, consisting of a volume metric (acceptances), a revenue metric (average selling price, or ASP), and a cost metric (total installed system cost, or

 

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TISC). To derive our product plus installation component, simply multiply the volume metric by the ASP to approximate revenue. Next, multiply the volume metric by the TISC to approximate the cost of goods sold. The difference between these two approximates gross profit.

The ratable component of the P&L represents the amount of revenue and cost that is recognized in the current period from prior period’s deferred revenue and cost that was treated as ratable. We think of this as an annuity revenue stream. Again, this relates to our historical acceptances that recognize product revenue on a ratable basis. Given that we expect very few acceptances in the future to be recognized on a ratable basis, our revenue and cost for the ratable component should stay relatively constant.

The service plus electricity component of the P&L has two subcomponents: service revenue and cost, and electricity revenue and cost. The service subcomponent represents the actual dollar amount of the annual ongoing operations and maintenance contracts that we have in place with our customers, adjusted for fair value accounting. We expect this revenue will grow with time as our installed base grows. Likewise, we expect that service cost, which represents the cost incurred to maintain our Energy Server fleet, will grow as our installed base grows. The revenue from the electricity subcomponent represents the actual dollar amount of the electricity sales from our minority investments in Bloom Electrons, and is based on predefined tolling rates. Electricity cost represents the amortized cost of the Energy Servers that generate the electricity revenue over the life of the contracts. Like our ratable component above, we expect no additional future investment in Bloom Electrons, and thus, we expect that our Bloom Electrons electricity revenue and related costs will stay relatively constant for many years into the future.

When you look at each component of the P&L, in general, the revenue and cost for both the ratable component and the service plus electricity component should be relatively constant, with service revenue growing with the growth in our install base. As such, to understand the overall performance and trajectory of the business, it is important to focus on the product plus installation component of the P&L, which can be calculated using our three key operational metrics: Acceptances, ASP, and TISC.

In summary, we have made great progress on our technology since we started shipping our Energy Servers in 2008. The continuous innovation in the technology within our Energy Servers, as well as the technology to build them, has allowed us to reduce our costs to the point that we can offer a competitive alternative to the grid for our customers in various markets. The significant investments that we made in our early fleet deployments have provided valuable feedback to our engineering teams, and have helped us develop our next generation technologies with real-world, real-time feedback from those customers’ operating environments.

In conclusion, not only have we innovated and improved our product and manufacturing technology, but also have executed innovations and improvements in the way our customers can procure our products with multiple customer purchase options. These customer purchase options have provided a means by which our customers can procure large volumes of our Energy Servers, in a programmatic manner, to help them achieve their energy generation goals. Whether our customer’s goals are for clean, reliable, resilient, sustainable, or predictable energy, our Energy Server is a product that we believe will empower current and future customers, transform the way they consume electricity, and allow them to meet their increasing power demands into the 21 st century.

 

   Randy Furr
  

 

Chief Financial Officer

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2016 and 2017 are derived from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for the three months ended March 31, 2017 and 2018 and the summary consolidated balance sheet data as of March 31, 2018 from our unaudited consolidated financial statements included elsewhere in this prospectus. You should read the following selected consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future and our results for the three months ended March 31, 2018 are not necessarily indicative of results to be expected for the full year. 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 elsewhere in this prospectus.

 

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Please see “—Key Operating Metrics” below for information regarding how we define our product accepted during the period, megawatts deployed, billings for product accepted in the period, billings for installation on product accepted, 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.

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2017     2017     2018  
     (in thousands, except for per share data)  
                          

Consolidated Statements of Operations

        

Revenue

        

Product

   $ 76,478     $ 179,768     $ 27,665     $ 121,307  

Installation

     16,584       63,226       12,293       14,118  

Service

     67,622       76,904       18,591       19,907  

Electricity

     47,856       56,098       13,648       14,029  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     208,540       375,996       72,197       169,361  

Cost of revenue

        

Product

     103,283       210,773       38,855       80,355  

Installation

     17,725       59,929       13,445       10,438  

Service

     155,034       83,597       18,219       24,253  

Electricity

     35,987       39,741       10,876       10,649  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     312,029       394,040       81,395       125,695  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (103,489     (18,044     (9,198     43,666  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Research and development

     46,848       51,146       11,223       14,731  

Sales and marketing

     29,101       32,415       7,845       8,262  

General and administrative

     61,545       55,674       12,879       14,988  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     137,494       139,235       31,947       37,981  
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) from operations

     (240,983     (157,279     (41,145     5,685  

Interest expense

     (81,190     (108,623     (24,363     (23,037

Other income (expense), net

     (379     268       119       (629

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

     (13,035     (14,995     215       (4,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (335,587     (280,629     (65,174     (22,015

Income tax provision

     729       636       214       333  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (336,316     (281,265     (65,388     (22,348

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests

     (56,658     (18,666     (5,856     (4,632
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (279,658   $ (262,599   $ (59,532   $ (17,716
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted:

   $ (27.84   $ (25.62   $ (5.87   $ (1.70
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted

     10,046       10,248       10,143       10,403  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders basic and diluted (unaudited)

     $ (2.99     $ (0.20
    

 

 

     

 

 

 

Pro forma weighted average shares used to compute pro forma net loss per share attributable to common stockholders basic and diluted (unaudited)

       87,836         87,203  
    

 

 

     

 

 

 

 

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     As of December 31,     As of March 31,
2018
 
     2016     2017    
     (in thousands)  

Consolidated balance sheet data:

      

Cash and cash equivalents

   $ 156,577     $ 103,828     $ 88,227  

Working capital

     130,992       148,697       154,595  

Total assets

     1,204,047       1,220,987       1,184,634  

Long-term portion of debt

     773,346       921,205       925,342  

Total liabilities

     1,463,159       1,721,624       1,700,498  

Convertible redeemable preferred stock

     1,465,841       1,465,841       1,465,841  

Redeemable noncontrolling interest and noncontrolling interest

     234,988       213,526       207,935  

Stockholders’ deficit

     (1,959,941     (2,180,004     (2,189,640

Key operating metrics:

 

     Years Ended
December 31,
     Three Months
Ended March 31,
 
     2016      2017      2017      2018  

Product accepted during the period (in 100 kilowatt systems)

     687        622        119        166  

Megawatts deployed as of period end

     235        297        247        312  

 

     Years Ended
December 31,
     Three Months
Ended March 31,
 
     2016      2017      2017      2018  
     (in thousands)  

Billings for product accepted in the period

   $ 522,543      $ 248,102      $ 48,105      $ 121,143  

Billings for installation on product accepted in the period

     114,680        96,452        23,027        11,896  

Billings for annual maintenance services agreements

     67,820        79,881        14,882        14,122  

Ratable value of contracts accepted in the period

     384,229        21,653        9,566        (17,140

 

    Three Months Ended  
    Mar. 31,
2016
    Jun. 30,
2016
    Sep. 30,
2016
    Dec. 31,
2016
    Mar. 31,
2017
    Jun. 30,
2017
    Sep. 30,
2017
    Dec. 31,
2017
    Mar. 31,
2018
 

Product costs of product accepted in the period (per kilowatt)

  $ 5,086     $ 4,809     $ 4,383     $ 3,826     $ 3,999     $ 3,121     $ 3,386     $ 2,944     $ 3,855  

Period costs of manufacturing related expenses not included in product costs (in thousands)

    4,302       4,586       6,869       6,143       7,397       8,713       7,152       9,174       10,785  

Installation costs on product accepted in the period (per kilowatt)

    1,280       1,481       1,056       1,170       1,974       1,306       1,263       829       526  

 

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Product Accepted During the Period

Product accepted during the period is the number of customer acceptances of our Energy Servers in any period. Generally, we deem an acceptance to occur when a sold Energy Server has been installed at a customer site and running at full power. We use product accepted during the period to measure the volume of our deployment activity, and therefore, we can compare Energy Server acceptances across different time periods to gauge the operational volume and trajectory of our business. We measure each Energy Server manufactured, shipped and accepted in terms of 100 kilowatt equivalents. Product acceptances and product revenue are generally not correlated, as the timing of product revenue recognition is impacted by different customer purchase options as outlined here:

 

Customer Purchase Option

  

Typical Timing of Revenue Recognition

Direct Purchase

   Up front at acceptance

Traditional Lease

   Up front at acceptance

Managed Services

   Ratably over the life of contract starting at acceptance

PPA Financing through Bloom Electrons

   Ratably over the life of contract starting at acceptance

Product revenue is generally recognized when an acceptance is achieved. For those customers who purchase our Energy Servers through a direct sales or traditional lease arrangement, that revenue is recognized up front at acceptance as product revenue, while for customers who purchase our Energy Servers through our managed services program we recognize revenue ratably over the life of the contracts as product revenue and for customers who purchase our Energy Servers through a power purchase agreement (PPA) arrangement structured as an operating lease, we recognize revenue ratably over the life of the contracts as electricity revenue and not at acceptance. Our product revenue has fluctuated in the past and may fluctuate in the future, as it is in part dependent on the purchase option selected by the customer.

The number of product acceptances achieved in 2017 was 622 systems, a decrease of 9.5% as compared to 687 acceptances for 2016. The decline was driven by extreme weather-related seasonality on both the U.S. East Coast and West Coast, which impacted our ability to install Energy Servers at our customer sites. Our product revenue was $179.8 million in 2017, an increase of 135.1% as compared to $76.5 million in 2016. Product revenue increased for 2017 relative to 2016 even though product acceptances declined by 9.5% over that same time period as the mix in financing options with which our customers chose to deploy their systems reflected a smaller portion of managed services customer purchase options (where revenue is recognized ratably) versus direct sales (where revenue is recognized up front). The number of acceptances for 2017 where revenue was recognized ratably was approximately 21% of total acceptances, while the number of acceptances for 2016 where revenue was recognized ratably was approximately 84% of total acceptances. In 2016 and 2017, 172 and 0 respectively, of our acceptances achieved were for Energy Servers that were sold to existing customers under our PPA I decommissioning program. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations—Revenue—Product Revenue—PPA I Decommissioning”.

For the three months ended March 31, 2018, the number of acceptances achieved was 166, an increase of 39.5% as compared to 119 acceptances for the three months ended March 31, 2017. Our product revenue for the three months ended March 31, 2018 was $121.3 million, an increase of 337.9% as compared to $27.7 million for the three months ended March 31, 2017. The increase in product revenue for the three months ended March 31, 2018 relative to the three months ended March 31, 2017 was greater than the 39.5% increase in associated acceptances over that same time period due to the $43.9 million one-time product revenue benefit due to the retroactive ITC renewal, as well as the mix in financing options with which our customers chose to deploy their systems, which reflected a smaller portion of managed services customer purchase options (where revenue is recognized ratably) versus direct sales (where revenue is recognized up front). There were no acceptances for the three months ended March 31, 2018 where revenue was recognized ratably, while the number of acceptances for the three months ended March 31, 2017 where revenue was recognized ratably was approximately 45% of total

 

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acceptances. In the three months ended March 31, 2017 and March 31, 2018, no acceptances were achieved for Energy Servers that were sold to existing customers under our PPA I decommissioning program.

Megawatts Deployed

Megawatts deployed represents the aggregate megawatt capacity of operating Energy Servers in the field on a given date that have achieved acceptance, net of systems removed from operation under the PPA I decommissioning program. We measure the electricity-generating capacity of our deployed Energy Servers in megawatt capacity. Megawatt capacity is the expected maximum output an Energy Server can produce (i.e., the nameplate capacity). Actual power production from these Energy Servers may be less or more than the megawatt capacity assigned to a particular Energy Server. Megawatts deployed also represents the size of our installed base.

Megawatts deployed increased to 297 as of December 31, 2017, an increase of 26.4% as compared to 235 as of December 31, 2016. The increase represents the additional acceptances that were achieved in 2017, which increased the number of Energy Servers in the field, since the end of 2016. As of March 31, 2018, megawatts deployed increased to 312, an increase of 26.3% as compared to March 31, 2017, of 247. The increase represents the additional acceptances that were achieved in the last nine months of 2017 and the first three months of 2018, which increased the number of Energy Servers in the field.

Billings for Product Accepted in the Period

We sign contracts with our customers and financing partners that set the terms and conditions of the equipment and services which we deliver under those contracts. Generally, these contracts outline: (1) the type, volume and price of the product (Energy Servers) to be installed, (2) the equipment and services to be used in the installation process, (3) the pricing and terms for extended maintenance (service) agreements, and (4) the details of any other equipment or service to be provided. Based on the dates and milestones that are outlined in the contract, we generate invoices and bill our customers and financing partners for each of the above outlined components. We believe that analyzing the billing and the trending of the billing for these contract components is useful to understand our business.

The billings for product accepted represents 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 amount of our acceptances in a period and to evaluate the change in dollar amount of acceptances between periods, which also provides us insight into the billing volume and trajectory of our product sales. Across all customer purchase options (direct sales, leases, PPA and managed services), our sales contracts specify the amounts billed with respect to the product (our Energy Servers), installation, and service contract components, which will not necessarily reflect the applicable revenue to be recognized at acceptance under the agreement due to certain customer financing options where revenue is recognized ratably over the life of the contract starting at acceptance. Regardless of the customer purchase option, we generally receive 100% of the customer payments in cash for the product and installation components of our sales contracts within 30 days of achieving acceptance, including replacement servers accepted by existing customers through our PPA I decommissioning program. Billings for product accepted in the period and the change in billings for product accepted in the period will, in general, correlate with the volume and change in the volume of product accepted.

The purchase of our Energy Servers and related installation costs have historically qualified for the Federal Investment Tax Credit (ITC). Through 2016, our customers and financing partners could take advantage of ITC. They could receive a tax credit of 30% or $3,000 per kilowatt of their equipment purchase price and the installation cost on their federal tax returns. This federal tax benefit expired at the end of 2016. Accordingly, in 2017, customers no longer received the ITC benefit on purchases of our Energy Servers. In order to offset the negative economic impact of that lost benefit to our customers and financing partners, in 2017, we lowered our selling price to customers. Because many customers or financing partners would monetize the tax credit upfront, the actual impact to our selling price was generally greater than 30%.

 

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As stated above, both the purchase of our Energy Servers and the installation cost of those Energy Servers qualified for the ITC in 2016. From a billings standpoint, we billed our customers for the portion of the price attributable to the ITC benefit for both the Energy Server (product) sale and the installation services as part of our product billings. Therefore, in 2017, as a result of the ITC benefit loss, the billings for product accepted was impacted to a greater extent than the billings for installation when compared to 2016. Subsequently, the ITC was reinstated by the U.S. Congress on February 9, 2018 and made retroactive to January 1, 2017. The resulting benefit of the ITC renewal was recognized in the three months ending March 31, 2018.

Due to the loss of ITC in 2017, the benefit of ITC to billings for product accepted decreased $158.5 million from $159.8 million of benefit from ITC for the year ended December 31, 2016 to $1.3 million of benefit from ITC for the year ended December 31, 2017. Due to the reinstatement of ITC in 2018, the benefit of ITC to billings for product accepted increased $58.3 million, from $1.3 million of benefit from ITC for the three months ended March 31, 2017 to $59.6 million of benefit from ITC for the three months ended March 31, 2018. The $59.6 million benefit of ITC in the three months ended March 31, 2018 included $45.1 million benefit of the retroactive ITC for 2017 acceptances.

The billings for product accepted in 2017 was $248.1 million, a decrease of 52.5% compared to billings for product accepted of $522.5 million in 2016. This decrease was primarily due to the lower average selling prices to our customers in 2017, as a result of the ITC benefit to our customers ending in 2016, as well as the 9.5% decrease in product acceptances for 2017. In 2016, we had $132.2 million of billings for product accepted from existing customers through our PPA I decommissioning program. For 2017, we had no billings for product accepted from existing customers through our PPA I decommissioning program. For the three months ended March 31, 2018, billings for product accepted was $121.1 million, an increase of 151.8% compared to billings for product accepted of $48.1 million in the three months ended March 31, 2017. This increase was primarily due to the higher average selling prices to our customers in 2018 as a result of the ITC reinstatement, as well as the 39.5% increase in product acceptances for the same time period. Billings for product accepted from existing customers through our PPA I decommissioning program increased from zero in the three months ended March 31, 2017, to $5.6 million in the three months ended March 31, 2018.

Billings for Installation on Product Accepted

Billings for installation on product accepted represents the total contracted dollar amount billable with respect to the installation portion of all Energy Servers that are accepted in the period. We use this metric to gauge the dollar value of the installations of our product acceptances in a period and to evaluate the change in dollar value associated with the installation of our product acceptances between periods.

Billings for installation on product acceptances are generally driven by the complexity of the site and the size of the installation. Infrequently, Bloom may not perform the installation service for customers, and the installation may be completed by a third party as directed by the customer or by the customer themselves. For customers who have the installation performed by a third party or themselves, there will be little or no billings for installation on product accepted.

Billings for installation on product accepted in 2017 was $96.5 million, a decrease of 15.9% as compared to $114.7 million in 2016. This decrease was slightly larger than the 9.5% decrease in associated acceptances and was related to the normal mix in installation billings driven by site complexity and size. For the three months ended March 31, 2018, billings for installation on product accepted was $11.9 million, a decrease of 48.3% as compared to $23.0 million for the three months ended March 31, 2017. The billings for installation on product accepted decreased despite a 39.5% increase in associated acceptances due to one large customer in the three months ended March 31, 2018 where the installation was contracted with a third party, therefore, we did not have any installation billing.

When we analyze changes between 2016, 2017 and 2018, we also take into account the impact of the lower or higher average selling prices to the customers driven by the loss or reinstatement of the ITC benefit. To

 

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minimize the impact to the customers in 2017, we reduced the selling price to ensure the economics to the customer remained the same as it was prior to losing the ITC benefit. Because the benefit from the ITC can be monetized up front, given the time value of money, the impact on our average selling price is greater than the nominal value of the ITC benefit.

For the three months ended March 31, 2018, the combined total for billings for product and installation accepted was $133.0 million, an increase of 87.0% from the billings for product and installation accepted combined of $71.1 million for the three months ended March 31, 2017. The increase was significantly greater than the 39.5% increase in associated acceptances during the same periods due to the higher average selling price to customers as a result of the reinstatement of the ITC in 2018.

Billings for Annual Maintenance Services Agreements

The billings for annual maintenance service agreements represent the dollar amount billable in respect of one-year service contracts that have been initiated or renewed during the period. Our customers enter into maintenance agreements with us to receive ongoing service of their Energy Servers. Generally, the first year of maintenance is included in the price of the product as part of the warranty. However, customers engaging in our managed services enter into annual maintenance contracts starting at time of acceptance. While the maintenance service agreements are generally contracted annually, the billings for those contracts can be monthly, quarterly or annually. As our cumulative megawatts deployed grows each year, we expect that the billings for annual maintenance services agreements should grow as well.

Billings for annual maintenance service agreements in 2017 was $79.9 million, an increase of 17.8% as compared to $67.8 million in 2016. This increase was driven both by the billing for new maintenance contract renewals and new managed service contracts over that same period. Billings for annual maintenance agreements for managed services contracts are billed monthly and start at acceptance for those contracts.

The billings for annual maintenance agreements for the year ended December 31, 2017 represents the cumulative billings for all agreements in place at that time, and therefore includes all of the billings for maintenance agreements from managed services contracts accepted between December 31, 2016 and December 31, 2017.

For the three months ended March 31, 2018, billings for annual maintenance service agreements was $14.1 million, a decrease of 5.1% compared to $14.9 million for the three months ended March 31, 2017. This decrease was driven primarily by the timing in which our customers renewed their annual maintenance service agreements in the period.

Ratable Value of Contracts Accepted in the Period

Depending on the customer purchase option elected by our customers, the product, installation and electricity revenue for that contract will either be recognized up front at acceptance or ratably over the life of the contract.

The ratable value of contracts accepted in the period represents product, installation and electricity revenue for the period if all contracts were recognized up front at acceptance. It also includes the value of any product and install revenue that was allocated to service revenue under our BESP allocation methodology (described in further detail below). It excludes the ratable value of past acceptances and the value allocated to service that is recognized as revenue in the current period.

The ratable value of contracts accepted in the period presents a normalized view of the impact of the different revenue recognition methodologies between up front and ratable by providing the full contract value of those acceptances that are recognized ratably over the life of the contract.

 

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Our ratable value of contracts accepted in the period was $21.7 million in 2017, a decrease of $362.6 million as compared to $384.2 million in 2016 due to a change in customers’ preferences for the purchase option chosen, moving away from Bloom Electrons in 2016, which typically results in ratable revenue recognition, to direct purchase in 2017, which results in up front revenue recognition. The number of acceptances for 2017 where revenue was recognized ratably was approximately 21% of total acceptances, while the number of acceptances for 2016 where revenue was recognized ratably was approximately 84% of total acceptances.

Our ratable value of contracts accepted for the three months ended March 31, 2018 was a negative $17.1 million, representing a decrease of $26.7 million, as compared to $9.6 million for the three months ended March 31, 2017. The ratable value of contracts was negative in the three months ended March 31, 2018 as all acceptances were recognized up front during the period and therefore, the value only excludes the ratable value of past acceptances and the value allocated to services that was recognized as revenue in the period. The number of acceptances for the three months ended March 31, 2018 where revenue was recognized ratably was approximately 0% of total acceptances, while the number of acceptances for the three months ended March 31, 2017 where revenue was recognized ratably was approximately 45% of total acceptances.

Product Costs of Product Accepted (per kilowatt)

Our product costs of product accepted in the period represents the average unit product cost for the Energy Servers that are accepted in a period. We track this metric to provide a point in time estimate of our unit cost to manufacture our Energy Servers which we can use to analyze and compare product costs between periods. We use this metric to provide us insight into the trajectory of our product costs and, in particular, the effectiveness of our cost reduction activities.

We calculate it as the aggregate amount of product costs across all acceptances in a period, and we then divide that total by the number of acceptances in that period and then divide that result by 100 to get a “per kilowatt” unit measure.

Product cost includes material costs, direct labor, allocated manufacturing overhead, purchasing and manufacturing variances, freight charges and consumables used in the manufacturing of our Energy Servers.

During the nine quarters ended March 31, 2018, our product costs of products accepted declined from $5,086 per kilowatt to $3,855 per kilowatt, an overall reduction of 24.2%. The cost reduction was driven generally by our ongoing cost reduction efforts to reduce material costs, labor and overhead through improved automation of our manufacturing facilities, better facility utilization and ongoing material cost reduction programs with our vendors. A one-time impact of $566.27 per kilowatt was included in the product cost of revenue for the three months ended March 31, 2018 which was associated with supplier agreements that required us to forego previously negotiated discounts if ITC was renewed.

Period Costs of Manufacturing Related Expenses not Included in Product Costs

Period costs of manufacturing related expenses not included in product costs represent the manufacturing and related operating costs expensed in the period that are incurred to procure parts and manufacture Energy Servers that are not included as part of product costs as defined above. Any costs incurred to run our manufacturing operations that are not capitalized (i.e., absorbed) into inventory are expensed to our consolidated statement of operations in the period with which the costs are incurred. Typical costs included in this metric are unallocated overhead costs, and items used in the manufacturing process not allocated to product cost. In addition, this metric includes the costs incurred to support the Energy Server’s first year of warranty.

Period costs of manufacturing related expenses not included in product costs for the quarter ended March 31, 2018 was $10.8 million, an increase of 150.7% compared to $4.3 million for the quarter ended March 31, 2016, and an increase of 45.8% compared to $7.4 million for the quarter ended March 31, 2017. While

 

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actual manufacturing spending decreased in the quarter ended March 31, 2018 relative to the quarter ended March 31, 2017 and March 31, 2016, the period costs of manufacturing related expenses not included in product costs, which represents the unabsorbed manufacturing costs to produce our Energy Servers, increased due to lower production volumes in the period.

Installation Costs on Product Accepted in the Period (per kilowatt)

Installation costs on product accepted in the period is the average unit installation cost for Energy Servers that are accepted in a given period. We incur and accumulate costs for design, permitting, construction and interconnect for the installation of our Energy Servers, which ultimately provides for the systems to meet acceptance criteria in the period and ultimately, be counted as an “acceptance.” Our installation costs are driven by the complexity of the site at which we are installing an Energy Server, as well as the size of the installation, which can cause variability in these costs quarter-to-quarter. We generally achieve economies of scale on installation costs at sites where we install more Energy Servers per site. We track this information to help ensure our installation costs are in line with our installation billings. Installation costs on product accepted in the period is calculated by aggregating the accrued and incurred installation costs for each site accepted in a period. We then divide that total by the number of acceptances in the period and then divide that result by 100 to get a “per kilowatt” unit of measure.

During the nine quarters ended March 31, 2018, installation costs on product accepted ranged from a low of $526 per kilowatt for the quarter ended March 31, 2018 to a high of $1,974 per kilowatt for the quarter ended March 31, 2017. For the quarter ended March 31, 2018, the lower installation cost of $526 per kilowatt was driven by the fact that 50.3% of the acceptances in that quarter were for a very large customer that had almost no installation cost. For the quarter ended March 31, 2017, the higher installation cost of $1,974 per kilowatt was driven by a greater mix of more complicated sites, which included several for business continuity solutions, which requires a more difficult installation process.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. 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 “Risk Factors” and elsewhere in this prospectus.

Overview

We provide an advanced distributed electric power generation solution, based on our proprietary solid oxide fuel cell technology that provides our customers with a reliable, resilient, sustainable and more cost effective clean alternative to the electric grid. Our solution, the Bloom Energy Server, is an on-site stationary power generation platform, capable of delivering uninterrupted, 24x7 base load power that is fault tolerant, resilient and clean. We currently primarily target commercial and industrial customers. 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;

 

    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; 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 and cumulative deployment of 300 megawatts by March 2018.

We market and sell our Energy Servers primarily through our direct sales organization in the United States. Recognizing that deploying our solutions requires a material financial commitment from our customers, we typically seek to engage customers that have the financial capability to either purchase our Energy Servers directly or arrange creditworthy counterparties to financing agreements. Our typical target customer has 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. Given that our customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.

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

 

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centers, communications and media, consumer packaged goods and consumables, education, government, healthcare, hospitality, logistics, manufacturing, real estate, retail and utilities. Our Energy Servers are deployed at customer sites across 11 states in the United States, as well as in India, Japan and South Korea. Our customer base included 25 of the Fortune 100 companies as of March 31, 2018. We believe that we are currently capturing only a small percentage of our largest customers’ total energy spend, which gives us an opportunity for growth within those customers, particularly as the price of grid power increases in the areas where our existing customers have additional sites. Since the timing of revenue we recognize depends, in part, on the option chosen by the customer to finance the purchase of the Energy Server, customers that may have accounted for a significant amount of product revenue in one period may not necessarily account for similar amounts of product revenue in future periods.

In 2016, total revenue from Delmarva and Intel Corporation represented 18% and 12% of our total revenue, respectively. In 2017, total revenue from The Southern Company and Delmarva represented 43% and 10% of our total revenue, respectively. In the three months ended March 31, 2017, total revenue from Macerich and The Southern Company, represented 19% and 16% of our total revenue, respectively. In the three months ended March 31, 2018, total revenue from The Southern Company and Korea Energy represented 53% and 17% of our total revenue, respectively. To date, substantially all of our revenue has been derived from customers based in the United States. However, we have started to increase our sales efforts outside of the United States, with initial customer installations in India, Japan and South Korea.

Although the size of each system deployment can vary substantially and usually exceeds 250 kilowatts, we measure and track our system deployments and customer acceptances in 100 kilowatt equivalents. As of March 31, 2018, we had installed 3,117 of such systems, which is equivalent to 312 total megawatts.

The purchase of our Energy Servers and related installation costs have historically qualified for the Federal Investment Tax Credit (ITC). Through 2016, our customers and financing partners could take advantage of ITC. They could receive a tax credit of 30% or $3,000 per kilowatt of their equipment purchase price and the installation cost on their federal tax returns. This federal tax benefit expired at the end of 2016. Accordingly, in 2017, customers no longer received the ITC benefit on purchases of our Energy Servers. In order to offset the negative economic impact of that lost benefit to our customers and financing partners, in 2017, we lowered our selling price to customers. Because many customers or financing partners would monetize the tax credit upfront, the actual impact to our selling price was generally greater than 30%. Subsequently, the ITC was reinstated by the U.S. Congress on February 9, 2018 and made retroactive to January 1, 2017. The resulting benefit of the ITC renewal was recognized in the three months ending March 31, 2018.

We manufacture our Energy Servers at our facilities in California and Delaware. Due to the intensive manufacturing process necessary to build our systems, a significant portion of our manufacturing costs is fixed. We obtain our materials and components through a variety of third parties. Components and materials, direct labor and overhead, such as facility and equipment expenses, comprise the substantial majority of the costs of our Energy Servers. As we have commercialized and introduced successive generations of our Energy Servers, we have been focused on reducing their production costs. Our product costs per system manufactured have generally declined since delivering our first commercial product. These cost declines are the result of continuous improvements and increased automation in our manufacturing processes as well as our ability to reduce the costs of our materials and components, allowing us to gain greater economies of scale with our growth.

We believe we have made significant improvements in our efficiency and the quality of our products. Our success depends in part on our ability to increase our products’ useful lives, which would significantly reduce our cost of services to maintain the Energy Servers over time.

Purchase Options

Our customers may choose to purchase our Energy Servers outright or may choose to lease them through one of our financing partners as a traditional lease or a sale-leaseback sublease arrangement, which we refer to as

 

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managed services. Our customers may also purchase electricity through Bloom Electrons, our PPA financing program. Depending on the financing arrangement, either our customers or the financing provider may utilize investment tax credits and other government incentives. The timing of the product-related cash flows to Bloom is generally consistent across all the above financing options, whether direct purchase arrangements, leases or managed services.

We provide warranties and performance guarantees regarding the Energy Servers’ efficiency and output under all of our financing arrangements. Under direct purchase and traditional lease options, the warranty and guarantee is included in the price of the Energy Server for the first year. The warranty and guarantee 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 20 years. Historically, our customers have almost always exercised their option to renew under these operations and maintenance services agreements. Under the managed services program, the operations and maintenance performance guarantees are included in the price of the Energy Server for a fixed period of 10 years, which may be extended at the option of the parties for up to an additional 10 years with all payments made annually.

Our capacity to offer our Energy Servers through any of the financing arrangements above depends in large part on the ability of the parties involved in providing payment for the Energy Servers to monetize either the related investment tax credits, accelerated tax depreciation and other incentives, and/or the future power purchase obligations of the end customer. Interest rate fluctuations would also impact the attractiveness of any lease financing offerings for our customers. Additionally, the managed services option is limited by the creditworthiness of the customer and, as with all leases, the customer’s willingness to commit to making fixed payments regardless of the output of the system.

The portion of acceptances in the three months ended March 31, 2018 attributable to each payment option was as follows: direct purchase 100%, traditional lease 0%, managed services 0%, and Bloom Electrons 0%. The portion of revenue in the three months ended March 31, 2018 attributable to each payment option was as follows: direct purchase 83%, traditional lease 0%, managed services 4%, and Bloom Electrons 13%. The portion of acceptances in 2017 attributable to each payment option was as follows: direct purchase 72%, traditional lease 7%, managed services 21%, and Bloom Electrons 0%. The portion of revenue in 2017 attributable to each payment option was as follows: direct purchase 61%, traditional lease 7%, managed services 8%, and Bloom Electrons 24%. The portion of acceptances in 2016 attributable to each payment option was as follows: direct purchase 10%, traditional lease 6%, managed services 31%, and Bloom Electrons 53%. The portion of revenue in 2016 attributable to each payment option was as follows: direct purchase 40%, traditional lease 18%, managed services 4%, and Bloom Electrons 38%. In 2017, we observed a shift in our customers’ purchase option preferences to our direct purchase options. The portion of our backlog as of March 31, 2018 attributable to each payment option was as follows: direct purchase 98%, traditional lease 0%, managed services 2%, and Bloom Electrons 0%.

Purchase and Lease Programs

Initially, we only offered our Energy Servers on a purchase basis, in which the customer purchases the product directly from us. Included within our direct purchase option are sales we make to a third party who in turn, sells electricity through one of its PPA programs of which we have no equity interest. The sales of our Energy Servers to the third party entity have many of the same terms and conditions as a standard sale, as described above. We refer to these arrangements as Third-Party PPAs. The substantial majority of sales made as direct purchases in recent periods are pursuant to third-party PPA finance arrangements. Payment for the purchase of our product is generally broken down into multiple installments, which may include payments upon signing of the purchase agreement, within 180 days prior to shipment, upon shipment 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 one-year warranty, customers have the option to enter into annual operations

 

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and maintenance services agreements with us at a price determined at the time of purchase of the Energy Server, which may be renewed each year for up to 20 years. Pursuant to the service warranty, we warrant minimum efficiency and output levels. In the event that the Energy Servers fail to satisfy these warranty levels, we may be obligated to repurchase the applicable Energy Servers if we are unable to repair or replace during the applicable cure period. Across all service agreements, including purchase and lease programs, as of March 31, 2018, we have incurred no repurchase obligations pursuant to such warranties. In addition, in some cases, we guarantee minimum output and efficiency levels greater than the warranty levels and pay certain capped performance guarantee amounts if those levels are not achieved. These performance guarantees are negotiated on a case-by-case basis, but we typically provide an Output Guaranty of 95% measured annually and an Efficiency Guaranty of 52% measured cumulatively from the date the applicable Energy Server(s) are commissioned. In each case, underperformance obligates us to make a payment to the owner of the Energy Server(s). As of March 31, 2018, the fleet of Energy Servers deployed pursuant to purchase agreements performed at an average output of approximately 86% for three months ended March 31, 2018, and a lifetime average efficiency of approximately 53% through March 31, 2018. As of March 31, 2018, our obligation to make payments for underperformance on the direct purchase projects was capped at an aggregate total of approximately $35.9 million (including payments both for low output and for low efficiency). As of March 31, 2018, our aggregate remaining potential liability under this cap was approximately $23.0 million.

Third-Party PPAs

In addition to our traditional lease, managed services, and Bloom Electrons programs, we also sell Energy Servers under power purchase agreements where the owner of the Energy Servers generating the electricity delivered to the end customer is a third party in which we have no equity interests (“Third-Party PPAs”). Under these Third-Party PPAs, we identify end customers, lead the negotiations with such end customers regarding the offtake agreements, and then enter into an Energy Server sales and operations and maintenance agreement with the third-party PPA entity that will own the Energy Servers for the full term of the offtake agreement. In some cases, the applicable third-party owner assists with the identification of end customers, and the negotiation of the offtake agreements. The third-party PPA entity then enters into offtake agreements with the end customer, who purchases electricity from the third-party PPA entity. Unlike our Bloom Electrons program, we have no equity ownership in the entity that owns the Energy Servers, and thus the third-party owner receives all cash flows generated under the offtake agreement(s), all investment tax credits, all accelerated tax depreciation benefits, and any other cash flows generated by the operation of the Energy Servers. In the fourth quarter of 2016, we secured a commitment from a major utility company to finance up to 50 MW of Energy Server deployments under a Third-Party PPA; this commitment was subsequently expanded to an aggregate total of approximately 100.4 MW, of which we have deployed 48.0 MW as of March 31, 2018. Additionally, we have established a second Third-Party PPA with another major utility company; while this second program does not include a firm commitment as to total financing capacity, it permits the inclusion of sub-investment grade end customers.

For example, we have been working with financing sources to arrange for additional third-party PPA entities, one of which will need to be finalized in order for our customers to arrange financing so that we can complete our planned installations for 2018.

Obligations to Third-Party Owners of Energy Servers

In each Third Party PPA, we and the applicable third-party owner enter into an O&M Agreement similar to the O&M Agreements entered into under the Bloom Electrons program, which O&M Agreement may be renewed on an annual basis at the option of the third-party owner until the end of the term of the third-party owner’s offtake agreement(s) with its end customers for such project. These offtake agreements have a fifteen-year term, but in some cases the offtake agreement and related O&M Agreement may extend for up to twenty years.

Our obligations under the O&M Agreement include (i) designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the third-party PPA entity, (ii) obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining

 

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such permits and approvals throughout the term of the O&M Agreement, (iii) operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations, (iv) satisfying the efficiency and output warranties set forth in such O&M Agreement and the offtake agreement(s) (Performance Warranties), and (v) complying with any specific requirements contained in the offtake agreement(s) with individual end-customer(s). The O&M Agreement obligates us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the Performance Warranties or we otherwise breach the terms of the applicable O&M Agreement and we fail to remedy such failure or breach after a cure period, or in the event that an offtake agreement terminates as a result of any failure by us to comply with the applicable O&M Agreement. In some Third-Party PPAs, our obligation to repurchase Energy Servers extends to the entire fleet of Energy Servers installed pursuant to the applicable O&M Agreement in the event such failure affects more than a specified number of Energy Servers.

In some cases, we have also agreed to pay liquidated damages to the third-party owner in the event of delays in the manufacture and installation of Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Server(s). 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 ($/kilowatt) basis.

The O&M Agreement for each third-party PPA project generally provides for the following performance and indemnity obligations:

Efficiency Obligations. We warrant to the applicable third-party owner that each Energy Server and/or the portfolio of Energy Servers sold to such entity will operate at an average efficiency level specified in the O&M Agreement, calculated over a period specified in the O&M Agreement following the commercial operations date of such Energy Server. In some cases, we are obligated to repair and replace Energy Servers that are unable to satisfy the Efficiency Warranty, or if a repair or replacement is not feasible, to repurchase such Energy Servers at the original purchase price, subject to adjustment for depreciation (“Efficiency Warranty”). In other cases, we are obligated to make a payment to compensate for the increased costs of procuring natural gas for the applicable Energy Server(s) resulting from the underperformance as against the warranted level, which payments are capped at a level specified in the applicable O&M Agreement (“Efficiency Guaranty”).

Output Obligations . In addition, we warrant that the Energy Servers will generate a minimum amount of electricity during specified periods of time.

Under O&M Agreements, our output obligations include: (i) the generation of a minimum amount of electricity, the failure of which obligates us to repair or replace the Energy Servers that are unable to satisfy such warranty, or if such repair or replacement is not feasible, to repurchase such Energy Servers at the original purchase price, subject to adjustment for depreciation (“Output Warranty”), and (ii) the generation of a minimum amount of electricity on a cumulative basis beginning on the commercial operations date of such Energy Server, the failure of which obligates us to make a payment to the applicable third-party owner based on the volume of the shortfall below the warranted level, subject to a liability cap specified in the applicable O&M Agreement (“Output Guaranty”). Satisfaction of the Output Warranty is measured on either a cumulative basis or in each calendar month or calendar quarter, as specified in the applicable O&M Agreement. In some Third-Party PPAs, these generation obligations are aggregated across the entire fleet of Energy Servers deployed pursuant to such project; in others, each Energy Server must satisfy the minimum generation obligations measured individually.

Indemnification of Performance Warranty Expenses Under Offtake Agreements . In addition to the efficiency and output obligations, we also have agreed to indemnify certain third-party PPA entities for any expenses it incurs to any of the end-customers resulting from failures of the applicable Energy Servers to satisfy any of the efficiency, output or other performance warranties set forth in the applicable offtake agreement(s). In addition, in the event that an offtake agreement is terminated by a customer as to any Energy Servers as a result of our failure to perform any of our obligations under the O&M Agreement, we are obligated to repurchase such Energy Server from the applicable third-party PPA owner for a repurchase price equal to the original purchase price, subject to adjustment for depreciation.

 

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Administration of Third-Party PPA Projects . Unlike the Bloom Electrons program, we perform no administrative services in the third-party PPA projects.

Obligations to End Customers

While the counterparty to the offtake agreements under the third-party PPA program is the third-party owner, under the O&M Agreements we are obligated to perform each of the obligations of such third-party owner set forth in each offtake agreement with the end customer. As such, our obligations to the end customers under the Third-Party PPAs are in all material respects the same as our obligations to the end customers under the Bloom Electrons program.

Our third-party PPA programs have O&M agreements that provide for Efficiency Guarantees and Output Guarantees, subject to performance guarantee caps. The performance guarantees for our existing third-party PPA agreements are capped at $45.4 million. As of March 31, 2018, we have paid $0.2 million in performance guarantee payments under these third-party PPA programs leaving potential obligations under the performance guarantees of $45.2 million. In addition, the O&M agreements with these third-party PPA agreements have minimum warranty guarantees for efficiency and output. As of March 31, 2018, no warranty claims have been made under the O&M agreements for these third-party PPA agreements.

Over time we have also developed various lease programs with our financing partners to provide alternative financing options. These programs take the form of either (1) a traditional lease agreed directly with the financing partner or (2) managed services.

Traditional Lease

 

 

LOGO

Under the traditional lease arrangement, the customer enters into a lease directly with a financing partner, which pays us for the Energy Servers pursuant to a sales agreement (a Bank Agreement, described below). We recognize product and installation revenue upon acceptance. After the initial 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 lease. The duration of our traditional leases ranges from 6 to 15 years.

Under a Bank Agreement, we are generally paid the full price of the Energy Servers as if sold as a purchase by the customer based on four milestones (on occasion negotiated with the customer, but in all cases equal to no

 

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less than 60% of the purchase price billed at the shipment milestone, described below). The four payment milestones are typically as follows: (i) 15% upon execution of the bank’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 bank receives title to the Energy Servers upon installation at the customer site and the customer has risk of loss while the Energy Server is in operation on the customer’s site.

The Bank Agreement provides for the installation of the Energy Servers and includes a one-year warranty, which includes the performance guarantees described below, with the warranty offered on an annually renewing basis at the discretion of the customer. The customer must provide gas for the Energy Servers to operate.

Warranty Commitments . We typically provide (i) an “Output Warranty” to operate at or above a specified baseload output of the Energy Servers on a site, and (ii) an “Efficiency Warranty” to operate at or above a specified level of fuel efficiency. Both are measured on a monthly basis. Upon the applicable financing partner or its customer making a warranty claim for a failure of any of our warranty commitments, we are then obligated to repair or replace the Energy Server, or if a repair or replacement is not feasible, to pay the customer an amount approximately equal to the net book value of the Energy Server, after which the Bank Agreement would be terminated. As of March 31, 2018, we have incurred no obligations to make payments pursuant to these warranty commitments.

Performance Guarantees . Our performance guarantees are negotiated on a case-by-case basis for projects deployed through the traditional lease program, but we typically provide an Output Guaranty of 95% measured annually and an Efficiency Guaranty of 52% measured cumulatively from the date the applicable Energy Server(s) are commissioned. In each case, underperformance obligates us to make a payment to the applicable customer. As of March 31, 2018, the fleet of Energy Servers deployed pursuant to the traditional lease programs are performing at a lifetime average output of approximately 87% and a lifetime average efficiency of approximately 55%. As of March 31, 2018, our obligation to make payments for underperformance against the performance guarantees for traditional lease projects was capped at an aggregate total of approximately $5.8 million (including payments both for low output and for low efficiency). As of March 31, 2018, our aggregate remaining potential liability under this cap was approximately $5.5 million.

Remarketing at Termination of Lease . At the end of any customer lease in the event the customer does not renew or purchase the Energy Servers, we may remarket any such Energy Servers to a third party, and 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.

 

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Managed Services

 

 

LOGO

Under our managed services program, we initially enter into a master lease with the financing partner, which holds title to the Energy Server. Once a customer is identified, we enter into an additional operating lease with the financing partner and a service agreement with the customer. The duration of our managed services leases is currently 10 years. We begin to recognize revenue from the sale of the equipment to the financing partner once the Energy Server has been accepted by the customer. Under the master lease, we then make operating lease payments to the financing partner. Under the service agreement with the customer, there are two payment components: a monthly equipment fee calculated based on the size of the installation, which covers the amount of our lease payment, and a service payment based on the monthly output of electric power produced by the Energy Server.

Our warranty commitments under the managed services option are substantially similar to those applicable to the traditional lease program described above. Our managed services deployments do not typically include any performance guarantees above the warranty commitments, but the customer’s payment to us includes a payment that is proportionate to the output generated by the Energy Server(s) and our pricing assumes service revenues at the 95% output level. Therefore, our service revenues are lower if output is less than 95% (and higher if output exceeds 95%). As of March 31, 2018, the fleet of Energy Servers deployed pursuant to the managed services program were performing at a lifetime average output of approximately 94%.

 

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Bloom Electrons Financing Program

 

 

LOGO

In 2010, we began offering our Energy Servers through Bloom Electrons, our PPA financing program. This program is financed via special purpose investment entities (PPA entities), which typically are majority-owned by third-party investors and by us as a minority investor. The investors contribute cash to the PPA entity in exchange for equity interests, providing funding for the PPA entities to purchase the Energy Servers from us. As we identify end customers, the PPA entity enters into an agreement with the end customer pursuant to which the customer agrees to purchase the electric power generated by the Energy Server at a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. Each PPA entity currently serves between one and nine customers. As with our purchase and leasing arrangements, the first year warranty and guarantees are included in the price of the product to the PPA entity. The PPA entity typically enters into an operations and maintenance services agreement with us following the first year of service to extend the warranty services and performance guarantees. This service agreement has a term coincident with the term of the applicable PPA project and paid for on an annual basis by the PPA entity. The aggregate amount of extended warranty services payments we expect to receive over the remaining term of the PPA projects was $456.4 million as of March 31, 2018.

The mix of orders between our Bloom Electrons financing program and other purchase options is generally driven by customer preference. While we cannot predict with certainty in any given period how customers will choose to finance their purchase, we have observed that, more recently, customers tend to choose a financing option that more closely mirrors the customers’ monthly payment stream for electricity. Power purchase agreements, including our Bloom Electrons financing program, provide for payment streams as monthly payments similar to those for grid electricity payments.

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 approximate fair value, assuming all other conditions for revenue recognition noted above have also been met. Customer purchases financed by PPA entities since 2014 have been accounted for as operating leases and the related revenue under those agreements have been recognized as electricity revenue as the electricity is produced and paid for by the customer. Under each PPA arrangement, while the end customer pays the PPA entity over the life of the contract

 

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for the electricity consumed, the timing of cash receipts to us is similar to that of an end-user directly purchasing an Energy Server from us.

Under our PPA financing arrangements, we and our PPA tax equity investors contribute funds into a limited liability company, which is treated as a partnership for U.S. federal income tax purposes, and which owns the operating entity that acquires Energy Servers. This operating entity then contracts with us to operate and service the Energy Servers. The operating entity sells the electricity produced to the end customers under power purchase agreements, or PPAs. Any debt incurred by the PPA entities is non-recourse to us. Cash generated by the electricity sales, as well as from any applicable government incentive programs, is used to pay operating expenses of the operating entity (including the operations and maintenance services we provide) and to service the non-recourse debt, with the remaining cash flows distributed to the PPA investors based on the cash distribution allocations agreed between us and the tax equity investors. For further information, see Note 14, Power Purchase Agreement Programs , to our consolidated financial statements included in this prospectus. The PPA tax equity investors receive substantially all of the value attributable to the long-term recurring customer lease payments, investment tax credits, accelerated tax depreciation and, in some cases, other incentives until the PPA tax equity investors receive their contractual rate of return. In some cases, after the PPA tax equity investors receive their contractual rate of return, we expect to receive substantially all of the remaining value attributable to the long-term recurring customer payments and the other incentives. As of March 31, 2018, none of our customers under our PPAs have defaulted on their payment obligations.

We currently operate five distinct PPA entities. Three of these PPA entities (PPA II, PPA IIIa and PPA IIIb) are flip structures and the remaining two (PPA IV and PPA V) are strategic long-term partnerships with the tax equity investor that do not flip during the term of the PPA arrangements. Of the three PPA entity flip structures, PPA II is based on the tax equity investor reaching an agreed upon internal rate of return (IRR) and PPA IIIa and PPA IIIb are based on the flip occurring at a fixed date in the future.

Since we elected to decommission PPA I and purchased the tax equity investor’s interest for $25.0 million in convertible debt, we will receive 100% of any remaining cash flows from PPA I. Prior to the decommissioning, we received cash flows from PPA I totaling $393.6 million related to the purchase of Energy Servers, distributions of incentive receipts, annual maintenance payments and monthly administrative services payments. Since the decommissioning through March 31, 2018, we have received $12.7 million from PPA I related to customer electricity billings. With respect to PPA II, we estimate that the tax equity investor will need to receive additional cash distributions of approximately $101.0 million to reach its target IRR at which point we will receive substantially all of the remaining value attributable to the long-term customer payments and other incentives. To achieve these cash distributions and the contractual internal rate of return to trigger the ownership flip, PPA II will need to generate additional aggregate revenue of approximately $393.3 million. Our PPA II contracts do not specify the date on which the flip is projected to occur; rather, the PPA II contracts set forth the conditions that will trigger the flip and define the parties’ respective rights and obligations before and after the occurrence of the flip. Based on the current contractual terms, we estimate that PPA II will flip on approximately June 30, 2028, assuming prior termination does not occur.

For PPA IIIa and PPA IIIb, the tax equity investors receive preferred distributions of 2% of their total cash investment through the flip date, a fixed date in the future, and are not dependent on additional earned amounts. In PPA IIIa and IIIb, the flip dates are January 1, 2020 and January 1, 2021, respectively, and the remaining preferred distributions to be paid through the flip dates are $1.5 million and $1.2 million, respectively. We will receive substantially all of the remaining income (loss), tax and tax allocations attributable to the long-term customer payments and other incentives after each flip date.

Even after the occurrence of the flip date for PPA II, PPA IIIa and PPA IIIb, we do not anticipate subsequent distributions to us from the PPA entities to be material enough to support our ongoing cash needs, and therefore we will still need to generate significant cash from product sales.

 

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The Energy Servers purchased by the PPA entities are recorded as property, plant and equipment and included within our consolidated balance sheets. We then reduce these assets by the amounts received by the investors from U.S. Treasury grants and the associated incentive rebates. In turn, we recognize the incentive rebates and subsequent customer payments as electricity revenue over the customer lease term and amortize U.S. Treasury grants as a reduction to depreciation of the associated Energy Servers over the term of the PPA. Since our inception, government incentives have accounted for approximately 13% of the expected total cash flows for all PPA entities. As of March 31, 2018, our PPA entities had received a total of $282.2 million in government grants and rebates.

We have determined that we are the primary beneficiary in these investment entities. 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 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 and equity. 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.

All five PPA entities have utilized their entire available financing capacity and completed their purchases of Energy Servers as of March 31, 2018.

Through our Bloom Electrons financing program, a total of approximately $1.1 billion in financing has been funded through March 31, 2018, including approximately $609.2 million in equity investments and an additional $448.7 million in non-recourse debt to support an aggregate deployment of approximately 106.8 megawatts of Energy Servers as of March 31, 2018. Investors in our PPA entities include banks and other large companies such as Credit Suisse, Exelon Generation Company, Intel Corporation and U.S. Bancorp. In the future, in addition to or in lieu of arranging customer financing through PPA entities, we may use debt, equity or other financing strategies to fund our operations.

We view our obligations under Bloom Electrons in four categories: first, our obligations to the relevant PPA entity formed to own the Energy Servers and sell electricity generated by such Energy Servers to the end-customers; second, the Project Company’s obligations to the lenders of such Project Company, if any; third, our obligations to the PPA tax equity investors in the applicable project; and fourth, to the end-customers. We discuss these obligations in further detail below.

Obligations to PPA Entities

In each PPA project, we and the applicable PPA entity enter into two primary contracts: first, a contract for the purchase, sale, installation, operation and maintenance of the Energy Servers to be employed in such PPA project (the O&M Agreement), and second, a contract whereby we are engaged to perform administrative functions for the PPA project during the term of the PPA project (the Administrative Services Agreement, or ASA). The O&M Agreement and the ASA each have a term coincident with the term of the applicable PPA project. The aggregate amount of extended warranty services payments we expect to receive under the O&M Agreement over the remaining term of the PPA projects was $456.4 million as of March 31, 2018. The aggregate amount of ASA payments we expect to receive over the remaining term of the PPA projects was $34.5 million as of March 31, 2018.

Our obligations to the PPA entity pursuant to the O&M Agreement include: (i) designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the PPA entity, (ii) obtaining all necessary

 

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permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining such permits and approvals throughout the term of the O&M Agreement, (iii) operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations, (iv) satisfying the efficiency and output obligations set forth in such O&M Agreement (Performance Warranties), and (v) complying with any specific requirements contained in the offtake agreements with individual end-customers. The O&M Agreement obligates us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the Performance Warranties and we fail to remedy such failure after a cure period, or in the event that an offtake agreement terminates as a result of any failure by us to comply with the requirements contained therein. In some cases, we have also agreed to pay liquidated damages to the PPA entity in the event of delays in the manufacture and installation of 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.

The O&M Agreements for each PPA entity generally provide for the following Performance Warranties and indemnity obligations:

Efficiency Warranty and Efficiency Guaranty . We warrant to the applicable PPA entity that the Energy Servers sold to such entity will operate at an average efficiency level specified in the O&M Agreement, calculated either cumulatively from the commercial operations date of each Energy Server or during each calendar month. We are obligated to repair or replace Energy Servers that are unable to satisfy the Efficiency Warranty, or if a repair or replacement is not feasible, to repurchase such Energy Servers at a price specified in the applicable O&M Agreement. In the case of PPA II, if the aggregate average efficiency falls below the specified threshold, we are also obligated to make a payment to the PPA entity equal to the increased expense resulting from such efficiency shortfall, subject to a cap on aggregate payments equivalent to the purchase price of all Energy Servers in the PPA II portfolio. During the period from September 2010 to March 31, 2018, no Energy Servers have been repurchased pursuant to any Efficiency Warranty and no payments have been made pursuant to the Efficiency Guarantees.

One-Month Output Warranty . In the case of PPA II, we also warrant that the PPA II portfolio of Energy Servers will generate a minimum amount of electricity in each calendar month, and we are obligated to repair or replace Energy Servers that fail to satisfy this warranty. If we determine that a repair or replacement is not feasible, we are obligated to repurchase such Energy Servers at the original purchase price. During the period from September 2010 to March 31, 2018, no Energy Servers have been repurchased and no payments have been made pursuant to a One-Month Output Warranty.

Quarterly Output Warranty. In the case of PPA IIIa, we also warrant that each of the applicable Energy Servers will generate a minimum amount of electricity in each calendar quarter, and we are obligated to repair or replace Energy Servers that fail to satisfy this warranty. If we determine that a repair or replacement is not feasible, we are obligated to repurchase such Energy Servers at the original purchase price, subject to adjustment for depreciation. In addition, we are obligated to make a payment to the PPA IIIa entity to make the PPA IIIa entity whole for lost revenues resulting from the shortfall below the warranted level, subject to a cap on payments equal to ten percent (10%) of the purchase price of the Energy Servers in the PPA IIIa portfolio. If we fail to make any such warranty payments if and when due, then the applicable PPA entity may elect to require us to repurchase Energy Servers that fail such warranty at the original purchase price, subject to adjustment for depreciation. During the period from September 2010 to March 31, 2018, no Energy Servers have been repurchased pursuant to the Quarterly Output Warranty, and we have made payments in the aggregate amount of $0.2 million pursuant to the Quarterly Output Warranty.

Quarterly Output Guaranty. In the cases of PPA IIIb, PPA IV and PPA V, we also guarantee to the applicable PPA entity that the applicable PPA portfolio of Energy Servers will generate a minimum amount of electricity in each calendar quarter. In the event the applicable portfolio fails to satisfy this Output Guaranty, we are obligated to make a payment to the applicable PPA entity to make the PPA entity whole for lost revenues resulting from the shortfall below the guaranteed level, and such liability is uncapped. If we fail to make any such Output Guaranty payments if and when due, then the applicable PPA entity may elect to require us to repurchase Energy Servers that fail such guaranty, at a price specified in the applicable

 

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O&M Agreement and pursue other damages. During the period from September 2010 to March 31, 2018, no Energy Servers have been repurchased pursuant to a Quarterly Output Guaranty, and we have made no payments pursuant to any Quarterly Output Guaranty.

Annual Output Guaranty . We also guarantee to the applicable PPA entity that the applicable PPA portfolio of Energy Servers will generate a minimum amount of electricity in each calendar year. In the event that such portfolio fails to satisfy this Output Guaranty, we are obligated to make a payment to the applicable PPA entity to make the PPA entity whole for lost revenues resulting from the shortfall below the warranted level, subject to a liability cap equal to a portion of the purchase price of the applicable portfolio. During the period from September 2010 to March 31, 2018, we have made payments in the aggregate amount of $23.5 million pursuant to these Output Guarantees. These payments were primarily as a result of performance issues in our early generation systems deployed in our first three PPA entities (PPA I, PPA II & PPA IIIa). Of the aggregate amount of $23.5 million paid, $0.9 million was paid in the three months ended March 31, 2018, $3.7 million was paid in 2017, $4.8 million was paid in 2016, and $14.1 million was paid prior to 2016.

Indemnification of Performance Warranty Expenses under Offtake Agreements . In the cases of PPA IIIa, PPA IIIb, PPA IV and PPA V, we also have agreed to indemnify the applicable PPA entity for any expenses it incurs to any of its customers resulting from failures of the applicable PPA portfolio of Energy Servers to satisfy any of the efficiency, output or other performance commitments in the applicable offtake agreements. In addition, in the event that an offtake agreement is terminated by a customer as to any Energy Servers as a result of a default by us under the O&M Agreement, we are obligated to repurchase such Energy Server from the applicable PPA entity for a repurchase price specified in the applicable O&M Agreement. During the period from September 2010 to March 31, 2018, we have incurred no obligations for payments pursuant to these provisions under any of our PPA arrangements.

Our obligations pursuant to the ASA include performing a variety of administrative and management services necessary to conduct the business of the PPA project. These duties include: (i) invoicing and collecting amounts due from the end-customers, (ii) engaging, supervising and monitoring any third-party service providers required for the operation of the project, (iii) paying, on behalf of the PPA entity and with the PPA entity’s available funds, any amounts owed, including debt service payments on the debt incurred by the PPA entity (Project Debt), if applicable, (iv) maintaining books and records and preparing financial statements, (v) representing the PPA entity in any administrative or other public proceedings, (vi) preparing annual budgets and other reports and deliverables owed by the PPA entity under the Project Debt agreements, if applicable, and (vii) generally performing all other administrative tasks required in relation to the PPA project. We receive an annual administration fee for its services, calculated on a fixed dollar per kilowatt ($/kW) basis.

Obligations to Lenders

Each of the PPA projects (other than the PPA I project) 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 Project Debt incurred by the applicable PPA entity is secured by all of the assets comprising the project (primarily comprised of the Energy Servers owned by the PPA entity and a collateral assignment of each of the contracts to which such PPA entity is a party, including the O&M Agreement entered into with us and the offtake agreements entered into with PPA entity’s customers), and is senior to all other debt obligations of the PPA entity. As further collateral, the lenders receive a security interest in 100% of the membership interest of the PPA entity. However, as is typical in structured finance transactions of this nature, although the Project Debt is secured by all of the PPA entity’s assets, the lenders have no recourse to us or to any of the other tax equity investors in the project.

The applicable PPA entity is obligated to make quarterly principal and interest payments according to an amortization schedule agreed between us, the tax equity investors and the lenders. The debt is either a “term

 

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loan”, where the final maturity date coincides with the expiration of the offtake agreements included in the project, or a “mini-perm loan,” where the final maturity date occurs at some point prior to such expiration; in the case of these “mini-perm loans”, we expect to be able to refinance these loans on or prior to their maturity date by procuring debt from other sources and using the proceeds of such new debt to repay the existing loans.

The Project Debt documentation also includes provisions that implement a customary “payment waterfall” that dictates the priority in which the PPA entity will use its available funds to satisfy its payment obligations to us, the lenders, the tax equity investors and other third parties. These provisions generally provide that all revenues from the sale of electricity under the applicable offtake agreements and any other cash proceeds received by the PPA entity are deposited into a “revenue account”, and those funds are then distributed in the following order: first, to pay for ongoing project expenses, including amounts due to us under the O&M Agreement and the ASA, taxes, insurance premiums, and any legal, accounting and other third party service provider costs; second, to pay any fees due to collateral agents and depositary agents, if any; third, to pay interest then due on the loans; fourth, to pay principal then due on the loans; fifth, to fund any reserve accounts to the extent not fully funded; and finally, any remaining cash (Distributable Cash) may be distributed to us and the tax equity investors in the project, subject to the satisfaction of any conditions to distributions agreed with the applicable lenders, such as a minimum debt service coverage ratios, absence of defaults, and similar requirements. Additional information regarding the Project Debt for each individual PPA Project is set forth in the Liquidity and Capital Resources section below. In addition, the “Distribution Conditions” are negotiated individually for each PPA Project, but in each case include (i) absence of defaults, and (ii) satisfaction of minimum debt service coverage ratios. In the event that there is Distributable Cash remaining after the payment of all higher-priority payment obligations but the applicable Distribution Conditions are not satisfied, the applicable funds are deposited into a “Distribution Suspense Account” and remain in such account until the Distribution Conditions are subsequently satisfied. In the event that any funds have been on deposit in the Distribution Suspense Account for four (4) consecutive calendar quarters, the applicable Project Company is obligated to use such “Trapped Cash” to prepay the Project Debt.

In connection with the PPA IIIb, PPA IV and PPA V projects, we procured a Fuel Cell Energy Production Insurance Policy on behalf of the applicable PPA entity and the lenders (Production Insurance). The Production Insurance policies are intended to mitigate the risk of our failure or inability to operate and maintain the applicable portfolio of Energy Servers in accordance with the requirements of the O&M Agreement, and provides for debt service payment on the Project Debt in the event that the PPA entity’s revenues are insufficient to make such payments due to a shortfall in the electricity generated by the Energy Servers. To date, no claims have been made under any of the Production Insurance policies.

For additional information regarding Project Debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Credit Facilities—PPA Entities’ Indebtedness”.

Obligations to Investors

Each of our PPA projects has involved an investment by one or more tax equity investors, who contribute funds to the applicable PPA entity in exchange for equity interests entitling such investors to distributions of the cash and any tax credits and other tax benefits generated by the project. In each of the PPA projects, we (via a wholly-owned subsidiary) and one or more additional tax equity investors form a jointly-owned special purpose entity (each, a Holding Company), which entity in turn owns 100% of the membership interests of the applicable PPA entity. Our obligations to the other equity investors are set forth in the Holding Company limited liability company operating agreement (the Operating Agreement). We act as the managing member of each Holding Company, managing its day-to-day affairs subject to consent rights of the tax equity investors with respect to decisions agreed between us and such investors in the Operating Agreement.

As members of a Holding Company, we and the applicable tax equity investors are entitled to (i) allocations of items of income, loss, gain, deduction and credit (Tax Items) including, where applicable, the 30% investment

 

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tax credit under Section 48 of the Internal Revenue Code, and (ii) distributions of any cash held by such Holding Company in excess of amounts necessary for the ongoing operation of such Holding Company, including any Distributable Cash received from the applicable PPA entity. The members’ respective allocations of Tax Items and cash distributions are negotiated on a project-by-project basis between us and the tax equity investors in each PPA project. Distributions are made to investors (including us) on a quarterly basis in connection with PPA II, PPA IV and PPA V, and on a semi-annual basis in PPA IIIa and PPA IIIb.

In the event of a bankruptcy of a PPA entity, the assets of such PPA would be liquidated, likely at the direction of the bankruptcy trustee, if one was appointed, or according to the direction of the applicable lenders to such PPA entity. In the event of a bankruptcy or liquidation, assets would first be liquidated to repay the applicable project’s debt. If any cash remained following the repayment of debt, such cash would be distributed among us and the other equity investor(s) in the project in accordance with the applicable LLC agreement for the joint investment entity. As a general matter, cash is first applied to the payment of owed but unpaid preferred distributions to the equity investor(s) other than us, if any, with any remaining assets split between us and such equity investor(s) in accordance with the sharing percentages of distributions as set forth in the applicable LLC agreement.

The PPA projects do not permit for voluntary early termination of the arrangements by us or the applicable tax equity investors. The tax equity investors in the projects may not withdraw from the applicable PPA entity, except in connection with a permitted transfer or sale of such member’s assets in compliance with any restrictions on transfer set forth in the limited liability company agreement applicable to such project.

The following sets forth a project-by-project summary of obligations that are unique to individual projects:

PPA II. Diamond State Generation Partners, LLC (PPA Company II) is a wholly-owned subsidiary of Diamond State Generation Holdings, LLC (PPA II HoldCo), which is jointly-owned by us and a tax equity investor. As of March 31, 2018, we owned 100% of the Class A Membership Interests of PPA II HoldCo, and the tax equity investor owned 100% of the Class B Membership Interests of PPA II HoldCo. We (through our wholly-owned subsidiary Clean Technologies II, LLC), act as the managing member of PPA II HoldCo.

The economic benefits of the PPA II project are allocated between us and the tax equity investor as follows:

 

    Other than Tax Items relating to the proceeds of any cash grant under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (Cash Grant), Tax Items are allocated (i) 99% to the tax equity investor and 1% to us until the last date of the calendar month in which the tax equity investor has achieved an internal rate of return equal to the “Target IRR” specified in the PPA II HoldCo operating agreement (Flip Date), and (ii) following the Flip Date, 5% to the tax equity investor and 95% to us.

 

    All Tax Items relating to the Cash Grant are allocated 99% to the tax equity investor and 1% to us.

 

    All cash proceeds of the Cash Grant are distributed 99% to the tax equity investor and 1% to us.

 

    All other cash available for distribution is distributed (i) 99% to the tax equity investor and 1% to us until the Flip Date, and (ii) following the Flip Date, 5% to the tax equity investor and 95% to us.

Pursuant to the PPA II HoldCo LLC agreement, we have the option, exercisable at our sole discretion, to purchase all of the tax equity investor’s membership interests in PPA II HoldCo on the eleventh anniversary of the date of the initial equity investment of the PPA II project by the tax equity investor, which will occur in June, 2023. If we were to exercise this purchase option, we would thereafter be entitled to all subsequent cash, income (loss), tax and tax allocations generated by the PPA II Project (net of payments to the PPA II lenders under the PPA II Credit Agreement) and the purchase price for the tax equity investor’s membership interests would be equal to the greater of (i) the fair market value of such equity interests at such time, or (ii) the amount that would cause the tax equity investor to realize an internal

 

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rate of return stated in the PPA II HoldCo LLC agreement. The cash consideration required to generate the required internal rate of return for the tax equity investor pursuant to this purchase option will vary based on the distributions generated by the PPA II Project thru June, 2023, and may range between approximately $71.1 million and $109.9 million. We have agreed to indemnify the tax equity investor in PPA II HoldCo from any liability related to recapture of the Cash Grant, except to the extent such recapture results from (i) a breach of applicable representations and covenants of the tax equity investor, or (ii) a prohibited transfer of the tax equity investor’s membership interests in PPA II HoldCo.

The PPA II project includes an annual Output Guaranty of 95% and a cumulative Efficiency Guaranty of 50%. In each case, underperformance obligates us to make a payment to PPA Company II. As of March 31, 2018, the PPA II project is operating at an average output of approximately 86% for calendar year 2018, and a lifetime average efficiency of approximately 51%. Our obligation to make payments for underperformance of the PPA II project is capped at an aggregate total of approximately $13.9 million under the Output Guaranty and approximately $263.6 million under the Efficiency Guaranty. As of March 31, 2018, we have no remaining liability under the Output Guaranty, and our remaining potential liability under the Efficiency Guaranty cap is approximately $263.6 million.

Obligations Under the PPA II Tariff Agreement

PPA Company II is required to declare a “Forced Outage Event” if permitted under the PPA II tariff agreement in the event that (i) the Company has reached its cap on performance warranty payments under the O&M Agreement, such that PPA Company II is not eligible for further warranty payments under such O&M Agreement, (ii) the project’s lifetime efficiency falls below the level warranted in the O&M Agreement and the Company has not reimbursed PPA Company II for the resulting excess costs of procuring natural gas resulting from such shortfall, (iii) the Energy Servers have failed to generate electricity at an average above a minimum threshold specified in the PPA II Credit Agreement (i.e., 85% of the project’s nameplate capacity during any calendar month) or (iv) the Company has suffered a bankruptcy event or the Company ceases to carry on its business. As of March 31, 2018, no “Forced Outage Event” had been declared. The PPA II project’s average output for March 2018 equaled 85.8% of the project’s nameplate capacity.

In addition, in the event that PPA Company II claims that a “Forced Outage Event” has occurred under the PPA II tariff, PPA Company II is obligated to purchase and deliver replacement RECs in an amount equal to the number of megawatt hours for which it receives compensation under the ‘forced outage’ provisions of the tariff, but only if such replacement RECs are available in sufficient quantities and can be purchased for less than $45 per REC. A “Forced Outage Event” is defined under the PPA II tariff agreement as the inability of PPA II to obtain a replacement component part or a service necessary for the operation of the Energy Servers at their nameplate capacity. The PPA II tariff agreement provides for payments to PPA Company II in the event of a Forced Outage Event lasting in excess of 90 days. For the first 90 days following the occurrence of a Forced Outage Event, no payments are made under this provision of the tariff. Thereafter, PPA Company II is entitled to payments equal to 70% of the payments that would have been made under the tariff but for the occurrence of the Forced Outage Event—that is, the “Forced Outage Event” provision of the PPA II tariff agreement provides for payments to PPA Company II under the tariff equal to the amount that would be paid were PPA Company II’s Energy Servers operating at 70% of their nameplate capacity, irrespective of actual output. The PPA II tariff agreement also provides that the “Forced Outage Event” protections afforded thereunder shall automatically terminate in the event that we obtain an investment grade rating. In addition, in the event we obtain an investment grade rating, we are required to offer to repurchase the Notes from each individual noteholder unless we provide a guarantee of the debt obligations of the PPA Company II.

The tax equity investor in PPA II HoldCo has the option, exercisable on March 16, 2022, to sell 100% of its equity interests in the project to us for a sale price equal to the then-applicable fair market value of such equity interests. We guarantee the obligations of Clean Technologies II to make the payment of such purchase price in the event the tax equity investor exercises such option.

 

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PPA IIIa . 2012 ESA Project Company, LLC (PPA Company IIIa) is a wholly-owned subsidiary of 2012 V PPA Holdco, LLC (PPA IIIa HoldCo), which is jointly-owned by us and a tax equity investor. As of March 31, 2018, we owned 100% of the Class B Membership Interests of PPA IIIa HoldCo, and the tax equity investor owned 100% of the Class A Membership Interests of PPA IIIa HoldCo. We (through our wholly-owned subsidiary Clean Technologies III, LLC), act as the managing member of PPA IIIa HoldCo.

The economic benefits of the PPA IIIa project are allocated between us and the tax equity investor as follows:

 

    Tax Items (including the ITC) are allocated (i) 99% to the tax equity investor and 1% to us.

 

    Cash available for distribution is distributed (i) until January 1, 2020, first, to the tax equity investor, a payment equal to 2% of the investor’s investment on an annual basis, and next, all remaining amounts are distributed to us; and (ii) from and after January 1, 2020, first, to the tax equity investor, a payment equal to 2% of the investor’s investment on an annual basis, and next, all remaining amounts are distributed 95.05% to us and 4.95% to the tax equity investor.

Pursuant to the PPA IIIa HoldCo LLC agreement, we have the option, exercisable at our sole discretion, to purchase all of the tax equity investor’s membership interests in PPA IIIa HoldCo, exercisable within six months following either January 1, 2020 or January 1, 2025. If we were to exercise this purchase option, we would thereafter be entitled to all subsequent cash, income (loss), tax and tax allocations generated by the PPA IIIa Project (net of payments to the PPA IIIa lenders under the PPA IIIa Credit Agreement) and the purchase price for the tax equity investor’s membership interests would be equal to the greater of (i) the fair market value of such equity interests at such time, or (ii) the sum of (x) any unpaid amounts owed to the tax equity investor pursuant to its entitlement to cash distributions equal to 2% of its investment (as described above), plus (y) approximately $2.1 million. The PPA IIIa project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Warranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company IIIa regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to the Output Warranty and/or the Output Guaranty, we are obligated to make a payment to PPA Company IIIa; additionally, in the case of underperformance against the Output Warranty, we are obligated to repair or replace the applicable Energy Servers. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company IIIa for any payments owed to the applicable PPA customer(s). As of March 31, 2018, the PPA IIIa project is operating at an average output of approximately 85% for calendar year 2018, an average output of approximately 85% for the three months ended March 31, 2018, and a lifetime average efficiency of approximately 52%. Our obligation to make payments for underperformance of the PPA IIIa project is capped at an aggregate total of approximately $5.0 million under the annual Output Guaranty, approximately $10.0 million under the quarterly Output Warranty, and approximately $675,000 under the Efficiency Guarantees in the applicable offtake agreements. As of March 31, 2018, our aggregate remaining potential liability under these caps is approximately $2.4 million under the annual Output Guaranty, approximately $9.8 million under the quarterly Output Warranty, and approximately $675,000 under the Efficiency Guarantees.

We have agreed to indemnify the tax equity investor in PPA IIIa HoldCo from any liability related to recapture of the ITC except to the extent such recapture results from (i) a transfer of the tax equity investor’s membership interest in the project, (ii) a change in the federal income tax classification of the tax equity investor or its owners, (iii) a change in federal income tax law or (iv) adverse findings regarding the tax classification of the project.

The tax equity investor has the option, exercisable for a six month period commencing January 1, 2021, to withdraw from PPA IIIa HoldCo by notice to us. Notwithstanding the allocations of cash available for distribution set forth above, in the event that the tax equity investor exercises this withdrawal option, such

 

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investor shall receive 99% of the cash available for distribution until it has received the fair market value of its Class A Membership Interests in PPA IIIa HoldCo at such time, but in any event no more than approximately $2.0 million.

PPA IIIb . 2013B ESA Project Company, LLC (PPA Company IIIb) is a wholly-owned subsidiary of 2013B ESA Holdco, LLC (PPA IIIb HoldCo), which is jointly-owned by us and a tax equity investor. As of March 31, 2018, we owned 100% of the Class B Membership Interests of PPA IIIb HoldCo, and the tax equity investor owned 100% of the Class A Membership Interests of PPA IIIb HoldCo. We (through our wholly-owned subsidiary Clean Technologies 2013B, LLC), act as the managing member of PPA IIIb HoldCo.

The economic benefits of the PPA IIIb project are allocated between us and the tax equity investor as follows:

 

    Tax Items (including the ITC) are allocated 99% to the tax equity investor and 1% to us.

 

    Cash available for distribution is distributed (i) until January 1, 2021, first, to the tax equity investor, a payment equal to 2% of the investor’s investment on an annual basis, and next, all remaining amounts are distributed to us; and (ii) from and after January 1, 2021, first, to the tax equity investor, a payment equal to 2% of the investor’s investment on an annual basis, and next, all remaining amounts are distributed 95.05% to us and 4.95% to the investor.

Pursuant to the PPA IIIb HoldCo LLC agreement, we have the option, exercisable at our sole discretion, to purchase all of the tax equity investor’s membership interests in PPA IIIb HoldCo, exercisable within six months following either January 1, 2021 or January 1, 2026. If we were to exercise this purchase option, we would thereafter be entitled to all subsequent cash, income (loss), tax and tax allocations generated by the PPA IIIb Project (net of payments to the PPA IIIb lenders under the PPA IIIb Credit Agreement) and the purchase price for the tax equity investor’s membership interests would be equal to the greater of (i) the fair market value of such equity interests at such time, or (ii) the sum of (x) any unpaid amounts owed to the tax equity investor pursuant to its entitlement to cash distributions equal to 2% of its investment (as described above), plus (y) approximately $0.7 million. The PPA IIIb project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Guaranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company IIIb regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to either Output Guaranty, we are obligated to make a payment to PPA Company IIIb. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company IIIb for any payments owed to the applicable PPA customer(s). As of March 31, 2018, the PPA IIIb project is operating at an average output of approximately 90% for the period ending March 31, 2018, an average output of approximately 90% for the three months ended March 31, 2018, and a lifetime average efficiency of approximately 53%. Our obligation to make payments for underperformance of the PPA IIIb project is capped at an aggregate total of approximately $2.7 million under the annual Output Guaranty, is uncapped under the quarterly Output Guaranty, and is capped at an aggregate total of approximately $1.0 million under the Efficiency Guarantees in the applicable offtake agreements. As of March 31, 2018, our aggregate remaining potential liability under these caps is approximately $2.6 million under the annual Output Guaranty and is approximately $1.0 million under the Efficiency Guarantees.

We have agreed to indemnify the tax equity investor in PPA IIIa HoldCo from any liability related to recapture of the ITC except to the extent such recapture results from (i) a transfer of the tax equity investor’s membership interest in the project, (ii) a change in the federal income tax classification of the tax equity investor or its owners, (iii) a change in federal income tax law or (iv) adverse findings regarding the tax classification of the project.

The tax equity investor has the option, exercisable for a 6-month period commencing January 1, 2022, to withdraw from PPA IIIa HoldCo by notice to us. Notwithstanding the allocations of cash available for

 

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distribution set forth above, in the event that the tax equity investor exercises this withdrawal option, the investor shall receive 99% of the cash available for distribution until it has received the fair market value of its Class A Membership Interests in PPA IIIa HoldCo at such time, but in any event no more than approximately $1.2 million.

PPA IV. 2014 ESA Project Company, LLC (PPA Company IV) is a wholly-owned subsidiary of 2014 ESA Holdco, LLC (PPA IV HoldCo), which is jointly-owned by us and a tax equity investor. As of March 31, 2018, we owned 100% of the Class B Membership Interests of PPA IV HoldCo, and the tax equity investor owned 100% of the Class A Membership Interests of PPA IV HoldCo. We (through our wholly-owned subsidiary Clean Technologies 2014, LLC), act as the managing member of PPA IV HoldCo.

The economic benefits of the PPA IV project are allocated between us and the tax equity investor as follows:

 

    Tax Items (including the ITC) are allocated 90% to the tax equity investor and 10% to us.

 

    Cash available for distribution is distributed 90% to the tax equity investor and 10% to us.

The PPA IV project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Guaranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company IV regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to either Output Guaranty, we are obligated to make a payment to PPA Company IV. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company IV for any payments owed to the applicable PPA customer(s). The offtake agreements generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. As of March 31, 2018, the PPA IV project is operating at an average output of approximately 89% for calendar year 2018, and a lifetime average efficiency of approximately 55%. Our obligation to make payments for underperformance of the PPA IV project is capped at an aggregate total of approximately $7.2 million under the annual Output Guaranty, is uncapped under the quarterly Output Guaranty, and is capped at approximately $3.6 million under the Efficiency Guarantees in the applicable offtake agreements. As of March 31, 2018, our aggregate remaining potential liability under these caps is approximately $6.7 million under the annual Output Guaranty, and approximately $3.6 million under the Efficiency Guarantees.

We have agreed to indemnify the tax equity investor in PPA IV HoldCo from any liability related to recapture of the ITC that results from a breach of our representations, warranties and covenants to the tax equity investor set forth in the transaction documents associated with the PPA IV project.

PPA V . 2015 ESA Project Company, LLC (PPA Company V) is a wholly-owned subsidiary of 2015 ESA HoldCo, LLC (PPA V HoldCo). PPA V HoldCo is jointly-owned by us and 2015 ESA Investco, LLC (PPA V InvestCo), which is itself a jointly-owned subsidiary of two tax equity investors. As of March 31, 2018, we owned 100% of the Class B Membership Interests of PPA V HoldCo, and PPA V InvestCo owned 100% of the Class A Membership Interests of PPA V HoldCo. We (through our wholly-owned subsidiary Clean Technologies 2015, LLC), act as the managing member of PPA V HoldCo.

The economic benefits of the PPA V project are allocated between us and PPA V InvestCo as follows:

 

    Tax Items (including the ITC) are allocated 90% to PPA V InvestCo and 10% to us.

 

    Cash available for distribution is distributed 90% to PPA V InvestCo and 10% to us.

The PPA V project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Guaranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company V regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of

 

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52% measured cumulatively over the life of the project. In the case of underperformance with respect to either Output Guaranty, we are obligated to make a payment to PPA Company V. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company V for any payments owed to the applicable PPA customer(s). The offtake agreements generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. As of March 31, 2018, the PPA V project is operating at an average output of approximately 93% for calendar year 2018, and a lifetime average efficiency of approximately 57%. Our obligation to make payments for underperformance of the PPA V project is capped at an aggregate total of approximately $13.9 million under the annual Output Guaranty, is uncapped under the quarterly Output Guaranty, and is capped at approximately $6.8 million under the Efficiency Guarantees in the applicable offtake agreements. As of March 31, 2018, our aggregate remaining potential liability under these caps is approximately $13.9 million under the annual Output Guaranty, and approximately $6.8 million under the Efficiency Guarantees.

We have agreed to indemnify the tax equity investor in PPA V HoldCo from any liability related to recapture of the ITC that results from a breach of our representations, warranties and covenants to the tax equity investor set forth in the transaction documents associated with the PPA V project.

We have also agreed to make certain payments to our tax equity investors in the event that the average time period between receipt of the deposit payment for an Energy Server and the date on which such Energy Server achieves commercial operations exceeds specified periods. During 2016, we recorded $4.0 million within general and administrative expenses in the consolidated statements of operations for estimated delay penalties to our tax equity investors. During 2017, we revised our estimate and recorded a reduction of $0.8 million within general and administrative expenses in the consolidated statements of operations and issued a final net payment of $3.2 million for penalties to our tax equity investors. We do not expect any delay penalties as of March 31, 2018.

In addition, we have agreed to make certain partner related developer fee payments required to be made by us to the tax equity investor upon acceptance of Energy Servers sold through PPA Company V. See the section titled “—Components of Results of Operations—Partner Related Developer Fee Liabilities” for additional information.

Obligations to End-Customers

Our obligations to the end-customers in the Bloom Electrons projects are set forth in the offtake agreement between the PPA entity and the end-customer. The offtake agreements share the following provisions:

Term; Early Termination : The offtake agreements provide for an initial term of 15 years, except that (i) the offtake agreements included in PPA I provide for an initial term of 10 years, and (ii) the offtake agreement for PPA II has a term of 21 years. The offtake agreements may be renewed by the mutual agreement of the end-customer and the applicable PPA entity for additional periods at the expiration of the initial term. In the event that the end customer desires to terminate the offtake agreement before the end of the contract term, or in the event that the offtake agreement is terminated by the applicable PPA entity due to customer default as defined in the offtake agreement, the end customer is required to pay a “termination value” payment as liquidated damages. This termination value payment is calculated to be sufficient to allow the PPA entity to repay any debt associated with the affected Energy Servers, make distributions to the equity investor(s) in the PPA project equal to their expected return on investment, pay for the removal of the Energy Servers from the project site, and cover any lost tax benefits incurred as a result of the termination (if any). In some cases, we may agree to reimburse the end-user for some or all of the termination value payments paid if we are able to successfully resell or redeploy the applicable Energy Servers following termination of the offtake agreement.

Energy Server Installation and Operation : The applicable PPA entity is responsible for the installation, operation and maintenance of the Energy Servers. In performing such services, the PPA entity is required to

 

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comply with all applicable laws and regulations, with the requirements of any permits obtained for the Energy Servers, with any requirements of the interconnection agreement entered into with the local electric utility regarding such Energy Servers, and with any requirements agreed with the applicable end-customer in the offtake agreement (such as site access procedures, black-out periods regarding routine maintenance, etc.).

Take-Or-Pay Purchase Obligation : The end-customer is required to purchase all of the electricity generated by the Energy Servers for the duration of the offtake agreement. We perform an initial credit evaluation of our customer’s ability to pay under our PPA arrangements. Subsequently, on an at least annual basis, we re-evaluate and confirm the credit worthiness of our customers. Under our existing PPA arrangements, there are four customers that represent more than 10% of the total assets of our PPA entities. The four customers include Delmarva, Home Depot, AT&T and Walmart. In the event that an end-customer is unwilling or unable to accept delivery of such electricity or fails to supply the necessary fuel to the Energy Servers (if applicable), the end-customer is required to make a payment to the PPA entity for the amount of electricity that would have been delivered had the Energy Servers continued to operate.

Fuel Supply Obligation : In PPA I, fuel supply obligations are either the obligation of the PPA entity or the end-customer, on a case-by-case basis. In PPA II, the PPA entity is responsible for providing all required fuel to the Energy Servers and is reimbursed pursuant to the Delmarva Tariff so long as the Energy Servers maintain a specified operational efficiency. In the PPA IIIa, PPA IIIb, PPA IV and PPA V projects, the end-customers are required to provide all necessary fuel for the operation of the Energy Servers.

Ownership of Energy Servers : The applicable PPA entity retains title to the Energy Servers at all times unless the end-customer elects to purchase the Energy Server(s).

Financial Incentives and Environmental Attributes : As the owner of the Energy Servers, the PPA entity retains ownership of any tax benefits associated with the installation and operation of the Energy Servers. Additional financial incentives available in connection with the offtake agreements (such as payments under state incentive programs or renewable portfolio standard programs) and any environmental benefits associated with the Energy Servers (such as carbon emissions reductions credits) are allocated to either the PPA entity or the end-customer on a case-by-case basis. In some circumstances, the PPA entity has also agreed to purchase and deliver to the end-customer renewable energy credits in connection with the offtake agreement.

Efficiency Commitments : Where the end-customer is responsible for delivering fuel to the Energy Servers, the offtake agreement includes Energy Server efficiency commitments. Generally, these consist of (i) an “Efficiency Warranty”, where the PPA entity is obligated to repair or replace Energy Servers that fail to operate at or above a specified level of efficiency during any calendar month, and/or (ii) an “Efficiency Guaranty”, where the PPA entity is obligated to make payments to the end-customer to cover the cost of procuring excess fuel if the Energy Servers fail to operate at or above a specified level of efficiency on a cumulative basis during the term of the offtake agreement. Where an Efficiency Guaranty is provided, the PPA entity’s aggregate liability for payments is capped. In certain circumstances, we may negotiate modifications to the efficiency commitments with the end-customer, including different efficiency thresholds or providing for monetary payments under the Efficiency Warranty in lieu of or in addition to our obligation to repair or replace underperforming Energy Servers.

Output Commitments : Although our standard Bloom Electrons offering does not include a minimum output commitment to the end-user, exceptions may be negotiated on a case-by-case basis if we believe the opportunity justifies such exception. These output commitments are at an output level lesser than or equal to the level warranted by us to the PPA entity under the O&M Agreement, and provide either for a payment to the end-customer for the shortfall in electricity produced or for an end-customer termination right. In addition, where the end-user (as opposed to the PPA entity) is entitled to the benefits of an incentive program that requires a minimum output level, the PPA entity may agree to reimburse the end-customer for any decrease in incentive payments resulting from the Energy Servers’ failure to operate at such minimum output level.

 

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Defaults; Remedies : Defaults under the offtake agreements are typically limited to (i) bankruptcy events, (ii) unexcused failure to perform material obligations, and (iii) breaches of representations and warranties. Additional defaults may be negotiated on a case-by-case basis with end-customers. The parties are generally afforded cure periods of at least 30 days to cure any such defaults. In the event of an uncured default by the PPA entity, the end-customer may terminate the offtake agreement either in whole or in part as to the Energy Server(s) affected by such default, and may seek other remedies afforded at law or in equity. In the event of an uncured default by the end-customer, the PPA entity may terminate the offtake agreement either in whole or in part as to the Energy Server(s) affected by such default, and may seek other remedies afforded at law or in equity; in addition, in the event an offtake agreement is terminated due to an end-customer default, the end-customer is obligated to make a termination value payment to the PPA entity.

For further information about our PPA entities, see Note 14, Power Purchase Agreement Programs , to our consolidated financial statements included in this prospectus.

Factors Affecting Our Future Performance

Delivery and Installation of Our Product

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.

Our product sales backlog was $742.5 million, equivalent to 1,082 systems, or 108.2 megawatts, as of March 31, 2018. The benefit of ITC in our backlog value as of March 31, 2018 is $171.4 million. Our product sales backlog was $446.7 million, equivalent to 774 systems, or 77.4 megawatts, as of March 31, 2017, which did not have the benefit of ITC for this period. We define product sales backlog as signed customer product sales orders received prior to the period end, but not yet accepted and less 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.

Cost to Service Our Energy Servers

We offer customers of our purchase and lease programs the opportunity to renew their operations and maintenance service agreements on an annual basis, for up to 20 years, at prices predetermined at the time of purchase. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the life of our Energy Servers and their components, particularly the fuel cell stacks. We also provide performance warranties and guarantees covering the efficiency and output performance of our Energy Servers. We do not have a long history with a large number of field deployments, and our estimates may prove to be incorrect. For example, we implemented a decommissioning program for our early generation Energy Servers in the PPA I program, and while we have no current plans to do so, we could undertake to decommission additional Energy Servers in the future. For more information, see “—Components of Results of Operations—Revenue—Product Revenue—PPA I Decommissioning”. Failure to meet these performance warranties and

 

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guarantee levels may require us to replace the Energy Servers 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 extended warranty costs that we expect to incur under the maintenance service agreements that our customers renew for a term of typically one year. In addition, we expect that our deployed early generation Energy Servers 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 in respect of those early generation servers if our customers continue to renew their maintenance service agreements in respect of those servers. We expect the performance of our newer generation Energy Servers to be significantly improved.

Availability of Capital and Investments for Power Purchase Agreements

We rely on access to equity and debt financing to provide attractively-priced financing for our customers. Our future success depends on our and our customers’ ability to raise capital from third parties on competitive terms to help finance the deployment of our systems. It is therefore possible that the amounts investors are willing to invest in the future would not be enough to support customer demand or could decrease from current levels, or we may be required to provide a larger allocation of customer payments to investors in any future PPA structures as a result of changes in the financing markets.

Government Incentives and Regulation

Our cost of capital, the price we can charge for electricity, the cost of our systems and the demand for particular types of energy generation are impacted by a number of federal, state and local government incentives and regulations. These include tax credits, particularly the federal ITC, tax abatements, and state incentive programs. These programs have been challenged from time to time by utilities, governmental authorities and others. For example, although it has been recently reinstated, the ITC expired on December 31, 2016 and was not available in 2017. Other incentives may also expire or decrease in the future. A reduction in such incentives could make our products less attractive relative to other alternatives and could adversely affect our results of operations, cost of capital and growth prospects.

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, competition with utilities, and the interconnection of customer-owned electricity generation. In the United States, 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.

Value Proposition in Current and New Markets

Our customers purchase our products to generate electricity. We expect that changes in the prices of our Energy Servers, grid electricity and natural gas, will significantly affect demand for our product. We have sold our Energy Servers to customers across 10 states in the United States, as well as in Japan, India and South Korea. We have focused on these states, and the two international markets we have entered, because the utility-generated energy prices, regulatory policies and/or government incentives in these locations have provided the most compelling markets for distributed fuel cell energy. We believe that these markets remain significantly underpenetrated, and we intend to further penetrate these markets by investing, marketing and expanding our reach within these regions. We also plan to expand into additional states and international markets where we believe we can offer our Energy Servers at attractive prices to customers relative to local grid electricity and where natural gas is readily available at attractive prices. Our ability to be successful in these markets will largely depend on the level of grid prices in such markets. Our contracted electricity rates need to be competitive with the amounts charged by the local utilities at each location. Generally, higher utility rate regions are contracted and installed first, followed by lower utility rate regions if the customer continues to expand use of the Energy Servers. These decreases in electricity rates could impact our revenue per kilowatt, but given our cost reduction efforts we do not believe that this trend will have an impact on our results of operations.

 

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Components of Results of Operations

Revenue

We primarily recognize revenue from the sale and installation of Energy Servers and by providing services under operations and maintenance services contracts.

Our total revenue is comprised of the following:

Product Revenue

All of our product revenue is generated from the sale of our Energy Servers to direct purchase, traditional lease and managed services customers. We generally begin to 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 running at full power as defined in each contract.

Our product offerings contain multiple elements representing a combination of revenue from Energy Servers, installation and operations and maintenance services. Upon acceptance, we allocate fair value to each of these elements, and 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 meeting any specified performance conditions.

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 in a given period and on the type of financing used by the customer. As an example, our total revenue was approximately $208.5 million and $376.0 million in 2016 and 2017, respectively. While the number of systems recognized (accepted) decreased 9.5% from 687 to 622 systems, our revenue increased 80.3% due to the higher mix of financing sales vehicles in 2017 that require revenue to be recognized up-front when installed, instead of ratably over the life of those contracts.

PPA I Decommissioning

During 2015, we recorded a reduction in product revenue totaling $41.8 million for the decommissioning of our PPA I Energy Servers.

Our PPA I sales arrangements qualified as sales-type leases, and therefore, product revenue was recognized upfront at acceptance and a customer financing receivable was recorded on the balance sheet. The product revenue related to these arrangements was recognized during the period from 2010 through 2012. To date, we have incurred significant costs to service and maintain these first and second generation Energy Servers deployed in these arrangements which are still in service. Our new generation Energy Servers being deployed have longer lives with lower service and maintenance costs than the earlier generation Energy Servers. In an effort to minimize the financial effect of these service costs in future periods from these legacy systems, in December 2015, we agreed to a PPA I fleet decommissioning program with our tax equity investors whereby we would seek to renegotiate our existing PPA arrangements and purchase the tax equity investors’ interests in PPA I. As of March 31, 2018, we have recognized $31.7 million in total revenue related to sales of new Energy Servers to replace Energy Servers sold through PPA I where the PPA I Energy Server had been decommissioned.

In January 2016, we issued an additional $25.0 million of our 6% Notes for the purchase of such tax equity investors’ interests. As the original sale was recognized as product revenue upfront under the assumption that the lease payments were non-cancellable, we recorded the related decommissioning charge as a reduction in product revenue on the consolidated statement of operations and a related asset impairment charge of $31.8 million related to the customer financing receivable as this receivable will not be collectible.

 

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Additionally, for PPA I, our policy is that cash grants received under the American Recovery and Reinvestment Act of 2009 (ARRA) are treated as revenue when received. Charges for estimated future cash expenditures were recorded in December 2015 for the estimated loss of $10.0 million related to estimated reimbursements of such cash grants received due to recapture provisions under the grant program. The decommissioning program was completed as of December 31, 2016. In 2016, we recorded a $1.7 million reduction in our estimate of recapture refunds and paid a total of $8.3 million in recapture refunds.

Installation Revenue

All of our installation revenue is generated from the installation of our Energy Servers to direct purchase, traditional lease and managed services customers. We generally recognize installation revenue from contracts with customers for the sales of our Energy Servers once we achieve acceptance. 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 and on the type of financing used by the customer.

Service Revenue

Service revenue is generated from operations and maintenance services agreements that extend the standard warranty service coverage beyond the initial one-year warranty for Energy Servers sold under direct purchase, traditional lease and managed services sales. Customers of our purchase and lease programs can renew their operating and maintenance services agreements on an annual basis for up to 20 years, at prices predetermined at the time of purchase of the Energy Server. Revenue is recognized from such operations and maintenance services based on the fair value allocated to such operations and maintenance services, ratably over the renewed one-year service period. We anticipate that almost all of our customers will continue to renew their operations and maintenance services agreements each year.

Electricity Revenue

Our PPA entities purchase Energy Servers from us and sell the electricity produced by these systems to customers through long-term PPAs. Customers are required to purchase all of the electricity produced by the Energy Servers at agreed-upon rates over the course of the PPA’s term. We generally recognize revenue from such PPA entities 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 also 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, traditional lease and managed services customers, including costs of materials, personnel costs, allocated costs, shipping costs, provisions for excess and obsolete inventory, and the depreciation costs of our equipment. Because the sale of our Energy Servers includes a one-year warranty, cost of product revenue also includes first year warranty costs. We provide warranties and performance guarantees regarding the Energy Servers’ efficiency and output during the first year warranty period. Warranty costs for customers that purchase under managed services or the Bloom Electrons program are recognized as a cost of product revenue as they are incurred. 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. On a per unit basis, which we measure in dollars-per-kilowatt, we have reduced our material costs by approximately 75% from the inception of our first generation Energy Server to our current generation

 

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Energy Server. Material costs per unit came down by over 50% over the life of our second generation system and by over 35% over the life of our fifth generation system to date. With each successive new generation, we have been able to reduce the material costs compared to the prior generation’s material costs: Our second generation had material costs at the start of production that were approximately 60% lower per kilowatt than our first generation and our third generation had material costs at the start of production that were more than 30% lower per kilowatt than our second generation.

Our cost of product revenue generally consists of three components: raw material and component costs, labor and overhead for stack assembly operations cost, and labor and overhead for the final system assembly operations cost. Generally raw material and component costs comprise 80% of the total cost, stack operations cost comprises 11% and system assembly operations cost comprises 9% of the total cost. Over the past five years, total product cost per kilowatt has declined by 54%. Of the raw material and component cost reduction in the past five years, the hotbox cost, which is the cost of the assembly that holds the stack of the fuel cells, has declined by 44%; mechanical costs of our Energy Servers by 43%; and electrical costs of our Energy Servers by 33%. Stack assembly operations cost has declined by 66%, of which fixed cost has declined by 64% and variable cost has declined by 70%. System assembly operations cost has declined by 68%, of which fixed cost has declined by 64% and variable cost has declined by 70%.

Cost of Installation Revenue

Cost of installation revenue consists of the costs to install the Energy Servers that we sell to direct, traditional lease and managed services customers, including costs of materials and service providers, personnel costs, and allocated costs.

The amount of installation cost we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers in a given period and on the type of financing used by the customer. 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 foregoing.

Cost of Service Revenue

Cost of service revenue consists of costs incurred under maintenance service contracts for all customers including direct sales, 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. After the initial included warranty period expires, customers have the opportunity to renew their operations and maintenance services agreements on an annual basis, for up to 20 years, at prices predetermined at the time of purchase of the Energy Server. We expect our cost of service revenue to increase in absolute dollars as our end-customer 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 the cost of gas purchased in connection with PPAs entered into by our first PPA entity. The cost of electricity revenue is generally recognized over the term of the customer’s PPA. 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 increase in absolute dollars as our end-customer base of megawatts deployed grows.

 

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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 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 earned. 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 to 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.

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. We expect interest charges to decrease as a result of pay downs of the debt obligations over the course of the debt arrangements.

Other Income (Expense), Net

Other expense, net primarily consists of gains or losses associated with foreign currency fluctuations, net 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

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. We record any changes in the fair value of these instruments between reporting dates as a separate line item in our statement of operations. Some of the warrants issued are mandatorily convertible to common stock and subsequent to the completion of this offering, they will no longer be recorded as a liability related to these mandatorily converted warrants.

 

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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 account for income taxes using the liability method under Financial Accounting Standards Board Accounting Standards Codification 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 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 deferred tax assets because we believe it is more likely than not that the deferred tax assets will not be realized. At December 31, 2017, we had federal and state net operating loss carryforwards of $1.7 billion and $1.5 billion, respectively, which will expire, if unused, beginning in 2022 and 2018, respectively.

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 establish 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 accrued related to unrecognized tax benefits in other expense, net and penalties in operating expenses.

Partner Related Developer Fee Liabilities

The partner related developer fee liabilities represent payments required to be made by us to the tax equity investor upon installation of Energy Servers sold through PPA Company V. Since funding received by the PPA Company from the tax equity investor is used for the purchase and installation of Energy Servers, the payments made back to the tax equity investor upon acceptance of an installation essentially represent a return of capital and are accounted for as a reduction to noncontrolling interests on the consolidated balance sheets. There was $6.7 million in liabilities as of the year ended December 31, 2016. We have fulfilled all of our obligations under this arrangement, and therefore, there were no remaining liabilities recorded as of December 31, 2017. Such amounts were payable to the financing partner by the tenth day of the month following the installation of the Energy Servers at customer sites.

Net Income (Loss) Attributable to Noncontrolling Interests

We determine the net income (loss) attributable to common stockholders by deducting from net income (loss) in a period the 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 investment entity structure. 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 its investors. However, the redeemable noncontrolling interests balance is at least equal to the redemption amount. The noncontrolling interests and redeemable noncontrolling interests balance is presented as a component of permanent equity in the consolidated balance sheets or as temporary equity in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests when the third-parties have the right to redeem their interests in the funds for cash or other assets.

 

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For income tax purposes, the tax equity partner, who has committed to invest in the consolidated partnerships, will receive a greater proportion of the share of losses and other income tax benefits. This includes the allocation of investment tax credits, which will be distributed to the tax equity partner and to one of our wholly-owned subsidiaries based on the allocation specified in each respective partnership agreement until the tax equity partner’s targeted rate of return under the partnership agreement is met. For some of our PPA entities, after the PPA tax equity investors 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.

Results of Operations

The following table sets forth selected consolidated statements of operations data for each of the periods indicated:

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 

Consolidated Statements of Operations

   2016     2017     2017     2018  
     (in thousands, except for per share data)  

Revenue

        

Product

   $ 76,478     $ 179,768     $ 27,665     $ 121,307  

Installation

     16,584       63,226       12,293       14,118  

Service

     67,622       76,904       18,591       19,907  

Electricity

     47,856       56,098       13,648       14,029  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     208,540       375,996       72,197       169,361  

Cost of revenue

        

Product

     103,283       210,773       38,855       80,355  

Installation

     17,725       59,929       13,445       10,438  

Service

     155,034       83,597       18,219       24,253  

Electricity

     35,987       39,741       10,876       10,649  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     312,029       394,040       81,395       125,695  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (103,489     (18,044     (9,198     43,666  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Research and development

     46,848       51,146       11,223       14,731  

Sales and marketing

     29,101       32,415       7,845       8,262  

General and administrative

     61,545       55,674       12,879       14,988  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     137,494       139,235       31,947       37,981  
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) from operations

     (240,983     (157,279     (41,145     5,685  

Interest expense

     (81,190     (108,623     (24,363     (23,037

Other income (expense), net

     (379     268       119       (629

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

     (13,035     (14,995     215       (4,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (335,587     (280,629     (65,174     (22,015

Income tax provision

     729       636       214       333  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (336,316     (281,265     (65,388     (22,348

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests

     (56,658     (18,666     (5,856     (4,632
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (279,658   $ (262,599   $ (59,532   $ (17,716
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Includes stock-based compensation as follows:

 

     Years Ended
December 31,
     Three Months
Ended March 31,
 
     2016      2017      2017      2018  
     (in thousands)  

Cost of revenue

   $ 6,005      $ 7,734      $ 1,758      $ 1,898  

Research and development

     4,686        5,560        1,329        1,638  

Sales and marketing

     5,600        4,684        1,241        952  

General and administrative

     11,866        12,501        2,317        3,468  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 28,157      $ 30,479      $ 6,645      $ 7,956  
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparison of the Three Months Ended March 31, 2017 and 2018

Total Revenue

 

     Three Months Ended
March 31,
     Change 2018 vs. 2017  
     2017      2018        Amount        %  
     (unaudited)                
     (dollars in thousands)  

Product

   $ 27,665      $ 121,307      $ 93,642        338.5

Installation

     12,293        14,118      1,825        14.8

Service

     18,591        19,907      1,316        7.1

Electricity

     13,648        14,029        381        2.8
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 72,197      $ 169,361      $ 97,164        134.6
  

 

 

    

 

 

    

 

 

    

Total revenue increased approximately $97.2 million, or 134.6%, for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. Total revenue included a one-time benefit of $45.5 million attributable to 2017 acceptances due to the retroactive ITC renewal. Product revenue increased approximately $93.6 million, or 338.5%, for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. Product revenue included a one-time benefit of $43.9 million attributable to 2017 acceptances due to the retroactive ITC renewal. Product acceptances increased from 119 systems in the three months ended March 31, 2017 to 166 systems in the three months ended March 31, 2018, an increase of 39.5%; product revenue increased 338.5% due to a significantly higher mix of orders through direct sales to customers, where revenue is recognized on acceptance, compared to the Bloom Electrons and managed services financing programs where revenue is recognized over the term of the agreement (generally 10 to 21 years) as electricity revenue or product revenue, respectively. The number of acceptances in the three months ended March 31, 2017 where product revenue was recognized at acceptance was 55.0% of the total acceptances of 119, while the number of acceptances in the three months ended March 31, 2018 where product revenue was recognized at acceptance was 100.0% of the total acceptances of 166. The mix of orders between our Bloom Electrons and managed services financing programs and direct purchases is generally driven by customer preference.

Product and install revenue increased approximately $95.5 million, or 238.9% from $39.9 million for the three months ended March 31, 2017, to $135.4 million for the three months ended March 31, 2018. Product and install revenue included a one-time benefit of $45.5 million attributable to 2017 acceptances due to the retroactive ITC renewal. The ratable portion of the product and install revenue increased approximately $1.7 million from $5.1 million for the three months ended March 31, 2017, to $6.8 million for the three months ended March 31, 2018. This increase was primarily due to the increase in ratable acceptances through 2017. The upfront portion of the product and install revenue increased approximately $93.8 million from $34.8 million for the three months ended March 31, 2017, to $128.6 million for the three months ended March 31, 2018. This increase in upfront product and install revenue was primarily due to the increase in upfront acceptances from

 

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65.5 in the three months ended March 31, 2017 to 166.0 in the three months ended March 31, 2018. The upfront product and install average selling price increased from $5,317 per kilowatt for the three months ended March 31, 2017 to $7,745 per kilowatt for the three months ended March 31, 2018 due to the reinstatement of ITC in 2018.

Due to the reinstatement of ITC in 2018, the average selling price to customers was higher resulting in an overall $60.0 million increase in total revenue in the three months ended March 31, 2018, as compared to three months ended March 31, 2017. The total revenue for the three months ended March 31, 2017 included $2.4 million of benefit from ITC, while the total revenue for the three months ended March 31, 2018 included $62.4 million of benefit from ITC, of which $45.5 million was retroactive for 2017 acceptances. Installation revenue increased approximately $1.8 million, or 14.8%, for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. The increase in installation revenue was lower than the 39.5% increase in associated acceptances, as approximately 50% of the acceptances in the three months ended March 31, 2018 were with a customer that contracted the related installation with a third party.

Service revenue increased approximately $1.3 million, or 7.1%, for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. This was primarily due to the increase in the number of annual maintenance contract renewals, driven by our expanding customer base and corresponding total megawatts deployed.

Electricity revenue increased approximately $0.4 million, or 2.8%, for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017.

Total Cost of Revenue and Gross Profit (Loss)

 

     Three Months Ended
March 31,
     Change 2018 vs. 2017  
     2017      2018      Amount      %  
     (unaudited)                
     (dollars in thousands)  

Cost of revenue:

           

Product

   $ 38,855      $ 80,355      $ 41,500        106.8

Installation

     13,445        10,438        (3,007 )      (22.4 )% 

Service

     18,219        24,253        6,034        33.1

Electricity

     10,876        10,649        (227 )      (2.1 )% 
  

 

 

    

 

 

    

 

 

    

Total cost of revenue

     81,395        125,695        44,300        54.4
  

 

 

    

 

 

    

 

 

    

Gross profit (loss)

   $ (9,198    $ 43,666      $ 52,864        574.7
  

 

 

    

 

 

    

 

 

    

Total cost of revenue increased approximately $44.3 million, or 54.4 %, for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. This increase in cost of revenue was primarily attributable to higher product cost of revenue, which was driven by a higher mix of orders through direct sales to customers in which cost of revenue is recognized on acceptance, partially offset by our ongoing cost reduction efforts. However, this increase did not increase at the same rate as the increase in total revenue primarily due to the $45.5 million one-time revenue benefit due to the ITC renewal, while the related one-time costs were only $9.4 million. The number of acceptances in the three months ended March 31, 2017 where cost of revenue was recognized at acceptance was 55.0% of the total acceptances of 119, while the number of acceptances in the three months ended March 31, 2018 where cost of revenue was recognized at acceptance was 100.0% of the total acceptances of 166. Service cost also increased in the same period by $6.0 million primarily due to a higher number of power module replacements driven by the replacement cycle of our Energy Servers.

Product and install cost of revenue increased approximately $38.5 million, or 73.6% from $52.3 million for the three months ended March 31, 2017, to $90.8 million for the three months ended March 31, 2018. The ratable

 

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portion of the product and install cost of revenue increased approximately $1.9 million from $2.9 million for the three months ended March 31, 2017, to $4.8 million for the three months ended March 31, 2018. This increase was due to the increase in ratable acceptances through 2017. The product and install cost of revenue includes stock based compensation which also increased by $0.1 million from $1.6 million for the three months ended March 31, 2017, to $1.7 million for the three months ended March 31, 2018. The remaining upfront portion of the product and install cost of revenue excluding stock based compensation increased approximately $36.4 million from $47.8 million for the three months ended March 31, 2017, to $84.2 million for the three months ended March 31, 2018. This increase in upfront product and install cost of revenue was primarily due to the increase in upfront acceptances from 65.5 in the three months ended March 31, 2017 to 166.0 in the three months ended March 31, 2018. The upfront product and install average cost of revenue on a per kilowatt basis, also described as total install system cost (TISC) decreased from $7,305 per kilowatt for the three months ended March 31, 2017 to $5,074 per kilowatt for the three months ended March 31, 2018 due to the higher acceptance volume. We had a one-time cost of $9.4 million included in the product cost of revenue for the three months ended March 31, 2018 associated with supplier agreements that required us to forego previously negotiated discounts if ITC was renewed.

This increase in product and service cost of revenue was offset by $3.0 million of decreased installation costs associated with a customer that contracted the related installation with a third party; as a result, we received only an immaterial amount of installation costs. Service cost increased 33.1% period-over-period. The increase was primarily due to the growth in our installed megawatts deployed, which grew by 26.2% over the same period.

Gross profit improved $52.9 million, or 574.7%, in the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. This improvement was generally a result of higher product margins, due to a $60.0 million increase in revenue, primarily due to the benefit of the ITC renewal. We recognized a one-time total revenue benefit of $45.5 million attributable to 2017 acceptances due to the retroactive ITC renewal.

Operating Expenses

 

     Three Months Ended
March 31,
     Change 2018 vs. 2017  
     2017      2018      Amount      %  
     (unaudited)                
     (dollars in thousands)  

Research and development

   $ 11,223      $ 14,731      $ 3,508        31.3

Sales and marketing

     7,845        8,262        417        5.3

General and administrative

     12,879        14,988        2,109        16.4
  

 

 

    

 

 

    

 

 

    

Total

   $ 31,947      $ 37,981      $ 6,034        18.9
  

 

 

    

 

 

    

 

 

    

Research and development expenses increased approximately $3.5 million, or 31.3%, in the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. This increase was primarily due to compensation related expenses related to hiring and investments for next generation technology development.

Sales and marketing expenses increased approximately $0.4 million, or 5.3%, in the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. This increase was primarily due to higher legal expenses of $0.9 million and higher compensation related expenses of $0.1 million, offset by lower consulting expenses of $0.6 million.

General and administrative expenses increased approximately $2.1 million, or 16.4%, in the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. The increase in general and administrative expenses was primarily due to an increase in compensation related expenses.

 

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Other Income and Expenses

 

    Three Months Ended
March 31,
    Change 2018 vs. 2017  
    2017     2018     Amount     %  
    (unaudited)              
    (dollars in thousands)  

Interest expense

  $ (24,363   $ (23,037   $ 1,326       5.4

Other income (expense), net

    119       (629     (748     (628.6 )% 

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

    215       (4,034     (4,249     (1,976.3 )% 
 

 

 

   

 

 

   

 

 

   

Total

  $ (24,029   $ (27,700   $ (3,671     (15.3 )% 
 

 

 

   

 

 

   

 

 

   

Total other expenses increased $3.7 million, or 15.3%, in the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. This increase was due to a $4.3 million loss on our warrant liabilities and embedded derivatives partially offset by lower interest expense of $1.3 million in the three months ended March 31, 2018.

For the three months ended March 31, 2018, the loss on revaluation of warrant liabilities and embedded derivative increased by $4.2 million. This was due to an increase in our derivative valuation adjustment of $7.6 million, offset by a decrease in our warrant valuation of $3.4 million.

Provision for Income Taxes

 

     Three Months Ended
March 31,
     Change 2018 vs. 2017  
     2017      2018      Amount      %  
     (unaudited)                
     (dollars in thousands)  

Income tax provision

   $ 214      $ 333      $ 119        55.6

Income tax provision increased approximately $0.1 million, or 55.6%, in the three months ended March 31, 2018, as compared to the three months ended March 31, 2017 and was primarily due to fluctuations in tax on income earned by international entities due to the general growth of our business in international locations.

Comparison of the Years Ended December 31, 2016 and 2017

Total Revenue

 

     Years Ended
December 31,
     Change 2017 vs. 2016  
     2016      2017          Amount              %      
     (dollars in thousands)  

Product

   $ 76,478      $ 179,768      $ 103,290        135.1

Installation

     16,584        63,226        46,642        281.2

Service

     67,622        76,904        9,282        13.7

Electricity

     47,856        56,098        8,242        17.2
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 208,540      $ 375,996      $ 167,456        80.3
  

 

 

    

 

 

    

 

 

    

Total revenue increased approximately $167.5 million, or 80.3%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. Product revenue increased approximately $103.3 million, or 135.1%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. Despite a decrease in acceptances from 687 systems in the year ended December 31, 2016 to 622 systems in the year ended

 

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December 31, 2017, a decrease of 9.5%, product revenue increased 135.1% due to a significantly higher mix of orders through direct sales to customers, where revenue is recognized on acceptance, compared to the Bloom Electrons and managed services financing programs where revenue is recognized over the term of the agreement (generally 10 to 21 years) as electricity revenue or product revenue, respectively. The number of acceptances in 2016 where product and install revenue was recognized at acceptance was 109, or 15.9% of the total acceptances of 687, while the number of acceptances in 2017 where product revenue was recognized at acceptance was 489, or 78.6% of the total acceptances of 622. The mix of orders between our Bloom Electrons and managed services financing programs and direct purchases is generally driven by customer preference.

Product and install revenue increased approximately $149.9 million, or 161.1% from $93.1 million for the year ended December 31, 2016, to $243.0 million for the year ended December 31, 2017. The ratable portion of the product and install revenue increased approximately $15.9 million from $9.1 million in 2016 to $25.0 million in 2017. This increase was due to the increase in ratable acceptances through 2017. The upfront portion of the product and install revenue increased approximately $134.0 million from $84.0 million in 2016 to $218.0 million in 2017. This increase in upfront product and install revenue was primarily due to the increase in upfront acceptances from 109 in 2016 to 489 in 2017. The upfront product and install average selling price decreased from $7,705 per kilowatt in 2016 to $4,460 per kilowatt in 2017 due to the loss of ITC in 2017.

Due to the loss of ITC in 2017, the average selling price to customers was lower causing an overall $26.3 million decrease in total revenue in 2017, as compared to 2016. The total revenue for the year ended December 31, 2016 included $35.9 million of benefit from ITC, while the total revenue for the year ended December 31, 2017 included $9.6 million of benefit from ITC.

Installation revenue increased approximately $46.6 million, or 281.2%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This was primarily due to the higher mix of orders through our direct purchase program where revenue is recognized on acceptance.

Service revenue increased approximately $9.3 million, or 13.7%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was primarily due to the increase in the number of annual maintenance contract renewals, driven by our expanding customer base and corresponding total megawatts deployed.

Electricity revenue increased approximately $8.2 million, or 17.2%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was primarily due to the annualized impact of the 106.8 megawatts Bloom Electrons program fully deployed during 2016.

Total Cost of Revenue and Gross Profit (Loss)

 

     Years Ended
December 31,
     Change 2017 vs. 2016  
     2016      2017          Amount              %      
     (dollars in thousands)  

Cost of revenue:

           

Product

   $ 103,283      $ 210,773      $ 107,490        104.1

Installation

     17,725        59,929        42,204        238.1

Service

     155,034        83,597        (71,437      (46.1 )% 

Electricity

     35,987        39,741        3,754        10.4
  

 

 

    

 

 

    

 

 

    

Total cost of revenue

     312,029        394,040        82,011        26.3
  

 

 

    

 

 

    

 

 

    

Gross profit (loss)

   $ (103,489    $ (18,044    $ 85,445        82.6
  

 

 

    

 

 

    

 

 

    

Total cost of revenue increased approximately $82.0 million, or 26.3%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase in cost of revenue was primarily

 

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attributable to higher product and installation cost of revenue, which was driven by a higher mix of orders through direct sales to customers in which cost of revenue is recognized on acceptance, partially offset by our ongoing cost reduction efforts. The number of acceptances in 2016 where cost of revenue was recognized at acceptance was 15.9% of the total acceptances of 687, while the number of acceptances in 2017 where cost of revenue was recognized at acceptance was 78.6% of the total acceptances of 622.

The product and install cost of revenue increased approximately $149.7 million, or 123.7% from $121.0 million for the year ended December 31, 2016, to $270.7 million for the year ended December 31, 2017. The ratable portion of the product and install cost of revenue increased approximately $11.4 million from $5.2 million in 2016 to $16.6 million in 2017. This increase was due to the increase in ratable acceptances through 2017. The product and install cost of revenue includes stock based compensation which also increased by $1.6 million from $5.4 million for the year ended December 31, 2016, to $7.0 million for the year ended December 31, 2017. The remaining upfront portion of the product and install cost of revenue excluding stock based compensation increased approximately $136.7 million from $110.4 million in 2016 to $247.1 million in 2017. This increase in upfront product and install cost of revenue was due to the increase in upfront acceptances from 109 in 2016 to 489 in 2017. The upfront product and install average cost of revenue on a per kilowatt basis, also described as total install system cost (TISC) decreased from $10,127 per kilowatt in 2016 to $5,056 per kilowatt in 2017 due to the increase in upfront acceptances.

This increase in product and installation cost of revenue was offset by $71.4 million of decreased service costs associated with ongoing operations and maintenance of deployed Energy Servers in the ordinary course of business due to a lower number of power module replacements as the life of our product continues to lengthen.

Gross loss improved $85.4 million, or 82.6%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016. This improvement was generally a result of higher service margins, due to a $71.4 million reduction in service costs associated with ongoing operations and maintenance of deployed Energy Servers in the ordinary course of business due to a lower number of power module replacements as the life of our product continues to lengthen.

Operating Expenses

 

     Years Ended
December 31,
     Change 2017 vs. 2016  
     2016      2017          Amount              %      
     (dollars in thousands)  

Research and development

   $ 46,848      $ 51,146      $ 4,298        9.2

Sales and marketing

     29,101        32,415        3,314        11.4

General and administrative

     61,545        55,674        (5,871      (9.5 )% 
  

 

 

    

 

 

    

 

 

    

Total

   $ 137,494      $ 139,235      $ 1,741        1.3
  

 

 

    

 

 

    

 

 

    

Research and development expenses increased approximately $4.3 million, or 9.2%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was primarily due to compensation related expenses related to hiring and investments for next generation technology development.

Sales and marketing expenses increased approximately $3.3 million, or 11.4%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016. Compensation related costs increased $1.6 million from the prior period due to increases in incentive compensation, stock-based compensation and bonus achievement, as well as sales development related expenses of $1.7 million.

General and administrative expenses decreased approximately $5.9 million, or 9.5%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016. The decrease in general and administrative expenses was primarily due to a decrease in professional service expenses of $5.8 million related to decreased legal expenses.

 

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Other Income and Expenses

 

     Years Ended
December 31,
    Change 2017 vs. 2016  
     2016     2017         Amount             %      
     (dollars in thousands)  

Interest expense

   $ (81,190   $ (108,623   $ (27,433     (33.8 )% 

Other income (expense), net

     (379     268       647       170.7

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

     (13,035     (14,995     (1,960     15.0
  

 

 

   

 

 

   

 

 

   

Total

   $ (94,604   $ (123,350   $ (28,746     (30.4 )% 
  

 

 

   

 

 

   

 

 

   

Total other expenses increased $28.7 million, or 30.4%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was due to interest expense increasing $27.4 million, or 33.8%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016. The increase was due to the higher balances of financing obligations and outstanding debt in 2017, compared to the prior year.

For the year ended December 31, 2017, the loss on revaluation of warrant liabilities and embedded derivative increased by $2.0 million. This was primarily due to an increase in our derivative valuation adjustment of $13.4 million, offset by a decrease in our warrant valuation of $11.4 million.

Provision for Income Taxes

 

     Years Ended
December 31,
     Change 2017 vs. 2016  
     2016      2017          Amount              %      
     (dollars in thousands)  

Income tax provision

   $ 729      $ 636      $ (93      (12.8 )% 

Income tax provision decreased approximately $0.1 million, or 12.8%, in the year ended December 31, 2017, as compared to the year ended December 31, 2016 and was primarily due to fluctuations in tax on income earned by international entities due to the general growth of our business in international locations.

 

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Quarterly Results of Operations

The following tables set forth selected unaudited quarterly statements of operations data for each of the nine quarters ending March 31, 2018. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the United States. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.

 

    Three Months Ended  
    Mar. 31,
2016
    Jun. 30,
2016
    Sep. 30,
2016
    Dec. 31,
2016
    Mar. 31,
2017
    Jun. 30,
2017
    Sep. 30,
2017
    Dec. 31,
2017
    Mar. 31,
2018
 

Consolidated statements of operations data:

                 

Revenue

                 

Product

  $ 10,300     $ 20,429     $ 18,456     $ 27,293     $ 27,665     $ 39,935     $ 45,255     $ 66,913     $ 121,307  

Installation

    2,211       4,069       3,573       6,731       12,293       14,354       14,978       21,601       14,118  

Service

    15,790       16,606       17,247       17,979       18,591       18,875       19,511       19,927       19,907  

Electricity

    10,532       11,434       12,623       13,267       13,648       13,619       14,021       14,810       14,029  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    38,833       52,538       51,899       65,270       72,197       86,783       93,765       123,251       169,361  

Cost of revenue

                 

Product

    20,985       27,023       26,333       28,942       38,855       47,545       53,923       70,450       80,355  

Installation

    2,594       4,446       3,735       6,950       13,445       14,855       14,696       16,933       10,438  

Service

    32,293       27,765       54,572       40,404       18,219       21,308       30,058       14,012       24,253  

Electricity

    8,583       6,817       10,861       9,726       10,876       8,881       10,178       9,806       10,649  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    64,455       66,051       95,501       86,022       81,395       92,589       108,855       111,201       125,695  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

    (25,622     (13,513     (43,602     (20,752     (9,198     (5,806     (15,090     12,050       43,666  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

                 

Research and development

    10,650       11,567       11,877       12,754       11,223       12,368       12,374       15,181       14,731  

Sales and marketing

    6,826       7,247       6,740       8,288       7,845       8,663       6,561       9,346       8,262  

General and administrative

    13,184       13,827       19,872       14,662       12,879       14,325       13,652       14,818       14,988  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    30,660       32,641       38,489       35,704       31,947       35,356       32,587       39,345       37,981  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) from operations

    (56,282     (46,154     (82,091     (56,456     (41,145     (41,162     (47,677     (27,295     5,685  

Interest expense

    (18,875     (18,650     (19,866     (23,799     (24,363     (25,554     (28,899     (29,807     (23,037

Other expense, net

    (66     (231     122       (204     119       14       (40     175       (629

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

    5,380       (3,927     (5,351     (9,137     215       (668     572       (15,114     (4,034
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

    (69,843     (68,962     (107,186     (89,596     (65,174     (67,370     (76,044     (72,041     (22,015

Income tax provision

    204       221       228       76       214       228       314       (120     333  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (70,047     (69,183     (107,414     (89,672     (65,388     (67,598     (76,358     (71,921     (22,348

Net loss attributable to noncontrolling interest and redeemable noncontrolling interests

    (10,607     (17,353     (16,480     (12,218     (5,856     (4,123     (4,527     (4,160     (4,632
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (59,440   $ (51,830   $ (90,934   $ (77,454   $ (59,532   $ (63,475   $ (71,831   $ (67,761   $ (17,716
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Quarterly Revenue Trends

Product and installation revenue can vary quarter to quarter due to changes in the buying behavior of our customers as customers shift to or from managed services and Bloom Electrons orders where revenue is recognized over the term of the agreement, as opposed to purchase or lease transactions, where revenue is generally recognized up front. Since we offer these different types of purchase options and the accounting treatment for these options can differ, the timing of revenue recognition quarter by quarter could be impacted by the mix of purchase, lease and Bloom Electrons orders in a particular quarter. However, going forward, we expect most of our revenue to be recognized generally up front at acceptance. Additionally, service revenue and electricity revenue have increased over time due to the continued expansion of our deployed fleet.

In addition, quarterly revenue is likely to fluctuate based on, among other things, the factors discussed under “Factors Affecting Our Future Performance.” For example, beginning in the quarter ended December 31, 2016, large installations were accepted by customers under direct purchase arrangements, resulting in higher product revenue in those periods. In addition, for the quarter ended March 31, 2018, product revenue increased over the prior quarters due to the one-time benefit of $43.9 million attributable to 2017 acceptances due to the retroactive ITC renewal.

Quarterly Gross Profit Trends

Quarterly gross profit (loss) fluctuates with total revenue, the level of investment associated with maintaining and upgrading the deployed fleet, and to a lesser extent, the ability to achieve estimated installation cost for new site installations. Quarterly gross profit (loss) exhibited larger losses in the quarters where product revenue was lowest and investments in the deployed fleet are highest. For the three months ended March 31, 2018, gross profit had the benefit of the one-time benefit of $45.5 million attributable to 2017 acceptances due to the retroactive ITC renewal, offset by an incremental $9.4 million in supplier costs associated with the ITC renewal for a net benefit of $36.1 million to gross profit.

 

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Quarterly Key Operating Metrics

 

    Three Months Ended  
    Mar. 31,     Jun. 30,     Sep. 30,     Dec. 31,     Mar. 31,     Jun. 30,     Sep. 30,     Dec. 31,     Mar. 31,  
    2016     2016     2016     2016     2017     2017     2017     2017     2018  

Product accepted during the period (in 100 kilowatt systems)

    136       162       185       204       119       162       141       201       166  

Megawatts deployed as of period end

    194       208       220       235       247       263       277       297       312  
    Three Months Ended  
    Mar. 31,     Jun. 30,     Sep. 30,     Dec. 31,     Mar. 31,     Jun. 30,     Sep. 30,     Dec. 31,     Mar. 31,  
    2016     2016     2016     2016     2017     2017     2017     2017     2018  

Billings for product accepted in the period

  $ 101,975     $ 126,559     $ 142,052     $ 151,958     $ 48,105     $ 64,475     $ 56,876     $ 78,646     $ 121,143  

Billings for installation on product accepted in the period

    22,071       27,379       30,808       34,422       23,027       25,803       20,106       27,516       11,896  

Billings for annual maintenance services agreements

    9,835       14,237       22,005       21,742       14,882       18,181       23,689       23,130       14,122  

Ratable value of contracts accepted in the period

    84,845       85,525       104,733       109,126       9,566       10,903       464       720       (17,140
    Three Months Ended  
    Mar. 31,     Jun. 30,     Sep. 30,     Dec. 31,     Mar. 31,     Jun. 30,     Sep. 30,     Dec. 31,     Mar. 31,  
    2016     2016     2016     2016     2017     2017     2017     2017     2018  

Product costs of product accepted in the period (per kilowatt)

  $ 5,086     $ 4,809     $ 4,383     $ 3,826     $ 3,999     $ 3,121     $ 3,386     $ 2,944     $ 3,855  

Period costs of manufacturing related expenses not included in product costs (in thousands)

    4,302       4,586       6,869       6,143       7,397       8,713       7,152       9,174       10,785  

Installation costs on product accepted in the period (per kilowatt)

    1,280       1,481       1,056       1,170       1,974       1,306       1,263       829       526  

Quarterly Key Operating Metric Trends

Acceptance volume sequentially increased quarter-over-quarter from March 31, 2016 to December 31, 2016, from 136 systems to 204 systems as we installed more systems from backlog. However, acceptance

 

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volume declined to 119 systems for the quarter ended March 31, 2017 from 204 for the quarter ended December 31, 2016. The decline was driven by extreme weather related seasonality on both the East Coast and West Coast which impacted our ability to install Energy Servers at our customer sites. Acceptance volume increased to 166 systems for the quarter ended March 31, 2018, an increase of 47 systems from the quarter ended March 31, 2017, as we were able to install more systems at customer sites from backlog. Acceptances achieved from March 31, 2016 to March 31, 2018, added to our installed base, and therefore increased our megawatts deployed from 194 megawatts to 312 megawatts, respectively.

Both the billings for product accepted in the period and the billings for installation on products accepted in the period from the quarter ended March 31, 2016 to the quarter ended March 31, 2018 were due to the changes in acceptances over these periods. For the quarter ended March 31, 2017, product accepted was 119 systems, a decrease of 41.7% from 204 systems accepted for the quarter ended December 31, 2016. Over the same period, the billings for product and installation accepted combined was $71.1 million, a decrease of 61.8% over the billings for product and installation accepted combined of $186.4 million for the quarter ended December 31, 2016. The decrease in that period was primarily due to the lower volume and the lower average selling price to customers to offset the loss of the ITC in 2017. The billings for product and installation accepted grew by 87.0% to $133.0 million for the quarter ended March 31, 2018 relative to the quarter ended March 31, 2017 as acceptance volume increased and ITC was reinstated. Our ability to achieve acceptances in any given quarter is driven by a number of factors, including customer site readiness, ability to secure appropriate permitting and a number of other factors including extreme weather conditions and various natural disasters. The billings for annual maintenance services agreements fluctuated over the period due to the timing of the anniversaries of the acceptances and annual maintenance services agreements.

For the nine quarters from March 31, 2016 to March 31, 2018, our product costs of product accepted declined from $5,086 per kilowatt to $3,855 per kilowatt, an overall reduction of 24.2%. The cost reduction was primarily due to our ongoing cost reduction efforts to reduce material costs, labor and overhead through improved automation of our factories, better factory utilization and ongoing material cost reduction programs with our vendors. Our product costs increased from $3,826 per kilowatt for the quarter ended December 31, 2016 to $3,999 per kilowatt for the quarter ended March 31, 2017 due to lower acceptance volume in that period, allocating more per unit fixed manufacturing costs to our product costs. Similarly, our product costs increased from $2,944 per kilowatt for the quarter ended December 31, 2017 to $3,855 per kilowatt for the quarter ended March 31, 2018 due to lower acceptance volume in that period, allocating more per unit fixed cost to our product costs.

Our period costs of manufacturing related expenses generally increased over the same period. Period costs for manufacturing related expenses not included in product costs for the quarter ended December 31, 2016 was $6.1 million, an increase of 42.8% compared to $4.3 million for the quarter ended March 31, 2016. The increase was due to one-time year-end write-offs for excess and obsolete inventory and other items. Period costs for manufacturing related expenses not included in product costs for the quarter ended March 31, 2018 was $10.8 million, an increase of 45.8% compared to $7.4 million for the quarter ended March 31, 2017. While actual manufacturing spending decreased in the quarter ended March 31, 2018 relative to the quarter ended March 31, 2017, the period costs of manufacturing related expenses not included in product costs, which represents the unabsorbed manufacturing costs to produce our Energy Servers, increased due to lower production volumes in the period.

While we are focused on reducing the cost to install our Energy Servers, our installation costs on product accepted over the eight quarter period were generally impacted by the size of the installations, as well as the complexity of the sites.

Components of Consolidated Assets and Liabilities

We are a minority shareholder in several PPA project companies for the administration of our Bloom Electrons program. Those project companies contain debt that is non-recourse to us and the project companies

 

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also own Energy Server assets for which we do not have title. We do not intend to be a minority investor in any new PPA entities and believe by presenting our assets and liabilities separate from the PPA entities provides a better view of the true operations of our core business. The table below provides detail into the assets and liabilities of Bloom and the PPA entities.

 

    December 31, 2016     December 31, 2017     March 31, 2018  
    Bloom     PPA     Consolidated     Bloom     PPA     Consolidated     Bloom     PPA     Consolidated  
    (in thousands)     (in thousands)     (in thousands)  

Assets

                 

Current assets

  $ 351,934     $ 40,151     $ 392,085     $ 383,209     $ 36,772     $ 419,981     $ 360,758     $ 40,572     $ 401,330  

Long-term assets

    234,818       577,144       811,962       267,350       533,656       801,006       258,112       525,192       783,304  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    586,752       617,295       1,204,047       650,559       570,428       1,220,987       618,870       565,764       1,184,634  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

                 

Current liabilities

    235,777       4,377       240,154       247,464       3,684       251,148       216,398       5,212       221,610  

Current portion of debt

    1,694       19,245       20,939       1,690       18,446       20,136       6,017       19,108       25,125  

Long-term liabilities

    412,626       16,094       428,720       513,367       15,768       529,135       514,809       13,612       528,421  

Long-term portion of debt

    414,936       358,410       773,346       579,155       342,050       921,205       587,685       337,657       925,342  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  $ 1,065,033     $ 398,126     $ 1,463,159     $ 1,341,676     $ 379,948     $ 1,721,624     $ 1,324,909     $ 375,589     $ 1,700,498  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

We finance 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 preferred stock, debt financings and cash generated from our operations. As of March 31, 2018, we had cash and cash equivalents and short-term investments of $88.2 million and $20.1 million, respectively.

We believe that our existing cash and cash equivalents and short-term investments will be sufficient to meet our operating cash flow, capital requirements and other cash flow needs for at least the next 12 months. Our future capital 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. We do not currently expect to receive significant cash distributions from our PPA entities. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional debt or equity financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Further, as most of our assets are collateralized in existing debt arrangements, new debt financing may be unsecured which may result in higher interest rate obligations.

Credit Facilities

Bloom Energy Indebtedness

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 loan expired in December 2016. The $12.0 million loan bears an annual interest rate of LIBOR, plus 4%. The weighted average interest rate of these borrowings was 4.5% and 5.1% for the years ended December 31, 2016 and 2017, respectively. The loan requires monthly payments and is secured by the manufacturing facility. As of December 31, 2017 and March 31, 2018, the outstanding debt related to these credit agreements was $4.9 million and $4.5 million, respectively. Under the terms

 

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of these credit agreements, we are required to comply with various restrictive covenants. As of December 31, 2017 and March 31, 2018, we were in compliance with all of the covenants. 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.

Between December 2014 and June 2015, we issued $193.2 million of three-year subordinated secured convertible promissory notes (the 8% Notes) to certain investors. The 8% Notes bear a fixed annual interest rate of 8.0%, compounded monthly, and are payable in cash or in kind at the election of the investor. The 8% Notes were originally due at maturity in December 2017, but in January 2018, we amended the terms of the 8% Notes to extend the payment terms to December 2019 and December 2020. The accrued interest would be due on each anniversary of the respective original issuance date of the 8% Notes. As of December 31, 2017 and March 31, 2018, the outstanding principal and accrued interest on the 8% Notes was $244.7 million and $249.4 million, respectively. The outstanding principal and accrued interest on each 8% Note, other than the Constellation Note (as defined below), will mandatorily convert into shares of our Series G convertible preferred stock at a conversion price per share of $38.64, and each such share of Series G convertible preferred stock will convert automatically into one share of our common stock, immediately prior to completion of an initial public offering. In January 2018, we entered into an amended and restated subordinated convertible promissory note with Constellation NewEnergy, Inc. (the Constellation Note), one of the existing holders of the 8% Notes, which reduced the interest rate of such note to a fixed annual interest rate of 5.0%, compounded monthly, and provided that the outstanding principal and accrued interest on such note may be converted prior to the closing of this offering, at the option of the holder, into shares of our Series G convertible preferred stock as described above, or, after the closing of this offering, into shares of our Class B common stock at a conversion price per share of $38.64.

In December 2015, we entered into two promissory note agreements with J.P. Morgan Securities LLC and Canadian Pension Plan Investment Board (CPPIB) for the issuance of $160.0 million of convertible promissory notes. The notes (the 6% Notes) bear a 6.0% fixed interest rate, compounded monthly, and are due at maturity in December 2020. Interest on these notes is payable in cash or by the issuance of additional 6% Notes. As of December 31, 2017 and March 31, 2018, the debt outstanding under the 6% Notes was $286.1 million and $290.4 million, respectively, including accrued interest. In January 2016, we issued an additional $25.0 million aggregate principal amount of these notes, and in September 2016 we issued an additional $75.0 million aggregate principal amount of these notes. In August 2017, J.P. Morgan’s principal and interest balance associated with the initial issuance of $160.0 million was transferred to CPPIB. 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. As of December 31, 2017 and March 31, 2018, we were in compliance with all of such covenants. 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 outstanding principal and accrued interest do not mandatorily convert into common stock in the event of an initial public offering. At the election of the investors, the accrued interest and the unpaid principal can be converted into common stock at any time following an initial public offering with gross proceeds of at least $150.0 million (Qualified IPO) and prior to the maturity date. Following the Qualified IPO, the outstanding amount of the 6% Notes will be convertible into shares of Class B common stock at a conversion price per share equal to the lower of $46.37 and 75% of the offering price of our Class A common stock sold in this offering. These notes are also convertible upon a change of control prior to a Qualified IPO. The notes are also redeemable at our option, in whole or in part, in connection with a change of control or if our common stock trades at a price equal to at least 150% of the public offering price per share for this offering for a period of 20 trading days

 

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during a period of 30 consecutive trading days at a redemption price equal to 100% of the principal amount of the notes plus accrued but unpaid interest. 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 addition, in connection with the issuance of these additional notes, we agreed to issue to certain purchasers of the notes, upon the occurrence of certain conditions, warrants to purchase up to a maximum of 312,889 shares of our Class B common stock at an exercise price of $0.015 per share. The warrants will automatically be deemed exercised pursuant to their terms immediately prior to the completion of this offering.

In June 2017, we issued $100.0 million of senior secured notes. The notes (the “10% Notes”) mature in July 2024 and bear a 10.0% fixed rate of interest, payable semi-annually. The notes have a continuing security interest in the cash flows payable to us as servicing, operations and maintenance fees, as well as administrative fees from the five active power purchase agreements in our Bloom Electrons program. As of March 31, 2018, the debt outstanding under the 10% Notes was $100.0 million. Under the terms of the indenture governing the 10% 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, restrictions on investments, restrictions on the incurrence of indebtedness, subject to a consolidated leverage ratio of no more than 4:1, subject to certain adjustments, and maintaining a debt service coverage ratio of no more than 1.35:1, as of the date of this prospectus. As of March 31, 2018, 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 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.

PPA Entities’ Indebtedness

Bloom Electrons, our PPA financing program, is financed via special purpose investment entities (PPA entities). These entities are financed by third-party investors and us. The capitalization of a PPA entity is generally comprised of tax equity investors, debt providers and us, as a minority shareholder (generally less than 10% of the capital stock). The debt that is invested into the PPA entities is non-recourse to us.

Our PPA entities have available lines of credit with financial institutions that allow them to borrow funds for purchase and construction of equipment, additional working capital, and general corporate purposes. These credit facilities are secured by the PPA entities’ assets and subject to guaranties by Bloom. Each of such PPA entities is obligated to make quarterly principal and interest payments according to a schedule agreed between us, the tax equity investors and the debt providers. The debt is either a “term loan”, where the final maturity date coincides with the expiration of the offtake agreements included in the project, or a “mini-perm loan”, where the final maturity date occurs at some point prior to such expiration; in the case of these “mini-perm loans”, we will need to refinance these loans on or prior to their maturity date by procuring debt from other sources and using the proceeds of such new debt to repay the existing loans.

On March 20, 2013, PPA Company II entered into an agreement to refinance an existing loan. The total amount of the loan was $144.8 million, which included $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. The loan is a fixed rate term loan that bears an annual interest rate of 5.22% payable quarterly. The loan has a fixed amortization schedule of the principal, beginning March 30, 2014, which requires repayment in full by March 30, 2025. The loan is also non-recourse and secured by all of the assets of PPA Company II. As of December 31, 2017 and March 31, 2018, the debt outstanding was $91.1 million and $88.4 million, respectively. Under the terms of this credit agreement, PPA Company II is required to comply with various covenants including restrictions on indebtedness, and must also maintain a debt service coverage ratio, greater than or equal to 1.25:1, measured at the end of each fiscal quarter in order to make any distributions or pay any dividends. As of December 31, 2017 and March 31, 2018, PPA Company II was in compliance with all of the

 

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covenants. In addition, the loan also includes a cross-default provision which provides that holders of more than 25% of the outstanding principal amount of the loan may cause the remaining amount under the loan to be due and payable immediately if PPA Company II defaults on any indebtedness in excess of $1.5 million and such default causes the repayment of such indebtedness to be accelerated.

In December 2012, PPA Company IIIa entered into a $46.8 million credit agreement to help fund the purchase and installation of our Energy Servers. The loan requires quarterly payments, is due in September 2028, and bears a fixed interest rate of 7.5% payable quarterly. The loan is secured by PPA Company IIIa’s machinery and equipment, account receivables, inventory and other assets, as well as the 100% equity interest in PPA Company IIIa held by 2012 V PPA Holdco, LLC. As of December 31, 2017 and March 31, 2018, the debt outstanding was $41.9 million and $41.6 million, respectively. Under the terms of this credit agreement, PPA Company IIIa is required to comply with various covenants, including meeting reporting requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on indebtedness. PPA Company IIIa must also maintain a debt service coverage ratio, as defined in the credit agreement, at the end of each fiscal quarter in order to make any distributions or pay any dividends. As of December 31, 2017 and March 31, 2018, PPA Company IIIa was in compliance with all of the covenants. In addition, the credit agreement also includes a cross-default provision which provides that the lender will no longer be obligated to make any loan commitments and the remaining obligations under the credit agreement shall become due and payable immediately if PPA Company IIIa defaults on any indebtedness in excess of $500,000 or the repayment of any indebtedness is accelerated.

In September 2013, PPA Company IIIb entered into a credit agreement to help fund the purchase and installation of our Energy Servers. In accordance with that agreement, PPA Company IIIb issued floating rate debt based on an annual LIBOR rate, plus a margin of 5.2%. The debt requires quarterly principal payments and is due in October 2020. The weighted average interest rate of these borrowings was 6.0% and 6.5% for the years ended December 31, 2016 and 2017, respectively. The aggregate amount of the debt facility is $32.5 million, which includes $1.45 million to be placed in a debt service reserve account. The loan is secured by PPA Company IIIb’s machinery and equipment, account receivables, inventory and other assets, as well as the 100% equity interest in PPA Company IIIb held by 2013 ESA Holdco, LLC. As of December 31, 2017 and March 31, 2018, the debt outstanding was $25.6 million and $25.4 million, respectively. Under the terms of this credit agreement, PPA Company IIIb is required to comply with various covenants, including meeting reporting requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on indebtedness. In addition, PPA Company IIIb must also maintain a historical debt service coverage ratio, as defined in the credit agreement, and a prospective debt service coverage ratio, as defined in the credit agreement, at the end of each fiscal quarter in order to make any distributions or pay any dividends. As of December 31, 2017 and March 31, 2018, PPA Company IIIb was in compliance with all of the covenants. In addition, the credit agreement also includes a cross-default provision which provides that the lender may demand that the remaining obligations under the credit agreement be due and payable immediately if PPA Company IIIb defaults in payment on any indebtedness in excess of $500,000 or the repayment of any indebtedness is accelerated.

In July 2014, PPA Company IV issued senior secured notes (PPA IV Notes) amounting to $99.0 million to third parties to help fund the purchase and installation of our Energy Servers. The PPA IV Notes bear a fixed annual interest rate of 6.1%, payable quarterly. The principal amount of the PPA IV Notes is payable quarterly starting in December 2015 and ending in March 2030. The PPA IV Notes are secured by all the assets of the PPA Company IV. As of December 31, 2017 and March 31, 2018, the aggregate balance outstanding under the PPA IV Notes was $85.3 million and $84.9 million, respectively. Under the terms of the note purchase agreement, PPA Company IV is required to comply with various covenants, including meeting reporting requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on indebtedness. In addition, PPA Company IV must also maintain a debt service coverage ratio, as defined in the loan agreement, at the end of each fiscal quarter in order to make any distributions or pay any dividends. As of December 31, 2017 and March 31, 2018, PPA Company IV was in compliance with all of the covenants. In addition, the notes also include a cross-default provision which provides that holders of more than 25% of the principal amount of the

 

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notes may cause the loan to be due and payable immediately if PPA Company IV defaults on any indebtedness in excess of $1.5 million such that the repayment of such indebtedness is accelerated.

In June 2015, PPA Company V entered into a $131.2 million credit agreement to help fund the purchase and installation of our Energy Servers. PPA Company V has issued floating rate debt with an interest rate based on LIBOR plus an applicable margin over LIBOR. 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 was initially in the form of a “construction loan”, with a stated maturity date of February 28, 2017, and was converted into a “term loan” on February 28, 2017 (“Term Conversion Date”). The loan will mature on December 31, 2021. The weighted average interest rate of borrowings was 2.6% and 3.3% for the years ended December 31, 2016 and 2017, respectively. The loan requires quarterly principal payments beginning in March 2017 and is due in December 2021. The loan is secured by PPA Company V’s machinery and equipment, account receivables, inventory and other assets, as well as the 100% equity interest in PPA Company V held by 2015 ESA Holdco, LLC. As of December 31, 2017 and March 31, 2018, the debt outstanding was $128.4 million and $127.7 million, respectively. Under the terms of the credit agreement, PPA Company V is required to comply with various covenants, including meeting reporting requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on indebtedness, and must also maintain a debt service coverage ratio, as defined in the credit agreement, at the end of each fiscal quarter in order to make any distributions or pay any dividends. As of December 31, 2017 and March 31, 2018, PPA Company V was in compliance with all of the covenants. In addition, the credit agreement also includes a cross-default provision which provides that lender may immediately terminate all lending commitments and request the remaining amount under the loan agreement be due and payable immediately if PPA Company V defaults on any indebtedness such that the repayment of such indebtedness is accelerated.

Pursuant to the loan documents entered into by the applicable PPA entity in connection with each applicable project company, such project company may be required to prepay some or all of the then-outstanding Project Debt associated with the applicable PPA project. The following is intended to be representative of the common pre-payment circumstances that are globally applicable. This is not an exhaustive list of possible scenarios, as individual PPA projects have individually-negotiated prepayment circumstances beyond what is presented here:

 

  Default : As a general matter, the lenders associated with each PPA project may require the immediate repayment of all outstanding debt upon the occurrence of an event of default by the PPA entity under the loan documents. Events of default are contractually negotiated on an individual basis in each project, but typically include (i) failure to pay when due any sums owed under the loan documents, (ii) the untruth or inaccuracy of material representations and warranties made by the PPA entity under the loan documents, (iii) the failure to perform any covenants of the PPA entity under the loan documents, (iv) bankruptcy events of the PPA entity and (v) loss or abandonment of project assets, including by eminent domain.

 

  Proceeds of Insurance : The Project Debt documents require that any proceeds of casualty insurance maintained with respect to the project assets be used to prepay the Project Debt unless such funds are used to repair or replace the applicable assets.

 

  Warranty Proceeds : The Project Debt documents require that any funds paid by us to the applicable PPA entity in connection with refund claims for failure to meet the Output Warranty or Efficiency Warranty set forth in the applicable O&M Agreement be used to prepay the Project Debt.

 

  Termination Value Payments : The Project Debt documents require that any funds received by the PPA entity from a PPA customer in the form of a termination value payment made in connection with such customer’s early termination of an offtake agreement be used to prepay the Project Debt.

 

  Asset Sales : The Project Debt documents require that any funds received by the PPA entity in connection with the sale of any project assets be used to prepay the Project Debt.

 

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In addition, under PPA Company II’s credit agreement, PPA Company II is obligated to offer to repay all outstanding debt in the event that we obtain an investment grade credit rating unless we provide a guarantee of the debt obligations of the PPA Company II. Upon receipt of such offer, the lenders may elect to require PPA Company II to prepay all remaining amounts owed under PPA Company II’s project debt. Under PPA Company IIIa’s credit agreement, on or before February 19, 2019 PPA Company IIIa is obligated to offer its lenders an insurance policy or performance bond to mitigate the risk that we will fail to perform our obligations under our operation and maintenance obligations to PPA Company IIIa. Upon receipt of such an offer, the lenders may elect to require PPA Company IIIa to obtain such insurance policy or performance bond, at PPA Company IIIa’s expense, or elect to require PPA Company IIIa to prepay all remaining amounts owed under PPA Company IIIa’s project debt. Under PPA Company IV’s credit 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 tax equity investor(s). Upon receipt of such offer, the lenders may elect to require PPA Company IV to prepay all remaining amounts owed under PPA Company IV’s project debt.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

 

     Years Ended
December 31,
     Three Months Ended
March 31,
 
     2016      2017      2017      2018  
     (in thousands)  
                             

Net cash provided by (used in):

           

Operating activities

   $ (282,826    $ (67,176    $ (64,047    $ (34,487

Investing activities

     (8,979      (31,933      (936      6,536  

Financing activities

     283,383        61,806        (3,204      (9,069
  

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

   $ (8,422    $ (37,303    $ (68,187    $ (37,020
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Years Ended
December 31,
     Three Months Ended
March 31,
 
     2016      2017      2017      2018  
     (in thousands)  
                             

Net cash used in operating activities

   $ (282,826    $ (67,176    $ (64,047    $ (34,487

Net cash provided by (used in) purchase of property, plant and equipment

     (8,979      (31,933      (936      6,536  

Net cash provided by (used in) PPA operating activities and PPA purchase of property, plant and equipment*

     (272,933      (24,797      5,393        16,614  

 

* The PPA operating cash flows, which is a subset of our consolidated cash flows used in operating activities and represents the stand alone cash flows used in operating activities of the combined PPA companies prepared in accordance with GAAP, consists principally of cash used to run the operations of the PPA companies, including the purchase of Energy Servers from Bloom, which was $217.2 million, none, and none for the years ended December 31, 2016 and 2017 and as of March 31, 2018, respectively. PPA entities finance the purchase of Energy Servers through investment by equity investors and debt issuances, which are reflected in the consolidated cash flows from operating activities. We believe this presentation of net cash provided by (used in) PPA operating activities and PPA purchase of property, plant and equipment is useful to provide the reader the impact to consolidated cash flows of the PPA entities which we have only a minority interest.

 

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Operating Activities

In the three months ended March 31, 2018, we used approximately $34.5 million in operating activities. This cash outflow primarily resulted from a net loss of $17.7 million, reduced by non-cash items including depreciation of approximately $10.8 million and stock-based compensation of approximately $8.0 million. The cash outflow also resulted from an increase in inventory of $6.8 million, an increase in accounts receivable of $28.2 million, a decrease in deferred revenue and customer deposits of approximately $22.3 million relating to upfront milestone payments received from customers and decrease in accrued and other current liabilities of $10.0 million. These outflows were offset by a decrease in deferred cost of revenue of $16.3 million, and an increase in other long-term liabilities of $8.0 million.

In the year ended December 31, 2017, we used approximately $67.1 million in operating activities. This cash outflow primarily resulted from a net loss of $262.6 million, reduced by non-cash items including depreciation of approximately $46.1 million and stock-based compensation of approximately $30.5 million. The cash outflow also resulted from an increase in deferred cost of revenue of $71.0 million. These outflows were offset by a decrease in accounts receivable of $4.8 million, an increase in accounts payable of $7.1 million, an increase in other long-term liabilities of $43.2 million, and an increase in deferred revenue and customer deposits of approximately $91.9 million relating to upfront milestone payments received from customers.

In the year ended December 31, 2016, we used approximately $282.8 million in operating activities. This cash outflow primarily resulted from a net loss of $279.6 million, reduced by non-cash items including depreciation of approximately $43.1 million and stock-based compensation of approximately $28.1 million. The cash outflow also resulted from an increase in customer financing receivables of $211.6 million for purchases of Energy Servers by our PPA entities, an increase in inventory of $0.2 million and an increase in deferred cost of revenue of $84.7 million. This cash outflow was partially offset by an increase in accounts payable of $4.8 million, other current liabilities of $11.2 million, an increase in other long-term liabilities of $46.8 million, and an increase in deferred revenue and customer deposits of approximately $183.6 million relating to upfront milestone payments received from customers.

Cash provided by (used in) operating activities does not reflect the cash payments from our PPA entities for the Energy Servers at the time of acceptance. These cash receipts are generally included within financing activities, due to the consolidation of the PPA entities into our consolidated financial statements.

In the years ended December 31, 2017 and March 31, 2018, we collected cash related to billings for product accepted of $295.1 million and $79.3 million, respectively. In the years ended December 31, 2017 and March 31, 2018, we collected cash related to billings for installation costs related to product acceptances of $96.6 million and $5.7 million, respectively. Further, in the years ended December 31, 2017 and March 31, 2018, we collected cash related to billings for maintenance services agreements of $62.3 million and $10.5 million, respectively.

Investing Activities

Our investing activities consist primarily from purchase of marketable securities and capital expenditures. Capital expenditures include projects by us to maintain or increase the scope of our manufacturing operations. These capital expenditures also include leasehold improvements to our office space, purchases of office equipment, IT infrastructure equipment and furniture and fixtures.

In the three months ended March 31, 2018, we generated approximately $6.5 million in investing activities. This cash inflow is primarily from net maturities of marketable securities $6.7 million offset by $0.2 million for newly purchased capital assets and an investment that improves the useful life of existing capital assets such as manufacturing, testing and tooling equipment.

In the year ended December 31, 2017, we used approximately $31.9 million in investing activities. This cash outflow is primarily used $26.8 million for net purchases of marketable securities and $5.1 million for

 

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newly purchased capital assets and an investment that improves the useful life of existing capital assets such as manufacturing, testing and tooling equipment.

In the year ended December 31, 2016, we used approximately $9.0 million in investing activities for the acquisition of factory machinery and equipment.

Financing Activities

In the three months ended March 31, 2018, we used approximately $9.1 million from financing activities. The cash outflow is primarily from distributions paid to our PPA tax equity investors of approximately $3.8 million and repayments of $4.8 million of long-term debt and a revolving line of credit.

In the year ended December 31, 2017, we generated approximately $61.8 million from financing activities. We generated approximately $13.6 million of this amount from proceeds from financings in our PPA entities, offset by distributions paid to our PPA tax equity investors of approximately $23.6 million. We received net proceeds of approximately $93.9 million from the issuance of debt, offset by repayments of $21.4 million of long-term debt and a revolving line of credit.

In the year ended December 31, 2016, we generated approximately $283.4 million from financing activities. We generated approximately $209.9 million of this amount from proceeds from financings in our PPA entities, offset by distributions paid to our PPA tax equity investors of approximately $45.8 million. We received net proceeds of approximately $148.2 million from the issuance of debt, offset by repayments of $33.1 million of long-term debt and a revolving line of credit.

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, 2017:

 

     Payments Due By Period  
     Total      Less than
1 Year
     1-3 Years      3-5 Years      More than
5 Years
 
     (in thousands)  

Contractual Obligations or Other Commitments:

              

Recourse debt (1)

   $ 635,786      $ 1,691      $ 534,095      $ 100,000      $ —    

Non-recourse debt (2)

     372,318        18,446        66,961        159,698        127,213  

Operating leases

     16,070        6,404        8,701        705        260  

Sale-leaseback leases from managed services

     223,041        23,535        73,606        77,494        48,406  

Other sale-leaseback related transactions

     31,781        —          31,781        —          —    

Natural gas fixed price forward contracts

     15,368        4,647        8,216        2,505        —    

Grant for Delaware facility

     10,469        —          —          10,469        —    

Interest rate swap

     5,904        —          393        —          5,511  

Preferred Series G stock liability

     5,150        —          5,150        —          —    

Supplier purchase commitments

     17,533        2,691        14,842        —          —    

Renewable energy credit obligations

     2,364        584        1,780        —          —    

Asset retirement obligations

     500        —          500        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,336,284      $ 57,998      $ 746,025      $ 350,871      $ 181,390  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 “—Credit Facilities—Bloom Energy Indebtedness” above for more details.

 

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(2)   Each of the debt facilities entered into by PPA Company II, PPA Company IIIa, PPA Company IIIb, PPA Company IV and PPA Company V contain cross-default provisions. See “—Credit Facilities—PPA Entities’ Indebtedness” above for more details.

Included within the long-term debt balances above is $244.7 million in recourse debt in the form of 8% Notes, $215.9 million of which will convert into shares of Class B common stock automatically at the completion of this offering. Further, $286.1 million of long-term recourse debt is in the form of 6% Notes, net of the $140.8 million adjustment to fair value of the underlying derivative instrument and net of a discount of $3.8 million, which will be convertible into equity as described above. The remaining $103.2 million of the long-term recourse debt is from the 10% Senior Secured Notes and Term Loan. During the year ended December 31, 2017, we generated an additional $73.4 million in sale-leaseback transactions pursuant to incremental managed services arrangements.

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 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 current 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, the end of the first recapture period. Further, 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 March 31, 2018, we had 277 full time workers in Delaware and had paid $74.5 million in cumulative compensation. We have so far received $12.0 million of the grant which is contingent upon our 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 $5.0 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of December 31, 2017 and March 31, 2018 we had paid $1.5 million for recapture provisions and $10.5 million in other long-term liabilities related to this agreement (see Note 12, Other Long-Term Liabilities , to our consolidated financial statements).

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 liability for the debts or other obligations of the PPA entities. In some cases, we were required to guarantee obligations of the PPA entities, such as the performance and operating efficiency warranties of the Energy Servers, representations and warranties made to the other investors in the PPA entity, and the performance of covenants. As a result, we could be obligated to make payments to these PPA entities or the other investors in the event of a breach of these representations, warranties or covenants. As of December 31, 2016, PPA Company IIIb and PPA Company V had $26.3 million and $131.2 million in principal indebtedness outstanding, respectively. PPA Company IIIb’s indebtedness matures in October 2020, although it has power purchase agreements with terms through 2030. As of December 31, 2017, PPA Company IIIb and PPA Company V had $25.6 million and $128.4 million in principal indebtedness outstanding, respectively. PPA Company V’s indebtedness matures on December 31, 2021 although PPA Company V has power purchase agreements with terms through 2031. As of March 31, 2018, PPA Company IIIb and PPA Company V had $25.4 million and $127.7 million in principal indebtedness outstanding, respectively. Accordingly, this indebtedness will need to be refinanced at its maturity date. If we are unable to refinance this indebtedness on similar or more favorable economic terms, the projects could face increased costs than originally anticipated, which could result in us choosing to make additional payments to the entity to cover these additional costs. If we are unable to repay or refinance this indebtedness, the lenders could declare an event of default under the indebtedness.

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 have substantial control. We have not entered into any other

 

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transactions that have generated relationships with unconsolidated entities or financial partnerships or special purpose entities. Accordingly, we do not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks as part of our ongoing business operations, primarily exposure to changes in interest rates and fuel prices. Our sales contracts are primarily denominated in U.S. dollars, and therefore, substantially all of our revenue is not subject to foreign currency risk. In addition, an increasing portion of our operating expenses is incurred outside the United States, is denominated in foreign currencies, and is subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and operating results could be adversely affected.

Interest Rates

Our cash and cash equivalents are invested in money market funds. Our short-term investments are invested in U.S. Treasury bills. We believe that we do not have any material exposure to changes in fair value as a result of changes in interest rates due to the short-term nature of our cash equivalents and short-term investments. We have not been exposed to material risks on investment income due to changes in interest rates given the low levels of interest being earned on money market funds and U.S. Treasury bills.

We are exposed to interest rate risk related to our indebtedness that bears interest at floating rates based on LIBOR plus a specified margin. We generally hedge interest rate risks of floating-rate debt with interest rate swaps. Changes in interest rates are generally offset by the related hedging instruments. For fixed-rate debt, interest rate changes do not affect our earnings or cash flows. We do not believe that an increase or decrease in interest rates of a hypothetical 10% would have a material effect on our operating results or financial condition.

Commodity Price Risk

We are subject to commodity price risk arising from price movements for natural gas that we supply to customers under certain power purchase agreements to operate our Energy Servers. We manage this risk by entering into forward contracts as economic hedges of commodity price risk to control the cost of natural gas. As a result, we do not believe that a 10% change in commodity prices would have a material effect on our operating results or financial condition.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our future financial statements will be affected to the extent that our actual results materially differ from these estimates.

We believe that of our significant accounting policies, which are described in Note 2 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in conformity with U.S. GAAP and reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a

 

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qualitative approach in assessing the consolidation requirement for our PPA entities. This approach focuses on determining whether we have the power to direct the activities of the PPA entities that most significantly affect the PPA entities’ economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPAs. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA entities because we have a majority of the voting interests of the entities, have the power to direct the activities of the PPA entities and bear the obligation to absorb losses, and the right to receive benefits that could be significant. For additional information, see Note 14, Power Purchase Agreement Programs, to our consolidated financial statements included in this prospectus. 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. Certain prior period balances have been reclassified to conform to the current period presentation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates include assumptions used to compute the best estimate of selling-prices (BESP), fair value of lease and non-lease components, such as estimated output, efficiency and residual value of the Energy Servers, estimates for inventory write-downs, estimates for future cash flows and economic useful lives of property, plant and equipment, other long-term assets, valuation of certain accrued liabilities, such as derivative valuations, accrued warranty and extended maintenance and estimates for recapture of U.S. Treasury grants, income taxes and deferred tax asset valuation allowances, warrant liabilities, stock-based compensation costs, and allocation of profit and losses to the noncontrolling interests. Actual results could differ materially from these estimates under different assumptions and conditions.

Revenue Recognition

We primarily earn revenue from the sale and installation of our Energy Servers to direct and lease customers, by providing services under our operations and maintenance services contracts, and by selling electricity to customers under PPA agreements. We offer our customers several ways to finance their purchase of an Energy Server. Customers may choose to purchase our Energy Servers outright. Customers may also lease our Energy Servers through one of our financing partners as a traditional lease or managed services agreement.

Direct Sales

We recognize revenue from contracts with customers for the sales of products and services included within these contracts in accordance with ASC 605-25 (revenue recognition for multiple-element arrangements).

Revenue from the sale and installation of Energy Servers to direct customers is 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.

Most of our arrangements, other than renewals of maintenance, are multiple-element arrangements with a combination of Energy Servers, installation, and maintenance services. Products and services generally qualify as

 

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separate units of accounting. For multiple-element arrangements, we allocate revenue to each unit of accounting 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. The total arrangement consideration is allocated to each separate unit of accounting using the relative estimated selling prices of each unit based on the aforementioned selling price hierarchy. 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 meeting any specified performance conditions.

We have not been able to obtain reliable evidence of the selling price. Given that we have never sold an Energy Server without a maintenance service agreement, and vice-versa, we have no evidence of selling prices for either and virtually no customers have elected to cancel their maintenance agreements and continue 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, we estimate our selling price driven primarily by our expected margin on both the Energy Server and maintenance service agreement based on our respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred during the 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 to determine the selling price to be used in our BESP model. Costs for maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future product costs. Product 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 slightly lower margin to our service costs than to our Energy Servers because we intend to transact separate service sales at margins slightly below Energy Server margins.

The determination of BESP is made through consultation with and approval by our management. As our business offerings and eligibility for the ITC evolve over time, we may be required to modify our estimated selling prices in subsequent periods, and our revenue could be adversely affected.

We do not offer extended payment terms or rights of return for our products. Upon shipment of the product, we defer the product’s revenue until the acceptance criteria have been met. Such amounts are recorded within deferred revenue in the consolidated balance sheets. The related cost of such product is also deferred as a component of deferred cost in the consolidated balance sheets until customer acceptance. Prior to shipment of the product, any prepayment made by the customer is recorded as customer deposits. Customer deposits were $29.5 million and $10.2 million as of December 31, 2016 and 2017, respectively, and were included in deferred revenue and customer deposits in the consolidated balance sheets.

Traditional Leases

Under this 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 between the customer and the financing partner. In addition, we contract with the customer to provide extended maintenance services from the end of the standard one-year warranty period until the remaining duration of the lease term.

Payments received 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 is also deferred as a component of deferred cost in the consolidated balance sheets, until acceptance.

We also sell extended maintenance services to our customers that effectively extend the standard warranty coverage. Payments from customers for the extended maintenance contracts are received at the beginning of each

 

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service year. Accordingly, the customer payment received is recorded as deferred revenue, and revenue is recognized ratably over the extended maintenance contract.

As discussed within the “direct sales” section above, our arrangements with our traditional lease customers are multiple-element arrangements as they include a combination of Energy Servers, installation and extended maintenance services. Accordingly, we recognize revenue from contracts with customers for the sales of products and services included within these contracts in accordance with ASC 605-25 (revenue recognition for multiple-element arrangements).

Operations and Maintenance Services

We typically provide a standard one-year warranty against manufacturing or performance defects and a performance guarantee to our direct sales and traditional lease customers. The performance guarantee has not resulted in any material obligations to date. We also sell to these customers operations and maintenance services that effectively extend the standard warranty coverage under maintenance agreements for up to twenty additional years. These customers generally have an option to renew or cancel the operations and maintenance services on an annual basis. Revenue is recognized from such operations and maintenance services ratably over the term of the service (or annual renewal period).

Managed Services

We are a party to master lease agreements that provide for the sale of Energy Servers to third-parties and the simultaneous leaseback of the systems, which we then sublease to our customers through our managed services program. In sale-leaseback sublease arrangements, we first determine whether the Energy Servers under the sale-leaseback arrangement are “integral equipment.” An Energy Server is determined to be integral equipment when the cost to remove the system from its existing location, including the shipping costs of the Energy Server at the new site, including any diminution in fair value, exceeds 10% of the fair value of the Energy Server at the time of its original installation.

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. The Company’s managed services arrangements are classified as operating leases. As operating leases, we recognize a portion of the revenue and the associated cost of sale and defer the portion of revenue and cost of sale that represents the gross profit that is equal to the present value of the future minimum lease payments over the master leaseback term. For both capital and operating leasebacks, we record the deferred gross profit in our consolidated balance sheet as deferred income and amortize the deferred income over the leaseback term as a reduction to the leaseback rental expense included in operating leases. To date, our managed services has been classified as operating leases.

PPA Sales

Sales-type Leases. Certain arrangements entered into by Bloom Energy 2009 PPA Project Company, LLC (PPA I), PPA Company IIIa and PPA Company IIIb, our affiliates, qualify as sales-type leases in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 840, Leases (ASC 840). A sale is typically recognized when an Energy Server begins generating electricity and has been accepted. We are responsible for the installation, operation and maintenance of the Energy Servers at the customer’s sites, including running the Energy Servers during the term of the PPAs ranging from 10 to 21 years.

The elements included as part of recurring payments from customers are allocated to revenue using the relative fair value method to both the lease and non-lease elements, including service revenue, which is considered an executory cost, fuel revenue, and interest revenue. Revenue and costs related to such elements are generally recognized over the term of the PPA. The customer has the option to purchase the Energy Servers at the then fair market value at the end of the term of the PPA. Service revenue related to sales-type leases of $6.7

 

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million and $4.0 million for the years ended December 31, 2016 and 2017, respectively, and service revenue related to sales-type leases of $1.0 million and $0.9 million for the three months ended March 31, 2017 and 2018, respectively, is included in service revenue in the consolidated statements of operations. Fuel revenue of $1.9 million and $1.0 million for the years ended December 31, 2016 and 2017, respectively, and fuel revenue of $0.3 million and $0.2 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity revenue in the consolidated statements of operations. The interest component of the leased asset is deferred as unearned income and is recognized over the life of the lease term as a component of electricity revenue. Interest revenue of $1.8 million and $1.9 million for the years ended December 31, 2016, and 2017, respectively, and interest revenue of $0.5 million and $0.3 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity revenue in the consolidated statements of operations. We make estimates and judgments about the present value of the minimum lease payments which are based on assumptions that are consistent with our plans and estimates. The amount of our minimum lease payments could be materially affected should the actual amounts differ from our estimates.

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 approximate fair value, assuming all other conditions for revenue recognition noted above have also been met.

Operating Leases . PPA arrangements entered into by PPA Company IIIa, PPA Company IIIb, PPA Company IV, and PPA Company V that are, in substance, leases 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 provided to the customer at rates specified under the contracts. During the years ended December 31, 2016 and 2017, revenue from electricity sales amounted to $21.2 million and $29.9 million, respectively. During the three months ended March 31, 2017 and 2018, revenue from electricity sales amounted to $7.1 million and $7.7 million, respectively. During the years ended December 31, 2016 and 2017, service revenue amounted to $10.8 million and $15.6 million, respectively. During the three months ended March 31, 2017 and 2018, service revenue amounted to $3.9 million and $3.8 million, respectively.

Tariff Agreements . PPA Company II entered into an arrangement with Delmarva, PJM Interconnection regional transmission organization (PJM), and the State of Delaware under which PPA Company II provides the energy generated from its Energy Servers to PJM, and receives a certain tariff as collected by Delmarva.

Revenue at the tariff rate is recognized as electricity sales and service revenue as it is generated over the term of the tariff. Revenue relating to power generation at the Delmarva sites of $23.0 million and $23.3 million for the years ended December 31, 2016 and 2017, respectively, and revenue relating to power generation at the Delmarva sites of $5.8 million and $5.8 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation at the Delmarva sites of $13.7 million and $13.9 million for the years ended December 31, 2016 and 2017, respectively, and revenue relating to power generation at the Delmarva sites of $3.5 million and $3.5 million for the three months ended March 31, 2017 and 2018, respectively is included in service revenue in the consolidated statements of operations.

See Note 14, Power Purchase Agreement Programs , in our consolidated financial statements for further information.

Incentives and Grants

Self-Generation Incentive Program (SGIP)

Our PPA entities receive payments under the SGIP which is a program specific to the State of California that provides financial incentives for the installation of new, qualifying self-generation equipment that we own.

 

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The SGIP funds are assigned to the PPA entities by the customers and are recorded as other current assets and other long-term assets until received. For sales-type leases, the benefit of the SGIP is recorded as deferred revenue and is recognized as revenue when the Energy Server is accepted. For operating leases, the benefit of the SGIP funds are recorded as deferred revenue and is amortized on a straight-line basis over the PPA contract period. The SGIP 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. On July 1, 2016, the CPUC announced that fuel cells will continue to benefit from the incentives provided by the SGIP; however, the SGIP has been modified to provide a greater portion of the incentives for storage technology rather than power generation technology, such as our fuel cells, and has further limited the available allocation of incentives that any participant may claim under the SGIP. In addition, the SGIP will require all eligible power generation sources consuming natural gas to use a minimum of 10% biogas to receive SGIP funds beginning in 2017, with this minimum biogas requirement increasing to 25% in 2018, 50% in 2019 and 100% in 2020. The SGIP is currently scheduled to expire on January 21, 2021 absent extension.

We received $3.3 million and $2.7 million of SGIP funds for the years ended December 31, 2016 and 2017, respectively. We received $0.6 million and $0.3 million of SGIP funds for the three months ended March 31, 2017 and 2018, respectively. The SGIP 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 incentives received. There have been no reductions or refunds of SGIP funds as of March 31, 2018 and while $14.1 million is potentially subject to recapture or refund as of March 31, 2018, we do not expect any recaptures or refunds in the future.

For certain PPA entities, we make SGIP reservations on behalf of the PPA entity. The PPA entity receives the SGIP funds directly from the program and, therefore, bears the risk of loss if these funds are not paid.

U.S. Treasury Grants

We are eligible for U.S. Treasury grants on eligible property as defined under Section 1603 of the American Recovery and Reinvestment Act of 2009. However, to be eligible for the U.S. Treasury grants, a fuel cell system must have commenced construction in 2011 either physically or through the occurrence of sufficient project costs. For fuel cell systems under PPA arrangements, U.S. Treasury grants are considered a component of minimum lease payments. For fuel cell systems deployed under tariff legislation, we record the fuel cell systems net of the U.S. Treasury grants. U.S. Treasury grant receivables are classified as other current assets in our consolidated balance sheets. For operating leases, the benefit of the U.S. Treasury grant is recorded as deferred revenue and is amortized on a straight-line basis over the PPA contract period. We placed in service the last property eligible for U.S. Treasury grants in November of 2013 and collected all of its outstanding remaining U.S. Treasury cash grants during 2014 totaling $54.6 million.

The U.S. Treasury grant program has operational criteria for the first five years after the qualified equipment is placed in service. The criteria includes cash grant recapture provisions if the applicant disposes of the property to a disqualified person or the property ceases to qualify as a specified energy property. If the operational criteria are not fulfilled, it could result in a partial refund of incentives received. Due to the restructuring of our first PPA entity, as discussed in Note 15, PPA I Decommissioning , we indemnified the tax equity investor from any adverse grant recapture consequences. As a result, we accrued $10.0 million in estimated recapture refunds in 2015. In 2016, we recorded a $1.7 million reduction in our estimate of recapture refunds and paid a total of $8.3 million in recapture refunds. As of March 31, 2018, an additional total of $0.1 million in U.S. Treasury grants are potentially subject to recapture or refund under the PPA arrangements for sites that have not been decommissioned to date. None of this amount was paid during the three months ended March 31, 2018.

 

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Investment Tax Credits (ITC)

Our fuel cell systems are eligible for federal investment tax credits, or ITCs, that accrue to eligible property under Internal Revenue Code Section 48. Under PPA arrangements, ITCs are primarily passed through to tax equity investors. Approximately 1% to 10% of the incentives were received by us, with the balance distributed to the remaining investors of the PPA entity. These incentives were accounted for under the flow-through method. Although this federal tax benefit was recently reinstated, it expired at December 31, 2016 and was not available during 2017.

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 of, 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 as of December 31, 2016 and 2017, and while $18.2 million is potentially subject to recapture as of March 31, 2018, we do not expect any recaptures in the future.

Renewable Energy Credits (RECs)

RECs, which are tradeable energy credits that represent 1 megawatt hour of electricity generated from an eligible renewable energy resource generated in the U.S. are primarily ‘held for use’ and are presented as part of other current assets in the consolidated balance sheets until the RECs are sold and accounted for as revenue. We account for such RECs as output from the facility where they originate. We value these RECs at the lower of cost or market at the end of each reporting period.

To the extent the PPA entities do not produce enough RECs to satisfy the requirements under our PPA entities’ power purchase agreements, we also acquire RECs under stand-alone purchase agreements with third parties to satisfy these REC obligations. Under power purchase agreements with some customers, our PPA entities are required to deliver a specified quantity of biogas RECs or WECC (Western Electricity Coordinating Council) RECs. In order to meet these obligations, our PPA entities enter into REC purchase agreements with third parties to purchase a fixed quantity of the relevant RECs at a fixed price and on a fixed schedule. The PPA entities utilize the Western Renewable Energy Information System (WREGIS), an independent tracking system for the region covered by the WECC, which allows the PPA entities to manage RECs purchased and deliver the RECs to satisfy the customer obligation. Purchased RECs used to satisfy customer obligations are recorded at cost and are presented as part of other current assets and other long-term assets in the consolidated balance sheets. Costs of RECs purchased are expensed as our obligation to provide such RECs to customers occurs.

We estimate the number of excess RECs we will ultimately acquire under the non-cancelable purchase contracts over the number required to satisfy our obligations to our customers. We record a purchase commitment loss if the fair value of RECs is less than the fixed purchase price amount. The purchase commitment loss is recorded on the consolidated balance sheets as a component of other long-term liabilities.

Customer Financing Receivables

Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines. Customer financing receivables are generated by Energy Servers leased to PPA entities’ customers in leasing arrangements that qualify as sales-type leases. 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 creditworthiness of a majority of our customers based on ongoing credit evaluations. We also consider our

 

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historical level of credit losses and current economic trends that might impact the level of future credit losses. We write off customer financing receivables when they are deemed uncollectible. We have not had to maintain an allowance for doubtful accounts to reserve for potentially uncollectible customer financing receivables as historically, all of our receivables have been paid and we expect our current receivables on the consolidated balance sheets to be paid in full. For additional information, see Note 15 to our consolidated financial statements, PPA I Decommissioning .

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 its customers based on ongoing credit evaluations. We also consider our historical level of credit losses and current economic trends that might impact the level of future credit losses. We write off accounts receivable when they are deemed uncollectible. We have not had to maintain an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable as historically, all of our receivables have been paid and we expect our current receivables on the consolidated balance sheets to be paid 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 market value.

We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory 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, 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 of.

Long-Lived Assets

Our long-lived assets include property, plant and equipment. 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. Factors that we consider in deciding when to perform an impairment review would include significant negative industry or economic trends and significant changes or planned changes in our use of the assets. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset and we would recognize an impairment loss. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life. No material impairment of any long-lived assets was identified in the years ended December 31, 2016 or 2017, or in the three months ended March 31, 2018. When assets are retired or disposed of, 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.

Warranty Costs

We generally warrant our products sold to our direct customers for one year following the date of acceptance of the products (“standard product warranty”). As part of both our standard warranty and maintenance service agreements (“MSA”), we provide output and efficiency guarantees (collectively “performance guarantees”) to our customers when systems operate below contractually specified levels of efficiency and output. Such amounts have not been material to date.

 

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As part of our standard product warranty and MSA obligations, we control the operations of the underlying systems, including their efficiency and output levels. The performance guarantee payments represent our maintenance decisions and are accounted for as costs of goods sold. To estimate the warranty costs, we continuously monitor product returns for warranty failures and maintain the reserve for the related warranty expense based on various factors including historical warranty claims, field monitoring, and results of lab testing. Our obligations under our standard warranty and MSA agreements are generally in the form of product replacement, repair or reimbursement for higher customer electricity costs (also refer to Note 18, Commitments and Contingencies). Further, if the Energy Servers run at a lower efficiency or power output than what we committed under our performance guarantee, then we will reimburse the customer for this underperformance. Our 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 guarantee for each order is capped at a portion of the purchase price.

Standard Product Warranty

The standard product warranty covers defects in materials and workmanship under normal use and service conditions, and against manufacturing or performance defects. 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 under our standard obligations including material costs, labor costs, and higher customer electricity costs, should the units not work for extended periods. Estimated costs associated with standard product warranty, including the performance guarantee payments, are recorded at the time of sale as a component of costs of goods sold.

Maintenance Services Agreements

We also sell MSAs to our customers, which are renewable each year, at the option of the customer. The annual MSAs sold to direct customers and the services offered under our Bloom Electrons and managed services arrangements are executory contracts, in which the related maintenance costs, including the costs of performance guarantees are recognized as they are incurred as a component of costs of goods sold.

Prior to fiscal year 2014, certain MSAs with direct customers were accounted for as separately-priced warranty contracts under ASC 605-20-25 Separately Priced Extended Warranty and Product Maintenance Contracts (formerly FTB 90-1), in which we recorded an accrual for any expected costs that exceed the contracted revenues for that one-year service renewal arrangement, and is included as a component of the accrued warranty liability. The related liability was $15.8 million, $9.2 million and $8.5 million as of December 31, 2016 and 2017, and as of March 31, 2018, respectively.

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 (FASB) 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. Determining the fair value of stock-based awards at the grant date requires judgment. The determination of the grant date fair value of options using the Black-Scholes model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, our expected stock price volatility over the expected term of the options, risk-free interest rates and expected dividends that are estimated as follows:

 

    Fair Value of Common Stock. Our board of directors considers numerous objective and subjective factors to determine the fair value of our common stock at each meeting at which awards were approved, as discussed in “Common and Redeemable Preferred Stock Valuations” below.

 

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    Volatility. We determine the price volatility factor based on the historical volatilities of our peer group as we do not have a sufficient trading history for our common stock. Industry peers consist of several public companies in the technology industry that are similar to us in size, stage of life cycle, and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own Class A common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

    Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. We determined the expected term assumption based on our historical exercise behavior combined with estimates of the post-vesting holding period.

 

    Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options for each option group.

 

    Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy.

In developing estimates used to calculate assumptions, we establish 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. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred. We typically record stock-based compensation expense under the straight-line attribution method over the vest term, which is generally five years and record stock-based compensation expense for performance-based awards using the graded-vesting method. Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function.

Stock-based compensation cost for RSUs is measured based on the fair value of the underlying shares on the date of grant. RSUs are subject to a time-based vesting condition and a performance-based vesting condition, both of which must be satisfied before the RSUs are vested and settled for shares of common stock. The performance-based condition is tied to a liquidity event, such as a sale event or the completion of our initial public offering. The time-based condition ranges between six months to one year from the end of the lock-up period post a liquidity event. No expense related to these awards will be recognized unless the performance condition is satisfied.

Compensation expense 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. Compensation expense for equity instruments granted to non-employees is periodically remeasured as the underlying instruments vest. The fair value of the equity instruments is charged to earnings over the term of the service agreement.

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 (NOL) position), based on the amount of compensation cost recognized and our statutory tax rate. Prior to December 31, 2016, differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on our income tax return are recorded in additional paid-in capital if the tax deduction exceeds the deferred tax asset (excess tax benefit) or in the consolidated statements of operations if the deferred tax asset exceeds the tax deduction and no additional excess tax benefit exists from previous awards. Beginning in the first quarter of fiscal 2017, with the adoption of ASU 2016-09 on a prospective basis, stock-based compensation excess tax

 

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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 during the years ended December 31, 2016 and 2017, since we remain in an NOL position.

During the years ended December 31, 2016, and 2017, we recognized $28.2 million and $30.5 million of employee and non-employee stock-based compensation expense, respectively. During the three months ended March 31, 2017 and 2018, we recognized $6.6 million and $7.9 million of employee and non-employee stock-based compensation expense, respectively. The compensation expense is allocated on a departmental basis, based on the classification of the option holder.

No income tax benefits have been recognized in the consolidated statement of operations for stock-based compensation arrangements, and no stock-based compensation costs have been capitalized in the years ended December 31, 2016 and 2017, or in the three months ended March 31, 2018.

The following table summarizes the assumptions relating to our stock options and RSUs as follows:

 

    Years Ended December 31,   Three Months Ended March 31,
    2016   2017             2017                       2018          

Risk-free interest rate

  1.23%—1.69%   1.95%—2.08%   2.02%   2.49%

Expected term (in years)

  6.00—6.54   6.08—6.62   6.08—6.55   6.18—6.48

Expected dividend yield

  —     —     —     —  

Expected volatility

  59.3%—60.9%   55.6%—61.0%   61.0%   55.1%

Weighted average grant date fair value

  $23.94   $20.25   $21.89   $18.44

Refer to Note 25, Stock Option Plan , of our consolidated financial statements for further discussion of our stock-based compensation arrangements.

Common and Redeemable Preferred Stock Valuations

Prior to this offering, the fair value of the common and redeemable preferred stock underlying our stock options, RSUs, and warrants was determined by our board of directors. The valuations of our common and redeemable preferred stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions used in the valuation models were based on future expectations combined with management judgment. Members of our board of directors and management team have extensive business, financial, and investing experience. Because there had been no public market for our common or redeemable preferred stock, the board of directors with input from management exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of common and redeemable preferred stock as of the date of each option, RSU, and warrant, including the following factors:

 

    contemporaneous valuations performed by unrelated third-party specialists;

 

    the prices, rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

 

    our actual operating and financial performance;

 

    our current business conditions and projections;

 

    secondary transactions;

 

    our hiring of key personnel and the experience of our management;

 

    our history and the timing of the introduction of new products and services;

 

    our stage of development;

 

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    our likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company, given prevailing market conditions;

 

    the lack of marketability involving securities in a private company;

 

    the market performance of comparable publicly traded companies; and

 

    the U.S. and global capital markets conditions.

In valuing our common and redeemable preferred stock, our board of directors utilized the probability-weighted expected return method, or PWERM. Under the PWERM, the value of the common and redeemable preferred stock is estimated based on analysis of future values for the common and redeemable preferred stock assuming relevant events and expected future exit scenarios. The exit scenarios consisted of initial public offering scenarios and a merger and acquisition scenario. The enterprise value derived under each scenario was based primarily on the income approach and our probability weighted expected exit values under each scenario. Additionally, we applied a discount for lack of marketability. Further, we applied certain weights to the PWERM conclusion described above as well as to the weighted average common share price from secondary transactions occurring in the period leading up to the valuation date to conclude the fair value of the common and redeemable preferred stock.

Following this offering, valuation models, including the estimates and assumptions used in such models, will not be necessary to determine the fair value of our Class A common and redeemable preferred stock, as shares of our common stock will be traded in the public market and the redeemable preferred stock will be redeemed to Class B common stock.

Based on an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, the aggregate intrinsic value of stock options, RSUs, and warrants outstanding as of March 31, 2018 was $80.1 million, with $14.8 million related to vested stock options and $65.3 million related to RSUs. In addition, we issued RSUs that may be settled for 29,604 shares of our Class B common stock subsequent to March 31, 2018 with a grant date fair value of $ 0.9 million (all such RSUs are collectively referred to as “Existing RSUs”). The Existing RSUs may be settled for approximately 3.1 million shares of Class B common stock and will begin to vest 180 days from the date of this prospectus, and ratably thereafter for one to three years on a quarterly basis. We expect that we will incur stock-based compensation expense of $96.2 million relating to the Existing RSUs beginning on the date of this prospectus, recognized ratably over the service period. In addition, on the date of this prospectus we intend to issue RSUs that may be settled for up to 12,500,000 shares of our Class B common stock (the “New RSUs”), with a grant date fair value of approximately $175.0 million, based on the midpoint of the price range set forth on the cover page of this prospectus. The New RSUs will vest and settle as to 25% of the shares subject to the New RSUs on the date that is 180 days after the date of this prospectus and an additional 25% on each six month anniversary thereafter. Based on the midpoint of the price range set forth on the cover page of this prospectus, we expect that we will incur stock-based compensation expense of approximately $175.0 million relating to the New RSUs, beginning on the date of this prospectus and recognized ratably over the next 24 months.

On the settlement date of the New RSUs, we must withhold income taxes at applicable minimum statutory rates based on the then-current value of the Class A common stock underlying the vested portion of New RSUs. Employees have the option to pay the tax in cash or by us selling shares of Class A common stock on behalf of RSU holders to cover any income taxes owed. We currently expect that the average of these withholding tax rates will be approximately 40%. If the price of our Class A common stock at the time of settlement of the vested New RSUs were equal to the assumed initial public offering price of $14.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, we estimate that this tax obligation would be approximately $17.5 million at each six-month vesting date, or $70.0 million in the aggregate. Such a sale to cover would result in an additional 1.3 million shares of Class A common stock being sold in the marketplace at each six-month vesting date for the New RSUs.

 

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Alternatively, we may elect to withhold shares of Class A common stock in net settlement from holders of vested RSUs to satisfy income taxes associated with the settlement of such vested RSUs, which would result in the aggregate tax obligation estimated above being paid by us in cash, although we have no current plans to do so.

Below is a chart setting forth all of our outstanding options, as of March 31, 2018, and the corresponding exercise price:

 

Exercise Prices

   Number of
Options
Outstanding
 

$2.18 - $5.63

     1,383,540  

$12.80

     117,133  

$20.55

     609,066  

$24.00

     305,981  

$30.29 - $30.35

     1,839,247  

$30.72 - $30.81

     1,667,113  

$30.89

     1,262,593  

$30.96

     4,360,446  
  

 

 

 
     11,545,119  
  

 

 

 

Income Taxes

We account for income taxes using the liability method under Financial Accounting Standards Board Accounting Standards Codification 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 deferred tax assets because we believe it is more likely than not that its deferred tax assets will not be realized.

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 establish 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, as well as applicable interest and penalties accrued on these reserve positions.

The valuation allowance is determined in accordance with the provisions of ASC 740, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. The amount of our valuation allowance could be materially affected should the actual amounts differ from our estimates. Any adjustment to the deferred tax asset valuation allowance would be recorded in the statement of operations in the periods when the adjustment is determined to be required.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance which will replace numerous requirements in GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should

 

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recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date by one year to December 15, 2018 for annual reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. During 2016, the FASB issued several amendments to the standard, including clarification to the guidance on reporting revenues as a principal versus an agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs and disclosure of performance obligations.

The two permitted transition methods under the new standard are (1) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, and the cumulative effect of applying the standard would be recognized at the earliest period shown, or (2) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We are in the process of assessing the impact on our consolidated financial statements and whether we will adopt the full retrospective or modified retrospective approach.

In August 2014, the FASB issued ASU 2014-13, Consolidation—Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financial Entity (Topic 810). The update requires a reporting entity that consolidates a collateralized financing entity and measures the financial assets and the financial liabilities using the measurement alternative shall disclose the fair value measurement on financial instruments for the financial assets and the financial liabilities of the consolidated collateralized financing entity. The amendments in this Update were effective for us for fiscal year 2017. The adoption of this standard had no material impact our consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (Topic 330), to specify that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. However, the ASU does not apply to inventory measured using the last-in-first-out or retail methods. We early adopted the ASU prospectively in January 2017, and the adoption had no material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will replace most existing lease accounting guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. ASU 2016-02 requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU 2016-02 will be effective for us beginning in fiscal 2020, and requires the modified retrospective method of adoption. We are evaluating the impact of this guidance on our consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments (Topic 815), to clarify when a contingent put or call option to accelerate the repayment of debt is an embedded derivative. This ASU is effective for the year ending December 31, 2018, and interim periods within the year ending December 31, 2019, with early adoption permitted. We adopted the ASU in January 2017, and the adoption had no material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323), simplifying the transition to the equity method of accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. We adopted the ASU prospectively in January 2017, and the adoption had no material impact on our consolidated financial statements.

 

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In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Account (Topic 718), which simplifies several aspects of the accounting for the share based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to employees maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2016 and for the interim periods therein, and for all other entities for fiscal years beginning after December 15, 2017. Early adoption is permitted in any interim or annual period that has not been issued or made available for issuance, provided all the amendments within the ASU are adopted. We adopted the standard prospectively in January 2017. We elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Since we remain in a net operating loss position and there are no excess tax benefits in the year ended December 31, 2017, the adoption had no material impact on our consolidated financial statements.

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 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 consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), 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. This pronouncement is effective from fiscal year 2019, with early adoption permitted. Adoption will be applied retrospectively to all periods presented. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which requires that the entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The amendments in this ASU are effective for public business entities in annual reporting periods beginning after December 15, 2017 and for the interim periods therein, and for all other entities in annual reporting periods beginning after December 15, 2018, and interim reporting periods in annual reporting periods beginning after December 15, 2019. Early adoption is permitted only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. We are currently evaluating the impact of our adoption of this standard on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows—Restricted Cash (Topic 230), related to the presentation of restricted cash in the statement of cash flows. The pronouncement requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. This guidance is effective for the fiscal year 2019. We elected to early adopt the updated guidance in January 2017 resulting in the application of its requirements to all applicable periods presented. The adoption of this guidance did not have an effect on our results of operations, financial position or liquidity, other than the presentation of restricted cash or restricted cash equivalents in the statements of cash flows.

 

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BUSINESS

Overview

Our mission is to make clean, reliable, and affordable energy for everyone in the world. To fulfill this mission, we have developed a distributed, on-site electric power solution that is redefining the $2.4 trillion electric power market and transforming how power is generated and delivered. The commercial and industrial (C&I) segments are our initial focus. 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 (or base load) 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 30 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. Some of our largest customers are AT&T, Caltech, Delmarva Power & Light Company, Equinix, The Home Depot, Kaiser Permanente and The Wonderful Company. We also work actively with financing partners, such as The Southern Company, that purchase our systems that are deployed at end customers’ facilities in order to provide the electricity as a service. In 2017, our largest customers were The Southern Company, which finances our Energy Servers for a large number of end customers, and Delmarva. Our customer base included 25 of the Fortune 100 companies as of March 31, 2018. Grid power prices continue to rise in most regions where we serve customers. The traditional centralized electric grid infrastructure requires significant investment for its maintenance, upgrade and operation, which has been continually driving up the cost of grid power. The U.S. Energy Information Administration (EIA) projects that grid power prices for all classes of customers including commercial and industrial, are expected to increase by over 40% in nominal terms through 2030 in the U.S. By contrast, in the regions where the majority of our Energy Servers are deployed, our solution typically provides a lower cost of electricity to our customers than traditional grid power. In addition, our solution provides greater cost predictability versus rising grid prices. Through a relentless focus on cost reduction, we have driven down materials cost of our Energy Servers by approximately 75% since 2009. We expect to continue this historical rate of cost reduction into the foreseeable future to realize the service costs assumed in our contracts and to expand further into markets with lower electricity costs. This cost reduction, coupled with the use of abundant, low-cost natural gas as a fuel source and very high conversion efficiencies, has allowed us to expand our market opportunity.

The traditional grid is vulnerable to natural disasters as well as cyber-attacks and physical sabotage, which have become more frequent. The topology of the centralized grid has a tendency to cascade outages rather than to contain them. Because our on-site stationary power systems are located at the point of consumption, our Energy Servers, when configured to provide uninterruptible power, largely avoid the existing electric power grid’s inherent vulnerability to outages from weather events and other threats, as well as the additional losses of efficiency associated with the transmission of power over long distances. Our Energy Servers are able to deliver this very high level of availability to our customers in part because they are modular, redundant, and can be “hot swapped,” or serviced without interruption.

The electric grid typically delivers power generated by sources with a high carbon footprint, and there is increasing pressure to reduce resulting carbon dioxide and other harmful emissions. There is also a rising demand for clean electric power solutions that overcome the challenges of the traditional grid, and can address the requirements of the digital economy by delivering 24x7 electric power, with very high availability and quality. Our Energy Servers address these requirements and operate on-site at very high efficiencies using natural gas or biogas, offering significant emissions reductions, and, unlike prevalent renewable technologies such as wind and solar, provide a viable alternative to the constant base load electricity generated by a central power plant.

 

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We have continuously innovated and evolved our technology over time. The latest generation Energy Server delivers five times the energy output of the first generation in a constant footprint. Similarly, we have also improved the beginning-of-life electrical efficiency (the rate at which fuel is converted into electricity) of our Energy Servers from 45% to 65% today, representing the highest delivered power efficiency of any commercially available power solution. In addition, we have expanded the range of available accessories which extend the capability and functionality of our Energy Servers to meet additional customer requirements, such as an uninterruptable power capability. Our team has decades of experience in the various specialized disciplines and systems engineering concepts unique to this technology. We had 209 issued patents in the United States and 90 issued patents internationally as of March 31, 2018.

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 believe that we are capturing only a small percentage of our largest customers’ total energy spend, which gives us a significant opportunity for expansion and growth. Moreover, as the price of our products decreases and the price of grid power increases, more markets will become available for our products. As of December 31, 2017, we had 297 megawatts in total deployed systems, representing an average annual growth rate of approximately 25% since 2014.

Bloom Cumulative Acceptances (megawatts)

 

 

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Industry Background

People around the world depend upon access to reliable and affordable electric power for a healthy, functioning economy and for delivery of essential services. According to Marketline, the market for electric power is one of the largest sectors of the global economy with total revenues of $2.4 trillion in 2016, and is projected to continue to grow at a compound annual growth rate of 4.3% to $2.9 trillion in 2021.

There are numerous challenges driving a transformation in how electricity is produced, delivered and consumed. We believe that this transformation will be similar to the seismic shifts seen in the computer and telecommunications industries, from centralized mainframe computing and landline telephone systems to ubiquitous and highly personalized distributed technologies.

Some of the key challenges facing the electric power market are:

Increasing costs to maintain and operate the existing electric grid

The U.S. Department of Energy has described the U.S. electricity grid as “aging, inefficient, congested, and incapable of meeting the future energy needs of the information economy,” while the American Society of Civil Engineers gave the U.S. energy infrastructure a grade of D+ in 2017. 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. The Edison Electric Institute estimated that between 2017 and 2019, U.S. investor-owned electric utilities will need to make total capital expenditure investments of approximately $336 billion.

 

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U.S. EIA data demonstrates that the average commercial and industrial electricity prices have both increased at 2.4% and 2.7% CAGR from 2000 to 2015, respectively. According to this data, the average commercial and industrial electricity prices are expected to continue to rise.

Average U.S. Commercial and Industrial Cost of Electricity (cents/KWh)

 

 

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Source: U.S. Energy Information Administration

Inherent vulnerability of existing grid design

The existing electric grid architecture features centralized, monolithic power plants and mostly above-ground transmission and distribution wires. This design has numerous points of failure and limited redundancy, and the daisy-chain topology can cascade outages rather than contain them. For example, in 2003, an initial failure blamed on a tree branch in Ohio set off outages that cascaded across eight states and parts of Canada, cutting power for 50 million people. Similarly, in 2011, a dropped transmission line in Arizona cascaded and created a massive outage across Southern California.

Furthermore, 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 temperatures. For example, Hurricane Sandy knocked out power to 8.5 million customers from North Carolina to Maine, and as far west as Illinois and Michigan. According to data from the U.S. Department of Energy (DOE), the United States electric grid loses power 285% more often than in 1984, when data collections on blackouts began. These outages result in an annual loss to American businesses of as much as $150 billion, with weather-related disruptions costing the most per event. More recently, September 2017 was the most active month on record for Atlantic Hurricanes, according to the ACE index. Reuters has reported that at its peak, Hurricane Irma caused power outages for over 7.4 million people in Florida and the surrounding states (Georgia, South Carolina and Alabama). Finally, in the wake of Hurricane Maria, Puerto Rico experienced the greatest electricity failure in U.S. history according to the Rhodium Group, with a loss of over 1.25 billion hours of electricity capacity and counting. The increasing frequency and severity of natural disasters will likely increase the cost of grid-supplied power to customers.

Power Outages in the United States

 

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Source: Eaton Black Out Tracker United States 2016

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. In 2017, Accenture Consulting published the report “Outsmarting Grid Security Threats,” which stated that “57% of utility executives believe their countries could see interruption of electricity supply due to cyber-attacks within five years” and that “only 48% of utility executives think they are well prepared for the challenges of an interruption from cyber-attack”.

Intermittent generation sources such as wind and solar are negatively impacting grid stability

Electricity generation from wind and solar has grown dramatically over recent years and is expected to account for a greater percentage of total generation going forward. While these renewable sources help to reduce greenhouse gas emissions, they provide only intermittent power to the grid, which compromises the grid’s ability to deliver 24x7 reliable electric power. As the penetration of these resources increases, balancing real-time supply and demand becomes more challenging and costly.

Due to these challenges, solutions are needed which provide constant base load 24x7 electric power which is reliable, clean and without the shortcomings of the existing grid infrastructure or intermittent sources such as wind or solar. This need is especially acute in the C&I segments, representing 68% of global electricity consumption, according to Marketline, where cost and reliability have a direct impact on profitability and business sustainability.

Commercial and Industrial Market Size (2016)

 

 

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Source: Marketline; U.S. Energy Information Administration

Increasing focus on reducing harmful emissions

In response to rising concern over harmful emissions, the 2015 United Nations Climate Change Conference climate talks resulted in a global consensus that the rate of release of carbon dioxide and other greenhouse gases must be reduced with an increased sense of urgency. 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. 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

According to the International Energy Agency (IEA) in its 2017 World Energy Outlook, 1.1 billion people worldwide live without electricity. For developing countries to grow their economies, they must expand access to reliable and affordable electric power. Building a centralized grid system, in addition to its inherent limitations, can

 

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also be infeasible due to the lack of adequate capital for upfront investment. Moreover, in dense urban areas, the costs of building this infrastructure are compounded by a lack of urban planning. In rural areas, using the centralized model to transmit and distribute electricity to low-density populations is economically unviable. As a result, we believe these countries are likely to develop a hybrid solution consisting of both centralized and distributed electrical power infrastructure to accelerate availability of power.

Our Solution

The Bloom Energy Server delivers reliable, resilient, clean and affordable energy, particularly in areas of high electricity costs, by 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 the Energy Server is connected to the customer’s main electrical feed, which avoids the transmission and distribution losses associated with the 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, which produces 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 parallels the example of smart phones—a single core platform that can be highly personalized to the needs of its user through the addition of any of a wide variety of applications that extend features and provide benefits to the user. Like a smart phone, the Bloom Energy Server is easily customizable and upgradeable to add new energy accessories and capabilities. The Bloom Energy Server is easily integrated into corporate environments due to its aesthetically attractive design, compact space requirement, minimal noise profile and lack of harmful emissions.

 

 

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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. While the relative importance of these attributes can vary by customer, our ability to deliver these attributes is a significant differentiator for us in the marketplace. 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. The output of our Energy Servers is designed to meet the requirements of the digital economy, with very high availability of power, mission-critical reliability and grid-independent capabilities. Bloom provides power quality, voltage, and current, which can be tuned to specific customer requirements. The Bloom Energy Server can be configured to eliminate the

 

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need for traditional backup power equipment such as diesel generators, batteries or uninterruptible power systems (UPS).

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 natural gas infrastructure, which is a mesh network buried underground, unlike the above-ground electric grid architecture. A failure at one point in the natural gas system does not necessarily cause the same kind of cascading failure that can occur on the electrical grid.

 

Electrical Grid—Radial Design    Natural Gas Grid—Network Design

 

 

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Cost Savings and 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 a lower cost of electricity to our customers than traditional grid power. 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. With the addition of an optional integrated storage solution, Bloom can also help customers to load shift and peak shave—reducing their exposure to peak power costs from the grid. We also enable our customers to scale from a few hundred kilowatts to many megawatts on a “pay-as-you-grow” basis.

Sustainability. Bloom Energy Servers provide clean power and because they are fuel-flexible, customers can choose the fuel source that best fits their needs based on availability, cost and carbon footprint. The current generation of Bloom Energy Servers running on natural gas produce nearly 60% less carbon emissions compared to the average of U.S. combustion power generation. Bloom Energy Servers can also utilize renewable biogas to generate carbon-neutral electricity. As of March 31, 2018, approximately 9% of our deployed fleet of Energy Servers, by megawatts deployed, utilized biogas. In both cases, our Energy Servers emit virtually no criteria air pollutants, including NOx or SOx.

Bloom Energy Servers also use virtually no water in normal operation. By comparison, to produce one megawatt per hour for a year, thermoelectric power generation for the U.S. grid withdraws approximately 156 million gallons of water more than Bloom Energy Servers.

Personalization. The Bloom Energy Server is designed as a platform which can be customized to the needs of each individual customer delivering the level of reliability, resiliency, sustainability, cost savings and predictability required by that customer. Analogous to a smart phone, the base Energy Server platform can easily accommodate accessories that extend capabilities and provide for customization. For example, the Energy Server can be customized with uninterruptible power components to deliver higher levels of reliability and grid independent operation, or storage can be added to reduce peak power consumption and improve the predictability of economics for the customer.

 

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The Bloom Energy Server: Platform for Customized, Personalized Power

 

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Our Market Opportunity

Economic growth and development worldwide will increasingly be powered by electricity. The IEA forecasts that global electricity demand to rise by 60% between 2015 and 2040, accounting for 55% of the world’s energy demand growth. In addition, as the world consistently accelerates the adoption of digital technologies (i.e., widespread deployment of data centers, intelligent home systems, additive manufacturing), overall energy use will continue to increase. These facts offer challenges alongside opportunities, and will alter the global energy landscape.

The retail electricity market represents the market for power delivered to the end-customers or the consumer of electricity. The price of retail electricity generally reflects the cost of generation, transmission and distribution. Generating power onsite (i.e., at the point of consumption, rather than centrally) eliminates the cost, complexity, interdependencies, and inefficiencies associated with electrical transmission and distribution.

According to data from MarketLine, the total addressable market (TAM) for electricity at the point of customer consumption was approximately $2.4 trillion in 2016. Of this market, MarketLine determined that 68% consisted of commercial, industrial and public services (CI&P), or $1.6 trillion.

We believe that the current global serviceable addressable market (SAM) for Bloom is the retail electricity market for CI&P customers in the world’s ten largest electricity markets. These markets include, in order of decreasing size, the United States, India, Japan, Germany, Canada, Brazil, South Korea, France, the United Kingdom and Mexico. We do not include China or Russia in calculating our SAM due to a lack of reliable market data in these markets. Based on country-by-country generation data from the EIA and publicly-available retail power prices in each of these countries, we believe that our SAM is approximately $800 billion. Bloom primarily participates in the retail market for CI&P customers, and on that basis has calculated the TAM and SAM. From time to time, Bloom also selectively participates in wholesale market opportunities which have not been incorporated into this TAM and SAM analysis.

We currently have installations or purchase orders 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 South Korea. According to the EIA, the total size of the retail markets for C&I customers in these U.S. states is approximately $76 billion. In addition, we estimate that the combined retail market for C&I customers in Japan, the Indian state of Karnataka (the state in India where we currently have deployed our solution) and the available market for new-build fuel cell generation in South Korea is approximately $99 billion. Collectively, we estimate that the size of our current market is approximately $175 billion.

 

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In order to assess the market opportunity for our Energy Servers in the U.S., we have used EIA data to estimate the potential addressable market. The total size of the electricity market for C&I customers in all fifty states is currently estimated to be $212 billion. Outside of the U.S., we estimate our market opportunity by focusing on the ten largest international electricity markets (Japan, Germany, United Kingdom, India, Brazil, France, South Korea, Mexico, Canada and Saudi Arabia). We exclude China and Russia from this analysis as we have no plans to enter these markets for the foreseeable future. Based on information published by IEA, as well as select energy regulatory authorities regarding C&I demand and power prices, we estimate that the market opportunity in these ten international markets is approximately $608 billion.

Select Market Opportunity Capture

In an effort to put our market opportunity into perspective, we have looked at select market segments. In each segment, we looked at the market opportunity of a few select sub-segments in which we currently compete. The segments are based on the following: our select industry verticals; our select domestic markets; our select international markets; our select Energy Server application markets; and, our select existing customers.

 

    Select industry verticals. The aggregate U.S. market opportunity for data centers, healthcare and retail represents an estimated market opportunity of approximately $58 billion. According to Technavio, within the U.S., the total cost of power for data centers was $3.3 billion in 2016. According to the EIA, the total C&I market opportunity in the U.S. is currently estimated to be $212 billion, which implies that the healthcare industry (~6% of energy consumption) and retail industry (~20% of energy consumption) spend approximately $12 billion and $42 billion annually on energy purchases, respectively.

 

    Select domestic markets. In California and New York we looked at EIA’s C&I electricity market revenue and estimated an aggregate market opportunity of $38 billion.

 

    Select international markets. In India and South Korea we looked at information published by IEA and select energy regulatory authorities regarding C&I demand and power prices and estimated an aggregate market opportunity of $244 billion.

 

    Select Energy Server application markets. In the uninterruptible power and energy storage system markets we looked at reports from Technavio and Frost & Sullivan to an estimated aggregate market opportunity of $5.8 billion.

 

    Select existing customer markets. Based on the publicly available sustainability reports from The Home Depot, Walmart and Equinix, we determined that their aggregate annual generation requirements are approximately 16,125 GWh.

Our Customers

To date, the breadth, depth and scale of Bloom’s commercial customer adoption is significant for a new product in the electric power industry. As of March 31, 2018, we have installed 312 megawatts of Bloom Energy Servers at customer sites across the U.S., Japan, India and South Korea. The following list demonstrates the diversification across key industries represented in our customer base:

 

    Banking and financial services –Credit Suisse, Franklin Templeton, Morgan Stanley

 

    Cloud services, technology and data centers –Apple, Equinix, Intel

 

    Communications and media –AT&T, Cox Communications, The Walt Disney Company

 

    Consumer packed goods and consumables –Kellogg’s, Taylor Farms, The Wonderful Company

 

    Education –California Institute of Technology, San Diego Community College, University of San Diego

 

    Government –AC Transit, City of Hartford, NASA

 

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    Healthcare –Kaiser Permanente, Medtronic, Prime Healthcare

 

    Hospitality –AEG Staples Center, Anaheim Ducks, Shark’s Sports and Entertainment

 

    Logistics –FedEx, Americold

 

    Manufacturing –Flex, Lockheed Martin, Maxim Integrated

 

    Real estate –Hines, Macerich, The Ratkovich Company

 

    Retail –Costco, The Home Depot, Walmart

 

    Utilities –Baltimore Gas and Electric, Delmarva Power, Pacific Gas and Electric

Customer Case Studies

The following are representative examples of how some of our customers have benefited from typical deployments of the multiple applications of our Bloom Energy Server and services. The case studies selected represent leading customers in the Cloud services, technology and data centers, Communications and media, Retail, and Utilities industries. These customers are among our top ten as ranked by kilowatts deployed. The case studies highlight the typical benefits of reliability, resiliency, cost savings, sustainability, and personalization received by these customers:

AT&T

Situation: AT&T is a leading provider of wireless, high-speed internet, voice and cloud-based services. With more than 100 million customers, the reliability and quality of their extensive communications network is a business critical imperative. AT&T has committed to reduce electricity consumption relative to data growth and to expand alternative energy deployment.

Solution and Benefit: Bloom provides reliable, on-site, high quality power to help AT&T meet the growing demand and quality requirements of their network, including uninterruptible mission critical power for those facilities that require this level of reliability. AT&T has over 85 facilities where Bloom systems are contracted or deployed, representing approximately 47 MWs across the U.S. Bloom’s solutions power AT&T’s central offices, data centers, and other facilities at predictable rates while providing a positive sustainability impact. Bloom has been recognized by AT&T with its “Supplier Sustainability Award” in the Alternative Energy category.

The Home Depot

Situation: The Home Depot is the world’s largest home improvement retailer with over 2,200 stores nationwide. The Home Depot has a growing clean energy portfolio to support sustainability initiatives including energy conservation, sustainable forestry and clean water. In addition to sustainability, The Home Depot also has a goal to ensure that stores remain available to the community as a resource in the event of a natural disaster or grid power failure.

Solution and Benefit: Bloom provides The Home Depot with cost saving, clean power and at select locations, power resilient to grid outages. Bloom’s installed base at Home Depot has grown to 178 locations, providing over 34 MWs of power. The Home Depot is one of the first customers to participate in a strategic alliance between Bloom Energy and The Southern Company, through its PowerSecure subsidiary, to implement an integrated solution combining Bloom Energy Servers with PowerSecure energy storage which is expected to help stores to become more resilient to power outages and to reduce high priced peak power consumption. Bloom solutions are projected to enable Home Depot to drive down its electricity costs over time and have already cut carbon dioxide emissions by over 100 million pounds through 2017.

 

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Intel

Situation: Intel has facilities in Bangalore, India. As their campus grew, Intel required an increase in electric supply infrastructure that created potential timing challenges.

Solution and Benefit: To meet its growth needs, Intel introduced an alternative electric power supply option using cleaner, Bloom Energy Servers. This initial 2.5 MW deployment integrated with their smart and green building design providing reduced carbon dioxide emissions, a higher power quality, and a reliable solution for the campus electric supply. Carbon dioxide emissions levels were reduced by nearly 65%, as compared to the displaced grid generation supply and previously required back-up diesel generation, supporting Intel’s aggressive sustainability program.

Walmart

Situation: Walmart has recognized the business opportunities and benefits of utilizing renewable energy. The deployment of cost-effective, on-site clean energy generation is a key element of Walmart’s operational and sustainability strategy.

Solution and Benefit: A customer since 2009, Bloom has worked with Walmart as it seeks to accomplish some of its energy and sustainability commitments. These efforts include lowering and controlling the retailer’s electricity costs while also aiming to enhance the efficiency of their operations. Bloom has also helped Walmart by equipping certain stores with uninterruptable power capability, helping to ensure those stores remain a resource to the community in the event of a grid power outage. As of March 31, 2018, Walmart has contracted or deployed Bloom systems at over 60 stores, supplying over 16 MW of power.

Delmarva Power

Situation: Delmarva Power, a subsidiary of Exelon Corporation, is an investor-owned utility that provides electricity and natural gas to customers in the Mid-Atlantic States. Delmarva is committed to diversifying its energy portfolio, with the goal of sourcing 25% of the company’s electricity supply from clean resources by 2025.

Solution and Benefit: Beginning in 2012, Delmarva Power deployed 30 MWs of Bloom Energy Servers, enough to power over 2,000 homes. This deployment represents the largest utility-scale deployment of fuel cell technology in the United States to date. Through this solution, Delmarva Power enhances its renewable portfolio with clean and reliable base load power generation. At the same time Delmarva Power is able to relieve congestion in targeted areas of the grid at a competitive cost. In 2012, Hurricane Sandy passed directly over one of the sites powered by our Energy Servers. While the storm caused power outages throughout the region to customers using other means of power generation, our Energy Servers continued to power the surrounding commercial and residential community without interruption, despite being fully exposed to the elements.

Factors Driving Customer Adoption

Key factors that are driving the rapid adoption of our solution include:

Customers are driving a growing requirement for customized, high-quality and reliable power in the increasingly pervasive digital economy. The proliferation of cloud services and big data, and the associated rapid increase in demand for computing power, is reshaping the type and quality of power demanded by the digital economy. For providers and users of cloud services, uninterruptible, high-quality power is essential—requirements that the legacy grid is struggling to meet. Our highly available and scalable solution can replace the current patchwork of solutions, which include batteries, UPS and back-up generators.

Customers are seeking an alternative to the unpredictable and rising price of grid power. As illustrated in the table below, grid costs in the United States have been rising for decades and are expected to continue to rise

 

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over the long-term. In the shorter-term, grid prices can be volatile, driven by regulatory judgments, commodity prices and the impact of external events such as weather. In contrast, we offer a complete turn-key solution, including equipment, installation, operations and maintenance, that is designed to provide customers with a competitive and predictable cost for periods of up to 20 years for their electricity in the regions where the majority of our Energy Servers are deployed. The only component of cost of Bloom’s solution that is not fixed at time of contracting is fuel supply – usually natural gas, which typically represents about 25% of Bloom’s delivered cost of electricity to the customer. However, even if there are significant variations in natural gas commodity prices, wholesale prices of electricity are also highly dependent on the price of natural gas and our current generation Energy Server is 14% to 31% more efficient than natural gas power plants. Customers also have the option to enter into long-term natural gas contracts at fixed prices for up to ten years, which is not an option available for grid electricity.

According to the EIA, the average U.S. commercial and industrial electricity rate increased at a 2.7% CAGR from 2000 to 2015. According to data from the EIA, the average C&I electricity prices will continue to rise. As a result, we expect Bloom’s market opportunity to continue to expand.

Average Cost of Commercial and Industrial Electricity Rates in Bloom’s Current States (cents / kWh)

 

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Source: U.S. Energy Information Administration, July 2017

Our technology is proven with industry-leading customers. Our approach to innovation is evolutionary – every generation of our technology builds on a proven core and factors in lessons learned from our broadly deployed fleet. Our systems have been deployed with Fortune 500 customers since 2008 and have reached 312 megawatts in total as of March 31, 2018. The Bloom Energy Server has performed for our customers without disruption through natural disasters such as Hurricane Sandy and the 6.0 Richter scale earthquake near Napa, California in 2014.

The natural gas revolution has provided an economically attractive means for achieving carbon reduction. Natural gas is now in abundant supply at economically attractive prices. This abundance, coupled with new technologies such as our Energy Servers that convert this fuel into electricity at high efficiency, will play a major role in replacing high-carbon fuels such as coal and oil. The United States’ abundant supply of recoverable natural gas is expected to last over 80 years, according to data from the Potential Gas Committee and the U.S. EIA.

 

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Our Growth Strategy

Our growth strategies include:

Maintain technology leadership and leverage first-mover advantage

Our technology leadership is considerable and we have a well-established track record of continuous improvement. Our priority is to continue to advance our technology and build on this leadership position.

Significant and sustained improvements in “power density.” We have continually added more generation capacity into the same footprint and expect to continue to do so with successive generations of our technology. Today’s Bloom Energy Servers are capable of delivering five times the power of our first-generation system introduced only nine years ago, while staying within approximately the same service footprint.

Bloom Energy Server “Power Density” Improvements

 

 

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Our power density is also an increasingly powerful differentiator versus other solutions such as solar, which requires at least 125 times more space–which is often unavailable–to deliver the same amount of power as one Bloom Energy Server does today. For example, a single 200 kW Bloom Energy Server can be utilized to provide 95% of the customer load for an average supermarket facility. As an alternative, to provide the same amount of electricity 24/7 using solar and energy storage, over 1.1 MW of solar and 4.3 MWh of storage capacity covering over 5 acres would be required. However, a typical supermarket has available roof space of only 45,000 square feet. To fit this typical roof space, a maximum solar capacity is limited to approximately 187 kW. Thus, the limited capacity can only produce approximately 17% of the supermarket’s load requirement.

Bloom Energy Server versus Solar Photovoltaic Footprint Comparison

 

 

LOGO

Installed Capacity, including Service Area, Footprint Comparison: 1 megawatt Solar PV (22,257 m 2 ) vs. 1 megawatt Bloom Energy (107m 2 )

 

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Continual increases in electrical efficiency . Efficiency is defined as the percentage of the energy in the fuel that is converted to electricity. The higher the efficiency, the less fuel used to generate a given unit of electric power output, resulting in lower fuel costs and fewer emissions. Today, our Energy Servers are significantly more efficient than the average power generation of the U.S. grid. The latest generation of our Energy Servers, which began shipping in 2015, is capable of beginning-of-life (BOL) efficiencies of 65%, and we expect to further improve the efficiency in succeeding generations. While the Bloom Energy Server is capable of operating at peak efficiency, typically efficiency of the latest generation of Energy Servers can range from 53% to 65% over the project term depending on environmental conditions and the age of the power modules. We have the flexibility to maintain efficiency at specific levels to comply with customer sustainability, regulatory compliance, or other requirements by managing the replacement cycle of the power modules in the Energy Server.

Electrical Efficiency Trends (BOL System Efficiency, Lower Heating Value, %)

 

 

LOGO

Expanded feature sets and sizing options to address new market opportunities . The Bloom Energy Server was designed as a technology platform which can support extended capabilities from Bloom and other suppliers. The Bloom Energy Server platform provides the hardware and software building blocks that can be deployed in different configurations to provide customer-specific solutions. For example, we are now offering the option of adding a storage solution provided by PowerSecure (a unit of The Southern Company) to help customers avoid peak grid electricity power rates, and to provide greater resiliency to grid outages. We may also provide smaller or custom solutions which could allow us to address additional markets, such as powering cell sites in the mobile telephony market and franchise retail, in the future. Our current offering is well suited for multi-tenant housing, a segment that we intend to address in emerging economies as we expand to international markets. The platform components can also be configured to provide larger systems for utility or large industrial applications.

Acquire new customers and grow wallet share with existing customers

We currently target industry leading Fortune 500 companies, along with public and private organizations that are large consumers of electric power. Our success in landing industry leading customers has encouraged other new customers—companies and organizations in those industries, with similar scale and electricity

 

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demand—to follow suit. We employ a “land and expand” model through our direct sales force, which recognizes that new customers typically pilot a limited scale solution initially to gain experience with our fuel cell solutions. As we prove the value of Bloom solutions through these pilot projects, our customers will often expand their Bloom deployments by adding more capacity at existing sites and by adding new facilities from across their real estate portfolio. Our sales mix illustrates this dynamic: Since 2011, over half of our sales contracts, or the number of purchase orders signed, are with new customers, while approximately two thirds of our sales volume has been derived from repeat customers as they utilize our Energy Servers as a larger share of their energy wallet and create more value across more of their facilities over time. These repeat orders provide better visibility into our sales pipeline and also lower our cost of sales. The quality and staying power of our customers are important factors contributing to our confidence in this strategy. Since we target customers with very significant electric power spend, we view the current low penetration rate as a significant opportunity for growth.

In order to illustrate our growth with our customer base, we have selected the top ten customers by total megawatts under contract as of March 31, 2018.

Top 10 Customer Growth (megawatts as of March 31, 2018)

 

LOGO

Drive production cost reductions to expand our market

Since our initial commercial deployments eight years ago, we have continually reduced the production cost of our systems, enabling us to expand into new markets. We believe our technology innovation will drive further cost reductions as each successive generation of Bloom Energy Servers builds on the design and field experience of all previous generations.

In addition, increased production volumes should lead to further cost reductions based on economies of scale, enabling market expansion and improved margins. On a per unit basis, which we measure in dollars-per-kilowatt, we have reduced our material costs by approximately 75% from the first generation Energy Server to our current generation Energy Server. We drove these material costs per unit down by over 50% over the life of our second generation system and by over 35% over the life of our fifth generation system to date. With each successive new generation, we have been able to reduce the material costs compared to the prior generation’s material costs.

 

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Material Cost by Generation

 

 

LOGO

Expand into international markets and new fast-growing segments

International. Most of our current and target customers have global footprints, which we expect will be another avenue for growth while also lowering the cost and risk of new market entry. Today, we have installations or purchase orders in the United States, Japan, India and South Korea and we are actively targeting additional international markets such as Ireland and Great Britain.

We also target fast-growing markets where we believe we can deliver significant value, including data centers and critical facilities such as healthcare organizations and distribution centers, which cannot suffer even a momentary disruption to power without significant negative consequences.

Data Centers. When configured to provide uninterruptible power, we can provide primary power for data centers with up to Tier III availability and reliability without reliance on traditional back up or power conditioning equipment. A customer-commissioned study by the University of Illinois, Urbana-Champaign projects that a Bloom Energy solution configured to provide mission-critical power would be significantly more reliable than a traditional topology of grid power plus uninterruptible power systems and diesel backup. According to Technavio, the total worldwide cost of power for data centers was $17.4 billion in 2016. This figure is expected to grow by 12.9% annually over the next three years. Within the U.S., the total cost of power for data centers was $3.3 billion in 2016. This cost is expected to rise by 8.0% annually over the same forecast period.

Healthcare. According to the EIA, the healthcare industry in the U.S. accounts for approximately 6% of total commercial energy consumption. Based on our estimate of the total C&I market opportunity in the U.S. ($212 billion), this implies that the healthcare industry in the U.S. spends approximately $12 billion annually on energy purchases.

Microgrids. New segments like microgrids, when powered by our Energy Servers, offer our customers the opportunity to disconnect from the traditional grid, protection from prolonged grid outages and mitigation of the rising risk of cyber-attacks against the grid. As communities and organizations look to mitigate the risk of grid power outages, there is significant and growing interest in microgrids, which combine distributed power generation and storage into a network that can be isolated from the larger grid. Our flexible architecture allows integration of our systems with other distributed generation sources and technologies, such as solar and storage,

 

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while Bloom provides the stable always-on primary power—a key requirement for a microgrid solution. According to Technavio, the global microgrid market was valued at $14.6 billion in 2017 and is expected to reach $23.1 billion by 2022, growing at a compound annual growth rate of 9.7%.

Provide innovative financing options to our customers

We intend to continue to assist our customers by providing innovative financing options to purchase our solution and grow our market opportunity. We have developed multiple options for our customers to acquire the power our Energy Servers produce. These offerings provide a range of options that enable customers to do business with us and secure power best customized to their needs. Our customers can purchase our systems outright, with operations and maintenance services contracts, or purchase the 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.

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.

To fuel the electrochemical reaction, natural gas enters the anode side, where it mixes with steam to produce reformed fuel. As the reformed fuel crosses the anode, it attracts oxygen ions from the air on the cathode side. The oxygen ions combine with the reformed fuel to produce electricity, water, heat and carbon dioxide. The water and heat get recycled to produce the steam needed to reform the fuel. This enables a highly efficient electrochemical reaction to produce electricity without any requirement for water, other than to start the system. This efficiency also results in less than half the carbon dioxide emissions for the current generation of our Energy Servers compared to the average of U.S. combustion power generation.

How Does the Bloom Energy Server Work?

 

 

LOGO

These fuel cells are the foundational building block of the 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). Each module contains hundreds of individual fuel cells that produce direct current (DC) power. A complete Bloom Energy Server combines the power modules with a fuel processing module and an alternating current (AC) module that contains DC-to-AC converters and transformers. Each power module in a Bloom Energy Server operates independently and can be hot swapped, or decommissioned, replaced or serviced without shutting down the entire system. This modular approach leads to high availability as well as upgradability. In addition, every new generation of our fuel cell technology is designed to be backward compatible for power module replacement and upgrades. This allows us to maintain the

 

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existing Bloom Energy Server fleet with the latest generation of technology, while simplifying our manufacturing.

 

 

LOGO   LOGO

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. This feature allows a customer to “pay as they grow,” conserving on current spending without constraining a future local expansion.

In a basic 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 with uninterruptable power solutions as add-on options at any point in time to enable continuous operation in the event of grid interruption. When in an uninterruptable 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 primary power from the Energy Server, utilizing the natural gas infrastructure, and secondary feed from the independent electric grid results in a very highly available and reliable solution.

Energy Servers in an uninterruptible configuration supply the customer’s most critical energy needs (or “mission-critical power”) and are connected directly to the customer’s load. Mission-critical reliability is provided through the power output of a modular and redundant set of inverters in the Bloom Energy Server that draw power from the power modules of the Energy Server. The input for the Bloom Energy power generation is the highly reliable and robust natural gas infrastructure. While this is the primary means of providing power to the critical load, the utility grid is available through a fast-activating switch (such as a static switch) to provide power in the event of failure of the full Energy Server.

As of March 31, 2018, approximately 11% of our installed systems, by megawatts deployed, are configured to provide uninterruptable power. However, all Energy Server products installed after 2012 may be retrofitted with the addition of uninterruptible power components.

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 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

 

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address the intermittency of solar, but the low power density and efficiency of solar technology makes the combined solution impractical for most C&I customers. As a point of comparison, our Energy Servers provide the same power output in 1/125th of the footprint of solar, 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.

 

    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 has a solid oxide or ceramic electrolyte. The advantages of this technology include high 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, and they are monolithic. Smaller sizes are not economically viable. In many applications where the heat produced by these fuel cells is not useable continuously, getting rid of the heat 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 applications which require carefully matching power and heat requirements, often making the technology difficult to implement. Further disadvantages include low power density and stability.

While solid oxide fuel cell technology offered the best prospects for base load power generation, the challenges associated with fundamental and applied materials and packaging served as a roadblock to commercializing this technology. Bloom has overcome these roadblocks, and our advanced solid oxide fuel cell

 

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technology enables both low cost and very high levels of reliability, paving the way for broad commercial application. Compared with legacy fuel cell alternatives, Bloom Energy Servers feature significant advantages:

 

    Highest electrical efficiency. The latest generation of our Energy Servers has greater than 65% BOL electrical efficiency, approximately 40% to 60% higher than that of legacy fuel cells, improving both cost and reducing harmful emissions.

 

    Greater reliability and availability. Our Energy Servers have high reliability and availability of up to 99.99% in mission critical configurations, which is superior to legacy systems.

 

    Greater flexibility and simplicity. Our Energy Servers can use natural gas or biogas as a fuel with no modification to their fuel cell chemistry. It is the only fuel cell product that does not require an external fuel reformer. No complex heating/cooling integration is required as waste heat is used internally to maximize efficiency, making Bloom Energy Servers easy to deploy.

 

    Appealing design. Our Energy Servers’ pleasing aesthetics and minimal noise are better suited for corporate campuses and increase customer options for siting.

 

    No water needed for continuous operation. Bloom Energy Servers require no water during normal operation after initial start-up. The system is air-cooled and operates over a wide range of ambient temperatures.

Manufacturing and Supply Chain

We believe our tightly integrated in-house research and development, engineering, manufacturing capabilities, and facilities provide us with a significant competitive advantage. We developed our manufacturing technology and capability to take advantage of the best aspects of other industries’ manufacturing processes, but with the goal of doing so in a cost effective manner. For example, our current stack manufacturing plant in Sunnyvale, California deploys significant automation and inspection process steps, drawing many of these paradigms from highly automated semiconductor and data storage manufacturing factories, but without the need for a clean room environment. In both our Sunnyvale and Delaware factories, we utilize lean manufacturing concepts drawn from automotive production and quality systems. Given that, our current manufacturing footprint is one that, relative to other industries, doesn’t require extremely expensive tool sets or constant retooling at technology node changes.

Manufacturing Expertise. We design most of our key equipment and build some of the significant equipment in-house. Our manufacturing team has experience with leading companies in the automotive and semiconductor manufacturing industries, which are known for high-volume production, continual, sustained cost reduction and the highest-quality output. Our teams have implemented lean manufacturing processes to systematically eliminate waste and inefficiency throughout our manufacturing and supply chain operations.

Facilities. Our current manufacturing processes reflect a rapid rate of learning and adoption of new ideas from our decade of manufacturing experience. Our primary manufacturing locations for the fuel cells and system assembly are in Sunnyvale, California and Newark, Delaware. The 178,400 square foot manufacturing facility in Newark is the first purpose-built Bloom manufacturing center and was designed specifically for copy-exact duplication as we expand, which we believe will help us scale more efficiently. 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.

Manufacturing Scalability. Because of the expertise that we have developed over the past decade, the significant amount of automation that we deploy in our manufacturing process steps, and the general lack of need to retool as we move from one technology node to the next, we have the ability to quickly scale to support increased demand requirements. We do not need greenfield factories to manufacture our systems and can retrofit

 

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existing buildings to accommodate our requirements. Because of the high degree of automation in our stack manufacturing process, we do not have to manufacture in low cost labor regions, which opens up our opportunity set for site location. While our manufacturing process tools are customized for Bloom’s use, the components and parts required for our process tools are generally not hard to acquire allowing for shorter lead times to procure. All of these dynamics combine to allow Bloom’s manufacturing capability to scale rapidly to meet demand requirements.

Supply Chain. We have multiple sources for most of the critical raw materials, capital equipment and components necessary to build our systems. Many of the key components and materials, including a large percentage of power electronics and controls system components, are commercially available.

In some cases we have entered into long-term supply agreements with suppliers based on our forecasted inventory demand pursuant to which these suppliers are contractually obligated to purchase the forecasted inventory, and we maintain the right to cancel such orders at a minimum of 90 days prior to delivery. All of our suppliers must undergo a rigorous qualification process, and we continually evaluate suppliers.

Services

We offer operations and maintenance services agreements for our Energy Servers, which are renewed on an annual basis. The customer agrees to pay an on-going service fee and in return Bloom monitors, maintains and operates the systems on their behalf.

Our in-house service organization has 107 dedicated field service personnel in 14 locations. Standard customer contracts include service covering all on-going system operation, maintenance—including periodic refresh of power modules—and 24x7 remote monitoring and control of the systems.

Each Bloom Energy Server includes a secure connection to redundant Remote Monitoring and Control Center (RMCC) facilities that are geographically well separated. Together these RMCC facilities 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, the 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; however we may engage third-party service organizations to provide routine field maintenance domestically, such as replacing air filters. Internationally, we intend to create strategic partnerships for local service and support of customer installations.

Sales, Marketing and Partnerships

We market our Energy Servers primarily through a national direct sales organization, supported by project finance, business development, government affairs and marketing teams. In addition to our internal resources, we also work with multiple partners to generate customer leads and develop projects. Most recently, we announced an alliance with The Southern Company, one of the largest utility companies in the United States, in August 2016. This alliance includes a development agreement between Bloom and Southern’s PowerSecure affiliate for the development of a combined fuel cell and storage offering, the financing of 50 megawatts of Energy Servers for customers (completed in the second quarter of 2017), and a co-marketing agreement. For project financing, we work with partners such as Key Bank, Wells Fargo, Credit Suisse, Constellation Energy, a subsidiary of Exelon Corporation, and WGL Energy.

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 a

 

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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 48 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.

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 March 31, 2018, we had 209 issued patents and 86 patent applications pending in the United States and we had an international patent portfolio comprised of 90 issued patents and 63 patent applications pending with filings in 16 countries under two multinational conventions, which are generally counterparts of the U.S. patents and patent applications. Our U.S. patents are expected to expire between 2023 and 2036.

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. In an effort to protect our brand, as of March 31, 2018, we had ten registered trademarks in the United States, 26 registered trademarks in Australia, the European Union, United Kingdom, Japan and India, and we had 11 pending applications in China, India, South Korea, and Taiwan. We have six trademarks registered with the World Intellectual Property Organization as International Registrations.

Sustainability

The largest environmental impact we can provide is to maximize the deployment of Bloom systems, which reduce carbon emissions and save water compared to traditional power generation systems. Thus, our primary sustainability goal is to maximize sales of Bloom systems and provide the longest and most economically sustainable life cycle possible for the Bloom fuel cells through reliability enhancement programs.

We also seek to minimize our environmental footprint and 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 maximum reuse or recycling. We have dedicated facilities in our manufacturing locations in Delaware and California to inspect and dismantle end-of-life Energy Servers and components removed during scheduled maintenance. We have an audit program to identify improvement opportunities at suppliers and also work with them to reduce one-way packaging to minimize materials going to landfills.

These strategies in combination provide a robust and comprehensive sustainment strategy that looks both at our external impact on the wider environment and internally on responsible design, cradle-to-cradle materials management and recycling.

Permits and Approvals

Each Bloom Energy installation must be designed, constructed and operated in compliance with applicable federal, state and local regulations, codes, standards, guidelines, policies and laws. To install and operate our systems, we, our customers or our partners are required to obtain applicable permits and approvals from local authorities having jurisdiction to install the Bloom Energy Servers and to interconnect the systems with the local electrical utility.

 

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Bloom Energy Servers generate electricity without combustion and are certified by the California Air Resources Board (CARB) to meet its stringent emissions standards for NOx, CO and VOCs, and therefore are exempt from certain permit requirements of air pollution control and air quality management districts.

Government Policies

There are varying policy frameworks across the United States and abroad designed to support and accelerate the adoption of clean and/or reliable distributed 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 a 30% ITC available under Section 48 of the Internal Revenue Code, available to the owner of our Energy Server for systems purchased and placed into service by December 31, 2016. The credit was equal to 30% of expenditures for capital equipment and installation, and the credit for fuel cells was capped at $1,500 per 0.5 kilowatt of capacity. This federal tax benefit expired on December 31, 2016, although it was reinstated on February 9, 2018. For more information on the ITC, please see the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Our Energy Servers are currently installed 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, 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. In the United States, 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.

Our operations are subject to stringent and complex federal, state and local laws and regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety.

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 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.

 

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Employees

As of March 31, 2018, we had 1,409 global employees and contractors. We have not experienced any work stoppages and we consider our relationship with our employees to be good.

Facilities

Our corporate headquarters is located in Sunnyvale, California. This facility comprises approximately 31,000 square feet of space. Our current lease, entered into in September 2010, expires in December 2018. On April 9, 2018, the Company signed a new lease for 103,742 square feet of space for our corporate headquarters in San Jose, California. The lease term begins in January 2019 and expires in 2029. We also lease manufacturing facilities in Sunnyvale and Moffett Field, California. These plants together comprise approximately 74,000 square feet of space. Our current lease for our Sunnyvale manufacturing facilities, entered into in April 2005, expires in 2020, and our current lease for our manufacturing facilities at Moffett Field, entered into in December 2011, expires in December 2018. We also own a manufacturing facility in Newark, Delaware comprising approximately 178,400 square feet of space, and lease additional office space around the world, including in the United States, India, China and Taiwan. We believe our facilities are adequate to support our business for at least the next twelve months.

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.

 

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MANAGEMENT

Executive Officers, Other Key Employees and Directors

The following table sets forth certain information concerning our executive officers, directors and other key employees as of March 31, 2018:

 

Name

   Age     

Position(s)

Executive Officers and Other Key Employees:

     

KR Sridhar (1)

     57      Founder, President, Chief Executive Officer and Director

Randy Furr

     63      Executive Vice President and Chief Financial Officer

Bill Kurtz

     60      Executive Vice President and Chief Commercial Officer

Susan Brennan

     55      Executive Vice President and Chief Operations Officer

Swaminathan Venkataraman

     57      Executive Vice President of Engineering and Chief Technology Officer

Matt Ross

     57      Executive Vice President and Chief Marketing Officer

William Thayer

     57      Executive Vice President of Sales

Shawn Soderberg

     57      Executive Vice President, General Counsel and Secretary

Glen Griffiths

     55      Executive Vice President of Quality, Reliability and Sustainability

Non-Employee Directors:

     

Kelly A. Ayotte (5)

     49      Director

Mary K. Bush (3)

     70      Director

L. John Doerr (2)(6)

     66      Director

Colin L. Powell (6)(8)

     80      Director

Scott Sandell (4)(8)

     53      Director

Peter Teti

     50      Director

Eddy Zervigon (7)

     49      Director

 

(1)   Chairman of the board of directors
(2)   Lead Independent Director
(3)   Chair of the audit committee
(4)   Chair of the compensation and organization development committee
(5) Chair of the nominating and corporate governance committee
(6)   Member of the compensation and organization development committee
(7)   Member of the audit committee
(8)   Member of the nominating and corporate governance committee

Executive Officers and Other Key Employees

KR Sridhar is our founder and has served as a member of our board of directors since January 2001 and as our Chief Executive Officer and Chairman of the Board since April 2002. Prior to founding Bloom Energy, Mr. Sridhar was director of the Space Technologies Laboratory at the University of Arizona where he was also a professor of Aerospace and Mechanical Engineering. Mr. Sridhar has served as an advisor to NASA and has led major consortia of industry, academia, and national labs. Mr. Sridhar also serves as a strategic limited partner at Kleiner Perkins Caufield & Byers, a venture capital firm, and as a special advisor to New Enterprise Associates, a venture capital firm. He has also served on many technical committees, panels and advisory boards and has several publications and patents. Mr. Sridhar received a B.S. in Mechanical Engineering from the National Institute of Technology, Tiruchirappali, India, as well as a M.S. in Nuclear Engineering and Ph.D. in Mechanical Engineering from the University of Illinois, Urbana-Champaign. Mr. Sridhar was selected to serve as a member of our board of directors due to the perspective and experience he brings as our founder and Chief Executive Officer.

 

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Randy Furr has served as our Chief Financial Officer since April 2015. Prior to joining Bloom Energy, Mr. Furr served as Corporate Executive Vice President and Chief Financial Officer for Spansion, Inc., a manufacturer of flash memory semiconductors, from June 2009 to March 2015. Mr. Furr held senior executive positions as executive Vice President and Chief Financial Officer at Magellan Navigation, Inc., a portable GPS navigation consumer electronics company, from August 2008 to June 2009, and as Chief Operating Officer and Chief Financial Officer at Aliph, Inc., a consumer Bluetooth telephony device company, from April 2008 to August 2008. Prior to that, Mr. Furr was at Adobe Systems, Inc., a computer software company, where he served as a Senior Vice President from May 2007 to January 2008, interim Chief Information Officer from November 2006 to May 2007, and as Executive Vice President and Chief Financial Officer from May 2006 to November 2006. Before joining Adobe Systems, Inc., Mr. Furr spent 13 years at Sanmina-SCI Corporation, an electronics manufacturing services provider, where he served as President and Chief Operating Officer from 1996 to 2005 and as Executive Vice President and Chief Financial Officer from 1992 to 1996. Mr. Furr served as a Director of Sanmina-SCI Corporation from 1998 until 2005. Mr. Furr has served as a member of the board of directors of SMART Global Holdings, Inc. since September 2017. Mr. Furr holds a bachelor’s degree in Business Administration from the University of Oklahoma and is a Certified Public Accountant.

Bill Kurtz has served as our Chief Commercial Officer since April 2015 and served as our Chief Financial Officer from March 2008 to April 2015. Previously, Mr. Kurtz served in the roles of Chief Operations Officer or Chief Financial Officer of several technology companies, including Scient Corporation, a provider of professional services, 3PARdata, Inc., a data storage company, and Novellus Systems, Inc., a global semiconductor equipment company, and also held senior financial management positions at AT&T Inc., a telecommunications company. Mr. Kurtz was a member of the board of directors of PMC-Sierra Inc., including as the chair of the audit committee, until it was acquired by Microsemi Corporation in January 2016. Mr. Kurtz holds a bachelor’s degree in Commerce from Rider University and a M.S. in Management Sciences from Stanford University.

Susan Brennan has served as our Chief Operations Officer since November 2013. Prior to joining Bloom Energy, Ms. Brennan served as Vice President of Manufacturing – Smyrna and Decherd at Nissan North America, Inc., an automobile company, from October 2008 to November 2013. She also previously served as Director of Global Manufacturing at Ford Motor Company, an automobile company, and in other corporate and manufacturing management roles at Ford Motor Company, Visteon Corporation, a global automotive electronics supplier, and Douglas & Lomason Company, an automotive parts supplier. Ms. Brennan has served as a member of the board of directors of Senior PLC since January 2016. Ms. Brennan holds a B.S. in Microbiology from the University of Illinois, Urbana-Champaign and an M.B.A. from the University of Nebraska, Omaha.

Swaminathan Venkataraman has served as our Executive Vice President of Engineering and Chief Technology Officer since December 2003. He has authored or co-authored several patents in the areas of solid oxide fuel cell technology, fuel processing and heat integration and control systems. Prior to joining Bloom Energy, Mr. Venkataraman was a Principal Technologist at Aspen Technology, Inc., a provider of supply chain management software and professional services, from 1987 to 2003, where he led the commercial development of high end design, simulation and optimization software for the chemical and petrochemical industries. Mr. Venkataraman holds a bachelor’s degree in Chemical Engineering from the National Institute of Technology, Tiruchirappali and a Ph.D. in Chemical Engineering from Clarkson University.

Matt Ross has served as our Chief Marketing Officer since October 2011. He previously served in various executive roles at several global marketing services providers. These include McCann Worldgroup, where he served as chief executive officer of Global Microsoft Brands and president of McCann Worldgroup San Francisco, and Ogilvy & Mather Worldwide, where he held roles including chief operating officer and managing director of IBM Brand Services. Mr. Ross holds a B.S. in Business Administration from San Francisco State University.

William Thayer has served as our Executive Vice President of Sales since September 2005. Before joining Bloom Energy, Mr. Thayer served as the Vice President, Sales North America at American Power Conversion

 

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Corporation, a provider of end-to-end Network Critical Physical Infrastructure (NCPI). Prior to this role, Mr. Thayer served in a variety of senior leadership, management and sales roles at American Power Conversion Corporation, including Vice President and General Manager of Asia Pacific. Mr. Thayer graduated from the U.S. Naval Academy with a B.S. in General Engineering and served for ten years as a Surface Warfare Officer in the U.S. Navy before being assigned to the Naval War College. He also holds an M.B.A. from the University of Rhode Island.

Shawn Soderberg has served as our Executive Vice President, General Counsel and Secretary since January 2016. Before joining us, Ms. Soderberg was the Executive Vice President, General Counsel and Secretary of Bio-Rad Laboratories, a global medical technology provider for the life science and clinical diagnostics industries from 2013 to 2016. Prior to that, Ms. Soderberg was the Senior Vice President, General Counsel and Secretary of Aricent Group, a global design and software engineering services and product company, from 2006 to 2013; Managing Director and General Counsel of H&Q Asia Pacific, a private equity firm, from 2000 to 2006; Vice President, General Counsel and Secretary of Oak Technology, a semiconductor and embedded solutions provider for the optical storage and the digital home entertainment market, from 1996 to 2000; and General Counsel of Microtec Research, Inc., a software provider for embedded systems, from 1994 to 1996. Prior to Ms. Soderberg’s General Counsel experience, she practiced in a law firm environment. Ms. Soderberg holds a B.S. in Accounting from the University of Santa Clara, a J.D. from Seattle University School of Law and an LL.M. in Taxation from New York University.

Glen Griffiths has served as our Executive Vice President of Quality, Reliability and Sustainability since December 2014. Before joining Bloom Energy, Mr. Griffiths served as the Chief Quality Officer of Hewlett Packard, a technology company specializing in printing, personal computing, software, services and IT infrastructure, from December 2011 until December 2014 and as the Vice President of Global Engineering from December 2008 to December 2011. He holds a B.Sc. in Engineering from UK Open University, a M.Sc. in Reliability, Maintainability and Supportability Engineering from Exeter University and an M.B.A. from UK Open University.

Non-Employee Directors

Kelly Ayotte has served as a member of our board since November 2017. She was in the United States Senate from 2011 to 2016, where she chaired the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations. She also served on the Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Aging Committees. Senator Ayotte served as the “Sherpa” for Justice Neil Gorsuch, leading the effort to secure his confirmation to the United States Supreme Court. From 2004 to 2009, Senator Ayotte served as New Hampshire’s first female Attorney General. Prior to that, she served as the Deputy Attorney General, Chief of the Homicide Prosecution Unit and as Legal Counsel to Governor Craig Benson. She began her career as a law clerk to the New Hampshire Supreme Court and as an associate at McLane Middleton. Senator Ayotte serves on the boards of Caterpillar, News Corp and BAE Systems and the advisory boards of Microsoft, Blink Health, Chubb Insurance, Revision Military and Cirtronics. She is a Senior Advisor for Citizens for Responsible Energy Solutions. She also serves on the non-profit boards of the One Campaign, the International Republican Institute, the McCain Institute and NH Veteran’s Count. Senator Ayotte graduated with honors in 1990 from the Pennsylvania State University and earned a Juris Doctor degree in 1993 from the Villanova University School of Law.

Mary K. Bush has served as a member of our board since January 2017. The Honorable Mary K. Bush has served as President of Bush International, LLC, an advisor to U.S. corporations and foreign governments on international capital markets, strategic business and economic matters, since 1991. She has held several Presidential appointments including the U.S. Government’s representative on the IMF Board and Director of Sallie Mae. She also was head of the Federal Home Loan Bank System during the aftermath of the Savings and Loan crisis and was advisor to the Deputy Secretary of the U.S. Treasury Department. Earlier in her career, she

 

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managed global banking and corporate finance relationships at New York money center banks including Citibank, Banker’s Trust, and Chase. In 2006, President Bush appointed her Chair of the congressionally-chartered HELP Commission on reforming foreign aid. In 2007, she was appointed by the Secretary of the Treasury to the U.S. Treasury Advisory Committee on the Auditing Profession. She is a member of the board of directors of Discover Financial Services, ManTech International Corporation, Marriott International, Inc., and T. Rowe Price Group, Inc. Ms. Bush also was a director of Briggs & Stratton, Inc. from 2004 to April 2009, of United Airlines from 2006 to 2010 and of the Pioneer Family of Mutual Funds from 1997 to 2012. She also serves on the Kennedy Center’s Community Advisory Board and she is Chairman of the Capital Partners for Education, a not-for-profit organization that mentors young people through high school and college. Ms. Bush was chosen to serve as a member of our board of directors due to her extensive and wide ranging experience in finance, audit and the global financial markets.

L. John Doerr has served as a member of our board of directors since May 2002. Mr. Doerr has been a General Partner of Kleiner Perkins Caufield & Byers, a venture capital firm, since August 1980. Mr. Doerr has also served as a member of the board of directors of Alphabet, Inc., a global technology company, since May 1999, and Amyris, Inc., a renewable products company, since May 2006. Mr. Doerr was previously a director of Amazon.com, Inc., an e-commerce company, from 1996 to 2010. Mr. Doerr holds a B.S. in Electrical Engineering and an M.S. in Electrical Engineering and Computer Science from Rice University and an M.B.A. from Harvard Business School. Mr. Doerr was selected to serve as a member of our board of directors due to his extensive experience with technology companies.

General Colin L. Powell, USA (Retired) has served a member of our board of directors since January 2009. General Powell served as the 65 th U.S. Secretary of State from January 2001 to January 2005. He served 35 years in the U.S. Army, rising to the rank of Four-Star General and from 1989 to 1993 served as the 12 th Chairman of the Joint Chiefs of Staff. General Powell has also been a member of the board of directors of Salesforce.com, Inc., a global cloud computing company, since January 2015. He is Chairman of the Board of Visitors of the Colin Powell School at the City College of New York. He is also the Founder and Chairman Emeritus of the America’s Promise Alliance, a nonprofit organization advocating for the strength and well-being of America’s children and youth. General Powell was selected to serve as a member of our board of directors due to his extensive leadership experience.

Scott Sandell has served as a member of our board of directors since August 2003. Mr. Sandell is Managing General Partner at global venture capital firm New Enterprise Associates, Inc., or NEA. A General Partner since 2000, and Co-Managing General Partner from 2015–2017, Mr. Sandell served as head of the firm’s technology investing practice for 10 years and has led NEA’s China investing activities for over a decade. Prior to joining NEA in 1996, Mr. Sandell worked as a Product Manager for Windows 95 at Microsoft Corporation. Mr. Sandell started his career at the Boston Consulting Group, a global management consulting firm, and later joined C-ATS Software, Inc., a software development company. Mr. Sandell currently serves on the boards of various private companies. He previously served on the boards of Data Domain, Fusion-io, Neoteris, NetIQ, Playdom, Spreadtrum Communications, Tableau Software, WebEx, and Workday. Mr. Sandell also currently serves on the Board of Advisors for the Thayer School of Engineering at Dartmouth, and is a former Chairman of the National Venture Capital Association (NVCA), a trade organization for venture capital and private equity firms. Mr. Sandell holds an A.B. from Dartmouth College and an M.B.A. from Stanford University. Mr. Sandell was chosen to serve as a member of our board of directors due to his extensive experience with a wide range of technology companies in the venture capital industry.

Peter Teti has served as a member of our board of directors since November 2015. Mr. Teti was nominated to serve on our board by Alberta Investment Management Corporation, an institutional investment fund management company, where he is the Senior Vice President of Private Equity and Relationship Investing. Prior to joining Alberta Investment Management Corporation in 2012, Mr. Teti served as Managing Director, Investment Banking at N.M. Rothschild & Sons, an investment banking company, from 2002 to 2012. Mr. Teti holds a Bachelor’s degree in Commerce from Queen’s University and is a Chartered Accountant. Mr. Teti was

 

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chosen to serve as a member of our board of directors due to his extensive experience with a wide range of technology companies and his experience in private equity.

Eddy Zervigon has served as a member of our board of directors since October 2007. Since 2012, Mr. Zervigon has been a Special Advisor at Riverside Management Group, a boutique merchant bank. Previously, he was a Managing Director in the Principal Investments Group at Morgan Stanley & Co. LLC, a global financial services firm, from 1997-2012. Prior to joining Morgan Stanley, Mr. Zervigon was a Certified Public Accountant at Coopers & Lybrand (now PricewaterhouseCoopers LLP), a public accounting firm. He previously served as a director of DigitalGlobe, Inc., a builder and operator of satellites for digital imaging, where he served as a member of the audit and compensation committees from 2004 to 2017. In addition, he has previously served as a board member of MMCinemas, Impsat Fiber Networks, Inc., TVN Entertainment Corporation and Stadium Capital. Mr. Zervigon has a B.A. in accounting and a master’s degree in taxation from Florida International University and an M.B.A. from the Amos Tuck School of Business at Dartmouth College. Mr. Zervigon was chosen to serve on our board of directors because he brings significant institutional knowledge regarding our company and significant financial and transactional experience.

Election of Officers

Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no familial relationships among our directors and executive officers.

Board of Directors Composition

Current Board of Directors

Our board of directors has set the authorized number of directors as eight. Our board of directors currently consists of eight members with no vacancies.

Pursuant to our certificate of incorporation as in effect prior to the completion of this offering and our eighth amended and restated voting agreement dated as of June 30, 2011, Messrs. Doerr, Sandell, Zervigon, Powell, Teti, Sridhar, Ms. Ayotte and Ms. Bush have been designated to serve as members of our board of directors. Pursuant to our restated certificate of incorporation and our eighth amended and restated voting agreement, Mr. Doerr was designated as the representative of our Series A preferred stock, Mr. Sandell was designated as the representative of our Series B preferred stock, Mr. Zervigon was designated as the representative of our Series E preferred stock, Mr. Teti was designated as the representative of our Series G preferred stock, Mr. Sridhar was designated as the person currently serving as our Chief Executive Officer, and Mr. Powell was designated by agreement of the director representatives of our Series A and Series B preferred stock as an independent industry representative. The eighth amended and restated voting agreement will terminate in connection with this offering and there will be no contractual obligations regarding the election of our directors.

After this offering, the number of directors will be fixed by our board of directors, subject to the terms of our restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the completion of this offering. Currently serving members of our board of directors will continue to serve as directors until their death, resignation, or removal or until their successors are duly elected by the holders of our common stock.

Classified Board of Directors

Our restated certificate of incorporation that will be in effect immediately prior to the completion of this offering provides that, immediately after the completion of this offering, our board of directors will be divided into three classes with staggered three-year terms. Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that

 

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term expires. As a result, 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. Each director’s term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our current directors will be divided among the three classes as follows:

 

    the Class I directors will be KR Sridhar, Scott Sandell and General Colin L. Powell, and their terms will expire at the annual meeting of stockholders to be held in 2019;

 

    the Class II directors will be Mary K. Bush, Eddy Zervigon and Peter Teti, and their terms will expire at the annual meeting of stockholders to be held in 2020; and

 

    the Class III directors will be Senator Kelly A. Ayotte and John Doerr, and their terms will expire at the annual meeting of stockholders to be held in 2021.

Our restated certificate of incorporation and amended and restated bylaws that will be in effect upon the completion of this offering provide that only our board of directors may fill vacancies on our board. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.

The classification of our board of directors may have the effect of delaying or preventing changes in our control or management. See the section titled “Description of Capital Stock—Anti-Takeover Provisions—Restated Certificate of Incorporation and Amended and Restated Bylaws Provisions” for additional information.

Director Independence

The listing rules of the New York Stock Exchange (NYSE) generally require that a majority of the members of a listed company’s board of directors be independent within specified periods following the closing of an initial public offering. In addition, the listing rules generally require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent.

With the exception of General Powell (Retired), our board of directors has determined that none of our non-employee directors has a material relationship with us and that each of these directors is “independent” as that term is defined under the rules of the NYSE. In making this determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions described in the section titled “Related-Party Transactions.”

Lead Independent Director

Our board of directors has appointed L. John Doerr to serve as our lead independent director upon the completion of this offering. As lead independent director, Mr. Doerr will preside over periodic meetings of our independent directors, serve as a liaison between the chairperson of our board of directors and the independent directors, and perform such additional duties as our board of directors may otherwise determine and delegate.

Committees of Our Board of Directors

Our board of directors has established an audit committee, a compensation and organization development committee and a nominating and corporate governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignations or until otherwise determined by our board of directors. Prior to the completion of this offering, our board of directors will adopt a charter for each of these committees. Following the completion of this offering, copies of the charters for each committee will be available without charge on the Investor Relations portion of our website.

 

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Audit Committee

Our audit committee is comprised of the Honorable Mary K. Bush, who is the chair of the audit committee, and Mr. Zervigon. We intend to appoint an additional independent member of the audit committee in the near future. Each member of our audit committee is independent under the current and SEC rules and regulations and we intend to comply with the requirement to have a minimum of three members on our audit committee within the applicable transition period. Each member of our audit committee is financially literate as required by current NYSE listing standards. In addition, our board of directors has determined that Ms. Bush is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K promulgated under the Securities Act. Our audit committee will, among other things:

 

    select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

 

    help to ensure the independence and performance of the independent registered public accounting firm;

 

    discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent accountants, our interim and year-end operating results;

 

    develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

 

    review our policies on risk assessment and risk management;

 

    obtain and review a report by the independent registered public accounting firm at least annually, that describes our internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues;

 

    approve (or, as permitted, pre-approve) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm; and

 

    review related-party transactions and proposed waivers of our code of conduct.

Compensation and Organization Development Committee

Our compensation and organization development committee is comprised of Mr. Scott Sandell, who is the chair of the compensation and organization development committee, Mr. Doerr and General Powell. The composition of our compensation and organization development committee meets the requirements for independence under current NYSE and SEC rules and regulations. Each member of this committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange Act). The purpose of our compensation and organization development committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers and evaluation of the performance of our senior leadership team. Our compensation and organization development committee will, among other things:

 

    evaluate the performance of our executive officers, including the chief executive officer;

 

    periodically review and make recommendations regarding the reporting structure within our executive officer team, and the effectiveness and efficiency of the team;

 

    determine, or make recommendations to our board of directors regarding, the compensation of our executive officers;

 

    administer our stock and equity incentive plans;

 

    make recommendations to our board of directors regarding incentive compensation and equity plans; and

 

    review general policies relating to compensation and benefits of our employees.

 

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Nominating and Corporate Governance Committee

The nominating and corporate governance committee is comprised of Kelly A. Ayotte, who is the chair of the nominating and corporate governance committee, General Powell and Mr. Sandell. The composition of our nominating and corporate governance committee meets the requirements for independence under current NYSE rules and regulations. Our nominating and corporate governance committee will, among other things:

 

    identify, evaluate, select and make recommendations to our board of directors regarding nominees for election to our board of directors and its committees;

 

    evaluate the performance of our board of directors and of individual directors;

 

    consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;

 

    review developments in corporate governance practices;

 

    evaluate the adequacy of our corporate governance practices and reporting; and

 

    develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that is applicable to all of our employees, officers and directors, and we have also adopted a code of ethics for principal executives and senior financial officers.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation and organization development committee is or has been an officer or employee of our company. None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation and organization development committee during 2016 and 2017, or in the three months ended March 31, 2018.

Non-Employee Director Compensation

Fiscal 2017 Director Compensation Table

The following table provides information for all compensation awarded to, earned by or paid to each person who served as a non-employee director in the fiscal year ending December 31, 2017.

 

Name and

Principal Position

   Fees
Earned
or Paid
in Cash
($)
     Stock
Awards
($) (1)
     Option
Awards
($)
     Non-Equity
Incentive Plan
Compensation
($)
     Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
     All Other
Compensation
($)
    Total
($)
 

Kelly A. Ayotte

     18,750        412,800        —          —          —          —         431,550  

Mary K. Bush

     100,000        —          —          —          —          —         100,000  

L. John Doerr

     —          —          —          —          —          —   (3)       —    

Colin L. Powell

     75,000        154,800        —          —          —          125,000 (2)       354,800  

T.J. Rodgers (4)

     —          154,800        —          —          —          —         154,800  

Scott Sandell

     —          —          —          —          —          —   (3)       —    

Peter Teti

     —          —          —          —          —          —   (3)       —    

Eddy Zervigon

     —          —          —          —          —          —   (3)       —    

 

(1)

The amounts reported represent the aggregate grant date fair value of RSUs granted during 2017 as computed in accordance with Accounting Standards Codification ASC 718. The grant date fair value of the

 

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  RSUs is set forth in Note 25 to our consolidated financial statements. Note that the amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that our board members may receive from the RSUs.
(2) For the year ended December 31, 2017, General Colin L. Powell received $75,000 of compensation for his service on the board of directors and $125,000 pursuant to a consulting agreement with the Company.
(3) No compensation was paid to this board member in 2017.
(4) Mr. Rodgers resigned from the board in January 2018.

Non-Employee Director Compensation Policy

In January 2017, our board of directors adopted a new non-employee director compensation policy. Pursuant to the policy, each non-employee director will be granted an award of restricted stock units, or RSUs, and cash compensation based on their board and committee services as follows:

 

     Compensation  
General Board Service    Cash (1)      Equity Shares  

Board service

   $ 60,000        13,333 (2)  

Ongoing annual grant

     —          5,000 (3)  

Lead independent director

     20,000     

Committee Awards

     

Audit committee

     

Chair

     30,000     

Member

     15,000     

Compensation committee

     

Chair

     20,000     

Member

     10,000     

Nominating and corporate governance committee

     

Chair

     15,000     

Member

     5,000     

 

(1) Annual cash retainer of $60,000 for service on the Board for each qualifying director, except for employee directors and members designated to serve on the Board by investors pursuant to contractual rights. Annual board fees are paid pro rata on a quarterly basis.
(2) Annual RSU grant for 13,333 shares to each qualifying director elected beginning January 2017 with such grant to vest pro rata on an annual basis after the date of election.
(3) Annual RSU grant for 5,000 shares to each qualifying director, effective as of January 2017 with such grant to vest pro rata on an annual basis.

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table presents summary information regarding the total compensation awarded to, earned by, and paid to our principal executive officer and each of our named executive officers during fiscal years 2017 and 2016. These individuals are our named executive officers for both years:

 

Name and Principal

Position

  Fiscal
Year
    Salary (1)
($)
    Bonus (2)
($)
    Stock
Awards (3)
($)
    Option
Awards (4)
($)
    All Other
Compensation ( 5 )
($)
    Total ($)  

KR Sridhar,

    2017       524,039       419,833       13,138,908       16,099,208       26,477       30,208,465  

Founder and Chief

Executive Officer

    2016       500,000       722,600       6,672,825       —         25,092       7,920,517  

Susan Brennan,

    2017       344,616       146,652       —         352,977       26,477       870,722  

Chief Operations Officer

    2016       335,000       230,768       —         908,160       24,012       1,497,940  

Glen Griffiths,

    2017       312,212       110,685       —         235,318       13,077       671,292  

Executive Vice President of
Quality, Reliability and Sustainability

    2016       305,000       166,805       880,537       356,499       12,684       1,721,525  

 

(1)   The amounts reported in the Salary column include regular salary and retroactive pay for salary increases during the year.
(2)   The amounts reported represent the amount earned and payable under the annual bonus plan based on each named executive officer’s target bonus opportunity and pro-rated for the number of days he or she is employed with us. These amounts were partially paid in the year listed with the remaining amount paid in the following calendar year.
(3)   The amounts reported represent the aggregate grant date fair value of RSUs granted to the named executive officer during 2016 and 2017 as computed in accordance with Accounting Standards Codification ASC 718. The grant date fair value of the RSUs is set forth in Note 25 to our consolidated financial statements. Note that the amounts reported in this column reflect the accounting cost for these RSUs, and do not correspond to the actual economic value that our named executive officers may receive from the RSUs.
(4)   The amounts reported represent the aggregate grant date fair value of the stock options granted to our named executive officers during 2016 and 2017 as computed in accordance with ASC 718. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in Note 25 to our consolidated financial statements. Note that the amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that our named executive officers may receive from the options.
(5)   Represents group term life insurance premiums and cost of employer sponsored health coverage.

Offer Letters and Employment Arrangements

All of our named executive officers are employed on an at-will basis, with no fixed term of employment. The initial terms and conditions of employment for each of our named executive officers are set forth in written offer letters. Each of our named executive officers has also executed our standard form of confidential information, arbitration and invention assignment agreement. In addition, certain of our named executive officers have been granted awards under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan, which provide for certain accelerated vesting in connection with a change of control. Such accelerated vesting is described in greater detail in “—Potential Payments Upon Termination or Change in Control” and “—Employee Benefit Plans”.

 

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Potential Payments Upon Termination or Change in Control

Under the terms of employment agreement with Randy Furr, if his employment is terminated without cause or by him for good reason within 12 months following a change of control, any unvested equity incentive awards at such time shall immediately accelerate and vest for an additional 12 months, unless additional acceleration is provided in the change in control agreement.

2017 Outstanding Equity Awards at Fiscal Year-End Table

The following table presents, for each of our named executive officers, information regarding outstanding equity awards held as of December 31, 2017.

 

          Option Awards     Stock Awards  

Name

  Grant Date     Option Awards—
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Option Awards—
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Awards—
Option
Exercise
Price ($)
    Option
Awards—

Option
Expiration
Date
    Stock
Awards—

Number
of
Unearned
Shares
That
Have
Not
Vested
(#)
    Stock
Awards—

Market or
Payout
Value
of

Unearned
Shares
That
Have Not
Vested ($)
 

KR Sridhar

    6/25/2008 (1)       514,442       —         2.18       6/24/2018       —         —    
    6/2/2011 (1)       233,333       —         20.55       6/2/2021       —         —    
    8/2/2012 (1)       733,333       —         30.35       8/2/2022       —         —    
    9/11/2015 (2)       266,666       —         30.89       9/10/2025       —         —    
    1/14/2016 (4)       —         —         —         —         2,536       52,230  
    5/5/2016 (6)       —         —         —         —         213,000       4,396,320  
    5/11/2017 (8)       —         —         —         —         424,383       8,759,272  
    5/11/2017 (9)       —         884,508       30.96       5/10/2027       —         —    

Susan Brennan

    11/7/2013 (3)       108,888       24,444       30.81       11/6/2023       —         —    
    2/12/2015 (4)       —         —         —         —         1,003       20,608  
    9/11/2015 (1)       6,444       6,889       30.89       9/10/2025       —         —    
    9/11/2015 (5)       —         —         —         —         13,333       274,533  
    5/5/2016 (6)       —         —         —         —         29,333       605,440  
    7/21/2017 (10)       4,583       15,416       30.96       7/20/2027       —         —    

Glen Griffiths

    2/12/2015 (3)       66,000       44,000       30.81       2/11/2025       —         —    
    2/12/2015 (4)       —         —         —         —         23,333       481,600  
    1/14/2016 (4)       —         —         —         —         636       13,127  
    5/5/2016 (6)       —         —         —         —         7,806       161,129  
    10/3/2016 (7)       6,800       13,200       30.96       10/02/2026       —         —    
    10/3/2016 (6)       —         —         —         —         20,000       412,800  
    7/21/2017 (10)       3,055       10,278       30.96       7/20/2027       —         —    

 

(1)   These stock options vest evenly over a five-year period with 1/60th of the shares of Class B common stock underlying the options vesting each month from the vesting commencement date, subject to continuous service to us.
(2)   These stock options vest evenly over a two-year period with 1/24 of the total shares of Class B common stock underlying the option vesting each month from the vesting commencement date, subject to continuous service to us.
(3)   These stock options vest over a five-year period as follows: 20% of the shares of Class B common stock underlying the options vest on the first anniversary of the vesting commencement date and 1/60th of the shares of Class B common stock underlying the options vest monthly thereafter, subject to continuous service to us.

 

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(4)   The shares are represented by restricted stock units pursuant to which 100% of the units vest upon the earlier of the six-month anniversary of our initial public offering or the closing of a sale event, subject to continuous service to us.
(5)   The shares are represented by restricted stock units pursuant to which 50% of the units vest upon the earlier of the six-month anniversary of our initial public offering or the closing of a sale event, 25% of the units vest on the one year anniversary, and the remaining 25% of the units vest on the second anniversary of the initial vesting event, subject to continuous service to us.
(6)   The shares are represented by restricted stock units pursuant to which 1/3 rd of the units vest upon the earlier of the six-month anniversary of our initial public offering or the closing of a sale event, 1/3rd of the units vest on the one year anniversary, and the remaining 1/3 rd of the units vest on the second anniversary of the initial vesting event, subject to continuous service to us.
(7)   These stock options vest over three years with 1/3rd of the options vesting on the first, second and third anniversary of the vesting commencement, subject to continuous service to us.
(8) The shares are represented by restricted stock units pursuant to which 50% of the units vest upon the one-year anniversary of our initial public offering or the closing of a sale event, and 50% of the units vest on the second year anniversary, subject to continuous service to us.
(9) These stock options vest monthly over two years from the vesting commencement date of January 1, 2018, subject to continuous service to us.
(10) These stock options vest monthly over four years from the vesting commencement date of January 1, 2017, subject to continuous service to us.

Employee Benefit Plans

2002 Stock Plan

Our board of directors adopted and the stockholders approved our 2002 Stock Plan (the 2002 Plan) in April 2002. The 2002 Plan was amended in June 2011. No additional awards were granted under the 2002 Plan after our adoption of the 2012 Equity Incentive Plan (2012 Plan).

The 2002 Plan provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and non-statutory stock options, as well as for the issuance of restricted stock. We may grant incentive stock options only to our employees. We may grant non-statutory stock options, as well as issue shares of restricted stock, to our employees, officers, directors and consultants.

The exercise price of each incentive stock option must be at least equal to the fair market value of our common stock on the date of grant. Options granted under the 2002 Plan generally may be exercised for a period of thirty days after the termination of the optionee’s service to us or, in the case of death or disability, six months. The maximum permitted term of options granted under our 2002 Plan is ten years.

In the event we are a party to a merger or consolidation or we sell all or substantially all of our assets, the 2002 Plan provides that (i) if the surviving entity agrees to assume or substitute the outstanding awards under the 2002 Plan, such awards shall be so assumed or substituted, provided that any outstanding award which remains entirely unvested shall be partially accelerated and vested, and (ii) if the surviving entity declines to assume or substitute the outstanding awards under the 2002 Plan, all such outstanding awards shall be accelerated in full and fully vested and exercisable.

In August 2012, in connection with our 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). As of March 31, 2018, options to purchase 3,221,200 shares of our common stock were outstanding under the 2002 Plan and no shares were available for future grant. As of March 31, 2018, the weighted average exercise price of outstanding options under the 2002 Plan was $15.66 per share. Any outstanding stock options granted under the 2002 Plan will remain outstanding, subject to the terms of our 2002 Plan and applicable award

 

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agreements, until such shares are issued under those awards (by exercise of stock options) or until the awards terminate or expire by their terms.

2012 Equity Incentive Plan

Our board of directors adopted our 2012 Equity Incentive Plan in August 2012. Our stockholders approved the 2012 Plan in July 2013.

The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs and stock appreciation rights, all of which may be granted to employees, including officers, and to non-employee directors and consultants. We may grant incentive stock options only to our employees. We may grant non-statutory stock options, RSUs and stock appreciation rights, as well as issue shares of restricted stock, to our employees (including our officers), directors and consultants.

The exercise price of each stock option must be at least equal to the fair market value of our common stock on the date of grant. However, the exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. Options granted under our 2012 Plan generally may be exercised for a period of three months after the termination of the optionee’s service to us (or such period not less than thirty days) but not longer than five years as the administrator may provide), or, in the case of death or disability, twelve months (or such shorter period (but not less than six months) as the administrator may provide). The maximum permitted term of options granted under our 2012 Plan is ten years. However, the maximum permitted term of options granted to 10% stockholders is five years.

A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of a restricted stock award will be determined by the plan administrator. Unless otherwise determined by the plan administrator at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares will be forfeited to or repurchased by us.

RSUs are awards representing the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of a termination of employment or service or failure to achieve certain performance conditions.

Stock appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price at grant up to a maximum amount of cash or number of shares. Stock appreciation rights may vest based on time or achievement of performance conditions.

In the event we are subject to an “acquisition” or “other combination” (as such terms are defined in the 2012 Plan), the 2012 Plan provides that awards may be continued, assumed, substituted, settled by payment (in cash, cash equivalents, or securities of the surviving corporation or its parent) of the full value of the stock awards, accelerated in full, or canceled without consideration, and awards will terminate upon the consummation of the acquisition or other combination unless they are continued, assumed, or substituted.

The following shares of our Class B common stock will be available for grant and issuance under the 2012 Plan: (i) shares that are subject to stock options or other awards granted the 2002 Plan that cease to be subject to such awards by forfeiture or otherwise, (ii) any shares issued under the 2002 Plan after the effective date of the 2012 Plan pursuant to the exercise of stock options that are, after the effective date of the 2012 Plan, forfeited, (iii) any shares issued under the 2002 Plan that are repurchased by us at the original issue price and (iv) any shares that are subject to stock options or other awards under the 2002 Plan that are used to pay the exercise price of an option or to satisfy the tax withholding obligations related to any award. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the 2012 Plan is 20,000,000 shares.

 

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As of March 31, 2018, we had reserved 17,240,659 shares of our common stock for issuance under our 2012 Plan. As of March 31, 2018, options to purchase 11,545,119 shares of our common stock and restricted stock units settleable for 3,147,093 shares of common stock remained outstanding under the 2012 Plan. The stock options outstanding had a weighted average exercise price of $26.61 per share. As of March 31, 2018, 5,683,338 shares remained available for future grant. Subsequent to March 31, 2018, we issued restricted stock units that may be settled for 29,604 shares of our Class B common stock, and intend to issue RSUs covering up to approximately 12,500,000 shares of Class B common stock to be granted on the date of this prospectus, pursuant to our 2012 Equity Incentive Plan. In addition, subsequent to March 31, 2018, we reserved an additional 13,333,333 shares of Class B common stock for issuance under the 2012 Plan.

We will cease issuing awards under our 2012 Plan upon the effectiveness of the 2018 Plan, which is described below. Instead, we will grant equity awards under our 2018 Plan. However, any outstanding awards granted under the 2012 Plan will remain outstanding, subject to the terms of our 2012 Plan and applicable award agreements, until they are exercised or settled or until they terminate or expire by their terms.

2018 Equity Incentive Plan

In April 2018, our board of directors adopted and our stockholders approved our 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan will become effective on first trading day immediately following the date on which this registration statement is declared effective and will serve as the successor to our 2012 Plan. We reserved shares of our Class A common stock to be issued under our 2018 Plan. We initially reserved 13,333,333 shares of our Class A common stock to be issued under our 2018 Plan. The number of shares reserved for issuance under our 2018 Plan will increase automatically on the first day of January of each of 2019 through 2028 by the number of shares of Class A common stock equal to 4% 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). However, our board of directors may reduce the amount of the increase in any particular year. In addition, the following shares of our Class A common stock will be available for grant and issuance under our 2018 Plan:

 

    shares subject to awards granted under our 2018 Plan that cease to be subject to the awards for any reason other than exercises of stock options or stock appreciation rights;

 

    shares subject to awards granted under our 2018 Plan that are subsequently forfeited or repurchased by us at the original issue price;

 

    shares surrendered, cancelled, or exchanged for cash or a different award (or combination thereof);

 

    shares subject to awards under our 2018 Plan that are used to pay the exercise price of an award or withheld to satisfy the tax withholding obligations related to any award;

 

    shares reserved but not issued or subject to outstanding awards under our 2012 Plan on the effective date of our 2018 Plan;

 

    shares subject to awards under our 2012 Plan that are used to pay the exercise price of a stock option or withheld to satisfy the tax withholding obligations related to any award;

 

    shares that are subject to stock options or other awards granted under the 2012 Plan that cease to be subject to such stock options or other awards, by forfeiture or otherwise, after the effective date of the 2018 Plan;

 

    shares issued under the 2012 Plan before or after the effective date of the 2018 Plan pursuant to the exercise of stock options that are forfeited after the effective date of the 2018 Plan; and

 

    shares issued under the 2012 Plan that are repurchased by us at the original issue price.

Our 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and stock bonuses. No more than 26,666,666 shares of our Class A common stock will be issued pursuant to the exercise of incentive stock options. No non-employee director may receive awards

 

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under the 2018 Plan that, when combined with cash compensation received for service as a non-employee director, exceeds $750,000 in a calendar year, increased to $1,250,000 in the calendar year of his or her initial services as a non-employee director.

Our 2018 Plan will be administered by our compensation and organization development committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation and organization development committee. The compensation and organization development committee will have the authority to construe and interpret our 2018 Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

Our 2018 Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors are natural persons who render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our Class A common stock on the date of grant.

We anticipate that in general, stock options will vest over a four-year period. Stock options may vest based on time or achievement of performance conditions. Our compensation and organization development committee may provide for stock options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of stock options granted under our 2018 Plan is ten years.

A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of a restricted stock award will be determined by the compensation and organization development committee. Unless otherwise determined by the compensation and organization development committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares will be forfeited to or repurchased by us.

Stock appreciation rights provide for a payment, or payments, in cash or shares of our Class A common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price at grant up to a maximum amount of cash or number of shares. Stock appreciation rights may vest based on time or achievement of performance conditions.

RSUs represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If a RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the RSU whole shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash.

Performance awards cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement due to termination of employment or failure to achieve the performance conditions.

Stock bonuses may be granted as additional compensation for service or performance, and therefore, may not be issued in exchange for cash.

In the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to the number and class of shares reserved under our 2018 Plan, the maximum number and class of shares that can be granted in a calendar year and the number and class of shares and exercise price, if applicable, of all outstanding awards under our 2018 Plan.

 

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Awards granted under our 2018 Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation and organization development committee. Unless otherwise permitted by our compensation and organization development committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative. Stock options granted under our 2018 Plan may be exercised for a period of three months after the termination of the optionee’s service to us, or for a period of 12 months in the case of death, or disability, or such shorter or longer period as our compensation and organization development committee may provide. Stock options generally terminate immediately upon termination of employment for cause.

Our 2018 Plan provides that, in the event of a sale or other disposition of all or substantially all of our assets or specified types of mergers or consolidations, or other specified corporate transactions, outstanding awards under our 2018 Plan may be continued; outstanding awards may be assumed by any surviving or acquiring corporation; the surviving or acquiring corporation may substitute similar awards for those outstanding under our 2018 Plan; outstanding awards may have their exercisability (as applicable) or vesting accelerated in full or in part; outstanding awards may be settled for the full value of such outstanding award (whether or not then vested or exercisable) in cash, cash equivalents or securities of the successor entity with payment deferred until the date or dates the award would have become exercisable or vested; or outstanding awards may be terminated for no consideration. The 2018 Plan administrator has the discretion to provide that a stock award under our 2018 Plan will immediately vest as to all or any portion of the shares subject to the stock award at the time of a corporate transaction or in the event a participant’s service with us or a successor entity is terminated actually or constructively within a designated period following the occurrence of the transaction. Stock awards held by participants under our 2018 Plan will not vest automatically on such an accelerated basis unless specifically provided in the participant’s applicable award agreement. In the event of a corporate transaction, the vesting of all awards granted to non-employee directors shall accelerate and such awards shall become exercisable (as applicable) in full upon the consummation of the corporate transaction.

Our 2018 Plan will terminate ten years from the date our board of directors approves the plan, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate our 2018 Plan at any time. If our board of directors amends our 2018 Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.

2018 Employee Stock Purchase Plan

In April 2018, our board of directors adopted and our stockholders approved our 2018 Employee Stock Purchase Plan (ESPP). The ESPP will become effective on the date this registration statement is declared effective. The purpose of the ESPP is to enable eligible employees to purchase shares of our Class A common stock at a discount following the date of this offering. Purchases will be accomplished through participation in discrete offering periods. Our ESPP is intended to qualify under Section 423 of the Code. We initially reserved 3,333,333 shares of our Class A common stock for issuance under our ESPP. 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). However, our board of directors may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our ESPP will not exceed 33,333,333 shares of our Class A common stock.

Our compensation and organization development committee will administer our ESPP. Our employees generally are eligible to participate in our ESPP if they are employed by us; we may exclude employees from participation if they do not work at least 20 hours per week and more than five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our ESPP, are ineligible to participate. We may impose additional restrictions on eligibility. Under our ESPP, eligible employees will be able to acquire shares of our Class A common stock through payroll deductions between 1%

 

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and 15% of their base compensation. We will also have the right to amend or terminate our ESPP at any time. Our ESPP will terminate on the tenth anniversary of the last day of the first purchase period, unless terminated earlier by our board of directors.

When an initial offering period commences, eligible employees, who participate in the offering period, will automatically be granted a non-transferable option to purchase shares in that offering period. For subsequent offering periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent offering periods. An employee’s participation automatically ends upon termination of employment for any reason.

Except for the first offering period, each offering period will run for no more than 24 months, with purchases occurring every six months. The first offering period will begin upon the effective date of our ESPP and will end approximately two years following the date of this prospectus. Except for the first purchase period, each purchase period will be for six months. An employee’s participation automatically ends upon termination of employment for any reason.

No participant will have the right to purchase shares of our Class A common stock in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year, that have a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than 1,666 shares of our Class A common stock during any one purchase period or a lesser amount determined by our compensation and organization development committee. The purchase price for shares of our Class A common stock purchased under our ESPP will be 85% of the lesser of the fair market value of our Class A common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period.

If we experience a change in control transaction, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction, and our ESPP will then terminate on the closing of the proposed change in control.

401(k) Plan

We maintain a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age. Under our 401(k) plan, employees may elect to defer up to 60% of eligible compensation, subject to applicable annual Code limits. We do not match any contributions made by our employees, including executives, but have the discretion to do so. We intend for our 401(k) plan to qualify under Section 401(a) and 501(a) of the Code so that contributions by employees to our 401(k) plan, and income earned on those contributions, are not taxable to employees until withdrawn from our 401(k) plan.

Limitation of Liability and Indemnification

Our restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except for liability:

 

    for any breach of their duty of loyalty to our company or our stockholders;

 

    for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

    for any transaction from which they derived an improper personal benefit.

 

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Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission, or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

Our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

We have also entered into indemnification agreements with each of our directors and executive officers that are broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

The limitation of liability and indemnification provisions in our restated certificate of incorporation and amended and restated bylaws or in these indemnification agreements may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees, or other agents or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.

Certain of our non-employee directors may, through their relationships with their employers, be insured or indemnified against certain liabilities incurred in their capacity as members of our board of directors.

The underwriting agreement will provide for indemnification by the underwriters of us and our officers, directors, and employees for certain liabilities arising under the Securities Act or otherwise.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

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RELATED PARTY TRANSACTIONS

In addition to the director and executive compensation arrangements discussed above under “Executive Compensation,” the following is a description of those transactions since January 1, 2015, that we have participated in where the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers, beneficial holders of more than 5% of our capital stock, or any member of the immediate family of or entities affiliated with any of the foregoing persons, had or will have a direct or indirect material interest.

Private Placements

Debt and Convertible Promissory Note Financing

For the years ended December 31, 2016 and 2017, we issued $25.0 million and zero, respectively, in debt and convertible notes to investors that are members of our board of directors or their affiliates or holders of more than 5% of our outstanding capital stock.

Over the years ended December 31, 2013 and 2014, we obtained $36.7 million and $8.2 million, respectively, in term loans due September 2028 from Alberta Investment Management Corporation to fund the purchase and installation of Energy Servers related to PPA IIIa. The loan bears a fixed interest rate of 7.5% and the total debt balance was $41.6 million as of March 31, 2018.

In September 2016 we issued $12.5 million in principal amount of our 6% Notes to KPCB Holdings, Inc. and $12.5 million in principal amount of our 6% Notes to New Enterprise Associates pursuant to a note purchase agreement. In December 2015, we issued $75.0 million aggregate principal amount of our 6% Notes to CPPIB pursuant to a note purchase agreement and we agreed to issue, upon the occurrence of certain conditions, warrants to purchase up to 166,222 shares of common stock. In September 2016, we issued an additional $50.0 million aggregate principal amount of our 6% Notes to CPPIB. In August 2017, J.P. Morgan’s $75.0 million principal and interest balance associated with the December 2015 issuance and its warrants to purchase up to 146,666 shares of common stock were transferred to CPPIB. For further information of our 6% Notes, see “Description of Capital Stock—6.0% Convertible Senior Secured Notes due 2020”.

We paid $1.0 million, $0.9 million, and $0.3 million of outstanding debt principal to Alberta Investment Management Corporation in 2016, 2017 and the three months ended March 31, 2018, respectively. We recorded $8.3 million in accrued interest for the 8% Notes and the 6% Notes to KPCB Holdings, Inc. and New Enterprise Associates and $3.8 million in accrued interest to Alberta Investment Management Corporation. As of March 31, 2018 we recorded $1.2 million in accrued interest that has not yet been converted to debt principal for the 6% Notes of CPPIB. The paid-in-kind interest under the 6% Notes is converted to debt principal on a monthly basis. As of March 31, 2018, the total debt balance outstanding under the 8% and 6% Notes was $54.7 million for Alberta Investment Management Corporation, $26.6 million for KPCB Holdings, Inc., and $26.6 million for New Enterprise Associates. As of March 31, 2018 the total debt balance outstanding under the 6% Notes held by CPPIB was $235.1 million.

Registration Rights Agreement

We have entered into an amended and restated registration rights agreement with certain holders of our preferred stock, including entities affiliated with KPCB Holdings, Inc., New Enterprise Associates, Kuwait Investment Authority, Alberta Investment Management Corporation and Advanced Equities Financial Corp. L. John Doerr, Scott Sandell and Peter Teti, members of our board of directors, are affiliated with KPCB Holdings, Inc., New Enterprise Associates and Alberta Investment Management Corporation, respectively. These stockholders are entitled to rights with respect to the registration of their shares following this offering. See the section titled “Description of Capital Stock—Registration Rights” for additional information.

 

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Indemnification Agreements

We have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our amended and restated bylaws also require us to advance expenses incurred by our directors and officers. See the section titled “Executive Compensation—Limitation of Liability and Indemnification” for additional information.

Consulting Arrangement

In January 2009, we entered into a consulting agreement with General Colin L. Powell (Retired), a member of our board of directors, pursuant to which General Powell performs certain strategic planning and advisory services for us. Pursuant to this consulting agreement, General Powell receives compensation of $125,000 per year and reimbursement for reasonable expenses.

Directed Share Program

At our request, the underwriters have reserved up to 9% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to our directors, officers and other individuals associated with them, and our employees, to the extent permitted by local securities laws and regulations. Any shares sold in the directed share program to our directors, executive officers or stockholders who have entered into lock-up agreements described in “Underwriting” shall be subject to the provisions of such lock-up agreements. Employees and family members of employees who participate in the directed share program shall be subject to substantially similar lock-up provisions with respect to any shares sold to them pursuant to the directed share program.

Review, Approval, or Ratification of Transactions with Related Parties

Our related-person transactions policy adopted by our board of directors and the charter of our audit committee to be adopted by our board of directors and in effect immediately prior to the completion of this offering require that any transaction with a related person that must be reported under applicable rules of the SEC must be reviewed and approved or ratified by our audit committee, unless the related person is, or is associated with, a member of that committee, in which event the transaction must be reviewed and approved by our nominating and corporate governance committee.

Our related-person transactions policy will apply to transactions, arrangements or relationships in which we are a participant, in which the amount involved exceeds $120,000 and in which a related person has or will have a direct or indirect material interest. A related person is: (i) any of our directors, nominees for director or executive officers, (ii) any immediate family member of a director, nominee for director or executive officer, and (iii) any person, and his or her immediate family members, or entity that is known by us to be a beneficial owner of 5% or more of any of our outstanding equity securities at the time the transaction occurred or existed.

In the course of its review and approval of related party transactions, our audit committee will consider the relevant facts and circumstances to decide whether to approve such transactions. Our audit committee will approve only those related-person transactions that it determines, in light of known circumstances, are in, or not inconsistent with, our best interests and the best interests of our stockholders, as the audit committee determines in the good faith exercise of its discretion.

 

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For the purposes of our related-person transactions policy, our audit committee has determined that, in the absence of facts or circumstances indicating special or unusual benefits to the related person, a related person does not have a direct or indirect material interest in the following categories of transactions, and therefore such following categories of transactions need not be approved by the audit committee under the related-person transactions policy:

 

    our employment of any executive officer, if the compensation related to such executive officer’s employment is required to be reported in our proxy statement under Item 402 of the SEC’s compensation disclosure requirements, or if such executive officer is not an immediate family member of another of our executive officers or directors and our nomination and corporate governance committee approved such compensation;

 

    any compensation paid to a director if the compensation is required to be reported in our proxy statement under Item 402 Regulation SK;

 

    any transaction with another company at which a related person’s only relationship is as an employee (other than as an executive officer), director or beneficial owner of less than 10% of that company’s shares or as a limited partner holding interests of less than 10% in the limited partnership (or similar interests in an alternative form of entity), if the aggregate amount involved does not exceed the greater of $1,000,000, or 2% of that company’s (or other entity’s) total annual revenues, provided that if the related person is such only because of the ownership of more than 5% of our outstanding voting securities, then such person shall not be deemed to have an indirect material interest in the transaction if such person’s relationship with the other company is the ownership of less than a majority of such other company’s outstanding voting shares;

 

    any transaction where the related person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis ( e . g . dividends);

 

    any transaction with a related person where the rates or charges involved are determined by competitive bids;

 

    any transaction involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; or

 

    any transaction involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services.

Prior to the adoption of our related-person transactions policy, we had no formal, written policy or procedure for the review and approval of related-person transactions. However, our practice has been to have all related-person transactions reviewed and approved by a majority of the disinterested members of our board of directors, including the transactions described above.

 

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PRINCIPAL STOCKHOLDERS

The following table presents information regarding the beneficial ownership of our common stock as of March 31, 2018, and as adjusted to reflect the sale of the common stock in this offering assuming no exercise of the underwriters’ option to purchase additional shares, by:

 

    each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all of our current directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, to our knowledge, based on the information furnished to us, the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. We have deemed shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of March 31, 2018 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership and voting power of that person but have not treated them as outstanding for the purpose of computing the percentage ownership or voting power of any other person. However, voting power under our restated certificate of incorporation is calculated based on shares of Class A and Class B common stock actually outstanding as of the applicable record date. See “Description of Capital Stock.”

Certain of our directors and certain of our current stockholders affiliated with our directors have indicated an interest in purchasing up to an aggregate of $50.0 million in shares of our Class A common stock in this offering at the initial public offering price per share. The following table does not reflect any purchases by these purchasers.

We have based percentage ownership of our common stock before this offering on 88,066,537 shares of common stock outstanding as of March 31, 2018. Percentage ownership of our common stock after this offering also assumes the sale of 18,000,000 shares of Class A common stock in this offering. An asterisk (*) below denotes beneficial ownership of less than 1%.

 

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Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Bloom Energy Corporation, 1299 Orleans Drive, Sunnyvale, California 94089.

 

    Beneficial
Ownership
Prior to This
Offering Class B
    % Total
Voting
Power
Before this
Offering (1)
    Beneficial Ownership After
This Offering
    % Total
Voting
Power
After this
Offering (1)
 
      Class A     Class B    

Beneficial Owner

  Shares     %       Shares     %     Shares     %    

Named Executive Officers and Directors:

               

KR Sridhar (2)

    3,271,159       3.64     3.64     —         —       3,271,159       3.64     3.56

Shares subject to voting proxy (3)

    37,758,479       42.87       42.87       —         —         37,758,479       42.87       42.02  

Total (2) (3)

   
41,029,638
 
    45.61       45.61       —         —         41,029,638       45.61       44.71  

Susan Brennan (4)

    134,221       *       —         —         —         134,221       *       *  

Matt Ross (5)

    173,821       *       —         —         —         173,821       *       *  

Randy Furr (6)

    282,534       *       —         —         —         282,534       *       *  

Kelly A. Ayotte (7)

    —         *       —         —         —         —         *       *  

Mary K. Bush (8)

    20,833       *       —         —         —         20,833       *       *  

L. John Doerr (9)

    13,978,483       15.87       15.87       —         —         13,978,483       15.87       15.55  

Colin Powell (10)

    155,000       *       *       —         —         155,000       *       *  

Scott Sandell (11)

    7,740,502       8.79       8.79           7,740,502       8.79       8.61  

Peter Teti (12)

    6,677,170       7.58       7.58       —         —         6,677,170       7.58       7.43  

Eddy Zervigon (13)

    36,296       *       *           36,296       *       *  

All current executive officers and directors as a group (16 persons) (14)

    70,228,498       77.47       77.47           70,228,498       77.47       75.96  

Other 5% Stockholders:

               

Entities affiliated with Alberta Investment Management Corporation (15)

    6,667,170       7.57       7.57       —         —         6,667,170       7.57       7.42  

Entities affiliated with Advanced Equities Financial
Corp. (16)

    5,776,286       6.56       6.56       —         —         5,776,286       6.56       6.43  

KPCB Holdings, Inc. as nominee (17)

    13,978,483       15.87       15.87       —         —         13,978,483       15.87       15.55  

Entities affiliated with Kuwait Investment Authority (18)

    9,456,255       10.74       10.74       —         —         9,456,255       10.74       10.52  

Entities affiliated with New Enterprise Associates (19)

    7,740,502       8.79       8.79       —         —         7,740,502       8.79       8.61  

Entities affiliated with Canada Pension Plan Investment Board (20)

    22,706,317       20.50       20.50       —         —         22,706,317       20.50       20.17  

 

(*)   Less than one percent (1%).
(1)   Percentage of total voting power represents voting power with respect to all shares of our Class A and Class B common stock, as a single class. The holders of our Class B common stock are entitled to ten votes per share, and holders of our Class A common stock are entitled to one vote per share. See the section titled “Description of Capital Stock—Common Stock” for more information about the voting rights of our Class A and Class B common stock.
(2)   Represents (i) 1,376,166 shares of Class B common stock held by Mr. Sridhar; (ii) 33,136 shares of Class B common stock held by KR Sridhar, as Trustee of the KR Sridhar 2008 Annuity Trust AS dated December 18, 2008, (iii) 33,136 shares of Class B common stock held by KR Sridhar, as Trustee of the KR Sridhar 2008 Annuity Trust KS dated December 18, 2008, (iv) 55,630 shares of Class B common stock held by KR Sridhar, as Trustee of the KR Sridhar 2010 Annuity Trust AS dated April 27, 2010, (v) 55,630 shares of Class B common stock held by KR Sridhar, as Trustee of the KR Sridhar 2010 Annuity Trust KS dated April 27, 2010, (vi) 325,520 shares of Class B common stock held by The KR Sridhar and Sudha Sarma 2012 Irrevocable Trust and (vii) 1,894,993 shares of Class B common stock underlying stock options exercisable within 60 days of March 31, 2018 held by Mr. Sridhar. By virtue of the relationship Mr. Sridhar has with each Trust above in this footnote, Mr. Sridhar is deemed to have voting and dispositive power of these shares.

 

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(3)   Consists of shares of our Class A and Class B common stock held by other stockholders over which, except under limited circumstances, Mr. Sridhar holds an irrevocable proxy, pursuant to voting agreements between Mr. Sridhar and such stockholders, including certain of our directors and holders of more than 5% of our capital stock with respect to certain matters, as indicated in the footnotes below. We do not believe that the parties to these voting agreements constitute a “group” under Section 13 of the Securities Exchange Act of 1934, as amended, as Mr. Sridhar exercises voting control over these shares. For more information about the voting agreements, see “Description of Capital Stock—Class A Common Stock and Class B Common Stock—Voting Rights.”
(4)   Represents 134,221 shares of Class B common stock underlying stock options exercisable within 60 days of March 31, 2018 held by Ms. Brennan.
(5)   Represents 173,821 shares of Class B common stock underlying stock options exercisable within 60 days of March 31, 2018 held by Mr. Ross.
(6)   Represents 282,534 shares of Class B common stock underlying stock options exercisable within 60 days of March 31, 2018 held by Mr. Furr.
(7) Ms. Ayotte joined the Company in November 2017, and she has no shares underlying stock options exercisable within 60 days of March 31, 2018.
( 8 )   Represents 20,833 shares of Class B common stock underlying stock options exercisable within 60 days of March 31, 2018 held by Ms. Bush.
( 9 )   Consists of the shares of common stock referenced in footnote (17) below. Additionally, Mr. Doerr has indicated interest in purchasing up to 1,428,571 shares of our Class A common stock in this offering.
( 10 )   Represents (i) 28,150 shares of Class B common stock held by Mr. Powell, (ii) 6,838 shares of Class B common stock held by The CLP 6-Year GRAT u/a dtd 9/28/2012, Colin L. Powell, Trustee, (iii) 36,678 shares of Class B common stock held by The CLP 4-Year GRAT u/a dtd 10/16/2016, Colin L. Powell, Trustee; and (iv) 83,333 shares of Class B common stock underlying stock options exercisable within 60 days of March 31, 2018 held by Mr. Powell. By virtue of the relationship Mr. Powell has with each Trust described in this footnote, Mr. Powell is deemed to have voting and dispositive power of these shares.
(11)   Consists of the shares of common stock referenced in footnote (19) below. In addition, entities affiliated with New Enterprise Associates have indicated interest in purchasing up to 1,428,571 shares of our Class A common stock in this offering.
(12 )   Consists of the shares of common stock referenced in footnote (15) below.
(13)   Represents (i) 30,296 shares of Class B common stock held by Mr. Zervigon and (ii) 6,000 shares of Class B common stock held by Eddy Zervigon IRA Account.
( 14 )   Represents (i) 28,966,144 shares, (ii) 3,585,194 shares underlying stock options exercisable within 60 days of March 31, 2018, (iii) 468,548 shares of Class B common stock underlying warrants exercisable within 60 days of March 31, 2018 and (iv) 1,011,634 shares of Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 8% Notes held by our executive officers and directors as a group.
( 15 )  

Represents (i) 2,107,990 shares of Class B common stock held by 1536053 Alberta Ltd., (ii) 3,763,852 shares of Class B common stock held by 1536057 Alberta Ltd., (iii) 220,499 shares of Class B common stock underlying warrants exercisable within 60 days of March 31, 2018 held by PE12GVVC (US Direct) Ltd., (iv) 248,049 shares of Class B common stock underlying warrants exercisable within 60 days of March 31, 2018 held by PE12PXVC (US Direct) Ltd., (v) 158,488 shares of Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 8% Notes held by PE12GVVC (US Direct) Ltd. and (vi) 178,290 shares of Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 8% Notes held by PE12PXVC (US Direct) Ltd. (collectively, the AIMCo Funds). Each of the AIMCo Funds is an affiliate of Alberta Investment Management Corporation, which is empowered by the Alberta Investment Management Corporation Act to act on behalf of Her Majesty the Queen in Right of Alberta as its agent. The Alberta Investment Management Corporation exercises sole voting and investment power over the securities in the above table. The voting and investment decisions of Alberta Investment Management Corporation with respect to the securities are made by Dale MacMaster, Chief Investment Officer and Peter Teti, one of our directors and the Senior Vice President of Private Equity and Relationship Investing of Alberta Investment

 

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  Management Corporation. Each of the foregoing persons disclaims beneficial ownership of the securities in the table above except to the extent Alberta Investment Management Corporation may be deemed to indirectly beneficially own such, but disclaims beneficial ownership except to the extent of its pecuniary interest therein. The address for Alberta Investment Management Corporation is 1100-10830 Jasper Avenue, Edmonton, Alberta T5J 2B3, Canada.
( 16 )   Represents (i) 606,053 shares of Class B common stock held by Advanced Equities GreenTech Investments I, LLC, (ii) 495,483 shares of Class B common stock held by Advanced Equities GreenTech Investments II, LLC, (iii) 232,142 shares of Class B common stock held by Advanced Equities GreenTech Investments III, LLC, (iv) 93,100 shares of Class B common stock held by Advanced Equities GreenTech Investments III-2, LLC, (v) 2,399,548 shares of Class B common stock held by Advanced Equities GreenTech Investments IV, LLC, (vi) 164,826 shares of Class B common stock held by AEI 2006 Venture Investments I, LLC, (vii) 477,240 shares of Class B common stock held by AEI 2006 Venture Investments II, LLC, (viii) 55,152 shares of Class B common stock held by AEI 2010 CleanTech Ventures I, LLC, (ix) 3,286 shares of Class B common stock held by AEI 2010 CleanTech Ventures I-2, LLC, (x) 116,115 shares of Class B common stock held by AEI 2010 CleanTech Ventures II, LLC, (xi) 297,965 shares of Class B common stock held by AEI Bloom Secondary II, LLC, (xii) 42,808 shares held by AEI Bloom Secondary, LLC, (xiii) 75,252 shares of Class B common stock held by AEI Bloom X, LLC, (xiv) (xiv) 292,970 shares of Class B common stock held by AEI GreenTech Investments V, LLC, (xv) 129,386 shares of Class B common stock held by AEI GreenTech Investments VII, LLC, (xvi) 231,182 shares of Class B common stock held by AEI Project X, LLC, and (xvii) 63,774 shares of Class B common stock held by AEI Trilogy Fund I, LLC (collectively, the AEI Funds). Spruce Direct Investment Fund I, LP is the sole managing member of the AEI Funds, and the Individual General Partners are John C. Bailey, Scott Ogur, and Robert Bastone. Scott Ogur is the Managing Director of Spruce Investment Advisors, LLC, and is deemed to have voting and dispositive power over the shares owned by Spruce Direct Investment Fund I, LP. The address of these entities is One Stamford Plaza, 263 Tresser Blvd. 15 th floor, Stamford, CT 06901.
( 17 )   Consists of (i) 5,302,278 shares of Class B common stock held by Kleiner Perkins Caufield & Byers IX-A, L.P., or KPCB IX-A, (ii) 163,692 shares of Class B common stock held by Kleiner Perkins Caufield & Byers IX-B, L.P., or KPCB IX-B, (iii) 4,667,286 shares Class B of common stock held by Kleiner Perkins Caufield & Byers X-A, L.P., or KPCB X-A, (iv) 131,636 shares Class B of common stock held by Kleiner Perkins Caufield & Byers X-B, L.P., or KPCB X-B, (v) 3,376,161 shares of Class B common stock held by individuals and entities associated with Kleiner Perkins Caufield & Byers, including 658,049 shares of Class B common stock held directly by L. John Doerr, a director of the issuer and (vi) 337,428 shares Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 8% Notes held by KPCB Holdings, Inc., as nominee. All shares are held for convenience in the name of KPCB Holdings, Inc., as nominee, for the accounts of such individuals and entities who each exercise their own voting and dispositive control over such shares. KPCB IX Associates, LLC, or KPCB IX Associates, is the general partner of KPCB IX-A and KPCB IX-B. KPCB X Associates, LLC, or KPCB X Associates, is the general partner of KPCB X-A and KPCB X-B. Brook H. Byers, L. John Doerr, Kevin Compton, Doug Mackenzie, Raymond J. Lane and Theodore E. Schlein, the managers of KPCB IX Associates, share voting and dispositive control over the shares held by KPCB IX-A and KPCB IX-B. Brook H. Byers, L. John Doerr, Kevin Compton, Doug Mackenzie, Raymond J. Lane and Theodore E. Schlein, the managers of KPCB X Associates, share voting and dispositive control over the shares held by KPCB X-A and KPCB X-B. Each manager of KPCB IX Associates and KPCB X Associates disclaims beneficial ownership of the shares held by KPCB IX-A, KPCB IX-B, KPCB X-A and KPCB X-B. The address for the funds affiliated with Kleiner Perkins Caufield & Byers is 2750 Sand Hill Road, Menlo Park, CA 94025. Prior to our initial public offering, 13,641,055 shares of Class B common stock are, and after our initial public offering, 13,641,055 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Sridhar referred to in footnote (3) above.
( 18 )  

Represents (i) 4,011,585 shares of Class B common stock held by Kuwait Investment Authority, a Kuwaiti public authority established under Kuwaiti Law No. 47/1982 for the purpose of managing, in the name and for the account of the Government of the State of Kuwait, the investments of the State of Kuwait (KIA),

 

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  (ii) 2,070,392 shares of Class B common stock held by Kuwait Investment Office (being the London office) of the Kuwait Investment Authority of the Government of the State of Kuwait and (iii) 3,374,277 shares of Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 8% Notes held by KIA (collectively, the KIA Funds). Mr. Farouk A. Bastaki is the Managing Director of Kuwait Investment Authority and of the Kuwait Investment Office, and therefore, has voting and dispositive power over the shares held by the KIA Funds. The address for the registered office for Kuwait Investment Authority is Block No. 3, Ministries Complex, City of Kuwait, Kuwait (KIA). Prior to our initial public offering, 6,081,978 shares of Class B common stock are, and after our initial public offering, 6,081,978 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Sridhar referred to in footnote (3) above.
( 19 )   Represents (i) 19,672 shares of Class B common stock held by NEA Ventures 2003, LP, (ii) 7,383,402 shares of Class B common stock held by New Enterprise Associates 10, LP and (iii) 337,428 shares of Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 8% Notes held by New Enterprise Associates 10, LP (collectively, the NEA Funds). The shares directly held by New Enterprise Associates 10, Limited Partnership (NEA 10), are indirectly held by NEA Partners 10, Limited Partnership (Partners 10), which is the sole general partner of NEA 10; and each of the individual general partners of Partners 10. The individual general partners of Partners 10 (the “Individual General Partners”) are M. James Barrett, Peter J. Barris, and Scott D. Sandell (one of our Directors). Partners 10 and the Individual General Partners share voting and dispositive power with regard to the shares owned directly by NEA 10. J. Daniel Moore shares voting and dispositive power with regard to the shares owned directly by NEA Ventures 2003, L.P. Also includes up to 1,428,571 shares of our Class A common stock, which entities affiliated with New Enterprise Associated have indicated interest in purchasing in this offering. All indirect holders of the above referenced shares disclaim beneficial ownership of all applicable shares except to the extent of their actual pecuniary interest therein. The address for these entities is 1954 Greenspring Drive, Suite 600, Timonium, MD 21093. Prior to our initial public offering, 7,403,074 shares of Class B common stock are, and after our initial public offering, 7,403,074 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Sridhar referred to in footnote (3) above.
(20) Consists of (i) 22,393,439 shares of Class B common stock issuable upon conversion of the outstanding principal and interest accrued as of March 31, 2018 on 6.0% Notes held by CPP Investment Board Private Holdings Inc. and (ii) 312,889 shares of Class B common stock upon the exercise of warrants to purchase Class B common stock held by CPP Investment Board Private Holdings Inc., each convertible or exercisable within 60 days of March 31, 2018. CPP Investment Board Private Holdings Inc. is a wholly owned subsidiary of Canada Pension Plan Investment Board. Canada Pension Plan Investment Board is overseen by a board of directors. Because the board of directors acts by consensus/majority approval, none of the directors of the board of directors has sole voting or dispositive power with respect to the shares of our common stock owned by CPP Investment Board Private Holdings Inc. The address of each of CPP Investment Board Private Holdings Inc. and Canada Pension Plan Investment Board is c/o Canada Pension Plan Investment Board, One Queen Street East, Suite 2500, Toronto, ON, M5C 2W5.

 

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DESCRIPTION OF CAPITAL STOCK

General

Upon completion of this offering, our authorized capital stock will consist 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. The following description summarizes the terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. We expect to adopt a restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the completion of this offering, and this description summarizes provisions that are expected to be included in these documents. For a complete description, you should refer to our restated certificate of incorporation and amended and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.

Pursuant to the provisions of our certificate of incorporation all of the outstanding convertible preferred stock will automatically convert into Class B common stock in connection with the completion of this offering. Assuming effectiveness of this conversion, the automatic conversion of our 8% Notes into Class B common stock effective upon the completion of this offering and the exercise of warrants for an aggregate of 312,889 shares of our Class B common stock on or prior to the completion of this offering, as of March 31, 2018, there were 88,066,537 shares of our common stock issued, held by approximately 715 stockholders of record, and no shares of our preferred stock outstanding. Our board of directors is authorized, without stockholder approval, to issue additional shares of our capital stock.

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. See “Dividend Policy” for more information.

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 restated 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 restated 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 restated 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 restated 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.

 

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Our restated certificate of incorporation establishes a classified board of directors, to be 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, which voting agreements will remain in effect after the completion of this offering. These voting agreements will represent approximately 46% of the outstanding voting power of our capital stock after the completion of this offering.

Under the voting agreement (a form of which is filed as an exhibit to the registration statement of which this prospectus is a part), 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:

 

  (i) upon the liquidation, dissolution or winding up of our business operations;

 

  (ii) 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;

 

  (iii) following the closing of this 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 closing of this offering, at any time upon such resolution by our board of directors;

 

  (v) upon the fifth anniversary of the closing of this offering;

 

  (vi) 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, unless a majority of the five largest holders of our capital stock as of the closing of this offering that entered into voting agreements designate such a successor on or before such date (provided that if any of the five holders disposes of greater than 75% of the shares of our capital stock that it holds as of the closing of this offering, then only a majority of the remaining holders is needed to designate a successor to KR Sridhar under the voting agreement);

 

  (vii) 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 closing of this offering; or

 

  (viii) at such time following the closing of this 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.

 

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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 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 closing of this offering, except for certain permitted transfers described in our restated 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 closing of this 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 the closing of this 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.

 

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Preferred Stock

Pursuant to the provisions of our certificate of incorporation all of the outstanding convertible preferred stock will automatically convert into Class B common stock in connection with the completion of this offering. Following this offering, no shares of convertible preferred stock will be outstanding.

Following the completion of this offering, our board of directors will be 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 have no current plan to issue any shares of preferred stock.

Options

As of March 31, 2018, we had outstanding options to purchase 11,545,119 shares of our Class B common stock, with a weighted average exercise price of $26.61, of which an aggregate of 1,500,673 shares were subject to options with an exercise price less than $14.00, the midpoint of the price range on the cover of this prospectus, granted pursuant to our 2002 Equity Incentive Plan and our 2012 Equity Incentive Plan.

Restricted Stock Units

As of March 31, 2018, we had outstanding restricted stock units that may be settled for 3,147,093 shares of our Class B common stock, granted pursuant to our 2012 Equity Incentive Plan. Subsequent to March 31, 2018, we issued restricted stock units that may be settled for 29,604 shares of our Class B common stock, and up to approximately 12,500,000 shares of Class B common stock issuable upon the settlement of RSUs to be granted on the date of this prospectus, granted pursuant to our 2012 Equity Incentive Plan.

Warrants

As of March 31, 2018, we had outstanding the following warrants to purchase shares of our capital stock:

 

Type of Capital Stock

   Total Number of
Shares of Class B

Common Stock
Subject to
Warrants
     Exercise Price
Per Share
     Expiration
Dates
 

Common Stock

     33,333      $ 38.64        6/27/2019  

Common Stock

     312,889        0.02      8/31/2022 (1)(3)  

Series F convertible preferred stock

     12,634        27.78        12/31/2020 (2)  

Series F convertible preferred stock

     468,548        27.78        7/01/2021 (2)  

Series F convertible preferred stock

     100,000        27.78        7/19/2023 (1)  

Series G convertible preferred stock

     266,666        38.64        6/26/2019 (2)  

Series G convertible preferred stock

     7,764        38.64        9/27/2022 (2)  

Series G convertible preferred stock

     5,176        38.64        12/31/2022 (2)  

 

(1)   Unless exercised earlier, all of these warrants automatically expire in accordance with their terms immediately prior to the completion of this offering.

 

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(2)   Unless exercised earlier and after the completion of this offering, all of these warrants will become exercisable to purchase such number shares of our Class B common stock into which such number of Series F convertible preferred stock or Series G convertible preferred stock, as applicable, subject to the purchase rights under the warrants would have been converted immediately prior to the completion of this offering as a result of the automatic conversion of our outstanding preferred stock. The exercise prices of these warrants may be paid either in cash or by surrendering the right to receive shares of our Class B common stock having a value equal to the exercise price.
(3)   We expect these warrants will be exercised prior to the completion of this offering.

Securities Acquisition Agreement

In June 2014, we entered into a securities acquisition agreement as part of a dispute settlement with a securities placement agent pursuant to which a total of 133,333 shares of our Class B common stock will be issued 180 days after the date of this prospectus.

8.0% Subordinated Secured Convertible Promissory Notes

Between December 2014 and June 2015, we issued $193.2 million aggregate principal amount of 8.0% Subordinated Secured Convertible Promissory Notes (8% Notes) pursuant to a note purchase agreement with certain accredited investors and qualified institutional buyers. The 8% Notes are secured by our working capital, fixed assets, intellectual property and other assets, subject to limited exceptions. The 8% Notes bear a fixed interest rate of 8.0%, compounded monthly, are due at maturity or at the election of the investor, the accrued interest may become due in December of each year. As of December 31, 2016 and 2017, the total amount outstanding was $226.0 million and $244.7 million, respectively, including accrued interest. At the election of the investor, the accrued interest can be paid in December of each year. Holders of 8% notes have the right to convert the unpaid principal and accrued interest to Series G convertible preferred stock at any time at the price of $38.64. The principal balances and interest accrued were originally due upon maturity in December 2017, but in January 2018, the 8% Notes were amended to mature on December 2019 and December 2020. In June 2015 we entered into an additional promissory note agreement for $27.0 million, the principal and interest accrued of which are due upon maturity in June 2018. Upon the completion of this offering, the outstanding 8% Notes, other than the Constellation Note (as defined below), will mandatorily convert into Series G convertible preferred stock.

In January 2018, we entered into an amended and restated subordinated convertible promissory note with Constellation NewEnergy, Inc. (the Constellation Note), one of the existing holders of a 8% Note, which reduced the interest rate of such note to a fixed annual interest rate of 5.0%, compounded monthly, and provided that the outstanding principal and accrued interest on such note may be converted prior to the closing of this offering, at the option of the holder, into shares of our Series G convertible preferred stock as described above, or, after the closing of this offering, into shares of our common stock at a conversion price per share of $38.64.

Common Stock Award Agreement

In September 2015, we entered into a common stock award agreement with one of our customers pursuant to which up to a total of 266,666 shares of our Class B common stock will be issued to such customer on the occurrence of certain installation milestones. The share issuances are recorded as a reduction of product revenue when the milestones are achieved and are recorded as additional paid-in capital when the shares are issued. As of March 31, 2018, 122,666 shares of our Class B common stock had been issued to such customer pursuant to this agreement.

6.0% Convertible Senior Secured PIK Notes due 2020

On December 15, 2015, we issued $160.0 million aggregate principal amount of our 6.0% Convertible Senior Secured PIK Notes due 2020 (6% Notes) pursuant to a note purchase agreement with certain accredited

 

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investors and qualified institutional buyers and pursuant to an indenture dated as of December 15, 2015. The 6% Notes are secured by our working capital, fixed assets, intellectual property and other assets, subject to limited exceptions. The 6% Notes bear a fixed interest rate of 6.0%, compounded monthly and payable in cash or in kind at our election, and are due on December 1, 2020. Under the terms of the indenture, 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 6% Notes. As of December 31, 2016, December 31, 2017 and March 31, 2018, the outstanding principal and accrued interest on the 6% Notes was $270.8 million, $286.1 million and $290.4 million, respectively. During the year ended December 31, 2017, we executed an indenture for up to $150.0 million that can be drawn upon through June 29, 2018. On the issue date of June 27, 2017, we issued to certain investors $100.0 million of secured notes. The notes (the “10% Notes”) bear a 10.0% fixed interest rate, compounded monthly, and are due biannually until maturity in July 2024. The 10% Notes securitize the operations and maintenance (O&M) payments from the PPA entities. The O&M payments were collateral for the 6% Notes. Due to the restructuring of the collateral for the 6% Notes, a 1.0% interest increase was negotiated for the 6% Notes from 5% to 6% effective July 1, 2017.

Following the completion of this offering, the outstanding principal and accrued interest on the 6% Notes will be convertible at any time at the option of the holders thereof into shares of our Class B common stock at an initial conversion price equal to the lower of $46.37 and 75% of the initial public offering price of our Class A common stock sold in this offering, or $10.50 per share based on the midpoint of the price range on the cover of this prospectus. The initial conversion price applicable to the 6% Notes following the completion of this offering may be adjusted from time to time on the occurrence of any stock split or combination of shares affecting our Class A common stock, any dividends or distributions on shares of our Class A common stock, issuances of rights, options or warrants, or payments by us with respect to tender or exchange offers for our Class A common stock. In addition, following the completion of this offering, we anticipate that we will pay the monthly interest payments in cash rather than in-kind PIK note issuances.

On or after the date that is two years following the consummation of this offering, if the closing price of our Class A common stock is equal to or greater than 150% of the initial public offering price of our Class A common stock sold in this offering for at least 20 trading days out of a period of 30 consecutive trading days, we may at our election redeem all or part of the 6% Notes at a redemption price payable in cash equal to 100% of the principal amount of the 6% Notes to be redeemed, plus accrued but unpaid interest. Upon any such election, any holder of the 6% Notes may elect to convert such holder’s 6% Notes into shares of our common stock at an adjusted “make whole” conversion rate, as determined pursuant to the indenture. The adjusted “make whole” conversion rate will be equal to the conversion rate in effect at the time of such election, as adjusted based on (i) the average of the last reported sale prices of our common stock over the five trading day period ending on, and including, the trading day immediately preceding the date of notice of our election to redeem the notes, and (ii) make-whole provisions, as determined in good faith by Morgan Stanley & Co. LLC in a commercially reasonable manner, consistent in all material respects with make-whole provisions that are customary for indentures governing convertible notes issued in market registered offerings, and consistent with the following methodology and inputs: maturity, coupon, conversion premium (as calculated using the relationship between the IPO price and the adjusted conversion price), assuming LIBOR plus 600 bps credit spread, 1.75% 5-year swap rate, 40% volatility and 0.25% borrowing cost in the Kynex convertible bond model.

The value of the make-whole shares is intended to be equal to the loss of value to the holder’s convertible bond’s embedded option resulting from the reduced volatility and value, if any, of the underlying asset.

In addition, any holder of the 6% Notes may require us to repurchase for cash any or all of such holder’s 6% Notes at a repurchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, or alternatively may elect to convert any or all of such holder’s 6% Notes into shares of our

 

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Class B common stock at an adjusted ‘make whole’ conversion rate, as determined pursuant to the indenture, upon the occurrence of any of the following events following the consummation of this offering:

 

  (i) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than us, our direct or indirect wholly-owned subsidiaries and the employee benefit plans thereof, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner”, as defined in Rule 13d-3 under the Exchange Act, of our common equity representing more than 50% of the voting power of our common equity;

 

  (ii) the consummation of (a) any recapitalization, reclassification or change of our common stock as a result of which our common stock would be converted into, or exchanged for, stock or other securities, other property or assets, (b) any share exchange, consolidation, merger or similar transaction involving us pursuant to which our common stock will be converted into cash, securities or other property or assets; or (iii) any sale, conveyance, lease or other transfer or similar transaction in one transaction or a series of transactions of all or substantially all of our consolidated assets and our subsidiaries, taken as a whole, to any person other than one or more of our direct or indirect wholly-owned subsidiaries;

 

  (iii) our stockholders approve any plan or proposal for our liquidation or dissolution; or

 

  (iv) our common stock ceases to be listed or quoted on the NYSE.

In connection with a holder’s election to convert such holder’s 6% notes following one of the above events, the adjusted “make whole” conversion rate described above will apply.

In addition, in connection with the issuance of the 6% Notes, we agreed to issue to certain purchasers of the 6% Notes, upon the occurrence of certain conditions, warrants to purchase up to a maximum of 312,889 shares of our Class B common stock at an exercise price of $0.015 per share (the Note Warrants). The Note Warrants were issued on August 31, 2017 and will automatically be deemed exercised immediately prior to the completion of this offering.

Registration Rights

Following the completion of this offering, the holders of 71,740,162 shares of our Class B common stock issuable upon conversion of our convertible preferred stock or their permitted transferees are entitled to rights with respect to the registration of these shares under the Securities Act. In addition, holders of our 6% Notes and holders of our warrants exercisable for Series F convertible preferred stock and Series G convertible preferred stock will also be entitled to rights with respect to registration of shares issuable upon the conversion of the 6% Notes or the exercise of such warrants, respectively, under the Securities Act. These rights are provided under the terms of our eighth amended and restated registration rights agreement, as amended, (the Rights Agreement) between us and the holders of these shares, which was entered into in connection with our convertible preferred stock financings, and include demand, Form S-3 and piggyback registration rights. In any registration made pursuant to such Rights Agreement, all fees, costs, and expenses of underwritten registrations will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

The registration rights terminate five years following the completion of this offering, or, with respect to any particular stockholder, at such time as we have completed this offering and such stockholder can sell all of its shares during any three month period pursuant to Rule 144 of the Securities Act.

Demand Registration Rights

Under the terms of our Rights Agreement, we will be required, upon the written request of holders of at least 33% of the shares that are entitled to registration rights under the Rights Agreement, to register, as soon as practicable, all or a portion of these shares for public resale, if the amount of registrable securities to be registered has an anticipated aggregate offering price of at least $10 million.

 

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We are required to effect only two registrations pursuant to this provision of our Rights Agreement. We may postpone the filing of a registration statement no more than once in a 12-month period for up to 120 days and once for up to 90 days if our board of directors determines that the filing would be seriously detrimental to us and our stockholders. We are not required to effect a demand registration under certain additional circumstances specified in our Rights Agreement, including at any time earlier than 180 days after the effective date of this offering.

Form S-3 Registration Rights

The holders of shares of our Class B common stock having registration rights or their permitted transferees are also entitled to short-form registration rights. Such holders can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $3.0 million. Such holders may require us to effect no more than three registration statements on Form S-3 within a 12-month period. We may postpone the filing of a registration statement on Form S-3 no more than once during any 12-month period for up to 120 days and once for up to 90 days if our board of directors determines that the filing would be seriously detrimental to us and our stockholders. We are not required to effect a registration statement on Form S-3 under certain additional circumstances specified in our Rights Agreement.

Piggyback Registration Rights

If we register any of our securities for public sale, holders of shares of our Class B common stock having registration rights or their permitted transferees will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to employee benefit plans, a registration relating to a corporate reorganization, a shelf registration statement on Form S-3 for the primary issuance of securities by us pursuant to Rule 15 of the Securities Act or a registration related to stock issued upon conversion of debt securities. The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine in good faith that marketing factors require limitation, in which case the number of shares to be registered will be apportioned, first, to us for our own account and, second, pro rata among these holders, according to the total amount of securities each holder is entitled to include. However, the number of shares to be registered by these holders cannot be reduced below 30% of the total shares covered by the registration statement.

Anti-Takeover Provisions

The provisions of Delaware law, our restated certificate of incorporation and our amended and restated bylaws as we expect they will be in effect upon the completion of this offering could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

Delaware Law

We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:

 

    prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

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    the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

    at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of Class A common stock held by stockholders.

Restated Certificate of Incorporation and Amended and Restated Bylaws Provisions

Our amended and restated certificate of incorporation and our amended and restated bylaws, each as will be in effect upon the completion of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:

 

    Dual Class Common Stock . As described above in the section titled “—Common Stock—Voting Rights,” our restated certificate of incorporation will provide for a dual class common stock structure pursuant to which holders of our Class B common stock will have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or substantially all of its assets. Current investors, executives, and employees will have the ability to exercise significant influence over those matters.

 

    Board of directors vacancies . Our restated certificate of incorporation and amended and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors is permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.

 

    Classified board. Our restated certificate of incorporation and amended and restated bylaws will provide that our board is classified into three classes of directors, each with staggered three year terms. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time-consuming for stockholders to replace a majority of the directors on a classified board of directors. See “Management—Classified Board of Directors.”

 

   

Stockholder action; special meetings of stockholders. Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws.

 

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Further, our amended and restated bylaws will provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our Chief Executive Officer or our Lead Independent Director, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.

 

    Advance notice requirements for stockholder proposals and director nominations. Our amended and restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws also will specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

    No cumulative voting . The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our restated certificate of incorporation and amended and restated bylaws will not provide for cumulative voting.

 

    Directors removed only for cause . Our restated certificate of incorporation will provide that stockholders may remove directors only for cause.

 

    Amendment of charter provisions . Any amendment of the above expected provisions in our restated certificate of incorporation would require approval by holders of at least two-thirds of our outstanding common stock.

 

    Issuance of undesignated preferred stock . Our board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by a merger, tender offer, proxy contest or other means.

 

    Choice of forum . Our restated certificate of incorporation will 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.

Transfer Agent and Registrar

Upon the completion of this offering, the transfer agent and registrar for our Class A common stock and Class B common stock will be American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219.

Exchange Listing

We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “BE.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our Class A common stock, and we make no prediction as to the effect, if any, that market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of Class A common stock prevailing from time to time. Nevertheless, sales of substantial amounts of Class A common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of common stock and could impair our future ability to raise capital through the sale of equity securities.

When this offering is complete, we will have an aggregate of 18,000,000 shares of Class A common stock and 88,066,537 shares of Class B common stock outstanding, assuming (1) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 71,740,162 shares of Class B common stock effective upon the closing of this offering, (2) the automatic conversion of all of our outstanding 8% Notes into shares of our Series G convertible preferred stock and the subsequent automatic conversion of such shares of Series G convertible preferred stock into an aggregate of 5,588,504 shares of Class B common stock effective upon the closing of this offering, (3) the issuance and exercise of warrants to purchase 312,889 shares of our Class B common stock at an exercise price of $0.015 per share to certain purchasers of our 6% Notes, as described in “Description of Capital Stock—6.0% Convertible Senior Secured PIK Notes due 2020,” which warrants will automatically be deemed exercised pursuant to their terms immediately prior to the completion of this offering, (4) the issuance of 133,333 shares of Class B common stock 180 days from the date of this prospectus as part of a dispute settlement with a securities placement agent, as described in “Description of Capital Stock—Securities Acquisition Agreement”, (5) no exercise of outstanding warrants, (6) no exercise of outstanding options to purchase Class B common stock, (7) no settlements of outstanding RSUs, (8) no issuance of the total of 144,000 shares of our Class B common stock issuable to one of our customers upon the occurrence of future bookings from that customer and the achievement of certain installation milestones on those future bookings, and (9) the underwriters do not exercise their option to purchase additional shares from us.

Of the outstanding shares, all of the 18,000,000 shares of Class A common stock sold in this offering, plus any additional shares sold upon exercise of the underwriters’ option to purchase additional shares from us, will be freely tradable, except that any shares purchased by “affiliates” (as that term is defined in Rule 144 under the Securities Act) may only be sold in compliance with the limitations described below. The remaining 88,066,537 outstanding shares of Class B common stock and any shares of Class A common stock purchased by our affiliates in this offering will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701, promulgated under the Securities Act, which rules are summarized below.

As a result of the contractual restrictions described below and the provisions of Rules 144 and 701, the restricted shares will be available for sale in the public market as follows:

 

    107,000 shares will be eligible for sale when this offering is complete;

 

    88,059,537 shares will be eligible for sale upon the expiration of the lock-up agreements with the underwriters or market standoff provisions in agreements with us, as described below, beginning 180 days after the date of this prospectus; and

 

    10,803,521 shares will be eligible for sale upon the exercise of vested options 180 days after the date of this prospectus, subject to extension in certain circumstances.

In addition, of the 11,545,119 shares of our Class B common stock that were subject to stock options outstanding as of March 31, 2018, options to purchase 7,812,013 shares of Class B common stock were vested as of March 31, 2018 and will be eligible for sale 180 days following the effective date of this offering, subject to extension as described in the section entitled “Underwriting.”

 

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Lock-Up Agreements and Obligations

All of our directors, executive officers, and the holders of substantially all of our outstanding equity securities are subject to lock-up agreements with the underwriters or market standoff provisions in agreements with us that, subject to certain exceptions, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring, or otherwise disposing of any shares of our common stock, options, or warrants to acquire shares of our common stock, or any security or instrument related to this common stock, option, or warrant for a period of 180 days following the date of this prospectus, without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, or us, as the case may be. We have agreed with the underwriters not to release any security holder from market standoff provisions in agreements with us without the consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC. See the section titled “Underwriting” for additional information.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

    1% of the number of shares of Class A common stock then outstanding, which will equal approximately 180,000 shares immediately after this offering; or

 

    the average weekly trading volume of the Class A common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

Stock Options

We intend to file registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to options outstanding or reserved for issuance under our stock plans, 2018 Employee

 

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Stock Purchase Plan and shares of our common stock issued upon the exercise of options by employees. We expect to file this registration statement as soon as permitted under the Securities Act. Shares covered by this registration statement will be eligible for sale in the public market, upon the expiration or release from the terms of the lock-up agreements, and subject to vesting of such shares.

Registration Rights

When this offering is complete, the holders of an aggregate of 71,740,162 shares of our Class B common stock, or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act. In addition, holders of our 6% Notes and holders of our warrants exercisable for Series F convertible preferred stock and Series G convertible preferred stock will also be entitled to rights with respect to registration of shares of Class B common stock issuable upon the conversion of the 6% Notes or the exercise of such warrants, respectively, under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradeable without restriction under the Securities Act immediately upon the effectiveness of such registration. For a further description of these rights, see “Description of Capital Stock—Registration Rights.”

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a summary of the material U.S. federal income tax considerations of the ownership and disposition of our Class A common stock sold pursuant to this offering to non-U.S. holders, as defined below, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code, U.S. Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below.

This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction or under U.S. federal gift and estate tax laws. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

 

    banks, insurance companies or other financial institutions;

 

    partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal income tax purposes (or investors in such entities);

 

    persons subject to the alternative minimum tax;

 

    pension funds;

 

    real estate investment trusts;

 

    regulated investment companies;

 

    tax-qualified retirement plans;

 

    tax-exempt organizations;

 

    persons who acquired our Class A common stock through exercise of compensatory stock options or otherwise as compensation for services;

 

    controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax;

 

    dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

    persons that own, or are deemed to own, more than five percent of our capital stock, except to the extent specifically set forth below;

 

    certain former citizens or long-term residents of the United States;

 

    persons who hold our Class A common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction;

 

    persons who do not hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code (generally, for investment purposes); or

 

    persons deemed to sell our Class A common stock under the constructive sale provisions of the Internal Revenue Code.

If a partnership, including any entity or arrangement classified as a partnership for U.S. federal income tax purposes, holds our Class A common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our Class A common stock, and partners in such partnerships, should consult their tax advisors with respect to the U.S. federal income tax consequences of the ownership and disposition of our Class A common stock.

 

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YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

Non-U.S. Holder Defined

For purposes of this discussion, you are a “non-U.S. holder” if you are a beneficial owner of our Class A common stock, other than a partnership or entity classified as a partnership for U.S. federal income tax purposes, that is not:

 

    an individual citizen or resident of the United States;

 

    a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof;

 

    an estate whose income is subject to U.S. federal income tax regardless of its source; or

 

    a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) which has made an election to be treated as a U.S. person.

If you are a non-U.S. citizen who is an individual, you may, in many cases, be treated as a U.S. resident by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days you are present in the current year, one-third of the days you were present in the immediately preceding year, and one-sixth of the days you were present in the second preceding year are counted. If you are a U.S. resident, you will be subject to U.S. federal income tax in the same manner as U.S. citizens, and this discussion will not apply to you. You should consult your tax advisor if you are unsure whether you are a U.S. resident, and regarding the U.S. federal income tax considerations of the ownership or disposition of our Class A common stock.

Distributions

We have not made any distributions on our Class A common stock and we do not plan to make any distributions for the foreseeable future. However, if we do make distributions on our Class A common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our Class A common stock, but not below zero, and then, to the extent they exceed your basis, will be treated as gain from the sale of stock (see “—Gain on Disposition of Class A Common Stock,” below).

Any dividend paid to you generally will be subject to U.S. withholding tax at a rate of 30% of the gross amount of the dividend, or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate of withholding tax, you must provide us with a valid and properly completed IRS Form W-8BEN, IRS Form W-8BEN-E or other appropriate version of IRS Form W-8 (or successor of such forms), including a U.S. taxpayer identification number and certifying qualification for the reduced rate. A non-U.S. holder of shares of our Class A common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the Internal Revenue Service. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries.

 

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Dividends you receive that are effectively connected with your conduct of a U.S. trade or business, are generally exempt from such withholding tax. In order to obtain this exemption, you must provide us with a valid and properly completed IRS Form W-8ECI (or successor form) or other applicable IRS Form W-8 properly certifying such exemption. Although not subject to withholding tax, dividends you receive that are effectively connected with your conduct of a U.S. trade or business (and, if an income tax treaty applies, are attributable to a permanent establishment you maintain in the United States) generally are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30%, or such lower rate as may be specified by an applicable income tax treaty.

Gain on Disposition of Class A Common Stock

You generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our Class A common stock unless:

 

    the gain is effectively connected with your conduct of a U.S. trade or business, and, if an income tax treaty applies, the gain is attributable to a permanent establishment you maintain in the United States;

 

    you are an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or

 

    our Class A common stock constitutes a U.S. real property interest by reason of our status as a “United States real property holding corporation” (USRPHC), for U.S. federal income tax purposes, at any time within the shorter of the five-year period preceding the disposition or your holding period for our Class A common stock.

We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our Class A common stock is regularly traded on an established securities market, our Class A common stock will be treated as a U.S. real property interest only if you actually or constructively hold more than five percent of such Class A common stock at any time during the applicable period described above. There can be no assurance that our Class A common stock will be (or will continue to be) regularly traded on an established securities market.

If you are a non-U.S. holder described in the first bullet above, you will generally be required to pay tax on the gain derived from the sale, net of certain deductions or credits, under regular graduated U.S. federal income tax rates. Corporate non-U.S. holders described in the first bullet above may also be subject to branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax on the gain derived from the sale even though you are not considered a resident of the United States. The gain so described may be offset by certain U.S. source capital losses. You should consult your tax advisor to determine whether you meet the conditions of this tax, and whether any applicable income tax or other treaties provide for different rules.

Backup Withholding and Information Reporting

The Internal Revenue Code and the U.S. Treasury regulations require those who make specified payments to report the payments to the Internal Revenue Service. Among the specified payments are dividends and proceeds from stock dispositions paid by brokers to their customers. The required information returns enable the Internal Revenue Service to determine whether the recipient properly included the payments in income. This reporting

 

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regime is reinforced by “backup withholding” rules. These rules require the payers to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payer, by furnishing an incorrect identification number, or by failing to report interest or dividends on his returns. The backup withholding tax rate is currently 24%. The backup withholding rules generally do not apply to payments to corporations.

Payments to non-U.S. holders of dividends on Class A common stock generally will not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of Class A common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its non-U.S. status or otherwise establishes an exemption (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied). The certification procedures to claim treaty benefits described under “Distributions,” above, will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the Internal Revenue Service any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.

Under the U.S. Treasury regulations, the payment of proceeds from the disposition of shares of our Class A common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder or otherwise establishes an exemption (and the broker does not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied). The payment of proceeds from the disposition of shares of our Class A common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding, will apply to a payment of proceeds, even if that payment is made outside of the United States, if you sell our Class A common stock through a non-U.S. office of a broker that is:

 

    a U.S. person (including a foreign branch or office of such person);

 

    a “controlled foreign corporation” for U.S. federal income tax purposes;

 

    a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or

 

    a foreign partnership if at any time during its tax year (a) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (b) the foreign partnership is engaged in a U.S. trade or business;

unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).

Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of Class A common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the Internal Revenue Service in a timely manner.

Foreign Account Tax Compliance Act

Pursuant to the “Foreign Account Tax Compliance Act” (FATCA), a U.S. federal withholding tax of 30% may apply to dividends and the gross proceeds of a sale or other disposition of our Class A common stock paid to a “foreign financial institution,” as specially defined under these rules, unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax

 

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authorities substantial information regarding U.S. account holders of such institution, which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners. Pursuant to FATCA, a U.S. federal withholding tax of 30% will also apply to dividends and the gross proceeds of a sale or other disposition of our Class A common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding all such direct and indirect U.S. owners. The withholding taxes described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. The 30% federal withholding tax described in this paragraph generally cannot be reduced under existing tax treaties with the United States, although under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. In addition, an intergovernmental agreement between the U.S. and an applicable foreign country may modify the requirements described in this paragraph.

Withholding under FATCA (i) generally applies to payments of dividends on our Class A common stock and (ii) will apply to payments of gross proceeds from the sale or disposition of our Class A common stock occurring on or after January 1, 2019.

Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in our Class A common stock.

THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

 

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UNDERWRITING

We are offering the shares of Class A common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of Class A common stock listed next to its name in the following table:

 

                           Name    Number of
Shares
 

J.P. Morgan Securities LLC

  

Morgan Stanley & Co. LLC

  

Credit Suisse Securities (USA) LLC

  

KeyBanc Capital Markets Inc.

  

Merrill Lynch, Pierce, Fenner & Smith

                      Incorporated

  

Robert W. Baird & Co. Incorporated

  

Cowen and Company, LLC

  

HSBC Securities (USA) Inc.

  

Oppenheimer & Co. Inc.

  

Raymond James & Associates, Inc.

  
  

 

 

 
                    Total      18,000,000  
  

 

 

 

The underwriters are committed to purchase all the shares of Class A common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

The underwriters propose to offer the shares of Class A common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $         per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $         per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

The underwriters have an option to buy up to 2,700,000 additional shares of Class A common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of Class A common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

 

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The underwriting fee is equal to the public offering price per share of Class A common stock less the amount paid by the underwriters to us per share of Class A common stock. The underwriting fee is $         per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

 

     Paid by us  
     Without
option
exercise
     With full
option
exercise
 

Per Share

   $                   $               

Total

   $      $  

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $8.1 million. We have agreed to reimburse the underwriters for expenses of $         relating to the clearance of this offering with the Financial Industry Regulatory Authority.

The underwriters have agreed to reimburse us for certain documented expenses incurred in connection with this offering.

A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

We have agreed that we will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC for a period of 180 days after the date of this prospectus, other than (1) the shares of our common stock to be sold hereunder, (2) any shares of our common stock issued upon the exercise of options granted under our existing stock-based compensation plans, (3) the filing of a registration statement on Form S-8 relating to a stock incentive plan or employee stock purchase plan, (4) up to 144,000 shares of common stock issuable to one of our customers on the occurrence of certain installation milestones, as described in this prospectus, and (5) the issuance of common stock or securities convertible into or exercisable or exchangeable for common stock in an aggregate amount not to exceed 5% of our common stock outstanding immediately following the issuance of the shares to be sold hereunder (including any shares sold pursuant to the underwriters’ option to purchase additional shares), in connection with one or more acquisitions of a company or a business, assets or technology of another person or entity, joint ventures, commercial relationships or strategic alliances (including but not limited to marketing or distribution arrangements, collaboration agreements or intellectual property license agreements); provided the recipients of the common stock have signed a lock-up agreement for the balance of the 180 day restricted period.

Our directors, executive officers and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock are subject to market standoff agreements or have

 

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entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers and stockholders in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.

The restrictions in the immediately preceding paragraph shall not apply to:

 

    the sale of shares of our common stock pursuant to the underwriting agreement;

 

    transfers of shares of our common stock or other securities acquired in open market transactions after the completion of this offering;

 

    transfers of shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock (i) as a bona fide gift, or gifts, or for bona fide estate planning purposes, (ii) upon death or by will, testamentary document or intestate succession, (iii) to an immediate family member of the locked-up party or to any trust for the direct or indirect benefit of the locked-up party or one or more immediate family members of the locked-up party, (iv) not involving a change in beneficial ownership, or (v) if the locked-up party is a trust, to any trustee or beneficiary of the locked-up party or the estate of any such trustee or beneficiary;

 

    transfers or distributions of shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock by a stockholder that is a corporation, partnership, limited liability company or other business entity (i) to another corporation, partnership, limited liability company or other business entity that controls, is controlled by or managed by or is under common control with such stockholder or (ii) as part of a transfer or distribution to an equity holder of such stockholder or to the estate of any such equity holder;

 

    the establishment of a trading plan pursuant to Rule 10b5-1 promulgated under the Exchange Act, provided that (i) such plan does not provide for the transfer of our common stock or any securities convertible into or exercisable or exchangeable for our common stock during the 180-day restricted period and (ii) no public announcement or filing is required of or voluntarily made by or on behalf of the locked-up party or us regarding the establishment of such plan;

 

   

(i) the receipt by the locked-up party from us of shares of our common stock upon (A) the exercise or settlement of options or restricted stock units granted under a stock incentive plan or other equity award plan, which plan is described in this prospectus or (B) the exercise of warrants or conversion of convertible notes outstanding and which are described in this prospectus, or (ii) the transfer of shares of our common stock or any securities convertible into our common stock to us upon a vesting or settlement event of our securities or upon the exercise of options or warrants to purchase our securities on a “cashless” or “net exercise” basis to the extent permitted by the instruments representing such options or warrants (and any transfer to us necessary to generate such amount of cash needed for the payment of taxes, including estimated taxes, due as a result of such vesting or exercise whether by means of a “net settlement” or otherwise) so long as such “cashless exercise” or “net exercise” is effected solely by the surrender of outstanding options or warrants (or our common stock issuable upon the exercise thereof) to us and our cancellation of all or a portion thereof to pay the exercise price and/or withholding tax and remittance obligations, provided that in the case of (i), the shares received upon

 

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exercise or settlement of the option, restricted stock unit, or warrant or conversion of convertible notes are subject to the restrictions above;

 

    the transfer of our common stock or any security convertible into or exercisable or exchangeable for our common stock that occurs pursuant to a qualified domestic order in connection with a divorce settlement or other court order;

 

    the conversion of our outstanding preferred stock into shares of our common stock in connection with the closing of this offering, provided that such shares of common stock shall remain subject to the restrictions above;

 

    any transfer of our common stock to us pursuant to arrangements under which we have (i) the option to repurchase such shares or securities at the lower of cost or fair market value in connection with the termination of employment or service of the locked-up party with us or (ii) a right of first refusal with respect to transfers of such shares or securities;

 

    the transfer of shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by our board of directors, made to all holders of our common stock involving the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter pursuant to this offering), of our voting securities if, after such transfer, such person or group of affiliated persons would hold more than 50% of our outstanding voting securities (or the surviving entity), after the completion of this offering, provided that in the event such transfer, tender offer, merger, consolidation or other similar transaction is not completed, such shares shall remain subject to the restrictions above; or

 

    the sale of shares of our common stock by certain holders, provided that the amount of shares of common stock transferred by all holders pursuant to this bullet point shall not exceed 160,000 shares in the aggregate;

provided that in the case of any transfer or distribution pursuant to the third, fourth or seventh bullet points above, each transferee, donee or distributee shall sign and deliver a lock-up agreement with the same restrictions as set forth above; and

provided, further, that in the case of any transfer or distribution pursuant to the second, third, fourth, ninth or eleventh bullet points above, no filing by any party (donor, donee, transferor or transferee) under the Exchange Act or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made after the expiration of the 180-day restricted period); and

provided, further, that in the case of any transfer or distribution pursuant to the sixth bullet point above, no filing by any party (transferor or transferee) under the Exchange Act or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made after the expiration of the 180-day restricted period) within 90 days after the date of this prospectus, and after such 90th day, if the locked-up party is required to file a report under Section 16 of the Exchange Act reporting a reduction in beneficial ownership of shares of common stock, the locked-up party shall include a statement in such report to the effect that the purpose of such transfer was either (i) to cover tax withholding obligations of the locked-up party or remittance payments due in connection with such vesting, settlement or exercise or (ii) in connection with a cashless or net exercise of options or warrants to purchase shares of common stock for purposes of exercising such options or warrants; and

provided, further, that in the case of any transfer pursuant to the seventh bullet point above, any filing under the Exchange Act shall state that such transfer is pursuant to a qualified domestic order or in connection with a divorce settlement and that such common stock or such security convertible into or exercisable or exchangeable

 

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for our common stock, as applicable, remains subject to the restrictions above. If the locked-up party is one of our officers or directors, the locked-up party further agrees that the foregoing provisions shall be equally applicable to any company-directed securities that such person may purchase in this offering.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

We have applied to have our Class A common stock approved for listing on the New York Stock Exchange under the symbol “BE”.

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of Class A common stock in the open market for the purpose of preventing or retarding a decline in the market price of the Class A common stock while this offering is in progress. These stabilizing transactions may include making short sales of the Class A common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of Class A common stock on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’ option to purchase additional shares referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares from us, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Class A common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase Class A common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of the Class A common stock or preventing or retarding a decline in the market price of the Class A common stock, and, as a result, the price of the Class A common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the New York Stock Exchange, in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

 

    the information set forth in this prospectus and otherwise available to the representatives;

 

    our prospects and the history and prospects for the industry in which we compete;

 

    an assessment of our management;

 

    our prospects for future earnings;

 

    the general condition of the securities markets at the time of this offering;

 

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    the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

 

    other factors deemed relevant by the underwriters and us.

Neither we nor the underwriters can assure investors that an active trading market will develop for our Class A common stock, or that the shares will trade in the public market at or above the initial public offering price.

J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC acted as joint placement agents in connection with the private placement of $160.0 million aggregate principal amount of our 6% Notes which had its first closing in December of 2015. J.P. Morgan Securities LLC purchased $75.0 million of such 6% Notes. In August 2017, J.P. Morgan Securities LLC was issued warrants to purchase 146,666 shares of our Class B common stock when it sold its 6% Notes, together with all accumulated interest, and assigned its warrants to the Canadian Pension Plan Investment Board (CPPIB). For more information, see Recourse Debt Facilities. In June 2014, J.P. Morgan Securities LLC arranged a $99.0 million principal amount of privately placed project financing for us, and in March 2013, J.P. Morgan Securities acted as lead placement agent of $144.8 million principal amount of our senior secured notes. Morgan Stanley & Co. LLC acted in an advisory role in our fundraising for PPA IV and PPA V. An affiliate of Credit Suisse Securities (USA) LLC invested $100.0 million in PPA I and $140.0 million in PPA II. We repurchased the interest of the affiliate of Credit Suisse Securities (USA) LLC in PPA I in January 2016 for $25.0 million principal amount of our 6% Notes. For more information, see “Description of Capital Stock—6.0% Convertible Senior Secured PIK Notes due 2020.” Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. or their respective affiliates are holders of our convertible preferred stock. An affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated has a vendor finance program with us, which has financed more than $107.7 million of customer purchases as of December 31, 2017 and is not committed to financing additional purchases as of December 31, 2017. An affiliate of KeyBanc Capital Markets Inc. has a vendor finance program with us, which has financed more than $309.8 million of customer purchases as of March 31, 2018. In addition, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC have ordinary course customer relationships with us in connection with installations of our products.

The underwriters and their affiliates may continue to provide from time to time commercial banking, financial advisory, investment banking and other services to us and our affiliates for which they may continue to receive customary fees and commissions.

In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

Certain of our directors and current stockholders affiliated with our directors have indicated an interest in purchasing an aggregate of up to $50.0 million in shares of our Class A common stock in this offering at the initial public offering price per share. Because these indications of interest are not binding agreements or commitments to purchase, such individuals and entities may determine to purchase more, less, or no shares in this offering. Any shares purchased by our directors, executive officers or stockholders who have entered into lock-up agreements described in this section will be subject to the provisions of such lock-up agreements.

At our request, the underwriters have also reserved up to 9% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to our directors, officers and other individuals associated with them, and our employees, to the extent permitted by local securities laws and regulations. The sales will be made at our direction by Morgan Stanley & Co. LLC, an underwriter of this offering, and its affiliates through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered by this prospectus. Any shares sold in the directed share program to our directors, executive officers or stockholders who have entered into lock-up agreements described in this section shall be subject to the provisions of such lock-up agreements. Employees

 

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and family members of employees who participate in the directed share program shall be subject to substantially similar lock-up provisions with respect to any shares sold to them pursuant to the directed share program.

Selling Restrictions

General

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Notice to Prospective Investors in the European Economic Area

In relation to each Member State of the European Economic Area (each, a “Relevant Member State”), no offer of shares may be made to the public in that Relevant Member State other than:

 

  A. to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

  B. to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or

 

  C. in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall require us or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

We, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for us or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for us or the underwriters to publish a prospectus for such offer.

 

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For the purpose of the above provisions, the expression “an offer to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Notice to Prospective Investors in the United Kingdom

Each underwriter has represented and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom.

Notice to Prospective Investors in Switzerland

The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to the offering, us or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

Notice to Prospective Investors in the Dubai International Financial Centre (DIFC)

This document relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (DFSA). This document is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for this document. The securities to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorized financial advisor.

Notice to Prospective Investors in Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to the offering. This

 

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prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of twelve months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

This prospectus contains general information only and does not take into account the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate for their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Notice to Prospective Investors in Hong Kong

The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

  (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

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  (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

 

  (a) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

  (b) where no consideration is or will be given for the transfer;

 

  (c) where the transfer is by operation of law;

 

  (d) as specified in Section 276(7) of the SFA; or

 

  (e) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

Notice to Prospective Investors in Japan

The shares have not been and will not be registered under the Financial Instruments and Exchange Act. Accordingly, the shares may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan.

Notice to Prospective Investors in New Zealand

This prospectus has not been registered with the office of the Registrar of Companies in New Zealand and is not a registered prospectus or investment statement for the purposes of New Zealand law.

The provision of this prospectus to any person in New Zealand does not constitute an offer of the shares of our common stock to that person or an invitation to that person to subscribe for the shares of our common stock other than (i) to any or all of the following persons only (A) to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money, and/or (B) persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares of our common stock, and/or (C) any other person who in all the circumstances can properly be regarded as having been selected other than as members of the public; or (ii) to eligible persons only in accordance with section 5(2CB) of the Securities Act 1978 (New Zealand).

No investor shall subscribe for, offer, sell or deliver any shares of our common stock or distribute this prospectus or any advertisement relating to the shares of our common stock in breach of the Securities Act 1978 and, in particular, no investor shall offer for sale shares of our common stock to any member of the public in New Zealand in breach of the Securities Act 1978. By subscribing for the shares of our common stock, each investor: (a) warrants it is a person described in paragraph (i) or (ii) above and (b) undertakes to comply with the above selling restrictions.

Notice to Prospective Investors in Chile

The shares are not registered in the Securities Registry (Registro de Valores) or subject to the control of the Chilean Securities and Exchange Commission (Superintendencia de Valores y Seguros de Chile). This

 

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prospectus and other offering materials relating to the offer of the shares do not constitute a public offer of, or an invitation to subscribe for or purchase, the shares in the Republic of Chile, other than to individually identified purchasers pursuant to a private offering within the meaning of Article 4 of the Chilean Securities Market Act (Ley de Mercado de Valores) (an offer that is not “addressed to the public at large or to a certain sector or specific group of the public”).

Notice to Prospective Investors in Canada

The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

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EXPERTS

The financial statements as of December 31, 2016 and 2017 and for each of the two years in the period ended December 31, 2017 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

The validity of the shares of our Class A common stock offered hereby will be passed upon for us by Fenwick & West LLP, Mountain View, California. Davis Polk  & Wardwell LLP, Menlo Park, California, is acting as counsel to the underwriters.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to this offering of our Class A common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our Class A common stock, we refer you to the registration statement, including the exhibits and the financial statements and notes filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. A copy of the registration statement, including the exhibits and the consolidated financial statements and related notes filed as a part of the registration statement, may be inspected without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon the payment of fees prescribed by it. You may call the SEC at (800) SEC-0330 for more information on the operation of the public reference facilities. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding companies that file electronically with it.

As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, will file periodic reports, proxy statements, and other information with the SEC. These periodic reports, proxy statements, and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above. We also maintain a website at www.bloomenergy.com. Upon the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not incorporated by reference into, and is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

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Index to Financial Statements

Report of Independent Registered Public Accounting Firm

The reverse stock split described in Note 30 to the consolidated financial statements has not been consummated at July 9, 2018. When it has been consummated, we will be in a position to furnish the following report.

/s/ PricewaterhouseCoopers LLP

San Jose, California

July 9, 2018

“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 as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, of comprehensive loss, of convertible redeemable preferred stock and stockholders’ deficit, and of cash flows for each of the two years in the period ended December 31, 2017, 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, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

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.

San Jose, California

March 7, 2018, except for the effects of the reverse stock split described in Note 30, as to which the date is                     

We have served as the Company’s auditor since 2009.”

 

F-2


Table of Contents
Index to Financial Statements

Bloom Energy Corporation

Consolidated Balance Sheets

(in thousands, except for share and per share data)

 

    December 31,     March 31,
2018
    Pro forma
as of
March, 31,

2018
 
    2016     2017      
                (unaudited)  

Assets

 

   

Current assets

       

Cash and cash equivalents ($13,319, $9,549 and $12,294, respectively)

  $ 156,577     $ 103,828     $ 88,227    

Restricted cash ($5,901, $7,969 and $11,582, respectively)

    19,867       44,387       22,998    

Short-term investments

    —         26,816       20,138    

Accounts receivable ($7,462, $7,680 and $7,550, respectively)

    35,166       30,317       58,520    

Inventories, net

    83,155       90,260       97,079    

Deferred cost of revenue

    69,059       92,488       81,229    

Customer financing receivable ($4,841, $5,209 and $5,303, respectively)

    4,841       5,209       5,303    

Prepaid expenses and other current assets ($8,628, $6,365 and $3,843, respectively)

    23,420       26,676       27,836    
 

 

 

   

 

 

   

 

 

   

Total current assets

    392,085       419,981       401,330    
 

 

 

   

 

 

   

 

 

   

Property, plant and equipment, net ($462,825, $430,464 and $422,471, respectively)

    538,445       497,789       487,169    

Customer financing receivable, non-current ($77,886, $72,677 and $71,337, respectively)

    77,886       72,677       71,337    

Restricted cash ($30,764, $26,748 and $27,330, respectively)

    41,471       32,397       32,367    

Deferred cost of revenue, non-current

    113,132       160,683       155,658    

Other long-term assets ($5,669, $3,767 and $4,054, respectively)

    41,028       37,460       36,773    
 

 

 

   

 

 

   

 

 

   

Total assets

  $ 1,204,047     $ 1,220,987     $ 1,184,634    
 

 

 

   

 

 

   

 

 

   

Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Deficit

       

Current liabilities

       

Accounts payable ($356, $520 and $519, respectively)

  $ 41,505     $ 48,582     $ 47,755    

Accrued warranty

    23,857       16,811       16,723    

Accrued other current liabilities ($3,235, $2,378 and $3,907, respectively)

    75,871       67,649       57,683    

Deferred revenue and customer deposits ($786, $786 and $786, respectively)

    98,921       118,106       99,449    

Current portion of debt ($18,333, $17,057 and $17,583, respectively)

    20,027       18,747       23,600    

Current portion of debt from related parties ($912, $1,389 and $1,525, respectively)

    912       1,389       1,525    
 

 

 

   

 

 

   

 

 

   

Total current liabilities

    261,093       271,284       246,735    
 

 

 

   

 

 

   

 

 

   

Preferred stock warrant liabilities

    12,885       9,825       6,554    

Derivative liabilities ($5,183, $5,060 and $2,954, respectively)

    135,715       156,552       163,854    

Deferred revenue and customer deposits ($10,267, $9,482 and $9,288, respectively)

    237,135       309,843       306,153    

Long-term portion of debt ($322,222, $306,499 and $302,345, respectively)

    670,923       815,555       819,828    

Long-term portion of debt from related parties, net ($36,188, $35,551 and $35,312, respectively)

    102,423       105,650       105,514    

Other long-term liabilities ($644, $1,226 and $1,370, respectively)

    42,985       52,915       51,860    
 

 

 

   

 

 

   

 

 

   

Total liabilities

    1,463,159       1,721,624       1,700,498    
 

 

 

   

 

 

   

 

 

   

Commitments and contingencies (Note 18)

       

Redeemable noncontrolling interest

    59,320       58,154       58,176     $ 58,176  

Convertible redeemable preferred stock: 80,461,609 shares authorized at December 31, 2016 and 2017, and at March 31, 2018; and 71,740,162 shares issued and outstanding at December 31, 2016 and 2017, and at March 31, 2018. Aggregate liquidation preference of $1,441,757 at December 31, 2016 and 2017, and at March 31, 2018.

    1,465,841       1,465,841       1,465,841       —    
 

 

 

   

 

 

   

 

 

   

Stockholders’ deficit

       

Common stock: $0.0001 par value; and 113,333,333 shares authorized at December 31, 2016 and 2017, and at March 31, 2018; and 10,132,220, 10,353,269 and 10,424,982 shares issued and outstanding at December 31, 2016 and 2017, and at March 31, 2018, respectively

    1       1       1       9  

Additional paid-in capital

    108,647       150,803       158,604       1,841,402  

Accumulated other comprehensive loss

    (542     (162     117       117  

Accumulated deficit

    (2,068,048     (2,330,647     (2,348,363     (2,348,363
 

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

    (1,959,941     (2,180,004     (2,189,640     (448,659)  

Noncontrolling interest

    175,668       155,372       149,759       149,759  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total deficit

    (1,724,953     (1,966,478     (1,981,705     (298,900)  
 

 

 

   

 

 

   

 

 

   

Total liabilities, convertible redeemable preferred stock and deficit

  $ 1,204,047     $ 1,220,987     $ 1,184,634    
 

 

 

   

 

 

   

 

 

   

Asset and liability amounts in parentheses represent the portion of the consolidated balance attributable to the variable interest entities.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3


Table of Contents
Index to Financial Statements

Bloom Energy Corporation

Consolidated Statements of Operations

(in thousands, except for per share data)

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2017     2017     2018  
                 (unaudited)  

Consolidated Statements of Operations

        

Revenue

        

Product

   $ 76,478     $ 179,768     $ 27,665     $ 121,307  

Installation

     16,584       63,226       12,293       14,118  

Service

     67,622       76,904       18,591       19,907  

Electricity

     47,856       56,098       13,648       14,029  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     208,540       375,996       72,197       169,361  

Cost of revenue

        

Product

     103,283       210,773       38,855       80,355  

Installation

     17,725       59,929       13,445       10,438  

Service

     155,034       83,597       18,219       24,253  

Electricity

     35,987       39,741       10,876       10,649  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     312,029       394,040       81,395       125,695  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     (103,489     (18,044     (9,198     43,666  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Research and development

     46,848       51,146     11,223       14,731  

Sales and marketing

     29,101       32,415       7,845       8,262  

General and administrative

     61,545       55,674       12,879       14,988  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     137,494       139,235       31,947       37,981  
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) from operations

     (240,983     (157,279     (41,145     5,685  

Interest expense

     (81,190     (108,623     (24,363     (23,037

Other income (expense), net

     (379     268       119       (629

Gain (loss) on revaluation of warrant liabilities and embedded derivatives

     (13,035     (14,995     215       (4,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (335,587     (280,629     (65,174     (22,015

Income tax provision

     729       636       214       333  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (336,316     (281,265     (65,388     (22,348

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests

     (56,658     (18,666     (5,856     (4,632
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (279,658   $ (262,599   $ (59,532   $ (17,716
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted:

   $ (27.84   $ (25.62   $ (5.87   $ (1.70
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted

     10,046       10,248       10,143       10,403  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders basic and diluted (unaudited)

     $ (2.99     $ (0.20
    

 

 

     

 

 

 

Pro forma weighted average shares used to compute pro forma net loss per share attributable to common stockholders basic and diluted (unaudited)

       87,836         87,203  
    

 

 

     

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


Table of Contents
Index to Financial Statements

Bloom Energy Corporation

Consolidated Statements of Comprehensive Loss

(in thousands)

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2017     2017     2018  
                 (unaudited)  

Net loss attributable to common stockholders

   $ (279,658   $ (262,599   $ (59,532   $ (17,716
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of taxes

        

Unrealized loss on available-for-sale securities

     —         (13     —         (9

Change in effective portion of interest rate swap

     (418     894       619       2,867  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss

     (418     881       619       2,858  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (280,076     (261,718     (58,913     (14,858
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests

     720       (501     (501     (2,579
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (279,356   $ (262,219   $ (59,414   $ (17,437
  

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5


Table of Contents
Index to Financial Statements

Bloom Energy Corporation

Consolidated Statements of Convertible Redeemable Preferred Stock and Stockholders’ Deficit

(dollars in thousands, except for share data)

 

    Convertible
Redeemable

Preferred Stock
    Redeemable  
Noncontrolling  
Interest  
          Common Stock     Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Loss
    Accumulated
Deficit
    Noncontrolling
Interest
    Total
Deficit
 
    Shares     Amount         Shares     Amount            

Balances at December 31, 2015

    71,617,187     $ 1,459,506     $ 62,419           9,938,602     $ 1     $ 102,449     $ (844   $ (1,788,390   $ 70,708     $ (1,553,657
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contributions from noncontrolling interests

    —       —         —             —         —         —         —         —         209,860       209,860  

Exercise of Series F preferred warrants for preferred stock

    45,336       3,335       —             —         —         —         —         —         —         —    

Issuance of shares of Series G convertible preferred stock

    77,639       3,000       —             —         —         —         —         —         —         —    

Issuance of Common Stock

    —         —         —             58,667       —         1,816       —         —         —         1,816  

Exercise of stock options

    —         —         —             125,395       —         1,237       —         —         —         1,238  

Issuance of restricted stock awards

    —         —         —             9,556       —         280       —         —         —         280  

Stock-based compensation expense

    —         —         —             —         —         27,865       —         —         —         27,865  

Excess fair value of consideration paid over the noncontrolling interest reduction

    —         —         —             —         —         (25,000     —         —         —         (25,000

Change in effective portion of interest rate swap agreement

    —         —         4           —         —         —         302       —         (724     (418

Distributions to noncontrolling interests

    —         —         (4,614         —         —         —         —         —         (46,007     (50,621

Net income (loss)

    —         —         1,511           —         —         —         —         (279,658     (58,169     (336,316
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2016

    71,740,162     $ 1,465,841     $ 59,320           10,132,220     $ 1     $ 108,647     $ (542   $ (2,068,048   $ 175,668     $ (1,724,953
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contributions from noncontrolling interests

    —         —         —             —         —         —         —         —         13,652       13,652  

Issuance of Common Stock warrant

    —         —         —             —         —         9,410       —         —         —         9,410  

Issuance of Common Stock

    —         —         —             64,000       —         1,981       —         —         —         1,981  

Exercise of stock options

    —         —         —             123,153       —         432       —         —         —         432  

Issuance of restricted stock awards

    —         —         —             33,896       —         1,253       —         —         —         1,253  

Stock-based compensation expense

    —         —         —             —         —         29,080       —         —         —         29,080  

Unrealized loss on available for sale securities

    —         —         —             —         —         —         (13     —         —         (13

Change in effective portion of interest rate swap agreement

    —         —         1           —         —         —         393       —         500       894  

Distributions to noncontrolling interests

    —         —         (5,104         —         —         —         —         —         (11,845     (16,949

Net income (loss)

    —         —         3,937           —         —         —         —         (262,599     (22,603     (281,265
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2017

    71,740,162     $ 1,465,841     $ 58,154           10,353,269     $ 1     $ 150,803     $ (162   $ (2,330,647   $ 155,372     $ (1,966,478
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exercise of stock options

                    68,098           120                   120  

Issuance of restricted stock awards

                    3,615           67                   67  

Stock-based compensation expense

                              7,614                   7,614  

Unrealized loss on available for sale securities

                                  (9             (9

Change in effective portion of interest rate swap agreement

            3                         288           2,576       2,867  

Distributions to noncontrolling interests

            (1,472                               (2,066     (3,538

Net income (loss)

            1,491                             (17,716     (6,123     (22,348
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2018 (unaudited)

    71,740,162     $ 1,465,841     $ 58,176           10,424,982     $ 1     $ 158,604     $ 117     $ (2,348,363   $ 149,759     $ (1,981,705
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6


Table of Contents
Index to Financial Statements

Bloom Energy Corporation

Consolidated Statements of Cash Flows

(in thousands)

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2017     2017     2018  
                 (unaudited)  

Cash flows from operating activities:

        

Net loss attributable to common stockholders

   $ (279,658   $ (262,599   $ (59,532   $ (17,716

Adjustments to reconcile net loss to net cash used in operating activities:

        

Loss attributable to noncontrolling and redeemable noncontrolling interests

     (56,659     (18,666     (5,856     (4,632

Depreciation

     43,100       46,105       11,902       10,847  

Write off of property, plant and equipment, net

     140       48       5       —    

Impairment of assets, net

     2,092       —         —         —    

PPA I decommissioning, net

     617       —         —         —    

Revaluation of derivative contracts

     1,343       14,754       3,186       7,157  

Stock-based compensation

     28,157       30,479       6,645       7,956  

Loss on long-term REC purchase contract

     124       (70     —         12  

Revaluation of preferred stock warrants

     (807     (3,060     —         (3,271

Common stock warrant valuation

     9,180       85       —         (100

Amortization of interest expense from preferred stock warrants

     1,083       1,060       267       261  

Amortization of debt issuance cost

     2,802       3,263       664       969  

Amortization of debt discount from embedded derivatives

     28,925       42,989       10,054       5,938  

Changes in operating assets and liabilities:

        

Accounts receivable

     (701     4,849       (6,607     (28,203

Inventories, net

     (209     (7,105     (29,086     (6,818

Deferred cost of revenue

     (84,660     (70,979     (10,818     16,282  

Customer financing receivable and others

     (211,659     5,459       1,471       1,306  

Prepaid expenses and other current assets

     (8,433     (2,175     203       (446

Other long-term assets

     (1,020     4,625       932       1,266  

Accounts payable

     4,807       7,076       (2,378     (827

Accrued warranty

     (2,986     (7,045     (4,938     (87

Accrued other current liabilities

     11,258       8,599       (1,696     (10,083

Deferred revenue and customer deposits

     183,564       91,893       11,833       (22,347

Other long-term liabilities

     46,774       43,239       9,702       8,049  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (282,826     (67,176     (64,047     (34,487
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchase of property, plant and equipment

     (8,979     (5,140     (936     (223

Purchase of marketable securities

     —         (29,043     —         (8,991

Maturities of marketable securities

     —         2,250       —         15,750  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (8,979     (31,933     (936     6,536  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Borrowings from issuance of debt

     123,489       100,000       —         —    

Borrowings from issuance of debt to related parties

     25,000       —         —         —    

Repayment of debt

     (32,192     (20,507     (7,914     (4,489

Repayment of debt to related parties

     (966     (912     (198     (290

Debt issuance costs

     (218     (6,108     —         —    

Proceeds from noncontrolling and redeemable noncontrolling interests

     209,860       13,652       13,652       —    

Distributions to noncontrolling and redeemable noncontrolling interests

     (45,828     (23,659     (8,277     (3,832

Proceeds from issuance of common stock

     1,238       432       33       120  

Proceeds from issuance of convertible preferred stock

     3,000       —         —         —    

Payments of initial public offering issuance costs

     —         (1,092     (500     (578
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     283,383       61,806       (3,204     (9,069
  

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

     (8,422     (37,303     (68,187     (37,020

Cash, cash equivalents, and restricted cash:

        

Beginning of period

     226,337       217,915       217,915       180,612  
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 217,915     $ 180,612     $ 149,728     $ 143,592  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

        

Cash paid during the period for interest

   $ 20,549     $ 21,948     $ 5,497     $ 11,216  

Cash paid during the period for taxes

     635       616       121       401  

Transfer of inventory to Energy Servers

     217,205       —       —         —    

Non-cash investing and financing activities:

        

Liabilities recorded for property, plant and equipment

     992       975       26       65  

Liabilities recorded for intangible assets

     —         2,138       —         362  

Exercise of warrants

     3,336       —         —         —    

Issuance of common stock warrant

     —         9,410     —         —    

Issuance of common stock

     1,816       1,981       991       —    

Issuance of restricted stock

     —         1,253       33       242  

Accrued distributions to tax equity investors

     7,287       576       282       282  

Accrued interest and issuance for notes

     23,987       29,705       6,876       7,808  

Accrued interest and issuance for notes to related parties

     3,856       4,368       1,021       1,165  

Issuance of 6% convertible promissory notes

     25,000       —       —         —    

The accompanying notes are an integral part of these consolidated financial statements.

 

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Bloom Energy Corporation

Notes to Consolidated Financial Statements

(Unaudited as of March 31, 2018 and for the three months ended March 31, 2017 and 2018)

 

1. Nature of Business and Management’s Plans Regarding the Financing of Future Development Efforts

Nature of Business

Bloom Energy Corporation (together with its subsidiaries, the Company or Bloom Energy) designs, manufactures and sells solid-oxide fuel cell systems, or Energy Servers, for on-site power generation. The Company’s power generators or Energy Servers utilize an innovative fuel cell technology. The Energy Servers provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions. By generating power where it is consumed, the systems offer increased electrical reliability and improved energy security while providing a path to energy independence. The Company was originally incorporated in Delaware under the name of Ion America Corporation on January 18, 2001 and was renamed on September 16, 2006 to Bloom Energy Corporation. To date, substantially all of the Company’s revenue has been derived from customers based in the United States. However, the Company intends to increase its sales efforts outside of the United States, with initial customer installations in India, Japan and South Korea.

As of March 31, 2018, the Company has completed several rounds of private financing with gross proceeds totaling approximately $1.5 billion. The Company has incurred operating losses and negative cash flows from operations since its inception. The Company’s ability to achieve its long-term business objectives is dependent upon, among other things, raising additional capital, dependence on the acceptance of its products, and attaining future profitability. Management believes that the Company will be successful in raising additional financing from its stockholders or from other sources, expanding operations and gaining market share. However, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all.

 

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company uses a qualitative approach in assessing the consolidation requirement for its variable interest entities, which the Company refers to as power purchase agreements (PPAs). This approach focuses on determining whether the Company has the power to direct the activities of the PPAs that most significantly affect the PPAs’ economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPAs. For all periods presented, the Company has determined that it is the primary beneficiary in all of its operational PPAs. For additional information, see Note 14, Power Purchase Agreement Programs . The Company evaluates its relationships with the PPAs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Prior to September 30, 2017, the Company had not allocated any revenue or costs of revenue from PPA customers to service revenue. As a result of an assessment in the three month period ending September 30, 2017, management determined that revenue and costs of revenue relating to maintenance services for PPA customers should be reclassified from electricity to service to better reflect the economic performance of its maintenance services and its PPA operations. Accordingly, the Company’s prior period consolidated statements of operations amounts have been reclassified to conform to the current period presentation. For the year ended December 31, 2016, approximately $24.5 million was allocated from electricity revenue to service revenue. For the year ended December 31, 2017, the comparable value of allocated service revenue

 

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was $29.4 million. For the three months ended March 31, 2017 and 2018, the comparable value of allocated service revenue was $7.3 million and $7.3 million, respectively. For each period presented, the amounts of costs of revenue that were reclassified were not material.

Unaudited Interim Consolidated Financial Statements

The accompanying interim consolidated balance sheet as of March 31, 2018, the interim consolidated statements of operations, the interim consolidated statements of comprehensive loss, and the interim consolidated statements of cash flows for the three months ended March 31, 2017 and 2018 and the interim consolidated statements of convertible redeemable preferred stock and stockholders’ deficit for the three months ended March 31, 2018 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2018 and its results of operations and cash flows for the three months ended March 31, 2017 and 2018. The financial data and the other financial information disclosed in the notes to these consolidated financial statements related to the three month periods are also unaudited. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

Components of Revenue and Cost of Revenue

Revenue

The Company primarily recognizes revenue from the sale and installation of Energy Servers, sales of electricity, and by providing services under extended operations and maintenance services contracts. These operations and maintenance services contracts are what the Company refers to as maintenance service agreements.

The Company’s total revenue is comprised of the following:

Product Revenue

All of the Company’s product revenue is generated from the sale of our Energy Servers to direct purchase and lease customers. The Company generally begins to recognize product revenue from contracts with customers for the sales of its Energy Servers once the Company achieves acceptance; that is, generally when the system has been installed and running at full power as defined in each contract.

All of the Company’s product arrangements contain multiple elements representing a combination of revenue from Energy Servers, installation and maintenance services. Upon acceptance, the Company allocates fair value to each of these elements, and the Company limits the amount of revenue recognized for delivered elements up to an amount that is not contingent upon future delivery of additional products or services or meeting any specified performance conditions. The sale of the Company’s Energy Servers also includes a one-year warranty, which is recorded as a component of cost of product revenue.

Installation Revenue

All of the Company’s installation revenue is generated from the sale and installation of our Energy Servers to direct purchase and lease customers. The Company generally begins to recognize installation revenue from contracts with customers for the sales of its Energy Servers once the Company achieves acceptance; that is, generally when the system has been installed and running at full power.

 

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Service Revenue

Service revenue is generated from operations and maintenance services agreements that extend the standard warranty service coverage beyond the initial first year’s warranty for Energy Servers sold under direct purchase, traditional lease and managed services sales. Customers can renew these agreements on an annual basis. Revenue is recognized from such operations and maintenance services ratably over the term of the renewed one-year service period. The Company anticipates that almost all of its customers will continue to renew their maintenance services agreement each year.

Electricity Revenue

The Company’s PPA entities purchase Energy Servers from the Company and sell the electricity produced by these systems to customers through long-term PPA agreements. Customers are required to purchase all of the electricity produced by the Energy Servers at agreed-upon rates over the course of the PPA agreements’ contractual term. The Company recognizes revenue from such PPA entities as the electricity is provided over the term of the agreement.

Cost of Product Revenue

Cost of product revenue consists of costs of Energy Servers that the Company sells to direct and lease customers, including costs paid to the Company’s materials suppliers, personnel costs, certain allocated costs, shipping costs, provisions for excess and obsolete inventory, and the depreciation costs of the Company’s equipment. Because the sale of the Company’s Energy Servers includes a one-year service warranty, cost of product revenue also includes first year warranty costs. The Company provides certain warranties and performance guarantees regarding the Energy Servers’ efficiency and output during the first year warranty period.

Cost of Installation Revenue

Cost of installation revenue consists of the costs to install the Energy Servers that the Company sells to direct and lease customers, including costs paid to the Company’s materials and service providers, personnel costs, and allocated costs.

Cost of Service Revenue

Cost of service revenue consists of costs incurred under maintenance service contracts for all customers including direct sales, lease and PPA customers, including personnel costs for the Company’s customer support organization, certain allocated costs, and extended maintenance-related product repair and replacement costs. After the initial included warranty period expires, customers have the opportunity to renew warranty services under maintenance agreements for additional annual periods.

Cost of Electricity Revenue

Cost of electricity revenue primarily consists of the depreciation of the cost of the Energy Servers owned by the Company’s PPA entities and the cost of gas purchased in connection with PPAs entered into by the Company’s first PPA entity. The cost of electricity revenue is generally recognized over the term of the customer’s PPA. 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.

 

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Management Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates include assumptions used to compute the best estimate of selling-prices (BESP), fair value of lease and non-lease components, such as estimated output, efficiency and residual value of the Energy Servers, estimates for inventory write-downs, estimates for future cash flows and economic useful lives of property, plant and equipment, other long-term assets, valuation of certain accrued liabilities, such as derivative valuations, accrued warranty and extended maintenance and estimates for recapture of U.S. Treasury grants, income taxes and deferred tax asset valuation allowances, warrant liabilities, stock-based compensation costs, and allocation of profit and losses to the noncontrolling interests. Actual results could differ materially from these estimates under different assumptions and conditions.

Foreign Currency Transactions

The functional currency of the Company’s foreign subsidiaries is the U.S. dollar since they are considered financially and operationally integrated. Foreign currency monetary assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates. Nonmonetary assets and liabilities such as property, plant and equipment, and equity are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the previously noted balance sheet amounts, which are remeasured at historical exchange rates. Transaction gains and losses are included as a component of other expense, net in the Company’s consolidated statements of operations and have not been significant for all periods presented.

Cash, Cash Equivalents, Investments and Restricted Cash

The Company considers highly liquid short-term investments with original maturities of 90 days or less at the date of purchase as cash equivalents.

Restricted cash is held as collateral to provide financial assurance that the Company will fulfill commitments related to its power purchase agreement financings, 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 and that which is expected to be used more than a year from the balance sheet date is classified as a non-current asset. In fiscal year 2017, the Company adopted ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash, resulting in the inclusion of restricted cash and restricted cash equivalents within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts for all periods shown on the statement of cash flows. This guidance did not have an effect on the Company’s results of operations, financial position or liquidity.

As of December 31, 2016 and 2017, and March 31, 2018, the Company had restricted cash of $61.3 million, $76.8 million, and $55.4 million, respectively.

The Company considers highly liquid investments with original maturities of greater than 90 days at the date of purchase as short-term investments. Short-term investments are reported at fair value, with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). The specific identification method is used to determine the cost of any securities disposed of, with any realized gains or losses recognized as income or expense in condensed consolidated statements of operations. 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. The Company periodically reviews 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, the Company takes into consideration the current market conditions and the duration and severity of and the reason for the decline, as well as the likelihood that it would need to sell the security prior to a recovery of par value.

 

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As of March 31, 2018, short-term investments were comprised of $20.1 million of U.S. Treasury bills. The costs of these securities approximated their fair values, and there were no material gross realized or unrealized gains, gross realized or unrealized losses or impairment for the year ended March 31, 2018. As of March 31, 2018, all investments were scheduled to mature within the next twelve months.

Derivative Financial Instruments

The Company enters into derivative forward contracts to manage its exposure relating to the fluctuating price of fuel under certain of its power purchase agreements entered in connection with the Bloom Electrons program (refer to Note 14, Power Purchase Agreement Programs , for more information). In addition, the Company enters into fixed forward swap arrangements to convert variable interest rates on debt to a fixed rate. The Company also issued derivative financial instruments embedded in its 6% Notes to provide additional incentive to investors. The Company used these derivative financial instruments in order 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 the Company. The Company limits its credit risk by dealing with counterparties that are considered to be of high credit quality. The Company does not enter into derivative transactions for trading or speculative purposes.

The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value on the consolidated balance sheets. Changes in the fair value of the derivatives that qualify and are designated as cash flow hedges are recorded in other comprehensive loss on the consolidated balance sheets and for those that do not qualify for hedge accounting or are not designated as hedges are recorded through earnings in the consolidated statements of operations.

While the Company hedges certain of its natural gas requirements under its power purchase agreements, it has not designated these forward contracts as hedges for accounting purposes. Therefore, the Company records the change in the fair value of its forward contracts in cost of revenue on the consolidated statements of operations. The fair value of the forward contracts is recorded on the consolidated balance sheets as a component of accrued other current liabilities and derivative liabilities. As the forward contracts are considered economic hedges, the changes in the fair value of the 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.

The Company’s interest rate swap arrangements qualify as cash flow hedges for accounting purposes as they effectively convert variable rate obligations into fixed rate obligations. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change is recorded in accumulated other comprehensive loss and will be recognized as interest expense on settlement. Ineffectiveness is recorded in other expense, net. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is discontinued prospectively and unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive loss and 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 other current liabilities and 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.

The Company issued convertible notes with conversion features. These embedded derivatives were evaluated under ASC topic 815-40 and were bifurcated from the debt and are classified as liabilities on the consolidated balance sheets. The Company records these derivative liabilities at fair value and adjusts 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.

 

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Fair Value Measurement

Financial Accounting Standards Board Accounting Standards Codification 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 principal 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 which are the following:

 

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    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.
Level 3    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 contract derivatives, warrants issued to purchase the Company’s preferred stock and embedded derivatives bifurcated from convertible notes. Derivative liability valuations are performed based on a binomial lattice model and adjusted for illiquidity and/or nontransferability, and such adjustments are generally based on available market evidence.

Incentives and Grants

Self-Generation Incentive Program (SGIP)

The Company’s 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 new, qualifying self-generation equipment that the Company owns. The SGIP funds are assigned to the PPA entities by the customers and are recorded as other current assets and other long-term assets until received. For sales-type leases, the benefit of the SGIP funds are recorded as deferred revenue and is recognized as revenue when the Energy Server is accepted. For operating leases, the benefit of the SGIP funds are recorded as deferred revenue and is amortized on a straight-line basis over the PPA contract period. 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 will expire on January 1, 2021.

The Company received $3.3 million and $2.7 million of SGIP funds for the years ended December 31, 2016 and 2017, respectively, and $0.6 million and $0.3 million for the three months ended March 31, 2017 and 2018, respectively. 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. There were no reductions or refunds of SGIP funds during the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, and no accrual has been made for a refund of any incentives.

For certain PPA entities, the Company makes SGIP reservations on behalf of the PPA entity. The PPA entity receives the SGIP funds directly from the program and, therefore, bears the risk of loss if these funds are not paid.

 

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U.S. Treasury Grants

The Company is eligible for U.S. Treasury grants on eligible property as defined under Section 1603 of the American Recovery and Reinvestment Act of 2009. However, to be eligible for the U.S. Treasury grants, a fuel cell system must have commenced construction in 2011 either physically or through the occurrence of sufficient project costs. For fuel cell systems under PPA arrangements, U.S. Treasury grants are considered a component of minimum lease payments. For fuel cell systems deployed under tariff legislation, the Company recorded the fuel cell systems net of the U.S. Treasury grants. U.S. Treasury grant receivables are classified as other current assets in the Company’s consolidated balance sheets. For operating leases, the benefit of the U.S. Treasury grant is recorded as deferred revenue and is amortized on a straight-line basis over the PPA contract period. The Company placed in service the last property eligible for U.S. Treasury grants in November of 2013 and collected all of its outstanding remaining Treasury cash grants during 2014.

The U.S. Treasury grant program has operational criteria for the first five years after the qualified equipment is placed in service. The criteria includes cash grant recapture provisions if the applicant disposes of the property to a disqualified person or the property ceases to qualify as a specified energy. If the operational criteria are not fulfilled, it could result in a partial refund of incentives received. Due to the restructuring of the Company’s first PPA entity, as discussed in Note 14, Power Purchase Agreement Programs , the Company accrued $10.0 million in estimated recapture refunds in 2015. In 2016, the Company recorded a $1.7 million reduction in its estimate of recapture refunds and paid a total of $8.3 million in recapture refunds. No additional recapture refunds have been accrued or paid in the period ended March 31, 2018.

Investment Tax Credits (ITC)

Through December 31, 2016, the Company’s fuel cell systems had been eligible for federal investment tax credits, or ITCs, that accrued to eligible property under Internal Revenue Code Section 48 for its Energy Servers. Under PPA arrangements, ITCs are primarily passed through to tax equity investors. Approximately 1% to 10% of the incentives are received by the Company, with the balance distributed to the remaining investors of the PPA entity. These incentives are accounted for under the flow-through method. Subsequently, on February 9, 2018, the U.S. Congress passed legislation to extend the federal investment tax credits for fuel cell systems retroactive to January 1, 2017. Due to the reinstatement of ITC in 2018, the benefit of ITC to total revenue for product accepted was a $45.5 million benefit in the three months ended March 31, 2018, including a $43.9 million product revenue benefit due 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 of, 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, 2016 and 2017, and the three months ended March 31, 2018.

Renewable Energy Credits (RECs)

RECs, which are tradeable energy credits that represent 1 megawatt hour of electricity generated from an eligible renewable energy resource generated in the U.S, are primarily ‘held for use’ and are presented as part of other current assets and other long-term assets in the consolidated balance sheets until the RECs are sold and accounted for as revenue. The Company accounts for such RECs as output from the facility where they originate. The Company values these RECs at the lower of cost or market at the end of each reporting period.

To the extent the PPA entities do not produce enough RECs to satisfy the requirements under certain of the Company’s PPA entities’ power purchase agreements, the Company may also acquire RECs under stand-alone purchase agreements with third parties to satisfy these REC obligations. Under power purchase agreements with certain customers, the Company’s PPA entities are required to deliver a specified quantity of biogas RECs or WECC (Western Electricity Coordinating Council) RECs. In order to meet these

 

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obligations, the Company’s PPA entities may enter into REC purchase agreements with third parties to purchase a fixed quantity of the relevant RECs at a fixed price and on a fixed schedule. The PPA entities utilize the Western Renewable Energy Information System (WREGIS), an independent tracking system for the region covered by the WECC, which allows the PPA entities to manage RECs purchased and deliver the RECs to satisfy the customer obligation. Purchased RECs used to satisfy customer obligations are recorded at cost and are presented as part of other current assets and other long-term assets in the consolidated balance sheets. Costs of RECs purchased are expensed as the Company’s obligation to provide such RECs to customers occurs.

The Company estimates the number of excess RECs it will ultimately acquire under the non-cancelable purchase contracts over the number required to satisfy its obligations to its customers. The Company records a purchase commitment loss if the fair value of RECs is less than the fixed purchase price amount. The purchase commitment loss is recorded on the consolidated balance sheets as a component of other current liabilities and other long-term liabilities.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, accounts receivables, and customer financing lease receivables. The Company conducts periodic evaluations of the creditworthiness of its customers and the collectability of its accounts receivable and financing leases receivable. The Company provides an allowance for potential credit losses as necessary based on historical experience. The Company has not experienced credit losses to date and has not provided an allowance for uncollectible accounts at December 31, 2016 and 2017, and at March 31, 2018.

Concentrations of Customer and Geographic Risk

In the year ended December 31, 2016, total revenue from Delmarva Power & Light Company (Delmarva) and Intel Corporation represented 18% and 12% of the Company’s total revenue, respectively. In the year ended December 31, 2017, total revenue from The Southern Company and Delmarva represented 43% and 10% of the Company’s total revenue, respectively. In the three months ended March 31, 2017, total revenue from Macerich and The Southern Company, represented 19% and 16% of the Company’s total revenue, respectively. In the three months ended March 31, 2018, total revenue from The Southern Company and Korea Energy represented 53% and 17% of our total revenue, respectively. The Southern Company has deployed the Company’s products primarily to Kaiser Permanente. To date, substantially all of the Company’s revenue has been derived from customers based in the United States.

Concentrations of Supply Risk

The Company’s products are manufactured using a rare earth mineral. The suppliers for this raw material are primarily located in Asia. A significant disruption in the operations of one or more of these suppliers could impact the production of the Company’s products which could have a material adverse effect on its business, financial condition and results of operations.

Customer Financing Receivables

Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines. Customer financing receivables are generated by Energy Servers leased to PPA entities’ customers in leasing arrangements that qualify as sales-type leases. 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.

 

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The Company reviews its customer financing receivables by aging category to identify significant customer balances with known disputes or collection issues. In determining the allowance, the Company makes judgments about the creditworthiness of a majority of its customers based on ongoing credit evaluations. The Company also considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. The Company writes off customer financing receivables when they are deemed uncollectible. The Company has not had to maintain an allowance for doubtful accounts to reserve for potentially uncollectible customer financing receivables as historically, all of its receivables have been paid and it expects its current receivables on the consolidated balance sheets to be paid in full. For additional information, see Note 15, PPA I Decommissioning .

Accounts Receivable

Accounts receivable primarily represents trade receivables from sales to customers recorded at net realizable value. As the Company does for its customer financing receivables, the Company reviews its accounts receivable by aging category to identify significant customer balances with known disputes or collection issues. In determining the allowance, the Company makes judgments about the creditworthiness of a majority of its customers based on ongoing credit evaluations. The Company also considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. The Company writes off accounts receivable when they are deemed uncollectible. The Company has not had to maintain an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable as historically, all of its receivables have been paid and it expects its current receivables on the consolidated balance sheets to be paid 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 market value.

The Company records 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 the company’s warranty obligations. If actual future demand for the Company’s 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 of. The inventory reserves were $12.6 million, $15.7 million and $15.3 million as of December 31, 2016 and 2017 and as of March 31, 2018, respectively.

Property, Plant and Equipment

Property, plant and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation. Leasehold improvements are depreciated over the shorter of the lease term or their estimated depreciable lives, currently five years. Buildings are amortized over the shorter of the lease or property term or their estimated depreciable lives, currently 35 years. Energy Servers are depreciated to their residual values over the terms of the power purchase and tariff agreements.

 

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Depreciation is calculated using the straight-line method over the estimated depreciable lives of the respective assets as follows:

 

     Depreciable Lives

Energy Servers

   15-21 years

Computers, software and hardware

   3-5 years

Machinery and equipment

   5-10 years

Furniture and fixtures

   3-5 years

Leasehold improvements

   1-5 years

Buildings

   35 years

Long-Lived Assets

The Company’s long-lived assets include property, plant and equipment. The carrying amounts of the Company’s 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. Factors that the Company considers in deciding when to perform an impairment review would include significant negative industry or economic trends and significant changes or planned changes in the Company’s use of the assets. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset and the Company would recognize an impairment loss. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. No material impairment of any long-lived assets was identified in the years ended December 31, 2016 or 2017 or for the three months ended March 31, 2018. When assets are retired or disposed of, 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.

Revenue Recognition

The Company primarily earns revenue from the sale and installation of its Energy Servers to direct and lease customers, by providing services under its operations and maintenance services contracts, and by selling electricity to customers under PPA agreements. The Company offers its customers several ways to finance their purchase of a Bloom Energy Server. Customers may choose to purchase the Company’s Energy Servers outright. Customers may also lease the Company’s Energy Servers through one of the Company’s financing partners via the Company’s managed services program or as a traditional lease. Finally, customers may purchase electricity through the Company’s PPA financing arrangements.

Direct Sales

To date, the Company has never sold an Energy Server without a maintenance service agreement, or vice-versa, nor does it have plans to in the near future. As a result, the Company recognizes revenue from contracts with customers for the sales of products and services included within these contracts in accordance with ASC 605-25 (revenue recognition for multiple-element arrangements).

Revenue from the sale and installation of Energy Servers to direct customers is recognized when all of the following criteria are met:

 

    Persuasive Evidence of an Arrangement Exists. The Company relies upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.

 

    Delivery and Acceptance has Occurred. The Company uses shipping documents and confirmation from the Company’s installations team that the deployed systems are running at full power, as defined in each contract, to verify delivery and acceptance.

 

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    The Fee is Fixed or Determinable. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction.

 

    Collectability is Reasonably Assured. The Company assesses collectability based on the customer’s credit analysis and payment history.

Most of the Company’s arrangements are multiple-element arrangements with a combination of Energy Servers, installation, and maintenance services. Products, including installation, and services generally qualify as separate units of accounting. For multiple-element arrangements, the Company allocates revenue to each unit of accounting 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. The total arrangement consideration is allocated to each separate unit of accounting using the relative estimated selling prices of each unit based on the aforementioned selling price hierarchy. The Company limits the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or services or meeting any specified performance conditions.

The Company has not been able to obtain reliable evidence of the selling price. Given that the Company has never sold an Energy Server without a maintenance service agreement, and vice-versa, the Company has no evidence of selling prices for either and virtually no customers have elected to cancel their maintenance agreements and continue to operate the Energy Servers. The Company’s objective is to determine the price at which they would transact business if the items were being sold separately. As a result, the Company estimates its selling price driven primarily by its expected margin on both the Energy Server and maintenance service agreement based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred during the 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). The Company then applies a margin to the Energy Servers to determine the selling price to be used in its BESP model. Costs for maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future product costs. Product 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, the Company applies a slightly lower margin to its service costs than to its Energy Servers because this best reflects the Company’s long-term service margin expectations.

As the Company’s business offerings and eligibility for the ITC evolve over time, the Company may be required to modify its estimated selling prices in subsequent periods, and the Company’s revenue could be adversely affected.

The Company does not offer extended payment terms or rights of return for its products. Upon shipment of the product, the Company defers the product’s revenue until the acceptance criteria have been met. Such amounts are recorded within deferred revenue in the consolidated balance sheets. The related cost of such product is also deferred as a component of deferred cost in the consolidated balance sheets until customer acceptance. Prior to shipment of the product, any prepayment made by the customer is recorded as customer deposits. Customer deposits were $29.5 million, $10.2 million, and $10.1 million as of December 31, 2016 and 2017 and as of March 31, 2018, respectively, and were included in deferred revenue and customer deposits in the consolidated balance sheets.

Traditional Leases

Under this financing option, the Company sells its Energy Servers through a direct sale to a financing partner, who in turn leases the Energy Servers to the customer under a lease agreement between the customer and the financing partner. In addition, the Company contracts with the customer to provide

 

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extended maintenance services from the end of the standard one-year warranty period until the remaining duration of the lease term.

Payments received are recorded within deferred revenue in the consolidated balance sheets until the acceptance criteria, as defined within the customer contract, are met. The related cost of such product is also deferred as a component of deferred cost in the consolidated balance sheets, until acceptance.

The Company also sells extended maintenance services to its customers that effectively extend the standard warranty coverage. 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 deferred revenue, and revenue is recognized ratably over the extended maintenance contract.

As discussed within the “direct sales” section above, the Company’s arrangements with its traditional lease customers are multiple-element arrangements as they include a combination of Energy Servers, installation and extended maintenance services. Accordingly, the Company recognizes revenue from contracts with customers for the sales of products and services included within these contracts in accordance with ASC 605-25 (revenue recognition for multiple-element arrangements).

Extended Maintenance Services

The Company typically provides a standard one-year warranty against manufacturing or performance defects to its direct sales customers. The Company also sells to these customers extended maintenance services that effectively extend the standard 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. Revenue is recognized from such extended maintenance services ratably over the term of the service (or annual renewal period) using the estimates of value, as discussed above.

Sale-Leaseback (Managed Services)

The Company is a party to master lease agreements that provide for the sale of Energy Servers to third-parties and the simultaneous leaseback of the systems, which the Company then subleases to its customers. In sale-leaseback sublease arrangements (also referred to as managed services), the Company first determines whether the Energy Servers under the sale-leaseback arrangement are “integral equipment.” An Energy Server is determined to be integral equipment when the cost to remove the system from its existing location, including the shipping costs of the Energy Server at the new site, including any diminution in fair value, exceeds 10% of the fair value of the Energy Server at the time of its original installation.

As the Energy Servers are determined not to be integral equipment, the Company determines if the leaseback is classified as a capital lease or an operating lease. The Company’s managed services arrangements are classified as operating leases. As operating leases, the Company recognizes a portion of the net revenue, net of any commitments made to the customer to cover liabilities associated with insurance, property taxes and/or incentives recorded as managed service liabilities, and the associated cost of sale and defers the portion of net revenue and cost of sale that represents the gross profit that is equal to the present value of the future minimum lease payments over the master leaseback term. For both capital and operating leasebacks, the Company records the net deferred gross profit in its consolidated balance sheet as deferred income and amortizes the deferred income over the leaseback term as a reduction to the leaseback rental expense included in operating leases.

In connection with the Company’s common stock award agreement with a managed services customer, the share issuances are recorded as a reduction of product revenue when the installation milestones are achieved and are recorded as additional paid-in capital when the shares are issued.

 

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PPA Sales (also refer to Note 14, Power Purchase Agreement Programs )

In 2010, the Company began offering its Energy Servers through its Bloom Electrons financing program. This program is financed via special purpose investment entities referred to as PPA entities and are owned partly by the Company and partly by third-party investors. The investors contribute cash to the PPA entity in exchange for their equity interest, which allows the PPA entities to purchase the Energy Server from the Company. The cash contributions are classified as short-term or long-term restricted cash according to the terms of the PPA agreements. As the Company identifies end customers, the PPA entity enters into an agreement with the end customer pursuant to which the customer agrees to purchase the power generated by the Energy Server at a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. The PPA entity typically enters into a maintenance services agreement with the Company following the first year of service to extend the warranty service and performance guarantees. This intercompany arrangement is eliminated in consolidation. Those PPA agreements that qualify as leases are classified as either sales-type leases or operating leases and for those that do not qualify as leases are tariff agreements. For both operating leases and tariff arrangements, income is recognized as contractual amounts are due when the electricity is generated.

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 Company IIIa) and 2013B ESA Project Company, LLC (PPA Company IIIb), qualify as sales-type leases in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 840, Leases (ASC 840). The Company is responsible for the installation, operation and maintenance of the Energy Servers at the customer’s sites, including running the Energy Servers during the term of the power purchase agreements ranging from 10 to 15 years. Based on the terms of the customer contracts, the Company 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.

The Company is obligated to supply fuel to the Energy Servers that deliver electricity under the PPA I arrangements. 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 arrangements primarily consists of returns on the amounts financed, including interest revenue, service revenue and fuel revenue.

As the power purchase agreements contain a lease, the consideration received is allocated between the lease (lease of property and related executory costs) and non-lease (other products and services, excluding any derivatives) elements based on relative fair value, in accordance with ASC 605-25-13A (b). 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 power purchase agreement as electricity is generated and 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 term of the power purchase agreement. Service revenue related to sales-type leases of $6.7 million and $4.0 million for the years ended December 31, 2016 and 2017, respectively, and service revenue related to sales-type leases of $1.0 million and $0.9 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity revenue in the consolidated statements of operations. Fuel revenue of $1.9 million and $1.0 million for the years ended December 31, 2016 and 2017, respectively, and fuel revenue of $0.3 million and $0.2 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity revenue in the consolidated statements of operations. Interest revenue of $1.8 million and $1.9 million for the years ended December 31, 2016 and 2017, respectively, and interest

 

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revenue related to sales-type leases of $0.5 million and $0.3 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity revenue in the consolidated statements of operations.

Product revenue associated with the sale of the Energy Servers under the power purchase agreements 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 running at full power as defined in each contract. There was no product revenue recognized under sales-type leases during the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018.

Operating Leases

Certain PPA arrangements entered into by PPA Company IIIa, PPA Company IIIb, 2014 ESA Holdco, LLC (PPA Company IV) and 2015 ESA Holdco, LLC. (PPA Company V) that are, in substance, leases 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, 2016 and 2017, revenue from electricity sales amounted to $21.2 million and $29.9 million, respectively. During the three months ended March 31, 2017 and 2018, revenue from electricity sales amounted to $7.1 million and $7.7 million, respectively. During the years ended December 31, 2016 and 2017, service revenue amounted to $10.8 million and $15.6 million, respectively. During the three months ended March 31, 2017 and 2018, service revenue amounted to $3.9 million and $3.8 million, respectively.

Tariff Agreement

PPA Company II entered into an arrangement with Delmarva, PJM Interconnection, (PJM), a regional transmission organization, and the State of Delaware, under which PPA Company II provides the energy generated from its Energy Servers to PJM, and receives a tariff as collected by Delmarva.

Revenue at the tariff rate is recognized as electricity sales and service revenue as it is generated over the term of the arrangement. Revenue relating to power generation at the Delmarva site of $23.0 million and $23.3 million for the years ended December 31, 2016 and 2017, respectively, and revenue relating to power generation at the Delmarva sites of $5.8 million and $5.8 million for the three months ended March 31, 2017 and 2018, respectively, is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation at the Delmarva site of $13.7 million and $13.9 million for the years ended December 31, 2016 and 2017, respectively, and revenue relating to power generation at the Delmarva sites of $3.5 million and $3.5 million for the three months ended March 31, 2017 and 2018, respectively, is included in service revenue in the consolidated statements of operations.

Warranty Costs

The Company generally warrants its products sold to its direct customers for one year following the date of acceptance of the products (“standard product warranty”). As part of both its standard warranty and maintenance service agreements (“MSA”), the Company provides output and efficiency guarantees (collectively “performance guarantees”) to its customers when systems operate below contractually specified levels of efficiency and output. Such amounts have not been material to date.

As part of its standard product warranty and MSA obligations, the Company monitors the operations of the underlying systems, including their efficiency and output levels. The performance guarantee payments represent maintenance decisions made by the Company and are accounted for as costs of goods sold. To estimate the warranty costs, the Company continuously monitors product returns for warranty failures and

 

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maintains the reserve for the related warranty expense based on various factors including historical warranty claims, field monitoring, and results of lab testing. The Company’s obligations under its standard warranty and MSA agreements are generally in the form of product replacement, repair or reimbursement for higher customer electricity costs (also refer to Note 18, Commitments and Contingencies). Further, if the Energy Servers run at a lower efficiency or power output than the Company committed under its performance guarantee, then the Company will reimburse the customer for this underperformance. The Company’s obligation includes ensuring the customer’s equipment operates at least at the efficiency and power output levels set forth in the customer agreement. The Company’s aggregate reimbursement obligation for this performance guarantee for each order is capped at a portion of the purchase price.

Standard Product Warranty

The standard product warranty covers defects in materials and workmanship under normal use and service conditions, and against manufacturing or performance defects. The Company’s warranty accrual represents its best estimate of the amount necessary to settle future and existing claims during the warranty period as of the balance sheet date. The Company accrues for warranty costs based on estimated costs that may be incurred under its standard obligations including material costs, labor costs, and higher customer electricity costs, should the units not work for extended periods. Estimated costs associated with standard product warranty, including the performance guarantee payments, are recorded at the time of sale as a component of costs of goods sold.

Maintenance Services Agreements (MSAs)

The Company also sells MSAs to its customers, which are renewable each year, at the option of the customer. The annual MSAs sold to direct customers and the services offered under the Company’s Bloom Electrons and managed services arrangements are executory contracts, in which the related maintenance costs, including the costs of performance guarantee, are recognized as they are incurred as a component of costs of goods sold. The warranty liability was $8.1 million, $7.7 million and $8.2 million as of December 31, 2016 and 2017 and as of March 31, 2018, respectively, and is classified within accrued warranty in the consolidated balance sheets.

Prior to fiscal year 2014, certain MSAs with direct customers were accounted for as separately-priced warranty contracts under ASC 605-20-25 Separately Priced Extended Warranty and Product Maintenance Contracts (formerly FTB 90-1), in which the Company recorded an accrual for any expected costs that exceed the contracted revenues for that one-year service renewal arrangement. Over time, as the Company’s service offering evolved and the Company began managing the Energy Servers taking into consideration individual customer arrangements as well as the Company’s Energy Server fleet management objectives, the Company’s service offering evolved to the point that our services changed, becoming a more strategic offering for both the Company and its customers. Additionally, virtually all of the Company’s sales arrangements included bundled sales of maintenance service agreements along with the Energy Servers. The result is that the Company allocates a certain portion of the contractual revenue related to the Energy Servers to the MSAs based on the Company’s BESP compared to the stated amount in the service contracts. See further discussion of BESP in Note 2. The loss accrual is included as a component of the accrued warranty liability. The related liability was $15.8 million, $9.2 million, and $8.5 million as of December 31, 2016 and 2017 and as of March 31, 2018, respectively.

Shipping and Handling Costs

The Company records costs related to shipping and handling in cost of revenue.

Sales and Utility Taxes

The Company recognizes revenue on a net basis for taxes charged to its customers and collected on behalf of the taxing authorities.

 

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Advertising and Promotion Costs

Expenses related to advertising and promotion of products is charged to sales and marketing expense as incurred. The Company did not incur any material advertising or promotion expenses during the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2018.

Research and Development

The Company conducts 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

The Company accounts 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 the Company to make estimates and assumptions regarding the underlying stock’s fair value, the expected life of the option and RSU, the risk-free interest rate, the expected volatility of its common stock price and the expected dividend yield. In developing estimates used to calculate assumptions, the Company establishes 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. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred. The Company typically records stock-based compensation expense under the straight-line attribution method over the vesting term, which is generally five years, and records stock-based compensation expense for performance based awards using the graded-vesting method. Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function.

Stock-based compensation cost for RSUs is measured based on the fair value of the underlying shares on the date of grant. RSUs are subject to a time-based vesting condition and a performance-based vesting condition, both of which must be satisfied before the RSUs are vested and settled for shares of common stock. The performance-based condition is tied to a liquidity event, such as a sale event or the completion of the Company’s initial public offering. The time-based condition ranges between six months to two years from the end of the lock-up period after a liquidity event. No expense related to these awards will be recognized unless the performance condition is satisfied.

Compensation expense 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. Compensation expense for equity instruments granted to non-employees is periodically remeasured as the underlying instruments vest. The fair value of the equity instruments is charged to earnings over the term of the service agreement.

The Company records deferred tax assets for awards that result in deductions on the Company’s income tax returns, unless the Company cannot realize the deduction (i.e., the Company is in a net operating loss (NOL) position), based on the amount of compensation cost recognized and the Company’s statutory tax rate. Prior to December 31, 2016, differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Company’s income tax return are recorded in additional paid-in capital if the tax deduction exceeds the deferred tax asset (excess tax benefit) or in the consolidated statements of operations if the deferred tax asset exceeds the tax deduction and no additional excess tax benefit exists from previous awards. Beginning in the first quarter of fiscal 2017, with the

 

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adoption of ASU 2016-09 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 during the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018, since the Company remains in an NOL position.

Refer to Note 25, Stock Option Plan , for further discussion of the Company’s stock-based compensation arrangements.

Freestanding Convertible Preferred Stock Warrants

The Company accounts for freestanding warrants to purchase shares of its convertible preferred stock as liabilities on the consolidated balance sheets at fair value upon issuance. The convertible preferred stock warrants are recorded as a liability because the underlying shares of convertible preferred stock are contingently redeemable which, therefore, may obligate the Company to transfer assets at some point in the future. The warrants are subject to remeasurement to fair value at each balance sheet date or immediately before exercise of the warrants and any change in fair value is recognized in the consolidated statements of operations. The Company’s convertible preferred stock warrants will continue to be remeasured until the earlier of the exercise or expiration of warrants, the completion of a deemed liquidation event, the conversion of convertible preferred stock into common stock, or until the convertible preferred stock can no longer trigger a deemed liquidation event. At that time, the convertible preferred stock warrant liability will be reclassified to convertible preferred stock or additional paid-in capital, as applicable. These warrants were valued on the date of issuance, using the Probability-Weighted Expected Return Model (PWERM). In accordance with ASC 480 “ Distinguish Liability from Equity ” (ASC 480), these warrants are classified within warrant liability in the consolidated balance sheets.

Partner Related Developer Fee Liabilities

The partner related developer fee liabilities represent payments required to be made by the Company to the tax equity investor upon acceptance of Energy Servers sold through PPA Company V. Since funding received by the PPA Company from the tax equity investor is used for the purchase and installation of Energy Servers the payments made back to the tax equity investor upon completion of an installation essentially represent a return of capital and are accounted for as a reduction to noncontrolling interests on the consolidated balance sheets. There was $6.7 million in current liabilities as of December 31, 2016. These liabilities have all been paid and the Company has fulfilled all of its obligations under this arrangement, therefore, there are no liabilities recorded as of March 31, 2018. Such amounts were payable to the financing partner by the tenth day of the month following the installation of the Energy Servers at customer sites.

Allocation of Profits and Losses of Consolidated Partnerships to Noncontrolling Interests

The Company generally allocates 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 a flip structure. 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 its investors. The noncontrolling interests 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 the Company’s 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. The Company 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 using an interest method. The balance of redeemable noncontrolling

 

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interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are in the temporary equity section in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests. Refer to Note 14 “Power Purchase Agreement Programs” for more information.

For income tax purposes, the tax equity partner, who has committed to invest in the consolidated partnerships, will receive a greater proportion of the share of losses and other income tax benefits. This includes the allocation of investment tax credits, which will be distributed to the tax equity partner and to a wholly-owned subsidiary of the Company based on the allocation specified in each respective partnership agreement until the tax equity partner’s targeted rate of return under the partnership agreement is met. In some cases, after the PPA tax equity investors receive their contractual rate of return, the Company receives substantially all of the remaining value attributable to the long-term recurring customer payments and the other incentives.

Income Taxes

The Company accounts for income taxes using the liability method under Financial Accounting Standards Board Accounting Standards Codification 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, the Company must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The Company has provided a full valuation allowance on its deferred tax assets because it believes it is more likely than not that its deferred tax assets will not be realized.

The Company follows 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. The Company records 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 the Company’s 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. The Company establishes 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 the Company believes that certain positions might be challenged despite the Company’s 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. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

Comprehensive Loss

The Company’s comprehensive loss is comprised of the Company’s net loss and unrealized gains (losses) on the remeasurement of the effective portion of the Company’s interest rate swap agreements to fair value and on the Company’s available for sale securities.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance which will replace numerous requirements in GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date by one year to December 15, 2018

 

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for annual reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. During 2016, the FASB issued several amendments to the standard, including clarification to the guidance on reporting revenues as a principal versus an agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs and disclosure of performance obligations.

The two permitted transition methods under the new standard are (1) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, and the cumulative effect of applying the standard would be recognized at the earliest period shown, or (2) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company is in the process of assessing the impact on the Company’s consolidated financial statements and whether it will adopt the full retrospective or modified retrospective approach.

In August 2014, the FASB issued ASU 2014-13, Consolidation—Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financial Entity (Topic 810). The update requires a reporting entity that consolidates a collateralized financing entity and measures the financial assets and the financial liabilities using the measurement alternative shall disclose the fair value measurement on financial instruments for the financial assets and the financial liabilities of the consolidated collateralized financing entity. The amendments in this update were effective for the company for fiscal year 2017. The adoption of this standard had no material impact on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (Topic 330), to specify that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. However, the ASU does not apply to inventory measured using the last-in-first-out or retail methods. The Company early adopted the ASU prospectively in January 2017, and the adoption had no material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will replace most existing lease accounting guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. ASU 2016-02 requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU 2016-02 will be effective for the Company beginning in fiscal 2020, and requires the modified retrospective method of adoption. The Company is evaluating the impact of this guidance on its consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments (Topic 815), to clarify when a contingent put or call option to accelerate the repayment of debt is an embedded derivative. This ASU will be effective for the Company for the year ending December 31, 2018, and interim periods within the year ending December 31, 2019, with early adoption permitted. The Company early adopted the ASU prospectively in January 2017, and the adoption had no material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323), amendments for simplifying the transition to the equity method of accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company adopted the ASU prospectively in January 2017, and the adoption had no material impact on its consolidated financial statements.

 

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In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation—Improvements to Employee Share-Based Payment Account (Topic 718), which simplifies several aspects of the accounting for the share based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to employees maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2016 and for the interim periods therein, and for all other entities for fiscal years beginning after December 15, 2017. Early adoption is permitted in any interim or annual period that has not been issued or made available for issuance, provided all the amendments within the ASU are adopted. The Company adopted the standard prospectively in January 2017. The Company has elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Since the Company remains in a net operating loss position and there are no excess tax benefits in the year ended December 31, 2017, the adoption had no material impact on its consolidated financial statements.

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 the Company 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. The Company is currently evaluating the impact of the adoption of this update on its financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), 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. This pronouncement will be effective for the Company from fiscal year 2019, with early adoption permitted. Adoption will be applied retrospectively to all periods presented. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which requires that the entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The amendments in this ASU are effective for public business entities in annual reporting periods beginning after December 15, 2017 and for the interim periods therein, and for all other entities in annual reporting periods beginning after December 15, 2018, and interim reporting periods in annual reporting periods beginning after December 15, 2019. Early adoption is permitted only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. The Company is currently evaluating the impact of its pending adoption of this standard on its consolidated financials.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows—Restricted Cash (Topic 230), related to the presentation of restricted cash in the statement of cash flows. The pronouncement requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. Refer to Note 3 “Cash, Cash Equivalents, Investments and Restricted Cash” for more information. The Company elected to early adopt the updated guidance in January 2017 resulting in the application of its requirements to all applicable periods presented. The adoption of this guidance did not have an effect on the Company’s results of operations, financial position or liquidity, other than the presentation of restricted cash or restricted cash equivalents in the statements of cash flows. The Company elected to early adopt the updated guidance in January 2017 resulting in the application of its requirements to all applicable periods presented. The adoption of this guidance did not have an effect on the Company’s results of operations,

 

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financial position or liquidity, other than the presentation of restricted cash or restricted cash equivalents in the statements of cash flows.

 

 

3. Cash, Cash Equivalents and Restricted Cash

The Company classifies any marketable securities as available-for-sale with original maturities of 90 days or less as cash equivalents.

As of December 31, 2016 and 2017, and as of March 31, 2018, the Company had restricted cash of $61.3 million, $76.8 million, and $55.4 million, respectively, as follows (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Restricted cash related to PPA entities

   $ 5,901      $ 7,969      $  11,582  

Restricted cash

     13,966        36,418      11,416  
  

 

 

    

 

 

    

 

 

 

Restricted cash, current

     19,867        44,387      22,998  
  

 

 

    

 

 

    

 

 

 

Restricted cash related to PPA entities

     30,764        26,748      27,330  

Restricted cash

     10,707        5,649      5,037  
  

 

 

    

 

 

    

 

 

 

Restricted cash, non-current

     41,471        32,397      32,367  
  

 

 

    

 

 

    

 

 

 

Total restricted cash

   $ 61,338      $ 76,784      $ 55,365  
  

 

 

    

 

 

    

 

 

 

The following table summarizes the Company’s cash and cash equivalents and restricted cash (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                                 (unaudited)  
     Amortized
Cost
     Estimated
Fair Value
     Amortized
Cost
     Estimated
Fair Value
     Amortized
Cost
     Estimated
Fair Value
 
                                           

Cash

   $ 178,546      $ 178,546      $ 101,356      $ 101,356      $ 64,193      $ 64,193  

Money market funds

     39,369        39,369        79,256        79,256        79,399        79,399  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 217,915      $ 217,915      $ 180,612      $ 180,612      $ 143,592      $ 143,592  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As reported

                 

Cash and cash equivalents

   $ 156,577      $ 156,577      $ 103,828      $ 103,828      $ 88,227      $ 88,227  

Restricted cash

     61,338        61,338        76,784        76,784        55,365        55,365  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 217,915      $ 217,915      $ 180,612      $ 180,612      $ 143,592      $ 143,592  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

4. Accounts Receivable

Accounts receivable primarily represents trade receivables from sales to customers recorded at net realizable value. Two customers accounted for 21.4% and 10.1% of accounts receivable at December 31, 2017 and one customer accounted for 26.2% of accounts receivable at December 31, 2016. Two customers accounted for 51.0% and 16.9% of accounts receivable at March 31, 2018. At December 31, 2016 and 2017 and March 31, 2018, the Company did not maintain any allowances for doubtful accounts as it deemed all of its receivables fully collectible.

 

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5. Inventories, Net

The components of inventory consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Raw materials

   $ 40,345      $ 49,963      $ 50,676  

Work-in-progress

     24,147        19,998        19,137  

Finished goods

     18,663        20,299        27,266  
  

 

 

    

 

 

    

 

 

 
   $ 83,155      $ 90,260      $ 97,079  
  

 

 

    

 

 

    

 

 

 

 

6. Short-Term Investments

The Company classifies any marketable securities as available-for-sale with original maturities greater than 90 days at the date of purchase as short-term investments. Accordingly, it would record them at fair value and accounts for net unrealized gains and losses as part of other comprehensive loss until realized. The Company records realized gains and losses on the sale of its marketable securities in other expense, net in the consolidated statements of operations. The cost of securities sold is based on the specific identification method.

As of December 31, 2016, the Company did not have any short-term investments. As of December 31, 2017 and March 31, 2018, the Company had short-term investments in U.S. Treasury bills of $26.8 million and $20.1 million, respectively.

 

7. Prepaid Expense and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Government incentives receivable

   $ 5,975      $ 1,836      $ 1,607  

Prepaid expenses and other current assets

     17,445        24,840        26,229  
  

 

 

    

 

 

    

 

 

 
   $ 23,420      $ 26,676      $ 27,836  
  

 

 

    

 

 

    

 

 

 

 

8. Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Energy Servers

   $ 511,771      $ 511,153      $ 511,092  

Computers, software and hardware

     19,965        19,384        19,621  

Machinery and equipment

     96,565        97,158        97,515  

Furniture and fixtures

     4,821        4,679        4,686  

Leasehold improvements

     23,316        22,799        22,916  

Building

     40,512        40,512        40,512  

Construction in progress

     9,167        9,898        9,373  
  

 

 

    

 

 

    

 

 

 
     706,117        705,583        705,715  

Less: Accumulated depreciation

     (167,672      (207,794      (218,546
  

 

 

    

 

 

    

 

 

 
   $ 538,445      $ 497,789      $ 487,169  
  

 

 

    

 

 

    

 

 

 

 

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The Company’s property, plant and equipment under operating leases by its PPA entities was $397.8 million and $397.0 million as of December 31, 2016 and 2017, respectively, and $397.1 million as of March 31, 2018. The accumulated depreciation for these assets was $26.4 million and $51.9 million as of December 31, 2016 and 2017, respectively, and $58.3 million as of March 31, 2018. Depreciation expense related to property, plant and equipment was $43.1 million and $46.1 million during the years ended December 31, 2016 and 2017, respectively, and $6.4 million and $6.4 million for the three months ended March 31, 2017 and 2018, respectively.

 

9. Other Long-Term Assets

Other long-term assets consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Prepaid and other long-term assets

   $ 33,930      $ 31,446      $ 30,812  

Equity-method investments

     6,125        5,014        4,986  

Long-term deposits

     973        1,000        975  
  

 

 

    

 

 

    

 

 

 
   $ 41,028      $ 37,460      $ 36,773  
  

 

 

    

 

 

    

 

 

 

 

10. Accrued Warranty

Accrued warranty liabilities consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Product warranty

   $ 8,104      $ 7,661      $ 8,228  

Operations and maintenance services agreements

     15,753        9,150        8,495  
  

 

 

    

 

 

    

 

 

 
   $ 23,857      $ 16,811      $  16,723  
  

 

 

    

 

 

    

 

 

 

Changes in the standard product warranty liability were as follows (in thousands):

 

Balances at December 31, 2015

   $ 8,707  
  

 

 

 

Accrued warranty, net

     4,727  

Warranty expenditures during period

     (5,330
  

 

 

 

Balances at December 31, 2016

   $ 8,104  
  

 

 

 

Accrued warranty, net

     7,058  

Warranty expenditures during period

     (7,501
  

 

 

 

Balances at December 31, 2017

   $ 7,661  
  

 

 

 

Accrued warranty, net (unaudited)

     1,529  

Warranty expenditures during period (unaudited)

     (962
  

 

 

 

Balances at March 31, 2018 (unaudited)

   $ 8,228  
  

 

 

 

 

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11. Accrued Other Current Liabilities

Accrued other current liabilities consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Compensation and benefits

   $ 12,887      $ 13,121      $ 13,832  

Current portion of derivative liabilities

     5,639        5,492        5,129  

Partner related developer fee liabilities

     6,713        —          —    

Managed services liabilities

     2,913        3,678        4,169  

Common stock warrant liability

     9,180        —          —    

Accrued installation

     5,794        3,348        3,064  

Sales tax liabilities

     3,115        5,524        4,090  

Interest payable

     535        5,520        2,172  

Other

     29,095        30,966        25,227  
  

 

 

    

 

 

    

 

 

 
   $ 75,871      $ 67,649      $ 57,683  
  

 

 

    

 

 

    

 

 

 

 

12. Other Long-Term Liabilities

Accrued other long-term liabilities consisted of the following (in thousands):

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Delaware grant

   $ 10,476      $ 10,469      $ 10,469  

Managed services liabilities

     22,402        31,087        30,105  

Other

     10,107        11,359        11,286  
  

 

 

    

 

 

    

 

 

 
   $ 42,985      $ 52,915      $ 51,860  
  

 

 

    

 

 

    

 

 

 

In March 2012, the Company entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million to the Company 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 Company has so far received $12.0 million of the grant which is contingent upon the Company 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. In the event that the Company does not meet the milestones, the Company may have to repay the Delaware Economic Development Authority based on recapture provisions defined in the grant agreement. As of March 31, 2018, the Company had paid $1.5 million for recapture provisions and had $10.5 million in other long-term liabilities related to this agreement.

The Company has entered into managed services agreements that provide for the payment of property taxes and insurance premiums on behalf of the customer. These obligations are included in each agreement’s contract value and are recorded as short-term or long-term liabilities, based on the estimated payment dates. The long-term managed services liabilities accrued were $22.4 million, $31.1 million, and $30.1 million as of December 31, 2016 and 2017 and as of March 31, 2018, respectively.

 

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13. Fair Value Measurement

The table below sets forth, by level, the Company’s 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  
March 31, 2018 (unaudited)    Level 1      Level 2      Level 3      Total  

Assets

           

Cash equivalents

           

Money market funds

   $ 79,399      $ —        $ —        $ 79,399  

Short-term investments

     20,138        —          —          20,138  

Bank loan swap agreement

     —          65        —          65  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 99,537      $ 65      $ —        $ 99,602  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives

           

Natural gas fixed price forward contracts

   $ —        $ —        $ 15,121      $ 15,121  

Embedded derivative on 6% promissory Notes

     —          —          150,503        150,503  

Bank loan swap agreement

     —          3,359        —          3,359  

Stock warrants

           

Preferred stock warrants

     —          —          6,554        6,554  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 3,359      $ 172,178      $ 175,537  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measured at Reporting Date Using  
December 31, 2017    Level 1      Level 2      Level 3      Total  

Assets

           

Cash equivalents

           

Money market funds

   $ 79,256      $ —        $ —        $ 79,256  

Short-term investments

     26,816        —          —          26,816  

Bank loan swap agreement

     —          52        —          52  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 106,072      $ 52      $ —        $ 106,124  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives

           

Natural gas fixed price forward contracts

   $ —        $ —        $ 15,368      $ 15,368  

Embedded derivative on 6% promissory Notes

     —          —          140,771        140,771  

Bank loan swap agreement

     —          5,904        —          5,904  

Stock warrants

           

Preferred stock warrants

     —          —          9,825        9,825  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 5,904      $ 165,964      $ 171,868  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Fair Value Measured at Reporting Date Using  
December 31, 2016    Level 1      Level 2      Level 3      Total  

Assets

           

Cash equivalents

           

Money market funds

   $ 39,369      $ —        $ —        $ 39,369  

Bank loan swap agreement

     —          24        —          24  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 39,369      $ 24      $ —        $ 39,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives

           

Natural gas fixed price forward contracts

   $ —        $ —        $ 18,585      $ 18,585  

Embedded derivative on 6% promissory Notes

     —          —          115,807        115,807  

Bank loan swap agreement

     —          6,961        —          6,961  

Stock warrants

           

Preferred stock warrants

     —          —          12,885        12,885  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 6,961      $ 147,277      $ 154,238  
  

 

 

    

 

 

    

 

 

    

 

 

 

Money Market Funds

Cash and cash equivalents, which are comprised primarily of money market funds, are classified as Level 1 financial assets because they are valued using quoted market prices for identical securities.

Short-Term Investments

Short-term investments, which are comprised of U.S. Treasury bills with maturities of 12 months or less, are classified as Level 1 financial assets because they are valued using quoted market prices for identical securities.

Bank Loan Swap Agreements

The Company enters into interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments, as required by the lenders. These interest rate swaps are designed as hedging instruments and are recognized as fair value on our consolidated balance sheets. As of March 31, 2018, $0.2 million of the loss on the interest rate swaps accumulated in other comprehensive loss is expected to be reclassified into earnings in the next twelve months.

Natural Gas Fixed Price Forward Contracts

The Company enters into fixed price natural gas forward contracts. For the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a loss of $1.6 million, a loss of $1.0 million, a loss of $1.6 million and a loss of $0.9 million, respectively, and recorded gains on the settlement of these contracts of $4.7 million, $4.2 million, $1.1 million and $1.1 million, respectively, in cost of revenue on the consolidated statement of operations.

Embedded Derivative on 6% Convertible Promissory Notes

On December 15, 2015, the Company issued $160.0 million of 6% Convertible Senior Secured Paid In Kind Notes (6% Notes) that mature in December 2020. In addition, on January 29, 2016 and September 20, 2016, the Company issued $25.0 million and $75.0 million, respectively, of the 6% Notes. The 6% Notes are convertible at the option of the holders at a conversion price per share equal to the lower of $46.37 and 75% of the offering price of the Company’s common stock sold in an initial public offering. The conversion feature was classified within Level 3 because it was valued using the binomial lattice method, which utilizes significant inputs that are unobservable in the market.

 

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Fair value was determined by estimated event dates from May 31, 2018 to June 30, 2019, estimated probabilities of likely events under the scenario which is based upon facts existing at March 31, 2018: ITC tax credit renewed in February 2018, assumed event dates ranging from 5.0% to 35.0%, estimated maturity dates on December 1, 2020, estimated volatility of 40% to 50%, estimated common stock prices at estimated event dates ranging from $15 to $26, and risk free discount rates ranging from 1.68% to 2.35%.

Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement. Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s 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 the Company’s derivative liability. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability.

Preferred Stock Warrants

Refer to Note 23, Preferred Stock Warrants , for further discussion regarding the Company’s valuation method used to determine the fair value of preferred stock warrants issued to purchase the Company’s preferred stock. Refer to Note 19, Derivative Financial Instruments for further discussion regarding the Company’s valuation method used to determine the fair value of its derivative liabilities.

Changes in the Level 3 financial assets were as follows (in thousands):

 

     Natural
Gas
Fixed Price
Forward
Contracts
    Preferred
Stock
Warrants
    Derivative
Liability
     Total  

Balances at December 31, 2015

   $ 21,725     $ 17,027     $ 64,675      $ 103,427  

Settlement of natural gas fixed price forward contracts

     (4,734     —         —          (4,734

Embedded derivative on notes

     —         —         46,460        46,460  

Exercises of preferred stock warrants

     —         (3,336     —          (3,336

Changes in fair value

     1,594       (806     4,672        5,460  
  

 

 

   

 

 

   

 

 

    

 

 

 

Balances at December 31, 2016

   $ 18,585     $ 12,885     $ 115,807      $ 147,277  

Settlement of natural gas fixed price forward contracts (unaudited)

     (4,248     —         —          (4,248

Embedded derivative on notes

     —         —         6,804        6,804  

Changes in fair value

     1,031       (3,060     18,160        16,131  
  

 

 

   

 

 

   

 

 

    

 

 

 

Balances at December 31, 2017

   $ 15,368     $ 9,825     $ 140,771      $ 165,964  
  

 

 

   

 

 

   

 

 

    

 

 

 

Settlement of natural gas fixed price forward contracts (unaudited)

     (1,102     —         —          (1,102

Embedded derivative on notes (unaudited)

     —         —         2,235        2,235  

Changes in fair value (unaudited)

     855       (3,271     7,497        5,081  
  

 

 

   

 

 

   

 

 

    

 

 

 

Balances at March 31, 2018 (unaudited)

   $ 15,121     $ 6,554     $ 150,503      $ 172,178  
  

 

 

   

 

 

   

 

 

    

 

 

 

 

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Fair Value Disclosure

The carrying values of lines of credit approximated their fair values due to the fact that they were short-term in nature at December 31, 2016 and 2017, (Level 1). The Company has estimated the fair values of its customer financing receivables, senior secured notes, term loans and the estimated fair value of convertible promissory notes based on rates currently being 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, 2016      December 31, 2017      March 31, 2018  
     Carrying
Value
     Fair Value      Carrying
Value
     Fair Value      Carrying
Value
     Fair Value  
                                 (unaudited)  

Customer receivables:

                 

Customer financing receivables

   $ 82,727      $ 56,290      $ 77,885      $ 55,255      $ 76,640      $ 53,560  

Debt instruments:

                 

5.22% senior secured notes

   $ 103,085      $ 108,338      $ 89,564      $ 95,114      $ 86,944      $ 90,843  

Term loan due September 2028

     37,101        45,939        36,940        46,713        36,837        45,533  

Term loan due October 2020

     24,644        27,652        24,364        27,206        24,248        26,965  

6.07% senior secured notes

     85,149        91,991        84,032        93,264        83,652        90,676  

Term loan due December 2021

     127,677        131,493        125,596        131,817        125,086        130,453  

Term loan due November 2020

     6,557        6,847        4,888        5,148        4,469        4,695  

8% & 5% convertible promissory notes

     225,962        248,867        244,717        211,000        249,365        191,978  

6% convertible promissory notes and embedded derivatives

     299,918        325,776        377,496        359,865        395,542        354,384  

10% notes

     —          —          94,517        106,124        94,829        102,703  

 

14. Power Purchase Agreement Programs

In mid-2010, the Company began offering its Energy Servers through its Bloom Electrons program, financed via investment entities, referred to as power purchase agreements. Under these arrangements, a special purpose entity financed by third-party financing sources purchases the Energy Server from the Company, and the end customer enters into a power purchase agreement (PPA) to purchase the power generated by the Energy Server at a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. Similar to sales and leases, the first year warranty and guarantees are included in the price of the product. The special purpose entity also enters into a maintenance services agreement with the Company following the first year of service to extend the warranty services and guarantees over the term of the PPA agreement. The product revenue from PPAs entered into with the Company’s first PPA entity was considered a sales-type lease and the product revenue from that agreement was recognized up front in the same manner as purchase and lease transactions. Substantially all of the Company’s subsequent PPAs have been accounted for as operating leases and the related revenue under those agreements is recognized as electricity revenue as the electricity is produced and paid for by the customer. The Company recognizes the cost of revenue, primarily product costs, over the shorter of the estimated useful life of the Energy Server or the term of the PPA, which ranges from 10 to 21 years.

The Company and third-party investors contribute funds into an investment entity that owns the operating entity that acquires Energy Servers and enters into an arrangement with the Company to operate and service the Energy Servers. The contributed funds are restricted for use by the operating entity to purchase Energy Servers manufactured by the Company in its normal course of operations. Energy Servers purchased by the operating entity from the Company are recorded as property, plant and equipment on the

 

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Index to Financial Statements

operating entity’s books. In the consolidated financial statements, the sale of Energy Servers by the Company to the operating entity are treated as intercompany transactions, and after the elimination of intercompany balances, the Energy Servers are recorded within property, plant and equipment, at cost, within the consolidated financial statements. The acquisition of Energy Servers by the PPA entities is accounted for as a non-cash reclass from inventory to Energy Servers within property, plant and equipment, net on the Company’s consolidated balance sheets. The operating entity sells the electricity produced to the end customers under PPAs. Cash generated by the electricity sales, as well as from any applicable government incentive programs, is used to pay operating expenses (including the operations and maintenance services the Company provides) and to service the non-recourse debt, with the remaining cash flows distributed to the equity investors. Equity investors also receive investment tax credits and accelerated tax depreciation benefits.

The Company has established six different investment entities to date. All six investment entities had utilized their entire available financing capacity and completed its purchase of Energy Servers as of March 31, 2018. Any debt incurred by these entities is non-recourse to the Company. Under PPA structures, the Company and its PPA tax equity investors contribute funds into a limited liability company, which is treated as a partnership for U.S. federal income tax purposes. This entity is the parent entity of a project limited liability company which acquires Energy Servers from the Company for cash payments that are made on a similar schedule as if the project limited liability company were a customer purchasing an Energy Server from the Company outright. The investors make significant upfront cash payments for the purchase of the Energy Servers that the Company records on its consolidated balance sheets within property, plant and equipment. The Company reduces these assets by amounts received by the investors from U.S. Treasury Department grants and the associated incentive rebates. The Company recognizes the incentive rebates and subsequent customer payments as electricity revenue over the customer lease term and amortizes U.S. Treasury Department grants as a reduction to depreciation of the associated Energy Servers over the term of the PPA.

The Company has determined that the PPA entities are variable interest entities (“VIEs”) and it is the primary beneficiary of these VIEs by reference to the power and benefits criterion under ASC 810, Consolidations. The Company has considered the provisions within the contractual agreements, which grant it power to manage and make decisions that affect the operations of these VIEs. The Company considers that the rights granted to the tax equity investors under the contractual agreements are more protective in nature rather than participating.

As the primary beneficiary of these VIEs, the Company consolidates in its financial statements the financial position, results of operations and cash flows of these VIEs, and all intercompany balances and transactions between the Company and these VIEs are eliminated in the consolidated financial statements.

Upon sale or liquidation of a PPA Company, distributions would occur in the order of priority specified in the contractual agreements.

 

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Index to Financial Statements

The table below shows the details of the investment entities from inception to the periods indicated (dollars in thousands):

 

    PPA I     PPA
Company II
    PPA
Company IIIa
    PPA
Company IIIb
    PPA
Company IV
    PPA
Company V
 

Maximum size of installation (in megawatts)

    25       30       10       6       21       40  

Term of power purchase agreements (years)

    10       21       15       15       15       15  

First system installed

    Sep-10       Jun-12       Feb-13       Aug-13       Sep-14       Jun-15  

Last system installed

    Mar-13       Nov-13       Jun-14       Jun-15       Mar-16       Dec-16  

Income (loss) and tax benefits allocation to tax equity investor (%)

    99%       99%       99%       99%       90%       99%  

Cash allocation to tax equity investor (%)

    80%       99%       99%       99%       90%       90%  

Income (loss), tax and cash allocations to tax equity investor after the flip date (%)

    22%       5%       5%       5%       No flip       No flip  

Tax equity investor (1)

    Credit Suisse       Credit Suisse       US Bank       US Bank      
Exelon
Corporation

 
   
Exelon
Corporation

 

Put option date (2)

   


10 th  anniversary

of initial
funding date

 


 

   

10 th  anniversary
of initial
funding date
 

 
   
1 st  anniversary
of flip point
 
 
   
1 st  anniversary
of flip point
 
 
    N/A       N/A  

Activity as of March 31, 2018 (dollars in thousands):

 

Installed size (in megawatts) (unaudited)

    5       30       10       5       19       37  

Company cash contributions (unaudited)

  $ 180,699     $ 22,442     $ 32,223     $ 22,658     $ 11,669     $ 27,932  

Company non-cash contributions (3) (unaudited)

    —         —         8,655       2,082       —         —    

Tax equity investor cash contributions (unaudited)

    100,000       139,993       36,967       20,152       84,782       227,344  

Distributions to tax equity investor (4) (unaudited)

    (81,016     (112,487     (3,506     (1,504     (3,195     (61,722

Debt financing (unaudited)

    —         144,813       44,968       28,676       99,000       131,237  

Debt repayment—principal (unaudited)

  $ —     $ (56,448   $ (3,331   $ (3,301   $ (14,115   $ (3,530

Activity as of December 31, 2017 (dollars in thousands):

           

Installed size (in megawatts)

    5       30       10       5       19       37  

Company cash contributions

  $ 180,699     $ 22,442     $ 32,223     $ 22,658     $ 11,669     $ 27,932  

Company non-cash contributions (3)

    —       —       8,655       2,082       —       —  

Tax equity investor cash contributions

    100,000       139,993       36,967       20,152       84,782       227,344  

Distributions to tax equity investor (4)

    (81,016     (111,296     (3,324     (1,404     (2,565     (60,286

Debt financing

    —       144,813       44,968       28,676       99,000       131,237  

Debt repayment—principal

  $ —       $ (53,726   $ (3,041   $ (3,077   $ (13,697   $ (2,834

Activity as of December 31, 2016 (dollars in thousands):

           

Installed size (in megawatts)

    5       30       10       5       19       37  

Company cash contributions

  $ 180,699     $ 22,442     $ 32,223     $ 22,658     $ 11,669     $ 27,932  

Company non-cash contributions (3)

    —         —         8,655       2,082       —         —    

Tax equity investor cash contributions

    100,000       139,993       36,967       20,152       84,782       213,692  

Distributions to tax equity investor (4)

    (81,016     (107,336     (2,584     (1,002     (180     (50,827

Debt financing

    —         144,813       44,968       28,676       99,000       131,237  

Debt repayment—principal

  $ —       $ (39,759   $ (2,129   $ (2,356   $ (12,426   $ —    

 

(1)   Investor name represents ultimate parent of subsidiary financing the project.
(2)   Investor right on the certain date, upon giving the Company advance written notice, to sell the membership interests to the Company or resign or withdraw from the Company.
(3)   These non-cash contributions to PPA Company IIIa and PPA Company IIIb consisted of warrants that were issued by the Company to respective lenders to each PPA entity, as required by such entity’s credit agreements. The corresponding values are being amortized using the effective interest method over the debt term.

 

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Index to Financial Statements
(4)   These distributions to the tax equity investor includes partner related developer fee payments made to the tax equity investor related only to PPA Company V, see Note 2, Significant Accounting Policies .

The flip structure exists where the equity income and allocation distributions differ from the capital percentage funded at the formation of the partnership. The change in allocations to tax equity investors occurs based on a specified future date or once the tax equity investor reaches its targeted rate of return. For PPA entities with a specified future date, the flip should occur 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 Company II, PPA Company IIIa and PPA Company IIIb are redeemable as a result of the put option held by tax equity investors. The redemption value is the put amount. At December 31, 2016 and 2017, and March 31, 2018. the carrying value of redeemable noncontrolling interests of $59.3 million $58.2 million and $58.2 million, respectively, exceeded the maximum redemption value.

PPA Entities’ Aggregate Assets and Liabilities

Generally, PPA assets can be used to settle only the PPA obligations and PPA creditors do not have recourse to the Company. The aggregate carrying values of the PPA’s assets and liabilities, after eliminations of intercompany transactions and balances, in the consolidated balance sheets were as follows:

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Assets

        

Current Assets

        

Cash and cash equivalents

   $ 13,319      $ 9,549      $ 12,294  

Restricted cash

     5,901        7,969        11,582  

Accounts receivable

     7,462        7,680        7,550  

Customer financing receivable

     4,841        5,209        5,303  

Prepaid expenses and other current assets

     8,628        6,365        3,843  
  

 

 

    

 

 

    

 

 

 

Total current assets

     40,151        36,772        40,572  

Property and equipment, net

     462,825        430,464        422,471  

Customer financing receivable, non-current

     77,886        72,677        71,337  

Restricted cash

     30,764        26,748        27,330  

Other long-term assets

     5,669        3,767        4,054  
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 617,295      $ 570,428      $  565,764  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current liabilities

        

Accounts payable

   $ 356      $ 520      $ 519  

Accrued other current liabilities

     3,235        2,378        3,907  

Deferred revenue and customer deposits

     786        786        786  

Current portion of debt

     19,245        18,446        19,108  
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     23,622        22,130        24,320  

Derivative liabilities

     5,183        5,060        2,954  

Deferred revenue

     10,267        9,482        9,288  

Long-term portion of debt

     358,410        342,050        337,657  

Other long-term liabilities

     644        1,226        1,370  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 398,126      $ 379,948      $  375,589  
  

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements
15. PPA I Decommissioning

During 2015, the Company recorded a reduction in product revenue totaling $41.8 million for the decommissioning of its PPA I Energy Servers.

The Company’s PPA I sales arrangements qualified as sales-type leases and therefore, product revenue was recognized upfront at acceptance and a customer financing receivable was recorded on the balance sheet. The product revenue related to these arrangements was recognized in 2010 through 2012. To date, the Company has incurred significant costs to service and maintain these first and second generation Energy Servers deployed in these arrangements that are still in service, primarily because it has had to frequently replace expensive components within these systems. The Company’s new generation Energy Servers being deployed have longer lives with lower service and maintenance costs than the earlier generation Energy Servers. Each of PPA I’s power purchase agreements with its customers has a 10 year contract term, with the last service site not ending until 2021. In an effort to minimize the financial effect of these service costs in future periods from these legacy systems, in December 2015, the Company initiated a PPA I fleet decommissioning program, in agreement with its tax equity investor whereby it would seek to renegotiate its existing PPA arrangements and purchase the tax equity investor’s interest in PPA I. In January 2016, the Company issued an additional $25.0 million of the Company’s 6% Notes for the purchase of such tax equity investor’s interest. The issuance was recorded as a reduction in the Company’s Stockholders’ Deficit at the net fair value of the notes. The difference between the fair value of the notes and the noncontrolling interest reduction has been recognized in stockholders’ equity in the first quarter of 2016, in accordance with ASC 810-10-45-23. ASC 810-10-45-23 states that changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions and no gain or loss shall be recognized in consolidated net income or comprehensive income. The Company’s purchase of the tax equity investor’s interest in PPA I resulted in a change in the Company’s ownership interest in PPA I while the Company continued to hold the controlling financial interest in PPA I. Accordingly, the difference between the fair value of the notes, issued to purchase the tax equity investor’s interest in PPA I, and the noncontrolling interest reduction has been recognized in stockholders’ equity. Since the underlying assets under the arrangement were replaced (i.e., new generation Energy Servers were installed in place of the decommissioned older generation Energy Servers), the decommissioning of Energy Servers under the program did not constitute a lease modification, and was accounted for as a lease termination. Through December 31, 2017, the Company has replaced 196 Energy Servers with new generation Energy Servers sold as part of a new sales arrangement. As the original sale was recognized as product revenue upfront under the assumption that the lease payments were non-cancellable, the Company recorded the related decommissioning charge as a reduction in product revenue on the consolidated statement of operations, including a related asset impairment charge of $31.8 million related to the customer financing receivable, in accordance with the guidance on the accounting for impairment of financing receivables within ASC 310, Receivables . The amount of impairment is based on the remaining estimated amount of receivable that the Company expects to collect under the PPA I arrangements until the planned dates of decommissioning of systems at customers’ sites, and the estimated output levels of these systems based on their current output levels.

Additionally, the Company’s policy is that cash grants received under the American Recovery and Reinvestment Act of 2009 (ARRA) are treated as revenue when received. In accordance with the guidance on accounting for loss contingencies under ASC, Contingencies, charges for estimated future cash expenditures were recorded in December 2015 for the estimated loss of $10.0 million related to estimated reimbursements of such cash grants received due to certain recapture provisions under the grant program. As the amount previously received under the grant program was recognized as product revenue, the Company recorded the related loss as a reduction in product revenue on the consolidated statements of operations. The estimated amount of the reimbursement is based on the planned dates of decommissioning of the systems which determine the proportionate amount of grant recapture based on the date of installation of the system and the date of its decommissioning. The decommissioning program was completed as of December 31, 2016. In 2016, the Company recorded a $1.7 million reduction in its estimate of recapture refunds and paid all remaining liabilities totaling $8.3 million in recapture refunds.

 

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Index to Financial Statements
16. Customer Financing Leases, Receivable

Net Investment in Sales-Type Financing Leases

The components of investment in sales-type financing leases consisted of the following (in thousands):

 

     Years Ended
December 31,
    March 31,  
     2016     2017     2018  
                 (unaudited)  

Total minimum lease payments to be received

   $ 117,734     $ 109,431     $ 107,328  

Less: Amounts representing estimated executing costs

     (30,454     (27,815     (27,155
  

 

 

   

 

 

   

 

 

 

Net present value of minimum lease payments to be received

     87,280       81,616       80,173  

Estimated residual value of leased assets

     1,050       1,050       1,050  

Less: Unearned income

     (5,603     (4,781     (4,583
  

 

 

   

 

 

   

 

 

 

Net investment in sales-type financing leases

     82,727       77,885       76,640  

Less: Current portion

     (4,841     (5,209     (5,303
  

 

 

   

 

 

   

 

 

 

Non-current portion of investment in sales-type financing leases

   $ 77,886     $ 72,676     $ 71,337  
  

 

 

   

 

 

   

 

 

 

The future scheduled customer payments from sales-type financing leases were as follows (in thousands) as of March 31, 2018:

 

     March 31,  
     (unaudited)  
     2018      2019      2020      2021      2022      Beyond
2022
 

Future minimum lease payments, less interest

   $ 3,964      $ 5,594      $ 6,022      $ 6,415      $ 6,853      $ 46,742  

The future scheduled customer payments from sales-type financing leases were as follows (in thousands) as of December 31, 2017:

 

     December 31,  
     2018      2019      2020      2021      2022      Beyond
2022
 

Future minimum lease payments, less interest

   $ 5,209      $ 5,594      $ 6,022      $ 6,415      $ 6,853      $ 46,742  

 

17. Income Taxes

The following table presents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands):

 

     Years Ended December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

United States

   $ (337,449    $ (283,710    $ (14,581

Foreign

     1,862        3,081        53  
  

 

 

    

 

 

    

 

 

 

Total

   $ (335,587    $ (280,629    $ (14,528
  

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

The income tax expense is composed of the following (in thousands):

 

     Years Ended December 31,      March 31,  
         2016              2017          2018  
            (unaudited)  

Current

     

Federal

   $ —        $ —        $ —    

State

     42        25        34  

Foreign

     702        621        299  
  

 

 

    

 

 

    

 

 

 

Total current

   $ 744      $ 646      $ 333  
  

 

 

    

 

 

    

 

 

 

Deferred

        

Federal

   $ —        $ —        $ —    

State

     —          —          —    

Foreign

     (15      (10      —    
  

 

 

    

 

 

    

 

 

 

Total deferred

     (15      (10      —    
  

 

 

    

 

 

    

 

 

 

Total income tax expense

   $ 729      $ 636      $ 333  
  

 

 

    

 

 

    

 

 

 

The reconciliation of the Company’s effective taxes to the statutory federal income taxes is as follows (in thousands):

 

     Years Ended December 31,  
     2016      2017  

Tax at federal statutory rate

   $ (114,100    $ (95,414

State taxes, net of federal effect

     42        25  

Impact on noncontrolling interest

     19,264        6,347  

Non-US tax effect

     54        (437

Nondeductible expenses

     4,426        5,698  

Stock-based compensation

     4,243        4,854  

U.S. Tax reform impact

     —          239,117  

Change in valuation allowance

     86,800        (159,554
  

 

 

    

 

 

 

Provision for income taxes

   $ 729      $ 636  
  

 

 

    

 

 

 

For the year ended December 31, 2017, the Company recorded an expense for income taxes of $0.6 million on a pre-tax loss of $280.6 million, for an effective tax rate of (0.2)%. For the year ended December 31, 2016, the Company recorded an expense for income taxes of $0.7 million on a pre-tax loss of $335.6 million, for an effective tax rate of (0.2)%. The effective tax rate for both 2016 and 2017 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.

 

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Index to Financial Statements

Significant components of the Company’s deferred tax assets consist of the following (in thousands):

 

     December 31,  
     2016      2017  

Tax credits and NOLs

   $ 586,798      $ 457,718  

Depreciation and amortization

     17,881        10,811  

Deferred revenue

     39,760        27,195  

Accruals and reserves

     24,369        17,163  

Stock-based compensation

     20,901        18,956  

Derivative liability

     37,356        33,200  

Other items

     22,937        16,218  
  

 

 

    

 

 

 

Gross deferred tax assets

     750,002        581,261  

Valuation allowance

     (683,739      (542,409
  

 

 

    

 

 

 

Net deferred tax assets

     66,263        38,852  
  

 

 

    

 

 

 

Investment in PPA entities

     (39,938      (25,252

Debt issuance cost

     (25,622      (12,827
  

 

 

    

 

 

 

Gross deferred tax liabilities

     (65,560      (38,079
  

 

 

    

 

 

 

Net deferred tax asset

   $ 703      $ 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.

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 evidences, both positive and negative, it is more likely than not that the U.S. deferred tax assets will not be utilized, such that a full valuation allowance has been recorded.

The valuation allowance for deferred tax assets was $683.7 million and $542.4 million as of December 31, 2016 and 2017, respectively. The net change in the total valuation allowance for the years ended December 31, 2016 and 2017 was a decrease of $87.7 million and $141.3 million, respectively. There were no releases from the valuation allowance in either period.

At December 31, 2017, the Company had federal and state net operating loss carryforwards of $1.7 billion and $1.5 billion, respectively, which will expire, if unused, beginning in 2022 and 2018, respectively. In addition, the Company had approximately $16.1 million of federal research credit, $6.6 million of federal investment tax credit, and $12.2 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. The Company has 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 the capital stock ownership of the Company. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If the Company should have an ownership change, as defined by the tax law, utilization of the net operating loss and carryforwards could be significantly reduced. The Company completed a Section 382 analysis through December 31, 2015. Based on this analysis, Section 382 limitations will not have a material impact on the Company’s net operating loss and credit carryforwards related to any ownership changes which occurred during the period covered by the analysis.

 

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During the year ended December 31, 2017, the amount of uncertain tax positions increased by $2.8 million. The Company has 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):

 

     December 31,  
     2016      2017  

Unrecognized tax benefits beginning balance

   $ 26,165      $ 27,136  

Gross decrease for tax positions of prior year

     —          —    

Gross increase for tax positions of current year

     971        1,195  
  

 

 

    

 

 

 

Unrecognized tax benefits end balance

   $ 27,136      $ 28,331  
  

 

 

    

 

 

 

If fully recognized in the future, there would be no impact to the effective tax rate, and $25.8 million would result in adjustments to the valuation allowance. The Company does 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 was no interest or penalties accrued during or for the years ended December 31, 2016 and 2017.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. With the exception of the PPA I entity, the Company currently does not have any tax examinations in progress nor has it had any tax examinations since its inception. All of the Company’s 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. PPA I had a federal tax audit for the years ended December 31, 2010 through 2012 and the state statutes of limitations have expired for the years ended December 31, 2010 through 2012.

On December 22, 2017 the President signed into U.S. law H.R.1, commonly referred as to the Tax Cuts and Jobs Act of 2017 (“The Act” or “Tax Reform”). ASC Topic 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions of the law, January 1, 2018.

Given the significance of the legislation, the U.S. Securities and Exchange Commission (the “SEC”) staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed.

As a result of Tax Reform, the U.S. statutory tax rate was lowered from 34 percent to 21 percent, effective on January 1, 2018. We are required to remeasure our U.S. deferred tax assets and liabilities to the new tax rate. The U.S. operation is in a net deferred tax asset position, offset by a full valuation allowance. We reduced our net deferred tax assets and the corresponding valuation allowance by $238.9 million.

The Tax Reform includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries. We have performed an earnings and profits analysis, and as a result of foreign tax credits and net operating losses available to fully offset the anticipated transition tax, there will be no income tax effect in the current period.

However, several provisions, including the repatriation provisions, of the Tax Reform have significant impact on our U.S. tax attributes, generally consisting of credits, loss carry-forwards, and deferred interest deductions. Our tax attributes are generally subject to a full valuation allowance in the U.S. and thus, any adjustments to the attributes will not impact the tax provision. Although we have made a reasonable

 

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Index to Financial Statements

estimate of the gross amounts of the attributes disclosed, a final determination of the Tax Reform’s impact on the attributes and related valuation allowance requirements remain provisional pending a full analysis of the provisions and their interpretations.

The Act also includes provisions for certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income (“GILTI”), which impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. 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 (the “period cost method”), or (ii) account for GILTI in the measurement of deferred taxes (the “deferred method”). Because of the complexity of the new provisions, we are continuing to evaluate the accounting impact under GAAP and will make an election once this analysis has been completed.

As of December 31, 2017, we had accumulated undistributed foreign earnings that are subject to deemed one-time mandatory repatriation under the Act for US tax purposes. Based on the Company’s provisional analysis, the one-time transition tax is expected to be immaterial. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. If the Company were to make actual distributions of some or all of these earnings, the Company would incur no additional US income tax but could incur US state income tax and foreign withholding taxes. The Company has not accrued for these potential US state income tax and foreign withholding taxes because the Company intends to permanently reinvest its foreign earnings in its international operations. Additional income tax associated with the distribution of these earnings is immaterial.

 

18. Commitments and Contingencies

Indemnification Agreements

The Company enters into standard indemnification agreements with its customers and certain other business partners in the ordinary course of business. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

Leases

The Company leases its facilities, office buildings and equipment under operating leases that expire at various dates through December 2020. The Company’s headquarters are used for corporate administration, research and development, sales and marketing, and manufacturing and currently occupy approximately 31,000 square feet of office space in Sunnyvale, California under lease through December 2018. Rent expense for all office facilities was $5.1 million, $5.2 million, $1.4 million and $1.4 million during the years ended December 31, 2016 and 2017, and for the three months ended March 31, 2017 and March 31, 2018. respectively.

Beginning in December 2015, the Company is a party to master lease agreements that provide for the sale of Energy Servers to third parties and the simultaneous leaseback of the systems, which the Company then subleases to its customers. The lease agreements expire on various dates through 2025 and there was no rent expense during the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018.

 

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At March 31, 2018, future minimum lease payments under operating leases were as follows (in thousands) (unaudited):

 

2018

   $ 28,357  

2019

     28,003  

2020

     27,887  

2021

     26,512  

2022

     26,215  

Thereafter

     100,650  
  

 

 

 
   $ 237,624  
  

 

 

 

At December 31, 2017, future minimum lease payments under operating leases were as follows (in thousands):

 

2018

   $ 29,939  

2019

     27,961  

2020

     27,842  

2021

     26,504  

2022

     26,215  

Thereafter

     100,650  
  

 

 

 
   $ 239,111  
  

 

 

 

At December 31, 2016, future minimum lease payments under operating leases were as follows (in thousands):

 

2017

   $ 19,550  

2018

     19,205  

2019

     17,411  

2020

     17,244  

2021

     15,770  

Thereafter

     74,665  
  

 

 

 
   $ 163,845  
  

 

 

 

Purchase Commitments with Suppliers and Contract Manufacturers

In order to reduce manufacturing lead-times and ensure an adequate supply of inventories, the Company has agreements with its component suppliers and contract manufacturers to allow them to procure long lead-time component inventory based on a rolling production forecast. The Company is contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with its forecasts. The Company can generally give notice of order cancellation at least 90 days prior to the delivery date. However, the Company issues purchase orders to its component suppliers and third-party manufacturers that may not be cancellable. As of March 31, 2018, the Company had no material open purchase orders with its component suppliers and third-party manufacturers that are not cancellable.

Power Purchase Agreement Program

Under the terms of the Bloom Electrons program (Refer to Note 14, Power Purchase Agreement Programs ), customers agree to purchase power from the Company’s Energy Servers at negotiated rates, generally for periods of up to twenty one years. The Company is responsible for all operating costs necessary to maintain, monitor and repair the Energy Servers, sometimes including fuel necessary to operate the systems.

 

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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 guarantees, 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 guarantees are accrued in periods when the guarantees are not met and recorded in cost of service revenue in the consolidated statements of operations. The PPA entities did not have any such payments or liabilities during the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2018.

The related fuel supply contracts are carried at fair value. Should actual results differ from the Company’s estimates, the Company’s results of operations could be negatively impacted.

Legal Matters

From time to time, the Company is 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. The Company reviews 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. The Company records 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 the Company’s estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on the Company’s consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.

 

19. Derivative Financial Instruments

On September 1, 2011, the Company entered into a fixed price fixed quantity fuel forward contract with a gas supplier. This fuel forward contract is used as part of the Company’s program to manage the risk for controlling the overall cost of natural gas. The fuel forward contract meets the definition of a derivative under U.S. GAAP. The Company has elected not 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 Company’s credit rate and future natural gas prices.

For the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a loss of $1.6 million, a loss of $1.0 million, a loss of $1.6 million and a loss of $0.9 million, respectively, and recorded gains on the settlement of these contracts of $4.7 million, $4.2 million, $1.1 million and $1.1 million, respectively, in cost of revenue on the consolidated statement of operations.

The following table provides the fair value of the Company’s natural gas fixed price contracts:

 

     December 31,      March 31,  
     2016      2017      2018  
     Number of
Contracts
(MMBTU) (2)
     Fair
Value
     Number of
Contracts
(MMBTU) (2)
     Fair
Value
     Number of
Contracts

(MMBTU) (2)
     Fair
Value
 
                                 (unaudited)  

Liabilities (1)

                 

Natural gas fixed price forward contracts (not under hedging relationships)

     5,503      $ 18,585        4,332      $ 15,368        4,044      $ 15,121  

 

(1)   Recorded in other 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.

 

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In September 2013, PPA Company IIIb entered into an interest rate swap arrangement to convert a variable interest rate on debt to a fixed rate. The Company designated and documented its interest rate swap arrangement as a cash flow hedge. The swap’s term ends on October 1, 2020 concurrent with the final maturity of the debt floating interest rates reset on a quarterly basis. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive loss and was recognized as interest expense on settlement. The notional amounts of the swap were $26.3 million, $25.6 million and $25.4 million as of December 31, 2016, 2017 and as of March 31, 2018. respectively. By entering into the swap, the Company minimizes the impact of fluctuations from interest rate changes on its outstanding debt where LIBOR is applied. The Company measures 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. The Company recorded a loss of $57,000 and a loss of $64,000 during the years ended December 31, 2016 and 2017, respectively, due to the change in swap’s fair value included in other expense, net in the consolidated statement of operations. The Company recorded a loss of $16,000 and a loss of $37,000 during the three months ended March 31, 2017 and 2018, respectively, due to the change in swap’s fair value included in other expense, net in the consolidated statement of operations.

In July 2015, PPA Company V entered into nine interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan. The loss on the swaps prior to designation was recorded in current-period earnings. In July 2015, the Company 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. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive loss and was recognized as interest expense on settlement. The notional amounts of the swaps were $189.9 million, $188.5 million and $188.1 million as of December 31, 2016 and 2017 and March 31, 2018, respectively. By entering into the swaps, the Company minimizes the impact of fluctuations from interest rate changes on its outstanding loan where LIBOR is applied. The Company measures 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. The company recorded a gain of $72,000 and $126,000 during the years ended December 31, 2016 and 2017, respectively, due to the change in swaps’ fair value included in other expense, net in the consolidated statement of operations. Amounts of hedge ineffectiveness were immaterial for the years ended December 31, 2016 and 2017, respectively. The Company recorded a gain of $32,000 and a gain of $54,000 due to the change in valuation during the three months ended March 31, 2017 and 2018.

The fair value of the derivatives as of December 31, 2016 and 2017 and as of March 31, 2018, were as follows:

 

     December 31,      March 31,  
     2016      2017      2018  
                   (unaudited)  

Derivatives designated as hedging instruments

        

Other long-term assets

   $ 24      $ 52      $ 450  
  

 

 

    

 

 

    

 

 

 

Total assets

     24        52      $ 450  
  

 

 

    

 

 

    

 

 

 

Interest rate swap

        

Accrued other current liabilities

   $ 1,778      $ 845      $ 405  

Derivative liabilities

     5,183        5,060        2,954  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 6,961      $ 5,905      $ 3,359  
  

 

 

    

 

 

    

 

 

 

 

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The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive loss and in earnings for the years ended December 31, 2016 and 2017, and in the three months ended March 31, 2018, were as follows:

 

Balances at December 31, 2015

   $ 6,648  

Loss recognized in other comprehensive loss

     1,038  
  

 

 

 

Amounts reclassified from other comprehensive loss to earnings

     (620
  

 

 

 

Net loss recognized in other comprehensive loss

     418  

Loss recognized in earnings

     (129
  

 

 

 

Balances at December 31, 2016

   $ 6,937  
  

 

 

 

Loss recognized in other comprehensive loss

     669  

Amounts reclassified from other comprehensive loss to earnings

     (1,563
  

 

 

 

Net gain recognized in other comprehensive loss

     (894

Gain recognized in earnings

     (190
  

 

 

 

Balances at December 31, 2017

   $ 5,853  
  

 

 

 

Gain recognized in other comprehensive loss (unaudited)

     (2,640

Amounts reclassified from other comprehensive loss to earnings (unaudited)

     (212
  

 

 

 

Net gain recognized in other comprehensive loss (unaudited)

     (2,852

Gain recognized in earnings (unaudited)

     (92
  

 

 

 

Balances at March 31, 2018 (unaudited)

   $ 2,909  
  

 

 

 

On December 15, 2015, January 29, 2016, and September 10, 2016, the Company issued $160.0 million, $25.0 million, and $75.0 million, respectively, of 6% Convertible Senior Secured PIK Notes that mature in December 2020. The 6% Notes are convertible at the option of the holders at a conversion price per share equal to the lower of $46.37 and 75% of the offering price of the Company’s common stock sold in an initial public offering. The valuation of this embedded put feature is recorded as a derivative liability in the consolidated balance sheet. The notes were initially recorded net of a discount of $6.3 million and the fair value of the embedded derivatives within the notes was $115.8 million. Fair value was determined using the binomial lattice method. The debt discount is being amortized through interest expense on the consolidated statements of operations over an accelerated three year amortization period based on when the Notes become puttable. The Company measures the fair value of the derivatives at each reporting date and the Company recorded a loss of $4.6 million, a loss of $18.2 million, a gain of $0.2 million, and a loss of $7.5 million due to the change in valuation, for the years ended December 31, 2016, and 2017, and for the three months ended March 31, 2017 and 2018, respectively.

 

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20. Bank Loans and Security Agreements

The following is a summary of the Company’s debt as of March 31, 2018 (in thousands) (unaudited):

 

    Unpaid
Principal
Balance
    Net Carrying Value     Unused
Borrowing
Capacity
    Interest
Rate
    Maturity Dates     Entity     Recourse  
      Current     Long-
Term
    Total            

5.22% senior secured notes

  $ 88,364     $ 11,537     $ 75,407     $ 86,944     $ —       5.2%       March 2025       PPA II       No  

Term loan

    41,637       1,525       35,312       36,837       —       7.5%       September 2028       PPA IIIa       No  

Term loan

    25,375       936       23,310       24,246       —      

LIBOR

plus margin

 

 

    October 2020       PPA IIIb       No  

6.07% senior secured notes

    84,885       1,996       81,656       83,652       —       6.1%       March 2030       PPA IV       No  

Term loan

    127,706       3,114       121,972       125,086       —      
LIBOR plus
margin
 
 
    December 2021       PPA V       No  

Letters of Credit

    —       —       —       —       1,604       2.25%       December 2021       PPA V       No  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total non-recourse debt

    367,967       19,108       337,657       356,765       1,604          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Term loan

    4,571       1,690       2,779       4,469       —      

LIBOR

plus margin

 

 

    November 2020       Company       Yes  

8%/5% convertible promissory notes

    249,365       4,327       245,038       249,365       —       8.0%/5.0%      
December 2019 &
December 2020
 
 
    Company       Yes  

6% convertible promissory notes

    290,382       —       245,039       245,039       —       5.0%/6.0%       December 2020       Company       Yes  

10% notes

    100,000       —       94,829       94,829       —       10.0%       July 2024       Company       Yes  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total recourse debt

    644,318       6,017       587,685       593,702       —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total debt

  $ 1,012,285     $ 25,125     $ 925,342     $ 950,467     $ 1,604          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

The following is a summary of the Company’s debt as of December 31, 2017 (in thousands):

 

    Unpaid
Principal
Balance
    Net Carrying Value     Unused
Borrowing
Capacity
    Interest
Rate
    Maturity
Dates
    Entity     Recourse  
      Current     Long-
Term
    Total            

5.22% senior secured notes

  $ 91,086     $ 11,389     $ 78,175     $ 89,564     $ —       5.2%       March 2025       PPA II       No  

Term loan

    41,927       1,389       35,551       36,940       —       7.5%       September 2028       PPA IIIa       No  

Term loan

    25,599       876       23,488       24,364       —      

LIBOR

plus margin

 

 

    October 2020       PPA IIIb       No  

6.07% senior secured notes

    85,303       1,846       82,186       84,032       —       6.1%       March 2030       PPA IV       No  

Term loan

    128,403       2,946       122,650       125,596       —      
LIBOR plus
margin
 
 
    December 2021       PPA V       No  

Letters of Credit

    —       —       —       —       1,784       2.25%       December 2021       PPA V       No  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total non-recourse debt

    372,318       18,446       342,050       360,496       1,784          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Term loan

    5,000       1,691       3,197       4,888       —      

LIBOR

plus margin

 

 

    November 2020       Company       Yes  

8% convertible promissory notes

    244,717       —       244,717       244,717       —       8.0%      
December 2019 &
December 2020
 
 
    Company       Yes  

6% convertible promissory notes

    286,069       —       236,724       236,724       —       5.0%/6.0%       December 2020       Company       Yes  

10% notes

    100,000       —       94,517       94,517       —       10.0%       July 2024       Company       Yes  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total recourse debt

    635,786       1,691       579,155       580,846       —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total debt

  $ 1,008,104     $ 20,137     $ 921,205     $ 941,342     $ 1,784          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

 

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The following is a summary of the Company’s debt as of December 31, 2016 (in thousands):

 

    Unpaid
Principal
Balance
    Net Carrying Value     Unused
Borrowing
Capacity
    Interest
Rate
    Maturity
Dates
    Entity     Recourse  
      Current     Long-
Term
    Total            

5.22% senior secured notes

  $ 105,053     $ 13,967     $ 89,118     $ 103,085     $ —       5.2%       March 2025       PPA II       No  

Term loan

    42,839       912       36,189       37,101       —       7.5%       September 2028       PPA IIIa       No  

Term loan

    26,320       721       23,923       24,644       —      


LIBOR

plus
margin

 

 
 

    October 2020       PPA IIIb       No  

6.07% senior secured notes

    86,574       1,271       83,878       85,149       —       6.1%       March 2030       PPA IV       No  

Term loan

    131,237       2,374       125,303       127,677       —      


LIBOR

plus
margin

 

 
 

    December 2021       PPA V       No  

Letters of credit

    —       —       —       —       6,439      


LIBOR

plus
margin

 

 
 

    December 2021       PPA V       No  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total non-recourse debt

    392,023       19,245       358,411       377,656       6,439          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Term loan

    6,714       1,694       4,863       6,557       —      


LIBOR

plus
margin

 

 
 

    November 2020       Company       Yes  

8% convertible promissory notes

    225,962       —       225,962       225,962       —       8.0%      
December 2019 &
December 2020
 
 
    Company       Yes  

6% convertible promissory notes

    270,794       —       184,111       184,111       —       5.0%/6.0%       December 2020       Company       Yes  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total recourse debt

    503,470       1,694       414,936       416,630       —          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Total debt

  $ 895,493     $ 20,939     $ 773,347     $ 794,286     $ 6,439          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

Recourse debt refers to debt that is recourse to the Company’s general assets. Non-recourse debt refers to debt that is recourse to only specified assets or subsidiaries of the Company. The differences between the unpaid principal balances and the net carrying values are due to debt discounts and deferred financing costs. The Company was in compliance with all financial covenants as of December 31, 2016 and 2017 and as of March 31, 2018. The Company’s debt is described further below.

Non-recourse Debt Facilities

5.22% Senior Secured Notes

In March 2013, PPA Company II refinanced its existing debt by issuing 5.22% Senior Secured Notes (PPA II 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. The loan is a fixed rate term loan that bears an annual interest rate of 5.22% payable quarterly. The loan has a fixed amortization schedule of the principal, payable quarterly, which began March 30, 2014 that requires repayment in full by March 30, 2025. The Note Purchase Agreement requires the Company to maintain a debt service reserve, the balance of which was $11.3 million, $11.3 million and $11.2 million as of December 31, 2016 and 2017 and as of March 31, 2018, respectively, and was included as part of long-term restricted cash in the consolidated balance sheets. The PPA II Notes are secured by all the assets of PPA II. The Company was in compliance with all financial covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

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 Bloom 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 the Company to maintain a debt service reserve for all funded

 

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systems, the balance of which was $3.6 million and $3.7 million as of December 31, 2016 and 2017, respectively, and $3.7 million as of March 31, 2018, and was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA IIIa. The Company was in compliance with all financial covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

Term Loan due October 2020

In September 2013, PPA IIIb entered into a credit agreement to help fund the purchase and installation of Bloom 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 is $32.5 million. The credit agreement requires the Company to maintain a debt service reserve for all funded systems, the balance of which was $1.7 million and $1.7 million as of December 31, 2016 and 2017, respectively, and $1.7 million as of March 31, 2018, and was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA IIIb and requires quarterly principal payments starting in July 2014. The Company was in compliance with all financial covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

In connection with the floating-rate credit agreement, in September 2013, PPA IIIb entered into pay-fixed, receive-float interest rate swap agreement to convert its floating-rate loan into a fixed-rate loan.

6.07% Senior Secured Notes

In July 2014, PPA IV issued senior secured notes (PPA IV Notes) amounting to $99.0 million to third parties to help fund the purchase and installation of Bloom Energy Servers. The PPA IV Notes bear a fixed interest rate of 6.07% payable quarterly. The principal amount of the PPA IV Notes is payable quarterly starting in December 2015 and ending in March 2030. In March 2015, the Note Purchase Agreement was amended to extend the date certain to March 31, 2016. As of December 31, 2015, PPA IV had estimated it would only reach a system capacity of 18.95 megawatts and therefore anticipated a prepayment of the notes in the amount of $14.6 million would be required. The anticipated prepayment was classified as part of short-term debt in the consolidated balance sheets. As of December 31, 2016, PPA IV reached a system capacity of 19.25 megawatts and was required to make a prepayment of the notes in the amount of $11.7 million in April 2016. The Note Purchase Agreement requires the Company to maintain a debt service reserve, the balance of which was $6.5 million and $7.0 million, as of December 31, 2016 and 2017, respectively, and $7.1 million as of March 31, 2018, and was included as part of long-term restricted cash in the consolidated balance sheets. The PPA IV Notes are secured by all the assets of the PPA IV. The Company was in compliance with all financial covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

Term Loan due December 2021 and Letters of Credit due December 2021

In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of Bloom Energy Servers. The lenders are a group of five financial institutions. In addition, the lenders further had commitments to the Letter of Credit (LC) facility with the aggregate principal amount of $6.4 million. The LC facility is to fund the Debt Service Reserve Account. 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 (“Term Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted down to total of $6.2 million. As of December 31, 2017, the lenders have issued a total of $4.4 million in LCs to the Company, leaving $1.8 million as unused borrowing capacity.

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

 

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quarterly principal payments beginning in March 2017. The Company was in compliance with all financial covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

In connection with the floating-rate credit agreement, in July 2015, PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.

Production insurance policies are in place to protect lenders of PPA IIIb, PPA IV and PPA V in the event that cash flows are insufficient to meet debt service obligations due to Energy Server underperformance. Amounts paid for production insurance are recorded in prepaid and other current assets and in other long-term assets in the consolidated balance sheets and are amortized over the expected terms of the loans.

Recourse Debt Facilities

Line of Credit

On December 31, 2012, the Company entered into a $5.0 million equipment line of credit with a financial institution. At December 31, 2012, the Company utilized the entire $5.0 million of the equipment line of credit with terms of 42 months, payable monthly, at an annual rate equal to 2.70% which matured in July 2016. As of December 31, 2015, the debt outstanding was $1.12 million. On July 1, 2016, the Company paid the remaining balance of $0.5 million. The Company was in compliance with all covenants as of December 31, 2016.

Term Loan due November 2020

On May 22, 2013, the Company entered into a $12.0 million financing agreement with a financial institution. The loan has a term of 90 months, payable monthly at a variable rate equal to one-month LIBOR plus the applicable margin. As of December 31, 2016 and 2017 and as of March 31, 2018, the debt outstanding was $6.6 million, $4.9 million, and $4.5 million, respectively. The Company was in compliance with all covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

Term Equipment Loan due November 2016

On May 22, 2013, the Company entered into a $5.0 million equipment loan with a financial institution. During 2013, the Company utilized $5.0 million of the equipment loan with terms of 39 months, payable monthly at a variable rate equal to one-month LIBOR plus the applicable margin. The final payment of principal and interest was made on November 1, 2016 upon the maturity date. The Company was in compliance with all covenants as of December 31, 2016.

8% and 5% Convertible Promissory Notes

In December 2014, the Company entered into a three year $132.2 million convertible promissory note agreements with certain investors, including $10.0 million each from three related parties. The related parties consisted of Independent Board Members of the Company from Alberta Investment Management Corporation, KPCB Holdings, Inc. and New Enterprise Associates. The principal balances and interest accrued were originally due upon maturity in December 2017, but on June 11, 2017, the notes were amended to mature on December 2018.

As part of the December 2014, convertible promissory note agreements with certain investors, the Company entered into two more promissory note agreements in January and February 2015 for an additional $34.0 million. In June 2015 the Company entered into an additional promissory note agreement for $27.0 million. The principal and interest accrued of the June 2015 note are due upon maturity in June 2018. The loans, which bear a fixed interest rate of 8.0%, compounded monthly, are due at maturity or at the election of the investor, the accrued interest would be due in December of each year. As of December 31, 2016 and

 

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2017 and the three months ended March 31, 2018, the total amount outstanding was $226.0 million, $244.7 million, and $249.4 million, respectively, including accrued interest. At the election of the investor, the accrued interest can be paid in December of each year. Investors have the right to convert the unpaid principal and accrued interest to Series G convertible preferred stock at any time at the price of $38.64. If an initial public offering occurs prior to the payment in full, the outstanding principal and accrued interest will mandatorily convert into Series G convertible preferred stock. The principal balances and interest accrued were originally due upon maturity in December 2017, but on June 11, 2017, was amended to mature on December 2018. As the Company had the intent and ability to extend the maturity of the debt from December 2018 to December 2020 for the note held by Constellation NewEnergy, Inc. (the Constellation Note) and from December 2018 to December 2019 for all other 8% Notes, as evidenced by the completion of the amendment of the debt terms in January 2018, $244.7 million of the debt was classified as noncurrent as of December 31, 2017. The Company was in compliance with all covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

On January 18, 2018, amendments were finalized to extend the maturity dates for all 8% Notes. The Constellation Note was extended to December 2020 and all other 8% Notes were extended to December 2019. Additionally, the Constellation Note interest rate decreased from 8% to 5% as part of the amendment.

6% Convertible Promissory Notes

In December 2015, January 2016 and September 2016 the Company entered into six promissory note agreements with J.P. Morgan, Canadian Pension Plan Investment Board (CPPIB), Mehetia Inc., New Enterprise Associates, and KPCB Holdings, Inc. The total value of the promissory notes is $260.0 million and originally bore a 5% fixed interest rate, compounded monthly, are entirely due at maturity. Due to a reduction of collateral as a result of the issuance of 10% Secure Notes in June 2017 (see the disclosures in later paragraphs headed “10% Notes”), a 1% interest increase was negotiated between the Company and 5% Notes investors to change the interest rate from 5% to 6% effective July 1, 2017. The notes were referred to as the 5% Notes and are now referred to as 6% Notes.

In connection with the issuance of the 6% Notes, the Company agreed to issue to J.P. Morgan and CPPIB, upon the occurrence of certain conditions, warrants to purchase the Company’s common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. On August 31, 2017, J.P. Morgan assigned their warrants to CPPIB and all 312,889 shares of warrants were issued to CPPIB.

As of December 31, 2016, 2017 and three months ending March 31, 2018, the debt outstanding was $270.8 million, $286.1 million, and $290.4 million, respectively, including accrued interest. The outstanding principal and accrued interest do not mandatorily convert into common stock in the event of an initial public offering. At the election of the investors, the accrued interest and the unpaid principal can be converted into common stock at any time. In certain circumstances, the notes are also redeemable at the Company’s option, in whole or in part, in connection with a Change of Control or at a qualified IPO at a redemption price. In January 2018, the Company amended the terms of the 6% Notes to extend the convertible put option dates to December 2019. The Company was in compliance with all covenants as of December 31, 2016 and 2017 and as of March 31, 2018.

On January 18, 2018, the agreement terms were amended to extend the convertible put option for the 6% notes from December 2018 to December 2019.

10% Notes

In June 2017, the Company issued $100.0 million of senior secured notes. The notes (the “10% Notes”) mature in July 2024 and bear a 10.0% fixed rate of interest, payable semi-annually. The notes have a continuing security interest in the cash flows payable to the Company as servicing, operations and maintenance fees, as well as administrative fees from the five active power purchase agreements in the Company’s Bloom Electrons program. Under the terms of the indenture governing the 10% Notes, the

 

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Company is 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. As of March 31, 2018, the Company was in compliance with all of the covenants.

Equipment Line of Credit, Due December 2015, March 2015, and June 2015

On December 31, 2010, the Company entered into a $20.0 million equipment line of credit with a financial institution. During 2011, the Company utilized $10.0 million of the equipment line of credit with terms ranging from 30 months to 48 months, payable monthly, at an annual rate equal to 6.75% to 7.50%, respectively. During 2012, the Company utilized the remaining $10.0 million of the equipment line of credit with terms of 30 months, payable monthly, at an annual rate equal to 6.75%. The final payment of principal and interest was made on December 1, 2015 upon the maturity date. As part of the equipment line of credit, the Company paid a fee of $1.7 million as final payment of principal and interest when the loans were due. The fee was accreted as incremental interest expense over the loans’ repayment periods.

Revolving Line of Credit

On March 30, 2012, the Company entered into a $35.0 million revolving line of credit with a financial institution. The line of credit was secured by certain assets and was subject to certain guaranties by the Company. On December 15, 2015, the Company paid the remaining balance of $22.4 million, which included the principal amount of all advances, the unpaid interest thereon, and other obligations relating to the revolving line of credit.

The following table presents detail of the Company’s entire outstanding loan principal repayment schedule as of March 31, 2018 (in thousands) (unaudited):

 

For the Years Ending December 31,       

Remaining nine months of fiscal 2018

   $ 19,708  

2019

     241,136  

2020

     385,531  

2021

     153,639  

2022

     40,059  

Thereafter

     172,212  
  

 

 

 
   $ 1,012,285  
  

 

 

 

Interest expense of $51.2 million, $61.3 million, $14.0 million and $16.8 million for the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018, respectively, was recorded in interest expense on the consolidated statements of operations.

 

21. Stockholders’ Deficit

Common Stock

The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 113,333,333 shares of $0.0001 par value common stock. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. As of March 31, 2018, no dividends had been declared or paid since inception.

On November 26, 2014, the Company filed an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock by 14,690,289 to a total of 107,333,333.

 

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On December 7, 2015, the Company filed an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock by 6,000,000 shares to a total of 113,333,333 shares.

 

22. Convertible Preferred Stock

On November 26, 2014, the Company filed an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of preferred stock by 6,406,462 shares to a total of 80,461,609 shares.

On July 1, 2015, the Company issued 66,666 shares of Series G convertible preferred stock at $38.64 per share as part of a dispute settlement with a securities placement agent, who is also an investor and who executed a related agency agreement in early 2009. These Series G preferred shares have substantially similar terms and conditions as the currently outstanding preferred shares.

On June 17, 2016, the Company issued 77,639 shares of Series G convertible preferred stock at $38.64 per share. Proceeds from the issuance of the Series G convertible preferred stock, net of issuance costs, was $3.0 million. These Series G preferred shares have substantially similar terms and conditions as the currently outstanding preferred shares.

The following table summarizes the Company’s convertible preferred stock (in thousands, except share data):

 

     Shares
Authorized
     Shares
Issued and
Outstanding
     Carrying
Value at
March 31,
2018
     Liquidation
Preference
 
                   (unaudited)         

Series A preferred

     9,374,101        9,374,101      $ 8,956      $ 4,689  

Series B preferred

     7,868,856        7,868,856        11,941        11,998  

Series C preferred

     5,979,069        5,979,069        44,928        45,000  

Series D preferred

     6,443,830        6,443,831        102,648        103,907  

Series E preferred

     9,486,398        9,486,398        198,264        167,767  

Series F preferred

     14,597,248        13,885,893        376,962        385,750  

Series G preferred

     26,712,107        18,702,014        722,142        722,646  
  

 

 

    

 

 

    

 

 

    

 

 

 
     80,461,609        71,740,162      $ 1,465,841      $ 1,441,757  
  

 

 

    

 

 

    

 

 

    

 

 

 

The rights, preferences, privileges, and restrictions for the convertible preferred stock are as follows:

Dividends

The holders of Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock are entitled to receive annual dividends payable, prior and in preference to any declaration or payment of any dividend on the common stock at a rate of 10% of the original issuance price, as adjusted for any stock splits, stock dividends or distributions, recapitalizations, and similar events with respect to such Series of preferred, of the applicable series. Such dividends shall be payable only when and if declared by the Company’s board of directors and shall not be cumulative. After payment of such dividends to the holders of Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock, any additional dividends declared shall be distributed among all holders of preferred stock and common stock on an as-converted basis. No dividends on preferred stock or common stock have been declared by the Board of Directors through March 31, 2018.

 

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Liquidation Preference

The holders of Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock have liquidation preferences prior and in preference to any distribution of any of the assets or surplus funds of the Company or consideration received in any liquidation to the holders of the common stock, equal to the original issue price of $0.50, $1.53, $7.53, $16.13, $17.69, $27.78 and $38.64, per share, respectively, as adjusted for any stock splits, stock dividends or distributions, recapitalizations, and similar events with respect to such series of preferred, and, in addition, an amount equal to all declared but unpaid dividends, if any, on such preferred stock. If the assets, funds or consideration thus distributed among the holders of the preferred stock shall be insufficient to permit the payment to such holders of the full liquidation preference, then the entire assets and funds of the Company legally available for distribution shall be distributed pro rata among the holders of the preferred based on the amounts that would otherwise be distributable.

Any of the following shall be treated as a liquidation of the Company: (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such combination transaction, own less than 50% of the voting power of the surviving or successor entity or its parent immediately after such combination transaction; (ii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred; or (iii) any sale, lease, or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, no transaction or series of related transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted, or a combination thereof, nor the transfer by any stockholder of shares of the Company’s capital stock to any third party in a transaction or series of related transactions to which the Company is not a party, shall be deemed a liquidation of the Company.

Redemption

The Company’s Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock are considered redeemable for accounting purposes. The Company initially recorded the Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock at their fair values on the dates of issuance, net of issuance costs. A deemed liquidation event could occur as a result of the sale of all or substantially all of the assets of the Company or any acquisition of the Company by another entity by means of a merger or consolidation in which the stockholders of the Company do not hold at least 50% of the voting power of the surviving entity or its parent. Because the deemed redemption event is outside the control of the Company, all preferred shares have been presented outside of permanent equity. Further, the Company has not adjusted the carrying values of the Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock to the redemption value of such shares, because it is uncertain whether or when a redemption event will occur. Subsequent adjustments to increase the carrying values to the redemption values will be made when it becomes probable that such redemption will occur.

Right to Convert

The holders of Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock may convert their shares into common stock at any time following the date of issuance at the then applicable conversion rate. The current conversion rate for all series of preferred stock is 1:1.

Automatic Conversion

Each share of Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock will convert automatically into common stock (at the then applicable conversion rate)

 

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immediately upon the sale of the Company’s common stock in a firm commitment underwritten initial public offering pursuant to a registration statement under the Securities Act of 1933, as amended, with total gross offering proceeds of at least $75,000,000.

Voting

The holders of Series A, Series B, Series C, Series D, Series E, Series F and Series G convertible preferred stock are entitled to one vote for each share of common stock into which such preferred stock could then be converted, on all matters submitted to a vote of the stockholders of the Company.

 

23. Preferred Stock Warrants

The Company accounts for its issuance of warrants at fair value. The Company has issued warrants to purchase Series F and Series G preferred stock and warrants to purchase common stock. The fair value of warrants issued and outstanding was $12.9 million, $9.8 million, and $6.6 million at December 31, 2016 and 2017 and at March 31, 2018, respectively.

The following table summarizes the Company’s preferred stock warrant activity (in thousands):

 

Balances at December 31, 2015

   $ 17,027  

Issuances

    

Exercises

     (3,336

Changes in fair value

     (806
  

 

 

 

Balances at December 31, 2016

   $ 12,885  
  

 

 

 

Issuances

    

Exercises

    

Changes in fair value

     (3,060
  

 

 

 

Balances at December 31, 2017

   $ 9,825  
  

 

 

 

Issuances (unaudited)

      

Exercises (unaudited)

      

Changes in fair value (unaudited)

     (3,271
  

 

 

 

Balances at March 31, 2018 (unaudited)

   $ 6,554  
  

 

 

 

During 2009, in connection with the issuance of Series F convertible preferred stock, the Company issued warrants to purchase 175,507 shares of the Company’s Series F convertible preferred stock at $27.78 per share. The warrants’ fair value of $3.0 million, on the date of the transaction, was recorded as a warrant liability on the accompanying balance sheet. The valuation of the warrants results in a corresponding discount to the value assigned to Series F convertible preferred stock upon issuance. The warrants are immediately exercisable and expire seven years from the date of issuance. These warrants were exercised in March 2016.

During 2010, in connection with a loan agreement with a financial institution, which provided an equipment lease line of an initial aggregate principal amount of up to $20.0 million, which was utilized in its entirety, the Company issued warrants to purchase 10,798 shares of the Company’s Series F convertible preferred stock at $27.78 per share. On the date of issuance, the warrants’ fair value of $0.2 million was recorded as a warrant liability on the accompanying balance sheet. The warrants are immediately exercisable and expire ten years from the date of issuance. The debt discount was amortized to interest expense over the loan’s repayment period.

During 2012, in connection with loan agreements with a financial institution, which provided an equipment lease line of an initial aggregate principal amount of up to $15.0 million, the Company issued warrants to purchase 12,940 shares of the Company’s Series G convertible preferred stock at $38.64 per

 

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share. On the date of issuance, the warrants’ fair value of $0.2 million was recorded as a warrant liability on the accompanying balance sheet. The warrants are immediately exercisable and expire ten years from the date of issuance. The debt discount was amortized to interest expense over the loan’s repayment period.

During 2013, the Company issued warrants to purchase an additional 1,835 shares of the Company’s Series F convertible preferred stock at $27.78 per share in connection with a loan agreement with a financial institution, which provided an equipment lease line and to which the Company issued a warrant in 2010. On the date of issuance, the warrants’ fair value of $0.04 million was recorded as a warrant liability on the accompanying balance sheet. The warrants are immediately exercisable and expire ten years from the date of issuance. The debt discount was amortized to interest expense over the loan’s repayment period.

During 2013, in connection with the formation of PPA Company IIIb, the Company issued warrants to purchase 100,000 shares of the Company’s Series F convertible preferred stock at $27.78 per share. On the date of issuance, the warrants’ fair value of $2.1 million was recorded as a warrant liability on the accompanying balance sheet. The warrants are immediately exercisable and expire ten years from the date of issuance. The debt discount is being amortized to interest expense over the loan’s repayment period.

During 2014, in connection with the formation of PPA Company IIIa in 2013 and completion of the related debt financing, the Company issued warrants to purchase 468,548 shares of the Company’s Series F convertible preferred stock at $27.78 per share. On the date of issuance, the warrants’ fair value of $8.7 million was recorded as a warrant liability on the accompanying balance sheet. The warrants are immediately exercisable and expire seven years from the date of issuance. The debt discount is being amortized to interest expense over the loan’s repayment period.

During 2014, in connection with a dispute settlement with a securities placement agent, who is also an investor and who executed a related agency agreement in early 2009, the Company issued warrants to purchase 266,666 shares of the Company’s Series G convertible preferred stock at $38.64 per share. On the date of issuance, the Series G convertible preferred stock warrants fair value of $3.3 million was recorded as warrant liability on the accompanying balance sheet. The warrants are immediately exercisable and expire five years from the date of issuance.

The following table summarizes the warrants outstanding, together with their respective fair values (in thousands, except warrants outstanding):

 

 

     December 31, 2016      December 31, 2017      March 31, 2018  
     Warrants
Outstanding
     Fair
Value of
Warrants
     Warrants
Outstanding
     Fair
Value of
Warrants
     Warrants
Outstanding
     Fair
Value of
Warrants
 
                                 (unaudited)  

Series F

     581,182      $ 10,217        581,182      $ 8,378        581,182      $ 5,954  

Series G

     279,606        2,668        279,606        1,447        279,606        600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     860,788      $ 12,885        860,788      $ 9,825        860,788      $ 6,554  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company estimates 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 and the changes in fair value are recorded in gain (loss) on revaluation of warrant liabilities in the consolidated statements of operations.

 

24. Common Stock Warrants

During 2014, in connection with a dispute settlement with the principals of a securities placement agent, who are also investors, and who executed a related agency agreement in early 2009, the Company issued warrants to purchase 33,333 shares of the Company’s common stock at $38.64 per share. The fair value of $3.3 million was recorded as expense in the consolidated statements of operations in 2013 when the

 

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obligation became probable. The common stock warrants are immediately exercisable and expire five years from the date of issuance.

During 2016, in connection with the 6% convertible promissory notes entered in December 2015 and September 2016, the Company recorded a $9.2 million warrant expense for convertible redeemable common stock warrants to be issued to J.P. Morgan and CPPIB, to purchase the Company’s common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. During 2017, the fair value of the right to common stock warrants was re-measured and $0.2 million in warrant expenses was charged to the consolidated statement of operations, and on August 31, 2017, J.P. Morgan assigned their warrants to CPPIB and all 312,889 warrant shares were issued to CPPIB, and the Company reclassified the $9.4 million of accrued warrant liabilities to additional paid in capital, which is not subject to further remeasurement in the fair value.

 

25. Stock Option Plan

Under the Company’s 2012 Plan, the Company may grant incentive stock options to employees and nonqualified stock options to employees, directors and consultants. At March 31, 2018, the Company has reserved 28,336,215 shares of common stock for issuance under the Company’s 2002 and 2012 Plans.

Under the 2012 Plan, incentive and nonqualified stock options may be granted at a price not less than fair value and 85% of the fair value of common stock, respectively, (110% of fair value to holders of 10% or more of voting stock). Fair value of common stock is determined by the Board of Directors. Options are exercisable over periods not to exceed ten years (five years for incentive stock options granted to holders of 10% or more of the voting stock) from the date of grant. Generally, options to employees vest with a one-year cliff and then monthly thereafter over four years.

During the years ended December 31, 2016 and 2017 and the three months ended March 31, 2018, the Company recognized $27.2 million, $29.3 million and $7.7 million of employee stock-based compensation expense, respectively. No stock-based compensation costs have been capitalized in the years ended December 31, 2016 and 2017 and in the three months ended March 31, 2018.

The Company recorded $1.0 million and $1.1 million of non-employee stock-based compensation expense during the years ended December 31, 2016 and 2017. For the three months ended March 31, 2017 and 2018, the Company recorded $0.1 million and $0.2 million of non-employee stock-based compensation expense, respectively.

The following table summarizes the components of employee and non-employee stock-based compensation expense (in thousands):

 

    

Years Ended December 31,

    

Three Months Ended March 31,

 
     2016      2017      2017      2018  
                   (unaudited)  

Cost of revenue

   $ 6,005      $ 7,734      $ 1,758      $ 1,898  

Research and development

     4,686        5,560        1,329        1,638  

Sales and marketing

     5,600        4,684        1,241        952  

General and administrative

     11,866        12,501        2,317        3,468  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 28,157      $ 30,479      $ 6,645      $ 7,956  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2018, the Company’s total unrecognized compensation cost related to nonvested stock option to employees was $56.2 million. This expense will be recognized over the remaining weighted-average period of 2.2 years. Prior to December 31, 2016, cash flows resulting from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) were classified as cash from financing activities. Beginning in the first quarter of fiscal 2017, with the adoption of ASU 2016-09 on a prospective basis, the Company’s

 

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consolidated statements of cash flows present excess tax benefits as an operating activity. The Company had no excess tax benefits in the years ended December 31, 2016 and 2017 and in the three months ended March 31, 2018.

Since 2015, the Company granted restricted stock unit awards under the 2012 Plan. Restricted stock unit award shares will vest at the end of the lock-up period following the completion of a liquidity event, or initial public offering, and the remaining shares will vest on the first and second anniversary date of such date. The estimated fair value of restricted stock awards is based on the fair value of the Company’s common stock on the date of grant. The total fair value of the awards granted during the years ended December 31, 2016 and 2017 and in the three months ended March 31, 2018, was $71.9 million, $17.1 million, and $0.4 million, respectively. For the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2018, $82.6 million, $97.2 million, and $97.4 million, respectively, of total unrecognized stock-based compensation cost related to nonvested restricted stock awards is expected to be recognized over a weighted average period of 2.1 years, 1.6 years and 1.4 years, respectively.

A summary of the Company’s restricted stock unit activity and related information is as follows:

 

     Number of
Awards
Outstanding
    Weighted
Average Grant
Date Fair
Value
 

Unvested Balance at December 31, 2015

     370,868     $ 30.83  

Granted

     2,323,464       30.96  

Vested

     (9,556     30.96  

Forfeited

     (18,330     30.90  
  

 

 

   

Unvested Balance at December 31, 2016

     2,666,446       30.95  
  

 

 

   

Granted

     552,481       30.96  

Vested

     (33,896     30.96  

Forfeited

     (44,453     30.95  
  

 

 

   

Unvested Balance at December 31, 2017

     3,140,578       30.95  
  

 

 

   

Granted (unaudited)

     11,642       30.96  

Vested (unaudited)

     (3,615     30.96  

Forfeited (unaudited)

     (1,513     30.96  
  

 

 

   

Unvested Balance at March 31, 2018 (unaudited)

     3,147,093     $ 30.95  
  

 

 

   

Valuation Assumptions

Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates for the inputs used in the Black-Scholes valuation model to calculate the grant-date fair value of stock options. The Black-Scholes model requires the Company to make estimates of the following assumptions on expected volatility, expected option term and the risk-free interest rate. The estimated stock price volatility was derived based on historical volatility of the Company’s peer group, which represents the Company’s best estimate of expected volatility. The Company’s estimate of an expected option life was calculated based on the Company’s historical share option exercise data. 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.

The amount of stock-based compensation recognized during a period is based on the value of the 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 those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. The Company reviews historical forfeiture data and determine the appropriate forfeiture

 

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rate based on that data. The Company reevaluates this analysis periodically and adjusts the forfeiture rate as necessary and ultimately recognizes the actual expense over the vesting period only for the shares that vest.

The fair value of each stock option is calculated on the date of grant using the Black-Scholes model with the following weighted average assumptions used:

 

     Years Ended December 31,      Three Months Ended March 31,  
     2016      2017      2017      2018  
                   (unaudited)  

Risk-free interest rate

     1.23%—1.69%        1.95%—2.08%        2.02%        2.49%  

Expected term (in years)

     6.00—6.54        6.08—6.62        6.08—6.55        6.18—6.48  

Expected dividend yield

                           

Expected volatility

     59.3%—60.9%        55.6%—61.0%        61.0%        55.1%  

Weighted average grant date fair value

     $23.94        $20.25        $21.89        $18.44  

Stock option and RSU activity under the plan is as follows:

 

           Outstanding Options/RSUs        
     Options/
RSUs
Available
for Grant
    Number of
Shares
    Outstanding
Options
Weighted
Average
Exercise
Price
    Remaining
Contractual
Life (Years)
    Aggregate
Intrinsic
Value
 
                             (in thousands)  

Balances at December 31, 2015

     946,636       8,811,294     $ 21.57       6.01     $ 78,634  

Added to plan

     6,419,202              

Granted

     (4,883,710     4,883,710       30.96      

Exercised

           (134,950     9.96      

Cancelled

     388,858       (388,858     24.54      

Expired

     (102,536            
  

 

 

   

 

 

       

Balances at December 31, 2016

     2,768,450       13,171,196     $ 23.85       6.11     $ 74,717  

Added to plan

     647,159              

Granted

     (2,698,594     2,698,594       30.96      

Exercised

           (157,049     2.76      

Cancelled

     967,760       (967,760     7.44      

Expired

     (647,159            
  

 

 

   

 

 

       

Balances at December 31, 2017

     1,037,616       14,744,981     $ 26.42       6.19     $ 52,703  

Added to plan (unaudited)

     4,691,450              

Granted (unaudited)

     (109,942     109,942       27.68      

Exercised (unaudited)

           (73,868     2.52      

Cancelled (unaudited)

     88,844       (88,844     25.80      

Expired (unaudited)

     (22,630            
  

 

 

   

 

 

       

Balances at March 31, 2018 (unaudited)

     5,685,338       14,692,212     $ 26.61       5.97     $ 50,303  
  

 

 

   

 

 

       

Vested and expected to vest at March 31, 2018 (unaudited)

       11,428,461     $ 26.57       5.94     $ 50,302  

Exercisable at March 31, 2018 (unaudited)

       7,812,013     $ 24.53       4.72     $ 50,231  

During the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2017 and 2018, the intrinsic value of options exercised was $2.6 million, $3.4 million, $0.3 million and 2.0 million, respectively.

In connection with its grant of options to non-employees, the Company recognized stock-based compensation of $1.0 million, $1.1 million, and $0.2 million, during the years ended December 31, 2016

 

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and 2017 and for the three months ended March 31, 2018, respectively, on an accelerated basis over the vesting period of the individual options. The Company granted 40,634 options, 26,102 options and 3,615 options, to non-employees during the years ended December 31, 2016 and 2017 and for the three months ended March 31, 2018, respectively. The Company’s valuations for non-employee grants are made using the Black-Scholes option pricing model.

 

26. Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts):

 

     Years Ended December 31,     Three Months Ended
March 31,
 
     2016     2017     2017     2018  
                 (unaudited)  

Numerator:

        

Net loss

   $ (279,658   $ (262,599   $ (59,532   $ (17,716

Less: noncumulative dividends to preferred stockholders

                    

Less: undistributed earnings to participating securities

                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders-basic

     (279,658     (262,599     (59,532     (17,716

Add: adjustments to undistributed earnings to participating securities

                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders-diluted

   $ (279,658   $ (262,599   $ (59,532   $ (17,716
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted average shares of common stock-basic

     10,046       10,248       10,143       10,403  

Effect of potentially dilutive stock options

                        
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock-diluted

     10,046       10,248       10,143       10,403  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

        

Basic

   $ (27.84   $ (25.62   $ (5.87   $ (1.70
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (27.84   $ (25.62   $ (5.87   $ (1.70
  

 

 

   

 

 

   

 

 

   

 

 

 

The following common stock equivalents (in thousands) were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

 

     Years Ended
December 31,
     Three Months
Ended March 31,
 
     2016      2017      2017      2018  
                   (unaudited)  

Convertible and non-convertible redeemable preferred stock

     84,550        85,476        84,800        85,708  

Stock options to purchase common stock

     2,668        2,950        3,122        3,177  

Convertible redeemable preferred stock warrants

     59        60        60        60  

Convertible redeemable common stock warrants

     312        312        312        312  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     87,589        88,798        88,294        89,257  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Unaudited Pro Forma Net Loss per Share

The following table sets forth the computation of the Company’s unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2017 and for the three months ended March 31, 2018, (in thousands, except per share amounts) assuming the automatic conversion of the redeemable convertible preferred stock and convertible promissory notes and the automatic conversion of the preferred stock warrants into common stock warrants and the remeasurement and the assumed reclassification to equity upon consummation of a qualified IPO as if it had occurred as of January 1, 2017.

 

     Year Ended December 31,     Three Months Ended  
     2017     March 31, 2018  

Numerator:

    

Net loss

   $ (262,599   $ (17,716

Add: change in fair value of redeemable convertible preferred stock warrant liability

   $ (2,975   $ (3,271

Add: interest on convertible promissory notes

   $ 15,817     $ 3,566  

Add: interest on convertible promissory notes — related parties

   $ 2,937     $ 761  

Less: provision/(benefit) for income taxes (1)

   $ —       $ —    
  

 

 

   

 

 

 

Unaudited pro forma net income attributable to common stockholders—basic and diluted

   $ (246,820   $ (16,660
  

 

 

   

 

 

 

Denominator:

    

Weighted average shares of common stock outstanding

     10,248       10,403  

Pro forma adjustments to reflect assumed conversion of

    redeemable convertible preferred stock

     71,740       71,740  

Pro forma adjustments to reflect assumed

    conversion of convertible promissory notes

     5,848       5,060  
  

 

 

   

 

 

 

Pro forma weighted average shares of common stock-basic

     87,336       87,203  

Effect of potentially dilutive:

    

Stock options

     —          

Common stock warrants

     —          

Preferred stock warrants

     —          
  

 

 

   

 

 

 

Pro forma weighted average shares of common stock-diluted

     87,336       87,203  
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted

   $ (2.81   $ (0.20
  

 

 

   

 

 

 

 

 

(1)   The tax rate used in calculating the tax provision related to the interest expense for the convertible debt is 0% as the Company has a full valuation allowance on its US deferred tax asset.

 

27. Employee Benefit Plan

The Company sponsors the Bloom Energy 401(k) and Profit Sharing Plan (the Plan). All employees are eligible to participate in the Plan after meeting certain eligibility requirements. Participants may elect to have a portion of their salary deferred and contributed to the Plan up to the limit allowed by applicable income tax regulations. Company contributions to the Plan are discretionary and no such Company contributions have been made since the inception of the Plan.

 

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28. Related Party Transactions

The Company’s operations included the following related party transactions (in thousands):

 

     Years Ended December 31,      Three Months Ended March 31,  
             2016                      2017                      2017                      2018          
                   (unaudited)  

Interest paid or payable to related parties (included in interest expense)

   $ 8,781      $ 13,328      $ 7,516      $ 12,062  

Consulting expenses paid to related parties (included in general and administrative expense)

     206        206        53        51  

Related party balances were comprised of the following (in thousands):

 

     Years Ended December 31,      Three Months Ended
March 31, 2018
 
             2016                      2017             
                   (unaudited)  

Debt from related parties

   $ 103,335      $ 107,039      $ 107,913  

6% and 8% Convertible Promissory Notes and Term Loan

As of March 31, 2018, the Company had $107.9 million in debt and convertible notes from investors considered to be related parties. In 2014, the Company obtained a $4.1 million term loan from Alberta Investment Management Corporation to fund the purchase and installation of Energy Servers related to PPA IIIa due September 2028. Further, between December 2014 and June 2015, the Company issued and sold $193.2 million aggregate principal amount of our 8% Notes to certain investors at a purchase price of 100% of the aggregate principal amount thereon, including $10.0 million aggregate principal amount, issued in 2014, each to Alberta Investment Management Corporation, KPCB Holdings, Inc. and New Enterprise Associates. The 8% Notes bear a fixed interest rate of 8.0%, compounded monthly, and are due at maturity or, at the election of the investor, the accrued interest would be due on each anniversary of the respective original issuance date of the notes. As of December 31, 2017, the outstanding principal and accrued interest on the 8% Notes was $244.7 million. The outstanding principal and accrued interest on each 8% Note other than the Constellation Note (as defined below) will mandatorily convert into shares of our Series G convertible preferred stock at a conversion price per share of $38.64, and each such share of Series G convertible preferred stock will convert automatically into one share of our common stock, immediately prior to completion of this offering. In addition, in September 2016, the Company entered into two promissory note purchase agreements with New Enterprise Associates and KPCB Holdings, Inc. for $12.5 million each. Effective July 1, 2017, the Notes will have a 6% fixed interest rate, compounded monthly and are entirely due at maturity.

In January 2018, the Company entered into an amended and restated subordinated convertible promissory note with Constellation NewEnergy, Inc. (the Constellation Note), one of the existing holders of the 8% Notes, which reduced the interest rate of such note to a fixed annual interest rate of 5.0%, compounded monthly, and provided that the outstanding principal and accrued interest on such note may be converted prior to the closing of this offering, at the option of the holder, into shares of our Series G convertible preferred stock as described above, or, after the closing of this offering, into shares of our Class B common stock at a conversion price per share of $38.64.

The Company repaid $1.0 million, $0.9 million, and $0.3 million of outstanding debt to Alberta Investment Management Corporation in 2016 and 2017 and the three months ended March 31, 2018, respectively. Furthermore, the Company paid $3.3 million, $3.2 million, and $0.8 million of interest to Alberta Investment Management Corporation in 2016 and 2017 and in the three months ended March 31, 2018, respectively.

 

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Consulting Arrangement

In January 2009, the Company entered into a consulting agreement with General Colin L. Powell, a member of the Company’s board of directors, pursuant to which General Powell performs certain strategic planning and advisory services for the Company. Pursuant to this consulting agreement, General Powell receives compensation of $125,000 per year and reimbursement for reasonable expenses.

 

29. Segments

The Company’s chief operating decision makers (CODMs), the 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 the Company’s operations and product development efforts. The Company is 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, the Company has a single reporting segment and operating unit structure. In addition, substantially all of the Company’s revenue and long-lived assets are attributable to operations in the United States for all the periods presented.

 

30. Subsequent Events

On April 9, 2018, the Company signed a new lease for 103,742 square feet of space for our new corporate headquarters in San Jose, California. The lease term begins in January 2019 and expires in 2029. (unaudited)

On April 27, 2018, the Company’s board of directors reserved an additional 13,333,333 shares of Class B common stock for issuance under the 2012 Plan. (unaudited)

In connection with its initial public offering, on July 5, 2018, the Company’s board of directors approved an amendment to the Company’s certificate of incorporation to effect a 2 for 3 reverse stock split of the Company’s Class B common stock. The proposed reverse stock split remains subject to approval by the Company’s stockholders.

All share and per share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in par value of Class B common stock to accumulated deficit.

 

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LOGO

Bloomenergy Be the solution


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Index to Financial Statements

 

 

18,000,000 SHARES

 

 

LOGO

CLASS A COMMON STOCK

 

 

Prospectus

 

 

 

J.P. Morgan       Morgan Stanley

 

Credit Suisse    KeyBanc Capital Markets    BofA Merrill Lynch

 

Baird    Cowen    HSBC    Oppenheimer & Co.    Raymond James

 

 

Prospectus dated                     , 2018

 

 

 


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Part II

Information Not Required in Prospectus

Item 13. Other Expenses of Issuance and Distribution.

The following table presents the costs and expenses we will pay, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts are estimates except the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fees and the New York Stock Exchange listing fee.

 

SEC registration fee

   $ 38,658  

FINRA filing fee

     45,350  

Initial New York Stock Exchange listing fee

     25,000  

Printing and engraving expenses

     2,000,000  

Legal fees and expenses

     2,000,000  

Accounting fees and expenses

     3,750,000  

Custodian and transfer agent fees

     25,000  

Miscellaneous fees and expenses

     200,000  
  

 

 

 

Total

   $ 8,084,008  
  

 

 

 

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or Securities Act.

Our restated certificate of incorporation, which will be in effect upon the completion of this offering, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

    any breach of the director’s duty of loyalty to us or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

    any transaction from which the director derived an improper personal benefit.

Our restated certificate of incorporation also provides that if Delaware law is amended after the approval by our stockholders of the certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.

Our amended and restated bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred for their service for or on our behalf. Our amended and restated bylaws provide that we shall advance the expenses incurred by a director or officer in advance of the final disposition of an action or proceeding. The amended and restated bylaws also authorize us to indemnify any of our employees or

 

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Index to Financial Statements

agents and permit us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.

We have entered into indemnification agreements with each of our directors and executive officers and other key employees, a form of which is attached as Exhibit 10.1. The form of agreement provides that we will indemnify each of our directors, executive officers and such other key employees against any and all expenses incurred by that director, executive officer or other key employee because of his or her status as one of our directors, executive officers or other key employees, to the fullest extent permitted by Delaware law, our restated certificate of incorporation and our amended and restated bylaws (except in a proceeding initiated by such person without board approval). In addition, the form agreement provides that, to the fullest extent permitted by Delaware law, we will advance all expenses incurred by our directors, executive officers and other key employees for a legal proceeding.

Reference is made to Section 7(b) of the underwriting agreement contained in Exhibit 1.1 to this registration statement, indemnifying our directors and officers against limited liabilities. In addition, Section 12 of our eighth amended and restated registration rights agreement, as amended, contained in Exhibit 4.2 to this registration statement provides for indemnification of certain of our stockholders against liabilities described therein.

Item 15. Recent Sales of Unregistered Securities.

Since January 1, 2015, we have issued the following securities that were not registered under the Securities Act of 1933, as amended:

(1) Issuances of Capital Stock

On each of June 27, 2014 and July 1, 2015, we issued 66,666 shares of Series G convertible preferred stock as part of a dispute settlement with a securities placement agent, who is also an investor and who executed a related agency agreement in early 2009. These shares of Series G convertible preferred stock have substantially similar terms and conditions as the currently outstanding shares of Series G convertible preferred stock.

In September 2015, we entered into a common stock award agreement with one of our customers pursuant to which up to a total of 266,666 shares of our Class B common stock will be issued to such customer on the occurrence of certain installation milestones. The share issuances are recorded as a reduction of product revenue when the milestones are achieved and are recorded as additional paid-in capital when the shares are issued. As of May 1, 2018, 122,666 shares of our Class B common stock have been issued to such customer pursuant to this agreement.

On June 17, 2016, we issued 77,639 shares of Series G convertible preferred stock at $38.64 per share. These shares of Series G convertible preferred stock have substantially similar terms and conditions as the currently outstanding shares of Series G convertible preferred stock.

(2) Subordinated Secured Convertible Promissory Notes

Between December 2014 and June 2015, we issued $193.2 million aggregate principal amount in three-year 8% Notes to convertible promissory note purchase agreements with certain accredited investors. The 8% Notes bear a fixed interest rate of 8.0%, compounded monthly, and are due at maturity or, at the election of the investor, the accrued interest during each annual period would be due on each anniversary of the respective original issuance date of the notes. As of December 31, 2016 and 2017 and as of March 31, 2018, the outstanding principal and accrued interest on the 8% Notes was $226.0 million, $244.7 million, and $249.4 million, respectively. The outstanding principal and accrued interest on each 8% Note, other than the Constellation Note (as defined below), will mandatorily convert into shares of our Series G convertible preferred stock at a

 

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Index to Financial Statements

conversion price per share of $38.64, and each such share of Series G convertible preferred stock will convert automatically into one share of our Class B common stock, immediately prior to completion of this offering. In January 2018, we entered into an amended and restated subordinated convertible promissory note with Constellation NewEnergy, Inc. (the Constellation Note), one of the existing holders of the 8% Notes, which reduced the interest rate of such note to a fixed annual interest rate of 5.0%, compounded monthly, and provided that the outstanding principal and accrued interest on such note may be converted prior to the closing of this offering, at the option of the holder, into shares of our Series G convertible preferred stock as described above, or, after the closing of this offering, into shares of our Class B common stock at a conversion price per share of $38.64.

(3) 6% Convertible Senior Secured PIK Notes due 2020

On December 15, 2015, we issued $160.0 million aggregate principal amount of our 6% Convertible Senior Secured PIK Notes due 2020 (the 6% Notes) pursuant to a note purchase agreement with certain accredited investors and qualified institutional buyers and pursuant to an indenture dated as of December 15, 2015. In January 2016, we issued an additional $25.0 million aggregate principal amount of our 6% Notes in connection with our repurchase of an interest in PPA I. In addition, in September 2016 we issued an additional $75.0 million aggregate principal amount of these notes pursuant to a note purchase agreement with accredited investors. Due to a reduction of collateral as a result of the issuance of 10% Senior Secured Notes (“10% Notes”) in June 2017, a 1% interest increase was negotiated between the Company and 5% Notes investors to change the interest rate from 5% to 6% effective July 1, 2017. The notes are referred to as 6% Notes. The 6% Notes are secured by our working capital, fixed assets, intellectual property and other assets, subject to limited exceptions. The 6% Notes had a fixed interest rate of 5% until July 2017 when the rate was increased to 6% compounded monthly and payable in cash or in kind at our election, and are due on December 1, 2020. As of December 31, 2016, and 2017 and as of March 31, 2018, the outstanding principal and accrued interest on the 6% Notes was $270.8 million, $286.1 million, and $290.4 million, respectively. Following the completion of this offering, the 6% Notes will be convertible at the option of the holders thereof into shares of our Class B common stock at an initial conversion price per share equal to the lower of $46.37 and 75% of the offering price of our Class A common stock sold in this offering. In addition, following completion of this offering, the 6% Notes will be redeemable by us under certain circumstances at a redemption price payable in cash equal to 100% of the principal amount of the 6% Notes to be redeemed, plus accrued but unpaid interest.

In addition, in connection with the issuance of the 6% Notes, we agreed to issue to certain purchasers of the 6% Notes, upon the occurrence of certain conditions, warrants to purchase up to a maximum of 312,889 shares of our Class B common stock at an exercise price of $0.015 per share (the Note Warrants). The Note Warrants were issued on August 31, 2017, and will automatically be deemed exercised immediately prior to the completion of this offering.

4) 10% Senior Secured Notes due 2024

On June 30, 2017, we issued $100.0 million aggregate principal amount of 10% Notes pursuant to a note purchase agreement with certain accredited investors and qualified institutional buyers. The notes mature in July 2024 and bear interest at a fixed rate of 10% payable semi-annually. The notes have a continuing security interest in the cash flows payable to us as servicing, operations and maintenance fees, as well as administrative fees from the five active power purchase agreements in our Bloom Electrons program.

(5) Warrant Issuances

 

    On August 31, 2017, in connection with the issuance of the 6% Notes, we issued a warrant to purchase 312,889 shares of our Class B common stock at $0.015 per share. The warrant is immediately exercisable and expires five years from the date of issuance.

 

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Index to Financial Statements

(6) Options Issuances

 

    From January 1, 2015 through July 1, 2018, we issued and sold an aggregate of 815,798 shares of Class B common stock upon the exercise of options issued to certain officers, directors, employees and consultants of the registrant under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan at exercise prices per share ranging from $0.75 to $30.96, for an aggregate consideration of approximately $3.1 million. In addition, we issued 47,734 shares of Class B common stock upon the exercise of restricted stock unit awards to consultants of the registrant under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan with an average grant date fair value of $30.96 per share.

 

    From January 1, 2015 through July 1, 2018, we granted direct issuances or stock options to purchase an aggregate of 6,464,972 shares of our Class B common stock at exercise prices per share ranging from $30.81 to $30.96 share to employees, consultants, directors and other service providers under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan. In addition, we granted restricted stock unit awards for 3,055,201 shares of Class B common stock to certain officers, directors, employees and consultants of the registrant under our 2002 Equity Incentive Plan and 2012 Equity Incentive Plan with an average grant date fair value of $30.96 per share.

Except as set forth above, none of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes the transactions were exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) thereof, with respect to items (1), (2), (3), (4) and (5) above, and Rule 701 thereunder, with respect to items (5) and (6) above, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701.

 

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Index to Financial Statements

Item 16. Exhibits and Financial Statement Schedules.

D. Exhibits.

 

Exhibit

Number

  

Description

  1.1    Form of Underwriting Agreement
  3.1    Amended and Restated Certificate of Incorporation of the Registrant, to be effective upon closing of this offering
  3.2    Amended and Restated Bylaws of the Registrant, to be effective upon the closing of this offering
  3.3*    Amended and Restated Certificate of Incorporation of the Registrant, as amended and currently in effect
  3.4*    Bylaws of the Registrant, as currently in effect
  4.1    Form of Common Stock Certificate of the Registrant
  4.2*    Eighth Amended and Restated Registration Rights Agreement by and among the Registrant and certain stockholders of the Registrant, dated June 30, 2011
  4.3*    Amendment No.  1 to Eighth Amended and Restated Registration Rights Agreement by and among the Registrant and certain stockholders of the Registrant, dated December 14, 2015
  4.4*    Indenture by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as trustee, dated as of December 15, 2015
  4.5*    Form of 6% Convertible Senior Secured PIK Note due 2020 (included in Exhibit 4.4)
  4.6*    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
  4.7*    Agreement and Warrant to Purchase Common Stock by and between Keith Daubenspeck and the Registrant, dated June 27, 2014
  4.8*    Agreement and Warrant to Purchase Common Stock by and between Dwight Badger and the Registrant, dated June 27, 2014
  4.9*    Plain English Warrant Agreement by and between Triplepoint Capital LLC, a Delaware limited liability company, and the Registrant, dated December 31, 2010
  4.10*    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
  4.11*    Agreement and Warrant to Purchase Series F Preferred Stock by and between PE12GVVC (US Direct) Ltd. and the Registrant, dated July  1, 2014
  4.12*    Agreement and Warrant to Purchase Series F Preferred Stock by and between PE12PXVC (US Direct) Ltd. and the Registrant, dated July  1, 2014
  4.13*    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
  4.14*    Plain English Warrant Agreement by and between Triplepoint Capital LLC, a Delaware limited liability company, and the Registrant, dated September 27, 2012
  4.15*    Agreement and Warrant to Purchase Series G Preferred Stock by and between Keith Daubenspeck and the Registrant, dated June 27, 2014
  4.16*    Agreement and Warrant to Purchase Series G Preferred Stock by and between Dwight Badger and the Registrant, dated June 27, 2014

 

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Index to Financial Statements

Exhibit

Number

  

Description

  4.17*    Amendment No.  2 to Eighth Amended and Restated Registration Rights Agreement by and among the Registrant and certain stockholders of the Registrant, dated August 4, 2016
  4.18*    Amendment No.  3 to Eighth Amended and Restated Registration Rights Agreement by and among the Registrant and certain stockholders of the Registrant, dated September 20, 2016
  4.19*    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
  4.20*    Indenture by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as trustee, dated as of June 29, 2017
  4.21*    Form of 10% Senior Secured Note due 2024 (included in Exhibit 4.20)
  4.22*    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
  4.23*    Common Stock Purchase Warrant by and between Canada Pension Plan Investment Board and the Registrant, dated August 31, 2017
  4.24*    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
  4.25*    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
  4.26    Form of Holder Voting Agreement, between KR Sridhar and certain parties thereto
  4.27*    Form of 8.0% Subordinated Senior Secured Convertible Promissory Note
  4.28*    Amended and Restated Subordinated Secured Convertible Promissory Note by and between the Registrant and Constellation NewEnergy, Inc., dated as of January 18, 2018
  5.1    Opinion of Fenwick & West LLP
10.1    Form of Indemnification Agreement for directors and executive officers
10.2*    2002 Equity Incentive Plan and form of agreements used thereunder
10.3*    2012 Equity Incentive Plan and form of agreements used thereunder
10.4    2018 Equity Incentive Plan and form of agreements used thereunder
10.5    2018 Employee Stock Purchase Plan and form of agreements used thereunder
10.6*    NASA Ames Research Center Enhanced Use Lease dated December  5, 2011 by and between the Registrant and National Aeronautics and Space Administration, as amended as of November 1, 2012, August 25, 2014, August 17, 2016 and September 12, 2017
10.7*    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
10.8*    Ground Lease by and between 1743 Holdings, LLC and the Registrant dated as of March 2012
10.9*    Offer Letter by and between the Registrant and KR Sridhar, dated April 1, 2002
10.10*    Offer Letter by and between the Registrant and Randy Furr, dated April 9, 2015
10.11*    Offer Letter by and between the Registrant and Susan Brennan, dated October 3, 2013

 

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Index to Financial Statements

Exhibit

Number

  

Description

10.12†    Second Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings, LLC, dated as of March 20, 2013 (PPA II)
10.13*†    Guaranty by the Registrant, dated as of March 16, 2012 (PPA II)
10.14*†    Master Operation and Maintenance Agreement by and between Diamond State Generation Partners, LLC and the Registrant, dated as of April 13, 2012 (PPA II)
10.15*    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)
10.16†    Note Purchase Agreement by and between Diamond State Generation Partners, LLC and the Purchasers thereunder, dated as of March 20, 2013 (PPA II)
10.17*†    Master Energy Server Purchase Agreement between the Registrant and Diamond State Generation Partners, LLC, dated as of April  13, 2012 (PPA II)
10.18*    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)
10.19†    Equity Capital Contribution Agreement with respect to Diamond State Generation Holdings, LLC, by and among Clean-Technologies II, LLC, Diamond State Generation Holdings, LLC, Diamond State Generation Partners, LLC, and Mehetia Inc., dated as of March 16, 2012 (PPA II)
10.20*†    First Amendment to the Equity Capital Contribution Agreement with respect to Diamond State Generation Holdings, LLC dated as of April  13, 2012 (PPA II)
10.21*†    Administrative Services Agreement by and between Registrant, Diamond State Generation Holdings, LLC, and Diamond State Generation Partners, LLC, dated as of April 13, 2012 (PPA II)
10.22*†    Depositary Agreement among Diamond State Generation Partners, LLC, Deutsche Bank Trust Company Americas, and Deutsche Bank Trust Company Americas, dated as of March 20, 2013 (PPA II)
10.23*†    First Amended and Restated Purchase, Use and Maintenance Agreement by and among Registrant and 2016 ESA Project Company, dated as of June 26, 2017 (Southern)
10.24*†    Amendment No.  1 to Amended and Restated Purchase, Use and Maintenance Agreement by and between Registrant and 2016 ESA Project Company, LLC, dated as of September 11, 2017 (Southern)
10.25*    Amendment No.  1 to Depository Agreement by and among Diamond State Generation Partners, LLC, Deutsche Bank Trust Company Americas and Deutsche Bank Trust Company Americas, dated as of March 21, 2017 (PPA II)
10.26*    First Amendment to Second Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings, LLC, dated as of September 25, 2013 (PPA II)
10.27*    Consent, Authorization, Waiver and First Amendment to Note Purchase Agreement by and between Diamond State Generation Partners, LLC and the holders, dated as of June 24, 2013 (PPA II)
10.28*    Second Amendment to Note Purchase Agreement by and among Diamond State Generation Partners, LLC and the Holders thereto, dated March  13, 2018 (PPA II)
10.29*    Net Lease Agreement, dated as of April 4, 2018, by and between the Registrant and 237 North First Street Holdings, LLC
10.30*    Offer letter by and between the Registrant and Glen Griffiths, dated as of October 17, 2014

 

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Index to Financial Statements

Exhibit

Number

  

Description

10.31*    Consulting Agreement between the Registrant and Colin L. Powell, dated as of January 29, 2009
10.32*    Employment, Confidential Information, Invention Assignment and Arbitration Agreement between Ion America Corporation and KR Sridhar, dated April 1, 2002
10.33    Employment, Confidential Information, Invention Assignment and Arbitration Agreement between the Registrant and Susan Brennan, dated November 7, 2013
10.34    Employment, Confidential Information, Invention Assignment and Arbitration Agreement between the Registrant and Glen Griffiths, dated December 1, 2014
21.1    List of Subsidiaries
23.1   

Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm

23.2    Consent of Fenwick & West LLP (See Exhibit 5.1)
24.1*   

Power of Attorney (see page II-9 to this registration statement)

99.1*    Grant Agreement by and between the Delaware Economic Development Authority and the Registrant, dated March 1, 2012

 

* Previously filed.
Confidential treatment requested with respect to portions of this exhibit.

(b) Financial Statements Schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Item 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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Index to Financial Statements

Signatures

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on the 9th day of July, 2018.

 

BLOOM ENERGY CORPORATION

By:

 

/s/ KR Sridhar

  KR Sridhar
  Founder, President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

 

Signature

  

Title

 

Date

/s/ KR Sridhar

KR Sridhar

  

Founder, President, Chief

Executive Officer and Director

(Principal Executive Officer)

 

July 9, 2018

/s/ Randy Furr

Randy Furr

  

Chief Financial Officer (Principal

Financial and Accounting Officer)

 

July 9, 2018

*

Kelly A. Ayotte

  

Director

 

July 9, 2018

*

Mary K. Bush

  

Director

 

July 9, 2018

*

John Doerr

  

Director

 

July 9, 2018

*

Colin L. Powell

  

Director

 

July 9, 2018

*

Scott Sandell

  

Director

 

July 9, 2018

*

Peter Teti

  

Director

 

July 9, 2018

*

Eddy Zervigon

  

Director

 

July 9, 2018

 

* By:  

/s/ Randy Furr

/s/ Randy Furr

  

Attorney-in-fact

  July 9, 2018

 

II-9

Exhibit 1.1

BLOOM ENERGY CORPORATION

[            ] Shares of Class A Common Stock, par value $0.0001 per share

Underwriting Agreement

[            ], 2018

J.P. Morgan Securities LLC

Morgan Stanley & Co. LLC

As Representatives of the

several Underwriters listed

in Schedule 1 hereto

c/o J.P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

c/o Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

Ladies and Gentlemen:

Bloom Energy Corporation, a Delaware corporation (the “Company”), proposes to issue and sell to the several underwriters listed in Schedule 1 hereto (the “Underwriters”), for whom you are acting as representatives (the “Representatives”), an aggregate of [    ] shares (the “Underwritten Shares”) of Class A common stock, par value $0.0001 per share, of the Company (the “Common Stock”) and, at the option of the Underwriters, up to an additional [    ] shares of Common Stock of the Company (the “Option Shares”). The Underwritten Shares and the Option Shares are herein referred to as the “Shares.”

Morgan Stanley & Co. LLC (the “Directed Share Underwriter”) has agreed to reserve a portion of the Shares to be purchased by it under this Agreement, up to [                ] Shares, for sale to the Company’s directors, officers, employees and business associates and other parties related to the Company (collectively, “Participants”), as set forth in the Prospectus (as hereinafter defined) under the heading “Underwriting” (the “Directed Share Program”). The Shares to be sold by the Directed Share Underwriter and its affiliates pursuant to the Directed Share Program are referred to hereinafter as the “Directed Shares”. Any Directed Shares not orally confirmed for purchase by any Participant by [                ] [A/P].M., New York City time on the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.

 


The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:

1. Registration Statement . The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Securities Act”), a registration statement (File No. 333-225571), including a prospectus, relating to the Shares. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A under the Securities Act to be part of the registration statement at the time of its effectiveness (“Rule 430A Information”), is referred to herein as the “Registration Statement”; and as used herein, the term “Preliminary Prospectus” means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430A Information, and the term “Prospectus” means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462 Registration Statement. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.

At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively with the pricing information set forth on Annex A, the “Pricing Disclosure Package”): a Preliminary Prospectus dated [    ], 2018 and each “free-writing prospectus” (as defined pursuant to Rule 405 under the Securities Act) listed on Annex A hereto.

“Applicable Time” means [    ] [A/P].M., New York City time, on [    ], 2018.

2. Purchase of the Shares by the Underwriters . (a) The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this underwriting agreement (this “Agreement”), and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase at a price per share (the “Purchase Price”) of $[    ] from the Company the respective number of Underwritten Shares set forth opposite such Underwriter’s name in Schedule 1 hereto.

In addition, the Company agrees to issue and sell, the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares. If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite

 

-2-


the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 10 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make.

The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.

(b) The Company understands that the Underwriters intend to make a public offering of the Shares as soon after the effectiveness of this Agreement as in the judgment of the Representatives is advisable, and initially to offer the Shares on the terms set forth in the Prospectus. The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.

(c) Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives in the case of the Underwritten Shares, at the offices of Davis Polk & Wardwell LLP, 1600 El Camino Real, Menlo Park, California 94025 at 10:00 A.M., New York City time, on [                ], 2018, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters’ election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the “Closing Date” and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the “Additional Closing Date.”

Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date, with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (“DTC”) unless the Representatives shall otherwise instruct. The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date or the Additional Closing Date, as the case may be.

 

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(d) The Company acknowledges and agrees that the Underwriters are acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, neither the Representatives nor any other Underwriter is advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Company with respect thereto. Any review by the Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company.

3. Representations and Warranties of the Company . The Company represents and warrants to each Underwriter that:

(a) Preliminary Prospectus. No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

(b) Pricing Disclosure Package . The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

 

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(c) Issuer Free Writing Prospectus. Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an “Issuer Free Writing Prospectus”) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex A hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives. Each such Issuer Free Writing Prospectus complied in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

(d) Emerging Growth Company . From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

(e) Testing-the-Waters Materials. The Company (i) has not alone engaged in any Testing-the-Waters Communications and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex B hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication complied in all material respects with the applicable provisions of the Securities Act, and when taken together with the Pricing Disclosure Package as of

 

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the Applicable Time, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(f) Registration Statement and Prospectus. The Registration Statement has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or, to the knowledge of the Company, threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will as of the Closing Date or any Additional Closing Date comply in all material respects with the Securities Act, and did not as of the applicable effective date and will not as of the Closing Date and any Additional Closing Date contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.

(g) Financial Statements. The financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods covered thereby except as otherwise stated therein, and any supporting schedules included in the Registration Statement present fairly the information required to be stated therein; and the other historical financial information of the Company and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly in all material respects the information shown thereby.

 

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(h) No Material Adverse Change. Since the date of the most recent financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has not been any change in the capital stock (other than the issuance of shares of Common Stock upon exercise of stock options and warrants or the settlement of restricted stock units (“RSUs”) described as outstanding in, and the grant of options and awards under existing equity incentive plans described in, the Registration Statement, the Pricing Disclosure Package and the Prospectus), the short-term debt or long-term debt of the Company (other than paid-in-kind interest accrued on the Company’s 6% Notes since the date of the most recent financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus) or any of its subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; and (iii) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

(i) Organization and Good Standing. The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a “Material Adverse Effect”). The Company does not own or control, directly or indirectly, any corporation, association, or other entity other than the subsidiaries listed in Exhibit 21.1 to the Registration Statement, except for those subsidiaries omitted from Exhibit 21.1 because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary within the meaning of Regulation S-X promulgated under the Securities Act.

 

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(j) Capitalization. The Company has an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Capitalization”; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except as otherwise described in the Registration Statement, the Pricing Disclosure Package and the Prospectus), and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party.

(k) Stock Options. With respect to the stock options (the “Stock Options”) granted pursuant to the stock-based compensation plans of the Company and its subsidiaries (the “Company Stock Plans”), (i) each Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the “Grant Date”) by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance in all material respects with the terms of the Company Stock Plans, the Securities Act and all other applicable laws and regulatory rules or requirements, and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company included in the Registration Statement, to the extent required under GAAP to be accounted for in such financial statements.

(l) Due Authorization. The Company has full corporate right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.

(m) Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by the Company.

 

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(n) The Shares. The Shares to be issued and sold by the Company hereunder have been duly authorized by the Company and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform in all material respects to the descriptions thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights.

(o) Descriptions of the Underwriting Agreement. This Agreement conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

(p) No Violation or Default. Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(q) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares by the Company and the consummation by the Company of the transactions contemplated by this Agreement or the Pricing Disclosure Package and the Prospectus will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.

(r) No Consents Required. No consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, except for the registration of the Shares under

 

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the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by the Financial Industry Regulatory Authority, Inc. (“FINRA”), the New York Stock Exchange and under applicable state securities laws in connection with the purchase and distribution of the Shares by the Underwriters.

(s) Legal Proceedings. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is the subject that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

(t) Independent Accountants . PricewaterhouseCoopers LLP, who have certified certain consolidated financial statements of the Company and its subsidiaries, is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

(u) Title to Real and Personal Property. The Company and its subsidiaries have good and marketable title in fee simple (in the case of real property) to, or have valid and marketable rights to lease or otherwise use, all items of real and personal property and assets that are material to the respective businesses of the Company and its subsidiaries taken as a whole, in each case, except as disclosed in the Registration Statement, free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

(v) Intellectual Property. Except for specific matters the Company is aware of that are accurately described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its subsidiaries own or possess adequate rights to use all inventions, patents, trademarks, service marks, trade names, domain names, copyrights, licenses, technology, know-how, trade secrets and other intellectual

 

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property and proprietary or confidential information, systems or procedures (including all goodwill associated with, and all registrations and applications for registration of, the foregoing) (collectively, “Intellectual Property”) necessary for or material to the conduct of their respective businesses as currently conducted and as proposed to be conducted, and the conduct of their respective businesses does not infringe, misappropriate or otherwise violate any Intellectual Property of others in any material respect. There is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim (i) challenging the Company’s rights in or to, or alleging the violation of any of the terms of, any of their Intellectual Property; (ii) alleging that the Company has infringed, misappropriated or otherwise violated or conflicted with any Intellectual Property of any third party; or (iii) challenging the validity, scope or enforceability of any Intellectual Property owned by or exclusively or co-exclusively licensed to the Company; except, in the case of each of (i) through (iii) above, where the outcome of which would not reasonably be expected to be material to the Company and its subsidiaries, taken as a whole.

(w) No Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries, on the other, that is required by the Securities Act to be described in the Registration Statement and the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package.

(x) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof received by the Company as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”).

(y) Taxes. The Company and its subsidiaries have paid all federal, state, local and foreign taxes, except for any tax that is being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP, and filed all tax returns required to be paid or filed through the date hereof; and except as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there is no tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets, except where the failure to pay or file, or when such deficiency, would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect.

(z) Licenses and Permits. The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration

 

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Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course.

(aa) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, and the Company is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers, except as would not reasonably be expected to have a Material Adverse Effect.

(bb) Compliance with and Liability under Environmental Laws. (i) The Company and its subsidiaries (a) are, and at all prior times were, in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions, judgments, decrees, orders and the common law relating to pollution or the protection of the environment, natural resources or human health or safety, including those relating to the generation, storage, treatment, use, handling, transportation, Release or threat of Release of Hazardous Materials (collectively, “Environmental Laws”), (b) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, (c) have not received written notice of any actual or potential liability under or relating to, or actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any Release or threat of Release of Hazardous Materials, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, (d) are not conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Environmental Law at any location, and (e) are not a party to any order, decree or agreement that imposes any obligation or liability under any Environmental Law, and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and (ii) above, for any such matter, as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iii) except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) there are no proceedings that are pending, or that are known by the Company to be contemplated, against the Company or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed against the Company or any of its subsidiaries, (b) the Company and its subsidiaries are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws, including the Release or threat of Release of Hazardous Materials, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries, and (c) none of the Company and its subsidiaries anticipates making capital expenditures relating to any Environmental Laws that are material to the Company and its subsidiaries taken as a whole.

 

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(cc) Hazardous Materials . Except for specific matters that are accurately described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there has been no storage, generation, transportation, use, handling, treatment, Release or threat of Release of Hazardous Materials by, relating to or caused by the Company or any of its subsidiaries (or, to the knowledge of the Company and its subsidiaries, any other entity (including any predecessor) for whose acts or omissions the Company or any of its subsidiaries is or could reasonably be expected to be liable) at, on, under or from any property or facility now or previously owned, operated or leased by the Company or any of its subsidiaries, or at, on, under or from any other property or facility, in violation of any Environmental Laws or in a manner or amount or to a location that could reasonably be expected to result in any liability under any Environmental Law, except for any violation or liability which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. “Hazardous Materials” means any material, chemical, substance, waste, pollutant, contaminant, compound, mixture, or constituent thereof, in any form or amount, including petroleum (including crude oil or any fraction thereof) and petroleum products, natural gas liquids, asbestos and asbestos containing materials, naturally occurring radioactive materials, brine, and drilling mud, regulated or which can give rise to liability under any Environmental Law. “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, or migrating in, into or through the environment, or in, into, from or through any building or structure.

(dd) Compliance with ERISA. (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to, ERISA and the Code, except for noncompliance that could not reasonably be expected to result in material liability to the Company or its subsidiaries; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption that could reasonably be expected to result in a material liability to the Company and its subsidiaries taken as a whole; (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, as applicable, has been satisfied (without taking into account any waiver thereof or extension of any amortization period) and is reasonably expected to be satisfied in the future (without taking into account any waiver thereof or extension of any amortization period); (iv) the fair market value of the assets of each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan); (v) no “reportable event” (within the meaning of Section

 

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4043(c) of ERISA) has occurred or is reasonably expected to occur that either has resulted, or could reasonably be expected to result, in material liability to the Company or its subsidiaries; (vi) neither the Company nor any member of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC, in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA); and (vii) there is no pending audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other governmental agency or any foreign regulatory agency with respect to any Plan that could reasonably be expected to result in material liability to the Company or its subsidiaries taken as a whole.

(ee) Disclosure Controls . The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that has been designed to comply with the requirements of the Exchange Act and to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

(ff) Accounting Controls. The Company and its subsidiaries, taken as a whole, maintain a system of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that has been designed to comply with the requirements of the Exchange Act and that has been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no material weaknesses in the Company’s internal controls over financial reporting. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

 

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(gg) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts and insures against such losses and risks as the Company reasonably believes are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received written notice from any insurer or agent of such insurer that material capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business in all material respects.

(hh) No Unlawful Payments. Neither the Company nor any of its subsidiaries, nor any director or officer or controlled affiliate or, to the knowledge of the Company, any non-controlled affiliate or employee of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company, its subsidiaries and its controlled affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted, maintained and enforced, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws. Neither the Company nor its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-corruption laws.

(ii) Compliance with Anti-Money Laundering Laws . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar

 

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rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Anti-Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

(jj) No Conflicts with Sanctions Laws. Neither the Company nor any of its subsidiaries, directors, officers or employees, nor, to the knowledge of the Company, any agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is, or is owned or controlled by one or more persons that is, (x) currently the subject or the target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council, the European Union, Her Majesty’s Treasury, the Swiss Secretariat of Economic Affairs, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or other relevant sanctions authority (collectively, “Sanctions”), or (y) located, organized or resident in a country or territory that is the subject or target of Sanctions, including, without limitation, Cuba, Iran, North Korea, Sudan, Syria and Crimea (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

(kk) No Restrictions on Subsidiaries . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company.

(ll) No Broker s Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of its subsidiaries or any Underwriter for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.

 

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(mm) No Registration Rights . No person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission, or the issuance and sale of the Shares except as has been validly waived.

(nn) No Stabilization. The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.

(oo) Margin Rules . The application of the proceeds received by the Company from the issuance, sale and delivery of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

(pp) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made by the Company or reaffirmed without a reasonable basis or has been disclosed by the Company other than in good faith.

(qq) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

(rr) Sarbanes-Oxley Act . There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with any applicable provision of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 related to loans.

(ss) Status under the Securities Act . At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act.

(tt) No Ratings . There are (and prior to the Closing Date, will be) no debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries that are rated by a “nationally recognized statistical rating organization”, as such term is defined in Section 3(a)(62) of the Exchange Act.

 

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(uu) Directed Share Program. The Company represents and warrants that (i) the Registration Statement, the Pricing Disclosure Package and the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectuses comply in all material respects, and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of foreign jurisdictions in which the Pricing Disclosure Package, the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. The Company has not offered, or caused any Directed Share Underwriter Entity to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer or supplier’s level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.

4. Further Agreements of the Company . The Company covenants and agrees with each Underwriter that:

(a) Required Filings. The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act, and will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the business day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.

(b) Delivery of Copies. The Company will deliver, if requested, without charge, (i) to the Representatives, two signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term “Prospectus Delivery Period” means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.

(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement or the Prospectus, the Company will furnish to the Representatives and counsel for the

 

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Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably object.

(d) Notice to the Representatives. The Company will advise the Representatives promptly, and confirm such advice in writing (which may be by electronic mail), (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Prospectus, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication; (v) of the issuance by the Commission of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, the Prospectus or any Written Testing-the-Waters Communication or the initiation or, if the Company gains knowledge of such proceeding, threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, any such Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or, if the Company gains knowledge of such proceeding, threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Shares and, if any such order is issued, will obtain as soon as possible the withdrawal thereof.

(e) Ongoing Compliance. (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and

 

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furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate, such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.

(f) Blue Sky Compliance. The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

(g) Earnings Statement. The Company will make generally available to its security holders and the Representatives as soon as practicable an earnings statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the “effective date” (as defined in Rule 158) of the Registration Statement, it being understood and agreed that such earnings statement shall be deemed to have been made available by the Company if the Company is in compliance with its reporting obligations pursuant to the Exchange Act, if such compliance satisfies the conditions of Rule 158, and if such earnings statement is made available on the Commission’s Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”).

(h) Clear Market. For a period of 180 days after the date of the Prospectus, the Company will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for

 

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Common Stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of Common Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, other than (A) the Shares to be sold hereunder, (B) any shares of Common Stock of the Company issued upon the exercise of options or settlement of RSUs granted under Company Stock Plans or warrants outstanding as of the date hereof, (C) the filing by the Company of a registration statement on Form S-8 or a successor form thereto relating to a Company Stock Plan or employee stock purchase plan described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (D) up to 216,000 shares of Common Stock of the Company issuable to one of the Company’s customers on the occurrence of certain installation milestones, as described in the Prospectus and (E) the issuance by the Company of shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock, in an aggregate amount not to exceed 5% of the Company’s outstanding Common Stock outstanding immediately following the issuance of the Shares (including the Option Shares issued hereunder) to the Underwriters as contemplated by this Agreement, in connection with one or more acquisitions of a company or a business, assets or technology of another person or entity, joint ventures, commercial relationships or strategic alliances (including but not limited to marketing or distribution arrangements, collaboration agreements or intellectual property license agreements); provided the recipients of Common Stock have signed a lock-up agreement in substantially the form of Exhibit C hereto for the balance of the 180 day restricted period.

In addition, the Company covenants to (a) include in the provisions of each Company Stock Plan or in the award agreements thereunder terms restricting the transfer by any employee or other holder of any Common Stock and any other securities convertible into or exercisable or exchangeable for Common Stock granted or issued pursuant to any such Company Stock Plan to the same extent as if such holder were a party to a lock-up agreement, (b) enforce such transfer restrictions and any similar transfer restrictions contained in any agreement between the Company and any of its securityholders, except to the extent expressly permitted by the Representatives pursuant to a lock-up letter described in Section 6(k) hereof (the “Market Standoff Provisions”) including, without limitation, through the issuance of stop transfer instructions to the Company’s transfer agent with respect to any transaction that would constitute a breach of, or default under, the transfer restrictions and (c) not amend or waive such Market Standoff Provisions with respect to any such holder without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC.

If J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(k) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver substantially in the form of Exhibit A hereto at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver.

 

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(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Use of proceeds.”

(j) No Stabilization. The Company will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Common Stock.

(k) Exchange Listing. The Company will use its best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange (the “Exchange”).

(l) Reports. Until the third anniversary of the date hereof, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on EDGAR.

(m) Record Retention . The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.

(n) Filings. The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.

(o) Emerging Growth Company . The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 4(h) hereof.

(p) Directed Share Program . The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.

(q) FinCEN Customer Due Diligence . The Company will deliver to each Underwriter (or its agent), on the date of execution of this Agreement, a properly completed and executed Certification Regarding Beneficial Owners of Legal Entity Customers, together with copies of identifying documentation, and the Company undertakes to provide such additional supporting documentation as each Underwriter may reasonably request in connection with the verification of the foregoing Certification.

 

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5. Certain Agreements of the Underwriters . Each Underwriter hereby represents and agrees that:

(a) It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any “free writing prospectus”, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Section 3(c) or Section 4(c) above (including any electronic road show approved in advance by the Company), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an “Underwriter Free Writing Prospectus”).

(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission; provided that Underwriters may use a term sheet substantially in the form of Annex C hereto without the consent of the Company; provided further that any Underwriter using such term sheet shall notify the Company, and provide a copy of such term sheet to the Company, prior to, or substantially concurrently with, the first use of such term sheet.

(c) It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).

6. Conditions of Underwriters Obligations. The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:

(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.

 

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(b) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.

(c) No Material Adverse Change. No event or condition of a type described in Section 3(h) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.

(d) Officer s Certificate. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of the chief financial officer or chief accounting officer of the Company and one additional senior executive officer of the Company who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations of the Company set forth in Sections 3(b) and 3(f) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be, and (iii) to the effect set forth in paragraphs (a) and (d) above.

(e) Comfort Letters. (i) On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, PricewaterhouseCoopers LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a “cut-off” date no more than three business days prior to such Closing Date or such Additional Closing Date, as the case may be.

(ii) On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives a certificate, dated the respective dates of delivery thereof and addressed to the Underwriters, of its chief financial officer with respect to certain financial data contained in the Pricing Disclosure Package and the Prospectus, providing “management comfort” with respect to such information, in form and substance reasonably satisfactory to the Representatives.

 

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(f) Opinion and 10b-5 Statement of Counsel for the Company. Fenwick & West LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.

(g) Opinion and 10b-5 Statement of Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement of Davis Polk & Wardwell LLP, counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.

(h) No Legal Impediment to Issuance and/or Sale. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares.

(i) Good Standing . The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing as foreign entities in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.

(j) Exchange Listing. The Shares to be delivered on the Closing Date or the Additional Closing Date, as the case may be, shall have been approved for listing on the Exchange, subject to official notice of issuance.

(k) Lock-up Agreements . The “lock-up” agreements, each substantially in the form of Exhibit D hereto, between you and certain equityholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or the Additional Closing Date, as the case may be.

(l) Additional Documents. On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request

 

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All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.

7. Indemnification and Contribution .

(a) Indemnification of the Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses reasonably incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act (a “road show”) or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (c) below.

(b) Indemnification of the Company. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities (including, without limitation, reasonable legal fees and other expenses reasonably incurred in connection with any suit, action or proceeding or any claim asserted) that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in

 

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the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any road show or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the third paragraph under the caption “Underwriting” and the information contained in the seventh, thirteenth, fourteenth or fifteenth paragraphs under the caption “Underwriting”.

(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to the preceding paragraphs of this Section 7, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 7 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under the preceding paragraphs of this Section 7. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person in such proceeding and shall pay the reasonably incurred fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the reasonably incurred fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded based on advice from counsel that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonably incurred fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the

 

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Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

(d) Contribution. If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Underwriters on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company, on the one hand, and the Underwriters on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

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(e) Limitation on Liability. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) above were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any reasonably incurred legal or other reasonably incurred expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of paragraphs (d) and (e), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute pursuant to paragraphs (d) and (e) are several in proportion to their respective purchase obligations hereunder and not joint.

(f) Non-Exclusive Remedies. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.

(g) Directed Share Program Indemnification . The Company agrees to indemnify and hold harmless the Directed Share Underwriter, each person, if any, who controls the Directed Share Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of the Directed Share Underwriter within the meaning of Rule 405 of the Securities Act (each a “Directed Share Underwriter Entity”) from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Directed Share Underwriter Entities.

 

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(h) In case any proceeding (including any governmental investigation) shall be instituted involving any Directed Share Underwriter Entity in respect of which indemnity may be sought pursuant to paragraph (g) above, the Directed Share Underwriter Entity seeking indemnity shall promptly notify the Company in writing and the Company, upon request of the Directed Share Underwriter Entity, shall retain counsel reasonably satisfactory to the Directed Share Underwriter Entity to represent the Directed Share Underwriter Entity and any others the Company may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Directed Share Underwriter Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Directed Share Underwriter Entity unless (i) the Company and such Directed Share Underwriter Entity shall have mutually agreed to the retention of such counsel, (ii) the Company has failed within a reasonable time to retain counsel reasonably satisfactory to such Directed Share Underwriter Entity, (iii) the Directed Share Underwriter Entity shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Company or (iv) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Directed Share Underwriter Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not, in respect of the legal expenses of the Directed Share Underwriter Entities in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Directed Share Underwriter Entities. Any such separate firm for the Directed Share Underwriter Entities shall be designated in writing by the Directed Share Underwriter. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for plaintiff, the Company agrees to indemnify the Directed Share Underwriter Entities from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time any Directed Share Underwriter Entity shall have requested the Company to reimburse such Directed Share Underwriter Entity for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Company agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Company of the aforesaid request and (ii) the Company shall not have reimbursed such Directed Share Underwriter Entity in accordance with such request prior to the date of such settlement. The Company shall not, without the prior written consent of the Directed Share Underwriter, effect any settlement of any pending or threatened proceeding in respect of which any Directed Share Underwriter Entity is or could have been a party and indemnity could have been sought hereunder by such Directed Share Underwriter Entity, unless (x) such settlement includes an unconditional release of the Directed Share Underwriter Entities from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of the Directed Share Underwriter Entity.

(i) To the extent the indemnification provided for in paragraph (h) above is unavailable to a Directed Share Underwriter Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Company in lieu of indemnifying the Directed Share Underwriter Entity thereunder, shall contribute to the

 

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amount paid or payable by the Directed Share Underwriter Entity as a result of such losses, claims, damages or liabilities (1) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Directed Share Underwriter Entities on the other hand from the offering of the Directed Shares or (2) if the allocation provided by clause 7(i)(1) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(i)(1) above but also the relative fault of the Company on the one hand and of the Directed Share Underwriter Entities on the other hand in connection with any statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Directed Share Underwriter Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total underwriting discounts and commissions received by the Directed Share Underwriter Entities for the Directed Shares, bear to the aggregate public offering price of the Directed Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact, the relative fault of the Company on the one hand and the Directed Share Underwriter Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the Directed Share Underwriter Entities and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(j) The Company and the Directed Share Underwriter Entities agree that it would not be just or equitable if contribution pursuant to paragraph (j) above were determined by pro rata allocation (even if the Directed Share Underwriter Entities were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (j) above. The amount paid or payable by the Directed Share Underwriter Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the Directed Share Underwriter Entities in connection with investigating or defending any such action or claim. Notwithstanding the provisions of paragraph (i) above, no Directed Share Underwriter Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such Directed Share Underwriter Entity has otherwise been required to pay. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in paragraphs (g) through (j) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

 

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(k) The indemnity and contribution provisions contained in paragraphs (g) through (j) shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Directed Share Underwriter Entity or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Directed Shares.

8. Effectiveness of Agreement . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

9. Termination . This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date, (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The Nasdaq Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.

10. Defaulting Underwriter .

(a) If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or the Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes. As used in this Agreement, the term “Underwriter” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 10, purchases Shares that a defaulting Underwriter agreed but failed to purchase.

 

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(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters, the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriter’s pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.

(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date, shall terminate without liability on the part of the non-defaulting Underwriters. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 11 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.

(d) Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.

11. Payment of Expenses .

(a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the fees and expenses of the Company’s counsel and independent accountants; (iv) the reasonably incurred fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the state or foreign securities or blue sky laws of such jurisdictions as the Representatives may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related fees and expenses of counsel for the Underwriters); (v) the cost of preparing stock certificates; (vi) the costs and

 

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charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA; (viii) all expenses incurred by the Company in connection with any “road show” presentation to potential investors, including 50% of the cost of any aircraft chartered in connection with the road show, it being understood that the Underwriters will pay 50% of the cost of any such chartered aircraft; (ix) all expenses and application fees related to the listing of the Shares on the Exchange; and (x) all of the reasonable fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program.

(b) If (i) this Agreement is terminated pursuant to Section 9, (ii) the Company for any reason fail to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares as a result of the failure of the conditions set forth in Section 8, the Company agrees to reimburse the Underwriters for all out-of-pocket costs and expenses (including the reasonably incurred fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby.

12. Persons Entitled to Benefit of Agreement . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.

13. Survival . The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf of the Company or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Underwriters.

14. Certain Defined Terms . For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; and (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act.

15. Miscellaneous .

(a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention: Equity Syndicate Desk; and c/o

 

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Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department. Notices to the Company shall be given to it at 1299 Orleans Drive, Sunnyvale, California 94089, Attention: General Counsel.

(b) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such state.

(c) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

(d) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

(e) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

 

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If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.

 

Very truly yours,
BLOOM ENERGY CORPORATION
By:  

 

  Title:

Accepted: As of the date first written above

J.P. MORGAN SECURITIES LLC

MORGAN STANLEY & CO. LLC

For themselves and on behalf of the

several Underwriters listed

in Schedule 1 hereto.

J.P. MORGAN SECURITIES LLC

 

By:  

 

          Authorized Signatory
MORGAN STANLEY & CO. LLC
By:  

 

          Authorized Signatory

 

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Schedule 1

 

Underwriter

   Number of Shares  

J.P. Morgan Securities LLC

  

Morgan Stanley & Co. LLC

  

Credit Suisse Securities (USA) LLC

  

KeyBanc Capital Markets Inc.

  

Merrill Lynch, Pierce, Fenner & Smith

                     Incorporated

  

Cowen and Company, LLC

  

HSBC Securities (USA) Inc.

  

Oppenheimer & Co. Inc.

  

Raymond James & Associates, Inc.

  

Robert W. Baird & Co. Incorporated

  
  

 

 

 

Total

  

 

 

Sch. 1-1


Annex A

a. Pricing Disclosure Package

[        ]

b. Pricing Information Provided Orally by Underwriters

[        ]

 

 

Annex A-1


Annex B

Written Testing-the-Waters Communications

[    ]

 

 

Annex B-1


Annex C

Pricing Term Sheet

[    ]

 

 

Annex C-1


Exhibit A

[Form of Waiver of Lock-up]

J.P. MORGAN SECURITIES LLC

MORGAN STANLEY & CO. LLC

Bloom Energy Corporation

Public Offering of Common Stock

             , 20__

[Name and Address of

Officer or Director

Requesting Waiver]

Dear Mr./Ms. [Name]:

This letter is being delivered to you in connection with the offering by Bloom Energy Corporation (the “Company”) of              shares of its Class A common stock, $0.0001 par value (the “Common Stock”), of the Company and the lock-up letter dated                     , 2018 (the “Lock-up Letter”), executed by you in connection with such offering, and your request for a [waiver] [release] dated                , 20        , with respect to             shares of Common Stock (the “Shares”).

J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective                     , 20     ; provided , however , that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].

Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.

Yours very truly,

[Signature of J.P. Morgan Securities LLC Representative]

[Name of J.P. Morgan Securities LLC Representative]

[Signature of Morgan Stanley & Co. LLC Representative]

[Name of Morgan Stanley & Co. LLC Representative]

cc: Company


Exhibit B

[Form of Press Release]

Bloom Energy Corporation

[Date]

Bloom Energy Corporation (the “Company”) announced today that J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, the lead book-running managers in the Company’s recent public sale of [        ] shares of Class A common stock, is [waiving] [releasing] a lock-up restriction with respect to [        ] shares of the Company’s common stock held by [        ]. The [waiver] [release] will take effect on [        ], 2018, and the shares may be sold on or after such date.

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.


Exhibit C

FORM OF LOCK-UP AGREEMENT

____ __, 2018

J.P. MORGAN SECURITIES LLC

MORGAN STANLEY & CO. LLC

As Representatives of

the several Underwriters listed in

Schedule 1 to the Underwriting

Agreement referred to below

c/o J.P. Morgan Securities LLC

383 Madison Avenue

New York, NY 10179

c/o Morgan Stanley & Co. LLC

1585 Broadway

New York, NY 10036

 

  Re: Bloom Energy Corporation — Public Offering

Ladies and Gentlemen:

The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an underwriting agreement (the “Underwriting Agreement”) with Bloom Energy Corporation, a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the “Underwriters”), of the common stock, par value $0.0001 per share, of the Company (the “Securities”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.

In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC on behalf of the Underwriters, the undersigned will not, during the period (the “Lock-Up Period”) commencing on the date hereof and ending 180 days after the date of the final prospectus relating to the Public Offering (the “Prospectus”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the common stock, $0.0001 par value per share, of the Company (the “Common Stock”) or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any


offer, sale, pledge or disposition, (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) make any demand for or exercise any right with respect to the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock.

The provisions of the immediately preceding paragraph shall not apply to (or otherwise limit or restrict):

 

  (A) the Securities to be sold by the undersigned pursuant to the Underwriting Agreement;

 

  (B) transfers of shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering;

 

  (C) transfers of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock (i) as a bona fide gift, or gifts, or for bona fide estate planning purposes, (ii) upon death or by will, testamentary document or intestate succession, (iii) to an immediate family member of the undersigned or to any trust for the direct or indirect benefit of the undersigned or one or more immediate family members of the undersigned (for purposes of this Letter Agreement, “immediate family” shall mean any spouse or domestic partner and any relationship by blood, current or former marriage or adoption, not more remote than first cousin), (iv) not involving a change in beneficial ownership, or (v) if the undersigned is a trust, to any trustee or beneficiary of the undersigned or the estate of any such trustee or beneficiary;

 

  (D) transfers or distributions of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock by a stockholder that is a corporation, partnership, limited liability company or other business entity (i) to another corporation, partnership, limited liability company or other business entity that controls, is controlled by or managed by or is under common control with such stockholder or (ii) as part of a transfer or distribution to an equity holder of such stockholder or to the estate of any such equity holder;

 

  (E) the establishment of a trading plan pursuant to Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provided that (i) such plan does not provide for the transfer of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock during the Lock-Up Period and (ii) no public announcement or filing is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan;

 

  (F)

(i) the receipt by the undersigned from the Company of shares of Common Stock upon (A) the exercise or settlement of options or restricted stock units granted under a stock incentive plan or other equity award plan, which plan is described in the registration statement related to the Public Offering (the “Registration Statement”) and the Prospectus or (B) the exercise of warrants or conversion of convertible notes outstanding and which are described in the Registration Statement and the Prospectus, or (ii) the transfer of shares of Common Stock or any securities convertible into Common Stock to the Company upon a vesting or settlement event of the Company’s

 

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  securities or upon the exercise of options or warrants to purchase the Company’s securities on a “cashless” or “net exercise” basis to the extent permitted by the instruments representing such options or warrants (and any transfer to the Company necessary to generate such amount of cash needed for the payment of taxes, including estimated taxes, due as a result of such vesting or exercise whether by means of a “net settlement” or otherwise) so long as such “cashless exercise” or “net exercise” is effected solely by the surrender of outstanding options or warrants (or the Common Stock issuable upon the exercise thereof) to the Company and the Company’s cancellation of all or a portion thereof to pay the exercise price and/or withholding tax and remittance obligations, provided that in the case of (i), the shares received upon exercise or settlement of the option, restricted stock unit, or warrant or conversion of convertible notes are subject to the terms of this Letter Agreement;

 

  (G) the transfer of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock that occurs pursuant to a qualified domestic order in connection with a divorce settlement or other court order;

 

  (H) the conversion of the outstanding preferred stock of the Company into shares of Common Stock in connection with the closing of the Public Offering, provided that such shares of Common Stock shall remain subject to the terms of this lock-up agreement;

 

  (I) any transfer of Common Stock to the Company pursuant to arrangements under which the Company has (i) the option to repurchase such shares or securities at the lower of cost or fair market value in connection with the termination of employment or service of the undersigned with the Company or (ii) a right of first refusal with respect to transfers of such shares or securities;

 

  (J) the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by the Board of Directors of the Company, made to all holders of Common Stock involving a Change of Control (as defined below) after the completion of the Public Offering ( provided that if such Change of Control is not completed, such shares shall remain subject to the restrictions of this Letter Agreement)[; or

 

  (K) the sale of shares of Common Stock by the undersigned after the date of the Underwriting Agreement, provided that the number of shares of Common Stock that may be sold pursuant to this clause (K), combined with any other such sales by holders of Common Stock subject to similar agreements as this Letter Agreement, shall not exceed 160,000 shares in the aggregate];

provided that in the case of any transfer or distribution pursuant to clause (C), (D) or (G) above, each transferee, donee or distributee shall execute and deliver to the Representatives a lock-up letter in the form of this Letter Agreement; and provided , further , that in the case of any transfer or distribution pursuant to clause (B), (C), (D), (I) or (K) above, no filing by any party (donor, donee, transferor or transferee) under the Exchange Act or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution; and provided , further , that in the case of any transfer pursuant to clause (F), no filing by any party (transferor or transferee) under the Exchange Act or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution within 90 days after the date

 

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of the Prospectus, and after such 90th day, if the undersigned is required to file a report under Section 16 of the Exchange Act reporting a reduction in beneficial ownership of shares of Common Stock, the undersigned shall include a statement in such report to the effect that the purpose of such transfer was either (i) to cover tax withholding obligations of the undersigned or remittance payments due in connection with such vesting, settlement or exercise or (ii) in connection with a cashless or net exercise of options or warrants to purchase shares of Common Stock for purposes of exercising such options or warrants; and provided , further , that in the case of any transfer pursuant to clause (G), any filing under the Exchange Act shall state that such transfer is pursuant to a qualified domestic order or in connection with a divorce settlement and that such Common Stock or such security convertible into or exercisable or exchangeable for Common Stock, as applicable, remains subject to the terms of this Letter Agreement. If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any Company-directed Securities the undersigned may purchase in the Public Offering.

For the purposes of clause (J) above, “Change of Control” shall mean the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an Underwriter pursuant to the Public Offering), of the Company’s voting securities if, after such transfer, such person or group of affiliated persons would hold more than 50% of the outstanding voting securities of the Company (or the surviving entity).

If the undersigned is an officer or director of the Company, (i) J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC on behalf of the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC on behalf of the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this Letter Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.

In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter Agreement.

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

Notwithstanding anything to the contrary contained herein, this Letter Agreement will automatically terminate and the undersigned will be released from all of his, her or its obligations hereunder upon the earliest to occur, if any, of (i) the date that the Company, on the one hand, and J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, on the other hand, mutually agree

 

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in writing not to proceed with the Public Offering prior to the execution of the Underwriting Agreement, (ii) the date that the Underwriting Agreement is executed but is terminated (other than the provisions thereof which survive termination) prior to payment for and delivery of the shares of Common Stock to be sold thereunder, or (iii) December 31, 2018, in the event that the Underwriting Agreement has not been executed by such date. The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter Agreement. Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters.

[ Signature page follows ]

 

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This Letter Agreement and any claim, controversy or dispute arising under or related to this Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof.

Very truly yours,

 

IF AN INDIVIDUAL:    IF AN ENTITY:

By: _________________________________

   ____________________________________

(duly authorized signature)

   (please print complete name of entity)

    Name: _____________________________

  

By: _____________________________

(please print full name)

  

(duly authorized signature)

  

    Name: _________________________

  

(please print full name)

Address:

  

Address:

________________________________________

   ____________________________________

________________________________________

   ____________________________________

[ Signature page to Lock-Up Agreement ]

Exhibit 3.1

BLOOM ENERGY CORPORATION

RESTATED CERTIFICATE OF INCORPORATION

Bloom Energy Corporation, a Delaware corporation, hereby certifies as follows:

1. The name of this corporation is Bloom Energy Corporation. The corporation was originally incorporated under the name of Ion America Corporation. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on January 18, 2001.

2. The Restated Certificate of Incorporation of this corporation attached hereto as Exhibit A , which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation, as previously amended and/or restated, has been duly adopted by this corporation’s Board of Directors and by the stockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, with the approval of this corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, this corporation has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.

 

Dated:                     , 2018     Bloom Energy Corporation
    By:  

 

    Name:   KR Sridhar
    Title:   Chief Executive Officer

 

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EXHIBIT A

BLOOM ENERGY CORPORATION

RESTATED CERTIFICATE OF INCORPORATION

ARTICLE I: NAME

The name of this corporation is Bloom Energy Corporation (the “ Company ”).

ARTICLE II: AGENT FOR SERVICE OF PROCESS

The address of the Company’s registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III: PURPOSE

The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ General Corporation Law ”).

ARTICLE IV: AUTHORIZED STOCK

 

  1. Total Authorized .

1.1. The total number of shares of all classes of stock that the Company has authority to issue is 1,210,000,000 shares, consisting of three classes: 600,000,000 shares of Class A Common Stock, $0.0001 par value per share (“ Class  A Common Stock ”), 600,000,000 shares of Class B Common Stock, $0.0001 par value per share (“ Class  B Common Stock ” and together with the Class A Common Stock, the “ Common Stock ”), and 10,000,000 shares of Preferred Stock, $0.0001 par value per share (the “ Preferred Stock ”).

1.2. The number of authorized shares of Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of capital stock representing a majority of the votes represented by all outstanding shares of capital stock of the Company entitled to vote (on an as-converted basis) voting together as a single class without a separate class vote of the holders of the Class A Common Stock as permitted by Section 242(b)(2) of the General Corporation Law.

 

  2. Preferred Stock .

2.1. The Company’s Board of Directors (“ Board of Directors ”) is authorized, subject to any limitations prescribed by the law of the State of Delaware, by resolution or resolutions adopted from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, and, by filing a certificate of designation pursuant to the applicable


provisions of the General Corporation Law (“ Certificate of Designation ”), to establish from time to time the number of shares to be included in each such series, to fix the designation, powers (including voting powers), preferences and relative, participating, optional or other rights (and the qualifications, limitations or restrictions thereof) of the shares of each such series and to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of capital stock of the Company entitled to vote thereon, without a separate vote of the holders of the Preferred Stock or any series thereof, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law, unless a vote of any such holders is required pursuant to the terms of any Certificate of Designation designating a series of Preferred Stock.

2.2. Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, (i) any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and (ii) any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock, or any future class or series of Preferred Stock or Common Stock.

 

  3. Rights of Class  A Common Stock and Class  B Common Stock .

3.1. Equal Status . Except as otherwise provided in this Restated Certificate of Incorporation, shares of Class A Common Stock shall have the same rights and powers of, rank equally to, share ratably with and be identical in all respects and as to all matters to shares of Class B Common Stock (including, without limitation, as to dividends and distributions; upon any liquidation, dissolution or winding up of the Company, and in the event of any merger or consolidation involving the Company).

3.2. Voting Rights and Powers . Except as otherwise expressly provided by this Restated Certificate of Incorporation or as provided by law, the holders of shares of Class A Common Stock and Class B Common Stock shall (a) at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Company, (b) be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Company (the “ Bylaws ”) and (c) be entitled to vote upon such matters and in such manner as may be provided by applicable law; provided, however, that, except as otherwise required by law, holders of shares of Class A Common Stock and Class B Common Stock shall not be entitled to vote on any amendment to this Restated Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Restated Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock). Except as otherwise

 

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expressly provided herein or provided by law, each holder of Class A Common Stock shall have the right to one (1) vote per share of Class A Common Stock held of record by such holder and each holder of Class B Common Stock shall have the right to ten (10) votes per share of Class B Common Stock held of record by such holder.

3.3. Dividends and Distribution Rights . Subject to the preferential rights of holders of all classes or series of stock at the time outstanding having prior rights as to dividends, (i) the holders of the Class A Common Stock shall be entitled to receive, when, as and if declared by the Board, out of any assets or funds of the Company legally available therefor, the same dividend per share and in the same form as may be declared from time to time by the Board with respect to the Class B Common Stock, and no dividend shall be declared or paid on shares of the Class B Common Stock unless the same dividend per share and in the same form with the same record date and payment date shall be declared or paid on the shares of Class A Common Stock; provided , however , that dividends payable in shares of Class B Common Stock; rights to acquire shares of Class B Common Stock; securities convertible into or exercisable or exchangeable for shares of Class B Common Stock; or rights to acquire such convertible, exercisable, or exchangeable securities may be declared and paid to the holders of the Class B Common Stock without the same dividend being declared and paid to the holders of the Class A Common Stock but if and only if a dividend payable in shares of Class A Common Stock; rights to acquire shares of Class A Common Stock; securities convertible into or exercisable or exchangeable for shares of Class A Common Stock; or rights to acquire such convertible, exercisable, or exchangeable securities (as the case may be) at the same rate and with the same record date and payment date as the dividend declared and paid to the holders of the Class B Common Stock shall also be declared and paid to the holders of Class A Common Stock and (ii) the holders of the Class B Common Stock shall be entitled to receive, when, as and if declared by the Board, out of any assets or funds of the Company legally available therefor, the same dividend per share in in the same form as may be declared from time to time by the Board with respect to the Class A Common Stock, and no dividend shall be declared or paid on shares of the Class A Common Stock unless the same dividend per share and in the same form with the same record date and payment date shall be declared or paid on the shares of Class B Common Stock; provided , however , that dividends payable in shares of Class A Common Stock, rights to acquire shares of Class A Common Stock, securities convertible into or exercisable or exchangeable for shares of Class A Common Stock, or rights to acquire such convertible, exercisable, or exchangeable securities may be declared and paid to the holders of the Class A Common Stock without the same dividend being declared and paid to the holders of the Class B Common Stock but if and only if a dividend payable in shares of Class B Common Stock, rights to acquire shares of Class B Common Stock, securities convertible into or exercisable or exchangeable for shares of Class B Common Stock, or rights to acquire such convertible, exercisable, or exchangeable securities (as the case may be) at the same rate and with the same record date and payment date as the dividend declared and paid to the holders of the Class A Common Stock shall be declared and paid to the holders of Class B Common Stock. Notwithstanding the foregoing, the Board of Directors may pay or make a disparate dividend or distribution per share of Class A Common Stock or Class B Common Stock (whether in the amount of such dividend or distribution payable per share, the form in which such dividend or distribution is payable, the timing of the payment, or otherwise) if such disparate dividend or distribution is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and at least 80% of the outstanding shares of Class B Common Stock, each voting separately as a class.

 

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3.4. Subdivisions, Combinations or Reclassifications . Shares of Class A Common Stock or Class B Common Stock may not be subdivided, combined or reclassified unless the shares of the other class are concurrently therewith proportionately subdivided, combined or reclassified in a manner that maintains the same proportionate equity ownership between the holders of the outstanding Class A Common Stock and Class B Common Stock on the record date for such subdivision, combination or reclassification; provided , however , that shares of one such class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and at least 80% of the outstanding shares of Class B Common Stock, each voting separately as a class.

3.5. Liquidation, Dissolution or Winding Up . Subject to the preferential or other rights of any holders of Preferred Stock then outstanding, upon the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, holders of Class A Common Stock and Class B Common Stock will be entitled to receive ratably all assets of the Company available for distribution to its stockholders unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation, dissolution or winding up is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.

3.6. Merger or Consolidation . In the case of any distribution or payment in respect of the shares of Class A Common Stock or Class B Common Stock upon the merger or consolidation of the Company with or into any other entity, or in the case of any other transaction having an effect on stockholders substantially similar to that resulting from a merger or consolidation, such distribution or payment shall be made ratably on a per share basis among the holders of the Class A Common Stock and Class B Common Stock as a single class; provided , however , that shares of one such class may receive different or disproportionate distributions or payments in connection with such merger, consolidation or other transaction if (i) 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 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 (ii) 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 at least 80% of the outstanding shares of Class B Common Stock, each voting separately as a class.

ARTICLE V: CLASS B COMMON STOCK CONVERSION

1. Optional Conversion . Each outstanding share of Class B Common Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Company or any transfer agent for the Class B Common Stock, into one fully-paid, nonassessable share of Class A Common Stock. Before any holder of Class B Common Stock shall be entitled to convert any of such holder’s shares of such Class B Common Stock into shares of Class A Common Stock, such holder shall deliver an instruction, duly signed and authenticated in accordance with any procedures set forth in the Bylaws of the Company or

 

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any policies of the Company then in effect, at the principal corporate office of the Company or of any transfer agent for the Class B Common Stock, and shall give written notice to the Company at its principal corporate office of such holder’s election to convert the same and shall state therein the name or names in which the shares of Class A Common Stock issuable on conversion thereof are to be registered on the books of the Company. The Company shall, as soon as practicable thereafter, register on the Company’s books ownership of the number of shares of Class A Common Stock to which such record holder of Class B Common Stock, or to which the nominee or nominees of such record holder, shall be entitled as aforesaid. Such conversion shall be deemed to have occurred immediately prior to the close of business at the principal corporate office of the Company on the date such notice of the election to convert is received by the Company, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock as of such date.

2. Automatic Conversion . Each outstanding share of Class B Common Stock shall automatically, without further action by the Company or the holder thereof, be converted into one fully-paid, nonassessable share of Class A Common Stock, at the earliest to occur of (i) immediately prior to the close of business at the principal corporate office of the Company on the fifth anniversary of the IPO Closing Date (as defined below), (ii) immediately prior to the close of business at the principal corporate office of the Company 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 the Secretary or Chairperson of the Board of Directors of the Company to so convert all shares of Class B Common Stock, or (iv) immediately following the date of the death of KR Sridhar (the first to occur of any of the events referred to in (i), (ii), (iii) and (iv) are referred to herein as a “ Class  B Common Stock Automatic Conversion Event ”). The Company shall provide notice of a Class B Common Stock Automatic Conversion Event pursuant to this Section 5(b) to record holders of such shares of Class B Common Stock as soon as practicable following the Class B Common Stock Automatic Conversion Event. Such notice shall be provided by any means then permitted by the Delaware General Corporation Law; provided , however , that no failure to give such notice nor any defect therein shall affect the validity of the Class B Common Stock Automatic Conversion Event. Upon and after the Class B Common Stock Automatic Conversion Event, the person registered on the Company’s books as the record holder of the shares of Class B Common Stock so converted immediately prior to the Class B Common Stock Automatic Conversion Event shall be registered on the Company’s books as the record holder of the shares of Class A Common Stock issued upon conversion of such shares of Class B Common Stock, without further action on the part of the record holder thereof. Immediately upon the effectiveness of the Class B Common Stock Automatic Conversion Event, the rights of the holders of shares of Class B Common Stock as such shall cease, and the holders shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock into which such shares of Class B Common Stock were converted.

3. Conversion on Transfer . On the IPO Closing Date, each share of Class B Common Stock shall automatically, without further action by the Company or the holder thereof, be converted into one fully-paid, nonassessable share of Class A Common Stock, upon the occurrence of a Transfer (as defined below), other than a Permitted Transfer (as defined below), of such share of Class B Common Stock.

 

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4. Policies and Procedures . The Board of Directors may, from time to time, establish such written policies and procedures relating to the conversion of shares of the Class B Common Stock into shares of Class A Common Stock that are not in conflict with applicable law or this Restated Certificate of Incorporation or the Bylaws of the Company as it may deem necessary or advisable. The Company will make such written policies and procedures available to any holder of Class B Common Stock that requests them in a writing delivered to the Secretary of the Company. If the Company has reason to believe that a Transfer that is not a Permitted Transfer has occurred, the Company may request that the transferee and purported transferor furnish affidavits or other evidence to the Company as it reasonably deems necessary to determine whether a Transfer that is not a Permitted Transfer has occurred, and if such transferee and transferor do not within ten (10) days after the date of such request furnish sufficient (as determined by the Board of Directors) evidence to the Company (in the manner provided in the request) to enable the Company to determine that no such Transfer has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically converted into shares of Class A Common Stock and such conversion shall thereupon be registered on the books and records of the Company. In connection with any action of stockholders taken at a meeting or by written consent, the stock ledger of the Company shall be presumptive evidence as to who are the stockholders entitled to vote in person or by proxy at any meeting of stockholders or in connection with any written consent and the classes of shares held by each such stockholder and the number of shares of each class held by such stockholder.

5. Definitions .

(a) Convertible Security ” shall mean a security convertible into or exercisable or exchangeable for either Class B Common Stock or another security that is convertible into or exercisable or exchangeable for Class B Common Stock.

(b) Family Member ” shall mean with respect to any natural person who is a Qualified Stockholder, the spouse, domestic partner, parents, grandparents, lineal descendants, siblings and lineal descendants of siblings of such Qualified Stockholder. Lineal descendants shall include adopted persons, but only so long as they are adopted while a minor.

(c) Option ” shall mean rights, options, restricted stock units or warrants to subscribe for, purchase or otherwise acquire Class A Common Stock, Class B Common Stock or any Convertible Security.

(d) Parent ” of an entity shall mean any entity that directly or indirectly owns or controls a majority of the voting power of the voting securities of such entity.

(e) Permitted Entity ” shall mean with respect to a Qualified Stockholder: (a) a Permitted Trust solely for the benefit of (1) such Qualified Stockholder, (2) one or more Family Members of such Qualified Stockholder, or (3) any other Permitted Entity of such Qualified Stockholder; or (b) any general partnership, limited partnership, limited liability company, corporation or other entity exclusively owned by (1) such Qualified Stockholder, (2) one or more Family Members of such Qualified Stockholder, or (3) any other Permitted Entity of such Qualified Stockholder.

 

7


(f) Permitted Transfer ” shall mean, and be restricted to, any Transfer of a share of Class B Common Stock, provided that (a) such transferee holds such shares as the record holder and (b) if the Qualified Stockholder or its Family Member or Permitted Entity is a party to a voting agreement entered into between such party and KR Sridhar (or a successor proxyholder designated as set forth therein) (the “ Proxy ”), such transferee shall have entered into a voting agreement in substantially the same form as such Proxy with the then-current proxyholder, in one of the following transactions:

(i) by a Qualified Stockholder to (A) one or more Family Members of such Qualified Stockholder, (B) any Permitted Entity of such Qualified Stockholder, or (C) to such Qualified Stockholder’s revocable living trust, which revocable living trust is itself both a Permitted Trust and a Qualified Stockholder;

(ii) by a Permitted Entity of a Qualified Stockholder to (A) such Qualified Stockholder or one or more Family Members of such Qualified Stockholder, or (B) any other Permitted Entity of such Qualified Stockholder;

(iii) by a Qualified Stockholder that is a partnership, or a nominee for a partnership, to any person or entity that, as of the Public Offering Date (as defined below), was a general or limited partner of such partnership pro rata in accordance with such person’s ownership interest in the partnership and the terms of any applicable partnership or similar agreement binding such partnership as of the Public Offering Date, and any further Transfer by any such general or limited partner that is a partnership or limited liability company to any person or entity that was at such time a general or limited partner or member of such partnership or limited liability company pro rata in accordance with such person’s ownership interest in such partnership or limited liability company and the terms of any applicable partnership or similar agreement binding the partnership or limited liability company as of the Public Offering Date; or

(iv) by a Qualified Stockholder that is a limited liability company, or a nominee for a limited liability company, to any person or entity that, as of the Public Offering Date, was a member of such limited liability company pro rata in accordance with such person’s ownership interest in the company and the terms of any applicable agreement binding such company and its members as of the Public Offering Date, and any further Transfer by any such member that is a partnership or limited liability company to any person or entity that was at such time a general or limited partner or member of such partnership or limited liability company pro rata in accordance with such person’s ownership interest in such partnership or limited liability company and the terms of any applicable partnership or similar agreement binding the partnership or limited liability company as of the Public Offering Date.

(g) Permitted Transferee ” shall mean a transferee of shares of Class B Common Stock received in a Permitted Transfer.

 

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(h) Permitted Trust ” shall mean a bona fide trust where each trustee is (i) a Qualified Stockholder, (ii) a Family Member, or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments.

(i) Qualified Stockholder ” shall mean: (a) the record holder of a share of Class B Common Stock as of the date of the effectiveness of the registration statement filed under the Securities Act relating to a firm commitment underwritten public offering (the “ Public Offering Date ”); (b) the initial registered holder of any shares of Class B Common Stock that are originally issued by the Company after the Public Offering Date pursuant to the exercise or conversion of any Option or Convertible Security that, in each case, was outstanding as of the Public Offering Date; (c) each natural person who, prior to the Public Offering Date, Transferred shares of capital stock of the Company to a Permitted Entity that is or becomes a Qualified Stockholder; (d) each natural person who Transferred shares of, or equity awards for, Class B Common Stock (including any Option exercisable or Convertible Security exchangeable for or convertible into shares of Class B Common Stock) to a Permitted Entity that is or becomes a Qualified Stockholder; and (e) a Permitted Transferee.

(j) Transfer ” of a share of Class B Common Stock shall mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law, including, without limitation, a transfer of a share of Class B Common Stock to an account maintained with a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership), or the transfer of, or entering into a binding agreement with respect to, Voting Control over such share by proxy, agreement or otherwise; provided, however, that the following shall not be considered a “Transfer” within the meaning of this Section 5 of Article V:

(i) the granting of a revocable proxy to officers or directors of the Company at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;

(ii) the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction for so long as such stockholder continues to exercise Voting Control over such pledged shares; provided, however, that a foreclosure on such shares or other similar action by the pledgee shall constitute a Transfer unless such foreclosure or similar action qualifies as a Permitted Transfer;

(iii) the fact that, as of the Public Offering Date or at any time after the Public Offering Date, the spouse of any holder of Class B Common Stock possesses or obtains an interest in such holder’s shares of Class B Common Stock arising solely by reason of the application of the community property laws of any jurisdiction, so long as no other event or circumstance shall exist or have occurred that constitutes a Transfer of such shares of Class B Common Stock (including a Transfer by operation of law pursuant to a qualified domestic order or in connection with a divorce settlement or any other court order); or

 

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(iv) in connection with a merger or consolidation of the Company with or into any other entity, or in the case of any other transaction having an effect on stockholders substantially similar to that resulting from a merger or consolidation, that has been approved by the Board of Directors, the entering into a support, voting, tender or similar agreement or arrangement (in each case, with or without the grant of a proxy) that has also been approved in advance by the Board of Directors.

A Transfer shall also be deemed to have occurred with respect to a share of Class B Common Stock beneficially held by (i) an entity that is a Permitted Entity, if there occurs any act or circumstance that causes such entity to no longer be a Permitted Entity or (ii) an entity that is a Qualified Stockholder that is not subject to the Proxy, if, in either case, there occurs a Transfer on a cumulative basis, from and after the Public Offering Date, of a majority of the voting power of the voting securities of such entity or any direct or indirect Parent of such entity, other than a Transfer to parties that are, as of the Public Offering Date, holders of voting securities of any such entity or Parent of such entity.

(k) Voting Control ” shall mean, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share by proxy, voting agreement or otherwise.

6. Status of Converted Stock . In the event any shares of Class B Common Stock are converted into shares of Class A Common Stock pursuant to this Article V, the shares of Class B Common Stock so converted shall automatically be retired and shall not be reissued by the Company.

7. Effect of Conversion on Payment of Dividends . Notwithstanding anything to the contrary in Sections 1, 2 or 3 of this Article V, if the date on which any share of Class B Common Stock is converted into Class A Common Stock pursuant to the provisions of Sections 1, 2 or 3 of this Article V occurs after the record date for the determination of the holders of Class B Common Stock entitled to receive any dividend or distribution to be paid on the shares of Class B Common Stock but before the payment date of such dividend or distribution, the holder of such shares of Class B Common Stock as of such record date will be entitled to receive such dividend or distribution on such payment date; provided , that, notwithstanding any other provision of this Restated Certificate of Incorporation, to the extent that any such dividend or distribution is payable in shares of Class B Common Stock, rights to acquire shares of Class B Common Stock, securities convertible into or exercisable or exchangeable for shares of Class B Common Stock, or rights to acquire such convertible, exercisable, or exchangeable securities (as the case may be), such dividend or distribution shall be deemed to have been declared, and shall be payable in, shares of Class A Common Stock, rights to acquire shares of Class A Common Stock, securities convertible into or exercisable or exchangeable for shares of Class A Common Stock, or rights to acquire such convertible, exercisable, or exchangeable securities (as the case may be) and no shares of Class B Common Stock, rights to acquire shares of Class B Common Stock, securities convertible into or exercisable or exchangeable for shares of Class B Common Stock, or rights to acquire such convertible, exercisable, or exchangeable securities (as the case may be) shall be issued in payment thereof.

 

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8. Reservation . The Company shall at all times reserve and keep available, out of its authorized and unissued shares of Class A Common Stock, solely for the purpose of effecting conversions of shares of Class B Common Stock into Class A Common Stock, such number of duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock. If at any time the number of authorized and unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock, the Company shall promptly take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, obtaining the requisite stockholder approval of any necessary amendment to this Restated Certificate of Incorporation. All shares of Class A Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable shares. The Company shall take all such action as may be necessary to ensure that all such shares of Class A Common Stock may be so issued without violation of any applicable law or regulation.

ARTICLE VI: AMENDMENT OF BYLAWS

The Board of Directors shall have the power to adopt, amend or repeal the Bylaws. Any adoption, amendment or repeal of the Bylaws by the Board of Directors shall require the approval of a majority of the Whole Board. For purposes of this Restated Certificate of Incorporation, the term “ Whole Board ” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The stockholders shall also have power to adopt, amend or repeal the Bylaws; provided , however , that, notwithstanding any other provision of this Restated Certificate of Incorporation (including any Certificate of Designation) or any provision of law that might otherwise permit a lesser or no vote, but in addition to any vote of the holders of any class or series of stock of the Company required by applicable law or by this Restated Certificate of Incorporation (including any Preferred Stock issued pursuant to any Certificate of Designation), the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws.

ARTICLE VII: MATTERS RELATING TO THE BOARD OF DIRECTORS

1. Director Powers . The business and affairs of the Company shall be managed by or under the direction of the Board of Directors, except as otherwise provided by law. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the Bylaws, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Company.

2. Number of Directors . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the total number of directors constituting the Whole Board shall be fixed from time to time exclusively by resolution adopted by a majority of the Whole Board.

 

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3. Classified Board . Subject to the special rights of the holders of any series of Preferred Stock to elect directors, the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively (the “ Classified Board ”). The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes of the Classified Board, which assignments shall become effective at the same time the Classified Board becomes effective. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors, with the number of directors in each class to be divided as nearly equal as reasonably possible. The initial term of office of the Class I directors shall expire at the Company’s first annual meeting of stockholders following the date of the closing of the Company’s initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Class A Common Stock to the public (the “ IPO Closing Date ”), the initial term of office of the Class II directors shall expire at the Company’s second annual meeting of stockholders following the IPO Closing Date, and the initial term of office of the Class III directors shall expire at the Company’s third annual meeting of stockholders following the IPO Closing Date. At each annual meeting of stockholders following the IPO Closing Date, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. In the event of any increase or decrease in the authorized number of directors (a) each director then serving as such shall nevertheless continue as a director of the class of which he or she is a member and (b) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one directorship more than any other class.

4. Term and Removal . Each director shall hold office until the annual meeting at which such director’s term expires and until such director’s successor is elected and qualified, or until such director’s earlier death, resignation, disqualification or removal. Any director may resign at any time upon notice to the Company given in writing or by any electronic transmission permitted by the Bylaws. Subject to the special rights of the holders of any series of Preferred Stock, no director may be removed from the Board of Directors except for cause and only by the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of the then-outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class. In the event of any increase or decrease in the authorized number of directors, each director then serving as such shall nevertheless continue as a director of the class of which he or she is a member.

5. Vacancies and Newly Created Directorships . Subject to the special rights of the holders of any series of Preferred Stock to elect directors, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless (a) the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders or (b) as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which the director has been assigned expires or until such director’s successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director.

 

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6. Vote by Ballot . Election of directors need not be by written ballot unless the Bylaws shall so provide.

ARTICLE VIII: DIRECTOR LIABILITY

1. Limitation of Liability . To the fullest extent permitted by law, no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended.

2. Change in Rights . Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article VIII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Company existing at the time of such amendment, repeal or adoption of such an inconsistent provision.

ARTICLE IX: MATTERS RELATING TO STOCKHOLDERS

1. No Action by Written Consent of Stockholders . Subject to the rights of any series of Preferred Stock then outstanding, no action shall be taken by the stockholders of the Company except at a duly called annual or special meeting of stockholders and no action shall be taken by the stockholders of the Company by written consent.

2. Special Meeting of Stockholders . Special meetings of the stockholders of the Company may be called only by the Chairperson of the Board of Directors, the Chief Executive Officer the Lead Independent Director (as defined in the Bylaws) or the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board, and may not be called by any other person or persons.

3. Advance Notice of Stockholder Nominations and Business Transacted at Special Meetings . Advance notice of stockholder nominations for the election of directors of the Company and of business to be brought by stockholders before any meeting of stockholders of the Company shall be given in the manner provided in the Bylaws. Business transacted at special meetings of stockholders shall be limited to the purpose or purposes stated in the notice of meeting.

ARTICLE X: AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION

The Company reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided , however , that, notwithstanding any other provision of this Restated Certificate of

 

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Incorporation (including any Certificate of Designation) or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Company required by law or by this Restated Certificate of Incorporation (including any Certificate of Designation), and subject to Sections 1.2 and 2 of Article IV, the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, Sections 1.2 and 2 of Article IV, Article VI, Article VII, Article VIII, Article IX, this proviso of Article X or Article XI; provided , further , that the affirmative vote of the holders of (a) at least two-thirds (2/3) of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors and (b) at least 80% of the then-outstanding shares of Class B common stock entitled to vote generally in the election of directors shall be required to amend or repeal, or adopt any provision inconsistent with Section 3 of Article IV, Article V or this proviso of this Article X.

ARTICLE XI: CHOICE OF FORUM

Unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company; (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Company to the Company or the Company’s stockholders; (c) any action asserting a claim against the Company arising pursuant to any provision of the Delaware General Corporation Law, this Restated Certificate of Incorporation or the Bylaws of the Company; (d) any action to interpret, apply, enforce or determine the validity of this Restated Certificate of Incorporation or the Bylaws of the Company; or (e) any action asserting a claim against the Company governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Company shall be deemed to have notice of and to have consented to the provisions of this Article XI.

 

14

Exhibit 3.2

 

 

 

BLOOM ENERGY CORPORATION

(a Delaware corporation)

RESTATED BYLAWS

As Adopted                     , 2018 and

As Effective                     , 2018

 

 

 


BLOOM ENERGY CORPORATION

(a Delaware corporation)

RESTATED BYLAWS

TABLE OF CONTENTS

 

ARTICLE I: STOCKHOLDERS

     1  

Section 1.1:

  Annual Meetings      1  

Section 1.2:

  Special Meetings      1  

Section 1.3:

  Notice of Meetings      1  

Section 1.4:

  Adjournments      1  

Section 1.5:

  Quorum      2  

Section 1.6:

  Organization      2  

Section 1.7:

  Voting; Proxies      2  

Section 1.8:

  Fixing Date for Determination of Stockholders of Record      3  

Section 1.9:

  List of Stockholders Entitled to Vote      3  

Section 1.10:

  Inspectors of Elections      4  

Section 1.11:

  Notice of Stockholder Business; Nominations      5  

ARTICLE II: BOARD OF DIRECTORS

     12  

Section 2.1:

  Number; Qualifications      12  

Section 2.2:

  Election; Resignation; Removal; Vacancies      12  

Section 2.3:

  Regular Meetings      12  

Section 2.4:

  Special Meetings      12  

Section 2.5:

  Remote Meetings Permitted      13  

Section 2.6:

  Quorum; Vote Required for Action      13  

Section 2.7:

  Organization      13  

Section 2.8:

  Unanimous Action by Directors in Lieu of a Meeting      13  

Section 2.9:

  Powers      13  

Section 2.10:

  Compensation of Directors      13  

Section 2.11:

  Confidentiality      13  

ARTICLE III: COMMITTEES

     14  

Section 3.1:

  Committees      14  

Section 3.2:

  Committee Rules      14  

ARTICLE IV: OFFICERS; CHAIRPERSON; LEAD INDEPENDENT DIRECTOR

     14  

Section 4.1:

  Generally      14  

Section 4.2:

  Chief Executive Officer      15  

Section 4.3:

  Chairperson of the Board      15  

Section 4.5:

  President      15  

Section 4.6:

  Chief Financial Officer      16  

Section 4.7:

  Treasurer      16  

Section 4.8:

  Vice President      16  

Section 4.9:

  Secretary      16  

Section 4.10:

  Delegation of Authority      16  

Section 4.11:

  Removal      16  


ARTICLE V: STOCK

     17  

Section 5.1:

  Certificates; Uncertificated Shares      17  

Section 5.2:

  Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares      17  

Section 5.3:

  Other Regulations      17  

ARTICLE VI: INDEMNIFICATION

     17  

Section 6.1:

  Indemnification of Officers and Directors      17  

Section 6.2:

  Advance of Expenses      18  

Section 6.3:

  Non-Exclusivity of Rights      18  

Section 6.4:

  Indemnification Contracts      18  

Section 6.5:

  Right of Indemnitee to Bring Suit      18  

Section 6.6:

  Nature of Rights      19  

ARTICLE VII: NOTICES

     19  

Section 7.1:

  Notice      19  

Section 7.2:

  Waiver of Notice      20  

ARTICLE VIII: INTERESTED DIRECTORS

     21  

Section 8.1:

  Interested Directors      21  

Section 8.2:

  Quorum      21  

ARTICLE IX: MISCELLANEOUS

     21  

Section 9.1:

  Fiscal Year      21  

Section 9.2:

  Seal      21  

Section 9.3:

  Form of Records      21  

Section 9.4:

  Reliance Upon Books and Records      21  

Section 9.5:

  Certificate of Incorporation Governs      22  

Section 9.6:

  Severability      22  

Section 9.7:

  Time Periods      22  

ARTICLE X: AMENDMENT

     22  

ARTICLE XI: EXCLUSIVE FORUM

     22  

 

ii


BLOOM ENERGY CORPORATION

(a Delaware corporation)

RESTATED BYLAWS

As Adopted                         , 2018 and

As Effective                         , 2018

ARTICLE I: STOCKHOLDERS

Section  1.1 : Annual Meetings . An annual meeting of stockholders shall be held for the election of directors at such date and time as the Board of Directors (the “ Board ”) of Bloom Energy Corporation (the “ Corporation ”) shall each year fix. The meeting may be held either at a place, within or without the State of Delaware as permitted by the Delaware General Corporation Law (the “ DGCL ”), or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting.

Section  1.2 : Special Meetings . Special meetings of stockholders for any purpose or purposes shall be called in the manner set forth in the Restated Certificate of Incorporation of the Corporation (as the same may be amended or restated from time to time, the “ Certificate of Incorporation ”). A special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine. Business transacted at special meetings of stockholders shall be limited to the purpose or purposes stated in the notice of meeting.

Section  1.3 : Notice of Meetings . Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by applicable law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and the record date for determining the stockholders entitled to vote at the meeting. In the case of a special meeting, such notice shall also set forth the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation, notice of any meeting of stockholders shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.

Section  1.4 : Adjournments . The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders, annual or special, may be adjourned from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and the means of remote communication (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided , however , that if the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting, the Corporation may transact any business that might have been transacted at the original meeting. To the fullest extent permitted by law, the

 

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Board may postpone, reschedule or cancel any previously scheduled special or annual meeting of stockholders before it is to be held, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 1.3 hereof or otherwise, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.

Section  1.5 : Quorum . Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, at each meeting of stockholders the holders of a majority of the voting power of the shares of stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business; provided , however , that where a separate vote by a class or classes or series of stock is required by applicable law or the Certificate of Incorporation, the holders of a majority of the voting power of the shares of such class or classes or series of the stock issued and outstanding and entitled to vote on such matter, present in person or represented by proxy at the meeting, shall constitute a quorum entitled to take action with respect to the vote on such matter. If a quorum shall fail to attend any meeting, the chairperson of the meeting or, if directed to be voted on by the chairperson of the meeting, the holders of a majority of the voting power of the shares entitled to vote who are present in person or represented by proxy at the meeting may adjourn the meeting. Shares of the Corporation’s stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided , however , that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’s stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum.

Section  1.6 : Organization . Meetings of stockholders shall be presided over by (a) such person as the Board may designate, or (b) in the absence of such a person, the Chairperson of the Board, or (c) in the absence of such person, the Lead Independent Director, or, (d) in the absence of such person, the Chief Executive Officer of the Corporation, or (e) in the absence of such person, the President of the Corporation, or (f) in the absence of such person, by a Vice President. Such person shall be chairperson of the meeting and, subject to Section 1.10 of these Bylaws, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section  1.7 : Voting; Proxies . Each stockholder of record entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, rule or regulation applicable to the Corporation or its securities, the rules or regulations of any stock exchange applicable to the Corporation, the Certificate of Incorporation or these Bylaws, every

 

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matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the voting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting and are voted for or against the matter (or if there are two or more classes or series of stock entitled to vote as separate classes, then in the case of each class or series, the holders of a majority of the voting power of the shares of stock of that class or series present in person or represented by proxy at the meeting voting for or against such matter).

Section  1.8 : Fixing Date for Determination of Stockholders of Record . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for determination of stockholders entitled to notice of or to vote at the adjourned meeting.

In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60) days prior to such action. If no such record date is fixed by the Board, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

Section  1.9 : List of Stockholders Entitled to Vote . The Secretary shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting ( provided , however , if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before the meeting date), arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting, (a) on a reasonably accessible electronic network as permitted by applicable law ( provided that the information required to gain access to the list is provided with the notice of the meeting), or (b) during ordinary business hours, at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attend in person, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely by means of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic

 

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network, and the information required to access the list shall be provided with the notice of the meeting. Except as otherwise provided by law, the list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

Section  1.10 : Inspectors of Elections .

1.10.1 Applicability . Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.10 shall be optional, and at the discretion of the Board.

1.10.2 Appointment . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.

1.10.3 Inspector’s Oath . Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.

1.10.4 Duties of Inspectors . At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

1.10.5 Opening and Closing of Polls . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.

1.10.6 Determinations . In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies pursuant to Section 211(a)(2)b.(i) of the DGCL, or in accordance with Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent

 

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more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

Section 1.11: Notice of Stockholder Business; Nominations .

1.11.1 Annual Meeting of Stockholders .

(a) Nominations of persons for election to the Board and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only: (i) pursuant to the Corporation’s notice of such meeting (or any supplement thereto), (ii) by or at the direction of the Board or any committee of the Board authorized by the Board to take such action or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11 (the “ Record Stockholder ”), who is entitled to vote at such meeting and who complies with the notice and other procedures set forth in this Section 1.11 in all applicable respects. For the avoidance of doubt, the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations or propose business (other than business included in the Corporation’s proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the “ Exchange Act ”)), at an annual meeting of stockholders, and such stockholder must fully comply with the notice and other procedures set forth in this Section 1.11 to make such nominations or propose business before an annual meeting.

(b) For nominations or other business to be properly brought before an annual meeting by a Record Stockholder pursuant to Section 1.11.1(a) of these Bylaws:

(i) the Record Stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and provide any updates or supplements to such notice at the times and in the forms required by this Section 1.11;

(ii) such other business (other than the nomination of persons for election to the Board) must otherwise be a proper matter for stockholder action;

(iii) if the Proposing Person (as defined below) has provided the Corporation with a Solicitation Notice (as defined below), such Proposing Person must, in the case of a proposal other than the nomination of persons for election to the Board, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such Record Stockholder, and must, in either case, have included in such materials the Solicitation Notice; and

 

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(iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 1.11, the Proposing Person proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 1.11.

To be timely, a Record Stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of business on the one hundred and fifth (105th) day prior to the first anniversary of the preceding year’s annual meeting (except in the case of the Corporation’s first annual meeting following its initial public offering, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by Section 1.11.2 of these Bylaws); provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the Record Stockholder to be timely must be so delivered (A) no earlier than the close of business on the one hundred and fifth (105th) day prior to such annual meeting and (B) no later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which Public Announcement (as defined below) of the date of such meeting is first made by the Corporation. In no event shall an adjournment or postponement of an annual meeting for which notice has been given commence a new time period (or extend any time period) for providing the Record Stockholder’s notice. Such Record Stockholder’s notice shall set forth:

(x) as to each person whom the Record Stockholder proposes to nominate for election or reelection as a director:

(i) the name, age, business address and residence address of such person;

(ii) the principal occupation or employment of such nominee;

(iii) the class, series and number of any shares of stock of the Corporation that are beneficially owned or owned of record by such person or any Associated Person (as defined in Section 1.11.3(c));

(iv) the date or dates such shares were acquired and the investment intent of such acquisition;

(v) all other information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or would be otherwise required, in each case pursuant to and in accordance with Section 14(a) (or any successor provision) under the Exchange Act and the rules and regulations thereunder (including such person’s written consent to being named in the proxy statement as a nominee, to the public disclosure of information regarding or related to such person provided to the Corporation by such person or otherwise pursuant to this Section 1.11 and to serving as a director if elected); and

(vi) whether such person meets the independence requirements of the stock exchange upon which the Corporation’s Class A Common Stock is primarily traded.

 

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(y) as to any other business that the Record Stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws, the text of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such Proposing Person, including any anticipated benefit to any Proposing Person therefrom; and

(z) as to the Proposing Person giving the notice:

(i) the current name and address of such Proposing Person, including, if applicable, their name and address as they appear on the Corporation’s stock ledger, if different;

(ii) the class or series and number of shares of stock of the Corporation that are directly or indirectly owned of record or beneficially owned by such Proposing Person, including any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future;

(iii) whether and the extent to which any derivative interest in the Corporation’s equity securities (including without limitation any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of shares of the Corporation or otherwise, and any cash-settled equity swap, total return swap, synthetic equity position or similar derivative arrangement, as well as any rights to dividends on the shares of any class or series of shares of the Corporation that are separated or separable from the underlying shares of the Corporation) or any short interest in any security of the Corporation (for purposes of this Bylaw a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any increase or decrease in the value of the subject security, including through performance-related fees) is held directly or indirectly by or for the benefit of such Proposing Person, including without limitation whether and the extent to which any ongoing hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including without limitation any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such Proposing Person with respect to any share of stock of the Corporation;

(iv) any other material relationship between such Proposing Person, on the one hand, and the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand;

 

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(v) any direct or indirect material interest in any material contract or agreement with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement);

(vi) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) (or any successor provision) under the Exchange Act and the rules and regulations thereunder (the disclosures to be made pursuant to the foregoing clauses (iv) through (vi) are referred to as “ Disclosable Interests ”). For purposes hereof “Disclosable Interests” shall not include any information with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner;

(vii) such Proposing Person’s written consent to the public disclosure of information provided to the Corporation pursuant to this Section 1.11;

(viii) a complete written description of any agreement, arrangement or understanding (whether oral or in writing) (including any knowledge that another person or entity is Acting in Concert (as defined in Section 1.11.3(c)) with such Proposing Person) between or among such Proposing Person, any of its respective affiliates or associates and any other person Acting in Concert with any of the foregoing persons;

(ix) as to each person whom such Proposing Person proposes to nominate for election or re-election as a director, any agreement, arrangement or understanding of such person with any other person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director known to such Proposing Person after reasonable inquiry;

(x) a representation that the Record Stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;

(xi) a representation whether such Proposing Person intends (or is part of a group that intends) to deliver a proxy statement or form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent being a “ Solicitation Notice ”); and

(xii) any proxy, contract, arrangement, or relationship pursuant to which the Proposing Person has a right to vote, directly or indirectly, any shares of any security of the Corporation.

 

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A stockholder providing written notice required by this Section 1.11 will update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) the close of business on the fifth (5th) business day prior to the meeting and, in the event of any adjournment or postponement thereof, the close of business on the fifth (5th) business day prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of the foregoing sentence, such update and supplement will be received by the Secretary of the Corporation at the principal executive office of the Corporation not later than five (5) business days after the record date for the meeting, and in the case of an update and supplement pursuant to clause (ii) of the foregoing sentence, such update and supplement will be received by the Secretary of the Corporation at the principal executive office of the Corporation not later than two (2) business days prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, two (2) business days prior to such adjourned or postponed meeting.

(c) Notwithstanding anything in the second sentence of Section 1.11.1(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least seventy five (75) days prior to the first anniversary of the preceding year’s annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy five (75) days prior to such annual meeting), a stockholder’s notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation no later than the close of business on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.

(d) Notwithstanding anything in Section 1.11 or any other provision of the Bylaws to the contrary, any person who has been determined by a majority of the Whole Board to have violated Section 2.11 of these Bylaws or a Board Confidentiality Policy (as defined in Section 2.11 of these Bylaws) while serving as a director of the Corporation in the preceding five (5) years shall be ineligible to be nominated or to serve as a member of the Board, absent a prior waiver for such nomination or service approved by two-thirds of the Whole Board.

1.11.2 Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of such meeting (a) by or at the direction of the Board or any committee thereof or (b) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice and other procedures set forth in this Section 1.11 in all applicable respects. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 1.11.1(b) of these Bylaws shall

 

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be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation (i) no earlier than the one hundred fifth (105th) day prior to such special meeting and (ii) no later than the close of business on the later of the seventy-fifth (75th) day prior to such special meeting or the tenth (10th) day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.

1.11.3 General .

(a) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to be elected at a meeting of stockholders and serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 1.11, unless otherwise required by law, if the stockholder (or a Qualified Representative of the stockholder (as defined below)) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

(b) Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights of (a) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

(c) For purposes of this Section 1.11 the following definitions shall apply:

(A) a person shall be deemed to be “ Acting in Concert ” with another person if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or toward a common goal relating to the management, governance or control of the Corporation in substantial parallel with, such other person where (1) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decision-making processes and (2) at least one additional factor suggests that such persons intend to act in concert or in substantial parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions or making or soliciting invitations to act in concert or in substantial parallel; provided that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such

 

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other person in response to a solicitation made pursuant to, and in accordance with, Section 14(a) (or any successor provision) of the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person;

(B) “ Associated Person ” shall mean with respect to any subject stockholder or other person (including any proposed nominee) (1) any person directly or indirectly controlling, controlled by or under common control with such stockholder or other person, (2) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder or other person, (3) any associate (as defined in Rule 405 under the Securities Act of 1933, as amended), of such stockholder or other person, and (4) any person directly or indirectly controlling, controlled by or under common control or Acting in Concert with any such Associated Person;

(C) “ Proposing Person ” shall mean (1) the stockholder providing the notice of business proposed to be brought before an annual meeting or nomination of persons for election to the Board at a stockholder meeting, (2) the beneficial owner or beneficial owners, if different, on whose behalf the notice of business proposed to be brought before the annual meeting or nomination of persons for election to the Board at a stockholder meeting is made, and (3) any Associated Person on whose behalf the notice of business proposed to be brought before the annual meeting or nomination of persons for election to the Board at a stockholder meeting is made;

(D) “ Public Announcement ” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act; and

(E) to be considered a “ Qualified Representative ” of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as a proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction thereof, at the annual meeting; provided, however, that if the stockholder is (1) a general or limited partnership, any general partner or person who functions as a general partner of the general or limited partnership or who controls the general or limited partnership shall be deemed a Qualified Representative, (2) a corporation or a limited liability company, any officer or person who functions as the substantial equivalent of an officer of the corporation or limited liability company or any officer, director, general partner or person who functions as an officer, director or general partner of any entity ultimately in control of the corporation or limited liability company shall be deemed a Qualified Representative or (z) a trust, any trustee of such trust shall be deemed a Qualified Representative. The Secretary of the Corporation, or

 

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any other person who shall be appointed to serve as secretary of the meeting, may require, on behalf of the Corporation, reasonable and appropriate documentation to verify the status of a person purporting to be a “Qualified Representative” for purposes hereof.

ARTICLE II: BOARD OF DIRECTORS

Section  2.1 : Number; Qualifications . The total number of directors constituting the Board (the “ Whole Board ”) shall be fixed from time to time in the manner set forth in the Certificate of Incorporation. No decrease in the authorized number of directors constituting the Whole Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation. The Certificate of Incorporation or these Bylaws may prescribe other qualifications for directors.

Section  2.2 : Election; Resignation; Removal; Vacancies . Election of directors need not be by written ballot, unless otherwise directed by the Board. Unless otherwise provided by the Certificate of Incorporation and subject to the special rights of holders of any series of Preferred Stock to elect directors, the Board shall be divided into three classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the Whole Board. Each director shall hold office until the annual meeting at which such director’s term expires and until such director’s successor is elected and qualified or until such director’s earlier death, resignation, disqualification or removal. Any director may resign by delivering a resignation in writing or by electronic transmission to the Corporation at its principal office or to the Chairperson of the Board, the Chief Executive Officer, or the Secretary. Such resignation shall be effective upon delivery unless it is specified to be effective at a later time or upon the happening of an event. Subject to the special rights of holders of any series of Preferred Stock to elect directors, directors may be removed only as provided by the Certificate of Incorporation and applicable law. All vacancies occurring in the Board and any newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner set forth in the Certificate of Incorporation.

Section  2.3 : Regular Meetings . Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.

Section  2.4 : Special Meetings . Special meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer, the Lead Independent Director or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.

 

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Section  2.5 : Remote Meetings Permitted . Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.

Section  2.6 : Quorum; Vote Required for Action . At all meetings of the Board, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.

Section  2.7 : Organization . Meetings of the Board shall be presided over by (a) the Chairperson of the Board, or (b) in the absence of such person, the Lead Independent Director, or (c) in such person’s absence, by the Chief Executive Officer, or (d) in such person’s absence, by a chairperson chosen by the Board at the meeting. The Secretary shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section  2.8 : Unanimous Action by Directors in Lieu of a Meeting . Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, as applicable. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section  2.9 : Powers . Except as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board.

Section  2.10 : Compensation of Directors . Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.

Section  2.11 : Confidentiality . Each director shall maintain the confidentiality of, and shall not share with any third party person or entity (including third parties that originally sponsored, nominated or designated such director (the “ Sponsoring Party ”)), any non-public information learned in his or her capacity as a director, including communications among Board members in their capacities as directors. The Board may adopt a board confidentiality policy further implementing and interpreting this bylaw (a “ Board Confidentiality Policy ”). All directors are required to comply with this bylaw and any such Board Confidentiality Policy unless such director or the Sponsoring Party for such director has entered into a specific written agreement with the Corporation, in either case as approved by the Board, providing otherwise with respect to such confidential information.

 

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ARTICLE III: COMMITTEES

Section  3.1 : Committees . The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.

Section  3.2 : Committee Rules . Each committee shall keep records of its proceedings and make such reports as the Board may from time to time request. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules, each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws. Except as otherwise provided in the Certificate of Incorporation, these Bylaws or the resolution of the Board designating the committee, any committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and may delegate to any such subcommittee any or all of the powers and authority of the committee.

ARTICLE IV: OFFICERS; CHAIRPERSON; LEAD INDEPENDENT DIRECTOR

Section  4.1 : Generally . The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a President, a Secretary and a Treasurer and may consist of such other officers, including, without limitation, a Chief Financial Officer, and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be elected by the Board; provided , however , that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Except as otherwise provided by law, by the Certificate of Incorporation or these Bylaws, each officer shall hold office until such officer’s successor is duly elected and qualified or until such officer’s earlier resignation, death, disqualification or removal. Any number of offices may be held by the same person. Any officer may resign by delivering a resignation in writing or by electronic transmission to the Corporation at its principal office or to the Chairperson of the Board, the Chief Executive Officer, or the Secretary. Such resignation shall be effective upon delivery unless it is specified to be effective at some later time or upon the happening of some later event. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board and the Board may, in its discretion, leave unfilled, for such period as it may determine, any offices. Each such successor shall hold office for the unexpired term of such officer’s predecessor and until a successor is duly elected and qualified or until such officer’s earlier resignation, death, disqualification or removal.

 

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Section  4.2 : Chief Executive Officer . Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:

(a) to act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;

(b) subject to Section 1.6 of these Bylaws, to preside at all meetings of the stockholders;

(c) subject to Section 1.2 of these Bylaws, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and

(d) to affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation (if any); and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.

The person holding the office of President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer.

Section  4.3 : Chairperson of the Board . Subject to the provisions of Section 2.7 of these Bylaws, the Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.

Section  4.4 : Lead Independent Director . The Board may, in its discretion, elect a lead independent director from among its members that are Independent Directors (as defined below) (such director, the “ Lead Independent Director ”). He or she shall preside at all meetings at which the Chairperson of the Board is not present and shall exercise such other powers and duties as may from time to time be assigned to him or her by the Board or as prescribed by these Bylaws. For purposes of these Bylaws, “ Independent Director ” has the meaning ascribed to such term under the rules of the exchange upon which the Corporation’s Class A Common Stock is primarily traded.

Section  4.5 : President . The person holding the office of Chief Executive Officer shall be the President of the Corporation unless the Board shall have designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. Subject to

 

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the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.

Section  4.6 : Chief Financial Officer . The person holding the office of Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer, or as the Board may from time to time prescribe.

Section  4.7 : Treasurer . The person holding the office of Treasurer shall have custody of all monies and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.

Section  4.8 : Vice President . Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer or President in the event of the Chief Executive Officer’s or President’s absence or disability.

Section  4.9 : Secretary . The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.

Section  4.10 : Delegation of Authority . The Board may from time to time delegate the powers or duties of any officer of the Corporation to any other officers or agents of the Corporation, notwithstanding any provision hereof.

Section  4.11 : Removal . Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any officer of the Corporation, then such officer may also be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.

 

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ARTICLE V: STOCK

Section  5.1 : Certificates; Uncertificated Shares . The shares of capital stock of the Corporation shall be uncertificated shares; provided , however , that the resolution of the Board that the shares of capital stock of the Corporation shall be uncertificated shares shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case may be). Notwithstanding the foregoing, the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be certificated shares. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation, by the Chairperson or Vice-Chairperson of the Board, the Chief Executive Officer or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Section  5.2 : Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares . The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

Section  5.3 : Other Regulations . Subject to applicable law, the Certificate of Incorporation and these Bylaws, the issue, transfer, conversion and registration of shares represented by certificates and of uncertificated shares shall be governed by such other regulations as the Board may establish.

ARTICLE VI: INDEMNIFICATION

Section  6.1 : Indemnification of Officers and Directors . Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, legislative or any other type whatsoever (a “ Proceeding ”), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an “ Indemnitee ”), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law

 

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permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful. Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer of the Corporation and shall inure to the benefit of such Indemnitees’ heirs, executors and administrators. Notwithstanding the foregoing, subject to Section 6.5 of these Bylaws, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by the Board.

Section  6.2 : Advance of Expenses . The Corporation shall pay all expenses (including attorneys’ fees) incurred by an Indemnitee in defending any Proceeding in advance of its final disposition; provided , however , that if the DGCL then so requires, the advancement of such expenses shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay such amounts if it shall ultimately be determined that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise.

Section  6.3 : Non-Exclusivity of Rights . The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.

Section  6.4 : Indemnification Contracts . The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.

Section  6.5: Right of Indemnitee to Bring Suit . The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 of these Bylaws.

6.5.1 Right to Bring Suit . If a claim under Section 6.1 or 6.2 of these Bylaws is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid, to the fullest extent permitted by law, the expense of prosecuting or defending such suit. In any

 

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suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the Indemnitee has not met any applicable standard of conduct which makes it permissible under the DGCL (or other applicable law) for the Corporation to indemnify the Indemnitee for the amount claimed.

6.5.2 Effect of Determination . Neither the absence of a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.

6.5.3 Burden of Proof . In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.

Section  6.6 : Nature of Rights . The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitee’s successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI with respect to any Proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment, repeal or modification.

Section  6.7 : Insurance . The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

ARTICLE VII: NOTICES

Section  7.1 : Notice .

7.1.1 Form and Delivery . Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 of these Bylaws) or by applicable law, all notices required to be given pursuant to these Bylaws shall be in writing and may (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by

 

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the stockholder as described in Section 7.1.2 of these Bylaws, by sending such notice by facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such person’s address as it appears on the records of the Corporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via facsimile, electronic mail or other form of electronic transmission, at the time provided in Section 7.1.2 of these Bylaws.

7.1.2 Electronic Transmission . Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided , however , the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.

7.1.3 Affidavit of Giving Notice . An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Section  7.2 : Waiver of Notice . Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any waiver of notice.

 

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ARTICLE VIII: INTERESTED DIRECTORS

Section  8.1 : Interested Directors . No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.

Section  8.2 : Quorum . Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

ARTICLE IX: MISCELLANEOUS

Section  9.1 : Fiscal Year . The fiscal year of the Corporation shall be determined by resolution of the Board.

Section  9.2 : Seal . The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.

Section  9.3 : Form of Records . Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or by means of, or be in the form of any other information storage device or method, electronic or otherwise, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.

Section  9.4 : Reliance Upon Books and Records . A member of the Board, or a member of any committee designated by the Board shall, in the performance of such person’s duties, be fully protected in relying in good faith upon the books and records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

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Section  9.5 : Certificate of Incorporation Governs . In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.

Section  9.6 : Severability . If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.

Section  9.7 : Time Periods . In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

ARTICLE X: AMENDMENT

Notwithstanding any other provision of these Bylaws, any alteration, amendment or repeal of these Bylaws, and any adoption of new Bylaws, shall require the approval of the Board or the stockholders of the Corporation as expressly provided in the Certificate of Incorporation.

ARTICLE XI: EXCLUSIVE FORUM

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer or other employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or the certificate of incorporation or these bylaws (as either may be amended from time to time), (iv) any action to interpret, apply, enforce or determine the validity of the Restated Certificate of Incorporation of the Corporation or these Bylaws or (i) any action asserting a claim governed by the internal affairs doctrine, except for, as to each of (i) through (v) above, any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten (10) days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court, or for which such court does not have subject matter jurisdiction.

Unless the Corporation consents 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 of 1933.

 

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Any person or entity purchasing or otherwise acquiring any interest in any security of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XI.

 

 

 

 

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CERTIFICATION OF RESTATED BYLAWS

OF

BLOOM ENERGY CORPORATION

(a Delaware corporation)

I, Shawn M. Soderberg, certify that I am Secretary of Bloom Energy Corporation, a Delaware corporation (the “ Corporation ”), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and complete copy of the Restated Bylaws of the Corporation in effect as of the date of this certificate.

Dated:                    , 2018

 

 

Shawn M. Soderberg

Executive Vice President, General Counsel and Secretary

Exhibit 4.1

 

LOGO

CORPORATE SECRETARY CHIEF EXECUTIVE OFFICER AUTHORIZED SIGNATURE TRANSFER AGENT AND REGISTRAR (Brooklyn, NY) AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC BY COUNTERSIGNED AND REGISTERED: transferable only on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the signatures of the Corporation’s duly authorized officers. Dated: Bloom Energy Corporation FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK, PAR VALUE OF $0.0001 OF IS THE OWNER OF THIS CERTIFIES THAT CLASS A COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE BE CUSIP 093712 10 7


The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

 

TEN COM

  – as tenants in common    UNIF GIFT MIN ACT –                        Custodian                       

TEN ENT

  – as tenants by the entireties    (Cust)                           (Minor)    

JT TEN

 

– as joint tenants with right of survivorship

  and not as tenants in common

   under Uniform Gifts to Minors        
Act                                                     
     (State)                  

Additional abbreviations may also be used though not in the above list.

 

    For value received,                                                                                            

  hereby sell, assign and transfer unto  

PLEASE INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING NUMBER OF ASSIGNEE

 

 
       

 

 

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

     
    Shares

of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

 
    Attorney

to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

 

 

Dated                                                                                     

 

    
    

 

NOTICE: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever.

 

   SIGNATURE(S) GUARANTEED:  
    

 

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

Exhibit 4.26

HOLDER VOTING AGREEMENT

This Holder Voting Agreement (this “ Agreement ”) is made as of the day of __________ (the “ Effective Date ”), by and between ___________ (together with its successors, “ Stockholder ”) and KR Sridhar (“ Initial Proxyholder ”).

RECITALS

A. This Agreement, among other things, requires Stockholder to vote all Shares (as defined below) after the closing of the first firm commitment underwritten public offering of the Low Vote Stock (as defined below) pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale to the public of Low Vote Stock for the account of Bloom Energy Corporation, a Delaware corporation (the “ Company ”) with aggregate gross proceeds to the Company of at least $75,000,000 (the “ Public Offering ”) in the manner set forth herein. “ Shares ” means all shares of capital stock of the Company (i) that Stockholder currently holds, (ii) as to which Stockholder currently exercises voting or dispositive authority, (iii) that Stockholder acquires prior to the closing of the Public Offering (including, without limitation, any shares of capital stock of the Company issued to Stockholder upon the automatic conversion of any outstanding security of the Company in connection with the closing of the Public Offering), (iv) actually issued upon the conversion of or exchange of any evidences of indebtedness, shares or other securities issued by the Company that are directly or indirectly convertible into or exchangeable for capital stock of the Company (“ Convertible Securities ”) that Stockholder currently holds or acquires prior to the closing of the Public Offering, including for the avoidance of doubt any shares of capital stock of the Company issued upon the conversion or exchange of Convertible Securities after the closing of the Public Offering, (v) as to which Stockholder obtains the right to exercise voting or dispositive authority prior to the closing of the Public Offering, and (iv) including any shares of High Vote Stock (as defined below) issued with respect to, upon conversion of, or in exchange or substitution of any of the foregoing; provided, however , that for the avoidance of doubt, the term “Shares” shall not include any Low Vote Stock (including shares of Low Vote Stock received upon conversion of the High Vote Stock). All of the Shares will be identified on Exhibit A in the format as set forth therein, as updated by Stockholder and verified by the Company or Proxyholder (as defined below) on request. The failure to so identify any Shares shall not relieve Stockholder from the obligations set forth in this Agreement nor deprive Proxyholder of Proxyholder’s rights under this Agreement.

B. It is contemplated that in connection with the Public Offering, the Company may implement a two-class common stock voting structure (a “ Dual Class  Structure ”) in which one class of common stock will have, among other things, enhanced voting rights, including but not limited to multiple votes per share (“ High Vote Stock ”), and the other class of common stock will not (“ Low Vote Stock ”); provided , that the shares of capital stock held by Stockholder at the time of adoption of such structure are entitled to be converted into High Vote Stock without any further consideration; provided further , that the economic rights of the Shares held by the Stockholder immediately after the adoption of such Dual Class Structure is the same as the economic rights of the Shares immediately prior to the adoption of such Dual Class Structure.

C. This Agreement is being entered into in exchange for a payment of U.S. $100.00 in cash from Initial Proxyholder to Stockholder and for other good and valuable consideration, the sufficiency of which is hereby acknowledged and agreed.


AGREEMENT

NOW, THEREFORE, the parties agree as follows:

1. Voting Arrangements .

1.1. Proxyholder (as defined in Section 1.3 below) shall have the right to vote all the Shares in Proxyholder’s sole discretion, on all matters submitted to a vote of stockholders of the Company at a meeting of stockholders or through the solicitation of a written consent of stockholders (whether of any individual class of stock or of multiple classes of stock voting together).

1.2. In the event that Proxyholder either (i) in the case of Initial Proxyholder, ceases to provide services to the Company as an officer of the Company (the date of such cessation of services, the “ Initial Proxyholder Termination Date ”) or (ii) in the case of any Successor Proxyholder (as defined in Section 1.3 below), resigns, dies or is removed in accordance with this Agreement (the date of such resignation, death or removal, a “ Successor Termination Date ”, and any Initial Proxyholder Termination Date or Successor Termination Date, a “ Proxyholder Vacancy Date ”), as applicable, such Proxyholder’s right to vote all of the Shares shall be revoked immediately and automatically as of such Proxyholder Vacancy Date. Any Successor Proxyholder designated in accordance with this Agreement shall (a) as a condition to accepting such designation, agree in writing to be subject to each of the terms of this Agreement and shall become a party to this Agreement by executing and delivering to the Company and the Stockholder a Successor Proxyholder Joinder in the form attached hereto as Exhibit B (the “ Joinder ”), and (b) be deemed to be Proxyholder for all purposes under this Agreement as of the date of delivery to the Company and the Stockholder of such Joinder.

1.3. As used herein:

(a) An “ Affiliate ” of a Person means such Person who, directly or indirectly, controls, is controlled by or is under common control with such Person or such Person’s principal, including without limitation, any general partner, managing member, managing partner, officer or director of such Person, such Person’s principal or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person or such Person’s principal. For purposes of this definition, the terms “ controlling , “ controlled by ” or “ under common control with ” shall mean the possession, directly or indirectly, of (a) the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise or (b) the power to elect or appoint at least 50% of the directors, managers, general partners or persons exercising similar authority with respect to such Person.

(b) “ Initial Proxyholder Service Period ” means the period from and including the Effective Date to the earlier to occur of (i) the Initial Proxyholder Termination Date and (ii) the third (3 rd ) anniversary of the IPO Date.

(c) “ IPO Date ” means the date of the closing of the Public Offering.

(d) “ Person ” means an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity.

(e) “ Proxyholder ” means (i) during the Initial Proxyholder Service Period, Initial Proxyholder, and (ii) following the Initial Proxyholder Service Period, Successor Proxyholder.


(f) “ Proxy Investor ” means any stockholder of the Company that has entered into a Holder Voting Agreement by and among such stockholder and Initial Proxyholder, in such form substantially similar to this Agreement.

(g) “ Qualified Investors ” means the Proxy Investors holding, as of the IPO Date, the five largest amounts of Shares by volume (including, for this purpose, any Shares held by any Affiliate of any such Proxy Investor), and each of the Qualified Investors, a “ Qualified Investor ”; provided , that any such Proxy Investor shall cease to be a Qualified Investor on the date as of which such Proxy Investor has disposed of greater than 75% of the Shares held by such Proxy Investor as of the IPO Date.

(h) “ Successor Proxyholder ” means such Person designated from time to time by a majority of the Qualified Investors (with each Qualified Investor having one vote); provided , that any Successor Proxyholder may be changed or replaced from time to time in the sole discretion of a majority of the Qualified Investors.

2. Stockholder to Abstain from Voting . Stockholder agrees that, unless Proxyholder provides explicit written instruction to vote the Shares under this Agreement or Proxyholder provides explicit written notice that Stockholder shall be permitted by Proxyholder to vote in a manner other than as Proxyholder instructs, Stockholder shall abstain from voting any of the Shares (in person, by proxy or by action by written consent, as applicable) on all matters.

3. Irrevocable Proxy and Power of Attorney . To secure Stockholder’s obligations to vote the Shares in accordance with this Agreement and to comply with the other terms hereof, Stockholder hereby appoints Proxyholder (who shall be such person as determined from time to time pursuant to Section 1), as Stockholder’s true and lawful proxy and attorney, with the power to act alone and with full power of substitution, to vote or act by written consent with respect to all the Shares in accordance with the provisions set forth in this Agreement, and to execute all appropriate instruments consistent with this Agreement on behalf of Stockholder. The proxy and power granted by Stockholder pursuant to this Section are coupled with an interest and are given to Proxyholder to secure the performance of Stockholder’s duties under this Agreement. The aforesaid proxy and power will be irrevocable for the term hereof. If Stockholder is an individual, the proxy and power will survive the death, incompetency, and disability of the Stockholder. If the Stockholder is an entity, the proxy and power will survive the merger, consolidation, conversion or reorganization of Stockholder or any other entity holding the Shares.

4. Additional Representations, Covenants and Agreements .

4.1. Transfers by Stockholder . Each transferee, assignee, or other recipient (whether by transfer, assignment, sale, offer to sell, pledge, mortgage, hypothecation, encumbrance or any other form of disposition (a “ Transfer ”)) of any Shares (or any interest therein) shall continue to be subject to the terms hereof, and, as a condition precedent to such Transfer, each such transferee, assignee or other recipient shall execute and deliver to Proxyholder and the Company an agreement substantially in the form of this Agreement. Notwithstanding the foregoing, any Transfer after the Public Offering of Shares that are High Vote Stock that results in the conversion in such shares to Low Vote Stock shall not require compliance with any of the foregoing provisions of this Section 4.1.

4.2. Legends . Each certificate representing the Shares shall bear the following legend, in addition to any legends that may be required by state or federal laws or the terms of the Company’s bylaws or any voting or other agreements that apply to Stockholder:


“THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A HOLDER VOTING AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY) WHICH INCLUDES PROVISIONS POTENTIALLY RESTRICTING THE STOCKHOLDER’S RIGHT TO VOTE OR TRANSFER AN INTEREST IN THE SHARES EVIDENCED HEREBY, AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID HOLDER VOTING AGREEMENT.”

4.3. Stock Splits, Dividends, Etc . In the event of any issuance of shares of the Company’s voting securities hereafter to Stockholder in respect of the Shares (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such securities shall automatically become subject to this Agreement and shall be endorsed with the legend set forth in Section 4.2; provided, however , that this Agreement shall not apply to any Low Vote Stock.

4.4. Acquired Shares . Stockholder shall promptly, but in any event within three (3) days, notify Proxyholder and the Company of its acquisition of any Shares (or any interest in Shares) prior to the closing of the Public Offering.

4.5. Specific Enforcement . It is agreed and understood that monetary damages would not adequately compensate an injured party for the breach of this Agreement by any party, that this Agreement shall be specifically enforceable, and that any breach or threatened breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.

4.6. Securities Laws, Rules and Regulations . Stockholder and Proxyholder agree and understand that Stockholder and/or Proxyholder may become subject to the registration and/or reporting requirements, rules and regulations of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), the Securities Act and/or any state and federal securities laws (collectively with the Exchange Act and the Securities Act, the “ Securities Laws ”). Stockholder and Proxyholder agree to use their respective commercially reasonable efforts to comply with the Securities Laws and to reasonably assist each other in complying with the Securities Laws in a timely and prompt manner. Such compliance may include, for example and without limiting the foregoing, the filing and updating and maintaining of Form 13G and/or Form 13D under the Exchange Act.

4.7. Proxyholder’s Liability . In voting the Shares in accordance with this Agreement, Proxyholder shall not be liable for any error of judgment nor for any act done or omitted, nor for any mistake of fact or law nor for anything which Proxyholder may do or refrain from doing in good faith, nor shall Proxyholder have any accountability hereunder, except for Proxyholder’s own bad faith, gross negligence or willful misconduct. Furthermore, upon any judicial or other inquiry or investigation of or concerning Proxyholder’s acts pursuant to Proxyholder’s rights and powers as Proxyholder, such acts shall be deemed reasonable and in the best interests of Stockholder unless proved to the contrary by clear and convincing evidence.

4.8. Consideration . As consideration for the obligations of Stockholder, and the rights granted to Proxyholder, hereunder, Initial Proxyholder shall pay (by check, cash or other valid consideration) to Stockholder the sum of US $100 in the aggregate.


5. Termination .

5.1. Termination Events . This Agreement shall automatically terminate:

(a) upon the liquidation, dissolution or winding up of the business operations of the Company;

(b) upon the execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Company;

(c) following the Public Offering, as to (I) any shares of High Vote Stock that are converted to Low Vote Stock pursuant to the Company’s then effective restated certificate of incorporation and (II) the Low Vote Stock resulting from such conversion, but this Agreement shall remain effective as to any High Vote Stock not so converted;

(d) from and after the third (3 rd ) anniversary of the IPO Date, at any time upon such resolution by the board of directors of the Company;

(e) upon the fifth (5 th ) anniversary of the IPO Date;

(f) upon the date that is sixty (60) days following any Proxyholder Vacancy Date, unless a majority of Qualified Investors designates a Successor Proxyholder on or before such date in accordance with this Agreement;

(g) upon such date as of which no Proxy Investor qualifies as a Qualified Investor; or

(h) at such time following the Public Offering when there is no High Vote Stock outstanding.

5.2. Removal of Legend . At any time after the termination of this Agreement in accordance with Section 5.1 (including with respect to any partial termination in connection with the conversion of High Vote Stock to Low Vote Stock), any holder of a stock certificate legended pursuant to this Agreement may surrender such certificate to the Company for removal of the legend.

6. Miscellaneous .

6.1. Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of Stockholder and Proxyholder. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or the respective successors and permitted assigns of Stockholder and Proxyholder any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. This Agreement may not be assigned without the written consent of Proxyholder and Stockholder; provided , that for the avoidance of doubt, any Successor Proxyholder designated in accordance with this Agreement may become a party to this Agreement in accordance with Section 1.2 without the consent of any of Proxyholder or Stockholder.


6.2. Amendments and Waivers . Any term hereof may be amended or waived only with the written consent of Stockholder and Proxyholder; provided , that for the avoidance of doubt, any Successor Proxyholder designated in accordance with this Agreement may become a party to this Agreement in accordance with Section 1.2 without the consent of any of Proxyholder or Stockholder, and the execution and delivery by such Successor Proxyholder of the Joinder shall not be deemed to amend or waive any term of this Agreement. Any amendment or waiver effected in accordance with this Section 6.2 shall be binding upon Proxyholder, and Stockholder, and each of the respective successors to and assigns of Proxyholder and Stockholder.

6.3. Notices . Notwithstanding anything to the contrary contained herein, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient and received on the earlier of (a) the date of delivery, when delivered personally, by overnight mail, courier or sent by electronic mail (e-mail) or fax, or (b) forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address, e-mail address or fax number as set forth on the signature page hereto, or as subsequently modified by written notice. Any electronic mail (e-mail) communication shall be deemed to be “in writing” for purposes of this Agreement.

6.4. Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties hereto agree to renegotiate such provision in good faith. In the event that the parties hereto cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded, and (c) the balance of the Agreement shall be enforceable in accordance with its terms.

6.5. Governing Law; Jurisdiction; Venue .

(a) This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to conflict of law principles. In addition, each of the parties hereto (i) consents to submit itself to the exclusive jurisdiction of the Court of Chancery or other courts of the State of Delaware in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such jurisdiction by motion or other request for leave from such court, (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the Court of Chancery or other courts of the State of Delaware, and (iv) waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.

(b) Each party hereto hereby consents to service of process being made through the notice procedures set forth in Section 6.3 and agrees that, to the fullest extent permitted by law, service of any process, summons, notice or document by U.S. registered mail to the parties’ respective addresses set forth on the signature page hereto shall be effective service of process for any suit or proceeding in connection with this Agreement or the transactions contemplated hereby.

6.6. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.


6.7. Further Assurances . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.

6.8. Costs of Enforcement . If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys’ fees.

6.9. Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

6.10. Confidentiality . Prior to the public filing of a registration statement with respect to the Public Offering, the parties shall keep this Agreement and the terms hereof confidential and not disclose the foregoing to any third party, except as required by applicable law and as the parties hereto may otherwise agree.

6.11. Effectiveness . For the avoidance of doubt, Section 1, Section and Section 3 of this Agreement shall not become effective until the later of (i) the closing of the Public Offering and (ii) the implementation of the Dual Class Structure. Until such time, Stockholder may vote all of the shares of the Company’s capital stock that it beneficially owns in its sole discretion.

[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, the parties have executed this Holder Voting Agreement as of the date first set forth above.

 

STOCKHOLDER
Stockholder Name:                                                   
By:  

 

Name:  

 

Title:  

 

INITIAL PROXYHOLDER
By:  

 

Name:   K.R. Sridhar

[SIGNATURE PAGE TO HOLDER VOTING AGREEMENT]


EXHIBIT A

Shares

 

Shareholder Registration

   Type of Shares      Number of Shares  
     


EXHIBIT B

Form of Successor Proxyholder Joinder

This Successor Proxyholder Joinder (the “ Joinder ”) is executed on ____________, 20__, by the undersigned (“ Successor Proxyholder ”) pursuant to the terms of that certain Holder Voting Agreement (the “Agreement”) dated as of [_________], 2016, by and between [________________] (together with its successors, “ Stockholder ”) and KR Sridhar (“ Initial Proxyholder ”). Capitalized terms used but not defined in this Joinder shall have the respective meanings ascribed to such terms in the Agreement.

By execution of this Joinder, Successor Proxyholder hereby (a) agrees to be subject to each of the terms of the Agreement, (b) becomes a party to the Agreement, to serve as Proxyholder in accordance with the terms of the Agreement until the earlier of such Successor Proxyholder’s resignation, death or removal in accordance with the Agreement and (c) adopts the Agreement with the same force and effect as if Successor Proxyholder were originally a party thereto.

 

ACCEPTED AND AGREED
SUCCESSOR PROXYHOLDER
By: _____________________
Title: ____________________

Exhibit 5.1

 

LOGO

 

SILICON VALLEY    801 CALIFORNIA STREET    MOUNTAIN VIEW, CA 94041

 

TEL: 650.988.8500    FAX: 650.938.5200    WWW.FENWICK.COM

July 9, 2018

Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, CA 94089

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-1 (File Number 333-225571) (the “ Registration Statement ”) initially filed by Bloom Energy Corporation, a Delaware corporation (the “ Company ”), with the Securities and Exchange Commission (the “ Commission ”) on June 12, 2018, as subsequently amended on July 9, 2018, in connection with the registration under the Securities Act of 1933, as amended (the “ Securities Act ”), of an aggregate of 20,700,000 shares (the “ Stock ”) of the Company’s Class A Common Stock (the “ Class  A Common Stock ”).

In rendering this opinion, we have examined such matters of fact as we have deemed necessary in order to render the opinion set forth herein, which included examination of the following:

 

  (1) The Company’s Eleventh Amended and Restated Certificate of Incorporation, filed with and certified by the Delaware Secretary of State on July 6, 2018 (the “ Restated Certificate ”), and the Certificate of Amendment to the Eleventh Amended and Restated Certificate of Incorporation, the Company intends to file with the Delaware Secretary of State prior to the date of the effectiveness of the Registration Statement (the “ Certificate of Amendment ”) and the Restated Certificate of Incorporation that the Company intends to file and that will be effective upon the consummation of the sale of the Stock (the “ Post-Effective Restated Certificate ”).

 

  (2) The Company’s Bylaws, as amended to date, certified to us as of the date hereof by an officer of the Company as being complete and in full force and effect as of the date hereof (the “ Bylaws ”) and the Restated Bylaws that the Company has adopted in connection with, and that will be effective upon, the consummation of the sale of the Stock (the “ Post-Effective Bylaws ”).

 

  (3) The Registration Statement, together with the Exhibits filed as a part thereof or incorporated therein by reference.

 

  (4) The prospectus prepared in connection with the Registration Statement (the “ Prospectus ”).

 

  (5) The minutes of meetings and actions by written consent of the Company’s Board of Directors (the “ Board ”) and stockholders (the “ Stockholders ”) at which, or pursuant to which, the Restated Certificate, the Certificate of Amendment, the Post-Effective Restated Certificate, the Bylaws and the Post-Effective Bylaws were approved.


Bloom Energy Corporation

July 9, 2018

Page 2

 

  (6) The minutes of meetings and actions by written consent of the Board and Stockholders at which, or pursuant to which, the sale and issuance of the Stock and related matters were approved.

 

  (7) The stock records of the Company that the Company has provided to us (consisting of a list of stockholders and a list of holders of outstanding options, restricted stock units, convertible promissory notes and any other rights to purchase capital stock, in each case, that was prepared by the Company and setting forth the number of such issued and outstanding securities).

 

  (8) A Certificate of Good Standing issued by the Secretary of State of the State of Delaware dated July 2, 2018, stating that the Company is qualified to do business and is in good standing under the laws of the State of Delaware as of such date (the “ Certificate of Good Standing ”).

 

  (9) An opinion certificate addressed to us and dated of even date herewith executed by the Company containing certain factual representations (the “ Opinion Certificate ”).

 

  (10) The underwriting agreement to be entered into by and among the Company and the several underwriters named in Schedule 1 thereto.

In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities (other than the Company) executing the same, the lack of any undisclosed termination, modification, waiver or amendment to any document reviewed by us.

The Company’s capital stock is uncertificated. We assume that the issued Stock will not be reissued by the Company in uncertificated form until any previously issued stock certificate representing such issued Stock have been surrendered to the Company in accordance with Section 158 of the Delaware General Corporation Law and that the Company will properly register the transfer of the Stock to the purchasers of such Stock on the Company’s record of uncertificated securities.

We render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America and the State of California and of the existing Delaware General Corporation Law and reported judicial decisions relating thereto.

With respect to our opinion expressed in paragraph (1) below as to the valid existence and good standing of the Company under the laws of the State of Delaware, we have relied solely upon the Certificate of Good Standing and representations made to us by the Company in the Opinion Certificate.

In connection with our opinion expressed in paragraph (2) below, we have assumed that, at or prior to the time of the delivery of any shares of Stock, the Registration Statement will have been declared effective under the Securities Act, that the registration will apply to such shares of Stock and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity of the issuance of such shares of Stock.


Bloom Energy Corporation

July 9, 2018

Page 3

This opinion is based upon the customary practice of lawyers who regularly give, and lawyers who regularly advise opinion recipients regarding, opinions of the kind set forth in this opinion letter, including customary practice as described in bar association reports.

Based upon the foregoing, we are of the following opinion:

(1) The Company is a corporation validly existing, in good standing, under the laws of the State of Delaware; and

(2) the up to 20,700,000 shares of Stock to be issued and sold by the Company, when issued, sold and delivered in the manner and for the consideration stated in the Registration Statement and the Prospectus and in accordance with the resolutions adopted by the Board and to be adopted by the Pricing Committee of the Board, will be validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto.

This opinion is intended solely for use in connection with issuance and sale of shares of Stock subject to the Registration Statement and is not to be relied upon for any other purpose. This opinion is rendered as of the date first written above and is based solely on our understanding of facts in existence as of such date after the aforementioned examination. In rendering the opinions above, we are opining only as to the specific legal issues expressly set forth therein, and no opinion shall be inferred as to any other matter or matters. We assume no obligation to advise you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention whether or not such occurrence would affect or modify any of the opinions expressed herein.

 

Very truly yours,
FENWICK & WEST LLP
By:  

/s/ Fenwick & West LLP

  Jeffrey R. Vetter, a Partner

Exhibit 10.1

INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of                                                        , 2018 is made by and between Bloom Energy Corporation, a Delaware corporation (the “ Company ”), and                                                                                   , a director, officer or key employee of the Company or one of the Company’s subsidiaries or other service provider who satisfies the definition of Indemnifiable Person set forth below (the “ Indemnitee ”).

RECITALS

A.    The Company is aware that competent and experienced persons are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no relationship to the compensation of such representatives;

B.    The members of the Board of Directors of the Company (the “ Board ”) have concluded that to retain and attract talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates and to encourage such individuals to take the business risks necessary for the success of the Company and its Subsidiaries and Affiliates, it is necessary for the Company to contractually indemnify certain of its representatives and the representatives of its Subsidiaries and Affiliates, and to assume for itself maximum liability for Expenses and Other Liabilities in connection with claims against such representatives in connection with their service to the Company and its Subsidiaries and Affiliates;

C.    Section 145 of the Delaware General Corporation Law (“ Section  145 ”), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided thereby is not exclusive; and

D.    The Company desires and has requested Indemnitee to serve or continue to serve as a representative of the Company and/or the Subsidiaries or Affiliates of the Company free from undue concern about inappropriate claims for damages arising out of or related to such services to the Company and/or the Subsidiaries or Affiliates of the Company.

AGREEMENT

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1.      Definitions .

(a)      Affiliate . For purposes of this Agreement, “ Affiliate ” of the Company means any corporation, partnership, limited liability company, joint venture, trust or other


enterprise in respect of which Indemnitee is or was or will be serving as a director, officer, trustee, manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary, or in any other similar capacity at the request, election or direction of the Company, or as a deemed fiduciary thereto, and including, but not limited to, any employee benefit plan of the Company or a Subsidiary or Affiliate of the Company.

(b)      Change in Control . For purposes of this Agreement, “ Change in Control ” means (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a Subsidiary or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary, is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding capital stock (provided, however, that following the consummation of a firmly underwritten initial public offering registered under the Securities Act of 1933, as amended, of the Company’s capital stock, a person’s becoming the Beneficial Owner, directly or indirectly, of securities representing more than 50% of the total voting power represented by the Company’s then outstanding capital stock shall not be a Change in Control if such person has become such owner by becoming the Beneficial Owner of shares of the Company’s Class B Common Stock) or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the outstanding capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into capital stock of the surviving entity) at least 50% of the total voting power represented by the capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

(c)      Expenses . For purposes of this Agreement, “ Expenses ” means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements, and other out-of-pocket costs), paid or incurred by Indemnitee in connection with either the investigation, defense or appeal of, or being a witness in, a Proceeding, or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise; provided, however, that Expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a Proceeding.

(d)      Indemnifiable Event . For purposes of this Agreement, “ Indemnifiable Event ” means any event or occurrence related to Indemnitee’s service for the Company or any Subsidiary or Affiliate as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.

 

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(e)      Indemnifiable Person . For the purposes of this Agreement, “ Indemnifiable Person ” means any person who is or was a director, officer, trustee, manager, member, partner, employee, attorney, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of the Company or a Subsidiary or Affiliate of the Company.

(f)      Independent Counsel . For purposes of this Agreement, “ Independent Counsel ” means legal counsel that has not performed services for the Company or Indemnitee in the five years preceding the time in question and that would not, under applicable standards of professional conduct, have a conflict of interest in representing either the Company or Indemnitee.

(g)      Independent Director . For purposes of this Agreement, “ Independent Director ” means a member of the Board who is not a party to the Proceeding for which a claim is made under this Agreement.

(h)      Other Liabilities . For purposes of this Agreement, “ Other Liabilities ” means any and all liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement).

(i)      Proceeding . For the purposes of this Agreement, “ Proceeding ” means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever, preliminary, informal or formal, including any arbitration or other alternative dispute resolution and including any appeal of any of the foregoing.

(j)      Subsidiary . For purposes of this Agreement, “ Subsidiary ” means any entity of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company.

2.      Agreement to Serve . The Indemnitee agrees to serve and/or continue to serve as an Indemnifiable Person in the capacity or capacities in which Indemnitee currently serves the Company as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitee’s service in a particular capacity shall end according to the terms of an agreement, the Company’s Certificate of Incorporation or Bylaws, governing law, or otherwise. Nothing contained in this Agreement is intended to create any right to continued employment or other form of service for the Company or a Subsidiary or Affiliate of the Company by Indemnitee.

3.      Mandatory Indemnification .

(a)      Agreement to Indemnify . In the event Indemnitee is a person who was or is a party to or witness in or is threatened to be made a party to or witness in any Proceeding by reason of an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including

 

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in preparation for) such Proceeding to the fullest extent not prohibited by the provisions of the Company’s Bylaws and the Delaware General Corporation Law (“ DGCL ”), as the same may be amended from time to time (but only to the extent that such amendment permits the Company to provide broader indemnification rights than the Bylaws or the DGCL permitted prior to the adoption of such amendment).

(b)      Exception for Amounts Covered by Corporate Insurance and Third Parties . Notwithstanding the foregoing, the Company shall not be obligated to indemnify Indemnitee for Expenses or Other Liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to Indemnitee (or paid directly to a third party on Indemnitee’s behalf) by any directors and officers, or other type, of insurance maintained by the Company [or pursuant to other indemnity arrangements with third parties] 1 ; provided, however, that payment made to Indemnitee pursuant to an insurance policy purchased and maintained by Indemnitee at his or her own expense of any amounts otherwise indemnifiable or obligated to be made pursuant to this Agreement shall not reduce the Company’s obligations to Indemnitee pursuant to this Agreement.

(c)      [Company Obligations Primary . The Company hereby acknowledges that Indemnitee may have rights to indemnification for Expenses and Other Liabilities provided by [name of VC or other sponsoring organization (“ Other Indemnitor ”)]. The Company agrees with Indemnitee that the Company is the indemnitor of first resort of Indemnitee with respect to matters for which indemnification is provided under this Agreement and that the Company will be obligated to make all payments due to or for the benefit of Indemnitee under this Agreement without regard to any rights that Indemnitee may have against the Other Indemnitor. The Company hereby waives any equitable rights to contribution or indemnification from the Other Indemnitor in respect of any amounts paid to Indemnitee hereunder. The Company further agrees that no reimbursement of Other Liabilities or payment of Expenses by the Other Indemnitor to or for the benefit of Indemnitee shall affect the obligations of the Company hereunder, and that the Company shall be obligated to repay the Other Indemnitor for all amounts so paid or reimbursed to the extent that the Company has an obligation to indemnify Indemnitee for such Expenses or Other Liabilities hereunder.] 2

4.      Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Other Liabilities but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which indemnification is prohibited by the provisions of the Company’s Bylaws or the DGCL. In any review or Proceeding to determine the extent of indemnification, the Company shall bear the burden to establish, by clear and convincing evidence, the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.

 

1   Remove bracketed language for directors affiliated with a venture capital fund.
2   Only to be inserted for directors affiliated with a venture capital fund.

 

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5.      Liability Insurance . So long as Indemnitee shall continue to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an Indemnifiable Event, the Company shall use reasonable efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (i) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the same amount as that provided to the Chairman of the Board or the Chief Executive Officer of the Company and (ii) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board or the Chief Executive Officer of the Company. The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of the Company or of Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such insurance or other arrangement. In the event of a Change in Control subsequent to the date of this Agreement, or the Company’s becoming insolvent, including being placed into receivership or entering the federal bankruptcy process, the Company shall maintain in force any and all insurance policies then maintained by the Company in providing insurance—directors’ and officers’ liability, fiduciary, employment practices or otherwise—in respect of the individual directors and officers of the Company, for a fixed period of six years thereafter. Such coverage shall be non-cancellable and shall be placed and serviced by the Company’s incumbent insurance broker or a broker selected by a majority of the Independent Directors.

6.      Mandatory Advancement of Expenses . If requested by Indemnitee, the Company shall advance prior to the final disposition of the Proceeding all Expenses reasonably incurred by Indemnitee in connection with (including in preparation for) a Proceeding related to an Indemnifiable Event within (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee. The right to advances under this section shall in all events continue until final disposition of any Proceeding, including any appeal therein. Indemnitee hereby undertakes to repay such amounts advanced if, and only if and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Company’s Bylaws or the DGCL, and no additional form of undertaking with respect to such obligation to repay shall be required. Indemnitee’s undertaking to repay any Expenses advanced to Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon. Advances shall be made without regard to Indemnitee’s ability to pay. In the event that Indemnitee’s request for the advancement of expenses shall be accompanied by an affidavit of counsel to Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsel’s view, then such expenses shall be deemed reasonable in the absence of clear and convincing evidence to the contrary.

 

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7.      Notice and Other Indemnification Procedures .

(a)      Notification . Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, Indemnitee shall, if Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. However, a failure so to notify the Company promptly following Indemnitee’s receipt of such notice shall not relieve the Company from any liability that it may have to Indemnitee except to the extent that the Company is materially prejudiced in its defense of such Proceeding as a result of such failure.

(b)      Insurance and Other Matters . If, at the time of the receipt of a notice of the commencement of a Proceeding pursuant to Section 7(a) above, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the issuers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such insurance policies.

(c)      Assumption of Defense . In the event the Company shall be obligated to advance the Expenses for any Proceeding against Indemnitee, the Company, if deemed appropriate by the Company, shall be entitled to assume the defense of such Proceeding as provided herein. Such defense by the Company may include the representation of two or more parties by one attorney or law firm as permitted under the ethical rules and legal requirements related to joint representations. Following delivery of written notice to Indemnitee of the Company’s election to assume the defense of such Proceeding, the approval by Indemnitee (which approval shall not be unreasonably withheld) of counsel designated by the Company and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees and expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. If (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have notified the Board in writing that Indemnitee has reasonably concluded that there is likely to be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company fails to employ counsel to assume the defense of such Proceeding, the fees and expenses of Indemnitee’s counsel shall be subject to indemnification and/or advancement pursuant to the terms of this Agreement. Nothing herein shall prevent Indemnitee from employing counsel for any such Proceeding at Indemnitee’s expense. Indemnitee agrees that any such separate counsel retained by Iindemnitee will be a member of any approved list of panel counsel under the Company’s applicable directors’ and officers’ insurance policy, should the applicable policy provide for a panel of approved counsel.

(d)      Settlement . The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent; provided, however, that if a Change in Control has occurred subsequent to the date of this Agreement, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. Neither the Company nor any Subsidiary or Affiliate shall enter into a

 

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settlement of any Proceeding that might result in the imposition of any Expense, Other Liability, penalty, limitation or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without Indemnitee’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent from any settlement of any Proceeding. The Company shall promptly notify Indemnitee upon the Company’s receipt of an offer to settle, or if the Company makes an offer to settle, any Proceeding, and provide Indemnitee with a reasonable amount of time to consider such settlement, in the case of any such settlement for which the consent of Indemnitee would be required hereunder. The Company shall not, on its own behalf, settle any part of any Proceeding to which Indemnitee is a party with respect to other parties (including the Company) without the written consent of Indemnitee if any portion of the settlement is to be funded from insurance proceeds unless approved by a majority of the Independent Directors, provided that this sentence shall cease to be of any force and effect if it has been determined in accordance with this Agreement that Indemnitee is not entitled to indemnification hereunder with respect to such Proceeding or if the Company’s obligations hereunder to Indemnitee with respect to such Proceeding have been fully discharged.

8.      Determination of Right to Indemnification .

(a)      Success on the Merits or Otherwise . To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3(a) above or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against Expenses actually and reasonably incurred in connection therewith. For these purposes, Indemnitee will be deemed to have been “successful on the merits” in circumstances including but not limited to the termination of any Proceeding or of any claim, issue or matter therein, by the winning of a dismissal (with or without prejudice), motion for summary judgment or settlement (with or without court approval).

(b)      Indemnification in Other Situations . In the event that Section 8(a) is inapplicable, the Company shall also indemnify Indemnitee if Indemnitee has not failed to meet the applicable standard of conduct for indemnification.

(c)      Forum . Indemnitee shall be entitled to select the forum in which determination of whether or not Indemnitee has met the applicable standard of conduct shall be decided, and such election will be made from among the following:

a.     Those members of the Board who are Independent Directors even though less than a quorum;

b.     A committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum; or

c.     Independent Counsel selected by Indemnitee and approved by the Board, which approval may not be unreasonably withheld, which counsel shall make such determination in a written opinion.

If Indemnitee is an officer or a director of the Company at the time that Indemnitee is selecting the forum, then Indemnitee shall not select Independent Counsel as such forum unless there are no Independent Directors or unless the Independent Directors agree to the selection of Independent Counsel as the forum.

 

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The selected forum shall be referred to herein as the “Reviewing Party”. Notwithstanding the foregoing, following any Change in Control subsequent to the date of this Agreement, the Reviewing Party shall be Independent Counsel selected in the manner provided in c. above.

(d)     As soon as practicable, and in no event later than thirty (30) days after receipt by the Company of written notice of Indemnitee’s choice of forum pursuant to Section 8(c) above, the Company and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider. The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from the Company and Indemnitee, but in no event later than thirty (30) days following the receipt of all such information, provided that the time by which the Reviewing Party must reach a decision may be extended by mutual agreement of the Company and Indemnitee. All Expenses associated with the process set forth in this Section 8(d), including but not limited to the Expenses of the Reviewing Party, shall be paid by the Company.

(e)      Delaware Court of Chancery . Notwithstanding a final determination by any Reviewing Party that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery, for the purpose of enforcing Indemnitee’s right to indemnification pursuant to this Agreement.

(f)      Expenses . The Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any hearing or Proceeding under this Section 8 involving Indemnitee and against all Expenses and Other Liabilities incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims of Indemnitee in any such Proceeding was frivolous or made in bad faith.

(g)      Determination of “Good Faith” . For purposes of any determination of whether Indemnitee acted in “good faith”, Indemnitee shall be deemed to have acted in good faith if in taking or failing to take the action in question Indemnitee relied on the records or books of account of the Company or a Subsidiary or Affiliate, including financial statements, or on information, opinions, reports or statements provided to Indemnitee by the officers or other employees of the Company or a Subsidiary or Affiliate in the course of their duties, or on the advice of legal counsel for the Company or a Subsidiary or Affiliate, or on information or records given or reports made to the Company or a Subsidiary or Affiliate by an independent certified public accountant or by an appraiser or other expert selected by the Company or a Subsidiary or Affiliate, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company or a Subsidiary or Affiliate. In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, or to advancement of expenses, the Reviewing Party or court shall presume that Indemnitee has satisfied the applicable standard of

 

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conduct and is entitled to indemnification or advancement of Expenses, as the case may be, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled. The provisions of this Section 8(g) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. In addition, the knowledge and/or actions, or failures to act, of any other person serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.

9.      Exceptions . Any other provision herein to the contrary notwithstanding,

(a)      Claims Initiated by Indemnitee . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (1) with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, (2) where the Board has consented to the initiation of such Proceeding, or (3) with respect to Proceedings brought to discharge Indemnitee’s fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or

(b)      Actions Based on Federal Statutes Regarding Profit Recovery and Return of Bonus Payments . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of (i) any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any federal, state or local statutory law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or

(c)      Unlawful Indemnification . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee for Other Liabilities if such indemnification is prohibited by law as determined by a court of competent jurisdiction in a final adjudication not subject to further appeal.

10.      Non-exclusivity . The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.

 

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11.      Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

12.      Supersession, Modification and Waiver . This Agreement supersedes any prior indemnification agreement between the Indemnitee and the Company, its Subsidiaries or its Affiliates. If the Company and Indemnitee have previously entered into an indemnification agreement providing for the indemnification of Indemnitee by the Company, parties entry into this Agreement shall be deemed to amend and restate such prior agreement to read in its entirety as, and be superseded by, this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver.

13.      Successors and Assigns . The terms of this Agreement shall bind, and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs and personal and legal representatives.    In addition, the Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) by written agreement to assume and agree to perform this Agreement.

14.      Notice . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and a receipt is provided by the party to whom such communication is delivered, (ii) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (iii) personal service by a process server, or (iv) delivery to the recipient’s address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 14. Delivery of communications to the Company with respect to this Agreement shall be sent to the attention of the Company’s General Counsel.

15.      No Presumptions . For purposes of this Agreement, the termination of any Proceeding, by judgment, order, settlement (whether with or without court approval) or

 

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conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law or otherwise. In addition, neither the failure of the Company or a Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Company or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitee’s rights under Section 8(e) of this Agreement shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has failed to meet any particular standard of conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.

16.      Survival of Rights . The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

17.      Subrogation and Contribution . (a) [Except as otherwise expressly provided in this Agreement,] 3 in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

(b) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by or on behalf of Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

18.      Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

19.      Counterparts . This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

3   Only to be inserted for directors affiliated with a venture capital fund.

 

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20.      Headings . The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

21.      Governing Law . This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely with Delaware.

22.      Consent to Jurisdiction . The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.

[ Signature Page Follows ]

 

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The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

 

    BLOOM ENERGY CORPORATION:

 

    By:    
    Its:    

 

    INDEMNITEE:
     
Address:      
     

 

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Exhibit 10.4

BLOOM ENERGY CORPORATION

2018 EQUITY INCENTIVE PLAN

(Adopted April 26, 2018)

1. PURPOSE . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents, Subsidiaries and Affiliates that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards. Capitalized terms not defined elsewhere in the text are defined in Section 28.

2. SHARES SUBJECT TO THE PLAN .

2.1. Number of Shares Available . Subject to Sections 2.6 and 21 and any other applicable provisions hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan as of the date of adoption of the Plan by the Board, is Twenty Million (20,000,000) plus (a) any reserved shares not issued or subject to outstanding grants under the Company’s 2012 Equity Incentive Plan (the “ Prior Plan ”) on the Effective Date, plus (b) shares that are subject to stock options or other awards granted under the Prior Plan that cease to be subject to such stock options or other awards, by forfeiture or otherwise, after the Effective Date, (c) shares issued under the Prior Plan before or after the Effective Date pursuant to the exercise of stock options that are forfeited after the Effective Date, (d) shares issued under the Prior Plan that are repurchased by the Company at the original issue price and (e) shares that are subject to stock options or other awards under the Prior Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. Notwithstanding anything to the contrary herein, each share that becomes available for grant and issuance pursuant to this Plan by virtue of clauses (a)-(e) of this Section 2.1 shall be deemed a Share upon so becoming available under this Plan, regardless of the type or class of Company capital stock previously attributed to such share.

2.2. Lapsed, Returned Awards . Shares subject to Awards, and Shares issued under the Plan under any Award, will again be available for grant and issuance in connection with subsequent Awards under this Plan to the extent such Shares: (a) are subject to issuance upon exercise of an Option or SAR granted under this Plan but which cease to be subject to the Option or SAR for any reason other than exercise of the Option or SAR; (b) are subject to Awards granted under this Plan that are forfeited or are repurchased by the Company at the original issue price; (c) are subject to Awards granted under this Plan that otherwise terminate without such Shares being issued; or (d) are surrendered pursuant to an Exchange Program. To the extent an Award under the Plan is paid out in cash or other property rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Shares used to pay the exercise price of an Award or withheld to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. For the avoidance of doubt, Shares that otherwise become available for grant and issuance because of the provisions of this Section 2.2 shall not include Shares subject to Awards that initially became available because of the substitution clause in Section 21.2 hereof.

2.3. Minimum Share Reserve . At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted under this Plan.

2.4. Automatic Share Reserve Increase . The number of Shares available for grant and issuance under the Plan shall be increased on January 1, of each of 2019 through 2028, by the lesser of (a) four percent (4%) of the number of Shares, 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 of Shares determined by the Board.

 

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2.5. ISO Limitation . No more than Forty Million (40,000,000) Shares shall be issued pursuant to the exercise of ISOs.

2.6. Adjustment of Shares . If the outstanding Shares are changed by a stock dividend, extraordinary dividends or distributions (whether in cash, shares or other property, other than a regular cash dividend), spin-off, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then (a) the number and class of Shares reserved for issuance and future grant under the Plan set forth in Section 2.1, (b) the Exercise Prices of and number and class of Shares subject to outstanding Options and SARs, (c) the number and class of Shares subject to other outstanding Awards, and (d) the maximum number and class of Shares that may be issued as ISOs set forth in Section 2.5, shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities or other laws; provided that fractions of a Share will not be issued. If, by reason of an adjustment pursuant to this Section 2.6, a Participant’s Award Agreement or other agreement related to any Award or the Shares subject to such Award covers additional or different shares of stock or securities, then such additional or different shares, and the Award Agreement or such other agreement in respect thereof, shall be subject to all of the terms, conditions and restrictions which were applicable to the Award or the Shares subject to such Award prior to such adjustment.

3. ELIGIBILITY . ISOs may be granted only to Employees. All other Awards may be granted to Employees, Consultants, Directors and Non-Employee Directors; provided such Consultants, Directors and Non-Employee Directors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction.

4. ADMINISTRATION .

4.1. Committee Composition; Authority . This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan, except, however, the Board shall establish the terms for the grant of an Award to Non-Employee Directors. The Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award;

(c) select persons to receive Awards;

(d) determine the form and terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the Exercise Price, the time or times when Awards may vest and be exercised (which may be based on performance criteria) or settled, any vesting acceleration or waiver of forfeiture restrictions, the method to satisfy tax withholding obligations or any other tax liability legally due and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;

(e) determine the number of Shares or other consideration subject to Awards;

 

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(f) determine the Fair Market Value in good faith and interpret the applicable provisions of this Plan and the definition of Fair Market Value in connection with circumstances that impact the Fair Market Value, if necessary;

(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate;

(h) grant waivers of Plan or Award conditions;

(i) determine the vesting, exercisability and payment of Awards;

(j) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

(k) determine whether an Award has been earned or has vested;

(l) determine the terms and conditions of any, and to institute any Exchange Program;

(m) reduce or waive any criteria with respect to Performance Factors;

(n) adjust Performance Factors to take into account changes in law and accounting or tax rules as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships;

(o) adopt rules and/or procedures (including the adoption of any subplan under this Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States or qualify Awards for special tax treatment under laws of jurisdictions other than the United States;

(p) make all other determinations necessary or advisable for the administration of this Plan;

(q) delegate any of the foregoing to one or more executive officers pursuant to a specific delegation as permitted by applicable law, including Section 157(c) of the Delaware General Corporation Law; and

(r) to exercise negative discretion on Performance Awards, reducing or eliminating the amount to be paid to Participants.

4.2. Committee  Interpretation and Discretion . Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. Any dispute regarding the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and the Participant. The Committee may delegate to one or more executive officers the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution shall be final and binding on the Company and the Participant.

4.3. Documentation . The Award Agreement for a given Award, the Plan and any other documents may be delivered to, and accepted by, a Participant or any other person in any manner (including electronic distribution or posting) that meets applicable legal requirements.

 

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4.4. Foreign Award Recipients . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws and practices in other countries in which the Company and its Subsidiaries and Affiliates operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (a) determine which Subsidiaries and Affiliates shall be covered by the Plan; (b) determine which individuals outside the United States are eligible to participate in the Plan, which may include individuals who provide services to the Company, Subsidiary or Affiliate under an agreement with a foreign nation or agency; (c) modify the terms and conditions of any Award granted to individuals outside the United States or foreign nationals to comply with applicable foreign laws, policies, customs and practices; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 2.1 hereof; and (e) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

5. OPTIONS . An Option is the right but not the obligation to purchase a Share, subject to certain conditions, if applicable. The Committee may grant Options to eligible Employees, Consultants and Directors and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ ISOs ”) or Nonqualified Stock Options (“ NSOs ”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may vest and be exercised, and all other terms and conditions of the Option, subject to the following terms of this section.

5.1. Option Grant . Each Option granted under this Plan will identify the Option as an ISO or an NSO. An Option may be, but need not be, awarded upon satisfaction of such Performance Factors during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the Option is being earned upon the satisfaction of Performance Factors, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Option; and (b) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to Options that are subject to different performance goals and other criteria.

5.2. Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, or a specified future date. The Award Agreement will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3. Exercise Period . Options may be vested and exercisable within the times or upon the conditions as set forth in the Award Agreement governing such Option; provided , however , that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who, at the time the ISO is granted, directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary (“ Ten Percent Stockholder ”), will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

5.4. Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted; provided that: (a) the Exercise Price of an Option will be not less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (b) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 11 and the Award Agreement and in accordance with any procedures established by the Company.

 

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5.5. Method of Exercise . Any Option granted hereunder will be vested and exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (a) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option (and/or via electronic execution through the authorized third-party administrator), and (b) full payment for the Shares with respect to which the Option is exercised together with applicable withholding taxes. Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.6 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

5.6. Termination of Service . If the Participant’s Service terminates for any reason except for Cause or the Participant’s death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates no later than three (3) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the date Participant’s employment terminates deemed to be the exercise of an NSO), but in any event no later than the expiration date of the Options, except as required by applicable law.

(a) Death . If the Participant’s Service terminates because of the Participant’s death (or the Participant dies within three (3) months after Participant’s Service terminates other than for Cause or because of the Participant’s Disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant’s legal representative, or authorized assignee, no later than twelve (12) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee), but in any event no later than the expiration date of the Options, except as required by applicable law.

(b) Disability . If the Participant’s Service terminates because of the Participant’s Disability, then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than twelve (12) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee, with any exercise beyond (a) three (3) months after the date Participant’s employment terminates when the termination of Service is for a Disability that is not a “permanent and total disability” as defined in Section 22(e)(3) of the Code, or (b) twelve (12) months after the date Participant’s employment terminates when the termination of Service is for a Disability that is a “permanent and total disability” as defined in Section 22(e)(3) of the Code, deemed to be exercise of an NSO), but in any event no later than the expiration date of the Options.

(c) Cause . If the Participant’s Service is terminated for Cause, then Participant’s Options shall expire on such Participant’s date of termination of Service, or at such later time and on such conditions as are determined by the Committee, but in any event no later than the expiration date of the Options. Unless otherwise provided in an employment agreement, the Award Agreement or other applicable agreement, Cause shall have the meaning set forth in the Plan.

 

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5.7. Limitations on Exercise . The Committee may specify a minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent any Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.8. Limitations on ISOs . With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NSOs. For purposes of this Section 5.8, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

5.9. Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted, unless for the purpose of complying with applicable laws and regulations. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 18 of this Plan, by written notice to affected Participants, the Committee may reduce the Exercise Price of outstanding Options without the consent of such Participants by a written notice to them; provided , however , that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 for Options granted on the date the action is taken to reduce the Exercise Price.

5.10. No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the written consent of the Participant, to disqualify any Participant’s ISO under Section 422 of the Code.

6. RESTRICTED STOCK AWARDS . A Restricted Stock Award is an offer by the Company to sell to an eligible Employee, Consultant, or Director Shares that are subject to restrictions (“ Restricted Stock ”). The Committee will determine to whom an offer will be made, the number of Shares the Participant may purchase, the Purchase Price, the restrictions under which the Shares will be subject and all other terms and conditions of the Restricted Stock Award, subject to the Plan.

6.1. Restricted  Stock  Purchase Agreement . All purchases under a Restricted Stock Award will be evidenced by an Award Agreement. Except as may otherwise be provided in an Award Agreement, a Participant accepts a Restricted Stock Award by signing and delivering to the Company an Award Agreement with full payment of the Purchase Price, within thirty (30) days from the date the Award Agreement was delivered to the Participant. If the Participant does not accept such Award within thirty (30) days, then the offer of such Restricted Stock Award will terminate, unless the Committee determines otherwise.

6.2. Purchase  Price . The Purchase Price for Shares issued pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 11 of the Plan, and the Award Agreement and in accordance with any procedures established by the Company.

 

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6.3. Terms of Restricted Stock Awards . Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law. These restrictions may be based on completion of a specified number of years of service with the Company or upon completion of Performance Factors, if any, during any Performance Period as set out in advance in the Participant’s Award Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.

6.4. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

6.5. Dividends and Other Distributions . Participants holding Restricted Stock Awards will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Committee provides otherwise at the time the Award is granted. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Restricted Stock Awards with respect to which they were paid.

7. STOCK BONUS AWARDS . A Stock Bonus Award is an award to an eligible Employee, Consultant, or Director of Shares for Services to be rendered or for past Services already rendered to the Company or any Parent, Subsidiary or Affiliate. All Stock Bonus Awards shall be made pursuant to an Award Agreement. No payment from the Participant will be required for Shares awarded pursuant to a Stock Bonus Award.

7.1. Terms of Stock Bonus Awards . The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon. These restrictions may be based upon completion of a specified number of years of service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Stock Bonus Agreement. Prior to the grant of any Stock Bonus Award the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria.

7.2. Form of Payment to Participant . Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, as determined in the sole discretion of the Committee.

7.3. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

8. STOCK APPRECIATION RIGHTS . A Stock Appreciation Right (“ SAR ”) is an award to an eligible Employee, Consultant, or Director that may be settled in cash, or Shares (which may consist of Restricted Stock), having a value equal to (a) the difference between the Fair Market Value on the date of exercise over the Exercise Price multiplied by (b) the number of Shares with respect to which the SAR is being settled (subject to any maximum number of Shares that may be issuable as specified in an Award Agreement). All SARs shall be made pursuant to an Award Agreement.

 

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8.1. Terms of SARs . The Committee will determine the terms of each SAR including, without limitation: (a) the number of Shares subject to the SAR; (b) the Exercise Price and the time or times during which the SAR may be settled; (c) the consideration to be distributed on settlement of the SAR; and (d) the effect of the Participant’s termination of Service on each SAR. The Exercise Price of the SAR will be determined by the Committee when the SAR is granted, and may not be less than Fair Market Value on the date of grant. A SAR may be awarded upon satisfaction of Performance Factors, if any, during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the SAR is being earned upon the satisfaction of Performance Factors, then the Committee will: (i) determine the nature, length and starting date of any Performance Period for each SAR; and (ii) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different Performance Factors and other criteria.

8.2. Exercise Period and Expiration Date . A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The SAR Agreement shall set forth the expiration date; provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted. The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of the Shares subject to the SAR as the Committee determines. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee). Notwithstanding the foregoing, the rules of Section 5.6 also will apply to SARs.

8.3. Form of Settlement . Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (a) the difference between the Fair Market Value of a Share on the date of exercise over the Exercise Price; times (b) the number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment from the Company for the SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The portion of a SAR being settled may be paid currently or on a deferred basis with such interest or Dividend Equivalent Right, if any, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code.

8.4. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

9. RESTRICTED STOCK UNITS . A Restricted Stock Unit (“ RSU ”) is an award to an eligible Employee, Consultant, or Director covering a number of Shares that may be settled in cash or by issuance of those Shares (which may consist of Restricted Stock). No Purchase Price shall apply to an RSU settled in Shares. All RSUs shall be made pursuant to an Award Agreement.

9.1. Terms of RSUs . The Committee will determine the terms of an RSU including, without limitation: (a) the number of Shares subject to the RSU; (b) the time or times during which the RSU may be settled; (c) the consideration to be distributed on settlement; and (d) the effect of the Participant’s termination of Service on each RSU; provided that no RSU shall have a term longer than ten (10) years. An RSU may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participant’s Award Agreement. If the RSU is being earned upon satisfaction of Performance Factors, then the Committee will: (i) determine the nature, length and starting date of any Performance Period for the RSU; (ii) select from among the Performance Factors to be used to measure the performance, if any; and (iii) determine the number of Shares deemed subject to the RSU. Performance Periods may overlap and participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria.

 

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9.2. Form and Timing of Settlement . Payment of earned RSUs shall be made as soon as practicable after the date(s) determined by the Committee and set forth in the Award Agreement. The Committee, in its sole discretion, may settle earned RSUs in cash, Shares, or a combination of both. The Committee may also permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code.

9.3. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

9.4. Dividend Equivalent Payments . The Committee may permit Participants holding RSUs to receive dividend equivalent payments on outstanding RSUs if and when dividends are paid to stockholders on Shares. In the discretion of the Committee, such dividend equivalent payments may be paid in cash or Shares and they may either be paid at the same time as dividend payments are made to stockholders or delayed until Shares are issued pursuant to the RSU grants and may be subject to the same vesting or performance requirements as the RSUs. If the Committee permits dividend equivalent payments to be made on RSUs, the terms and conditions for such dividend equivalent payments will be set forth in the RSU Agreement.

10. PERFORMANCE AWARDS . A Performance Award is an award to an eligible Employee, Consultant, or Director that is based upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee, and may be settled in cash, Shares (which may consist of, without limitation, Restricted Stock), other property, or any combination thereof. Grants of Performance Awards shall be made pursuant to an Award Agreement that cites Section 10 of the Plan.

10.1. Types of Performance Awards . Performance Awards shall include Performance Shares, Performance Units, and cash-based Awards as set forth in Sections 10.1(a), 10.1(b), and 10.1(c) below.

(a) Performance Shares . The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award.

(b) Performance Units . The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award.

(c) Cash-Settled Performance Awards . The Committee may also grant cash-settled Performance Awards to Participants under the terms of this Plan.

The amount to be paid under any Performance Award may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.

10.2. Terms of Performance Awards . Performance Awards will be based on the attainment of performance goals using the Performance Factors within this Plan that are established by the Committee for the relevant Performance Period. The Committee will determine, and each Award Agreement shall set forth, the terms of each Performance Award including, without limitation: (a) the amount of any cash bonus, (b) the number of Shares deemed subject to an award of Performance Shares; (c) the Performance Factors and Performance Period that shall determine the time and extent to which each award of Performance Shares shall be settled; (d) the consideration to be distributed on settlement, and (e) the effect of the Participant’s termination of Service on each Performance Award. In establishing Performance Factors and the Performance Period the Committee will: (i) determine the nature, length and starting date of any

 

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Performance Period; (ii) select from among the Performance Factors to be used; and (z) determine the number of Shares deemed subject to the award of Performance Shares. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. Prior to settlement the Committee shall determine the extent to which Performance Awards have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Awards that are subject to different Performance Periods and different performance goals and other criteria.

10.3. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).

11. PAYMENT FOR SHARE PURCHASES . Payment from a Participant for Shares acquired pursuant to this Plan may be made in cash or cash equivalents or, where approved for the Participant by the Committee and where permitted by law (and to the extent not otherwise set forth in the applicable Award Agreement):

(a) by cancellation of indebtedness of the Company owed to the Participant;

(b) by surrender of shares of Company common stock held by the Participant that are clear of all liens, claims, encumbrances or security interests that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Award will be exercised or settled;

(c) by waiver of compensation due or accrued to the Participant for services rendered or to be rendered to the Company or a Parent, Subsidiary or Affiliate;

(d) by consideration received by the Company pursuant to a broker-assisted or other form of cashless exercise program implemented by the Company in connection with the Plan;

(e) by any combination of the foregoing; or

(f) by any other method of payment as is permitted by applicable law.

The Committee may limit the availability of any method of payment, to the extent the Committee determines, in its discretion, that such limitation is necessary or advisable to comply with applicable law or facilitate the administration of the Plan.

12. GRANTS TO NON-EMPLOYEE DIRECTORS . Non-Employee Directors are eligible to receive any type of Award offered under this Plan except ISOs. Awards pursuant to this Section 12 may be automatically made pursuant to policy adopted by the Board, or made from time to time as determined in the discretion of the Board. No Non-Employee Director may receive Awards under the Plan that, when combined with cash compensation received for service as a Non-Employee Director, exceeds $750,000 in a calendar year, increased to $1,250,000 in the calendar year of his or her initial services as a Non-Employee Director. Grant date fair value for purposes of Awards to Non-Employee Directors under the Plan will be determined as follows: (a) for Options and SARs, grant date fair value will be calculated using the Black-Scholes valuation methodology on the date of grant of such Option or SAR and (b) for all other Awards, grant date fair value will be determined by either (i) calculating the product of the Fair Market Value per Share on the date of grant and the aggregate number of Shares subject to the Award or (ii) calculating the product using an average of the Fair Market Value over a number of trading days and the aggregate number of Shares subject to the Award. Awards granted to an individual while he or she was serving in the capacity as an Employee or while he or she was a Consultant but not a Non-Employee Director will not count for purposes of the limitations set forth in this Section 12.

 

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12.1. Eligibility . Awards pursuant to this Section 12 shall be granted only to Non-Employee Directors. A Non-Employee Director who is elected or re-elected as a member of the Board will be eligible to receive an Award under this Section 12.

12.2. Vesting, Exercisability and Settlement . Except as set forth in Section 21, Awards shall vest, become exercisable and be settled as determined by the Board. With respect to Options and SARs, the exercise price granted to Non-Employee Directors shall not be less than the Fair Market Value of the Shares at the time that such Option or SAR is granted.

13. WITHHOLDING TAXES . Prior to any relevant taxable or tax withholding events in connection with the Awards under this Plan, the Company may require the Participant to pay or make adequate arrangements satisfactory to the Company with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account and other tax-related items related to the Participant’s participation in this Plan and legally applicable to the Participant (collectively, “ Tax-Related Obligations ”). The Committee may, in its sole discretion and pursuant to such procedures as it may specify from time to time, require or permit a Participant to satisfy withholding obligations for such Tax-Related Obligations, in whole or in part by (without limitation) (a) paying cash, (b) having the Company withhold otherwise deliverable cash or Shares having a value equal to the Tax-Related Obligations to be withheld, (c) delivering to the Company already-owned Shares having a value equal to the Tax-Related Obligations to be withheld, or (d) withholding from proceeds of the sale of Shares issued pursuant to an Award either through a voluntary sale or through a mandatory sale arranged by the Company, provided that, in all instances, the satisfaction of the Tax-Related Obligations will not result in any adverse accounting consequence to the Company, as the Committee may determine in its sole discretion. The Company may withhold or account for these Tax-Related Obligations by considering applicable statutory withholding rates or other applicable withholding rates, including maximum rates for the applicable tax jurisdiction to the extent consistent with applicable laws. Unless otherwise determined by the Committee, the Fair Market Value of the Shares will be determined as of the date that the taxes are required to be withheld and such Shares shall be valued based on the value of the actual trade or, if there is none, the Fair Market Value of the Shares as of the previous trading day.

14. TRANSFERABILITY .

14.1. Transfer Generally . Unless determined otherwise by the Committee or pursuant to Section 14.2, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. If the Committee makes an Award transferable, including, without limitation, by instrument to an inter vivos or testamentary trust in which the Awards are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift or by domestic relations order to a Permitted Transferee, such Award will contain such additional terms and conditions as the Committee deems appropriate. All Awards shall be exercisable: (a) during the Participant’s lifetime only by (i) the Participant, or (ii) the Participant’s guardian or legal representative; (b) after the Participant’s death, by the legal representative of the Participant’s heirs or legatees; and (c) in the case of all awards except ISOs, by a Permitted Transferee.

14.2. Award Transfer Program . Notwithstanding any contrary provision of the Plan, the Committee shall have all discretion and authority to determine and implement the terms and conditions of any Award Transfer Program instituted pursuant to this Section 14.2 and shall have the authority to amend the terms of any Award participating, or otherwise eligible to participate in, the Award Transfer Program, including (but not limited to) the authority to (a) amend (including to extend) the expiration date, post-termination exercise period and/or forfeiture conditions of any such Award, (b) amend or remove any provisions of the Award relating to the Award holder’s continued Service to the Company or its Parent, Subsidiary, or Affiliate, (c) amend the permissible payment methods with respect to the exercise or purchase of any such Award, (d) amend the adjustments to be implemented in the event of changes in the capitalization and other similar events with respect to such Award, and (e) make such other changes to the terms of such Award as the Committee deems necessary or appropriate in its sole discretion.

 

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15. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES .

15.1. Voting and Dividends . No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant, except for any Dividend Equivalent Rights permitted by an applicable Award Agreement. In addition, the Committee may provide that any Dividend Equivalent Rights permitted by an applicable Award Agreement shall be deemed to have been reinvested in additional Shares or otherwise reinvested. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided , further , that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant’s Purchase Price or Exercise Price, as the case may be, pursuant to Section 15.2. However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Shares underlying an Award during the period beginning on the date the Award is granted and ending, with respect to each Share subject to the Award, on the earlier of the date on which the Award is exercised or settled or the date on which it is forfeited. Such Dividend Equivalent Rights, if any, shall be credited to the Participant in the form of additional whole Shares as of the date of payment of such cash dividends on Shares. Notwithstanding the foregoing, dividends and Dividend Equivalent Rights may accrue with respect to unvested Awards, but will not be paid or issued until such Award is fully vested and the Shares are issued to Participant and such Shares are no longer subject to any vesting requirements or repurchase rights on behalf of the Company.

15.2. Restrictions on Shares . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) a right to repurchase (a “ Right of Repurchase ”) a portion of any or all Unvested Shares held by a Participant following such Participant’s termination of Service at any time within ninety (90) days (or such longer or shorter time determined by the Committee) after the later of the date Participant’s Service terminates and the date the Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant’s Purchase Price or Exercise Price, as the case may be.

16. CERTIFICATES . All Shares or other securities whether or not certificated, delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable U.S. federal, state or foreign securities law, or any rules, regulations and other requirements of any stock exchange or automated quotation system upon which the Shares may be listed or quoted and any non-U.S. exchange controls or securities law restrictions to which the Shares are subject.

17. ESCROW; PLEDGE OF SHARES . To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificate(s) representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificate(s). Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant’s obligation to the Company under the promissory note; provided , however , that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

 

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18. REPRICING; EXCHANGE AND BUYOUT OF AWARDS . Without prior stockholder approval, the Committee may (a) reprice Options or SARs (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided to them, notwithstanding any adverse tax consequences to them arising from the repricing), and (b) with the consent of the respective Participants (unless not required pursuant to Section 5.9 of the Plan), pay cash or issue new Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards.

19. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . An Award will not be effective unless such Award is in compliance with all applicable U.S. and foreign federal and state securities and exchange control laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares or to effect compliance with the registration, qualification or listing requirements of any foreign, national or state securities laws, exchange control laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

20. NO OBLIGATION TO EMPLOY . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate to terminate Participant’s employment or other relationship at any time.

21. CORPORATE TRANSACTIONS .

21.1. Assumption  or  Replacement  of  Awards  by Successor . In the event that the Company is subject to a Corporate Transaction, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Corporate Transaction, which need not treat all outstanding Awards in an identical manner. Such agreement, without the Participant’s consent, shall provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Corporate Transaction:

(a) The continuation of an outstanding Award by the Company (if the Company is the successor entity).

(b) The assumption of an outstanding Award by the successor or acquiring entity (if any) of such Corporate Transaction (or by its parents, if any), which assumption, will be binding on all selected Participants; provided that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code and/or Section 409A of the Code, as applicable.

(c) The substitution by the successor or acquiring entity in such Corporate Transaction (or by its parents, if any) of equivalent awards with substantially the same terms for such outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code and/or Section 409A of the Code, as applicable).

 

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(d) The full or partial acceleration of exercisability or vesting and accelerated expiration of an outstanding Award and lapse of the Company’s right to repurchase or re-acquire shares acquired under an Award or lapse of forfeiture rights with respect to shares acquired under an Award.

(e) The settlement of the full value of such outstanding Award (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its parent, if any) with a Fair Market Value equal to the required amount, followed by the cancellation of such Awards; provided however, that such Award may be cancelled if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participant’s continued service, provided that the vesting schedule shall not be less favorable to the Participant than the schedule under which the Award would have become vested or exercisable. For purposes of this Section 21.1(e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

(f) The cancellation of outstanding Awards in exchange for no consideration.

The Board shall have full power and authority to assign the Company’s right to repurchase or re-acquire or forfeiture rights to such successor or acquiring corporation. In addition, in the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, the Committee will notify the Participant in writing or electronically that such Award will be exercisable for a period of time determined by the Committee in its sole discretion, and such Award will terminate upon the expiration of such period. Awards need not be treated similarly in a Corporate Transaction.

21.2. Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged ( except that the Purchase Price or the Exercise Price, as the case may be, and the number and nature of Shares issuable upon exercise or settlement of any such Award will be adjusted appropriately pursuant to Section 424(a) of the Code and/or Section 409A of the Code, as applicable). In the event the Company elects to grant a new Option in substitution rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. Substitute Awards shall not be deducted from the number of Shares authorized for grant under the Plan or authorized for grant to a Participant in a calendar year.

21.3. Non-Employee Directors’ Awards . Notwithstanding any provision to the contrary herein, in the event of a Corporate Transaction, the vesting of all Awards granted to Non-Employee Directors shall accelerate and such Awards shall become exercisable (as applicable) in full prior to the consummation of such event at such times and on such conditions as the Committee determines.

22. ADOPTION AND STOCKHOLDER APPROVAL . This Plan shall be submitted for the approval of the Company’s stockholders, consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board.

 

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23. TERM OF PLAN/GOVERNING LAW . Unless earlier terminated as provided herein, this Plan will become effective on the Effective Date and will terminate ten (10) years from the date this Plan is adopted by the Board. This Plan and all Awards granted hereunder shall be governed by and construed in accordance with the laws of the State of Delaware (excluding its conflict of law rules).

24. AMENDMENT OR TERMINATION OF PLAN . The Board may at any time terminate or amend this Plan in any respect, including, without limitation, amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided , however , that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval; provided further , that a Participant’s Award shall be governed by the version of this Plan then in effect at the time such Award was granted. No termination or amendment of the Plan shall affect any then-outstanding Award unless expressly provided by the Committee; in any event, no termination or amendment of the Plan or any outstanding Award may adversely affect any then outstanding Award without the consent of the Participant, unless such termination or amendment is necessary to comply with applicable law, regulation or rule.

25. NON-EXCLUSIVITY OF THE PLAN . Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

26. INSIDER TRADING POLICY . Each Participant who receives an Award shall comply with any policy adopted by the Company from time to time covering transactions in the Company’s securities by Employees, officers and/or directors of the Company, as well as with any applicable insider trading or market abuse laws to which the Participant may be subject.

27. ALL AWARDS SUBJECT TO COMPANY CLAWBACK OR RECOUPMENT POLICY . All Awards shall, subject to applicable law, be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or the Committee or required by law during the term of Participant’s employment or other service with the Company that is applicable to executive officers, employees, directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law, may require the cancelation of outstanding Awards and the recoupment of any gains realized with respect to Awards.

28. DEFINITIONS . As used in this Plan, and except as elsewhere defined herein, the following terms will have the following meanings:

28.1. Affiliate ” means any person or entity that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, including any general partner, managing member, officer or director of the Company, in each case as of the date on which, or at any time during the period for which, the determination of affiliation is being made. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such person or entity, whether through the ownership of voting securities or by contract or otherwise.

28.2. Award ” means any award under the Plan, including any Option, Restricted Stock, Stock Bonus, Stock Appreciation Right, Restricted Stock Unit or award of Performance Shares.

 

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28.3. Award Agreement ” means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award, and country-specific appendix thereto for grants to non-U.S. Participants, which shall be in substantially a form (which need not be the same for each Participant) that the Committee (or in the case of Award agreements that are not used for Insiders, the Committee’s delegate(s)) has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.

28.4. Award Transfer Program ” means any program instituted by the Committee which would permit Participants the opportunity to transfer any outstanding Awards to a financial institution or other person or entity approved by the Committee.

28.5. Board ” means the Board of Directors of the Company.

28.6. Cause ” means Participant’s (a) willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (b) commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (c) unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; (d) misappropriation of a business opportunity of the Company; (e) provision of material aid to a competitor of the Company; or (f) willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant’s Service is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time as provided in Section 20 above, and the term “Company” will be interpreted to include any Subsidiary or Parent, as appropriate. Notwithstanding the foregoing, the definition of “Cause” may, in part or in whole, be modified or replaced in each individual employment agreement, Award Agreement or other applicable agreement with any Participant, provided that such document supersedes the definition provided in this Section 28.6.

28.7. Code ” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

28.8. Committee ” means the Compensation Committee of the Board or those persons to whom administration of the Plan, or part of the Plan, has been delegated as permitted by law.

28.9. Company ” means Bloom Energy Corporation or any successor corporation.

28.10. Consultant ” means any natural person, including an advisor or independent contractor, engaged by the Company or a Parent, Subsidiary or Affiliate to render services to such entity.

28.11. Corporate Transaction ” means the occurrence of any of the following events:

(a) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then-outstanding voting securities; provided, however, that for purposes of this subclause (a) the acquisition of additional securities by any one Person who is considered to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be considered a Corporate Transaction;

(b) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

 

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(c) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation;

(d) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the capital stock of the Company) or

(e) a change in the effective control of the Company that occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by members of the Board whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purpose of this subclause (e), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Corporate Transaction.

For purposes of this definition, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, to the extent that any amount constituting deferred compensation (as defined in Section 409A of the Code) would become payable under this Plan by reason of a Corporate Transaction, such amount shall become payable only if the event constituting a Corporate Transaction would also qualify as a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, each as defined within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and IRS guidance that has been promulgated or may be promulgated thereunder from time to time.

28.12. Director ” means a member of the Board.

28.13. Disability ” means in the case of incentive stock options, total and permanent disability as defined in Section 22(e)(3) of the Code and in the case of other Awards, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

28.14. Dividend Equivalent Right ” means the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash, stock or other property dividends in amounts equal equivalent to cash, stock or other property dividends for each Share represented by an Award held by such Participant.

28.15. Effective Date ” means the first trading day immediately following the date on which the registration statement covering the initial public offering of the Shares is declared effective by the U.S. Securities and Exchange Commission, provided that the Board has adopted the Plan prior to, or on such date, subject to approval of the Plan by the Company’s stockholders.

28.16. Employee ” means any person, including Officers and Directors, employed by the Company or any Parent, Subsidiary or Affiliate. For the avoidance of doubt, neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company and the definition of “Employee” herein shall not include Non-Employee Directors.

 

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28.17. Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.

28.18. Exchange Program ” means a program pursuant to which (a) outstanding Awards are surrendered, cancelled or exchanged for cash, the same type of Award or a different Award (or combination thereof) or (b) the exercise price of an outstanding Award is increased or reduced.

28.19. Exercise Price ” means, with respect to an Option, the price at which a holder may purchase the Shares issuable upon exercise of an Option and with respect to a SAR, the price at which the SAR is granted to the holder thereof.

28.20. Fair Market Value ” means, as of any date, the value of a share of the Company’s common stock determined as follows:

(a) if such common stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the common stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Committee may determine;

(b) if such common stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

(c) if none of the foregoing is applicable, by the Board or the Committee in good faith.

Notwithstanding the foregoing, with respect to any Award granted after the effectiveness of the Company’s registration statement relating to its initial public offering and prior to the first date upon which the Shares of the Company are listed (or approved for listing) on any securities exchange or designated (or approved for designation) as a national market security on an interdealer quotation system, the Fair Market Value shall mean the initial public offering price of a Share as set forth in the Company’s final prospectus relating to its initial public offering.

28.21. Insider ” means an officer or director of the Company or any other person whose transactions in the Company’s common stock are subject to Section 16 of the Exchange Act.

28.22. IRS ” means the United States Internal Revenue Service.

28.23. Non-Employee Director ” means a Director who is not an Employee of the Company or any Parent, Subsidiary or Affiliate.

28.24. Option ” means an award of an option to purchase Shares pursuant to Section 5.

28.25. Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

28.26. Participant ” means a person who holds an Award under this Plan.

28.27. Performance Award means an award covering cash, Shares or other property granted pursuant to Section 10 or Section 12 of the Plan.

 

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28.28. Performance Factors means any of the factors selected by the Committee and specified in an Award Agreement, from among the following objective measures, either individually, alternatively or in any combination, applied to the Company as a whole or any business unit or Subsidiary, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable on an absolute basis or relative to a pre-established target, to determine whether the performance goals established by the Committee with respect to applicable Awards have been satisfied:

(a) Profit Before Tax;

(b) Sales;

(c) Expenses;

(d) Billings;

(e) Revenue;

(f) Net revenue;

(g) Earnings (which may include earnings before interest and taxes, earnings before taxes, net earnings, stock-based compensation expenses, depreciation and amortization);

(h) Operating income;

(i) Operating margin;

(j) Operating profit;

(k) Controllable operating profit, or net operating profit;

(l) Net Profit;

(m) Gross margin;

(n) Operating expenses or operating expenses as a percentage of revenue;

(o) Net income;

(p) Earnings per share;

(q) Total stockholder return;

(r) Market share;

(s) Return on assets or net assets;

(t) The Company’s stock price;

(u) Growth in stockholder value relative to a pre-determined index;

(v) Return on equity;

(w) Return on invested capital;

(x) Cash Flow (including free cash flow or operating cash flows)

 

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(y) Balance of cash, cash equivalents and marketable securities;

(z) Cash conversion cycle;

(aa) Economic value added;

(bb) Individual confidential business objectives;

(cc) Contract awards or backlog;

(dd) Overhead or other expense reduction;

(ee) Credit rating;

(ff) Completion of an identified special project;

(gg) Completion of a joint venture or other corporate transaction;

(hh) Strategic plan development and implementation;

(ii) Succession plan development and implementation;

(jj) Improvement in workforce diversity;

(kk) Employee satisfaction;

(ll) Employee retention;

(mm) Customer indicators and/or satisfaction;

(nn) New product invention or innovation;

(oo) Research and development expenses;

(pp) Attainment of research and development milestones;

(qq) Improvements in productivity;

(rr) Bookings;

(ss) Working-capital targets and changes in working capital;

(tt) Attainment of objective operating goals and employee metrics; and

(uu) Any other metric that is capable of measurement as determined by the Committee.

The Committee may, in recognition of unusual or non-recurring items such as acquisition-related activities or changes in applicable accounting rules, provide for one or more equitable adjustments (based on objective standards) to the Performance Factors to preserve the Committee’s original intent regarding the Performance Factors at the time of the initial award grant. It is within the sole discretion of the Committee to make or not make any such equitable adjustments.

 

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28.29. Performance Period ” means one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Factors will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Award.

28.30. Performance Share ” means an Award granted pursuant to Section 10 or Section 12 of the Plan, consisting of a unit valued by reference to a designated number of Shares, the value of which may be paid to the Participant by delivery of Shares or, if set forth in the instrument evidencing the Award, of such property as the Committee shall determine, including, without limitation, cash, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee.

28.31. Performance Unit” means an Award granted pursuant to Section 10 or Section 12 of the Plan, consisting of a unit valued by reference to a designated amount of property other than Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee.

28.32. Permitted Transferee ” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) of the Employee, any person sharing the Employee’s household (other than a tenant or employee), a trust in which these persons (or the Employee) have more than 50% of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than 50% of the voting interests.

28.33. Plan ” means this Bloom Energy Corporation 2018 Equity Incentive Plan.

28.34. Purchase Price ” means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option or SAR.

28.35. Restricted  Stock  Award ” means an award of Shares pursuant to Section 6 or Section 12 of the Plan, or issued pursuant to the early exercise of an Option.

28.36. Restricted Stock Unit ” means an Award granted pursuant to Section 9 or Section 12 of the Plan.

28.37. Service ” shall mean service as an Employee, Consultant, Director or Non-Employee Director, subject to such further limitations as may be set forth in the Plan or the applicable Award Agreement. An Employee will not be deemed to have ceased to provide Service in the case of any leave of absence approved by the Company. In the case of any Employee on an approved leave of absence or a reduction in hours worked (for illustrative purposes only, a change in schedule from that of full-time to part-time), the Committee may make such provisions respecting suspension of or modification to vesting of the Award while on leave from the employ of the Company or a Parent, Subsidiary or Affiliate or during such change in working hours as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the applicable Award Agreement. In the event of military or other protected leave, if required by applicable laws, vesting shall continue for the longest period that vesting continues under any other statutory or Company approved leave of absence and, upon a Participant’s returning from such leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act or other applicable law), he or she shall be given vesting credit with respect to Awards to the same extent as would have applied had the Participant continued to provide Service to the Company throughout the leave on the same terms as he or she was providing Service immediately prior to such leave. An employee shall have terminated

 

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employment as of the date he or she ceases to provide Service (regardless of whether the termination is in breach of local employment laws or is later found to be invalid) and employment shall not be extended by any notice period or garden leave mandated by local law, provided , however , that a change in status between an Employee, Consultant, Director or Non-Employee Director shall not terminate the service provider’s Service, unless determined by the Committee, in its discretion. The Committee will have sole discretion to determine whether a Participant has ceased to provide Service and the effective date on which the Participant ceased to provide Service.

28.38. Shares ” means shares of Class A common Stock of the Company and the common stock of any successor entity.

28.39. Stock Appreciation Right ” means an Award granted pursuant to Section 8 or Section 12 of the Plan.

28.40. Stock  Bonus ” means an Award granted pursuant to Section 7 or Section 12 of the Plan.

28.41. Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

28.42. Treasury Regulations ” means regulations promulgated by the United States Treasury Department.

28.43. Unvested Shares ” means Shares that have not yet vested or are subject to a right of repurchase in favor of the Company (or any successor thereto).

 

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NOTICE OF STOCK OPTION GRANT

(GLOBAL)

BLOOM ENERGY CORPORATION

2018 EQUITY INCENTIVE PLAN

GRANT NUMBER: __________

Unless otherwise defined herein, the terms defined in the Bloom Energy Corporation (the “ Company ”) 2018 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Option Grant (the “ Notice of Grant ”) and the attached Stock Option Agreement, including the Appendix attached hereto (the “ Appendix ”), which is generally applicable to you if you live or work outside the United States, and any special terms and conditions for your country set forth therein (collectively, the “ Option Agreement ”). You have been granted an Option to purchase Shares under the Plan subject to the terms and conditions of the Plan, this Notice of Grant and the Option Agreement.

 

Name:

 

 

Address:

 

 

Number of Shares:

 

 

Exercise Price Per Share:

 

 

Date of Grant:

 

 

Vesting Commencement Date:

 

 

Type of Option :

  _____ Non-Qualified Stock Option
  _____ Incentive Stock Option

Expiration Date :

  _____________; subject to earlier expiration as provided in the Plan or the Option Agreement.

Vesting Schedule:

  [Sample vesting language:] [This Option becomes exercisable with respect to the first 25% of the Shares subject to this Option when you complete 12 months of continuous Service from the Vesting Commencement Date. Thereafter, this Option becomes exercisable with respect to an additional 1/48 th of the Shares subject to this Option when you complete each month of Service.] [Note: actual vesting language to match vesting schedule approved by the Board or Committee]

This Notice of Grant may be executed and delivered electronically, whether via the Company’s intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By accepting this Option, you consent to the electronic delivery and acceptance as further set forth in the Option Agreement. You acknowledge that the vesting of the Option pursuant to this Notice of Grant is earned only by continuing Service, but you understand that your employment or consulting relationship with the Company or a Parent, Subsidiary or Affiliate can be terminated and that nothing in this Notice of Grant, the Option Agreement or the Plan changes the nature of that relationship. By accepting this Option, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, this Notice of Grant and the Option Agreement.

 

PARTICIPANT     BLOOM ENERGY CORPORATION
Signature:         By:    
Print Name:         Its:    

 


S TOCK O PTION A GREEMENT

BLOOM ENERGY CORPORATION 2018

EQUITY INCENTIVE PLAN

You have been granted an Option by Bloom Energy Corporation (the “ Company ”) under the 2018 Equity Incentive Plan (the “ Plan ”) to purchase Shares (the “ Option ”), subject to the terms, restrictions and conditions of the Plan, the Notice of Stock Option Grant (the “ Notice of Grant ”) and this Stock Option Agreement, including the Appendix, which is generally applicable to you if you live or work outside the United States, and any special terms and conditions for your country set forth therein (collectively, the “ Agreement ”).

1.        Grant of Option . You have been granted the Option for the number of Shares set forth in the Notice of Grant at the Exercise Price per Share set forth in the Notice of Grant. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail.

If designated in the Notice of Grant as an Incentive Stock Option (“ ISO ”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 limit under Code Section 422(d), it shall be treated as a Nonqualified Stock Option (“ NSO ”).

2.        Termination .

(a)     General Rule . If your Service terminates for any reason except death or Disability, and other than for Cause, then this Option will expire at the close of business at Company headquarters on the date three months after your termination of Service (subject to the expiration detailed in Section 6 or as provided in the Plan). If your Service is terminated for Cause, this Option will expire upon the date of such termination.

You acknowledge and agree that the vesting schedule set forth in the Notice of Grant may change prospectively in the event that your service status changes between full and part-time status in accordance with Company policies relating to work schedules and vesting of awards. You acknowledge that the vesting of the Shares pursuant to this Agreement is earned only by continuing Service.

(b)     Death; Disability . If you die before your Service terminates (or you die within three months of your termination of Service other than for Cause), then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of death (subject to the expiration detailed in Section 6 or as provided in the Plan). If your Service terminates because of your Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after your termination date (subject to the expiration detailed in Section 6 or as provided in the Plan).

(c)     Termination Date . For purposes of this Option, your Service will be considered terminated as of the date you are no longer actively providing Service (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where you are employed or engaged or the terms of your employment or consulting agreement, if any), and your period of Service will not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where you are employed or engaged or the terms of your employment or consulting agreement, if any. In case of any dispute as to whether and when your termination of Service has occurred for purposes of this Option, the Committee shall have the sole discretion to determine whether such termination has occurred (including whether you may still be considered to be providing Service while on a leave of absence) and the effective date of such termination.

 

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(d)     No Notice . You are responsible for keeping track of these exercise periods following your termination of Service for any reason. The Company is not obligated to provide further notice of such periods and you should not depend on the Company or the Plan Broker (as defined below) providing any such notice (even if such notices have been provided in the past or are provided in some but not all termination circumstances). In no event shall this Option be exercised later than the Expiration Date set forth in the Notice of Grant.

3.        Exercise of Option .

(a)     Right to Exercise . This Option is exercisable during its term in accordance with the vesting schedule set forth in the Notice of Grant and the applicable provisions of the Plan and this Agreement. In the event of your death, Disability, or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice of Grant and this Agreement. This Option may not be exercised for a fraction of a Share.

(b)     Method of Exercise . This Option is exercisable by delivery of an exercise notice in a form specified by the Company (the “ Exercise Notice ”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “ Exercised Shares ”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice accompanied by the aggregate Exercise Price and any applicable Tax-Related Items that are required to be withheld as detailed in Section 8 below.

(c)     Exercise by Another . If another person wants to exercise this Option after it has been transferred to him or her in compliance with this Agreement, that person must prove to the Company’s satisfaction that he or she is entitled to exercise this Option. That person must also complete the proper Exercise Notice form (as described above) and pay the Exercise Price (as described below) and any applicable Tax-Related Items that are required to be withheld as described in Section 8 below.

4.        Method of Payment . Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at your election:

(a)    your personal check, wire transfer, or a cashier’s check;

(b)    for U.S. taxpayers only: certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company; the value of the shares, determined as of the effective date of the Option exercise, will be applied to the Exercise Price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Exercised Shares issued to you. However, you may not surrender, or attest to the ownership of, shares of Company stock in payment of the Exercise Price of your Option if your action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes;

(c)    cashless exercise through irrevocable directions to a securities broker approved by the Company to sell all or part of the Exercised Shares and to deliver to the Company from the sale proceeds an amount sufficient to pay the Exercise Price and any applicable Tax-Related Items that are required to be withheld. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special notice of exercise form provided by the Company; or

 

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(d)    other method authorized by the Company;

subject to any restrictions set forth in the Appendix or required by the Company for legal or administrative reasons.

5.        Non-Transferability of Option . In general, except as provided below, only you may exercise this Option prior to your death. You may not transfer or assign this Option, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid.

However, if you are a U.S. taxpayer, you may dispose of this Option in your will. If you are a U.S. taxpayer and this Option is designated as a NSO in the Notice of Grant, then the Committee may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in- law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest. In addition, if you are a U.S. taxpayer and this Option is designated as a NSO in the Notice of Grant, then the Committee may, in its sole discretion, allow you to transfer this Option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights. The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.

This Option may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during your lifetime only by you, your guardian, or legal representative, as permitted in the Plan and applicable local laws. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of you.

6.        Term of Option . This Option shall in any event expire on the expiration date set forth in the Notice of Grant, which date is ten years after the grant date (five years after the grant date if this Option is designated as an ISO in the Notice of Grant and you are a Ten Percent Stockholder). You are responsible for keeping track of the expiration date. The Company is not obligated to provide notice of the expiration date and you should not depend on the Company or the Plan Broker (as defined below) providing any such notice (even if such notices have been provided in the past or are provided in some but not all circumstances).

7.        Tax Consequences . You should consult a tax adviser for tax consequences relating to this Option in the jurisdiction(s) in which you are subject to tax. YOU SHOULD CONSULT A TAX ADVISER BEFORE ACCEPTING THIS OPTION, EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a)     Exercising the Option . You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay Tax-Related Items that are required to be withheld as further described in Section 8 below.

(b)     Notice of Disqualifying Disposition of ISO Shares . If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition. You agree that you may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current compensation paid to you.

 

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8.        Responsibility for Taxes . Regardless of any action the Company or, if different, your employer (the “ Employer ”) take with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account and other tax-related items related to your participation in the Plan and legally applicable to you (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer. You further acknowledge that the Company and the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Option, including the grant, vesting or exercise of this Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Option to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. You acknowledge that if you are subject to Tax-Related Items in more than one jurisdiction, the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to any relevant taxable or tax withholding event, as applicable, you shall pay or make adequate arrangements to satisfy any withholding obligation the Company and/or the Employer may have for Tax-Related Items. In this regard, you authorize the Company and/or the Employer, and their respective agents, at their discretion, to withhold all applicable Tax-Related Items from your wages or other cash compensation paid to you by the Company and/or the Employer or by one or a combination of the following methods: (a) payment by you to the Company or the Employer of an amount equal to the Tax-Related Items in cash, (b) having the Company withhold otherwise deliverable cash or Shares having a value equal to the Tax-Related Items to be withheld, (c) delivering to the Company already-owned Shares having a value equal to the Tax-Related Items to be withheld, (d) withholding from proceeds of the sale of the Shares either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (e) any other arrangement approved by the Company and permissible under applicable law; in all cases, under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided, however, that if you are a Section 16 officer of the Company under the Exchange Act, then the method of withholding shall be a mandatory sale under (d) above (unless the Committee shall establish an alternate method prior to the taxable or withholding event).

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including up to the maximum applicable rate in your jurisdiction in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in Shares. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, you are deemed to have been issued the full number of Shares subject to the vested Options, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, you acknowledge that the Company has no obligation to deliver Shares or proceeds from the sale of Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

9.        Nature of Grant . In accepting this Option, you acknowledge, understand and agree that:

(a)    the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b)    the grant of this Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

 

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(c)    all decisions with respect to future stock options or other grants, if any, will be at the sole discretion of the Company;

(d)    you are voluntarily participating in the Plan;

(e)    this Option and any Shares acquired under the Plan, and the income from and value of same, are not intended to replace any pension rights or compensation;

(f)    this Option and any Shares acquired under the Plan, and the income from and value of same, are not part of normal or expected compensation or salary for any purpose including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, leave-related payments, pension or retirement benefits or payments or welfare benefits or similar mandatory payments;

(g)    unless otherwise agreed with the Company, this Option and any Shares acquired under the Plan, and the income from and value of same, are not granted as consideration for, or in connection with, any Service you may provide as a director of a Subsidiary or Affiliate;

(h)    the future value of the Shares underlying this Option is unknown, indeterminable, and cannot be predicted with certainty;

(i)    if the underlying Shares do not increase in value, this Option will have no value;

(j)    if you exercise this Option and acquire Shares, the value of such Shares may increase or decrease, even below the Exercise Price;

(k)    no claim or entitlement to compensation or damages shall arise from forfeiture of this Option resulting from the termination of your Service (for any reason whatsoever whether or not later found to be invalid or in breach of labor laws in the jurisdiction where you are providing Service or the terms of your employment or service agreement, if any); and

(l)    neither the Company, the Employer nor any Parent, Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of this Option or of any amounts due to you pursuant to the exercise of this Option or the Shares acquired upon exercise of this Option or the subsequent sale of any Shares acquired upon exercise.

10.      Data Privacy .

(a)     Declaration of Consent . By accepting this Option and indicating consent by signing this Agreement or via the Company’s online acceptance procedure, you are declaring that you agree with the data processing practices described herein and consent to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned below, including recipients located in countries which may not have a similar level of protection from the perspective of your country’s data protection law.

(b)     Data Collection and Usage . The Company and the Employer may collect, process and use certain personal information about you, including, but not limited to, your name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options granted under the Plan or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor (“Data”), for the purposes of implementing, administering and managing the Plan. The legal basis, where required, for the processing of Data is your consent.

 

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(c)     Stock Plan Administration Service Providers . The Company transfers Data to E*Trade Corporate Financial Services, Inc. and E*Trade Securities LLC (“Plan Broker”), an independent service provider based in the United States, which is assisting the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different service provider and share Data with such other provider serving in a similar manner. You may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the Plan.

(d)     International Data Transfers . The Company and its service providers are based in the United States. Your country or jurisdiction may have different data privacy laws and protections than the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis, where required, for the transfer of Data is your consent.

(e)     Data Retention . The Company will hold and use the Data only as long as is necessary to implement, administer and manage your participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax and security laws.

(f)     Voluntariness and Consequences of Consent Denial or Withdrawal . Participation in the Plan is voluntary and you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your salary from or employment and career with the Employer will not be affected; the only consequence of refusing or withdrawing your consent is that the Company would not be able to grant the Option under the Plan to you or administer or maintain your participation in the Plan.

(g)     Data Subject Right s . You may have a number of rights under data privacy laws in your jurisdiction. Depending on where you are based, such rights may include the right to (i)  request access or copies of Data the Company processes, (ii)  rectification of incorrect Data, (iii)  deletion of Data, (iv)  restrictions on processing of Data, (v)  portability of Data, (vi)  lodge complaints with competent authorities in your jurisdiction, and/or (vii)  receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, you understand that you can contact your local human resources representative.

11.      Acknowledgement . The Company and you agree that this Option is granted under and governed by the Notice of Grant, this Agreement and the provisions of the Plan. You: (i) acknowledge receipt of a copy of the Plan prospectus, (ii) represent that you have carefully read and are familiar with the provisions in the grant documents, and (iii) hereby accept this Option subject to all of the terms and conditions set forth in this Agreement and those set forth in the Notice of Grant. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice of Grant and this Agreement.

12.      Consent to Electronic Delivery and Acceptance of All Plan Documents and Disclosures . By your acceptance of this Option, you consent to the electronic delivery of the Notice of Grant, this Agreement, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its stockholders (including, without limitation, annual reports and proxy statements) or other communications or information related to this Option. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at __________. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy

 

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of any documents delivered electronically if electronic delivery fails. You agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at __________. Finally, you understand that you are not required to consent to electronic delivery.

13.      Compliance with Laws and Regulations . The exercise of this Option will be subject to and conditioned upon compliance by the Company and you with all applicable state, federal and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s common stock may be listed or quoted at the time of such issuance or transfer, which compliance the Company shall, in its absolute discretion, deem necessary or advisable. You understand that the Company is under no obligation to register or qualify the Company’s common stock with any state, federal or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, you agree that the Company shall have unilateral authority to amend the Plan and this Agreement without your consent to the extent necessary to comply with securities or other laws applicable to issuance of Shares. Finally, the Shares issued pursuant to this Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

14.      No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying Shares. You should consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.

15.      Governing Law; Venue . This Agreement, all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of laws. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice of Grant and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California in Santa Clara County, California or the federal courts of the United States for the Northern District of California and no other courts.

16.      Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.

17.      No Rights as Employee, Director or Consultant . Nothing in this Agreement shall create a right to employment or other Service or be interpreted as forming or amending an employment, service contract or relationship with the Company and this Agreement shall not affect in any manner whatsoever any right or power of the Company, or a Parent, Subsidiary or Affiliate, to terminate your Service, for any reason, with or without Cause.

18.      Adjustment . In the event of a stock split, a stock dividend or a similar change in Company stock, the number of Shares covered by this Option and the Exercise Price per Share may be adjusted pursuant to the Plan.

 

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19.      Lock-Up Agreement . In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, you hereby agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration), except pursuant to a transfer for no consideration in accordance with Section 5 above, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any Financial Industry Regulatory Authority (“ FINRA ”) rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

20.      Award Subject to Company Clawback or Recoupment . To the extent permitted by applicable law, the Option shall be subject to clawback or recoupment pursuant to any clawback or recoupment policy adopted by the Board or the Committee or required by law during the term of your employment or other Service that is applicable to you. In addition to any other remedies available under such policy, applicable law may require the cancellation of your Option (whether vested or unvested) and the recoupment of any gains realized with respect to your Option.

21.      Entire Agreement; Enforcement of Rights. This Agreement, the Plan and the Notice of Grant constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning this Option are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

22.      Insider Trading Restrictions/Market Abuse Laws . You acknowledge that, depending on the laws of applicable jurisdictions, including but not limited to your country and the United States, you may be subject to insider trading restrictions and/or market abuse laws, which may affect your ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares ( e . g ., Options) or rights linked to the value of Shares under the Plan during such times as you are considered to have “material non-public information” or “inside information” regarding the Company (as defined by the laws or regulations in the relevant jurisdictions). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You acknowledge that it is your responsibility to comply with any applicable restrictions, and you should speak to your personal advisor on this matter.

23.      Foreign Asset/Account Reporting . You acknowledge that there may be certain foreign asset and/or account reporting requirements which may affect your ability to purchase or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends paid on Shares acquired under the Plan) in a brokerage or bank account outside your country. You may be required to report such accounts, assets or transactions to the tax or other authorities in your country.

24.      Language . You acknowledge that you are proficient in the English language and understand the provisions in this Agreement and the Plan. If you have received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

 

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25.      Appendix . Notwithstanding any provisions in this Agreement, this Option shall be subject to the Appendix if you live or work outside the United States, including any special terms and conditions set forth therein for your country. Moreover, if you relocate to a country other than the United States, then the Appendix, including the special terms and conditions for such country, will apply to you to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement.

26.      Imposition of Other Requirements . The Company reserves the right to impose other requirements on your participation in the Plan, on this Option and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

27.      Waiver . You acknowledge that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by you or any other Participant.

BY ACCEPTING THIS OPTION, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

 

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A PPENDIX TO

S TOCK O PTION A GREEMENT

BLOOM ENERGY CORPORATION 2018

EQUITY INCENTIVE PLAN

Capitalized terms, unless explicitly defined in this Appendix, shall have the meanings given to them in the Agreement, the Notice of Grant or in the Plan.

Terms and Conditions

This Appendix includes special terms and conditions that govern this Option if you reside and/or work in one of the countries listed below. These terms and conditions supplement or replace (as indicated) the terms and conditions set forth in the Agreement. If you are a citizen or resident of a country other than the country in which you are currently residing and/or working (or are considered as such for local law purposes), or if you transfer to another country after receiving this Option, the Company shall, in its discretion, determine to what extent the special terms and conditions contained herein shall be applicable to you.

Notifications

This Appendix also includes information regarding securities, exchange control, tax and certain other issues of which you should be aware with respect to your participation in the Plan. The information is based on the securities, exchange control, tax and other laws in effect in the respective countries as of July 2018. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this Appendix as the only source of information relating to the consequences of your participation in the Plan because the information may be out of date at the time you exercise this Option or at the time you sell Shares acquired under the Plan.

In addition, the information contained herein is general in nature and may not apply to your particular situation, and the Company is not in a position to assure you of any particular result. Accordingly, you should seek appropriate professional advice as to how the relevant laws in your country may apply to your individual situation.

If you are a citizen or resident of a country other than the country in which you are currently residing and/or working (or are considered as such for local tax purposes), or if you transfer to another country after the grant of this Option, the information contained herein may not be applicable to you in the same manner.

I NDIA

Terms and Conditions

Method of Payment . This provision supplements Section 4 of the Agreement:

Due to exchange control restrictions in India, you will not be permitted to pay the aggregate Exercise Price using a cashless sell-to-cover exercise pursuant to which a portion of the Exercised Shares are sold upon exercise. The Company reserves the right to provide you with this method of payment depending on the development of exchange control laws in India and/or any applicable regulatory requirements.

You will be permitted to pay the aggregate Exercise Price using other methods of payment as permitted by the Company and set forth in Section 4 of the Agreement, including a cashless sell-all exercise pursuant to which all of the Exercised Shares are sold upon exercise.

 


Notifications

Exchange Control Notification . Any funds received pursuant to the Plan ( e.g., proceeds from the sale of Shares, cash dividends) must be repatriated to India and converted to local currency within a specified period of time after receipt as prescribed under Indian exchange control laws. A foreign inward remittance certificate (“ FIRC ”) will generally be provided from the bank where you deposit the foreign currency. You should maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation.

S OUTH K OREA

Notifications

Exchange Control Notification . To remit funds out of Korea to pay the aggregate Exercise Price in cash (or cash equivalent), you must obtain a confirmation of the remittance by a foreign exchange bank in Korea. This is an automatic procedure ( i . e ., the bank does not need to approve the remittance and the process should not take more than a single day). You likely will need to present the bank processing the transaction supporting documentation evidencing the nature of the remittance. You should check with the bank to determine whether there are any additional requirements. This confirmation is not necessary if you use a cashless exercise to pay the aggregate Exercise Price because there is no remittance of funds out of Korea in this case.

T AIWAN

Notifications

Securities Law Notification . The offer of participation in the Plan is available only for employees of the Company and any Parent, Subsidiary and Affiliate. The offer of participation in the Plan is not a public offer of securities by a Taiwanese company.

Exchange Control Notification . You may acquire and remit foreign currency out of Taiwan and/or repatriate foreign currency into Taiwan (including proceeds from the sale of Shares) up to USD 5,000,000 per year without justification. Remittance of funds for the purchase of Shares should be made through an authorized foreign exchange bank. If the transaction amount is TWD 500,000 or more in a single transaction, you must submit a Foreign Exchange Transaction Form. If the transaction amount is USD 500,000 or more in a single transaction, you must also provide supporting documentation to the satisfaction of the remitting bank.

U NITED S TATES

There are no country-specific provisions.

 

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NOTICE OF RESTRICTED STOCK UNIT AWARD

(GLOBAL)

BLOOM ENERGY CORPORATION

2018 EQUITY INCENTIVE PLAN

GRANT NUMBER: __________

Unless otherwise defined herein, the terms defined in the Bloom Energy Corporation (the “ Company ”) 2018 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Unit Award (the “ Notice ”) and the attached Restricted Stock Unit Agreement, including the Appendix attached hereto (the “ Appendix ”), which is generally applicable to you if you live or work outside the United States, and any special terms and conditions for your country set forth therein (collectively, the “ RSU Agreement ”). You have been granted an award of Restricted Stock Units (“ RSUs ”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached RSU Agreement.

 

Name:

 

 

Address:

 

 

Number of RSUs:

 

 

Date of Grant:

 

 

Vesting Commencement Date:

 

 

Expiration Date:

  The earlier to occur of: (a) the settlement of all vested RSUs granted hereunder and (b) the tenth anniversary of the Date of Grant. The RSUs are subject to earlier expiration as provided in the Plan or the RSU Agreement.

Vesting Schedule:

  [Sample vesting language:] [25% of the total number of RSUs will vest on the twelve month anniversary of the Vesting Commencement Date and 25% of the total number of RSUs will vest on each annual anniversary thereafter so long as your Service continues.][Note: actual vesting language to match vesting schedule approved by the Board or Committee]

This Grant Notice may be executed and delivered electronically, whether via the Company’s intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By accepting this award of RSUs, you consent to the electronic delivery and acceptance as further set forth in the RSU Agreement. You acknowledge that the vesting of the RSUs pursuant to this Notice is earned only by continuing Service, but you understand that your employment or consulting relationship with the Company or a Parent, Subsidiary or Affiliate can be terminated and that nothing in this Notice of Grant, the RSU Agreement or the Plan changes the nature of that relationship. By accepting this award, you and the Company agree that this award is granted under and governed by the terms and conditions of the Plan, this Notice and the RSU Agreement.

 

PARTICIPANT     BLOOM ENERGY CORPORATION
Signature:         By:    
Print Name:         Its:    

 


RESTRICTED STOCK UNIT AGREEMENT

BLOOM ENERGY CORPORATION

2018 EQUITY INCENTIVE PLAN

You have been granted Restricted Stock Units (“ RSUs ”) by Bloom Energy Corporation (the “ Company ”) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “ Notice ”) and this Restricted Stock Unit Agreement, including the Appendix, which is generally applicable to you if you live or work outside the United States, and any special terms and conditions for your country set forth therein (collectively, this “ RSU Agreement ”).

1.        Settlement . Settlement of RSUs shall be made in the same calendar year as the applicable date of vesting under the vesting schedule set forth in the Notice; provided, however, that if the vesting date under the vesting schedule set forth in the Notice is in December, then settlement of any RSUs that vest in December shall be within 30 days of vesting. Settlement of RSUs shall be in Shares. Settlement means the delivery to you of the Shares vested under the RSUs. Fractional Shares will not be issued.

2.        No Stockholder Rights . Unless and until such time as Shares are issued in settlement of vested RSUs, you shall have no ownership of the Shares allocated to the RSUs and shall have no right to dividends or to vote such Shares.

3.        Dividend Equivalents . Dividend equivalents, if any, shall not be credited to you, except as otherwise permitted by the Committee.

4.        No Transfer . RSUs may not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee.

5.        Termination . If your Service terminates for any reason, all unvested RSUs shall be forfeited to the Company forthwith, and all rights you have to such RSUs shall immediately terminate, without payment of any consideration to you. For purposes of this award of RSUs, your Service will be considered terminated as of the date you are no longer providing Service (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where you are employed or the terms of your employment or service agreement, if any) and will not be extended by any notice period mandated under local employment laws ( e.g. , Service would not include a period of “garden leave” or similar period). In case of any dispute as to whether and when your termination of Service has occurred for purposes of the RSUs, the Committee shall have sole discretion to determine whether such termination has occurred (including whether you may still be considered to be providing Services while on a leave of absence) and the effective date of such termination.

6.        Responsibility for Taxes . Regardless of any action the Company or, if different, your employer (the “ Employer ”) take with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account and other tax-related items related to your participation in the Plan and legally applicable to you (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer. You further acknowledge that the Company and the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant, vesting or settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends; and (b) do not commit to and are under no obligation to structure the terms of the award or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. You acknowledge that if you are subject to Tax-Related Items in more than one jurisdiction, the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

 

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Prior to any relevant taxable or tax withholding event, as applicable, you shall pay or make adequate arrangements to satisfy any withholding obligation the Company and/or the Employer may have for Tax-Related Items. In this regard, you authorize the Company and/or the Employer, and their respective agents, at their discretion, to withhold all applicable Tax-Related Items from your wages or other cash compensation paid to you by the Company and/or the Employer or by one or a combination of the following methods: (a) payment by you to the Company or the Employer of an amount equal to the Tax-Related Items in cash, (b) having the Company withhold otherwise deliverable cash or Shares having a value equal to the Tax-Related Items to be withheld, (c) delivering to the Company already-owned Shares having a value equal to the Tax-Related Items to be withheld, (d) withholding from proceeds of the sale of the Shares either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (e) any other arrangement approved by the Company and permissible under applicable law; in all cases, under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided, however, that if you are a Section 16 officer of the Company under the Exchange Act, then the method of withholding shall be a mandatory sale under (d) above (unless the Committee shall establish an alternate method prior to the taxable or withholding event).

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including up to the maximum applicable rate in your jurisdiction in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in Shares. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, you are deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, you acknowledge that the Company has no obligation to deliver Shares or proceeds from the sale of Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

7.        Nature of Grant . In accepting this award of RSUs, you acknowledge, understand and agree that:

(a)    the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b)    the grant of the RSUs is exceptional, voluntary and occasional and does not create any contractual or other right to receive future awards of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past;

(c)    all decisions with respect to future RSUs or other grants, if any, will be at the sole discretion of the Company;

(d)    you are voluntarily participating in the Plan;

(e)    the RSUs and the Shares subject to the RSUs, and the income from and value of same, are not intended to replace any pension rights or compensation;

(f)    the RSUs and the Shares subject to the RSUs, and the income from and value of same, are not part of normal or expected compensation or salary for any purpose including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, leave-related payments, pension or retirement benefits or payments or welfare benefits or similar mandatory payments;

 

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(g)    unless otherwise agreed with the Company, the RSUs and any Shares acquired under the Plan, and the income from and value of same, are not granted as consideration for, or in connection with, any Service you may provide as a director of a Subsidiary or Affiliate;

(h)    the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;

(i)    no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from the termination of your Service (for any reason whatsoever whether or not later found to be invalid or in breach of labor laws in the jurisdiction where you are providing Service or the terms of your employment or service agreement, if any); and

(j)    neither the Company, the Employer nor any Parent, Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the RSUs or the Shares acquired upon settlement of the RSUs or the amount received upon the subsequent sale of any Shares.

8.       Data Privacy .

(a)     Declaration of Consent . By accepting this award of RSUs and indicating consent by signing this RSU Agreement or via the Company’s online acceptance procedure, you are declaring that you agree with the data processing practices described herein and consent to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned below, including recipients located in countries which may not have a similar level of protection from the perspective of your country’s data protection law.

(b)     Data Collection and Usage . The Company and the Employer may collect, process and use certain personal information about you, including, but not limited to, your name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all RSUs granted under the Plan or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor (“Data”), for the purposes of implementing, administering and managing the Plan. The legal basis, where required, for the processing of Data is your consent.

(c)     Stock Plan Administration Service Providers . The Company transfers Data to E*Trade Corporate Financial Services, Inc. and E*Trade Securities LLC (“Plan Broker”), an independent service provider based in the United States, which is assisting the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different service provider and share Data with such other provider serving in a similar manner. You may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the Plan.

(d)     International Data Transfers . The Company and its service providers are based in the United States. Your country or jurisdiction may have different data privacy laws and protections than the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis, where required, for the transfer of Data is your consent.

(e)     Data Retention . The Company will hold and use the Data only as long as is necessary to implement, administer and manage your participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax and security laws.

 

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(f)     Voluntariness and Consequences of Consent Denial or Withdrawal . Participation in the Plan is voluntary and you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your salary from or employment and career with the Employer will not be affected; the only consequence of refusing or withdrawing your consent is that the Company would not be able to grant the RSUs under the Plan to you or administer or maintain your participation in the Plan.

(g)     Data Subject Right s . You may have a number of rights under data privacy laws in your jurisdiction. Depending on where you are based, such rights may include the right to (i)  request access or copies of Data the Company processes, (ii)  rectification of incorrect Data, (iii)  deletion of Data, (iv)  restrictions on processing of Data, (v)  portability of Data, (vi)  lodge complaints with competent authorities in your jurisdiction, and/or (vii)  receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, you understand that you can contact your local human resources representative.

9.        Acknowledgement . The Company and you agree that the RSUs are granted under and governed by the Notice, this RSU Agreement and the provisions of the Plan. You: (i) acknowledge receipt of a copy of the Plan prospectus, (ii) represent that you have carefully read and are familiar with the provisions in the grant documents, and (iii) hereby accept the RSUs subject to all of the terms and conditions set forth in this RSU Agreement and those set forth in the Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice and this RSU Agreement.

10.      Entire Agreement; Enforcement of Rights . This RSU Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the acquisition of the Shares hereunder are superseded. No modification of or amendment to this RSU Agreement, nor any waiver of any rights under this RSU Agreement, shall be effective unless in writing and signed by the parties to this RSU Agreement. The failure by either party to enforce any rights under this RSU Agreement shall not be construed as a waiver of any rights of such party.

11.      Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and you with all applicable state, federal and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s common stock may be listed or quoted at the time of such issuance or transfer, which compliance the Company shall, in its absolute discretion, deem necessary or advisable. You understand that the Company is under no obligation to register or qualify the Company’s common stock with any state, federal or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, you agree that the Company shall have unilateral authority to amend the Plan and this RSU Agreement without your consent to the extent necessary to comply with securities or other laws applicable to issuance of Shares. Finally, the Shares issued pursuant to this RSU Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

12.      No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying Shares. You should consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.

13.      Governing Law; Venue . This RSU Agreement, all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of laws. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this RSU Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California in Santa Clara County, California or the federal courts of the United States for the Northern District of California and no other courts.

 

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14.      Severability . If one or more provisions of this RSU Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this RSU Agreement, (ii) the balance of this RSU Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this RSU Agreement shall be enforceable in accordance with its terms.

15.      No Rights as Employee, Director or Consultant . Nothing in this RSU Agreement shall create a right to employment or other Service or be interpreted as forming or amending an employment, service contract or relationship with the Company and this RSU Agreement shall not affect in any manner whatsoever any right or power of the Company, or a Parent, Subsidiary or Affiliate, to terminate your Service, for any reason, with or without Cause.

16.      Consent to Electronic Delivery and Acceptance of All Plan Documents and Disclosures . By your acceptance of this award of RSUs, you consent to the electronic delivery of the Notice, this RSU Agreement, the Plan, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its stockholders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSUs. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at __________. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. You agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at __________. Finally, you understand that you are not required to consent to electronic delivery.

17.      Insider Trading Restrictions/Market Abuse Laws . You acknowledge that, depending on the laws of applicable jurisdictions, including but not limited to your country and the United States, you may be subject to insider trading restrictions and/or market abuse laws, which may affect your ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares ( e . g ., RSUs) or rights linked to the value of Shares under the Plan during such times as you are considered to have “material non-public information” or “inside information” regarding the Company (as defined by the laws or regulations in the relevant jurisdictions). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You acknowledge that it is your responsibility to comply with any applicable restrictions, and you should speak to your personal advisor on this matter.

18.      Foreign Asset/Account Reporting . You acknowledge that there may be certain foreign asset and/or account reporting requirements which may affect your ability to acquire Shares or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends paid on Shares acquired under the Plan) in a brokerage or bank account outside your country. You may be required to report such accounts, assets or transactions to the tax or other authorities in your country.

19.      Language . You acknowledge that you are proficient in the English language and understand the provisions in this RSU Agreement and the Plan. If you have received this RSU Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

 

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20.      Appendix . Notwithstanding any provisions in this RSU Agreement, this award of RSUs shall be subject to the Appendix if you live or work outside the United States, including any special terms and conditions set forth therein for your country. Moreover, if you relocate to a country other than the United States, then the Appendix, including the special terms and conditions for such country will, apply to you to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this RSU Agreement.

21.      Imposition of Other Requirements . The Company reserves the right to impose other requirements on your participation in the Plan, on the RSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

22.      Waiver . You acknowledge that a waiver by the Company of breach of any provision of this RSU Agreement shall not operate or be construed as a waiver of any other provision of this RSU Agreement, or of any subsequent breach by you or any other Participant.

23.      Code Section  409A . For purposes of this RSU Agreement, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Code and the regulations thereunder (“ Section  409A ”). Notwithstanding anything else provided herein, to the extent any payments provided under this RSU Agreement in connection with your termination of employment constitute deferred compensation subject to Section 409A, and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six-month period measured from your separation from service from the Company or (ii) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. To the extent any payment under this RSU Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

24.      Lock-Up Agreement . In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, you hereby agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration), except pursuant to a transfer for no consideration in accordance with Section 5 above, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any Financial Industry Regulatory Authority (“ FINRA ”) rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

 

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25.      Award Subject to Company Clawback or Recoupment . To the extent permitted by applicable law, the RSUs shall be subject to clawback or recoupment pursuant to any clawback or recoupment policy adopted by the Board or the Committee or required by law during the term of your employment or other Service that is applicable to you. In addition to any other remedies available under such policy, applicable law may require the cancellation of your RSUs (whether vested or unvested) and the recoupment of any gains realized with respect to your RSUs.

BY ACCEPTING THIS AWARD OF RSUS, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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APPENDIX

ADDITIONAL TERMS AND CONDITIONS

RESTRICTED STOCK UNIT AGREEMENT

BLOOM ENERGY CORPORATION

2018 EQUITY INCENTIVE PLAN

Capitalized terms, unless explicitly defined in this Appendix, shall have the meanings given to them in the RSU Agreement, the Notice or in the Plan.

Terms and Conditions

This Appendix includes special terms and conditions that govern the RSUs granted to you under the Plan if you reside and/or work in one of the countries listed below. These terms and conditions supplement or replace (as indicated) the terms and conditions set forth in the RSU Agreement. If you are a citizen or resident of a country other than the country in which you are currently residing and/or working (or are considered as such for local law purposes), or if you transfer to another country after receiving the RSUs, the Company shall, in its discretion, determine to what extent the special terms and conditions contained herein shall be applicable to you.

Notifications

This Appendix also includes information regarding securities, exchange control, tax and certain other issues of which you should be aware with respect to your participation in the Plan. The information is based on the securities, exchange control, tax and other laws in effect in the respective countries as of July 2018. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this Appendix as the only source of information relating to the consequences of your participation in the Plan because the information may be out of date at the time that the RSUs vest or you sell Shares acquired under the Plan.

In addition, the information contained herein is general in nature and may not apply to your particular situation and the Company is not in a position to assure you of any particular result. Accordingly, you should seek appropriate professional advice as to how the relevant laws in your country may apply to your individual situation.

If you are a citizen or resident of a country other than the country in which you are currently residing and/or working (or are considered as such for local tax purposes), or if you transfer to another country after the grant of the RSUs, the information contained herein may not be applicable to you in the same manner.

I NDIA

Notifications

Exchange Control Notification . Any funds received pursuant to the Plan ( e.g., proceeds from the sale of Shares, cash dividends) must be repatriated to India and converted to local currency within a specified period of time after receipt as prescribed under Indian exchange control laws. A foreign inward remittance certificate (“ FIRC ”) will generally be provided from the bank where you deposit the foreign currency. You should maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation.

S OUTH K OREA

There are no country-specific provisions.

 

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T AIWAN

Notifications

Securities Law Notification . The offer of participation in the Plan is available only for employees of the Company and any Parent, Subsidiary and Affiliate. The offer of participation in the Plan is not a public offer of securities by a Taiwanese company.

Exchange Control Notification . You may repatriate foreign currency (including proceeds from the sale of Shares) into Taiwan up to USD 5,000,000 per year without justification. If the transaction amount is TWD 500,000 or more in a single transaction, you must submit a Foreign Exchange Transaction Form. If the transaction amount is USD 500,000 or more in a single transaction, you must also provide supporting documentation to the satisfaction of the remitting bank.

U NITED S TATES

There are no country-specific provisions.

 

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Exhibit 10.5

BLOOM ENERGY CORPORATION

2018 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSE . Bloom Energy Corporation adopted the Plan effective as of the Effective Date. The purpose of this Plan is to provide eligible employees of the Company and the Participating Corporations with a means of acquiring an equity interest in the Company, to enhance such employees’ sense of participation in the affairs of the Company. Capitalized terms not defined elsewhere in the text are defined in Section 28.

2. ESTABLISHMENT OF PLAN . The Company proposes to grant rights to purchase shares of Common Stock to eligible employees of the Company and its Participating Corporations pursuant to this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed, although the Company makes no undertaking or representation to maintain such qualification. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. In addition, with regard to offers of options to purchase shares of Common Stock under the Plan to employees working for a Subsidiary or an Affiliate outside the United States, this Plan authorizes the grant of options under a Non- Section 423 Component that is not intended to meet Section 423 requirements, provided, to the extent necessary under Section 423 of the Code, the other terms and conditions of the Plan are met.

Subject to Section 14, a total 5,000,000 shares of Common Stock is reserved for issuance under this Plan. In addition, on each January 1 of each calendar year, the aggregate number of shares of Common Stock reserved for issuance under the Plan shall be increased automatically by the number of shares equal to one percent (1%) of the total number of outstanding shares of 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 the Committee may in its sole discretion reduce the amount of the increase in any particular year. Subject to Section 14, no more than 50,000,000 shares of Common Stock may be issued over the term of this Plan. The number of shares initially reserved for issuance under this Plan and the maximum number of shares that may be issued under this Plan shall be subject to adjustments effected in accordance with Section 14. Any or all such shares may be granted under the Section 423 Component.

3. ADMINISTRATION. The Plan will be administered by the Committee. Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all eligible employees and Participants. The Committee will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility, to designate the Participating Corporations, to determine whether Participating Corporations shall participate in the Section 423 Component or Non-Section 423 Component and to decide upon any and all claims filed under the Plan. Every finding, decision and determination made by the Committee will, to the full extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to the contrary in this Plan, the Committee may adopt rules, sub-plans, and/or procedures relating to the operation and administration of the Plan designed to comply with local laws, regulations or customs or to achieve tax, securities law or other objectives for eligible employees outside of the United States. The Committee will have the authority to determine the Fair Market Value of the Common Stock (which determination shall be final, binding and conclusive for all purposes) in accordance with Section 8 below and to interpret Section 8 of the Plan in connection with circumstances that impact the Fair Market Value. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. For purposes of this Plan, the Committee


may designate separate offerings under the Plan (the terms of which need not be identical) in which eligible employees of one or more Participating Corporations will participate, and the provisions of the Plan will separately apply to each such separate offering. To the extent permitted by Section 423 of the Code, the terms of each separate offering under the Plan need not be identical, provided that the rights and privileges established with respect to a particular offering are applied in an identical manner to all employees of every Participating Corporation whose employees are granted options under that particular offering. The Committee may establish rules to govern the terms of the Plan and the offering that will apply to Participants who transfer employment between the Company and Participating Corporations or between Participating Corporations, in accordance with requirements under Section 423 of the Code to the extent applicable.

4. ELIGIBILITY.

(a) Any employee of the Company or the Participating Corporations is eligible to participate in an Offering Period under this Plan, except that one or more of the following categories of employees may be excluded from coverage under the Plan by the Committee (other than where such exclusion is prohibited by applicable law):

(i) employees who do not meet eligibility requirements that the Committee may choose to impose (within the limits permitted by the Code); and

(ii) individuals who provide services to the Company or any of its Participating Corporations as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes.

The foregoing notwithstanding, an individual shall not be eligible if his or her participation in the Plan is prohibited by the law of any country that has jurisdiction over him or her, if complying with the laws of the applicable country would cause the Plan to violate Section 423 of the Code, or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan.

(b) No employee who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, owns stock or holds options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary shall be granted an option to purchase Common Stock under the Plan. Notwithstanding the foregoing, the rules of Section 424(d) of the Code shall apply in determining share ownership and the extent to which shares held under outstanding equity awards are to be treated as owned by the employee.

5. OFFERING DATES.

(a) Each Offering Period of this Plan may be of up to twenty-seven (27) months duration and shall commence and end at the times designated by the Committee. Each Offering Period shall consist of one or more Purchase Periods during which Contributions made by Participants are accumulated under this Plan.

(b) The initial Offering Period shall commence on the Effective Date and shall end with the Purchase Date that occurs a date selected by the Committee which is approximately twenty-six (26) months after the commencement of the initial Offering Period, but no more than twenty-seven (27) months after the commencement of the initial Offering period. The initial Offering Period shall consist of four Purchase Periods. Thereafter, a twenty-four (24) month Offering Period shall commence on each February 15 and August 15, with each such Offering Period also consisting of four six (6)-month Purchase Periods, except as otherwise provided by an applicable sub-plan, or on such other date determined by the Committee. The Committee may at any time establish a different duration for an Offering Period or Purchase Period to be effective after the next scheduled Purchase Date, up to a maximum duration of twenty-seven (27) months.

 

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6. PARTICIPATION IN THIS PLAN.

(a) Any employee who is an eligible employee determined in accordance with Section 4 immediately prior to the initial Offering Period will be automatically enrolled in the initial Offering Period under this Plan for the maximum number of shares of Common Stock purchasable. With respect to subsequent Offering Periods, any eligible employee determined in accordance with Section 4 will be eligible to participate in this Plan, subject to the requirement of Section 6(b) hereof and the other terms and provisions of this Plan.

(b) With respect to Offering Periods after the initial Offering Period, a Participant may elect to participate in this Plan by submitting an enrollment agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

(c) Once an employee becomes a Participant in an Offering Period, then such Participant will automatically participate in each subsequent Offering Period commencing immediately following the last day of the prior Offering Period unless the Participant withdraws or is deemed to withdraw from this Plan or terminates further participation in an Offering Period as set forth in Section 11 below. A Participant who is continuing participation pursuant to the preceding sentence is not required to file any additional enrollment agreement in order to continue participation in this Plan; a Participant who is not continuing participation pursuant to the preceding sentence is required to file an enrollment agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

7. GRANT OF OPTION ON ENROLLMENT. Becoming a Participant with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such Participant of an option to purchase on the Purchase Date up to that number of shares of Common Stock determined by a fraction, the numerator of which is the amount accumulated in such Participant’s Contribution account during such Purchase Period and the denominator of which is the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Offering Date (but in no event less than the par value of a share of the Common Stock), or (ii) eighty-five percent (85%) of the Fair Market Value of a share of the Common Stock on the Purchase Date; provided, however , that for the Purchase Period within the initial Offering Period the numerator shall be fifteen percent (15%) of the Participant’s compensation for such Purchase Period, or such lower percentage as determined by the Committee prior to the start of the Offering Period, and provided , further , that the number of shares of Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(b) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(a) below with respect to the applicable Purchase Date.

8. PURCHASE PRICE. The Purchase Price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of:

(a) The Fair Market Value on the Offering Date; or

(b) The Fair Market Value on the Purchase Date.

 

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9. PAYMENT OF PURCHASE PRICE; CONTRIBUTION CHANGES; SHARE ISSUANCES.

(a) The Purchase Price shall be accumulated by regular payroll deductions made during each Offering Period, unless the Committee determines that contributions may be made in another form (including but not limited to with respect to categories of Participants outside the United States that Contributions may be made in another form due to local legal requirements). The Contributions are made as a percentage of the Participant’s Compensation in one percent (1%) increments not less than one percent (1%), nor greater than fifteen percent (15%) or such lower limit set by the Committee. “ Compensation ” shall mean all cash compensation reported on the employee’s Form W-2 or corresponding local country tax return, including without limitation base salary or regular hourly wages, bonuses, incentive compensation, commissions, overtime, shift premiums, and draws against commissions (or in foreign jurisdictions, equivalent cash compensation). For purposes of determining a Participant’s Compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code (or in foreign jurisdictions, equivalent deductions) shall be treated as if the Participant did not make such election. Contributions shall commence on the first payday following the last Purchase Date (with respect to the initial Offering Period, as soon as practicable following the effective date of filing with the U.S. Securities and Exchange Commission a securities registration statement for the Plan) and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. Notwithstanding the foregoing, the terms of any sub-plan may permit matching shares without the payment of any purchase price.

(b) A Participant may decrease the rate of Contributions during an Offering Period by filing with the Company or a third party designated by the Company a new authorization for Contributions, with the new rate to become effective no later than the second payroll period commencing after the Company’s receipt of the authorization and continuing for the remainder of the Offering Period unless changed as described below. A decrease in the rate of Contributions may be made twice during an Offering Period or more frequently under rules determined by the Committee. A Participant may increase or decrease the rate of Contributions for any subsequent Offering Period by filing with the Company or a third party designated by the Company a new authorization for Contributions prior to the beginning of such Offering Period, or such other time period as specified by the Committee.

(c) A Participant may reduce his or her Contribution percentage to zero during an Offering Period by filing with the Company or a third party designated by the Company a request for cessation of Contributions. Such reduction shall be effective beginning no later than the second payroll period after the Company’s receipt of the request and no further Contributions will be made for the duration of the Offering Period. Contributions credited to the Participant’s account prior to the effective date of the request shall be used to purchase shares of Common Stock in accordance with Subsection (e) below. A reduction of the Contribution percentage to zero shall be treated as such Participant’s withdrawal from such Offering Period and the Plan, effective as of the day after the next Purchase Date following the filing date of such request with the Company.

(d) All Contributions made for a Participant are credited to his or her book account under this Plan and are deposited with the general funds of the Company, except to the extent local legal restrictions outside the United States require segregation of such Contributions. No interest accrues on the Contributions, except to the extent required due to local legal requirements. All Contributions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions, except to the extent necessary to comply with local legal requirements outside the United States.

(e) On each Purchase Date, so long as this Plan remains in effect and provided that the Participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the Participant wishes to withdraw from that Offering Period under this Plan and have all Contributions accumulated in the account maintained on behalf of the Participant as of that date returned to the Participant, the Company shall apply the funds then in the Participant’s account to the purchase of whole shares of Common Stock reserved under the option granted to such Participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The Purchase Price per share shall be as specified in Section 8 of this Plan. Any fractional share, as calculated under this Subsection (e), shall be rounded down to the next lower whole share, unless the Committee determines with respect to

 

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all Participants that any fractional share shall be credited as a fractional share. Any amount remaining in a Participant’s account on a Purchase Date which is less than the amount necessary to purchase a full share of the Common Stock shall be carried forward without interest (except to the extent necessary to comply with local legal requirements outside the United States) into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States). No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date, except to the extent required due to local legal requirements outside the United States.

(f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the Participant’s benefit representing the shares purchased upon exercise of his or her option.

(g) During a Participant’s lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The Participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.

(h) To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company and the Participating Corporation employing the Participant for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company or any Subsidiary or Affiliate, as applicable, may withhold, by any method permissible under the applicable law, the amount necessary for the Company or Subsidiary or Affiliate, as applicable, to meet applicable withholding obligations, including any withholding required to make available to the Company or Subsidiary or Affiliate, as applicable, any tax deductions or benefits attributable to the sale or early disposition of shares of Common Stock by a Participant. The Company shall not be required to issue any shares of Common Stock under the Plan until such obligations are satisfied.

10. LIMITATIONS ON SHARES TO BE PURCHASED.

(a) Any other provision of the Plan notwithstanding, no Participant shall purchase Common Stock with a Fair Market Value in excess of the following limit:

(i) In the case of Common Stock purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any Parent or Subsidiary).

(ii) In the case of Common Stock purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any Parent or Subsidiary) in the current calendar year and in the immediately preceding calendar year.

(iii) In the case of Common Stock purchased during an Offering Period that commenced two calendar years prior, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any Parent or Subsidiary) in the current calendar year and in the two immediately preceding calendar years.

For purposes of this Subsection (a), the Fair Market Value of Common Stock shall be determined in each case as of the beginning of the Offering Period in which such Common Stock is purchased. Employee stock purchase plans not described in Section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (a) from purchasing additional Common Stock under the Plan, then his or her Contributions shall automatically be discontinued and shall automatically resume at the beginning of the earliest Purchase Period that will end in the next calendar year (if he or she then is an eligible employee), provided that when the Company automatically resumes such Contributions, the Company must apply the rate in effect immediately prior to such suspension.

 

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(b) In no event shall a Participant be permitted to purchase more than 2,500 shares on any one Purchase Date or such lesser number as the Committee shall determine. If a lower limit is set under this Subsection (b), then all Participants will be notified of such limit prior to the commencement of the next Offering Period for which it is to be effective.

(c) If the number of shares to be purchased on a Purchase Date by all Participants exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company will give notice of such reduction of the number of shares to be purchased under a Participant’s option to each Participant affected.

(d) Any Contributions accumulated in a Participant’s account which are not used to purchase stock due to the limitations in this Section 10, and not covered by Section 9(e), shall be returned to the Participant as soon as practicable after the end of the applicable Purchase Period, without interest (except to the extent required due to local legal requirements outside the United States).

11. WITHDRAWAL.

(a) Each Participant may withdraw from an Offering Period under this Plan pursuant to a method specified for such purpose by the Company. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee.

(b) Upon withdrawal from this Plan, the accumulated Contributions shall be returned to the withdrawn Participant, without interest (except to the extent required due to local legal requirements outside the United States), and his or her interest in this Plan shall terminate. In the event a Participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for Contributions in the same manner as set forth in Section 6 above for initial participation in this Plan.

(c) To the extent applicable, if the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a Participant’s account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any.

12. TERMINATION OF EMPLOYMENT. Termination of a Participant’s employment for any reason, including retirement, death, disability, or the failure of a Participant to remain an eligible employee of the Company or of a Participating Corporation, immediately terminates his or her participation in this Plan (except as required due to local legal requirements outside the United States). In such event, accumulated Contributions credited to the Participant’s account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest (except to the extent required due to local legal requirements outside the United States). For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Corporation in the case of sick leave, military leave, or any other leave of absence approved by the Company; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. The Company will have sole discretion to determine whether a Participant has terminated employment and the effective date on which the Participant terminated employment, regardless of any notice period or garden leave required under local law.

 

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13. RETURN OF CONTRIBUTIONS. In the event a Participant’s interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the Participant all accumulated Contributions credited to such Participant’s account. No interest shall accrue on the Contributions of a Participant in this Plan (except to the extent required due to local legal requirements outside the United States).

14. CAPITAL CHANGES. If the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then the Committee shall adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 2 and 10 shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with the applicable securities laws; provided that fractions of a share will not be issued.

15. NONASSIGNABILITY. Neither Contributions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.

16. USE OF PARTICIPANT FUNDS AND REPORTS. The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be required to segregate Participant Contributions (except to the extent required due to local legal requirements outside the United States). Until shares are issued, Participants will only have the rights of an unsecured creditor unless otherwise required under local law. Each Participant shall receive, or have access to, promptly after the end of each Purchase Period a report of his or her account setting forth the total Contributions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be.

17. NOTICE OF DISPOSITION. Each U.S. taxpayer Participant shall notify the Company in writing if the Participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the “ Notice Period ”). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the shares. The obligation of the Participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.

18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Corporation, or restrict the right of the Company or any Participating Corporation to terminate such employee’s employment.

19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees granted an option under the Section 423 Component of this Plan shall have equal rights and privileges with respect to this Plan or within any separate offering under the Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code, without further act or amendment by the Company, the Committee or the Board, shall be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan.

 

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20. NOTICES. All notices or other communications by a Participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

21. TERM; STOCKHOLDER APPROVAL. This Plan will become effective on the Effective Date. This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares that are subject to such stockholder approval before becoming available under this Plan shall occur prior to stockholder approval of such shares and the Board or Committee may delay any Purchase Date and postpone the commencement of any Offering Period subsequent to such Purchase Date as deemed necessary or desirable to obtain such approval (provided that if a Purchase Date would occur more than twenty-four (24) months after commencement of the Offering Period to which it relates, then such Purchase Date shall not occur and instead such Offering Period shall terminate without the purchase of such shares and Participants in such Offering Period shall be refunded their Contributions without interest). This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time pursuant to Section 25 below), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) the tenth anniversary of the Effective Date under the Plan.

22. DESIGNATION OF BENEFICIARY.

(a) If authorized by the Committee, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under this Plan in the event of such Participant’s death prior to a Purchase Date. Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant’s death.

(b) If authorized by the Company, such designation of beneficiary may be changed by the Participant at any time by written notice filed with the Company at the prescribed location before the Participant’s death. In the event of the death of a Participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such Participant’s death, the Company shall deliver such cash to the executor or administrator of the estate of the Participant or to the legal heirs of the Participant.

23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the U.S. Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, exchange control restrictions and/or securities law restrictions outside the United States, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Shares may be held in trust or subject to further restrictions as permitted by any subplan.

24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware.

25. AMENDMENT OR TERMINATION. The Committee, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. Unless otherwise required by applicable law, if the Plan is terminated, the Committee, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Purchase Date (which may be sooner than originally scheduled, if determined

 

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by the Committee in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 14). If an Offering Period is terminated prior to its previously-scheduled expiration, all amounts then credited to Participants’ accounts for such Offering Period, which have not been used to purchase shares of Common Stock, shall be returned to those Participants (without interest thereon, except as otherwise required under local laws) as soon as administratively practicable. Further, the Committee will be entitled to change the Purchase Periods and Offering Periods, limit the frequency and/or number of changes in the amount contributed during an Offering Period, establish the exchange ratio applicable to amounts contributed in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the administration of the Plan, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts contributed from the Participant’s base salary and other eligible compensation, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan. Such actions will not require stockholder approval or the consent of any Participants. However, no amendment shall be made without approval of the stockholders of the Company (obtained in accordance with Section 21 above) within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. In addition, in the event the Board or Committee determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board or Committee may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequences including, but not limited to: (i) amending the definition of compensation, including with respect to an Offering Period underway at the time; (ii) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (iii) shortening any Offering Period by setting a Purchase Date, including an Offering Period underway at the time of the Committee’s action; (iv) reducing the maximum percentage of Compensation a participant may elect to set aside as Contributions; and (v) reducing the maximum number of shares a Participant may purchase during any Offering Period. Such modifications or amendments will not require approval of the stockholders of the Company or the consent of any Participants.

26. CORPORATE TRANSACTIONS. In the event of a Corporate Transaction, the Offering Period for each outstanding right to purchase Common Stock will be shortened by setting a new Purchase Date and will end on the new Purchase Date. The new Purchase Date shall occur on or prior to the consummation of the Corporate Transaction, as determined by the Board or Committee, and the Plan shall terminate on the consummation of the Corporate Transaction.

27. CODE SECTION 409A; TAX QUALIFICATION.

(a) Options granted under the Plan generally are exempt from the application of Section 409A of the Code. However, options granted to U.S. taxpayers which are not intended to meet the Code Section 423 requirements are intended to be exempt from the application of Section 409A of the Code under the short-term deferral exception and any ambiguities shall be construed and interpreted in accordance with such intent. Subject to Subsection (b), options granted to U.S. taxpayers outside of the Code Section 423 requirements shall be subject to such terms and conditions that will permit such options to satisfy the requirements of the short-term deferral exception available under Section 409A of the Code, including the requirement that the shares of Common Stock subject to an option be delivered within the short-term deferral period. Subject to Subsection (b), in the case of a Participant who would otherwise be subject to Section 409A of the Code, to the extent the Committee determines that an option or the exercise, payment, settlement or deferral thereof is subject to Section 409A of the Code, the option shall be granted, exercised, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Committee with respect thereto.

 

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(b) Although the Company may endeavor to (i) qualify an option for favorable tax treatment under the laws of the United States or jurisdictions outside of the United States or (ii) avoid adverse tax treatment ( e.g. , under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Subsection (a). The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.

28. DEFINITIONS.

(a) “ Affiliate ” means any entity, other than a Subsidiary or Parent, (i) that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.

(b) “ Board ” shall mean the Board of Directors of the Company.

(c) “ Code ” shall mean the U.S. Internal Revenue Code of 1986, as amended.

(d) “ Committee ” shall mean the Compensation Committee of the Board that consists exclusively of one or more members of the Board appointed by the Board.

(e) “ Common Stock ” shall mean the Class A common stock of the Company.

(f) “ Company ” shall mean Bloom Energy Corporation.

(g) “ Contributions ” means payroll deductions taken from a Participant’s Compensation and used to purchase shares of Common Stock under the Plan and, to the extent payroll deductions are not permitted by applicable laws (as determined by the Committee in its sole discretion) contributions by other means, provided, however, that allowing such other contributions does not jeopardize the qualification of the Plan as an “employee stock purchase plan” under Section 423 of the Plan.

(h) “ Corporate Transaction ” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(i) “ Effective Date ” shall mean the date on which the Registration Statement covering the initial public offering of the shares of Common Stock is declared effective by the U.S. Securities and Exchange Commission.

(j) “ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended.

 

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(k) “ Fair Market Value ” shall mean, as of any date, the value of a share of Common Stock determined as follows:

i. if such Common Stock is then quoted on the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (collectively, the “ Nasdaq Market ”), its closing price on the Nasdaq Market on the date of determination, or if there are no sales for such date, then the last preceding business day on which there were sales, as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

ii. if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

iii. if such Common Stock is publicly traded but is neither quoted on the Nasdaq Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

iv. with respect to the initial Offering Period, Fair Market Value on the Offering Date shall be the price at which shares of Common Stock are offered to the public pursuant to the Registration Statement covering the initial public offering of shares of Common Stock; or

v. if none of the foregoing is applicable, by the Board or the Committee in good faith.

(l) “ Non-Section 423 Component ” means the part of the Plan which is not intended to meet the requirements set forth in Section 423 of the Code.

(m) “ Notice Period ” shall mean within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased.

(n) “ Offering Date ” shall mean the first business day of each Offering Period. However, for the initial Offering Period the Offering Date shall be the Effective Date.

(o) “ Offering Period ” shall mean a period with respect to which the right to purchase Common Stock may be granted under the Plan, as determined by the Committee pursuant to Section 5(a).

(p) “ Parent ” shall have the same meaning as “parent corporation” in Sections 424(e) and 424(f) of the Code.

(q) “ Participant ” shall mean an eligible employee who meets the eligibility requirements set forth in Section 4 and who is either automatically enrolled in the initial Offering Period or who elects to participate in this Plan pursuant to Section 6(b).

(r) “ Participating Corporation ” shall mean any Parent, Subsidiary or Affiliate that the Committee designates from time to time as eligible to participate in this Plan. For purposes of the Section 423 Component, only the Parent and Subsidiaries may be Participating Corporations, provided, however, that at any given time a Parent or Subsidiary that is a Participating Corporation under the Section 423 Component shall not be a Participating Corporation under the Non-Section 423 Component. The Committee may provide that any Participating Corporation shall only be eligible to participate in the Non-Section 423 Component.

 

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(s) “ Plan ” shall mean this Bloom Energy Corporation 2018 Employee Stock Purchase Plan, as may be amended from time to time.

(t) “ Purchase Date ” shall mean the last business day of each Purchase Period.

(u) “ Purchase Period ” shall mean a period during which Contributions may be made toward the purchase of Common Stock under the Plan, as determined by the Committee pursuant to Section 5(b).

(v) “ Purchase Price ” shall mean the price at which Participants may purchase shares of Common Stock under the Plan, as determined pursuant to Section 8.

(w) “ Section  423 Component ” means the part of the Plan, which excludes the Non-Section 423 Component, pursuant to which options to purchase shares of Common Stock under the Plan that satisfy the requirements for “employee stock purchase plans” set forth in Section 423 of the Code may be granted to eligible employees.

(x) “ Subsidiary ” shall have the same meaning as “subsidiary corporation” in Sections 424(e) and 424(f) of the Code.

 

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B LOOM E NERGY C ORPORATION ( THE “C OMPANY ”)

2018 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

  

                U.S. P ARTICIPANT

                E NROLLMENT /C HANGE F ORM

 

     

S ECTION  1:

 

A CTIONS

 

C HECK D ESIRED A CTION :

 

☐   Elect / Change Contribution Percentage

☐   Discontinue Contributions

  

AND C OMPLETE S ECTIONS :

  2 + 4 + 7

    2 + 5 + 7

     

S ECTION  2:

 

P ERSONAL D ATA

 

Name:                                                                                  

Home Address:                                                                                                                                                                 

Social Security No.: ☐☐☐-☐☐-☐☐☐☐

  

Department:

________________

   

S ECTION  3:

 

E NROLLMENT C ONFIRMED

 

I understand that my enrollment in the ESPP is effective at the beginning of the Offering Period and as a result of that enrollment I am electing to purchase shares of the Common Stock of the Company pursuant to the ESPP. I understand that the stock certificate(s) for the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account. I hereby agree to take all steps, and sign all forms, required to establish an account with the Company’s broker for this purpose.

 

My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company. I understand that I must notify the Company of any disposition of shares purchased under the ESPP.

 

   

S ECTION  4:

 

E LECT / C HANGE C ONTRIBUTION P ERCENTAGE

 

I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period ___% of my total eligible Compensation as would be reported on my W-2 paid during such Offering Period as long as I continue to participate in the ESPP. That amount, plus any accumulated payroll deductions thus far during the current Purchase Period if this is a change, will be applied to the purchase of shares of the Common Stock pursuant to the ESPP. The percentage must be a whole number (from 1%, up to a maximum of 15%, with respect to enrollment or an increase in contribution percentage; from 0%, up to a maximum of 14% for a decrease in contribution percentage).

 

If this is a change to my current enrollment, this represents an ☐-increase ☐-decrease to my contribution percentage.

 

Note:   For the initial Offering Period, you may elect to decrease the rate of payroll deductions during the fourteen (14) day period following the filing of the S-8 Registration Statement that registers shares for offer under the ESPP. You may not increase your contribution at any time within a Purchase Period. You may decrease your contribution percentage to a percentage other than 0% only twice within an Offering Period for the remainder of that Offering Period (three times for the initial Offering Period). A change will become effective as soon as reasonably practicable after the form is received by the Company. An increase in your contribution percentage can only take effect with the next Offering Period.

 

S ECTION  5:

 

D ISCONTINUE C ONTRIBUTIONS

 

☐   I hereby elect to stop my contributions under the ESPP , effective as soon as reasonably practicable after this form is received by the Company. Please refund all contributions to me in cash. I understand that I cannot resume participation until the start of the next Offering Period and must timely file a new Enrollment / Change Form and meet the eligibility requirements to do so.

 

S ECTION  6:

 

E LECTRONIC D ELIVERY AND A CCEPTANCE

  The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.


   

S ECTION  7:

 

A CKNOWLEDGMENT     AND S IGNATURE

 

I acknowledge that I have received a copy of the ESPP Prospectus (which summarizes the major features of the ESPP). I have read the Prospectus and my signature below indicates that I hereby agree to be bound by the terms of the ESPP.

 

If I transfer employment while participating in the ESPP, I understand that different terms may apply to the offering and/or that I may not be entitled to participate in the ESPP after such transfer. Further, if I continue to participate in the ESPP in future Offering Periods, I understand that my participation will be governed by the terms and conditions of the ESPP and the applicable offering in effect at that time, subject to my right to withdraw from the ESPP.

 

I understand that any capitalized term used but not defined in this Enrollment / Change Form has the meaning given to such term in the ESPP.

 

Signature:                                                                                           Date:                         


B LOOM E NERGY C ORPORATION ( THE “C OMPANY ”)

2018 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

  

                                 N ON -U.S. P ARTICIPANT

                                 E NROLLMENT /C HANGE F ORM

 

     

S ECTION  1:

 

A CTIONS

 

C HECK D ESIRED A CTION :

 

☐   Elect / Change Contribution Percentage

☐   Discontinue Contributions

  

AND C OMPLETE S ECTIONS :

  2 + 4 + 7

    2 + 5 + 7

     

S ECTION  2:

 

P ERSONAL D ATA

 

Name:                                                                                               

Home Address:                                                                                  

                                                                                                                   

Employee Id #:                                                                          

  

Department:

________________

   

S ECTION  3:

 

E NROLLMENT C ONFIRMED

 

I understand that my enrollment in the ESPP is effective at the beginning of the Offering Period and as a result of that enrollment I am electing to purchase shares of the Common Stock of the Company pursuant to the ESPP. I understand that the stock certificate(s) for the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account. I hereby agree to take all steps, and sign all forms, required to establish an account with the Company’s broker for this purpose.

 

My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company. I understand that I must notify the Company of any disposition of shares purchased under the ESPP.

   

S ECTION  4:

 

E LECT  / C HANGE C ONTRIBUTION P ERCENTAGE

 

I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period ___% of my total eligible Compensation paid during such Offering Period as long as I continue to participate in the ESPP. That amount, plus any accumulated payroll deductions thus far during the current Purchase Period if this is a change, will be applied to the purchase of shares of the Common Stock pursuant to the ESPP. The percentage must be a whole number (from 1%, up to a maximum of 15%, with respect to enrollment or an increase in contribution percentage; from 0%, up to a maximum of 14% for a decrease in contribution percentage).

 

If this is a change to my current enrollment, this represents an ☐-increase ☐-decrease to my contribution percentage.

 

Note:   For the initial Offering Period, you may elect to decrease the rate of payroll deductions during the fourteen (14) day period following the filing of the S-8 Registration Statement that registers shares for offer under the ESPP. You may not increase your contribution at any time within a Purchase Period. You may decrease your contribution percentage to a percentage other than 0% only twice within an Offering Period for the remainder of that Offering Period (three times for the initial Offering Period). A change will become effective as soon as reasonably practicable after the form is received by the Company. An increase in your contribution percentage can only take effect with the next Offering Period.

   

S ECTION  5:

 

D ISCONTINUE C ONTRIBUTIONS

 

I hereby elect to stop my contributions under the ESPP , effective as soon as reasonably practicable after this form is received by the Company. Please refund all contributions to me in cash. I understand that I cannot resume participation until the start of the next Offering Period and must timely file a new Enrollment / Change Form and meet the eligibility requirements in effect at that time to do so.

 

   

S ECTION  6:

 

E LECTRONIC D ELIVERY AND P ARTICIPATION

 

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 


   

S ECTION  7:

 

A CKNOWLEDGMENT     AND S IGNATURE

 

I acknowledge that I have received a copy of the ESPP Prospectus (which summarizes the major features of the ESPP). I have read the Prospectus and my signature below indicates that I hereby agree to be bound by the terms of the ESPP and this Enrollment/Change Form (including any and all exhibits, appendices and addenda hereto).

 

If I transfer employment while participating in the ESPP, I understand that different terms may apply to the offering and/or that I may not be entitled to participate in the ESPP after such transfer. Further, if I continue to participate in the ESPP in future Offering Periods, I understand that my participation will be governed by the terms and conditions of the ESPP and the applicable offering in effect at that time, subject to my right to withdraw from the ESPP.

 

I understand that any capitalized term used but not defined in this Enrollment / Change Form has the meaning given to such term in the ESPP.

 

Signature:                                                                                           Date:                         


B LOOM E NERGY C ORPORATION ( THE “C OMPANY ”)

2018 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

  

C OUNTRY A PPENDIX TO N ON -U.S.

E NROLLMENT /C HANGE F ORM

 

S ECTION  1:

 

G ENERAL

  

This Appendix includes additional country-specific provisions that apply to Participants outside the United States. These provisions form part of the Enrollment / Change Form.

 

If a Participant is a citizen or resident of a country other than the one in which he or she is currently working or if Participant transfers employment or residency after enrolling in the ESPP, the provisions contained herein may not be applicable in the same manner. The Company shall, in its sole discretion, determine to what extent the terms and conditions included herein will apply under these circumstances.

 

   

S ECTION  2:

 

T AXES

  

Regardless of any action the Company or my employer (the “Employer”) take with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to my participation in the ESPP and legally applicable to me (“Tax-Related Items”), I acknowledge that the ultimate liability for all Tax-Related Items is and remains my responsibility and may exceed the amount actually withheld by the Company or the Employer. I further acknowledge that the Company and/or the Employer make no representations or undertakings regarding the treatment of any Tax-Related Items and do not commit to and are under no obligation to structure the terms of the ESPP or any aspect of my participation in the ESPP to reduce or eliminate my liability for Tax-Related Items or achieve any particular tax result. Further, if I have become subject to Tax-Related Items in more than one jurisdiction, I acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

 

Prior to any relevant taxable or tax withholding event, as applicable, I agree to make adequate arrangements to satisfy any withholding obligation the Company and/or the Employer may have for Tax-Related Items. In this regard, I understand and agree that the Company and/or the Employer generally will satisfy any withholding obligation for Tax-Related Items by withholding from wages payable to me by the Employer. Alternatively, or in addition, the Company and/or the Employer may (i) withhold from other cash amounts payable to me by the Company and/or the Employer, (ii) withhold from the proceeds of the sale of Common Stock purchased under the ESPP either through a voluntary sale or through a mandatory sale arranged by the Company (on my behalf pursuant to this authorization), or (iii) require me to make a cash payment to the Company or the Employer or their designee in an amount equal to the withholding obligation for Tax-Related Items.

 

Depending on the withholding method, the Company or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts, including up to the maximum applicable rate in my jurisdiction in which case I may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares of Common Stock. The Company may refuse to issue or deliver the shares of Common Stock or the proceeds from the sale of shares of Common Stock if I fail to comply with my obligations in connection with the Tax-Related Items.

 


S ECTION  3:

 

N ATURE OF G RANT

  

By enrolling in and participating in the ESPP, I acknowledge, understand and agree that:

 

Ø  the ESPP is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted in the ESPP;

 

Ø  the ESPP is an exceptional offering by the Company and my participation in the ESPP does not create any contractual or other right to continue to participate in the ESPP, or to receive benefits in lieu of my participation in the ESPP, even if I have been offered participation in the ESPP in the past or purchased shares of Common Stock over multiple Offering or Purchase Periods;

 

Ø  all decisions with respect to future participation in the ESPP, if any, will be at the sole discretion of the Company, and I agree to be bound by future changes to the ESPP, subject to my right to timely withdraw from the ESPP;

 

Ø  my participation in the ESPP will not create a right to employment or be interpreted to form an employment, service contract or relationship with the Company or any other Subsidiary or Affiliate and shall not interfere with any ability of the Employer to terminate my employment at any time;

 

Ø  I am voluntarily participating in the ESPP;

 

Ø  my participation in the ESPP and any Common Stock purchased under the ESPP, and the income from and value of same, are not intended to replace any pension rights or compensation;

 

Ø  my participation in the ESPP and any Common Stock purchased under the ESPP, and the income from and value of same, are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, holiday pay, bonuses, long-service awards, leave-related payments, pension or retirement benefits or similar mandatory payments;

 

Ø  the future value of the underlying shares of Common Stock is unknown, indeterminable and cannot be predicted with certainty, and the value of the shares of Common Stock purchased under the ESPP may increase or decrease in the future, even below the Purchase Price;

    

 

Ø  no claim or entitlement to compensation or damages shall arise from termination of participation in the ESPP resulting from termination of my employment by the Company or the Employer (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any) or from me otherwise ceasing to be an eligible employee under the terms of the ESPP;

 

Ø  for purposes of the ESPP, my employment will be considered terminated and my right to participate in, and purchase shares of Common Stock under, the ESPP will terminate on the date that I am no longer actively providing services to the Company or a Participating Corporation, which date shall not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); the Company shall have the discretion to determine when I am no longer actively providing services for purposes of my participation in the ESPP (including whether I may still be considered to be providing services while on a leave of absence);

 

Ø  neither the Company, the Employer nor any other Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between my local currency and the United States Dollar that may affect the value of any Common Stock purchased under the ESPP or any amounts due to me pursuant to my participation in the ESPP or the subsequent sale of any Common Stock purchased under the ESPP.

 


S ECTION  4:

 

D ATA P RIVACY

  

D ECLARATION OF C ONSENT . By enrolling in and participating in the ESPP and indicating consent by signing this Enrollment / Change Form or via the Company’s online acceptance procedure, I am declaring that I agree with the data processing practices described herein and consent to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned below, including recipients located in countries which may not have a similar level of protection from the perspective of my country’s data protection law.

 

D ATA C OLLECTION AND U SAGE . The Company and the Employer may collect, process and use certain personal information about me, including, but not limited to, my name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options granted under the ESPP or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in my favor (“Data”), for the purposes of implementing, administering and managing the ESPP. The legal basis, where required, for the processing of Data is my consent.

 

S TOCK P LAN A DMINISTRATION S ERVICE P ROVIDERS . The Company transfers Data to _________________ and its affiliated companies (“Plan Broker”), an independent service provider based in the United States, which is assisting the Company with the implementation, administration and management of the ESPP. In the future, the Company may select a different service provider and share Data with such other provider serving in a similar manner. I may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the ESPP.

 

I NTERNATIONAL D ATA T RANSFERS . The Company and its service providers are based in the United States. My country or jurisdiction may have different data privacy laws and protections than the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis, where required, for the transfer of Data is my consent.

 

D ATA R ETENTION . The Company will hold and use the Data only as long as is necessary to implement, administer and manage my participation in the ESPP, or as required to comply with legal or regulatory obligations, including under tax and security laws.

 

V OLUNTARINESS AND C ONSEQUENCES OF C ONSENT D ENIAL OR W ITHDRAWAL . Participation in the ESPP is voluntary and I am providing the consents herein on a purely voluntary basis. If I do not consent, or if I later seek to revoke my consent, my salary from or employment and career with the Employer will not be affected; the only consequence of refusing or withdrawing my consent is that the Company would not be able to grant the option under the ESPP to me or administer or maintain my participation in the ESPP.

 

D ATA S UBJECT R IGHTS . I may have a number of rights under data privacy laws in my jurisdiction. Depending on where I am based, such rights may include the right to (i) request access or copies of Data the Company processes, (ii) rectification of incorrect Data, (iii) deletion of Data, (iv) restrictions on processing of Data, (v) portability of Data, (vi) lodge complaints with competent authorities in my jurisdiction, and/or (vii) receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, I understand that I can contact my local human resources representative.

 


   

S ECTION  5:

 

M ISCELLANEOUS P ROVISIONS

  

G OVERNING L AW / C HOICE OF V ENUE . The interpretation, performance and enforcement of this Enrollment ./ Change Form and the right to purchase Common Stock under the ESPP shall be governed by the law of the State of Delaware without regard to its conflict of laws rules.

 

For purposes of any action, lawsuit or other proceedings brought to enforce this Enrollment ./Change Form, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of Santa Clara County, California, or the federal courts for the U.S. for the Northern District of California, and no other courts, where the grant is made and/or to be performed.

 

W AIVER . I acknowledge that a waiver by the Company of breach of any provision of this Enrollment ./ Change Form or any terms and conditions of the ESPP shall not operate or be construed as a waiver of any other provision of this Enrollment ./ Change Form or the ESPP, or of any subsequent breach by me or any other Participant.

 

S EVERABILITY . The provisions of this Enrollment ./ Change Form are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

 

I MPOSITION OF O THER R EQUIREMENTS . The Company reserves the right to impose other requirements on my participation in the ESPP and on any shares of Common Stock acquired under the ESPP, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require me to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

N O A DVICE R EGARDING G RANT . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding my participation in the ESPP, or my acquisition or sale of the underlying shares of Common Stock. I understand that I should consult with my own personal tax, legal and financial advisors regarding my participation in the ESPP before taking any action related to the ESPP.

 

L ANGUAGE . I acknowledge that I am proficient in the English language and understand the provisions in this Enrollment./ Change Form and the ESPP. If I have received this Enrollment./ Change Form or any other document related to the ESPP translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

 

F OREIGN A SSET /A CCOUNT R EPORTING . I acknowledge that there may be certain foreign asset and/or account reporting requirements which may affect my ability to purchase or hold shares of Common Stock purchased under the ESPP or cash received from participating in the ESPP (including from any dividends paid on Common Stock acquired under the ESPP) in a brokerage or bank account outside my country. I may be required to report such accounts, assets or transactions to the tax or other authorities in my country.

 

   

S ECTION  6:

 

C OUNTRY -S PECIFIC PROVISIONS

  

I NDIA - E XCHANGE C ONTROL N OTIFICATION . Any funds realized pursuant to the ESPP, (e.g., proceeds from the sale of Common Stock acquired under the ESPP and any cash dividends received in connection with such Common Stock) must be repatriated to India and converted into local currency as prescribed under applicable Indian exchange control laws. A foreign inward remittance certificate (“FIRC”) will generally be provided from the bank foreign currency is deposited. I understand that I should maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation.

 

Exhibit 10.12

[***] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

 

SECOND AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

DIAMOND STATE GENERATION HOLDINGS, LLC

dated as of March 20, 2013

 

 

 

 


TABLE OF CONTENTS

 

         Page  
ARTICLE I        DEFINITIONS      2  

Section 1.1

  Definitions      2  
ARTICLE II        CONTINUATION; OFFICES; TERM      2  

Section 2.1

  Continuation of the Company      2  

Section 2.2

  Name, Office and Registered Agent      2  

Section 2.3

  Purpose      3  

Section 2.4

  Term      3  

Section 2.5

  Organizational and Fictitious Name Filings; Preservation of Limited Liability      3  

Section 2.6

  No Partnership Intended      3  
ARTICLE III        RIGHTS AND OBLIGATIONS OF THE MEMBERS      3  

Section 3.1

  Membership Interests      3  

Section 3.2

  Actions by the Members      4  

Section 3.3

  Management Rights      5  

Section 3.4

  Other Activities      6  

Section 3.5

  No Right to Withdraw      6  

Section 3.6

  Limitation of Liability of Members      6  

Section 3.7

  Liability for Deficits      8  

Section 3.8

  Company Property      8  

Section 3.9

  Retirement, Resignation, Expulsion, Incompetency, Bankruptcy or Dissolution of a Member      8  

Section 3.10

  Withdrawal of Capital      8  

Section 3.11

  Representations and Warranties      8  

Section 3.12

  Covenants      10  

Section 3.13

  Deferred Obligations      11  

Section 3.14

  Events of Default      11  

Section 3.15

  Matters Pertaining to the Grant      11  

Section 3.16

  Separateness      13  
ARTICLE IV    CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS      14  

Section 4.1

  Capital Contributions      14  

 

i


Section 4.2

  Capital Accounts      15  

Section 4.3

  Equity Contributions to Project Company      17  

Section 4.4

  Conditions Precedent to Equity Contributions by Company      17  

Section 4.5

  Member Loans      20  
ARTICLE V    ALLOCATIONS      21  

Section 5.1

  Allocations      21  

Section 5.2

  Adjustments      21  

Section 5.3

  Tax Allocations      23  

Section 5.4

  Transfer or Change in Company Interest      23  

Section 5.5

  Timing of Allocations      24  
ARTICLE VI    DISTRIBUTIONS      24  

Section 6.1

  Distributions      24  

Section 6.2

  Withholding Taxes      25  

Section 6.3

  Limitation upon Distributions      25  

Section 6.4

  No Return of Distributions      25  

Section 6.5

  Calculation of Internal Rate of Return      25  

Section 6.6

  Satisfaction of Recapture-Related Obligations of the Class A Members to the Class B Member      26  

Section 6.7

  Satisfaction of Certain Recapture-Related Obligations of the Class B Member to the Class A Members      27  

Section 6.8

  Satisfaction of Certain Recapture-Related Obligations of the Company or the Project Company      27  

Section 6.9

  Class A Recapture Events Prior to Receipt of Grant      28  

Section 6.10

  Repayment      28  
ARTICLE VII    ACCOUNTING AND RECORDS      29  

Section 7.1

  Reports      29  

Section 7.2

  Books and Records and Inspection      30  

Section 7.3

  Bank Accounts, Notes and Drafts      31  

Section 7.4

  Financial Statements      32  

Section 7.5

  Partnership Status and Tax Elections      33  

Section 7.6

  Company Tax Returns      34  

Section 7.7

  Tax Audits      35  

Section 7.8

  Cooperation      37  

 

ii


Section 7.9

  Fiscal Year      37  
ARTICLE VIII     MANAGEMENT      37  

Section 8.1

  Management      37  

Section 8.2

  Managing Member      37  

Section 8.3

  Major Decisions      39  

Section 8.4

  Insurance      39  

Section 8.5

  Notice of Material Breach      39  
ARTICLE IX     TRANSFERS, CHANGES OF CONTROL AND INDEMNIFICATION      40  

Section 9.1

  Prohibited Transfers      40  

Section 9.2

  Conditions to Transfers of Class A Membership Interests or Changes of Control of Managing Member      40  

Section 9.3

  Conditions to Transfers of Class B Membership Interests      42  

Section 9.4

  Conditions to Changes of Control of Upstream Entities      43  

Section 9.5

  Certain Permitted Transfers      44  

Section 9.6

  [Intentionally omitted]      45  

Section 9.7

  Purchase Option      45  

Section 9.8

  Sale Option      46  

Section 9.9

  Regulatory and Other Authorizations and Consents      47  

Section 9.10

  Admission      48  

Section 9.11

  Security Interest Consent      48  

Section 9.12

  Indemnification; Other Rights of the Members      49  

Section 9.13

  Indemnification of Members by the Company      50  

Section 9.14

  Direct Claims      50  

Section 9.15

  Third Party Claims      50  

Section 9.16

  No Duplication      52  

Section 9.17

  Sole Remedy      52  

Section 9.18

  Survival      52  

Section 9.19

  Final Date for Assertion of Indemnity Claims      52  

Section 9.20

  Reasonable Steps to Mitigate      52  

Section 9.21

  Net of Insurance Benefits      53  

Section 9.22

  No Consequential Damages      53  

Section 9.23

  Payment of Indemnification Claims      53  

Section 9.24

  Repayment; Subrogation      53  

 

iii


ARTICLE X     DISSOLUTION AND WINDING-UP      54  

Section 10.1

  Events of Dissolution      54  

Section 10.2

  Distribution of Assets      54  

Section 10.3

  In-Kind Distributions      55  

Section 10.4

  Certificate of Cancellation      55  
ARTICLE XI     MISCELLANEOUS      56  

Section 11.1

  Notices      56  

Section 11.2

  Amendment      56  

Section 11.3

  Partition      56  

Section 11.4

  Waivers and Modifications      56  

Section 11.5

  Severability      57  

Section 11.6

  Successors; No Third-Party Beneficiaries      57  

Section 11 .7

  Entire Agreement      57  

Section 11.8

  Governing Law      57  

Section 11.9

  Further Assurances      58  

Section 11.10

  Counterparts      58  

Section 11.11

  Dispute Resolution      58  

Section 11.12

  Confidentiality      59  

Section 11.13

  Joint Efforts      60  

Section 11.14

  Specific Performance      61  

Section 11.15

  Survival      61  

Section 11.16

  Effective Date      61  

Section 11.17

  Recourse Only to Member      61  

 

iv


ANNEXES

 

Annex I

 

Definitions

Annex II

 

Class B Membership Interests

SCHEDULES

 

Schedule 4.2(b)

 

Contributed Property

Schedule 4.2(d)

 

Capital Account Balance and Percentage Interest of each Member

Schedule 8.2(e)

 

Officers

Schedule 8.4

 

Insurance

Schedule 9

 

Transfer Representations and Warranties

EXHIBITS

 

Exhibit A

 

Form of Class A Membership Interests Certificate

Exhibit B

 

Form of Class B Membership Interests Certificate

Exhibit C

 

Form of Operations Report [OMITTED]

Exhibit D

 

Form of Assignment Agreement

Exhibit E

 

Form of Equity Contribution Notice

Exhibit F

 

Base Case Model

 

 

v


SECOND AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

DIAMOND STATE GENERATION HOLDINGS, LLC

Second Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings, LLC, a Delaware limited liability company (the “ Company ”), dated as of March 20, 2013 by and among Clean Technologies II, LLC, a Delaware limited liability company (“ Clean Technologies ”) and Mehetia Inc., a Delaware corporation (“ Mehetia ”).

Preliminary Statements

WHEREAS, the Company was formed by virtue of its certificate of formation filed with the Secretary of State of the State of Delaware on July 20, 2011 (the “ Certificate of Formation ”), and, prior to the date hereof, has been governed by the Amended and Restated Limited Liability Company Agreement of the Company, dated as of April 13, 2012, executed by Clean Technologies and Mehetia as the members of the Company (the “ 2012 Operating Agreement ”);

WHEREAS, the Company owns 100% of the issued and outstanding membership interests in Diamond State Generation Partners, LLC (the “ Project Company ”), which intends to acquire and own a portfolio of Systems having an aggregate nameplate capacity of up to 30 MW to be operated in accordance with the Tariffs and the REPS Act (collectively, the “ Portfolio ” or the “ Project ”);

WHEREAS, pursuant to the Equity Capital Contribution Agreement among the Company, the Project Company, Clean Technologies and Mehetia, dated as of March 16, 2012 (as amended, amended and restated, supplemented or modified, the “ ECCA ”), Clean Technologies agreed to make a capital contribution to the Company on or before the Initial Funding Date, and Mehetia agreed to make a capital contribution to the Company in return for the issuance of Class B Membership Interests in the Company on the Initial Funding Date, subject to the terms and conditions as provided therein; and

WHEREAS, Clean Technologies and Mehetia desire for the 2012 Operating Agreement to be amended and restated as stated herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree, notwithstanding any contrary provision of the 2012 Operating Agreement, effective as of the date hereof, that:

A.    the issuance of Class B Membership Interests to Mehetia pursuant to the ECCA is approved and is a Permitted Transfer for purposes of this Agreement;


B.    Mehetia continues as a Member of the Company, holding the Class B Membership Interests in the amount (and percentage) next to its name in Annex II ;

C.    Clean Technologies continues as a Member of the Company, holding all of the issued and outstanding Class A Membership Interests;

D.    Clean Technologies and Mehetia are the sole Members of the Company; and

E.    the 2012 Operating Agreement is amended and restated in its entirety as described herein.

ARTICLE I

DEFINITIONS

Section 1.1 Definitions . Capitalized terms used but not otherwise defined in this Agreement have the meanings given to such terms in Annex I .

ARTICLE II

CONTINUATION; OFFICES; TERM

Section 2.1 Continuation of the Company . The Members hereby acknowledge the continuation of the Company as a limited liability company pursuant to the Act, the Certificate of Formation and this Agreement.

Section 2.2 Name, Office and Registered Agent .

(a)    The name of the Company will be “Diamond State Generation Holdings, LLC” or such other name or names as complies with law and may be determined by the Managing Member from time to time and notified to the Members. The principal office of the Company shall be located at 1299 Orleans Drive, Sunnyvale, California 94089. The Managing Member may change the location of the principal office of the Company to another location, provided that the Managing Member gives prompt written notice of any such change to the registered agent of the Company and all Members.

(b)    The registered office of the Company in the State of Delaware is located at c/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The registered agent of the Company for service of process at such address is Corporation Service Company. The registered office and registered agent may be changed by the Managing Member at any time in accordance with the Act, provided that the Managing Member gives prompt written notice of any such change to all Members. The registered agent’s primary duty as such is to forward to the Company at its principal office and place of business any notice that is served on it as registered agent.

 

2


Section 2.3 Purpose . The nature of the business or purpose to be conducted or promoted by the Company is: (i) to acquire, own, hold or dispose of the membership interests in the Project Company; (ii) to engage in the transactions contemplated by the Transaction Documents; (iii) to engage, through the Project Company, in the acquisition and operation of the Systems in accordance with the Transaction Documents; (iv) to engage, through the Project Company, in the business of generating and delivering to the PJM Grid, electricity, capacity, ancillary services and environmental attributes from the Systems in accordance with the Transaction Documents; and (v) to engage in any lawful act or activity, enter into any agreement and to exercise any powers permitted to limited liability companies organized under the Act in each case that are incidental to or necessary, suitable or convenient for the accomplishment of the purposes specified above.

Section 2.4 Term . The term of the Company commenced on July 20, 2011 and shall continue until the Company is dissolved in accordance with the terms hereof or as otherwise provided by law (the “ LLC Agreement Termination Date ”).

Section 2.5 Organizational and Fictitious Name Filings; Preservation of Limited Liability . The Managing Member shall cause the Company to register as a foreign limited liability company and file such fictitious or trade names, statements or certificates in such jurisdictions and offices as are necessary or appropriate for the conduct of the Company’s operation of its business. The Managing Member may take any and all other actions as may be reasonably necessary or appropriate to perfect and maintain the status of the Company as a limited liability company or similar type of entity under the laws of Delaware and any other state or jurisdiction other than Delaware in which the Company engages in business and continue the Company as a limited liability company and to protect the limited liability of the Members as contemplated by the Act.

Section 2.6 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

Section 3.1 Membership Interests .

(a)    The Membership Interests comprise 9,505 Class A Membership Interests, all of which are issued and held by Clean Technologies, and 495 Class B Membership Interests, all of which are issued and held by Mehetia.

(b)    The Class A Membership Interests and the Class B Membership Interests shall (i) have the rights and obligations ascribed to such Membership Interests in this Agreement and the Act; (ii) be evidenced solely by certificates in the forms annexed hereto as Exhibit A and Exhibit B , respectively, or such other form as may be prescribed from time to time by any Legal Requirements; provided , that certificates evidencing the Class A Membership Interests and the Class B Membership Interests which were issued in the forms annexed to the 2012 Operating

 

3


Agreement prior to the date hereof shall continue to be valid; (iii) be recorded in a register of Membership Interests, which register the Managing Member shall cause the Administrator to maintain; (iv) be transferable only on recordation of such Transfer in the register of Membership Interest, which recordation the Managing Member shall cause the Administrator to 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 for all purposes of this Agreement, except that the Administrator 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 , the transferor shall automatically cease to be a Member.

Section 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 called by any Member for any reason and shall be called by the Managing Member within 10 days following the written request of a 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 A Membership Interests and more than 50% of the aggregate Class B 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 or otherwise represented at a meeting of the Members duly called in accordance with this Section 3.2 , the Members present at such meeting shall have the power to adjourn such meeting and to call

 

4


another meeting no fewer than 10 days nor more than 15 days from such meeting (and notice thereof shall be promptly provided to all Members by the Managing Member) and the Members present at such second meeting shall constitute a quorum. For the avoidance of doubt, no 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 to vote at such meeting not less than five 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 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 sufficient Membership Interests to authorize or approve such action pursuant to this Agreement. 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)    Each Class A Membership Interest and each Class B Membership Interest shall be entitled to one vote for purposes of any vote, consent or approval of Members required under this Company LLC 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, the affirmative vote, consent or approval of Members owning more than 50% of the outstanding Membership Interests (the “ Majority Vote ”) shall be required to authorize or approve any such matter; provided that for Major Decisions (such term being used as defined prior to, or following, the Flip Date, as the case may be) the affirmative vote, consent or approval of more than 50% of the outstanding Class A Membership Interests and of more than 50% of the outstanding Class B Membership Interests shall be required to authorize or approve such Major Decision in addition to any other approval required by this Agreement or the Act (a “ Class  Majority Vote ”). Except as otherwise expressly provided in this Agreement, no separate vote, consent or approval of either Class A Members acting as a class, or Class B Members acting as a class, shall be required to authorize or approve any matter for which a vote, consent or approval of Members is required under this Agreement.

Section 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 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

 

5


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.

Section 3.4 Other Activities . Notwithstanding any duty otherwise existing at law or in equity, any Member or the Administrator 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.

Section 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 without the prior written consent of each of the remaining Members of the Company in their sole and absolute discretion.

Section 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) be exculpated from liability for and 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 or the Project Company, as applicable, 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 the Transaction Documents. 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 of the Company 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, the Administrator 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.

 

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(c)    To the extent that, at law or in equity, a Member, in its capacity as a member or manager 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 to limit obligations or liabilities therefor, in each case as expressly stated in this Agreement or any other Transaction Document. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Member, in its capacity as a member or manager 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)    Clean Technologies, in its capacity as Managing Member, shall not have any liability for breach of contract (except as provided in (i) and (ii) below) or breach of duties (including fiduciary duties) of a member or manager to the Company or to any Member or other Person that is a party to or is otherwise bound by this Agreement, in each case, to the fullest extent permitted by the Act; provided that (i) this Agreement shall not limit or eliminate liability for any (x) obligations expressly imposed on Clean Technologies, as Managing Member, pursuant to this Agreement or any other Transaction Document, (y) act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing or (z) act or omission arising from the gross negligence, willful misconduct or fraud of Clean Technologies and (ii) this Section  3.6(d) shall not limit or eliminate liabilities expressly stated in this Agreement or any other Transaction Document.

(e)    Except as otherwise provided in Section 6.1 of the ECCA or Section 9.12 hereof with respect to liability resulting from fraud or willful misconduct, or with respect to its failure to pay any amount due to Investor Indemnified Parties under the Transaction Documents, Clean Technologies, in its capacity as Managing Member, shall have no liability of any kind to the Members under this Agreement for monetary damages in an amount that would exceed its aggregate obligation to indemnify the Investor Indemnified Parties pursuant to Section  9.12 .

(f)     Clean Technologies, in its capacity as a Member or Managing Member, shall not have any liability to the Company, any Class B Member or any other Person bound by this Agreement for damages resulting from a breach or breaches by (i) the Administrator resulting from or arising out of the Administrator’s performance of its obligations under the Administrative Services Agreement, (ii) the Operator of any of its obligations, covenants or agreements under the MOMA, except to the extent that Clean Technologies is the Managing Member and it is finally determined by a court of competent jurisdiction (not subject to appeal, or not appealed) that Clean Technologies, as Managing Member, has failed to perform its supervisory obligations hereunder with respect to the Administrative Services Agreement or MOMA in a manner consistent with the definition of “Prudent Operator Standard”.

 

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Section 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.

Section 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.

Section 3.9 Retirement, Resignation, Expulsion, Incompetency, 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. 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.

Section 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; provided , however , that in the event that a Capital Contribution has been made by a Class B Member, such Class B Member shall be entitled to a return of its Capital Contribution if such Capital Contribution has not been drawn upon in full by the Project Company in accordance with Sections 4.3 and 4.4 hereof within six months following the date of such Capital Contribution, unless otherwise agreed to in writing by such Class B Member. No Member shall be entitled to demand or receive any interest on its Capital Contributions.

Section 3.11 Representations and Warranties .

(a)    Each Member hereby represents and warrants to the Company and each other Member that the following statements are true and correct as of the date it becomes a Member (both immediately before and after it becomes a Member):

(i)    That the Member is duly incorporated, organized or formed (as applicable), validly existing, and (if applicable) in good standing under the law of the jurisdiction of its incorporation, organization of formation; if required by applicable law, that Member is duly qualified and in good standing in the jurisdiction of its principal place of business, if different from its jurisdiction of incorporation, organization or formation; and that the Member has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, and performance of this Agreement by that Member have been duly taken.

 

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(ii)    That the Member has duly executed and delivered this Agreement and the other documents contemplated herein, and they constitute the legal, valid and binding obligation of that the Member enforceable against it in accordance with their terms (except as may be limited by Bankruptcy, insolvency or similar Applicable Laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity).

(iii)    That the Member’s authorization, execution, delivery, and performance of this Agreement does not and will not (A) conflict with, or result in a breach, default or violation of, (I) the organizational documents of such Member, (II) any contract or agreement to which the Member is a party or is otherwise subject, or (III) any law, rule, regulation, order, judgment, decree, writ, injunction or arbitral award to which the Member is subject; or (B) require any consent, approval or authorization from, filing or registration with, or notice to, any Governmental Authority or other Person, except (w) for such consents, approvals, authorizations, registrations or notices that have already been received, delivered or filed, (x) for notices required to be delivered that (1) are regulatory or reporting in nature, (2) are not required to be delivered or filed until after the Initial Funding Date and (3) would not reasonably be expected to have a material adverse effect on the ability of such Member to perform its obligations under this Agreement, (y) that Credit Suisse AG, Cayman Islands Branch, of which Mehetia is a wholly owned indirect subsidiary as of the Initial Funding Date, may be required to file a report pursuant to 12 CFR 225.175(c)(2) with the Board of Governors of the Federal Reserve System, and (z) for such notices as any Member or its affiliates may be required to file with FERC pursuant to Section 205 of the Federal Power Act and notice filings required after acquiring an interest in the Company.

(iv)    That the Member is a “United States person,” as defined in Section 7701(a)(30) of the Code.

(b)    Each Member represents and warrants to the Company and each other Member that (i) the Member is an “Accredited Investor” as such term is defined in Regulation D under the Securities Act of 1933, (ii) the Member has had a reasonable opportunity to ask questions of and receive answers from the Company concerning, the Membership Interests and the Company and all such questions have been answered to the full satisfaction of that Member, (iii) the Member understands that the Membership Interests have not been registered under the Securities Act in reliance on an exemption therefrom, and that the Company is under no obligation to register the Membership Interests, (iv) the Member will not transfer the Membership Interests in violation of the Securities Act or any other applicable securities laws and (v) the Member is purchasing the Membership Interests for its own account and not for the account of any other Person and not with a view to distribution or resale to others.

(c)    Each Member represents and warrants to the Company and each other Member that the Member is not a Disqualified Person.

 

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(d)    Each Member represents and warrants to the Company and each other Member that the Member is not a tax-exempt entity within the meaning of Section 168(h) of the Code.

(e)    Each Member represents and warrants to the Company and each other Member that it has not taken any action that would cause the assets of the Company or the Project Company to become subject to the alternative depreciation system within the meaning of Section 168(g) of the Code.

Section 3.12 Covenants .

(a)    Each Member covenants to the Company and each other Member that it will be a “United States person,” as defined in Section 7701(a)(30) of the Code.

(b)    The Managing Member covenants to the Company and each other Member that (i) all electricity produced by the Systems will be through the use of qualified fuel cell property and (ii) no part of the assets of the Company or the Project Company is or will be used predominantly outside of the United States.

(c)    The Managing Member covenants to cause the Company to cause the Project Company to elect a Grant (to the extent such election is available) with respect to the Systems. If the Grant is not available with respect to certain Systems as determined in Section  7.5(b)(i) , the Managing Member covenants to cause the Company to cause the Project Company to elect or claim under an Alternative Tax Program as described in Section  7.5(b)(i) .

(d)    The Managing Member covenants to use commercially reasonable efforts, in Consultation with Class B Member, to structure the contracts and business affairs of the Project Company in a way that is intended to maximize the number of Systems that qualify for the Grant or, if any Alternative Tax Program is elected pursuant to Section 7.5(b)(i) , any Alternative Tax Program.

(e)    Each Member covenants to the Company and each other Member that it will not take any action that would cause the assets of the Company or the Project Company to become subject to the alternative depreciation system within the meaning of Section 168(g) of the Code.

(f)    Each Member covenants to the Company and each other Member that the Member will not become a Disqualified Person. Each Member further covenants that it will take no action or change its legal status in a manner that would give rise to a Class A Recapture Event or a Class B Recapture Event, as applicable.

(g)    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.

 

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(h)    The Managing Member covenants that it will not cause the Company or Project Company to claim an ITC with respect to Systems for which an application for a Grant has been submitted or for which a Grant has been received.

(i)    The Managing Member will elect an Alternative Tax Program with respect to any System only in accordance with Section  7.5(b)(i) .

(j)    The Managing Member covenants that, if there is any Project Company Distributable Cash, it will cause the Company, as manager of the Project Company, to, not less than on a quarterly basis, cause the Project Company to distribute such Project Company Distributable Cash to the Company.

(k)    The Managing Member covenants that, subject to the provisions of Sections 3.6(c) , and (e) , it shall cause the Company and cause the Company to cause the Project Company to comply with the terms and conditions of the REPS Act and the Tariffs.

(l)    The Managing Member covenants that all of the Systems will be Placed In Service prior to January 1, 2017 and that each System will be owned by the Project Company prior to each such System being Placed In Service.

(m)    The Class B Member covenants that it will not claim an ITC with respect to Systems for which an application for a Grant has been submitted or for which a Grant has been received.

Section 3.13 Deferred Obligations . The obligations of Mehetia and Clean Technologies to pay their respective Funding Payments or CT Funding Amounts, respectively, are unconditional, except as provided herein and in the ECCA, and subject to full recourse.

Section 3.14 Events of Default . An event of default shall occur upon the occurrence of any of the following by a Member: (i) failure of a Class B Member to make any Funding Payment or failure of a Class A Member to make any payment of a CT Funding Amount, in each case, when due or perform any other obligation with respect to such payment and the same is not cured within five (5) Business Days after notice that the same is due, (ii)    making an untrue material representation or warranty, 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 B Member or Clean Technologies hereunder, upon an event of default by the Class B Member or Clean Technologies, the other Member shall have the right to suspend performance of its obligations that are prevented by such default.

Section 3.15 Matters Pertaining to the Grant .

(a)    As soon as practicable but no later than 105 days after the Initial Funding Date and each Subsequent Funding Date, as applicable, the Managing Member shall: (x) provide the Accounting Firm the information it requires to issue the Accountant’s Certificate with respect to the Systems that have been Placed in Service during the quarterly period following such

 

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Funding Date or other period, as applicable, and will be included in a Grant Application and (y) use commercially reasonable efforts to cause the Company to cause the Project Company to complete and file a Grant Application with respect to such Systems. To the extent permitted by applicable law (and provided that it would not likely cause the Grant Application to be rejected or materially delayed), the Grant Application will request that the Grant be wired or otherwise sent directly to a control account. The Members will cooperate to seek confirmation from the appropriate Governmental Authorities with respect to the ability to have such control account established in the name of the Company. To provide for the possibility that the Grant will have to be funded to an account of the Project Company, promptly following the Execution Date, the Managing Member shall use reasonable best efforts to cause the Company to cause the Project Company, at its cost, to cause the Project Company’s lenders to allow the Project Company to establish a control account in the name of the Project Company which would not be subject to any lien or security interest or restriction on distribution other than the hereinafter described Control Agreement. Whether or not the control account is at the Project Company or Company level, the control account shall be subject to the Control Agreement in form and substance reasonably acceptable to the Class B Member, the control account agent and either the Project Company or the Company, as applicable, which shall provide that upon receipt of any funds in the control account, the control account agent will immediately distribute such funds to the Class B Member and the Class A Member, pro rata as provided in Section  6.1(a) . Any distribution made from the control account to the Members will be deemed to be a Company distribution for all purposes of this Agreement, including, without limitation, for purposes of maintaining Capital Accounts.

(b)    At least 10 days prior to filing a Grant Application, the Managing Member shall deliver to Class B Member a copy of the proposed Grant Application, which shall include the proposed filing date for the Grant Application. Class B Member shall have the right to raise reasonable objections to the proposed Grant Application within five days after Class B Member’s receipt thereof. If Class B Member raises any objection to the proposed Grant Application within such five-day period, the Managing Member and Class B Member shall use commercially reasonable efforts to resolve such objections. In the event the Managing Member and Class B Member are unable to resolve any such objections within a reasonable period of time, either Member may invoke the dispute resolution provisions of Section  11.11(a) .

(c)    To the Knowledge of the Managing Member, after due inquiry, all factual information and factual statements contained in the Grant Applications including amounts relating to the purchase price of the Systems shall be true, correct and complete in all material respects. For the avoidance of doubt, this Section  3.15(c) shall not be construed as a representation or warranty to any Member as to any legal matters or legal conclusions in the Grant Applications, although the Parties acknowledge that Clean Technologies has made representations and warranties in this Agreement and the ECCA, including representations and warranties relating to the eligibility of the Systems for the Grant.

(d)    The Managing Member shall cause the Company to cause the Project Company to respond to all written requests from any Governmental Authority for additional or supplemental information relating to the Grant Application and shall make all required filings and responses in Consultation with Class B Member.

 

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(e)    Upon receipt by the Project Company of Grant proceeds, the Managing Member shall, within two Business Days following the date on which Grant proceeds are received by the Project Company, provide Class B Member or cause Class B Member to be provided with a notice that sets forth the amount of the Grant received by the Project Company and a calculation of the appropriate amounts to be distributed to each of the Members.

(f)    In the event that an Alternative Tax Program is elected pursuant to Section  7.5(b)(i), the above provisions shall be deemed to apply to any Alternative Tax Program (with modifications as necessary to account for the differences in such programs as compared to the Grant), and the Managing Member shall be required to comply with all such provisions of this Section  3.15 as if they applied to any Alternative Tax Program, as applicable.

Section 3.16 Separateness . The Members agree that the Company and the Project Company are separate and distinct entities and that the Company shall conduct, and cause the Project Company to conduct, their respective affairs in a manner intended to maintain such status, including without limitation adhering the following:

(a)    The Company has not formed, acquired or held and shall not form, acquire or hold any subsidiary, except for the Project Company;

(b)    The Company does not have, shall not have and at no time had any assets other than its membership interests in the Project Company and personal property necessary or incidental to its ownership of such membership interests;

(c)    The Company has not engaged in, sought, consented or permitted to 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, except in each case as permitted by (i) this Company LLC Agreement and, (ii) any transfer of the Company’s membership interests in connection with the transactions described in the ECCA;

(d)    The Company shall not incur any additional debt or contingent liabilities except as permitted by this Company LLC Agreement;

(e)    The Company shall not commingle assets with those of any other entity and shall hold its assets in its own name;

(f)    The Company shall conduct its own business in its own name;

(g)    The Company shall maintain bank accounts (if any), books, records and financial statements separate from any other person or entity;

 

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(h)    The Company shall observe all formalities of the Company LLC Agreement;

(i)    The Company shall pay its own liabilities out of its own funds;

(j)    The Company shall maintain adequate capital in light of its contemplated business operations;

(k)    The Company shall use separate stationery, invoices and checks;

(1)    The Company shall pay the salaries of its own employees, if any;

(m)    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 others, in each case, other than the Project Company;

(n)    The Company shall not make any loans to any other person or entity other than in accordance with this Company LLC Agreement;

(o)    The Company shall allocate fairly and reasonably any overhead for shared office space;

(p)    The Company shall not pledge its assets for the benefit of any other entity, other than the Project Company or the Project; and

(q)    The Company shall hold itself out as a separate entity, with the exception that the Company shall not be considered a separate entity from the Project Company for federal, state, and local income tax purposes, and shall use commercially reasonable efforts to correct any known misunderstanding regarding its separate identity.

ARTICLE IV

CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS

Section 4.1 Capital Contributions.

(a)    Subject to the terms of the ECCA, the Members will make Capital Contributions to the Company at the times and in the amounts required under the ECCA. The Members acknowledge that on or prior to the effective date of the 2012 Operating Agreement, the Class A Member made a Capital Contribution to the Company of all of its right, title and interest in and to the Project Company and the sum of $16,619,399.60 (in cash), and has agreed to make further Capital Contributions at the times and in the amounts required under the ECCA. Except as provided in this Article IV of this Agreement, no Member will be required to make any Capital Contributions to the Company after the Subsequent Funding Termination Date.

(b)    The Company shall be entitled to enforce the obligations of each Member with respect to each Funding, and the Company shall have all remedies available at law or in equity in the event any such obligation is not met.

 

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(i)    Each Member hereby (A) agrees that the remedy at law for damages resulting from any failure by it to make a Funding when required under the terms of the ECCA is inadequate because the funding of the Systems requires the timely availability of required capital contributions and (B) consents to the institution of an action for specific performance of its obligations in the event of such a default.

(ii)    The Managing Member (or any other Member in the event that the Managing Member is the defaulting Member) may cause the Company to commence legal proceedings against the defaulting Member to collect the due and unpaid capital contribution plus interest (calculated from the date of the missed Funding) at a rate equal to the lesser of (x) 18% per annum, compounded daily and (y) the maximum rate allowable by law, as well as the expenses of collection including, without limitation, attorneys’ fees. Amounts collected in excess of the defaulting Member’s due and unpaid capital contribution or loan advance shall be deemed for purposes of this Agreement to be income of, or a reimbursement to, the Company, as appropriate, and shall not be treated as a capital contribution by the defaulting Member.

(iii)    Such defaulting Member’s share of the future distributions and profits (but not losses) of the Company shall be reduced by up to one hundred percent (100%) percent of that to which such defaulting Member would have been entitled based upon its Percentage Interest as measured immediately prior to the date of the missed Funding, based on a proportionate calculation of the shortfall of funds resulting from such defaulting Member’s failure to comply with its Funding obligation. The share of future distributions and profits that are not allocated to the defaulting Member shall be apportioned among the other non-defaulting Members in proportion to their respective Percentage Interests until such time as the defaulting Member cures such default by paying such unpaid capital contribution plus interest (calculated from the date of the missed Funding) at a rate equal to the lesser of (x) 18% per annum, compounded daily and (y) the maximum rate allowable by law, as well as the expenses of collection including, without limitation, attorneys’ fees.

Section 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; the Gross Asset Value of any property contributed by a Member will be set forth in Schedule 4.2(b)), (iii) the income and gain (or items thereof) that the Member is allocated by the Company, including any income and gain exempted from tax (e.g., income allocated in respect of the Grant) and gain described in

 

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Section  4.2(c) and (iv) an amount equal to an allocation of upward basis adjustment to such Member in the event of a recapture of the Grant or ITC as described in Treasury Regulation Section 1.704-1(b)(2)(iv)(j). A Member’s Capital Account will be decreased by (v) the amount of money distributed to the Member by the Company (including any proceeds from the Grant distributed to such Member), (vi) the Gross Asset Value of any property distributed to the Member by the Company (net of liabilities secured by the property that the Member is considered to assume or take subject to under Section 752 of the Code), (vii) 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 (viii) 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 (viii) for expenditures that already reduced it under clause (vii) and (ix) an amount equal to an allocation of downward basis adjustment to such Member to take into account the Grant or ITC as described in Treasury Regulation Section 1.704-1(b)(2)(iv)(j).

(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, provided that, for the avoidance of doubt, no adjustment will be made to Gross Asset Values in connection with any Capital Contributions described in Section  4.2(b) or (c) , (ii) if more than a de minimis amount of money or other property is distributed by the Company to a Member to redeem its Membership Interest, or (iii) if the Company is liquidated within the meaning of Treasury 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 Distribution Date. 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)    The initial Capital Account balance and Percentage Interest of each Member is shown in Schedule 4.2(d) . Contributions made by the Members on Subsequent Fundings will be considered contributions of such amounts to the Company. The Managing Member will update Schedule 4.2(d) after each Subsequent Funding and from time to time as necessary to reflect accurately the information therein; provided , however , that, notwithstanding anything in this Company LLC Agreement or the ECCA to the contrary, failure to update Schedule 4.2(d) in accordance with this Section  4.2(d) shall not impact the actual amounts considered Capital Contributions hereunder, all of which shall be deemed made on the date actually contributed. Any such updating will be consistent with how this Article IV requires that the Capital Accounts be maintained. Any reference in this Agreement to Schedule 4.2(d) will be treated as a reference to Schedule 4.2(d) as amended and in effect from time to time.

 

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(e)    If all or a portion of a Membership Interest in the Company is Transferred in accordance with the terms of this Agreement, 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.

Section 4.3 Equity Contributions to Project Company .

(a)    Subject to the terms and conditions of this Agreement and the satisfaction of the conditions precedent in Section  4.4 hereof, the Company shall contribute funds to the Project Company (each such contribution, an “ Equity Contribution ”) for further application by the Project Company towards payment of the purchase price for the Systems and other related costs. Within five (5) Business Days of receipt of a notice in the form of Exhibit E (the “ Equity Contribution Notice ”) and the satisfaction or waiver of the conditions precedent in Section  4.4 (such date, the “ Equity Contribution Date ”), the Company shall transfer the appropriate amount of funds from the Company’s account to a Project Company account as specified by the Project Company in such notice.

(b)    Each of the Initial Funding Payment of Class B Member and the CT Funding Amount of Class A Member made on the Initial Funding Date has been or shall be applied for further contribution to the Project Company to pay the 25% Progress Payments for systems to be deployed in the two quarters immediately following the Initial Funding Date.

(c)    All CT Funding Amounts made by Class A Member and all Subsequent Funding Payments made by Class B Member (subject to the satisfaction or waiver by the Class B Member of the conditions precedent in Section  4.4) will be contributed to the Project Company and used for the purchase and installation of the Systems and related costs. All CT Funding Amounts and all Subsequent Funding Payments will be deposited into an account established in the Project Company’s name with a financial institution reasonably acceptable to Class B Member (the “ Capital Contributions Account ”) and will be maintained in the Capital Contributions Account until such time as such amounts are used by the Project Company to pay for the costs or expenses for which such funds were requested, to distribute such funds to the Members as expressly permitted hereunder or for such other uses as are agreed to by the Members. Upon establishment of the Capital Contributions Account any portion of the Capital Contributions made by the Members on the Initial Funding Date that was projected to pay for the purchase price of Systems that has not yet been used for such purpose shall be deposited into the Capital Contributions Account and maintained there until used in accordance with the preceding sentence.

Section 4.4 Conditions Precedent to Equity Contributions by Company . The obligation of the Company to make an Equity Contribution to the Project Company (except in the case of the portion of any Equity Contribution used to pay any 25% Progress Payments for

 

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Systems to be deployed in the subsequent quarter which shall be subject to the conditions precedent hereinafter expressly provided) will be subject to the fulfillment by the Project Company, on or before the applicable Equity Contribution Date, of each of the following conditions (and upon satisfaction of such conditions, as applicable, the Managing Member shall so notify in writing the Administrator and the Members):

(a)    the Project Company shall have delivered to the Company and each of the Company’s members an Equity Contribution Notice, in the form attached to this Agreement as Exhibit E;

(b)    Managing Member’s Capital Contribution to the Company of $16,619,399.60 shall have been further contributed by the Company to the Project Company and used by Project Company to incur Project costs in an amount equal to at least 5% of the cost of all Systems;

(c)    the Project Company shall deliver to the Company and each of the Company’s members all necessary Governmental Approvals from the applicable Governmental Authority to the extent not previously delivered;

( d)    each of the representations and warranties of Clean Technologies in Section  3.2 of the ECCA relating to the Systems funded by such Equity Contribution is (i) true and correct in all material respects as of such Equity Contribution Date except to the extent that any such representation or warranty shall have been expressly made only as of an earlier date in which case such representation and warranty was true and correct in all material respects as of such earlier date and (ii) if and to the extent such representations and warranties are qualified by the words “material,” “Material Adverse Effect” or similar qualification, true and correct, as qualified, as of the such Equity Contribution Date (or such earlier date, as applicable);

(e)    No material ongoing breach exists by Bloom, Clean Technologies, the Company, the Project Company, the Managing Member, DPL or PJM under the ECCA, the Project Company LLC Agreement, the MESP A, the MOMA, the Administrative Services Agreement, the Credit Documents, the DPL Agreements, the PJM Agreements, this Agreement or any other Transaction Document or Material Contract, as applicable;

(f)    the Project Company is solvent and no event of Bankruptcy has occurred with respect to the Project Company;

(g)    confirmation that (i) all conditions precedent in Section  2.5 and Section  2.7 of the ECCA (other than Section  2.5(aa)) remain satisfied; provided that Clean Technologies and Company shall not be required to update any due diligence reports, legal opinions, appraisals or other third party documents previously delivered to Class B Member unless any of such previously delivered documents has been withdrawn or specific circumstances have materially changed in connection with the Systems to be funded from this Equity Contribution by Company to Project Company such that the previously delivered document is inapplicable or is materially incorrect with respect to such Systems; and (ii) there have been no material adverse changes from the circumstances addressed in the due diligence reports delivered under Sections 2.5(a) and (b) of the ECCA;

 

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(h)    the information on each invoice from Bloom to Project Company for payments under the MESPA regarding the Systems to be paid for with proceeds of the applicable Equity Contribution will include the following: (i) the location of the installation of each such System, (ii) the serial number for each such System, (iii) the price for each such System as determined pursuant to the MESPA, (iv) all amounts previously paid as a deposit on each such System and (v) all amounts remaining due and payable on each such System;

(i)    the Initial Funding Payment, any prior Subsequent Funding Payments and any prior CT Funding Amounts, as applicable, shall have been contributed in full to the Project Company in accordance with Section  4.3 and Section  4.4 hereof, with respect to any Subsequent Funding Payment and any CT Funding Amount, the Capital Contributions Account shall have been established and maintained in accordance with the provisions of Section  4.3(c), the Project Company does not retain at such time in the Capital Contributions Account more than an amount equal to (i) $20,000,000 minus (ii) the amount of cash held by the Company at such time, and the Project Company shall have used such payments to make payments under the MESPA;

(j)    there are no material defaults under the MOMA relating to Systems previously installed, purchased and paid for by Project Company;

(k)    in the case of the portion of any Subsequent Funding Payment used to pay any 75% Progress Payments, Commencement of Operations (as defined under the MESPA) has occurred for the Systems for which there is a request for a Capital Contribution of the amounts of the 75% Progress Payment for such System;

(l)    in the case of the portion of any Subsequent Funding Payment or any CT Funding Amount used to pay any 75% Progress Payments, the Members have received confirmation that the Note Proceeds have either been disbursed from the Construction Escrow Account or will be available for disbursement from the Construction Escrow Account contemporaneous with Project Company’s drawdown of such Progress Contribution from the Company (as may be evidenced by, among other things, delivery to the Members of a copy of the Account Withdrawal Instruction applicable to such proceeds which has been countersigned by the Collateral Agent and delivered to the Depositary) or the Required Holders have in writing confirmed to the Members that all conditions precedent to such disbursement from the Construction Escrow Account have been satisfied or waived and the Required Holders are prepared to permit such disbursement contemporaneous with Project Company’s drawdown of such Progress Contribution from the Company; and

(m)    in the case of the portion of any Subsequent Funding Payment or any CT Funding Amount used to pay any 75% Progress Payments, the Members have received written certification from the Independent Engineer (as defined in the MESPA) addressed to Project Company certifying, without any qualification, that such System’s commissioning has been successfully completed, that such System is available for full commercial operation, and that Bloom has installed all BOF Work (as defined in the MESPA) necessary for the operation of that System.

 

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Notwithstanding the foregoing, with respect to the portion of any Equity Contribution used to pay any of the 25% Progress Payments for Systems to be deployed in the subsequent quarter, the fulfillment by the Project Company, on or before the applicable Equity Contribution Date, of each of the conditions set forth in Sections 4.4(a) , (e) , (f) , (h)(i) and (h)(iii) must be satisfied.

To the extent that an Equity Contribution Notice has been delivered to the Company for which all of the applicable conditions precedent set forth above have been satisfied, the Company may make a capital contribution to Project Company related to all of the Systems for which all of the applicable conditions precedent have been satisfied. With respect to those Systems for which all conditions precedent had not been previously satisfied, but which are later satisfied, the Company may make a subsequent capital contribution to Project Company for the amounts requested in connection with that later qualifying System.

Section 4.5 Member Loans .

(a)    The Class B Members are entitled to effect cures of defaults under the Credit Documents to the extent set forth in the Interparty Agreement. Amounts expended in effecting such cures shall be deemed Member Loans, with each Class B Member contributing ratably in proportion to its holding of all then outstanding Class B Membership Interests; provided that, if any Class B Member does not wish to advance or loan its proportionate share of any such advance or loan, an amount equal to such proportionate share may instead be advanced by the remaining Class B Members (each such remaining Class B Member contributing ratably (or as otherwise agreed amongst such remaining Class B Members) in proportion to its holding of all then outstanding Class B Membership Interests (excluding in such determination of outstanding Class B Membership Interests all then outstanding Class B Membership Interests of any Class B Member that does not wish to advance or loan such proportionate share).

(b)    Any loan or advance made by any Class B Member pursuant to this Section  4.5 shall bear interest, unless otherwise agreed by such Class B Member in its sole discretion, at the Prime Rate.

(c)    Notwithstanding anything to the contrary in this Agreement, the Company shall borrow and accept, and the Managing Member shall cause the Company to borrow and accept, such loans or advances from the lending Members. The Company shall immediately advance, and the Managing Member shall cause the Company to immediately advance, such loans or advances from the lending Members to the Project Company. The incurrence of indebtedness by the Company pursuant to any loan or advance made by any Member pursuant to this Section  4.5 shall not require the consent of the Managing Member or the Class A Member. The Company shall apply all Company Distributable Cash to the payment of the principal of all outstanding advances or loans (together with accrued interest thereon) made under this Section  4.5 and, unless and until the outstanding principal amount of all such advances and loans is repaid in full together with all interest thereon and all other amounts due in respect thereof, there shall be no distributions to the Class A Members under this Agreement pursuant to Article VI or otherwise.

 

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(d)    An advance or loan by any Member described in this Section 4.5 constitutes a loan from such Member to the Company and is not a Capital Contribution.

ARTICLE V

ALLOCATIONS

Section 5.1 Allocations . After giving effect to the allocations in Section  5.2 and except as provided in Section  10.2(c) and Section  10.2(d) 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)    Except for items relating to any Grant, for the period beginning on April 13, 2012 and running through the Flip Date, 99% in the aggregate to the Class B Members, allocated among them in proportion to their Pro Rata Shares, and 1% in the aggregate to the Class A Members, allocated among them in proportion to their Pro Rata Shares; and (ii) for the period beginning after the Flip Date, 5% in the aggregate to the Class B Members, allocated among them in proportion to their Pro Rata Shares, and 95% in the aggregate to the Class A Members, allocated among them in proportion to their Pro Rata Shares.

(b)    With respect to any items relating to any Grant, 99% in the aggregate to the Class B Members, allocated among them in proportion to their Pro Rata Shares, and 1% in the aggregate to the Class A Members, allocated among them in proportion to their Pro Rata Shares.

(c)    No losses or deductions may be allocated to a Member pursuant to this Section  5.1 to the extent the allocation would lead to a deficit in such Member’s Adjusted Capital Account. Losses or deductions that a Member cannot be allocated by reason of this Section  5.1(b) will be allocated to the other Members.

Section 5.2 Adjustments . The following adjustments will be made in the allocations in Section  5.1 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, then 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

 

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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  5.2(c) only if and to the extent that the Member would have a deficit in its Adjusted Capital Account after all other allocations provided for in Sections 5.1 and 5.2 have been tentatively made as if this Section  5.2(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  5.1 and 5.2 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  5.1 or Sections 10.2(c) and (d) , as applicable.

(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)(l).

(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-l(b)(2)(iv)(m)(2) and (4) and will be interpreted consistently therewith.

(h)    The allocations in this Section  5.2 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  5.2 .

 

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Section 5.3 Tax Allocations .

(a)    All allocations of 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 5.1 and 5.2 .

(b)    Notwithstanding Section  5.3(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 Company LLC 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 with curative allocations pursuant to Treasury Regulation Section 1.704-3(c). To the extent the “ceiling rule” in Treasury Regulation Section 1.704-3(b) prevents the noncontributing Members from receiving an amount of tax depreciation in any year equal to the Members’ share of Depreciation for the year, then the shortfall will be made up in succeeding years as quickly as possible out of any tax depreciation that would otherwise have been allocated to the contributing Member.

(c)    Allocations pursuant to this Section  5.3 are solely for purposes of federal, state and local taxes and will not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of income, gain, deductions or losses or distributions pursuant to any other provision of this Agreement.

(d)    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.

(e)    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 profit sharing percentages then in effect pursuant to Section  5.1(a) .

Section 5.4 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

 

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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.

Section 5.5 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) .

ARTICLE VI

DISTRIBUTIONS

Section 6.1 Distributions . Except as provided otherwise in Sections 6.6, 6.7, 6.9, 6.11 or 10.2 , Company Distributable Cash will be distributed to the Members on each Distribution Date in the manner described in this Section  6.1 .

(a)    First, the proceeds of any Grant (or, if any Alternative Tax Program is elected pursuant to Section  7.5(b)(i) , any Alternative Tax Program other than the ITC) received by the Project Company in connection with the Systems included in the Portfolio (as opposed to future capital expenditures) will be distributed, promptly upon receipt, in full to the Company by the Project Company and then distributed 99% to the Class B Members, distributed among them in proportion to their Pro Rata Shares, and 1% to the Class A Members, distributed among them in proportion to their Pro Rata Shares;

(b)    Second, any remaining Company Distributable Cash will be distributed (i)    from April 13, 2012 to and through the Flip Date, 99% to the Class B Members, distributed pro rata in proportion to the Percentage Interest held by each Class B Member, and 1% to the Class A Members, distributed pro rata in proportion to the Percentage Interest held by each Class A Member, and (ii) after the Flip Date, 5% to the Class B Members, distributed pro rata in proportion to the Percentage Interest held by each Class B Member, and 95% to the Class A Members, distributed pro rata in proportion to the Percentage Interest held by each Class A Member; and

(c)    Notwithstanding anything to the contrary in this Article VI or in any other Transaction Document, in the event that any 25% Progress Payments or 75% Progress Payments are refunded from Bloom to Project Company under the MESPA, whether or not such refunded 25% Progress Payments or 75% Progress Payments are deposited into a separate control account with the Company as the secured party, following the receipt by the Company of such refunded 25% Progress Payments or 75% Progress Payments, such refunded 25% Progress Payments or 75% Progress Payments will be distributed 100% to the Class B Members and among them in proportion to their Pro Rata Shares.

 

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Section 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, (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 to assist it in determining the extent of, and in fulfilling, any withholding obligations it may have.

Section 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 or any Legal Requirement then applicable to the Company.

Section 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.

Section 6.5 Calculation of Internal Rate of Return .

(a)     Tracking Progress . The Managing Member will calculate at least annually whether the Class B Member has reached the Target IRR and will send the Class B Member, within 120 days after the end of each Fiscal Year in which the Target IRR was not achieved, a report in the form of the Tracking Model showing where it believes the Class B Member is in relation to the Target IRR. If the report suggests that the Target IRR will be reached during the next two Fiscal Years, then the Managing Member will calculate and report whether the Class B Member has reached the Target IRR at least quarterly thereafter. The Managing Member will make its advisers available to answer any questions about its calculations. The Class B Member may invoke the dispute resolution procedures in Section  11.11(b) to resolve any item or procedure that is in dispute, and the conclusion of such dispute resolution procedures will apply in all subsequent periods to any identical item or procedure.

 

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(b)     Notice of Date . The Managing Member will notify the Class B Member in writing at least 10 Business Days before the Distribution Date following the month in which it believes the Class B Member achieved the Target IRR or at least 30 days before making any liquidating distributions, in connection with a liquidation of the Company pursuant to Section  10.1 , if it believes the Class B Member will achieve the Target IRR as a consequence of the liquidating distributions. The notice will include the Tracking Model showing the Managing Member’s calculations and, in the case of a notice delivered in connection with a liquidation, the allocations and distributions that the Managing Member proposes to make to the Class B Member under Section  10.2 in light of the calculations. The Managing Member will make its advisers available to answer any questions about its calculations. If the Class B Member wishes to invoke the dispute resolution procedures in Section  11.11(b) to resolve any disagreements, then they must give notice to that effect to the Managing Member before the Distribution Date, in a case not involving liquidation of the Company, and within 30 days after receipt of notice from the Managing Member in a case involving liquidation.

(c)    Notwithstanding the foregoing, if there is a Class A Recapture Event after a final determination has been made that Class B Member has achieved the Target IRR, the Internal Rate of Return shall be recalculated at the time of such Class A Recapture Event in accordance with the terms of Section  6.5 , taking into account the consequences of any recapture. If, as a result of the Class A Recapture Event, the Class B Member’s Internal Rate of Return is below the Target IRR, the sharing percentages set forth in Section  5.1 and Section  6.1 shall be adjusted to the maximum extent necessary so as to correct, on a present value basis calculated at the Target IRR, the difference between the Target IRR assumed to have been realized by a holder of Class B Membership Interests on the Distribution Date as of which the Target IRR was determined to have been achieved, and the Internal Rate of Return realized by such a holder after adjusting solely for the Class A Recapture Event. Such change in sharing percentages shall remain in effect until, and to the extent necessary so that, the difference between the Target IRR and actual Internal Rate of Return shall have been eliminated.

Section 6.6 Satisfaction of Recapture-Related Obligations of the Class  A Members to the Class  B Member .

(a)    Notwithstanding the provisions of Section  6.1 , if the Class B Member shall suffer any Recapture Damages, as a result of a Class A Recapture Event, then the Class B Member shall be entitled to collect Recapture Damages from the Class A Member in accordance with this Section  6.6 .

(b)    Within 60 days after they become aware that they have incurred Recapture Damages, the Class B Member shall notify the Company and the Class A Members in writing of their Recapture Claim for such Recapture Damages, specifying in reasonable detail the cause of such Recapture Damages and the Class B Member’s calculation of the amount thereof if reasonably determinable by the Class B Member, or, if not reasonably determinable, an estimate of the range of such Recapture Damages. Within 30 days following receipt of notice of a Recapture Claim, the Class A Members shall notify each of the Class B Members and the Company in writing whether it agrees with or disputes all or a portion of the Recapture Claim, specifying the amount, if any, so agreed to. If the Class A Members shall not deliver such notice

 

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within the time specified, it shall be deemed to have delivered a notice on the 30th day disputing the entire amount of such Recapture Claim. The Class B Member shall have all rights and remedies available at law or in equity to the Class B Member to collect any Recapture Damages from the Class A Members.

Section 6.7 Satisfaction of Certain Recapture-Related Obligations of the Class  B Member to the Class  A Members .

(a)    Notwithstanding the provisions of Section  6.1 , if the Class A Member shall suffer Recapture Damages as a result of a Class B Recapture Event, the Class A Member shall be entitled to collect such Recapture Damages from the Class B Member in accordance with this Section  6.7 .

(b)    Within 60 days after they become aware that they have incurred Recapture Damages, the Class A Members shall deliver to the Company and the Class B Member a Recapture Claim notice for such Recapture Damages, specifying in reasonable detail the cause of such Recapture Damages and the Class A Member’s calculation of the amount thereof if reasonably determinable by the Class A Member, or, if not reasonably determinable, an estimate of the range of such Recapture Damages. Within 30 days following receipt of notice of a Recapture Claim, the Class B Member shall notify each of the Class A Members and the Company in writing whether it agrees with or disputes all or a portion of the Recapture Claim, specifying the amount, if any, so agreed to. If the Class B Member shall not deliver such notice within the time specified, it shall be deemed to have delivered a notice on the 30th day disputing the entire amount of such Recapture Claim. The Class A Members shall have all rights and remedies available at law or in equity to the Class A Members to collect any Recapture Damages from the Class B Member.

Section 6.8 Satisfaction of Certain Recapture-Related Obligations of the Company or the Project Company

(a)    Notwithstanding the provisions of Section  6.1 , if the Company or Project Company is required to make any payment to the United States of America (or any agency or instrumentality thereof), as applicable, resulting from a Recapture Event (i) as a result of a Class A Recapture Event, then the Class A Member will be required to pay the amount of such payment (x) to the United States of America (or any agency or instrumentality thereof) on behalf of the Company or Project Company, as applicable, or (y) in the event that the Company or the Project Company has already made such payment, to the Company or Project Company, as applicable, in accordance with this Section  6.8 or (ii) as a result of a Class B Recapture Event, then the Class B Member will be required to pay the amount of such payment (x) to the United States of America (or any agency or instrumentality thereof) on behalf of the Company or Project Company, as applicable, or (y) in the event that the Company or the Project Company has already made such payment, to the Company or Project Company, as applicable, in accordance with this Section  6.8 .

 

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(b)    Within 60 days after the Company or Project Company becomes aware that a Recapture Event has occurred that requires the Company or Project Company to make a payment as a result of such Recapture Event, the Company or Project Company, as applicable, shall deliver to the Members a written notice, specifying in reasonable detail the cause of such Recapture Event, including whether caused by a Class A Recapture Event or Class B Recapture Event, and the Company or Project Company’s calculation of the amount of any such payment as a result of such Recapture Event, if reasonably determinable by the Company or the Project Company, or, if not reasonably determinable, an estimate of the range of such payment. Within 30 days following receipt of notice, each Member shall notify the Company or Project Company, as applicable, in writing whether it agrees with or disputes all or a portion of the amount specified in the notice, specifying the amount, if any, so agreed to. The Company and Project Company shall have all rights and remedies available at law or in equity to the Members to collect any payment required to be paid by the Company or the Project Company as a result of a Class A Recapture Event or Class B Recapture Event from the responsible Members.

Section 6.9 Class  A Recapture Events Prior to Receipt of Grant .

(a)    If, prior to a Grant being received by the Project Company, there is a Recapture Event resulting in a denial of all or a portion of such Grant with respect to the Company or Project Company as a result of a Class A Recapture Event, the Class A Member will be required to pay the Class B Member 99% of the amount that equals the difference between the Grant amount set forth in the Grant Application and the actual Grant amount received.

(b)    Within 60 days after a Recapture Event resulting in a denial of all or a portion of the Grant as a result of a Class A Recapture Event, the Class A Member shall have the right to cause the Company or Project Company to appeal, contest or discuss such denial (i) in any formal or informal discussions with Treasury or any other Governmental Authority, (ii) in any formal or informal administrative proceeding before the relevant Governmental Authority and/or (iii) by commencing litigation in any forum appropriate for such appeal or contest. The Class A Member shall have the right to direct such appeal, contest, or discussions. The Class A Member shall keep, or cause the Company or Project Company to keep, the Class B Member reasonably apprised of all developments with respect to any such appeal, contest, or discussions and shall consult with the Class B Member with respect to its strategy for such appeal, contest or discussion prior to beginning any such appeal, contest or discussion.

Section 6.10 Repayment . If the amount of any Recapture Damages paid under Sections 6.6, 6.7, or 6.8 or any payments made under Section 6.9, are reduced or recovered by the Indemnified Party at any time after the making of such payments by the Indemnifying Party, the amount of such reduction or recovery, less any costs or expenses 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 actually realizes as a result of such repayment.

 

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Section 6.11 Permitted Distributions . On or promptly following the execution date of the Note Purchase Agreement, the Project Company will distribute an amount equal to the Permitted Distribution from the proceeds received by the Project Company from the sale of the notes thereunder to the Company. On or promptly following the Final Completion Date, the Project Company will distribute an amount equal to the amounts remaining on deposit in the Construction Escrow Account and the IDC Reserve Account, in the aggregate, upon the occurrence of the Final Completion Date (such amount, the “ Aggregate Final Completion Distribution ”) to the Company. The Members acknowledge and agree that, notwithstanding anything to the contrary contained in this Agreement, (i) the proceeds of the Permitted Distribution shall be distributed to the Members on April 30, 2013 or such earlier date as may be agreed upon by the Members and (ii) the proceeds of the Aggregate Final Completion Distribution shall be distributed to the Members on the Distribution Date immediately succeeding the Final Completion Date.

ARTICLE VII

ACCOUNTING AND RECORDS

Section 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 the 20th day after the end of each month, a written report (each, an “ Operations Report ”), in the form attached as Exhibit C , that will include a summary of the kilowatt hours produced and sold by the Project Company during such month, information regarding the Systems’ availability during such month, notice of material events, including but not limited to, defaults under Material Contracts, any Material Adverse Effect that has occurred at the Project Company, any FERC or Grant-related filings, periodic reports on the status of the System sales, periodic financial statements of the Company and the Project Company and such other relevant operational information as may from time to time be reasonably requested, prior to the Flip Date, by Class B Members owning more than 50% of the Class B Membership Interests by Percentage Interest.

(b)    No later than 60 calendar days before the start of each Fiscal Year, the Managing Member shall cause the Administrator to prepare or cause to be prepared, and shall submit to each Member, an annual capital and operating budget for the Project Company before the end of the previous Fiscal Year (the “ Annual Budget ”).

(c)    The Managing Member shall cause the Administrator to prepare and deliver to each Member on or before the 20th day after the end of each calendar month a report showing the calculation of distributions for such month determined in accordance with Article VI for both distributions from the Project Company to the Company and the Company to the Members.

(d)    The Managing Member shall cause the Administrator to (i) calculate at least annually whether the Class B Member has reached the Target IRR; provided , however , that if the calculation in a year suggests that the Target IRR will be reached during the next two

 

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Fiscal Years, then the Managing Member will calculate whether the Class B Member has reached the Target IRR at least quarterly thereafter; and (ii) send the Class B Member, within 120 days after the end of each Fiscal Year in which the Target IRR was not achieved, a report showing where it believes the Class B Member is in relation to the Target IRR and a similar report within 30 Business Days after the end of each Quarter during any period when quarterly reports are required.

(e)    The Managing Member shall cause the Administrator to notify the Class B Member in writing at least 30 days before the Distribution Date following the month in which it believes the Class B Member achieved the Target IRR or at least 30 days before making any liquidating distributions, in connection with a liquidation of the Company pursuant to Section 10.1 , if it believes the Class B Member will achieve the Internal Rate of Return as a consequence of the liquidating distributions (the “ Target IRR Notice ”). The Target IRR Notice will include the Managing Member’s Internal Rate of Return calculations and, in the case of a notice delivered in connection with a liquidation, the allocations and distributions that the Managing Member proposes to make to the Class B Member under Section  10.2 in light of the calculations.

Section 7.2 Books and Records and Inspection .

(a)    The Managing Member shall cause the Company to keep and shall cause the Administrator to 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 all other documents and writings of the Company and all statements and documents required by the Guidance (including, but not limited to, energy production information and financial and accounting records sufficient to demonstrate that the Grant was properly obtained in accordance with the Guidance and any other documents needed to comply with the Guidance maintenance and access to records, requirements and documents needed for the completion of annual project performance reports (including information regarding annual energy production and number of jobs retained) and recapture certification). The books of account, financial records, and supporting documents and the other documents and writings of the Company shall be kept and maintained by the Administrator at the principal office of the Company. The financial records and reports of the Company and the Project Company shall be kept on an accrual basis and kept in accordance with GAAP.

(b)    In addition to and without limiting the generality of Section 7.2(a) , the Managing Member shall cause the Company to keep and shall cause the Administrator to 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;

 

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(ii)    promptly after becoming available, a copy of the Company’s and, if applicable, the Project 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 and the Administrator;

(v)    a copy of this Agreement and the Company’s Certificate of Formation, and all amendments thereto, the Project Company’s operating agreement 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;

(vi)    true and full information regarding the amount of cash and a description and statement of the agreed value of any other property and services contributed by each Member, and the date upon which each became a Member;

(vii)    copies of records that would enable a Member to determine the Member’s relative shares of the Company’s distributions and the Member’s relative voting rights; and

(viii)    all records related to the production and sale of electricity by the Project Company.

(c)    Upon receiving reasonable prior notice to the Managing Member, all books and records of the Company and the Project 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.

Section 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 Administrator, and the Company’s funds shall not be commingled with any funds of any other Person, including the Project Company, any Administrator, any Member or any Affiliate of a Administrator or a Member.

 

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(b)    The Members acknowledge that the Company 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 neither the Managing Member nor the Administrator nor the Company shall 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 officers of the Company, or the Managing Member, as the Company from time to time may authorize. When the Company so authorizes, the signature of any such Person may be a facsimile.

Section 7.4 Financial Statements .

(a)    As soon as practicable after the end of each Quarter, but in any event within 60 calendar days after the end of each Quarter, the Managing Member shall cause the Administrator to furnish to each Member unaudited financial statements with respect to such Quarter for the Company and the Project Company prepared in accordance with GAAP and consisting of (i) a balance sheet showing the Company’s and the Project Company’s financial position as of the end of such Quarter, (ii) profit and loss statements for the Company and the Project Company for such Quarter, and (iii) a statement of cash flows for the Company and the Project Company for such Quarter. Such statements shall include a statement of Members’ equity based on hypothetical liquidation at book value (HLBV) accounting.

(b)    By the following April 30 after the end of each Fiscal Year, the Managing Member shall cause the Administrator to furnish to each Member consolidated financial statements with respect to such Fiscal Year for the Company that are audited and certified by an Accounting Firm and prepared in accordance with GAAP, consisting of (i) a balance sheet showing the Company’s financial position as of the end of such Fiscal Year, (ii) profit and loss statements for the Company for such Fiscal Year, (iii) a statement of cash flows for the Company for such Fiscal Year and (iv) related footnotes. Such statements shall include a statement of Members’ equity based on hypothetical liquidation at book value (HLBV) accounting.

(c)    By the following February 15 after the end of each Fiscal Year, the Managing Member shall cause the Administrator to furnish to each Member unaudited financial statements with respect to such Fiscal Year for the Company and the Project Company prepared in accordance with GAAP and consisting of (i) a balance sheet showing the Company’s and the Project Company’s financial position as of the end of such Fiscal Year, (ii) profit and loss statements for the Company and the Project Company for such Fiscal Year, (iii) a statement of cash flows for the Company and the Project Company for such Fiscal Year. Such statements shall include a statement of Members’ equity based on hypothetical liquidation at book value (HLBV) accounting.

 

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Section 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:

(i)    any election necessary to qualify for the Grant and prevent a Class A Recapture Event as it relates to the Grant, or if the Grant is determined by the Members (by a Class Majority Vote) to not be available, any election or claim of any Alternative Tax Program that the Members have decided to elect or claim pursuant to a Class Majority Vote; provided that if the Company and the Project Company seek to claim the ITC, the Members agree to negotiate in good faith and execute any amendments to any of the Transaction Documents, enter into any additional agreements and take all such additional actions as may be reasonably required to effect such an election;

(ii)    to the extent permitted under Section 706 of the Code, to adopt as the Company’s fiscal year the calendar year;

(iii)    to adopt the accrual method of accounting;

(iv)    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;

(v)    to elect to amortize the organizational expenses of the Company ratably over a period of 180 months as permitted by Section 709(b) of the Code;

(vi)    to elect out of additional first year depreciation pursuant to Section 168(k)(2)(D)(iii) of the Code, unless, after consultation with the Class B Member, the Class B Member requests in writing that this election not be made; and

(vii)    if approved in writing by Members representing a Class Majority Vote, any other election the Managing Member may deem appropriate.

(c)    The Company shall file an election under Section 6231(a)(l)(B)(ii) of the Code and the Treasury Regulation thereunder to treat the Company as a partnership to which the provisions of Sections 6221 through 6234 of the Code, inclusive, apply.

 

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Section 7.6 Company Tax Returns . 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 Managing Member in Consultation with the other Members. If a Member notifies the Managing Member that any real property Taxes with respect to the Systems 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, provided , further , that with respect to each Tax Year ending on the last Friday of November, the Managing Member will cause the Company to prepare preliminary Tax Returns and issue preliminary K-l ’s to the Members no later than February 1 of the following Tax Year. The Managing Member, in Consultation with the other Members, 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 Managing Member shall provide the other Members with an estimate of the Taxes owed within 20 days of the filing of such extension. At the Company’s expense, the Managing Member shall cause the Company to retain an Accounting Firm to prepare or review and sign the necessary federal and state income Tax Returns and information returns for the Company. Each Member shall provide such information, if any, as may be reasonably needed by the Company for purposes of preparing such Tax Returns, provided that such information is readily available from regularly maintained accounting records. At least 30 days prior to filing the federal and state income Tax Returns other than information returns, the Managing Member shall cause the Administrator to deliver to the other Members for their review a copy of the Company’s federal and state income Tax Returns, excluding information returns, in the form proposed to be filed for each Fiscal Year together with a notice of any inconsistencies with the Base Case Model, and shall cause the Administrator to incorporate all reasonable changes or comments to such proposed Tax Returns requested by the other Members (who shall be required to make all reasonable efforts to provide such changes or comments in a reasonable amount of time) at least 10 days prior to the filing date for such returns. The dispute provisions under Section  11.11 may be invoked if Class B Members owning more than 50% of the Class B Membership Interests disagree with a position taken on any Tax Return; provided that the Accounting Firm preparing the Tax Return still must be able 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 Managing Member will cause the Company to file the Tax Return as originally prepared by the required date, but the Managing Member may be required to cause the Company to amend the Tax Return after a conclusion is reached in the dispute process; and provided still further that in the event such challenge confirms the original position in question, the challenging Class B Member shall promptly pay all of the Accounting Firm’s reasonable fees and expenses incurred in connection with such challenge. After taking into account any such requested changes, the Managing Member shall cause the Company to timely file, taking into account any applicable extensions, such Tax Returns. Within 20 days after filing such federal and state income Tax Returns and information returns, the Managing 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.

 

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Section 7.7 Tax Audits.

(a)    Clean Technologies is hereby designated as the initial “tax matters partner,” as that term is defined in Section 6231(a)(7) of the Code (the “ Tax Matters Partner ”), of the Company, with all of the rights, duties and powers provided for in Sections 6221 through 6234 of the Code, inclusive. Each other Member may provide the Secretary of Treasury with notice that it is a “notice partner” under Section 6223 of the Code. Clean Technologies is hereby directed and authorized to take whatever steps Clean Technologies, 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 and directing the Administrator to take any of the foregoing actions. Clean Technologies shall remain as the Tax Matters Partner so long as it remains the Managing Member and retains any ownership interests in the Company unless Clean Technologies requests that it not serve as Tax Matters Partner and such request is approved by (i) a Class Majority Vote, if such request is made prior to the Flip Date or (ii) a Majority Vote, if such request is made after the Flip Date, or if Members collectively holding more than 50% of the Class B Membership Interests reasonably determine to remove the Tax Matters Partner for fraud or willful misconduct and appoint a replacement.

(b)    The Tax Matters Partner, in Consultation with the other Members, shall direct, or cause the Administrator to 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 (i) a Class Majority Vote, if the claims relate to periods before the Flip Date, (ii) a Majority Vote, if such claims relate to periods after the Flip Date or (iii) a unanimous vote of the Class B Members, if such claims relate to the Grant. The Tax Matters Partner 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 Tax Matters Partner in Consultation with the other Members. The Tax Matters Partner shall promptly deliver, or shall cause the Administrator to 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, or cause the Administrator to promptly advise, each Member of the substance of any conversations with the IRS in connection therewith and shall keep, or cause the Administrator to keep, the Members advised of all developments with respect to any proposed adjustments that come to its or the Administrator’s, as the case may be, attention. In addition, the Tax Matters Partner shall or shall cause the Administrator to (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, approved or recommended by Members collectively holding more than 50% of the Class B Membership Interests timely requested by any Member and (C) provide each Member with a final copy of correspondence or filing. The Tax Matters Partner will provide, or cause the Administrator to provide, each Member with notice reasonably in advance of any

 

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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.

(c)    For any issue or matter relating to the period prior to the Flip Date without the approval of Members collectively holding more than 50% of the Class B Membership Interests, the Tax Matters Partner shall not (i) commence a judicial action (including filing a petition as contemplated in Section 6226(a) or Section 6228 of the Code) with respect to a federal income tax matter or appeal any adverse determination of a judicial tribunal; (ii) intervene in any action as contemplated by Section 6226(b) of the Code; (iii) file any request contemplated in Section 6227(b) of the Code; or (iv) enter into an agreement extending the period of limitations as contemplated in Section 6229(b)(1)(B) of Code. For any issue or matter relating to the period prior to the Flip Date without the approval of each of the other Members, the Tax Matters Partner shall not enter into a settlement agreement with the IRS which purports to bind the Members. Any cost or expense incurred by the Tax Matters Partner in connection with its duties as Tax Matters Partner shall be paid by the Company. If the Grant is determined to be unavailable in accordance with the procedures set forth in Section  7.5(b)(i) , the Tax Matters Partner shall elect or claim an Alternative Tax Program only in accordance with Section  7.5(b)(i) .

(d)    If for any reason the IRS disregards the election made by the Company pursuant to Section  7.5(c) and commences any audit or proceeding in which it makes a claim, or proposes to make a claim, against any Member that could reasonably be expected to result in the disallowance or adjustment of any items of income, gain, loss, deduction or credit allocated to such Member by the Company, then such Member shall promptly advise the other Members of the same, and such Member, in Consultation with the other Members, shall use commercially reasonable efforts to convert the portion of such audit or proceeding that relates to such items into a Company level proceeding consistent with the Company’s election pursuant to Section  7.5(c) .

(e)    If any Member intends to file, pursuant to Section 6227 of the Code, a request for an administrative adjustment of any such partnership item of the Company, or to file a petition under Sections 6226, 6228 or other Sections of the Code with respect to any such partnership item or any other tax matter involving the Company, such Member shall, at least thirty (30) days prior to any such filing, notify the other Members of such intent, which notification must include a reasonable description of the contemplated action and the reasons for such action; provided , however , that this Section  7.7(e) shall not relieve such Member’s obligation to use all commercially reasonable efforts to convert a Member level proceeding into a Company level proceeding as provided in Section  7.7(d) .

 

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Section 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 taxing authority, or any judicial or administrative proceedings relating to the liability for any Taxes with respect to the operations of the Company and the Project Company or a Class A Recapture Event.

Section 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 the last Friday of each November, or such other year as may be required by applicable federal income tax law.

ARTICLE VIII

MANAGEMENT

Section 8.1 Management . Each of the Members acknowledges and agrees that the Administrator shall have the authority, powers and responsibilities described in the Administrative Services Agreement and as provided herein; provided that neither the Administrator nor the Managing Member shall (x) 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 (y) refrain from taking any action that has been approved as a Major Decision hereunder. The Company hereby ratifies and approves the Administrative Services Agreement. Except (a) for duties and powers delegated to the Administrator hereunder or under the Administrative Services Agreement, (b) for Major Decisions and (c) 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. In addition, the Members may, with the consent of the Managing Member or Administrator, as applicable, vest in the Managing Member or the Administrator the authority to take actions for and on behalf of the Company not otherwise provided for in this Agreement or the Administrative Services Agreement. Any such vested authority shall require a Class Majority Vote.

Section 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 Clean Technologies. The Managing Member shall cause the Company and cause the Company to cause the Project Company to enforce the Administrative Services Agreement and the MOMA (and any other Material Contracts with Affiliates of Bloom or Clean Technologies) on behalf of the Company and the Project Company; provided , however , that, in the event that the Administrative Services Agreement is terminated and is not replaced, the Managing Member shall perform the work, or engage a third party to perform such work, previously performed by the Administrator prior to the termination of such Administrative Services Agreement in accordance with the Prudent Operator Standard, or if not in accordance with such standard, if approved in advance or ratified by Class B Members owning at least a majority of the Class B Membership Interests.

 

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(b)    Upon the termination of the MOMA, the Managing Member shall cause the Company to replace the MOMA in accordance with Section  8.3 and the definition of “Major Decisions” and, to the extent such replacement MOMA is not with an Affiliate of Clean Technologies, the operator (or an affiliate thereof, if the operator’s obligations thereunder are being guaranteed by such affiliate) under such replacement MOMA shall have substantial experience operating and maintaining comparable equipment.

(c)    The Managing Member hereby covenants to cause the Company to, and to cause the Company to cause the Project Company to, implement any Major Decisions approved under this Company LLC Agreement, and not to take any Major Decisions (or comparable decision at the Project Company level) without a Class Majority Vote.

(d)    Clean Technologies may resign as Managing Member with any such resignation to become effective upon the appointment of a successor Managing Member under this paragraph that is recognized nationally as having substantial experience managing and operating fuel cell facilities or if such transferee has engaged such an experienced and recognized company to manage the Company at substantially the same cost as under the Administrative Services Agreement. The Members, by a Class Majority Vote prior to the Flip Date and by a Majority Vote thereafter, may at any time (i) remove a Managing Member (x) upon their reasonable determination that there is Cause for removal, or (y) following any Bankruptcy of the Managing Member or foreclosure or involuntary transfer of the Class A 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 removal, resignation or otherwise. The Managing Member may not participate in, and any Membership Interests owned by Clean Technologies or an Affiliate thereof shall be excluded from, any vote to remove or replace a Managing Member under this Section  8.2(d) if the basis alleged for removal of the Managing Member is for Cause.

(e)    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. The current officers are the persons listed on Schedule 8.2(e) .

(f)    If an event occurs which would permit the Project Company to terminate in whole, or with respect to specific Systems, the MOMA and/or the MESPA, pursuant to the terms thereunder, provided that any applicable cure period has expired without the event in question having been cured, a majority of the Class B Members, without the consent or approval of the Class A Members, shall be entitled to instruct the Managing Member to cause the Company to cause the Project Company to terminate in whole or in part the MOMA or the MESPA and the Managing Member shall promptly act in accordance with such instructions.

 

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Section 8.3 Major Decisions .

(a)    In addition to any other approval required by applicable Legal Requirements or this Agreement, Major Decisions are reserved to the Members, and none of the Company, the Managing Member, the Administrator, or any officer thereof shall do or take or make or approve any Major Decisions with respect to the Company or the Project Company without a Class Majority Vote.

(b)    The Managing Member will submit proposed Major Decisions to the Class B Member 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. Upon receipt of the written submission, the Class B Members will have ten (10) Business Days therefrom to approve or reject the proposal by Class B Members owning a majority of the Class B Membership Interests. If the proposed Major Decision is not approved or rejected by Class B Members owning a majority of the Class B Membership Interests in writing within such period, such proposed Major Decision will be deemed rejected.

Section 8.4 Insurance . The Managing Member shall cause the Company to acquire and maintain (including making changes to coverage and carriers) the casualty, general liability (including product liability), property damage and/or other types of insurance set forth in Schedule 8.4 and the Insurance Report; provided that if any such insurance is not available on commercially reasonable terms, only such insurance shall then be required to be carried pursuant to this Section  8.4 as is then available on commercially reasonable terms. The Class B Members shall be added to such insurance as additional insured and loss payee as their interests may appear, with a waiver of subrogation permitted in their favor (where legally permitted or insurance market practice permits). Such insurance shall require that the Class B Members be provided with 30 days written notice of cancellation (10 days for non-payment of premium). The Managing Member shall cause to be delivered to each Class B Member, promptly after it becomes a Member, certificates from a reputable insurance broker evidencing the maintenance of the insurance required by this Section  8.4 , which certificates shall be replaced or updated to reflect any replacement, renewal or other change to the insurance evidenced thereby, or the addition of any policy not then reflected on the most recently delivered certificates.

Section 8.5 Notice of Material Breach . The Managing Member shall promptly notify the Class B Member (but in no event more than within five Business Days of obtaining actual knowledge) of any (a) notice of default delivered by a party to a Material Contract to the Project Company, the Administrator or the Managing Member or (b) default by a party to a Material Contract (other than a Project Company, the Administrator or any Affiliate thereof) under such Material Contract, in the case of either (a) or (b), which default could reasonably be expected to cause material harm to the Company or any Project Company.

 

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ARTICLE IX

TRANSFERS, CHANGES OF CONTROL AND INDEMNIFICATION

Section 9.1 Prohibited Transfers . No Member shall 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 ”), except as provided in this Article IX . Prior to the end of the Recapture Period with respect to any System, no Transfer of a Person that directly or indirectly owns an interest in a Member will be permitted if the transfer would cause the Company or Project Company to become a Disqualified Person or cause the Systems, or any portion thereof, to be classified as “tax-exempt use property” for purposes of Section 168 of the Code. After the Recapture Period has ended, the limitations pursuant to this Article IX on Change of Control of any Member shall apply only to such Member directly and shall not apply to any Person that directly or indirectly owns an interest in such Member. 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.

Section 9.2 Conditions to Transfers of Class  A Membership Interests or Changes of Control of Managing Member . Except as otherwise provided in this Article IX, all Transfers of Class A Membership Interests and all Transfers by Bloom of its interests in Clean Technologies must satisfy the following conditions:

(a)    The transferring Member must give written notice of the proposed Transfer to each of the Members not less than 10 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 and be bound by the covenants in Sections 3.11 and 3.12 as of the date of such Transfer; provided that, unless the transferee becomes the Managing Member the covenants in Sections 3.12(b) , (c) , (d) , (g) and (h)  shall not apply;

(c)    The Transfer will not violate 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 the Project Company or any of their assets or any material contract, lease, security, indenture or agreement binding on the Company or the Project Company or their respective assets;

 

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(d)    The Transfer will not result in a termination of the Company or the Project Company under Section 708(b)(1)(B) of the Code, unless the transferor has indemnified the other Members against any adverse tax effects in a manner reasonably acceptable to the other Members;

(e)    The Transfer will not cause the Company or Project Company to become a Disqualified Person or cause the Systems, or any portion thereof, to be classified as “tax-exempt use property” for purposes of Section 168 of the Code;

(f)    The Transfer will not cause there to be more than two Class A Members;

(g)    The transferring Member and the prospective transferee shall pay any out-of-pocket expenses of the Company, the Project Company or the other Members resulting from the Transfer;

(h)    The transferring Member and the prospective transferee shall have all permits and consents required for such Transfer;

(i)    The Transfer will not affect the status of the Project Company as an Exempt Wholesale Generator nor will it cause a disqualification under the REPS Act or any of the Tariffs;

(j)    The Transfer will not require the Company to register as an investment company under the 1940 Investment Company Act;

(k)    If the Transfer would occur prior to the end of the Recapture Period with respect to any of the Systems, the Transfer will not be effective unless the transferring Member delivers a written opinion of a nationally-recognized law firm, in form and substance satisfactory to the non-transferring Members, that the Transfer will not cause a Class A Recapture Event;

(l)    Unless the Administrative Services Agreement will remain in place with the same Administrator thereunder following the Transfer (in which case the conditions in this clause (1) will be deemed to be met), the transferee must be recognized nationally as having substantial experience managing and operating fuel cell facilities or a Person that has engaged such an experienced and recognized company to manage the Company at substantially the same cost as under the Administrative Services Agreement, unless otherwise approved by Class B Members owning the majority of Class B Membership Interests;

(m)    The Transfer must not cause any adverse tax consequences to the Company, any other Member or the Project Company, in the written opinion of tax counsel reasonably acceptable to the Class B Member;

(n)    Prior to the Flip Date, the Transferee must be a Qualified Transferee and the Class B Member shall have consented to such Transfer, such consent not to be unreasonably withheld; and

 

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(o)    The Transfer will not cause a breach of, or a default under, the Credit Documents.

Section 9.3 Conditions to Transfers of Class  B Membership Interests . Except as otherwise provided in this Article IX , all Transfers of Class B Membership Interests must satisfy the following conditions:

(a)    The transferring Member must give written notice of the proposed Transfer to each of the Members not less than 10 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 Managing Member 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;

(c)    The Transfer will not violate 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 the Project Company or any of their assets or any material contract, lease, security, indenture or agreement binding on the Company or the Project Company or their respective assets;

(d)    The Transfer will not result in a termination of the Company or the Project Company under Section 708(b)(1)(B) of the Code, unless the transferor has indemnified the other Members against any adverse tax effects in a manner reasonably acceptable to the other Members;

(e)    The Transfer will not cause the Company or Project Company to become a Disqualified Person or cause the Portfolio, or any portion thereof, to be classified as “tax-exempt use property” for purposes of Section 168 of the Code;

(f)    The Transfer will not cause there to be more than three Class B Members; provided that, solely for purposes of making such determination in respect of this paragraph, any Class B Member and any other Class B Member that is an Affiliate of such Class B Member shall be deemed to be a single Class B Member;

(g)    The transferring Member and the prospective transferee shall pay any out-of-pocket expenses of the Company, the Project Company or the other Members resulting from the Transfer;

(h)    The transferring Member and the prospective transferee shall have all permits and consents required for such Transfer;

 

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(i)    The Transfer will not affect the status of any Project Company as an Exempt Wholesale Generator nor will it cause a disqualification under the REPS Act or any of the Tariffs;

(j)    The Transfer will not require the Company to register as an investment company under the 1940 Investment Company Act;

(k)    If the Transfer would occur prior to the end of the Recapture Period for any of the Systems, the Transfer will not be effective unless the transferring Member delivers a written opinion of a nationally-recognized law firm, in form and substance satisfactory to the non-transferring Members, that the Transfer will not cause a Class B Recapture Event;

(l)    Transferee shall be reasonably acceptable to the Class A Members.

(m)    Such Transfer by a Class B Member, other than a Transfer to an Affiliate of the transferor or a Transfer to an existing Class B Member, shall not be a Transfer of less than an amount equal to the lesser of (i) 30% of the total Class B Membership Interests or (ii) such Member’s entire Class B Membership Interest;

(n)    For Transfers prior to the earlier of (i) the contribution by the Class B Member to the Company of 100% of its Equity Commitment Amount or (ii) the Subsequent Funding Termination Date, the transferee must carry an investment grade senior unsecured rating of at least A3 / A- or the Credit Suisse Guaranty must be in full force and effect;

(o)    Except for transfers described in Section  9.5 below, the transferee of a Class B Membership Interest must be a passive institutional investor or (i) is not a competitor of Clean Technologies or its affiliates, (ii) is not in litigation or other material dispute with the Clean Technologies, and (iii) makes substantially the same representations, warranties, and covenants as Class B Members made pursuant to this Agreement;

(p)    Transfer must not cause any adverse tax consequences to the Company, any other Member or the Project Company, in the written opinion of tax counsel reasonably acceptable to the Managing Member;

(q)    The costs of such Transfer must be borne by the transferee; and

(r)    The Transfer will not cause a breach of, or a default under, the Credit Documents.

Section 9.4 Conditions to Changes of Control of Upstream Entities . With respect to any Transfer that is a Change of Control of a Member:

(a)    The Transfer will not violate 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 the Project Company or any of their assets or any material contract, lease, security, indenture or agreement binding on the Company or the Project Company or their respective assets;

 

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(b)    The Transfer will not result in a termination of the Company or the Project Company under Section 708(b)(1)(B) of the Code, unless the transferor has indemnified the other Members against any adverse tax effects in the manner set forth in Section  9.4(h) ;

(c)    The Transfer will not cause the Company or Project Company to become a Disqualified Person or cause the Portfolio, or any portion thereof, to be classified as “tax-exempt use property” for purposes of Section 168 of the Code;

(d)    The transferring Person and the prospective transferee shall pay any out-of-pocket expenses of the Company, the Project Company or the other Members resulting from the Transfer;

(e)    The transferring entity and the prospective transferee shall have all permits and consents required for such Transfer as they apply to the Company and the Project Company;

(f)    The Transfer will not affect the status of any Project Company as an Exempt Wholesale Generator nor will it cause a disqualification under the REPS Act or any of the Tariffs;

(g)    The Transfer will not require the Company to register as an investment company under the 1940 Investment Company Act; and

(h)    With respect to any Transfer that would result in the termination of the Company or the Project Company as set forth in Section  9.4(b) , the transferring Member shall indemnify the Company and the other Members against any adverse effects in a manner reasonably acceptable to the other Members. In connection with such Transfer, the transferring Member shall (i) deliver to each non-transferring Member a guaranty (A) from an entity acceptable to the non-transferring Members having the Required Ratings on the effective date of such Transfer, (B) in an amount not less than the aggregate estimated adverse tax effects with respect to such Transfer and (C) in form and substance satisfactory to the non-transferring Members, or (ii) post collateral in the form of (A) cash, (B) a letter of credit from an Acceptable Credit Party, or (C) liquid securities acceptable to the non-transferring Members, in an amount not less than the aggregate estimated adverse tax effects with respect to such Transfer and in each case in form and substance acceptable to the non-transferring Members.

Section 9.5 Certain Permitted Transfers . Except as otherwise provided in Section  9.1 and this Section  9.5 , notwithstanding the provisions set forth in Sections 9.2 and 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 issuance of Class B Membership Interests to Mehetia pursuant to the ECCA;

 

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(b)    (i) The grant of any security interest in any Class A Membership Interest or any Class B Membership Interest pursuant to any security agreement any Class A Member or Class B Member, as applicable, may enter into with lenders; provided that the requirements in Sections 9.2(a), (c), (d) and (e)  shall be satisfied in respect of any such grant of a security interest in Class A Membership Interests, and Sections 9.3(a), (c), (d) and (e)  shall be satisfied in respect of a grant of a security interest in a Class B Membership Interest, and (ii) any Transfer in connection with any foreclosure or other exercise of remedies in respect of any Class A Membership Interest or Class B Membership Interest subject to a security interest referred to in this Section  9.5(b)(i) ; provided , however , that the requirements in Sections 9.2(a), (b), (c), (d), (e), (f), (h), (i), (j), (k), (1) and (m)  shall be satisfied in respect of any such Transfer of Class A Membership Interests and the requirements in Sections 9.3(a), (b), (c), (d), (e), (f), (h), (i), (j), (k), (1) and (m)  shall be satisfied in respect of any such Transfer of Class B Membership Interests; and provided, further that the provisions of Section  9.2(f) (with respect to Class A Membership Interests) and Section  9.3(f) (with respect to Class B Membership Interests) shall not apply to any Transfer resulting from foreclosure upon, or subsequent transfer of, such Membership Interests;

(c)    The Transfer of any Membership Interest solely to an Affiliate of a Member; provided , the requirements set forth in Sections 9.2(a), (b), (c), (d), (e), (f) , (g) , (h), (i), (j), (k) , (l) and (m)  shall be satisfied in respect to such Transfer of Class A Membership Interests, and, in the case of a Transfer by a Class B Member, the requirements set forth in Sections 9.3, except the requirement in Section  9.3(a) , which requirement shall be deemed satisfied upon a three day notice, and except the requirements in Sections 9.3(b), (g) , (k) , (1) , (n) , (p) and (q) , shall be satisfied with respect to such Transfer of Class B Membership Interests (though the requirement in Section  9.3(k) must be met if the transferee is an entity other than an association taxable as a corporation for federal income tax purposes); and

(d)    Any Transfer in accordance with Section  9.7 (Purchase Option) or Section  9.8 (Sale Option); provided , however , that the requirements in Sections 9.3(b) and (c) shall be satisfied in respect of any such Transfer, and solely with respect to a Transfer pursuant to Section  9.4, Sections 9.3(c), (d), (e), (g), (i), (j) and (k) , shall be satisfied in respect of any such Transfer.

Section 9.6 [Intentionally omitted].

Section 9.7 Purchase Option .

(a)    The Class A Member shall have the right, but not the obligation (the “ Purchase Option ”), on the eleventh anniversary of the Initial Funding Date (the “ Purchase Option Date ”), upon giving the Company and all other Members 60 days’ written notice, to purchase all (but not less than all) of the outstanding Class B Interests from all of the Class B Members by exercise of the Purchase Option (the “ Purchase Option Exercise Notice ”).

 

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(b)    The consideration for the Transfer of the Class B Membership Interests to the Class A Member pursuant to the Purchase Option shall be an amount (payable in United States dollars) equal to the Purchase Option Price.

(c)    If the Purchase Option is exercised, the closing of such Transfer shall occur on the Business Day that is (i) 60 days after the applicable Purchase Option Exercise Notice is given or (ii) such later date as may be required to obtain either a determination of the Purchase Option Price or any applicable consents or approvals or satisfy any reporting or waiting period under any applicable Legal Requirements.

(d)    If the Purchase Option is exercised, at the closing of the Transfer, (1) each Class A Member which has given a Purchase Option Exercise Notice shall pay (by wire transfer of immediately available United States dollars to such United States bank accounts as Class B Members may designate in a written notice to the Company and Class A Members no later than five Business Days prior to the closing date for the Transfer pursuant to the Purchase Option) an amount equal to the Purchase Option Price (determined in accordance with Section  9.7(b)) , and (2) each Class B Member shall take the following actions: (i) such Class B Member shall Transfer to the applicable Class A Member all right, title and interest in and to the Class B Membership Interests, free and clear of all Encumbrances other than Permitted Encumbrances; (ii) such Class B Member shall be required to make the representations on Schedule 9 attached hereto to the applicable Class A Member and the Company; and (iii) such Class B Member shall take all such further actions and execute, acknowledge and deliver all such further documents that are necessary to effectuate the Transfer of the Class B Membership Interests contemplated by this section. Upon the closing of such Transfer, (1) all of such Class B Member’s obligations and liabilities associated with the Class B Membership Interests which are the subject of such Transfer will terminate except those obligations and liabilities accrued through the date of such closing, (2) such Class B Member shall have no further rights as a Member, and (3) all the rights, obligations and liabilities associated with the Class B Membership Interests which are the subject of such Transfer shall become the rights, obligations and liabilities of each Person acquiring such Class B Membership Interests.

Section 9.8 Sale Option .

(a)    The Class B Member shall have the right, but not the obligation (the “ Sale Option ”), on the tenth anniversary of the Execution Date (the “ Sale Option Date ”), upon giving the Company and all other Members at least 60 days’ advance written notice, to sell all (and not less than all) of its Class B Membership Interests to the Class A Member by exercise of the Sale Option (the “ Sale Notice ”).

(b)    The consideration for the Transfer of the Class B Membership Interests to the Class A Member pursuant to the Sale Option shall be an amount (payable in United States dollars) equal to the Sale Price.

 

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(c)    If the Sale Option is exercised, the closing of such Transfer shall occur on (i) the tenth anniversary of the Execution Date (or, if not a Business Day, the Business Day immediately preceding the tenth anniversary of the Execution Date) or (ii) such later date as may be required to obtain either a determination of the Sale Price or any applicable consents or approvals or satisfy any reporting or waiting period under any applicable Legal Requirements.

(d)    If the Sale Option is exercised, at the closing of the Transfer, (1) each Class A Member which has received a Sale Notice shall pay (by wire transfer of immediately available United States dollars to such United States bank accounts as a Class B Member selling its respective Class B Interests may designate in a written notice to the Company and Class A Members no later than five Business Days prior to the closing date for the Transfer pursuant to the Sale Option) an amount equal to the Sale Price (determined in accordance with Section  9.8(b)) , and (2) such Class B Member shall take the following actions: (i) such Class B Member shall Transfer to the applicable Class A Member all right, title and interest in and to the Class B Membership Interests, free and clear of all Encumbrances other than Permitted Encumbrances; (ii) such Class B Member shall be required to make the representations on Schedule 9 attached hereto to the applicable Class A Member and the Company; and (iii) such Class B Member shall take all such further actions and execute, acknowledge and deliver all such further documents that are necessary to effectuate the Transfer of the Class B Membership Interests contemplated by this section. Upon the closing of such Transfer, (A) all of such Class B Member’s obligations and liabilities associated with the Class B Membership Interests which are the subject of such Transfer will terminate except those obligations and liabilities accrued through the date of such closing, (B) such Class B Member shall have no further rights as a Member, and (C) all the rights, obligations and liabilities associated with the Class B Membership Interests which are the subject of such Transfer shall become the rights, obligations and liabilities of each Person acquiring such Class B Membership Interests.

Section 9.9 Regulatory and Other Authorizations and Consents .

(a)    In connection with any Transfer pursuant to Sections 9.7 or 9.8 (the “ Designated Transfers ”), 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 Transfers, its execution and delivery of, and the performance of its obligations under, this Agreement or other Transaction Documents in connection with any such 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 or, if applicable, such Member’s guarantor, as the case may be, 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.

 

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(b)    Without limiting the generality of Section  9.9(a) , each Member shall make such filings as may be required under the HSR Act, the Federal Power Act, or any state Legal Requirements relating to the ownership or control of the Systems.

(i)    To the extent required by the HSR Act, each Member involved in a Designated Transfer shall (i) file or cause to be filed, as promptly as practicable but in no event later than the fifteenth Business Day after the delivery of any Purchase Option Exercise Notice, as applicable, with the Federal Trade Commission and the United States Department of Justice, all reports and other documents required to be filed by such Member under the HSR Act concerning the Designated Transfer and (ii) promptly comply with or cause to be complied with any requests by the Federal Trade Commission or the United States Department of Justice for additional information concerning the Designated Transfer, in each case so that the initial thirty day waiting period applicable under the HSR Act shall expire as soon as practicable. Each Member involved in a Designated Transfer agrees to request, and to cooperate with the other Members involved in requesting, early termination of any applicable waiting period under the HSR Act. Each of the Class A Members involved in a Designated Transfer shall be responsible for the filing fees incurred by all Members involved in the Designated Transfer in connection with the initial filings required by the HSR Act in connection with the Designated Transfers (pro rata in proportion to the percentage of Class B Membership Interests each such Class A Member will acquire in connection with the Designated Transfer). Except as expressly provided in the prior sentence with respect to filing fees, each Member involved in a Designated Transfer will be responsible for its own fees and expenses, including any fees and expenses of counsel, accountants or other professional advisors.

(ii)    To the extent required by the Federal Power Act, each Member involved in a Designated Transfer shall (i) file or cause to be filed, as promptly as practicable but in no event later than the twenty-first Business Day after the delivery of any Purchase Option Exercise Notice, as applicable, an application for approval of the Designated Transfer pursuant to Section 203 of the Federal Power Act, and (ii) as promptly as practicable but in no event later than the tenth Business Day after the delivery of any Purchase Option Exercise Notice, as applicable, provide to the Company and the Managing Member information needed for the Company to file an application for approval of the Designated Transfer under Section 203 of the Federal Power Act.

Section 9.10 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.

Section 9.11 Security Interest Consent . If any Member grants a security interest in any Membership Interest, 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 this Agreement.

 

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Section 9.12 Indemnification; Other Rights of the Members .

(a)    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, Clean Technologies agrees to indemnify, defend and hold harmless the Investor Indemnified Parties from and against any and all Investor Indemnified Costs; provided , however , except with respect to Investor Indemnified Costs (t) resulting from fraud or willful misconduct, (u) resulting from failure to pay any amount due to Investor Indemnified Parties under the Transaction Documents, (v) resulting from a Third Party Claim, (w) resulting from the failure to enforce a Material Contract with an Affiliate of the Indemnifying Party, (x) resulting from Project Company (or any of the Systems) not qualifying for (or becoming disqualified under) the REPS Act or the Tariffs as a result of any act or omission by Bloom or any Affiliate of Bloom (including, without limitation, (i) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 5 MW of Systems by March 31, 2013 (unless such date has been extended in accordance with the QFCP-RC Tariff), (ii) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 30 MW of Systems, of which at least 20 MW of Systems were actually manufactured by Bloom in the State of Delaware by September 30, 2014 (unless such date has been extended in accordance with the QFCP-RC Tariff), (iii) Bloom failing to be manufacturing fuel cells capable of being powered by renewable fuels from a permanent manufacturing facility located in the State of Delaware as of the date of Commencement of Operations (as defined in the MESPA) of the full nameplate capacity of the Portfolio, or (iv) any of the acts or omissions set forth in Section 4.3 of the MESPA), (y) resulting from Bloom failing to be in compliance with the Letter Agreement (including, if so required by the State of Delaware, posting the security referred to in the Letter Agreement upon or prior to the Commencement of Operation of the first System) or (z) resulting from any surcharges pursuant to the Tariffs being deemed a tax under Delaware law, in no event will Clean Technologies’ aggregate obligation (including any prior indemnity payments by Clean Technologies under this Agreement or under the ECCA) to indemnify the Investor Indemnified Parties hereunder exceed one hundred percent (100%) of the Funding Payments of the Class B Member made to date.

(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 Clean Technologies Indemnified Parties from and against any and all Clean Technologies Indemnified Costs; provided , however , except with respect to Clean Technologies Indemnified Costs (w) resulting from fraud or willful misconduct, (x) resulting from failure to pay any amount due to Clean Technologies Indemnified Parties under the Transaction Documents, (y) resulting from a Third Party Claim or (z) resulting from the failure to enforce a Material Contract with an Affiliate of the Indemnifying Party, in no event will the Class B Member’s aggregate obligation (including any prior indemnity payments by the

 

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Class B Member under this Agreement or under the ECCA) to indemnify the Clean Technologies Indemnified Parties hereunder exceed one hundred percent (100%) of the Funding Payments of the Class B Member made to date.

(c)    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 $175,000 and once such threshold amount of claims has been reached, the relevant Indemnified Party and its Affiliates shall have the right to be indemnified only to the extent the amount of Indemnified Costs claimed exceed such threshold amount. Claims for indemnification under this Company LLC Agreement and the other Transaction Documents shall not be duplicative of one another and shall not allow for duplicative recoveries.

Section 9.13 Indemnification of Members by the Company . Each Member and any Affiliate of a Member, and each of their respective officers, directors, shareholders, employees and agents (each, a “ Member Party ”) shall be exculpated from liability for and defended, indemnified and held harmless by the Company from all Claims arising out of the performance by such Member Party of its obligations under this Company LLC Agreement so long as such 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; provided , however , that no Member Party shall be shall be exculpated from liability for and defended, indemnified and held harmless or entitled to the payment of an indemnity claim under this Article IX .

Section 9.14 Direct Claims . In any case in which an Indemnified Party seeks indemnification under Section  9.12 that is not subject to Section  9.15 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.

Section 9.15 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  9.12 . 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

 

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pursuant to this Section  9.15 , 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 other than reasonable costs of investigation or defending such portion of such Third Party Penalty Claim; provided nothing contained herein shall permit Clean Technologies to control or participate in any Tax contest or dispute involving a Class B Member or any Affiliate of a Class B Member, or permit a Class B Member to control or participate in any Tax contest or dispute involving any Affiliate of Clean Technologies other than the Company and the Project Company; and, provided , further, 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, 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

 

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such consent. Notwithstanding anything in this Section  9.15 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.

Section 9.16 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 9.12 , only one recovery of Indemnified Costs per Indemnified Party shall be allowed.

Section 9.17 Sole Remedy . Except in the case of fraud, willful misconduct or failure to pay and except for claims brought under Article 6 of the ECCA, the enforcement of the claims of the Parties under Section 6.6 , Section 6.7 , Section  6.8 , Section  6.9 or Article IX of this Agreement are the sole and exclusive remedies that a Party shall have under this Agreement and the other Transaction Documents for the recovery of Indemnified Costs; provided , however , that notwithstanding anything to the contrary in this Agreement, each Party hereby reserves all equitable remedies.

Section 9.18 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 in Section  9.18 or 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.

Section 9.19 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 this Agreement shall be forever barred unless the other Party is notified within eighteen (18) months after the date such representation or warranty is made; 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 respective foregoing 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.

Section 9.20 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

 

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(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.

Section 9.21 Net of Insurance Benefits . All Indemnified Costs shall be net of insurance recoveries from insurance policies of the Project 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 Project Company in connection therewith, are distributed by the Project Company to the Company and are in turn 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.

Section 9.22 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 Project 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  9.22 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 Project Company, the Company, or both.

Section 9.23 Payment of Indemnification Claims . All claims for indemnification shall be paid by 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.

Section 9.24 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

 

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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  9.24 will be construed to require any Party to obtain or maintain any insurance coverage.

ARTICLE X

DISSOLUTION AND WINDING-UP

Section 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 after the final Recapture Period;

(b)    the entry of a decree of judicial dissolution under Section 18-802 of the Act;

(c)    the occurrence of the LLC Agreement Termination Date;

(d)    the disposition of all or substantially all of the Company’s business and assets after the final Recapture Period;

(e)    the issuance of a final, nonappealable court order which makes it unlawful for the business of the Company to be carried on; or

(f) at any time there are no members of the Company unless the business of the Company is continued in accordance with the Act.

Section 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

 

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commercially 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, and the gain treated as realized on those assets will be allocated first to Members with deficits in their Capital Accounts (in the ratio of the deficits if more than one Member’s Capital Account is in deficit) in order to eliminate the deficits.

(d)    Remaining gain or loss will be allocated next to the Class B Member in an effort to set the Capital Account of the Class B Member at a level that would allow it to reach the Target IRR out of the liquidating distributions if the Target IRR has not already been achieved, and thereafter in the ratio in Section  5.1 (a)(ii) , provided that no allocation will increase a deficit in the Capital Account of a Class B Member.

(e)    After the allocations in clauses (c) and (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 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.

Section 10.3 In-Kind Distributions . There shall be no distribution of assets of the Company in kind without a prior Class Majority Vote.

 

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Section 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.

(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

Section 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 Business Day following its deposit in registered or certified mail, with postage prepaid, and return receipt requested, (iii) the second 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.

Section 11.2 Amendment . Except for an amendment of Schedule 4.2(d) , an amendment of Annex II to reflect the issuance of additional Class B Membership Interests or a Transfer of Class B 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.

Section 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.

Section 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

 

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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 this Agreement, to take advantage of any of its rights hereunder, or to declare any Person in default with respect to the Company, irrespective of how long that failure continues, does not constitute a waiver by that Person of its rights with respect to that 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 .

Section 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.

Section 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 law, 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.

Section 11.7 Entire Agreement . This Agreement, including the Schedules attached hereto or incorporated herein by reference, constitutes 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, including the 2012 Operating Agreement.

Section 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.

 

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Section 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.

Section 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.

Section 11.11 Dispute Resolution .

(a)    Except as provided in Section  11.11(b) , 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 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.

(b)    If any Class B Member disputes the determination that the Flip Date has occurred (including based on any item or procedure or calculation that affects such determination contained in any notice or report delivered by the Administrator to such Class B Member), such Class B Member shall notify the Administrator and other Members not more than 20 days after such Class B Member has received written notice from the Administrator or the Managing Member that the Flip Date was determined to have occurred. In such event, the Members and the Administrator shall consider the issues raised or in dispute and discuss such issues with each other and attempt to reach a mutually satisfactory agreement. If notice of dispute is not given by any Class B Member within such period, the determination that the Flip Date has occurred, and the items, procedures and calculations described above relating thereto, will be final and binding on the Members. If the dispute as to the Administrator’s calculations is not promptly resolved within ten Business Days of such notification of the dispute, the Class B Member and the Administrator shall each promptly present their interpretations to an Independent Accounting Firm, and shall instruct the Independent Accounting Firm to determine the correct amount of the calculations in dispute (if applicable, in accordance with the methodology in Sections 6.5 or 7.1 ) and to resolve the dispute promptly, but in no event more than twenty Business Days after having the dispute submitted to it. The Independent Accounting Firm will make a determination as to each of the items in dispute, which must be (i) in writing, (ii) furnished to each Member and

 

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the Administrator and (iii) made in accordance with this Agreement, and which determination, absent manifest error, will be conclusive and binding on all Members, taking into account Sections 6.5(d) and (e) . Each Member shall use reasonable efforts to cause the Independent Accounting Firm to render its decision as soon as reasonably practicable, including by promptly complying with all reasonable requests by the Independent Accounting Firm for information, books, records and similar items. In the event the Independent Accounting Firm determines that any of the calculations in dispute was incorrect in any material respect, the fees and expenses of the Independent Accounting Firm shall be borne by Class A Members (pro rata in proportion to their Percentage Interests). In all other cases the fees and expenses of the Independent Accounting Firm shall be borne by the Class B Member disputing any of the calculations (if more than one, pro rata in proportion to their Percentage Interests).

Section 11.12 Confidentiality .

(a) The Members (other than Clean Technologies) 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 Clean Technologies, Bloom, 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 a Member or any of its Representatives, (ii) becomes available to a 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 a 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. 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 Systems or a Grant, including in connection with a request for any private letter ruling, any determination letter or any audit, or (v) is independently developed by a Member or any of its Representatives; provided that with respect to clauses (iii) and (iv), if such Confidential Information remains or is reasonably believed to remain generally unavailable to the public, such information will remain Confidential Information 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 with prompt Notice 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.

 

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(b)    Except to the extent necessary for the exercise of its rights and remedies and the performance of its obligations under this Agreement (including without limitation, the ownership, operation and administration of the Company and the Project Company), Clean Technologies and its 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 Class B Member’s Capital Contribution, economic returns thereon or the identity of any Class B Member other than with respect to the disclosures of the type described in clause (a)(i) through (v) above or in clause (c) below that are permitted for the other Members and their respective Affiliates. The foregoing shall not restrict Clean Technologies (or any Affiliate) from using project data related to the Systems in connection with the development of other fuel cells by Clean Technologies (or any Affiliate).

(c)    Nothing in Section  11.12(a) and (b)  shall be construed as prohibiting a party hereunder from using such Confidential Information in connection with (i) any claim against another Member, the Managing Member or the Administrator hereunder, (ii) any exercise by a party hereunder of any of its rights hereunder (including without limitation, the ownership, operation and administration of the Company and the Project 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, provided that such potential purchaser 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 and applicable European securities laws, among other things, prohibit certain persons in possession of material, non-public information concerning companies or securities from buying or selling 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.

Section 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.

 

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Section 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.

Section 11.15 Survival . All indemnities and reimbursement obligations made pursuant to this Agreement shall survive 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.

Section 11.16 Effective Date . This Agreement shall have no force or effect unless and until the funding of the transactions contemplated by the ECCA to take place at the Initial Funding occurs, at which time this Agreement shall automatically and without any further action become effective simultaneously with the Initial Funding (the “ Effective Date ”).

Section 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.]

 

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IN WITNESS WHEREOF, each Member has caused this Second Amended and Restated Limited Liability Company Agreement to be signed by a duly authorized officer as of the date first above written.

 

CLEAN TECHNOLOGIES II, LLC
By:  

/s/ William E. Brockenborough

Name:   William E. Brockenborough
Title:   President
MEHETIA INC.
By:  

 

Name:  
Title:  

Second A&R LLCA of DSGH


IN WITNESS WHEREOF, each Member has caused this Second Amended and Restated Limited Liability Company Agreement to be signed by a duly authorized officer as of the date first above written.

 

CLEAN TECHNOLOGIES II, LLC
By:  

 

Name:  
Title:  
MEHETIA INC.
By:  

/s/ Peter Cross

Name:   Peter Cross
Title:   Vice President

Second A&R LLCA of DSGH


ANNEX I TO ECCA

AND COMPANY LLC AGREEMENT

DEFINITIONS

1940 Investment Company Act ” means the Investment Company Act of 1940, as amended.

2012 Operating Agreement ” is defined in the preliminary statements of the Company LLC Agreement.

25% Progress Payment ” means, for any System, the initial payment by Project Company of 25% of the purchase price for such System as contemplated by the MESPA.

75% Progress Payment ” means, for any System, the final payment by Project Company of 75% of the purchase price for such System as contemplated by the MESPA.

Acceptable Credit Party ” means a commercial bank or other financial institution which maintains an office or corresponding office in the United States, whose long-term unsecured debt is rated “A-” or higher by S&P and “A3” or higher by Moody’s and which has a tangible net worth of at least $1,000,000,000.

Accountant’s Certificate ” means the independent accountant’s certification attesting to accuracy of all costs as required pursuant to the Guidance.

Account Withdrawal Instruction ” is defined in the Depositary Agreement.

Accounting Firm ” means any of Deloitte Touche Tohmatsu, Ernst & Young, KPMG International, PricewaterhouseCoopers or any nationally-recognized Affiliate thereof, chosen by the Tax Matters Partner or otherwise reasonably approved by Class Majority Vote.

Act ” means the Delaware Limited Liability Company Act, Delaware Code Ann. 6, Sections 18-101, et seq. and any successor statute, as the same may be amended from time to time.

Adjusted Capital Account ” means the Capital Account of a Member (a) increased by the amount of potential deficit that the Member is deemed obligated to restore, calculated as described in the last sentence of Treasury Regulation Section 1.704-2(g)(1) and the last sentence of Treasury Regulation Section 1.704-2(i)(5), and (b) decreased by expected items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

Administrative Services Agreement ” means the Administrative Services Agreement, dated as of the Initial Funding Date, among the Company, the Project Company and Bloom in the form attached as Exhibit C to the ECCA.


Administrator ” means Bloom or any replacement administrator under a Administrative Services Agreement. The Administrator is a “manager” of the Company within the meaning of the Act.

Affiliate ” means, with respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For purposes of this definition, the term “control” (and correlative terms) means (1) the ownership of 50% or more of the equity interest in a Person, or (2) the power, whether by contract, equity ownership or otherwise, to direct or cause the direction of the policies or management of a Person. The Company shall be deemed to be an Affiliate of Clean Technologies prior to the Initial Funding (for purposes of representations and warranties), but neither the Company nor the Project Company shall be deemed to be an Affiliate of any Member or of Bloom or the Investor Guarantor from and after the Initial Funding.

Aggregate Final Completion Distribution ” is defined in Section 6.11 of the Company LLC Agreement.

Agreement ” means the Company LLC Agreement if used in the Company LLC Agreement or the ECCA if used in the ECCA.

Alternative Tax Program ” means, if the Grant is unavailable, any successor cash grant, cash-based subsidy, tax refund or refundable credit program or, if none of the foregoing is available, the ITC.

Annual Budget ” is defined in Section  7.1(b) of the Company LLC Agreement.

Applicable Laws ” means all laws (including common law), constitutions, statutes, rules, regulations, ordinances, judgments, settlements, orders, decrees, injunctions, and writs of any Governmental Authority, in each case, having jurisdiction over Bloom, Clean Technologies, Mehetia, Credit Suisse Guarantor, the Administrator, the Company, the Project Company or the Systems, as applicable.

Appraisal Method ” means one appraiser shall be appointed by the holders of a majority of the Class A Membership Interests and one appraiser shall be appointed by the holders of a majority of the Class B Membership Interests, in each case, within fifteen (15) days of invocation of this procedure, which appraisers shall attempt to agree upon the fair market value of the Class B Membership Interests. If either holders of the Class A Membership Interests or holders of the Class B Membership Interests do not appoint their respective appraiser within five (5) days after the end of such fifteen (15) day period, the determination of the appraiser appointed by the other Person (if so appointed within such period) shall be conclusive and binding on the Members. If the appraisers appointed by the holders of Class A Membership Interests and the holders of Class B Membership Interests are unable to agree upon the fair market value of the Class B Membership Interests within thirty (30) days after the appointment of the second of such appraisers, the two appraisers shall appoint a third appraiser. In such case, the average of the determinations of the three appraisers shall be conclusive and binding on the

 

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Members, unless the determination of any of the appraisers differs from the middle determination by more than twice the amount by which the remaining determination differs from the middle determination, in which case the most disparate appraisal shall be excluded, and the average of the remaining two determinations shall be conclusive and binding on the Members.

Bankruptcy ” of a Person means the occurrence of any of the following events: (i) the filing by such Person of a voluntary case or the seeking of relief under any chapter of Title 11 of the United States Code, as now constituted or hereafter amended (the “ Bankruptcy Code ”), (ii)    the making by such Person of a general assignment for the benefit of its creditors, (iii) the admission in writing by such Person of its inability to pay its debts as they mature, (iv) the filing by such Person of an application for, or consent to, the appointment of any receiver or a permanent or interim trustee of such Person or of all or any portion of its property, including the appointment or authorization of a trustee, receiver or agent under applicable law or under a contract to take charge of its property for the purposes of enforcing a lien against such property or for the purpose of general administration of such property for the benefit of its creditors, (v) the filing by such Person of a petition seeking a reorganization of its financial affairs or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, (vi) an involuntary case is commenced against such Person by the filing of a petition under any chapter of Title 11 of the Code and within 60 days after the filing thereof either the petition is not dismissed or the order for relief is not stayed or dismissed, (vii) an order, judgment or decree is entered appointing a receiver or a permanent or interim trustee of such Person or of all or any portion of its property, including the entry of an order, judgment or decree appointing or authorizing a trustee, receiver or agent to take charge of the property of such Person for the purpose of enforcing a lien against such property or for the purpose of general administration of such property for the benefit of the creditors of such Person, and such order, judgment or decree shall continue unstayed and in effect for a period of 60 days, or (viii) an order, judgment or decree is entered, without the approval or consent of such Person, approving or authorizing the reorganization, insolvency, readjustment of debt, dissolution or liquidation of such Person under any such law or statute, and such order, judgment or decree shall continue unstayed and in effect for a period of 60 days. The foregoing definition of “Bankruptcy” is intended to replace and shall supersede the definition of “Bankruptcy” set forth in Sections 18-101(1) and 18-304 of the Act.

Base Case Model ” means the financial model attached as Annex II to the Member Consent and Second Amendment to Equity Capital Contribution Agreement with respect to Diamond State Generation Holdings, LLC, dated as of March 20, 2013, by and among Clean Technologies, Investor, the Company and the Project Company.

Bloom ” means Bloom Energy Corporation, a Delaware corporation.

Bloom Guaranty ” means the Guaranty made by Bloom for the benefit of Investor, dated as of March 16, 2012.

Brook side Site ” means the Site described in the DDOT Site Lease.

 

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Business Day ” means any day other than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York City are authorized or required to be closed.

Capital Account ” means an account for each Member calculated as described in Section  4.2(b) of the Company LLC Agreement and used to distribute assets at liquidation as described in Section  10.2 of the Company LLC Agreement.

Capital Contribution ” means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property contributed to the Company with respect to the Membership Interests in the Company held or purchased by such Member.

Capital Contributions Account ” is defined in Section  4.3(c) of the Company LLC Agreement.

Cause ” means fraud, gross negligence or willful misconduct of the Managing Member, solely in that capacity.

Certificate of Formation ” has the meaning in the preliminary statements of the Company LLC Agreement.

Change of Control ” means with respect to an entity, an event in which a Person or Persons who prior to a transaction or series of transactions, possessed, whether directly or indirectly, legally or beneficially:

(a)    50% or more of the equity, capital or profits interests of such entity; or

(b)    Control of such entity;

and as a result of a consummation of any transaction or series of transactions (including any merger or consolidation), such Person or Persons fails to maintain, whether directly or indirectly, legally or beneficially, either of the elements of control listed in (a) or (b) above.

Claims ” is defined in Section  3.6(a) of the Company LLC Agreement.

Class  A Member ” means a Member holding one or more Class A Membership Interests.

Class  A Membership Interests ” means membership interests in the Company that are held initially by Clean Technologies and have the rights described in the Company LLC Agreement.

Class  A Recapture Event ” means an event or occurrence of any fact or circumstance that causes a Recapture Event that is not a Class B Recapture Event.

Class  B Member ” means a Member holding one or more Class B Membership Interests.

 

4


Class  B Member CC Maximum Amount ” means, for the Class B Member, an amount not to exceed the lesser of (i) $141,650,000 and (ii) such amount that makes such Class B Member’s actual or required net investment (Capital Contributions less actual pre-tax cash distributions from the Company to the Class B Member made and received to date) equal $65,000,000.

Class  B Membership Interests ” means the membership interests in the Company that are initially held by Mehetia and having the rights described in the Company LLC Agreement.

Class  B Recapture Event ” means (a) an event or occurrence of any fact or circumstance that causes a denial or recapture of all or a portion of a Grant that is directly attributable to (i) a breach of the representation made by a Class B Member under Section  3.11(c) of the Company LLC Agreement, (ii) a breach of the covenant made by a Class B Member under Section  3.12(f) of the Company LLC Agreement or (iii) any Transfer by a Class B Member or an Affiliate of a Class B Member prohibited by Sections 9.1 , 9.3(e) or 9.4(c) of the Company LLC Agreement that causes the Company or Project Company to become a Disqualified Person, or (b) any act or omission by a Class B Member (excluding voting for a Major Decision), including any Transfer by a Class B Member or its Class B Membership Interests or a change in ownership of a Class B Member, that results in a recapture of the ITC or refundable credit under an Alternative Tax Program if an ITC or such refundable credit is elected pursuant to Section  7.5(b)(i) of the Company LLC Agreement and claimed by such Class B Member with respect to the Systems.

Class  Majority Vote ” is defined in Section  3.2(f) of the Company LLC Agreement.

Clean Technologies ” is defined in the preamble to the ECCA.

Clean Technologies Indemnified Costs ” means, with respect to any Class A Member, the following:

 

  (a) with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA of Investor or Investor Guarantor, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Clean Technologies Indemnified Parties) incurred by such Clean Technologies Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to any breach or default or misrepresentation by Investor (as itself or as a Class B Member, as applicable) or Investor Guarantor, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document, including any claim for fraud or willful misconduct on the part of Investor or Investor Guarantor relating to the ECCA or any other Transaction Document; and

 

  (b)

with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA (if applicable) of any Class B Member not covered under the preceding clause (a), any and all damages, losses,

 

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  claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Clean Technologies Indemnified Parties) incurred by such Clean Technologies Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to (i) any breach or default or misrepresentation by Class B Member or its Affiliate, as applicable, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document or (ii) any claim for fraud or willful misconduct on the part of Class B Member or its Affiliate relating to the ECCA or any other Transaction Document.

Clean Technologies Indemnified Parties ” means Clean Technologies and any person to whom Clean Technologies transfers any portion of its Class A Membership Interests in accordance with Article IX of the Company LLC Agreement, and each of their respective Affiliates (other than the Company or the Project Company) and each of their respective shareholders, partners members, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.

Code ” means the Internal Revenue Code of 1986, as amended from time to time.

Collateral Agent ” means Deutsche Bank Trust Company Americas as collateral agent under the Credit Documents.

Company ” is defined in the preliminary statements to the ECCA.

Company Distributable Cash ” means, as of any date, all cash, cash equivalents and liquid investments (excluding Capital Contributions, Permitted Investments and any cash received in respect of the Grant) held by the Company as of such date less all reasonable reserves that, in the reasonable judgment of the Managing Member, are necessary or appropriate for the operation of the Company consistently with the Prudent Operator Standard. Reasonable reserves shall consist of any combination of the following reserves as reasonably determined by the Managing Member, without duplication: (i) necessary for payment of expenses included in the annual budget of the Company, (ii) necessary to prevent or mitigate an emergency situation, (iii) established with the prior written consent of the Members (by Class Majority Vote), (iv) necessary to allow the Company to meet expenses that are clearly identified and expected with reasonable certainty to become due, but that are not included in the annual budget of the Company, (v) necessary to ensure sufficient spare parts or the payment of operational and maintenance costs for each of the Systems, and (vi) one or more additional reserves not referred to in the preceding clauses of this definition of “Company Distributable Cash” that do not, together with the reserves reserved pursuant to clause (vi) of the definition of Project Company Distributable Cash, in the aggregate exceed $1,600,000.

Company LLC Agreement ” means the Second Amended and Restated Limited Liability Company Agreement of the Company, by and between Clean Technologies and Mehetia, dated as of March 20, 2013, as the same may be amended, supplemented or replaced from time to time.

 

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Company Minimum Gain ” means the amount of minimum gain there is in connection with nonrecourse liabilities of the Company, calculated in the manner described in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).

Confidential Information ” is defined in Section  11.12(a) of the Company LLC Agreement.

Construction Escrow Account ” is defined in the Note Purchase Agreement.

Consult ” or “ Consultation ” means to confer with, and reasonably consider and take into account the reasonable suggestions, comments or opinions of, another Person.

Control ” or “ Controlled by ” means the possession, directly or indirectly, of either of the following:

(i) in the case of a corporation, more than 50% of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or joint venture, the right to more than 50% of the distributions (including liquidating distributions) therefrom; (iii) in the case of a trust or estate, including a business trust, more than 50% of the beneficial interest therein; and (iv) in the case of any other entity, more than 50% of the economic or beneficial interest therein; or in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the entity.

Control Agreement ” means the Control Agreement to be entered into on or before the Initial Funding Date among Mehetia, Clean Technologies, the Company (or the Project Company) and the control agent party thereto, as the same may be amended from time to time.

Credit Documents ” means the Note Purchase Agreement and all other documents executed or delivered in connection with the Note Purchase Agreement, including, without limitation, the Interparty Agreement.

Credit Suisse Guarantor ” means Credit Suisse (USA), Inc.

Credit Suisse Guaranty ” means the Guaranty made by Credit Suisse Guarantor for the benefit of Clean Technologies, dated as of March 16, 2012.

CT Funding Amount ” means, on the Initial Funding Date or on any Subsequent Funding Date, an amount that is equal to the required Progress Contribution less (i) the applicable Note Proceeds of the Note Holders and (ii) the applicable Subsequent Funding Payment of the Investor.

DDOT ” means the Delaware Department of Transportation.

 

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DDOT Site Lease” means a Lease Agreement between DDOT and the Project Company to be entered into on or prior to the Initial Funding Date, as it may be amended to extend the term or otherwise.

December Capital Contribution ” means the Capital Contribution in the amount of $16,619,399.60 made by Clean Technologies to the Company on December 30, 2011 pursuant to the Capital Contribution Agreement dated December 30, 2011 among Bloom, Clean Technologies, the Company and the Project Company.

Deposit Contribution” is defined in Section  2.2(b) of the ECCA.

Depositary” means Deutsche Bank Trust Company Americas, as depositary under the Depositary Agreement.

Depositary Agreement ” means the Depositary Agreement, dated as of March 20, 2013, among the Project Company, the Depositary and the Collateral Agent.

Depreciation” means for each Fiscal Year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for United States federal income tax purposes with respect to an asset for such Fiscal Year or part thereof, except that if the Gross Asset Value of an asset differs from its adjusted basis for United States federal income tax purposes at the beginning of such Fiscal Year, the depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof shall be an amount which bears the same ratio to such Gross Asset Value as the United States federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof bears to such adjusted tax basis. If such asset has a zero adjusted tax basis, the depreciation, amortization, or other cost recovery deduction for each taxable year shall be determined under a method reasonably selected by the Managing Member and agreed to by Members representing a Class Majority Vote.

Designated Transfers ” is defined in Section  9.9 of the Company LLC Agreement.

Disqualified Person” means (a) any federal, state or local government (or any political subdivision, agency or instrumentality thereof); (b) any organization described in Section 501(c) of the Code and exempt from tax under Section 501(a) of the Code; (c) any entity referenced in Section 54(j)(4) of the Code; (d) any foreign person or entity as defined in Section 168(h)(2)(C) of the Code unless the exception under Section 168(h)(2)(B) of the Code applies with respect to income from the Project for that person; and (e) any partnership or other pass-through entity (including a single-member disregarded entity), other than a real estate investment trust as defined in Section 856(a) of the Code, any direct or indirect partner (or other holder of an equity or profits interest) of which is described in clauses (a) – (d); provided that a taxable C corporation, any of whose shareholders are ineligible to receive a Grant by virtue of being described in clauses (a) – (d) above will not be considered a Disqualified Person.

Notwithstanding the above, a Person will not be treated as a Disqualified Person if it is demonstrated to the satisfaction of the Members that a Class A Recapture Event or Class B

 

8


Recapture Event, as applicable, will not occur as a result of such Person owning a direct or indirect interest in the Company or Project Company; and provided , further that if and to the extent that Section 1603 of division B of the American Recovery and Reinvestment Act of 2009 is amended after the date of the Agreement, the definition of “ Disqualified Person ” under the Agreement shall be interpreted to conform to such amendment and any Treasury guidance with respect thereto.

Distribution Date ” means, in respect of every month, commencing the month following the Initial Funding Date, the date that falls on the last Business Day of such month.

Dollars ” or “ $ ” means the lawful currency of the United States of America.

DPL ” means Delmarva Power & Light Company, a DPSC regulated utility company.

DPL Agreements ” means the service applications between the Project Company and DPL with respect to the REPS Act and the Tariffs, whereby DPL shall (a) serve as the agent for collection of amounts due from Project Company (if any) and for disbursement of amounts due to Project Company under the QFCP-RC Tariff and (b) sell to Project Company natural gas under the Gas Tariff.

DPL Site Lease ” means a Lease Agreement between DPL and the Project Company to be entered into on or prior to the Initial Funding Date.

DPSC ” means the Delaware Public Service Commission, the Governmental Authority charged with regulating DPL and issuing the Tariffs.

ECCA ” means the Equity Capital Contribution Agreement with respect to the Company dated as of March 16, 2012 among Clean Technologies, the Company, the Project Company and Mehetia and all schedules and exhibits thereto, as the same may be amended, supplemented or replaced from time to time.

Effective Date ” is defined in Section  11.16 of the Company LLC Agreement.

Energy ” is defined in the MESPA.

Encumbrance ” means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, mortgage, security interest, right of first refusal or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

Environmental Reports ” means (a) the Phase I Environmental Site Assessment: Proposed Fuel Cell Facility (Brook side Site) prepared by Terracon Consultants, Inc., dated November 15, 2011, and (b) the Phase I Environmental Site Assessment: Proposed Fuel Cell Facility (Red Lion Site) prepared by Terracon Consultants, Inc., dated November 15, 2011.

 

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Environmental Laws ” means all Applicable Laws pertaining to the environment, human health, safety and natural resources, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.), and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976 (42 U.S.C. §§ 6901 et seq.), and the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act (42 U.S.C. §§ 7401 et seq.), the Federal Water Pollution Control Act (also known as the Clean Water Act) (33 U.S.C. §§ 1251 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.), the Endangered Species Act (16 U.S.C. §§ 1531 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. §§ 1801 et seq.), and any similar or analogous state and local statutes or regulations promulgated thereunder and decisional law of any Governmental Authority, as each of the foregoing may amended or supplemented from time to time in the future, in each case to the extent applicable with respect to the property or operation to which application of the term “Environmental Laws” relates.

Equity Commitment Amount” means, with respect to Clean Technologies, $25,461,843 plus the Gross Asset Value of the membership interests in the Project Company transferred to the Company by Clean Technologies as shown in Schedule 4.2(b) to the Company LLC Agreement, and with respect to Mehetia, $141,650,000, subject to the limitation that at no time will the actual or required net investment (Capital Contributions less actual pre-tax cash distributions from the Company to Mehetia, as applicable made and received to date) by Mehetia exceed $65,000,000.

Equity Contribution” is defined in Section  4.3 of the Company LLC Agreement.

Equity Contribution Date ” is defined in Section  4.3 of the Company LLC Agreement.

Equity Contribution Notice ” is defined in Section  4.3 of the Company LLC Agreement.

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

Execution Date ” has the meaning given in the introductory paragraph of the ECCA.

Exempt Wholesale Generator ” means an “exempt wholesale generator” under PUHCA and the implementing regulations of FERC.

Exhibits ” means, in the case of the ECCA, the exhibits attached to the ECCA and in the case of the Company LLC Agreement, the exhibits attached to the Company LLC Agreement.

Federal Power Act ” or “FPA” means the Federal Power Act of 1935, as amended.

FERC ” means the Federal Energy Regulatory Commission and any successor thereto.

Final Completion Date ” is defined in the Note Purchase Agreement.

Fiscal Year ” is defined in Section  7.9 of the Company LLC Agreement.

 

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Flip Date ” means the last day of the calendar month in which Class B Member achieves an Internal Rate of Return equal to or greater than the Target IRR.

Funding ” means the Initial Funding or any Subsequent Funding, as the case may be. “ Funding Date ” means the date of any Funding.

Funding Notice ” means a notice in the form of Exhibit I to the ECCA.

Funding Payment ” means, individually or collectively, the Initial Funding Payment and the Subsequent Funding Payments.

GAAP ” means generally accepted accounting principles as recognized by the American Institute of Certified Public Accountants, as in effect from time to time, consistently applied and maintained on a consistent basis for a Person throughout the period indicated and consistent with such Person’s prior financial practice.

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 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.

Governmental Approval ” means all filings, notifications, orders, certificates, determinations, registrations, permits, licenses, approvals and authorizations with or of any Governmental Authority or other entity pursuant to Applicable Law.

Governmental Authority ” means any governmental department, commission, board, bureau, agency, court or other instrumentality of any country, state, province, county, parish or municipality, jurisdiction, or other political subdivision thereof.

Grant ” means a grant (or a portion thereof) under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 with respect to a System.

Grant Application ” means a Grant application to be filed with the Treasury under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 and all related guidance, regulations, notices, promulgations and announcements.

Gross Asset Value ” means, with respect to any asset, the asset’s adjusted tax basis for federal income tax purposes, except as follows:

 

  (a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the Gross Fair Market Value of such asset as of the date of contribution; provided that the initial Gross Asset Values of the assets contributed to the Company on the Initial Funding Date shall be shown in Schedule 4.2(b) to the Company LLC Agreement;

 

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  (b) the Gross Asset Values of all Company assets shall be adjusted to equal their respective fair market values at the times described in Section  4.2(c) of the Company LLC Agreement;

 

  (c) the Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the Gross Fair Market Value of such asset on the date of distribution;

 

  (d) the Gross Asset Values of all Company assets shall be adjusted to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are required to be taken into account in determining Capital Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m); provided , however , that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the Managing Member determines that an adjustment pursuant to subsection (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and

 

  (e) if the Gross Asset Value of an asset has been determined or adjusted pursuant to subsection (a), (b) or (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset.

Gross Fair Market Value ” means, with respect to any asset, the fair market value of the asset as reasonably determined by the Managing Member and agreed to by Members representing a Class Majority Vote.

Guaranteed Initial Delivery Date ” has the meaning set forth in the QFCP-RC Tariff.

Guidance ” means the guidance issued on July 9, 2009, by the Treasury for payments for specified energy property in lieu of tax credits under the American Recovery and Reinvestment Act of 2009 (as updated on March 15, 2010 and in April 2011), the Frequently Asked Questions and Answers issued by the Treasury on January 8, 2010 and June 25, 2010, as updated in April 2011, and any other guidance or clarification, addition or supplement thereto issued by the Treasury or any other Governmental Authority.

Hedge Support ” means any letters of credit, guarantees, bonds, surety contracts and other credit support arrangements (and any related reimbursement obligation) to support the payment and performance obligations of the Project Company under any hedge agreement to which the Project Company is a party.

HSR Act ” means the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended and the regulations adopted thereunder.

IDC Reserve Account ” is defined in the Note Purchase Agreement.

 

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Independent Accounting Firm ” means an accounting firm that is mutually acceptable to Class A Members holding a majority of the Class A Membership Interests, and Class B Member and if the foregoing Members cannot agree, then one of Deloitte Touche Tohmatsu, Ernst & Young, KPMG International or PricewaterhouseCoopers as chosen by the Managing Member; provided that, any such accounting firm is not the Accounting Firm.

Independent Engineer ” means SAIC Energy, Environment & Infrastructure, LLC.

Independent Engineer Report ” means the report of the Independent Engineer to be dated on or before the Initial Funding Date.

Indemnified Costs ” means Investor Indemnified Costs or Clean Technologies Indemnified Costs, as the context requires.

Indemnified Party ” means an Investor Indemnified Party or Clean Technologies Indemnified Party, as the context requires.

Indemnifying Party ” means Mehetia or Clean Technologies, as the context requires.

Initial Funding ” is defined in Section  2.3 of the ECCA.

Initial Funding Date ” means the date described in Section  2.3 of the ECCA.

Initial Funding Payment ” is defined in Section  2.2(a) of the ECCA.

Initial Funding Termination Date ” means March 31, 2014 or any later date agreed to by Investor and Clean Technologies.

Insurance Report ” means the Insurance Due Diligence Summary prepared by Moore- McNeill, LLC, to be dated on or before the Initial Funding Date.

Interconnection Point ” is defined in the MESPA.

Internal Rate of Return ” means, with respect to Class B Member and at any time of determination, the discount rate that sets A equal to B, where A is the present value of (a) cash (including the proceeds of any Grant, or, if elected pursuant to Section  7.5(b)(i) of the Company LLC Agreement, the proceeds of any similar successor cash program or cash received from an Alternative Tax Program) distributed to Class B Member and, if the ITC is elected pursuant to Section  7.5(b)(i) of the Company LLC Agreement and the Class B Member consents in writing to inclusion of such ITC in its Internal Rate of Return, the value of any ITC claimed on Systems to the extent allocated to Class B Member assuming a 35% federal income tax rate plus (b) any indemnity payments received by Class B Member that compensate for loss of any item listed in the foregoing clause (a), and B is the present value of the various Capital Contributions made by Class B Member.

 

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Interparty Agreement ” means the Interparty Agreement, dated as of March 20, 2013, among the Project Company, Company, Clean Technologies, Investor and Deutsche Bank Trust Company Americas, as collateral agent under the Note Purchase Agreement, as the same may be amended from time to time.

Investor ” is defined in the preliminary statements to the ECCA.

Investor Guarantor ” means the Credit Suisse Guarantor.

Investor Guaranty ” means the Credit Suisse Guaranty.

Investor Indemnified Costs ” means, with respect to Class B Member, the following:

 

  (a)

with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA of Clean Technologies or its Affiliates, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Investor Indemnified Parties) incurred by such Investor Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to (i) any breach or default or misrepresentation by Clean Technologies (as itself or as a Class A Member, Managing Member or Tax Matters Partner) or any Affiliate of Clean Technologies, as applicable, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document, including (A) in its capacity as Managing Member under the Company LLC Agreement in accordance with the terms thereof and (B) in its capacity as Tax Matters Partner under Section  7.7(b) and Section  7.7(c) of the Company LLC Agreement in accordance with the terms thereof, (ii) any claim for fraud or willful misconduct on the part of Clean Technologies or any Affiliate of Clean Technologies relating to the ECCA or any other Transaction Document, (iii) resulting from Project Company (or any of the Systems) not qualifying for (or becoming disqualified under) the REPS Act or the Tariffs as a result of any act or omission by Bloom or any Affiliate of Bloom (including, without limitation, (A) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 5 MW of Systems by March 31, 2013 (unless such date has been extended in accordance with the QFCP-RC Tariff), (B) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 30 MW of Systems, of which at least 20 MW of Systems were actually manufactured by Bloom in the State of Delaware by September 30, 2014 (unless such date has been extended in accordance with the QFCP-RC Tariff), (C) Bloom failing to be manufacturing fuel cells capable of being powered by renewable fuels from a permanent manufacturing facility located in the State of Delaware as of the date of Commencement of Operations (as defined in the MESPA) of the full nameplate capacity of the Portfolio, or (D) any of the acts or omissions set forth in Section 4.3 of the MESPA), (iv) Bloom failing to be in compliance with the Letter Agreement (including, if so required by

 

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  the State of Delaware, posting the security referred to in the Letter Agreement upon or prior to the Commencement of Operation of the first System) or (v) any surcharges pursuant to the Tariffs being deemed a tax under Delaware law; and

 

  (b) with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA (if applicable) of any other Class A Member not covered under the preceding clause (a), any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Investor Indemnified Parties) incurred by such Investor Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to (i) any breach or default or misrepresentation by such Class A Member or its Affiliate, as applicable, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document or (ii) any claim for fraud or willful misconduct on the part of such Class A Member or its Affiliate relating to the ECCA or any other Transaction Document.

Investor Indemnified Parties ” means the Mehetia Indemnified Parties.

IP Rights ” is defined in Section  3.1(x) of the ECCA.

ITC ” means the 30% investment tax credit under Section 48 of the Code.

IRS ” means the Internal Revenue Service or any successor agency.

Knowledge ” means, with respect to Clean Technologies, the Company and the Managing Member, the actual knowledge after due inquiry of the senior managers of the Company listed below in the positions set forth next to such person’s name or their successors or replacements in such positions.

 

Name

  

Position

     
William H. Kurtz    President   
William E. Brockenborough    Vice President, General Manager   
Martin J. Collins    Vice President, Secretary   
Scott Reynolds    Vice President   
Kevin Passalacqua    Vice President   
Timothy Gray    Vice President   

 

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kW ” means kilowatt or one thousand watts of Energy.

Legal Requirement ” means any law (including common law), statute, act, decree, ordinance, rule, directive (to the extent having the force of law) order, treaty, code or regulation (including any of the foregoing relating to health or safety matters or any Environmental Law)or any interpretation of any of the foregoing, as enacted, issued or promulgated by any Governmental Authority, including all amendments, modifications, extensions, replacements or re-enactments thereof.

Letter Agreement ” means that certain Letter Agreement dated October 10, 2011 between Bloom and the State of Delaware, as may be amended from time to time.

Liens ” means any liens, pledges, claims, security interests, easements, rights of way, mortgages, deeds of trust, covenants, restrictions, rights of first refusal or defects in title.

LLC Agreement Termination Date ” is defined in Section  2.4 of the Company LLC Agreement.

Major Decisions ” means:

With respect to the Pre-Flip Period, any of the following:

 

  (a) Any sale, lease or other voluntary disposition of assets of the Project Company or Membership Interests in the Project Company with an aggregate fair market value in excess of $250,000 during any 12 month period, but excluding sales of (i)    energy sold under the PJM Agreements or excess energy produced by Systems, (ii)    environmental attributes of energy sales (such as renewable energy credits and carbon allowances), (iii) ancillary benefits of energy sales (such as capacity credits) and (iv) surplus or obsolete assets;

 

  (b) The Company or the Project Company taking action to (i) cancel, suspend or terminate any Material Contract, (ii) assign, release or relinquish the rights or obligations of (or any security posted by) any party to, or amend (A) the DPL Agreements, the PJM Agreements, the Note Purchase Agreement, the Interparty Agreement, any Collateral Document (as defined in the Note Purchase Agreement) or any other Credit Document (solely to the extent the amendment of any other such Credit Document could reasonably be expected by the Managing Member to have a Material Adverse Effect on the Class B Members), other than any such assignment or release made in accordance with its express terms, or (B) any other Material Contract if (with respect to this clause (B) only) any of the foregoing items in this clause (ii) could reasonably be expected to have a Material Adverse Effect on the Company or the Project Company, (iii) renew or enter into any replacement Material Contract except to the extent such renewal or replacement is on substantially the same terms as the original Material Contract, (iv)    replace the Administrator under the Administrative Services Agreement,

 

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  (v) replace the manager or operator under the MOMA, or (vi) enter into any new Material Contract; provided that none of the following will be considered a Major Decision: (v) taking any of the actions referred to above in this paragraph (b) in connection with a Material Contract with respect to assets that are excluded from paragraph (a) above, (w) entry into the DPL Agreements or the PJM Agreements, (x) taking any of the actions referred to above in this paragraph (b) if such actions (1) are required by any Governmental Authority or (2) involve agreements or instruments as to which such actions otherwise are permitted under the Company LLC Agreement, (y) the replacement of (1) any permit or (2) any Hedge Support with other Hedge Support that provides up to a comparable amount of credit support with comparable obligations, and (z) the enforcement or management of contracts with suppliers;

 

  (c) The Company adopting, amending or exceeding the Annual Budget for the Project Company, except that the following will not be considered a Major Decision: (i) adoption of an Annual Budget containing an aggregate expense amount for any Fiscal Year that is not more than [***] above the annual spending projected in the Base Case Model for such Fiscal Year or [***] above the aggregate expense amount reflected in the Annual Budget for the previous Fiscal Year, (ii) spending up to [***] of the aggregate expense amount reflected in the Annual Budget for a Fiscal Year and (iii) emergency spending above the [***] limit, except that non-recurring budget items that are not included in the Base Case Model and that are not incurred or expected to be incurred in the Ordinary Course of Business will be excluded when applying the percentages in this paragraph;

 

  (d) Approval of any transactions (other than other transactions contemplated by any of the Transaction Documents) between the Company or the Project Company, as the case may be, and any member thereof, the Administrator, or any Affiliates of any member of the Company or the Project Company, other than those entered into on an arm’s length basis;

 

  (e) Any settlement of claims, litigation, arbitration, criminal investigation or criminal proceedings (excluding the payment of undisputed liquidated damages) involving the Company, the Project Company or the Managing Member (only to the extent such investigation or proceeding relates to its actions or failure to act in such capacity) or any of their respective officers, managers or directors except if the settlement is not with any Affiliate of Bloom and, as a result of such settlement, the Company and/or the Project Company would not be obligated to pay more than $250,000 in the aggregate;

 

  (f) Change, amend or substitute the insurance required to be maintained by the Company pursuant to the ECCA or the Company LLC Agreement in a manner that would cause such insurance to be materially different from the insurance requirements prescribed therein;

[***] Confidential Treatment Requested

 

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  (g) Any action that would cause the Company or the Project Company to engage in any business or activity that is not within the purpose of such entity, as set forth in such entity’s organizational documents, or to change such purpose;

 

  (h) (i) any action that would cause the Company to remove the Managing Member or fill any vacancy for the Managing Member as provided in Section  8.2(c) of the LLC Agreement or any action that would cause the Project Company to remove the manager of the Project Company or fill any vacancy for the manager of the Project Company, (ii) any merger or consolidation of the Company or the Project Company, (iii) the acquisition of all or substantially all of the assets or ownership interests of another Person, (iv) sale of all or substantially all of the assets of the Company or the Project Company and (vi) the taking of any action by the Company or the Project Company described in clauses (i), (ii), (iii), (iv), (v) or (vi)    of the definition of “Bankruptcy”;

 

  (i) Granting of any Encumbrance on the assets or rights of the Company or the assets and rights of the Project Company other than Permitted Liens;

 

  (j) Any incurrence or guarantee of indebtedness for borrowed money or capitalized lease obligations in excess of $1,000,000 (other than capital leases) in the aggregate for the Company and the Project Company;

 

  (k) Any issuance or redemption by the Company or Project Company of any Membership Interests or other equity interest of any kind in the Company or Project Company other than any issuance permitted under Section  4.1(c) of the Company LLC Agreement;

 

  (l) Any amendment or cancellation of the certificate of formation of the Company or the Project Company or amendment of the Project Company LLC Agreement;

 

  (m) The admission of any additional member in the Company or Project Company, other than pursuant to terms of the Company LLC Agreement or Project Company LLC Agreement;

 

  (n) The hiring by the Company or the Project Company of any employees or entering into any bonus, profit sharing, thrift, compensation, option, pension, retirement, savings, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or employees of the Company or the Project Company;

 

  (o) Any change in the Company’s or Project Company’s legal form or any recapitalization, liquidation, winding-up or dissolution of the Company or Project Company (except as permitted under the Company LLC Agreement or the Project Company LLC Agreement);

 

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  (p) Permitting (i) the possession of property of the Company by any Member, (ii) the assignment, transfer or pledge of rights of the Company in specific property of the Company for other than a Company purpose or other than for the benefit of the Company or (iii) any commingling of the funds of the Company with the funds of any other Person;

 

  (q) Electing that the Company be treated other than as a partnership for United States federal income tax purposes or electing that the Project Company be treated other than as a “disregarded entity” for United States federal income tax purposes;

 

  (r) Amending, or choosing to fail to obtain or, as a result of the breach of its terms, causing the revocation of, any governmental approval required for the operation, ownership, management or maintenance of the Systems or the sale or transmission of electric energy in a manner that would have a Material Adverse Effect or fail to maintain the status of the Company as an Exempt Wholesale Generator or taking any action that would cause the Company to cease to be an Exempt Wholesale Generator or a member of PJM;

 

  (s) Engaging in any speculative financial activities, excluding (i) sales of energy and (ii) other hedge or swap arrangements, renewable energy credit sales, forward contracts and similar transactions and other transactions in effect on the Initial Funding Date or any Subsequent Funding Date, as applicable, for the Systems and replacements therefor, in each case, entered into in the Ordinary Course of Business for the Portfolio;

 

  (t) Lending any funds from the Company to any Person;

 

  (u) Engaging in any act that, if taken, would reasonably be expected to cause a Class A Recapture Event;

 

  (v) If a Grant is not available with respect to certain Systems, electing under any Alternative Tax Program pursuant to Section  7.5(b)(i) of the Company LLC Agreement;

 

  (w) Ordering the purchase of a System other than for the Project;

 

  (x) Not pursuing the rights and remedies under any agreement with Bloom or its Affiliates after a failure to cure within the applicable cure period, including, without limitation, the MOMA, the MESPA or the Administrative Services Agreement;

 

  (y) Selling or disposing of any energy calls purchased on or prior to the Initial Funding Date other than at or around their expiration date;

 

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  (z) Authorizing or permitting the Company to make a capital contribution to the Project Company except in accordance with Sections 4.3 and 4.4 of the LLC Agreement;

 

  (aa) Making any material tax election, or causing the Company to cause the Project Company to make any material tax election, other than as provided in the Company LLC Agreement;

 

  (bb) Taking any act in contravention of or in breach of the Company LLC Agreement or the organizational documents of the Company or the Project Company;

 

  (cc) Causing the Company or causing the Company to cause the Project Company to change its method of accounting, except as required by GAAP, or taking any action with respect to accounting policies or procedures, unless required by GAAP;

 

  (dd) Making any distribution to any Member or causing any distribution to be made by the Company or the Project Company except as specified in the Company LLC Agreement or Project Company LLC Agreement;

 

  (ee) Causing the Company or causing the Company to cause the Project Company to knowingly take or omit to take any action that would result in a material breach or an event of default, or that would permit or result in the acceleration of any obligation or termination of any right, under any Material Contract;

 

  (ff) Causing the Company or causing the Company to cause the Project Company to form any Person, including any Subsidiaries; and

 

  (gg) Taking any action in violation of, or inconsistent with, the REPS Act or any of the Tariffs, including, without limitation causing the Project Company to sell any electricity other than to PJM.

With respect to the period following the Flip Date, the matters in paragraph (a) above shall be Major Decisions, except that any such matter will be a Major Decision only with respect to the sale, lease or other voluntary disposition of assets at a price other than for fair market value, and the matters in clauses (g), (o) and (p) shall also be Major Decisions.

Majority Vote ” is defined in Section  3.2(f) of the Company LLC Agreement.

Managing Member ” is defined in Section  8.2(a) of the Company LLC Agreement.

Material Adverse Effect ” means a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Project Company, excluding any effect resulting from (a) effects of weather or meteorological events, (b) general industry strikes, work stoppages or other labor disturbances, or (c) the execution or delivery of the Transaction

 

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Documents or the transactions contemplated in them or the announcement of such transactions. An adverse effect will be considered “material” under this definition for purposes of the conditions precedent to closing in Sections 2.5, 2.6, 2.7 and 2.8 of the ECCA if it will cause a reduction of at least $1,000,000 in the aggregate, across one or more conditions precedent, in the sum of the net present values of the Grants and Project Company Distributable Cash from the Portfolio through the Flip Date as projected in the Base Case Model. An adverse effect will be considered “material” under this definition for purposes of any post-closing indemnities for breach of representations if it is reasonably likely to cause a reduction of at least $1,000,000 in the aggregate in the sum of the net present values of the Grants and Project Company Distributable Cash from the Portfolio over the period from the Initial Funding Date through the Flip Date as projected in the Base Case Model. The net present value will be calculated by discounting to the Initial Funding Date for the Portfolio, a Grant and Project Company Distributable Cash received through the date of calculation and discounting the remaining Grants and cash through the projected Flip Date in the Base Case Model using the Target IRR as the discount rate.

Material Contract ” means (a) a contract for the sale of electricity or transmission services of a System for a term of more than one year, (b) a contract, lease, indenture or security agreement under which the Company or the Project Company (i) has created, incurred, assumed or guaranteed any indebtedness for borrowed money or obligations under any lease that, in accordance with GAAP, or international financial reporting standards, as applicable, should be capitalized, (ii) has created a mortgage, security interest or other consensual encumbrance on any property with a fair market value of more than $250,000 (other than any Permitted Liens), or (iii) has a reimbursement obligation in respect of any letter of credit, guaranty, bond, or other credit or collateral support arrangement required to be maintained by the Project Company under the terms of any contract referred to in clause (a) above, (c) a contract for management, operation or maintenance of the Company, the Project Company or a System that requires payments of more than $250,000, (d) a product warranty or repair contract by or with a manufacturer or vendor of equipment owned or leased by the Project Company with a fair market value of more than $250,000, (e) any other contract that is expected to require payments by the Company or the Project Company, in the aggregate, of more than $250,000 per calendar year and (f) the MESPA, the DPL Agreements, the PJM Agreements, the MOMA, the Site Leases, the Note Purchase Agreement, the Interparty Agreement, the Collateral Documents (as defined in the Note Purchase Agreement), any other Credit Document, the Administrative Services Agreement or any Transaction Document.

MBR Authority ” is defined in Section  2.7(n) of the ECCA.

Mehetia ” is defined in the preamble to the ECCA.

Mehetia Indemnified Parties ” means Mehetia and any person to whom Mehetia transfers any portion of its Class B Membership Interests in accordance with Article IX of the Company LLC Agreement, and each of their respective Affiliates and each of their respective shareholders, partners members, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.

 

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Member ” means any Person executing the Company LLC Agreement as of the date of the Company LLC Agreement as a member of the Company or any Person admitted to the Company as a member as provided in the Company LLC Agreement (each in the capacity as a member of the Company), but does not include any Person who has ceased to be a member of the Company.

Member Loan ” means any loan or advance made by (i) a Class B Member to the Company or (ii) the Company to the Project Company, pursuant to Section  4.5 of the Company LLC Agreement.

Member Nonrecourse Debt ” means “partner nonrecourse debt” as defined in Treasury Regulation Section 1.704-2(b)(4). An example is where a Member or a person related to the Member makes a loan on a nonrecourse basis to the Company.

Member Party ” is defined in Section  3.6(a) of the Company LLC Agreement.

Membership Interest ” means the interest of a Member in the Company, including rights to distributions (liquidating or otherwise), allocations, and to vote, consent or approve, if any.

MESPA ” means the Master Energy Server Purchase Agreement, dated as of the Initial Funding Date, between Bloom and the Project Company.

Minimum Gain Attributable to Member Nonrecourse Debt ” means the amount of minimum gain there is in connection with a Member Nonrecourse Debt, calculated in the manner described in Treasury Regulation Section 1.704-2(i)(3).

MOMA ” means the Master Operation and Maintenance Agreement, dated as of the Initial Funding Date, between the Project Company and the Operator, as such agreement may be amended, supplemented or replaced from time to time.

Moody’s ” means Moody’s Investor Service, Inc.

MW ” means megawatt or one million watts of Energy.

Nonrecourse Deduction ” means a deduction for spending that is funded out of nonrecourse borrowing by the Company or that is otherwise attributable to a “nonrecourse liability” of the Company within the meaning of Treasury Regulation Section 1.704-2.

Note Holders ” means the holders, from time to time, of the notes issued by the Project Company under the Note Purchase Agreement.

Note Proceeds ” is defined in Section  2.7(h) of the ECCA.

 

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Note Purchase Agreement ” means the Note Purchase Agreement, dated March 20, 2013, among the Project Company and the note purchasers party thereto.

Notice ” is defined in Section  11.1 of the Company LLC Agreement.

Operations Report ” is defined in Section  7.1(a) of the Company LLC Agreement.

Operator ” means Bloom.

Ordinary Course of Business ” means the ordinary conduct of business consistent with past custom and practice (including with respect to quantity and frequency).

Party ” means, for purposes of the ECCA, a party to the ECCA and for purposes of the Company LLC Agreement, a party to the Company LLC Agreement.

Percentage Interest ” means the percentage interest shown for a Class A Member or Class B Member, as applicable, in Schedule 4.2(d) of the Company LLC Agreement as updated from time to time.

Permitted Distribution ” is defined in the Note Purchase Agreement.

Permitted Encumbrance ” means Encumbrances provided for under the Transaction Documents, liens for Taxes not yet due and payable for which adequate reserves have been provided in accordance with GAAP and restrictions on transfer of the Membership Interests under any applicable federal, state or foreign securities law.

Permitted Investments ” means any of the following having a maturity of not greater than one year from the date of issuance thereof: (a) readily marketable direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the government of the United States of America, (b) insured certificates of deposit of or time deposits with any commercial bank that is a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c) below, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1,000,000,000.00 or (c) commercial paper issued by any corporation organized under the laws of any State of the United States and rated at least “Prime-1” (or the then equivalent grade) by Moody’s Investors Service, Inc. or “A-1” (or the then equivalent grade) by Standard & Poor’s Corporation.

Permitted Liens ” means (a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, employees’, contractors’, operators’ or other similar Liens or charges securing the payment of expenses not yet due and payable that were incurred in the Ordinary Course of Business of the Project Company or for amounts being contested in good faith and by appropriate proceedings,

 

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(c) trade contracts or other obligations of a like nature incurred in the Ordinary Course of Business of the Project Company, (d) obligations or duties to any Governmental Authority arising in the Ordinary Course of Business (including under licenses and permits held by the Project Company and under all applicable laws, rules, regulations and orders of any Governmental Authority), (e) obligations or duties under easements, leases or other property rights, (f) Liens arising out of judgments or awards so long as an appeal or proceeding for review is being prosecuted in good faith and for the payment of which adequate reserves in accordance with GAAP, bonds or other security have been provided or are fully covered by insurance, (g) Liens of record and zoning and other land use restrictions that do not impair the value or intended use of a System, (h) security interests granted to satisfy credit support obligations or margin requirements under any existing or subsequently entered into power purchase agreement, power sales agreement, natural gas supply agreement (including the DPL Agreements), or swap or hedge agreement, in each case, in which the Project Company (but not any Affiliate of the Project Company) is the counterparty to such agreement, (i) Permitted Encumbrances, (j) with respect to the Project Company, easements, rights-of-way, restrictions, reservations and other similar encumbrances and exceptions to title existing or incurred in the ordinary course of business that, in the aggregate, do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Project Company, taken as a whole, (k) Liens created pursuant to any Credit Document and (l) all other encumbrances and exceptions that are incurred in the Ordinary Course of Business of the Portfolio, are not incurred for borrowed money, and do not have a Material Adverse Effect on either the use of any material assets of the Project Company as currently used or the value of any such assets; provided, however, that the foregoing excludes any Liens held by Bloom or its Affiliates.

Permitted Transfers ” is defined in Section  9.5 of the Company LLC Agreement.

Person ” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity.

PJM ” means PJM Interconnection, LLC, a regional transmission organization.

PJM Agreements ” is defined in the QFCP-RC Tariff.

PJM Grid ” means the PJM electricity transmission grid.

PJM Market ” means the PJM Interchange Energy Market which Project Company is to sell all of its energy, capacity, ancillary services and environmental attributes pursuant to the QFCP-RC Tariff and the PJM Agreements, and any PJM successor market.

Placed in Service ” means with respect to any System, the completion of or the performance of all of the following activities: (1) obtaining the necessary licenses and permits for the operation of the System and sale of Energy, capacity, ancillary services and RECs generated by (or attributable to) the System, (2) completion of critical tests necessary for proper operation of such System, (3) synchronization of such System onto the PJM Grid, and (4) the commencement of daily operation of such System.

 

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Portfolio ” is defined in the preliminary statements of the ECCA.

Pre-Flip Period ” means the period commencing on the Initial Funding Date and ending on the Flip Date.

Prime Rate ” means a rate per annum equal to the lesser of (a) the prime rate published from time to time in The Wall Street Journal , and (b) the maximum rate permitted by Applicable Laws.

Pro Rata Shares ” means, with respect to (i) any Class A Member, such Class A Member’s Class A Membership Interests divided by the aggregate Class A Membership Interests of all Class A Members or (ii) any Class B Member, such Class B Member’s Class B Membership Interests divided by the aggregate Class B Membership Interests of all Class B Members.

Progress Contributions ” is defined in Section  2.2(b)(ii) of the ECCA.

Project ” is defined in the preliminary statements of the ECCA.

Project Company ” means Diamond State Generation Partners, LLC.

Project Company Distributable Cash ” means, as of any date, all cash, cash equivalents and liquid investments (excluding Capital Contributions, Permitted Investments and any cash received in respect of the Grant) held by the Project Company as of such date less all reasonable reserves that, in the reasonable judgment of the manager of the Project Company, are necessary or appropriate for the operation of the Project Company or the Systems consistently with the Prudent Operator Standard. Reasonable reserves shall consist of any combination of the following reserves as reasonably determined by the manager of the Project Company, without duplication: (i) necessary for payment of expenses included in the Annual Budget, (ii) necessary to prevent or mitigate an emergency situation, (iii) established with the prior written consent of the Members (by Class Majority Vote), (iv) necessary to allow the Project Company to meet expenses that are clearly identified and expected with reasonable certainty to become due, but that are not included in the Annual Budget, (v) necessary to ensure sufficient spare parts or the payment of operational and maintenance costs for each of the Systems and (vi) one or more additional reserves not referred to in the preceding clauses of this definition of “Project Company Distributable Cash” that do not, together with the reserves reserved pursuant to clause (vi) of the definition of Company Distributable Cash, in the aggregate exceed $1,600,000.

Project Company LLC Agreement ” means the Second Amended and Restated Limited Liability Company Agreement of the Project Company, dated as of March 20, 2013,as the same may be amended, supplemented or replaced from time to time.

 

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Projected Contribution Schedule ” means the projected schedule of Capital Contributions to be made by Clean Technologies and Investor at each Funding attached to the ECCA as Annex II.

Prudent Operator Standard ” means that a Person will (i) perform its duties in compliance with the requirements of the Material Contracts, (ii) perform the duties in accordance with commercially reasonable applicable fuel cell industry standards (A) taking into account through the Flip Date the need to maintain qualification for a Grant (or if unavailable, the Alternative Tax Program) and to avoid any Class A Recapture Event and (B) that the Portfolio must qualify for and remain qualified to receive service under the QFCP-RC Tariff, and (iii) use sufficient and properly trained and skilled personnel.

PUHCA ” means the Public Utility Holding Company Act of 2005 and FERC’s implementing regulations.

Purchase Option ” is defined in Section  9.7 of the Company LLC Agreement.

Purchase Option Date ” is defined in Section  9.7 of the Company LLC Agreement.

Purchase Option Price” means the greater of (i) the fair market value of the Class B Membership Interests on the Purchase Option Date as determined by agreement between Class B Member transferring its Class B Membership Interests and the Class A Members and (ii) an amount sufficient to cause Class B Member to achieve an Internal Rate of Return equal to [***]; provided , however , that should Class B Member transferring its Class B Membership Interests and the Class A Members fail to agree on such fair market value within 30 days of the date on which the Purchase Option Exercise Notice is provided, such fair market value shall be determined by the Appraisal Method which shall be then automatically invoked unless all of the Members otherwise agree in writing.

Purchase Option Exercise Notice ” is defined in Section  9.7 of the Company LLC Agreement.

QFCP-RC Tariff ” means DPL’s Service Classification “QFCP-RC” for REPS Qualified Fuel Cell Provider Projects as approved by 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.

Quarter ” means a calendar quarter.

Qualified Transferee ” means, with respect to any proposed Transfer, (A) an entity that (i) has (x) owned or operated for a period of at least three (3) years (within the then most recent four year period), and at the time of such Transfer continues to own and operate, solid oxide fuel cell power generating systems or (y) engaged a Person who has owned or operated for a period of at least three (3) years (within the then most recent four year period), and at the time of such Transfer continues to own and operate, solid oxide fuel cell power generating systems, and (ii)

 

[***] Confidential Treatment Requested

 

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either (x) has a credit rating of “BBB-” or higher by S&P and “Baa3” or higher by Moody’s, or (y) has annual revenues of not less than $5,000,000 and a tangible net worth of at least $200,000,000 or (B) such other entity with respect to which the consent of Investor has been obtained.

Recapture Claim ” means a written notice provided by the Class A Members to the Company and Class B Member with respect to Recapture Damages caused by a Class B Recapture Event or by Class B Member to the Company and the Class A Members with respect to Recapture Damages caused by a Class A Recapture Event.

Recapture Damages ” means the amount of (i) any portion of any payment required to be made to the United States of America (or any agency or instrumentality thereof), as applicable, resulting from all or any portion of the Grant or any successor grant program or cash-based subsidy being “recaptured” or denied that is paid by Class B Member, in the case of a Class A Recapture Event, or by the Class A Members, in the case of a Class B Recapture Event, and (ii) with respect to a Member if the Grant, any successor grant program or cash-based subsidy is unavailable with respect to any System, such Members’ share of any payment required to be made by such Member to the United States of America (or any agency or instrumentality thereof) resulting from the recapture or denial of all or any portion of any refundable tax credit or ITC with respect to such System.

Recapture Event ” means an event that results in denial or recapture of the Grant, or any Alternative Tax Program, or a portion thereof, by Treasury or any other Governmental Authority.

Recapture Period ” means, with respect to any System, the period from the date on which the System is placed in service for federal income tax purposes until the 5th anniversary of the date the System is placed in service for federal income tax purposes.

RECs ” means any credits, credit certificates, green tags or similar environmental or green energy attributes (such as those for greenhouse reduction or the generation of green power or renewable energy) created by a governmental agency or independent certification board or group generally recognized in the electric power generation industry, and generated by or associated with the System or electricity produced therefrom, but excluding the Grants and ITC.

Red Lion Site ” means the Site described in the DPL Site Lease.

Refund Notice ” is defined in Section  2.2(g) of the ECCA.

Refund Payment Date ” is defined in Section  2.2(g) of the ECCA

Representatives ” means, with respect to any Person, the managing member(s), the officers, directors, employees, representatives or agents (including investment bankers, financial advisors, attorneys, accountants, brokers and other advisors) of such Person, to the extent that such officer, director, employee, representative or agent of such Person is acting in his or her capacity as an officer, director, employee, representative or agent of such Person.

 

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REPS Act ” means the Renewable Energy Portfolio Standards Act, as amended most recently by S.B. 124, enacted July 10, 2011 (Title 26, Chap. 1, section 351 et seq. of the Code of the State of Delaware).

Required Holders ” shall have the meaning provided to such term in the Note Purchase Agreement.

Required Ratings ” means a long-term senior unsecured credit rating, long-term local issuer credit rating or insurer financial strength rating of at least A- by Standard & Poor’s Corporation or A3 by Moody’s Investors Service, Inc. or, if either agency is not then in the business of providing ratings, equivalent ratings from any other entity that is then a nationally recognized statistical rating organization.

Sale Notice ” is defined in Section  9.8(a) of the Company LLC Agreement.

Sale Option ” is defined in Section  9.8(a) of the Company LLC Agreement.

Sale Option Date ” is defined in Section  9.8(a) of the Company LLC Agreement.

Sale Price ” means the fair market value of the Class B Membership Interests on the Sale Option Date as determined by agreement between Class B Member transferring its Class B Membership Interests and the Class A Member; provided, however, that should Class B Member transferring its Class B Membership Interests and the Class A Member fail to agree on such fair market value within 30 days of the date on which the Sale Notice is provided, such fair market value shall be determined by the Appraisal Method which shall be then automatically invoked unless otherwise agreed by all of the Members in writing.

S&P ” means Standard and Poor’s Corporation.

Schedules ” means, in the case of the ECCA, the schedules attached to the ECCA and in the case of the Company LLC Agreement, the schedules attached to the Company LLC Agreement.

Section  203 Order ” means the order issued by FERC authorizing the Company under Section 203(a)(1) of the FPA to issue the Class B Membership Interests to Mehetia.

Securities Act ” is defined in Section  3.3(e) of the ECCA.

Site ” is defined in the MESPA.

Site Leases ” means, collectively, the DPL Site Lease and the DDOT Site Lease.

Subsequent Funding ” is defined in Section  2.4 of the ECCA.

Subsequent Funding Date ” is defined in Section  2.4 of the ECCA.

 

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Subsequent Funding Payment ” is defined in Section  2.2(b) of the ECCA.

Subsequent Funding Termination Date ” means March 31, 2014 or any later date agreed to by Investor and Clean Technologies.

Subsidiary ” means, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other entity of which such Person (either alone or through or together with any other Person pursuant to any agreement, arrangement, contract or other commitment) owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.

System ” means each proprietary solid oxide fuel cell power generating unit including the integrated assembly of mounting assemblies, metering, transformers, disconnects, switches, wiring devices and wiring interconnected with the PJM Grid and connected to DPL as the supplier of natural gas to fuel the System.

Target IRR ” means a pre-tax Internal Rate of Return of [***].

Target IRR Notice ” is defined in Section  7.1(e) of the Company LLC Agreement.

Tariffs ” means the QFCP-RC Tariff and the Gas Tariff.

Tax ” (and, with correlative meaning, “ Taxes ” and “ Taxable ”) means:

 

  (a) any taxes, customs, duties, charges, fees, levies, penalties or other assessments, fees and other governmental charges imposed by any Governmental Authority, including, but not limited to, income, profits, gross receipts, net proceeds, windfall profit, severance, property, personal property (tangible and intangible) production, sales, use, leasing or lease, license, excise, duty, franchise, capital stock, net worth, employment, occupation, payroll, withholding, social security (or similar), unemployment, disability, payroll, fuel, excess profits, occupational, premium, severance, estimated, alternative or add-on minimum, ad valorem, value added, turnover, 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

 

  (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.

Tax Matters Partner ” is defined in Section  7.7(a) of the Company LLC Agreement.

[***] Confidential Treatment Requested

 

29


Tax Returns ” means any return, report, statement, information return or other document (including any amendments thereto and any related or supporting information) filed or required to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes, including after the Funding any IRS Schedule K-1 issued to Members by the Company, information return, claim for refund, amended return or declaration of estimated Tax.

Third Party Claim ” means any action, proceeding, demand or claim by a third party (it being understood that any Affiliate of a Member shall not be deemed to be a third party) excluding any claim relating to the recapture, loss, or denial of all or a portion of a Grant that is already provided for in Section 6.6 , Section 6.7 , Section 6.8 and Section  6.9 of the Company LLC Agreement.

Third Party Penalty Claim ” is defined in Section  9.14 of the Company LLC Agreement.

Tracking Model ” means the Base Case Model updated to reflect actual results of the Company, but with the assumptions and conventions in Section  6.5 of the Company LLC Agreement remaining unchanged.

Transaction Documents ” means the Company LLC Agreement, the Project Company LLC Agreement, the ECCA, the Administrative Services Agreement, the MESPA, the MOMA, the Credit Suisse Guaranty, the Bloom Guaranty and each of the other documents required to be delivered on the Execution Date, individually and collectively, and, if any Initial Funding or Subsequent Funding shall have occurred, each document required to be delivered on the Initial Funding Date or a Subsequent Funding Date, individually and collectively.

Transfer ” is defined in Section  9.1 of the Company LLC Agreement.

Treasury ” means the United States Department of the Treasury.

Treasury Regulations ” means the regulations promulgated under the Code, by the Treasury, as such regulations may be amended from time to time. All references herein to specific sections of the regulations shall be deemed also to refer to any corresponding provisions of succeeding regulations, and any reference to temporary regulations shall be deemed also to refer to any corresponding provisions of final regulations.

UCC ” means the Uniform Commercial Code, as the same may be in effect in the State of New York or any other applicable jurisdiction.

OTHER DEFINITIONAL PROVISIONS

All terms in the ECCA and the Company LLC Agreement, as applicable, shall have the defined meanings when used in any certificate or other document made or delivered pursuant thereto unless otherwise defined therein.

 

30


As used in the ECCA and the Company LLC Agreement and in any certificate or other documents made or delivered pursuant thereto, accounting terms not defined in the ECCA or the Company LLC Agreement or in any such certificate or other document, and accounting terms partly defined in the ECCA or the Company LLC Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in the ECCA or the Company LLC Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in the ECCA or the Company LLC Agreement or in any such certificate or other document shall control.

The words “hereof”, “herein”, “hereunder”, and words of similar import when used in the ECCA and the Company LLC Agreement shall refer to the ECCA or the Company LLC Agreement, as the case may be, as a whole and not to any particular provision of the ECCA or the Company LLC Agreement. Section references contained in the ECCA and the Company LLC Agreement are references to Sections in the ECCA or the Company LLC Agreement, as applicable, unless otherwise specified. The term “including” shall mean “including without limitation”.

The definitions contained in the ECCA and the Company LLC 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.

Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein.

Any references to a Person are also to its permitted successors and assigns.

All Article and Section titles or captions contained in the ECCA or the Company LLC Agreement, as applicable, or in any Exhibit or Schedule referred to therein and the table of contents of the ECCA and the Company LLC Agreement are for convenience only and shall not be deemed a part of the ECCA or the Company LLC Agreement, as the case may be, or affect the meaning or interpretation of the ECCA or the Company LLC Agreement, as applicable. Unless otherwise specified, all references in the ECCA or the Company LLC Agreement to numbered Articles and Sections are to Articles and Sections of the ECCA or the Company LLC Agreement, as applicable, and all references herein to Schedules or Exhibits are to Schedules and Exhibits to the ECCA or the Company LLC Agreement, as applicable.

Unless otherwise specified, all references contained in the ECCA or the Company LLC Agreement, in any Exhibit or Schedule referred to there in or in any instrument or document delivered pursuant thereto to dollars or “$” shall mean United States dollars.

 

31


The Parties to the ECCA have participated jointly in the negotiation and drafting of the ECCA. The Parties to the Company LLC Agreement have participated jointly in the negotiation and drafting of the Company LLC Agreement. In the event an ambiguity or question of intent or interpretation arises, the ECCA and the Company LLC Agreement shall be construed as if drafted jointly by the respective Parties thereto and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of the ECCA or the Company LLC Agreement, as the case may be.

 

32


ANNEX II

CLASS B MEMBERSHIP INTERESTS

 

Class B Member

   Number of Class B
Membership Interests
Owned
   Percentage of Class B
Membership Interests
Owned

Mehetia Inc.

   495    100%

 

Annex II - 1


SCHEDULE 4.2(b)

CONTRIBUTED PROPERTY

 

Member    Contributed Value  

Clean Technologies II, LLC

   $ 16,619,399.60  

Mehetia Inc.

   $ 0  

 

Schedule 4.2(b) - 1


SCHEDULE 4.2(d)

CAPITAL ACCOUNT BALANCE AND PERCENTAGE INTEREST

 

Member Name and Address

  

Capital Account Balance

  

Percentage Interest

Clean Technologies II, LLC    [***]    100% of the Class A

c/o Bloom Energy Corporation

1299 Orleans Drive

     
Sunnyvale, California 94089      
Attn: [***]      
Telephone: [***]      
Fax: [***]      
Mehetia Inc.    [***]    100% of the Class B
Eleven Madison Avenue      
New York, New York 10010      
Attn: [***]      
Telephone: [***]      
Fax: [***]      
with a copy of any notice sent to:      
Credit Suisse Securities (USA)      
LLC      
One Madison Avenue      
New York, New York 10010      
Attn: [***]      
Telephone: [***]      
Fax: [***]      
and with a copy of any notice sent, which will not constitute notice, to:      

McDermott Will & Emery LLP

340 Madison Avenue

     
New York, New York 10173      
Attn: [***]      
Telephone: [***]      
Fax: [***]      

[***] Confidential Treatment Requested

 

Schedule 4.2(b) - 1


SCHEDULE 8.2(e)

OFFICERS

 

William H. Kurtz    President
William E. Brockenborough    Vice President, General Manager
Martin J. Collins    Vice President, Secretary
Timothy Gray    Vice President

 

Schedule 8.2(e) - 1


SCHEDULE 8.4

INSURANCE

The Managing Member shall cause the Company to acquire and maintain (including making changes to coverage and carriers) the casualty, general liability (including product liability), property damage and/or other types of insurance on the terms set forth in this Schedule.

In each case the policies must be with insurance carriers with a rating of at least A- and a financial size category of at least X by A.M. Best or A by S&P or otherwise reasonably acceptable to Class B Members.

The policies specified in Appendix 1 of this Schedule shall be in full force and effect at all times on and after the Effective Date until the LLC Agreement Termination Date subject to renewal no more frequently than annually.

At no time shall there be any gap in cover.

The policy limits and cover of the insurances required in this Schedule shall be sufficient to satisfy the requirements set forth in the Company LLC Agreement, but in no event less than the limits and coverage provisions set forth in Appendix 1 herein. The obligation to verify that the insurance meets the requirements of the Company LLC Agreement shall rest solely with the Company.

The Managing Member shall not violate or permit to be violated any condition, provision or requirement of any insurance policy required by this Schedule, and the Managing Member shall cause Company to perform, satisfy, and comply with all conditions, provisions and requirements of all insurance policies.

The Managing Member hereby waives any and every claim for recovery against Class B Members or their directors, officers and employees and agents for any and all loss or damage covered by any insurance policies to be maintained under this Schedule to the extent such loss or damage is recovered under any such policy.

All policies of insurance required to be maintained pursuant to this Schedule, other than cover required by law, shall be endorsed such that if at any time they are cancelled, lapsed, terminated or suspended (by any party including the insuring parties), such cancellation, lapse, termination or suspension shall not become effective until at least 30 days after receipt by Class B Members from such insurer of such cancellation, lapse, termination or suspension, except for non-payment of premium for which the required written notice shall be 10 days. In addition to this requirement, the Managing Member shall inform the Class B Members as soon as reasonably possible if it becomes aware of any such cancellation, lapse, termination or suspension or of any reasonable prospect of such and shall further require the Company’s broker to do the same.


    All policies of insurance required to be maintained pursuant to this Schedule, except workers compensation and employers liability, shall provide: Additional Insured status for Class B Members and their respective affiliates, directors, officers and employees and agents (collectively, the “Additional Insureds”). This requirement shall not apply to any professional indemnity policy.

 

    Waivers of subrogation from the insurers in favor of the Additional Insureds.

 

    Policies either (a) non-cancellable except for non-payment of premium with at least 10 days written notice of such to the Class B Members; or (b) cancellation/non-payment provisions in accordance with the provisions of this Schedule.

 

    Class B Members will have the right but not the obligation to pay premiums on behalf of the Company in case of non-payment.

 

    Policies shall be unaffected by any bankruptcy or foreclosure relating to the Managing Member, the Company or the Project Company.

 

    Insurance shall be primary and not excess to or contributing with any other insurance or self-insurance maintained by the Managing Member, the Company, or the Additional Insureds. However, policies can act in excess of such project-specific policies provided by contractors in accordance with the requirements of this Schedule.

 

    Insurer shall not permit the Managing Member to reduce limits or cover or degrade terms and conditions without the prior written approval of the Class B Members.

 

    The Additional Insureds shall have no obligations whatsoever including, but not limited to, no obligation to pay premiums and no obligation to pay deductibles.

 

    Policy limits shall act in excess of deductibles including the indemnity period for time element insurance shall act in excess of the delay deductible for such insurance.

 

    Insurer costs and expenses including any associated with claims including claims adjustment are for the account of the relevant insurer and further will not be deducted from policy limits or sublimits.

In addition, all property policies including marine cargo (if applicable) and further including any time element insurance shall provide:

 

    That Class B Members shall be loss payee of any amounts payable under the policies in relation to the Managing Member, the Company or the Project Company.

 

    Non vitiation in accordance with a multiple insured clause acceptable to the Class B Members or equivalent protection.

 

    Replacement cost, new for old, with no deduction of any kind including no coinsurance provision or a waiver thereof and no allowance for depreciation (accounting or otherwise), obsolescence or loss of value over time other than in a total constructive loss or other scenario where repair/replacement does not follow loss.

 

    An advance or partial payment endorsement.

 

    A clause requiring the insurer to make final payment on any claim within thirty days after the submission of proof of loss and its acceptance by the insurer.

 

    Except for marine transit policies, a LEG2 exclusion or similar endorsement with no sublimit applied.

In addition, all liability policies except workers compensation and employers liability shall provide:

 

    Severability.

 

    Cross liability with no exclusions.

 

- 3 -


The above requirements shall be referred to as the “Required Provisions”. The Required Provisions can be provided either as endorsements to or in the main body of the relevant policy. All policies that replace or renew policies shall contain provisions, including limits, sublimits, deductibles, exclusions and the Required Provisions, that are, mutatis mutandis, in all material regards at least the same as those in place at the Effective Date or, if later, the date of first inception of such policy cover, except in relation to risks where exposure no longer exists or where a better level of cover is provided or which would be required in accordance with the provisions of this Schedule.

The Managing Member shall provide Class B Members as soon as reasonably possible prior to the Initial Funding Date, and at least 10 days prior to any subsequent policy inception or renewal, a certificate of pre-agreed format from:

 

    Each placing broker confirming:

 

    Summary policy terms in the pre-agreed format.

 

    That all policies required by this Schedule are in full force and effect.

 

    All insurance premiums that are due and payable have been paid in full with no premium overdue.

There shall be appended to such certificate or letter of undertaking certificates from insurers for each policy required by this Schedule listing the major sublimits (to be agreed) and confirming that all Required Provisions that apply to such policy are in place.

 

    The Insurance Consultant (as defined in the Note Purchase Agreement) confirming that:

 

    The insurance provided complies with the requirements of this Schedule and further complies with the requirements of the Managing Member in the Transaction Documents.

 

    That the undertakings made by each placing broker conform to the requirements of prudent industry practice.

The insurance provided by the Company shall be at least that evidenced in any certificates or other evidence provided by the Company or the Project Company.

Any of the requirements of this Schedule can be satisfied by single or by combined policies. However, as would be deemed necessary in accordance with prudent industry practice, a joint loss agreement will be required and included as part of the respective policies (for example, if there were separate marine transit and builders all-risk policies, then a 50:50 clause would be required).

If in the opinion of the Managing Member, acting reasonably, any insurance, including the terms and conditions, Required Provisions and limits or deductibles thereof, hereby required by this Schedule to be maintained, other than insurance required to be maintained by law which shall be maintained at all times, shall not be available on commercially reasonable terms in the commercial insurance market, the Managing Member shall promptly inform the Class B Members of such purported unavailability and the Managing Member shall seek a waiver from Class B Members in relation to such purported unavailability in which case the Class B Members, acting after consultation with the Insurance Consultant, shall not unreasonably

 

- 4 -


withhold agreement to waive such requirement to the extent the maintenance thereof is not so available. The granting by Class B Members of any such waiver is conditional on: (i) the Managing Member first requesting such waiver in writing, which request shall be accompanied by written reports prepared by the Company and its placing broker certifying that such insurance is not available on commercially reasonable terms in the commercial insurance market for projects of similar type and capacity and, in any case where the required amount is not so available, certifying as to the maximum amount which is so available, and explaining in detail the basis for such conclusions and the form and substance of such reports to be reasonably acceptable to the Class B Members after consultation with the Insurance Consultant; (ii) at any time after the granting of any such waiver, the Class B Members may request, and the Managing Member furnish to the Class B Members within fifteen (15) days after such request, supplemental reports reasonably acceptable to the Class B Members updating the prior reports and reaffirming such conclusion; (iii) any such waiver granted by the Class B Members can amend, to the extent reasonably required to mitigate any increased risks created by the absence of insurance cover that is the subject of the waiver, any of the terms of this Schedule; (iv) the Class B Members may require the Company to obtain the best available insurance comparable to the requirements of this Schedule on commercially reasonable terms then available in the commercial insurance market (as determined by the Insurance Consultant); and (v) such waiver shall be effective only so long as such insurance shall not be available on commercially reasonable terms in the commercial insurance market (as determined by the Insurance Consultant) it being understood that the failure of the Managing Member to furnish any supplemental reports shall be deemed to be conclusive evidence that such waiver is no longer effective because such condition no longer exists, but that such failure is not the only way to establish such non-existence.

The policy teams actually provided in accordance with the provisions of this Schedule shall be at least those evidenced to the Company.

Any failure on the part of Class B Members to pursue or obtain the evidence of insurance required by this Schedule from the Managing Member and/or failure to point out any noncompliance of such evidence of insurance shall not constitute a waiver of any of the insurance requirements in this Schedule.

Each liability insurance policy required pursuant to this Schedule that is permitted to be written on a “claims made” basis shall provide (a) a retroactive date (as such term is specified in each of such policies) that is no later than the Effective Date and (b) each time any policy written on a “claims made” basis is not renewed or the retroactive date of such policy is to be changed, the Company shall obtain and maintain, or cause to be obtained or maintained, for each such policy or policies the broadest extended reporting period coverage, or “tail”, reasonably available in the commercial insurance market for each such policy or policies but in no case less than three (3) years. The Company may satisfy the requirements of this Schedule by obtaining “prior acts” coverage from a subsequent insurance carrier on terms acceptable to the Class B Members, acting reasonably.

All property insurance including marine cargo and any time element insurance shall not include any annual or term aggregate limits or sublimits except for the perils of windstorm, flood, earth movement and land and water decontamination but only to the extent permitted in Appendix 1 to this Schedule. Liability policies may have general aggregate limits in accordance with prudent insurance market practice.

 

- 5 -


All insurance policies required to be maintained pursuant to this Schedule shall contain terms and conditions reasonably acceptable to the Class B Members following consultation with the Insurance Consultant.

In the event that at any time the insurance as herein provided or as evidenced shall be reduced or cease to be maintained, then the Class B Members, upon ten (10) Business Days’ prior written notice (unless such insurance coverage would lapse within such period, in which event notice should be given as soon as reasonably possible) to the Company of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same. All amounts so advanced for such purpose shall become an additional obligation of the Company to the Class B Members and the Company shall forthwith pay such amounts (as provided in the Company LLC Agreement, if any).

The Class B Members can, acting reasonably, require such additional cover to be provided as is required to confirm to prudent industry practice.

The Class B Members shall have the option to be present and/or to send representatives during meetings and/or negotiations with insurers of any loss settlement in relation to the Company or the Project regarding (a) total constructive loss or any scenario in which repair/replacement will not follow loss, (b) any circumstance involving a claim in relation to an event or series of events which has or could be reasonably expected to lead to a default under any Transaction Documents or material contracts. Neither the Managing Member nor any of its Affiliates shall be permitted to settle any such claim with an insurer without the approval of the Class B Members to the agreed settlement.

The Class B Members may, pursuant to its rights and obligations under this Schedule, consult with the Insurance Consultant and require reports, compliance certificates and other work product from the Insurance Consultant.

Terms used in this Schedule, unless otherwise specifically defined herein or in the Company LLC Agreement, shall have the meaning normally ascribed to them in accordance with prudent industry practice in relation to a project similar in type and jurisdiction as the Project.

 

- 6 -


Appendix 1

Construction Phase Property Policy

From the Initial Funding Date, evidence shall be provided that is reasonably acceptable to the Class B Members that adequate property insurances are in place sufficient to cover the value of (a) the largest transit shipment and offsite storage; and (b) aggregate assets at the Project site prior to the All Risk Property and Business Interruption Insurance being in full force and effect. Furthermore, the Class B Members will be added as additional insured to the construction general liability policy which shall have limits and terms adequate to cover their exposure.

All Risk Property and Business Interruption Insurance

From the Initial Funding Date, “All Risk Property” insurance shall be provided for all property, equipment and construction and erection activities associated with the Project on an “all risk” basis insuring the Company, Project Company and the Additional Insureds, as their interests may appear, including but not limited to coverage for the perils of earth movement (including but not limited to earthquake, landslide, subsidence, sink hole and volcanic eruption), flood, named windstorm. There shall be no requirement for machinery breakdown coverage subject to the agreement of the Class B Members, acting reasonably, that such risks are adequately covered by the Power Performance Warranty.

The policy limit shall be an amount not less than the aggregate full replacement cost of the Project such amount also being referred to as the “full policy limit”. Full insurable value shall mean the full replacement cost value of the Project on a “new for old” basis, including but not limited any new or existing buildings or structures, any improvements to new or existing property, equipment, mechanical plant, electrical plant, spare parts, and supplies and temporary works.

Per occurrence sublimits shall be at least as follows:

•  Debris removal physical “loss”

  

25% of the amount payable for the direct

•  Architects and engineers fees

   $2m

•  Expediting expense

   $1m

•  Blueprints, drawings, etc.

  

$1m or less

•  On site pollution

   $100,000

 

Schedule 8.4 - 1


An annual aggregate sublimit shall be permitted for flood of $10M. An annual aggregate sublimit shall be permitted for earth movement of $25M subject to confirmation from the Independent Engineer and accepted by the Class B Members, acting reasonably, that any such damage is likely to be within this limit. Limits for windstorm shall be full policy limits on a per occurrence basis.

The All Risk Property policy shall include (i) a seventy-two (72) hour flood/named windstorm/earthquake clause, (ii) an unintentional errors and omissions clause. There shall be no serial loss clause.

Business Interruption coverage insuring the loss of expected gross revenues for the largest single Project for a period of not less than the greater of (a) 12 months; and, (b) the longest lead time for replacement as determined by the Class B Members in consultation with the Independent Engineer as a result of physical loss or damage by perils required to be insured under the All Risk Property policy, including all sections preceding this section, which cause a reduction in output.

Contingent business interruption insurance covering loss of gross revenues less non-continuing expenses for:

 

    Power Suppliers and Public Utilities Extension — loss, including delay, caused by interference/interruption of power/other utility including export substation — full cover.

 

    Prevention of Ingress/Egress 90 days

 

    Damage to an export substation cover for loss of expected gross revenues less nonrecurrent costs for a six month indemnity period.

Some or all of the requirements for contingent business interruption can be reduced or eliminated subject to the agreement of the Class B Members that such risks or proportions of such risks are adequately covered by the Tariff.

Deductibles shall be the best commercially available in accordance with prudent industry practice not exceeding 2% for earthquake.

Marine Cargo and Marine Business Interruption Insurance

To the extent a material exposure exists, transit coverage, either included in a property policy or under a separate policy (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 110% of the value including transit and insurance of such shipment involving the Project to or from any storage site or the Project site at all times for which the Project Company has accepted risk of loss or has responsibility for providing insurance. Coverage shall include loading and unloading, temporary storage (as applicable) and a 50/50 clause (if applicable). Coverage shall be maintained in accordance with prudent industry practice in all regards with per occurrence deductibles of not more than $100,000 for physical damage and other terms and conditions acceptable to the Class B Members.

 

- 2 -


Marine Business Interruption insurance shall be attached to the Marine Cargo policy providing equivalent cover, mutatis mutandis, to the Business Interruption cover attached to the All Risk Property policy in accordance with the terms of this Schedule.

General Liability

A limit of $1,000,000 per occurrence and in the aggregate shall be provided for:

 

    Property damage, death and injury (including mental injury).

 

    Broad form property damage.

 

    Blanket contractual.

 

    Products/completed operations

 

    Advertising injury

 

    XCU

Deductibles shall be the best commercially available in accordance with prudent industry practice.

Automobile Liability

Automobile liability insurance, to the extent exposure exists, including coverage for owned, non- owned and hired automobiles for both bodily injury and property damage and containing appropriate no-fault insurance provisions or other endorsements in accordance with state legal requirements, with a combined single limit of no less than $ 1,000,000 per accident with respect to bodily injury, property damage or death. Deductibles shall be the best commercially available in accordance with prudent industry practice.

Workers’ Compensation and Employers Liability

If Project Company or the Company has employees, workers’ compensation insurance in compliance with statutory requirements and employers liability insurance, to the extent exposure exists, with a limit of not less than $1,000,000 per accident, per employee and per disease including such other forms of insurance that the Project Company or the Company is required by law to provide for the Project, all other states’ endorsement and, to the extent any exposure exists, coverage with respect to the USL&H Act and Jones Act, covering loss resulting from bodily injury, sickness, disability or death of the employees of the Project Company or the Company. Deductibles shall be the best commercially available in accordance with prudent industry practice.

Pollution Liability

Pollution liability insurance for liability arising out of property damage or bodily injury to third parties as a result of sudden and accidental pollution including the cost of on-site and off-site clean up in an amount not less than $1,000,000 per occurrence and in the aggregate. Deductibles shall be the best commercially available in accordance with prudent industry practice.

 

- 3 -


Umbrella Liability Insurance

An aggregate limit of $15,000,000 (or $20,000,000, if so required by any Transaction Document or material contract) shall be attached and in excess of the underlying general liability, automobile liability, employers liability policies on a following form basis with drop down provisions.

Errors and Omissions Liability

Errors and omissions insurance for liability arising out of property damage or bodily injury to third parties as a result of prototype manufacturing errors and omissions liability $1,000,000 per glitch and in the aggregate. Deductibles shall be the best commercially available in accordance with prudent industry practice.

Directors & Officers Insurance

Unless directors and officers are indemnified by the Company to the reasonable satisfaction of the Company, Directors & Officers insurance, including Employment Practices (if employees) in an amount not less than $10,000,000 on industry standard policy forms subject to a retention not to exceed $50,000.

 

- 4 -


SCHEDULE 9

TRANSFER REPRESENTATIONS AND WARRANTIES

[The Class B Member] is a [            ] duly organized, validly existing and in good standing under the laws of [            ] and has all requisite [             ] power and authority to reconvey the Class B Membership Interests as contemplated by the Agreement.

(a)    [The Class B Member] owns directly 100% of the Company’s outstanding Class B Membership Interests to the extent that is what it was sold under the [ECCA] [other transfer documentation].

(b)    [The Class B Member] has absolute record and beneficial ownership and title to the Membership Interests held by [the Class B Member] to the extent that is what it was sold under the [ECCA] [other transfer documentation], free and clear of any Encumbrances except Permitted Encumbrances.

(c)    The assignment agreement effecting the Transfer of the Class B Membership Interests from [the Class B Member] to [the Class A Member] has been duly and validly executed and delivered by [the Class B Member] and constitutes [the Class B Member’s] legal, valid and binding obligation, enforceable against it in accordance with its terms (subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect relating to the rights and remedies of creditors as well as to general principles of equity whether considered at law or in equity).

(d)    Neither the execution, delivery and performance by [the Class B Member] of the assignment agreement effecting the Transfer of the Class B Membership Interests from [the Class B Member] to [the Class A Member] nor the consummation of the transactions contemplated thereby will (i) conflict with or result in any breach of any provision of the organizational documents of [the Class B Member], (ii) violate or conflict with (or give rise to any right of termination, cancellation or acceleration under) any of the terms, conditions or provisions of any contract or other instrument or obligation that [the Class B Member] is a party to or by which [the Class B Member] is bound; or (iii) violate any Legal Requirement or any material license, franchise, permit or other authorization applicable to or affecting [the Class B Member] or any of its respective assets.

(e)    All consents, approvals and filings required to be obtained or made by the [Class B Member] to execute, deliver and perform the assignment agreement effecting the Transfer of the Class B Membership Interests from [the Class B Member] to [the Class A Member] or the consummation by any such Person of the transactions contemplated thereby shall have been obtained or made and shall be in full force and effect as of the date hereof.

 

 

Schedule 9 - 1


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 ACF ) 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 HOLDINGS, 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 HOLDINGS, 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. [    ]    Class A Membership Interests

Diamond State Generation Holdings, LLC

a Delaware Limited Liability Company

Certificate of Interest

This certifies that [                            ] is the owner of [             ] Class A Membership Interests in Diamond State Generation Holdings, LLC (the Company ”), which membership interests are subject to the terms of the Second Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings, LLC, dated as of March [    ], 2013 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.

 

Exhibit A - 1


IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly authorized officer this [    ] day of [             ], 20 [    ].

 

DIAMOND STATE GENERATION HOLDINGS, LLC
By:      

 

Name:  
Title:  

 

Exhibit A - 2


[Reverse]

INSTRUMENT OF TRANSFER OF

MEMBERSHIP INTEREST IN

Diamond State Generation Holdings, LLC

FOR VALUE RECEIVED, the undersigned 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 Holdings, LLC with full power of substitution in the premises.

 

Dated as of:

[                       ]

By:    

 

 

Name:

 

Title:

 

 

Exhibit A - 3


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 HOLDINGS, 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 HOLDINGS, 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. [    ]    Class B Membership Interests

Diamond State Generation Holdings, LLC

a Delaware Limited Liability Company

Certificate of Interest

This certifies that [                            ] is the owner of [            ] Class B Membership Interests in Diamond State Generation Holdings, LLC (the  Company ”), which membership interests are subject to the terms of the Second Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings, LLC, dated as of March [    ], 2013, 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.

 

Exhibit B -1


IN WITNESS WHEREOF, the said Company has caused this Certificate of Interest to be signed by its duly authorized officer this [    ] day of [             ], 20[    ].

DIAMOND STATE GENERATION

HOLDINGS, LLC

 

By:      

 

Name:  
Title:  

 

Exhibit B - 2


[Reverse]

INSTRUMENT OF TRANSFER OF

MEMBERSHIP INTEREST IN

Diamond State Generation Holdings, LLC

FOR VALUE RECEIVED, the undersigned 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 Holdings, LLC, with full power of substitution in the premises.

Dated as of:

[                      ]

 

By:

 

 

Name:

 

Title:

 

 

Exhibit B - 3


EXHIBIT C

FORM OF OPERATIONS REPORT

[OMITTED, UNABLE TO LOCATE]

 

Exhibit C - 1


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 Holdings, 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 Second Amended and Restated Limited Liability Company Agreement of the Company, dated as of March 20, 2013, 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] 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] 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] 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] 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] 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] Membership Interests in the Company previously owned by Assignor.

 

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.]

 

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:  

 

Exhibit D - 3


EXHIBIT E

FORM OF EQUITY CONTRIBUTION NOTICE

[            ], 20[    ]

Diamond State Generation Holdings, LLC

1299 Orleans Drive

Sunnyvale, CA 94089-1137

Attn: Scott Reynolds

Re:     Equity Contribution Notice

Ladies and Gentlemen:

Reference is made to that certain Second Amended and Restated Limited Liability Company Agreement (the “ Company LLC Agreement ”) for Diamond State Generation Holdings, LLC (the “ Company ”’), dated March 20, 2013, by and between Clean Technologies II, LLC, a Delaware limited liability company (“ Clean Technologies ”) and Mehetia Inc., a Delaware corporation (“ Mehetia ” or “ Class  B Member ”). All capitalized terms, unless otherwise defined herein, shall have the meanings ascribed to them in the Company LLC Agreement.

Pursuant to Section  4.4(a) of the Company LLC Agreement, Diamond State Generation Partners, LLC (the “ Project Company ”’) hereby delivers to the Company with a copy to Clean Technologies and Class B Members this notice and certifies to such entities as follows as of the Equity Contribution Date:

(1)    attached hereto as Exhibit [A] is a schedule which sets forth (a) the Systems expected to be Placed in Service and expected to achieve Commencement of Operations (as such term is defined in the MESPA) in the 2nd quarter following the quarter in which this notice is delivered (or sooner) for which this notice requests Capital Contribution of the balance of the amounts of the 25% Progress Payment for such System contemplated by the MESPA as provided in such schedule, 1 (b) the Systems which have been Placed in Service and have achieved Commencement of Operations for which this notice requests Capital Contribution of the amounts to be used by Project Company to make (with Note Proceeds) the 75% Progress Payment for such System contemplated by the MESPA as provided in such schedule, (c) an update of the status for all Systems for which a Capital Contribution has been requested in a prior Equity Contribution Notice (“Prior Draw Systems”, and together with the Systems referred to in the preceding clauses (a) and (b), the “Subject Systems”);

 

 

1   Note: if contributions are only being requested pursuant to clause (a) of this paragraph (1), only paragraphs (3), (5) and (6) are required to be included.

 

Exhibit E - 1


(2)    the Managing Member’s Capital Contribution to the Company of $16,619,399.60 was further contributed by the Company to the Project Company and used by Project Company to incur Project costs in an amount equal to at least 5% of the cost of all Systems;

(3)    attached hereto as Exhibits [B-] are (a) invoices from Bloom to the Project Company for payments under the MESPA for Subject Systems for which a prior Equity Contribution Notice had requested a Capital Contribution in order to make such payment, which invoice specifies: (i) the customer location of the installation of each Subject System, (ii) the serial number or purchase order number for each Subject System, (iii) the price for each Subject System as determined pursuant to the MESPA, (iv) all amounts previously paid as a deposit on each Subject System and (v) all amounts remaining due and payable on each Subject System, (b) evidence of the payment of such invoices by the Project Company, (c) with respect to Prior Draw Systems for which the 7 5% Progress Payment has been made under the MESP A, a Bill of Sale for such Prior Draw Systems;

( 4)    the DPL Agreements have terms that in the aggregate provide to Project Company equal or more favorable economics than set forth in the Base Case Model;

(5)    No material ongoing breach exists by Bloom, Clean Technologies, the Company, the Project Company, the Managing Member, DPL or PJM under the ECCA, the Project Company LLC Agreement, the MESP A, the MOMA, the Administrative^ Services Agreement, the Credit Documents, the DPL Agreements, the PJM Agreements, the Company LLC Agreement or any other Transaction Document or Material Contract, as applicable;

(6)    the Project Company is solvent and no event of Bankruptcy has occurred with respect to the Project Company;

(7)    each of the representations and warranties of Clean Technologies in Section  3.2 of the ECCA relating to the Systems funded by such Equity Contribution is (i) true and correct in all material respects as of such Equity Contribution Date except to the extent that any such representation or warranty shall have been expressly made only as of an earlier date in which case such representation or warranty was true and correct in all material respects as of such earlier date and (ii) if and to the extent such representations and warranties are qualified by the words “material,” “Material Adverse Effect” or similar qualification, true and correct, as qualified, as of the Equity Contribution Date (or such earlier date, as applicable);

(8)    (i) all conditions precedent in Section  2.5 and Section  2.7 of the ECCA (other than Section  2.5(aa)) continue to be satisfied and (ii) there have been no material adverse changes from the circumstances addressed in the due diligence reports delivered to Class B Member under Sections 2.5(a) and (b)  of the ECCA;

 

Exhibit E - 2


(9)    [after the first funding notice:] the prior Equity Contributions have been drawn in accordance with Section  4.3 and Section  4.4 of the Company LLC Agreement, the Project Company currently has a remaining cash balance from such funds of $[            ], such remaining funds are in the Capital Contributions Account, and the Project Company has used any funds from such Equity Contributions not retained in the Capital Contributions Account to make payments under the MESPA;

(10)    the information on each invoice from Bloom to Project Company for payments under the MESPA regarding the Systems to be paid for with proceeds of the Equity Contribution include the following: (i) the location of the installation of each such System, (ii)    the serial number for each such System, (iii) the price for each such System as determined pursuant to the MESPA, (iv) all amounts previously paid as a deposit on each such System and (v) all amounts remaining due and payable on each such System;

(11)    all material Governmental Approvals required to be obtained by Bloom, Clean Technologies, the Company and the Project Company for the construction and installation of the Subject Systems and the sale of electric energy and sale of RECs from the Subject Systems have been obtained, except for any such Governmental Approvals not yet required to be obtained but which can reasonably be expected to be obtained when needed as specified on Exhibit [C] ;

(12)    Commencement of Operations (as defined under the MESPA) has occurred for the Systems for which this notice requests Capital Contribution of the amounts to be used by Project Company (with Note Proceeds) to make the 75% Progress Payment for such System;

(13)    with respect to the Systems for which this notice requests Capital Contribution of the amounts to be used by Project Company (with Note Proceeds) to make the 75% Progress Payment for such System, the Members have received confirmation that the Note Proceeds have either been disbursed from the Construction Escrow Account or will be available for disbursement from the Construction Escrow Account contemporaneous with Project Company’s drawdown of such Progress Contribution from the Company (as may be evidenced by, among other things, delivery to the Members of a copy of the Account Withdrawal Instruction applicable to such proceeds which has been countersigned by the Collateral Agent and delivered to the Depositary) or the Required Holders have in writing confirmed to the Members that all conditions precedent to such disbursement from the Construction Escrow Account have been satisfied or waived and the Required Holders are prepared to permit such disbursement contemporaneous with Project Company’s drawdown of such Progress Contribution from the Company; and

(14)    with respect to the Systems for which this notice requests Capital Contribution of the amounts to be used by Project Company to make (with Note Proceeds) the 75% Progress Payment for such System, the Members have received written certification from

 

Exhibit E - 3


the Independent Engineer (as defined in the MESPA) addressed to Project Company certifying, without any qualification, that such System’s commissioning has been successfully completed, that such System is available for full commercial operation, and that Bloom has installed all BOF Work (as defined in the MESPA) necessary for the operation of that System.

In accordance with Section  4.4 of the Company LLC Agreement, the Company is hereby requested to make an Equity Contribution on [        , 20     ] in the amount of $[            ] to the Project Company and to transfer such funds to the following account of the Project Company as set forth below;

 

Holder Name:   Diamond State
  Generation
  Partners, LLC

Bank Name:

Account Number:

ABA Number:

 

Exhibit E - 4


Sincerely,

DIAMOND STATE GENERATION HOLDINGS,

LLC, as Manager of Diamond State Generation

Partners, LLC

By:

 

 

Name:

 

Title:

 

Cc:

Clean Technologies II, LLC

c/o Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, CA 94089-1137

Attn: [***]

Mehetia Inc.

Eleven Madison Avenue New

York, New York 10010

Attn: [***]

[***] Confidential Treatment Requested

 

Exhibit E - 5


Exhibit [    ]

[TO BE REVISED AS NEEDED FOR EACH EQUITY CONTRIBUTION]

 

Exhibit E - 6


EXHIBIT F

BASE CASE MODEL

[***] [Redacted in its Entirety: 177 Pages]

[***] Confidential Treatment Requested

 

Exhibit F - 1

Exhibit 10.16

[***] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

E XECUTION V ERSION

DIAMOND STATE GENERATION PARTNERS, LLC

$144,812,500

5.22% Senior Secured Notes due March 30, 2025

 

 

N OTE P URCHASE A GREEMENT

 

 

Dated March 20, 2013


T ABLE OF C ONTENTS

 

S ECTION   H EADING    P AGE  

ARTICLE 1. Authorization of Notes

     1  

ARTICLE 2. Sale and Purchase of Notes

     1  

ARTICLE 3. Closing

     1  

ARTICLE 4. Conditions Precedent

     2  

Section 4.1

  Conditions Precedent to Closing      2  

Section 4.2

  Conditions Precedent to All Drawdowns      12  

Section 4.3

  Conditions Precedent to each Credit Event      14  

Section 4.4

  Conditions Precedent to Final Completion      15  

ARTICLE 5. Representations and Warranties of the Company

     16  

Section 5.1

  Organization; Power and Authority      16  

Section 5.2

  Authorization, Etc.      17  

Section 5.3

  Disclosure      17  

Section 5.4

  Subsidiaries      17  

Section 5.5

  Financial Statements; Material Liabilities      17  

Section 5.6

  Compliance with Laws, Other Instruments, Etc.      18  

Section 5.7

  Governmental Authorizations, Etc.      18  

Section 5.8

  Observance of Agreements, Statutes and Orders      18  

Section 5.9

  Taxes      18  

Section 5.10

  Reserved      19  

Section 5.11

  Licenses, Permits, Etc.      19  

Section 5.12

  Compliance with ERISA      19  

Section 5.13

  Private Offering by the Company      20  

Section 5.14

  Use of Proceeds; Margin Regulations      20  

Section 5.15

  Existing Debt; Future Liens      20  

Section 5.16

  Foreign Assets Control Regulations, Etc.      21  

Section 5.17

  Status under Certain Statutes      21  

Section 5.18

  Environmental Matters      21  

Section 5.19

  Permits      22  

Section 5.20

  Solvency      22  

Section 5.21

  Insurance      22  

Section 5.22

  Litigation      23  

Section 5.23

  Labor Matters      23  

Section 5.24

  Governmental Regulation      23  

Section 5.25

  Ranking of Obligations; Perfection and Priority of Liens      24  

Section 5.26

  Project Construction      24  

Section 5.27

  Adverse Change      24  

Section 5.28

  Major Project Documents      24  

Section 5.29

  Sufficiency of Rights      25  


Section 5.30

  Real Estate      25  

Section 5.31

  Flood Zone Disclosure      26  

Section 5.32

  Investments      26  

Section 5.33

  No Recordation, Etc.      26  

Section 5.34

  Organizational ID Number; Location of Tangible Collateral      26  

ARTICLE 6. Representations of the Purchasers

     26  

Section 6.1

  Purchase for Investment      26  

Section 6.2

  Source of Funds      27  

Section 6.3

  Institutional Accredited Investor      28  

ARTICLE 7. Information as to Company

     28  

Section 7.1

  Financial Statements and Rating Letter      28  

Section 7.2

  Other Reporting Requirements      29  

Section 7.3

  Officer’s Certificate      31  

Section 7.4

  Visitation      31  

ARTICLE 8. Payment and Prepayment of the Notes

     32  

Section 8.1

  Required Payments; Mandatory Prepayments; Offer to Repay      32  

Section 8.2

  Optional Prepayments with Make-Whole Amount      33  

Section 8.3

  Allocation of Partial Prepayments      34  

Section 8.4

  Maturity; Surrender, Etc.      34  

Section 8.5

  Purchase of Notes      34  

Section 8.6

  Make-Whole Amount      34  

ARTICLE 9. Affirmative Covenants

     36  

Section 9.1

  Compliance with Laws      36  

Section 9.2

  Insurance      36  

Section 9.3

  Maintenance of Properties      36  

Section 9.4

  Payment of Taxes and Claims      36  

Section 9.5

  Corporate Existence, Etc.      37  

Section 9.6

  Books, Records      37  

Section 9.7

  Use of Proceeds, Equity Contributions, Project Revenues      37  

Section 9.8

  Payment      37  

Section 9.9

  Additional Direct Agreements      38  

Section 9.10

  Performance of the Major Project Documents      38  

Section 9.11

  Utility Regulation      38  

Section 9.12

  Construction of the Project      38  

Section 9.13

  As-Built Survey      38  

Section 9.14

  Operation and Maintenance of Project; Operating Budget      38  

Section 9.15

  Preservation of Rights; Further Assurances      39  

Section 9.16

  Forced Outage Event      41  

Section 9.17

  Event of Eminent Domain      41  

Section 9.18

  Environmental Laws      42  

 

-ii-


Section 9.19

  Independent Consultants      42  

Section 9.20

  Partial Completion Buydown      42  

Section 9.21

  Separateness      42  

Section 9.22

  Rating      43  

Section 9.23

  Rating Event      43  

Section 9.24

  Debt Service Coverage Ratio      43  

ARTICLE 10. Negative Covenants

     43  

Section 10.1

  Transactions with Affiliates      43  

Section 10.2

  Dissolution; Merger      43  

Section 10.3

  Line of Business; Changes      43  

Section 10.4

  Sale or Lease of Assets      44  

Section 10.5

  Terrorism Sanctions Regulations      44  

Section 10.6

  Liens      44  

Section 10.7

  Contingent Obligations      44  

Section 10.8

  Debt      44  

Section 10.9

  Investments      44  

Section 10.10

  Restricted Payments      45  

Section 10.11

  Margin Loan Regulations      45  

Section 10.12

  Partnership, Separateness Etc.      45  

Section 10.13

  Amendments      45  

Section 10.14

  Name and Location; Fiscal Year      46  

Section 10.15

  Hazardous Substances      46  

Section 10.16

  Use of Sites      46  

Section 10.17

  Project Documents      46  

Section 10.18

  Assignment by Third Parties      46  

Section 10.19

  Acquisition of Real Property      46  

Section 10.20

  ERISA      46  

Section 10.21

  Lease Obligations      47  

Section 10.22

  Disputes      47  

Section 10.23

  Assignment      47  

Section 10.24

  Accounts      47  

Section 10.25

  Regulations; Tariff      47  

Section 10.26

  Capital Expenditures      47  

ARTICLE 11. Events of Default

     47  

Section 11.1

  Failure to Make Payments      47  

Section 11.2

  Misstatements      48  

Section 11.3

  Breach of Terms of Agreement      48  

Section 11.4

  Defaults Under Other Debt      48  

Section 11.5

  Bankruptcy; Insolvency      49  

Section 11.6

  Judgments      49  

Section 11.7

  ERISA      49  

Section 11.8

  Ownership of the Project      49  

Section 11.9

  Loss of Collateral      49  

 

-iii-


Section 11.10

  Abandonment      50  

Section 11.11

  Security      50  

Section 11.12

  Regulatory Status      50  

Section 11.13

  Loss of or Failure to Obtain Applicable Permits      51  

Section 11.14

  Credit Document Matters      51  

Section 11.15

  Project Document Matters      51  

Section 11.16

  Eminent Domain      52  

Section 11.17

  Cash Grant Recapture      52  

Section 11.18

  Final Completion      52  

ARTICLE 12. Remedies on Default, Etc.

     53  

Section 12.1

  Acceleration      53  

Section 12.2

  Other Remedies      53  

Section 12.3

  Rescission      53  

Section 12.4

  No Waivers or Election of Remedies, Expenses, Etc.      54  

ARTICLE 13. Registration; Exchange; Substitution of Notes

     54  

Section 13.1

  Registration of Notes      54  

Section 13.2

  Transfer and Exchange of Notes      54  

Section 13.3

  Replacement of Notes      55  

ARTICLE 14. Payments on Notes

     56  

Section 14.1

  Place of Payment      56  

Section 14.2

  Home Office Payment      56  

ARTICLE 15. Expenses, Etc.

     56  

Section 15.1

  Transaction Expenses      56  

Section 15.2

  Survival      57  

ARTICLE 16. Survival of Representations and Warranties; Entire Agreement

     57  

ARTICLE 17. Amendment and Waiver

     57  

Section 17.1

  Requirements      57  

Section 17.2

  Solicitation of Holders of Notes      58  

Section 17.3

  Binding Effect, etc.      58  

Section 17.4

  Notes Held by Company, etc.      58  

ARTICLE 18. Notices

     59  

ARTICLE 19. Reproduction of Documents

     59  

ARTICLE 20. Confidential Information

     60  

 

-iv-


ARTICLE 21. Substitution of Purchaser

     61  

ARTICLE 22. Miscellaneous

     61  

Section 22.1

  Successors and Assigns      61  

Section 22.2

  Payments Due on Non-Business Days      61  

Section 22.3

  Accounting Terms      61  

Section 22.4

  Severability      62  

Section 22.5

  Construction, etc.      62  

Section 22.6

  Counterparts      62  

Section 22.7

  Governing Law      62  

Section 22.8

  Jurisdiction and Process; Waiver of Jury Trial      62  

Section 22.9

  Scope of Liability      63  

Section 22.10

  U.S. Tax Forms      64  

 

S CHEDULE A

     Information Relating To Purchasers

S CHEDULE B

     Defined Terms

S CHEDULE  4.1.22

     Litigation

S CHEDULE  4.1.26

     Project Budget

S CHEDULE  4.1.27

     Base Case Projections

S CHEDULE  4.1.28

     Project Schedule

S CHEDULE  4.1.30

     List of Direct Agreements

S CHEDULE  5.3

     Disclosure Materials

S CHEDULE  5.5

     Financial Statements

S CHEDULE  5.15

     Existing Debt

S CHEDULE  5.19

     Permits

S CHEDULE  8.1

     Amortization Schedule

S CHEDULE  9.2

     Required Insurance

E XHIBIT 1

     Form of 5.22% Senior Secured Note due March 30, 2025

E XHIBIT  4.1.13(a)

     Form of Opinion of Special Counsel for the Company

E XHIBIT  4.1.13(b)

     Form of Opinion of Regulatory Counsel for the Company

E XHIBIT  4.1.13(c)

     Form of opinion of Constitutional Counsel for the Company

 

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E XHIBIT  4.1.13(d)

     Form of Opinion of Delaware Real Estate Counsel for the Company

E XHIBIT  4.1.13(e)

     Form of Opinion of Delaware Regulatory Counsel for the Company

E XHIBIT  4.1.13(f)

     Form of Opinion of Special Counsel for the Purchasers

E XHIBIT  4.1.14

     Form of Insurance Broker Certificate

E XHIBIT  4.1.16

     Form of Independent Engineer Certificate

E XHIBIT  4.1.17

     Form of Environmental Consultant Certificate

E XHIBIT  4.1.30

     Form of Direct Agreement

E XHIBIT  4.2.1(a)

     Form of Drawdown Certificate

E XHIBIT  4.2.1(b)

     Form of Independent Engineer’s Drawdown Certificate

E XHIBIT  4.2.1(c)

     Form of Company’s COD Certificate

E XHIBIT  4.2.1(d)

     Form of Independent Engineer’s COD Certificate

E XHIBIT  4.4.3

     Form of Final Completion Certificate of the Company

E XHIBIT  4.4.4

     Form of Final Completion Certificate of the Independent Engineer

E XHIBIT  8.1.3(b)

     Form of Offer to Repay Notice

 

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5.22% Senior Secured Notes due March 30, 2025

March 20, 2013

T O E ACH OF THE P URCHASERS L ISTED IN

S CHEDULE A H ERETO :

Ladies and Gentlemen:

Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), agrees with each of the Purchasers as follows:

 

ARTICLE 1. A UTHORIZATION OF N OTES .

The Company will authorize the issuance and sale of $144,812,500 aggregate principal amount of its 5.22% Senior Secured Notes due March 30, 2025 (the “ Notes ”, such term to include any such notes issued in substitution therefor pursuant to Article 13). The Notes shall be substantially in the form set out in Exhibit 1. Certain capitalized and other terms used in this Agreement are defined in Schedule B; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

 

ARTICLE 2. S ALE AND P URCHASE OF N OTES .

Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company, at the Closing provided for in Article 3, Notes in the principal amount specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The Purchasers’ obligations hereunder are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance of any obligation by any other Purchaser hereunder.

 

ARTICLE 3. C LOSING .

The sale and purchase of the Notes to be purchased by each Purchaser shall occur at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, New York 10022, at 10:00 a.m., New York City time, at a closing on March 20, 2013 (the “ Closing ”) or on such other Business Day thereafter on or prior to March 25, 2013 as may be agreed upon by the Company and the Purchasers. At the Closing the Company will deliver to each Purchaser the Notes to be purchased by such Purchaser in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as such Purchaser may request) dated the date of the Closing and registered in such Purchaser’s name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 210340899 at Wilmington Savings Fund Society, ABA:


031100102, Account Name: Drinker Biddle & Reath, LLP – IOLTA Rule 1.15A Attorney Trust Account. If at the Closing the Company shall fail to tender such Notes to any Purchaser as provided above in this Article 3, or any of the conditions specified in Sections 4.1 and 4.3 shall not have been fulfilled to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.

 

ARTICLE 4. C ONDITIONS P RECEDENT .

Section 4.1 Conditions Precedent to Closing.

Each Purchaser’s obligation to purchase and pay for the Notes to be sold to such Purchaser at the Closing is subject to the prior satisfaction of each of the following conditions unless waived by each Purchaser (the date such conditions precedent are so satisfied or waived being referred to as the “ Closing Date ”):

Section 4.1.1 Performance; No Default . The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing. The Company shall not have entered into any transaction since the date of the Memorandum that would have been prohibited by Article 10 had such Article applied since such date.

Section 4.1.2 Purchase Permitted By Applicable Law, Etc. On the Closing Date such Purchaser’s purchase of the Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by such Purchaser, such Purchaser shall have received a certificate of a Responsible Officer of the Company certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted.

Section 4.1.3 Sale of Other Notes . Contemporaneously with the Closing the Company shall sell to each other Purchaser and each other Purchaser shall purchase the Notes to be purchased by it at the Closing as specified in Schedule A.

Section 4.1.4 Private Placement Number . A Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the SVO) shall have been obtained for the Notes.

Section 4.1.5 Changes in Corporate Structure . The Company shall not have changed its jurisdiction of formation, or been a party to any merger or consolidation or succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5.

 

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Section 4.1.6 Funding Instructions. At least three Business Days prior to the Closing Date, each Purchaser shall have received written instructions signed by a Responsible Officer of the Company on letterhead of the Company confirming the information specified in Article 3 including (i) the name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into which the purchase price for the Notes is to be deposited.

Section 4.1.7 Resolutions . The Company shall have delivered to each of the Purchasers a copy of one or more resolutions or other authorizations, in form and substance reasonably satisfactory to the Purchasers, of each Credit Party as of the Closing Date certified by a Responsible Officer of such Credit Party as being true, complete, in full force and effect on the Closing Date and not amended, modified, revoked or rescinded, authorizing, as applicable and among other things, the issuance of the Notes herein provided for, the granting of the Liens under the Collateral Documents, the provision of the guaranties, warranties and indemnities, the contribution of equity to the Company and the execution, delivery and performance of this Agreement, the other Operative Documents and any instruments or agreements required hereunder or thereunder to which such Credit Party is a party.

Section 4.1.8 Incumbency . The Company shall have delivered to each of the Purchasers a certificate, in form and substance reasonably satisfactory to the Purchasers, from each Credit Party signed by the appropriate authorized officer or manager of each such Credit Party and dated as of the Closing Date, as to the incumbency and specimen signature of each natural Person authorized to execute and deliver this Agreement, the other Operative Documents and any instruments or agreements required hereunder or thereunder to which such Credit Party is a party, including various certificates to be delivered by such Credit Party pursuant to this Section 4.1.

Section 4.1.9 Governing Documents. The Company shall have delivered to each of the Purchasers, in each case certified by a Responsible Officer of such Credit Party as being true, correct and complete on the Closing Date, (a) copies of the certificate of formation, charter or other state certified constituent documents of each Credit Party, certified as of a recent date by the secretary of state of such Credit Party’s state of organization, and (b) copies of the bylaws, limited liability company operating agreement, partnership agreement or other comparable operating documents, if applicable, of each Credit Party.

Section 4.1.10 Good Standing Certificates . The Company shall have delivered to each of the Purchasers certificates (in so-called “long-form” if available) issued by the secretary of state of the state in which each Credit Party and Major Project Participant is formed or incorporated, as applicable, in each case (a) dated a date reasonably close to the Closing Date and (b) certifying that such Credit Party and Major Project Participant is in good standing and is qualified to do business in, and has paid all franchise Taxes or similar Taxes due to, such states.

Section 4.1.11 Credit Documents and Project Documents . The Company shall have delivered to each of the Purchasers (a) true, correct and complete copies of each Credit Document, all of which shall (i) have been duly authorized, executed and delivered by the parties thereto and in form and substance reasonably satisfactory to the Purchasers, and (ii) be in

 

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full force and effect and accompanied by a certificate of the Company certifying to the foregoing, (b) a certified list of, and true, correct and complete copies of, each Project Document (other than any Project Document which is only incidental to the development, construction, leasing, ownership or operation of the Project) executed on or prior to the Closing Date, each in form and substance reasonably satisfactory to the Purchasers, all of which shall (x) have been duly authorized, executed and delivered by the parties thereto, and (y) be certified by the Company as being true, complete and correct and in full force and effect on the Closing Date and (c) each document, certificate, or other deliverable required to be delivered under each Credit Document as of the Closing Date.

Section 4.1.12 Third Party Approvals . Except for the Permits listed in Part II of Schedule 5.19, the Company shall have received and delivered to each of the Purchasers all Applicable Permits by any Person (including any Governmental Authority) reasonably required in connection with any transaction contemplated in any Operative Document.

Section 4.1.13 Opinions of Counsel . The Company shall have delivered to each Purchaser opinions in form and substance satisfactory to such Purchaser and addressed to each such Purchaser, dated as of the Closing Date (a) from Orrick, Herrington & Sutcliffe LLP, counsel for the Company, covering the matters set forth in Exhibit 4.1.13(a) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request, (b) from Orrick, Herrington & Sutcliffe LLP, regulatory counsel for the Company, substantially in the form of Exhibit 4.1.13(b), (c) from Orrick, Herrington & Sutcliffe LLP, U.S. constitutional counsel for the Company, substantially in the form of Exhibit 4.1.13(c), (d) from Drinker Biddle & Reath LLP, Company’s Delaware real estate counsel, covering the enforceability of the Mortgage, substantially in the form of Exhibit 4.1.13(d), (e) from Morris James LLP, the Company’s Delaware regulatory counsel, covering Delaware state regulatory matters, substantially in the form of Exhibit 4.1.13(e) and (f) from Latham & Watkins LLP, the Purchasers’ special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.1.13(f) and covering such other matters incident to such transactions as such Purchaser may reasonably request. The Company also shall have delivered to Fitch Ratings, Inc. an opinion from Orrick, Herrington & Sutcliffe LLP, counsel for the Company, covering non- consolidation matters, which opinion shall be in form and substance satisfactory to Fitch Ratings, Inc. and shall also be addressed to each Purchaser.

Section 4.1.14 Certificate of Insurance Consultant . The Company shall have delivered to each of the Purchasers the Insurance Consultant’s certificate, dated as of the Closing Date and in substantially the form of Exhibit 4.1.14, together with the Insurance Consultant’s report that (a) summarizes the insurance arrangements for the Project and (b) concludes that such insurance is adequate and customary.

Section 4.1.15 Insurance . Insurance complying with terms and conditions set forth in Schedule 9.2 shall be in full force and effect and each of the Purchasers and the Insurance Consultant shall have received a certificate from the Company’s insurance broker(s), dated as of the Closing Date and in form and substance reasonably satisfactory to the Purchasers, (a) identifying underwriters, type of insurance, insurance limits and policy terms, (b) listing the special provisions required as set forth in Schedule 9.2, (c) describing the insurance obtained and (d) stating that such insurance is in full force and effect and that all premiums then due thereon have been paid and that, in the opinion of such broker(s), such insurance complies with the terms and conditions set forth in Schedule 9.2.

 

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Section 4.1.16 Certificate of the Independent Engineer . The Company shall have delivered to each of the Purchasers the Independent Engineer’s certificate, dated as of the Closing Date and in substantially the form of Exhibit 4.1.16, together with the Independent Engineer’s report, in form and substance reasonably satisfactory to the Purchasers, attached thereto.

Section 4.1.17 Reports of the Company’s Environmental Consultant .

(i) The Company shall have delivered to each of the Purchasers each Environmental Report along with a reliance letter, each in form and substance reasonably satisfactory to the Purchasers.

(ii) The Company shall have delivered to each of the Purchasers a certificate from the Environmental Consultant in substantially the form of Exhibit 4.1.17 that any recognized environmental conditions identified in the Environmental Reports have been fully remediated in accordance with Hazardous Substances Law.

Section 4.1.18 Repayment of Existing Financing . The Purchasers shall have received evidence satisfactory to them that (i) upon the Closing under this Agreement and application of the proceeds on the Closing Date, the lenders providing loans to the Company pursuant to the Existing Financing Agreement have been fully repaid and such lenders have released all Liens granted in their favor securing such loans and (ii) the Collateral Documents (as defined in the Existing Financing Agreement) have been terminated.

Section 4.1.19 Funding of the IDC Reserve Account. The Company shall have funded, or shall fund contemporaneously with the Closing from proceeds of the Notes, the IDC Reserve Account in an amount equal to $5,365,637.

Section 4.1.20 Funding of the Debt Service Reserve Account . The Company shall have funded the Debt Service Reserve Account with a portion of the proceeds of the Notes up to the Debt Service Reserve Requirement.

Section 4.1.21 Permit Schedule .

(i) The Company shall have delivered to each of the Purchasers Schedule 5.19, in form and substance reasonably satisfactory to the Purchasers, of which (i) Part I shall be Permits which are Applicable Permits as of the Closing Date, and (ii) Part II shall be Permits which are expected to become Applicable Permits after the Closing Date. The Company shall also deliver to each of the Purchasers copies of each Permit listed in Part I. The Permits listed in Part I shall in the Purchasers’ reasonable opinion comprise all of the Applicable Permits as of the Closing Date.

(ii) Each Permit on Part I of Schedule 5.19 shall (i) have been duly obtained by the Company or on behalf of the Project, (ii) be in full force and effect, (iii) not be subject to any current legal proceeding, and (iv) not be subject to any Unsatisfied Condition that

 

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could reasonably be expected to result in material modification or revocation of such Permit, and except as disclosed in Schedule 5.19 all applicable appeal periods with respect to each such Permit shall have expired.

(iii) The Permits listed in Part II of Schedule 5.19 shall, in the Purchasers’ reasonable opinion, be timely obtainable (i) on or before the date the Company requires such Permit, (ii) without delay materially in excess of the time provided therefor in the Project Schedule (if applicable), and (iii) without expense materially in excess of the amounts provided therefor in the Project Budget.

(iv) No Applicable Permit shall be subject to any restriction, condition, limitation or other provision which could reasonably be expected to have a Material Adverse Effect.

Section 4.1.22 Absence of Litigation . Except as set forth in Schedule 4.1.22, there are no actions, suits or proceedings by or before any Governmental Authority or arbitrator pending or, to the Company’s Knowledge, threatened in writing by or against the Company or any Major Project Participant related to the Project.

Section 4.1.23 Payment of Fees . All Taxes, fees and other costs payable in connection with the execution, delivery recordation and filing of the documents and instruments referred to in this Section 4.1, and in connection with, title insurance premiums, surveys, charges related thereto, and due on or before the Closing Date shall have been paid in full or, if and in the manner specifically approved by the Purchasers, provided for. The Company shall have paid (or caused to be paid) or shall have made arrangements in the manner reasonably satisfactory to the payee for the payment of all outstanding amounts due, as of the Closing Date, and owing to the Purchasers’ special counsel referred to in Section 4.1.13, the Title Insurer and the Independent Consultants to the extent reflected in a statement rendered to the Company at least one Business Day prior to the Closing Date.

Section 4.1.24 Financial Statements. The Company shall have delivered to each of the Purchasers accurate and complete copies of the most recent (a) audited annual financial statements of Sponsor for the year ended December 31, 2011, and (b) unaudited quarterly financial statements of the Company and Sponsor for the fiscal quarter ended on September 30, 2012, and in any of the foregoing cases, together with, in the case of the Company and Sponsor, a certificate from the appropriate Responsible Officer thereof, dated as of the Closing Date, stating that no material adverse change in the consolidated assets, liabilities, operations or financial condition of such Person has occurred from those set forth in the most recent financial statements provided to the Purchasers.

Section 4.1.25 Collateral Requirements . The Company shall have delivered to the Collateral Agent and each of the Purchasers evidence reasonably satisfactory to the Purchasers that the Company or other applicable Lien grantor has taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings that may be necessary or, in the opinion of the Purchasers, desirable in order to create in favor of the Collateral Agent a valid and (upon such filing and recording) perfected first priority Lien in such Person’s rights, title and interest in and to the Collateral. Such actions shall include delivery:

(i) to each of the Purchasers, of the Pledge Agreement, the Security Agreement and the Depositary Agreement, duly executed by each Credit Party and each other Person party thereto;

 

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(ii) to the Collateral Agent, of all pledged securities, including all certificates, agreements or instruments representing or evidencing such pledged securities, accompanied by instruments of transfer and membership interest powers undated and endorsed in blank to the extent such pledged interests are certificated;

(iii) to the Collateral Agent, of all promissory notes or other instruments (duly endorsed, where appropriate, in a manner reasonably satisfactory to the Purchasers) evidencing any Collateral;

(iv) to the Collateral Agent, of all other certificates, agreements, including control agreements, or instruments necessary to perfect the Collateral Agent’s security interest in all Chattel Paper, all Instruments, all Deposit Accounts (other than the Cash Grant Account and the System Refund Account) and all Investment Property of the Company (as each such term is defined in the Security Agreement and to the extent required by the Security Agreement);

(v) to the Collateral Agent, of UCC financing statements in appropriate form for filing under the UCC, and, where appropriate, fixture filings and transmitting utility filings, and such other documents under applicable Legal Requirements in each jurisdiction as may be necessary or appropriate or, in the opinion of the Purchasers, desirable to perfect the first priority Liens created, or purported to be created, by the Collateral Documents and, with respect to all UCC financing statements required to be filed pursuant to the Credit Documents, evidence satisfactory to the Purchasers that the Company has retained, at its sole cost and expense, a service provider acceptable to the Purchasers for the tracking of all such financing statements and notification to the Purchasers of, among other things, the upcoming lapse or expiration thereof;

(vi) to each of the Purchasers, of certified copies of UCC, tax and judgment lien searches, bankruptcy and pending lawsuit searches or equivalent reports or searches, each of a date no less recent than ten Business Days before the Closing Date or as otherwise acceptable to the Purchasers listing all effective financing statements, lien notices or comparable documents that name the Company and Pledgor as debtor and that are filed in those state and county jurisdictions in which any property of such Person is located and the state and county jurisdictions in which such Person is organized or maintains its principal place of business and such other searches that the Purchasers deem necessary or appropriate, none of which encumber the Collateral covered or intended to be covered by the Collateral Documents (other than Permitted Liens) showing that upon due filing or recordation (assuming such filing or recordation occurred on the date of such respective reports), as the case may be, the security interests created under the Collateral Documents, with respect to the Collateral, will be prior to all other financing statements, fixture filings or other security documents wherein the security interest is perfected by filing or recording in respect of the Collateral;

 

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(vii) to each of the Purchasers, of an opinion of counsel (which counsel shall be reasonably satisfactory to the Purchasers) with respect to the perfection of the security interests in favor of the Collateral Agent in personal or mixed property Collateral and such other matters governed by the laws of such jurisdiction regarding such security interests as the Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to the Purchasers; and

(viii) to each of the Purchasers, of evidence reasonably satisfactory to the Purchasers of payment or arrangements for payment by the Company of all applicable recording Taxes, stamp duties, registration fees or charges, filing costs and other similar expenses, if any, required to be paid in connection with the execution, delivery or filing of, or the perfection of any Operative Document or otherwise in connection with the Collateral.

Section 4.1.26 Project Budget . The Company shall have delivered to each of the Purchasers the Project Budget in substantially the form of Schedule 4.1.26, which Project Budget shall be satisfactory to the Purchasers.

Section 4.1.27 Base Case Projections . The Company shall have delivered to each of the Purchasers the Base Case Projections, in substantially the form of Schedule 4.1.27, which Base Case Projections shall be satisfactory to the Purchasers.

Section 4.1.28 Project Schedule. The Company shall have delivered to each of the Purchasers the Project Schedule in substantially the form of Schedule 4.1.28, which Project Schedule shall be satisfactory to the Purchasers.

Section 4.1.29 Establishment of Accounts. The Accounts required to be established as of the Closing Date for the Project under the Depositary Agreement shall have been established, and funded in accordance with the Operative Documents, to the satisfaction of the Purchasers.

Section 4.1.30 Direct Agreements . The Company shall have delivered to each of the Purchasers executed Direct Agreements from the Sponsor with respect to each of the MESPA, the MOMA and the Administrative Services Agreement, which Direct Agreements shall be in substantially the form of Exhibit 4.1.30 or otherwise reasonably satisfactory to the Purchasers.

Section 4.1.31 Anti-Terrorism Compliance . At least five Business Days prior to the Closing Date, each Purchaser shall have received all documentation and other information requested by such Purchaser, which is required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act, or pursuant to such Purchaser’s internal policies.

Section 4.1.32 Flood Insurance . The Company shall have delivered to each of the Purchasers evidence from the Insurance Consultant of flood insurance or evidence from the Insurance Consultant that flood insurance is not required, each in form and substance satisfactory to the Purchasers.

 

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Section 4.1.33 Effectiveness of Tariff. The Tariff and the Gas Tariff shall be final, non appealable and in full force and effect.

Section 4.1.34 Regulatory Status . The Company shall have delivered to each of the Purchasers (a) a self-certification by the Company filed with FERC that the Project is an Eligible Facility and that the Company is an Exempt Wholesale Generator, (b) an order issued by FERC authorizing the Company to sell electricity, capacity and ancillary services at market- based rates and issuing such blanket authorizations and waivers of regulation typically granted to sellers at market-based rates and (c) all necessary approvals from any Governmental Authority in respect of the Tariff.

Section 4.1.35 Tariff Compliance .

(i) The Sponsor shall be a Qualified Fuel Cell Provider which has been designated by an agency of the State of Delaware as an “economic development opportunity” within the meaning of the REPS Act.

(ii) The Company shall be a PJM Member (as defined in the Tariff) and shall have entered into (i) all required PJM Agreements required for the performance of the Company’s obligations in connection with the Project and the Tariff or the Company shall have entered into an agreement with a Market Participant (as defined in the Tariff) that will perform some or all of the Company’s PJM-related obligations in connection with the Project and the Tariff.

(iii) The Company shall have obtained all necessary authorizations from FERC to sell Energy at market-based rates as contemplated by the Tariff and shall be in compliance with such authorization.

Section 4.1.36 Existing Systems . The Company shall have delivered to each of the Purchasers evidence that the Existing Systems have achieved COD, in form and substance satisfactory to the Purchasers.

Section 4.1.37 Other Real Estate Requirements . The Company shall have delivered to each of the Purchasers:

(i) a copy of the Mortgage encumbering the Mortgaged Property in favor of the Collateral Agent, duly executed and acknowledged by the Company, and otherwise in form for recording in the recording office of New Castle County, Delaware, together with such certificates, affidavits, questionnaires or returns as shall be required in connection with the recording or filing thereof to create a Lien under applicable law;

(ii) with respect to the Mortgaged Property, such consents, approvals, amendments, supplements, estoppels, tenant subordination agreements or other instruments as are necessary to consummate the transactions hereunder contemplated or as shall reasonably be deemed necessary by the Purchasers;

 

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(iii) evidence reasonably acceptable to the Purchasers of payment by the Company of all Title Policy premiums, search and examination charges, and related charges, mortgage recording Taxes, fees, charges, costs and expenses required for the recording of the Mortgage and issuance of the Title Policy;

(iv) with respect to any Real Property in which the Company holds possession by lease or easement (other than where the lessor is the State of Delaware or a subdivision thereof, or DPL), both (a) an agreement by the fee owner to obtain a nondisturbance agreement from each lienholder against the fee interest in such Real Property, and (b) a nondisturbance agreement from any such existing lienholder, in each case in form and substance reasonably satisfactory to the Purchasers;

(v) copies of all Leases or easements in which the Company holds the lessor’s interest or other agreements relating to possessory interests, if any, in the Real Property. To the extent any of the foregoing affect any Real Property, such agreement shall be subordinate to the Lien of each Mortgage to be recorded against the Mortgaged Property, either expressly by its terms or pursuant to a subordination, non-disturbance and attornment agreement, and shall otherwise be acceptable to the Purchasers;

(vi) evidence reasonably acceptable to the Purchasers that the Company and each other Major Project Participant have obtained and hold all easements or other possessory rights in real estate, together with necessary real property permits and crossing rights (collectively, “ Rights of Way ”) necessary for (a) performance in full of each such Person’s obligations under the Operative Documents and each Permit by which such Person or its assets is bound, and (b) the development, leasing, construction and operation of the Project in accordance with the Base Case Projections. The use of such Rights of Way shall not encroach on or interfere with property adjacent to such Rights of Way or existing easements or other rights (whether on, above or below ground) and the full length of the Rights of Way shall be continuous, without break, gap or interruption;

(vii) the Company has a good, marketable and insurable (a) leasehold interest in the Sites, (b) easement interest in the Easements, and (c) interest in any other Real Property; and

(viii) each Mortgage is a valid first Lien on the Company’s right, title and interest in the applicable Mortgaged Property (including, without limitation, the Rights of Way), free and clear of all Liens, encumbrances and exceptions to title whatsoever, other than (a) the Title Exceptions and (b) Permitted Liens.

Section 4.1.38 Solvency Certificate. The Company shall have delivered to each of the Purchasers a certificate from the president of the Company certifying that the Company is Solvent after giving effect to the transactions contemplated hereby.

Section 4.1.39 Title Policy. The Company shall have delivered to the Collateral Agent (a) an ALTA extended coverage policy of title insurance (2006 form) issued by the Title Insurer and in form and substance acceptable to the Purchasers which policy shall insure that the Mortgage creates a valid first priority Lien on, and security interest in, the

 

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Mortgaged Property free and clear of all defects and encumbrances, except the Title Exceptions, and containing such endorsements thereto as are reasonably requested by the Purchasers, or (b) the unconditional and irrevocable commitment of the Title Insurer to issue such a policy, in each case in a coverage amount equal to $144,812,500.

Section 4.1.40 DPL Agreements. The Company shall have delivered to each of the Purchasers a copy of any agreement entered into with DPL that DPL will honor any notices received from Collateral Agent pursuant to a power of attorney granted by the Company under the Collateral Documents as if such notice were delivered by the Company under the Tariff.

Section 4.1.41 Recapture Indemnities and Guaranties. The Company shall have delivered to each of the Purchasers copies of each of the executed Recapture Indemnities and Guarantees, each of which shall be in full force and effect as of the Closing Date and each of which shall be in form and substance satisfactory to the Purchasers.

Section 4.1.42 Interconnection Service . For each System at a Site (a) the Company has obtained the relevant Interconnection Agreement for such Site (which shall be in full force and effect), with rights to delivery of the full capacity of that portion of the Project expected to be installed at such Site; and (b) all necessary network upgrades required under each such Interconnection Agreement for interconnection service at such Site have been completed and such interconnection service is fully available.

Section 4.1.43 Red Lion Transmission Line . For each System at the Red Lion Site, the approximate half-mile transmission line connecting the Red Lion Site to the Red Lion substation and the point of interconnection to the PJM Grid shall have been completed and the Company shall have provided evidence to each of the Purchasers that no other party shall be entitled to displace the Company’s access to such line in the amount necessary to accommodate the full output from the Red Lion Site (such evidence may consist of the Interconnection Agreement to be entered into with respect to the Red Lion Site if such agreement has the effect of providing that the Company has the right to place its full output on the line without displacement by any other party).

Section 4.1.44 Utilities . The Company shall have delivered to each of the Purchasers reasonably satisfactory evidence that all process water, sewer, telephone, waste disposal, electric and all other utility services necessary for the development, construction, ownership and operation of the Project are either contracted for, or readily available on commercially reasonable terms, at the Project.

Section 4.1.45 Legality . No federal, state or law or regulation, or any interpretation thereof, exists which would make the Notes, or the securing of the Notes by the Collateral, or any other aspect of the transactions contemplated herein, illegal, or which would subject the Purchasers or any of their Affiliates to any penalties, sanctions or fines.

Section 4.1.46 Utility Laws . No federal, state or local law or regulation exists as of the Closing Date under which any Purchaser would become, solely as a result of the transactions contemplated in the Credit Documents, subject to or not exempt from regulation as

 

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an “electric utility,” “electric corporation,” “electrical company,” “public utility,” or “holding company” under the FPA, PUHCA or the laws of the State of Delaware, except a Purchaser may become subject to such regulation upon the exercise of remedies under the Credit Documents.

Section 4.2 Conditions Precedent to All Drawdowns.

The obligations of the Holders to permit any Drawdown from the Construction Escrow Account are, in each case, subject to the prior satisfaction by the Company of each of the following conditions (unless waived in writing by the Required Holders):

Section 4.2.1 Drawdown Certificate and Independent Engineer’s Drawdown Certificate .

(a) At least seven Business Days prior to the proposed date of a Drawdown, the Company shall have provided each of the Holders and the Independent Engineer with a duly executed copy of a Drawdown Certificate, dated the date of delivery of such certificate, setting forth the date of the proposed occurrence of such Drawdown and signed by a Responsible Officer of the Company, substantially in the form of Exhibit 4.2.1(a) (the “ Drawdown Certificate ”).

(b) At least four Business Days prior to the proposed date of a Drawdown, the Independent Engineer shall have provided each of the Holders (with a copy to the Company) with a certificate of the Independent Engineer signed by an authorized representative of the Independent Engineer, substantially in the form of Exhibit 4.2.1(b) (the “ Independent Engineer’s Drawdown Certificate ”).

(c) At least two Business Days prior to the proposed date of a Drawdown, the Company shall have provided each of the Holders (with a copy to the Independent Engineer) with a certificate confirming that COD has occurred with respect to the Systems being funded under the requested Drawdown and signed by an authorized representative of the Company, substantially in the form of Exhibit 4.2.1(c) (the “ Company’s COD Certificate ”).

(d) At least one Business Day prior to the proposed date of a Drawdown, the Independent Engineer shall have provided each of the Holders with a certificate dated the date of delivery of such certificate, confirming that COD has occurred with respect to the Systems being funded under the requested Drawdown, substantially in the form of Exhibit 4.2.1(d) (the “ Independent Engineer’s COD Certificate ”).

(e) The Company shall use all reasonable efforts to provide the Holders and the Independent Engineer with drafts of any certificates and other materials to be delivered pursuant to this Section 4.2.1 in advance of the time frames listed above as reasonably requested by the Holders.

Section 4.2.2 Available Funds. After taking into consideration the making of the applicable Drawdown, the Required Holders (based on consultation with the Independent Engineer) shall have reasonably determined that Available Funds shall not be less than the aggregate unpaid amount required to cause Final Completion to occur in accordance with all Legal Requirements, the MESPA, each other Project Document pursuant to which construction

 

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work with respect to the Project is being performed and the Credit Documents on or before the Date Certain and to pay or provide for all anticipated non-construction Project Costs, all as set forth in the then-current Project Budget.

Section 4.2.3 Permits .

(a) Each Applicable Permit and Applicable Third Party Permit shall have been duly obtained and issued or been assigned in the Company’s or the applicable third party’s name, shall be in full force and effect, shall not be subject to any current legal proceeding, and shall not be subject to any Unsatisfied Condition that could reasonably be expected to result in material modification or revocation of such Applicable Permit and Applicable Third Party Permit, and all applicable appeal periods with respect to such Applicable Permit and Applicable Third Party Permit shall have expired.

(b) The Permits which have been obtained by the Company shall not be subject to any restriction, condition, limitation or other provision that could reasonably be expected to have a Material Adverse Effect.

Section 4.2.4 Lien Releases . Subject to the Company’s right to contest Liens as described in the definition of “Permitted Liens,” the Company shall have delivered (such delivery may be conditioned upon concurrent receipt of payment by the relevant Person) if applicable, to each of the Holders duly executed Lien waivers relating to mechanics’ and materialmen’s Liens, in form and substance reasonably acceptable to each Holder.

Section 4.2.5 Acceptable Work; No Liens. All work that has been done on the Project has been done in a good and workmanlike manner and in accordance with the MESPA, and there shall not have been filed against any of the Collateral or otherwise filed with or served upon the Company with respect to the Project or any part thereof, notice of any Lien, claim of Lien or attachment upon or claim affecting the right to receive payment of any of the moneys payable to any of the Persons named on such request which has not been released by payment or bonding or otherwise or which will not be released with the payment of such obligation out of the proceeds of the Notes, other than Permitted Liens.

Section 4.2.6 Specific Milestones .

(a) Infrastructure Buildout . For each Funded System at a Site, all necessary shared infrastructure at such Site necessary for installation of such Funded System, including without limitation the “BOF Work” for such Site, as such term is defined in the MESPA, shall have been completed, as certified by the Independent Engineer in the Independent Engineer’s Drawdown Certificate.

(b) 10 MW Limit . For the first Funded System which will cause the Project to exceed 10 MW of nameplate capacity, the Sponsor shall have built a permanent manufacturing facility for Systems located in the State of Delaware, and such Funded System, and all Systems installed following the installation of the System which causes the Project to exceed such 10 MW threshold, shall have been sourced from such manufacturing facility.

 

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Section 4.2.7 Tariff Compliance . The Company shall be in compliance with the Tariff in all respects.

Section 4.2.8 System COD . Each System being financed with such Drawdown has achieved COD.

Section 4.2.9 Equity Funding; Proportional Funding .

(a) Each quarter prior to any System being placed in service, the Tax Equity Investors shall have contributed to the Pledgor and the Pledgor in turn shall have contributed to the Company 20% of the aggregate purchase price of the Systems to be placed in service, consistent with the Base Case Projections.

(b) Concurrently with any Drawdown, the Tax Equity Investors shall have contributed to the Pledgor and the Pledgor in turn shall have contributed to the Company (in addition to the contribution described in Section 4.2.9(a)) 30.20% of the aggregate purchase price of the Systems placed in service through the date of such Drawdown, consistent with the Base Case Projections.

(c) After giving effect to any Drawdown, the ratio of amounts drawn from the Construction Escrow Account to the total Notes shall not exceed the ratio of the aggregate nameplate capacity of commissioned Systems to 30 MW.

Section 4.3 Conditions Precedent to each Credit Event .

Section 4.3.1 Representations and Warranties .

(a) Each representation and warranty of each Credit Party in any of the Credit Documents shall be true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date of such Credit Event, before and after giving effect to the applicable Credit Event, with the same effect as though made on and as of such date, unless such representation or warranty expressly relates solely to an earlier date; and the Company shall have certified to the Purchasers or Holders, as applicable, as to the foregoing.

(b) Each representation and warranty of each Major Project Participant contained in the Operative Documents (other than this Agreement) shall be true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” or the like shall be true and correct in all respects) on and as of the date of such Credit Event, before and after giving effect to the Credit Event, with the same effect as though made on and as of such date, unless such representation and warranty expressly relates solely to an earlier date.

Section 4.3.2 No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing or will result from the relevant Credit Event.

 

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Section 4.3.3 No Material Adverse Effect. At any time following the Closing Date, there shall not have occurred and be continuing any event, circumstance or condition that has, or could reasonably be expected to have, a Material Adverse Effect.

Section 4.3.4 Additional Documentation. With respect to Additional Project Documents and Applicable Permits entered into or obtained, transferred or required (whether because of the status of the development, construction or operation of the Project or otherwise) since the date of the most recent Credit Event, the Purchasers shall have received copies of such Additional Project Documents and material Applicable Permits.

Section 4.4 Conditions Precedent to Final Completion

The Final Completion Date shall occur upon the satisfaction or waiver in writing by the Required Holders of the following conditions:

Section 4.4.1 Lien Releases . The Company shall have delivered (such delivery may be conditioned upon concurrent receipt of payment by the relevant Person) if applicable, to each of the Holders duly executed Lien waivers relating to mechanics’ and materialmen’s Liens, in form and substance reasonably acceptable to each Holder.

Section 4.4.2 No Liens. There shall not have been filed with or served upon the Company with respect to the Site, the Project or any part thereof notice of any Lien or claim of Lien that has not been discharged, other than Permitted Liens.

Section 4.4.3 Final Completion Certificate of the Company . Each of the Holders shall have received a certificate from the Company, in substantially the form of Exhibit 4.4.3 certifying that:

(a) all facilities necessary for the Project as contemplated under the Tariff and the Operative Documents:

(i) have been constructed, installed, completed, tested, commissioned and paid for in accordance with the Operative Documents; and

(ii) have been completely constructed utilizing standards of workmanship and materials in accordance with the MESPA and in accordance with the terms of the Tariff and Prudent Electrical Practices (as defined in the MESPA) and all relevant equipment shall have been installed and be operating in accordance with the MESPA;

(b) each of the Systems shall have achieved COD; and

(c) 30 MW of Systems shall have passed the Performance Tests and have demonstrated performance at or better than nameplate capacity on or before the Date Certain, or if less than 30 MW of Systems have passed such Performance Tests and demonstrated such performance, the Company shall have paid the Buydown Amount.

Section 4.4.4 Final Completion Certificate of the Independent Engineer . Each of the Holders shall have received a certificate from the Independent Engineer, in substantially the form of Exhibit 4.4.4 certifying, among other things, as to the matters set forth in Section 4.4.3.

 

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Section 4.4.5 Major Project Documents. All Major Project Documents shall be in full force and effect and no default or event of default shall have occurred and be continuing under any Major Project Document.

Section 4.4.6 Applicable Permits . The Company (i) shall have obtained and delivered to each of the Holders copies of all material Applicable Permits obtained or to be obtained by or in the name of the Company and required to operate the Project, and (ii) shall be in compliance with all material Applicable Permits in all material respects thereunder.

Section 4.4.7 Tariff . The Tariff shall be final, non-appealable and in full force and effect.

Section 4.4.8 Debt Service Reserve Account . The Debt Service Reserve Account shall be fully funded up to the Debt Service Reserve Requirement in cash.

Section 4.4.9 Title Insurance . The Title Company shall have issued to the Collateral Agent no more than two (2) Business Days prior to the Final Completion Date an endorsement to the Title Policy in form and substance reasonably satisfactory to the Required Holders insuring the continued priority of the Lien of the Mortgage over any mechanics’ and materialmen’s liens or other construction liens or related notices as of the Final Completion Date.

Section 4.4.10 Notice of Final Completion . Each of the Holders shall have received a notice of Final Completion at least three (3) Business Days before the Final Completion Date.

 

ARTICLE 5. R EPRESENTATIONS AND W ARRANTIES OF THE C OMPANY .

The Company represents and warrants to each Purchaser that:

Section 5.1 Organization; Power and Authority .

(a) The Company is a limited liability company duly formed, validly existing and in good standing under the laws of its jurisdiction of formation, and is duly qualified as a foreign company and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the limited liability company power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the other Operative Documents to which is a party (including, without limitation, the Notes) and to perform the provisions hereof and thereof, including to construct, own and operate the Project.

(b) The sole member of the Company is the Pledgor.

 

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Section 5.2 Authorization, Etc. This Agreement and the other Operative Documents to which the Company is a party (including, without limitation, the Notes) have been duly authorized by all necessary limited liability company action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each other Operative Document to which the Company is a party will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 5.3 Disclosure . The Company, through its agent, J.P. Morgan Securities, Inc. (the “ Placement Agent ”) has delivered to each Purchaser a copy of a Private Placement Memorandum, dated January 2013 (the “ Memorandum ”), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company. This Agreement, the Memorandum and the documents, certificates or other writings delivered to the Purchasers by or on behalf of the Company in connection with the transactions contemplated hereby and identified in Schedule 5.3, and the financial statements listed in Schedule 5.5 (this Agreement, the Memorandum and such documents, certificates or other writings and such financial statements delivered to each Purchaser prior to February 13, 2013 being referred to, collectively, as the “ Disclosure Documents ”), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light, as of the date such information is dated or certified, of the circumstances under which they were made; provided , that to the extent any such information, report, financial statement, certificate, Certificate of Drawdown, exhibit, schedule or other document was based upon or constitutes a forecast or projection, the Company represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, certificate, Certificate of Drawdown, exhibit, schedule or other document. Except as disclosed in the Disclosure Documents, since December 31, 2011, there has been no change in the financial condition, operations, business, properties or prospects of the Company except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents.

Section 5.4 Subsidiaries . The Company does not have any Subsidiaries.

Section 5.5 Financial Statements; Material Liabilities . The Company has delivered to each of the Purchasers copies of the financial statements of the Company and Sponsor listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of each of the Company and Sponsor, as applicable, as of the respective dates specified in such Schedule and the results of their respective operations and cash flows and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). The Company does not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents.

 

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Section 5.6 Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Company of this Agreement and the other Operative Documents to which the Company is a party (including, without limitation, the Notes) will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien (other than pursuant to the Credit Documents) in respect of any property of the Company under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, Governing Documents, or any other agreement or instrument to which the Company is bound or by which the Company or its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company.

Section 5.7 Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority after the date hereof is required in connection with the execution, delivery or performance by the Company of this Agreement or another Operative Documents to which the Company is a party (including, without limitation, the Notes).

Section 5.8 Observance of Agreements, Statutes and Orders . The Company is not (i) in default under any term of any agreement or instrument to which it is a party or by which it is bound, (ii) in violation of any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or (iii) in violation of any applicable law, ordinance, rule or regulation of any Governmental Authority (including, without limitation, Environmental Laws, the USA PATRIOT Act or any of the other laws and regulations that are referred to in Section 5.16), which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Section 5.9 Taxes . The Company has filed all tax returns that are required to have been filed in any jurisdiction, and has paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon it or its properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company in respect of U.S. federal, state or other taxes for all fiscal periods are adequate.

 

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Section 5.10 Reserved .

Section 5.11 Licenses, Permits, Etc.

(a) The Company owns or has the right to use all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that are necessary for the operation of its business, without known conflict with the rights of others. No product or service of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person.

(b) To the Knowledge of the Company, there is no violation by any Person of any right of the Company with respect to any license, patent, copyright, service mark, trademark, trade name or other right owned or used by the Company.

(c) There exists no pending or threatened claim or litigation against or affecting the Company contesting its right to sell or use any such product, process, method, substance, part or other material.

(d) The Company owns no registered patents, copyrights or trademarks, or applications therefor.

Section 5.12 Compliance with ERISA .

(a) The Company and each ERISA Affiliate have operated and administered each Plan (other than any Multiemployer Plan) in compliance in all material respects with all applicable laws. Neither the Company nor any ERISA Affiliate has incurred any material liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to section 430(k) of the Code or to such penalty or excise tax provisions or to section 4068 of ERISA.

(b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA.

(c) The Company and its ERISA Affiliates have not incurred any partial or complete withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans.

(d) The expected postretirement benefit obligation (determined as of the last day of the Company’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company is zero.

(e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)- (D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of, each Purchaser’s representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by such Purchaser.

 

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Section 5.13 Private Offering by the Company . Neither the Company nor anyone acting on its behalf has offered the Notes or any similar Securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than 25 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.

Section 5.14 Use of Proceeds; Margin Regulations . The Company will apply the proceeds of the sale of the Notes (i) on the Closing Date as set forth in Section 9.7(a)(A) and (ii) thereafter as set forth in Section 9.7(a)(B). No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any Securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute any of the value of the assets of the Company and the Company does not have any present intention that margin stock will constitute any of the value of such assets. As used in this Section, the terms “ margin stock ” and “ purpose of buying or carrying ” shall have the meanings assigned to them in said Regulation U.

Section 5.15 Existing Debt; Future Liens . (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company as of the Closing Date (including a description of the obligors and obligees, principal amount outstanding and collateral therefor, if any, and Guaranty thereof, if any), since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company. The Company is not in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company and no event or condition exists with respect to any Debt of the Company that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

(b) The Company has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.6.

(c) The Company is not a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of the Company, any agreement relating thereto or

 

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any other agreement (other than its charter or other organizational document and the Credit Documents) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company, except as specifically indicated in Schedule 5.15.

Section 5.16 Foreign Assets Control Regulations, Etc . (a) Neither the Company nor any Controlled Entity is (i) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control, U.S. Department of the Treasury (“ OFAC ”) (an “ OFAC Listed Person ”) or (ii) a department, agency or instrumentality of, or is otherwise Controlled by or acting on behalf of, directly or indirectly, (x) any OFAC Listed Person or (y) any Person, entity, organization, foreign country or regime that is subject to any OFAC Sanctions Program (each OFAC Listed Person and each other Person, entity, organization and government of a country described in clause (ii), a “ Blocked Person ”).

(b) No part of the proceeds from the sale of the Notes hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person or will otherwise be used, directly by the Company or indirectly through any Controlled Entity, in connection with any investment in, or any transactions or dealings with, any Blocked Person.

(c) To the Company’s actual knowledge after making reasonable inquiry, neither the Company nor any Controlled Entity (i) is under investigation by any Governmental Authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes under any applicable law (collectively, “ Anti-Money Laundering Laws ”), (ii) has been assessed civil penalties under any Anti-Money Laundering Laws or (iii) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws. The Company has taken reasonable measures appropriate to the circumstances (in any event as required by applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable Anti-Money Laundering Laws.

(d) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any improper payments to any governmental official or employee, political party, official of a political party, candidate for political office, official of any public international organization or anyone else acting in an official capacity on behalf of a Governmental Authority, in order to obtain, retain or direct business or obtain any improper advantage. The Company has taken reasonable measures appropriate to the circumstances (in any event as required by applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable anti-corruption laws and regulations.

Section 5.17 Status under Certain Statutes . The Company is not subject to regulation under the Investment Company Act of 1940, as amended.

Section 5.18 Environmental Matters . (a) The Company has no knowledge of any claim nor has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its real properties now or formerly owned, leased or operated by it or other assets of the Company, alleging any damage to the environment arising out of or related to the operations of the Company or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect.

 

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(b) The Company has no Knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by it or to other assets of the Company or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect.

(c) The Company has not stored any Hazardous Substances on real properties now or formerly owned, leased or operated by it and has not disposed of any Hazardous Substances in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect.

Section 5.19 Permits .

(a) There are no Permits under existing Legal Requirements with respect to the Project that are or will become Applicable Permits other than the Permits listed on Schedule 5.19. All Applicable Permits have been issued and are in full force and effect and not subject to current legal proceedings or to any Unsatisfied Condition that could reasonably be expected to result in material modification or revocation, and except as disclosed in Schedule 5.19, all applicable appeal periods with respect thereto have expired. The Company is in compliance in all material respects with any Applicable Permit that has been issued and, to the Company’s Knowledge, no other Person is in material violation of any issued Applicable Third Party Permit under which such Person is the permittee.

(b) With respect to any of the Permits which are not yet Applicable Permits or, to the Knowledge of the Company, Applicable Third Party Permits, no fact or circumstance exists which makes it likely that any such Permit will not be timely obtainable by the Company or the applicable Person (a) prior to the time that it becomes an Applicable Permit or Applicable Third Party Permit, as applicable, (b) without delay materially in excess of the time periods thereof in the Project Schedule (if applicable), (c) without expense materially in excess of the amounts provided therefor in the then-current Project Budget and (d) without being inconsistent in any material respect with any of the Operative Documents.

(c) Except as disclosed in Schedule 5.19, the Permits which have been obtained by the Company or, to the Company’s Knowledge, any other person identified in Schedule 5.19 shall not be subject to any restriction, condition, limitation or other provision that could reasonably be expected to have a Material Adverse Effect.

Section 5.20 Solvency . The Company is Solvent both before and after taking into account the transactions contemplated by the Credit Documents.

Section 5.21 Insurance . All insurance policies then required to be maintained by the Company and, to the Company’s Knowledge, each other Major Project Participant pursuant to the terms of the Operative Documents are in full force and effect, and all premiums then due and payable have been paid.

 

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Section 5.22 Litigation .

(a) Except as set forth in Schedule 4.1.22, as of the Closing Date, no action, litigation, suit, proceeding or investigation before or by any court, arbitrator or other Governmental Authority is pending or, to the Company’s Knowledge, threatened in writing by or against the Company, or any other Credit Party or, to the Company’s Knowledge, Major Project Participant as relates to the Project, or any of their respective properties that relate to the Project.

(b) As of the Closing Date, the Company has no Knowledge of any order, judgment or decree having been issued or proposed to be issued by any Governmental Authority that, as a result of the construction, development, ownership or operation of the Project by the Company, the sale of electricity therefrom by the Company or the entering into of any Operative Document or any transaction contemplated hereby or thereby, could reasonably be expected to cause or deem any Secured Party or the Company or any Affiliate of any of them to be subject to, or not exempted from, regulation under PUHCA, or treated as a public utility under the laws of the State of Delaware as presently constituted and as construed by the courts of the State of Delaware, respecting the rates or the financial or organizational regulation of electric utilities.

(c) After the Closing Date, (a) there is no pending or, to the Company’s Knowledge, threatened action, litigation, suit, proceeding or investigation of any kind, including actions or proceedings of or before any Governmental Authority or arbitrator to which the Company or any other Credit Party is a party, or by which any of them or any of their properties that relate to the Project are bound and (b) there is to the Company’s Knowledge, no pending or threatened action, litigation, suit, proceeding or investigation of any kind, including actions or proceedings of or before any Governmental Authority to which any Major Project Participant is a party, or by which any of them or any of their properties that relate to the Project are bound, which, in either case, has not been disclosed by the Company to the Purchasers in accordance with, and to the extent required by this Agreement, or which could reasonably be expected to have a Material Adverse Effect.

Section 5.23 Labor Matters . The Company is not engaged in any unfair labor practice that has had or could (individually or together with other similar unfair labor practices) reasonably expected to have a Material Adverse Effect.

Section 5.24 Governmental Regulation .

(a) As of the Closing Date, the Company is not subject to regulation as (a) an “electric utility company”, a “public-utility company” or a “holding company” or a “subsidiary company” of a “holding company” in each case as such term is defined under PUHCA, or (b) an “electric supplier”, a “retail electricity supplier” or a “public utility” under the laws of the State of Delaware. The Company is an Exempt Wholesale Generator and a “public utility” under the FPA with authority to make wholesale sales at market-based rates, with waivers of regulations and blanket authorizations that are customarily granted by FERC to a public utility with market- based rate authority, and such Exempt Wholesale Generator status and market-based rate authorization shall be in full force and effect, not subject to any pending protest or challenge.

(b) None of the Secured Parties nor any Affiliate of any of them will, solely as a result of the construction, ownership, leasing or operation of the Project, the sale of wholesale electric capacity, energy or ancillary services therefrom, the issuance of the Notes, or the entering into of any Operative Document in respect of the Project or any transaction contemplated hereby or thereby, be subject to, or not exempt from, regulation under the FPA or PUHCA or under state laws and regulations respecting the rates or the financial regulation of electric utilities, except that the exercise of remedies, as provided for under the Credit Documents, may cause any such Person to be subject to such regulation. The Company will not be subject to regulation as a “retail electricity supplier,” an “electric supplier” or a “public utility” under the laws of the State of Delaware then in effect.

 

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Section 5.25 Ranking of Obligations; Perfection and Priority of Liens .

(a) This Agreement and the Notes and the obligations evidenced hereby and thereby are and will at all times (i) be direct and unconditional general obligations of the Company and (ii) rank in right of payment and otherwise at least pari passu with all other senior secured Debt of the Company, whether now existing or hereafter incurred.

(b) The provisions of the Collateral Documents to which the Company is a party are effective to create, in favor of the Collateral Agent for the benefit of the Secured Parties, as security for the obligations purported to be secured thereby, a legal, valid and enforceable Lien on and security interest in all of the Collateral purported to be covered by such Collateral Documents, and all other necessary and appropriate action has been taken so that each such Collateral Document creates, or upon the filing of any necessary filing statements will create, a perfected Lien on and perfected security interest in all right, title and interest of the Company in the Collateral covered thereby, prior and superior to the rights of all third persons and subject to no Liens other than Permitted Liens. The Company has good, legal and valid title to all items of Collateral covered by each Collateral Document to which it is a party free and clear of all Liens other than Permitted Liens.

Section 5.26 Project Construction . To the best of the Company’s Knowledge, all work done on the Project has been done in a good and workmanlike manner, free of any material defects, and in accordance in all material respects with the Major Project Documents, Prudent Electrical Practices and all Legal Requirements.

Section 5.27 Adverse Change .

(a) As of the Closing Date, there is no fact known to the Company which has had or could reasonably be expected to have a Material Adverse Effect which has not been disclosed to the Purchasers (as of such date) by or on behalf of the Company on or prior to the Closing Date in connection with the transactions contemplated hereby.

(b) Since the Closing Date, no event, circumstance or condition has occurred and is continuing that constitutes or could reasonably be expected to result in a Material Adverse Effect.

Section 5.28 Major Project Documents . True, correct and complete copies of all Major Project Documents together with all amendments, modifications or supplements thereof as

 

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currently in effect have been delivered to the Purchasers. Each Major Project Document is in full force and effect and, to the Company’s Knowledge, no breaches or defaults have occurred and are continuing thereunder.

Section 5.29 Sufficiency of Rights . Other than those that can be reasonably expected to be commercially available when and as required, the services to be performed, the materials to be supplied and the real property interests, the Easements and other rights granted, or to be granted, pursuant to the Project Documents in effect as of such date:

(a) comprise all of the interests necessary to secure any right material to the acquisition, leasing, development, construction, installation, completion, operation and maintenance of the Project in accordance with all Legal Requirements and in accordance with the Project Schedule, all without reference to any proprietary information not owned by or available to the Company;

(b) are sufficient to enable the Project to be located, constructed, developed, owned, occupied, operated, maintained and used on the Sites and the Easements; and

(c) provide adequate ingress and egress from the Sites for any reasonable purpose in connection with the construction and operation of the Project.

Section 5.30 Real Estate .

(a) The Company owns and possesses (a) good and valid leasehold interests in and to the Sites, (b) valid and subsisting easement interests and licenses in and to the Easements, and (c) interests in any other Real Property, in each case free and clear of all Liens, encumbrances or other exceptions to title, other than (i) as of the Closing Date, the Title Exceptions and (ii) as of any date thereafter, Permitted Liens.

(b) The Mortgage is a valid first priority Lien on the Company’s right, title and interest in the Mortgaged Property (including, without limitation, to the extent permitted by law, the real property permits and crossing rights), free and clear of all Liens, encumbrances and exceptions to title whatsoever, other than (a) as of the Closing Date, the Title Exceptions and (b) as of any date thereafter, the Title Exceptions and Permitted Liens described in clause (a) or (b) of the definition thereof (to the extent the same are afforded priority over the Lien of the Mortgage by operation of law).

(c) With regard to each of the Real Property Documents, (a) each such Real Property Document is valid and effective against the Company and, to the Company’s Knowledge, the counterparties thereto, in accordance with the terms thereof, (b) neither the Company, nor to the Company’s Knowledge, any of the counterparties thereto, is in breach or default under such Real Property Document, and (c) to the Company’s Knowledge, no event or circumstance has occurred or currently exists which, with notice or lapse of time or both, would become a default by the Company or the counterparties thereto under such Real Property Document. No notice of default under any Real Property Document has been delivered to the Company or, to the Company’s Knowledge, the counterparties thereto.

 

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(d) The Company has not received written notice from any Governmental Authority of any pending or threatened proceeding to condemn or take by power of eminent domain or otherwise, by any Governmental Authority, all or any material part of the Real Property or any interest therein.

(e) None of the Mortgaged Property is subject to or encumbered by any option, right of first refusal or other contractual right or obligation to sell, assign or dispose of such Mortgaged Property or any interest therein.

Section 5.31 Flood Zone Disclosure. The Sites and Easements do not and will not include “improved real estate” (as such term is used in the Flood Disaster Protection Act of 1973, as amended) located in an area that has been identified by the Federal Emergency Management Agency as an area having special flood or mudslide hazards.

Section 5.32 Investments. Other than Permitted Investments, the Company has not acquired an equity interest in, acquired all or substantially all of the assets of, loaned money, extended credit or made advances to, or made deposits with (other than deposits or advances in relation to the payment for goods and equipment in the ordinary course of business the making of which is expressly contemplated pursuant to the Operative Documents), any Person.

Section 5.33 No Recordation, Etc. Each Operative Document is in proper legal form under the respective governing laws selected in such Operative Document (a) for the enforcement thereof in such jurisdictions against the Company and each other party thereto without any further action on the part of the Secured Parties, and (b) to ensure the legality, validity, enforceability, priority or admissibility in evidence of any such document it is not necessary that such document or any other document be filed, registered or recorded with, or executed or notarized before, any court or other authority in such jurisdiction or that any registration charge or stamp or similar tax be paid on or in respect of any such document, except for the recordation of the Collateral Documents and filing and recordation of such other documents as specifically contemplated pursuant to this Agreement.

Section 5.34 Organizational ID Number; Location of Tangible Collateral.

(a) The Company’s Delaware organizational identification number is 4969078.

(b) All of the tangible Collateral is, or when installed pursuant to the Project Documents will be, located on one of the Sites or the Easements or at the Company’s address set forth in Article 18; provided , that equipment may be temporarily removed from the Sites and/or the Easements from time to time in the ordinary course of business.

 

ARTICLE 6. R EPRESENTATIONS OF THE P URCHASERS .

Section 6.1 Purchase for Investment . Each Purchaser severally represents that it is purchasing the Notes for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or their property shall at all times be within such Purchaser’s or their control. Each Purchaser understands that the

 

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Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.

Section 6.2 Source of Funds . Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “ Source ”) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:

(a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption (“ PTE ”) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the NAIC (the “ NAIC Annual Statement ”)) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or

(b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or

(c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 or (ii) a bank collective investment fund, within the meaning of PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

(d) the Source constitutes assets of an “investment fund” (within the meaning of Part VI of PTE 84-14 (the “ QPAM Exemption ”)) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part VI of the QPAM Exemption), no employee benefit plan’s assets that are managed by the QPAM in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of “control” in Section VI(e) of the QPAM Exemption) maintains an ownership interest in the Company that would cause the QPAM and the Company to be “related” within the meaning of Part VI(h) of the QPAM Exemption and (i) the identity of

 

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such QPAM and (ii) the names of any employee benefit plans whose assets in the investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization, represent 10% or more of the assets of such investment fund, have been disclosed to the Company in writing pursuant to this clause (d);or

(e) the Source constitutes assets of a “plan(s)” (within the meaning of section IV(h) of PTE 96-23 (the “ INHAM Exemption ”)) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV(a) of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in section IV(d) of the INHAM Exemption) owns a 10% or more interest in the Company (as determined under Part IV(d) of the INHAM Exemption, as amended effective April 1, 2011) and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or

(f) the Source is a governmental plan; or

(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or

(h) the Source does not include “plan assets” within the meaning of 29 CFR 2510.3-101, as modified by section 3(42) of ERISA.

As used in this Section 6.2, the terms “ employee benefit plan ,” “ governmental plan ,” and “ separate account ” shall have the respective meanings assigned to such terms in section 3 of ERISA.

Section 6.3 Institutional Accredited Investor. Each Purchaser severally represents that it is an institutional investor that is an “accredited investor” within the meaning of Rule 501 under the Securities Act and that it has such knowledge and experience in financial and business matters that it is capable of evaluating and bearing the economic risk of an investment in the Notes.

 

ARTICLE 7. I NFORMATION AS TO C OMPANY .

Section 7.1 Financial Statements and Rating Letter . The Company shall deliver to each Purchaser and each Holder of a Note that is an Institutional Investor:

(a) Annual Financial Statements. As soon as practicable and in any event within 90 days after the close of each applicable fiscal year, audited financial statements of the Company and Sponsor (it being acknowledged that such requirement may be satisfied by the delivery of the appropriate report on Form 10-K filed with the SEC, if applicable), all prepared in accordance with GAAP consistently applied and setting forth, in each case, in comparative form the figures for the previous fiscal year. Such financial statements shall include a statement of equity, a balance sheet as of the close of such year, an income and expense statement,

 

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reconciliation of capital accounts (where applicable), a statement of cash flow and summary results of hedging and trading activities (in the case of the Company only), reported on without a qualification arising out of the scope of the audit, and certified by an independent certified public accountant of nationally recognized standing selected by the Person whose financial statements are being prepared. Such certificate shall not be qualified or limited because of restricted or limited examination by such accountant. The relevant accountant for the Company shall also certify that in making the examination necessary for reporting on the foregoing financial statements no knowledge was obtained of any Default or Event of Default, except as disclosed in such certificate.

(b) Quarterly Statements. As soon as practicable and in any event within 45 days after the end of the first, second and third quarterly accounting periods of its fiscal year (commencing in the case of the Company with the fiscal quarter ending June 30, 2013) unaudited quarterly balance sheet of the Company and Sponsor as of the last day of such quarterly period and the related statements of income, cash flows, and shareholders’ or members’ equity (as applicable) for such quarterly period and (in the case of second and third quarterly periods) for the portion of the fiscal year ending with the last day of such quarterly period, setting forth in each case in comparative form corresponding unaudited figures from the preceding fiscal year (it being acknowledged that such requirement may be satisfied by the delivery of the appropriate report on Form 10-Q filed with the SEC, if applicable) all prepared in accordance with GAAP consistently applied (subject to changes resulting from audit and normal year-end adjustments and the absence of footnote disclosures).

(c) Rating Letter . Promptly after receipt thereof (i) a copy of the final ratings letter obtained by the Company and (ii) each ratings letter obtained by the Company in accordance with Section 9.22.

Section 7.2 Other Reporting Requirements .

(a) Construction Progress Reports. The Company shall deliver to each of the Holders and the Independent Engineer, at least as frequently as each Drawdown Certificate, progress reports of the construction of the Project, in reasonable detail.

(b) Operating Report. The Company shall deliver to each of the Holders within 30 days after the end of each full quarter occurring after the Closing Date, a summary operating report with respect to the Project, which shall include, with respect to the period most recently ended (a) a monthly and year-to-date numerical and narrative assessment of (i) the Project’s compliance with each material category in the then-current Annual Operating Budget, (ii) electrical production, capacity, availability and delivery, including any reports delivered under the MESPA and MOMA, (iii) fuel use, including heat rate, (iv) plant and unit availability, (v) distributions to Pledgor, debt service payments and balances in the Accounts, (vi) Hot Box Replacements, (vii) material unresolved disputes with contractors, materialmen, suppliers or others and any related claims against the Company and (viii) warranty claims under the MESPA or MOMA; and (b) to the extent applicable, a comparison of year-to-date figures to corresponding figures provided in the prior year.

 

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(c) Notice of Default or Event of Default — The Company shall deliver to each of the Holders promptly, and in any event within five Business Days after a Responsible Officer of the Company becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11.4, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto.

(d) ERISA Matters — The Company shall deliver to each of the Holders promptly, and in any event within five days after a Responsible Officer of the Company becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

(i) with respect to any Plan (other than any Multiemployer Plan) that is subject to Title IV of ERISA, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan subject to Title IV of ERISA, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

(iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect.

(e) Notices from Governmental Authority — The Company shall deliver to each of the Holders promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect.

(f) Requested Information — The Company shall deliver to each of the Holders with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company (including, but without limitation, actual copies of the Company’s Form 10-Q and Form 10-K, if applicable) or relating to the ability of the Company to perform its obligations under the Credit Documents as from time to time may be reasonably requested by any Holder of a Note.

 

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(g) New Documents — The Company shall deliver to each of the Holders promptly, but in no event later than five Business Days after execution and delivery thereof, a copy of each Additional Project Document.

(h) Litigation — The Company shall deliver to each of the Holders promptly, any notice with respect to any litigation pending or, to the Company’s Knowledge, threatened in writing against the Company, such notice to include, if requested in writing by any of the Holders, copies of all papers filed in such litigation and to be given monthly if any such papers have been filed since the last notice given.

(i) Cash Grant — The Company shall deliver to each of the Holders promptly, any notice, demand or other written communication delivered to the Company or any Affiliate thereof (if the Company has a copy thereof) by the U.S. Department of the Treasury or other Governmental Authority with respect to the Cash Grant and/or any Recapture Liabilities.

(j) Outage — The Company shall deliver to each of the Holders promptly, but in no event later than five days after occurrence thereof, (a) the scheduling of any outage with an anticipated duration in excess of five days and (b) any outage (scheduled or otherwise) with a duration in excess of five days.

(k) Other information — The Company shall deliver to each of the Holders promptly upon the Company’s receipt of the same, copies of material notices received by the Company under the Major Project Documents.

(l) Project Schedule — The Company shall deliver to each of the Holders promptly, any material modification to the Project Schedule.

(m) Rating Event — The Company shall notify each of the Holders promptly of the occurrence of a Rating Event and in any event within five Business Days of the occurrence thereof.

Section 7.3 Officer’s Certificate . Each set of financial statements of the Company delivered to a Holder of a Note pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer of the Company certifying that such Senior Financial Officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.

Section 7.4 Visitation . The Company shall, subject to requirements of Governmental Rules, safety requirements and existing confidentiality restrictions imposed upon the Company by any other Person, and, if a Default or an Event of Default then exists, at the expense of the Company, permit employees or agents of each Holder of a Note and the Independent Engineer at

 

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any reasonable times and upon reasonable prior notice to the Company and the Operator, (i) to inspect all of the Company’s properties, including the Sites, (ii) to examine or audit all of the Company’s books, accounts and records and make copies and memoranda thereof, (iii) to communicate with the Company’s auditors outside the presence of the Company, (iv) to discuss the business, operations, properties and financial and other conditions of the Company with officers and employees of the Company and with its independent certified public accountants, and (v) to witness any Performance Tests.

 

ARTICLE 8. P AYMENT AND P REPAYMENT OF THE N OTES .

Section 8.1 Required Payments; Mandatory Prepayments; Offer to Repay.

Section 8.1.1 Required Payments. Installment payments of principal due on each Note shall be made in accordance with the Amortization Schedule on each Repayment Date and each Note shall mature and all remaining principal and accrued interest payment, fees and costs (and, if applicable, the Make-Whole Amount) shall be payable on the Maturity Date.

Section 8.1.2 Mandatory Prepayment. The Company shall prepay the principal amount of the Notes at 100% of the principal amount thereof, together with accrued and unpaid interest thereon and without payment of the Make-Whole Amount:

(i) with the Net Available Amount of the proceeds of any Loss Event in relation to the Project in which the Company receives more than $5,000,000 of insurance or other proceeds, subject to the Company’s right to repair and restore as set forth in Section 3.7.2(b) of the Depositary Agreement, pursuant to Section 3.7.2(c) of the Depositary Agreement; or

(ii) with the proceeds of warranty claims or refund claims received by the Company pursuant to Section 8.2(b) or Section 8.3 of the MESPA or Section 2.5 of the MOMA, other than with respect to amounts to be deposited into the System Refund Account;

(iii) to the extent required by Section 9.20 ( Partial Completion Buydown ); and

(iv) to the extent required by Section 3.8.2(b) of the Depositary Agreement.

All mandatory prepayments of Notes shall be applied in the inverse order of maturity against the remaining scheduled principal repayment amounts of the Notes other than any mandatory prepayment pursuant to Section 8.1.2(iii) above which shall be applied pro rata among all remaining installments of principal.

S ection 8.1.3 Offer to Repay.

(a) The Company shall make to each Holder of the Notes an Offer to Repay (as defined in paragraph (b) below) the principal amount of the Notes at 100% of the principal amount thereof, together with accrued and unpaid interest thereon to the Offer Settlement Date (as defined in paragraph (b) below) and without payment of the Make-Whole Amount or any premium as follows:

(i) upon the occurrence of a Change of Control; or

(ii) upon the occurrence of a Rating Event to the extent required by Section 9.23.

 

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(b) Within thirty (30) days after the occurrence of any event described in paragraph (a) above requiring the Company to make an Offer to Repay, the Company shall prepare and provide to each Holder of a Note a notice (each, an “ Offer to Repay Notice ”), which shall be substantially in the form of Exhibit 8.1.3(b) and shall include an offer (the “ Offer to Repay ”) pursuant to the covenant in paragraph (a) above to repay, on the date (each, an “ Offer Settlement Date ”) that is twenty (20) Business Days after the date of the Offer to Repay Notice, all of such Holder’s Notes. Each Holder of a Note (or its appointee) wishing to accept the Offer to Repay shall reply, substantially in the form of Schedule 1 to Exhibit 8.1.3(b), indicating whether such Offer to Repay is accepted by the close of business on the fifth (5th) Business Day immediately preceding the Offer Settlement Date.

(c) Two Business Days prior to any Offer Settlement Date, the Company shall deliver to each Holder that has accepted an Offer to Repay pursuant to Section 8.1.3(b), a certificate of a Senior Financial Officer specifying the principal amount of the Notes of such Holder to be repaid on such Offer Settlement Date and the amount of accrued and unpaid interest thereon to the Offer Settlement Date to be paid on such Offer Settlement Date. On each Offer Settlement Date, the Company shall pay to those Holders who have accepted the related Offer to Repay the aggregate amount required to be paid pursuant to this Section 8.1.3.

(d) On the Offer Settlement Date, the Company shall deliver to each Holder that has not accepted an Offer to Repay pursuant to Section 8.1.3(b) a revised Amortization Schedule reflecting the amortization of the aggregate principal amount of Notes remaining outstanding through the Maturity Date.

Section 8.2 Optional Prepayments with Make-Whole Amount . The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount, in the case of a partial prepayment, not less than the lesser of 5% of the aggregate principal amount of the Notes then outstanding and $2,000,000 at a redemption price equal to (i) 100% of the principal amount so prepaid, plus (ii) accrued and unpaid interest on the Notes being redeemed to the redemption date plus (iii) the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each Holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date (which shall be a Business Day), the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such Holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were

 

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the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each Holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.

Section 8.3 Allocation of Partial Prepayments . In the case of each partial prepayment of the Notes pursuant to Sections 8.1.1, 8.1.2 and 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment.

Section 8.4 Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Article 8, the principal amount of each Note or portion thereof (in the case of a partial prepayment) to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make- Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.

Section 8.5 Purchase of Notes . The Company will not and, to the extent of its power, will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it pursuant to any payment or prepayment of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. In the event that any Affiliate of the Company acquires any of the Notes (pursuant to any payment or prepayment of Notes pursuant to any provision of this Agreement or otherwise), such Notes shall be deemed not to be outstanding for purposes of determining whether the Holders of the requisite percentage of the aggregate principal amount of Notes then outstanding have approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the Holders of a specified percentage of the aggregate principal amount of Notes then outstanding.

Section 8.6 Make-Whole Amount .

Make-Whole Amount ” means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:

Called Principal ” means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

 

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Discounted Value ” means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.

Reinvestment Yield ” means, with respect to the Called Principal of any Note, the sum of (x) 0.50% and (y) the yield to maturity implied by the yield(s) reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on-the- run U.S. Treasury securities (“ Reported ”) having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there are no such U.S. Treasury securities Reported having a maturity equal to such Remaining Average Life, then such implied yield to maturity will be determined by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between the yields Reported for the applicable most recently issued actively traded on-the-run U.S. Treasury securities with the maturities (1) closest to and greater than such Remaining Average Life and (2) closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.

If such yields are not Reported or the yields Reported as of such time are not ascertainable (including by way of interpolation), then “ Reinvestment Yield ” means, with respect to the Called Principal of any Note, the sum of (x) 0.50% and (y) the yield to maturity implied by the U.S. Treasury constant maturity yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for the U.S. Treasury constant maturity having a term equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there is no such U.S. Treasury constant maturity having a term equal to such Remaining Average Life, such implied yield to maturity will be determined by interpolating linearly between (1) the U.S. Treasury constant maturity so reported with the term closest to and greater than such Remaining Average Life and (2) the U.S. Treasury constant maturity so reported with the term closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.

Remaining Average Life ” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year), computed on the basis of a 360 day year composed of twelve 30 day months, that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

 

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Remaining Scheduled Payments ” means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.4 or Section 12.1.

Settlement Date ” means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

 

ARTICLE 9. A FFIRMATIVE C OVENANTS .

The Company covenants that, so long as any of the Notes are outstanding:

Section 9.1 Compliance with Laws . Without limiting Section 10.5, the Company will comply with all laws, ordinances or governmental rules or regulations to which it is subject, including, without limitation, ERISA, the USA PATRIOT Act and the other laws and regulations that are referred to in Section 5.16, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of its properties or to the conduct of its businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.2 Insurance . Without cost to the Secured Parties, the Company shall maintain or cause to be maintained on its behalf in effect at all times the types of insurance required pursuant to Schedule 9.2, in the amounts and on the terms and conditions specified therein, from insurers of the quality specified in such Schedule or other insurance companies of recognized responsibility reasonably satisfactory to the Required Holders.

Section 9.3 Maintenance of Properties . Other than property disposed of in accordance with Section 10.4, the Company shall maintain (a) a good, marketable and insurable (i) leasehold interest in the Sites, (ii) easement interest in the Easements, and (b) good, legal and valid title to all of its other material properties and assets, in each case free of all Liens other than Permitted Liens. The Company shall generally keep all property useful and necessary in its business in good working order and condition.

Section 9.4 Payment of Taxes and Claims . The Company will file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on it or any of its properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the

 

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Company, provided that the Company does not need to pay any such tax, assessment, charge, levy or claim if (i) the amount, applicability or validity thereof is contested by the Company on a timely basis in good faith and in appropriate proceedings, and the Company has established adequate reserves therefor in accordance with GAAP on the books of the Company or (ii) the nonpayment of all such taxes, assessments, charges, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect.

Section 9.5 Corporate Existence, Etc . Subject to Section 10.2, the Company will at all times preserve and keep its limited liability company existence in full force and effect. Subject to Sections 10.2 and 10.4, the Company will at all times preserve and keep in full force and effect all rights and franchises of the Company unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.

Section 9.6 Books, Records . The Company shall maintain, or cause to be maintained, adequate books, accounts and records with respect to the Company and the Project, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company, and prepare all financial statements required hereunder, in each case in accordance with GAAP (subject, in the case of unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnote disclosure) and in compliance with the regulations of any Governmental Authority having jurisdiction thereof.

Section 9.7 Use of Proceeds, Equity Contributions, Project Revenues .

(a) The Company shall use the proceeds of the sale of the Notes only (A) as of the Closing Date, (i) to fully repay any Debt outstanding under the Existing Financing Agreement, (ii) to fund the Debt Service Reserve Account up to the Debt Service Reserve Requirement, (iii) to fund the IDC Reserve Account in an amount equal to $5,365,637 (iv) to pay all fees and costs related to the transactions under this Agreement and the other Credit Documents and (v) to pay to the Pledgor the Permitted Distribution and (B) thereafter (i) to pay from the Construction Escrow Account Project Costs in respect of tested and commissioned Systems during the Ramp Up Period and (ii) to pay to the Pledgor the Final Completion Date Distribution.

(b) The Company shall apply Project Revenues and equity contributions as required by Sections 3.3.1, 3.5, 3.7 and 3.9 of the Depositary Agreement.

Section 9.8 Payment .

(a) Credit Documents . The Company shall pay all sums due under this Agreement and the other Credit Documents to which it is a party according to the terms hereof and thereof.

(b) Other Obligations . The Company shall pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its obligations under the Project Documents and all of its other obligations of whatever nature and howsoever arising, except such as may be contested in good faith or as to which a bona fide dispute may exist, provided that adequate cash reserves have been established for the payment thereof in the

 

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event such dispute were resolved unfavorably to the Company, or the Holders are satisfied in their reasonable discretion that non-payment of such obligation pending the resolution of such contest or dispute will not in any way endanger the Project or result in a Material Adverse Effect or that provision is made to the satisfaction of the Holders in their reasonable discretion for the posting of security (other than the Collateral) for or the bonding of such obligations or the prompt payment thereof in the event that such obligation is payable.

Section 9.9 Additional Direct Agreements . With respect to any Major Project Document entered into after the Closing Date, the Company shall use commercially reasonable efforts to cause the applicable counterparty to execute and deliver to the Collateral Agent a Direct Agreement in substantially the form of Exhibit 4.1.30, with such changes as are reasonably acceptable to the Required Holders (including dispensing with a Direct Agreement if deemed appropriate by the Required Holders).

Section 9.10 Performance of the Major Project Documents . The Company shall perform (to the extent not excused by force majeure events or the nonperformance of the other party and not subject to a good faith dispute) all of its material contractual obligations under the Major Project Documents.

Section 9.11 Utility Regulation . The Company shall take or cause to be taken all necessary or appropriate actions so that (a) (i) the Company will be an Exempt Wholesale Generator, and (ii) the Project will be an Eligible Facility at all times, (b) the Company and the Project shall not be subject to, or shall be exempt from, (A) regulation as a “public–utility company” or “holding company” under PUHCA, or (B) financial, organizational or rate regulation as an “electric utility”, “electric corporation” or any similar Person under the laws of the State of Delaware as presently constituted and as construed by the courts of the State of Delaware, and (c) the Company will be authorized under the FPA to sell electricity at market- based rates with such waivers and blanket authorizations (including blanket authorizations to issue securities under Section 204 of the FPA and 18 C.F.R. Part 34) as customarily are granted to entities with market-based rate authority.

Section 9.12 Construction of the Project . The Company shall cause the Project to be designed, engineered, constructed, developed, installed, equipped, maintained and operated in a good and workmanlike manner and in compliance with all applicable Legal Requirements, Permits and Prudent Electrical Practices (as defined in the MESPA).

Section 9.13 As-Built Survey . Within 60 days after Final Completion of the Project at each Site, the Company shall deliver to the Collateral Agent, each of the Holders and the Independent Engineer a Site survey constituting an as-built survey reflecting all Improvements to the Real Property in connection with the construction of the Project, and each such Site survey shall be subject to approval by the Independent Engineer.

Section 9.14 Operation and Maintenance of Project; Operating Budget .

(a) The Company shall keep the Project, or cause the same to be kept, in good operating condition consistent with the standard of care set forth in the MOMA, all Applicable Permits and Applicable Third Party Permits, Legal Requirements and the Operative Documents, and make or cause to be made all repairs (structural and non-structural, extraordinary or ordinary) necessary to keep the Project in such condition.

 

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(b) On or prior to November 1 of each year, the Company shall submit an operating plan and a budget, detailed by month, of anticipated revenues and anticipated expenditures, and anticipated expenditures from and deposit of reserves to, the Accounts, such budget to include Debt Service, deposit of reserves to the Debt Service Reserve Account, estimated dividend payments or other distributions, reserves, all anticipated O&M Costs applicable to the Project for the ensuing calendar year (or, in the case of the initial Annual Operating Budget, partial calendar year), to the conclusion of the second full calendar year thereafter and the corresponding total operation and maintenance budget amount for the applicable year from the Base Case Projections (each such annual operating plan and budget, including the initial Annual Operating Budget, an “ Annual Operating Budget ”). The Company shall prepare a final Annual Operating Budget no less than 30 days in advance of January 1 of each calendar year.

(c) The Company shall operate and maintain the Project, or cause the Project to be operated and maintained, within amounts for (a) any Operating Budget Category not to exceed 110% (on a year-to-date basis) and (b) for all Operating Budget Categories not to exceed 105% (on a year-to-date basis), in each case of the amounts budgeted therefor as set forth in the then-current Annual Operating Budget; provided that subject to Section 10.13, the Company may propose an amendment to the Annual Operating Budget for Required Holders’ approval if at any time the Company cannot comply with this requirement (and the Required Holders shall consider each such amendment in good faith and shall not unreasonably withhold or delay their consent to the approval of any such amendment). Pending approval of any Annual Operating Budget or amendment thereto in accordance with the terms of this Section 9.14, the Company shall use all reasonable efforts to operate and maintain the Project, or cause the Project to be operated and maintained, within the then-current Annual Operating Budget (it being acknowledged that if a particular calendar year’s Annual Operating Budget has not been approved by the time periods provided in Section 9.14(b), then the then-current Annual Operating Budget shall be deemed to be the Annual Operating Budget in effect prior to the delivery of the proposed final Annual Operating Budget pursuant to Section 9.14(b)); provided , that the amounts specified therein shall be increased to the extent specified in the Project Documents.

Section 9.15 Preservation of Rights; Further Assurances .

(a) Major Project Documents . The Company shall maintain in full force and effect, perform (subject to Section 9.8(b)) the obligations of the Company under, preserve, protect and defend the material rights of the Company under and take all reasonable action necessary to prevent termination (except by expiration in accordance with its terms) of each and every Major Project Document, including prosecution of suits to enforce any material right of the Company thereunder and enforcement of any material claims with respect thereto; provided , that upon the occurrence and during the continuance of an Event of Default or, with respect to any Project Document between the Company and any Affiliate, when such Affiliate has acted or failed to act in a manner that with the giving of notice by the Company or the passage of time, an event of default will occur under such Project Document, if the Collateral Agent or the Required Holders request that certain actions be taken and the Company fails to take the requested actions

 

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within 10 Business Days, the Holders or the Collateral Agent may enforce in its own name or in the Company’s name, such rights of the Company (if and to the extent not prohibited by any Governmental Rule), in addition to such rights as may be more particularly provided in the Security Agreement and the other Credit Documents.

(b) Preservation of Collateral . From time to time promptly, upon the reasonable request of the Collateral Agent or the Required Holders, the Company shall execute, acknowledge or deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded in an appropriate governmental office, all such notices, statements, instruments and other documents (including any memorandum of lease or other agreement, financing statement, continuation statement, certificate of title or estoppel certificate) supplemental to or confirmatory of the Collateral Documents, and take such other steps as may be deemed by the Collateral Agent necessary or advisable to render fully valid and enforceable under all applicable laws the rights, liens and priorities of the Secured Parties with respect to all Collateral and other security from time to time furnished under the Credit Documents or intended to be so furnished, or for the continued validity, perfection and priority of the Liens on the Collateral covered thereby subject to no other Liens except as permitted by the applicable Collateral Document, or obtain any consents or waivers as may be necessary or appropriate in connection therewith, in each case in such form and at such times as shall be reasonably requested by the Required Holders or the Collateral Agent, and pay all reasonable fees and expenses (including reasonable attorneys’ fees) incident to compliance with this Section 9.15(b). Upon the exercise by the Required Holders or the Collateral Agent of any power, right, privilege or remedy pursuant to any Credit Document which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, the Company shall execute and deliver all applications, certifications, instruments and other documents and papers that any Holder or the Collateral Agent may require. If the Required Holders or the Collateral Agent determine that they are required by law or regulation to have appraisals prepared in respect of the Real Property, the Company shall provide to each of the Holders appraisals that satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of FIRREA and are otherwise in form and substance satisfactory to the Required Holders.

(c) Enforcement of Affiliate Agreements . If at any time the Company is entitled to make a claim or pursue any other remedy under the MESPA, MOMA or the Administrative Services Agreement, the Company shall make a claim thereunder for liquidated damages or, as applicable, to have one or more Systems repaired, replaced, or repurchased by the Sponsor, or pursue such other remedy, as applicable. The Company shall otherwise enforce all of its rights under the MESPA, MOMA and Administrative Services Agreement as diligently as if its counterparty were not an Affiliate.

(d) Additional Collateral. If the Company shall at any time acquire any real property or leasehold or other interest in real property not covered by the Mortgage, then promptly upon such acquisition, the Company shall execute, deliver and record a supplement to the Mortgage, reasonably satisfactory in form and substance to the Required Holders, subjecting the real property or leasehold or other interests to the Lien and security interest created by the Mortgage. The Company shall obtain an appropriate endorsement or supplement to, as applicable, the Title Policy, insuring the Lien of the Collateral Agent in such additional property, subject only to Liens and other exceptions to title reasonably agreed by Collateral Agent of a type similar to Title Exceptions.

 

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(e) Further Assurances . The Company shall execute and deliver all documents as shall be reasonably required or that the Collateral Agent or any Holder shall reasonably request in connection with the rights and remedies of the Collateral Agent and the Holders of the Notes under the Operative Documents, and perform, such other reasonable acts as may be necessary to carry out the intent of the Credit Documents.

(f) Applicable Permits . The Company shall obtain and maintain all Applicable Permits.

(g) Tariff Compliance . The Company shall (a) take all actions necessary to comply with and maintain its eligibility as a QFCP Generator under the Tariff, (b) maintain as true the conditions set forth in Sections 4.1.33, 4.1.35 and 4.2.7, (c) take all actions necessary to invoice and collect the maximum amounts available under the Tariff, including, if applicable, by declaring a Forced Outage Event or a Force Majeure Event (as defined in the Tariff), (d) procure natural gas feedstock solely pursuant to the Gas Tariff.

Section 9.16 Forced Outage Event .

The Company shall declare a Forced Outage Event if permitted under the Tariff if:

(a) Sponsor has reached the System Liability Cap;

(b) The Project fails to maintain the Efficiency Bank in a positive balance;

(c) The Project output is such that there has been a failure to meet the Power Performance Warranty during a Thirty-Day Power Performance Warranty Period, as such terms are defined in the MESPA and MOMA (i.e. 85%); or

(d) A Bankruptcy Event occurs with respect to the Sponsor or the Sponsor shall cease to carry on its business.

Section 9.17 Event of Eminent Domain . If an Event of Eminent Domain shall occur with respect to any Collateral, the Company shall (a) diligently pursue all its rights to compensation against the relevant Governmental Authority in respect of such Event of Eminent Domain, (b) not, without the consent of the Required Holders (which consent shall not be unreasonably withheld or delayed), compromise or settle any claim against such Governmental Authority in an amount in excess of $1,000,000 individually and $5,000,000 in the aggregate, and (c) pay or apply all Eminent Domain Proceeds in accordance with Section 3.7 of the Depositary Agreement. The Company consents to, and agrees not to object to or otherwise impede or impair, the participation of the Holders and/or the Collateral Agent in any expropriation proceedings involving an amount in excess of $1,000,000 individually and $5,000,000 in the aggregate, and the Company shall from time to time deliver to the Holders and the Collateral Agent all documents and instruments requested by them or it to permit such participation.

 

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Section 9.18 Environmental Laws.

The Company shall (a) comply with, and ensure compliance by all tenants, contractual counterparties, licensees and invitees, if any, with all applicable Hazardous Substance Laws and obtain and comply in all material respects with, and maintain, and ensure that all tenants, contractual counterparties, licensees and invitees obtain and comply in all material respects with, and maintain all Permits required by applicable Hazardous Substance Laws; (b) conduct and complete, or cause to be conducted and completed, all investigations, studies, sampling and testing, and all clean-up, remedial, removal, recovery and other actions required pursuant to Hazardous Substance Laws or otherwise as necessary to prevent itself or any Secured Party from incurring any material liability; (c) promptly comply in all material respects with all orders and directives of all Governmental Authorities in respect of Hazardous Substance Laws, except to the extent that the same are being contested in good faith by appropriate proceedings; (d) exercise care, custody and control over the Sites and the Project in such manner as not to pose a material or unreasonable hazard to the environment, health or safety in general; and (e) give (and shall cause the Operator and the contractors, to the extent applicable, to give) due attention to the protection and conservation of the environment in the implementation of each aspect of the Project, all in accordance with applicable Hazardous Substance Laws, Permits and Legal Requirements, and good industry practices.

Section 9.19 Independent Consultants . The Company shall (a) cooperate in all reasonable respects with the Independent Consultants and (b) ensure that each Independent Consultant is provided with all information reasonably requested by such consultant with respect to the financing, construction or operation of the Project and will exercise due care to ensure that any factual information which it may supply to such consultant is materially accurate in all respects, and not, by omission of information or otherwise, misleading in any material respect at the time such information is provided, to the extent that such consultant relied on such information in preparing its report.

Section 9.20 Partial Completion Buydown . In the event that less than 30 MW of nameplate capacity of Systems have achieved COD on or prior to the Date Certain, then the Company shall within ten Business Days re-calculate the size of the Notes under the Base Case Projections by (a) reducing the Project capacity assumption therein to the actual Project nameplate capacity, (b) maintaining DSCR at a 1.40:1 minimum through the Maturity Date under the base case, (c) maintaining DSCR at 1.05:1 minimum through the Maturity Date under the Forced Outage Tariff Structure, and (d) otherwise changing no assumptions in the Base Case Projections. The Company’s calculations shall be subject to review and approval by the Required Holders (in consultation with the Independent Engineer). Any amount by which, after such review and approval, the original total principal amount of the Notes exceeds the revised total principal amount of the Notes is the “ Buydown Amount .” The Company shall prepay the Notes in the aggregate amount of the Buydown Amount within 30 days of notification from the Required Holders (in consultation with the Independent Engineer) that the Company’s re-calculation has been approved by the Required Holders (in consultation with the Independent Engineer).

Section 9.21 Separateness . The Company shall (a) maintain entity records and books of account separate from those of any other entity which is an Affiliate of the Company, (b) not

 

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commingle its funds or assets with those of any other entity which is an Affiliate of the Company, (c) provide that its governing body will hold all appropriate meetings to authorize and approve the Company’s actions, which meetings will be separate from those of other entities and (d) comply with the separateness provisions set forth in the Governing Documents of the Company.

Section 9.22 Rating . The Company, no less frequently than once per year (which year shall commence on the Closing Date (in the case of the first year) or the applicable anniversary of the Closing Date (in the case of each subsequent year) and end on the day prior to the immediately following anniversary of the Closing Date), obtain from the Rating Agency a ratings letter assigning a credit rating to the Notes ( provided that there will be no minimum level required for such rating).

Section 9.23 Rating Event . In the event that, after the Closing Date, (i) the Sponsor obtains an investment grade rating and (ii) the “Forced Outage Event” payment provisions of the Tariff cease to be in effect (collectively, a “ Rating Event ”), at the Holders’ option, communicated to the Company within 30 days of the occurrence of such Rating Event, either (A) an investment grade guarantee securing the obligations of the Company under the Notes will be provided by the Sponsor, such guarantee to be in form and substance satisfactory to the Required Holders or (B) the Company shall make an Offer to Repay all of the Notes then outstanding in accordance with Section 8.1.3.

Section 9.24 Debt Service Coverage Ratio. No later than 10 days after each Repayment Date, the Company shall calculate and deliver to the Holders the DSCR for the calculation period for such Repayment Date. The calculations of the DSCR hereunder shall be used in determining the application and distribution of funds pursuant to Section 10.10 hereunder and Section 3.8 of the Depositary Agreement.

 

ARTICLE 10. N EGATIVE C OVENANTS .

From the date of this Agreement until the Closing and thereafter, so long as any of the Notes are outstanding, the Company covenants that:

Section 10.1 Transactions with Affiliates . The Company shall not directly or indirectly enter into any transaction or series of transactions relating to the Project with or for the benefit of an Affiliate without the prior approval of the Required Holders, except for (a) the limited liability company agreement of the Company and the Operative Documents as in effect on the Closing Date and (b) as otherwise expressly permitted or contemplated by the Credit Documents.

Section 10.2 Dissolution; Merger.

The Company shall not (a) wind up, liquidate or dissolve its affairs, (b) combine, merge or consolidate with or into any other entity, or (c) purchase or otherwise acquire all or substantially all of the assets of any Person.

Section 10.3 Line of Business; Changes . The Company shall not (a) change the nature of its business or expand its business beyond the business contemplated in the Operative

 

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Documents or activities incidental thereto or take any action, whether by acquisition or otherwise, which would constitute or result in any material alteration to the nature of such business; (b) establish, create or acquire any Subsidiaries; or (c) directly or indirectly, change its legal form or any of its Governing Documents (including by the filing or modification of any certificate of designation) or any agreement to which it is a party with respect to its limited liability company interest or otherwise terminate, amend or modify any such Governing Document or agreement or any provision thereof, or enter into any new agreement with respect to its limited liability company interest, other than any such amendments, modifications or changes or such new agreements to which the prior consent of the Required Holders and the Collateral Agent (if appropriate) has been obtained or which are not adverse in any material respect to the interests of the Holders of the Notes.

Section 10.4 Sale or Lease of Assets . The Company shall not sell, lease, assign, transfer or otherwise dispose of assets, whether now owned or hereafter acquired, except (a) in the ordinary course of its business and at fair market value, (b) to the extent that such asset is unnecessary, worn out or no longer useful or usable in connection with the operation or maintenance of the Project, at fair market value, or (c) as expressly contemplated by the Operative Documents (including, without limitation, in connection with the return of any System to Sponsor as provided in the MESPA or MOMA). Upon any such sale, lease, assignment, transfer or other disposition of any such assets, all Liens in favor of Collateral Agent relating to such asset shall be released. The Company shall not enter into any sale and leaseback transactions.

Section 10.5 Terrorism Sanctions Regulations . The Company will not and will not permit any Controlled Entity to (a) become a Blocked Person or (b) have any investments in or engage in any dealings or transactions with any Blocked Person if such investments, dealings or transactions would cause any Holder of a Note to be in violation of any laws or regulations that are applicable to such Holder.

Section 10.6 Liens . The Company will not create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including without limitation, any document or instrument in respect of goods or account receivable) of the Company, whether now owned or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except Permitted Liens.

Section 10.7 Contingent Obligations . Except as provided in the Credit Documents, the Company shall not become liable as a surety, guarantor, accommodation endorser or otherwise, for or upon the obligation of any other Person or incur any Contingent Obligations; provided , that this Section 10.7 shall not be deemed to prohibit or otherwise limit the occurrence of Permitted Debt.

Section 10.8 Debt . The Company shall not incur, create, assume or permit to exist, directly or indirectly, any Debt except Permitted Debt.

Section 10.9 Investments . The Company shall not (a) make any investments (whether by purchase of stocks, bonds, notes, obligations or other securities, loan, extension of credit,

 

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advance or otherwise) other than Permitted Investments or make any capital contribution to any Person; or (b) other than Permitted Investments, own any equity interest in, lend money, extend credit or make advances to, or any deposits with (other than deposits or advances in relation to the payment for services in the ordinary course of business), or make deposits with, any Person other than Depositary.

Section 10.10 Restricted Payments .

Other than the Permitted Distribution and the Final Completion Date Distribution, the Company shall not directly or indirectly, make or declare any distribution, including but not limited to any repurchase of any equity interest of the Company (in cash, property or obligation) on, or any payment on account of, any interest in the Company (not including the Cash Grant proceeds), unless the following conditions have been satisfied (the “ Distribution Conditions ”):

(a) such distribution will occur no later than 15 days after a Repayment Date and will be made from amounts on deposit in the Distribution Suspense Account;

(b) no Default or Event of Default has occurred and is continuing as of the date of, or will result from, such distribution;

(c) the amount on deposit in the Debt Service Reserve Account is equal to the Debt Service Reserve Requirement; and

(d) the DSCR for the immediately preceding 12-month period (or, during the initial 12 months following the Final Completion Date, the actual number of complete quarters since the Final Completion Date) and as projected for the immediately succeeding 12-month period is greater than or equal to 1.25:1.

Section 10.11 Margin Loan Regulations . The Company shall not directly or indirectly apply any part of the proceeds of the Notes, any cash equity contributions received by the Company or other funds or revenues to the “buying,” “carrying” or “purchasing” of any margin stock within the meaning of Regulations T, U or X of the Federal Reserve Board, or any regulations, interpretations or rulings thereunder.

Section 10.12 Partnership, Separateness Etc. The Company shall not (a) become a general or limited partner in any partnership or a joint venturer in any joint venture, (b) create and hold stock in any Subsidiary, (c) engage in any business other than owning and operating the Project and related activities, (d) fail to maintain separate bank accounts and separate books of account, (e) fail to cause its liabilities to be readily distinguishable from the liabilities of the Sponsor and the other Affiliates of the Sponsor, (f) fail to conduct its business solely in its own name in a manner not misleading to other Persons as to its identity, or (g) fail to make all oral and written communications, including letters, invoices, purchase orders, contracts, statements, and applications solely in its name.

Section 10.13 Amendments . The Company shall not amend, modify, supplement or waive, accept, or permit or consent to the termination, amendment, modification, supplement or waiver (including any waiver (or refund) of damages (liquidated or otherwise) payable by any contractor under any Major Project Document) of, any provision of, or give any material

 

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consent, including a consent to appointment of a Service Provider under the MOMA (as such term is defined in the MOMA) or any other subcontractor under the MESPA or MOMA (each such termination, amendment, modification, supplement, waiver or consent, inclusive of any applicable change orders, being referred to herein as a “ Project Document Modification ”) under any of the Major Project Documents.

Section 10.14 Name and Location; Fiscal Year . The Company shall not change its name, its jurisdiction of organization, its organization identification number, its fiscal year or, except as required by GAAP, its accounting policies or reporting practices. The Company shall not change the location of its principal place of business unless it has given written notice to the Collateral Agent, specifying the location of the new principal place of business, not less than 30 days prior to the date such change in the location of the Company’s principal place of business is to be effective.

Section 10.15 Hazardous Substances . The Company shall not Release (or suffer the Release) into the environment any Hazardous Substances in violation of any Hazardous Substance Laws, Legal Requirements or Applicable Permits.

Section 10.16 Use of Sites . Subject to existing third party easements, rights of way, or other third party property rights over the Sites, the Company shall not use, maintain, operate or occupy, or allow the use, maintenance, operation or occupancy of, any portion of the Project or either Site for any purpose (a) which may (i) constitute a public or private nuisance or (ii) make void, voidable, or cancelable, or materially increase the premium of, any insurance policies then in force with respect to all or a portion of the Project, or (b) that could reasonably be expected to have a Material Adverse Effect.

Section 10.17 Project Documents . The Company shall not enter into or become a party to any Additional Project Document without (a) obtaining the consent from the Required Holders (unless the aggregate value thereof shall be less than $250,000 in which case such consent shall not be required), (b) using commercially reasonable efforts to obtain from its counterparty a Direct Agreement in the form of Exhibit 4.1.30 or as otherwise approved by the Required Holders in advance, and (c) providing an executed copy thereof to each of the Required Holders and the Collateral Agent within five Business Days after execution.

Section 10.18 Assignment by Third Parties . To the extent the Company’s consent is required, without prior consent of the Required Holders, the Company shall not consent to the assignment of any obligations under any Major Project Document by any counterparty thereto.

Section 10.19 Acquisition of Real Property . The Company shall not acquire or lease any real property or other interest in real property (excluding the acquisition of any easements or the acquisition (but not the exercise) of any options to acquire any such interests in real property the value of which is lower than $1,000,000 individually or $5,000,000 in the aggregate) other than the Sites, Easements and other interests in real property acquired on or prior to the Closing Date.

Section 10.20 ERISA . The Company shall not sponsor any employee benefit plans subject to Title I or Title IV of ERISA.

 

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Section 10.21 Lease Obligations . The Company shall not create, incur, assume or suffer to exist any obligations as lessee for the rent or hire of any property under leases other than the Leases.

Section 10.22 Disputes . The Company shall not agree, authorize or otherwise consent to any proposed settlement, resolution or compromise of any litigation, arbitration or other dispute with any Person without the prior authorization of the Required Holders if such proposed settlement, resolution or compromise could reasonably be expected to result in a Material Adverse Effect.

Section 10.23 Assignment . The Company shall not assign its rights or obligations under any Credit Document or any Major Project Document to any Person, except pursuant to the Collateral Documents.

Section 10.24 Accounts . The Company shall not maintain, establish or use any account (other than the Accounts), other than (i) the Cash Grant Account, (ii) the System Refund Account and (iii) an operating account with a balance not to exceed $500,000.

Section 10.25 Regulations; Tariff .

(a) The Company shall not cause or permit, or take any action or inaction that would result in, loss of (a) the Project’s status as an Eligible Facility and its certification as an Exempt Wholesale Generator, or (b) its authorization to sell energy, capacity and ancillary services at market-based rates.

(b) The Company shall not take any action that would result in its loss of eligibility as a QFCP Generator under the Tariff.

(c) The Company shall not consent to any modification, amendment, repeal, waiver or suspension of the Tariff.

Section 10.26 Capital Expenditures . The Company shall not make any Capital Expenditures other than Capital Expenditures set forth in the Project Budget or in the then current Annual Operating Budget that are reasonably required in order to operate and maintain the Project in accordance with the Legal Requirements and the Major Project Documents.

 

ARTICLE 11. E VENTS O F D EFAULT .

An “ Event of Default ” shall exist if any of the following conditions or events shall occur and be continuing:

Section 11.1 Failure to Make Payments .

(a) The Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note for more than one Business Day after the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

(b) The Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable.

 

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Section 11.2 Misstatements . Any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made.

Section 11.3 Breach of Terms of Agreement .

(a) the Company defaults in the performance of or compliance with any term contained in Sections 7.2(c), 9.2, 9.5, 9.7, 9.15(f), 9.16, 9.20, 9.23 and Article 10; or

(b) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in Sections 11.1, 11.2 or 11.3(a)) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer of the Company obtaining Knowledge of such default and (ii) the Company receiving written notice of such default from any Holder of a Note (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 11.3); provided , that, if (A) such failure does not consist principally of the failure to pay money and cannot be cured within such 30 day period, (B) such failure is susceptible of cure within 90 days, (C) the Company is proceeding with diligence and good faith to cure such failure, (D) the existence of such failure has not had and could not, after considering the nature of the cure, be reasonably expected to have a Material Adverse Effect, and (E) the Holders shall have received an officer’s certificate signed by a Responsible Officer of the Company to the effect of clauses (A), (B), (C) and (D) above and stating what action the Company is taking to cure such failure, then such 30-day cure period shall be extended to such date, not to exceed a total of 90 days, as shall be necessary for the Company diligently to cure such failure.

(c) any Credit Party shall fail to perform or observe any covenant to be performed or observed by it under any Credit Document to which it is a party and not otherwise specifically provided for in this Article 11, and such failure shall continue unremedied for a period of 10 days after such Credit Party becomes aware thereof, provided that with respect to the Equity Contribution Agreement only, such period shall be 5 Business Days.

Section 11.4 Defaults Under Other Debt . (i) the Company is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $1,500,000 beyond any period of grace provided with respect thereto, or (ii) the Company is in default in the performance of or compliance with any term of any evidence of any Debt in an aggregate outstanding principal amount of at least $1,500,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared (or one or more Persons are entitled to declare such Debt to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the Holder of Debt to convert such Debt into equity interests), (x) the Company has become obligated to purchase or

 

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repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $1,500,000 or (y) one or more Persons have the right to require the Company so to purchase or repay such Debt.

Section 11.5 Bankruptcy; Insolvency . Any Bankruptcy Event shall occur with respect to any Major Project Participant (other than DPL and PJM) so long it shall have material outstanding or unperformed obligations under any Operative Document to which is a Party; provided that a Bankruptcy Event shall occur with respect to the Tax Equity Investors only if either (i) a Bankruptcy Event has occurred with respect to Credit Suisse (USA), Inc. or (ii) 30 days have elapsed since a claim for payment has been made under the CS Guaranty and Credit Suisse (USA), Inc. has not paid any amount due under such CS Guaranty within such period of time.

Section 11.6 Judgments . A final judgment or judgments for the payment of money aggregating in excess of $1,500,000 are rendered against the Company and which judgments are not (i) fully covered by insurance and the insurer has been notified of, and has not disputed the claim for the payment of, the amount of the judgment or (ii) within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay.

Section 11.7 ERISA . If (i) any Plan subject to Title IV of ERISA shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan subject to Title IV of ERISA or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed the aggregate current value of the assets under all Plans, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect.

As used in Section 11.7 the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in Section 3 of ERISA.

Section 11.8 Ownership of the Project . The Company shall cease to be the sole owner of the Project.

Section 11.9 Loss of Collateral . (a) All or any material portion of the Collateral is damaged, seized or appropriated without appropriate insurance proceeds (subject to the underlying deductible) or without fair value being paid therefor so as to allow replacement of

 

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such Collateral or prepayment of the Notes and to allow the Company to continue satisfying its obligations hereunder and under the other Operative Documents, or (b) any Person other than Collateral Agent attaches or institutes proceedings to attach all or any material part of the Collateral, and any such proceeding or attachment or any judgment Lien against any such Collateral (other than Permitted Liens) (i) remains unlifted, unstayed or undischarged for a period of 30 days or (ii) is upheld in a final nonappealable judgment of a court of competent jurisdiction.

Section 11.10 Abandonment . At any time the Company shall announce that (i) it is abandoning the Project or (ii) the Project shall be abandoned or operation thereof shall be suspended for a period of more than 30 consecutive days for any reason (other than force majeure); provided , that none of (A) scheduled maintenance of the Project, (B) repairs to the Project, whether or not scheduled, or (C) a forced outage or scheduled outage of the Project, shall constitute abandonment or suspension of the Project, so long as the Company is diligently attempting to end such suspension.

Section 11.11 Security . Any of the Collateral Documents, once executed and delivered, shall fail to provide to the Collateral Agent the Liens, first priority security interest (subject to Permitted Liens described in clauses (a) and (e) of the definition thereof and, to the extent required by Governmental Rule, clauses (b) and (c) of the definition thereof), rights, titles, interest, remedies permitted by law, powers or privileges intended to be created thereby (including the priority intended to be created thereby) or, except in accordance with its terms, cease to be in full force and effect, or the first priority or validity thereof or the applicability thereof to the Notes or any other Obligations purported to be secured or guaranteed thereby or any part thereof shall be disaffirmed by or on behalf of the Company.

Section 11.12 Regulatory Status .

(a) An Adverse PUHCA Event shall occur that could reasonably be expected to have a Material Adverse Effect and within 30 days thereafter such Adverse PUHCA Event has not been cured.

(b) If loss of the Company’s market-based rate authority could reasonably be expected to have a Material Adverse Effect, (i) the Company shall have tendered notice to FERC that it seeks to cancel its market-based rate authority, or (ii) FERC shall have issued an order revoking the Company’s market-based rate authority.

(c) If the Company’s failure to comply with any requirements under the FPA applicable to a “public utility” with authority to sell at wholesale electric power at market-based rates could reasonably be expected to have a Material Adverse Effect, FERC shall have issued an order finding that the Company has not complied with such requirement under the FPA applicable to a “public utility” with authority to sell at wholesale electric power at market-based rates.

 

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Section 11.13 Loss of or Failure to Obtain Applicable Permits .

(a) The Company shall fail to obtain any Permit on or before the date that such Permit becomes an Applicable Permit with respect to the Project, and such failure could reasonably be expected to have a Material Adverse Effect.

(b) Any Applicable Permit shall be materially modified (other than modifications contemplated in a Project Document requested by the Company), revoked, canceled or not renewed by the issuing agency or other Governmental Authority having jurisdiction (or otherwise ceases to be in full force and effect) and within 45 days thereafter the Company is not able to demonstrate to the reasonable satisfaction of the Required Holders that such modification of, revocation of, cancellation of, failure to renew, or failure to maintain in full force and effect such Permit could not reasonably be expected to have a Material Adverse Effect.

Section 11.14 Credit Document Matters . At any time after the execution and delivery thereof, (a) any Credit Document or any material provision hereof or thereof (i) ceases to be in full force and effect or to be valid and binding on any party thereto other than a Secured Party (other than by reason of the satisfaction in full of the Obligations or any termination of a Credit Document in accordance with the terms hereof or thereof), or is assigned or otherwise transferred (except as otherwise required or expressly permitted hereunder or thereunder) or is prematurely terminated by any party thereto (other than a Secured Party), (ii) is or becomes invalid, illegal or unenforceable, or any party hereto or thereto (other than a Secured Party) repudiates or disavows or takes any action to challenge the validity or enforceability of such agreement, (iii) is declared null and void by a Governmental Authority of competent jurisdiction, or (iv) fails to or ceases to provide the rights, powers and privileges purported to be created thereby or hereby, or (b) any authorization or approval by any Governmental Authority necessary to enable any Credit Party to comply with or perform its Obligations or otherwise perform in accordance with the terms of the Credit Documents shall be revoked, withdrawn or withheld, or shall otherwise fail to be issued or remain in full force and effect, and the failure of such authorization or approval from such Governmental Authority, other than with respect to the Tariff, is reasonably expected to have a Material Adverse Effect.

Section 11.15 Project Document Matters .

(a) Company’s Defaults . The Company shall be in breach of, or in default of, any material obligation under a Major Project Document and is not otherwise waived by the counterparty of such Major Project Document and such breach or default shall not be remediable or, if remediable, shall continue unremedied for the lesser of (i) a period of 30 days or (ii) such period of time (without giving effect to any extension given to Collateral Agent under any applicable Direct Agreement with respect thereto) under such Major Project Document which the Company has available to it in which to remedy such breach or default.

(b) Third Party Defaults . Any Person other than the Company shall be in breach of, in default under a Major Project Document and such breach or default (i) shall not be remediable or, if remediable, shall continue unremedied for a period beyond the applicable grace period and (ii) has had or could reasonably be expected to have a Material Adverse Effect.

 

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(c) Third Party Direct Agreements . (i) Any Person other than the Company shall disaffirm or repudiate in writing its material obligations under any Direct Agreement, (ii) any representation or warranty made by any Person other than the Company in a Direct Agreement shall be untrue or misleading in any material respect as of the time made and such untrue or misleading representation or warranty could reasonably be expected to result in a Material Adverse Effect, or (iii) a Person other than the Company shall breach any material covenant of a Direct Agreement and such breach or default shall not be remediable or, if remediable, shall continue unremedied for a period of 30 days from the time the Company obtains Knowledge of such breach.

(d) Termination . At any time after the execution and delivery thereof, any Major Project Document or any material provision hereof or thereof (i) ceases to be in full force and effect or to be valid and binding on any party thereto (other than by reason of the satisfaction of performance of such agreement or provision or any other any termination thereof in accordance with the terms thereof), or is assigned or otherwise transferred (except as otherwise required or expressly permitted hereunder or thereunder) or is prematurely terminated by any party thereto, (ii) is or becomes invalid, illegal or unenforceable, or any party hereto or thereto repudiates or disavows or takes any action to challenge the validity or enforceability of such agreement, (iii) is declared null and void by a Governmental Authority of competent jurisdiction or written notice is given by any Governmental Authority or applicable counterparty contesting the validity or enforcement thereof, or (iv) fails to or ceases to provide the rights, powers and privileges purported to be created thereby or hereby.

Section 11.16 Eminent Domain . There shall have occurred any act or series of acts attributable to any Governmental Authority which (a) in the reasonable judgment of the Required Holders has the effect of depriving the Secured Parties of their fundamental rights as creditors in respect of the Credit Documents, (b) confiscates, expropriates, nationalizes or otherwise acquires compulsorily the ownership or control by the Company of all or any material part of the Project, or (c) in the reasonable judgment of the Required Holders has the effect of materially impairing the value of any Major Project Document, and such act or series of acts continues uncured for 90 days or more.

Section 11.17 Cash Grant Recapture .

(a) During the Recapture Period, (i) the Company becomes a Disqualified Person or causes, permits or consents to any transfer of any direct or indirect equity, ownership, profits or other interest in the Company or in any Project assets to a Disqualified Person or (ii) an interest in any Project assets is transferred by the Company to a Person that has not agreed to be jointly liable with the Company for Recapture Liabilities, in each case resulting in Recapture Liability that is not subject to the Recapture Indemnities and Guarantees that has not been breached by the applicable indemnitor thereunder; or

(b) any Recapture Liability has been assessed, imposed or levied against the Company and either (i) such Recapture Liability is not subject to a Recapture Indemnity and Guarantee or (ii) any indemnitor under the Recapture Indemnities and Guarantees is in breach thereof.

Section 11.18 Final Completion . Final Completion does not occur on or prior to the Date Certain (including upon payment of the Buydown Amount, in the event payment of the Buydown Amount will result in Final Completion being achieved).

 

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ARTICLE 12. R EMEDIES ON D EFAULT , E TC .

Section 12.1 Acceleration . (a) If an Event of Default with respect to the Company described in Section 11.5 has occurred, all the Notes then outstanding shall automatically become immediately due and payable.

(b) If any other Event of Default has occurred and is continuing, any Holder or Holders of more than 25% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.

(c) If any Event of Default described in Section 11.1 has occurred and is continuing, any Holder or Holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.

Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the Default Rate) and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each Holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.

Section 12.2 Other Remedies . If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the Holder of any Note at the time outstanding may proceed to protect and enforce the rights of such Holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

Section 12.3 Rescission . At any time after any Notes have been declared due and payable pursuant to Section 12.1(b) or (c), the Holders of not less than 76% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and

 

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Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Article 17, and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

Section 12.4 No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any Holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such Holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any Holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Article 15, the Company will pay to the Holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such Holder incurred in any enforcement or collection under this Article 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.

 

ARTICLE 13. R EGISTRATION ; E XCHANGE ; S UBSTITUTION OF N OTES .

Section 13.1 Registration of Notes . The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each Holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. If any Holder of one or more Notes is a nominee, then the name and address of the beneficial owner of such Note or Notes shall also be registered in such register as an owner and Holder thereof. Prior to due presentment for registration of transfer, the Person(s) in whose name any Note(s) shall be registered shall be deemed and treated as the owner and Holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any Holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered Holders of Notes.

Section 13.2 Transfer and Exchange of Notes .

(a) Upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)), for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered Holder of such Note or such Holder’s attorney duly authorized in writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the Holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such Holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from

 

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the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes as a condition of registering the transfer of Notes on its register. Notes shall not be transferred in denominations of less than $500,000 provided that if necessary to enable the registration of transfer by a Holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Article 6.

(b) The Purchasers understands that the Notes are not being registered under the Securities Act or any state securities law and are being sold to the Purchasers in a transaction that is exempt from the registration requirements of the Securities Act. Neither the Company nor any other person or entity is obligated to register the Notes under the Securities Act or any other securities or “Blue Sky” laws.

(c) The Purchasers understand that the Note will bear a legend to substantially the following effect:

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”). NEITHER THIS NOTE NOR ANY PORTION HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.

Section 13.3 Replacement of Notes . Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it ( provided that if the Holder of such Note is, or is a nominee for, an original Purchaser or another Holder of a Note with a minimum net worth of at least $50,000,000 or a Qualified Institutional Buyer, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation thereof, within ten Business Days thereafter,

the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

 

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ARTICLE 14. P AYMENTS ON N OTES .

Section 14.1 Place of Payment . Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York, at the principal office of the Collateral Agent in such jurisdiction. The Company may at any time, by notice to each Holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.

Section 14.2 Home Office Payment . So long as any Purchaser or its nominee shall be the Holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, interest and all other amounts becoming due hereunder by the method and at the address specified for such purpose below such Purchaser’s name in Schedule A, or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by a Purchaser or its nominee, such Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by a Purchaser under this Agreement and that has made the same agreement relating to such Note as the Purchasers have made in this Section 14.2.

 

ARTICLE 15. E XPENSES , E TC .

Section 15.1 Transaction Expenses . Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required by the Required Holders, local or other counsel) incurred by the Purchasers and each other Holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of the Credit Documents (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under the Credit Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with the Credit Documents, or by reason of being a Holder of any Note, (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or in connection with any work-out or restructuring of the transactions contemplated by the Credit Documents and (c) the costs and expenses incurred in connection with the initial filing of this Agreement and all related documents and financial information with the SVO provided , that such costs and expenses under this clause (c) shall not exceed $50,000. The Company will pay, and will save each Purchaser

 

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and each other Holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those, if any, retained by a Purchaser or other Holder in connection with its purchase of the Notes).

Section 15.2 Survival . The obligations of the Company under this Article 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of the Credit Documents, and the termination of the Credit Documents.

 

ARTICLE 16. S URVIVAL OF R EPRESENTATIONS AND W ARRANTIES ; E NTIRE A GREEMENT .

All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent Holder of a Note, regardless of any investigation made at any time by or on behalf of such Purchaser or any other Holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company made as of the date of delivery of such certificate or other instrument (except as otherwise provided therein) under this Agreement. Subject to the preceding sentence, the Credit Documents embody the entire agreement and understanding between each Purchaser and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.

 

ARTICLE 17. A MENDMENT AND W AIVER .

Section 17.1 Requirements . This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), only with the written consent of the Company and the Required Holders, except that:

(a) no amendment or waiver of any of the provisions of Articles 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to any Purchaser unless consented to by such Purchaser in writing;

(b) no amendment or waiver may, without the written consent of each Purchaser and the Holder of each Note at the time outstanding, (i) subject to the provisions of Article 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of (x) interest on the Notes or (y) the Make-Whole Amount, (ii) change the percentage of the principal amount of the Notes the Holders of which are required to consent to any amendment or waiver, or (iii) amend any of Article 8 (except as set forth in Section 17.1(c)), Section 11.1(b), or Articles 12, 17 or 20; and

(c) the provisions of Section 8.5 may be amended or waived to permit offers to purchase made by the Company or an Affiliate pro rata to the Holders of all Notes at the time outstanding upon the same terms and conditions only with the written consent of the Company and the Super-Majority Holders.

 

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Section 17.2 Solicitation of Holders of Notes .

(a) Solicitation . The Company will provide each registered Holder of a Note on the note register maintained by the Company pursuant to Section 13.1 with sufficient information, at least 10 Business Days in advance of the date a decision is required, to enable such Holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the Credit Documents. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Article 17 to each registered Holder of a Note on the note register maintained by the Company pursuant to Section 13.1 promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite Holders of Notes.

(b) Payment . The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide other credit support, to any Holder of a Note as consideration for or as an inducement to the entering into by such Holder of any waiver or amendment of any of the terms and provisions of any Credit Document unless such remuneration is concurrently paid, or security is concurrently granted or other credit support concurrently provided, on the same terms, ratably to each Holder of a Note even if such Holder did not consent to such waiver or amendment.

(c) Consent in Contemplation of Transfer . Any consent made pursuant to this Article 17 by a Holder of Notes that has transferred or has agreed to transfer its Notes to the Company or any Affiliate of the Company pursuant to a waiver under Section 17.1(c) or subsequent to Section 8.5 having been amended pursuant to Section 17.1(c) and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such Holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other Holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such Holder.

Section 17.3 Binding Effect, etc. Any amendment or waiver consented to as provided in this Article 17 applies equally to all Holders of Notes and is binding upon them and upon each future Holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and any Holder of a Note nor any delay in exercising any rights under any Credit Document shall operate as a waiver of any rights of any Holder of such Note.

Section 17.4 Notes Held by Company, etc. Solely for the purpose of determining whether the Holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under the Credit Documents, or have directed the taking of any action provided in the Credit Documents to be taken upon the direction of the Holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.

 

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ARTICLE 18. N OTICES .

All notices and communications provided for hereunder shall be in writing and sent (a) by facsimile if the sender on the same day sends a confirming copy of such notice by an internationally recognized overnight delivery service (charges prepaid), (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by an internationally recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

(i) if to any Purchaser or its nominee, to such Purchaser or nominee at the address specified for such communications in Schedule A, or at such other address as such Purchaser or nominee shall have specified to the Company in writing,

(ii) if to any other Holder of any Note, to such Holder at such address as such other Holder shall have specified to the Company in writing, or

(iii) if to the Company, to the Company at the following address: Diamond State Generation Partners, LLC, 1252 Orleans Drive, Sunnyvale, CA 94089, Attn: Bill Brockenborough, or at such other address as the Company shall have specified to the Holder of each Note in writing.

Notices under this Article 18 will be deemed given only when actually received during the normal business hours of the recipient on a Business Day or if received after such normal hours on a Business Day or on a day that is not a Business Day, then on the next succeeding Business Day.

 

ARTICLE 19. R EPRODUCTION OF D OCUMENTS .

This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by any Purchaser at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, electronic, digital, or other similar process and such Purchaser may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Article 19 shall not prohibit the Company or any other Holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

 

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ARTICLE 20. C ONFIDENTIAL I NFORMATION .

For the purposes of this Article 20, “ Confidential Information ” means information delivered to any Purchaser by or on behalf of the Company in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any Person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or (d) constitutes financial statements delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (i) its directors, officers, employees, agents, attorneys, trustees and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes), (ii) its auditors, financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Article 20, (iii) any other Holder of any Note, (iv) any Institutional Investor to which it sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Article 20), (v) any Person from which it offers to purchase any Security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Article 20), (vi) any federal or state regulatory authority having jurisdiction over such Purchaser, (vii) the NAIC or the SVO or, in each case, any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under the Credit Documents. Each Holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Article 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any Holder of a Note of information required to be delivered to such Holder under this Agreement or requested by such Holder (other than a Holder that is a party to this Agreement or its nominee), such Holder will enter into an agreement with the Company embodying the provisions of this Article 20.

In the event that as a condition to receiving access to information relating to the Company in connection with the transactions contemplated by or otherwise pursuant to this Agreement, any Purchaser is required to agree to a confidentiality undertaking (whether through Intralinks or otherwise) which is different from the terms of this Article 20, the terms of this Article 20 shall, as between such Purchaser and the Company, supersede the terms of any such other confidentiality undertaking.

 

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ARTICLE 21. S UBSTITUTION OF P URCHASER .

Each Purchaser shall have the right to substitute any one of its Affiliates as the purchaser of the Notes that it has agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both such Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Article 6. Upon receipt of such notice, any reference to such Purchaser in this Agreement (other than in this Article 21), shall be deemed to refer to such Affiliate in lieu of such original Purchaser. In the event that such Affiliate is so substituted as a Purchaser hereunder and such Affiliate thereafter transfers to such original Purchaser all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, any reference to such Affiliate as a “Purchaser” in this Agreement (other than in this Article 21), shall no longer be deemed to refer to such Affiliate, but shall refer to such original Purchaser, and such original Purchaser shall again have all the rights of an original Holder of the Notes under this Agreement.

 

ARTICLE 22. M ISCELLANEOUS .

Section 22.1 Successors and Assigns . All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and permitted assigns (including, without limitation, any subsequent Holder of a Note) whether so expressed or not.

Section 22.2 Payments Due on Non-Business Days . Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.

Section 22.3 Accounting Terms . All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP. For purposes of determining compliance with the financial covenants contained in this Agreement, any election by the Company to measure any financial liability using fair value (as permitted by Accounting Standard Codification Topic No. 825-10-25 – Fair Value Option or any similar accounting standard) shall be disregarded and such determination shall be made as if such election had not been made.

 

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Section 22.4 Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

Section 22.5 Construction, etc . Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.

Section 22.6 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

Section 22.7 Governing Law . This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.

Section 22.8 Jurisdiction and Process; Waiver of Jury Trial . (a) The Company irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(b) The Company consents to process being served by or on behalf of any Holder of Notes in any suit, action or proceeding of the nature referred to in Section 22.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Article 18 or at such other address of which such Holder shall then have been notified pursuant to said Article. The Company agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

 

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(c) Nothing in this Section 22.8 shall affect the right of any Holder of a Note to serve process in any manner permitted by law, or limit any right that the Holders of any of the Notes may have to bring proceedings against the Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

(d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Notes or any other document executed in connection herewith or therewith.

Section 22.9 Scope of Liability.

Except as set forth in this Section 22.9 and Section 8.22 of the Pledge Agreement, notwithstanding anything in any Credit Document to the contrary, the Secured Parties shall have no recourse or claims with respect to the transactions contemplated by the Operative Documents against Pledgor, Sponsor or any of their respective Affiliates (other than the Company), shareholders, officers, directors or employees (collectively, the “ Nonrecourse Persons ”) and the Secured Parties’ recourse against the Company shall be limited to the Collateral, the Project, all Project Revenues, all proceeds of the Notes, Insurance Proceeds, Eminent Domain Proceeds, and all income or revenues of the foregoing as and to the extent provided herein and in the Collateral Documents (which, for the avoidance of doubt, excludes the payments allowed to any Nonrecourse Person pursuant to the terms of any Credit Documents); provided , that the foregoing provision of this Section 22.9 shall not in any way (a) constitute a waiver, release or discharge of any of the indebtedness, or of any of the terms, covenants, conditions, or provisions of any Credit Document (and the same shall continue, but without personal liability to the Nonrecourse Persons, until fully paid, discharged, observed, or performed) or otherwise relieve any such Person from its obligations under the Credit Documents to which it is a party or shall preclude, restrict, reduce, limit or otherwise affect the rights, powers and remedies of the Secured Parties to enforce (or cause to be enforced) such obligations against such Person or such Person’s properties to the extent permitted by any Credit Document to which it is a party; (b) limit, reduce, restrict or otherwise affect the right of any Secured Party (or any assignee, beneficiary or successor to any of them) to name the Company or any other Person as a defendant in any action or suit for a judicial foreclosure or for the exercise of any other remedy under or with respect to any Credit Document, or for injunction or specific performance, so long as no judgment in the nature of a deficiency judgment shall be enforced against any Nonrecourse Person, except as set forth in this Section 22.9; (c) limit, reduce, restrict or otherwise affect any right or remedy of any Secured Party (or any assignee or beneficiary thereof or successor thereto) with respect to, and each of the Nonrecourse Persons shall remain fully liable to the extent that it would otherwise be liable for its own actions with respect to, any fraud, willful misrepresentation (which shall not include innocent or negligent misrepresentation), or misappropriation of Project Revenues, proceeds of the Notes, Insurance Proceeds, Eminent Domain Proceeds or any other earnings, revenues, rents, issues, profits or proceeds from or of the Collateral, that should or would have been paid as provided herein or paid or delivered to any Secured Party (or any assignee or beneficiary thereof or successor thereto) towards any payment required under any other Credit

 

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Document; (d) affect or diminish or constitute a waiver, release or discharge of any specific written obligation, covenant, representation, or agreement in respect of the transactions contemplated by the Operative Documents made by any of the Nonrecourse Persons or any security granted by the Nonrecourse Persons in support of the obligations of such Persons under any Collateral Document (or as security for the obligations of the Company), including Pledgor’s obligations, covenants, representations and agreements under the Pledge Agreement; nor (e) limit the liability of (i) any Person who is a party to any Project Document or has issued any certificate or other statement in connection therewith with respect to such liability as may arise solely by reason of the terms and conditions of such Project Document (but subject to any limitation of liability in such Project Document), certificate or statement, or (ii) any Person rendering a legal opinion pursuant to this Agreement, in each case under this clause (e) relating solely to such liability of such Person as may arise under such referenced agreement, instrument or opinion. The limitations on recourse set forth in this Section 22.9 shall survive the termination of this Agreement.

Section 22.10 U.S. Tax Forms.

Each Holder, on or before the date it becomes a party to this Agreement and thereafter upon reasonable request of the Company, shall furnish to the Company, to the extent such Holder is legally eligible to do so, either a completed and signed IRS Form W-9 or IRS Form W-8BEN (or other applicable Form W-8, together with applicable attachments), as may be applicable, to claim a complete exemption from U.S. federal withholding tax.

*  *  *  *  *

 

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If you are in agreement with the foregoing, please sign the form of agreement on a counterpart of this Agreement and return it to the Company, whereupon this Agreement shall become a binding agreement between you and the Company.

 

Very truly yours,
DIAMOND STATE GENERATION PARTNERS, LLC
By   /s/ William E. Brockenborough
 

 

Name:   William E. Brockenborough
Title:   President

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:   Babson Capital Management LLC, its investment adviser
By   /s/ Thomas P. Shea
 

 

Name:   Thomas P. Shea
Title:   Managing Director

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
C. M. LIFE INSURANCE COMPANY
By:   Babson Capital Management LLC, its investment adviser
By   /s/ Thomas P. Shea
 

 

Name:   Thomas P. Shea
Title:   Managing Director

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
MASSMUTUAL ASIA LIMITED
By:   Babson Capital Management LLC, its investment adviser
By   /s/ Thomas P. Shea
 

 

Name:   Thomas P. Shea
Title:   Managing Director

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
By   /s/ Joseph R. Cantey Jr.
 

 

Name:   Joseph R. Cantey Jr.
Title:   Director

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
AXA EQUITABLE LIFE INSURANCE COMPANY
By   /s/ Amy Judd
 

 

  Amy Judd, Investment Officer

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY
By   /s/ John R. Endres
 

 

Name:   John R. Endres
Title:   Investment Officer

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
GENWORTH LIFE INSURANCE COMPANY OF NEW YORK
By   /s/ John R. Endres
 

 

Name:   John R. Endres
Title:   Investment Officer

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


This Agreement is hereby accepted and agreed to as of the date hereof.
MODERN WOODMEN OF AMERICA
By   /s/ Michael E. Dau
 

 

Name:   Michael E. Dau
Title:   Treasurer & Investment Manager

 

Note Purchase Agreement (Diamond State Generation Partners, LLC)


DIAMOND STATE GENERATION PARTNERS, LLC

1252 O RLEANS D RIVE

S UNNYVALE , CA 94089

I NFORMATION R ELATING TO P URCHASERS

 

N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

M ODERN W OODMEN OF A MERICA

   $ 15,000,000.00  

 

(1) All payments by wire transfer of immediately available funds to:

The Northern Trust Company

50 South LaSalle Street

Chicago, IL 60675

ABA No. [***]

Account Name: Modern Woodmen of America

Account No. [***]

with sufficient information to identify the source and application of such funds.

 

(2) All notices of payments and written confirmations of such wire transfers:

Modern Woodmen of America

Attn: Investment Accounting Department

1701 First Avenue

Rock Island, IL 61201

Fax: [***]

 

(3) All other communications:

Modern Woodmen of America

Attn: Investment Department

1701 First Avenue

Rock Island, IL 61201

investments@modern-woodmen.org

Fax: [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

AXA E QUITABLE L IFE I NSURANCE C OMPANY

   $ 15,000,000.00  

 

1. All payments by wire transfer of immediately available funds to:

The Chase Manhattan Bank, N.A.

Account (s): AXA Equitable Life Insurance Company

4 Chase Metrotech Center

Brooklyn, New York 11245

ABA No.: 021-000021

Bank Account: [***]

Custody Account: [***]

Face Amount of $15,000,000

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

AXA Equitable Life Insurance Company

C/O AllianceBernstein LP

1345 Avenue of the America

37 th Floor

New York, New York 10105

Attention: Cosmo Valente Telephone #: [***]

 

3. All other communications:

AXA Equitable Life Insurance Company

C/O AllianceBernstein LP

1345 Avenue of the Americas, 37th Floor

New York, NY 10105

Attention: Terry McCarthy

AllianceBernstein LP

Telephone #: [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


N AME AND A DDRESS OF P URCHASER

  

P RINCIPAL  A MOUNT   OF

N OTES   TO   BE  P URCHASED

 

AXA E QUITABLE L IFE I NSURANCE C OMPANY

   $ 20,000,000.00  

 

1. All payments by wire transfer of immediately available funds to:

The Chase Manhattan Bank, N.A.

Account (s): AXA Equitable Life Insurance Company

4 Chase Metrotech Center

Brooklyn, New York 11245

ABA No.: 021-000021

Bank Account: [***]

Custody Account: [***]

Face Amount of $20,000,000

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

AXA Equitable Life Insurance Company

C/O AllianceBernstein LP

1345 Avenue of the America

37 th Floor

New York, New York 10105 Attention: Cosmo Valente Telephone #: [***]

 

3. All other communications:

AXA Equitable Life Insurance Company

C/O AllianceBernstein LP 1345 Avenue

of the Americas, 37th Floor New York,

NY 10105

Attention: Terry McCarthy

AllianceBernstein LP

Telephone #: [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

T EACHERS I NSURANCE AND A NNUITY A SSOCIATION OF A MERICA

   $ 35,000,000.00  

 

1. All payments by wire transfer of immediately available funds through the Automated Clearing House System to:

JPMorgan Chase Bank, N.A.

ABA # 021-000-021

Account Number: [***]

Account Name: [***]

For Further Credit to the Account Number: [***]

Reference: [***]

Maturity Date: March 30, 2025/Interest Rate: 5.22% P&I Breakdown

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

Teachers Insurance and Annuity Association of America

730 Third Avenue

New York, New York 10017

Attention: Securities Accounting Division

Phone: [***]

Email: [***]

With a copy to:

JPMorgan Chase Bank, N.A.

P.O. Box 35308

Newark, New Jersey 07101

And to:

Teachers Insurance and Annuity Association of America

8500 Andrew Carnegie Boulevard

Charlotte, North Carolina 28262

Attention: Global Private Markets

Telephone:  

[***]

[***]

Facsimile:  

[***]

Email:  

[***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


3. All other communications:

Teachers Insurance and Annuity Association of America

8500 Andrew Carnegie Boulevard

Charlotte, North Carolina 28262

Attention: Global Private Markets

Telephone:  

[***]

[***]

Facsimile:  

[***]

Email:  

[***]

[***] Confidential Treatment Requested

 

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N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

M ASSACHUSETTS M UTUAL L IFE I NSURANCE C OMPANY

   $ 32,200,000.00  

 

1. All payments by wire transfer of immediately available funds to:

MassMutual Co-Owned Account

Citibank

New York, New York

ABA # [***]

Acct # [***]

RE: Description of security, cusip, principal and interest split

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

Massachusetts Mutual Life Insurance Company

1295 State Street

Springfield, MA 01111

Attn: [***]

With a copy to:

Massachusetts Mutual Life Insurance

c/o Babson Capital Management LLC

1500 Main Street – Suite 2200

Springfield, MA 01115

Attn: Securities Investment Division

With email notification to:

 

  1. [***]

 

  2. [***]

 

  3. [***]

 

3. All other communications:

Massachusetts Mutual Life Insurance Company

c/o Babson Capital Management LLC

1500 Main Street – Suite 2200

PO Box 15189

Springfield, MA 01115-5189

Attn: Securities Investment Division

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


With email notification to:

 

  1. [***]

 

  2. [***]

 

  3. [***]

 

  [***] Confidential Treatment Requested

 

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N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

C.M. L IFE I NSURANCE C OMPANY

   $ 3,500,000.00  

 

1. All payments by wire transfer of immediately available funds to:

MassMutual Co-Owned Account

Citibank

New York, New York

ABA # [***]

Acct # [***]

RE: Description of security, cusip, principal and interest split

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

C. M. Life Insurance Company

c/o Massachusetts Mutual Life Insurance Company

1295 State Street

Springfield, MA 01111

Attn: [**]

With a copy to:

C. M. Life Insurance Company

c/o Babson Capital Management LLC

1500 Main Street – Suite 2200

Springfield, MA 01115

Attn: Securities Investment Division

With email notification to:

 

  1. [***]

 

  2. [***]

 

  3. [***]

 

3. All other communications:

C. M. Life Insurance Company

c/o Babson Capital Management LLC

1500 Main Street – Suite 2200

PO Box 15189

Springfield, MA 01115-5189

Attn: Securities Investment Division

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


With email notification to:

 

  1. [***]

 

  2. [***]

 

  3. [***]

 

  [***] Confidential Treatment Requested

 

-76-


N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

M ASS M UTUAL A SIA L IMITED

   $ 4,300,000.00  

 

1. All payments by wire transfer of immediately available funds to:

Gerlach & Co.

c/o Citibank, N.A.

ABA # [***]

Concentration Acct # [***]

Attn: [***]

FFC: [***]

Name of Security/CUSIP Number

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

MassMutual Asia Limited

c/o Massachusetts Mutual Life Insurance Company

1295 State Street

Springfield, MA 01111

Attn: [***]

With a copy to:

MassMutual Asia Limited

c/o Babson Capital Management LLC

1500 Main Street – Suite 2200

Springfield, MA 01115

Attn: Securities Investment Division

With email notification to:

 

  1. [***]

 

  2. [***]

 

  3. [***]

 

3. All other communications:

MassMutual Asia Limited

c/o Babson Capital Management LLC

1500 Main Street – Suite 2200

PO Box 15189

Springfield, MA 01115-5189

Attn: Securities Investment Division

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


With email notification to:

 

  1. [***]

 

  2. [***]

 

  3. [***]

[***] Confidential Treatment Requested

 

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N AME AND A DDRESS OF P URCHASER    P RINCIPAL  A MOUNT   OF
N OTES   TO   BE  P URCHASED
 

G ENWORTH L IFE AND A NNUITY I NSURANCE C OMPANY

   $ 5,000,000.00  

 

1. All payments by wire transfer of immediately available funds to:

The Bank of New York

ABA #: 021000018

Account #: [***]

SWIFT Code: [***]

Acct Name: Private Placement Income Collection Account

Attn: PP P&I Department

Reference: GLAIC / LA_TLC

CUSIP/PPN & Security Description, and Identify Principal & Interest Amounts

Face Amount of $5,000,000.00

And By Email: [***]

Fax: [***]

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

Genworth Financial, Inc.

Account: Genworth Life and Annuity Insurance Company

3001 Summer Street

Stamford, CT 06905

Attn: Trade Operations

Telephone No: [***]

Fax No: [***]

[***]

and

The Bank of New York

Income Collection Department

P.O. Box 19266

Newark, NJ 07195

Attn: PP P&I Department

Ref: GLAIC, CUSIP/PPN & Security Description

P&I Contact: [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


3. All other communications:

Genworth Financial, Inc.

Account: Genworth Life and Annuity Insurance Company

3001 Summer Street, 2 nd Floor

Stamford, CT 06905

Attn: Private Placements

Telephone No: [***]

Fax No: [***]

[***]

[***] Confidential Treatment Requested

 

-80-


N AME AND A DDRESS OF P URCHASER   

P RINCIPAL  A MOUNT   OF

N OTES   TO   BE  P URCHASED

 

G ENWORTH L IFE AND A NNUITY I NSURANCE C OMPANY

   $ 5,000,000.00  

 

1. All payments by wire transfer of immediately available funds to:

The Bank of New York

ABA #: [***]

Account #: [***]

SWIFT Code: [***]

Acct Name: Private Placement Income Collection Account

Attn: PP P&I Department

Reference: GLAIC / LATERMUL

CUSIP/PPN & Security Description, and Identify Principal & Interest Amounts

Face Amount of $5,000,000.00

And By Email: [***]

Fax: [***]

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

Genworth Financial, Inc.

Account: Genworth Life and Annuity Insurance Company

3001 Summer Street

Stamford, CT 06905

Attn: Trade Operations

Telephone No: [***]

Fax No: [***]

[***]

and

The Bank of New York

Income Collection Department

P.O. Box 19266

Newark, NJ 07195

Attn: [***]

Ref: [***] : [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


3. All other communications:

Genworth Financial, Inc.

Account: Genworth Life and Annuity Insurance Company

3001 Summer Street, 2 nd Floor

Stamford, CT 06905

Attn: Private Placements

Telephone No: [***]

Fax No: [***]

[***]

[***] Confidential Treatment Requested

 

-82-


N AME AND A DDRESS OF P URCHASER   

P RINCIPAL  A MOUNT   OF

N OTES   TO   BE  P URCHASED

 

G ENWORTH L IFE AND A NNUITY I NSURANCE C OMPANY

   $ 5,000,000.00  

 

1. All payments by wire transfer of immediately available funds to:

The Bank of New York

ABA #: [***]

Account #: [***]

SWIFT Code: [***]

Acct Name: Private Placement Income Collection Account

Attn: PP P&I Department

Reference: GLAIC / LASPIA

CUSIP/PPN & Security Description, and Identify Principal & Interest Amounts

Face Amount of $5,000,000.00

And By Email: [***]

Fax: [***]

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

Genworth Financial, Inc.

Account: Genworth Life and Annuity Insurance Company

3001 Summer Street

Stamford, CT 06905

Attn: Trade Operations

Telephone No: [***]

Fax No: [***]

[***]

and

The Bank of New York

Income Collection Department

P.O. Box 19266

Newark, NJ 07195

Attn: PP P&I Department

Ref: GLAIC, CUSIP/PPN & Security Description

P&I Contact: [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


3. All other communications:

Genworth Financial, Inc.

Account: Genworth Life and Annuity Insurance Company

3001 Summer Street, 2 nd Floor

Stamford, CT 06905

Attn: [***]

Telephone No: [***]

Fax No: [***]

[***]

[***] Confidential Treatment Requested

 

-84-


N AME AND A DDRESS OF P URCHASER   

P RINCIPAL  A MOUNT   OF

N OTES   TO   BE  P URCHASED

 

G ENWORTH L IFE I NSURANCE C OMPANY OF N EW Y ORK

   $ 4,812,500.00  

 

1. All payments by wire transfer of immediately available funds to:

The Bank of New York

ABA #: 021000018

Account #: [***]

SWIFT Code: [***]

Acct Name: [***]

Attn: [***]

Reference: [***]

CUSIP/PPN & Security Description, and Identify Principal & Interest Amounts

Face Amount of $5,000,000.00

And By Email: [***]

Fax: [***]

with sufficient information to identify the source and application of such funds.

 

2. All notices of payments and written confirmations of such wire transfers:

Genworth Financial, Inc.

Account: Genworth Life Insurance Company of New York

3001 Summer Street

Stamford, CT 06905

Attn: [***]

Telephone No: [***]

Fax No: [***]

[***]

and

The Bank of New York

Income Collection Department

P.O. Box 19266

Newark, NJ 07195

Attn: [***]

Ref: [***]

P&I Contact: [***]

[***] Confidential Treatment Requested

 

S CHEDULE A

(to Note Purchase Agreement)


3. All other communications:

Genworth Financial, Inc.

Account: Genworth Life Insurance Company of New York

3001 Summer Street, 2 nd Floor

Stamford, CT 06905

Attn: [***]

Telephone No: [***]

Fax No: [***]

[***]

[***] Confidential Treatment Requested

 

-86-


D EFINED T ERMS

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

Accounts ” means the Construction Escrow Account, the Revenue Account, the Operating Account, the Distribution Suspense Account, the IDC Reserve Account, Debt Service Reserve Account, the Loss Proceeds Account, the Note Redemption Account and each cash collateral account referred to in the Credit Documents (other than the Cash Grant Account and System Refund Account), including any sub-accounts within such accounts.

Additional Project Documents ” means any material contracts or agreements related to the construction, testing, maintenance, repair, operation or use of the Project entered into by Company and any other Person, or assigned to Company, subsequent to the Closing Date; provided that any such contracts and agreements providing for the payment by or to Company of less than $250,000 or the provision to Company of less than $250,000 per annum individually in value of goods or services, shall be deemed not to constitute an Additional Project Document.

Administrative Services Agreement ” means the Administrative Services Agreement dated as of April 13, 2012 among Company, Pledgor and the Administrative Services Provider, as amended by the Omnibus Amendment.

Administrative Services Provider ” means Sponsor.

Adverse PUHCA Event ” means (i) loss of Exempt Wholesale Generator status for the Company or loss of Eligible Facility status for the Project, (ii) the Company shall have tendered notice to FERC that the Company has ceased to be an Exempt Wholesale Generator, (iii) FERC shall have issued an order determining that the Company no longer meets the criteria of an Exempt Wholesale Generator or takes other action revoking such Exempt Wholesale Generator status or (iv) the Company otherwise becoming subject to regulation under PUHCA.

Affiliate ” of a specified Person means any other Person that (a) directly, or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with such Person, or (b) only with respect to matters relating to PUHCA, (i) is an “affiliate” as defined in Section 1262(1) of PUHCA or (ii) directly or indirectly owns, Controls or holds with power to vote, 5% or more of the outstanding voting securities of such Person. When used with respect to Company, “Affiliate” shall include Pledgor and any Affiliate thereof (other than Company).

Agreement ” means this Agreement as it may be amended or supplemented from time to time.

ALTA ” means American Land Title Association.

Amortization Schedule ” means the schedule showing the amortization of the Notes from the Closing Date to the Maturity Date, attached hereto as Schedule 8.1.

Annual Operating Budget ” is defined in Section 9.14(b).

Anti-Money Laundering Laws ” is defined in Section 5.16(c).

 

S CHEDULE B

(to Note Purchase Agreement)


Applicable Permit ” means, at any time, any Permit (a) that is necessary under applicable Legal Requirements or any of the Operative Documents to have been obtained by or on behalf of the Company at such time in light of the stage of development, construction or operation of the Project to construct, test, operate, maintain, repair, lease, own or use the Project as contemplated by the Operative Documents, to sell electricity from the Project or deliver fuel to the Project, or for the Company to enter into any Operative Document or to consummate any transaction contemplated thereby, in each case in accordance with all applicable Legal Requirements, or (b) that is necessary so that none of the Company or any Secured Party nor any Affiliate of any of them may be deemed by any Governmental Authority to be subject to regulation under the FPA or PUHCA (except as provided in Section 5.24) or treated as a public utility under the Constitution and the laws of the State of Delaware as presently constituted and as construed by the courts of the State of Delaware with respect to the regulation of the rates of, or the financial or organizational regulation of, electric utilities as a result of the development and construction or operation of the Project or the sale of electricity therefrom. The Tariff and the Gas Tariff are always Applicable Permits.

Applicable Third Party Permit ” means, at any time, any Permit that is necessary to have been obtained by such time in light of the stage of development, construction or operation of the Project by any Person (other than the Company) that is a party to a Major Project Document or a Credit Document in order to perform such Person’s obligations thereunder (other than Permits necessary to conduct its business generally and maintain its existence and good standing), or in order to consummate any transaction contemplated thereby, in each case in accordance with all applicable Legal Requirements.

Available Funds ” means, at any time and without duplication, the aggregate committed amount of all sources of capital available to the Company by way of (a) amounts in the Construction Escrow Account, (b) undisbursed Insurance Proceeds or Eminent Domain Proceeds which are available for payment of Project Costs, (c) any Project Revenues which are available for payment of Project Costs and (d) to the extent not all committed equity has been invested in the Project and there are equity investment undertakings in place and the Holders reasonably have no reason to believe that the amounts committed to be invested thereunder will not be invested, the remainder of the commitments thereunder.

Bankruptcy Event ” shall be deemed to occur, with respect to any Person, if (a) that Person shall commence any case, proceeding or other voluntary action seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, arrangement, adjustment, winding-up, reorganization, dissolution, composition under any applicable Debtor Relief Law or other relief with respect to it or its debts; (b) such Person shall apply for, or consent or acquiesce to, the appointment of, a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other official with similar powers for itself or any substantial part of its assets; (c) such Person shall make a general assignment for the benefit of its creditors; (d) an involuntary case shall be commenced seeking liquidation or reorganization of such Person under any applicable Debtor Relief Law, or seeking issuance of a warrant of attachment, execution or distraint, or any similar proceedings shall be commenced against such Person under any other applicable law and (i) such Person consents to the institution of the involuntary case against it, (ii) the petition commencing the involuntary case is not timely controverted, (iii) the petition commencing the involuntary case is not dismissed within 45 days

 

-2-


of its filing, (iv) an interim trustee is appointed to take possession of all or a portion of the property, and/or to operate all or any part of the business of such Person and such appointment is not vacated within 45 days, or (v) an order for relief shall have been issued or entered therein; or (e) a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other official having similar powers, over such Person or all or a part of its property shall have been entered; or (f) any other similar relief shall be granted against such Person under any applicable Debtor Relief Law, or such Person shall file a petition or consent or shall otherwise institute any similar proceeding under any other applicable law, or shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the acts set forth above in this definition; or (g) such Person shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due.

Base Case Projections ” means a projection of operating results showing at a minimum Company’s good faith estimates, as of the Closing Date, of revenues, operating expenses and sources and uses over the forecast period, in substantially the form of Schedule 4.1.27, which shall be of a nature and in an amount satisfactory to the Purchasers in consultation with Independent Engineer.

Blocked Person ” is defined in Section 5.16(a).

Brookside Lease ” means the Lease Agreement, dated as of April 19, 2012, between the Company and the Delaware Department of Transportation, an agency of the State of Delaware, relating to property located at 512 East Chestnut Hill Road, Newark, DE 19713, as amended from time to time.

Brookside Site ” means the real property which is the subject of the Brookside Lease.

Business Day ” means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City or the State of California are required or authorized to be closed.

Buydown Amount ” is defined in Section 9.20.

Capital Expenditures ” mean expenditures made by the Company to acquire or construct fixed assets, plant and equipment which, in accordance with GAAP, are or should be included in “purchase of property and equipment” or similar items reflected in the statement of cash flows of the Company (including renewals, improvements and replacements thereto, but, notwithstanding the foregoing, excluding any such expenditures that are paid out of Loss Proceeds).

Capital Lease ” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

Cash Grant ” means a grant under Section 1603 of division B of the American Recovery and Reinvestment Act of 2009, as amended, with respect to the Project.

Cash Grant Account ” means the account established in the name of Pledgor pursuant to the Control Agreement, dated as of April 13, 2012, by and among the Pledgor, the Managing

 

-3-


Member, Mehetia Inc. and The Bank of New York Mellon, into which the Cash Grant proceeds will be deposited, provided that such account shall not be an “Account” under the Depositary Agreement.

Cash Grant Guidance ” means the guidance issued on July 9, 2009 (as revised), by the U.S. Treasury Department for payments for specified energy property in lieu of tax credits under Section 1603 of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), as amended, and any clarification, amendment addition or supplement thereto, and any other guidance (including in the form of frequently asked questions and answers), instructions or terms and conditions published or issued by the U.S. Treasury Department or any other Governmental Authority.

Change of Control ” means (a) before the Final Completion Date, the Sponsor ceases to indirectly own and control 100% of the economic and voting interest in the Company (excluding any interests held by the Tax Equity Investors) or (b) after the Final Completion Date, the Sponsor ceases to indirectly own and control 50.1% of the economic and voting interest in the Company (excluding any interests held by the Tax Equity Investors).

Closing ” is defined in Article 3.

Closing Date ” is defined in Section 4.1.

COD ” for a System means “Commencement of Operations” of such System, as such term is defined in the MESPA.

Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

Collateral ” means all property which is subject or is intended to become subject to the security interests or liens granted by any of the Collateral Documents.

Collateral Agency Agreement ” means the Collateral Agency Agreement, dated as of the Closing Date, in form and substance satisfactory to the Purchasers, between the Purchasers and the Collateral Agent.

Collateral Agent ” means Deutsche Bank Trust Company Americas, acting in its capacity as collateral agent for the Secured Parties under the Credit Documents.

Collateral Documents ” means the Mortgage, the Pledge Agreement, the Security Agreement, the Collateral Agency Agreement, each Direct Agreement, the Interparty Agreement and any fixture filings, financing statements, or other similar documents filed, recorded or delivered in connection with the foregoing.

Company ” means Diamond State Generation Partners, LLC, a Delaware limited liability company.

Company’s COD Certificate ” means a certificate delivered to the Holders, substantially in the form of Exhibit 4.2.1(c).

 

-4-


Confidential Information ” is defined in Article 20.

Construction Escrow Account ” is defined in Section 2.1 of the Depositary Agreement.

Construction Services Agreement ” means the Interconnection Service Agreement among PJM, the Company and DPL effective as of June 19, 2012.

Contingent Obligation ” means, as to any Person, any obligation, agreement, understanding or arrangement (including purchase or repurchase agreements, reimbursement agreements with respect to letters of credit or acceptances, indemnity arrangements, grants of collateral to support the obligations of another Person, keep-well agreements and take-or-pay or through-put arrangements) of such Person guaranteeing or intended to guarantee any indebtedness, leases, dividends or other obligations of any other Person in any manner, whether directly or indirectly; provided, that the term “Contingent Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business.

Control ” means the possession, directly or indirectly (either alone or pursuant to an arrangement or understanding with one or more other Persons), of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” shall have meanings correlative thereto.

Controlled Entity ” means any of the Subsidiaries of the Company and any Affiliate of the Company or Subsidiary of the Company that in each case is Controlled by the Company or a Subsidiary of the Company.

Credit Documents” means this Agreement, any Notes, the Depositary Agreement, the Equity Contribution Agreement, the Collateral Documents, the Recapture Indemnities and Guarantees, and any other security agreements or letter agreement or similar document, and any amendment to the foregoing or consent or waiver given under the foregoing, entered into by any Secured Party, on the one hand, and the Company or one or more Affiliates of the Company, on the other hand, in connection with the transactions contemplated by the Credit Documents.

Credit Event ” means each of the Closing Date, each Drawdown and the Final Completion Date.

Credit Parties ” means the Company, Pledgor, Managing Member and Sponsor.

CS Guaranty ” means the Guaranty, dated as of April 13, 2012, as amended by the First Amendment to Guarantee, dated as of March 20, 2013 and issued by Credit Suisse (USA), Inc. in favor of the Company and the Collateral Agent.

Date Certain ” means June 30, 2014.

Debt ” of any Person means, without duplication, (a) all obliga t ions (including contingent obligations) of such Person for borrowed money, (b) all obligations of such Person evidenced by

 

-5-


bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and other accrued expenses arising in the ordinary course of business which in accordance with GAAP would not be shown on the liability side of the balance sheet of such Person, (d) all obligations of such Person under leases which are or should be, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable, (e) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or property), (f) all deferred obligations of such Person to reimburse any bank or other Person in respect of amounts paid or advanced under a letter of credit or other instrument, (g) all obligations, contingent or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (h) all Debt (as described in the preceding clauses) of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on any asset of such Person, whether or not such Debt is assumed by such Person and (i) all Debt (as described in the preceding clauses) of others guaranteed directly or indirectly by such Person or as to which such Person has an obligation which is substantially the economic equivalent of a guaranty.

Debt Service ” means, for the Company and for any period, all obligations for principal and interest payments and any fees, expenses and other charges, including fees and agent fees, due and payable in respect of all Debt for borrowed money in such period.

Debt Service Reserve Account ” is defined in Section 2.1 of the Depositary Agreement.

Debt Service Reserve Requirement ” means, with respect to any date and the Notes, an amount equal to the sum of (x) the greatest six (6) months of Debt Service under the Notes and (y) 90-days of RECs valued at $45 per REC, provided that the Debt Service Reserve Requirement shall never exceed the outstanding principal and interest to maturity of the Notes.

Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect.

Default ” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

Default Rate ” means, with respect to any obligation payable under the Credit Documents, for any applicable period of time, the interest rate per annum equal to 2.00% above the interest rate otherwise applicable to such obligation for such period.

Depositary ” means Deutsche Bank Trust Company Americas, not in its individual capacity but solely as depositary agent, bank and securities intermediary under the Depositary Agreement.

Depositary Agreement ” means the Depositary Agreement, dated as of the Closing Date, among the Company, Collateral Agent and Depositary.

 

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Direct Agreements ” means the consents specified on Schedule 4.30.1 and any other third party consents to the assignments contemplated by the Credit Documents, in the form set forth in Exhibit 4.30.1.

Disclosure Documents ” is defined in Section 5.3.

Disqualified Person ” means (a) any Federal, State or local government (or any political subdivision, agency or instrumentality thereof); (b) any organization described in Section 501(c) of the Code and exempt from tax under Section 501(a) of the Code; (c) any entity referenced in Section 54(j)(4) of the Code; (d) any foreign person or entity as defined in Section 168(h)(2)(C) of the Code unless the exception under Section 168(h)(2)(B) of the Code applies with respect to the income from the Company for that Person; (e) any person described in Section 50(d)(1), including a real estate investment trust, as defined in Section 856(a) of the Code; and (f) any partnership or other pass-through entity (including a single member disregarded entity) any direct or indirect partner (or other direct or indirect holder of an equity or profits interest) of which is described in clauses (a)–(e) unless such person holds its interest in the partnership or other pass-through entity indirectly through a taxable “C” corporation; provided that, if and to the extent the definition of “Disqualified Person” under Section 1603 of the American Recovery and Reinvestment Act of 2009, as amended, is amended or supplemented after the Closing Date, the definition of “Disqualified Person” shall be interpreted to conform to such amendment or supplement and any Treasury guidance with respect thereto.

“Distribution Conditions ” is defined in Section 10.10.

Distribution Suspense Account ” is defined in Section 2.1 of the Depositary Agreement.

Dollars ” and “ $ ” means United States dollars or such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts in the United States of America.

DPL ” means Delmarva Power & Light Company, a Delaware and Virginia corporation.

DPSC ” means the Delaware Public Service Commission.

Drawdown ” means a disbursement of funds from the Construction Escrow Account in accordance with the terms of Section 3.2.2 of the Depositary Agreement.

Drawdown Certificate ” means a certificate delivered to the Holders substantially in the form of Exhibit 4.2.1(a).

DSCR ” means, for any period, the ratio of (a) Operating Cash Available for Debt Service for such period to (b) Debt Service for such period.

Easements ” shall have the meaning given in the granting clause of the applicable Mortgage.

Efficiency Bank ” is defined in the MESPA.

Eligible Facility ” means an “eligible facility” within the meaning of PUHCA.

 

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Eminent Domain Proceeds ” is defined in Section 1.1 of the Depositary Agreement.

Energy ” is defined in the Tariff.

Environmental Consultant ” means Terracon Consultants, Inc., or its successor appointed by the Required Holders and, for so long as no Event of Default or Default has occurred and is continuing, the Company.

Environmental Laws ” means any and all current or future federal, state, local and foreign statutes, laws, including common law, regulations or ordinances, rules, judgments, orders, decrees, permits licenses or restrictions imposed by a Governmental Authority relating to pollution or protection of the environment or natural resources and protection of human health, including but not limited to the National Environmental Policy Act, 42 U.S.C. Section 4321 et seq.; Federal Endangered Species Act, 16 U.S.C. Section 1551 et seq.; the Migratory Bird Treaty Act of 1918, 16 U.S.C. Section 703 et seq.; Bald and Golden Eagle Protection Act, 16 U.S.C. Section 668; and shall include all Hazardous Substances Laws.

Environmental Reports ” means, collectively, (a) the Phase 1 Environmental Site Assessment, Proposed Fuel Cell Facility (Red Lion Site) of Terracon Consultants, Inc. dated March 13, 2013 and (b) the Phase 1 Environmental Site Assessment, Proposed Fuel Cell Facility (Brookside Site) of Terracon Consultants, Inc., dated March 13, 2013.

Equity Contribution Agreement ” means the Equity Contribution Agreement, dated as of the Closing Date, among the Company, the Sponsor and the Collateral Agent.

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

ERISA Affiliate ” means any Person (whether or not incorporated) which is under common control with the Company within the meaning of section 4001(a) of ERISA or that is treated as a single employer together with the Company under section 414 of the Code.

Event of Default ” is defined in Article 11.

Event of Eminent Domain ” means any compulsory transfer or taking by condemnation, eminent domain or exercise of a similar power, or transfer under threat of such compulsory transfer or taking, of any part of the Collateral, by any agency, department, authority, commission, board, instrumentality or political subdivision of the State of Delaware, the United States or another Governmental Authority having jurisdiction.

Exempt Wholesale Generator ” means an “exempt wholesale generator” within the meaning of PUHCA and FERC’s regulations implementing PUHCA.

Existing Financing Agreement ” means the Credit Agreement, dated as of March 22, 2012, among the Company, the lenders party thereto and The Royal Bank of Scotland PLC as administrative agent and collateral agent.

 

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Existing Systems ” means 8.8 MW of Systems manufactured and installed by Sponsor at the Sites pursuant to the MESPA which are operating as of the Closing Date.

Federal Reserve Board ” means the Board of Governors of the Federal Reserve System.

FERC ” means the Federal Energy Regulatory Commission and its successors.

Final Completion ” means the date upon which conditions set forth in Sections 4.3 and 4.4 have been satisfied or waived in writing by the Required Holders.

Final Completion Date ” means the date upon which Final Completion is achieved.

Final Completion Date Distribution ” means a distribution in an amount up to the amounts remaining on deposit in the Construction Escrow Account and the IDC Reserve Account, in the aggregate, following the occurrence of the Final Completion Date, to be made to the Pledgor by the Company on or after the Final Completion Date.

FIRREA ” means the Federal Institutions Reform, Recovery and Enforcement Act of 1989.

Forced Outage Event ” is defined in the Tariff.

Forced Outage Tariff Structure ” is defined in the Base Case Projections.

FPA ” means the Federal Power Act, as amended, and FERC’s implementing regulations related thereto.

Funded System ” means a System with respect to which a payment under the MESPA has been financed or, in the case of the Systems that were in operation on the Closing Date, refinanced with the proceeds of the Notes hereunder.

GAAP ” means generally accepted accounting principles as in effect from time to time in the

United States of America.

Gas Service Agreements ” means, collectively, (i) the Large Volume Gas Qualified Fuel Cell Provider-Renewable Capable Service Agreement, effective as of June 19, 2012, between the Sponsor and DPL (for the Brookside Site), as assigned by Sponsor to the Company pursuant to the Assignment and Assumption Agreement, dated as of March 13, 2013, and (ii) the Large Volume Gas Qualified Fuel Cell Provider-Renewable Capable Service Agreement, effective as of December 12, 2012 between the Company and DPL (for the Red Lion Site).

Gas Tariff ” mean’s 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.

Governing Documents ” means, with respect to any Person, the certificate or articles of incorporation, bylaws, operating agreement or other organizational or governing documents of such Person, and, in particular, (a) in the case of any corporation, the certificate of incorporation

 

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and by-laws (or similar documents) of such Person, (b) in the case of any limited liability company, the certificate of formation and operating agreement (or similar documents) of such Person, (c) in the case of any limited partnership, the certificate of formation and limited partnership agreement (or similar documents) of such Person, (d) in the case of any general partnership, the partnership agreement (or similar document) of such Person and (e) in any other case, the functional equivalent of the foregoing.

Governmental Authority ” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

Governmental Rule ” means any constitution, code, statute, law, regulation, ordinance, rule, judgment, order, decree, binding directive, treaty or other governmental restriction or any similar form of decision of or determination by, any Governmental Authority.

Guaranty ” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:

(a) to purchase such indebtedness or obligation or any property constituting security therefor;

(b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation;

(c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or

(d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.

Hazardous Substances ” means any and all substances or materials defined as “hazardous substances,” “pollutants,” “contaminants,” “hazardous waste,” “hazardous materials,” “regulated substances,” “hazardous chemical substance or mixture,” “imminently hazardous chemical substance or mixture,” toxic substances,” or similar terms, as such terms are designated, regulated classified, listed, or defined under or with respect to which any liability

 

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may be imposed pursuant to any Hazardous Substances Law, including without limitation any petroleum product (including byproducts or breakdown products of petroleum products), asbestos-containing material, polychlorinated biphenyls or urea formaldehyde foam insulation.

Hazardous Substances Law ” means any of:

(a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq. );

(b) the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq. );

(c) the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq. );

(d) the Clean Air Act (42 U.S.C. Section 7401 et seq. );

(e) the Emergency Planning and Community Right to Know Act (42 U.S.C. Section 11001 et seq. );

(f) the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq. );

(g) the Oil Pollution Act of 1990 (P.L. 101-380, 104 Stat. 486);

(h) the Safe Drinking Water Act (42 U.S.C. Section 300f et seq. );

(i) the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq. );

(j) the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq. );

(k) applicable Delaware statutes related to the release of Hazardous Substances;

(l) Delaware ordinances and regulations related to the release of Hazardous Substances; and

(m) all other federal, state, local and municipal Governmental Rules, any and all Legal Requirements, and any and all common law requirements, rules and bases of liability regulating, relating to, or imposing liability or standards of conduct concerning pollution or protection of human health or the environment or which otherwise govern Hazardous Substances, as are now or may at any time hereafter be in effect, together with the regulations adopted pursuant to all foregoing.

Holder ” means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1, provided, however, that if such Person is a nominee, then for the purposes of Articles 7 and 12, Section 17.2 and Article 18 and any related definitions in this Schedule B, “Holder” shall mean the beneficial owner of such Note whose name and address appears in such register.

 

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Hot Box Replacement ” means the permanent removal and replacement of the rack-mounted assemblies containing the arrays of fuel cell components in a System (which, for example in a Model ES-5700, includes six such assemblies).

IDC Reserve Account ” is defined in Section 2.1 of the Depositary Agreement.

Improvements ” is defined in the Mortgage.

Independent Consultants ” means, collectively, the Insurance Consultant and the Independent Engineer.

Independent Engineer ” means SAIC Energy, Environment & Infrastructure, LLC, or its successor appointed by the Required Holders, and for so long as no Event of Default or Default has occurred and is continuing, the Company.

Independent Engineer’s COD Certificate ” means a certificate delivered to the Holders, substantially in the form of Exhibit 4.2.1(d).

Independent Engineer’s Drawdown Certificate ” means a certificate delivered to the Holders, substantially in the form of Exhibit 4.2.1(b).

INHAM Exemption ” is defined in Section 6.2(e).

Institutional Investor ” means (a) any Purchaser of a Note, (b) any Holder of a Note holding (together with one or more of its affiliates) more than 5% of the aggregate principal amount of the Notes then outstanding, (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form, and (d) any Related Fund of any Holder of any Note.

Insurance Consultant ” means Moore-McNeil LLC, or its successor appointed by the Required Holders, and for so long as no Event of Default or Default has occurred and is continuing, the Company.

Insurance Proceeds ” is defined in Section 1.1 of the Depositary Agreement.

Interconnection Agreements ” mean the (a) Interconnection Service Agreement, dated June 19, 2012, entered into among Company, PJM and DPL with respect to the Red Lion Site, and the (b) the Standard Agreement for Interconnection, dated March 27, 2012, entered into by Company and DPL with respect to the Brookside Site.

Interparty Agreement ” means the Interparty Agreement, dated as of the Closing Date, among Company, Pledgor, Managing Member, Tax Equity Investors and the Collateral Agent.

 

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Knowledge ” means, with respect to the Company, the actual knowledge of the senior managers of the Company who are charged with direct or indirect responsibility for the Project.

Leases ” means the Red Lion Lease and the Brookside Lease.

Legal Requirements ” means, as to any Person, the Governing Documents of such Person, any requirement under a Permit, and any Governmental Rule 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.

Lien ” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

Loss Event ” is defined in Section 1.1 of the Depositary Agreement.

Loss Proceeds ” is defined in Section 1.1 of the Depositary Agreement.

Loss Proceeds Account ” is defined in Section 2.1 of the Depositary Agreement.

Major Project Documents ” means the MESPA, the MOMA, the Interconnection Agreements, each Lease, the Easements, the Service Application, the Administrative Services Agreement, the Gas Service Agreements, the Construction Services Agreement, any guaranty agreements related to the foregoing executed by Persons in favor of Company and, unless otherwise agreed by the Required Holders prior to its execution and delivery, any Additional Project Document.

Major Project Participants ” means, without duplication, the Company, Managing Member, Sponsor, Operator, PJM, Pledgor, DPL, the Administrative Services Provider, any indemnitor under a Recapture Indemnity and Guarantee and any guarantor thereof, the Tax Equity Investors party to the Interparty Agreement, and to the extent not already included in this list, any counterparty to a Major Project Document.

Make-Whole Amount ” is defined in Section 8.6.

Managing Member ” means Clean Technologies II, LLC, a Delaware limited liability company.

Material ” means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company taken as a whole.

Material Adverse Effect ” means an event, circumstance, condition or occurrence of whatever nature that materially and adversely affects (a) the business, assets (including the Project), property, prospects, results of operation or financial condition of a Major Project Participant, (b) the Company’s rights to the Project and the Project assets, (c) any Major Project Participant’s ability to perform its obligations under the Operative Documents, (d) the validity or priority of the Secured Parties’ security interests in the Collateral, or (e) the validity or enforceability of any Operative Document (including the ability of the Secured Parties to enforce any of their remedies thereunder).

 

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Maturity Date ” means March 30, 2025.

Mehetia ” means Mehetia Inc., a Delaware corporation.

Memorandum ” is defined in Section 5.3.

MESPA ” means the Master Energy Server Purchase Agreement between Sponsor and the Company, dated as of April 13, 2012, as amended by the Omnibus Amendment.

MOMA ” means the Master Operations and Maintenance Agreement, between the Company and Operator, dated as of April 13, 2012, as amended by the Omnibus Amendment.

Mortgage ” means the Leasehold Mortgage, Security Agreement, Assignment of Rents, and Financing Statement and Fixture Filing, dated as of the Closing Date, in form and substance satisfactory to the Purchasers, between the Company and Collateral Agent.

Mortgaged Property ” is defined in the granting clause of the Mortgage.

Multiemployer Plan ” means any Plan that is a “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).

NAIC ” means the National Association of Insurance Commissioners or any successor thereto.

NAIC Annual Statement ” is defined in Section 6.2(a).

“Net Available Amount ” is defined in Section 1.1 of the Depositary Agreement.

“Note Redemption Account” is defined in Section 2.1 of the Depositary Agreement.

Notes ” is defined in Article 1.

O&M Costs ” means, for any period, cash amounts incurred and paid by the Company for the operation and maintenance of the Project or any portion thereof and for the purchase of goods and services in connection therewith, including (a) premiums for insurance policies, (b) costs of fuel and other consumables, (c) costs of obtaining any other materials, supplies, utilities or services for the Project, (d) costs of maintaining, renewing and amending Permits, (e) franchise, licensing, property, real estate, sales and excise Taxes, (f) general and administrative expenses, (g) employee salaries, wages and other employment-related costs, (h) business management and administrative service fees, (i) costs required to be paid by the Project under any Project Document or Credit Document (other than scheduled Debt Service and Project Costs but including scheduled interest or lease payments in respect of other Permitted Debt) or to satisfy any Legal Requirement or obtain or maintain any Permit, (j) legal, accounting and consulting fees and other transaction costs and all other fees payable to the Holders (other than amounts constituting scheduled Debt Service), (k) necessary Capital Expenditures (other than capital expenditures made in connection with the repair or restoration of any casualty suffered by the

 

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Project to the extent funded with insurance or similar proceeds applied pursuant to Section 3.7 of the Depositary Agreement or infusions of equity pursuant to the Credit Documents), and (l) all other fees and expenses necessary for the continued operation and maintenance of the Project and the conduct of the business of the Project, but exclusive in all cases of non-cash charges and also exclusive of all interest charges and charges for the payment or amortization of principal of the Notes. O&M Costs shall not include payments for restoration or repair of the Project from the Loss Proceeds Account or income Taxes.

Obligations ” means and includes all loans, advances, debts, liabilities, and obligations, howsoever arising, owed by the Company or the Pledgor (or, if such term is used by reference to any specific Person, by such Person) to any of the Secured Parties of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, pursuant to the terms of the Credit Documents, including (a) all principal, interest, Make-Whole Amount, fees, charges, expenses, attorneys’ fees and accountants fees, repayment obligations, prepayment obligations, and reimbursement obligations payable by the Company or the Pledgor thereunder, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Company or the Pledgor to the Secured Parties under or pursuant to the Credit Documents, (c) any and all sums advanced by any of the Secured Parties to preserve the Collateral or preserve or perfect Liens in the Collateral, and (d) in the event of any proceeding for the collection or enforcement described herein, after an Event of Default has occurred and is continuing and unwaived in accordance with the provisions hereof, the expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by Collateral Agent, on behalf of the Secured Parties, of its rights under the Collateral Documents, together with reasonable attorney’s fees and court costs.

OFAC ” is defined in Section 5.16(a).

OFAC Listed Person ” is defined in Section 5.16(a).

OFAC Sanctions Program ” means any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.ustreas.gov/offices/enforcement/ofac/programs/ .

Offer Settlement Date ” is defined in Section 8.1.3(b).

Offer to Repay ” is defined in Section 8.1.3(b).

Offer to Repay Notice ” is defined in Section 8.1.3(b).

Omnibus Amendment ” means the Omnibus First Amendment to MESPA, MOMA and ASA, dated as of March 20, 2013, entered into among the Company, the Sponsor and Pledgor.

Operating Account ” is defined in Section 2.1 of the Depositary Agreement.

Operating Budget Category ” means (a) individually, any line item category set forth in that portion of the then-current Annual Operating Budget showing sources and uses of Project funds, and (b) collectively, all line item categories set forth in that portion of the then-current Annual Operating Budget showing sources and uses of Project funds.

 

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Operating Cash Available for Debt Service ” means, for any period, Project Revenues during such period minus O&M Costs during such period.

Operative Documents ” means, collectively, the Credit Documents and the Project Documents.

Operator ” means Bloom Energy Corporation, a Delaware corporation.

PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

Performance Tests ” means any tests under the MESPA to demonstrate COD.

Permit ” means any approval, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from a Governmental Authority.

Permitted Debt ” means (a) Debt incurred under the Credit Documents, (b) Debt pursuant to the terms of a Project Document (but not for borrowed money), either not more than 90 days past due or being contested in good faith, (c) trade or other similar Debt incurred in the ordinary course of business (but not for borrowed money), either not more than 90 days past due or being contested in good faith, (d) the following contingent liabilities, to the extent otherwise constituting Debt: (i) the acquisition of goods, supplies or merchandise in the normal course of business or normal trade credit, (ii) the endorsement of negotiable instruments received in the normal course of its business, and (iii) contingent liabilities incurred with respect to any Applicable Permit or Operative Document, (e) purchase money obligations incurred to finance the purchase price of discrete items of equipment not comprising an integral part of the Project that extend only to the equipment being financed in an aggregate amount of secured principal and capital lease obligations not exceeding $100,000 at any one time outstanding, and (f) obligations in respect of surety bonds or similar instruments in an aggregate amount not exceeding $100,000 at any one time outstanding.

Permitted Distribution ” means a distribution in an amount not to exceed $100,000 to be made to the Pledgor by the Company as of the Closing Date, subject to the satisfaction of the relevant conditions precedent under Section 4.1.

Permitted Investments ” is defined in the Depositary Agreement.

Permitted Liens ” means (a) the rights and interests of any Secured Party as provided in the Credit Documents; (b) statutory Liens for any current Tax, assessment or other governmental charge not yet due and payable, and Liens for Taxes, assessments or governmental charges being contested in accordance with the requirements of Section 9.4; (c) materialmen’s, mechanics’, workers’, repairmen’s, employees’ or other like Liens, arising in the ordinary course of business or in connection with the construction, operation or maintenance of the Project, either for amounts not yet due or for amounts being contested in good faith and by appropriate proceedings, so long as (i) such proceedings shall not involve any substantial danger of the sale, forfeiture or loss of the Project, either Site or any Easements, as the case may be, title thereto or

 

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any interest therein and shall not interfere in any material respect with the use or disposition of the Project, either Site or any Easements, (ii) a bond or other security reasonably acceptable to the Holders has been posted or provided in such manner and amount as to assure the Holders that any amounts determined to be due will be promptly paid in full when such contest is determined, or (iii) adequate cash reserves have been provided therefor; (d) Liens arising out of judgments or awards so long as an appeal or proceeding for review is being prosecuted in good faith and for the payment of which adequate reserves, bonds or other security reasonably acceptable to the Holders have been provided or are fully covered by insurance; (e) the Title Exceptions; (f) Liens, deposits or pledges to secure statutory obligations or performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or for purposes of like general nature in the ordinary course of its business, not to exceed $500,000 in the aggregate at any time, and with any such Lien to be released as promptly as practicable; (g) other Liens incident to the ordinary course of business that are not incurred in connection with the obtaining of any loan, advance or credit and that do not in the aggregate materially impair the use of the property or assets of Company or the value of such property or assets for the purposes of such business; and (h) involuntary Liens as contemplated by the Operative Documents (including a Lien of an attachment, judgment or execution) securing a charge or obligation, on any of Company’s property, either real or personal, whether now or hereafter owned in the aggregate sum of less than $100,000.

Person ” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.

PJM ” means PJM Interconnection, L.L.C., a regional transmission organization.

PJM Agreements ” is defined in the Tariff.

PJM Grid ” means the system of transmission lines and associated facilities that have been placed under PJM’s operational control.

Placed in Service Date ” means the date on which each System is “placed-in-service” within the meaning of the Code and Cash Grant Guidance.

Placement Agent ” is defined in Section 5.3.

Plan ” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding six years, has been established or maintained, or to which contributions are or, within the preceding six years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

Pledge Agreement ” means, the Pledge and Security Agreement, dated as of the Closing Date, in form and substance satisfactory to the Purchasers, among Pledgor, the Company and Collateral Agent.

Pledgor ” means Diamond State Generation Holdings, LLC, a Delaware limited liability company.

 

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Portfolio ” means, on an aggregate basis, all Systems owned by Company at any time that were purchased pursuant to the MESPA and that have achieved COD, other than Systems that have been repurchased by Sponsor pursuant to the terms of the MESPA.

Project ” means a portfolio of up to 150 Bloom Energy baseload fuel cell electricity generators with an aggregate capacity of 30 MW to be located on the Sites and the Easements commonly known as Brookside (for the 3 MW part of the Project, in Newark, Delaware) and Red Lion (for the 27 MW part of the Project, in New Castle County, Delaware).

Project Budget ” means the budget for all anticipated costs to be incurred in connection with the development, construction, installation, timing and start-up of the Project as set forth in Schedule 4.1.26.

Project Costs ” means: (a) the Purchase Price (as defined in the MESPA) of Systems; (b) all other Project-related costs and other development costs (including all Site related costs payable to any Person, including landowners or any Governmental Authority), insurance costs, management services fees and expenses and expenses to complete the development, design, construction and financing of the Project; (c) contingency funds, start-up costs and initial working capital costs; (d) O&M Costs due and payable prior to Final Completion; and (f) interest and fees pursuant to this Agreement prior to Final Completion.

Project Document Modification ” is defined in Section 10.13.

Project Documents ” means, without duplication, the Major Project Documents and any other agreement or document relating to the development, construction or operation of the Project to which the Company is a party.

Project Revenues ” means, without duplication, all income and cash receipts of the Company derived from the ownership or operation of the Project (other than Cash Grant proceeds), including payments received by the Company from DPL pursuant to the Tariff, from Sponsor under the MESPA and the MOMA (other than payments permitted to be deposited into the System Refund Account), proceeds of any delay in start up or business interruption or liability insurance (to the extent such liability insurance proceeds represent reimbursement of third party claims previously paid by the Company), income derived from the sale or use of electric capacity or energy transmitted or distributed or ancillary services or environmental attributes produced by the Project, proceeds from sale of assets, investment income on amounts in the Accounts (solely to the extent deposited in the applicable Account), but excluding solely for purposes of calculating Operating Cash Available for Debt Service, (a) any receipts derived from the sale of any property pertaining to the Project or incidental to the operation of the Project, as determined in conformity with cash accounting principles, (b) proceeds of casualty insurance, (c) performance liquidated damages under the MESPA and MOMA, (d) the proceeds of any condemnation awards relating to the Project and (e) proceeds from the Collateral Documents.

Project Schedule ” means the schedule for construction and completion of the Project as set forth in Schedule 4.1.28.

property ” or “ properties ” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

 

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Prudent Electrical Practices ” is defined in the MESPA.

PTE ” is defined in Section 6.2(a).

PUHCA ” means the Public Utility Holding Company Act of 2005 (42 U.S.C. §§ 16451-16463), and FERC’s implementing regulations related thereto (18 C.F.R. Part 366).

Purchaser ” or “ Purchasers ” means each of the purchasers whose signatures appear at the end of this Agreement and such Purchaser’s successors and assigns (so long as any such assignment complies with Section 13.2), provided, however , that any Purchaser of a Note that ceases to be the registered holder or a beneficial owner (through a nominee) of such Note as the result of a transfer thereof pursuant to Section 13.2 shall cease to be included within the meaning of “Purchaser” of such Note for the purposes of this Agreement upon such transfer.

QFCP Generator ” is defined in the Tariff.

QPAM Exemption ” is defined in Section 6.2(d).

Qualified Fuel Cell Provider ” is defined in the Tariff.

Qualified Fuel Cell Provider Project ” is defined in the Tariff.

Qualified Institutional Buyer ” means any Person who is a “qualified institutional buyer” within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act.

Ramp Up Period ” means the period from the Closing Date through the Final Completion Date.

Rating Agency ” means Fitch Ratings Inc. to the extent that at each relevant time of determination, it has an active and current rating in effect on the Notes, or if Fitch Ratings Inc. shall cease to rate debt instruments of the type similar to the Notes, another nationally recognized rating agency or agencies then rating debt instruments of a type similar to the Notes as shall be selected by the Holders, in consultation with the Company, as a substitute therefor.

Rating Event ” is defined in Section 9.23.

Real Property ” means the real property, including the Sites and the Improvements, which is the subject of the Mortgages.

Real Property Documents ” means any documents, agreements or instruments pursuant to which Company has rights in Real Property, all easements, sub-easements, leases, subleases, licenses and other agreements with landowners, any non-disturbance agreements and any deeds pursuant to which Company owns a fee interest in real property.

REC ” means renewable energy credits.

Recapture Indemnities and Guarantees ” means each of (i) the Cash Grant Indemnity Agreement, dated as of March 20, 2013, by the Sponsor in favor of the Company and the Collateral Agent, (ii) the Cash Grant Indemnity Agreement, dated as of March 20, 2013, by Mehetia in favor of the Company and the Collateral Agent and (iii) the CS Guaranty.

 

-19-


Recapture Liabilities ” means any loss, liability or payment resulting from or required to be made to the United States of America (or any agency or instrumentality thereof) resulting from all or any portion of the Cash Grant being “recaptured” or disallowed as a result of the Project or any part thereof being disposed of, all or any portion of the Project ceasing to be specified energy property, an ownership interest in the Project or the Company being disposed of during the Recapture Period to a Disqualified Person, or otherwise, including any interest and penalties related thereto.

Recapture Period ” means the period commencing on the Placed in Service Date and ending on the fifth anniversary of the Placed in Service Date or, to the extent applicable, such different period as prescribed under the Code.

Red Lion Lease ” means the amended and restated lease agreement between Company and DPL, dated as of June 26, 2012, relating to property located at 1593 River Road, New Castle, Delaware 19720, as amended from time to time

Red Lion Site ” means the real property which is the subject of the Red Lion Lease.

Related Fund ” means, with respect to any Holder of any Note, any fund or entity that (i) invests in Securities or bank loans, and (ii) is advised or managed by such Holder, the same investment advisor as such Holder or by an affiliate of such Holder or such investment advisor.

Release ” means disposing, discharging, injecting, spilling, leaking, leaching, dumping, pumping, pouring, emitting, escaping or emptying into or upon any land or water or air.

Repayment Date ” has the meaning assigned to such term in the Amortization Schedule.

Reportable Event ” means any of the events set forth in section 4043(b) or (c) of ERISA for which notice to the PBGC has not been waived.

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).

Required Holders ” means at any time on or after the Closing, the Holders of at least 50.1% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).

Responsible Officer ” means, as to any Person, its president, chief executive officer, any vice president, treasurer, secretary, or assistant secretary, or any natural Person who is a managing general partner or manager or managing member of a limited liability company (or any of the preceding with regard to any such managing general partner, manager or managing member).

Revenue Account ” is defined in Section 2.1 of the Depositary Agreement.

 

-20-


Rights of Way ” is defined in Section 4.1.37(vi).

SEC ” means the Securities and Exchange Commission of the United States, or any successor thereto.

Secured Parties ” means Collateral Agent and the Holders of the Notes, and each of their respective successors, transferees and assigns and shall include, without limitation, all former Collateral Agents and Holders of Notes to the extent that the Obligations owing to such Persons were incurred while such Persons were in such capacities and such Obligations have not been paid or satisfied in full; provided , that no Affiliate of Sponsor shall be a “Secured Party.”

Securities ” or “ Security ” shall have the meaning specified in section 2(1) of the Securities Act.

Securities Act ” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

Security Agreement ” means the Security Agreement, dated as of the Closing Date, in form and substance satisfactory to the Purchasers, between the Company and Collateral Agent.

Senior Financial Officer ” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.

Service Application ” is defined in the Tariff.

Sites ” means the Brookside Site and the Red Lion Site.

Solvent ” means, with respect to any Person, that as of the date of determination, (a) the aggregate value of all properties of such Person at their present saleable value ( i.e ., the amount that may be realized within a reasonable time, considered to be six months to one year, either through collection or sale at the regular market value, conceiving the latter as the amount that could be obtained for the property in question within such period by a capable and diligent businessperson from an interested buyer who is willing to purchase under ordinary selling conditions), exceed the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of such Person, (b) such Person will not, on a consolidated basis, have an unreasonably small capital with which to conduct its business operations heretofore conducted and (c) such Person will have, on a consolidated basis, sufficient cashflow to enable it to pay its debts as they mature.

Source ” is defined in Section 6.2.

Sponsor ” means Bloom Energy Corporation, a Delaware corporation.

Subsidiary ” means, as to any Person, a corporation, partnership, limited liability company, limited liability partnership or other entity of which such Person: (a) owns 10% or more of the shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity and/or (b) controls the management, directly or indirectly through one or more intermediaries.

 

-21-


Super-Majority Holders ” means at any time on or after the Closing Date, the Holders of at least 80% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).

SVO ” means the Securities Valuation Office of the NAIC or any successor to such Office.

System ” means each proprietary solid oxide fuel cell power generating unit to be purchased from Sponsor by the Company under the MESPA.

System Liability Cap ” means the liability caps referred to in Sections 8.2(b), 8.3(c), 8.9 and 10.5 of the MESPA and Sections 2.5(c), 2.8 and 7.1 of the MOMA.

System Refund Account ” means the account established by the Company into which, if any payments are received by the Company from the Sponsor based on refunds for a System’s purchase deposit (in accordance with Section 3.2(d) of the MESPA) or if there is a full refund of the purchase price of a full System (in accordance with Section 8.3 of the MESPA) and the applicable System is not a Funded System, any payment received by the Company representing the proportional amount thereof allocable to the equity in the Company will be deposited, provided that such account shall not be an “Account” under the Depositary Agreement.

Tariff ” means DPL’s Service Classification “QFCP-RC” for REPS Qualified Fuel Cell Provider Projects 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 Equity Investors ” means Mehetia and any other one or more investors in “Class B” membership interests in Pledgor (as contemplated by the limited liability company agreement of Pledgor as in effect on the Closing Date).

Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

Title Exception ” means the exceptions to title set forth in the Title Policy.

Title Insurer ” means First American Title Insurance Company.

Title Policy ” means the policy of the title insurance issued by the Title Insurer dated as of the Closing Date, including all amendments thereto, endorsements thereof and substitutions or replacements therefor.

UCC ” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided , in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York the

 

-22-


term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of the Credit Documents relating to such perfection or priority and for purposes of definitions related to such provisions.

Unsatisfied Condition ” means a condition in a Permit that has not been satisfied and that either (a) must be satisfied before such Permit can become effective, (b) must be satisfied as of the date on which a representation is made or a condition precedent must be satisfied under this Agreement, or (c) must be satisfied as of a future date but with respect to which facts or circumstances exist which, to the Company’s Knowledge, could reasonably be expected to result in a failure to satisfy such Permit condition, and which failure could reasonably result in a Material Adverse Effect.

USA PATRIOT Act ” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

 

-23-


RULES OF INTERPRETATION

 

1. The singular includes the plural and the plural includes the singular.

 

2. The word “or” is not exclusive. Thus, if a party “may do (a) or (b)”, then the party may do either or both. The party is not limited to a mutually exclusive choice between the two alternatives.

 

3. A reference to a Governmental Rule includes any amendment or modification to such Governmental Rule, and all regulations, rulings and other Governmental Rules promulgated under such Governmental Rule.

 

4. A reference to a Person includes its successors and permitted assigns to the extent permitted and in accordance with the terms of the Credit Documents.

 

5. Accounting terms have the meanings assigned to them by GAAP, as applied by the accounting entity to which they refer.

 

6. The words “include,” “includes” and “including” are not limiting.

 

7. A reference in a document to an Article, Section, Exhibit, Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex or Appendix of such document unless otherwise indicated. Exhibits, Schedules, Annexes or Appendices to any document shall be deemed incorporated by reference in such document.

 

8. References to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, and (c) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, waived, supplemented, restructured, repaid, refunded, refinanced or otherwise modified (in each case, to the extent applicable) from time to time (to the extent permitted and in accordance with the terms of the Credit Documents) and in effect at any given time.

 

9. The words “hereof,” “herein” and “hereunder” and words of similar import when used in any document shall refer to such document as a whole and not to any particular provision of such document.

 

10. References to “days” means calendar days, unless the term “Business Days” shall be used. References to a time of day means such time in New York, New York, unless otherwise specified. If the Company or any Affiliate of the Company is required to perform an action, deliver a document or take such other action by a calendar day and such day is not a Business Day, then the Company or such Affiliate shall take such action by the next succeeding “Business Day.”

 

11. The Credit Documents are the result of negotiations among, and have been reviewed by the Company, the Pledgor, the Purchasers, the Collateral Agent, the Depositary and their respective counsel. Accordingly, the Credit Documents shall be deemed to be the product of all parties thereto, and no ambiguity shall be construed in favor of or against the Company, the Pledgor, the Purchasers, the Collateral Agent and the Depositary.

 

-24-


12. The words “will” and “shall” shall be construed to have the same meaning and effect.

 

13. Capitalized terms in any Credit Document have the meanings set forth therein and any capitalized term used in a Credit Document and not defined therein or in this Schedule B but in another Credit Document has the meaning in such other Credit Document.

 

14. Any term defined in this Schedule B by reference to another document, instrument or agreement shall continue to have the meaning ascribed thereto, as in full force and effect as of the date of this Agreement (without giving effect to any amendment to such terms unless expressly consented to by the Collateral Agent and the Holders of the Notes), whether or not such other document, instrument or agreement remains in effect.

 

-25-


S CHEDULE 4.1.22

L ITIGATION

 

1. Nichols et al. v. Markell et al ., No. 1:12-cv-00777, currently pending in the United States District Court for the District of Delaware.

 

2. John A. Nichols v. State Coastal Zone Industrial Control Board, Delaware Department of Natural Resources and Environmental Control, and Diamond State Generation Partners, LLC , C.A. No. N12A-07-001 MMJ (Delaware Superior Court), dismissal of Nichols’ appeal affirmed by the Delaware Superior Court on March 14, 2013; Nichols has 30 days to file an appeal with the Delaware Supreme Court.

 

S CHEDULE 4.1.22 TO N OTE P URCHASE A GREEMENT


Schedule 4.1.26 Project Budget

[***]

[Note: 5 pages redacted]

[***] Confidential Treatment Requested


Schedule 4.1.27 Base Case Projections

[***]

[Note: 86 pages redacted]

[***] Confidential Treatment Requested


Schedule 4.1.28 Project Schedule

[***]

[Note: 23 pages redacted]

[***] Confidential Treatment Requested


S CHEDULE 4.1.30

L IST OF D IRECT A GREEMENTS

 

1. Direct Agreement with respect to the MESPA.

 

2. Direct Agreement with respect to the MOMA.

 

3. Direct Agreement with respect to the Administrative Services Agreement.

 

S CHEDULE 4.1.30 TO N OTE P URCHASE A GREEMENT


S CHEDULE 5.3

D ISCLOSURE M ATERIALS

 

1. Base Case Projections.

 

2. “USPP Investor Presentation” of January 2013 posted to the datasite established by J.P. Morgan Securities LLC with respect to Note Purchase Agreement.

 

S CHEDULE 5.3 TO N OTE P URCHASE A GREEMENT


S CHEDULE 5.5

F INANCIAL S TATEMENTS

 

1. Audited annual financial statements of Bloom Energy Corporation for the year ended December 31, 2011.

 

2. Unaudited quarterly financial statements of Bloom Energy Corporation for the quarter ended September 30, 2012.

 

3. Unaudited quarterly financial statements of Diamond State Generation Partners, LLC for the quarter ended September 30, 2012.

 

S CHEDULE 5.5 TO N OTE P URCHASE A GREEMENT


S CHEDULE 5.15

E XISTING D EBT

Debt in the amount of $36,427,586 (including a $7,600,000 debt service reserve letter of credit) of the Company under the Credit Agreement, dated as of March 22, 2012, among the Company, The Royal Bank of Scotland plc as administrative agent and collateral agent, and the lenders party thereto.

 

S CHEDULE 5.15

(to Note Purchase Agreement)


S CHEDULE 5.19

P ERMITS

Part I

Brookside

 

Permit

  

Issuing Authority

  

Status

National Pollutant Discharge Elimination System (“NPDES”) Permit (construction)    Delaware Department of Natural Resources and Environmental Control (“DNREC”)    Approved
Air Permit    DNREC    Approved
Stormwater Review and Engineering Approval    New Castle/DNREC    Completed
Planning Dept. and Site Plan Approval    New Castle County    Approved
Feasibility Study    PJM    Completed
Generation Interconnection Facilities Study Report    PJM    Completed
DelDOT Entrance Permit    DDOT    Issued
NPDES Notice of Termination (“NOT”)    DNREC    The NOT will be filed once construction has finished
Notice of Self-Certification of Exempt Wholesale Generator Status, filed in Docket No. EG12-44-000.    FERC    Filed March 15, 2012.
DPL’s Service Classification “LVG-QFCP-RC” filed for gas service applicable to REPS Qualified Fuel Cell Provider Projects    Delaware Public Services Commission (DPSC)    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
DPL’s Service Classification “QFCP-RC” for REPS Qualified Fuel Cell Provider Projects    DPSC    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
Order from FERC granting Project Company MBR Authority    FERC    Issued

 

S CHEDULE 5.19 TO N OTE P URCHASE A GREEMENT


Part II

Red Lion

 

Permit

  

Issuing Authority

  

Status

Stormwater Discharge Notice of Intent (formerly listed as “NOI”)    DNREC    Completed
Waiving of 100 foot well restriction on the deed    Delaware City Refining Co.    Approved
System Impact Study/ISA/CSA    PJM    Completed
Transmission line right of way    DPL    Not applicable
DNREC Coastal Zone Permit    DNREC    Approved
DNREC well permit    DNREC    Not applicable
Air Permit (Operating and Construction)    DNREC    Approved and Issued
Stormwater Review and Engineering Approval    New Castle County    Approved
Planning Dept. and Site Plan Approval    New Castle County    Approved
Record Plan    New Castle County    Approved
DDOT Entrance Permit    DDOT    Issued
Stormwater Discharge Notice of Intent    DNREC    Completed
Firemarshal Review    State of Delaware    Completed
Feasibility Study    PJM    Completed
Wetlands Review    New Castle County    Completed
NPDES NOT    DNREC    Will be filed once construction has finished
Notice of Self-Certification of Exempt Wholesale Generator Status, filed in Docket No. EG12-44-000.    FERC    Filed March 15, 2012.
DPL’s Service Classification “LVG-QFCP-RC” filed for gas service applicable to REPS Qualified Fuel Cell Provider Projects    Delaware Public Services Commission (DPSC)    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
DPL’s Service Classification “QFCP-RC” for REPS Qualified Fuel Cell Provider Projects    DPSC    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
Order from FERC granting Project Company MBR Authority    FERC    Issued

 

S CHEDULE 5.19 TO N OTE P URCHASE A GREEMENT


S CHEDULE 8.1

A MORTIZATION S CHEDULE

Date

   Amortization Amount  

3/30/2012

   $ 0.00  

6/30/2012

   $ 0.00  

9/30/2012

   $ 0.00  

12/30/2012

   $ 0.00  

3/30/2013

   $ 0.00  

6/30/2013

   $ 0.00  

9/30/2013

   $ 0.00  

12/30/2013

   $ 0.00  

3/30/2014

   $ 2,142,946.62  

6/30/2014

   $ 2,264,546.36  

9/30/2014

   $ 2,294,098.69  

12/30/2014

   $ 2,324,036.68  

3/30/2015

   $ 2,319,835.36  

6/30/2015

   $ 2,443,743.50  

9/30/2015

   $ 2,475,634.35  

12/30/2015

   $ 2,507,941.38  

3/30/2016

   $ 2,447,035.73  

6/30/2016

   $ 2,572,603.83  

9/30/2016

   $ 2,606,176.31  

12/30/2016

   $ 2,640,186.91  

3/30/2017

   $ 2,581,007.06  

6/30/2017

   $ 2,708,323.49  

9/30/2017

   $ 2,743,667.11  

12/30/2017

   $ 2,779,471.97  

3/30/2018

   $ 2,722,109.79  

6/30/2018

   $ 2,851,267.61  

9/30/2018

   $ 2,888,476.65  

12/30/2018

   $ 2,926,171.27  

3/30/2019

   $ 2,870,723.52  

6/30/2019

   $ 3,001,820.75  

9/30/2019

   $ 3,040,994.51  

12/30/2019

   $ 3,080,679.49  

3/30/2020

   $ 3,027,248.07  

6/30/2020

   $ 3,160,387.94  

9/30/2020

   $ 3,201,631.00  

12/30/2020

   $ 3,243,412.29  

3/30/2021

   $ 3,192,104.53  

6/30/2021

   $ 3,327,395.78  

9/30/2021

   $ 3,370,818.30  

12/30/2021

   $ 3,414,807.48  

S CHEDULE 8.1 TO N OTE P URCHASE A GREEMENT


3/30/2022

   $ 3,365,736.43  

6/30/2022

   $ 3,503,293.58  

9/30/2022

   $ 3,549,011.56  

12/30/2022

   $ 3,595,326.16  

3/30/2023

   $ 3,548,610.88  

6/30/2023

   $ 3,688,554.54  

9/30/2023

   $ 3,736,690.17  

12/30/2023

   $ 3,785,453.98  

3/30/2024

   $ 3,702,617.47  

6/30/2024

   $ 3,843,687.57  

9/30/2024

   $ 3,893,847.70  

12/30/2024

   $ 3,944,662.41  

3/30/2025

   $ 11,483,703.22  
  

 

 

 

Total

   $ 144,812,500.00  

S CHEDULE 5.19 TO N OTE P URCHASE A GREEMENT


S CHEDULE 9.2

R EQUIRED I NSURANCE

The Company shall, without cost to the Secured Parties, obtain and maintain or cause to be obtained and maintained in full force and effect the insurance policies as required in this Schedule.

In each case the policies must be with insurance carriers with a rating of at least A- and a financial size category of at least X by A.M. Best or A by S&P or otherwise reasonably acceptable to the Required Holders.

The policies specified in Appendix 1 of this Schedule shall be in full force and effect at all times on and after the Closing Date or at such later inception date as is permitted by Appendix 1 to this Schedule until Termination subject to renewal no more frequently than annually.

At no time shall there be any gap in cover.

The policy limits and cover of the insurances required in this schedule shall be sufficient to satisfy the requirements set forth in the Project Documents, but in no event less than the limits and coverage provisions set forth in Appendix 1 herein. The obligation to verify that the insurances carried by the Company meet the requirements of the Project Documents shall rest solely with the Company.

The Company shall not violate or permit to be violated any condition, provision or requirement of any insurance policy required by this Schedule, and the Company shall perform, satisfy and comply with all conditions, provisions and requirements of all insurance policies.

The Company hereby waives any and every claim for recovery against the Purchasers or their directors, officers and employees and agents for any and all loss or damage covered by any insurance policies to be maintained under this Schedule to the extent such loss or damage is recovered under any such policy.

All policies of insurance required to be maintained pursuant to this Schedule, other than cover required by law, shall be endorsed such that if at any time they are cancelled, lapsed, terminated or suspended (by any party including the insuring parties), such cancellation, lapse, termination or suspension shall not become effective until at least 30 days after receipt by the Collateral Agent from such insurer of such cancellation, lapse, termination or suspension, except for non-payment of premium for which the required written notice shall be 10 days. In addition to this requirement, the Company shall inform each of the Purchasers as soon a reasonably possible if it becomes aware of and such cancellation, lapse, termination or suspension or of any reasonable prospect of such and shall further requite its broker to do the same.

All policies of insurance required to be maintained pursuant to this Schedule except workers compensation and employers liability shall provide:

 

   

Additional Insured status for the Collateral Agent and each of the Purchasers, the Tax Equity Investors, the Sponsor and in the case of liability policies only also their

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


 

respective affiliates, directors, officers, employees and agents (collectively, the “ Additional Insureds ”). This requirement shall not apply to any professional indemnity policy.

 

    Waivers of subrogation from the insurers in favor of the Additional Insureds.

 

    Policies shall either (a) be non-cancellable except for non-payment of premium with at least 10 days written notice of such to each of the Purchasers; or (b) have cancellation/non-payment provisions in accordance with the provisions of this Schedule.

 

    Each Purchaser or the Collateral Agent, on behalf of the Purchasers, will have the right but not the obligation to pay premiums on behalf of the Company in case of non-payment.

 

    Policies shall be unaffected by any bankruptcy or foreclosure relating to the Company or the Project.

 

    Insurance shall be primary and not excess to or contributing with any other insurance or self-insurance maintained by the Company or the Additional Insureds. However, policies can act in excess of underlying policies and any policies provided by contractors in accordance with the requirements of this Schedule.

 

    The Company shall ensure that no Insurer of a policy required in accordance with the terms of this Schedule shall permit the first named insured under such policy to reduce limits or cover or degrade terms and conditions without the prior written approval of the Required Holders.

 

    The Additional Insureds shall have no obligations whatsoever including but not limited to no obligation to pay premium and no obligation to pay deductibles.

 

    Policy limits shall act in excess of deductibles including the indemnity period for time element insurance which shall act in excess of the delay deductible for such insurance.

 

    Insurer costs and expenses including any associated with claims including claims adjustment are for the account of the relevant insurer and further will not be deducted from policy limits or sublimits.

In addition, all property policies including marine cargo (if applicable) and further including any time element insurance shall provide:

 

    That the Collateral Agent for the benefit of the holders of the Notes shall be sole loss payee of any amounts payable under the policies in relation to the Company and the Project.

 

    A non vitiation clause the form of a multiple insured clause or equivalent protection acceptable to the Required Holders acting reasonably.

 

    From the first policy renewal following the date of this agreement, cover for unintentional errors and omissions for a $25,000,000 sublimit.

 

    Replacement cost, new for old, with no deduction of any kind including no coinsurance provision or a waiver thereof and no allowance for depreciation (accounting or otherwise), obsolescence or loss of value over time other than in a total constructive loss or other scenario where repair/replacement does not follow loss.

 

    An advance or partial payment endorsement.

 

    A clause requiring the insurer to make final payment on any claim within thirty days after the submission of proof of loss and its acceptance by the insurer.

 

    Except for marine transit policies, a LEG2 exclusion or similar endorsement with no sublimit applied.

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


In addition, all liability policies except workers compensation and employers liability shall provide:

 

    Severability.

 

    Cross liability with no insured or additional insured excluded.

The above requirements shall be referred to as the “Required Holder Provisions”. The Required Holder Provisions can be provided either as endorsements to or in the main body of the relevant policy. All policies that replace or renew policies shall contain provisions, including limits, sublimits, deductibles, exclusions and the Required Holder Provisions, that are, mutatis mutandis, in all material regards at least the same as those in place at the Closing Date or, if later, the date of first inception of such policy cover, except in relation to risks where exposure no longer exists or where a better level of cover is provided or which would be required in accordance with the provisions of this Schedule.

The Company shall provide each of the Purchasers as soon as reasonably possible prior to financial close, and at least 10 days prior to any subsequent policy inception or renewal, a certificate of pre-agreed format from:

 

    Each placing broker confirming:

 

    Summary policy terms in the pre-agreed format.

 

    That all policies required by this schedule are in full force and effect.

 

    All insurance premiums that are due and payable have been paid in full with no premium overdue.

There shall be appended to such certificate or letter of undertaking insurance certificates for each policy required by this Schedule listing the major sublimits (to be agreed) and confirming that all required endorsements that apply to such policy are in place.

 

    The Insurance Consultant confirming that:

 

    The insurance provided complies with the requirements of this Agreement including this Schedule and further complies with the requirements of the Company in the Project Documents.

 

    That the undertakings made by each placing broker conform to the requirements of prudent industry practice.

The insurance provided by the Company shall be at least that evidenced in any certificates or other evidence provided by or on behalf of the Company.

Any of the requirements of this Schedule can be satisfied by single or by combined policies. However, as would be deemed necessary in accordance with prudent industry practice, a joint loss agreement will be required and included as part of the respective policies (for example, if there were separate marine transit and builders all-risk policies, then a 50:50 clause would be required).

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


If in the opinion of the Company, acting reasonably, any insurance, including the terms and conditions, required endorsements and limits or deductibles thereof, hereby required by this Schedule to be maintained, other than insurance required to be maintained by law which shall be maintained at all times, shall not be available on commercially reasonable terms in the commercial insurance market, the Company shall promptly inform the Collateral Agent and each of the Purchasers of such purported unavailability and the Company shall seek a waiver from the Required Holders in relation to such purported unavailability in which case the Required Holders, acting after consultation with the Insurance Consultant, shall not unreasonably withhold agreement to waive such requirement to the extent the maintenance thereof is not so available. The granting by the Required Holders of any such waiver is conditional on: (i) the Company first requesting such waiver in writing, which request shall be accompanied by written reports prepared by the Company and its placing broker certifying that such insurance is not available on commercially reasonable terms in the commercial insurance market for projects of similar type and capacity and, in any case where the required amount is not so available, certifying as to the maximum amount which is so available, and explaining in detail the basis for such conclusions and the form and substance of such reports to be reasonably acceptable to the Required Holders after consultation with the Insurance Consultant; (ii) at any time after the granting of any such waiver, any Secured Party may request, and the Company shall furnish to each Secured Party within fifteen (15) days after such request, supplemental reports reasonably acceptable to the Required Holders updating the prior reports and reaffirming such conclusion; (iii) any such waiver granted by the Required Holders can amend, to the extent reasonably required to mitigate any increased risks created by the absence of insurance cover that is the subject of the waiver, any of the terms of this Schedule and this Agreement; (iv) any Purchaser may require the Company to obtain the best available insurance comparable to the requirements of this Schedule on commercially reasonable terms then available in the commercial insurance market (as determined by the Insurance Consultant); and (v) such waiver shall be effective only so long as such insurance shall not be available on commercially reasonable terms in the commercial insurance market (as determined by the Insurance Consultant) it being understood that the failure of the Company to furnish any supplemental reports shall be deemed to be conclusive evidence that such waiver is no longer effective because such condition no longer exists, but that such failure is not the only way to establish such non-existence.

Any failure on the part of any Secured Party to pursue or obtain the evidence of insurance required by this Schedule from the Company and/or failure to point out any non-compliance of such evidence of insurance shall not constitute a waiver of any of the insurance requirements in this Schedule.

Each liability insurance policy required pursuant to this Schedule that is permitted to be written on a “claims made” basis shall provide (a) a retroactive date (as such term is specified in each of such policies) that is no later than the Closing Date and (b) each time any policy written on a “claims made” basis is not renewed or the retroactive date of such policy is to be changed, the Company shall obtain and maintain, or cause to be obtained or maintained, for each such policy or policies the broadest extended reporting period coverage, or “tail”, reasonably available in the commercial insurance market for each such policy or policies but in no case less than three

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


(3) years. The Company may satisfy the requirements of this Section by obtaining “prior acts” coverage from a subsequent insurance carrier on terms acceptable to the Collateral Agent, acting reasonably.

All property insurance including marine cargo and any time element insurance shall not include any annual or term aggregate limits or sublimits except for the perils of windstorm, flood, earth movement, unintentional errors & omissions and land and water decontamination but only to the extent permitted in Appendix 1 to this Schedule. Liability policies may have general aggregate limits in accordance with prudent insurance market practice.

All insurance policies required to be maintained pursuant to this Schedule shall contain terms and conditions reasonably acceptable to the Required Holders following consultation with the Insurance Consultant.

In the event that at any time the insurance as herein provided or as evidenced shall be reduced or cease to be maintained, then (without limiting the rights of any Secured Party hereunder in respect of the Event of Default which arises as a result of such failure) any Secured Party, upon ten (10) Business Days’ prior written notice (unless such insurance coverage would lapse within such period, in which event notice should be given as soon as reasonably possible) to the Company of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same. All amounts so advanced for such purpose shall become an additional obligation of the Company to the Secured Parties that provided such funding, and the Company shall forthwith pay such amounts, together with interest on such amounts at the applicable Default Rate from the date so advanced.

The Required Holders can, acting reasonably, require such additional cover to be provided as is required to conform to prudent industry practice.

The Required Holders shall have the option to be present and/or to send representatives during meetings and/or negotiations with insurers of any loss settlement in relation to the Company or the Project regarding (a) total constructive loss or any scenario in which repair/replacement will not follow loss, (b) any circumstance involving a claim in relation to an event or series of events which has or could be reasonably expected to lead to a Default. Neither the Company nor any of its Affiliates shall be permitted to settle any such claim with an insurer without the approval of the Required Holders to the agreed settlement.

Each Purchaser may, pursuant to its rights and obligations under this Agreement and this Schedule and the provisions therein, consult with the Insurance Consultant and require reports, compliance certificates and other work product from the Insurance Consultant.

Terms used in this Schedule, unless otherwise specifically defined, shall have the meaning normally ascribed to them in accordance with prudent industry practice in relation to a project similar in type and jurisdiction as the Project.

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


A PPENDIX 1

 

  (a) Construction Phase Property Policy

If the Purchasers or Tax Equity Investors are pre funding construction phase expenditures then as a condition precedent to such funding, evidence shall be provided that is reasonably acceptable to the Required Holders or Tax Equity Investors (as applicable) that adequate property insurance is in place sufficient to cover the value of (a) the largest transit shipment and offsite storage; and (b) aggregate assets on site at the Project and Delay in Start-Up exposure prior to the All Risk Property and Business Interruption Insurance being in full force and effect. Furthermore, the Collateral Agent and each of the Purchasers will be added as additional insured to the construction general liability policy which shall have limits and terms adequate to cover their exposure.

 

  (b) All Risk Property and Business Interruption Insurance

From the earlier of (a) Completion; and (b) First Funding Event, “All Risk Property” insurance shall be provided for all property, equipment and construction and erection activities associated with the Project on an “all risk” basis insuring the Company and the Additional Insureds, as their interests may appear, including but not limited to coverage for the perils of earth movement (including but not limited to earthquake, landslide, subsidence, sink hole and volcanic eruption), flood, named windstorm. There shall be no requirement for machinery breakdown coverage subject to the agreement of the Required Holders and the Tax Equity Investors, acting reasonably, that such risks are adequately covered by Power Performance Warranty.

The policy limit shall be an amount not less than the aggregate full replacement cost of the projects such amount also being referred to as the “full policy limit”. Full insurable value shall mean the full replacement cost value of the Project on a “new for old” basis, including but not limited any new or existing buildings or structures, any improvements to new or existing property, equipment, mechanical plant, electrical plant, spare parts, and supplies and temporary works.

Per occurrence sublimits shall be at least as follows:

 

•   Unintentional Errors & Omissions

   $25M

•   Debris removal

   25% of the amount payable for the direct physical loss

•   Architects and engineers fees

   $2m

•   Expediting expense

   $1m

•   Blueprints, drawings, etc.

   $1m or less

•   On site pollution

   $100,000

An annual aggregate sublimit shall be permitted for flood of $10M. An annual aggregate sublimit shall be permitted for earth movement of $25M subject to confirmation from the

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


independent engineer and accepted by the Required Holders and the Tax Equity Investors, acting reasonably, that any such damage is likely to be within this limit. Limits for windstorm shall be full policy limits on a per occurrence basis.

The All Risk Property policy shall include a seventy-two (72) hour flood/named windstorm/earthquake clause. There shall be no serial loss clause.

Business Interruption coverage insuring the loss of expected gross revenues for the largest single Project for a period of not less than the greater of (a) 12 months; and, (b) the longest lead time for replacement as determined by the Required Holders and the Tax Equity Investors in consultation with the Independent Engineer as a result of physical loss or damage by perils required to be insured under the All Risk Property policy, including all sections preceding this section, which cause a reduction in output.

Contingent business interruption insurance covering loss of gross revenues less non-continuing expenses for:

 

    Power Suppliers and Public Utilities Extension – loss, including delay, caused by interference/interruption of power/other utility including export substation – full cover.

 

    Prevention of Ingress/Egress 90 days

 

    Damage to an export substation cover for loss of expected gross revenues less non-recurrent costs for a six month indemnity period.

Some or all of the requirement for contingent business interruption can be reduced or eliminated subject to the agreement of the Required Holders and the Tax Equity Investors that such risks or proportions of such risks are adequately covered by the Tariff.

Deductibles shall be the best commercially available in accordance with prudent industry practice not exceeding 2% for earthquake.

 

  (c) Marine Cargo and Marine Business Interruption Insurance

To the extent a material exposure exists, transit coverage, either included in a property policy or under a separate policy (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 110% of the value including transit and insurance of such shipment involving Project or any other Collateral assets to or from any storage site or the Project site at all times for which the Company has accepted risk of loss or has responsibility for providing insurance. Coverage shall include loading and unloading, 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 $100,000 for physical damage and other terms and conditions acceptable to the Required Holders and the Tax Equity Investors in consultation with the Insurance Consultant.

Marine Business Interruption insurance shall be attached to the Marine Cargo policy providing equivalent cover, mutatis mutandis, to the Business Interruption cover attached to the All Risk Property policy in accordance with the terms of this Schedule.

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


  (d) General Liability

A limit of $1,000,000 per occurrence and in the aggregate shall be provided for:

 

    Property damage, death and injury (including mental injury).

 

    Broad form property damage.

 

    Blanket contractual.

 

    Products/completed operations

 

    Advertising injury

 

    XCU

Deductibles shall be the best commercially available in accordance with prudent industry practice.

 

  (e) Automobile Liability

Automobile liability insurance, to the extent exposure exists, including coverage for owned, non-owned and hired automobiles for both bodily injury and property damage and containing appropriate no-fault insurance provisions or other endorsements in accordance with state legal requirements, with a combined single limit of no less than $1,000,000 per accident with respect to bodily injury, property damage or death. Deductibles shall be the best commercially available in accordance with prudent industry practice.

 

  (f) Workers’ Compensation and Employer’s Liability

If the Company has employees, workers’ compensation insurance in compliance with statutory requirements and employer’s liability insurance, to the extent exposure exists, with a limit of not less than $1,000,000 per accident, per employee and per disease including such other forms of insurance that the Company is required by law to provide for the Project, all other states’ endorsement and, to the extent any exposure exists, coverage with respect to the USL&H Act and Jones Act, covering loss resulting from bodily injury, sickness, disability or death of the employees of the Company. Deductibles shall be the best commercially available in accordance with prudent industry practice.

 

  (g) Pollution Liability

Pollution liability insurance for liability arising out of property damage or bodily injury to third parties as a result of sudden and accidental pollution including the cost of on-site and off-site clean up in an amount not less than $1,000,000 per occurrence and in the aggregate. Deductibles shall be the best commercially available in accordance with prudent industry practice.

 

  (h) Umbrella Liability Insurance

An aggregate limit of $15,000,000 (or $20,000,000, if so required by any Project Document) shall be attached and in excess of the underlying general liability, automobile liability, employers’ liability policies on a following form basis with drop down provisions.

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


  (i) Errors and Omissions Liability

Errors and omissions insurance for liability arising out of property damage or bodily injury to third parties as a result of prototype manufacturing errors and omissions liability $1,000,000 per glitch and in the aggregate. Deductibles shall be the best commercially available in accordance with prudent industry practice.

 

  (j) Directors & Officers Insurance

Directors & Officers insurance, including Employment Practices (if employees) in an amount not less than $10,000,000 on industry standard policy forms subject to a retention not to exceed $50,000. This requirement may be satisfied by a corporate policy.

 

S CHEDULE 9.2 TO N OTE P URCHASE A GREEMENT


[ F ORM OF N OTE ]

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”). NEITHER THIS NOTE NOR ANY PORTION HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.

THE HOLDER OF THIS NOTE, BY ACCEPTANCE OF THIS NOTE, AND EACH HOLDER OF A BENEFICIAL INTEREST THEREIN, AGREE TO TREAT THE NOTE AS INDEBTEDNESS OF THE COMPANY FOR APPLICABLE FEDERAL, STATE, AND LOCAL INCOME AND FRANCHISE TAX LAW AND FOR PURPOSES OF ANY OTHER TAX IMPOSED ON, OR MEASURED BY, INCOME.

 

E XHIBIT 1

(to Note Purchase Agreement)


DIAMOND STATE GENERATION PARTNERS, LLC

5.22% S ENIOR S ECURED N OTE D UE M ARCH 30, 2025

 

No. [        ]   [Date]
$[        ]   PPN 25275@AA1

F OR V ALUE R ECEIVED , the undersigned, DIAMOND STATE GENERATION PARTNERS, LLC (herein called the “ Company ”), a limited liability company formed and existing under the laws of the State of Delaware, hereby promises to pay to [            ], or registered assigns, the principal sum of [                    ] D OLLARS (or so much thereof as shall not have been prepaid) on [            ,         ] (the “ Maturity Date ”), with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance hereof at the rate of 5.22% per annum from the date hereof, payable quarterly, on the 30 th day of March, June, September and December in each year, commencing with the [            ] next succeeding the date hereof, and on the Maturity Date, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment of interest and, during the continuance of an Event of Default, on such unpaid balance and on any overdue payment of any Make-Whole Amount, at the Default Rate, payable quarterly as aforesaid (or, at the option of the registered holder hereof, on demand).

Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Collateral Agent in New York, New York or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

This Note is one of a series of Senior Secured Notes (herein called the “ Notes ”) issued pursuant to the Note Purchase Agreement, dated as of March 20, 2013 (as from time to time amended, the “ Note Purchase Agreement ”), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Article 20 of the Note Purchase Agreement and (ii) made the representations set forth in Article 6 of the Note Purchase Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement.

This Note is registered in the register of Notes maintained by the Company and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

 

 

E XHIBIT 1

(to Note Purchase Agreement)


The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.

If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of the Company and the holder of this Note shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.

 

DIAMOND STATE GENERATION PARTNERS, LLC
By  

 

  [Title]

 

E XHIBIT 1

(to Note Purchase Agreement)


E XHIBIT 4.1.13(a)

F ORM OF O PINION OF C OUNSEL TO THE C OMPANY

[See Execution Version]

E XHIBIT 4.1.13(a) TO N OTE P URCHASE A GREEMENT


LOGO

      ORRICK, HERRINGTON & SUTCLIFFE LLP
      51 WEST 52ND STREET
      NEW YORK, NEW YORK 10019-6142
     

 

tel +1-212-506-5000

      fax +1-212-506-5151
     

 

WWW.ORRICK.COM

March 20, 2013

To the Addressees listed on Schedule 1

Re: Diamond State Generation Partners, LLC

Ladies and Gentlemen:

We have acted as special counsel to Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), Diamond State Generation Holdings, LLC, a Delaware limited liability company (the “ Pledgor ”), Clean Technologies II, LLC, a Delaware limited liability company (the “ Member ”), and Bloom Energy Corporation, a Delaware corporation (the “Sponsor” and together with the Company, the Pledgor and the Member, the “ Opinion Parties ” and each an “Opinion Party”), in connection with the preparation, execution and delivery of (A) the Note Purchase Agreement, dated as of March 20, 2013 (the “ Note Purchase Agreement ”), among the Company and the note purchasers party thereto, and (B) the Transaction Documents (as defined below). This opinion is being furnished to you pursuant to Section 4.1.13(a) of the Note Purchase Agreement. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Note Purchase Agreement. As used herein, “Accounts” means the Accounts as defined and listed in Section 2.1(a) of the Depositary Agreement on the date hereof.

In connection with this opinion, we have examined and relied on originals, or copies certified or otherwise identified to our satisfaction, of the following:

 

  (1) the Note Purchase Agreement;

 

  (2) the Equity Contribution Agreement;

 

  (3) the Depositary Agreement;

 

  (4) the Pledge Agreement;

 

  (5) the Direct Agreement among Sponsor, Company and Deutsche Bank Trust Company Americas, as collateral agent for the Secured Parties (the “ Collateral Agent ”) with respect to the Administrative Services Agreement;


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 2

 

  (6) the Direct Agreement among Sponsor, Company and the Collateral Agent with respect to the MESPA;

 

  (7) the Direct Agreement among Sponsor, Company and the Collateral Agent with respect to the MOMA;

 

  (8) the Security Agreement;

 

  (9) the Collateral Agency Agreement;

 

  (10) the Interparty Agreement;

 

  (11) the Cash Grant Indemnity Agreement, dated as of March 20, 2013, by the Sponsor in favor of the Company and the Collateral Agent;

 

  (12) the Mortgage;

 

  (13) copies of the Certificate of Formation of the Company (formerly known as Germinis 2011 Generation Partners, LLC) and Certificate of Amendment of Certificate of Formation with respect to the Company, each as certified by the Secretary of State of the State of Delaware (“ DE SOS ”) on March 8, 2012;

 

  (14) copies of the Tenth Amended and Restated Certificate of Incorporation of the Sponsor and Certificate of Amendment to the Tenth Amended and Restated Certificate of Incorporation of the Sponsor, each as certified by the DE SOS on June 15, 2012;

 

  (15) a copy of the Certificate of Formation of the Member, as certified by the DE SOS on March 8, 2012;

 

  (16) a copy of the Certificate of Formation of the Pledger, as certified by the DE SOS on March 8, 2012;

 

  (17) the limited liability company operating agreements in effect as of the date hereof of each of the Company, the Pledgor and the Member;


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 3

 

  (18) the by-laws in effect as of the date hereof of the Sponsor;

 

  (19) certificates of good standing as to the Company, the Member, the Pledgor and the Sponsor issued by the DE SOS on March 11, 2013;

 

  (20) the UCC financing statement, a copy of which is attached hereto as Exhibit A , naming the Pledgor as debtor and the Collateral Agent as secured party, to be filed with the DE SOS (the “ Pledgor Financing Statement ”);

 

  (21) the UCC financing statement, a copy of which is attached hereto as Exhibit B, naming the Company as debtor and the Collateral Agent as secured party, to be filed with the DE SOS (the “ Company Financing Statement ”); and

 

  (22) the UCC financing statement, a copy of which is attached hereto as Exhibit C, naming the Company as debtor and the Collateral Agent as secured party, and indicating that the Company is a transmitting utility, to be filed with the DE SOS (the “ Transmitting Utility Financing Statement ”).

The documents referenced in items (1) through (11) above are hereinafter referred to each as a “New York Transaction Document” and collectively as the “ New York Transaction Documents ”. The documents referenced in subparagraphs (1) through (12) above are hereinafter referred to each as a “ Transaction Document ” and collectively as the “ Transaction Documents ”.

Terms used in paragraphs 9 through 13 below or in any qualifications, assumptions, or other matters applicable to the opinions expressed in such paragraphs that are defined in the New York Uniform Commercial Code (the “ NYUCC ”) or the Delaware Uniform Commercial Code (the “ DUCC ”) and not otherwise defined herein shall have the meanings set forth in the NYUCC or the DUCC, as applicable.

We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, documents (including organizational documents of the Opinion Parties) and other instruments, and such certificates and comparable documents of public officials and of officers and representatives of the Opinion Parties, as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 4

 

In connection with rendering the opinions expressed below, with your permission we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the identity and capacity of all individuals acting or purporting to act as public officials, the authenticity and accuracy of all documents submitted to us as originals, the conformity to the authentic original documents of all documents submitted to us as copies thereof and the authenticity of the originals of such copies. As to questions of fact material to the opinions expressed below, we have relied, to the extent we deemed necessary or appropriate as a basis for such opinions, upon the representations, certificates and statements made or otherwise provided to us by the Opinion Parties and their respective officers and other representatives, and of public officials, and upon such documents, records and instruments as we have deemed appropriate, in each case without independent check or verification of the accuracy of such documents, records and instruments.

Further, with your permission we have assumed (i) that each of the parties (other than the Opinion Parties) to the Transaction Documents (A) is duly organized or formed and validly existing under the laws of its respective jurisdiction of organization or formation and has full power, authority, and legal right to enter into and perform its obligations under each Transaction Document to which it is a party, (B) has duly authorized each Transaction Document to which it is a party, and (C) has duly executed and delivered each Transaction Document to which it is a party, (ii) that each of the Transaction Documents constitutes the legal, valid and binding obligation of each of the parties thereto (other than the Opinion Parties), enforceable against such parties in accordance with its terms, (iii) that, except as otherwise expressly provided in paragraph 8 below with respect to the Opinion Parties, the parties to the Transaction Documents have received, or will receive by the time required, and will, to the extent required by any governmental requirement, maintain in full force and effect, all consents, approvals, filings, notices and other authorizations from any Governmental Authority (collectively, “ Governmental Approvals ”) which are required for the due execution, delivery and performance by the parties to the Transaction Documents and that such execution, delivery and performance by the parties to the Transaction Documents does not and will not conflict with any provision of any governmental requirement or the terms of any Governmental Approval applicable to the parties to the Transaction Documents or the conduct of their respective businesses or any agreement or instrument to which they are a party or by which they or their property are bound, (iv) the absence of any evidence extrinsic to the provisions of the Transaction Documents that the parties thereto intended a meaning contrary to that expressed by those provisions, and (v) the truth, accuracy and completeness of the information, representations and warranties contained in the records, documents, instruments and certificates we have reviewed. With respect to the opinions in paragraph 13, we have assumed that (i) each Account is a securities account maintained with the Depositary, (ii) the


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 5

 

Depositary is a securities intermediary and is acting in that capacity, and (iii) the Company does not control the Depositary, is not controlled by the Depositary, is not under common control with the Depositary, and is not an insider or affiliate of the Depositary, and the Depositary does not lease any collateral from the Company.

We express no opinion in paragraphs 1 through 8 and 14 through 16 as to the laws of any jurisdiction other than (a) the laws of the State of New York, (b) the federal laws of the United States of America and (c) the Delaware Limited Liability Company Act (the “ DLLCA ”), and (d) the General Corporation Law of the State of Delaware (the “ DGCL ”), in each case as in effect on the date hereof, and our opinion is limited to and applies only insofar as such laws may be concerned.

As you know, we are not admitted to practice law in the State of Delaware, and our opinions regarding the DLLCA and DGCL are based solely on our review of the text of those acts as set forth in the Delaware Laws Governing Business Entities Annotated Statutes and Rules, 2012 Fall Edition, published by LexisNexis, without regard to other Delaware statutory or judicial decisional law. Our opinions regarding the DUCC are based solely on our review of the text of Article 9 of the DUCC as set forth in the Delaware Uniform Commercial Code Annotated, 2012-2013 Edition, published by LexisNexis, without regard to judicial or administrative interpretations of such law. As a result, this firm has not conducted the same degree of review (for example, reviewing case law) that lawyers who regularly render opinions on Delaware law would conduct, and accordingly the opinions set forth herein as to the DUCC are not the equivalent of an opinion of Delaware counsel.

We have assumed that all governmental requirements have been duly enacted and validly promulgated, that each Governmental Authority has been duly constituted and that all public officials and all members of each Governmental Authority have been duly appointed and are lawfully holding the positions to which they have been elected or appointed, and that any actions taken by them under delegated authority are undertaken pursuant to properly delegated authority.

Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that:

1. Based solely on our review of the documents listed in item (19) above, (i) each of the Company, the Member and the Pledgor is a limited liability company validly existing and in good standing under the DLLCA and (ii) the Sponsor is a corporation validly existing and in good standing under the DGCL.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 6

 

2. Each of the Company, the Member and the Pledgor has the requisite limited liability company power and authority, and the Sponsor has the requisite corporate power and authority, to execute and deliver each Transaction Document to which it is a party. The Company has the requisite limited liability company power and authority to issue and sell the Notes pursuant to the Note Purchase Agreement.

3. The execution and delivery by the Company, the Pledgor and the Member of each Transaction Document to which it is a party, and the issuance and sale· by the Company of the Notes under the Note Purchase Agreement, have been authorized by all necessary limited liability company action on the part of the Company, the Pledgor and the Member.

4. The execution and delivery by the Sponsor of each Transaction Document to which it is a party have been authorized by all necessary corporate action on the part of the Sponsor.

5. Neither the execution and delivery of each Transaction Document to which it is a party, nor the performance by it of its obligations thereunder, in each case by each of the Opinion Parties, result in a violation of the organizational documents of such Opinion Party or any other Transaction Document.

6. Neither the execution and delivery of each New York Transaction Document to which it is a party, nor the performance by it of its obligations thereunder, in each case, by each of the Opinion Parties, result in a violation of any law of the State of New York or the United States or any rule or regulation thereunder applicable to such Opinion Party.

7. Each of the New York Transaction Documents constitutes the valid and binding obligation of each Opinion Party party thereto, enforceable against such Opinion Party in accordance with its respective terms.

8. No authorization, consent, waiver, approval or other action by any Governmental Authority under New York or United States federal laws which has not been obtained is required for (a) the due execution and delivery by each Opinion Party of each New York Transaction Document to which it is a party and (b) the issuance and sale by the Company of the Notes pursuant to the Note Purchase Agreement.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 7

 

9. The Security Agreement creates in favor of the Collateral Agent a security interest in the Company’s rights in the Collateral as defined therein (the “ Company Collateral ”).

10. The Pledge Agreement creates in favor of the Collateral Agent a security interest in the Pledger’s rights in the Collateral as defined therein (the “ Pledger Collateral ”).

(a) Upon the effective filing of the Company Financing Statement with the DE SOS, the security interest described in paragraph 9 will be perfected in such of the Company Collateral described in the Company Financing Statement in which a security interest can be perfected by the filing of a financing statement under the DUCC.

(b) Upon the effective filing of the Pledger Financing Statement with the DE SOS, the security interest described in paragraph 10 will be perfected in such of the Pledger Collateral described in the Pledger Financing Statement in which a security interest can be perfected by the filing of a financing statement under the DUCC.

(c) If the Company is a “transmitting utility” as defined in Section 9- 102(a)(80) of the DUCC (a matter as to which we express no opinion), then upon the effective filing of the Transmitting Utility Financing Statement with the DE SOS, the security interest described in paragraph 9 will be perfected in such of the Company Collateral described in the Transmitting Utility Financing Statement in which a security interest can be perfected by the filing of a financing statement under the DUCC.

11. The security interest described in paragraph 10 will be perfected in such of the Pledger Collateral that is a certificated security in registered form upon the Collateral Agent acquiring possession in the State of New York of the related security certificate, indorsed to the Collateral Agent or in blank by an effective indorsement.

12. The security interest described in paragraph 9 in such of the Company Collateral as consists of the Accounts and the security entitlements carried therein will be perfected upon the execution and delivery of the Security Agreement and the Depositary Agreement.

13. On the basis of the representations of the Company contained in Section 5.13 of the Note Purchase Agreement and the representations of the Purchasers in Article 6 of the Note Purchase Agreement, it is not necessary, in connection with the issuance and sale of the Notes by the Company to the Purchasers under the circumstances contemplated by the Note Purchase Agreement, to register the Notes under the Securities Act of 1933, as amended, or to qualify an indenture with respect thereto under the Trust Indenture Act of 1939, as amended.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 8

 

14. The issuance and sale of the Notes by the Company to the Purchasers under the Note Purchase Agreement, and the application of the proceeds thereof by the Company as provided in the Note Purchase Agreement, will not violate Regulations T, U or X of the Board of Governors of the Federal Reserve System.

15. None of the Opinion Parties is an “investment company” or “controlled” by a Person that is required to register as an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

Our opinions are subject to the following limitations, qualifications, exceptions and assumptions:

A. Our opinion set forth in paragraph 7 above with respect to the enforceability of the New York Transaction Documents referenced therein are subject to the following:

(i) the enforceability of such New York Transaction Documents may be limited by the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination;

(ii) the enforceability of such New York Transaction Documents may be limited by statutory requirements with respect to good faith, fair dealing and commercial reasonableness, by general principles of equity (including, without limitation, the concepts of materiality, good faith, fair dealing and commercial reasonableness, regardless of whether enforcement is sought in a proceeding in equity or at law) and by the effect of judicial decisions that have held that certain provisions are unenforceable where their enforcement would violate the implied covenant of good faith and fair dealing, or would be commercially unreasonable, or where a default is not material, including those provisions regarding various self-help or summary remedies without notice or opportunity for hearing or correction, especially if their operation would work a forfeiture or impose a penalty upon the burdened party;


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 9

 

(iii) the availability of equitable remedies, including without limitation specific enforcement and injunctive relief, is subject to the discretion of the court before which any proceedings therefor may be brought; and

(iv) with respect to the enforceability of the choice of New York law provisions in the New York Transaction Documents, we have relied upon the provisions of New York General Obligations Law Section 5-1401 and our opinion is subject to the qualification that the enforceability of such provisions may be limited by public policy considerations of any jurisdiction other than New York that would cause the New York Transaction Documents to be unenforceable, illegal, invalid or insufficient under the laws of the State of New York.

B. In giving the opinion set forth in paragraph 7 above with respect to the enforceability of any of the New York Transaction Documents referenced therein, we express no opinion as to:

(i) the enforceability of any provisions of such New York Transaction Document that purport to establish (or may be construed to establish) evidentiary standards;

(ii) the legality, validity, binding effect or enforceability of any provisions of such New York Transaction Document insofar as they provide for the payment or reimbursement of costs and expenses or indemnification for claims, losses or liabilities that are determined by any court or other tribunal to be in excess of a reasonable amount or to be against public policy;

(iii) the enforceability under certain circumstances of any provisions of such New York Transaction Document indemnifying a party against liability for its own wrongful or negligent acts;

(iv) the effect of the compliance or noncompliance by any party to a New York Transaction Document (other than the Opinion Parties) with any state or federal laws or regulations (including, without limitation, any unpublished order, decree, or directive issued by any Governmental Authority) applicable to such Person because of its legal or regulatory status, the nature of its business or its authority to conduct business in any jurisdiction;


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 10

 

(v) the enforceability of any provisions of such New York Transaction Document that provide that the assertion or employment of any right or remedy shall not prevent the concurrent assertion or employment of any other right or remedy, or that each and every remedy shall be cumulative and in addition to every other remedy or that any delay or omission to exercise any right or remedy shall not impair any other right or remedy or constitute a waiver thereof, but the inclusion of such provisions does not render such New York Transaction Document otherwise unenforceable nor does such inclusion make the remedies afforded by such New York Transaction Document inadequate for the practical realization of the rights and benefits purported to be provided thereby;

(vi) the enforceability of any provisions of such New York Transaction Document providing for indemnification to the extent such indemnification violates the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or the securities laws of any state;

(vii) the enforceability in the federal courts of the United States of America of any forum selection clause in such New York Transaction Document, except to the extent any such clause is made enforceable by New York General Obligations Law Section 5-1402, as applied by a New York state court or federal court sitting in New York and applying New York forum selection principles. We express no opinion as to the enforceability of any provision of such New York Transaction Document insofar as it purports to confer subject matter jurisdiction on any U.S. District Court to adjudicate any controversy relating to such New York Transaction Document in any circumstances in which such court would not have subject matter jurisdiction. In addition, our opinion is qualified by reference to the discretion that a federal court may exercise in light of 28 U.S.C. Section 1404(a) and relevant case law;

(viii) the enforceability of any choice of law provisions in such New York Transaction Document, except to the extent any such choice of law provision is made enforceable by New York General Obligations Law Section 5-1401, as applied by a New York state court or federal court sitting in New York and applying New York choice of law principles; or

(ix) the enforceability of any provision of such New York Transaction Document purporting to (A) impose restrictions on non-written modifications and waivers, (B) authorize or validate conclusive or discretionary determinations, (C) provide proxies, powers and trusts to any party, (D) provide for liquidated damages, default interest, late charges, monetary penalties, prepayment premiums or other economic remedies to the extent constituting a penalty, (E) provide for the marshaling of assets or set-offs or (F) provide for certain acts or matters to be null and void automatically or ab initio in each case to the extent determined to constitute penalties or otherwise to violate public policy.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 11

 

C. Our opinion set forth in paragraph 6 above is based upon a review of those statutes, rules and regulations that, in our experience, are normally applicable to transactions of the type contemplated by the New York Transaction Documents referenced therein.

D. As noted above, we do not express any opinion in paragraphs 1 through 8 and 14 through 16 with respect to the law of any jurisdiction other than the federal laws of the United States of America, the laws of the State of New York, the DLLCA, and the DGCL. Without limiting the generality of the foregoing, we express no opinion concerning the laws of any other jurisdiction in which the parties may be located or in which enforcement of the Transaction Documents may be sought. In rendering our opinions we have not made any investigation of, and express no opinion concerning, laws, rules and regulations of (i) the State of New York relating to land use, zoning, construction, or transportation and all laws, rules and regulations promulgated by political subdivisions of the State of New York or (ii) the United States or the State of New York relating to (A) insurance, (B) banking regulations, (C) taxes, (D) utilities, energy or power generation, transmission or sale or (E) health, safety, sanitation, the environment, environmental contamination or environmental conservation. In addition, we express no opinion concerning Section 406 of the Employee Retirement Income Security Act of 1974, as amended, or state securities or “blue sky” laws, Section 4975 of the Internal Revenue Code of 1986, as amended, or any rules, regulations or orders thereunder.

We express no opinion in paragraphs 9 through 13 as to (a) any collateral to the extent that the applicable debtor does not have rights therein or the power to transfer rights therein, or any collateral that is not adequately and sufficiently described in the applicable documents, (b) any security interest for which value has not been given to the applicable debtor, (c) any collateral that is of a type described in Section 9-501(a)(l) of the NYUCC or Section 9- 501(a)(l) of the DUCC, or that constitutes consumer goods or a commercial tort claim, (c) any consumer transaction, (e) any collateral that constitutes a debt, liability, or other obligation of the secured party, or (f) the priority of any security interest. We express no opinion in paragraphs 11(a), (b), or (c) as to (i) the perfection of any security interest if the applicable financing statement does not sufficiently set forth the name and address of each of the debtor and the secured party, and the type and jurisdiction of organization of the debtor, or (ii) any collateral in which a security interest cannot be perfected by the filing of a financing


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 12

 

statement with the DE SOS under the DUCC. We express no opinion in paragraphs 12 or 13 if the applicable debtor is a securities intermediary, broker, or commodity intermediary. We express no opinion as to any collateral described in the proviso to Section 2.1 of the Security Agreement. Any opinion expressed herein as to any security interest in proceeds is subject to the provisions of Section 9-315 of the NYUCC and Section 9-315 of the DUCC.

Section 9-102(a)(80) of the DUCC defines a “transmitting utility”

as: a person primarily engaged in the business of:

(A) operating a railroad, subway, street railway, or trolley bus;

(B) transmitting communications electrically, electromagnetically, or by light;

(C) transmitting goods by pipeline or sewer; or

(D) transmitting or producing and transmitting electricity, steam, gas, or water.

We express no opinion as to whether or not the Company is a transmitting utility within the meaning of Section 9-102(a)(80) of the DUCC. We express no opinion in paragraph 11(c) if the Company is not a transmitting utility within the meaning of Section 9-102(a)(80) of the DUCC.

The opinions set forth in paragraphs 9, 10, 12, and 13 above are limited to Article 9 of the NYUCC, and thus such opinions cover only security interests, collateral, transactions, and perfection methods to the extent governed by Article 9 of the NYUCC. The opinions set forth in paragraph 11 above are limited to Article 9 of the DUCC, and thus such opinions cover only security interests, collateral, transactions, and perfection methods to the extent governed by Article 9 of the DUCC. We express no opinion in paragraphs 9 through 13 as to any matter regarding choice of law.

We have no obligation to perfect or to maintain the perfection or the priority of any security interest described in this opinion letter or to advise anyone after the date hereof as to actions necessary or advisable to do so.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 13

 

This opinion is solely for the benefit of the Company and the addressees hereof in connection with the transactions contemplated by the Note Purchase Agreement and may not be relied upon or used by any other person or for any other purpose without our prior written consent, except that (a) transferees, successors and assignees of the Notes may rely on this opinion as if they were an original addressee, provided that any such reliance by a transferee, successor or assign must be actual and reasonable under the circumstances existing at the time of assignment, including any changes in law, facts or any other developments known to or reasonably knowable by the transferee, successor or assign at such time, and (b) you may provide copies of this opinion letter to (i) any governmental or regulatory agency (including, without limitation, the NAIC) having jurisdiction over you and (ii) any court of law or other tribunal in connection with any matter relating to the Note Purchase Agreement. This letter speaks only as of the date hereof. We disclaim any responsibility or obligation to update this opinion, to consider its applicability or correctness to other than its addressees, or to take into account changes in law, facts or any other developments of which we may later become aware.

Very truly yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP


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SCHEDULE 1

Addressees

Deutsche Bank Trust Company Americas, as Collateral Agent under the Note Purchase Agreement

Each Purchaser party to the Note Purchase Agreement


 

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EXHIBIT A


LOGO

UCC FINANCING STATEMENT

FOLLOW INSTRUCTIONS (front and back) CAREFULLY

 

A.   NAME & PHONE OF CONTACT AT FILER (optional)  
   

Lisa Phillips                                   (212) 906-1200

 
B.  

SEND ACKNOWLEDGMENT TO: (Name and Address)

 
   
   

Latham & Watkins LLP 885

 

Third Avenue

New York, NY 10022

 

 

Lisa.phillips@lw.com

  THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY

1. DEBTOR’S EXACT FULL LEGAL NAME-insert only=debtor name (1a or 1b)-do not abbreviate or combine names

 

  1a. ORGANIZATION’S NAME                
  Diamond State Generation Holdings, LLC        
OR  

1b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX
1c.  

MAILING ADDRESS

1299 Orleans Drive

         

CITY

Sunnyvale

 

STATE POSTAL CODE

CA 94089

 

COUNTRY

USA

1d. : SEE INSTRUCTIONS   IADD’L INFO RE 11e . TYPE OF ORGANIZATION   11. JURISDICTION OF ORGANIZATION   1g. ORGANIZATIONAL ID#. if any  
  ORGANIZATION   LLC   Delaware    
        DEBTOR   I           NONE
        I    
2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) - do not abbreviate or combine names
 

2a. ORGANIZATION’S NAME

 

               
OR  

2b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

2c. MAILING ADDRESS

 

          CITY   STATE POSTAL CODE   COUNTRY
        2f. JURISDICTION OF ORGANIZATION   2g. ORGANIZATIONAL ID #, if any  
2d. SEE INSTRUCTIONS   IADD’L INFO RE 2e. TYPE OF ORGANIZATION      
  ORGANIZATION        
        DEBTOR   I   I       NONE
      I      
3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P)-insert only one secured party name (3a or 3b)
  3a. ORGANIZATION’S NAME                
  Deutsche Bank Trust Company Americas, as Collateral Agent    
OR  

3b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

3c. MAILING ADDRESS

60 Wall Street, MSNYC 60-2710

     

CITY

New York

 

STATE POSTAL CODE

NY 10005

 

COUNTRY

USA

4. This FINANCING STATEMENT covers the following collateral:

See Schedule A attached hereto and by this reference incorporated herein for a description of the Collateral.

 

5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCC FILING

6. This FINANCING STATEMENT is to be filed [for record] (or recorded) in the

          REAL ESTATE RECORDS         Attach Addendum         [if applicable]

  7. Check to REQUEST SEARCH REPORT (S) on Debtor(s) [ADDITIONAL FEE] [optional]   All Debtors    Debtor 1    Debtor 2
8. OPTIONAL FILER REFERENCE DATA   034738-0017   F#376727   
Filed with: DE - Secretary of State       A#543036     


SCHEDULE A TO UCC-1 FINANCING STATEMENT

 

DEBTOR:

  

DIAMOND STATE GENERATION HOLDINGS,

LLC

SECURED PARTY:

  

DEUTSCHE BANK TRUST COMPANY

AMERICAS, as Collateral Agent

This Financing Statement covers all of the Debtor’s right, title and interest in the following property, whether now owned or hereafter existing, owned or acquired, and wherever located (collectively, the “ Collateral ”):

Any and all of Debtor’s right, title and interest, whether now owned or hereafter existing or acquired, in Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ’’), and all limited liability company interests of the Company related thereto (the “ Pledged Equity Interests ”), and:

(a) all rights to receive income, gain, profit, dividends and other distributions allocated or distributed to Debtor in respect of or in exchange for all or any portion of the Pledged Equity Interests;

(b) all of Debtor’s capital or ownership interest, including capital accounts, in the Company, and all accounts, deposits or credits of any kind with the Company;

(c) all of Debtor’s voting rights in or rights to control or direct the affairs of the Company;

(d) all of Debtor’s rights, title and interest, as the sole member of the Company, in, to or under any and all of the Company’s assets or properties;

(e) all other rights, title and interest in or to the Company derived from the Pledged Equity Interests;

(f) all indebtedness or other obligations of the Company owed to Debtor;

(g) all claims of Debtor for damages arising out of, or for any breach or default relating to, any of the foregoing;

(h) all rights of Debtor to terminate, amend, supplement, modify, or cancel, the Governing Documents, to take all actions thereunder and to compel performance and otherwise exercise all remedies thereunder;

(i) all Securities, notes, certificates and other Instruments representing or evidencing any of the foregoing rights and interests or the ownership thereof and any interest of Debtor reflected in the books of any financial intermediary pertaining to such rights and interests and all non-cash dividends, cash, options, warrants, stock splits, reclassifications, rights, Instruments or other Investment Property and other property or Proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such rights and interests; and


(j) to the extent not included in any of the foregoing, all Proceeds of the foregoing Collateral, whether cash or non-cash;

provided , that “Collateral” shall not include any dividend, distribution or other payment of whatever nature (whether in cash or kind) to Debtor not prohibited by the terms of the Note Purchase Agreement.

As used in this Financing Statement, the following terms have the following meanings:

Governing Documents ” means, collectively, (i) the Company’s certificate of formation, dated April 14, 2011, as amended by that certain Certificate of Amendment, dated May 26, 2011 (as amended from time to time) and (ii) the Company’s Second Amended and Restated Limited Liability Company Agreement dated as of March 20, 2013 (as amended from time to time).

Note Purchase Agreement ” means the agreement dated as of March 20, 2013 (as amended, amended and restated, supplemented modified from time to time) between the Company and the purchasers party thereto (the “ Purchasers ”) pursuant to which the Company will issue and sell the Notes to the Purchasers.

Securities ” shall have the meaning specified in section 2(1) of the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder · from time to time in effect.

UCC ” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “ UCC ” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions related to such provisions.

Unless otherwise defined herein, (i) all capitalized terms used shall have the meanings provided the Note Purchase Agreement or, if not defined therein, the UCC, and (ii) all terms defined in the UCC and used herein shall have the same definitions herein as specified therein. If a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.


LOGO

EXHIBIT B

UCC FINANCING STATEMENT

FOLLOW INSTRUCTIONS /front and back\ CAREFULLY

 

A.   NAME & PHONE OF CONTACT AT FILER [optional]  
   

Lisa Phillips                                   (212) 906-1200

 
B.  

SEND ACKNOWLEDGMENT TO: (Name and Address)

 
   
   

Latham & Watkins LLP 885

 

Third Avenue

New York, NY 10022

Lisa.phillips@lw.com

 

 

  THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY

1. DEBTOR’S EXACT FULL LEGAL NAME-insert only one debtor name (1a or 1b)-do not abbreviate or combine names

 

  1a. ORGANIZATION’S NAME                
  Diamond State Generation Partners, LLC        
OR  

1b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX
1c.  

MAILING ADDRESS

1252 Orleans Drive

         

CITY

Sunnyvale

 

STATE POSTAL CODE

CA 94089

 

COUNTRY

USA

1d. see instructions   ADD’L INFO RE 11e. TYPE OF ORGANIZATION   11. JURISDICTION OF ORGANIZATION   1g. ORGANIZATIONAL ID #. if any  
  ORGANIZATION   LLC   Delaware    
        DEBTOR   I       I   NONE
           
2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME - insert only QM debtor name (2a or 2b) - do not abbreviate or combine names
 

2a. ORGANIZATION’S NAME

 

               
OR  

2b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

2c. MAILING ADDRESS

 

          CITY   STATE POSTAL CODE   COUNTRY
           
2d. SEE INSTRUCTIONS   ADD’L INFO RE 2e. TYPE OF ORGANIZATION      
    ORGANIZATION                
        DEBTOR   I   I        
      I               NONE
3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P)-insert only pone secured party name (3a or 3b)
  3a. ORGANIZATION’S NAME                
  Deutsche Bank Trust Company Americas, as Collateral Agent    
OR  

3b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

3c. MAILING ADDRESS

60 Wall Street, MSNYC 60-2710

     

CITY

New York

 

STATE POSTAL CODE

NY 10005

 

COUNTRY

USA

4. This FINANCING STATEMENT covers the following collateral:

This financing statement covers all assets of the Debtor, whether now existing or hereafter arising.

Notwithstanding the foregoing, the collateral shall not include Debtor’s rights and interests in (1) proceeds from a cash grant under Section 1603 of division B of the American Recovery and Reinvestment Act of 2009, as amended, or (2) that certain cash grant account established and held by Debtor with Wilmington Trust, National Association.

 

5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCC FILING

6. This FINANCING STATEMENT is to be filed (for record) (or recorded) in the REAL

          ESTATE RECORDS         Attach Addendum         [if applicable]

  7. Check to REQUEST SEARCH REPORT(S) on Debtor(s) [ADDITIONAL FEE] [optional]   All Debtors    Debtor 1    Debtor 2
8. OPTIONAL FILER REFERENCE DATA   034738-0017   F#376729   
Filed with: DE - Secretary of State       A#543038     


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EXHIBIT C

UCC FINANCING STATEMENT

FOLLOW INSTRUCTIONS /front and back) CAREFULLY

 

A.   NAME & PHONE OF CONTACT AT FILER (optional)  
   

Rosalind Rodburg                                   212-906-1874

 
B.  

SEND ACKNOWLEDGMENT TO: (Name and Address)

 
   
   

Latham & Watkins LLP

 

885 Third Avenue

New York, NY 10022

Rosalind.Rodburg@lw.com

 

 

  THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY

1. DEBTOR’S EXACT FULL LEGAL NAME-insert only one debtor name(1a or 1b)-do not abbreviate or combinenames

 

  1a. ORGANIZATION’S NAME                
  Diamond State Generation Partners, LLC        
OR  

1b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX
1c.  

MAILING ADDRESS

1252 Orleans Drive

         

CITY

Sunnyvale

 

STATE POSTAL CODE

CA 94089

 

COUNTRY

USA

1d.  SEE INSTRUCTIONS   ADD’L INFO RE 11e . TYPE OF ORGANIZATION   1f. JURISDICTION OF ORGANIZATION   1g. ORGANIZATIONAL ID #, if any  
  ORGANIZATION   LLC   Delaware   I  
        DEBTOR   I           NONE
           
2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME • insert only one debtor name (2a or 2b) • do not abbreviate or combine names
 

2a. ORGANIZATION’S NAME

 

               
OR  

2b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME  

MIDDLE NAME

 

STATE POSTAL CODE

  SUFFIX

2c. MAILING ADDRESS

 

          CITY       COUNTRY
                21. JURISDICTION OF ORGANIZATION   2g. ORGANIZATIONAL ID #, if any    
2d. SEE Instructions   ADD”L INFO RE I 2e. TYPE OF ORGANIZATION      
  ORGANIZATION        
        DEBTOR   I   I       NONE
      I      
3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR SIP) - insert only. one secured party name (3a or 3b)
  3a. ORGANIZATION’S NAME                
  Deutsche Bank Trust Company Americas, as Collateral Agent    
OR  

3b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME  

MIDDLE NAME

 

STATE POSTAL CODE

  SUFFIX

3c. MAILING ADDRESS

60 Wall Street, MSNYC 60-2710

     

CITY

New York

  NY 10005  

COUNTRY

USA

4. This FINANCING STATEMENT covers the following collateral:

This financing statement covers all assets of the Debtor, including fixtures, whether now existing or hereafter arising.

Notwithstanding the foregoing, the collateral shall not include Debtor’s rights and interests in (1) proceeds from a cash grant under Section 1603 of division B of the American Recovery and Reinvestment Act of 2009, as amended, or (2) that certain cash grant account established and held by Debtor with Wilmington Trust, National Association.

 

5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCC FILING

6. This FINANCING STATEMENT is to be filed [for record] (or recorded) in the REAL

          ESTATE RECORDS Attach Addendum [if applicable]

  7. Check to REQUEST SEARCH REPORT(S) on Debtor(s) [ADDITIONAL FEE]         [optional]   All Debtors ☐   Debtor 1  ☐    Debtor 2
8. OPTIONAL FILER REFERENCE DATA   034738-0017   F#377123   
Filed with: DE - Secretary of State       A#543517     


UCC FINANCING STATEMENT ADDENDUM  
FOLLOW INSTRUCTIONS (front and back) CAREFULLY  
9.   NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT  
OR  

9a. ORGANIZATION’S NAME

 
 

Diamond State Generation Partners, LLC

 
 

9b. INDIVIDUAL’S LAST NAME    |    FIRST NAME    |    MIDDLE NAME. SUFFIX

 
     

10. MISCELLANEOUS:

 

 

  THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY

 

11 ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME - insert only 2!!11 name (11a or 11b)- do not abbreviate or combine names
 

11a. ORGANIZATION’S NAME

 

               
OR  

11b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

11c. MAILING ADDRESS

 

          CITY   STATE ‘POSTAL CODE   COUNTRY
        111. JURISDICTION OF ORGANIZATION   11g. ORGANIZATIONAL 10 #, if any
11d. SEE INSTRUCTIONS   IADD’L INFO RE 11e. TYPE OF ORGANIZATION      
  ORGANIZATION        
    DEBTOR   I   I     none
      I      
12.   I ADDITIONAL SECURED PARTY’S g,: I I ASSIGNOR S/P’S NAME - Insert only one name (12a or 12b)
  12a. ORGANIZATION’S NAME                
       
OR  

12b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX
12c.   MAILING ADDRESS          

CITY

 

  STATE POSTAL CODE   COUNTRY

13.

  This FINANCING STATEMENT covers u timber to be cut or LJ as-extracted collateral, or is filed as a fixture filing.   16. Additional collateral description:    
14.   Description of real estate:        
           
           
        17. Check .only if applicable and check .ONLY one box.
 

15.

  Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest):   Debtor is a Trust or Trustee acting with respect to property held in trust or Decedent’s Estate
 
       

18. Check only if applicable and check only one box.

 

      Debtor is a TRANSMITTING UTILITY

 
        0 Filed in connection with a Manufactured-Horne Transaction
 
                       Filed in connection with a Public-Finance Transaction


Exhibit 4.1.13(b)

F ORM OF O PINION OF S PECIAL R EGULATORY C OUNSEL

TO THE C OMPANY

[See Execution Version]

E XHIBIT 4.1.13(b) TO N OTE P URCHASE A GREEMENT


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ORRICK, HERRINGTON & SUTCLIFFE LLP

51 WEST 52ND STREET

NEW YORK, NEW YORK 10019-6142

 

tel +1-212-506-5000

fax +1-212-506-5151

 

WWW.ORRICK.COM

March 20, 2013

OPINION LETTER

To the Addressees listed on Schedule 1

Re: Diamond State Generation Partners, LLC

Ladies and Gentlemen:

We have acted as special regulatory counsel to Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), in connection with the preparation, execution and delivery of the Note Purchase Agreement, dated as of March 20, 2013 (the “ Note Purchase Agreement ”), among the Company and the note purchasers party thereto. This opinion is being furnished to you pursuant to Section 4.1.13(b) of the Note Purchase Agreement. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Note Purchase Agreement.

In connection with this opinion, we have examined and relied on originals or copies, certified or otherwise identified to our satisfaction, of the Note Purchase Agreement and the documents listed on Schedule 2 (such documents, together with the Note Purchase Agreement, the “ Transaction Documents ”) and such corporate records, agreements, documents (including organizational documents of the Company) and other instruments, and such certificates and comparable documents of public officials and of officers and representatives of the Company, as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth. In addition we have examined the filings and orders listed in Schedule 3 and have assumed, without independent verification, the accuracy of all statements made in such filings and orders.

In connection with rendering the opinions expressed below, with your permission we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the identity and capacity of all individuals acting or purporting to act as public officials, the authenticity and accuracy of all documents submitted to us as originals, the conformity to the authentic original documents of all documents submitted to us as copies thereof and the authenticity of the originals of such copies. As to questions of fact material to the opinions expressed below, we have relied, to the extent we deemed necessary or appropriate as a basis


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 2 of 4

 

for such opinions, upon the representations, certificates and statements made or otherwise provided to us by the Company and its respective officers and other representatives, and of public officials, and upon such documents, records and instruments as we have deemed appropriate, in each case without independent check or verification of the accuracy of such documents, records and instruments.

Further, with your permission we have assumed (i) that each of the parties to the Transaction Documents (A) is duly organized or formed and validly existing under the laws of its respective jurisdiction of organization or formation and has full power, authority, and legal right to enter into and perform its obligations under each Transaction Document to which it is a party, (B) has duly authorized each Transaction Document to which it is a party, and (C) has duly executed and delivered each Transaction Document to which it is a party, (ii) that each of the Transaction Documents constitutes the legal, valid and binding obligation of each of the parties thereto, enforceable against such parties in accordance with its terms, (iii) that, except as otherwise expressly provided in this opinion with respect to the Company, the parties to the Transaction Documents have received, or will receive by the time required, and will, to the extent required by any governmental requirement, maintain in full force and effect, all consents, approvals, filings, notices and other authorizations from any Governmental Authority (collectively, “ Governmental Approvals ”) which are required for the due execution, delivery and performance by the parties to the Transaction Documents and that such execution, delivery and performance by the parties to the Transaction Documents does not and will not conflict with any provision of any governmental requirement or the terms of any Governmental Approval applicable to the parties to the Transaction Documents or the conduct of their respective businesses or any agreement or instrument to which they are a party or by which they or their property are bound; provided, however, we have not made such assumptions with respect to the Governmental Approvals that are the subject of this opinion, (iv) the absence of any evidence extrinsic to the provisions of the Transaction Documents that the parties thereto intended a meaning contrary to that expressed by those provisions, and (v) the truth, accuracy and completeness of the information, representations and warranties contained in the records, documents, instruments and certificates we have reviewed.

We express no opinion as to any laws except the Federal Power Act, as amended (“ FPA ”), and the Public Utility Holding Company Act of 2005 (“ PUHCA 2005 ”, and together with the FPA, the “ Federal Utility Regulatory Laws ”), in each case as in effect on the date hereof, and our opinion is limited to and applies only insofar as such laws may be concerned.

We have assumed that all governmental requirements have been duly enacted and validly promulgated, that each Governmental Authority has been duly constituted and that all public officials and all members of each Governmental Authority have been duly appointed and are lawfully holding the positions to which they have been elected or appointed, and that any actions taken by them under delegated authority are undertaken pursuant to properly delegated authority.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 3 of 4

 

Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that:

 

  1. The Company has received all necessary approvals from the Federal Energy Regulatory Commission (“FERC”) for its sale of electric energy, capacity and ancillary services from the facilities to markets operated by PJM Interconnection, L.L.C at market-based rates and to which FERC has granted all waivers from regulation and blanket authorizations under the FPA that are customarily granted to entities with market-based rate authority, including blanket authorization under Section 204 of the FPA to issue securities and assume liabilities.

 

  2. Except with respect to regulations applicable to exempt wholesale generators, the Company is not subject to, or is exempt from, regulation under PUHCA 2005.

 

  3. The Company is an exempt wholesale generator as defined in 18 C.F.R. § 366.1 of the FERC’s regulations implementing PUHCA 2005.

 

  4. Except for those that have been previously obtained or made or which are authorized under the Federal Energy Regulatory Laws to be obtained or made after the date hereof, no consent, authorization, approval, or other action by FERC is required under the Federal Energy Regulatory Laws for the execution or delivery of the Note Purchase Agreement by the Company.

 

  5. None of the Collateral Agent or the Purchasers of the Notes will, solely as a result of the Company’s execution, delivery or performance of the Note Purchase Agreement or the consummation of the transactions contemplated by the Transaction Documents, become subject to or not exempt from regulation under the Federal Energy Regulatory Laws (other than by reason of actions in connection with the Collateral Agent’s exercise of remedies, including but not limited to any action which would permit it to direct the operations or management of the Company or its facilities).

As noted above, we do not express any opinion with respect to the law of any jurisdiction other than the Federal Utility Regulatory Laws. Without limiting the generality of the foregoing, we express no opinion concerning the laws of any other jurisdiction in which the parties may be located or in which enforcement of the Transaction Documents may be sought.


 

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To the Addressees listed on Schedule 1

March 20, 2013

Page 4 of 4

 

This opinion is solely for the benefit of the Company and the addressees hereof in connection with the transactions contemplated by the Note Purchase Agreement and may not be relied upon or used by any other person or for any other purpose without our prior written consent, except that (a) transferees, successors and assignees of the Notes may rely on this opinion as if they were an original addressee, provided that any such reliance by a transferee, successor or assign must be actual and reasonable under the circumstances existing at the time of assignment, including any changes in law, facts or any other developments known to or reasonably knowable by the transferee, successor or assign at such time, and (b) you may provide copies of this opinion letter to (i) any governmental or regulatory agency (including, without limitation, the NAIC) having jurisdiction over you and (ii) any court of law or other tribunal in connection with any matter relating to the Note Purchase Agreement. This letter speaks only as of the date hereof. We disclaim any responsibility or obligation to update this opinion, to consider its applicability or correctness to other than its addressees, or to take into account changes in law, facts or any other developments of which we may later become aware.

Very truly yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP


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SCHEDULE 1

Addressees

Deutsche Bank Trust Company Americas, as Collateral Agent under the Note Purchase Agreement

Each Purchaser party to the Note Purchase Agreement


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SCHEDULE 2

TRANSACTION DOCUMENTS

 

  1. Depositary Agreement

 

  2. Pledge Agreement

 

  3. Security Agreement

 

  4. Collateral Agency Agreement

 

  5. Interparty Agreement


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SCHEDULE 3

FERC Documents

 

  1. Diamond State Generation Partners, LLC, Application for Market-Based Rate Authority, Request for Waivers and Authorizations, Request for Finding of Qualification as Category 1 Seller, and Request for Expedited Consideration, filed with FERC on March 29, 2012, in Docket No. ER12-1383-000.

 

  2. Diamond State Generation Partners, LLC, Amendment to Application and Request for Shortened Comment Period, filed with FERC on April 23, 2012, in Docket No. ER12-1383-001.

 

  3. Diamond State Generation Partners, LLC, unpublished letter order issued by FERC on May 23, 2012, in Docket No. ER12-1383-001.

 

  4. Diamond State Generation Partners, LLC, Notice of Self-Certification of Exempt Wholesale Generator Status, filed with FERC on March 15, 2012, in Docket No. EG12-44-000.

 

  5. Notice of Effectiveness of Exempt Wholesale Generator Status, issued by FERC on June 12, 2012, in Docket Nos. EG12-36-000, etal.

 

  6. Bloom Energy Corporation, et . al., Form FERC-65 Notification of Holding Company Status, filed with FERC on October 1, 2012, in Docket No. HC13-1-000.

 

  7. Bloom Energy Corporation, et . al., Form FERC-65-B Notification of Waiver, filed with FERC on October 2, 2012, in Docket No. PH13-1-000.

 

  8. Bloom Energy Companies, Form FERC-65 Revised Notification of Holding Company Status, filed with FERC on January 14, 2013, in Docket No. HC13-1-000.

 

  9. Bloom Energy Companies, Form FERC-65-B Notification of Waiver, filed with FERC on January 14, 2013, in Docket No. PH13-9-000.


Exhibit 4.1.13(c)

F ORM OF O PINION OF S PECIAL C ONSTITUTIONAL C OUNSEL

TO THE C OMPANY

[See Execution Version]

E XHIBIT 4.1.13(c) TO N OTE P URCHASE A GREEMENT


LOGO  

ORRICK, HERRINGTON & SUTCLIFFE LLP

THE ORRICK BUILDING

405 HOWARD STREET

SAN FRANCISCO, CALIFORNIA 94105-2669

 

tel +1-415-773-5700

fax +1-415-773-5759

 

WWW.ORRICK.COM

March 20, 2013

The Parties Listed on Schedule A

Diamond State Generation Partners, LLC

Senior Secured Notes

Ladies and Gentlemen:

We have acted as counsel to Diamond State Generation Partners, LLC(the “ Issuer ”) in connection with its execution and delivery of (i) the Note Purchase Agreement (the “ Note Purchase Agreement ”), dated March 20, 2013, and (ii) the Security Agreement (the “ Security Agreement ”) dated March 20, 2013, between the Issuer, as grantor, and Deutsche Bank Trust Company Americas, as Collateral Agent. As used herein, the “ Act ” means Subchapter III-A (Renewable Energy Portfolio Standards) of Chapter 1 of Title 26 of the Delaware Code, commencing with Section 351, as amended to the date hereof; “ Bloom ” means the Sponsor as defined in the Note Purchase Agreement; “ DPL ” means DPL as defined in the Note Purchase Agreement; “ Project ” means the Project as defined in the Note Purchase Agreement; “ Revenue Charge ” means “revenue charge” as defined in the Security Agreement; “ Revenue Property ” means “revenue property” as defined in the Security Agreement; “ State ” means the state of Delaware; “ State Pledge ” means the last sentence of Section 364(h) of the Act; “ Obligations ” means obligations within the meaning of the State Pledge; and “ Tariff ’ means the Tariff as defined in the Note Purchase Agreement.

OPINIONS REQUESTED

You have requested our opinions as to whether:

1. The Issuer, as an owner of Revenue Property, could successfully challenge under the Contract Clause of the United States Constitution (the “ Contract Clause ”) the constitutionality of any legislation passed by the State legislature which becomes law, or any action of the Commission exercising legislative powers, which (in either case), without consent of the owners of Revenue Property, violates the State Pledge in a manner that substantially impairs the right of the Issuer, as an owner of Revenue Property, to receive the Revenue Charge as provided in the Tariff, before either (i) the Obligations are fully met and discharged, or (ii) adequate provision shall be made by law for the full recovery by the qualified fuel cell provider project, unless such court concludes that the State has demonstrated that, in light of the circumstances, such legislation is reasonable and necessary to serve a significant and legitimate public purpose, such as remedying a broad and general social or economic problem. Such legislation or Commission action is referred to herein as “ Impairment Legislative Action .”


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The Parties Listed on Schedule A

March 20, 2013

Page 2

 

2. If the State passes legislation which becomes law, or the Commission takes action, which (in either case), without consent of the owners of Revenue Property and without compensation, is in contravention of the State Pledge and diminishes the value of Revenue Property, there would be a compensable taking with respect to the Revenue Property under the Takings Clause of the Fifth Amendment to the United States Constitution (made applicable to the State by the Fourteenth Amendment to the United States Constitution, the “ Takings Clause ”) if the court determines that:

(A) the Revenue Property is property of a type protected by the Takings Clause; and

(B) the law or action, for a public use, either

(1) permanently appropriates the Revenue Property or denies all economically productive use of the Revenue Property;

(2) destroys the Revenue Property, other than in response to emergency conditions; or

(3) reduces the value of the Revenue Property and

(i) does not substantially advance a legitimate State interest, or

(ii) unduly interferes with the claimant’s reasonable investment-backed expectations.

ASSUMPTIONS

This opinion letter is based solely upon our examination of such matters of law as we have deemed necessary for purposes of rendering the opinions set forth herein. We have made no investigation of any matter.

We have assumed, without investigation, that the following statements are true and correct at all relevant times.


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The Parties Listed on Schedule A

March 20, 2013

Page 3

 

The State has enacted the Act. Under certain circumstances, the Issuer is entitled to receive a portion of the Revenue Charge with respect to Revenue Property created pursuant to the Act and the Tariff, approved in Order No. 8062 adopted by the Public Service Commission (the “ Commission ”) of the State on October 18, 2011, and Order No. 8079, adopted by the Commission on December 1, 2011 (together, the “ Orders ”).

Section 364(h) of the Act provides:

Notwithstanding any other provision of the Delaware Code to the contrary except as otherwise provided in this chapter, with respect to revenue property, the tariffs with respect to disbursements and costs arising out of the qualified fuel cell provider project and recovery of costs addressed in subsections (a) through (c) of this section shall be irrevocable and the Commission shall not have authority either by rescinding, altering, or amending the tariff provisions or otherwise, to revalue or revise for ratemaking purposes the disbursements and costs arising out of the qualified fuel cell provider project, or the costs of recovering such costs, determine that the disbursements and costs of the qualified fuel cell provider project are unjust or unreasonable, or in any way reduce or impair the value of revenue property either directly or indirectly by taking project revenue amounts, disbursements or costs arising out of the qualified fuel cell provider project into account when setting other rates for the commission-regulated electric company; nor shall the disbursements, amount of revenues or costs arising with respect thereto be subject to reduction, impairment, postponement, or termination. Except as otherwise provided in this section, the State of Delaware does hereby pledge and agree with the owners of revenue property and the commission-regulated electric company as the agent for collecting and disbursement on behalf of a qualified fuel cell provider project and in collecting costs incurred by the electric company addressed in subsections (a) through (c) of this section that the State shall neither limit nor alter the revenue property and all rights thereunder until the obligations, are fully met and discharged, provided nothing contained in this section shall preclude the limitation or alteration if and when adequate provision shall be made by law for the full recovery by the qualified fuel cell provider project and the commission- regulated electric company.


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The Parties Listed on Schedule A

March 20, 2013

Page 4

 

Revenue Property constitutes “revenue property” within the meaning of the State Pledge. Revenue Property constitutes a property right under State law. The Issuer is an owner of Revenue Property under State law. Bloom is a “qualified fuel cell provider” and the Project is a “qualified fuel cell provider project” within the meaning of the Act. The Issuer is a “QFCP Generator” within the meaning of the Tariff. Pursuant to the Tariff, the Issuer, as an owner of Revenue Property, is entitled to be paid a portion of the Revenue Charge for a specified period that does not exceed 25 years from the date hereof.

In enacting the Act, the purposes of the State included:

1. inducing Bloom and other qualified fuel cell providers to manufacture fuel cells within the State at facilities designated by the State as an economic development opportunity;

2. inducing the Issuer and other QFCP Generators to develop qualifying fuel cell provider projects located in the State;

3. inducing the Issuer and other QFCP Generators to commit to sell all electric energy, capacity, and ancillary services generated by those qualifying fuel cell provider projects into wholesale electric markets administered by PJM Interconnections, LLC (“ PJM ”), a regional transmission organization which coordinates the movement of wholesale electricity in all or parts of 13 states (including the State) and the District of Columbia; and

4. inducing DPL and other Commission-regulated electric companies to accept service applications submitted by the Issuer and other QFCP Generators by crediting Commission-regulated electric companies with renewable energy credits arising in respect of qualified fuel cell provider projects.

Under the Act, a revenue charge cannot be imposed with respect to a qualified fuel cell project unless and until the Commission approves a joint application filed by a Commission-regulated electric company and a qualifying fuel cell provider. The Revenue Charge has a finite term, not to exceed 25 years.


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The Parties Listed on Schedule A

March 20, 2013

Page 5

 

DPL provides electric and gas utility service to service areas located in part in the State. DPL is an electric company that is subject to regulation by the Commission in connection with these electric and gas service areas in the State. DPL and the Issuer have executed and delivered a Service Application (the “ Service Agreement ”), dated as of June 28, 2011, which is a valid, binding, and enforceable contract under State law. The substantive provisions of the Service Agreement, however, by their terms become effective only upon the occurrence of specified events, including that the Act and the Tariff become effective.

The Act was validly enacted. The Tariff was legally and validly approved by the Commission. The Orders were legally and validly adopted by the Commission. The Act, the Orders, and the Tariff are valid and in full force and effect. The Service Agreement is valid and in full force and effect.

OPINIONS

(1) Based upon and subject to the assumptions and discussion set forth above, as well as the Analysis and the Limitations and Qualifications set forth below and the further qualification that there is no case directly on point, it is our opinion that, if the matter were properly briefed and presented to a court, the court, exercising reasonable judgment after full consideration of all relevant factors and of the case law discussed below under “Analysis,” would hold that the Issuer, as an owner of Revenue Property, could successfully challenge under the Contract Clause the constitutionality of any legislation passed by the State legislature which becomes law, or any action of the Commission exercising legislative powers, which (in either case), without consent of the owners of Revenue Property, violates the State Pledge in a manner that substantially impairs the right of the Issuer, as an owner of Revenue Property, to receive the Revenue Charge as provided in the Tariff, before either (i) the Obligations are fully met and discharged, or (ii) adequate provision is made by law for the full recovery by the qualified fuel cell provider project, unless such court concludes that the State has demonstrated that, in light of the circumstances, such legislation is reasonable and necessary to serve a significant and legitimate public purpose, such as remedying a broad and general social or economic problem.

(2) Based upon and subject to the assumptions and discussion set forth above, as well as the Analysis and the Limitations and Qualifications set forth below and the further qualification that there is no case directly on point, it is our opinion that, if the matter were properly briefed and presented to a court, the court, exercising reasonable judgment after full consideration of all relevant factors and of the case law discussed below under “Analysis,” would hold that if the State passes legislation which becomes


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The Parties Listed on Schedule A

March 20, 2013

Page 6

 

law, or the Commission takes action, which (in either case), without consent of the owners of Revenue Property and without compensation, is in contravention of the State Pledge and diminishes the value of Revenue Property, there would be a compensable taking with respect to the Revenue Property under the Takings Clause if such court determines that:

(A) the Revenue Property is property of a type protected by the Takings Clause; and

(B) the law or action, for a public use, either

(1) permanently appropriates the Revenue Property or denies all economically productive use of the Revenue Property;

(2) destroys the Revenue Property, other than in response to emergency conditions; or

(3) reduces the value of the Revenue Property and

(i) does not substantially advance a legitimate State interest, or

(ii) unduly interferes with the claimant’s reasonable investment-backed expectations.

ANALYSIS

I. Contract Clause

The Contract Clause provides: “No state shall . . . pass any . . . Law impairing the Obligation of Contracts...” U.S. Const., art. I, § 10. The Contract Clause protects contracts to which a state or other government is a party as well as contracts between private parties. United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 17 (1977). The general purpose of the Contract Clause is to encourage trade and credit by promoting confidence in the stability of contractual obligations. Id. at 15. The law is well settled that “the Contract Clause limits the power of states to modify their own contracts as well as to regulate those between private parties. Id. at 17 (citations omitted). Although the Contract Clause appears literally to proscribe “any” impairment, the Supreme Court has observed that ‘“the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.”’ Id. at 21 (quoting Home Building  & Loan Assn. v. Blaisdell, 290 U.S. 398,428 (1934)).


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The Parties Listed on Schedule A

March 20, 2013

Page 7

 

Whether a State law (including action by the Commission of a legislative nature) violates the Contract Clause is governed by a three-step inquiry: “The threshold inquiry is ‘whether the State law has, in fact, operated as a substantial impairment of a contractual relationship.”’ Energy Reserves Group, Inc. v. Kansas Power  & Light Co., 459 U.S. 400,411 (1983) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978). This threshold inquiry itself has three components: “whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial.” Gen. Motors Corp. v. Romein, 503 U.S. 181, 186 (1992). In addition, to succeed with a Contract Clause claim involving a contract with the State itself, a party must show that the contractual relationship is not an invalid attempt by the State to “surrender[] an essential attribute of its sovereignty.” US. Trust, 431 U.S. at 23 (alteration in original).

If the threshold inquiry is met, the courts inquire whether “the State, in justification, [has] a significant and legitimate public purpose behind the regulation, such as the remedying of a broad and general social or economic problem,” to guarantee that “the State is exercising its police power, rather than providing a benefit to special interests.” Energy Reserves Group, Inc. 459 U.S. at 411-12 (citation omitted). Finally, courts inquire “whether the adjustment of ‘the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation’s adoption.”’ Id. at 412-13 (quoting US. Trust Co., 431 U.S . at 22). Thus, if State legislation (including action by the Commission of a legislative nature) is found to have substantially impaired contract rights, courts will find a violation of the Contract Clause unless the impairment is both “reasonable and necessary to serve an important public purpose.” US. Trust Co ., 431 U.S. at 25. “The severity of the impairment measures the height of the hurdle the state legislation must clear.” Allied Structural Steel Co ., 438 U.S. at 245. “Minimal alteration of contractual obligations may end the inquiry at the first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation.” Id .

When applying these standards to a contract between private parties, at least with respect to an impairment caused by state law that imposes economic and social regulation, “courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure.” Energy Reserves, 459 U.S. at 412-413. “A higher level of scrutiny is required to assess abrogations of government obligations than in the case of legislative interference with the contract of private parties.’” Univ. of Hawaii Prof Assembly v. Cayetano, 183 F.3d 1096, 1107 (9 1 Cir.h 1999). Accordingly, courts are "less deferential to a state's judgment of reasonableness and necessity when a state’s legislation is self-serving and impairs the obligations of its own contracts.” Id. (quotation omitted).


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The Parties Listed on Schedule A

March 20, 2013

Page 8

 

The most recent case in which the Supreme Court upheld an impairment of a state contract, El Paso v. Simmons, 379 U.S. 497 (1965), involved unique facts, as discussed below. Similarly, in US. Trust Co., the Supreme Court noted that the “only time in this century that the alteration of a municipal bond contract has been sustained by this Court was in Faitoute Iron  & Steel Co. v. City of Asbury Park, 316 U.S. 502, 62 S. Ct. 1129, 86 L. Ed. 1629 (1942).” 431 U.S. at 27. As discussed below, Faitoute Iron  & Steel Co. involved unique circumstances that are not likely to be present in the case of Impairment Legislative Action.

A. Existence of a contractual relationship

A determination that the State Pledge is a binding contract with the State requires detailed analysis. “Federal law controls whether an agreement constitutes a contract for purposes of Contract Clause analysis.” General Motors Corp. v. Romein, 503 U.S. 181, 187 (1992). For there to be a valid contract with the State, the State must have intended to enter into a binding agreement, and the agreement must not have surrendered an essential attribute of State sovereignty.

1. Intent to contract

When a state legislature enacts a statute, there is a rebuttable presumption that it does not intend to bind itself contractually. National R.R. Passenger Corp. v. Atchison, Topeka  & Santa Fe Ry. Co., 470 U.S. 451, 466 (1985); Dodge v. Board of Education, 302 U.S. 74, 78 (1937). This presumption can be rebutted by showing that the language of the statute indicates an intent to create contractual rights: “In general, a statute is itself treated as a contract when the language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the State.” United States Trust Co., 431 U.S. at 18, note 14. See also Dodge, 302 U.S. at 78 (“it is of first importance to examine the language of the statute.”) and Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 104-105 (1938) (“the cardinal inquiry is as to the terms of the statute supposed to create such a contract”).

United States Trust Co. involved a pledge given by each of two states in connection with notes issued by a third governmental entity, the Port Authority of New York and New Jersey. The Port Authority was a separate legal entity, created pursuant to interstate compact. The Port Authority’s bonds were not a debt of either pledging state, and neither the full faith and credit nor the taxing power of either state was pledged to secure the Port Authority bonds. Rather the statute at issue in United States Trust Co. provided that the “2 States covenant and agree with each other and with the holders of any affected bonds....”431 U.S. at 18. The Court found that the “intent to make a contract [was] clear from the statutory language.” Id. Thus, the Court concluded that a contract between the states and bondholders could arise even though the states were not financial obligors on the Port Authority bonds and were not parties to the resolution pursuant to which the Port Authority bonds were issued. Id


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The Parties Listed on Schedule A

March 20, 2013

Page 9

 

The Supreme Court in United States Trust Co. also addressed the issue of consideration: “as the chronology set forth above reveals, the purpose of the covenant was to invoke the constitutional protection of the Contract Clause as security against repeal. In return for their promise, the States received the benefit they bargained for: public marketability of Port Authority bonds ... ” 431 U.S. at 18.

In the case of the State Pledge, the State invoked the constitutional protection of the Contract Clause as security against State action that would limit or alter the revenue property or rights thereunder without adequate protection for the owners of revenue property. In return, the State will get what it bargained for: (1) development and operation of qualifying fuel cell provider projects in the State, with fuel cells manufactured at a facility located in the State, under circumstances determined by the State to be an economic development. opportunity, (2) the QFCP Generator’s commitment to sell all electric energy, capacity and ancillary services from the qualifying fuel project into wholesale electric markets administered by PJM, and (3) the electric companies agreement to accept service applications from QFCP Generators.

Similar to the statutory language at issue in United States Trust Co., Section 364(h) of the Act provides: “Except as otherwise provided in this section, the State of Delaware does hereby pledge and agree with the owners of revenue property and the commission-regulated electric company as the agent for collecting and disbursement on behalf of a qualified fuel cell provider project and in collecting costs incurred by the electric company addressed in subsections (a) through (c) of this section that the State shall neither ... ” (Emphasis added.) The terms “pledge” and “agree” evidence a legislative intent to create private rights of a contractual nature enforceable against the State.

2. Contract Formation

The Service Agreement was executed and delivered by the Issuer and DPL on June 28, 2011, several days before the Act became law and several months before the Commission adopted the Orders pursuant to which the Tariff became effective. The substantive provisions of the Service Agreement, however, by their terms become effective only upon the occurrence of specified events, including that the Act and the Tariff become effective. Thus, the substantive provisions of the Service Agreement became effective only after the Act became law.


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3. Reserved powers

The next “inquiry concerns the ability of the State to enter into an agreement that limits its power to act in the future.” United States Trust Co., 431 U.S. at 23. “It is often stated that ‘the legislature cannot bargain away the police power of a State.”’ Id . “This doctrine requires a determination of the State’s power to create irrevocable contract rights in the first place, rather than an inquiry into the purpose or reasonableness of the subsequent impairment. In short, the Contract Clause does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty.” Id .

The Court explained that “financial contracts” generally do not surrender police powers:

Whatever the propriety of a State’s binding itself to a future course of conduct in other contexts, the power to enter into effective financial contracts cannot be questioned. Any financial obligation could be regarded in theory as a relinquishment of the State’s spending power, since money spent to repay debts is not available for other purposes. Similarly, the taxing power may have to be exercised if debts are to be repaid. Notwithstanding these effects, the Court has regularly held that the States are bound by their debt contracts.

Id. at 24. See also United States v. Winstar Corp., 518 U.S. 839, 888-890 (1996).

Among other things, the State Pledge was created as an inducement (1)  to qualifying fuel cell providers to develop and operate qualifying fuel cell provider projects in the State, with fuel cells manufactured at a facility located in the State, under circumstances determined by the State to be an economic development opportunity, and (2) to QFCP Generators to sell electric energy and capacity generated by those qualifying fuel cell projects into wholesale electric markets administered by PJM, all for the benefit of citizens, businesses and governments (including the State itself) served by Commission-regulated electric companies. The inducement is principally financial: the right to receive Revenue Charges imposed on and collected by the Commission-regulated electric company from its retail electric customers. As a result, the State Pledge would seem to be the type of “financial” contract that the Court in United States Trust Co. found to be a proper exercise of legislative authority.


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The Court in United States Trust Co. noted that “[n]ot every security provision, however, is necessarily financial. For example, a revenue bond might be secured by the State’s promise to continue operating the facility in question, yet such a promise surely could not validly be construed to bind the State never to close the facility for health and safety reasons.” Id at 25. In United States Trust Co., and in the cases following it, the “financial” contract at issue generally involved a government’s own money, i.e., a financial obligation of a governmental entity. In United States Trust Co., for example, the Port Authority, a government entity, promised to maintain a certain level of reserve funding and made various other financial commitments. In the present case, in contrast, no governmental entity will pledge its own financial resources. But the promise by the Port Authority to maintain a specified level of reserve funding was supported by a statutory pledge, adopted by the State of New York and by the State of New Jersey, to the effect that the “2 States covenant and agree with each other and with the holders of any affected bonds . . .” Thus, United States Trust Co. may support the proposition that a statutory pledge to future owners of revenue property is effective to invoke the Contract Clause where the pledge is to maintain specified aggregate revenues with respect to qualifying fuel cell provider projects and Commission-regulated electric companies through the imposition of revenue charges on retail electric customers of Commission- regulated electric utilities, even though the qualifying fuel cell provider projects are developed, owned, and operated by legal entities separate from the government entity giving the statutory pledge, and even though the revenue charges will be paid by persons unrelated to the governmental entity giving the statutory pledge.

Public utility regulation generally involves the exercise of police powers. Certain aspects of public utility regulation clearly relate to public health and safety. Such aspects include, for example, the obligation to serve, safety regulation at electric generation facilities, and regulations which promote the development and operation of alternative energy generating resources, such as qualifying fuel cell provider projects. Even though a purpose of the Act is to promote the development and operation of qualifying fuel cell provider projects, the State Pledge does not “surrender” the State’s police powers. Nothing in the State Pledge materially reduces or impacts State regulation of public utilities, including DPL. Nothing in the State Pledge limits the ability of the State to regulate the manner in which DPL provides electric utility service or to regulate DPL’s overall retail electric rates. The only impact of the State Pledge is to ensure that, so long as the applicable State law conditions are satisfied, the revenue charge will be part of electric utility bills for the specified time period and that the revenue charge will be adjusted from time to time to ensure collection of promised revenues. Thus, the State Pledge does not remove from the Commission its general regulatory authority over DPL, does not allow the revenue charge to be imposed with respect to a qualifying fuel cell project unless and until the Commission approves a joint application filed by a Commission-regulated electric company and a qualifying fuel cell provider, and the State Pledge has a finite term with respect to each qualified fuel cell provider project.


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The Texas Supreme Court upheld the validity of a state pledge similar in some respects to the State Pledge. Lower Colorado River Auth. v. McGraw, 83 S.W.2d 629, 637-638 (Tex. 1935).

Accordingly, it ought to be determined that the State Pledge does not surrender an essential attribute of State sovereignty and that the State Pledge gives rise to a contract between the State and the owners of Revenue Property.

B. Substantial impairment

Whether a legislative action “substantially” impairs a contract is a fact- specific analysis. It is not possible at this time to determine whether a future legislative action will constitute a substantial impairment. Accordingly, this opinion letter addresses only impairments of the State Pledge that are determined to be substantial.

C. Justification

Even if a new State legislative action substantially impairs the Issuer’s contractual rights, such impairment will not violate the Contract Clause if it is “reasonable and necessary to serve an important public purpose” ( United States Trust Co., 431 U.S. at 25) “such as the remedying of a broad and general social or economic problem” (Energy Reserves Group, Inc. 459 U.S. at 411-412). The test has also been stated as “whether the adjustment of ‘the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation’s adoption.”’ Energy Reserves Group, Inc. 459 U.S. at 412-413 (quoting United States Trust Co., 431 U.S. at 22). The State has the burden of proving that a substantial impairment is both reasonable and necessary. Cayetano, 183 F.3d at 1106.

In assessing the reasonableness of an impairment, courts “generally consider ‘the extent of the impairment as well as the public purpose to be served.”’ Southern California Gas Co. v. City of Santa Ana, 336 F.3d 885 at 894-895 (9 1 Cir. 2003) (quoting Cayetano, 183 F.3d at 1107). “However, an ‘impairment is not a reasonable one if the problem sought to be resolved by an impairment of the contract existed at the time the contractual obligation was incurred.”’ Id. at 895 (quoting Cayetano, 183 F.3d at 1107). “Changed circumstances and important government goals do not make an impairment reasonable if the changed circumstances are ‘of degree and not kind.”’ Id. (quoting United States Trust Co., 431 U.S. at 32).


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Another factor significant to the analysis is whether the contracting parties are operating in a heavily regulated industry. Energy Reserves, 459 U.S. at 413. Thus, in Energy Reserves, the Court held that state regulation of natural gas prices did not impair a private contract where it did not impair the parties’ “reasonable expectations.” Id. at 416. In the Issuer’s case, though the Revenue Charge will be an element of DPL’s electric utility rates, which are generally subject to Commission regulation, the State Pledge was enacted in order to alter the otherwise reasonable expectations and to provide additional confidence, through a State promise, that the Revenue Charge will remain available throughout the applicable time period to allow the Issuer to receive the specified revenues with respect to the Project.

The Supreme Court in the past has held that legislation substantially impairing contractual rights was both reasonable and necessary and therefore did not violate the Contract Clause. The most famous case is Home Building  & Loan Ass’n v. Blaisdell, 290 U.S. 398 (1934). At issue in Blaisdell was the Minnesota Mortgage Moratorium Law, enacted in 1933, during the depth of the Great Depression, when Minnesota was under severe economic stress and appeared to have no effective alternatives. The statute was a temporary measure which allowed judicial extension of the time for mortgage redemption. A mortgagor who remained in possession during the extension period was required to pay a reasonable income or rental value to the mortgagee. Thus, the contracts being impaired were private contracts, not contracts with a government entity. The Court noted that, while “emergency does not create power, emergency may furnish the occasion for the exercise of power.” Id. at 426. In upholding the state mortgage moratorium law, the Court found five factors significant: (1) the state legislature and state supreme court found that an emergency existed “which furnished a proper occasion for the exercise of the reserved power of the state to protect the vital interests of the community,” and the U.S. Supreme Court found these findings to have support in the evidentiary record; (2) the law was passed to protect a basic social interest (housing), not a favored group; (3) the relief was appropriately tailored to the emergency that it was designed to meet; (4) the conditions upon which the period of redemption was extended were not unreasonable (with the exception of an initial thirty-day period, the extension required judicial approval; interest continued to accrue; the mortgagor was required to pay fair rental value during the period of extended possession); and (5) the legislation was limited to the duration of the emergency. Id. at 444-447. “The Blaisdell opinion thus clearly implied that if the Minnesota moratorium legislation had not possessed the characteristics attributed to it by the Court, it would have been invalid under the Contract Clause ...” Allied Structural Steel Co., 438 U.S. at 242.


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El Paso v. Simmons is the most recent case in which the Supreme Court has upheld an impairment of a state contract. El Paso concerned a 1941 Texas statute that limited to a five-year period the reinstatement rights of an interest-defaulting purchaser of land from the state. Prior Texas law had no such limit. Thus, any purchaser who defaulted on interest payments could at any future time reinstate his or her rights. This led to serious unforeseen consequences, including people purchasing state land with no intent of making interest payments out of speculation that the land might increase in value, for example, due to discovery of oil. 379 U.S. at 512-513. Also, it created situations in which the right to reinstate could be exercised by any one of multiple successive forfeiting parties. Id. The 1941 legislation was passed in direct response to these unforeseen circumstances. Id. The Court found that the right of reinstatement was not a substantial inducement to enter into purchase agreements. Id. at 514. The Court further found that the right to reinstatement was intended, not to allow real estate speculation, but rather to preserve “practical and substantial rights.” Id. at 514-515. The Court concluded that the repeal, rather than impairing a bargained-for expectation of the purchaser, had the effect of eliminating an unforeseen windfall. Id. at 515. Moreover, the purpose of the land sales was to raise money for public schools. The clouds on title arising from reinstatement rights, massive litigation to which this gave rise, and pattern of sale and forfeiture were costly to the school fund and to the development of land use. Id. at 515-516. The cloud on title also prevented the state from using lands subject to reinstatement for public purposes due to the possibility that any one of several past purchasers might at some unknowable future date assert the right to reinstatement. Id. at 516. The Court thus concluded that the statute did not violate the Contract Clause because the statute “was quite clearly necessary” and was “a mild one indeed, hardly burdensome to the purchaser who wanted to adhere to his contract of purchase, but nonetheless an important one to the State’s interest.” Id. at 516-517.

The most recently reported case in which impairment of a municipal bond contract has been upheld by the Supreme Court was Faitoute Iron  & Steel Co. v. City of Asbury Park, 316 U.S. 502 (1942). That case involved particularly unique circumstances. The impairment legislative action was enacted to meet the public emergency arising from a default in the payment of municipal obligations and the resulting impairment of public credit. Id. at 504. The Court treated the legislation in essentially the same manner as a bankruptcy workout. Because the affected municipality was bankrupt, and creditors had no effective remedy without the legislation, the Court found that the legislation did not so much impair the bondholders’ rights as discharge the municipality’s debt. Id. at 509-512. The Court found that the legislation did not violate the Contract Clause because its passage was, in fact, the only proven way for assuring payment of unsecured municipal obligations. Id. at 512.


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The leading decision is United States Trust Co. As discussed above, United States Trust Co. concerned the repeal of a 2-state covenant relating to bonds issued by the Port Authority, an agency created through an interstate compact between the state of New York and the state of New Jersey. The covenant, made by both states in connection with the Port Authority’s acquisition of a railroad, was designed to create security for bonds issued by the Port Authority for non-railroad purposes. Pursuant to the covenant, the states covenanted and agreed not to apply “for any railroad purpose whatsoever other than permitted purposes hereinafter set forth” any “rentals, tolls, fares, fees, charges, revenues or reserves, which have been or shall be pledged in whole or in part as security” for the Port Authority’s bonds. 431 U.S. at 10. Eleven years after enactment of the covenant, a national energy crisis developed, and Congress enacted the Emergency Petroleum Allocation Act, in which it found that the hardships caused by the oil shortage “jeopardize the normal flow of commerce and constitute a national energy crisis which is a threat to the public health, safety and welfare.” Id. at 14. Both states repealed the legislation containing the covenant the next year. Id.

After stating the legal test discussed above, the Court first found that the case involved “a financial obligation” of the states, and the covenant thus did not necessarily run afoul of the states’ reserved powers. Id. at 23-24. The states argued that the repeal of the covenant did not substantially impair bondholders’ rights. They argued that the bonds retained an “A” credit rating from the leading rating agencies and that, after an initial adverse effect on their market price, they regained a price comparable to that prior to the repeal. Id. at 19. Nonetheless, the Court held that the outright repeal, without any attempt to make compensation, constituted a substantial impairment. The Court noted that “no one can be sure precisely how much financial loss the bondholders suffered” and concluded that the “outright repeal totally eliminated an important security provision and thus impaired the obligation of the States’ contract.” Id.

The Court then proceeded to analyze whether the repeal of the covenant was reasonable and necessary to effect an important public purpose. The Court acknowledged that the purposes behind the repeal, mass transportation, energy conservation, and environmental protection, are goals that are important and of legitimate public concern. Id. at 28. The Court found, however, that the repeal was neither necessary nor reasonable. It was not necessary because (I) “a less drastic modification would have permitted the contemplated plan without entirely removing the covenant’s limitations on the use of Port Authority revenues and reserves to subsidize commuter railroads” and (2) “without modifying the covenant at all, the States could have adopted alternative means of achieving their twin goals of discouraging automobile use and improving mass transit” (such as state taxes to encourage reduction in driving, elimination of commuter discounts or an increase in tolls). Id. at 30. The Court held the repeal to be unreasonable because “the need for mass transportation in the New York metropolitan area was not a new development, and the likelihood that publicly owned commuter railroads would produce


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substantial deficits was well known.” Id. at 31. The Court found the changes in condition to be “of degree and not of kind,” and therefore not sufficient to justify the impairment of the covenant. Id. at 32. 1

D. Impairment

In considering whether there has been a violation of the Contract Clause, the court must also determine whether the law impaired the contract or merely breached it.

As early as 1920, the Supreme Court noted the distinction between a breach of a contract to which a state is a party and an impairment of such a contract. See Hays v. Port of Seattle, 251 U.S. 233, 237 (1920) (it “is important to note the distinction between a statute that has the effect of violating or repudiating a contract previously made by the state and one that impairs its obligation.”). As the Ninth Circuit explained, the question is “whether the State has used its law-making powers not merely to breach its contractual obligations, but to create a defense to the breach that prevents the recovery of damages.” Cayetano, 183 F.3d at 1102.

The question should be whether the modification that the legislation imposes simply breaches the contract like any other unilateral attempt to modify an agreement, or whether the statute prevents or materially limits the contractor’s ability to enforce its contractual rights. For example, legislation impairs a public contract only if it prevents or materially limits the remedies that would be available if the contract were between private parties.

Id. at 1103. This has been called the “availability-of-remedy” test. TM Park Avenue Associates v. Pataki, 214 F.3d 344, 349 (2d. Cir. 2000). Thus, whether legislation impairs a contract, or merely breaches it, turns on whether the legislation leaves the other contracting party with an available remedy, i.e., whether, “rather than merely breaking [its] promise,” the state “set up a defense that prevented the promisee from obtaining damages, or some equivalent remedy, for the breach.” Horwitz-Matthews, Inc. v. City of Chicago, 78 F.3d 1248, 1251 (7th Cir. 1996).

 

1   With respect to purely private contracts, the test is the same, with the only difference being the degree to which the courts defer to legislative judgment concerning the reasonableness and necessity of impairing legislation. See Allied Structural Steel Co.


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In Hays, the State of Washington had granted the plaintiff a contract to excavate a waterway. Twenty years later, the contract not having been performed for various reasons, the state transferred the rights to the waterway at issue to a municipality, along with the excavation rights. The Court found that this transfer breached, rather than impaired, the agreement because, to the extent the agreement was still in force, the state’s contractual “obligation remained as before, and formed the measure of [the plaintiffs] right to recover from the state for the damages sustained.” 251 U.S. at 237. In so holding, the Court distinguished an act that would have constituted an impairment:

Had the Legislature of Washington, pending performance or after complete performance by complainant, passed an act to alter materially the scope of his contract, to diminish his compensation, or to defeat his lien upon the filled lands, there would no doubt have been an attempted impairment of the obligation.

Id.

Thus, this opinion letter does not address breaches of the State Pledge, but rather only substantial impairments.

II. Takings Clause

The Fifth Amendment to the United States Constitution contains the following injunction: “nor shall private property be taken for public use, without just compensation.” This so-called “Takings Clause” is made applicable to the states through the Fourteenth Amendment. Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001).

Federal takings jurisprudence has developed two types of takings analyses, direct takings and regulatory takings. “And ‘ [w]hen the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner.”’ Arkansas Game and Fish Commission v. United States, 568 U.S., 133 S. Ct. 511, 518 (2012) (quoting Tahoe-Sierra Preservation Council v . Tahoe Regional Planning Agency, 535 U.S. 302, 322 (2002)). A different analysis applies, however, when the government does not directly appropriate private property for its own use, but “instead the interference with property rights ‘arises from some public program adjusting the benefits and burdens of economic life to promote the common good.”’ Tahoe-Sierra Preservation Council, 535 U.S. at 343 (quoting Penn Central Transportation Co. v. New York, 438 U.S. 104, 124 (1978)). It may also be possible for the government to “take” private property for a public use when government action destroys private property for a public use. See Arkansas Game and Fish Commission.


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The Supreme Court has also recently reemphasized that the analysis under the Takings Clause must be very fact-specific:

We have recognized, however, that no magic formula enables a court to judge, in every case, whether a given government interference with property is a taking. In view of the nearly infinite variety of ways in which government actions or regulations can affect property interests, the Court has recognized few invariable rules in this area.

True, we have drawn some bright lines, notably, the rule that a permanent physical occupation of property authorized by government is a taking. Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419, 426 (1982). So, too, is a regulation that permanently requires a property owner to sacrifice all economically beneficial uses of his or her land. Lucas v. South Carolina Coastal Council, 505 U. S. 1003, 1019 (1992). But aside from the cases attended by rules of this order, most takings claims turn on situation-specific factual inquiries. See Penn Central, 438 U.S., at 124.

Arkansas Game and Fish Commission, 133 S. Ct. at 518.

It is not possible at this time to know all the relevant facts relating to a future legislative or regulatory action.

In any case, there can only be a taking if there is a protected property interest in the first place. Thus, any takings analysis involves a two-part inquiry: (1) is there a recognized property interest, and (2) has the state taken property for a public purpose without paying just compensation?

A. Whether Revenue Property is protected by the Takings Clause.

‘‘‘ Property interests ... are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law.”’ Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984) (quoting Webb’s Fabulous Pharms. Inc. v. Beckwith, 449 U.S. 155, 161 (1972) (alteration in original)). The Supreme Court has recognized that, where intangible property rights are protected by state law, they may also be protected by the Takings Clause. Id at 1003 (“That intangible property rights protected by state law are deserving


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of the protection of the Takings Clause has long been implicit in the thinking of this Court.”) See also United States Trust Co., 431 U.S. at 19 n. 16 (“Contract rights are a form of property and as such may be taken for a public purpose provided that just compensation is paid.”); Omnia Commercial Co. v. United States, 261 U.S. 502, 508 (1923) (“The contract in question was property within the meaning of the Fifth Amendment.”). The Court in Ruckelshaus held that a trade secret, if defined as property under state law, was property protected by the Takings Clause. 467 U.S. at 1003-1004.

On occasion, courts have denied claims under the Takings Clause on the ground that the claimant had no protected property interest. For example, in Jackson Sawmill Co., Inc. v. United States, 580 F.2d 302 (8th Cir. 1978), the court held that the claimant had no protected property interest in the traffic flowing over a bridge. The claimant had received a pledge from a city that the city would not build a second bridge within city limits. In reliance on that pledge, the claimant had issued bonds secured solely by tolls and other revenues from a bridge to be constructed with funds raised through the sale of the bonds. A decade later, the state and federal governments constructed a new bridge that caused a substantial reduction in traffic across the original bridge. The court denied the claimant’s taking claim, finding that “the law is clear in Missouri and Illinois. that plaintiffs do not have a constitutionally protected property right in traffic.” Id. at 306. See also US. ex. rel. and for Use of Tennessee Valley Authority v. Powelson, 319 U.S. 266 (1943) (no protected property right in the right to exercise the power of eminent domain).

We have assumed that Revenue Property is a property right under Delaware law.

 

  B. Just compensation will be required only if a reviewing court concludes that Revenue Property has been “taken” for a public use.

 

  1. Categorical takings.

As discussed above, where the government takes possession of private property, there is a categorical rule requiring the payment of just compensation. The Supreme Court applied this categorical rule where the government appropriated the interest earned on private funds held in a court deposit account, referring to the appropriation as a “forced contribution to general governmental revenues” and finding that “the county’s appropriation of the beneficial use of the fund is analogous to the appropriation of the use of private property ...” Webbs Fabulous Pharmacies, Inc, 449 U.S. at 163.


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The Supreme Court has also established a categorical rule requiring payment of just compensation “where regulation denies all economically beneficial or productive use of land.” Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992). While the Revenue Property is not land, and does not fit cleanly within the normal takings analysis, if a court concludes that Revenue Property is property protected by the Takings Clause, if a State statute or Commission action were to either (a) permanently appropriate the Revenue Charge for government use (for example, require that the Revenue Charge be paid to the State rather than to the Issuer), or (b) permanently deny all economic value in Revenue Property (for example, by permanently eliminating the Revenue Charge), a reviewing court could find a taking requiring the payment of just compensation, unless the government’s action falls within the “emergency” exception discussed below.

 

  2. Emergency exception.

At least in the context of war, the United States Supreme Court has held that the government may destroy private property without paying just compensation under appropriate circumstances. In United States v. Caltex, 344 U.S. 149 (1952), the Court addressed a takings claim by owners of oil terminal facilities located in the Philippines destroyed by the United States military to prevent the Japanese from taking control of the facilities. The Court relied upon prior decisions holding that the United States was not required to compensate property owners when, in the Civil War, the army destroyed bridges to prevent the enemy from advancing and when American soldiers in the field in Cuba destroyed a factory thought to house germs of a contagious disease. See United States v. Pac. R.R. Co., 120 U.S. 227 (1887); Juragua Iron Co. v. United States, 212 U.S. 297 (1909). The Court found the destruction of the terminal facilities to be in furtherance of the war and therefore not compensable: “The short of the matter is that this property, due to the fortunes of war, had become a potential weapon of great significance to the invader. It was destroyed, not appropriated for subsequent use. It was destroyed that the United States might better and sooner destroy the enemy.” Caltex. 344 U.S. at 155.

In denying compensation, the Court in Caltex noted that the common law had “long recognized that in times of imminent peril—such as when fire threatened a whole community - the sovereign could, with immunity, destroy the property of a few that the property of many and the lives of many could be saved.” Caltex, 344 US. at 154. Thus, depending on the facts, a court might conclude that an emergency of sufficient magnitude warrants destroying the Revenue Property without affording just compensation.


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  3. Regulatory takings.

If a State statute or Commission action were to reduce the value of Revenue Property without appropriating it or denying all economic value, and if the emergency exception does not apply, a reviewing court would undertake a more complex analysis. A party challenging government action as an unconstitutional taking “bears a substantial burden.” Eastern Enters. v. Apfel, 524 U.S. 498, 523 (1998). “Government regulation often ‘curtails some potential for the use or economic exploitation of private property ... ‘, and ‘not every destruction or injury to property by governmental action has been held to be a “taking” in the constitutional sense.”’ Id. (citations omitted). Rather, courts must determine whether regulation has gone “too far” such that “justice and fairness” require compensation for economic injury. Penn Central, 438 U.S. at 124. Thus, “whether a particular restriction will be rendered invalid by the government’s failure to pay for any losses proximately caused by it depends largely ‘upon the facts and circumstances [in that] case.”’ Id. (quoting United States v. Central Eureka Mining Co., 357 U.S. 155, 168 (1958) (alteration in original). The Supreme Court explained:

[W]e have “generally eschewed” any set formula for determining how far is too far, choosing instead to engage in “‘essentially ad hoc, factual inquiries.”’... Indeed, we still resist the temptation to adopt per se rules in our cases involving partial regulatory takings, preferring to examine “a number of factors” rather than a simple “mathematically precise” formula.

Tahoe-Sierra, 535 U.S. at 326 (citation omitted).

The Supreme Court had identified three factors relevant to the analysis: (a) the character of the government action; (b) the economic effect on the property owner; and (c) the extent to which the regulation interferes with reasonable investment-backed expectations. Palazzolo, 533 U.S. at 618. “These inquiries are informed by the purpose of the Takings Clause, which is to prevent the government from ‘forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”’ Id. at 618-619 (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960). The Court has referred to the third factor, the extent to which the regulation interferes with reasonable investment-backed expectations, as “particularly” and “especially” important. See Arkansas Game and Fish Commission, 133 S. Ct. at 518, 522; Penn Central, 438 U.S. at 124; Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426 (1982).


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  (a) Character of the governmental action

The “character of the governmental action” analysis typically differentiates a “physical invasion” by the government from an interference that “arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” Penn Central, 438 U.S. at 124. This is an area where the analogy between takings cases involving land becomes more tenuous when analyzing a potential taking of Revenue Property. Clearly there can be no “physical invasion” of Revenue Property. Thus, any new legislation or action of the Commission affecting the value of Revenue Property will necessarily in some sense be an adjustment of the “benefits and burdens of economic life,” and would likely be justified by the State as a program designed to “promote the common good.”

 

  (b) Economic effect on the property owner

Where this factor is addressed in a case not involving a physical invasion of property, it generally has been discussed in the context of land use restrictions, such as zoning laws. The Supreme Court in Penn Central noted that where land use restrictions are “reasonably related to the promotion of the general welfare,” the Court has “uniformly reject[ed] the proposition that diminution in property value, standing alone, can establish a ‘taking.”’ Id. at 131. As the Court noted, “[g]ovemment could hardly go on if to some extent values incident to property could not be diminished without paying for every such change in the general law....” Id. at 124 (citation omitted). The general rule disfavors finding a taking where property rights are diminished by application of a general law that, in theory, benefits the entire public, including the property owner (e.g., presumably everyone benefits from preserving historical landmarks), and where specific property owners have not been singled out arbitrarily. See id. at 132 (contrasting “reverse spot zoning,” i.e., a land-use decision “which arbitrarily singles out a particular parcel for different, less favorable treatment than the neighboring ones”).

Other land use restrictions held not to be “takings” have arisen where the activity on one property was causing harm to one or more other properties, i.e., where the status quo was that some property was being damaged, and the law being challenged simply chose which property rights should be protected. See, e.g., Miller v. Schoene, 276 U.S. 272 (1928) Gust compensation not required for loss of market value where trees had to be destroyed because they produced “cedar rust” fatal to apple trees cultivated nearby); Hadacheck v. Sebastian, 239 U.S. 394 (1915) (no just compensation required where law prohibited continued operation of brickyard where legislature reasonably concluded that presence of brickyard was inconsistent with neighboring land uses); Goldblatt v. Hempstead, 369 U.S. 590 (1962) (no taking where safety ordinance banning excavations below the water table effectively prohibited the claimant from continuing a sand and gravel mining business, and the restriction did not prevent all reasonable use of the


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property). These holdings stem from the proposition that “‘all property in this country is held under the implied obligation that the owner’s use of it shall not be injurious to the community.”’ Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 491-492 (1987) (quoting Mugler v. Kansas, 123 U.S. 623, 665 (1887)). The Court in Penn Central noted that it “is, of course, implicit in Goldblatt that a use restriction on real property may constitute a ‘taking’ if not reasonably necessary to the effectuation of a substantial public purpose.” 438 U.S. at 127; see also Lucas, 505 U.S. at 1016 (stating that the Fifth Amendment is violated when land-use regulation “does not substantially advance legitimate state interests”). Where a land use restriction furthers a legitimate public purpose, the Supreme Court has suggested that restrictions may not constitute a taking unless they make use of the land “commercially impracticable.” Keystone Bituminous Coal, 480 U.S. at 495-496.

 

  (c) Interference with distinct, reasonable investment- backed expectations

Even a state statute “that substantially furthers important public policies may so frustrate distinct investment-backed expectations as to amount to a ‘taking.’” Penn Central, 438 U.S. at 127. In Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), the claimant had sold the surface rights to particular parcels of property, but expressly reserved the right to remove the coal thereunder. A Pennsylvania statute, enacted after the transactions took place, forbade any mining of coal that caused the subsidence of any house, unless the house was the property of the owner of the underlying coal and was more than 150 feet from the improved property of another. The Court found that the statute made it commercially impracticable to mine the coal. Id. at 414. Accordingly, it had nearly the same effect as the complete destruction of the rights the claimant had reserved and thus effected a taking without just compensation. See also Arkansas Game and Fish Commission, 133 S. Ct. at 522 (“Also relevant to the takings inquiry is the degree to which the invasion is intended or is the foreseeable result of authorized government action. [Citations omitted.] So, too, are the character of the land at issue and the owner’s ‘reasonable investment-backed expectations’ regarding the land’s use.”)

Unfortunately, these land use cases offer poor analogy to a taking of Revenue Property. Revenue Property cannot cause physical harm to other property, nor can its use be harmful to other property. The types of arguments that typically justify impairment of the value of physical property are therefore generally inapplicable to the type of legislation that would likely impact the value of Revenue Property.


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The Supreme Court has, however, on a few occasions, addressed takings claims unrelated to physical property. In Ruckelshaus, for example, the Court addressed an alleged taking of trade secrets, specifically, the EPA’s use of data submitted by an applicant for registration of a pesticide under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The Court focused solely on the third Penn Central factor - the interference with reasonable investment-backed expectations. 467 U.S. at 1005. The Court initially noted that a ‘“reasonable investment-backed expectation’ must be more than a ‘unilateral expectation or an abstract need.”’ Id. (quoting Webb’s Fabulous Pharms., 449 U.S. at 161). The Court analyzed Monsanto’s claims in three time-period based groups based on the reasonableness of its expectations given the regulatory scheme during each time period.

For data submitted to the EPA after October 1, 1978, the effective date of the amendment to FIFRA that allowed the EPA to use the data for purposes beyond consideration of the application, the Court found that Monsanto “could not have had a reasonable, investment-backed expectation that EPA would keep the data confidential beyond the limits prescribed in the amended statute itself.” Id. at 1006. Accordingly, for that time period, the Court found that the legislation did not effect a taking: “as long as Monsanto is aware of the conditions under which the data are submitted, and the conditions are rationally related to a legitimate Government interest, a voluntary submission of data by an applicant in exchange for the economic advantages of registration can hardly be called a taking.” Id. at 1007.

The Court then addressed the period prior to the enactment of an amendment to FIFRA in 1972 that explicitly addressed the EPA’s use of submitted data—prior to 1972 the act was silent with respect to the EPA’s authorized use and disclosure of data submitted to it. The Court found that, “absent an express promise, Monsanto had no reasonable investment-backed expectation that its information would remain inviolate in the hands of EPA,” and hence found no taking. Id. at 1008. 2

However, for the period between 1972 and 1978, FIFRA expressly provided that data submitted in connection with a registration application and designated as a trade secret would only be used in connection with evaluating the application. Id. at 1010-1011. Accordingly, the Court found that the EPA’s use of Monsanto’s data for the purpose of evaluating registration applications submitted by other applicants would constitute a compensable taking if Monsanto could prove a loss of market value. Id. at 1012-1013. 3 See also Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211 (1986)

 

2   The Court acknowledged, however, that an. “express promise” by the state can give rise to reasonable investment-backed expectations. 467 U.S. at 1008.
3  

The Court also addressed whether the EPA’s taking of Monsanto’s trade secrets was for a “public use.” The Court stated that the “scope of the ‘public use’ requirement of the Takings Clause is ‘coterminous with the scope of a sovereign’s police powers.”’ Id. at 1014 (quoting Hawaii Housing Authority v. Midkiff, 467 U.S. 229,240 (1984)). The Court further noted that it had “rejected the notion that a use is a public use only if the property taken is put to use for the general public.” Id. “So long as the taking has a conceivable public character, ‘the means by which it will be attained is ... for Congress to determine.”’ Id. at 1014 (quoting Berman v. Parker, 348 U.S. 26, 33 (1954) (alteration in original)). The Court found the EPA’s use of Monsanto’s trade secrets to be for a “public use.” Id. at 1016.


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(applying regulatory takings analysis to pension withdrawal liability statute, concluding that statutory liability constituted a permanent deprivation or property, but concluding that the deprivation did not constitute a compensable taking). Compare Eastern Enters., 524 U.S. 498 (in which five justices concluded that the Coal Industry Retiree Health Benefit Act of 1992, creating retroactive employer liability for health benefits for former employees, did not implicate an identifiable property interest).

Thus, in the case of Revenue Property, factors relevant to a Takings Clause analysis would be whether the future State statute or Commission action breaches the State’s express promise in the State Pledge and whether the future State statute or Commission action arbitrarily singles out Revenue Property without regard to the risks QFCP Generators and others assumed when they acquired Revenue Property.

LIMITATIONS AND QUALIFICATIONS

We express no opinion as to any matter that is not governed by the Contracts Clause or the Takings Clause. Without limiting the generality of the foregoing, we express no opinion as to any laws of the State of Delaware.

As we are not Delaware counsel, we have not made any investigation as to whether any proposed legislation relating to the subject matter of this opinion letter is pending in the State legislature or any proposed action is pending before the Commission relating to the subject matter of this opinion letter. We express no opinion as to any such proposed legislation should it be enacted by the State legislature or any such proposed action should it be taken by the Commission.

We note that the case captioned Nichols et al. v. Markell et al., No. 1:12cv777, currently pending in the United States District Court for the District of Delaware, challenges the validity of the Act and the Orders. We express no opinion as to the validity of the Act, any Order, or the Tariff; rather we have assumed their validity.


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It is commonly understood, without any express statement, that opinion letters are necessarily technical and are informed by customary practice and usage. Thus, this opinion letter should not be used or relied on except in consultation with counsel. In particular, it is understood that an opinion letter is not a guaranty of an outcome but rather only an expression of professional judgment and that, in an actual case, a court could reach a different conclusion. In addition, the judicial analysis relating to the Contract Clause and the Takings Clause has typically proceeded on a case-by-case basis, and the court’s determination, in most cases, is strongly influenced by the facts and circumstances of the particular case. There are no reported controlling judicial precedents directly on point. Our analysis is a reasoned application of judicial decisions involving similar or analogous circumstances to what might occur in the future. Moreover, given the lack of judicial precedent directly on point, the novelty of Revenue Property, and the fact that DPL is part of a heavily regulated industry, the outcome of any litigation cannot be predicted with certainty. Consequently, there can be no assurance that a court will follow our reasoning or reach the conclusions which we believe current judicial precedent supports. The risk of uncertain outcomes in actual cases cannot be eliminated even when an opinion letter is rendered. We express no view as to whether this opinion letter is suitable for your purposes.

This opinion letter speaks only as of its date. We have no obligation to update this opinion letter for any change in the law or the facts. This opinion letter may be relied upon solely by the addressees listed on Schedule A for use in connection with the transactions described in the first paragraph. No one else may rely upon this opinion letter or the opinions expressed herein without our prior written consent.

Very truly yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP


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SCHEDULE A

Massachusetts Mutual Life Insurance Company

M. Life Insurance Company

MassMutual Asia Limited

Modem Woodmen of America, an Illinois fraternal benefit society

AXA Equitable Life Insurance Company

Teachers Insurance and Annuity Association of America

Genworth Life and Annuity Insurance Company

Genworth Life Insurance Company of New York


E XHIBIT 4.1.13(d)

F ORM OF O PINION OF S PECIAL D ELAWARE C OUNSEL

TO THE C OMPANY

[See Execution Version]

E XHIBIT 4.1.13(d) TO N OTE P URCHASE A GREEMENT


    

 

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March 20, 2013

Each Purchaser Party to the Note Purchase Agreement

Deutsche Bank Trust Company Americas

As Collateral Agent (the “Collateral Agent”)

60 Wall Street

MSNYC 60-2710

New York, NY 10005

 

Re: Leasehold Mortgage from Diamond State Generation Partners, LLC. a Delaware limited liability company (“ Mortgagor ”) to the Collateral Agent

Ladies and Gentlemen:

We have acted as special Delaware counsel to Mortgagor for the limited purpose of rendering this opinion in connection with that certain Leasehold Mortgage, Security Instrument, Assignment of Rents, and Financing Statement As Fixture Filing of even date herewith executed by Mortgagor in favor of the Collateral Agent (the “ Mortgage ”) encumbering Mortgagor’s leasehold interest in each of 512 E. Chestnut Hill Road, Newark, DE and 1593 River Road, New Castle, DE (collectively, the Mortgaged Property ’’).

In connection with rendering this opinion, we have examined a photocopy of the Mortgage, the Memorandum of Lease between Mortgagor, as tenant and the Delaware Department of Transportation, as landlord and the Memorandum of Lease between Mortgagor, as tenant, and the Delmarva Power & Light Company, as landlord (collectively, the “ Memoranda ”) and such other documents, instruments, certificates, legal opinions and corporate records, and such statutes, regulations and decisions and questions of law, as we have deemed necessary or appropriate in order to give the opinions set forth herein. Other than the Mortgage, we have not examined any other documents delivered in connection with the issuance of $144.812,500 in notes by the Mortgagor that are secured by the Mortgage (the· “ Notes ”).

Subject to the foregoing and the assumptions, qualifications and limitations set forth below, we are of the opinion that:

1. Enforceability (Remedies) . The Mortgage is a valid and binding obligation of Mortgagor, enforceable against Mortgagor in accordance with its terms.

2. Form of Mortgage . The Mortgage is in proper form for recording in the Ne\v Castle County, DE Recorder of Deeds’ Office (the “Recorder’s Office ”). When the Mortgage has been duly recorded and appropriately indexed, the Mortgage will be sufficient to create a lien on the Mortgaged Property in favor of the Collateral Agent, as security for the obligations described therein.

 


    

 

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3. Security Interests . The Mortgage creates a security interest in favor of the Collateral Agent in all of the collateral described therein that is of the type in which a security interest can be created under Division 9 of the Delaware Uniform Commercial Code (the “ UCC ”) (collectively, the · “ UCC Collateral ”). Upon the filing and acceptance of the Mortgage in the Recorder’s Office, the security interests created by the Mortgage in the UCC Collateral described in the Mortgage that are “fixtures,” as defined in the UCC and that are located in New Castle County, DE, will be perfected to the extent a security interest can be perfected in such fixtures by the filing of a financing statement as a fixture filing under the UCC.

4. No Recording Tax . Except for recording and filing fees, no recording, filing or privilege tax is payable to the State of Delaware in connection with the execution, delivery, recording, execution, enforcement or filing of the Mortgage.

5. No Violation of Law . The execution and delivery by Mortgagor of the Mortgage do not, and the performance by Mortgagor of its obligations thereunder, will not violate any published Delaware statute or regulation, which, in our experience, is normally applicable both to entities that arc not engaged in regulated business activities and to transactions of the type contemplated by the Mortgage.

6. Governmental Approvals and Filings . Except as noted in the following sentence, no consent, approval, order or authorization from, or registration or filing with, or notice to any governmental body of the State of Delaware is required in connection with the validity, binding effect, and enforceability of the Mortgage other than the recording and/or filing and indexing of the Mortgage and the Memoranda. We draw your attention to the fact that we have not investigated, and render no opinion regarding, whether Mortgagor or the Mortgaged Property is, or upon development or operation of the Mortgaged Property or foreclosure of the Mortgage will be, in violation of any of the matters described in qualification paragraph U) below.

7. Choice of Law . With respect to the provision in the Mortgage stating that it shall be governed by and construed in accordance with the laws of the State of Delaware, we believe that a state or federal court sitting in Delaware would uphold such choice of law provision.

 


    

 

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ASSUMPTIONS, QUALIFICATIONS AND LIMITATIONS

The foregoing opinions are subject to the following assumptions, qualifications and limitations:

(a) In rendering the opinions expressed herein, we have assumed: (i) the genuineness of all signatures; (ii) the authenticity and completeness of all documents submitted to us as originals; (iii) the conformity to authentic, original documents of all documents submitted to us as copies; (iv) the legal capacity of natural persons; (v) the due authorization, execution and delivery of the Mortgage by all parties thereto; (vi) the enforceability of the Mortgage against all parties other than Mortgagor; (vii) that all parties to the Mortgage: (A) are duly formed, validly existing, in good standing under all applicable laws and qualified to do business in all jurisdictions, as required by applicable law; (B) have the requisite power and authority to enter into and perform its/their obligations under the Mortgage; (C) have duly authorized, executed, and delivered the Mortgage; and (D) have satisfied those legal requirements that are applicable to it/them to the extent necessary to make the Mortgage enforceable against it/them; (viii) that the Collateral Agent has complied with all legal requirements pertaining to its status as such status relates to its rights to enforce the Mortgage against Mortgagor; (ix) that the Memoranda are duly recorded and indexed in the Recorder’s Office; (x) there has not been any mutual mistake of fact or misunderstanding, fraud, duress or undue influence;

(xi) that the conduct of the parties to the Mortgage has complied with any requirement of good faith, fair dealing and conscionability; (xii) that the Collateral Agent has acted in good faith and without notice of any defense against the enforcement of any rights created by, or adverse claim to any property or security interest transferred or created in connection with the Notes; (xiii) the constitutionality or validity of a relevant statute, rule, regulation or agency action is not in issue unless a reported decision in Delaware has specifically addressed but not resolved, or has established, its unconstitutionality or invalidity; (xiv) that Mortgagor has received adequate consideration in exchange for the Mortgage; (xv) that Mortgagee holds title to the Mortgaged Property; and (xvi) the proceeds of the Notes will be used for business and commercial purposes.

(b) In all cases where we have relied on an assumption, it should be understood that we have made no independent investigation into the matters covered by the assumption.

(c) With respect to certain factual matters relevant to our opinion, we have relied upon the representations and warranties made by the Collateral Agent and/or Mortgagor in the Mortgage.

(d) When an opinion or confirmation is given to our knowledge or to the best of our knowledge or with reference to matters of which we are aware or that are known to us, or with any other similar qualification, the relevant knowledge or awareness is limited to the conscious awareness of facts, without investigation, of any of the lawyers currently with this firm who have given substantive attention to legal representation of Mortgagor in connection with the Mortgage. No inference as to our knowledge of the existence or

 


    

 

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absence of any facts should be drawn from our representation of Mortgagor, nor should such knowledge held by persons other than the lawyers described in the preceding sentence be imputed to us. Without limiting the generality of any of the foregoing, it should be understood that we have not examined any of Mortgagor’s files, we have not made any special inquiry of Mortgagor and we have not examined any records of any court, administrative tribunal, or other similar entity in connection with this opinion letter.

(e) The validity, binding effect and enforceability of the Mortgage are subject to (i) the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or conveyance and other similar laws affecting the rights and remedies of creditors generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including, without limitation, concepts of materiality, reasonableness, good faith, and fair dealing.

(f) Certain of the remedies, waivers, and other provisions of the Mortgage may not be enforceable; however, subject to the other qualifications and assumptions set forth in this letter, such unenforceability will not render the Mortgage invalid as a whole or preclude: the judicial foreclosure of the Mortgage, in accordance with applicable Delaware law, if the Notes are not repaid in full following maturity or upon acceleration of the Notes following a material default by Mortgagor under the Mortgage.

(g) We undertake no responsibility with respect to (i) recording the Memoranda and/or Mortgage, or (ii) examining the public records to determine if and/or when such documents have been recorded by others.

(h) The opinions in this letter are limited to the matters set forth herein. No opinion may be inferred or implied beyond the matters expressly stated in this letter; and the opinions must be read in conjunction with the assumptions, limitations, exceptions, and qualifications set forth in this letter. We assume no obligation to update this opinion to advise you of any changes in facts or laws subsequent to the date hereof.

(i) We express no opinion with respect to (i) the accuracy or completeness of the description of any real or personal property; or (ii) whether Mortgagor owns or has a mortgageable interest in the Mortgaged Property; or (iii) any matter pertaining to any of the leases purported to be encumbered by the Mortgage, including, without limitation, the validity, ownership or enforceability thereof: or (iv) the priority of any lien ( or the lien of any advance) on the Mortgaged Property or any security interest in personal property; or

(v) any other title matter relating to this transaction. As to these matters, we understand the Collateral Agent is relying, it to the extent it deems appropriate, on such title insurance and/or UCC searches as they may obtain from a title insurance company and/or other companies satisfactory to the Collateral Agent.

 


    

 

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(j) We express no opinion with respect to the applicability of or compliance with any zoning, subdivision, land use, land development, environmental protection, health, safety, fire, construction, building or other laws, ordinances, or regulations that may be applicable to the Mortgaged Property or any matters concerning licenses, permits, or other approvals which may be required from any governmental authority. Our opinions regarding performance of Mortgagor’s obligations under the Mortgage, including the creation of the Mortgage, are based on the assumption that Mortgagor has or will have all licenses, permits, and approvals required in connection with such performance.

(k) Advances made by the note purchasers after entry of a judgment of foreclosure for the payment of taxes, insurance, and maintenance may not be secured by the Mortgage even though the Mortgage provide that such advances will be added to the mortgage debt.

(1) Without limiting the generality of qualification paragraph (t) above, we express no opinion as to the validity or enforceability of any provision of the Mortgage that (i) permits the note purchasers to increase the rate of interest, to collect a late charge in the event of delinquency or default, or to charge and collect a prepayment charge or prepayment premium to the extent deemed to be penalties or forfeitures: (ii) purports to gram The Collateral Agent a power-of-attorney; (iii) purports to entitle The Collateral Agent to take possession of collateral in any manner other than peaceably and by reason of the peaceable surrender of such possession by Mortgagor or by reason of appropriate judicial proceedings; (iv) purports to require that waivers must be in writing to the extent that an oral agreement or implied agreement by trade practice or course of conduct modifying provisions of the Mortgage has been made: (v) purports to grant The Collateral Agent the right to confess judgment for money or for possession of the Mortgaged Property; (vi) purports to be a waiver of the right to a jury trial or purports to require disputes or claims to be resolved by judicial reference, purports to be a waiver of any right to object to jurisdiction or venue, a waiver of any right to claim damages or to service of process, or a waiver of any provisions of Division 9 of the UCC that may not be waived, or a waiver of any other rights or benefits bestowed by operation of law or the waiver of which is limited by applicable law; (vii) purports to exculpate any party from its own negligent acts or limit any party from certain liabilities; (viii) purports to entitle The Collateral Agent to the appointment of a receiver on ex parte application, as a matter of right or without regard to the then value of the real property: (ix) purports to require the payment of attorneys’ fees to the extent such fees exceed reasonable attorneys’ fees or exceed amounts permitted by any applicable law; (x) purports to authorize The Collateral Agent to set off and apply any deposits at any time held, and any other indebtedness at any time owing, by The Collateral Agent to or for the account of Mortgagor or which purports to provide that any purchaser of a participation from any note purchaser may exercise setoff or similar rights with respect to such participation; (xi) purports to grant a power of sale under the Mortgage; (xii) purports to make the assignment provisions of the

 


    

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assignment of rents and leases contained in the Mortgage absolute rather than for security only; (xiii) purports to avoid treatment of The Collateral Agent as a mortgagee in possession; or (xiv) purports to select a particular State’s law to govern the interpretation thereof

(m) The opinions given above with respect to the enforceability and perfection of security interests are subject to the following exceptions:

 

  (i) the continued perfection of the security interests created under the Mortgage and perfected by the filing of the Mortgage may depend upon the continuation of Borrower’s present name: and

 

  (ii) Borrower’s name on the Mortgage must be the same name indicated on the public record. See Section 9103 of the UCC and related comments.

(n) We express no opinion with respect to the effect of laws or regulations governing enforcement of remedies.

(o) We express no opinion with respect to any matter arising om of or related to the USA Patriot Act of 2001, as amended, the International Emergency Economic Powers Act 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. app. 1 et seq., any regulations promulgated under the foregoing laws, Executive Order No. 13224 on Terrorist Financing, any sanctions program administered by the U.S. Department of Treasury’s Office of Foreign Asset Control, or any other laws, regulations, executive orders or government programs designed to combat terrorism or money laundering, or the effect of any of the foregoing laws, regulations, orders or programs, if applicable, to the transaction described in the Note Purchase Documents.

(p) Our examination of law relevant to the matters covered by this letter is limited to Delaware law. We express no opinion as to matters governed by federal law or by the laws of any other state or other jurisdiction or by the local law of any municipality located within the State of Delaware.

 


    

 

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This opinion may not be used or relied upon by any party other than the addresses hereof (and their successors, assigns and participants) and only in connection with the Notes. This opinion may not be used or relied on by any other person for other purpose (including the addressees hereof), without in each instance our prior written consent, except for the use of this opinion (i) in connection with review of the Notes by a regulatory agency having supervisory authority over the addressees hereof (including, without limitation, the National Association of Insurance Commissioners) for the purpose of confirming the existence of this opinion; (ii) in connection with the assertion of a defense as to which this opinion is relevant and necessary; and (iii) in response to a court order.

 

Very truly
Drinker Biddle & Reath LLP

ST/st

 


EXHIBIT 4.1.13(e)

FORM OF OPINION OF SPECIAL DELAWARE COUNSEL

TO THE COMPANY

[See Execution Version]

EXHIBIT 4.1.13(d) TO NOTE PURCHASE AGREEMENT


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March 20, 2013

To Each of the Persons

Listed on Schedule A

Attached Hereto

 

  Re: Diamond State Generation Partners, LLC

Ladies and Gentlemen:

We have acted as special Delaware counsel to Diamond State Generation Partners, LLC, a Delaware limited liability company (the “Company”). This opinion letter is being furnished to you at the request of the Company pursuant to Section 4.1.13(f) of the Note Purchase Agreement, dated March 20, 2013 (the “Note Purchase Agreement”) entered into by the Company and the purchasers of Notes listed on Schedule A attached hereto (the “Purchasers”), to provide financing for the Project (as defined in the Note Purchase Agreement) consisting of a portfolio of up to 150 baseload fuel cell electricity generators manufactured by Bloom Energy Corporation, a Delaware corporation (“Sponsor”), with an aggregate capacity of thirty (30) megawatts to be located in the State of Delaware. Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Note Purchase Agreement, except that reference in this letter to any document shall mean such document as in effect on the date hereof.

The Project will be owned and operated by the Company in accordance with certain tariff provisions of Delmarva Power & Light Company, a Delaware public utility (“DPL”) providing for Service Classifications “QFCP-RC” (the “Tariff’) and LVG-QFCP-RC (the “Gas Tariff’) as approved by Order No. 8062 of the Delaware Public Service Commission (the “Commission”) dated October 18, 2011, as adopted and supplemented by the Commission’s Findings, Opinion and Order No. 8079 dated December 1, 2011 (the “Tariff Approval Final Orders”) in PSC Docket No. 11- 362 styled “IN THE MATTER OF THE APPLICATION OF DELMARVA POWER AND LIGHT COMPANY FOR APPROVAL OF QUALIFIED FUEL CELL PROVIDER PROJECT TARIFFS (FILED AUGUST 19, 2011)” (the “Proceeding”).

For purposes of this letter, our review of documents has been limited to the review of originals or copies furnished to us of the following documents (the “Opinion Documents”):

 

  (a) the REPS Act;

 

  (b) the Note Purchase Agreement;

500 Delaware Avenue, Suite 1500   |   Wilmington, DE 19801-1494             T 302.888.6800             F 302.888.6989

Mailing Address     P.O. Box 2306   |    Wilmington, DE 19899-2306             www.morrisjames.com


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Listed in Schedule A Hereto

March 20, 2013

Page 2

 

  (c) the Tariff and the Gas Tariff;

 

  (d) the Application filed by DPL with the Commission in the Proceeding on August 19, 2011, seeking approval of the Tariff, including the direct testimony and schedules of DPL’s witnesses filed therewith (the “Application”);

 

  (e) the direct testimony of The Honorable Colin P. O’Mara, Secretary of the Department of Natural Resources and Environmental Control of the State of Delaware (“DNREC”) filed in the Proceeding on August 19, 2011, and the joint certification, dated August 19, 2011 (the “Joint Certification”), signed by Secretary O’Mara in such capacity, and by the Honorable Alan B. Levin, as Director of the Delaware Economic Development Office (“DEDO”) submitted with such testimony;

 

  (f) Commission Order No. 8025 dated September 6, 2011, and the Public Notice of Application and Public Comment Sessions for this Proceeding as ratified by the Commission therein;

 

  (g) comments of the Delaware Public Advocate submitted in the Proceeding dated September 30, 2011;

 

  (h) the Report on Delmarva Power’s Application for Approval of a New Electric Tariff Applicable to Proposed Bloom Energy Fuel Cell Project, submitted in the Proceeding, dated October 3, 2011;

 

  (i) a transcript of the Commission Hearing taken pursuant to notice before Debra A . Donnelly, Registered Professional Reporter, in Legislative Hall, House Chamber, 411 Legislative Boulevard, Dover, Delaware on Tuesday, October 18, 2011, beginning at approximately 10:12 A.M. and concluding at 5:57 P.M. (the “ Hearing Transcript ”);

 

  (g) the Tariff Approval Final Orders;

 

  (k) the Service Agreement and Agreement to Comply with Obligations, dated as of June 28, 2011, between the Company and DPL (the “Service Agreement”);
 


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March 20, 2013

Page 3

 

  (1) Commission Order No. 8256 dated December 18, 2012 (“Order 8256”), in PSC Regulation Docket No. 56, and the attachments thereto, including the approved modified Rules and Procedures to Implement the Renewable Energy Portfolio Standard attached thereto;

 

  (m) DP&L’s monthly compliance filings in PSC Docket Nos. 12-173-04 - 12-173-13; and

 

  (n) that certain letter agreement between DEDO and Bloom dated October 10, 2011.

For purposes of this letter, we have not reviewed any documents other than the Opinion Documents and certain written statements of governmental authorities and others referenced in this paragraph. In particular, we have not reviewed and express no opinion herein as to any other document that is referred to in or incorporated by reference into (and not attached as an exhibit, schedule, or otherwise) to any document reviewed by us. We have assumed herein that there exists no provision in any document that we have not reviewed that bears upon or is inconsistent with or contrary to the opinions in this letter. We have conducted no factual investigation of our own, and have relied solely upon the documents reviewed by us, the statements and information set forth in such documents (including without limitation the representations and warranties set forth in the Note Purchase Agreement), certain statements of governmental authorities and others (including without limitation the factual findings of the Commission in the Tariff Approval Final Orders), and the additional matters recited or assumed in this opinion letter, all of which we assume to be true, complete, and accurate and none of which we have investigated or verified.

We have assumed: (i) the due incorporation or due formation, as the case may be, due organization, and valid existence in good standing under the laws of all relevant jurisdictions of each of the parties and each of the signatories (other than natural persons) to each of the documents reviewed by us, and that none of such parties or signatories has dissolved; (ii) the due authorization, execution, and delivery (and, as applicable, filing) of each of such documents by each of the parties thereto and each of the signatories thereto; (iii) that each of such parties and signatories had and has the power and authority to execute, deliver, and perform (and, as applicable, file) each of such documents; and (iv) the legal capacity of all relevant natural persons.

We have assumed that: (i) all signatures on all documents reviewed by us are genuine; (ii) all documents furnished to us as originals are authentic; (iii) all documents furnished to us as copies or specimens conform to the originals thereof; (iv) all executed documents furnished to us have not been terminated, rescinded, altered, or amended; (v) each document reviewed by us constitutes the entire agreement among the parties thereto with respect to the subject matter thereof; and (vi) each document reviewed by us constitutes the legal, valid, and binding obligation of each of the parties thereto and is enforceable against each of such parties in accordance with its terms.


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To Each of the Persons

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March 20, 2013

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We have further assumed that: (i) no later than the commencement date of commercial operation of the full nameplate capacity of the Project, Sponsor will manufacture fuel cells in Delaware that are capable of being powered by Renewable Fuels (as defined in the REPS Act); (ii) the Project will be operated by Sponsor throughout its 21 year term; (iii) the Project will be up to thirty (30) megawatts nominal nameplate capacity and will not exceed such capacity without further Commission approval as provided in the REPS Act; (iv) DPL, Sponsor and the Company will perform their respective obligations under the Tariff and the Service Agreement in all material respects; (v) the charges imposed under the Tariff will be collected from DPL’s entire Delaware customer base in accordance with the Tariff; (vi) the installed nameplate capacity of the Project shall have been sourced from fuel cell units manufactured in accordance with the REPS Act; (vii) Sponsor, the Company, and their respective affiliates, investors and lenders have obtained, or will obtain in a timely manner, all consents, approvals, permits, authorizations, licenses and similar grants of right or authority from federal, state and local governmental authorities and private entities as shall be necessary for the lawful siting, construction, ownership, operation and maintenance of the Project and the consummation of the transactions contemplated by the Note Purchase Agreement (other than the approvals expressly required by the REPS Act); (viii) each of the Tariff Approval Orders was served by mail on the date of such order; and (ix) neither the Company nor the Sponsor nor any of their affiliates or investors sells or will sell any electrical energy to end-use customers in Delaware or sells or will sell electricity to retail electric customers utilizing the transmission and/or distribution facilities of a nonaffiliated electric utility or otherwise is or will be engaged in the provision of any electric transmission or distribution service in Delaware.

We note that Section 364(i) of the REPS Act provides that the courts of the State of Delaware shall have exclusive original jurisdiction over any dispute between the Company (in its capacity as owner of a “qualified fuel cell provider project” referred to therein) and DPL involving the interpretation of the obligations as contained in the Tariff, but Section P of the Tariff provides that DPL or the Project may institute an action in the Delaware Superior Court following informal dispute resolution. Accordingly, we assume that the Tariff is not intended, and will not be applied, to require that such action be instituted exclusively in the Delaware Superior Court

You have agreed that this opinion relates solely to the REPS Act and the characterization of the Project and Tariff thereunder and the status of the Company under Delaware’s Public Utility Act of 1974, 26 Del.C. §§ 101 et. seq. (the “Public Utility Act”). You have also agreed that we are expressing no other opinion herein with respect to the Project, the Note Purchase Agreement, the parties thereto, the transactions contemplated thereby, or any other transactions involving such parties or the characterization of any of the transactions contemplated by the parties to such transactions or any other matter. It is expressly understood that we express no opinion herein (i) as to the ownership of or title to any property, (ii) as to the creation or attachment of any lien, pledge, mortgage, or security interest, or (iii) as to the perfection of (including, without limitation, the proper place for filing to perfect) any lien, pledge, mortgage, or security interest, (iv) as to the priority of any lien, pledge, mortgage, or security interest, or (v) as to any matters concerning taxation.


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To Each of the Persons

Listed in Schedule A Hereto

March 20, 2013

Page 5

 

Accordingly, based upon the foregoing and upon our examination of such questions of law and statutes as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions in this letter, we are of the opinion that, for purposes of Delaware law, if properly presented to a Delaware court, or to a United States Federal court sitting in Delaware and applying Delaware law (a “Delaware Court”), the Delaware Court:

1. Would find that the Tariff Approval Final Orders are final and non-appealable and in full force and effect.

2. Would find that the Project is a “qualified fuel cell provider project” within the meaning of Section 352(17) of the REPS Act.

3. Would find that Sponsor is a “qualified fuel cell provider” within the meaning of Section 352(16) of the REPS Act and that the designation of Sponsor’s plan to locate its manufacturing facility in Delaware as an “economic development opportunity” by DEDO and DNREC on August 19, 2011 in the Joint Certification satisfies the requirement in Section 352(16) b. of the REPS Act.

4. Would find that the Company is a “qualified fuel cell provider generator” within the meaning of the Tariff.

5. Would find that the Company is not a “retail electricity supplier” which is defined in Section 352(22) of the Public Utility Act, as follows:

(22) “Retail electricity supplier” means a person or entity that sells electrical energy to end-use customers in Delaware, including but not limited to nonregulated power producers, electric utility distribution companies supplying standard offer, default service, or any successor service to end-use customers. A retail electricity supplier does not include a municipal electric company for the purposes of this subchapter.

6. Would find that the Company is not an “electric supplier” which is defined in Section 1001(14) of the Public Utility Act as follows:

(14) “Electric supplier” means a person or entity certified by the Commission that sells electricity to retail electric customers utilizing the transmission and/or distribution facilities of a nonaffiliated electric utility, including:

a. Municipal corporations which choose to provide electricity outside their municipal limits (except to the extent provided prior to February 1, 1999);


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March 20, 2013

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b. Electric cooperatives which, having exempted themselves from the Commission’s jurisdiction pursuant to §§ 202 (g) and 223 of this title, choose to provide electricity outside their assigned service territories; and

c. Any broker, marketer or other entity (including public utilities and their affiliates).

7. Would find that the Company is not a “public utility” defined in Section 102(2) of the Public Utility Act (a “Delaware Public Utility”) as follows:

“Public utility” includes every individual, partnership, association, corporation, joint stock company, agency or department of the State or any association of individuals engaged in the prosecution in common of a productive enterprise (commonly called a “cooperative”), their lessees, trustees or receivers appointed by any court whatsoever, that now operates or hereafter may operate for public use within this state, (however, electric cooperatives shall not be permitted directly or through an affiliate to engage in the production, sale or distribution of propane gas or heating oil), any natural gas, electric (excluding electric suppliers as defined in § 1001 of this title), water, wastewater (which shall include sanitary sewer charge), telecommunications (excluding telephone services provided by cellular technology or by domestic public land mobile radio service) service, system, plant or equipment. (emphasis added)

Insofar as the Company is not a Delaware Public Utility, such court would also find that the Company is not subject to rate, financial or organizational regulation by the Commission under the Public Utility Act, nor would any consent, authorization or approval or other action by the Commission, or any notice to or filing with the Commission, be required under the Public Utility Act for the execution and delivery by the Company of the Note Purchase Agreement.

We note that we have found no express exemption of QFCP Projects from regulation as Delaware Public Utilities under the Public Utility Act or the Commission’s orders or regulations. The Delaware courts apply a two part test to determine whether an entity is a Delaware Public Utility, examining first whether there is a sale of a regulated commodity to third parties and second whether the sale affects the public interest in a significant manner. See e.g., Eastern Shore Natural Gas Co. v. Delaware Public Service Com’n, 637 A.2d 10 (Del. 1994) (FERC regulated interstate natural gas pipeline that sold natural gas to eleven direct-sales industrial customers in Delaware was a Delaware Public Utility); Public Water Supply Company, Inc. v. DiPasquale, 802 A.2d 929 (Del. Super. 2002) (landlord that distributed well water in Delaware mobile home park was a Delaware Public Utility); The Reserves Development Corporation v. State of Delaware Public Service Commission, 2003 WL 139777 (Del. Super. Jan. 17, 2003) (homeowners’ association that distributes well water to its members is a Delaware Public Utility). Our opinion is based on our understanding,


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To Each of the Persons

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March 20, 2013

Page 7

 

and assumption, that the Company will be generating and selling electric energy, capacity and ancillary services exclusively at wholesale in the PJM wholesale markets as an Exempt Wholesale Generator with market-based rate authority from FERC, and will not be selling any regulated commodities to third parties in any manner that would affect the public interest in Delaware.

8. Would find that the Service Agreement which, inter alia, obligates DPL to comply with its obligations under the Tariff, creates binding obligations of DPL which are enforceable against DPL in accordance with the terms of the Service Agreement.

9. Would find that the Tariff is not subject to modification or revocation by the Commission except to the extent otherwise provided in the REPS Act.

The foregoing opinions are subject to (and we offer no opinion concerning the effect of) (i) bankruptcy, insolvency, moratorium, reorganization, receivership, fraudulent conveyance, preferential transfer, liquidation, and similar laws relating to or affecting rights and remedies of creditors generally; (ii) principles of equity, including, without limitation, applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law); and (iii) standards of good faith, fair dealing, course of dealing, course of performance, materiality, and reasonableness that may be applied by a court, considerations of public policy, and the exercise of judicial discretion.

Our opinion is necessarily based on the assumption that in any case in which this question is considered, the question will be competently briefed and argued. Our opinion is reasoned and also presumes that any decision rendered will be based on existing legal precedents, including those discussed above.

We are attorneys admitted to practice in the State of Delaware. This opinion letter addresses only matters of Delaware law (excluding laws, rules and regulations pertaining to taxation, securities regulation, environmental regulation, land use and zoning), and we offer no opinion as to the laws of any other jurisdiction, including, without limitation, the federal laws of the United States of America or the laws of any other State. The opinions expressed in this letter are not a guaranty as to what any particular court would actually hold, but are reasoned opinions as to the decisions a court should reach if the issues are properly presented to it and the court followed existing precedent as to legal and equitable principles applicable in such cases. The recipients of this opinion should take these limitations into account in analyzing the risks associated with the transactions described herein.

We consent to your relying on this letter on the date hereof in connection with the Transaction and other matters set forth herein. Without our prior written consent, this letter may not be furnished or quoted to (except (i) to any accountant or attorney for any person or entity entitled hereunder to rely hereon or to whom or which this opinion letter may be furnished or quoted as


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March 20, 2013

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stated herein, (ii) the National Association of Insurance Commissioners or any other governmental or regulatory authority, (iii) any institutional investors which are transferees of the Notes, and (iv) as otherwise required by applicable law or required or requested by any governmental authority or any self-regulatory body having jurisdiction over a Purchaser), or relied upon by, any other person or entity, or relied upon for any other purpose. There are no implied opinions in this letter. This letter speaks only as of the date hereof, and we do not assume any continuing obligation or responsibility to advise you of any changes in law, or any change in circumstances of which we become aware, which may affect the opinion contained herein or to update, revise or supplement this opinion for any other reason.

Very truly yours,

NJC/PCC/am


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SCHEDULE A

Purchasers:

AXA Equitable Life Insurance Company

M. Life Insurance Company

Genworth Life and Annuity Insurance Company

Genworth Life Insurance Company of New York

Massachusetts Mutual Life Insurance Company

MassMutual Asia Limited

Modem Woodmen of America

Teachers Insurance and Annuity Association of America


Exhibit 4.1.13(f)

F ORM OF O PINION OF S PECIAL C OUNSEL

TO THE P URCHASERS

[See Execution Version]

E XHIBIT 4.1.13(f) TO N OTE P URCHASE A GREEMENT


 

 

LOGO

 

53rd at Third

885 Third Avenue

  New York, New York 10022-4834
  Tel: +1.212.906.1200 Fax: +1.212.751.4864
  www.lw.com
 

 

FIRM/ AFFILIATE OFFICES

  Abu Dhabi    Moscow
  Barcelona    Munich
  Beijing    New Jersey
  Boston    New York
March 20, 2013   Brussels    Orange County
  Chicago    Paris
  Doha    Riyadh
  Dubai    Rome
  Frankfurt    San Diego
  Hamburg    San Francisco
  Hong Kong    Shanghai
  Houston    Silicon Valley
  London    Singapore
  Los Angeles    Tokyo
  Madrid    Washington, D.C. Milan

 

To the Purchasers listed on Schedule A

hereto (collectively, the “Purchasers ”)

 

  Re: Diamond State Generating Partners, LLC Ladies and Gentlemen :

We have acted as your counsel in connection with the purchase by you of $144,812,500 aggregate principal amount of 5.22% Senior Secured Notes due March 30, 2025 (the “ Notes ”), issued by Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), pursuant to that certain Note Purchase Agreement dated as of March 20, 2013 (the “ Note Purchase Agreement ”), among the Company and you and the other Financing Documents (as defined below). This letter is furnished to you pursuant to Section 4.1.l 3(f) of the Note Purchase Agreement.

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter, except where a specified fact confirmation procedure is stated to have been performed (in which case we have with your consent performed the stated procedure). We have examined, among other things, the following:

(a) the Note Purchase Agreement;

(b) the Security Agreement, dated as of March 20, 2013 (the “ Security Agreement ”), between the Company and Deutsche Bank Trust Company Americas, as collateral agent for the Secured Parties (the “ Collateral Agent ”);


(c) the Pledge and Security Agreement, dated as of March 20, 2013 (the “ Pledge Agreement ”), among the Company, Diamond State Generation Holdings, LLC, a Delaware limited liability company (“ Pledgor ”) and the Collateral Agent;

(d) the Equity Contribution Agreement, dated as of March 20, 2013, among the Company, Bloom Energy Corporation, a Delaware corporation (the “ Sponsor ”) and the Collateral Agent;

(e) the Collateral Agency Agreement, dated as of March 20, 2013, among the Purchasers and the Collateral Agent;

(f) the Depositary Agreement, dated as of March 20, 2013 (the “ Depositary Agreement ”), among the Company, the Collateral Agent and Deutsche Bank Trust Company Americas, in its capacity as the Depositary (in such capacity, the “ Depositary Bank ”);

(g) the Notes listed on Schedule B hereto; and

(h) photocopies of the UCC-1 financing statements (i) naming the Company as debtor and the Collateral Agent as secured party and (ii) naming the Pledgor as debtor and the Collateral Agent as secured party, together with all schedules and exhibits to each financing statement, to be filed in the Office of the Secretary of State of the State of Delaware, copies of which are attached hereto as Exhibit A (collectively, the “ Delaware Financing Statements ”).

The documents described in subsections (a) - (g) above are referred to herein collectively as the “ Financing Documents .” As used in this letter, the “ New York UCC ” shall mean the Uniform Commercial Code as now in effect in the State of New York and “ Applicable UCC ” shall mean the New York UCC and/or the Delaware UCC (as defined below).

As to factual matters we have, with your consent, relied upon the foregoing, and upon oral and written statements and representations of officers and other representatives of the Company and others, including the representations and warranties of the Company m the Financing Documents. We have not independently verified such factual matters.


We are opining as to the effect on the subject transactions only of the federal laws of the United States and the internal laws of the State of New York, except that with respect to our opinions set forth in paragraph 5 of this letter (as it relates to the Delaware UCC), we are opining as to the effect on the subject transactions only of the Delaware UCC. We express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction, or in the case of the State of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. With your permission, we have based our opinions set forth in paragraph 5 of this letter exclusively upon our review of Article 9 of the Uniform Commercial Code of the State of Delaware as set forth in the CCH Secured Transactions Guide without regard to judicial interpretations thereof or any regulations promulgated thereunder or any other laws of the State of Delaware (the “ Delaware UCC ”).

Our opinions herein are based upon our consideration of only those statutes, rules and regulations which, in our experience, are normally applicable to purchases of secured notes in private placement transactions. We express no opinion as to any state or federal laws or regulations applicable to the subject transactions because of the legal or regulatory status of any parties to the Financing Documents or the legal or regulatory status of any of their affiliates. Various issues pertaining to, among other things, (a) the organization or formation (as the case may be), authorization, execution and delivery, limited company or limited liability power (as the case may be), and good standing of the Obligors, (b) energy regulatory authorizations, approvals, licenses and permits and (c) certain U.S. constitutional issues are addressed in the opinions of Orrick, Herrington & Sutcliffe LLP, Drinker Biddle & Reath LLP and Morris James LLP, in their respective capacities as counsels to the Obligors, separately provided to you. We express no opinion with respect to those matters herein, and to the extent elements of those opinions are necessary to the conclusions expressed herein, we have, with your consent, assumed such matters.


Subject to the foregoing and the other matters set forth herein, as of the date hereof:

1. Each of the Financing Documents constitutes a legally valid and binding obligation of each Obligor party thereto, enforceable against each such Obligor in accordance with its terms.

2. The execution and delivery of the Financing Documents and the issuance of the Notes (only with respect to the Company), do not on the date hereof:

(i) violate any federal or New York statute, rule, or regulation applicable to the Company; or

(ii) require any consents, approvals, or authorizations to be obtained by the Company from, or any registrations, declarations or filings to be made by the Company with, any governmental authority under any federal or New York statute, rule or regulation applicable to the Company, except (a) filings and recordings required in order to perfect or otherwise protect the security interests under the Financing Documents and (b) any consents or approvals required in connection with a disposition of collateral including compliance with federal and state securities laws in connection with any sale of any portion of the collateral consisting of securities under such securities laws.

3. The Security Agreement creates a valid security interest in favor of the Collateral Agent in that portion of the collateral described in Section 2.1 of the Security Agreement in which the Company has rights and a valid security interest may be created under Article 9 of the New York UCC (the “ Company UCC Collateral ”), which security interest secures the Obligations (as defined in the Note Purchase Agreement).

4. The Pledge Agreement creates a valid security interest in favor of the Collateral Agent m that portion of the collateral described in Section 2.1 of the Pledge Agreement in which the Pledgor has rights and a valid security interest may be created under Article 9 of the New York UCC (the “ Pledgor UCC Collateral ” and, together with the Company UCC Collateral, the “ UCC Collateral ”), which security interest secures the Secured Obligations (as defined in the Pledge Agreement).

5. The Delaware Financing Statements naming the Company and the Pledgor (the “ Delaware Entities ”) as debtors are in appropriate form for filing in the Office of the Secretary of State the State of Delaware. Upon the proper filing of each of the Delaware Financial Statements in the Office of the Secretary of State of the State of Delaware, the security interest in favor of the Collateral Agent in each Delaware Entities’ rights in the UCC Collateral pledged by it and described in the Delaware Financing Statement will be perfected to the extent a security interest in such UCC Collateral can be perfected under the Delaware UCC by the filing of a financing statement in that office.


6. The provisions of the Depositary Agreement are effective under the New York UCC to perfect the security interest in favor of the Collateral Agent in that portion of the Company UCC Collateral consisting of security entitlements (as defined in Section 8-102(a)(l 7) of the New York UCC) with respect to financial assets (as defined in Section 8-102(a)(9) of the New York UCC) credited to the securities accounts maintained with Deutsche Bank Trust Americas (the “ Securities Intermediary ”) and described in Section 2.1 of the Depositary Agreement (the “ Securities Accounts ”), assuming (a) the Depositary Agreement has been duly authorized, executed and delivered by each of the parties thereto and is the legally valid and binding obligation of such parties, (b) the Securities Intermediary’s jurisdiction (determined in accordance with Section 8-110(e) of the New York UCC) is the State of New York, (c) that each of the Securities Accounts is a “securities account” (within the meaning of Section 8-501 of the New York UCC) and (d) the Securities Intermediary, with respect to any Securities Accounts, is acting in its capacity as a “securities intermediary” as defined in Section 8- 102(a)(14) of the New York UCC.

7. The Company is not required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

8. No registration of the Notes under the Securities Act of 1933, as amended, and no qualification of an indenture under the Trust Indenture Act of 1939, as amended, is required for the purchase of the Notes by you in the manner contemplated by the Note Purchase Agreement. We express no opinion, however, as to when or under what circumstances any Notes initially sold to you may be reoffered or resold.

Except as expressly set forth in paragraphs 3 through 6, we do not express any opinion with respect to the creation, validity, attachment, perfection or priority of any security interest or lien or the effectiveness of any sale or other conveyance or transfer of real or personal property. The opinions above do not include any opinions with respect to compliance with laws relating to permissible rates of interest.


Our opinions are subject to:

 

  a. the effects of bankruptcy, insolvency, reorganization, preference, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights or remedies of creditors;

 

  b. the effects of general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief), concepts of materiality, reasonableness, good faith, fair dealing and the discretion of the court before which a proceeding is brought;

 

  c. the invalidity under certain circumstances under law or court decisions of provisions for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy; and

 

  d. we express no opinion with respect to (i) consents to, or restrictions upon, governing law, jurisdiction, venue, service of process, arbitration, remedies or judicial relief; (ii) advance waivers of claims, defenses, rights granted by law, or notice, opportunity for hearing, evidentiary requirements, statutes of limitation, trial by jury or at law, or other procedural rights; (iii) waivers of broadly or vaguely stated rights; (iv) provisions for exclusivity, election or cumulation of rights or remedies; (v) provisions authorizing or validating conclusive or discretionary determinations; (vi) grants of setoff rights; (vii) provisions to the effect that a guarantor is liable as a primary obligor, and not as a surety and provisions purporting to waive modifications of any guaranteed obligation to the extent such modification constitutes a novation; (viii) provisions for the payment of attorneys’ fees where such payment is contrary to law or public policy; (ix) proxies, powers and trusts; (x) provisions prohibiting, restricting, or requiring consent to assignment or transfer of any right or property; (xi) provisions for liquidated damages, default interest, late charges, monetary penalties, prepayment or make-whole premiums or other economic remedies to the extent such provisions are deemed to constitute a penalty and (xii) provisions permitting, upon acceleration of any indebtedness, collection of that portion of the stated principal amount thereof which might be determined to constitute unearned interest thereon.


We express no opinion or confirmation as to federal or state securities laws (except as set forth in paragraphs 7 and 8 of this letter as to federal securities laws), tax laws, antitrust or trade regulation laws, insolvency or fraudulent transfer laws, antifraud laws, compliance with fiduciary duty requirements, pension or employee benefit laws, usury laws, environmental laws, margin regulations, state or federal energy laws, utility regulation, laws and regulations relating to commodities trading, futures and swaps; Financial Industry Regulatory Authority rules; National Futures Association rules; or the rules of any stock exchange, clearing organization, designated contract market or other regulated entity for trading, processing, clearing or reporting transactions in securities, commodities, futures or swaps (without limiting other laws or rules excluded by customary practice).

Without limiting the generality of the foregoing, the opinions expressed above are also subject to the following limitations, exceptions and assumptions:

The effect of New York law and court decisions which provide that certain suretyship rights and defenses are available to a party that encumbers its property to secure the obligations of another.

The opinions set forth above are also subject to (i) the unenforceability of contractual provisions waiving or varying the rules listed in Section 9-602 of the New York UCC, (ii) the unenforceability under certain circumstances of contractual provisions respecting self-help or summary remedies without notice of or opportunity for hearing or correction, (iii) the effect of provisions of the New York UCC and other general legal principles that impose a duty to act in good faith and in a commercially reasonable manner, and (iv) the effect of Sections 9- 406, 9- 407, 9-408 and 9-409 of the New York UCC on any provision of any Financing Document that purports to prohibit, restrict, require consent for or otherwise condition the assignment of rights under such Financing Document.

Our opinions in paragraphs 3, 4 and 6 above are limited to Article 9 of the New York UCC, and our opinions in paragraph 5 are limited to Article 9 of the Delaware UCC, and therefore those opinion paragraphs, among other things, do not address collateral of a type not subject to, or excluded from the coverage of, Article 9 of the New York UCC and/or the Delaware UCC, as applicable (the “ Applicable UCC ”). Additionally,

 

  (1) We express no opinion with respect to the priority of any security interest or lien.

 

  (2) We express no opinion with respect to any agricultural lien or any collateral that consists of letter-of-credit rights, commercial tort claims, goods covered by a certificate of title, claims against any government or governmental agency, consumer goods, crops growing or to be grown, timber to be cut, goods which are or are to become fixtures, as-extracted collateral or cooperative interests.


  (3) We assume the descriptions of collateral contained in, or attached as schedules to, the Financing Documents and any financing statements accurately and sufficiently describe the collateral intended to be covered by the Financing Documents or such financing statements. Additionally, we express no opinion as to whether the phrases “all personal property” or “all assets” or similarly general phrases would be sufficient to create a valid security interest in the collateral or particular item or items of collateral; however, we note that pursuant to Section 9- 504 of the Delaware UCC the phrases “all assets” or “all personal property” can be a sufficient description of collateral for purposes of perfection by the filing of a financing statement.

 

  (4) We have assumed that each Obligor has, or with respect to after-acquired property will have, rights in the collateral granted by it or the power to transfer rights in such collateral, and that each such Obligor has received value and we express no opinion as to the nature or extent of such Obligor’s rights in any of the collateral and we note that with respect to any after- acquired property, the security interest will not attach until such Obligor acquires such rights or power.

 

  (5) We call to your attention the fact that the perfection of a security interest in “proceeds” (as defined in the Applicable UCC) of collateral is governed and restricted by Section 9-315 of the Applicable UCC.

 

  (6) We have assumed that the exact legal name of each Obligor is as set forth in the copy of the organizational documents certified by the Secretary of State of the State of Delaware, and we have also assumed the accuracy of the other factual information set forth on the Delaware Financing Statements.

 

  (7) Section 552 of the federal Bankruptcy Code limits the extent to which property acquired by a debtor after the commencement of a case under the federal Bankruptcy Code may be subject to a security interest arising from a security agreement entered into by the debtor before the commencement of such case.


  (8) We express no opinion with respect to any property subject to a statute, regulation or treaty of the United States whose requirements for a security interest’s obtaining priority over the rights of a lien creditor with respect to the property preempt Section 9-310(a) of the Delware UCC.

 

  (9) We express no opinion with respect to any goods which are accessions to, or commingled or processed with, other goods to the extent that the security interest is limited by Section 9-335 or 9-336 of the Applicable UCC.

 

  (10) We call to your attention that a security interest may not attach or become enforceable or be perfected as to contracts, licenses, permits, equity interests or other property that are not assignable under applicable law, or are subject to consent requirements or contractual or other prohibitions or restrictions on assignment, except to the extent that any such prohibitions, restrictions or consent requirements may be rendered ineffective to prevent the attachment of the security interest pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the New York UCC, as applicable, and we note that the extent of any security interest created in reliance on such UCC provisions may be limited. In addition, we call to your attention that your rights under the Financing Documents as secured parties may be subject to the provisions of the organizational and governing documents of any entity in which any equity interests (or other rights of equity holders or investors) are pledged and the provisions of the applicable laws under which any such entity is organized.

 

  (11) We express no opinion regarding any security interest in any copyrights, patents, trademarks, service marks or other intellectual property, or any license or sublicense thereof or the proceeds of any of the foregoing except to the extent Article 9 of the New York UCC may be applicable to the foregoing and, without limiting the generality of the foregoing, we express no opinion as to the effect of any federal laws relating to copyrights, patents, trademarks, service marks or other intellectual property on the opinions expressed herein. In addition, we call to your attention that any license or sublicense of copyrights, patents, trademarks or other intellectual property may not be assignable unless such license or sublicense affirmatively permits the creation, perfection and enforcement of a security interest therein.

 

  (12) We express no opinion with respect to any property or assets now or hereafter credited to any Securities Account that is a securities account except to the extent that (a) a “security entitlement” (as such term is defined in Section 8-NY\5638404.61 102(a)(l 7) of the New York UCC) has been created and (b) such asset is a


  “financial asset” (as such term is defined in Section 8-102(a)(9) of the New York UCC). Furthermore, we express no opinion with respect to the nature or extent of the Securities Intermediary’s rights in, or title to, the securities or other financial assets underlying any “security entitlement” now or hereafter credited to a securities account. We note that to the extent the Securities Intermediary maintains any financial asset in a “clearing corporation” (as defined in Section 8- 102(5) of the New York UCC), pursuant to Section 8-111 of the New York UCC, the rules of such clearing corporation may affect the rights of the Securities Intermediary.

 

  (13) We express no opinion as to any security interest in any portion of the collateral that is subject to an agreement prohibiting, restricting or conditioning the assignment thereof except to the extent that any such prohibitions or restrictions are rendered ineffective under the New York UCC or any such conditions have been complied with.

 

  (14) Other than with respect to the Purchasers, we express no opinion with respect to the security interest of the Collateral Agent for the benefit of any Secured Party except to the extent that the Collateral Agent has been duly appointed as agent for such persons.

With your consent, except to the extent that we have expressly opined as to such matters with respect to the Obligors herein, we have assumed (a) that the Financing Documents have been duly authorized, executed and delivered by each of the parties thereto, (b) the genuineness of all signatures and the legal capacity of all natural persons, (c) that the Financing Documents constitute legally valid and binding obligations of the parties thereto other than the Obligors, enforceable against each of them in accordance with their respective terms, and (d) that the status of the Financing Documents as legally valid and binding obligations of the parties is not affected by any (i) breaches of, or defaults under, agreements or instruments, (ii) violations of statutes, rules, regulations or court or governmental orders, or (iii) failures to obtain required consents, approvals or authorizations from, or make required registrations, declarations or filings with, governmental authorities.

This letter is furnished only to you and is solely for your benefit in connection with the transactions referenced in the first paragraph. This letter may not be relied upon by you for any other purpose, or furnished to, assigned to, quoted to or relied upon by any other person, firm or entity for any purpose, without our prior written consent, which may be


granted or withheld in our discretion; provided that copies of this letter may be delivered to any governmental or regulatory authority with authority over a Purchaser (including the National Association of Insurance Commissioners) for disclosure (but not reliance) purposes. At your request, we hereby consent to reliance hereon by any future assignee of your interest in the Notes pursuant to an assignment that is made and consented to in accordance with the express provisions of Section 13.2 and Section 22.1 of the Note Purchase Agreement, on the condition and understanding that (i) this letter speaks only as of the date hereof, (ii) we have no responsibility or obligation to update this letter, to consider its applicability or correctness to other than its addressee(s), or to take into account changes in law, facts or any other developments of which we may later become aware, and (iii) any such reliance by a future assignee must be actual and reasonable under the circumstances existing at the time of assignment, including any changes in law, facts or any other developments known to or reasonably knowable by the assignee at such time.

 

Very truly yours,
LATHAM & WATKINS LLP


 

LOGO

SCHEDULE A

Purchasers

AXA Equitable Life Insurance Company

C. M. Life Insurance Company

Genworth Life and Annuity Insurance Company

Genworth Life Insurance Company of New York

Massachusetts Mutual Life Insurance Company

MassMutual Asia Limited

Modem Woodmen of America

Teachers Insurance and Annuity Association of America


 

LOGO

SCHEDULE B

Notes

 

NUMBER OF NOTE

 

TYPE OF NOTE

 

NAME OF INVESTOR

  PRINCIPAL
AMOUNT
 
1  

5.22% Senior Secured Note due March 30, 2025

  Modern Woodmen of America   $     15,000,000.00  
2  

5.22% Senior Secured Note due March 30, 2025

  AXA Equitable Life Insurance Company   $ 15,000,000.00  
3  

5.22% Senior Secured Note due March 30, 2025

  AXA Equitable Life Insurance Company   $ 20,000,000.00  
4  

5.22% Senior Secured Note due March 30, 2025

  Teachers Insurance and Annuity Association of America   $ 35,000,000.00  
5  

5.22% Senior Secured Note due March 30, 2025

  Massachusetts Mutual Life Insurance Company   $ 32,200,000.00  
6  

5.22% Senior Secured Note due March 30, 2025

  C.M. Life Insurance Company   $ 3,500,000.00  
7  

5.22% Senior Secured Note due March 30, 2025

  MassMutual Asia Limited   $ 4,300,000.00  
8  

5.22% Senior Secured Note due March 30, 2025

  Genworth Life and Annuity Insurance Company   $ 5,000,000.00  
9  

5.22% Senior Secured Note due March 30, 2025

  Genworth Life and Annuity Insurance Company   $ 5,000,000.00  
10  

5.22% Senior Secured Note due March 30, 2025

  Genworth Life and Annuity Insurance Company   $ 5,000,000.00  
11  

5.22% Senior Secured Note due March 30, 2025

  Genworth Life Insurance Company of New York   $ 4,812,500.00  


 

LOGO

EXHIBIT A

Delaware Financing Statements

(See following pages)


LOGO

UCC FINANCING STATEMENT

FOLLOW INSTRUCTIONS (front and back) CAREFULLY

 

A.   NAME & PHONE OF CONTACT AT FILER [optional]  
   

Lisa Phillips                                   (212) 906-1200

 
B.  

SEND ACKNOWLEDGMENT TO: (Name and Address)

 
   
   

Latham & Watkins LLP

885 Third Avenue

New York, NY 10022

lisa.phillips@lw.com

 

 

  THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY

1. DEBTOR’S EXACT FULL LEGAL NAME-insert only one debtor name (1a or 1b) - do not abbreviate or combine names

 

  1a. ORGANIZATION’S NAME                
 

Diamond State Generation Holdings,

LLC

       
OR  

1b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX
1c.  

MAILING ADDRESS

1299 Orleans Drive

         

CITY

Sunnyvale

 

STATE POSTAL CODE

CA      | 94089

 

COUNTRY

USA

1d.  SEE INSTRUCTIONS   ADD’L INFO RE   |  e. TYPE OF ORGANIZATION   1f. JURISDICTION OF ORGANIZATION   1g. ORGANIZATIONAL ID #, if any  
    ORGANIZATION   LLC   Delaware    
                        NONE
           
2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) - do not abbreviate or combine names
 

2a. ORGANIZATION’S NAME

 

               
OR  

2b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

2c. MAILING ADDRESS

 

          CITY   STATE       | POSTAL CODE   COUNTRY
2d. SEE INSTRUCTIONS   ADD’L INFO RE   |  2e. TYPE OF ORGANIZATION   2f. JURISDICTION OF ORGANIZATION   2g. ORGANIZATIONAL ID #, if any  
    ORGANIZATION        
        DEBTOR               NONE
           
3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P)-insert only one secured party name (3a or 3b)
  3a. ORGANIZATION’S NAME                
  Deutsche Bank Trust Company Americas, as Collateral Agent    
OR  

3b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

3c. MAILING ADDRESS

60 Wall Street, MSNYC 60-2710

     

CITY

New York

 

STATE POSTAL CODE

NY       | 10005

 

COUNTRY

USA

4. This FINANCING STATEMENT covers the following collateral:

See Schedule A attached hereto and by this reference incorporated herein for a description of the Collateral.

 

5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCC FILING

6. This FINANCING STATEMENT is to be filed [for record] (or recorded) in the REAL

          ESTATE RECORDS. Attach Addendum [if applicable]

  1. Check to REQUEST SEARCH REPORT(S) on Debtor(s) [ADDITIONAL FEE]         [optional]   All Debtors   Debtor 1    Debtor 2
8. OPTIONAL FILER REFERENCE DATA   034738-0017   F#376727   
Filed with: DE - Secretary of State       A#543036     


SCHEDULE A TO UCC-1 FINANCING STATEMENT

 

DEBTOR:    DIAMOND STATE GENERATION HOLDINGS, LLC
SECURED PARTY:    DEUTSCHE BANK TRUST COMPANY
   AMERICAS, as Collateral Agent

This Financing Statement covers all of the Debtor’s right, title and interest in the following property, whether now owned or hereafter existing, owned or acquired, and wherever located (collectively, the “ Collateral ”):

Any and all of Debtor’s right, title and interest, whether now owned or hereafter existing or acquired, in Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), and all limited liability company interests of the Company related thereto (the “ Pledged Equity Interests ”), and:

(a) all rights to receive income, gain, profit, dividends and other distributions allocated or distributed to Debtor in respect of or in exchange for all or any portion of the Pledged Equity Interests;

(b) all of Debtor’s capital or ownership interest, including capital accounts, in the Company, and all accounts, deposits or credits of any kind with the Company;

(c) all of Debtor’s voting rights in or rights to control or direct the affairs of the Company;

(d) all of Debtor’s rights, title and interest, as the sole member of the Company, in, to or under any and all of the Company’s assets or properties;

(e) all other rights, title and interest in or to the Company derived from the Pledged Equity Interests;

(f) all indebtedness or other obligations of the Company owed to Debtor;

(g) all claims of Debtor for damages arising out of, or for any breach or default relating to, any of the foregoing;

(h) all rights of Debtor to terminate, amend, supplement, modify, or cancel, the Governing Documents, to take all actions thereunder and to compel performance and otherwise exercise all remedies thereunder;


(i) all Securities, notes, certificates and other Instruments representing or evidencing any of the foregoing rights and interests or the ownership thereof and any interest of Debtor reflected in the books of any financial intermediary pertaining to such rights and interests and all non-cash dividends, cash, options, warrants, stock splits, reclassifications, rights, Instruments or other Investment Property and other property or Proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such rights and interests; and

(j) to the extent not included in any of the foregoing, all Proceeds of the foregoing Collateral, whether cash or non-cash;

provided , that “Collateral” shall not include any dividend, distribution or other payment of whatever nature (whether in cash or kind) to Debtor not prohibited by the terms of the Note Purchase Agreement.

As used in this Financing Statement, the following terms have the following meanings:

Governing Documents ” means, collectively, (i) the Company’s certificate of formation, dated April 14, 2011, as amended by that certain Certificate of Amendment, dated May 26, 2011 (as amended from time to time) and (ii) the Company’s Second Amended and Restated Limited Liability Company Agreement dated as of March 20, 2013 (as amended from time to time).

Note Purchase Agreement ” means the agreement dated as of March 20, 2013 (as amended, amended and restated, supplemented modified from time to time) between the Company and the purchasers party thereto (the “ Purchasers ”) pursuant to which the Company will issue and sell the Notes to the Purchasers.

Securities ” shall have the meaning specified in section 2(1) of the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

UCC ” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided , however , that in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “ UCC ” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions related to such provisions.

Unless otherwise defined herein, (i) all capitalized terms used shall have the meanings provided the Note Purchase Agreement or, if not defined therein, the UCC, and (ii) all terms defined in the UCC and used herein shall have the same definitions herein as specified therein. If a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.


LOGO

UCC FINANCING STATEMENT

FOLLOW INSTRUCTIONS (front and back) CAREFULLY

 

A.   NAME & PHONE OF CONTACT AT FILER [optional]  
   

Lisa Phillips                                   (212) 906-1200

 
B.  

SEND ACKNOWLEDGMENT TO: (Name and Address)

 
   
   

Latham & Watkins LLP 885

Third Avenue

New York, NY 10022

lisa.phillips@lw.com

 

 

  THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY

1. DEBTOR’S EXACT FULL LEGAL NAME-insert only one debtor name (1a or 1b)-do not abbreviate or combine names

 

  1a. ORGANIZATION’S NAME                
  Diamond State Generation Partners, LLC        
OR  

1b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX
1c.  

MAILING ADDRESS

1252 Orleans Drive

         

CITY

Sunnyvale

 

STATE POSTAL CODE

CA       | 94089

 

COUNTRY

USA

1d.  SEE INSTRUCTIONS   ADD’L INFO RE   |  1e . TYPE OF ORGANIZATION   1f. JURISDICTION OF ORGANIZATION   1g. ORGANIZATIONAL ID #. if any  
    ORGANIZATION   LLC   Delaware    
        DEBTOR               NONE
           
2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) - do not abbreviate or combine names
 

2a. ORGANIZATION’S NAME

 

               
OR  

2b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

2c. MAILING ADDRESS

 

          CITY   STATE      | POSTAL CODE   COUNTRY
2d. SEE INSTRUCTIONS   ADD’L INFO RE   |  2e. TYPE OF ORGANIZATION   2f. JURISDICTION OF ORGANIZATION   2g. ORGANIZATIONAL ID #, if any  
    ORGANIZATION        
        DEBTOR               NONE
           
3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P)-insert only one secured party name (3a or 3b)
  3a. ORGANIZATION’S NAME                
  Deutsche Bank Trust Company Americas, as Collateral Agent    
OR  

3b. INDIVIDUAL’S LAST NAME

 

      FIRST NAME   MIDDLE NAME   SUFFIX

3c. MAILING ADDRESS

60 Wall Street, MSNYC 60-2710

     

CITY

New York

 

STATE POSTAL CODE

NY      | 10005

 

COUNTRY

USA

4. This FINANCING STATEMENT covers the following collateral:

This financing statement covers all assets of the Debtor, whether now existing or hereafter arising.

Notwithstanding the foregoing, the collateral shall not include Debtor’s rights and interests in (1) proceeds from a cash grant under Section 1603 of division B of the American Recovery and Reinvestment Act of 2009, as amended, or (2) that certain cash grant account established and held by Debtor with Wilmington Trust, National Association.

 

5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCC FILING

6. This FINANCING STATEMENT is to be filed [for record] (or recorded) in the REAL

          ESTATE RECORDS. Attach Addendum [if applicable]

  1. Check to REQUEST SEARCH REPORT(S) on
Debtor(s) [ADDITIONAL FEE]         [optional]
  All Debtors    Debtor 1     Debtor 2
8. OPTIONAL FILER REFERENCE DATA   034738-0017   F#376729   
Filed with: DE - Secretary of State       A#543038     

FILING OFFICE COPY - UCC FINANCING STATEMENT (FORM UCC1) (REV. 05/22/02)


Exhibit 4.1.13(e)

F ORM OF O PINION OF S PECIAL C OUNSEL

TO THE P URCHASERS

[See Execution Version]

E XHIBIT 4.1.13(e) TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.1.14

F ORM OF I NSURANCE C ONSULTANT C ERTIFICATE

Date: March 20, 2013

[Purchasers]

Re: Diamond State Generation Partners, LLC – Insurance Consultant’s Certificate

Ladies and Gentlemen:

The undersigned, a duly authorized representative of Moore-McNeil, LLC, a Tennessee limited liability company (the “ Insurance Consultant ”), hereby delivers this Insurance Consultant’s Certificate to you in accordance with Section 4.1.14 of that certain Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”) and the Purchasers party thereto. Capitalized terms used herein and not otherwise defined have the meanings provided in the Note Purchase Agreement.

The Insurance Consultant hereby makes the following statements in favor of the Secured Parties with respect to the Company and the Project as of the date hereof:

1. The Insurance Consultant acknowledges that pursuant to the Note Purchase Agreement, the Company is issuing Notes in connection with, among other things, the construction, operation and development of the Project and the Holders are relying on this Insurance Consultant’s Certificate and the Insurance Consultant’s report dated March 19, 2013 (the “ Insurance Consultant’s Report ”), with respect to the Project.

2. Attached hereto as Annex I is an accurate and complete copy of the Insurance Consultant’s Report.

3. The Insurance Consultant’s Report was prepared in good faith by the Insurance Consultant pursuant to the scope of services in accordance with generally accepted consulting practices.

4. Nothing has come to the attention of the Insurance Consultant that causes the Insurance Consultant to believe that the Insurance Consultant’s Report, as of the date hereof, contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

5. The Insurance Consultant hereby confirms, as of the date hereof, that the evaluation, conclusions and recommendations contained in the Insurance Consultant’s Report are accurate and complete in all material respects.

 

E XHIBIT 4.1.14 TO N OTE P URCHASE A GREEMENT


6. In connection with the preparation of the Insurance Consultant’s Report, personnel of the Insurance Consultant have participated in meetings or telephonic discussions with representatives of the Company and its Affiliates, the Company’s insurance broker, Collateral Agent, the Purchasers, counsel to the Company, counsel to Collateral Agent, and counsel to the Purchasers in respect of the Project.

7. Upon delivery of the certificate from the Company’s insurance broker and the original certificates of insurance, copies of which are attached hereto as Annex II, the Company will have provided satisfactory evidence of compliance with the terms and conditions of Sections 4.1.14, 4.1.15, 5.21 and 9.2 and Schedule 9.2 of the Note Purchase Agreement.

The undersigned, on behalf of the Insurance Consultant, hereby confirms that the Secured Parties shall be permitted to rely on the Insurance Consultant’s Report as if the Insurance Consultant’s Report was specifically addressed to each of them.

[Signature page follows]

 

E XHIBIT 4.1.14 TO N OTE P URCHASE A GREEMENT


IN WITNESS WHEREOF, the Insurance Consultant has caused this Insurance Consultant’s Certificate to be duly executed and delivered by an authorized officer of the Insurance Consultant as of the date first above written.

 

MOORE-MCNEIL, LLC,
a Tennessee limited liability company
By:  

 

Name:  
Title:  

 

E XHIBIT 4.1.14 TO N OTE P URCHASE A GREEMENT


Annex I

to Insurance Consultant’s Certificate

Insurance Consultant’s Report

[See attached]

 

E XHIBIT 4.1.14 TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.1.16

F ORM OF I NDEPENDENT E NGINEER C ERTIFICATE

[LETTERHEAD OF INDEPENDENT ENGINEER]

To: the Purchasers identified on Exhibit A (the “ Purchasers ”)

 

Subject:    Independent Engineer’s Report
   Diamond State Generation Partners, LLC Project

Ladies and Gentlemen:

This letter is provided in accordance with Section 4.1.16 of that certain Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “Note Purchase Agreement”), between Diamond State Generation Partners, LLC, a Delaware limited liability company (the “Company”) and the Purchasers party thereto (the “Purchasers”).

SAIC Energy, Environment & Infrastructure, LLC (“SAIC”) has been retained by Bloom Energy Corporation (“Bloom”) and the Purchasers to act as the Independent Engineer under the Note Purchase Agreement and has prepared an Independent Engineer’s Report dated March [    ], 2013 (the “Report”), a copy of which is attached hereto.

The Report was prepared pursuant to the scope of services under our Amended and Restated Professional Services Agreement, dated as of March 15, 2013 (the “Services Agreement”) with Bloom, the Collateral Agent and the Purchasers and those services were provided in accordance with generally accepted engineering practices.

In connection with the preparation of the Report, personnel of SAIC have participated in meetings or telephone discussions with representatives of the Company and its affiliates, the Purchasers, counsel to the Company, and counsel to the Purchasers in respect of the Project (as defined in the Report).

This letter and attached Report are solely for the information of, and assistance to, the Purchasers in conducting and documenting their investigation of the matters covered by the Report in connection with the Project, and it is not to be used, circulated, quoted, or otherwise referred to outside of the lending group for any purpose, nor is it to be referred to in whole or in part in any other document, except that reference may be made to it in the above-mentioned Note Purchase Agreement and in any list of closing documents pertaining to the Project.

SAIC disclaims any obligation to update this letter and the attached Report. This letter and the attached Report are not intended to, and may not, be construed to benefit any party other than the Purchasers.

 

E XHIBIT 4.1.16 TO N OTE P URCHASE A GREEMENT


Very truly yours,

SAIC ENERGY, ENVIRONMENT & INFRASTRUCTURE, LLC

Signature

Title

 

E XHIBIT 4.1.16 TO N OTE P URCHASE A GREEMENT


EXHIBIT A

PURCHASERS

AXA Equitable Life Insurance Company

C. M. Life Insurance Company

Genworth Life and Annuity Insurance Company

Genworth Life Insurance Company of New York

Massachusetts Mutual Life Insurance Company

MassMutual Asia Limited

Modern Woodmen of America

Teachers Insurance and Annuity Association of America

 

E XHIBIT 4.1.16 TO N OTE P URCHASE A GREEMENT


EXHIBIT B

REPORT

 

E XHIBIT 4.1.16 TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.1.17

F ORM OF E NVIRONMENTAL R ELIANCE L ETTERS

March 20, 2013

[Addressees (“ Relying Parties ”)]

RE: Grant of Reliance on Proposed Fuel Cell Facility (Red Lion Site), 1593 River Road, New Castle, New Castle County, Delaware Phase I ESA Report dated March 13, 2013, Terracon Project # J2137112 (“ Reports ”)

To whom it may concern:

Terracon hereby agrees to grant Relying Parties reliance on the above referenced “Reports” to the full extent and as if the final reports were contracted for and directed or addressed to Relying Parties, subject to the conditions below.

As of the date hereof, based upon the services performed and to the extent of our knowledge, information and belief, we are not aware of a release of a hazardous substance at the sites that requires remediation under current Hazardous Substances Law (as defined in that certain Note Purchase Agreement among Diamond State Generation Partners, LLC and the Purchasers (as defined therein) dated as of March 20, 2013).

The Reports reflect the opinions of Terracon as of the date of the Reports and the Relying Parties should be aware that conditions may have changed materially from that date. Terracon has no obligation to provide any information obtained or discovered by Terracon subsequent to the date of the Reports, or to perform any additional services, regardless of whether the information would affect any conclusions, recommendations, or opinions in the Reports. Further, Relying Parties recognize that if they have requested reliance on a Phase I report more than 180 days from the date of its issuance, or if Relying Parties have not provided a completed User Questionnaire form, Relying Parties acknowledge the grant of reliance does not satisfy ASTM requirements and may not satisfy the requirements set forth in 40 CFR Part 312 for “all appropriate inquiry” or other requirements necessary for CERCLA protection.

Relying Parties’ reliance upon the Reports is subject to all of the terms, limitations, restrictions, and caveats referenced in the Reports and related agreements. Terracon only performed those tasks as set out in the Reports. Any opinions or recommendations contained in the Reports are based solely on the Tasks agreed upon in the Agreements and/or presented in the Reports. Unless Terracon agrees in writing, no person or entity other than Relying Parties and Terracon’s client may rely upon the Reports.

 

E XHIBIT 4.1.17 TO N OTE P URCHASE A GREEMENT


March 20, 2013

[Addressees (“ Relying Parties ”)]

RE: Grant of Reliance on Proposed Fuel Cell Facility (Brookside Site), 512 East Chestnut Hill Road, Newark, New Castle County, Delaware Phase I ESA Report dated March 13, 2013, Terracon Project # J2137112 (“ Reports ”)

To whom it may concern:

Terracon hereby agrees to grant Relying Parties reliance on the above referenced “Reports” to the full extent and as if the final reports were contracted for and directed or addressed to Relying Parties, subject to the conditions below.

As of the date hereof, based upon the services performed and to the extent of our knowledge, information and belief, we are not aware of a release of a hazardous substance at the sites that requires remediation under current Hazardous Substances Law (as defined in that certain Note Purchase Agreement among Diamond State Generation Partners, LLC and the Purchasers (as defined therein) dated as of March 20, 2013).

The Reports reflect the opinions of Terracon as of the date of the Reports and the Relying Parties should be aware that conditions may have changed materially from that date. Terracon has no obligation to provide any information obtained or discovered by Terracon subsequent to the date of the Reports, or to perform any additional services, regardless of whether the information would affect any conclusions, recommendations, or opinions in the Reports. Further, Relying Parties recognize that if they have requested reliance on a Phase I report more than 180 days from the date of its issuance, or if Relying Parties have not provided a completed User Questionnaire form, Relying Parties acknowledge the grant of reliance does not satisfy ASTM requirements and may not satisfy the requirements set forth in 40 CFR Part 312 for “all appropriate inquiry” or other requirements necessary for CERCLA protection.

Relying Parties’ reliance upon the Reports is subject to all of the terms, limitations, restrictions, and caveats referenced in the Reports and related agreements. Terracon only performed those tasks as set out in the Reports. Any opinions or recommendations contained in the Reports are based solely on the Tasks agreed upon in the Agreements and/or presented in the Reports. Unless Terracon agrees in writing, no person or entity other than Relying Parties and Terracon’s client may rely upon the Reports.

 

E XHIBIT 4.1.17 TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.1.30

F ORM OF D IRECT A GREEMENT

This DIRECT AGREEMENT (as amended, modified or supplemented from time to time, this “ Consent ”), dated as of             , 2013, is executed by                     , a                      (“ Contracting Party ”), DIAMOND STATE GENERATION PARTNERS, LLC, a Delaware limited liability company (“ Assignor ”), and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Collateral Agent (in its capacity as collateral agent for the Secured Parties, as defined below, “ Collateral Agent ”).

 

  A. Assignor intends to develop, construct, install, finance, own, operate and maintain a portfolio of fuel cell electricity generators with an aggregate capacity of 30 MW, to be located on one or more sites in New Castle County, Delaware (the “ Project ”);

 

  B. In order to finance the development, construction, installation, testing, leasing, operation and use of the Project and the acquisition of certain other assets related thereto, Assignor has entered into that certain Note Purchase Agreement, dated as of March 20, 2013 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Assignor and the Purchasers party thereto (collectively with Collateral Agent, “ Secured Parties ”), pursuant to which, among other things, the Assignor will issue Notes (as defined in the Note Purchase Agreement) to the Purchasers;

 

  C. Assignor has entered into that certain                     , dated as of             , 2013 (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof, the “ Agreement ”) with Contracting Party;

 

  D. As collateral security for all obligations of Assignor to the Secured Parties under the Note Purchase Agreement and related documents, Assignor has granted to Collateral Agent a first-priority security interest in all of its right, title and interest in, to and under the Agreement (the “ Assigned Interest ”) pursuant to that certain Security Agreement, dated as of even date herewith (as amended, modified or supplemented from time to time, the “ Security Agreement ”), made by Assignor in favor of Collateral Agent for the benefit of the Secured Parties; and

 

  E. It is a requirement under the Note Purchase Agreement that Contracting Party and the other parties hereto shall have executed this Consent.

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


NOW THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree, notwithstanding anything in the Agreement to the contrary, as follows:

1. Consent and Agreement . Contracting Party:

a. consents to the assignment of the Assigned Interest as collateral security to Collateral Agent;

b. acknowledges the right (but not the obligation) of Collateral Agent in the exercise of its rights and remedies under the Security Agreement to make all demands, give all notices, take all actions and exercise all rights of Assignor under the Agreement, and agrees to accept any such exercise; provided , however , that, insofar as Collateral Agent exercises any of its rights under the Agreement or makes any claims with respect to payments or other obligations under the Agreement, the terms and conditions of the Agreement applicable to such exercise of rights or claims shall apply to Collateral Agent to the same extent as to Assignor;

c. agrees not to (i) cancel or terminate the Agreement or suspend performance of its services thereunder, except as provided in the Agreement or by operation of law and, in any event, except as in accordance with Section 4 of this Consent; (ii) consent to or accept any cancellation or termination of the Agreement by Assignor without the prior written consent of the Collateral Agent, except as provided in the Agreement and in accordance with Section  4 of this Consent; or (iii) sell, assign or otherwise dispose (by operation of law or otherwise) of any part of its right, title or interest in the Agreement, in each case without the prior written consent of Collateral Agent;

d. agrees not to amend, supplement or modify the Agreement in any material respect without the prior written consent of Collateral Agent (such consent not to be unreasonably withheld or delayed); and

e. agrees to promptly deliver to Collateral Agent copies of all notices of default, suspension or termination delivered by Contracting Party under the Agreement.

2. Assignor’s Acknowledgement . Assignor acknowledges and agrees that Contracting Party is permitted to perform its obligations under the Agreement upon Collateral Agent’s exercise of Assignor’s rights in accordance with this Consent, and that Contracting Party shall bear no liability to Assignor solely as a result of performing its obligations under the Agreement upon such exercise by Collateral Agent.

3. Transferees . Contracting Party agrees that if Collateral Agent shall notify Contracting Party in writing that as a result of foreclosure (whether judicial or non-judicial), deed-in-lieu-of-foreclosure or other sale or transfer of the Assigned Interest, Collateral Agent or any other applicable purchaser, successor, assignee or designee (in each case, a “ Transferee ”) is to succeed to Assignor’s rights in the Assigned Interest, then the Transferee shall be substituted for Assignor under the Agreement and Contracting Party shall (a) recognize the Transferee as its counterparty under the Agreement and (b) continue to perform its obligations under the Agreement in favor of the Transferee; provided , however , that such Transferee has assumed in writing all of Assignor’s obligations under the Agreement, other than any obligations which by their nature are incapable of being cured. If Collateral Agent or an entity controlled by

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


Collateral Agent or one or more of the Secured Parties is the initial Transferee, such initial Transferee shall have the right to assign all of its interest in the Agreement to any subsequent Transferee, provided such subsequent Transferee has assumed in writing all of the initial Transferee’s obligations under the Agreement. Upon such assignment, the initial Transferee shall be released from any further liability under the Agreement.

4. Right to Cure . In the event of a default or breach by Assignor in the performance of any of its obligations under the Agreement, or upon the occurrence or non-occurrence of any event or condition under the Agreement which would immediately or with the passage of any applicable grace period or the giving of notice, or both, enable Contracting Party to terminate the Agreement or suspend its performance thereunder (a “ Default ”), Contracting Party shall not terminate the Agreement or suspend its performance thereunder until it first gives written notice of the Default to Collateral Agent and affords Collateral Agent (a) a period of 45 days from receipt of such notice to cure such Default if such Default is the failure to pay amounts to Contracting Party which are due and payable under the Agreement or (b) with respect to any other Default, a reasonable opportunity, but no more than 90 days from receipt of such notice, to cure such Default (provided that during such cure period Collateral Agent or Assignor continues to diligently attempt to cure such Default). If (i) possession of the Project is necessary to cure any Default, and Collateral Agent commences foreclosure or any other proceedings necessary to take possession of the Project, or (ii) Collateral Agent is prohibited by any court order or bankruptcy or insolvency proceedings from curing the Default or from commencing or prosecuting such proceedings, and provided all monetary obligations on Assignor’s part under the Agreement have been performed, then in either case the cure period in clause (b) of the previous sentence shall be extended for a reasonable period to allow Collateral Agent to complete such proceedings and Collateral Agent or the applicable Transferee to effect the cure.

5. Replacement Agreement . In the event that the Agreement is rejected or terminated as a result of any bankruptcy or insolvency proceeding, Contracting Party shall, at the option of Collateral Agent exercised within 45 days after such rejection or termination, enter into a new agreement with Collateral Agent or a designated entity controlled by Collateral Agent or one or more of the Secured Parties, having identical terms as the Agreement (subject to any conforming changes necessitated by the substitution of parties and other changes as the parties may mutually agree, the “ Replacement Agreement ”). Collateral Agent (or such designee, as the case may be) shall have the right to assign all of its interest in the Replacement Agreement to any person, provided such assignee has assumed in writing all of Collateral Agent’s or such designee’s obligations under the Agreement. Upon an assignment as discussed in the immediately preceding sentence, Collateral Agent or such designee shall be released from any further liability under the Agreement.

6. Refinancing . In the event that the Note Purchase Agreement is amended and restated, refinanced or replaced by other credit facilities (including without limitation a note offering, debt securities, bank facility or other type of financing, whether incurred by the Assignor or an affiliate thereof), this Consent shall continue in full force and effect for the benefit of the Assignor and the provider of such new credit facilities or their collateral agent(s) (the “ New Collateral Agent ”), provided that (i) within ten days following delivery by the Collateral Agent to Contracting Party of the notice that the Assignor’s obligations under the Note Purchase Agreement have been satisfied in full, the New Collateral Agent shall have notified the

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


Contracting Party that it assumes the rights and the prospective obligations of the Collateral Agent under this Consent, and shall have supplied substitute notice address information and (ii) thereafter, (A) the term “Collateral Agent” and “Secured Parties” shall be deemed to refer to the New Collateral Agent, or the lenders and other secured parties under such new credit facilities, as appropriate, (B) the term “Note Purchase Agreement” shall be deemed to refer to the credit agreement, indenture or other instrument providing for the new credit facilities, and (C) the term “Security Agreement” shall be deemed to refer to the security agreement under which the Assigned Interest is assigned as collateral to secure performance of the obligations of the Assignor or an affiliate thereof under the new credit facilities. In connection with any transaction described in this Section 6, upon the request of the Assignor, the Contracting Party shall execute and deliver to the agent or other representative of the New Collateral Agent a reasonable estoppel certificate confirming, if it can do so accurately, among other things, that as of the date of such certificate each of the Contracting Party and, to the best knowledge of the Contracting Party, the Assignor is in compliance with all of their respective material obligations under the Agreement.

7. No Liability . Contracting Party acknowledges and agrees that Collateral Agent (a) shall not have any liability or obligation under the Agreement until, if ever, Collateral Agent expressly assumes such obligations in writing and (b) has no obligation to cure any Default. Notwithstanding anything to the contrary herein, the sole recourse of Contracting Party in seeking the enforcement of any obligations under this Consent, the Agreement or a Replacement Agreement shall be to any Transferee’s right, title and interest in the Project.

8. Payment of Monies . Commencing on the date of this Consent and so long as the Note Purchase Agreement remains in effect, Contracting Party hereby agrees to make all payments required to be made by it under the Agreement in U.S. dollars and in immediately available funds, directly to Collateral Agent for deposit into the account to be established and notified to Contracting Party by Collateral Agent from time to time, to such other Person and/or at such other address or account as the Collateral Agent may from time to time specify in writing to Contracting Party. Assignor hereby instructs Contracting Party, and Contracting Party accepts such instructions, to make all payments due and payable to Assignor under the Agreement as set forth in the immediately preceding sentence.

9. Representations and Warranties . Contracting Party hereby represents and warrants to Assignor and Collateral Agent as of the date of this Consent as follows:

a. Contracting Party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation/incorporation and has all requisite power and authority to execute, deliver and perform its obligations under the Agreement and this Consent.

b. The execution, delivery and performance by Contracting Party of the Agreement and this Consent have been duly authorized by all necessary action, and do not and will not require any further consents or approvals which have not been obtained, or violate any provision of any law, regulation, order, judgment, injunction or similar matters or breach any agreement presently in effect with respect to or binding on Contracting Party.

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


c. This Consent and the Agreement are legal, valid and binding obligations of Contracting Party, enforceable against Contracting Party in accordance with their respective terms except as enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights in general and except to the extent that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.

d. The Agreement is in full force and effect and any amendment, supplement or modification thereto since the date of execution of the Agreement is reflected in the definition of “Agreement” set forth above.

e. To the best of Contracting Party’s knowledge, Assignor has fulfilled all of its obligations under the Agreement required as of the date hereof, and there are no breaches, Defaults or unsatisfied conditions presently existing (or which would exist after the passage of time and/or giving of notice) that would allow Contracting Party to terminate the Agreement or suspend its performance thereunder.

f. There is no litigation, action, suit, proceeding or investigation pending or (to the best of Contracting Party’s knowledge) threatened against Contracting Party before or by any court, administrative agency, arbitrator or governmental authority, body or agency which, if adversely determined, individually or in the aggregate, could adversely affect the performance by Contracting Party of its obligations hereunder or under the Agreement.

g. [The Agreement and this Consent are the only agreements between Assignor and Contracting Party with respect to the Project, and all of the conditions precedent to effectiveness under the Agreement have been satisfied or waived.] [ Provision to be removed for Direct Agreements with Bloom Energy ]

h. No excusable delay, force majeure, or the like, has occurred under the Agreement.

10. Additional Provisions . [ To insert specific provisions as may be relevant to the Agreement. Such provisions, if any, to be identified after due diligence and review of the Agreement is complete. ]

11. Notices . Any communications between the parties hereto or notices provided herein to be given, may be given to the following addresses:

 

If to Contracting Party:    NAME
   ADDRESS
   Attention:
   Telephone:
   Fax:
   Email:

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


If to Collateral Agent:    Deutsche Bank Trust Company Americas
   60 Wall Street, MS NYC60-2715
   New York, New York 10005-2858
   Attn: Trust and Agency Services
   Email: [●]
If to Assignor:    Diamond State Generation Partners, LLC
   1252 Orleans Drive
   Sunnyvale, CA 94089
   Attn: [***]
   Email: [***]

All notices hereunder shall be in writing and shall be considered as properly given (a) if delivered in person, (b) if sent by overnight delivery service, (c) if mailed by first class mail, postage prepaid, registered or certified with return receipt requested or (d) if sent by email; provided , that the foregoing clause (d) shall not apply to notices if the party to receive the notice has notified the other parties that it is incapable of receiving notices by email or if no email address is given above or later provided as an approved method of receiving notice. Notice so given shall be effective upon receipt by the addressee, except that communication or notice so transmitted by email shall be deemed to have been validly and effectively given upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return email or other written acknowledgement); provided, however, that if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon such tender. Any party shall have the right to change its address for notice hereunder by giving of written notice to the other parties in the manner set forth herein above.

12. Binding Effect; Amendments; Confirmation . This Consent shall be binding upon and benefit the Contracting Party, Assignor and Collateral Agent and their respective successors, transferees and permitted assigns (including without limitation, any entity that refinances all or any portion of Assignor’s obligations under the Note Purchase Agreement). No termination, amendment, variation or waiver of any provisions of this Consent shall be effective unless in writing and signed by Contracting Party, Collateral Agent and Assignor.

13. Governing Law . This Consent shall be governed by the laws of the State of New York without reference to conflicts of laws rules thereof (other than Section 5-1401 of the New York General Obligations Law). CONTRACTING PARTY, ASSIGNOR, AND COLLATERAL AGENT HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS CONSENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF CONTRACTING PARTY, ASSIGNOR AND COLLATERAL AGENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

[***] Confidential Treatment Requested

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


EACH OF CONTRACTING PARTY, ASSIGNOR AND COLLATERAL AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS CONSENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

14. Counterparts . This Consent may be executed in one or more duplicate counterparts, and when executed and delivered by all the parties listed below, shall constitute a single binding agreement.

[Signature pages follow]

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


IN WITNESS WHEREOF, the undersigned, by its officer thereunto duly authorized, has duly executed this Consent as of the date first above written.

 

[CONTRACTING PARTY]
By:  

 

  Name:
  Title:

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


Accepted and agreed:
DIAMOND STATE GENERATION PARTNERS, LLC , a Delaware limited liability company as Grantor
By:  

 

Name:  
Title:  
Accepted and agreed:

DEUTSCHE BANK TRUST COMPANY AMERICAS ,

as Collateral Agent

By:  

 

  Name:
  Title:

 

E XHIBIT 4.1.30 TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.2.1(a)

F ORM OF D RAWDOWN C ERTIFICATE

[LETTERHEAD OF COMPANY]

Date:                  ,          1

Drawdown Date:                  ,         

[                    ]

SAIC Energy, Environment & Infrastructure, LLC,

as Independent Engineer

Meditech Corporate Center, West Wing

550 Cochituate Road

Framingham, MA 01701

 

  Re: Diamond State Generation Partners, LLC – Drawdown Certificate

Ladies and Gentlemen:

This Drawdown Certificate is delivered to you pursuant to Section 4.2.1(a) of the Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), and the Purchasers party thereto. Capitalized terms used herein and not otherwise defined have the meanings provided in the Note Purchase Agreement.

I, [                    ], am a Responsible Officer of the Company. I have reviewed the provisions of the Credit Documents which are relevant to the furnishing of this Drawdown Certificate. To the extent that this Drawdown Certificate evidences, attests or confirms compliance with any covenants, representations, warranties or conditions precedent provided for in the Credit Documents, I have made such examination or investigation as was, in my opinion, reasonably necessary to enable me to express an informed opinion as to whether such covenants, representations, warranties or conditions have been complied with. This Drawdown Certificate relates to a Credit Event to take place on the date specified above as the “Drawdown Date” (the “ Drawdown Date ”).

I, on behalf of the Company, solely in my capacity as a Responsible Officer of the Company and not in my personal capacity, and without personal liability therefor, do hereby

 

1   Certificate must be submitted to each of the Holders and Independent Engineer at least 7 Business Days prior to the date of each Drawdown.

 

E XHIBIT 4.2.1 (a) TO N OTE P URCHASE A GREEMENT


certify to the Secured Parties that the following statements are accurate, true and complete on the date hereof (except for those statements that solely relate to a later date), and will be accurate, true and complete on and as of the Drawdown Date:

1) The aggregate Project Costs incurred, but not yet paid, through the date of the requested Credit Event are anticipated to be $        .

2) The Project Costs to be paid with the funds requested in connection with this Drawdown Certificate are to be paid with proceeds of the Notes deposited in the Construction Escrow Account in the amounts shown on Appendix I hereto.

3) The currently estimated aggregate Project Costs necessary to achieve Final Completion are as described and segregated in Appendix I hereto. Such amount is consistent with the current Project Budget (as amended, allocated, re-allocated or modified from time to time in accordance with Section 9.14 of the Note Purchase Agreement) or has otherwise been approved or permitted pursuant to the Note Purchase Agreement.

4) The variances in estimated Project Costs (from the Closing Date to the proposed Drawdown Date) are summarized in Appendix I hereto and such variances are described in the current or past construction progress reports delivered pursuant to Section 7.2(a) of the Note Purchase Agreement.

5) Attached in Appendix II hereto are the previously paid or due and payable invoices, purchase orders or other documents evidencing the Project Costs that are to be reimbursed or paid with the funds requested in connection with this Drawdown Certificate.

6) After taking into consideration the making of the Credit Event hereby requested, Available Funds are not less than the aggregate unpaid amount required: (a) to cause Final Completion to occur in accordance with all Legal Requirements, each Project Document pursuant to which construction work with respect to the Project is being performed, the Credit Documents, and the Project Schedule, on or before the Date Certain; and (b) to pay or provide for all anticipated non-construction Project Costs, all as set forth in the current Project Budget (as amended, allocated, re-allocated or modified from time to time in accordance with Section 9.14 of the Note Purchase Agreement). After taking into consideration the making of the Credit Event hereby requested, the sources and uses of such Available Funds to achieve Final Completion are as follows:

 

Sources

         

Uses

      
        
        
        
  

 

 

       

 

 

 

Total:

   $                   Total:    $               
  

 

 

       

 

 

 

 

E XHIBIT 4.2.1 (a) TO N OTE P URCHASE A GREEMENT


7) The estimated (a) Commencement of Operations date (under and as defined in the MESPA), (b) Final Completion Date, and (c) Placed in Service Date are each set forth on Appendix III hereto, in the case of clauses (a) and (c), with respect to the Systems being funded under this requested Credit Event.

8) Each representation and warranty of each Credit Party in any of the Credit Documents to which it is a party is true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” is true and correct in all respects) on and as of the date of the Drawdown Date, before and after giving effect to the Credit Event requested hereby, with the same effect as though made on and as of such date, unless such representation or warranty expressly relates solely to an earlier date.

9) To my knowledge, each representation and warranty of each Major Project Participant contained in the Operative Documents (other than the Note Purchase Agreement) is true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” or the like is true and correct in all respects) on and as of the Drawdown Date, before and after giving effect to the Credit Event requested hereby, with the same effect as though made on and as of such date, unless such representation and warranty expressly relates solely to an earlier date.

10) No Default or Event of Default has occurred and is continuing or will result from the funding of the Credit Event hereby requested.

11) All work that has been done on the Project to date has been done in a good and workmanlike manner and in accordance with the Project Documents (including any and all approved change orders made in accordance therewith, if any; any such approved change orders are listed on Appendix V together with all other requested and pending change orders) and there has not been filed against any of the Collateral or otherwise filed with or served upon the Company with respect to the Project or any part thereof, notice of any Lien, claim of Lien or attachment upon or claim affecting the right to receive payment of any of the moneys payable to any of the Persons named on such request which has not been released by payment or bonding or otherwise or which will not be released with the payment of such obligation out of the Notes or non-Note proceeds hereby requested, other than Permitted Liens.

12) Except for any such Liens being contested by the Company as permitted under the definition of “Permitted Liens”, attached in Appendix IV are duly executed Lien waivers required to be delivered to each of the Holders pursuant to Section 4.2.4 of the Note Purchase Agreement relating to mechanics’ and materialmen’s Liens from each Person performing work at the Site or having a statutory right to file a mechanics’ and/or materialmen’s Lien, as the case may be, for all work, services and materials (including equipment and fixtures of all kinds, done, previously performed or furnished for the construction of the Project), for which the related Project Costs have been or will, from the proceeds of the requested Drawdown, be paid.

 

E XHIBIT 4.2.1 (a) TO N OTE P URCHASE A GREEMENT


13) Each Applicable Permit and Applicable Third Party Permit has been duly obtained or been assigned in the Company’s or the applicable third party’s name, is in full force and effect, is not subject to any current legal proceeding, and is not subject to any Unsatisfied Condition that could reasonably be expected to result in material modification or revocation of such Applicable Permit and Applicable Third Party Permit, and all applicable appeal periods with respect to such Applicable Permit and Applicable Third Party Permit have expired. The Permits which have been obtained by the Company are not subject to any restriction, condition, limitation or other provision that could reasonably be expected to have a Material Adverse Effect.

14) [The Sponsor has built a permanent manufacturing facility for Systems located in the State of Delaware, and all Systems beyond which the Project has exceeded 10 MW of nameplate capacity have been sourced from such facility.] 1

15) The Company is in compliance with the Tariff in all respects.

16) Each System being financed has achieved COD or will achieve COD prior to the Drawdown Date.

17) The Tax Equity Investors have contributed to the Pledgor and the Pledgor in turn has contributed to the Company 20% of the aggregate purchase price of the Systems to be financed with the proceeds of the requested Credit Event, consistent with the Base Case Projections.

18) Concurrently with this Drawdown, the Tax Equity Investors have contributed to the Company [30.10]% of the aggregate purchase price of the Systems to be financed with the proceeds of the requested Credit Event, consistent with the Base Case Projections. After giving effect to this Drawdown, the ratio of amounts drawn from the Construction Escrow Account to the total Notes have not exceeded the ratio of the aggregate nameplate capacity of commissioned Systems to 30 MW.

19) [All shared infrastructure at [ the applicable Site ] necessary for installation of each Funded System to be installed at such Site, including without limitation the “BOF Work” for such Site, as such term is defined in the MESPA, has been completed. 2 ]

20) At any time following the Closing Date, no event, circumstance or condition has occurred and is continuing that has, or could reasonably be expected to have, a Material Adverse Effect.

[ Signature page follows ]

 

1   Insert after the first Funded System has caused the Project to exceed 10 MW of nameplate capacity.
2   Only include for first Credit Event for each Site.

 

E XHIBIT 4.2.1(a) TO N OTE P URCHASE A GREEMENT


IN WITNESS WHEREOF, the undersigned has caused this Drawdown Certificate to be duly executed and delivered on behalf of the Company as of the date first above written.

 

DIAMOND STATE GENERATION PARTNERS, LLC , a Delaware limited liability company
By:  

 

Name:  
Title:  

 

E XHIBIT 4.2.1(a) TO N OTE P URCHASE A GREEMENT


APPENDIX I

to Drawdown Certificate

Currently Estimated Aggregate Project Costs

 

Project Cost

   Amount  
   $               
   $  
   $  
   $  
   $  
   Total:  $  

Summary of Variances in Estimated Project Costs (from Closing Date to Proposed Drawdown Date)

 

E XHIBIT 4.2.1(a) TO N OTE PURCHASE A GREEMENT


APPENDIX II

to Drawdown Certificate

Invoices

 

E XHIBIT 4.2.1(a) TO N OTE P URCHASE A GREEMENT


APPENDIX III

to Drawdown Certificate

Estimated Dates

Expected Final Completion Date:             , 20    

Expected Commercial Operation Date : [ Indicate Commercial Operation Date for each individual system, by Serial Number or other distinct means ]

Expected Placed in Service Date: [ Indicate Placed in Service Date for each individual system, by Serial Number or other distinct means ]

 

 

E XHIBIT 4.2.1(a) TO N OTE P URCHASE A GREEMENT


APPENDIX IV

to Drawdown Certificate

Lien Waivers

 

E XHIBIT 4.2.1(a) TO N OTE P URCHASE A GREEMENT


APPENDIX V

to Drawdown Certificate

Change Orders

 

1. Approved

 

2. Requested and Pending

 

E XHIBIT 4.2.1(a) TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.2.1(b)

F ORM OF I NDEPENDENT E NGINEER S D RAWDOWN C ERTIFICATE

[Letterhead of Independent Engineer]

(Delivered pursuant to Section 4.2.1(b)

of the Note Purchase Agreement)

 

Date:    [                    ] 4
   Drawdown Date: [                    ]

[                    ]

 

Subject:    Independent Engineer’s Drawdown Certificate

Ladies and Gentlemen:

This Drawdown Certificate (this “ Certificate ”) is delivered to you by SAIC Energy, Environmental & Infrastructure, LLC (“ SAIC ”) as “ Independent Engineer ” pursuant to Section 4.2.1(b) of the Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”), and the Purchasers party thereto.

The Independent Engineer hereby makes the following statements as of the date of this certificate:

1. We have reviewed the provisions of Section 4.2.1 of the Note Purchase Agreement as they identify the responsibilities of the Independent Engineer related to providing this Certificate as required by Section 4.2.1(b) .

2. All defined terms set forth in this Certificate shall have the respective meanings specified in the Note Purchase Agreement unless the context otherwise requires or unless otherwise defined. We have reviewed the Note Purchase Agreement as to the meaning of defined terms used herein.

3. We have reviewed the Company’s [Drawdown Certificate] No. [    ] and the attachments thereto, dated as of [                    ] (the “ Current Drawdown Certificate ”), requesting that a Drawdown from the Construction Escrow Account in the aggregate amount of [$        ] (the “ Drawdown ”) be disbursed on [                    ] (the “ Drawdown Date ”).

 

4   Certificate must be submitted to each Holder (with a copy to the Company) at least 4 Business Days prior to the date of each Drawdown.

 

E XHIBIT 4.2.1(b) TO N OTE P URCHASE A GREEMENT


4. In connection herewith, we have reviewed: (a) the Company’s, contractors’ and subcontractors’ monthly construction progress reports dated [                    ] for progress through [                    ]; (b) we have also reviewed the material and data made available to us by Bloom Energy Corporation as the “Seller” under the MESPA; and (c) we have reviewed other material, such as invoices, applications for payment, payment receipts and lien waivers or releases, relating to the development of the Project as we believed was necessary to establish the accuracy of the technical aspects of the Current Drawdown Certificate.

5. We last visited the Project Sites on [                    ] and observed progress at the Project. Our site observations of progress did not include investigation of buried items or other unobservable items or hidden conditions. We have reviewed documentation and held discussions with the Company regarding the progress of construction activities at the Project since that time.

6. This Certificate was prepared pursuant to the scope of services under our Amended and Restated Professional Services Agreement, dated as of March [    ], 2013 (the “ Services Agreement ”) with Bloom Energy Corporation, the Collateral Agent and each of the Purchasers and with the degree of skill and diligence normally practiced by professional engineers or consultants performing the same or similar services on like projects.

Based upon the foregoing review and review procedures and on the understanding and assumption that we have been provided true and complete information from other parties as to the matters covered by the Current Drawdown Certificate, as of the date of this Certificate, except as set forth in Attachment A to this Certificate, we are of the opinion that:

a. Based on our review of the Company’s previous expenditures compared to the Project Budget and our review of the progress of engineering, procurement and construction, we concur with the Company’s estimate of the Project Costs to Final Completion as set forth in the Current Drawdown Certificate [ If not, continue as follows : , except as noted in Attachment A [ state reasons and approximate amount of variance, if known in Attachment A ]];

b. Each of the (a) Commencement of Operations Dates, (b) Final Completion Date, and (c) Placed in Service Dates are expected to be achieved by the dates indicated in Appendix III of the Current Drawdown Certificate [ If not, continue as follows : , except as noted in Attachment A . [ state reasons scheduled dates will vary from the estimates set forth in the Current Drawdown Certificate in Attachment A ];

c. Our scope of review, which, to the extent practical and consistent with our scope of work under our Services Agreement, includes periodically reviewing the progress of engineering, procurement and construction for the Project, has not brought to our attention, any errors in the information contained in the Current Drawdown Certificate; [ If any paragraphs in the Current Drawdown Certificate are incorrect, list and specify reasons for each paragraph in Attachment A .]

d. To our knowledge no other Permits other than the permits identified in Schedule 5.19 of the Note Purchase Agreement are required in connection with the construction and operation of the Project;

 

E XHIBIT 4.2.1(b) TO N OTE P URCHASE A GREEMENT


e. To the best of our knowledge and the extent of our site observations, the quality of construction performed during the period covered by this Certificate was performed materially in conformance with the applicable construction Project Documents; [ If unsatisfactory, specify reasons in Attachment A .]

f. The work accomplished during the period covered by this Certificate is in accordance with the Project Schedule; [ If unsatisfactory, specify reasons in Attachment A .]

g. The request for funds in the Current Drawdown Certificate is in conformance, on a cumulative basis, with the drawdown schedule included with the Project Budget; and [ If not, state reasons in Attachment A. ]

h. To the best of our knowledge, there are no approved, pending or proposed change orders that are not listed in Appendix V to the Current Drawdown Certificate [except as noted in Attachment A [ list change orders in Attachment A ]].

This Certificate is solely for the information of and assistance to each of the Purchasers in conducting and documenting their investigation of the matters in connection with the Project and is not to be used, circulated, quoted, or otherwise referred to for any other purpose. This Certificate is not intended to, and may not, be construed to benefit any party other than the Purchasers.

 

Very truly yours,
SAIC ENERGY, ENVIRONMENT & INFRASTRUCTURE, LLC
[Name goes here]
[Title goes here]
[Name goes here]
[Title goes here]

 

E XHIBIT 4.2.1(b) TO N OTE P URCHASE A GREEMENT


SCHEDULE I – THIRD PARTIES

 

 

E XHIBIT 4.2.1(b) TO N OTE P URCHASE A GREEMENT


ATTACHMENT A

EXCEPTIONS AND CLARIFICATIONS

[List any exceptions or clarifications. If there are none indicate “NONE”.]

 

E XHIBIT 4.2.1(b) TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.2.1(c)

F ORM OF C OMPANY S COD C ERTIFICATE

[ LETTERHEAD OF COMPANY ]

Date:              ,          5

Drawdown Date:              ,         

[                    ]

SAIC Energy, Environment & Infrastructure, LLC,

as Independent Engineer

Meditech Corporate Center, West Wing

550 Cochituate Road

Framingham, MA 01701

Re: Diamond State Generation Partners, LLC – Drawdown Certificate Confirmation of COD

Ladies and Gentlemen:

This Drawdown Certificate Confirmation of Commencement of Operations (“Certificate of COD”) is delivered to you pursuant to Section 4.2.1(c) of the Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company, (the “Company”), and the Purchasers party thereto. Capitalized terms used herein and not otherwise defined have the meanings provided in the Note Purchase Agreement.

I, [                    ], am a Responsible Officer of the Company. I have reviewed the provisions of the Credit Documents which are relevant to the furnishing of this Drawdown Certificate of COD for the Systems listed in Appendix 1 to this Certificate of COD. To the extent that this Certificate of COD evidences, attests or confirms compliance with any covenants, representations, warranties or conditions precedent provided for in the Credit Documents, I have made such examination or investigation as was, in my opinion, reasonably necessary to enable me to express an informed opinion as to whether such covenants, representations, warranties or conditions have been complied with. This Certificate of COD relates to a Credit Event to take place on the date specified above as the “Drawdown Date” (the “ Drawdown Date ”).

 

5   Certificate must be submitted to each Holder and Independent Engineer at least 2 Business Days prior to the date of each Drawdown.


I, on behalf of the Company, solely in my capacity as a Responsible Officer of the Company and not in my personal capacity, and without personal liability therefor, do hereby certify to the Secured Parties that the following statement is accurate, true and complete on the date hereof, and will be accurate, true and complete on and as of the Drawdown Date:

 

  1) COD has occurred with respect to the Systems listed in Appendix 1 being funded under this requested Credit Event.

IN WITNESS WHEREOF, the undersigned has caused this Drawdown Certificate Confirmation of COD to be duly executed and delivered on behalf of the Company as of the date first above written.

 

  DIAMOND STATE GENERATION
  PARTNERS, LLC , a Delaware limited liability company
  By:  

 

  Name:  
  Title:  
Appendix    

 

E XHIBIT 4.2.1(c) TO N OTE P URCHASE A GREEMENT


APPENDIX 1

Systems Commencement of Operations

Date:                   ,          6

Drawdown Date:                  ,         

 

System Number    System Description
       
       
       

 

6   Certificate must be submitted to each Holder and Independent Engineer at least 2 Business Days prior to the submission of each Drawdown.

 

E XHIBIT 4.2.1(c) TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.2.1(d)

F ORM OF I NDEPENDENT E NGINEER S COD C ERTIFICATE

[Letterhead of Independent Engineer]

(Delivered pursuant to Section 4.2.1(d)

of the Note Purchase Agreement)

Date: [                    ] 7

Drawdown Date: [                    ]

[                    ]

 

Subject:    Independent Engineer’s Drawdown Certificate Confirmation of COD

Ladies and Gentlemen:

This Independent Engineer’s Drawdown Certificate Confirmation of COD (this “ Certificate ”) is delivered to you by SAIC Energy, Environmental & Infrastructure, LLC (“ SAIC ”) as “ Independent Engineer ” pursuant to Section 4.2.1(d) of the Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”) and the Purchasers party thereto.

The Independent Engineer hereby makes the following statements as of the date of this certificate:

 

  1. We have reviewed the provisions of Section 4.2.1 of the Note Purchase Agreement as they identify the responsibilities of the Independent Engineer related to providing this Certificate as required by Section 4.2.1(d) .

 

  2. All defined terms set forth in this Certificate shall have the respective meanings specified in the Note Purchase Agreement unless the context otherwise requires or unless otherwise defined. We have reviewed the Note Purchase Agreement as to the meaning of defined terms used herein.

 

  3. We have reviewed the Company’s [Drawdown Certificate] No. [    ] and the attachments thereto, dated as of [                    ] (the “ Current Drawdown Certificate ”), requesting that a Drawdown from the Construction Escrow Account be disbursed on [                    ] (the “ Drawdown Date ”). We have also reviewed the Company’s COD Certificate dated as of [                    ].

 

  4. We last visited the Project Sites on [                    ] and observed progress at the Project. Our site observations of progress did not include investigation of buried items or

 

7   Certificate must be submitted to each Holder (with a copy to the Company) at least 1 Business Day prior to the date of each Drawdown.


  other unobservable items or hidden conditions. We have reviewed documentation and held discussions with the Company regarding the progress of construction activities at the Project since that time.

 

  5. This Certificate was prepared pursuant to the scope of services under our Amended and Restated Professional Services Agreement, dated as of March 15, 2013 (the “ Services Agreement ”) with Bloom Energy Corporation, the Collateral Agent and the Purchasers and with the degree of skill and diligence normally practiced by professional engineers or consultants performing the same or similar services on like projects.

Based upon the foregoing review and review procedures and on the understanding and assumption that we have been provided true and complete information from other parties as to the matters covered by the Current Drawdown Certificate, as of the date of this Certificate, except as set forth in this Certificate, we are of the opinion that:

 

  A. COD [ choose one: has/has not] occured with respect to the Systems being funded under this requested Credit Event.

This Certificate is solely for the information of and assistance to each of the Purchasers in conducting and documenting their investigation of the matters in connection with the Project and is not to be used, circulated, quoted, or otherwise referred to for any other purpose. This Certificate is not intended to, and may not, be construed to benefit any party other than the Purchasers.

 

Very truly yours,
SAIC ENERGY, ENVIRONMENT &
INFRASTRUCTURE, LLC
[Name goes here]
[Title goes here]
[Name goes here]
[Title goes here]

 

E XHIBIT 4.2.1(d) TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.4.3

F ORM OF F INAL C OMPLETION C ERTIFICATE OF THE C OMPANY

[LETTERHEAD OF COMPANY]

Date:                  ,             

[Addressees]

SAIC Energy, Environment & Infrastructure, LLC,

as Independent Engineer

[Address]

 

  Re: Diamond State Generation Partners, LLC – Final Completion Certificate

Ladies and Gentlemen:

This Final Completion Certificate (this “ Certificate ”) is delivered to you pursuant to Section 4.4.3 of the Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “Company”) and the Purchasers party thereto. Capitalized terms used herein and not otherwise defined have the meanings provided in the Note Purchase Agreement.

I, [                    ], am a Responsible Officer of the Company. I have reviewed the provisions of the Credit Documents which are relevant to the furnishing of this Certificate. To the extent that this Certificate evidences, attests or confirms compliance with any covenants, representations, warranties or conditions precedent provided for in the Credit Documents, I have made such examination or investigation as was, in my opinion, reasonably necessary to enable me to express an informed opinion as to whether such covenants, representations, warranties or conditions have been complied with.

I, on behalf of the Company, solely in my capacity as a Responsible Officer of the Company and not in my personal capacity, and without personal liability therefor, do hereby certify to the Secured Parties that the following statements are accurate, true and complete on the date hereof, except as waived in writing by the Required Holders:

1) All facilities necessary for the Project as contemplated under the Tariff and the Operative Documents have been constructed, installed, completed, tested, commissioned and paid for in accordance with the Operative Documents.

2) All facilities necessary for the Project as contemplated under the Tariff and the Operative Documents have been completely constructed utilizing standards of workmanship and

 

E XHIBIT 4.4.3 TO N OTE P URCHASE A GREEMENT


materials in accordance with the MESPA and in accordance with the terms of the Tariff and Prudent Electrical Practices (as such term is defined in the MESPA) and all relevant equipment has been installed and is operating in accordance with the MESPA.

3) Each of the Systems has achieved COD.

4) [ Choose one: [30 MW of Systems have passed the Performance Tests and have demonstrated performance at or better than nameplate capacity on or before the Date Certain.] / [Less than 30 MW of Systems have passed the Performance Tests and demonstrated performance at or better than nameplate capacity on or before the Date Certain, and the Company has paid the Buydown Amount.]]

5) All Major Project Documents are in full force and effect and no default or event of default has occurred and is continuing under any Major Project Document.

6) The Company (i) has obtained and delivered to each of the Purchasers copies of all material Applicable Permits obtained or to be obtained by or in the name of the Company and required to operate the Project, and (ii) is in compliance with all material Applicable Permits in all material respects thereunder.

7) The Tariff is final, non-appealable and in full force and effect.

8) All work that has been done on the Project to date has been done in a good and workmanlike manner and in accordance with the Project Documents (including any and all approved change orders made in accordance therewith, if any; any such approved change orders are listed on Appendix I together with all other requested and pending change orders) and there has not been filed against any of the Collateral or otherwise filed with or served upon the Company with respect to the Project or any part thereof, notice of any Lien, claim of Lien or attachment upon or claim affecting the right to receive payment of any of the moneys payable to any of the Persons named on such request which has not been released by payment or bonding or otherwise or which will not be released with the payment of such obligation out of the Notes or non Note proceeds hereby requested, other than Permitted Liens.

9) Except for any such Liens being contested by the Company as permitted under the definition of “Permitted Liens”, attached in Appendix II are duly executed Lien waivers required to be delivered to each of the Holders pursuant to Section 4.4.1 of the Note Purchase Agreement relating to mechanics’ and materialmen’s Liens from each Person performing work at the Site or having a statutory right to file a mechanics’ and/or materialmen’s Lien, as the case may be, for all work, services and materials (including equipment and fixtures of all kinds, done, previously performed or furnished for the construction of the Project), for which the related Project Costs have been or will be paid.

IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly executed and delivered on behalf of the Company as of the date first above written.

 

E XHIBIT 4.4.3 TO N OTE P URCHASE A GREEMENT


DIAMOND STATE GENERATION
PARTNERS, LLC , a Delaware limited liability company
By:  

 

Name:  
Title:  

 

E XHIBIT 4.4.3 TO N OTE P URCHASE A GREEMENT


APPENDIX I

to Final Completion Certificate

Change Orders

 

1. Approved

 

2. Requested and Pending

 

E XHIBIT 4.4.3 TO N OTE P URCHASE A GREEMENT


APPENDIX II

to Final Completion Certificate

Lien Waivers

 

E XHIBIT 4.4.3 TO N OTE P URCHASE A GREEMENT


E XHIBIT 4.4.4

F ORM OF F INAL C OMPLETION C ERTIFICATE OF THE I NDEPENDENT E NGINEER

[Letterhead of Independent Engineer]

(Delivered pursuant to Section 4.4.4

of the Note Purchase Agreement)

Date: [                    ]

[Addressees]

 

Subject:    Independent Engineer’s Final Completion Certificate

Ladies and Gentlemen:

This Independent Engineer’s Final Completion Certificate (this “ Certificate ”) is delivered to you by SAIC Energy, Environmental & Infrastructure, LLC (“ SAIC ”) as “ Independent Engineer ” pursuant to Section 4.4.4 of the Note Purchase Agreement, dated as of March 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”), among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”) and the Purchasers party thereto.

The Independent Engineer hereby makes the following statements as of the date of this Certificate:

1. We have reviewed the provisions of Sections 4.4.4 of the Note Purchase Agreement as they identify the responsibilities of the Independent Engineer related to providing this Certificate as required by Section 4.4.4 . We issue this Certificate pursuant to our responsibilities with regard to the Project as set forth in the Note Purchase Agreement, including review of completion testing, infrastructure work, compliance with Project Schedule and budget and adequacy of remaining funds.

2. All defined terms set forth in this Certificate shall have the respective meanings specified in the Note Purchase Agreement unless the context otherwise requires or unless otherwise defined. We have reviewed the Note Purchase Agreement as to the meaning of defined terms used herein.

3. This Certificate was prepared pursuant to the scope of services under our Amended and Restated Professional Services Agreement, dated as of March 15, 2013 (the “ Services Agreement ”) with Bloom Energy Corporation, the Collateral Agent and each of the Purchasers and with the degree of skill and diligence normally practiced by professional

 

E XHIBIT 4.4.4 TO N OTE P URCHASE A GREEMENT


engineers or consultants performing the same or similar services on like projects. Our review and observations are based on the understanding and assumption that we have been provided true and complete information from other parties as to the matters covered by this Certificate.

4. All facilities necessary for the Project as contemplated under the Tariff and the applicable construction Project Documents have been constructed, installed, completed, tested, commissioned and paid for in accordance with the applicable construction Project Documents.

5. All facilities necessary for the Project as contemplated under the Tariff and the applicable construction Project Documents have been completely constructed utilizing standards of workmanship and materials in accordance with the MESPA and in accordance with the terms of the Tariff and Prudent Electrical Practices (as such term is defined in the MESPA) and all relevant equipment has been installed and is operating in accordance with the MESPA.

6. Each of the Systems has achieved COD.

7. [ Choose one: [30 MW of Systems have passed the Performance Tests and have demonstrated performance at or better than nameplate capacity on or before the Date Certain.] / [Less than 30 MW of Systems have passed the Performance Tests and demonstrated performance at or better than nameplate capacity on or before the Date Certain, and the Company has paid the Buydown Amount.]]

This Certificate is solely for the information of and assistance to each of the Purchasers in conducting and documenting their investigation of the matters in connection with the Project and is not to be used, circulated, quoted, or otherwise referred to within or without the lending group for any other purpose. This Certificate is not intended to, and may not, be construed to benefit any party other than the Purchasers.

 

Very truly yours,
SAIC ENERGY, ENVIRONMENT &
INFRASTRUCTURE, LLC
[Name goes here]
[Title goes here]
[Name goes here]
[Title goes here]

 

E XHIBIT 4.4.4 TO N OTE P URCHASE A GREEMENT


E XHIBIT 8.1.3(b)

F ORM OF O FFER TO R EPAY N OTICE

[ Insert name of holder of the Note ]

[ Insert address of holder of the Note ]

[ Insert date ]

Reference is made to the Note Purchase Agreement dated as of March 20, 2013 (as amended, modified or supplemented and in effect from time to time, the “ Note Purchase Agreement ”) among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”) and the Purchasers party thereto. Terms used herein and not otherwise defined herein have the meanings assigned to such terms in the Note Purchase Agreement.

Pursuant to Section 8.1.3(b) of the Note Purchase Agreement, the Company hereby notifies you that it is making the following Offer to Repay:

 

  1. The Offer Settlement Date shall be [        ] 8 .

 

  2. The aggregate principal amount of all Notes to be repaid on the Offer Settlement Date shall be $ [        ] 9 .

Please indicate your acceptance in whole or in part of the Offer to Repay by executing and delivering the notice in the form attached as Schedule 1 hereto on or prior to the fifth (5 th ) Business Day prior to the Offer Settlement Date. If you do not accept the Offer to Repay in whole on or prior to [        ] 10 , you shall be deemed to have rejected the Offer to Repay, and, accordingly, your Notes will not be repaid on the Offer Settlement Date.

 

Sincerely,
DIAMOND STATE GENERATION PARTNERS, LLC
By:  

 

  Name:  
  Title:  

 

8   Insert date twenty (20) Business Days after the date hereof.
9   Insert aggregate amount of all Notes to be repaid pursuant to this Offer to Repay Notice, which shall be the principal amount of the Notes at 100% of the principal amount thereof, together with accrued and unpaid interest thereon to the Offer Settlement Date and without payment of the Make-Whole Amount or any premium.
10   Insert the date that is five (5) Business Days prior to the Offer Settlement Date.

 

E XHIBIT 8.1.3(b) TO N OTE P URCHASE A GREEMENT


Schedule 1

TO OFFER TO REPAY NOTICE

FORM OF OFFER ACCEPTANCE NOTICE

OFFER ACCEPTANCE NOTICE

Diamond State Generation Partners, LLC

1252 Orleans Drive

Sunnyvale, CA 94089

Attention: [                    ]

[ Insert Date ]

Reference is made to the Note Purchase Agreement dated as of March 20, 2013 (as amended, modified or supplemented and in effect from time to time, the “ Note Purchase Agreement ”) among Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Company ”) and the Purchasers party thereto. Terms used herein and not otherwise defined herein have the meanings assigned to such terms in the Note Purchase Agreement. Reference is also made to the Offer to Repay Notice dated as of [ Insert Date ] .

Pursuant to Section 8.1.3(b) of the Note Purchase Agreement, we hereby notify the Company that we accept the Offer to Repay in full as set forth in the Offer to Repay Notice.

 

Sincerely,
[ Insert name of holder of the Notes ]
By:  

 

  Name:
  Title:

E XHIBIT 8.1.3(b)

To Note Purchase Agreement

Exhibit 10.19

EXECUTION VERSION

[***] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

 

EQUITY CAPITAL CONTRIBUTION AGREEMENT

with respect to

DIAMOND STATE GENERATION HOLDINGS, LLC

by and among

CLEAN -TECHNOLOGIES II, LLC

DIAMOND STATE GENERATION HOLDINGS, LLC

DIAMOND STATE GENERATION PARTNERS, LLC

and

MEHETIA INC.

dated as of March 16, 2012

 

 

 


[TABLE OF CONTENTS]

Table of Contents

 

         Page  

ARTICLE 1 DEFINED TERMS

     2  

1.1

 

Defined Terms

     2  

ARTICLE 2 CAPITAL CONTRIBUTIONS; MEMBERSHIP INTERESTS

     2  

2.1

 

Issuance of Class B Membership Interests

     2  

2.2

 

Contributions

     2  

2.3

 

Initial Funding

     4  

2.4

 

Subsequent Fundings

     4  

2.5

 

Conditions Precedent to the Obligations of Investor at the Initial Funding

     5  

2.6

 

Conditions Precedent to the Obligations of Clean Technologies at the Initial Funding

     8  

2.7

 

Conditions Precedent to the Obligations of Investor at Each Subsequent Funding

     9  

2.8

 

Conditions Precedent to the Obligations of Clean Technologies at Each Subsequent Funding

     13  

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

     14  

3.1

 

Representations and Warranties of Clean Technologies on the Execution Date and the Initial Funding Date

     14  

3.2

 

Representations and Warranties of Clean Technologies on each Subsequent Funding Date

     21  

3.3

 

Representations and Warranties of Investor on the Execution Date and the Initial Funding Date

     22  

3.4

 

Representations and Warranties of Investor on each Subsequent Funding Date

     24  

ARTICLE 4 CERTAIN COVENANTS

     24  

4.1

 

Confidentiality

     24  

4.2

 

Access to Information

     24  

 

i


TABLE OF CONTENTS

(continued)

 

         Page  

4.3

 

Regulatory Matters

     24  

4.4

 

System Manufacturing

     25  

4.5

 

Site Preparation Costs

     25  

ARTICLE 5 TERMINATION

     25  

5.1

 

Termination

     25  

5.2

 

Procedure and Effect of Termination

     26  

ARTICLE 6 INDEMNIFICATION

     26  

6.1

 

Indemnification

     26  

6.2

 

Direct Claims

     27  

6.3

 

Third Party Claims

     27  

6.4

 

No Duplication

     29  

6.5

 

Sole Remedy

     29  

6.6

 

Survival

     29  

6.7

 

Final Date for Assertion of Indemnity Claims

     29  

6.8

 

Mitigation and Limitations on Indemnified Costs

     30  

6.9

 

Payment of Indemnification Claims

     30  

6.10

 

Repayment; Subrogation

     31  

ARTICLE 7 GENERAL PROVISIONS

     31  

7.1

 

Exhibits and Schedules

     31  

7.2

 

Disclosure Schedules

     31  

7.3

 

Amendment, Modification and Waiver

     31  

7.4

 

Severability

     32  

7.5

 

Expenses

     32  

 

ii


TABLE OF CONTENTS

(continued)

 

         Page  

7.6

 

Parties in Interest

     32  

7.7

 

Notices

     32  

7.8

 

Counterparts

     34  

7.9

 

Entire Agreement

     34  

7.10

 

Governing Law; Choice of Forum; Waiver of Jury Trial

     34  

7.11

 

Public Announcements

     34  

7.12

 

Assignment

     35  

7.13

 

Relationship of Parties

     35  

 

iii


ANNEXES

 

Annex I    Definitions
Annex II    Projected Contribution Schedule
Annex III    Base Case Model

EXHIBITS

 

Exhibit A    Form of MOMA
Exhibit B    Form of MESPA
Exhibit C    Form of Administrative Services Agreement
Exhibit D    Form of Company LLC Agreement
Exhibit E    Form of Project Company LLC Agreement
Exhibit F    Form of Chadbourne Opinion
Exhibit G-1    Form of Company Officer Instruction Letter
Exhibit G-2    Form of Project Company Officer Instruction Letter
Exhibit H    Form of McDermott Opinion
Exhibit I    Form of Funding Notice
Exhibit J    March 16, 2012 Draft Version of Credit Agreement

SCHEDULES

 

Schedule 3.1(d)    Litigation
Schedule 3.1(g)    Taxes
Schedule 3.1(h)    Financial Statements
Schedule 3.1(i)    Governmental Approvals and Filings
Schedule 3.1(k)    Environmental Matters
Schedule 3.1(1)    Permits
Schedule 3.1(m)    Insurance
Schedule 3.1(n)    Real Property
Schedule 3.1(o)    Personal Property
Schedule 3.1(p)    Liens
Schedule 3.1(q)    Material Contracts
Schedule 3.1(s)    Affiliate Transactions
Schedule 3.1(y)    Intellectual Property

 

i


EQUITY CAPITAL CONTRIBUTION AGREEMENT

This Equity Capital Contribution Agreement (this “ Agreement ”) is made and entered into as of March 16, 2012 (the “ Execution Date ”) by and among Mehetia Inc., a Delaware corporation (“ Investor ” or “ Mehetia ”), Clean Technologies II, LLC, a Delaware limited liability company (“ Clean Technologies ”), Diamond State Generation Holdings, LLC, a Delaware limited liability company (the “ Company ”), and Diamond State Generation Partners, LLC, a Delaware limited liability company (the “ Project Company ”).

Preliminary Statements

WHEREAS, on October 19, 2011 Clean Technologies contributed the Project Company to the Company;

WHEREAS, as of the Execution Date Clean Technologies owns 100% of the issued and outstanding membership interests in the Company and the Company owns 100% of the issued and outstanding membership interests in the Project Company;

WHEREAS, the Project Company intends to acquire and own a portfolio of Systems having an aggregate nameplate capacity of up to 30 MW to be operated in accordance with the Tariffs and the REPS Act (collectively, the “ Portfolio ” or the “ Project ”);

WHEREAS, on December 30, 2011 Clean Technologies made a capital contribution to the Company in the amount of $16,619,399.60, and, subject to the terms and conditions herein, on or prior to the Initial Funding Date, Clean Technologies will make a further capital contribution to the Company as provided in this Agreement;

WHEREAS, subject to the terms and conditions herein, on the Initial Funding Date (i) Investor will make an initial capital contribution to the Company in the amount set forth on the Projected Contribution Schedule and Clean Technologies will cause the Company to issue Class B Membership Interests to Investor and (ii) Clean Technologies will retain the Class A Membership Interests in the Company, in each case pursuant to the Company LLC Agreement;

WHEREAS, Clean Technologies and Investor are hereby agreeing on the form of the Company LLC Agreement to define their interests, rights and obligations in the Company from and after the Initial Funding Date;

WHEREAS, subject to the terms and conditions herein, on each Subsequent Funding Date, the Class A Member and the Class B Member will make additional capital contributions to the Company in amounts determined pursuant to and as provided in this Agreement;

WHEREAS, Bloom and Credit Suisse Guarantor have agreed to provide the Bloom Guaranty and the Credit Suisse Guaranty, respectively, as of the date hereof;

NOW, THEREFORE, in consideration of the respective representations, warranties, covenants, agreements, and conditions in this Agreement, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties to this Agreement agree as follows:

 

1


ARTICLE 1

DEFINED TERMS

1.1 Defined Terms . Capitalized terms not otherwise defined in this Agreement have the meanings given such terms in Annex I.

ARTICLE 2

CAPITAL CONTRIBUTIONS; MEMBERSHIP INTERESTS

2.1 Issuance of Class B Membership Interests . Subject to the terms and conditions in this Agreement, (a) on or before the Initial Funding Date, Clean Technologies will make a Capital Contribution to the Company (in cash or in kind) in an amount such that, together with the Capital Contribution made by Clean Technologies on December 30, 2011, the amount of capital contributed to the Company by Clean Technologies prior to the Initial Funding Date (excluding the value of the Project Company membership interests previously contributed by Clean Technologies to the Company) totals $16,619,399.60 (with such contributions in turn previously having been contributed or to be contributed on the Initial Funding Date by the Company to the Project Company), and (b) on the Initial Funding Date (i) Investor will make a Capital Contribution to the Company as provided in Section 2.2(a) and (ii) Clean Technologies will cause the Company to issue to Investor the Class B Membership Interests in the Company.

2.2 Contributions .

(a) Subject to the terms and conditions in this Agreement, Investor will make a Capital Contribution on the Initial Funding Date in the amount set forth in the Projected Contribution Schedule (an “ Initial Funding Payment ”). Subject to the terms and conditions in this Agreement, Clean Technologies will make a Capital Contribution on the Initial Funding Date in the amount set forth in the Projected Contribution Schedule.

(b) Subject to the terms and conditions in this Agreement, on each Subsequent Funding Date, Investor will make a further Capital Contribution (a “ Subsequent Funding Payment ”) as follows:

(i) In connection with the portion of any Capital Contribution to be contributed on a Subsequent Funding Date to Company in order for Company to contribute such amounts to Project Company for use by Project Company to make 25% Progress Payments (“ Deposit Contribution ”), Investor will make a Deposit Contribution on such Subsequent Funding Date in an amount equal to the total required Deposit Contributions due from Class B Member on such Subsequent Funding Date, but not more than the lesser of (A) 100% of the amount of the Capital Contributions requested to be contributed to the Project Company in order for the Project Company to make 25% Progress Payments and (B) an amount which, together with prior Capital Contributions of Class B Member, would cause Class B Member to have made Capital Contributions which in the aggregate would equal the Class B Member CC Maximum Amount; provided that there exists a commitment on such Subsequent Funding Date of the Lenders, enforceable against such Lenders, to fund Loan Proceeds for a portion (consistent with the Base Case Model) of the 75% Progress Payments due with respect any such System for which Investor is making a Deposit Contribution; and

 

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(ii) Subject to Section 2.2(f) , in connection with the portion of any Capital Contribution to be contributed on a Subsequent Funding Date to Company in order for Company to contribute such amounts to Project Company for use by Project Company to make 75% Progress Payments (“ Progress Contributions ”), Investor will make a Capital Contribution on such Subsequent Funding Date in an amount equal to (x) [***]% of the required Progress Contribution less (y) the pro rata portion (based on 150 Systems) of the December Capital Contribution shown as credited to Clean Technologies for purposes of Progress Contributions in the Base Case Model.

Notwithstanding the foregoing, prior to any Subsequent Funding Payment being made by Investor, the Initial Funding Payment, any prior Subsequent Funding Payments and any prior CT Funding Amounts, as applicable, shall have been drawn upon in full by the Project Company in accordance with the Company LLC Agreement and not more than $20 million of such amounts in the aggregate remain unspent by the Project Company. Except for the Initial Funding Payment and the Capital Contribution of Clean Technologies on the Initial Funding Date, for the avoidance of doubt, the Projected Contribution Schedule is just a projection and the parties hereto intend that the Capital Contributions will only be made as needed in order for the Project Company to make payments under the MESPA, after taking into account the Loan Proceeds.

(c) Subject to the terms and conditions in this Agreement, Clean Technologies will make a Capital Contribution on each Subsequent Funding Date in an amount equal to the CT Funding Amount.

(d) On or prior to each Funding Date, Investor will transfer its respective Funding Payments and Clean Technologies will transfer its respective CT Funding Amount, if any, by wire transfer of immediately available funds to the following account (or to such other account as the Company may from time to time advise it in writing):

 

Holder Name:    [***]
Bank Name:    [***]
Account Number:    [***]
ABA Number:    [***]

(e) Clean Technologies will provide Investor with not less than five Business Days prior written notice as to the Initial Funding Date.

(f) Notwithstanding anything contained herein to the contrary, (i) the aggregate amount paid by Mehetia as the Initial Funding Payment and Subsequent Funding Payments shall not exceed the Class B Member CC maximum Amount and shall be in accordance with the manner of calculation set forth in the Base Case Model, and (ii) the aggregate amount contributed by Clean Technologies to the Company as Capital Contributions (including, for the avoidance of doubt, the Capital Contributions made by Clean Technologies prior to and on the Initial Funding Date, and each CT Funding Amount) shall not exceed its respective Equity Commitment Amount and shall be in accordance with the manner of calculation set forth in the Base Case Model.

 

[***] Confidential Treatment Requested

 

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(g) Notwithstanding anything contained herein to the contrary, in the event the Initial Funding occurs but any of the conditions set forth in Sections 2.7(v) , (w) , (x) and (y) have not been satisfied by the date on which Clean Technologies provides notice of the first Subsequent Funding Date following the Initial Funding Date, Investor may, at its option, provide Clean Technologies not less than 10 Business Days written notice (the “ Refund Notice ”) that it desires to receive a refund of the Initial Funding Payment made by Investor. Upon receipt of such notice Clean Technologies shall have 10 Business Days to pay or cause such amount to be paid to Investor (such date, the “ Refund Payment Date ”). Upon the giving of the Refund Notice to Clean Technologies, Investor shall have no further obligation to make any Funding Payment until all of the conditions in Section 2.5 and Section 2.7 are satisfied. If all of the conditions in Section 2.5 and Section 2.7 are subsequently satisfied, Clean Technologies may by not less than 10 Business days’ written notice to Investor again require Investor to make a Capital Contribution of the Initial Funding Payment and any Subsequent Funding Payments, as provided under this Agreement.

2.3 Initial Funding . Subject to the termination rights in Article 5, the closing of the Initial Funding Payment and the closing of the Capital Contribution on the Initial Funding Date by Clean Technologies of the CT Funding Amount (the “Initial Funding”) and the issuance of the Class B Membership Interests pursuant to Section 2.1 will take place (a) at the offices of Chadbourne & Parke LLP in New York City at 11:00 a.m. (eastern time) on the date on which all of the conditions in Section 2.5 and Section 2.6 have either been satisfied or waived in writing by the Party entitled to the benefit of such conditions, or (b) at such other place and time as Investor and Clean Technologies may agree in writing (such date as determined under clause (a) or (b), the “Initial Funding Date”), but in any event not later than the Initial Funding Termination Date. Each of the documents to be delivered pursuant to Section 2.5 and Section 2.6 shall be deemed to be delivered simultaneously, and no such document shall be of any force or effect until all such documents are delivered and the Initial Funding is consummated.

2.4 Subsequent Fundings . Subject to the terms and conditions of this Agreement, the making of Subsequent Funding Payments by Investor and the making of payments of CT Funding Amounts by Clean Technologies (each payment made by the respective Member referred to as a “Subsequent Funding”) will take place on (a) the dates upon which all conditions in Section 2.7 and Section 2.8 have either been satisfied or waived in writing by the party entitled to the benefit of such conditions or (b) at such other time as Investor and Clean Technologies may agree in writing (such date as determined under clause (a) or (b), each, a “Subsequent Funding Date”). The parties acknowledge that, other than as agreed to by the Parties, there will only be one Subsequent Funding Date per Member per calendar quarter, which will be no earlier than the last Business Day of the previous calendar quarter and no later than the fifth Business Day of the current calendar quarter. In no event will any Subsequent Funding Date occur later than the Subsequent Funding Termination Date. Each of the documents to be delivered pursuant to Section 2.7 and Section 2.8 will be deemed to be delivered simultaneously, and no such document will be of any force or effect until all such documents are delivered and the Subsequent Funding is consummated. Subject to the terms and conditions in this Agreement, on each Subsequent Funding Date, Investor will deliver its Subsequent Funding Payment and Clean Technologies will deliver its CT Funding Amount as described in Section 2.2(d).

 

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2.5 Conditions Precedent to the Obligations of Investor at the Initial Funding . The obligation of Investor to consummate the Initial Funding will be subject to the fulfillment by Clean Technologies, the Company or the Project Company, on or before the Initial Funding Date and prior to the Initial Funding Termination Date, of each of the following conditions (any or all of which may be waived in whole or in part by Investor in their sole discretion):

(a) Investor has received copies of the Insurance Report and the Environmental Reports (and any reliance letters in connection therewith), each in form and substance reasonably satisfactory to Investor and has received evidence that the requirements set forth in Section 8.4 of the Company LLC Agreement have been complied with;

(b) Investor has received a copy of the Independent Engineer Report (and a reliance letter in connection therewith) in form and substance reasonably satisfactory to Investor including with respect to the establishment of operating and test data showing operating efficiency improvement consistent with Project performance expectations;

(c) Investor has received copies of the Credit Agreement and the other Credit Documents, each in form and substance satisfactory to Investor, and such agreements shall have been fully executed prior to or contemporaneous with the occurrence of the Initial Funding, it being understood that in the case of the Credit Agreement, the draft version dated March 16, 2012 attached hereto as Exhibit J is acceptable to Investor, other than with respect to certain state and federal regulatory statements contained in Sections 4.16.1,4.16.2 and 5.11.2 thereof;

(d) Investor has received fully executed copies of each of the Material Contracts (including the MOMA substantially in the form attached as Exhibit A, the MESPA substantially in the form attached as Exhibit B, and the Administrative Services Agreement substantially in the form attached as Exhibit C), each of which is in full force and effect;

(e) Investor has received a fully executed copy of this Agreement attaching forms of the Company LLC Agreement as Exhibit D and the Project Company LLC Agreement as Exhibit E, each in form and substance satisfactory to Investor, which agreements shall be fully executed simultaneously with the occurrence of the Initial Funding;

(f) Investor has received a fully executed copy of the Bloom Guaranty, dated as of the Execution Date, in form and substance acceptable to Investor;

(g) Investor has received the unaudited, consolidated balance sheet of each of the Company and Project Company as of the Initial Funding Date;

(h) Investor has received the audited financial report of Bloom as of its most recent fiscal year end;

(i) Investor has received each of the following legal opinions in form and substance reasonably satisfactory to it: (A) a legal opinion of Chadbourne & Parke LLP as counsel to Bloom, Clean Technologies, the Company and the Project Company with respect to corporate and federal regulatory matters substantially in the form attached as Exhibit F, (B) a customary legal opinion of Delaware counsel to the Company and the Project Company with respect to the enforceability under Delaware law of the Company LLC Agreement and the

 

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Project Company LLC Agreement, and (C) any other customary opinions reasonably requested by Investor, including, without limitation, a legal opinion of Delaware counsel with respect to the REPS Act and the Tariffs;

(j) Investor has received (i) from each of Bloom, Clean Technologies, the Company and the Project Company (A) an incumbency certificate dated as of the date hereof, (B) a good standing certificate, dated as of a recent date, from the applicable Secretary of State, (C) resolutions of the board of directors, or other equivalent governing and managing body, authorizing and approving the execution of this Agreement and each of the other Transaction Documents to which it is a party, and the transactions contemplated hereunder and thereunder, certified by a secretary or an assistant secretary as of the date hereof, and (D) formation documents certified by a secretary or an assistant secretary as of the date hereof and (ii) from an authorized officer of Clean Technologies, a certificate dated as of the date hereof to the effect that the conditions set forth, as applicable, in Section 2.5(o) have been satisfied;

(k) Investor has received evidence of insurance maintained by, or for the benefit of, the Project Company, together with an Insurance Consultant’s (as defined in the Credit Agreement) certification thereto;

(l) [Reserved];

(m) Clean Technologies has fully funded its corresponding Equity Commitment Amount to the Company and the Company has funded such amount to Project Company;

(n) No material ongoing breach exists by Bloom, Clean Technologies, the Company, the Project Company, the Managing Member, DPL or PJM under the Company LLC Agreement, the Project Company LLC Agreement, the MESPA, the MOMA, the Administrative Services Agreement, the Credit Documents, the DPL Agreements, the PJM Agreements, this Agreement or any other Transaction Document or Material Contract, as applicable;

(o) Each of the representations and warranties of Clean Technologies, Company and Project Company in this Agreement (other than those made as of a later date) is (i) true and correct in all material respects as of the Initial Funding Date, except to the extent that any such representation or warranty shall have been expressly made only as of an earlier date in which case such representation and warranty was true and correct in all material respects as of such earlier date or (ii) if and to the extent such representations and warranties are qualified by the words “material,” “Material Adverse Effect” or similar qualification, true and correct, as qualified, as of the Initial Funding Date (or such earlier date, as applicable);

(p) Investor has received fully executed copies of the DPL Agreements and the PJM Agreements that are subject to execution at the Initial Funding Date, each in form and substance satisfactory to Investor, which agreements shall have been fully executed prior to the occurrence of the Initial Funding;

(q) None of Bloom, Clean Technologies, the Company and the Project Company (i) has admitted in writing its inability to pay its debts generally as they become due, (ii) has filed a petition or answer seeking reorganization or arrangement under the federal

 

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bankruptcy laws or any other applicable law or statute of the United States of America or any State, district. or territory thereof, (iii) has made an assignment for the benefit of creditors, (iv) has consented to the appointment of a receiver of the whole or any substantial part of its assets, (v) has had a petition in bankruptcy filed against it, (vi) has had a court of competent jurisdiction enter an order, judgment, or decree appointing a receiver of the whole or any substantial part of such entity’s assets or (vii) has had, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assume custody or control of the whole or any substantial part of such entity’s assets;

(r) Clean Technologies shall make a Capital Contribution to the Company in an amount equal to the CT Funding Amount prior to, or simultaneously with, the Initial Funding;

(s) The REPS Act and the Tariffs have not been amended or otherwise modified since the date hereof and remain in full force and effect, no legislation has been introduced in the Delaware legislature to repeal the REPS Act and there are no pending proceedings challenging the REPS Act or the Tariffs in any respect material to the parties hereto or the transactions contemplated herein;

(t) The Project has met all the requirements to be a “Qualified Fuel Cell Provider Project” under the REPS Act, Project Company shall have met all the requirements to be a “QFCP Generator” under the QFCP-RC Tariff, and the Project has been designated as an “economic development opportunity” by the Delaware Economic Development Office and the Delaware Department of Natural Resources;

(u) The QFCP-RC Tariff and the Gas Tariff have been approved by the DPSC in accordance with Section 364(d) of the REPS Act, has not been further amended without Investor’s prior written consent, is final, non-appealable and in full force and effect, and there is no pending litigation challenging the same;

(v) Investor has received evidence, including, but not limited to, invoices, purchase or supply agreements, evidence of delivery, documents detailing how the costs incurred have been allocated to and incorporated in portions of the Project for which a Grant application will be filed, and related agreements and documents, reasonably satisfactory to Investor demonstrating that a Grant is expected to be available for Systems that will be funded by such Initial Funding because the Capital Contribution by Clean Technologies has been used by Project Company to incur Project costs that will allow the portions of the Project for which a Grant application will be filed and for which such costs are incurred to meet the 5% “safe harbor” for Grant eligibility under the Guidance, and both Bloom and Project Company shall have used commercially reasonable efforts to satisfy this requirement;

(w) Investor has received, in form and substance satisfactory to Investor, the feasibility and system impact study from PJM and the facilities study from DPL for the Project interconnection with respect to the Brookside Site and neither study identifies any material impediments that are reasonably likely to have an adverse effect on the ability of any party hereto to execute and deliver all agreements necessary for the transmission, interconnection and delivery of the Brookside Site Systems’ Energy to the PJM Grid by the Guaranteed Initial Delivery Date;

 

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(x) Project Company has filed with FERC a Notice of Exempt Wholesale Generator Status;

(y) Investor has received evidence reasonably satisfactory to Investor that Bloom is proceeding to prepare a permanent facility in Delaware for manufacturing by Bloom of 20 MW of Systems so that all the Systems shall be considered to have been manufactured in Delaware under the REPS Act;

(z) the Company and Project Company shall have executed and delivered the officer instruction letters in the forms attached hereto as Exhibit G-1 and Exhibit G-2;

(aa) the findings of Investor’s customary due diligence review, including with respect to any environmental compliance issues, are satisfactory to Investor;

(bb) Each of Clean Technologies, Company and Project Company has received all necessary third party consents, waivers, authorizations and approvals in connection with the execution, delivery and performance of this Agreement and each of the Transaction Documents to which it is a party and the transactions contemplated hereunder and thereunder, each of which consents, waivers, authorizations and approvals is in form reasonably satisfactory to Investor, and copies of the same have been delivered to Investor;

(cc) Project Company has entered into the Site Leases, each Site Lease having such terms and conditions reasonably satisfactory to Investor (except that the DDOT Site Lease shall be subject to amendment as set forth in Section 2.7(xl), and Project Company has received either (i)   an owner’s ALTA extended coverage policy of title insurance (2006 form) issued by a title insurance company and in a form and substance acceptable to Investor, which policy shall insure that Project Company’s leasehold interest at each Site is free and clear of all defects and encumbrances, except Permitted Liens, and shall contain such endorsements as are reasonably requested by Investor, or (ii) the unconditional and irrevocable commitment of the title insurance company to issue such a policy, in each case in a coverage amount equal to the amount reasonably acceptable to Investor; and

(dd) Investor has received a fully executed copy of the Control Agreement, in form and substance satisfactory to Investor.

2.6 Conditions Precedent to the Obligations of Clean Technologies at the Initial Funding . The obligation of Clean Technologies to consummate the Initial Funding will be subject to the fulfillment by Investor, on or before the Initial Funding Date, of each of the following conditions (any or all of which may be waived in whole or in part by Clean Technologies in its sole discretion):

(a) Clean Technologies has received fully executed copies of this Agreement attaching forms of the Company LLC Agreement as Exhibit D and the Project Company LLC Agreement as Exhibit E , each in form and substance satisfactory to Clean Technologies;

(b) Clean Technologies has received each of the following legal opinions in a form reasonably satisfactory to it: (A) a legal opinion of McDermott Will & Emery LLP as counsel to Mehetia and Credit Suisse Guarantor with respect to corporate matters, substantially in the form attached as Exhibit H and (B) any other customary opinions reasonably requested by Clean Technologies;

 

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(c) Investor (i) has not admitted in writing its inability to pay its debts generally as they become due, (ii) has not filed a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any State, district or territory thereof, (iii) has not made an assignment for the benefit of creditors, (iv) has not consented to the appointment of a receiver of the whole or any substantial part of its assets, (v) has not had a petition in bankruptcy filed against it, (vi) has not had a court of competent jurisdiction enter an order, judgment, or decree appointing a receiver of the whole or any substantial part of such entity’s assets or (vii) has not had, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assume custody or control of the whole or any substantial part of such entity’s assets;

(d) Investor has received all necessary third party consents, waivers, authorizations and approvals in connection with the execution, delivery and performance of this Agreement and each of the Transaction Documents to which it is a party and the transactions contemplated hereunder, which consents, waivers, authorizations and approvals are in form reasonably satisfactory to Clean Technologies and copies of the same have been delivered to Clean Technologies;

(e) each of the representations and warranties of Investor in this Agreement (other than those made as of a later date) is (i) true and correct in all material respects as of the Initial Funding Date, except to the extent that any such representation or warranty shall have been expressly made only as of an earlier date in which case such representation and warranty was true and correct in all material respects as of such earlier date or (ii) if and to the extent such representations and warranties are qualified by the words “material,” “Material Adverse Effect” or similar qualification, true and correct, as qualified, as of the Initial Funding Date (or such earlier date, as applicable);

(f) Clean Technologies shall have received a fully executed copy of the Credit Suisse Guaranty, dated as of the Execution Date, in form and substance acceptable to Clean Technologies; and

(g) Clean Technologies has received (1) from Investor (i) an incumbency certificate dated as of the date hereof, (ii) a good standing certificate, dated as of a recent date, from the applicable Secretary of State, (iii) resolutions of the board of directors, or other equivalent governing and managing body, authorizing and approving the execution of this Agreement and each of the other Transaction Documents to which it is a party, and the transactions contemplated hereunder and thereunder, certified by a secretary or an assistant secretary as of the date hereof and (iv) formation documents certified by a secretary or an assistant secretary as of the date hereof, and (2) from an authorized officer of Investor, a certificate dated as of the date hereof to the effect that the conditions set forth, as applicable, in Section   2.6(e) have been satisfied.

2.7 Conditions Precedent to the Obligations of Investor at Each Subsequent Funding . The obligation of Investor to consummate any Subsequent Funding will be subject to the

 

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fulfillment by Clean Technologies, the Company or the Project Company, on or before the applicable Subsequent Funding Date and prior to the Subsequent Funding Termination Date, of each of the following conditions (any or all of which may be waived in whole or in part by Investor in its sole discretion):

(a) confirmation by Clean Technologies that (i) all conditions precedent in Section 2.5 (other than in Section 2.5(aa) ) continue to be satisfied; provided that none of Clean Technologies, Company or Project Company shall be required to update any diligence reports, legal opinions, appraisals or other third party documents previously delivered to Investor unless any of such previously delivered documents have been withdrawn or circumstances have materially changed such that the previously delivered document is inapplicable or is materially incorrect or misleading and (ii) there have been no material adverse changes from the circumstances addressed in the due diligence reports delivered to Investor as required under Section 2.5(a) and (b) ;

(b) each of the representations and warranties of Clean Technologies in Section 3.2 is (i) true and correct in all material respects as of such Funding Date, except to the extent that any such representation or warranty shall have been expressly made only as of an earlier date in which case such representation and warranty was true and correct in all material respects as of such earlier date or (ii) if and to the extent such representations and warranties are qualified by the words “material,” “Material Adverse Effect” or similar qualification, true and correct, as qualified, as of such Funding Date (or such earlier date, as applicable);

(c) Clean Technologies shall deliver to Investor a certificate from an authorized officer dated as of such Subsequent Funding Date, to the effect that the conditions set forth in Section 2.7(a) and Section 2.7Cb), have been satisfied as of such Subsequent Funding Date;

(d) the net equity investment in the Company by Investor (meaning the aggregate Capital Contributions of Investor including the contemplated Subsequent Funding, less actual pre-tax cash distributions received by Investor from the Company), collectively, does not exceed $65,000,000;

(e) no material ongoing breach exists by Bloom, Clean Technologies, the Company, the Project Company, the Managing Member, DPL or PJM under any of the Company LLC Agreement, the Project Company LLC Agreement, the MESPA, the MOMA, the Administrative Services Agreement, the Credit Documents, the DPL Agreements, the PJM Agreements, this Agreement or any other Transaction Document or Material Contract, as applicable, and each of the Company LLC Agreement, the Project Company LLC Agreement, the MESPA, the MOMA, the Administrative Services Agreement, the Credit Documents, the DPL Agreements, the PJM Agreements, this Agreement or any other Transaction Document or Material Contract, as applicable, is in full force and effect;

(f) Unless an Alternative Tax Program has been elected under Section 7.5(b)(i) of the Company LLC Agreement, Investor has received evidence, including, but not limited to, invoices, purchase or supply agreements, evidence of delivery, documents detailing how the costs incurred have been allocated to and incorporated in portions of the Project for

 

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which a Grant application will be filed, and related agreements and documents, reasonably satisfactory to Investor demonstrating that a Grant is expected to be available for Systems that will be funded by such Subsequent Funding because the Capital Contribution by Clean Technologies has been used by Project Company to incur Project costs that will allow the portions of the Project for which a Grant application will be filed and for which such costs are incurred to meet the 5% “safe harbor” for Grant eligibility under the Guidance, and both Bloom and Project Company shall have used commercially reasonable efforts to satisfy this requirement;

(g) Unless an Alternative Tax Program has been elected under Section 7.5(b)(i) of the Company LLC Agreement, the Grant program has not been repealed and none of the applications for the Grant that have been filed with respect to any Systems prior to the Subsequent Funding have been rejected or denied on grounds that suggest Systems to be paid for with the Subsequent Funding are ineligible for a Grant or are eligible for a Grant that is less by more than a de minimis amount than the applied for amount, and no notification from the Treasury requesting additional information related to eligibility for a Grant with respect to any previously filed application has been received that, in each such case, has been the subject of a response that is not to the reasonable satisfaction of Investor;

(h) in the case of the portion of any Subsequent Funding Payment used to pay any 75% Progress Payments, (i) with respect to Subsequent Fundings for the first 58 Systems, Investor has received confirmation that the amount of loan proceeds from the Lenders pursuant to the manner of calculation set forth in the Base Case Model have either been funded to the Project Company or the administrative agent under the Credit Agreement has in writing confirmed to the Investor that all conditions precedent to such funding have been satisfied or waived and the Lenders are prepared to make such funding contemporaneous with Project Company’s drawdown of such Progress Contribution from the Company and (ii) with respect to Subsequent Fundings for the remaining Systems, Investor has received confirmation that the loan proceeds agreed to in writing by the parties hereto and the Lenders and then reflected in an updated Base Case Model have either been funded to the Project Company or the administrative agent under the Credit Agreement has in writing confirmed to the Investor that all conditions precedent to such funding have been satisfied or waived and the Lenders are prepared to make such funding contemporaneous with Project Company’s drawdown of such Progress Contribution from the Company (such respective amounts of loan proceeds, the “ Loan Proceeds ”);

(i) No breach exists under the Bloom Guaranty or DPL Agreements and the Bloom Guaranty, the REPS Act and the Tariffs are in full force and effect and there are no pending proceedings challenging the same in any respect material to the parties hereto;

(j) Project Company has received payment under the QFCP-RC Tariff and the PJM Agreements for all sales of energy, capacity, ancillary services and environmental attributes up to the date of the Subsequent Funding as well as reimbursement for fuel in accordance with the DPL Agreements (except, in each case, for amounts for which payment is not yet due);

 

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(k) The Initial Funding Payment, any prior Subsequent Funding Payments and any prior CT Funding Amounts have been contributed by Company to Project Company in accordance with the Company LLC Agreement, and not more than $20,000,000 of such amount is unspent by Project Company;

(l) Investor has received evidence reasonably satisfactory to Investor that, with respect to any Funding related to Systems beyond the first IOMW of Portfolio capacity, Bloom is manufacturing such Systems in Delaware;

(m) Project Company (i) has entered into all PJM Agreements, DPL Agreements and all other agreements and made all filings and other arrangements necessary for the transmission, interconnection and delivery of the Portfolio’s energy to the PJM Grid and {ii) shall be a PJM member (or shall have contracted with a market participant in PJM to perform its PJM obligations and such market participant shall have entered into all required PJM Agreements and shall be in compliance therewith);

(n) Project Company has obtained all necessary authorizations from FERC to sell the Portfolio’s energy at market-based rates as contemplated by the QFCP-RC Tariff (the “MBR Authority”), and is in compliance with such authorization; provided, however, that any proposed market-based rate filing shall be provided to Investor at least 30 days in advance of such filing;

(o) Project Company is an Exempt Wholesale Generator

(p) Investor has received from Project Company all reports and notices produced or received by Project Company in accordance with the Tariffs at least 5 Business Days prior to the applicable Subsequent Funding Date;

(q) Investor has received evidence reasonably satisfactory to Investor that Bloom is proceeding to prepare a permanent facility in Delaware for manufacturing by Bloom of at least 20 MW of Systems so that all the Systems shall be considered to have been manufactured in Delaware under the REPS Act;

(r) An executed Funding Notice in the form attached to this Agreement as Exhibit I has been provided to Investor at least 5 Business Days prior to the applicable Subsequent Funding Date;

(s) The Section 203 Order has been issued;

(t) Prior to the first Funding for any System to be installed at the ·Red Lion Site, Investor has received in form and substance satisfactory to Investor (i) a system impact study for the Project interconnection for the Red Lion Site from PJM and such study does not identify any material impediments that are reasonably likely to have an adverse effect on the ability of any party hereto to execute and deliver all agreements necessary for the transmission, interconnection and delivery of the Red Lion Site Systems’ Energy to the PJM Grid by the Guaranteed Initial Delivery Date, (ii) evidence reasonably satisfactory to Investor that PJM has waived the requirement for a facilities study with respect to Red Lion Site, (iii) an executed copy of an interconnection services agreement among the Project Company, PJM and DPL with

 

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respect to the Red Lion Site, which agreement has been filed with FERC if required and (iv) an executed copy of a construction services agreement among the Project Company, DPL and PJM with respect to the Red Lion Site;

(u) Prior to the first Funding for any System to be installed at the Red Lion Site, Project Company has obtained all permits required (if any) under the Delaware Coastal Zone Act;

(v) Investor has received in form and substance reasonably satisfactory to Investor an executed copy of a wholesale market participation agreement among Project Company, DPL and PJM with respect to the Brookside Site;

(w) Investor has received, in form and substance reasonably satisfactory to Investor, an executed copy of an interconnection agreement between the Project Company and DPL with respect to the Brookside Site;

(x) Investor has received an executed copy of an amendment to the DDOT Site Lease, amending the term of such lease so that the term of such lease is at least 21 years commencing from the date of “commercial operation” (as defined in the QFCP-RC Tariff) of the last System to be installed at such Site;

(y) Investor has received an executed copy of the Gas Service Agreement between the Project Company and DPL required pursuant to the Gas Tariff; and

(z) Clean Technologies shall make a Capital Contribution to the Company in an amount equal to the CT Funding Amount prior to, or simultaneously with, the Subsequent Funding by Investor.

2.8 Conditions Precedent to the Obligations of Clean Technologies at Each Subsequent Funding . The obligation of Clean Technologies to consummate any Subsequent Funding will be subject to the fulfillment by Investor, on or before the applicable Subsequent Funding Date, of each of the following conditions (any or all of which may be waived in whole or in part by Clean Technologies in its sole discretion):

(a) confirmation that all conditions precedent in Sections 2.6 continue to be satisfied;

(b) each of the representations and warranties of Investor in Section 3.3 is (i) true and correct in all material respects as of such Funding Date, except to the extent that any such representation or warranty shall have been expressly made only as of an earlier date in which case such representation and warranty was true and correct in all material respects as of such earlier date or (ii) if and to the extent such representations and warranties are qualified by the words “material,” “Material Adverse Effect” or similar qualification, true and correct, as qualified, as of such Funding Date (or such earlier date, as applicable);

(c) Investor shall deliver to Clean Technologies a certificate from an authorized officer dated as of such Funding Date to the effect that the conditions set forth in Section 2.8(b) have been satisfied; and

(d) no breach exists under the Credit Suisse Guaranty, and the Credit Suisse Guaranty is in full force and effect.

 

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of Clean Technologies on the Execution Date and the Initial Funding Date . Clean Technologies represents and warrants lo Investor as of (i) the Execution Date (except with respect to clauses (e), (f), (i)(ii) and (k)(ii)of this Section 3.1), and (ii) the Initial Funding Date (except with respect to clauses (i)(i) and (k)(i) of this Section 3.1), in each case as follows:

(a) Organization, Good Standing, Etc. Each of Clean Technologies, the Company and the Project Company is a limited liability company duly formed, validly existing and in good standing under the laws of its state of formation. Bloom is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware. Each of Clean Technologies, the Company and the Project Company has the limited liability company power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof in each jurisdiction where the character of its property or nature of its activities makes such a qualification necessary. Bloom has the corporate power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof in each jurisdiction where the character of its property or nature of its activities makes such a qualification necessary. Each of Bloom, Clean Technologies, the Company and the Project Company has provided Investor with true and correct copies of its organizational documents.

(b) Authority . Each of Clean Technologies, the Company and the Project Company has the limited liability company power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby or thereby. Bloom has the corporate power and authority to enter into any Transaction Documents to which it is a party, to perform its obligations thereunder, and to consummate the transactions contemplated thereby. The execution and delivery by Clean Technologies, the Company and the Project Company of this Agreement and each other Transaction Document to which it is a party, and the consummation by each of them of the transactions contemplated hereunder and thereunder, have been duly authorized by all necessary limited liability company action required on their respective parts. The execution and delivery by Bloom of each Transaction Document to which it is a party, and the consummation by Bloom of the transactions contemplated thereunder, have been duly authorized by all necessary corporate action required on its part. Each of Bloom, Clean Technologies, the Company and the Project Company has duly executed and delivered each Transaction Document to which it is a party. This Agreement (assuming due authorization, execution and delivery by Investor) constitutes, and upon execution and delivery by Bloom, Clean Technologies, the Company and the Project Company of the other Transaction Documents to which it is respectively a party, the Transaction Documents will constitute, the valid and binding obligations of each of Bloom, Clean Technologies, the Company and the Project Company, respectively, enforceable against each of them in all material respects in accordance with their respective terms, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting enforcement of creditors’ rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

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(c) No Conflicts . The execution and delivery by Bloom, Clean Technologies, the Company and the Project Company, as applicable, of this Agreement and the other Transaction Documents to which it is a party do not, and the performance by each of Bloom, Clean Technologies, the Company and the Project Company of its obligations hereunder and thereunder will not, (i) violate or require any filing or notice (that has not been filed or made) under any Applicable Law applicable to Bloom, Clean Technologies, the Company or the Project Company, (ii) conflict with or cause a breach of any provision in the certificate of incorporation, bylaws or other organizational document of Bloom or the certificate of formation, limited liability company agreement or other organizational document of Clean Technologies, the Company or the Project Company, as applicable or (iii) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, license, instrument, decree, judgment or other arrangement to which Bloom (as to which making this representation after the Execution Date, any of the same would reasonably be expected to have a material adverse effect on Bloom’s ability to perform its obligations under the Transaction Documents to which it is a party), Clean Technologies, the Company or the Project Company is a party or under which any of them is bound or to which any of their assets are subject (or result in the imposition of a Lien, other than Permitted Liens, upon any such assets).

(d) Absence of Litigation . There are no pending proceedings challenging the REPS Act or the Tariffs in any respect material to the parties hereto or the transactions contemplated herein. Except as listed on Schedule 3.1(d) , none of Bloom, Clean Technologies, the Company or the Project Company is subject to any outstanding injunction, judgment, order, decree, ruling or charge, any pending action, litigation, suit, proceeding or investigation before or by any court, arbitrator or other Governmental Authority or, to the Knowledge of Clean Technologies, is threatened with being made a party to any action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator which making this representation after the Execution Date, would reasonably be expected to have a material adverse effect on such party’s ability to perform its obligations under the Transaction Documents to which it is a party. None of Bloom, Clean Technologies, the Company or the Project Company has received a notice of any change to either the REPS Act or the Tariffs and to the Knowledge of Clean Technologies there has been no change to the REPS Act or the Tariffs.

(e) Ownership . Clean Technologies owns of record and beneficially, 100% of the membership interests of the Company immediately prior to the Initial Funding Date and before giving effect to the transactions contemplated by this Agreement. The Company will own of record and beneficially 100% of the membership interests in the Project Company as of the Initial Funding Date. There are no outstanding options, warrants, calls, puts, convertible securities or other contracts of any nature obligating Clean Technologies, the Company or the Project Company to issue, deliver or sell membership interests or other securities in the Company or the Project Company except as provided herein. The membership interests in the Company and the Project Company are free and clear of all Liens, except (i) for covenants, restrictions and rights of first refusal as provided under the Company LLC Agreement or

 

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Permitted Encumbrances and (ii) in the case of the Class A Membership Interests, if any security interest has been granted with respect to the Class A Membership Interests by the Class A Member, such security interest complies with the requirements of Section 9.5(b) of the Company LLC Agreement. The Company has no subsidiaries other than the Project Company and the Project Company has no subsidiaries. Except as provided in this Agreement and the other Transaction Documents, no Person has or will have a right to acquire an ownership interest in the Systems or Portfolio (excluding electric energy and RECs) owned or to be acquired by the Project Company. The Project Company is not a party to or otherwise subject to any legal, regulatory, or contractual restriction (other than as set forth herein or in the Company LLC Agreement) restricting the ability of the Project Company to pay dividends or make similar distributions to the Company or other holders of its respective equity interests.

(f) Valid Interests . Upon execution and delivery by Investor and Clean Technologies of the Company LLC Agreement and on the Initial Funding Date, the Class B Membership Interests will constitute a membership interest in the Company, and are being issued free and clear of any Liens except for obligations imposed on members of the Company under the Company LLC Agreement.

(g) Taxes . Except as listed on Schedule 3.1(g) , each of the Company and the Project Company has filed, or caused to be filed on its behalf, all material Tax Returns required to be filed (after giving effect to any extensions that have been requested by, and granted to such party by, the applicable Governmental Authority) and has paid or caused to be paid on its behalf all material Taxes required to be paid by or with respect to the Company and the Project Company (other than those Taxes that it is contesting in good faith and by appropriate proceedings and for which adequate reserves have been set aside in accordance with GAAP). As of the Initial Funding Date, the amount of Taxes in the aggregate being contested by Clean Technologies, the Company and the Project Company is zero.

(h) Financial Statements . Included in Schedule 3.l(h) are unaudited .balance sheets of the Company and Project Company as of the Execution Date. Such balance sheets have been prepared in accordance with GAAP, and present fairly in all material respects the financial position of the Company or Project Company, as applicable, as of such date, subject to normal year-end audit adjustments and the absence of footnotes. From the date of their respective inceptions through the Execution Date, neither the Company nor the Project Company has had any income or losses. Each of the Company and the Project Company has no material liabilities or debts except those related to the development, construction, ownership or operation of the Systems and the Project Company (as applicable) which in the aggregate are zero as of the Execution Date.

(i) Compliance with Laws .

(i) As of the Execution Date, other than Environmental Laws (which are addressed in Section 3. l (k) ) and other than Tax matters (which are addressed in Section 3. l (g) ), each of the Company and the Project Company is in compliance with all Applicable Laws, and none of them has received written notice from a Governmental Authority of an actual or potential violation of any Applicable Laws.

(ii) As of the Initial Funding Date and each Subsequent Funding Date, other than non-compliance that would not reasonably be expected to have a Material Adverse Effect, other than Environmental Laws (which are addressed in Section 3.Hk)) and other than Tax matters (which are addressed in Section 3.l(g)), each of the Company and the Project Company is in compliance with all Applicable Laws, and none of them has received written notice from a Governmental Authority of an actual or potential violation of any Applicable Laws.

 

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(j) Governmental Approvals and Filings . No Governmental Approval of or filing with any Governmental Authority is required to be obtained or made by Bloom, Clean Technologies, the Company or the Project Company for the execution, delivery and performance by Bloom, Clean Technologies, the Company or the Project Company of any Transaction Document to which it is a party or the consummation of the transactions contemplated therein, other than (i) filings or approvals as set forth on Schedule 3.l(j) and (ii) any other Governmental Approval or filings that have been obtained or are ministerial in nature or can reasonably be expected to be obtained or made in the ordinary course on commercially reasonable terms and conditions when needed, and each such Governmental Approval that has been obtained and remains necessary is in full force and effect.

(k) Environmental Matters .

(i) As of the Execution Date, (i) each of the Company and the Project Company is and at all times has been in compliance with all Environmental Laws, other than as set forth on Schedule 3.1(k) , and (ii) none of Bloom, Clean Technologies, the Company or the Project Company has received written notice from any Governmental Authority of an actual or potential violation of, or liability under, any Environmental Laws.

(ii) As of the Initial Funding Date and each Subsequent Funding Date, (i) each of the Company and the Project Company is and at all times has been in compliance with all Environmental Laws, other than any failures to comply that would not reasonably be expected to have a Material Adverse Effect, and (ii) none of Bloom, Clean Technologies, the Company or the Project Company has received written notice from any Governmental Authority of an actual or potential violation of, or liability under, any Environmental Laws.

(l) Permits . Schedule 3.1(l) sets forth all material Government Approvals necessary for the construction, operation, ownership and maintenance of the Systems owned or to be acquired by the Project Company. There are no other Government Approvals necessary other than those that are ministerial in nature or can reasonably be expected to be obtained on commercially reasonable terms and conditions when needed.

(m) Insurance . Schedule 3.l(m) lists all of the insurance maintained by, or for the benefit of, the Project Company. None of Clean Technologies, the Company or the Project Company has taken any action that has rendered such insurance unenforceable.

(n) Real Property . The Company neither owns nor leases any real property. The Project Company owns no fee simple real property. Schedule 3.l(n) lists all Site Leases and easements or rights of way for transmission lines from the Site Leases to the Interconnection

 

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Point (or Delivery Point (as defined in the QFCP-RC Tariff), as applicable}with the PJM Grid and identifies any material reciprocal easement or operating agreements relating thereto. The Project Company has good and valid title to the leasehold estates in each Site, in each case free and clear of all Liens, except Permitted Liens. As of the Execution Date, the Project Company shall have, peaceful and undisturbed possession under all the Site Leases, such leases are valid and in full force and effect and binding and enforceable in accordance with their respective terms; and there is not, under any of such leases, any existing default, event of default or event which with notice or lapse of time or both would constitute a default. None of the rights of the Project Company under any of Site Leases will be subject to termination or modification as a result of the consummation of the transactions contemplated by this Agreement.

(o) Personal Property . The Company owns no personal property other than all of the-membership interests in the Project Company and the bank accounts set forth on Schedule 3.l(o) . Except as set forth on Schedule 3.l(o) , the Project Company does not own any material personal property other than the type of assets which the Project Company is expected to own or possess in order to perform under the Transaction Documents.

(p) Liens . All assets owned by the Company and by the Project Company are free and clear of all Liens, other than Permitted Liens, and except as shown on Schedule 3.l(p) .

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(q) Material Contracts . Schedule 3.l(g) lists all Material Contracts (other than the Transaction Documents) to which the Company or the Project Company is a party and each such Material Contract, and each Transaction Document, has not been amended, terminated or otherwise modified except as set forth on such schedule. Each Material Contract listed in Schedule 3.1(q) , and each Transaction Document, is in full force and effect and is binding on the Company or the Project Company, as applicable, and on the other parties thereto, except as enforceability may be limited by applicable bankruptcy and similar laws affecting the enforcement of creditors’ rights and general equitable principles. Except as shown on Schedule 3.l(g) , none of Bloom, the Company, the Project Company or, to the Knowledge of Clean Technologies, any applicable counterparty, is in default under any Material Contract or any Transaction Document.

(r) Employee Matters . Neither the Company nor the Project Company has any employees or has maintained, sponsored, administered or participated in any employee benefit plan or arrangement, including any employee benefit plan subject to ERISA.

(s) Affiliate Transactions . Except for the Transaction Documents and those documents listed on Schedule 3.1(s) , there are no existing contracts between the Company or the Project Company, on the one hand, and Clean Technologies or any Affiliate of Clean Technologies, on the other hand. Neither the Company nor the Project Company has any outstanding debt to an Affiliate thereof, other than with respect to the amounts owed for Systems purchased under the MESPA.

(t) Tax Character . The Project Company is, and since its respective date of formation has been, a “disregarded entity” for federal and other applicable income tax purposes.

 

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Immediately prior to the Initial Funding only, the Company is a “disregarded entity” for federal and other applicable income tax purposes. Immediately prior to the Initial Funding, Clean Technologies is a “disregarded entity” for federal and other applicable income tax purposes that is wholly-owned by Bloom, which is a corporation for federal and other applicable income tax purposes. No elections have been filed with the IRS to treat Clean Technologies, the Company or the Project Company as an association. No private letter ruling will be obtained for the transactions contemplated hereunder from the IRS.

(u) FPA . As of the Execution Date and prior to receiving MBR Authority, the Project Company is not subject to regulation as a “public utility” under the FPA. As of the date on which FERC issues an order granting the Project Company MBR Authority, Project Company will be subject to regulation as a “public utility” under the FPA.

(v) PUHCA .

(i) At the time that the Systems commence the generation of electric energy for sale, the Company will be a “holding company” under PUHCA and FERC’s regulations thereunder solely with respect to its ownership of the Project Company, and will not be subject to, or will be exempt from, the accounting, record retention and reporting requirements of FERC’s regulations under PUHCA.

(ii) The Project Company is not, and, following the commencement of the generation of electric energy for sale by the Systems, will not be a “holding company” under PUHCA and FERC’s regulations thereunder, and the Project Company is not, and, following the commencement of the generation of electric energy for sale by the Systems, will not be subject to regulation under PUHCA except with respect to regulations applicable to Exempt Wholesale Generators.

(w) State Utility Regulation . Neither the Company nor the Project Company is subject to regulation as a “retail electricity supplier,” an “electric supplier” or a “public utility” under the laws of the State of Delaware.

(x) Acknowledgement . Clean Technologies, the Company and the Project Company, acknowledge that, except with respect to the representations and warranties expressly made by Investor in this Agreement and the Transaction Documents, Investor has not made any representations or warranties, either express or implied, under this Agreement or any of the other Transaction Documents or otherwise, nor has any of Clean Technologies, the Company or the Project Company relied on any representation or warranty not expressly made in this Agreement or the Transaction Documents.

(y) Intellectual Property . Bloom has full legal title and ownership or right to use, the patents, patent rights, other patent applications, permits, licenses, trade secrets, trademarks, trademark rights, service marks, trade names or trade name rights or franchises, domain names, copyrights, inventions and intellectual property rights (the “ IP Rights ”) necessary to conduct its Systems-related business as now operated and the business proposed to be operated in connection with the Transaction Documents. Bloom has full legal title and ownership of the patents and patent applications listed on Schedule 3.1(y) . Schedule 3.l(y)

 

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contains a complete list of patents and pending and provisional patent applications of Bloom. Neither Clean Technologies nor Bloom has any reason to believe, and neither Bloom nor any of its Affiliates has received any notice (which is material to Bloom’s or its Affiliates’ ability to perform their obligations under the Transaction Documents) that the conduct of its Systems-related business as now operated and the business proposed to be operated in connection with the Transaction Documents conflicts with, violates, infringes upon or misappropriates, or will conflict with, infringe upon or misappropriate, the valid IP Rights of any other Person. Except for the agreements listed in Schedule 3.l(y) , Bloom has not entered into any new license agreements or other agreements whereby it has transferred, assigned or encumbered any part of its IP Rights or any IP Rights received from third parties, since July 9, 2010. Bloom has not entered into any new government contracts concerning IP Rights, or provided any proposals to any Governmental Authority (including; without limitation, the U.S. Department of Defense) concerning IP Rights, since July 9, 2010.

(z) Disclosure . None of the statements, documents, certificates or other items prepared or supplied by Bloom, Clean Technologies, the Company, the Project Company or any of their Affiliates with respect to the transactions contemplated hereby, taken as a whole, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances under which such statements were made.

(aa) Disqualified Person . Assuming Investor is not a Disqualified Person, neither Clean Technologies, the Company nor the Project Company is a Disqualified Person.

(bb) Systems . As of the date on which a System is delivered to the Project Company under the MESPA, none of the following activities has been completed with respect to such System: (1) obtaining the necessary licenses and permits for the operation of the System and sale of power generated by the System, (2) completion of critical tests necessary for proper operation of such System, (3) synchronization of such System onto the electric distribution and transmission system of the relevant utility, and (4) the commencement of daily operation of such System.

(cc) Separateness . The Company and the Project Company have at all times and in all respects been maintained as separate and distinct entities.

(dd) IE Report . All of the statements, documents, certificates, information or other items provided by Bloom, Clean Technologies, the Company, the Project Company or any of their Affiliates to the Independent Engineer in connection with the preparation of the Independent Engineer Report are true and accurate in all material respects and do not omit to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances under which such statements were made.

(ee) Grant Safe Harbor . Each portion of the Project for which a Grant application will be filed will contain equipment or Systems purchased pursuant to the bill of sale and agreement between Bloom and the Project Company effective as of December 30, 2011 in an amount equal to at least 5% of the estimated total cost of such portion of the Project.

 

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(ff) Systems Requirements . (i) None of the Systems has been Placed in Service and (ii) the Systems to be purchased with proceeds of the Initial Funding Payment meet the requirements of Section 48 of the Code including that (A) each System has an electricity-only generation efficiency greater than 30 percent, (B) the Grant or any Alternative Tax Program (if elected pursuant to Section 7.5(b)(i) of the Company LLC Agreement) with respect to each System is not expected to be limited by Section 48(c)(l)(B); but if the Grant or any Alternative Tax Program is so limited, such limitation has been accounted for in computing the amount of Investor’s Capital Contribution as described in Section 2.2 hereof; and (C) each System is a “fuel cell power plant” within the meaning of Section 48(c)(l) of the Code.

(gg) Letter Agreement . Bloom is in compliance with the Letter Agreement (including, if so required by the State of Delaware, posting the security referred to in the Letter Agreement upon or prior to the Commencement of Operation of the first System).

(hh) Red Lion Site . There are no impediments that are reasonably likely to have a material adverse effect on the ability of any party hereto to establish transmission, interconnection and delivery of the Red Lion Site Systems’ Energy to the PJM Grid by the Guaranteed Initial Delivery Date.

3.2 Representations and Warranties of Clean Technologies on each Subsequent Funding Date . Clean Technologies (i) makes each of the representations and warranties in Section 3.1 (except for those provided in clauses (e), (f) and (ff)) to Investor as of, and shall deliver any updates to the Schedules in connection therewith at least five (5) days prior to each Subsequent Funding Date; provided that no representation in Section 3.1(y) shall be made on any Subsequent Funding Date with respect to the Systems-related business “as now operated” or as to any matter described on Schedule 3.1(y) and (ii) represents and warrants to Investor as of each Subsequent Funding Date as follows:

(a) Commencement of Operations . For any Systems for which Subsequent Funding Payments are sought to pay the 75% Progress Payments for such Systems, such Systems have achieved Commencement of Operations (as defined in the MESPA); and

(b) System Requirements . (i) Solely with respect to the portion of any Subsequent Funding Payment used to pay any 25% Progress Payments, none of the Systems to be purchased with the proceeds of such Subsequent Funding Payment has been Placed in Service, (ii) solely with respect to the portion of any Subsequent Funding Payment used to pay any 75% Progress Payments, the Systems to be purchased with the proceeds of such Subsequent Funding Payment have achieved Commencement of Operations (as defined in the MESPA) and (iii) that the Systems to be purchased with proceeds of the Subsequent Funding Payment meet the requirements of Section 48 of the Code including that (A) each System has an electricity-only generation efficiency greater than 30 percent, (B) the Grant or any Alternative Tax Program (if elected pursuant to Section 7.5(b)(i) of the Company LLC Agreement) with respect to each System is not expected to be limited by Section 48(c)(l )(B), but if the Grant or any Alternative Tax Program is so limited, such limitation has been accounted for in computing the amount of Investor’s Capital Contribution as described in Section 2.2 hereof; and (C) each System, is a “fuel cell power plant” within the meaning of Section 48(c)(l) of the Code.

 

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3.3 Representations and Warranties of Investor on the Execution Date and the Initial Funding Date . Investor represents and warrants to Clean Technologies on the Execution Date and the Initial Funding Date as follows:

(a) Organization, Good Standing, Etc. It is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has the corporate power and authority to own, lease and operate its properties and to carry on its business as being conducted on the date hereof in each jurisdiction where the character of its property or nature of its activities makes such a qualification necessary.

(b) Authority . It has the requisite power and authority to enter into the Transaction Documents to which it is a party, to perform its obligations under such agreements, and to consummate the transactions contemplated therein. The execution and delivery by it of each Transaction Document to which it is a party, and the consummation by it of the transactions contemplated thereunder, have been duly authorized by all necessary company action. Each such Transaction Document has been duly executed and delivered by it. This Agreement (assuming due authorization, execution and delivery by Clean Technologies, the Company and the Project Company) constitutes, and upon execution and delivery by Investor of the other Transaction Documents to which it is a party, the Transaction Documents will constitute, the valid and binding obligations of Investor, enforceable against it in accordance with their respective terms, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting enforcement of creditors’ rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

(c) No Conflicts . The execution and delivery by Investor of the Transaction Documents to which it is a party do not, and the performance by it of its obligations under such agreements will not, (i) violate any Applicable Law, (ii) conflict with or cause a breach of any provision in the charter, bylaws or other organizational document of Investor, (iii) cause a breach of, constitute a default under, cause the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any authorization, consent, waiver or approval under any contract, license, instrument, decree, judgment or other arrangement to which Investor is a party or under which it is bound or to which any of its assets is subject (or result in the imposition of a Lien upon any such assets), except (in the case of clause (i) and (iii) of this Section 3.3(c) ) for any that would not reasonably be expected to have a material adverse effect on the ability of Investor to execute and deliver and perform its obligations under the Transaction Documents to which it is a party.

(d) Absence of Litigation . It is not subject to any outstanding injunction, judgment, order, decree, ruling or charge or, to Investor’s knowledge, is not threatened with being made a party to any action, suit, proceeding, hearing or investigation of, in, or before any Governmental Authority or before any arbitrator that would adversely affect its ability to complete the transactions contemplated in the Transaction Documents to which it is a party.

(e) Accredited Investor . It is an “Accredited Investor” as such term is defined in Regulation D under the Securities Act of 1933, as amended (the “ Securities Act ”). It has had a reasonable opportunity to ask questions of and receive answers from Clean Technologies and its

 

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Affiliates concerning Clean Technologies, the Class B Membership Interests, the Company and the Project Company. Investor understands that the Class B Membership Interests have not been registered under the Securities Act in reliance on an exemption therefrom, and that Clean Technologies is under no obligation to register the membership interests. Investor will not sell, hypothecate or otherwise transfer the membership interests without registering or qualifying them under the Securities Act and applicable state securities laws or any other Applicable Laws unless the transfer is exempted from registration or qualification under such laws. Investor is acquiring the Class B Membership Interests for its own account and not for the account of any other Person and not with a view to distribution or resale to others.

(f) Information and Investment Intent . Investor recognizes that investment in the Class B Membership Interests involves substantial risks. It acknowledges that any financial projections that may have been provided to it are based on assumptions of future operating results based on assumptions about certain events (many of which are beyond the control of Clean Technologies, the Company or the Project Company). It understands that no assurances or representations can be given that the actual results of the operations of Clean Technologies, the Company or the Project Company will conform to the projected results for any period. Investor has relied solely on its own legal, tax and financial advisers for its evaluation of an investment in the Class B Membership Interests and not on the advice of Clean Technologies, the Company or the Project Company or any of their respective legal, tax or financial advisers.

(g) Acknowledgement . Except with respect to the representations and warranties expressly made by Clean Technologies, the Company or the Project Company in this Agreement or the other Transaction Documents, Investor acknowledges that none of Clean Technologies, the Company or the Project Company has made any representation or warranty, nor has Investor relied on any representation or warranty, with respect to Investor’s, the Company’s or the Project Company’s eligibility to claim tax credits or receive the Grant, RECs or other environmental attributes, the depreciation allowances for the Systems, whether the Systems qualify for tax credits or the Grant, or the eligibility of any Member to receive an allocation of such benefits from the Company, and Investor agrees that it will not bring any claim against Clean Technologies, the Company or the Project Company relating to Investor’s, the Company’s or the Project Company’s eligibility to claim tax credits or receive the Grant (except in connection with a breach by Clean Technologies, the Class A Member, the Managing Member, the Company or the Project Company of this Agreement or of its respective obligations under the Company LLC Agreement or the Project Company LLC Agreement that prevent eligibility for the Grant), RECs or other environmental attributes. Investor specifically acknowledges that, except with respect to the representations and warranties expressly made by Clean Technologies, the Company or the Project Company in this Agreement or the Transaction Documents, no representation or warranty has been made, and that Investor has not relied on any representation or warranty about the accuracy of any projections, estimates or budgets, future revenues, future results from operations, future cash flows, the future condition of the Systems or any assets of the Project Company, the future financial condition of the Project Company.

(h) PUHCA . It either is not a holding company under PUHCA or, if it is a holding company, is exempt from FERC access to books and records regulation pursuant to Section 366.3(a) of FERC’s regulations under PUHCA.

 

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(i) FPA . It is not a “public utility” under the FPA, and does not have any non- passive ownership interests in any entity that owns or controls electricity generation or transmission facilities in the U.S.

(j) Disqualified Person . It is not a Disqualified Person.

3.4 Representations and Warranties of Investor on each Subsequent Funding Date . Investor makes each of the representations and warranties in Section 3.3 to Clean Technologies on and as of each Subsequent Funding Date.

ARTICLE 4

CERTAIN COVENANTS

4.1 Confidentiality . The confidentiality provisions contained in the Letter of Intent dated September 14, 2011 among Bloom, Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. shall remain in effect until the Initial Funding Date (other than with respect to any obligations of HSBC Securities (USA) Inc. which shall not be affected hereby), if it occurs, and, thereafter, the provisions of Section 11.12 of the Company LLC Agreement shall apply with respect to the confidentiality obligations of the Parties. If the Initial Funding Date does not occur, the confidentiality provisions contained in the Letter of Intent dated September 14, 2011 among Bloom, Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. shall remain in effect in accordance with its terms.

4.2 Access to Information . From the date hereof and continuing until the earlier of the termination of this Agreement or the Initial Funding Date, Clean Technologies, on not less than three Business Days prior written notice by Investor to Clean Technologies, will (i) give Investor’s counsel, financial advisors, auditors and other authorized representatives reasonable access during normal business hours to the offices, properties, employees and personnel, books and records of the Company and the Project Company and (ii) furnish to Investor’s counsel , financial advisors, auditors, and other authorized representatives such financial and operating data and other information as such persons may reasonably request, and (iii) instruct Clean Technologies’ employees to cooperate with Investor in an investigation of the business of the Company and the Project Company, it being acknowledged and agreed that Investor shall use good faith efforts to coordinate the processes described in the foregoing clauses (i), (ii) and (iii). All information supplied to Investor pursuant to this Section 4.2 shall be held in confidence by Investor, its counsel, financial advisors, auditors and other authorized representatives in accordance with the provisions of Section 4.1 .

4.3 Regulatory Matters . From the date hereof and continuing until the earlier of the termination of this Agreement and the Initial Funding Date, or to the extent relating to Subsequent Funding, the Subsequent Funding Date:

(a) In connection with the transactions contemplated by this Agreement , Clean Technologies shall cause the Company to cause the Project Company to file (i) any application required to be filed by it with FERC pursuant to Section 203 of the FPA, (ii) any applications, reports or other filings required under any state or local Applicable Laws relating to the ownership and control of the Systems by the Project Company, and (iii) any further filings that may be necessary, proper or advisable in connection with the matters referred to in clauses (i) and (ii) above. Each of Clean Technologies and Mehetia shall make their respective required filings under any other Applicable Laws.

 

 

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(b) In connection with the transactions contemplated by this Agreement, Clean Technologies and Investor shall, and shall cause their respective Subsidiaries to: (i) cooperate with each other in connection with the making of all filings, notifications and any other material actions pursuant to this Section 4.3 , including, subject to Applicable Laws, 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 or the Company LLC Agreement; (ii) 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; and (iii) use their commercially reasonable efforts to cause the conditions to the Initial Funding in Section 2.5 (in the case of Clean Technologies) and Section 2.6 (in the case of Investor) to be satisfied and, if applicable, to cause the conditions to each Subsequent Funding in Section 2.7 (in the case of Clean Technologies) and Section 2.8 (in the case of Investor) to be satisfied.

(c) Clean Technologies shall cause the Company to cause the Project Company to file a Notice of Exempt Wholesale Generator Status prior to the installation of the first System.

(d) Nothing in this section shall (i) limit Investor’s or Clean Technologies’ right to terminate this Agreement pursuant to Section 5.1(a) so long as such Party has complied in all material respects with its obligations under this section, or (ii) require any Party to amend this Agreement or to waive or forbear from exercising any of its rights or remedies under this Agreement.

4.4 System Manufacturing . Clean Technologies shall promptly inform Investor if it or Bloom becomes aware of any substantive reason why the manufacturing of Systems in accordance with the Tariffs shall not commence, or if commenced, shall cease before 20 MW of Systems for the Project are manufactured and shipped from such Delaware facility.

4.5 Site Preparation Costs . Clean Technologies shall cause all Site Preparation Costs (as defined in the QFCP-RC Tariff) to be funded by Persons other than Investor.

ARTICLE 5

TERMINATION

5.1 Termination . Without limiting Clean Technologies’ or Investor’s ability to exercise any right or remedy to which it is entitled hereunder or under any of the Transaction Documents, this Agreement shall be terminated (in the case of clause (a)) and may be terminated (in the case of clause (b) prior to the Initial Funding Date):

(a) without further action by Clean Technologies or Investor, if the Initial Funding has not been consummated by the close of business on the Initial Funding Termination Date;

 

25


(b) by the mutual written consent of Clean Technologies and Investor;

(c) by Investor, at any time prior to the Initial Funding Date, by written notice to Clean Technologies, if Bloom or any of its Subsidiaries becomes subject to a Bankruptcy;

(d) by Clean Technologies, at any time prior to the Initial Funding Date, by written notice to Investor, if Investor or Credit Suisse Guarantor becomes subject to a Bankruptcy; or

(e) by Investor on the one hand, or by Clean Technologies on the other hand, upon a material breach of this Agreement by the other party, provided that the non-breaching party provides notice to the breaching party setting forth the details of such breach and the breaching party fails to cure the alleged breach within 30 days after receipt of such notice.

5.2 Procedure and Effect of Termination . If this Agreement is terminated pursuant to Section 5.1 , then this Agreement shall become void and of no effect with no liability on the part of any Party, except that (i) the agreements contained in Section 4.1 , this Section 5.2 , Article 7 and the Confidentiality Agreement shall survive the termination and (ii) no such termination shall relieve any Party of any liability or damages resulting from any breach by that Party of this Agreement or affect the rights of the other Party to indemnification for such breach pursuant to Article 6 of this Agreement (which shall survive termination hereof in the case of any breach).

ARTICLE 6

INDEMNIFICATION

6.1 Indemnification .

(a) Clean Technologies agrees to indemnify, defend and hold harmless the Investor Indemnified Parties from and against any and all Investor Indemnified Costs arising out of or relating to this Agreement; provided , however , except with respect to Investor Indemnified Costs (t) resulting from fraud or willful misconduct, (u) resulting from failure to pay any amount due to Investor Indemnified Parties under the Transaction Documents, (v) resulting from a Third Party Claim, (w) resulting from the failure to enforce a Material Contract with an Affiliate of the Indemnifying Party, (x) resulting from Project Company (or any of the Systems) not qualifying for (or becoming disqualified under) the REPS Act or the Tariffs as a result of any act or omission by Bloom or any Affiliate of Bloom (including, without limitation, (i) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 5 MW of Systems by March 31, 2013 (unless such date has been extended in accordance with the QFCP-RC Tariff), (ii) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 30 MW of Systems, of which at least 20 MW of Systems were actually manufactured by Bloom in the State of Delaware by September 30, 2014 (unless such date has been extended in accordance with the QFCP-RC Tariff), (iii) Bloom failing to be manufacturing fuel cells capable of being powered by renewable fuels from a permanent manufacturing facility located in the State of Delaware as of the date of Commencement of Operations (as defined in the MESPA) of the full

 

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nameplate capacity of the Portfolio, or (iv) any of the acts or omissions set forth in Section 4.3 of the MESPA), (y) resulting from Bloom failing to be in compliance with the Letter Agreement (including, if so required by the State of Delaware, posting the security referred to in the Letter Agreement upon or prior to the Commencement of Operation of the first System) or (z) resulting from any surcharges pursuant to the Tariffs being deemed a tax under Delaware law, in no event will Clean Technologies’ aggregate obligation (including any prior indemnity payments by Clean Technologies under this Agreement or under the Company LLC Agreement) to indemnify the Indemnified Parties hereunder exceed one hundred percent (100%) of the sum of the Funding Payments of Investor made to date.

(b) Investor agrees to indemnify, defend and hold harmless the Clean Technologies Indemnified Parties from and against any and all Clean Technologies Indemnified Costs arising out of or relating to this Agreement; provided , however , except with respect to Clean Technologies Indemnified Costs (w) resulting from fraud or willful misconduct, (x) resulting from failure to pay any amount due to Clean Technologies Indemnified Parties under the Transaction Documents, (y) resulting from a Third Party Claim or (z) resulting from the failure to enforce a Material Contract with an Affiliate of the Indemnifying Party, in no event will Investor’s aggregate obligation (including any prior indemnity payments by Investor under this Agreement or under the Company LLC Agreement) to indemnify the Clean Technologies Indemnified Parties hereunder exceed one hundred percent (100%) of the sum of the Funding Payments of Investor made to date.

(c) 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 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 $175,000 and once such threshold amount of claim has been reached, the relevant Indemnified Party and its Affiliates shall have the right to be indemnified only to the extent the amount of Indemnified Costs claimed exceed such threshold amount. 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.

6.2 Direct Claims . In any case in which an Indemnified Party seeks indemnification under Section 6.1 that is not subject to Section 6.3 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 6 . The failure of the Indemnified Party to exercise promptness in such notification shall riot amount to a waiver of such claim, except for the extent the resulting delay materially and adversely prejudices the position of the Indemnifying Party with respect to such claim.

6.3 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 6.1 . 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 6 , except to the extent the failure to give such

 

27


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 6.3, 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 other than reasonable costs of investigation or defending such portion of such Third Party Penalty Claim; provided nothing contained herein shalt permit Clean Technologies to control or participate in any Tax contest or dispute involving Investor or any Affiliate of Investor, or permit Investor to control or participate in any Tax contest or dispute involving any Affiliate of Clean Technologies other than the Company and the Project Company; and, provided , further , the Parties agree that the handling of any Tax contests involving the Company will be governed by Section 7.7 of the Company LLC Agreement. 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, 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 ,

 

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however , that the Indemnifying Party shall not unreasonably withhold, delay or condition any such consent. Notwithstanding anything in this Section 6.3 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.

6.4 No Duplication . Any liability for indemnification under this Article 6 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 6.1 , only one recovery of Indemnified Costs per Indemnified Party shall be allowed.

6.5 Sole Remedy . Except in the case of fraud, willful misconduct or failure to pay, and except for claims brought under Section 6.6 , Section 6.7 , Section 6.8 , Section 6.9 or Section 9.12 of the Company LLC Agreement, the enforcement of the claims of the Parties under this Article 6 are the sole and exclusive remedies that a Party shall have under this Agreement or any other Transaction Document for the recovery of Indemnified Costs; provided, however, that notwithstanding anything to the contrary in this Agreement, each Party hereby reserves all equitable remedies.

6.6 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 shall survive until the final date for any assertion of claims as forth in Section 6.7 , if and as applicable, or as otherwise provided in the Transaction Documents.

6.7 Final Date for Assertion of Indemnity Claims . All claims by an Indemnified Party for indemnification pursuant to this Article 6 resulting from breaches of representations or warranties in (i)  Section 3.1 and Section 3.3 shall be forever barred unless the other party is notified within eighteen (18) months after the earlier to occur of the Initial Funding Date and the Initial Funding Termination Date, and (ii)  Section 3.2 or Section 3.4 shall be forever barred unless the other party is notified within eighteen (18) months after the Subsequent Funding Date on which such representation or warranty was made; provided , that notwithstanding the foregoing, the representations in Section 3.l(g) , Section 3.l(t) , Section 3.l(aa) , Section 3.1(bb) , Section 3.l(ee) and Section 3.1(ff) (and the corresponding representations made in Section 3.2), shall survive until that date which is 60 days after the applicable statute of limitations expires and the representations in Section 3.l(a) , Section 3.1(b) , Section 3.1(e) and Section 3.1(f) (and the corresponding representations made in Section 3.2 ), shall survive forever; and provided further 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 respective foregoing period, then the obligation of the other party to indemnify such Indemnified Party pursuant to this Article 6 shall survive with respect to such claim until such claim is finally resolved.

 

29


6.8 Mitigation and Limitations on Indemnified Costs . Notwithstanding anything to the contrary contained herein:

(a) 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.

(b) Net of Insurance Benefits . All Indemnified Costs shall be net of insurance recoveries from insurance policies of the Project 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 Project Company in connection therewith, are distributed by the Project Company to the Company and are in tum 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.

(c) 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 Project 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 6.8(c) 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 Project Company, the Company, or both.

6.9 Payment of Indemnification Claims . All claims for indemnification shall be paid by 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.

 

30


6.10 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 6.10 will be construed to require any Party to obtain or maintain any insurance coverage.

ARTICLE 7

GENERAL PROVISIONS

7.1 Exhibits and Schedules . All Exhibits and Schedules are incorporated herein by reference.

7.2 Disclosure Schedules . Any matter disclosed in any section of the Schedules shall be deemed disclosed for all purposes and all sections of the Schedules to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections. At any time prior to a Funding, Clean Technologies may supplement or amend a Schedule to this Agreement solely with respect to such Funding by providing such supplement or amendment to Investor at least five (5) days prior to such Funding, it being understood that should, in the opinion of Investor, any such supplement or amendment to a Schedule to this Agreement be deemed to materially adversely affect the Company, the Project Company or Investor’s investment in the Company, Investor shall have the right to withhold its Subsequent Funding Payment; provided that if Investor goes ahead and makes the Subsequent Funding Payment, the representations and warranties subject to such Schedule shall be deemed to be qualified by such Schedule as so supplemented or amended as it relates to such Subsequent Funding but not any future Subsequent Fundings.

7.3 Amendment, Modification and Waiver . This Agreement may not be amended or modified except by an instrument in writing signed by each of the Parties to this Agreement. Any failure of Clean Technologies to comply with any obligation, covenant, agreement, or condition contained herein may be waived only if set forth in an instrument in writing signed by Investor, and any failure of Investor to comply with any obligation, covenant, agreement or

 

31


condition contained herein may be waived only if set forth in an instrument in writing signed by Clean Technologies, but any such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any other failure.

7.4 Severability . If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Applicable 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 herein are not affected in any manner materially adverse to any Party.

7.5 Expenses . Clean Technologies and Mehetia will be responsible for paying all of their own respective reasonable legal and consultants’ costs, fees and expenses incurred by itself and its Affiliates in connection with the transactions contemplated by this Agreement and the other Transaction Documents in connection with the execution thereof and any Funding.

7.6 Parties in Interest . This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each Party and their successors and assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other Person (other than the Investor Indemnified Parties as provided in Article 6) any rights or remedies of any nature whatsoever under or by reason of this Agreement.

7.7 Notices . All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by a nationally recognized overnight courier, by facsimile, or mailed by registered or certified mail (return receipt requested) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

  (a) If to Clean Technologies, to:

Clean Technologies II, LLC

c/o Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, CA 94089-1137

Attention: [***]

Telephone: [***]

Facsimile: [***]

 

  (b) If to the Company, to:

Diamond State Generation Holdings, LLC

c/o Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, CA 94089-1137

Attention: [***]

Telephone: [***]

Facsimile: [***]

 

[***] Confidential Treatment Requested

 

32


  (c) If to Project Company, to:

Diamond State Generation Partners, LLC

c/o Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, CA 94089-1137

Attention: [***]

Telephone: [***]

Facsimile: [***]

 

  (d) If to Mehetia, to:

Mehetia Inc.

Eleven Madison Avenue

New York, NY 10010

Attention: [***]

Telephone: [***]

Facsimile: [***]

with a copy to:

Credit Suisse Securities (USA) LLC

One Madison Avenue

New York, NY 10010

Attention: [***]

Telephone: [***]

Facsimile: [***]

and with a copy, which will not constitute notice, to:

McDermott Will & Emery LLP

340 Madison Avenue

New York, NY 10173

Attention: [***]

Telephone: [***]

Facsimile: [***]

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 listed in this Section 7.7 or at such other address as any Member hereafter may designate lo the others in accordance with a Notice under this Section 7.7 . 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 Business Day

 

[***] Confidential Treatment Requested

 

33


following its deposit in registered or certified mail, with postage prepaid, and return receipt requested, (iii) the second Business Day following its deposit with a recognized overnight courier service, (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.

7.8 Counterparts . This Agreement may be executed and delivered (including by facsimile transmission or “portable document format”) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that all Parties need not sign the same counterpart. Signatures of the Parties transmitted by facsimile or electronic mail shall be deemed to be their original signatures for all purposes.

7.9 Entire Agreement . This Agreement (together with the other Transaction Documents) constitutes the. entire agreement of the Parties and supersedes all prior agreements, letters of intent and understandings, both written and oral, among the Parties with respect to the subject matter hereof.

7.10 Governing Law; Choice of Forum; Waiver of Jury Trial . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS THEY APPLY TO CONTRACTS PERFORMED IN THAT STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL APPLY TO THIS AGREEMENT). THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSNE JURISDICTION OF ANY STATE OR FEDERAL COURT IN NEW YORK COUNTY, NEW YORK WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WANES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING RELATING TO A DISPUTE AND FOR ANY COUNTERCLAIM WITH RESPECT THERETO.

7.11 Public Announcements . Except for statements made or press releases issued (i) pursuant to the Securities Act or the Securities Exchange Act of 1934, (ii) pursuant to any listing agreement with any national securities exchange or the Financial Industry Regulatory Authority, Inc., or other regulatory authority or self-regulatory authority, or (iii) as otherwise required by Applicable Law, neither Clean Technologies nor Investor shall issue, or permit any of their respective Affiliates to issue, any press release or otherwise make any public statements with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other Parties. Subject to any requirements of Applicable Law, Clean Technologies and Investor will be given the opportunity to review in advance, upon the request of Clean Technologies or Investor, as the case may be’, all information relating to the transactions contemplated by the Transaction Documents that appear in any filing made in connection with the transactions contemplated hereby or thereby, other than any filing to be made by Investor to a regulator thereof.

 

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7.12 Assignment . This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. This Agreement may only be assigned to the same extent (and only by and to the same Persons) that membership interests in the Company are assignable pursuant to the terms of the Company LLC Agreement. Any attempted assignment of this Agreement other than in strict accordance with this section and the terms of the Company LLC Agreement shall be null and void ab initio and of no force or effect.

7.13 Relationship of Parties . This Agreement does not constitute a joint venture, association or partnership among the Parties. No express or implied term, provision or condition of this Agreement shall create, or shall be deemed to create, an agency, joint venture, partnership or any fiduciary relationship among the Parties.

[Remainder of page intentionally left blank. Signature pages to follow.]

 

35


IN WITNESS WHEREOF, each Party has caused this Equity Capital Contribution Agreement to be signed on its behalf as of the date first written above.

 

CLEAN TECHNOLOGIES II, LLC
By:  

 

Name:  
Title:  

 

[ Signature Page to the Equity Capital Contribution Agreement ]


DIAMOND STATE GENERATION PARTNERS, LLC
By:  

 

Name:  
Title:  

 

[ Signature Page to the Equity Capital Contribution Agreement ]


DIAMOND STATE GENERATION HOLDINGS, LLC
By:  

 

Name:  
Title:  

 

[ Signature Page to the Equity Capital Contribution Agreement ]


MEHETIA INC.
By:  

 

Name:  
Title:  

 

[ Signature Page to the Equity Capital Contribution Agreement ]


ANNEX 1 TO ECCA

AND COMPANY LLC AGREEMENT DEFINITIONS

1940 Investment Company Act ” means the Investment Company Act of 1940, as amended.

25% Progress Payment ” means, for any System, the initial payment by Project Company of 25% of the purchase price for such System as contemplated by the MESPA.

75% Progress Payment ” means, for any System, the final payment by Project Company of 75% of the purchase price for such System as contemplated by the MESPA.

Acceptable Credit Party ” means a commercial bank or other financial institution which maintains an office or corresponding office in the United States, whose long-term unsecured debt is rated “A-” or higher by S&P and “A3” or higher by Moody’s and which has a tangible net worth of at least $1,000,000,000.

Accountant’s Certificate ” means the independent accountant’s certification attesting to accuracy of all costs as required pursuant to the Guidance.

Accounting Firm ” means any of Deloitte Touche Tohmatsu, Ernst & Young, KPMG International, PricewaterhouseCoopers or any nationally-recognized Affiliate thereof, chosen by the Tax Matters Partner or otherwise reasonably approved by Class Majority Vote.

Act ” means the Delaware Limited Liability Company Act, Delaware Code Ann. 6, Sections 18-101, et seq. and any successor statute, as the same may be amended from time to time.

Adjusted Capital Account ” means the Capital Account of a Member (a) increased by the amount of potential deficit that the Member is deemed obligated to restore, calculated as described in the last sentence of Treasury Regulation Section l.704-2(g)(l) and the last sentence of Treasury Regulation Section l.704-2(i)(5), and (b) decreased by expected items described in Treasury Regulation Section l.704-l (b)(2)(ii)(d)(4), (5) and (6).

Administrative Services Agreement ” means the Administrative Services Agreement, dated as of the Initial Funding Date, among the Company, the Project Company and Bloom in the form attached as Exhibit C to the ECCA.

Administrator ” means Bloom or any replacement administrator under a Administrative Services Agreement. The Administrator is a “manager” of the Company within the meaning of the Act.

Affiliate ” means, with respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For purposes of this definition, the term “control” (and correlative terms) means (l) the ownership of 50% or more of the equity interest i11 a Person, or (2) the power, whether by contract, equity ownership or otherwise, to direct or cause the direction of the policies or management of a Person. The Company shall be deemed to

 

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be an Affiliate of Clean Technologies prior to the Initial Funding (for purposes of representations and warranties), but shall not be deemed to be an Affiliate of any Member from and after the Initial Funding.

Agreement ” means the Company LLC Agreement if used in the Company LLC Agreement or the ECCA if used in the ECCA.

Alternative Tax Program ” means, if the Grant is unavailable, any successor cash grant, cash-based subsidy, tax refund or refundable credit program or, if none of the foregoing is available, the ITC.

Annual Budget ” is defined in Section 7.l(b) of the Company LLC Agreement.

Applicable Laws ” means all laws (including common law), constitutions, statutes, rules, regulations, ordinances, judgments, settlements, orders, decrees, injunctions, and writs of any Governmental Authority, in each case, having jurisdiction over Bloom, Clean Technologies, Mehetia, Credit Suisse Guarantor, the Administrator, the Company, the Project Company or the Systems, as applicable.

Appraisal Method ” means one appraiser shall be appointed by the holders of a majority of the Class A Membership Interests and one appraiser shall be appointed by the holders of a majority of the Class B Membership Interests, in each case, within fifteen (15) days of invocation of this procedure, which appraisers shall attempt to agree upon the fair market value of the Class B Membership Interests. If either holders of the Class A Membership Interests or holders of the Class B Membership Interests do not appoint their respective appraiser within five (5) days after the end of such fifteen ( 15) day period, the determination of the appraiser appointed by the other Person (if so appointed within such period) shall be conclusive and binding on the Members. If the appraisers appointed by the holders of Class A Membership Interests and the holders of Class B Membership Interests are unable to agree upon the fair market value of the Class B Membership Interests within thirty (30) days after the appointment of the second of such appraisers, the two appraisers shall appoint a third appraiser. In such case, the average of the determinations of the three appraisers shall be conclusive and binding on the Members, unless the determination of any of the appraisers differs from the middle determination by more than twice the amount by which the remaining determination differs from the middle determination, in which case the most disparate appraisal shall be excluded, and the average of the remaining two determinations shall be conclusive and binding on the Members.

Bankruptcy ” of a Person means the occurrence of any of the following events: (i) the filing by such Person of a voluntary case or the seeking of relief under any chapter of Title 11 of the United States Code, as now constituted or hereafter amended (the “ Bankruptcy Code ”), (ii) the making by such Person of a general assignment for the benefit of its creditors, (iii) the admission in writing by such Person of its inability to pay its debts as they mature, (iv) the filing by such Person of an application for, or consent to, the appointment of any receiver or a permanent or interim trustee of such Person or of all or any portion of its property, including the appointment or authorization of a trustee, receiver or agent under applicable law or under a contract to take charge of its property for the purposes of enforcing a lien against such property or for the purpose of general administration of such property for the benefit of its creditors,

 

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(v) the filing by such Person of a petition seeking a reorganization of its financial affairs or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, (vi) an involuntary case is commenced against such Person by the filing of a petition under any chapter of Title 11 of the Code and within 60 days after the filing thereof either the petition is not dismissed or the order for relief is not stayed or dismissed, (vii) an order, judgment or decree is entered appointing a receiver or a permanent or interim trustee of such Person or of all or any portion of its property, including the entry of an order, judgment or decree appointing or authorizing’ a trustee, receiver or agent to take charge of the property of such Person for the purpose of enforcing a lien against such property or for the purpose of general administration of such property for the benefit of the creditors of such Person, and such order, judgment or decree shall continue unstayed and in effect for a period of 60 days, or (viii) an order, judgment or decree is entered, without the approval or consent of such Person, approving or authorizing the reorganization, insolvency, readjustment of debt, dissolution or liquidation of such Person under any such law or statute, and such order, judgment or decree shall continue unstayed and in effect for a period of 60 days. The foregoing definition of “Bankruptcy” is intended to replace and shall supersede the definition of “Bankruptcy” set forth in Sections 18 101(1) and 18 304 of the Act.

Base Case Model ” means the financial model attached as Annex III to the ECCA and as Exhibit F to the Company LLC Agreement.

Bloom ” means Bloom Energy Corporation, a Delaware corporation.

Bloom Guaranty ” means the Guaranty made by Bloom for the benefit of Investor, dated on or about the date hereof.

Brookside Site ” means the Site described in the DDOT Site Lease.

Business Day ” means any day other than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York City are authorized or required to be closed.

Capital Account ” means an account for each Member calculated as described in Section 4.2(b) of the Company LLC Agreement and used to distribute assets at liquidation as described in Section 10.2 of the Company LLC Agreement.

Capital Contribution ” means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property contributed to the Company with respect to the Membership Interests in the Company held or purchased by such Member.

Capital Contributions Account ” is defined in Section 4.3(c) of the Company LLC Agreement.

Cause ” means fraud, gross negligence or willful misconduct of the Managing Member, solely in that capacity.

Certificate of Formation ” has the meaning in the preliminary statements of the Company LLC Agreement.

 

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Change of Control ” means with respect to an entity, an event in which a Person or Persons who prior to a transaction or series of transactions, possessed, whether directly or indirectly, legally or beneficially:

 

  (a) 50% or more of the equity, capital or profits interests of such entity; or

 

  (b) Control of such entity;

and as a result of a consummation of any transaction or series of transactions (including any merger or consolidation}, such Person or Persons fails to maintain, whether 4irectly or indirectly, legally or beneficially, either of the elements of control listed in (a) or (b) above.

Claims ” is defined in Section 3.6(a) of the Company LLC Agreement.

Class A Member ” means a Member holding one or more Class A Membership Interests.

Class A Membership Interests ” means membership interests in the Company that are held initially by Clean Technologies and have the rights described in the Company LLC Agreement.

Class A Recapture Event ” means an event or occurrence of any fact or circumstance that causes a Recapture Event that is not a Class B Recapture Event.

Class B Member ” means a Member holding one or more Class B Membership Interests.

Class B Member CC Maximum Amount ” means, for the Class B Member, an amount not to exceed the lesser of (i) $141,650,000 and (ii) such amount that makes such Class B Member’s actual or required net investment (Capital Contributions less actual pre-tax cash distributions from the Company to the Class B Member made and received to date) equal $65,000,000.

Class B Membership Interests ” means the membership interests in the Company that are initially held by Mehetia and having the rights described in the Company LLC Agreement.

Class B Recapture Event ” means (a) an event or occurrence of any fact or circumstance that causes a denial or recapture of all or a portion of a Grant that is directly attributable to (i) a breach of the representation made by a Class B Member under Section 3.11(c) of the Company LLC Agreement, (ii) a breach of the covenant made by a Class B Member under Section 3.12(f) of the Company LLC Agreement or (iii) any Transfer by a Class B Member or an Affiliate of a Class B Member prohibited by Sections 9.1 , 9.3(e) or 9.4(c) of the Company LLC Agreement that causes the Company or Project Company to become a Disqualified Person, or (b) any act or omission by a Class B Member (excluding voting for a Major Decision), including any Transfer by a Class B Member or its Class B Membership Interests or a change in ownership of a Class B Member, that results in a recapture of the ITC or refundable credit under an Alternative Tax Program if an ITC or such refundable credit is elected pursuant to Section 7.5(b)(i) of the Company LLC Agreement and claimed by such Class B Member with respect to the Systems.

Class Majority Vote ” is defined in Section 3.2(f) of the Company LLC Agreement.

 

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Clean Technologies ” is defined in the preamble to the ECCA.

Clean Technologies Indemnified Costs ” means, with respect to any Class A Member, the following:

 

  (a) with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA of Investor or Investor Guarantor, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Clean Technologies Indemnified Parties) incurred by such Clean Technologies Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to any breach or default or misrepresentation by Investor (as itself or as a Class B Member, as applicable) or Investor Guarantor, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document, including any claim for fraud or willful misconduct on the part of Investor or Investor Guarantor relating to the ECCA or any other Transaction Document; and

 

  (b) with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA (if applicable) of any Class B Member not covered under the preceding clause (a), any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Clean Technologies Indemnified Parties) incurred by such Clean Technologies Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to (i) any breach or default or misrepresentation by Class B Member or its Affiliate, as applicable, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document or (ii) any claim for fraud or willful misconduct on the part of Class B Member or its Affiliate relating to the ECCA or any other Transaction Document.

Clean Technologies Indemnified Parties ” means Clean Technologies and any person to whom Clean Technologies transfers any portion of its Class A Membership Interests in accordance with Article   IX of the Company LLC Agreement, and each of their respective Affiliates (other than the Company or the Project Company) and each of their respective shareholders, partners members, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.

Code ” means the Internal Revenue Code of 1986, as amended from time to time.

Company ” is defined in the preliminary statements to the ECCA.

Company Distributable Cash ” means, as of any date, all cash, cash equivalents and liquid investments (excluding Capital Contributions, Permitted Investments and any cash received in respect of the Grant) held by the Company as of such date less all reasonable reserves that, in the reasonable judgment of the Managing Member, are necessary or appropriate for the

 

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operation of the Company consistently with the Prudent Operator Standard. Reasonable reserves shall consist of any combination of the following reserves as reasonably determined by the Managing Member, without duplication: (i) necessary for payment of expenses included in the annual budget of the Company, (ii) necessary to prevent or mitigate an emergency situation, (iii)established with the prior written consent of the Members (by Class Majority Vote), (iv) necessary to allow the Company to meet expenses that are clearly identified and expected with reasonable certainty to become due, but that are not included in the annual budget of the Company, (v) necessary to ensure sufficient spare parts or the payment of operational and maintenance costs for each of the Systems, and (vi) one or more additional reserves not referred to in the preceding clauses of this definition of “Company Distributable Cash” that do not, together with the reserves reserved pursuant to clause (vi) of the definition of Project Company Distributable Cash, in the aggregate exceed $1,600,000.

Company LLC Agreement ” means the Amended and Restated Limited Liability Company Agreement of the Company, by and between Clean Technologies and Mehetia, substantially in the form of Exhibit D to the ECCA and dated as of the Initial Funding Date, as the same may be amended, supplemented or replaced from time to time.

Company Minimum Gain ” means the amount of minimum gain there is in connection with nonrecourse liabilities of the Company, calculated in the manner described in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).

Confidential Information ” is defined in Section 11.12(a) of the Company LLC Agreement.

Consult ” or “ Consultation ” means to confer with, and reasonably consider and take into account the reasonable suggestions, comments or opinions of, another Person.

Control ” or “ Controlled by ” means the possession, directly or indirectly, of either of the following:

(i) in the case of a corporation, more than 50% of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or joint venture, the right to more than 50% of the distributions (including liquidating distributions) therefrom; (iii) in the case of a trust or estate, including a business trust, more than 50% of the beneficial interest therein; and (iv) in the case of any other entity, more than 50% of the economic or beneficial interest therein; or in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the entity.

Control Agreement ” means the Control Agreement to be entered into on or before the Initial Funding Date among Mehetia, Clean Technologies, the Company (or the Project Company) and the control agent party thereto, as the same may be amended from time to time.

Credit Agreement ” means the Credit Agreement to be entered into on or before the Initial Funding Date among Project Company, RBS Securities Inc., The Royal Bank of Scotland pie, as administrative agent and collateral agent, and the Lenders, as the same may be amended from time to time.

 

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Credit Documents ” means the Credit Agreement and all other documents executed or delivered in connection with the Credit Agreement, including, without limitation, the Interparty Agreement.

Credit Suisse Guarantor ” means Credit Suisse (USA), Inc.

Credit Suisse Guaranty ” means the Guaranty made by Credit Suisse Guarantor for the benefit of Clean Technologies, dated on or about the date hereof.

CT Funding Amount’ ; means, on the Initial Funding Date or on any Subsequent Funding Date, an amount that is equal to the required Progress Contribution less (i) the applicable Loan Proceeds of the Lenders and (ii) the applicable Subsequent Funding Payment of the Investor.

DDOT ” means the Delaware Department of Transportation.

DDOT Site Lease ” means a Lease Agreement between DDOT and the Project Company to be entered into on or prior to the Initial Funding Date, as it may be amended to extend the term or otherwise.

December Capital Contribution ” means the Capital Contribution in the amount of $16,619,339.60 made by Clean Technologies to the Company on December 30, 2011 pursuant to the Capital Contribution Agreement dated December 30, 2011 among Bloom, Clean Technologies, the Company and the Project Company.

Deposit Contribution ” is defined in Section 2.2(b) of the ECCA.

Depreciation ” means for each Fiscal Year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for United States federal income tax purposes with respect to an asset for such Fiscal Year or part thereof, except that if the Gross Asset Value of an asset differs from its adjusted basis for United States federal income tax purposes at the beginning of such Fiscal Year, the depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof shall be an amount which bears the same ratio to such Gross Asset Value as the United States federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof bears to such adjusted tax basis. If such asset has a zero adjusted tax basis, the depreciation, amortization ,or other cost recovery deduction for each taxable year shall be determined under a method reasonably selected by the Managing Member and agreed to by Members representing a Class Majority Vote.

Designated Transfers ” is defined in Section 9.9 of the Company LLC Agreement.

Disqualified Person ” means (a) any federal, state or local government (or any political subdivision, agency or instrumentality thereof); (b) any organization described in Section 501(c) of the Code and exempt from tax under Section 501{a) of the Code; (c) any entity referenced in Section 54(j){4) of the Code; {d) any foreign person or entity as defined in Section 168{h)(2)(C) of the Code unless the exception under Section 168{h}(2)(B) of the Code applies with respect to income from the Project for that person; and {e) any partnership or other pass-through entity

 

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(including a single-member disregarded entity), other than a real estate investment trust as defined in Section 856(a} of the Code, any direct or indirect partner (or other holder of an equity or profits interest) of which is described in clauses (a) – (d); provided that a taxable C corporation, any of whose shareholders are ineligible to receive a Grant by virtue of being described in clauses (a) – (d) above will not be considered a Disqualified Person. Notwithstanding the above, a Person will not be treated as a Disqualified Person if it is demonstrated to the satisfaction of the Members that a Class A Recapture Event or Class B Recapture Event, as applicable, will not occur as a result of such Person owning a direct or indirect interest in the Company or Project Company; and provided , further that if and to the extent that Section 1603 of division B of the American Recovery and Reinvestment Act of 2009 is amended after the date of the Agreement , the definition of “ Disqualified Person ” under the Agreement shall be interpreted to conform to such amendment and any Treasury guidance with respect thereto.

Distribution Date ” means, in respect of every month commencing the month following the Initial Funding Date, the date that falls on the last Business Day of such month.

Dollars ” or “ $ ”means the lawful currency of the United States of America.

DPL ” means Delmarva Power & Light Company, a DPSC regulated utility company.

DPL Agreements ” means the service applications between the Project Company and DPL with respect to the REPS Act and the Tariffs, whereby DPL shall (a) serve as the agent for collection of amounts due from Project Company (if any) and for disbursement of amounts due to Project Company under the QFCP-RC Tariff and (b) sell to Project Company natural gas under the Gas Tariff.

DPL Site Lease ” means a Lease Agreement between DPL and the Project Company to be entered into on or prior to the Initial Funding Date.

DPSC ” means the Delaware Public Service Commission, the Governmental Authority charged with regulating DPL and issuing the Tariffs.

ECCA ” means the Equity Capital Contribution Agreement with respect to the Company dated as of March 16, 2012 among Clean Technologies, the Company, the Project Company and Mehetia and all schedules and exhibits thereto.

Effective Date ” is defined in Section 11.16 of the Company LLC Agreement. “Energy” is defined in the MESPA.

Encumbrance ” means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, mortgage, security interest, right of first refusal or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

Environmental Reports ” means (a) the Phase I Environmental Site Assessment: Proposed Fuel Cell Facility (Brookside Site) prepared by Terracon Consultants, Inc., dated November 15, 2011, and (b) the Phase I Environmental Site Assessment: Proposed Fuel Cell Facility (Red Lion Site) prepared by Terracon Consultants, Inc., dated November 15, 2011.

 

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Environmental Laws ” means all Applicable Laws pertaining to the environment, human health, safety and natural resources, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.), and the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976 (42 U.S.C. §§ 6901 et seq.), and the Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act (42 U.S.C. §§ 7401 et seq.), the Federal Water Pollution Control Act (also known as the Clean Water Act) (33 U.S.C. §§ 1251 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.), the Endangered Species Act (16 U.S.C. §§ 1531 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. §§ 1801 et seq.), and any similar or analogous state and local statutes or regulations promulgated thereunder and decisional law of any Governmental Authority, as each of the foregoing may amended or supplemented from time to time in the future, in each case to the extent applicable with respect to the property or operation to which application of the term “Environmental Laws” relates.

Equity Commitment Amount ” means, with respect to Clean Technologies, $25,461,843 plus the Gross Asset Value of the membership interests in the Project Company transferred to the Company by Clean Technologies as shown in Schedule 4.2(b) to the Company LLC Agreement, and with respect to Mehetia, $41,650,000, subject to the limitation that at no time will the actual or required net investment (Capital Contributions less actual pre-tax cash distributions from the Company to Mehetia, as applicable made and received to date) by Mehetia exceed $65,000,000.

Equity Contribution ” is defined in Section 4.3 of the Company LLC Agreement.

Equity Contribution Date ” is defined in Section 4.3 of the Company LLC Agreement.

Equity Contribution Notice ” is defined in Section 4.3 of the Company LLC Agreement.

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

Execution Date ” has the meaning given in the introductory paragraph of the ECCA.

Exempt Wholesale Generator ” means an “exempt wholesale generator” under PUHCA and the implementing regulations of FERC.

Exhibits ” means, in the case of the ECCA, the exhibits attached to the ECCA and in the case of the Company LLC Agreement, the exhibits attached to the Company LLC Agreement.

Federal Power Act ” or “ FPA ” means the Federal Power Act of 1935, as amended.

FERC ” means the Federal Energy Regulatory Commission and any successor thereto.

Fiscal Year ” is defined in Section 7.9 of the Company LLC Agreement.

Flip Date ” means the last day of the calendar month in which Class B Member achieves an Internal Rate of Return equal to or greater than the Target IRR.

 

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Funding ” means the Initial Funding or any Subsequent Funding, as the case may be.

Funding Date ” means the date of any Funding.

Funding Notice ” means a notice in the form of Exhibit I to the ECCA.

Funding Payment ” means, individually or collectively, the Initial Funding Payment and the Subsequent Funding Payments.

GAAP ” means generally accepted accounting principles as recognized by the American Institute of Certified Public Accountants, as in effect from time to time, consistently applied and maintained on a consistent basis for a Person throughout the period indicated and consistent with such Person’s prior financial practice.

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 DPSC in Order no. 8062 dated October 18, 2011, as adopted and supplemented by DPSC’s Findings, Opinion and Order No.8079, dated December l, 2011.

Governmental Approval ” means all filings, notifications, orders, certificates, determinations, registrations, permits, licenses, approvals and authorizations with or of any Governmental Authority or other entity pursuant to Applicable Law.

Governmental Authority ” means any governmental department, commission, board, bureau, agency, court or other instrumentality of any country, state, province, county, parish or municipality, jurisdiction, or other political subdivision thereof.

“Grant” means a grant (or a portion thereof) under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 with respect to a System.

Grant Application ” means a Grant application to be filed with the Treasury under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 and all related guidance, regulations, notices, promulgations and announcements.

Gross Asset Value ” means, with respect to any asset, the asset’s adjusted tax basis for federal income tax purposes, except as follows:

 

  (a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the Gross Fair Market Value of such asset as of the date of contribution; provided that the initial Gross Asset Values of the assets contributed to the Company on the Initial Funding Date shall be shown in Schedule 4.2(b) to the Company LLC Agreement;

 

  (b) the Gross Asset Values of all Company assets shall be adjusted to equal their respective fair market values at the times described in Section 4.2(c) of the Company LLC Agreement;

 

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  (c) the Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the Gross Fair Market Value of such asset on the date of distribution;

 

  (d) the Gross Asset Values of all Company assets shall be adjusted to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are required to be taken into account in determining Capital Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m); provided , however , that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the Managing Member determines that an adjustment pursuant to subsection (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and

 

  (e) if the Gross Asset Value of an asset has been determined or adjusted pursuant to subsection (a), (b) or (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset.

Gross Fair Market Value ” means, with respect to any asset, the fair market value of the asset as reasonably determined by the Managing Member and agreed to by Members representing a Class Majority Vote.

Guaranteed Initial Delivery Date ” has the meaning set forth in the QFCP-RC Tariff. “Guidance” means the guidance issued on July 9, 2009, by the Treasury for payments for specified energy property in lieu of tax credits under the American Recovery and Reinvestment Act of 2009 (as updated on March 15, 2010 and in April 2011), the Frequently Asked Questions and Answers issued by the Treasury on January 8, 2010 and June 25, 2010, as updated in April 2011, and any other guidance or clarification, addition or supplement thereto issued by the Treasury or any other Governmental Authority.

Hedge Support ” means any letters of credit, guarantees, bonds, surety contracts and other credit support arrangements (and any related reimbursement obligation) to support the payment and performance obligations of the Project Company under any hedge agreement to which the Project Company is a party.

HSR Act ” means the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended and the regulations adopted thereunder.

Independent Accounting Firm ” means an accounting firm that is mutually acceptable to Class A Members holding a majority of the Class A Membership Interests, and Class B Member and if the foregoing Members cannot agree, then one of Deloitte Touche Tohmatsu, Ernst & Young, KPMG International or PricewaterhouseCoopers as chosen by the Managing Member; provided that, any such accounting firm is not the Accounting Firm.

Independent Engineer ” means SAIC Energy, Environment & Infrastructure, LLC.

Independent Engineer Report ” means the report of the Independent Engineer to be dated on or before the Initial Funding Date.

 

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Indemnified Costs ” means Investor Indemnified Costs or Clean Technologies Indemnified Costs, as the context requires.

Indemnified Party ” means an Investor Indemnified Party or Clean Technologies Indemnified Party, as the context requires.

Indemnifying Party ” means Mehetia or Clean Technologies, as the context requires.

Initial Funding ” is defined in Section 2.3 of the ECCA.

Initial Funding Date ” means the date described in Section 2.3 of the ECCA.

Initial Funding Payment ” is defined in Section 2.2(a) of the ECCA.

Initial Funding Termination Date ” means March 31, 2014 or any later date agreed to by Investor and Clean Technologies.

Insurance Report ” means the Insurance Due Diligence Summary prepared by Moore McNeill, LLC, to be dated on or before the Initial Funding Date.

Interconnection Point ” is defined in the MESPA.

Internal Rate of Return ” means, with respect to Class B Member and at any time of determination, the discount rate that sets A equal to B, where A is the present value of (a) cash (including the proceeds of any Grant, or, if elected pursuant to Section 7.5(b)(i) of the Company LLC Agreement, the proceeds of any similar successor cash program or cash received from an Alternative Tax Program) distributed to Class B Member and, if the ITC is elected pursuant to Section 7.5(b)(i) of the Company LLC Agreement and the Class B Member consents in writing to inclusion of such ITC in its Internal. Rate of Return, the value of any ITC claimed on Systems to the extent allocated to Class B Member assuming a 35% federal income tax rate plus (b) any indemnity payments received by Class B Member that compensate for loss of any item listed in the foregoing clause (a), and B is the present value of the various Capital Contributions made by Class B Member.

Interparty Agreement ” means an Interparty Agreement to be entered into on or before the Initial Funding Date among the Project Company, Company, Clean Technologies, Investor and The Royal Bank of Scotland pie, as the same may be amended from time to time.

Investor ” is defined in the preliminary statements to the ECCA. “Investor Guarantor” means the Credit Suisse Guarantor. “Investor Guaranty” means the Credit Suisse Guaranty.

Investor Indemnified Costs ” means, with respect to Class B Member, the following:

 

  (a)

with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA of Clean Technologies or its Affiliates, any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Investor

 

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Indemnified Parties) incurred by such Investor Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to (i) any breach or default or misrepresentation by Clean Technologies (as itself or as a Class A Member, Managing Member or Tax Matters Partner) or any Affiliate of Clean Technologies, as applicable, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document, including (A) in its capacity as Managing Member under the Company LLC Agreement in accordance with the terms thereof and (B) in its capacity as Tax Matters Partner under Section 7.7(b) and Section 7.7(c) of the Company LLC Agreement in accordance with the terms thereof, (ii) any claim for fraud or willful misconduct on the part of Clean Technologies or any Affiliate of Clean Technologies relating to the ECCA or any other Transaction Document, (iii) resulting from Project Company (or any of the Systems) not qualifying for (or becoming disqualified under) the REPS Act or the Tariffs as a result of any act or omission by Bloom or any Affiliate of Bloom (including, without limitation, (A) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 5 MW of Systems by March 31, 2013 (unless such date has been extended in accordance with the QFCP-RC Tariff), (B) Bloom failing to achieve commercial operation (as defined in the QFCP-RC Tariff) of 30 MW of Systems, of which at least 20 MW of Systems were actually manufactured by Bloom in the State of Delaware by September 30, 2014 (unless such date has been extended in accordance with the QFCP-RC Tariff), (C) Bloom failing to be manufacturing fuel cells capable of being powered by renewable fuels from a permanent manufacturing facility located in the State of Delaware as of the date-of Commencement of Operations (as defined in the MESPA) of the full nameplate capacity of the Portfolio, or (D) any of the acts or omissions set forth in Section 4.3 of the MESPA}, (iv) Bloom failing to be in compliance with the Letter Agreement (including, if so required by the State of Delaware, posting the security referred to in the Letter Agreement upon or prior to the Commencement of Operation of the first System) or (v) any surcharges pursuant to the Tariffs being deemed a tax under Delaware law; and

 

  (b) with respect to any indemnification, defense or hold harmless obligations under the Company LLC Agreement or the ECCA (if applicable) of any other Class A Member not covered under the preceding clause (a), any and all damages, losses, claims, liabilities, demands, charges, suits, Taxes, penalties, costs, and reasonable expenses (including court costs and reasonable attorneys’ fees and expenses of one law firm for all Investor Indemnified Parties) incurred by such Investor Indemnified Parties, including with respect to Third Party Claims, resulting from or relating to (i) any breach or default or misrepresentation by such Class A Member or its Affiliate, as applicable, of any representation, warranty, covenant, indemnity or agreement under the ECCA or any other Transaction Document or (ii) any claim for fraud or willful misconduct on the part of such Class A Member or its Affiliate relating to the ECCA or any other Transaction Document.

Investor Indemnified Parties ” means the Mehetia Indemnified Parties.

IP Rights ” is defined in Section 3.1(x) of the ECCA.

 

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ITC ” means the 30% investment tax credit under Section 48 of the Code. “IRS” means the Internal Revenue Service or any successor agency.

Knowledge ” means, with respect to Clean Technologies, the Company and the Managing Member, the actual knowledge after due inquiry of the senior managers of the Company listed below in the positions set forth next to such person’s name or their successors or replacements in such positions.

 

Name

  

Position

William H. Kurtz    President
William E. Brockenborough    Vice President, General Manager
Martin J. Collins    Vice President
Scott Reynolds    Vice President
Kevin Passalacqua    Vice President
Manford Leonard    Vice President, Secretary

kW ” means kilowatt or one thousand watts of Energy.

Legal Requirement ” means any law (including common law), statute, act, decree, ordinance, rule, directive (to the extent having the force of law) order, treaty, code or regulation (including any of the foregoing relating to health or safety matters or any Environmental Law) or any interpretation of any of the foregoing, as enacted, issued or promulgated by any Governmental Authority, including all amendments, modifications, extensions, replacements or re-enactments thereof.

Lenders ” means The Royal Bank of Scotland pie and the various financial institutions party to the Credit Agreement in their capacity as lenders thereunder.

Letter Agreement ” means that certain Letter Agreement dated October 10, 2011 between Bloom and the State of Delaware, as may be amended from time to time.

Liens ” means any liens, pledges, claims, security interests, easements, rights of way, mortgages, deeds of trust, covenants, restrictions, rights of first refusal or defects in title.

LLC Agreement Termination Date ” is defined in Section 2.4 of the Company LLC Agreement.

Loan Proceeds ” is defined in Section 2.7(h) of the ECCA.

 

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Major Decisions ” means:

With respect to the Pre-Flip Period, any of the following:

 

  (a) Any sale, lease or other voluntary disposition of assets of the Project Company or Membership Interests in the Project Company with an aggregate fair market value in excess of $250,000 during any 12 month period, but excluding sales of (i) energy sold under the PJM Agreements or excess energy produced by Systems, (ii) environmental attributes of energy sales (such as renewable energy credits and carbon allowances), (iii) ancillary benefits of energy sales (such as capacity credits) and (iv) surplus or obsolete assets;

 

  (b) The Company or the Project Company taking action to (i) cancel, suspend or terminate any Material Contract, (ii) assign, release or relinquish the rights or obligations of (or any security posted by) any party to, or amend (A) the DPL Agreements, the PJM Agreements, the Credit Agreement, the Interparty Agreement, any Collateral Document (as defined in the Credit Agreement) or any other Credit Document (solely to the extent the amendment of any other such Credit Document could reasonably be expected by the Managing Member to have a Material Adverse Effect on the Class B Members), other than any such assignment or release made in accordance with its express terms, or (B) any other Material Contract if (with respect to this clause (B) only) any of the foregoing items in this clause (ii) could reasonably be expected to have a Material Adverse Effect on the Company or the Project Company, (iii) renew or enter into any replacement Material Contract except to the extent such renewal or replacement is on substantially the same terms as the original Material Contract, (iv) replace the Administrator under the Administrative Services Agreement, (v) replace the manager or operator under the MOMA, or (vi) enter into any new Material Contract; provided that none of the following will be considered a Major Decision: (v) taking any of the actions referred to above in this paragraph (b) in connection with a Material Contract with respect to assets that are excluded from paragraph (a) above, (w) entry into the DPL Agreements or the PJM Agreements, (x) taking any of the actions referred to above in this paragraph (b) if such actions (1) are required by any Governmental Authority or (2) involve agreements or instruments as to which such actions otherwise are permitted under the Company LLC Agreement, (y) the replacement of (I) any permit or (2) any Hedge Support with other Hedge Support that provides up to a comparable amount of credit support with comparable obligations, and (z) the enforcement or management of contracts with suppliers;

 

  (c) The Company adopting, amending or exceeding the Annual Budget for the Project Company, except that the following will not be considered a Major Decision: (i) adoption of an Annual Budget containing an aggregate expense amount for any Fiscal Year that is not more than [***] above the annual spending projected in the Base Case Model for such Fiscal Year or [***] above the aggregate expense amount reflected in the Annual Budget for the previous Fiscal Year, (ii) spending up to [***] of the aggregate expense amount reflected in the Annual Budget for a Fiscal Year and (iii) emergency spending above the [***] limit, except that non-recurring budget items that are not included in the Base Case Model and that are not incurred or expected to be incurred in the Ordinary Course of Business will be excluded when applying the percentages in this paragraph;

 

[***] Confidential Treatment Requested

 

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  (d) Approval of any transactions (other than other transactions contemplated by any of the Transaction Documents) between the Company or the Project Company, as the case may be, and any member thereof, the Administrator, or any Affiliates of any member of the Company or the Project Company, other than those entered into on an arm’s length basis;

 

  (e) Any settlement of claims, litigation, arbitration, criminal investigation or criminal proceedings (excluding the payment of undisputed liquidated damages) involving the Company, the Project Company or the Managing Member (only to the extent such investigation or proceeding relates to its actions or failure to act in such capacity) or any of their respective officers, managers or directors except if the settlement is not with any Affiliate of Bloom and, as a result of such settlement, the Company and/or the Project Company would not be obligated to pay more than $250,000 in the aggregate;

 

  (f) Change, amend or substitute the insurance required to be maintained by the Company pursuant to the ECCA or the Company LLC Agreement in a manner that would cause such insurance to be materially different from the insurance requirements prescribed therein;

 

  (g) Any action that would cause the Company or the Project Company to engage in any business or activity that is not within the purpose of such entity, as set forth in such entity’s organizational documents, or to change such purpose;

 

  (i) any action that would cause the Company to remove the Managing Member or fill any vacancy for the Managing Member as provided in Section 8.2(c) of the LLC Agreement or any action that would cause the Project Company to remove the manager of the Project Company or fill any vacancy for the manager of the Project Company, (ii) any merger or consolidation of the Company or the Project Company, (iii) the acquisition of all or substantially all of the assets or ownership interests of another Person, (iv) sale of all or substantially all of the assets of the Company or the Project Company and (vi) the taking of any action by the Company or the Project Company described in clauses (i), (ii), (iii), (iv), (v) or (vi) of the definition of “Bankruptcy”;

 

  (h) Granting of any Encumbrance on the assets or rights of the Company or the assets and rights of the Project Company other than Permitted Liens;

 

  (i) Any incurrence or guarantee of indebtedness for borrowed money or capitalized lease obligations in excess of $1,000,000 (other than capital leases) in the aggregate for the Company and the Project Company;

 

  (j) Any issuance or redemption by the Company or Project Company of any Membership Interests or other equity interest of any kind in the Company or Project Company other than any issuance permitted under Section 4.1(c) of the Company LLC Agreement;

 

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  (k) Any amendment or cancellation of the certificate of formation of the Company or the Project Company or amendment of the Project Company LLC Agreement;

 

  (l) The admission of any additional member in the Company or Project Company, other than pursuant to terms of the Company LLC Agreement or Project Company LLC Agreement;

 

  (m) The hiring by the Company or the Project Company of any employees or entering into any bonus, profit sharing, thrift, compensation, option, pension, retirement, savings, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund policy or arrangement for the benefit or welfare of any directors, officers or employees of the Company or the Project Company;

 

  (n) Any change in the Company’s or Project Company’s legal form or any recapitalization, liquidation, winding-up or dissolution of the Company or Project Company (except as permitted under the Company LLC Agreement or the Project Company LLC Agreement);

 

  (o) Permitting (i) the possession of property of the Company by any Member, (ii) the assignment, transfer or pledge of rights of the Company in specific property of the Company for other than a Company purpose or other than for the benefit of the Company or (iii) any commingling of the funds of the Company with the funds of any other Person;

 

  (p) Electing that the Company be treated other than as a partnership for United States federal income tax purposes or electing that the Project Company be treated other than as a “disregarded entity” for United States federal income tax purposes;

 

  (q) Amending, or choosing to fail to obtain or, as a result of the breach of its terms, causing the revocation of, any governmental approval required for the operation, ownership, management or maintenance of the Systems or the sale or transmission of electric energy in a manner that would have a Material Adverse Effect or fail to maintain the status of the Company as an Exempt Wholesale Generator or taking any action that would cause the Company to cease to be an Exempt Wholesale Generator or a member of PJM;

 

  (r) Engaging in any speculative financial activities, excluding (i) sales of energy and (ii) other hedge or swap arrangements, renewable energy credit sales, forward contracts and similar transactions and other transactions in effect on the Initial Funding Date or any Subsequent Funding Date, as applicable, for the Systems and replacements therefor, in each case, entered into in the Ordinary Course of Business for the Portfolio;

 

  (s) Lending any funds from the Company to any Person;

 

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  (t) Engaging in any act that, if taken, would reasonably be expected to cause a Class A Recapture Event;

 

  (u) If a Grant is not available with respect to certain Systems, electing under any Alternative Tax Program pursuant to Section 7.5(b)(i) of the Company LLC Agreement;

 

  (v) Ordering the purchase of a System other than for the Project;

 

  (w) Not pursuing the rights and remedies under any agreement with Bloom or its Affiliates after a failure to cure within the applicable cure period, including, without limitation, the MOMA, the MESPA or the Administrative Services Agreement;

 

  (x) Selling or disposing of any energy calls purchased on or prior to the Initial Funding Date other than at or around their expiration date;

 

  (y) Authorizing or permitting the Company to make a capital contribution to the Project Company except in accordance with Sections 4.3 and 4.4 of the LLC Agreement;

 

  (aa) Making any material tax election, or causing the Company to cause the Project Company to make any material tax election, other than as provided in the Company LLC Agreement;

 

  (bb) Taking any act in contravention of or in breach of the Company LLC Agreement or the organizational documents of the Company or the Project Company;

 

  (cc) Causing the Company or causing the Company to cause the Project Company to change its method of accounting, except as required by GAAP, or taking any action with respect to accounting policies or procedures, unless required by GAAP;

 

  (dd) Making any distribution to any Member or causing any distribution to be made by the Company or the Project Company except as specified in the Company LLC Agreement or Project Company LLC Agreement;

 

  (ee) Causing the Company or causing the Company to cause the Project Company to knowingly take or omit to take any action that would result in a material breach or an event of default, or that would permit or result in the acceleration of any obligation or termination of any right, under any Material Contract;

 

  (ff) Causing the Company or causing the Company to cause the Project Company to form any Person, including any Subsidiaries; and

 

  (gg) Taking any action in violation of, or inconsistent with, the REPS Act or any of the Tariffs, including, without limitation causing the Project Company to sell any electricity other than to PJM.

 

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With respect to the period following the Flip Date, the matters in paragraph (a) above shall be Major Decisions, except that any such matter will be a Major Decision only with respect to the sale, lease or other voluntary disposition of assets at a price other than for fair market value, and the matters in clauses (g), (o) and (p) shall also be Major Decisions.

Majority Vote ” is defined in Section 3.2(f) of the Company LLC Agreement.

Managing Member ” is defined in Section 8.2Ca) of the Company LLC Agreement.

Material Adverse Effect ” means a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Project Company, excluding any effect resulting from (a) effects of weather or meteorological events, (b) general industry strikes, work stoppages or other labor disturbances, or (c) the execution or delivery of the Transaction Documents or the transactions contemplated in them or the announcement of such transactions. An adverse effect will be considered “material” under this definition for purposes of the conditions precedent to closing in Sections 2.5, 2.6, 2.7 and 2.8 of the ECCA if it will cause a reduction of at least $1,000,000 in the aggregate, across one or more conditions precedent, in the sum of the net present values of the Grants and Project Company Distributable Cash from the Portfolio through the Flip Date as projected in the Base Case Model. An adverse effect will be considered “material” under this definition for purposes of any post-closing indemnities for breach of representations if it is reasonably likely to cause a reduction of at least $1,000,000 in the aggregate in the sum of the net present values of the Grants and Project Company Distributable Cash from the Portfolio over the period from the Initial Funding Date through the Flip Date as projected in the Base Case Model. The net present value will be calculated by discounting to the Initial Funding Date for the Portfolio, a Grant and Project Company Distributable Cash received through the date of calculation and discounting the remaining Grants and cash through the projected Flip Date in the Base Case Model using the Target IRR as the discount rate.

Material Contract ” means (a) a contract for the sale of electricity or transmission services of a System for a term of more than one year, (b) a contract, lease, indenture or security agreement under which the Company or the Project Company (i) has created, incurred, assumed or guaranteed any indebtedness for borrowed money or obligations under any lease that, in accordance with GAAP, or international financial reporting standards, as applicable, should be capitalized, (ii) has created a mortgage, security interest or other consensual encumbrance on any property with a fair market value of more than $250,000 (other than any Permitted Liens), or (iii) has a reimbursement obligation in respect of any letter of credit, guaranty, bond, or other credit or collateral support arrangement required to be maintained by the Project Company under the terms of any contract referred to in clause (a) above, (c) a contract for management, operation or maintenance of the Company, the Project Company or a System that requires payments of more than $250,000, (d) a product warranty or repair contract by or with a manufacturer or vendor of equipment owned or leased by the Project Company with a fair market value of more than $250,000, (e) any other contract that is expected to require payments by the Company or the Project Company, in the aggregate, of more than $250,000 per calendar year and (f) the MESPA, the DPL Agreements, the PJM Agreements, the MOMA, the Site Leases, the Credit Agreement, the Interparty Agreement, the Collateral Documents (as defined in the Credit Agreement), any other Credit Document, the Administrative Services Agreement or any Transaction Document.

 

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MBR Authority ” is defined in Section 2.7(n) of the ECCA.

Mehetia ” is defined in the preamble to the ECCA.

Mehetia Indemnified Parties ” means Mehetia and any person to whom Mehetia transfers any portion of its Class B Membership Interests in accordance with Article IX of the Company LLC Agreement, and each of their respective Affiliates and each of their respective shareholders, partners members, officers, directors, employees, agents, and other representatives, and their respective successors and assigns.

Member ” means any Person executing the Company LLC Agreement as of the date of the Company LLC Agreement as a member of the Company or any Person admitted to the Company as a member as provided in the Company LLC Agreement (each in the capacity as a member of the Company), but does not include any Person who has ceased to be a member of the Company.

Member Loan ” means any loan or advance made by (i) a Class B Member to the Company or (ii) the Company to the Project Company, pursuant to Section 4.5 of the Company LLC Agreement.

Member Nonrecourse Debt ” means “partner nonrecourse debt” as defined in Treasury Regulation Section l.704-2(b)(4). An example is where a Member or a person related to the Member makes a loan on a nonrecourse basis to the Company.

Member Party ” is defined in Section 3.6(a) of the Company LLC Agreement. “Membership Interest” means the interest of a Member in the Company, including rights to distributions (liquidating or otherwise), allocations, and to vote, consent or approve, if any.

MESPA ” means the Master Energy Server Purchase Agreement, dated as of the Initial Funding Date, between Bloom and the Project Company.

Minimum Gain Attributable to Member Nonrecourse Debt ” means the amount of minimum gain there is in connection with a Member Nonrecourse Debt, calculated in the manner described in Treasury Regulation Section l.704-2(i)(3).

MOMA ” means the Master Operation and Maintenance Agreement, dated as of the Initial Funding Date, between the Project Company and the Operator, as such agreement may be amended, supplemented or replaced from time to time.

Moody’s ” means Moody’s Investor Service, Inc.

MW ” means megawatt or one million watts of Energy.

Nonrecourse Deduction ” means a deduction for spending that is funded out of nonrecourse borrowing by the Company or that is otherwise attributable to a “nonrecourse liability” of the Company within the meaning of Treasury Regulation Section l.704-2.

Notice ” is defined in Section 11.1 of the Company LLC Agreement.

 

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Operations Report ” is defined in Section 7.1(a) of the Company LLC Agreement.

Operator ” means Bloom.

Ordinary Course of Business ” means the ordinary conduct of business consistent with past custom and practice (including with respect to quantity and frequency).

Original Operating Agreement ” is defined in the preliminary statements of the Company LLC Agreement.

Party ” means, for purposes of the ECCA, a party to the ECCA and for purposes of the Company LLC Agreement, a party to the Company LLC Agreement.

Percentage Interest ” means the percentage interest shown for a Class A Member or Class B Member, as applicable, in Schedule 4.2(d) of the Company LLC Agreement as updated from time to time.

Permitted Encumbrance ” means Encumbrances provided for under the Transaction Documents, liens for Taxes not yet due and payable for which adequate reserves have been provided in accordance with GAAP and restrictions on transfer of the Membership Interests under any applicable federal, state or foreign securities law.

Permitted   Investments ” means any of the following having a maturity of not greater than one year from the date of issuance thereof: (a) readily marketable direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the government of the United States of America, (b) insured certificates of deposit of or time deposits with any commercial bank that is a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c) below, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1,000,000,000.00 or (c) commercial paper issued by any corporation organized under the laws of any State of the United States and rated at least “Prime-1” (or the then equivalent grade) by Moody’s Investors Service, Inc. or “A-1” (or the then equivalent grade) by Standard & Poor’s Corporation.

Permitted Liens ” means (a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, employees’, contractors’, operators’ or other similar Liens or charges securing the payment of expenses not yet due and payable that were incurred in the Ordinary Course of Business of the Project Company or for amounts being contested in good faith and by appropriate proceedings, (c) trade contracts or other obligations of a like nature incurred in the Ordinary Course of Business of the Project Company, (d) obligations or duties to any Governmental Authority arising in the Ordinary Course of Business (including under licenses and permits held by the Project Company and under all applicable laws, rules, regulations and orders of any Governmental Authority), (e) obligations or duties under easements, leases or other property rights, (f) Liens arising out of judgments or awards so long as an appeal or proceeding for review is being prosecuted in good faith and for the payment of which adequate reserves in accordance

 

21


with GAAP, bonds or other security have been provided or are fully covered by insurance, (g) Liens of record and zoning and other land use restrictions that do not impair the value or intended use of a System, (h) security interests granted to satisfy credit support obligations or margin requirements under any existing or subsequently entered into power purchase agreement, power sales agreement, natural gas supply agreement (including the DPL Agreements), or swap or hedge agreement, in each case, in which the Project Company (but not any Affiliate of the Project Company) is the counterparty to such agreement, (i) Permitted Encumbrances, (j) with respect to the Project Company, easements, rights-of-way, restrictions, reservations and other similar encumbrances and exceptions to title existing or incurred in the ordinary course of business that, in the aggregate, do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Clean Technologies and the Project Company, taken as a whole, (k) Liens created pursuant to any Credit Document and (l) all other encumbrances and exceptions that are incurred in the Ordinary Course of Business of the Portfolio, are not incurred for borrowed money, and do not have a Material Adverse Effect on either the use of any material assets of the Project Company as currently used or the value of any such assets; provided, however, that the foregoing excludes any Liens held by Bloom or its Affiliates.

Permitted Transfers ” is defined in Section 9.5 of the Company LLC Agreement.

Person ” means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, or other entity.

PJM ” means PJM Interconnection, LLC, a regional transmission organization.

PJM Agreements ” is defined in the QFCP-RC Tariff.

PJM Grid ” means the PJM electricity transmission grid.

PJM Market ” means the PJM Interchange Energy Market which Project Company is to sell all of its energy, capacity, ancillary services and environmental attributes pursuant to the QFCP-RC Tariff and the PJM Agreements, and any PJM successor market.

Placed in Service ” means with respect to any System, the completion of or the performance of all of the following activities: (1) obtaining the necessary licenses and permits for the operation of the System and sale of Energy, capacity, ancillary services and RECs generated by (or attributable to) the System, (2) completion of critical tests necessary for proper operation of such System, (3) synchronization of such System onto the PJM Grid, and (4) the commencement of daily operation of such System.

Portfolio ” is defined in the preliminary statements of the ECCA.

Pre-Flip Period ” means the period commencing on the Initial Funding Date and ending on the Flip Date.

Prime Rate ” means a rate per annum equal to the lesser of (a) the prime rate published from time to time in The Wall Street Journal , and (b) the maximum rate permitted by Applicable Laws.

 

22


Pro Rata Shares ” means, with respect to (i) any Class A Member, such Class A Member’s Class A Membership Interests divided by the aggregate Class A Membership Interests of all Class A Members or (ii) any Class B Member, such Class B Member’s Class B Membership Interests divided by the aggregate Class B Membership Interests of all Class B Members.

Progress Contributions ” is defined in Section 2.2(b)(ii) of the ECCA.

Project ” is defined in the preliminary statements of the ECCA.

Project Company ” means Diamond State Generation Partners, LLC.

Project Company Distributable Cash ” means, as of any date, all cash, cash equivalents and liquid investments (excluding Capital Contributions, Permitted Investments and any cash received in respect of the Grant) held by the Project Company as of such date less all reasonable reserves that, in the reasonable judgment of the manager of the Project Company, are necessary or appropriate for the operation of the Project Company or the Systems consistently with the Prudent Operator Standard. Reasonable reserves shall consist of any combination of the following reserves as reasonably determined by the manager of the Project Company, without duplication: (i) necessary for payment of expenses included in the Annual Budget, (ii) necessary to prevent or mitigate an emergency situation, (iii) established with the prior written consent of the Members (by Class Majority Vote), (iv) necessary to allow the Project Company to meet expenses that are clearly identified and expected with reasonable certainty to become due, but that are not included in the Annual Budget, (v) necessary to ensure sufficient spare parts or the payment of operational and maintenance costs for each of the Systems and (vi) one or more additional reserves not referred to in the preceding clauses of this definition of “Project Company Distributable Cash” that do not, together with the reserves reserved pursuant to clause (vi) of the definition of Company Distributable Cash, in the aggregate exceed $1,600,000.

Project Company LLC Agreement ” means the Amended and Restated Limited Liability Company Agreement of the Project Company, substantially in the form of Exhibit E to the ECCA, and dated as of the Initial Funding Date, as the same may be amended, supplemented or replaced from time to time.

Projected Contribution Schedule ” means the projected schedule of Capital Contributions to be made by Clean Technologies and Investor at each Funding attached to the ECCA as Annex II.

Prudent Operator Standard ” means that a Person will (i) perform its duties in compliance with the requirements of the Material Contracts, (ii) perform the duties in accordance with commercially reasonable applicable fuel cell industry standards (A) taking into account through the Flip Date the need to maintain qualification for a Grant (or if unavailable, the Alternative Tax Program) and to avoid any Class A Recapture Event and (B) that the Portfolio must qualify for and remain qualified to receive service under the QFCP-RC Tariff, and (iii) use sufficient and properly trained and skilled personnel.

PUHCA ” means the Public Utility Holding Company Act of 2005 and FERC’s implementing regulations.

 

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Purchase Option ” is defined in Section 9.7 of the Company LLC Agreement. “Purchase Option Date” is defined in Section 9.7 of the Company LLC Agreement.

Purchase Option Price ” means the greater of (i) the fair market value of the Class B Membership Interests on the Purchase Option Date as determined by agreement between Class B Member transferring its Class B Membership Interests and the Class A Members and (ii) an amount sufficient to cause Class B Member to achieve an Internal Rate of Return equal to [***]%; provided , however , that should Class B Member transferring its Class B Membership Interests and the Class A Members fail to agree on such fair market value within 30 days of the date on which the Purchase Option Exercise Notice is provided, such fair market value shall be determined by the Appraisal Method which shall be then automatically invoked unless all of the Members otherwise agree in writing.

Purchase Option Exercise Notice ” is defined in Section 9.7 of the Company LLC Agreement.

QFCP-RC Tariff” means DPL’s Service Classification “QFCP-RC” for REPS Qualified Fuel Cell Provider Projects as approved by DPSC in Order no. 8062 dated October 18, 2011, as adopted and supplemented by DPSC’s Findings, Opinion and Order No. 8079, dated December l, 2011.

Quarter ” means a calendar quarter.

Qualified Transferee ” means, with respect to any proposed Transfer, (A) an entity that (i) has (x) owned or operated for a period of at least three (3) years (within the then most recent four year period), and at the time of such Transfer continues to own and operate, solid oxide fuel cell power generating systems or (y) engaged a Person who has owned or operated for a period of at least three (3) years (within the then most recent four year period), and at the time of such Transfer continues to own and operate, solid oxide fuel cell power generating systems, and (ii) either (x) has a credit rating of “BBB-” or higher by S&P and “Baa3” or higher by Moody’s, or (y) has annual revenues of not less than $5,000,000 and a tangible net worth of at least $200,000,000 or (B) such other entity with respect to which the consent of Investor has been obtained.

Recapture Claim ” means a written notice provided by the Class A Members to the Company and Class B Member with respect to Recapture Damages caused by a Class B Recapture Event or by Class B Member to the Company and the Class A Members with respect to Recapture Damages caused by a Class A Recapture Event.

Recapture Damages ” means the amount of (i) any portion of any payment required to be made to the United States of America (or any agency or instrumentality thereof), as applicable, resulting from all or any portion of the Grant or any successor grant program or cash-based subsidy being “recaptured” or denied that is paid by Class B Member, in the case of a Class A Recapture Event, or by the Class A Members, in the case of a Class B Recapture Event, and (ii) with respect to a Member if the Grant, any successor grant program or cash-based subsidy is unavailable with respect to any System, such Members’ share of any payment required to be made by such Member to the United States of America (or any agency or instrumentality thereof) resulting from the recapture or denial of all or any portion of any refundable tax credit or ITC with respect to such System.

 

[***] Confidential Treatment Requested

 

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Recapture Event ” means an event that results in denial or recapture of the Grant, or any Alternative Tax Program, or a portion thereof, by Treasury or any other Governmental Authority.

Recapture Period ” means, with respect to any System, the period from the date on which the System is placed in service for federal income tax purposes until the 5th anniversary of the date the System is placed in service for federal income tax purposes.

RECs ” means any credits, credit certificates, green tags or similar environmental or green energy attributes (such as those for greenhouse reduction or the generation of green power or renewable energy) created by a governmental agency or independent certification board or group generally recognized in the electric power generation industry, and generated by or associated with the System or electricity produced therefrom, but excluding the Grants and ITC.

Red Lion Site ” means the Site described in the DPL Site Lease. “Refund Notice” is defined in Section 2.2(g) of the ECCA. “Refund Payment Date” is defined in Section 2.2(g) of the ECCA

Representatives ” means, with respect to any Person, the managing member(s), the officers, directors, employees, representatives or agents (including investment bankers, financial advisors, attorneys, accountants, brokers and other advisors) of such Person, to the extent that such officer, director, employee, representative or agent of such Person is acting in his or her capacity as an officer, director, employee, representative or agent of such Person.

REPS Act ” means the Renewable Energy Portfolio Standards Act, as amended most recently by S.B. 124, enacted July 10, 2011 (Title 26, Chap. 1, section 351 et seq. of the Code of the State of Delaware).

Required Ratings ” means a long-term senior unsecured credit rating, long-term local issuer credit rating or insurer financial strength rating of at least A- by Standard & Poor’s Corporation or A3 by Moody’s Investors Service, Inc. or, if either agency is not then in the business of providing ratings, equivalent ratings from any other entity that is then a nationally recognized statistical rating organization.

Sale Notice ” is defined in Section 9.8(a) of the Company LLC Agreement.

Sale Option ” is defined in Section 9.8(a) of the Company LLC Agreement.

Sale Option Date ” is defined in Section 9.8(a) of the Company LLC Agreement.

Sale Price ” means the fair market value of the Class B Membership Interests on the Sale Option Date as determined by agreement between Class B Member transferring its Class B Membership Interests and the Class A Member; provided, however, that should Class B Member transferring its Class B Membership Interests and the Class A Member fail to agree on such fair market value within 30 days of the date on which the Sale Notice is provided, such fair market value shall be determined by the Appraisal Method which shall be then automatically invoked unless otherwise agreed by all of the Members in writing.

 

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S&P ” means Standard and Poor’s Corporation.

Schedules ” means, in the case of the ECCA, the schedules attached to the ECCA and in the case of the Company LLC Agreement, the schedules attached to the Company LLC Agreement.

Section 203 Order ” means the order issued by FERC authorizing the Company under Section 203(a)(l) of the FPA to issue the Class B Membership Interests to Mehetia.

Securities Act ” is defined in Section 3.3(e) of the ECCA.

Site ” is defined in the MESPA.

Site Leases ” means, collectively, the DPL Site Lease and the DDOT Site Lease.

Subsequent Funding ” is defined in Section 2.4 of the ECCA.

Subsequent Funding Date ” is defined in Section 2.4 of the ECCA.

Subsequent Funding Payment ” is defined in Section 2.2(b) of the ECCA.

Subsequent Funding Termination Date ” means March 31, 2014 or any later date agreed to by Investor and Clean Technologies.

Subsidiary ” means, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other entity of which such Person (either alone or through or together with any other Person pursuant to any agreement, arrangement, contract or other commitment) owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.

System ” means each proprietary solid oxide fuel cell power generating unit including the integrated assembly of mounting assemblies, metering, transformers, disconnects, switches, wiring devices and wiring interconnected with the PJM Grid and connected to DPL as the supplier of natural gas to fuel the System.

Target IRR ” means a pre-tax Internal Rate of Return of [***]%.

Target IRR Notice ” is defined in Section 7.1(e) of the Company LLC Agreement.

Tariffs ” means the QFCP-RC Tariff and the Gas Tariff.

Tax ” (and, with correlative meaning, “ Taxes ” and “ Taxable ”) means:

 

  (a) any taxes, customs, duties, charges, fees, levies, penalties or other assessments, fees and other governmental charges imposed by any Governmental Authority, including, but not limited to, income, profits, gross receipts, net proceeds,

 

[***] Confidential Treatment Requested

 

26


 

windfall profit, severance, property, personal property (tangible and intangible) production, sales, use, leasing or lease, license, excise, duty, franchise, capital stock, net worth, employment, occupation, payroll, withholding, social security (or similar), unemployment, disability, payroll, fuel, excess profits, occupational, premium, severance, estimated, alternative or add-on minimum, ad valorem, value added, turnover, 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

 

  (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.

Tax Matters Partner ” is defined in Section 7.7(a) of the Company LLC Agreement.

Tax Returns ” means any return, report, statement, information return or other document (including any amendments thereto and any related or supporting information) filed or required to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes, including after the Funding any IRS Schedule K-1 issued to Members by the Company, information return, claim for refund, amended return or declaration of estimated Tax.

Third Party Claim ” means any action, proceeding, demand or claim by a third party (it being understood that any Affiliate of a Member shall not be deemed to be a third party) excluding any claim relating to the recapture, loss, or denial of all or a portion of a Grant that is already provided for in Section   6.6 , Section 6.7 , Section 6.8 and Section 6.9 of the Company LLC Agreement.

Third Party Penalty Claim ” is defined in Section 9.14 of the Company LLC Agreement. “Tracking Model” means the Base Case Model updated to reflect actual results of the Company, but with the assumptions and conventions in Section 6.5 of the Company LLC Agreement remaining unchanged.

Transaction Documents ” means the Company LLC Agreement, the Project Company LLC Agreement, the ECCA, the Administrative Services Agreement, the MESPA, the MOMA, the Credit Suisse Guaranty, the Bloom Guaranty and each of the other documents required to be delivered on the Execution Date, individually and collectively, and, if any Initial Funding or Subsequent Funding shall have occurred, each document required to be delivered on the Initial Funding Date or a Subsequent Funding Date, individually and collectively.

Transfer ” is defined in Section 9.1 of the Company LLC Agreement.

Treasury ” means the United States Department of the Treasury.

 

27


Treasury Regulations ” means the regulations promulgated under the Code, by the Treasury, as such regulations may be amended from time to time. All references herein to specific sections of the regulations shall be deemed also to refer to any corresponding provisions of succeeding regulations, and any reference to temporary regulations shall be deemed also to refer to any corresponding provisions of final regulations.

UCC ” means the Uniform Commercial Code, as the same may be in effect in the State of New York or any other applicable jurisdiction.

OTHER DEFINITIONAL PROVISIONS

All terms in the ECCA and the Company LLC Agreement, as applicable, shall have the defined meanings when used in any certificate or other document made or delivered pursuant thereto unless otherwise defined therein.

As used in the ECCA and the Company LLC Agreement and in any certificate or other documents made or delivered pursuant thereto, accounting terms not defined in the ECCA or the Company LLC Agreement or in any such certificate or other document, and accounting terms partly defined in the ECCA or the Company LLC Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in the ECCA or the Company LLC Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in the ECCA or the Company LLC Agreement or in any such certificate or other document shall control.

The words “hereof”, “herein”, “hereunder”, and words of similar import when used in the ECCA and the Company LLC Agreement shall refer to the ECCA or the Company LLC Agreement, as the case may be, as a whole and not to any particular provision of the ECCA or the Company LLC Agreement. Section references contained in the ECCA and the Company LLC Agreement are references to Sections in the ECCA or the Company LLC Agreement, as applicable, unless otherwise specified. The term “including” shall mean “including without limitation”.

The definitions contained in the ECCA and the Company LLC 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.

Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein.

Any references to a Person are also to its permitted successors and assigns.

All Article and Section titles or captions contained in the ECCA or the Company LLC Agreement, as applicable, or in any Exhibit or Schedule referred to therein and the table of contents of the ECCA and the Company LLC Agreement are for convenience only and shall not be deemed a part of the ECCA or the Company LLC Agreement, as the case may be, or affect

 

28


the meaning or interpretation of the ECCA or the Company LLC Agreement, as applicable. Unless otherwise specified, all references in the ECCA or the Company LLC Agreement to numbered Articles and Sections are to Articles and Sections of the ECCA or the Company LLC Agreement, as applicable, and all references herein to Schedules or Exhibits are to Schedules and Exhibits to the ECCA or the Company LLC Agreement, as applicable.

Unless otherwise specified, all references contained in the ECCA or the Company LLC Agreement, in any Exhibit or Schedule referred to therein or in any instrument or document delivered pursuant thereto to dollars or “$” shall mean United States dollars.

The Parties to the ECCA have participated jointly in the negotiation and drafting of the ECCA. The Parties to the Company LLC Agreement have participated jointly in the negotiation and drafting of the Company LLC Agreement. In the event an ambiguity or question of intent or interpretation arises, the ECCA and the Company LLC Agreement shall be construed as if drafted jointly by the respective Parties thereto and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of the ECCA or the Company LLC Agreement, as the case may be.

 

29


ANNEX II

PROJECTED CONTRIBUTION SCHEDULE

 

1


ECCA

 

Annex II:

Projected Contribution Schedule for Systems 1-58

 

Quarter

   Clean technologies II, LLC (1)      Mehetia Inc.  

[***]

     [***]        [***]  

[***]

     [***]        [***]  

[***]

     [***]        [***]  

[***]

     [***]        [***]  

[***]

     [***]        [***]  

[***]

     [***]        [***]  

[***]

     [***]        [***]  
  

 

 

    

 

 

 

[***]

     [***]        [***]  
  

 

 

    

 

 

 

 

(1) Clean Technologies II, LLC contributed $16,619,399.60 in [***], of which $[***] was applied towards Systems [***], with the remaining to be applied towards Systems [***]. Note: Projected Contribution Schedule for Systems [***] TBD. Mehetia Inc.’s aggregate contribution for [***] Systems not to exceed $141,650,000. Clean Technologies II, LLC’s aggregate contribution for [***] Systems must equal balance of purchase price of each System not funded by Mehetia Inc. or the Lenders.

 

[***] Confidential Treatment Requested

 

1


ANNEX III

BASE CASE MODEL

[***]

[Base Case Model Spreadsheet Redacted]

Omitted in its Entirety: 177 pages

 

[***] Confidential Treatment Requested

 

1


EXHIBIT A

FORM OF MOMA

[ See Exhibit 10.14 ]


EXHIBIT B

FORM OF MESPA

[ See Exhibit 10.17 ]


EXHIBIT C

FORM OF ADMINISTRATIVE SERVICES AGREEMENT

[ See Exhibit 10.21 ]


EXHIBIT D

FORM OF COMPANY LLC AGREEMENT

[ See Exhibit 10.12 ]


EXHIBIT E

FORM OF PROJECT COMPANY LLC AGREEMENT


LIMITED LIABILITY COMPANY AGREEMENT

OF

DIAMOND STATE GENERATION PARTNERS, LLC

A DELAWARE LIMITED LIABILITY COMPANY

Dated as of May 27, 2011

The member interests represented by this agreement have been acquired for investment and were issued without registration under the Securities Act of 1933, as amended (the Securities Act ”), or under the securities laws of any state. These interests may not be sold, pledged, hypothecated, or otherwise transferred at any time except (i) in accordance with the restrictions contained in this agreement, and (ii) pursuant to an effective registration statement under the Securities Act and any applicable state securities laws unless an exemption from registration under the Securities Act and under any applicable state securities laws is available in connection with the transfer.


Table of Contents

 

         Page No.  

ARTICLE I   DEFINITIONS

     1  

Section 1.1

 

Definitions

     1  

Section 1.2

 

Terms Generally

     1  

ARTICLE II    ORGANIZATION OF THE COMPANY

     1  

Section 2.1

 

Formation

     1  

Section 2.2

 

Name

     2  

Section 2.3

 

Term

     2  

Section 2.4

 

Purpose

     2  

Section 2.5

 

Powers

     2  

Section 2.6

 

Offices

     2  

Section 2.7

 

Title to Company Assets

     2  

ARTICLE III  MEMBER; CREATION AND TRANSFER OF MEMBERSHIP INTERESTS

     3  

Section 3.1

 

Member

     3  

Section 3.2

 

Unit Certificates

     3  

Section 3.3

 

Admission of Additional Members

     4  

Section 3.4

 

No Withdrawal

     4  

Section 3.5

 

Liability to Third Parties

     5  

ARTICLE IV   CAPITALIZATION

     5  

Section 4.1

 

Initial Membership Interests

     5  

Section 4.2

 

Subsequent Contributions

     5  

Section 4.3

 

Advances by Member

     5  

ARTICLE V    DISTRIBUTIONS AND ALLOCATIONS

     5  

Section 5.1

 

Distributions

     5  

Section 5.2

 

Allocations

     5  

ARTICLE VI   MANAGEMENT

     6  

Section 6.1

 

Management by the Manager

     6  

Section 6.2

 

The Manager

     7  

Section 6.3

 

Provisions Applicable to All Meetings

     8  

Section 6.4

 

Officers

     8  

ARTICLE VII  STANDARD OF CARE; EXCULPATION AND INDEMNIFICATION

     10  

Section 7.1

 

Standard of Care

     10  

Section 7.2

 

Exculpation

     10  

Section 7.3

 

Right to Indemnification

     11  

Section 7.4

 

Advance Payment

     11  

Section 7.5

 

Indemnification of Employees and Agents

     12  

Section 7.6

 

Appearance as a Witness

     12  

Section 7.7

 

Nonexclusivity of Rights

     12  

Section 7.8

 

Insurance

     12  

Section 7.9

 

Member Notification

     12  

Section 7.10

 

Savings Clause

     13  

Section 7.11

 

Contract Rights

     13  


Section 7.12

 

Indemnification by Member

     13  

Section 7.13

 

Negligence, etc

     13  

ARTICLE VIII   REPORTS; ACCESS TO INFORMATION

     13  

Section 8.1

 

Reports

     13  

Section 8.2

 

Access to Information

     13  

ARTICLE IX   TAXES

     14  

Section 9.1

 

Tax Returns

     14  

Section 9.2

 

Tax Character

     14  

Section 9.3

 

Tax Elections

     14  

ARTICLE X    BOOKS AND BANK ACCOUNTS

     14  

Section 10.1

 

Maintenance of Books

     14  

Section 10.2

 

Accounts

     15  

ARTICLE XI   DISSOLUTION, WINDING-UP AND TERMINATION

     15  

Section 11.1

 

Dissolution

     15  

Section 11.2

 

Winding-Up and Termination

     15  

Section 11.3

 

Certificate of Cancellation

     16  

ARTICLE XII  GENERAL PROVISIONS

     16  

Section 12.1

 

Third Party Beneficiaries

     16  

Section 12.2

 

Offset

     17  

Section 12.3

 

Notices

     17  

Section 12.4

 

Entire Agreement, Supersedure

     17  

Section 12.5

 

Effect of Waiver or Consent

     17  

Section 12.6

 

Amendment or Restatement

     17  

Section 12.7

 

Binding Effect

     18  

Section 12.8

 

Governing Law; Severability

     18  

Section 12.9

 

Further Assurances

     18  

Section 12.10

 

Waiver of Certain Rights

     18  

Section 12.11

 

Directly or Indirectly

     18  

Section 12.12

 

Counterparts

     18  

 

SCHEDULES:          

I

   Member and Membership Interests   

II

   Manager     

III

   Officers     
EXHIBITS:          

A

   Defined Terms   

B

   Form of Certificate for Units   

C

   Form of Adoption Agreement   

 

ii


LIMITED LIABILITY COMPANY AGREEMENT

OF

DIAMOND STATE GENERATION PARTNERS, LLC

THIS 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 May 27, 2011 by Martin J. Collins, as the sole member of the company (the Member ”) on the signature pages to this Agreement.

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. Capitalized terms used in this Agreement (including any Schedules or Exhibits attached hereto) but not defined in the body hereof shall have the meanings ascribed to them in Exhibit A.

Section 1.2 Terms Generally. The definitions used in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Unless the context requires otherwise, the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” Finally, references to Articles and Sections refer to Articles and Sections of this Agreement; and references to Exhibits are to the Exhibits attached to this Agreement, each of which is made a part hereof for all purposes.

ARTICLE II

ORGANIZATION OF THE COMPANY

Section 2.1 Formation. 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 ”) 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.”


Section 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.

Section 2.3 Term. The Company’s existence shall be perpetual unless earlier terminated pursuant to the provisions of this Agreement.

Section 2.4 Purpose. The purpose of the Company shall be to engage in any lawful business, and any act or activity and to exercise any powers permitted to limited liability companies organized under the laws of the State of Delaware that are related or incidental to and necessary, convenient or advisable for the accomplishment of such business; and otherwise to exercise all powers enumerated in the Act necessary or convenient to the conduct, promotion or attainment of the business or purposes otherwise set forth herein.

Section 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.

Section 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 Manager may designate in the manner provided by Law. The registered agent of the Company in the State of Delaware shall be the registered agent named in the Certificate or such other Person or Persons as the Manager may designate in the manner provided by Law. The principal office of the Company shall be 1299 Orleans Drive, Sunnyvale, California 94089, or at such other location as may be from time to time determined by the Member. The Company may have such other offices as the Manager may designate.

Section 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, Manager or Officer, 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 may be held in the name of the Company or one or more of its Affiliates or one or more nominees, as the Manager may determine. 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


ARTICLE III

MEMBER; CREATION AND TRANSFER OF MEMBERSHIP INTERESTS

Section 3.1 Member. Martin J. Collins is the sole Member of the Company. The business, residence or mailing address of the Member is set forth on Schedule I.

Section 3.2 Membership Interests

(a) The Membership Interests shall (i) have the rights and obligations ascribed to such Membership Interests in this Agreement and the Act; (ii) be recorded in a register of Membership Interests, which register the Manager shall maintain; (iii) be transferable only on recordation of such Transfer in the register of Membership Interests, which recordation the Manager shall make, upon compliance with the provisions of Article III hereof and upon presentation of the unit certificates duly endorsed for transfer; (iv) 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 (v) be personal property.

(b) The form of certificate evidencing ownership of Units is set forth as Exhibit B. Additional forms of certificates shall be approved by the Manager from time to time in the event additional classes or series of Membership Interests are created in accordance with this Agreement. The Company shall issue one or more certificates to the Member, which certificates need not bear a seal of the Company but shall be signed by the President certifying the number, class and series of Units represented by such certificate. The unit certificate books shall be kept by the Secretary or at the office of such transfer agent or transfer agents as the Manager may from time to time by resolution select. In the event any officer, transfer agent or registrar who shall have signed, or whose facsimile signature or signatures shall have been placed upon, any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Company, such certificate may nevertheless be issued by the Company with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The unit certificates shall be consecutively numbered and shall be entered in the books of the Company as they are issued and shall exhibit the holder’s name and number of Units. The Manager may determine the conditions upon

 

3


which a new unit certificate may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed and may, in its discretion, require the owner of such certificate or its legal representative to give bond, with sufficient surety, to indemnify the Company and each transfer agent and registrar against any and all loss or claims which may arise by reason of the issuance of a new certificate in the place of the one so lost, stolen or destroyed. Each unit certificate shall bear a legend on the reverse side thereof substantially in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ”), AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE (AND, IN SUCH CASE, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SHALL HAVE BEEN DELIVERED TO THE COMPANY TO THE EFFECT THAT SUCH OFFER OR SALE IS NOT REQUIRED TO BE REGISTERED UNDER THE SECURITIES ACT). THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN THE LIMITED LIABILITY COMPANY AGREEMENT OF THE COMPANY, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.

Section 3.3 Admission of Additional Members. Notwithstanding any provision of this Agreement including the Exhibits hereto to the contrary, no additional Person (including an Assignee) that acquires a Membership Interest, whether pursuant to a Voluntary Transfer or an Involuntary Transfer, shall be admitted to the Company as a member without (i) the consent of the Manager, which consent may be given or withheld in the Manager’s sole discretion, and (ii) becoming a party to this agreement by executing an Adoption Agreement in substantially the form of Exhibit C attached hereto. An Assignee, in its capacity as such, of a Membership Interest shall only be entitled to receive allocations and distributions pursuant to ARTICLE V and shall not have any other rights or powers of a member including any voting rights. Until an Assignee becomes a member, the Member shall continue to be a member for all purposes hereof and have the power to exercise any rights or powers as a member, but shall not have the right to receive allocations or distributions pursuant to ARTICLE V. Upon the admission of any additional member to the Company, this Agreement shall be amended as the members shall agree to reflect the admission of such additional member.

Section 3.4 No Withdrawal. The Member may withdraw from the Company only following a permitted Transfer of all of such Member’s Membership Interest in accordance with this Agreement. Except as provided herein, in accordance with the provisions of Section 18-603 of the Act, no Member may withdraw prior to the dissolution and winding up of the Company.

 

4


Section 3.5 Liability to Third Parties. The Member shall not be liable for the debts, obligations or liabilities of the Company solely by reason of being the Member.

ARTICLE IV

CAPITALIZATION

Section 4.1 Initial Membership Interests. The Member shall hold 100% of the Membership Interests of the Company.

Section 4.2 Subsequent Contributions. No Member shall have any obligation to make additional capital contributions to the Company.

Section 4.3 Advances by Member. If the Company does not have sufficient cash to pay its obligations, the Member may agree to advance all or part of the needed funds to or on behalf of the Company. An advance described in this Section 4.3 constitutes a loan from the Member to the Company, bears interest at the Prime Rate from the date of the advance until the date of repayment, and shall not constitute a capital contribution.

ARTICLE V

DISTRIBUTIONS AND ALLOCATIONS

Section 5.1 Distributions. Subject in each case to restrictions imposed by Law including the Act, all distributions by the Company shall be made as follows:

(a) Except as described in Section 5.1(b), the Company may make distributions of cash or other property at any time and in such amount as the Manager may determine to the Member.

(b) Upon the dissolution and winding up of the Company, after making all allocations under Section 5.2, all assets and proceeds shall be distributed to the Member as provided in Section 11.2.

Section 5.2 Allocations. Profit and loss and all items included in the computation thereof shall be allocated to the Member.

 

5


ARTICLE VI

MANAGEMENT

Section 6.1 Management by the Manager. The business and affairs of the Company shall be managed by the Manager. Under the direction of the Manager, the day-to-day activities of the Company shall be conducted on the Company’s behalf by the Officers, who shall be agents of the Company. In addition to the powers that now or hereafter can be granted under the Act and to all other powers granted under any other provision of this Agreement, the Manager and the Officers (subject to the direction of the Manager) shall have full power and authority to do all things on such terms as they may deem necessary or appropriate to conduct, or cause to be conducted, the business and affairs of the Company, including the following:

(a) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness and the incurring of any other obligations;

(b) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Company;

(c) the merger or other combination or conversion of the Company with or into another Person;

(d) the use of the assets of the Company (including cash on hand) for any purpose consistent with the terms of this Agreement and the repayment of obligations of the Company;

(e) the negotiation, execution and performance of any contracts, conveyances or other instruments;

(f) the distribution of Company cash;

(g) the selection, engagement and dismissal of Officers, employees and agents, outside attorneys, accountants, engineers, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

(h) the maintenance of such insurance for the benefit of the Company, as it deems necessary or appropriate;

(i) the acquisition or disposition of assets, including securities;

 

6


(j) the formation of, or acquisition of an interest in, or the contribution of property to, any Person;

(k) the control of any matters affecting the rights and obligations of the Company, including the commencement, prosecution and defense of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expense and the settlement of claims and litigation; and

(l) the indemnification of any Person against liabilities and contingencies to the extent permitted by Law and this Agreement.

Section 6.2 The Manager.

(a) Composition. The manager shall be one (1) Person who need not be a Member or resident of the State of Delaware (the Manager ”). The initial Manager shall be the Person listed on Schedule II. Subject to any limitations specified by Law, the number of Managers may be increased or decreased by resolution by the Manager.

(b) Powers. The Manager is an agent of the Company’s business and, except as otherwise provided herein, the Manager may bind the Company in accordance with authority set forth in this Agreement or vested in a resolution of the Manager.

(c) Election and Term of Office. The Manager elected shall hold office until resignation or removal in the manner hereinafter provided.

(d) Resignation. The Manager may resign at any time by giving written notice to any Officer of the Company. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

(e) Resolutions. All resolutions adopted at any meeting of the Manager shall be reduced to writing and included in the minutes of such meeting.

(f) Location; Order of Business. The Manager may hold its meetings and may have an office and keep the books of the Company, in such place or places, within or without the State of Delaware, as the Manager may from time to time determine by resolution. At all meetings of the Manager business shall be transacted in such order as shall from time to time be determined by resolution of the Manager.

(g) Special Meetings of the Manager. Special meetings of the Manager may be called by the President or, upon written request of the Manager, by the Secretary.

 

7


(h) Notice. Except as otherwise set forth herein, notice of any meeting (whether the first meeting, a regular meeting or a special meeting) shall not be required, unless determined by the Manager pursuant to a resolution.

(i) Compensation. The Manager, in its capacity as such, shall not receive any compensation for their services. The Manager shall be entitled to be reimbursed by the Company for their respective reasonable out-of-pocket costs and expenses incurred in the course of their services as such.

Section 6.3 Provisions Applicable to All Meetings . In connection with any meeting to be held hereunder, the following provisions shall apply:

(a) Place of Meeting. Any such meeting shall be held at the principal place of business of the Company, unless the notice of such meeting, if any, specifies a different place, which need not be in the State of Delaware.

(b) Waiver of Notice Through Attendance. Attendance of a Person at such meeting (including pursuant to Section 6.3(e)) shall constitute a waiver of notice of such meeting, except where such Person attends the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

(c) Proxies. A Person may vote at such meeting by a written proxy executed by that Person and delivered to another Manager, committee member, or, in the case of the Member, to the Secretary. A proxy shall be revocable unless it is stated to be irrevocable.

(d) Action by Written Consent. Subject to compliance with any notice requirements applicable to the particular meeting, any action required or permitted to be taken at such a meeting may be taken without a meeting, and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the Managers or the Member, as applicable, having not fewer than the minimum number of votes that would be necessary to take the action at a meeting at which all Managers, members of the committee or the Member, as applicable, entitled to vote on the action were present and voted.

(e) Meetings by Telephone. The Manager, or members of any committee thereof, may participate in and hold meetings by means of conference telephone, video conference or similar communications equipment by means of which all Persons participating in the meeting can hear each other.

 

8


Section 6.4 Officers.

(a) Generally. The Manager, as set forth below in this Section 6.4, shall appoint certain agents of the Company to be referred to as Officers of the Company. The initial Officers shall be the persons listed on Schedule III. Unless otherwise provided by resolution of the Manager, the Officers shall have the titles, power, authority and duties described below in this Section 6.4, and such other power, authority and duties as generally pertain to their respective offices.

(b) Number, Titles and Term of Office. The Officers of the Company shall be a President and one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Secretary and such other officers as the Manager may from time to time elect or appoint. Each officer shall hold office until his successor shall be duly elected and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any number of offices may be held by the same person. No officer need be a Manager. Any officer may be an employee or an Affiliate of a Member.

(c) Powers. Each Officer is an agent of the Company’s business and, except as otherwise provided herein, each Officer may bind the Company in accordance with authority set forth in this Agreement or vested in a resolution of the Manager.

(d) Salaries. No Officer shall be entitled to receive a salary or any other compensation.

(e) Removal. Any Officer elected or appointed by the Manager or named in Schedule III of this Agreement may, subject to any contractual obligations of the Company with respect to such officer be removed, either with or without cause, by the Manager, at any regular meeting, or at a special meeting called for such purpose, provided the notice for such meeting shall specify that such proposed removal will be considered at the meeting; provided, however, that such removal shall be without prejudice to the contractual rights, if any, of the Person so removed. Election or appointment of an Officer shall not of itself create contractual rights.

(f) Vacancies. Any vacancy occurring in any office of the Company may be filled by the Manager.

(g) Powers and Duties of the President. The President shall have general executive charge, management and control of the properties, business and operations of the Company with all such powers as may be reasonably incident to such responsibilities and in connection therewith shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Company and may sign all Unit certificates of the Company.

 

9


(h) Powers and Duties of the Vice Presidents. Each Vice President shall perform such duties and have such powers as the Manager may from time to time prescribe. In addition, in the absence of the President, or in the event of the President’s inability or refusal to act, a Vice President designated by the Manager or, in the absence of such designation, a Vice President who is present and who is senior in terms of time as a Vice President of the Company, shall perform the duties of the President, and when so acting shall have all powers of and be subject to all restrictions upon the President.

(i) Powers and Duties of the Secretary. The Secretary shall keep the minutes of all meetings of the Manager, and committees thereof in books provided for such purpose; the Secretary shall attend to the giving and serving of all notices; the Secretary may in the name of the Company affix the seal of the Company to all contracts of the Company and attest thereto; the Secretary may sign with the other appointed Officers all Unit certificates; the Secretary shall have charge of the certificate books, transfer books and Unit ledgers, and such other books and papers as the Manager may direct, all of which shall at all reasonable times be open to inspection by any Manager upon application at the office of the Company during business hours; the Secretary shall have such other powers and duties as may be prescribed from time to time by the Manager; and shall in general perform all acts incident to the office of Secretary, subject to the control of the President and the Manager.

(j) Action with Respect to Securities of Other Companies. Unless otherwise determined by the Manager, the President shall have the power to vote and to otherwise act on behalf of the Company, in person or by proxy, at any meeting of security holders of any other company, or with respect to any action of security holders thereof, in which the Company may hold securities and otherwise to exercise any and all rights and powers which the Company may possess by reason of its ownership of securities in such other company.

ARTICLE VII

STANDARD OF CARE; EXCULPATION AND INDEMNIFICATION

Section 7.1 Standard of Care. The Manager shall perform their duties as Manager in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances.

Section 7.2 Exculpation. To the fullest extent permitted by Law, neither the Member nor any Manager, Officer, authorized person, employee or agent of the Company nor any employee, representative, agent or affiliate of the Member (collectively, the Covered Persons ”) shall be liable to the Company or any other person or entity that is bound by this Agreement for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on

 

10


behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s gross negligence or willful misconduct.

Section 7.3 Right to Indemnification. Subject to the limitations and conditions as provided in this ARTICLE VII, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (hereinafter a Proceeding ”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that it, or a Person of whom it is the legal representative, is or was a Manager or an Officer or while a Manager or an Officer is or was serving at the request of the Company as a member, manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise shall be indemnified by the Company to the fullest extent permitted by the Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said Law permitted the Company to provide prior to such amendment) against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including attorneys’ fees) actually incurred by such Person in connection with such Proceeding, and indemnification under this ARTICLE VII shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. Notwithstanding anything to the contrary in this Section 7.3, no Manager or Officer shall be entitled to indemnification hereunder unless it is found (in the manner described below in this Section 7.3) that, with respect to the matter for which such Person seeks indemnification, such Person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The finding of the standard of conduct required above shall be made (a) by the Manager is the Manager is not a party to such action, suit or proceeding, or (b) if the Manager is a party, if such Manager so directs, by independent legal counsel in a written opinion.

Section 7.4 Advance Payment. The right to indemnification conferred in this ARTICLE VII shall include the right to be paid or reimbursed by the Company the

 

11


reasonable expenses incurred by a Person of the type entitled to be indemnified under Section 7.3 who was, is or is threatened to be made a named defendant or respondent in a Proceeding in advance of the final disposition of the Proceeding and without any determination as to the Person’s ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such Person in advance of the final disposition of a Proceeding, shall be made only upon delivery to the Company of a written affirmation by such Person of its good faith belief that it has met the standard of conduct necessary for indemnification under this ARTICLE VII and a written undertaking, by or on behalf of such Person, to repay all amounts so advanced if it shall ultimately be determined that such indemnified Person is not entitled to be indemnified under this ARTICLE VII or otherwise.

Section 7.5 Indemnification of Employees and Agents . The Company, by adoption of a resolution of the Manager, may indemnify and advance expenses to any other employee or agent of the Company to the same extent and subject to the same conditions under which it may indemnify and advance expenses to the Manager and Officers under this ARTICLE VII; and the Company may indemnify and advance expenses to Persons who are not or were not Managers, Officers, employees or agents of the Company but who are or were serving at the request of the Company as a member, manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against such Person and incurred by such Person in such a capacity or arising out of its status as such a Person to the same extent that the Company may indemnify and advance expenses to the Manager and Officers under this ARTICLE VII.

Section 7.6 Appearance as a Witness. Notwithstanding any other provision of this ARTICLE VII, the Company may pay or reimburse expenses incurred by a Manager, Officer or Member in connection with its appearance as a witness or other participation in a Proceeding at a time when it is not a named defendant or respondent in the Proceeding.

Section 7.7 Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this ARTICLE VII shall not be exclusive of any other right which a Manager, Officer or other Person indemnified pursuant to Section 7.5 may have or hereafter acquire under any Law, this Agreement, act of the Manager or otherwise.

Section 7.8 Insurance. The Company may purchase and maintain insurance, at its expense, to protect itself and any Person who is or was serving as a Manager, Officer, employee or agent of the Company or is or was serving at the request

 

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of the Company as a member, manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such Person against such expense, liability or loss under this ARTICLE VII.

Section 7.9 Savings Clause. If this ARTICLE VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Person indemnified pursuant to this ARTICLE VII as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or Proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this ARTICLE VII that shall not have been invalidated and to the fullest extent permitted by Law’.

Section 7.10 Contract Rights. The rights granted pursuant to this ARTICLE VII shall be deemed contract rights, and no amendment, modification or repeal of this ARTICLE VII shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings arising prior to any such amendment, modification or repeal.

Section 7.11 Indemnification by Member. To the fullest extent permitted by Law, the Member shall indemnify the Company and hold it harmless from and against all losses, costs, liabilities, damages and expenses (including costs of suit and attorney’s fees) it may incur on account of any breach by the Member of this Agreement.

Section 7.12 Negligence, etc. IT IS EXPRESSLY ACKNOWLEDGED THAT THE INDEMNIFICATION PROVIDED IN THIS ARTICLE VII COULD INVOLVE INDEMNIFICATION FOR NEGLIGENCE OR UNDER THEORIES OF STRICT LIABILITY.

ARTICLE VIII

REPORTS; ACCESS TO INFORMATION

Section 8.1 Reports. The Company shall provide to the Manager such reports as the Manager shall determine in its discretion.

Section 8.2 Access to Information.

(a) In addition to the other rights to information specifically set forth in this Agreement, the Member shall be entitled to all information to which a member is

 

13


entitled to have access pursuant to Section 18-305 of the Act under the circumstances and subject to the conditions therein stated. Without limiting the foregoing, the Member shall be entitled to receive all information from the Company which it requires in order to comply with its reporting obligations to each of its members.

(b) The Member shall reimburse the Company for all out-of-pocket costs and expenses incurred by the Company in connection with the Member’s inspection and copying of the Company’s books and records. The Member shall not be required to reimburse the Company for any time spent by its regular employees in connection with such inspection and copying.

ARTICLE IX

TAXES

Section 9.1 Tax Returns. The Company shall prepare and timely file all federal, state and local tax returns required to be filed by the Company. The Member shall furnish to the Company all pertinent information in its possession relating to the Company’s operations that is necessary to enable the Company’s tax returns to be timely prepared and filed. The Company shall deliver a copy of each such return to the Member on or before ten days prior to the due date of any such return (including extensions), together with such additional information as may be required by the Member in order for the Member to file its individual returns reflecting the Company’s operations. The Company shall bear the costs of the preparation and filing of its returns.

Section 9.2 Tax Character. The Company shall be treated as a disregarded entity for federal income tax purposes.

Section 9.3 Tax Elections. Neither the Company nor the Member may make an election for the Company to be treated as an association or corporation for federal income tax purposes.

ARTICLE X

BOOKS AND BANK ACCOUNTS

Section 10.1 Maintenance of Books. The Company shall keep or cause to be kept at its principal office complete and accurate books and records of the Company, supporting documentation of the transactions with respect to the conduct of the Company’s business and minutes of the Proceedings of the Manager and any committee thereof. The records shall include, but not be limited to, a copy of the Certificate and this Agreement and all amendments thereto; a current list of the names and last known business, residence, or mailing addresses of the Member; and the Company’s federal, state, and local tax returns for the Company’s six most recent tax years.

 

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Section 10.2 Accounts. The Member shall establish one or more separate bank and investment accounts and arrangements for the Company, which shall be maintained in the Company’s name with financial institutions and firms that the Manager may determine. The Company may not commingle the Company’s funds with the funds of the Member; provided, however, that the Company funds may be invested in a manner the same as or similar to the Member’s investment of their own funds or investments by their Affiliates.

ARTICLE XI

DISSOLUTION, WINDING-UP AND TERMINATION

Section 11.1 Dissolution. The Company shall dissolve and its affairs shall be wound up on the first to occur of the following events (each a Dissolution Event ”) and no other event shall cause the Company’s dissolution:

(a) the consent of the Member;

(b) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Act; and

(c) the termination of the legal existence of the Member or the occurrence of any other event that terminates the continued membership of the Member in the Company, unless the Company is continued without dissolution in a manner permitted by the Act.

Section 11.2 Winding-Up and Termination. On the occurrence of a Dissolution Event, the Manager may select one or more Persons to act as liquidator or may itself act as liquidator. The liquidator shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The costs of winding up shall be borne as a Company expense, including reasonable compensation to the liquidator if approved by the Manager. Until final distribution, the liquidator shall continue to operate the Company properties with all of the power and authority of the Manager. The steps to be accomplished by the liquidator are as follows:

(a) as promptly as possible after dissolution and again after final winding up, the liquidator shall cause a proper accounting to be made of the Company’s assets, liabilities, and operations through the last calendar day of the month in which the dissolution occurs or the final winding up is completed, as applicable;

(b) the liquidator shall pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations of the Company (including all expenses incurred in winding up and any advances described in Section 4.3) or otherwise make adequate

 

15


provision for payment and discharge thereof (including the establishment of a cash escrow fund for contingent liabilities in such amount and for such term as the liquidator may reasonably determine); and

(c) all remaining assets of the Company shall be distributed to the Member as follows:

(i) the liquidator may sell any or all Company property, including to the Member, and any resulting gain or loss from each sale shall be computed and allocated to the Member; provided, that the liquidator shall use its reasonable best efforts to not sell, but to retain for distribution in kind as provided herein, any securities in which the Company may have invested; and

(ii) Company property shall be distributed to the Member by the end of the taxable year of the Company (or the Member’s taxable year if there is no Company taxable year) during which the liquidation of the Company occurs (or, if later, 90 days after the date of the liquidation).

All distributions in kind to the Member shall be made subject to the liability of the Member for costs, expenses, and liabilities theretofore incurred or for which the Company has committed prior to the date of termination and those costs, expenses, and liabilities shall be allocated to the Member pursuant to this Section 11.2. The distribution of cash and/or property to the Member in accordance with the provisions of this Section 11.2 constitutes a complete return to the Member of its capital contributions and a complete distribution to the Member of its Membership rights and all the Company’s property and constitutes a compromise to which the Member has consented within the meaning of Section 18-502(b) of the Act.

Section 11.3 Certificate of Cancellation. On completion of the distribution of Company assets as provided herein, the Manager (or such other Person or Persons as the Act may require or permit) shall file a Certificate of Cancellation with the Secretary of State of Delaware and take such other actions as may be necessary to terminate the existence of the Company. Upon the effectiveness of the Certificate of Cancellation, the existence of the Company shall cease, except as may be otherwise provided by the Act or other applicable Law.

ARTICLE XII

GENERAL PROVISIONS

Section 12.1 Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any creditor of the Company or by any creditor of the Member. Nothing in this Agreement shall be deemed to create any

 

16


right in any Person (except as expressly set forth in ARTICLE VII) not a party hereto, and this Agreement shall not be construed in any respect to be a contract in whole or in part for the benefit of any third Person (except as expressly set forth in ARTICLE VII).

Section 12.2 Offset. Whenever the Company is to pay any sum to the Member, any amounts that the Member, in its capacity as a Member, owes the Company may be deducted from that sum before payment.

Section 12.3 Notices. Except as expressly set forth to the contrary in this Agreement, all notices, requests or consents provided for or permitted to be given under this Agreement must be in writing and must be delivered to the recipient in person, by courier or mail or by facsimile, telegram, telex, cablegram or similar transmission; and a notice, request or consent given under this Agreement is effective on receipt by the Person to receive it. All notices, requests and consents to be sent to the Member must be sent to or made at the address given for the Member on Schedule I, or such other address as the Member may specify by notice. Any notice, request or consent to the Company must be given to the Member. Whenever any notice is required to be given by Law, the Certificate or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

Section 12.4 Entire Agreement, Supersedure. This Agreement constitutes the entire agreement of the Member relating to the Company and supersedes all prior contracts or agreements with respect to the Company, whether oral or written.

Section 12.5 Effect of Waiver or Consent. A waiver or consent, express or implied, to or of any breach or default by any Person in the performance by that Person of its obligations with respect to the Company 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. Failure on the part of a Person to complain of any act of any Person or to declare any Person in default with respect to the Company, irrespective of how long that failure continues, does not constitute a waiver by that Person of its rights with respect to that default until the applicable statute-of-limitations period has run.

Section 12.6 Amendment or Restatement.

(a) This Agreement (including the Exhibits) may be amended or restated only by a written instrument adopted, executed and agreed to by the Member.

(b) The Certificate may be amended or restated only with the approval of the Manager.

 

17


Section 12.7 Binding Effect. Subject to the restrictions on Transfers set forth in this Agreement, this Agreement is binding on and inures to the benefit of the Member and its respective successors and assigns.

Section 12.8 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the event of a direct conflict between the provisions of this Agreement and (a) any provision of the Certificate, or (b) any mandatory, nonwaivable provision of the Act, such provision of the Certificate or the Act shall control. If any provision of the Act provides that it may be varied or superseded in the agreement of a limited liability company (or otherwise by agreement of the members or managers of a limited liability company), such provision shall be deemed superseded and waived in its entirety if this Agreement contains a provision addressing the same issue or subject matter. If any provision of this Agreement or the application thereof to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other Persons or circumstances is not affected thereby and that provision shall be enforced to the greatest extent permitted by Law.

Section 12.9 Further Assurances. In connection with this Agreement and the transactions contemplated hereby, the Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions.

Section 12.10 Waiver of Certain Rights. The Member irrevocably waives any right it may have to maintain any action for dissolution of the Company or for partition of the property of the Company.

Section 12.11 Directly or Indirectly. Where any provision of this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken, directly or indirectly by such Person, including actions taken by or on behalf of any Affiliate of such Person.

Section 12.12 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

 

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IN WITNESS WHEREOF, the Member has executed this Agreement effective as of the date first set forth above.

 

MARTIN J. COLLINS

By:  

/s/ Martin J. Collins

  Name: Martin J. Collins
 

Title: Member

LLC Agreement for Diamond State Generation Partners. LLC


SCHEDULE I

MEMBER; MEMBERSHIP INTERESTS

 

Member

  

Membership Interests

Martin J. Collins

c/o Bloom Energy Corporation

1299 Orleans Drive

Sunnyvale, California 94089

   100 Units


SCHEDULE II

MANAGER

Martin J. Collins


SCHEDULE III

OFFICERS

 

William H. Kurtz    President
William E. Brockenborough    Vice President
Martin J. Collins    Vice President
Scott G. Reynolds    Vice President


EXHIBIT A

DEFINED TERMS

Act means the Delaware Limited Liability Company Act and any successor statute, as amended from time to time.

Affiliate of a Person means, any Person Controlling, Controlled by, or Under Common Control with such Person.

Agreement means the Limited Liability Company Agreement of Diamond State Generation Partners, LLC, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof.

Assignee means any Person that acquires a Membership Interest or any portion thereof through a Transfer made in accordance with this Agreement or pursuant to an Involuntary Transfer and that has not been admitted as a Member.

Book Value means with respect to any asset, the adjusted basis of the asset for federal income tax purposes.

Certificate shall have the meaning set forth in Section 2.1.

Code means the United States Internal Revenue Code of 1986, as amended from time to time. All references herein to Code Sections shall include any corresponding provision or provisions of succeeding Law.

Company means Diamond State Generation Partners, LLC, a Delaware limited liability company, and any successor thereto.

Contributed Property means any property, other than cash, contributed to the Company by the Member.

Control including the correlative terms Controlling , Controlled by and Under Common Control with means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise) of a Person. For the purposes of the preceding sentence, control shall be deemed to exist when a Person possesses, directly or indirectly, through one or more intermediaries (i) in the case of a corporation, more than 50% of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to more than 50% of the distributions therefrom (including liquidating distributions); or (iii) in the case of any other Person, more than 50% of the economic or beneficial interest therein.

 

Exhibit A-1


Covered Person shall have the meaning set forth in Section 7.2.

Dissolution Event shall have the meaning set forth in Section 11.1.

Involuntary Transfer means a Transfer resulting from the death of a Person or any other Transfer occurring by operation of Law, including a Transfer resulting from a bankruptcy or other insolvency proceeding, termination of existence of an entity, divorce or legal incapacity.

Law means any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, declaration, or interpretative or advisory opinion or letter of a governmental authority.

Manager shall have the meaning as set forth in Section 6.2(a).

Member means any Person executing this Agreement as of the date of this Agreement as a member.

Membership Interest means the limited liability interest of the Member in the Company, including, without limitation, rights to distributions (liquidating or otherwise), allocations, information, all other rights, benefits and privileges enjoyed by the Member (under the Act, the Certificate, this Agreement or otherwise) in its capacity as the Member and otherwise to participate in the management of the Company; and all obligations, duties and liabilities imposed on the Member (under the Act, the Certificate, this Agreement, or otherwise) in its capacity as the Member; provided, however, that such term shall not include any management rights held by the Member solely in its capacity as a Manager.

Officer means any Person designated as an officer of the Company as provided in Section 6.4, but such term does not include any Person who has ceased to be an officer of the Company.

Person means any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank trust company, land trust, business trust, or other organization, whether or not a legal entity, and any government or agency or political subdivision thereof.

 

Exhibit A-2


Prime Rate means a rate per annum equal to the lesser of (a) the prime rate published from time to time in The Wall Street Journal, and (b) the maximum rate permitted by Law.

Proceeding shall have the meaning set forth in Section 7.3.

Securities Act means the Securities Act of 1933, as amended from time to time.

Transfer including the correlative terms Transferring or Transferred , means a transaction by which the Member or an Assignee of the Member transfers its respective Membership Interest to another Person and includes a sale, assignment, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by Law or otherwise; provided that a transfer of a Membership Interest resulting from termination of a trust that is a Member (or an Assignee of a Member) and a required distribution to a remainder beneficiary thereof shall not be treated as a transfer for purposes hereof provided that such distribution from the trust is made to an Original Member. When used in the context of a Transfer, the term Membership Interest shall include any Membership Interest and any interest (pecuniary or otherwise) therein or rights thereto. Notwithstanding the foregoing, the term Transfer shall not include the sale or other disposition of a Member’s respective Membership Interest in connection with (i) the sale of all or substantially all assets of the Member or (ii) the sale of all or substantially all equity interests in the Member.

Units means, collectively, the Membership Interests as measured in unit increments and Unit shall refer to any one of the Units.

Voluntary Transfer means any Transfer other than an Involuntary Transfer.

 

Exhibit A-3


EXHIBIT B

 

Certificate No.                     Units

CERTIFICATE FOR UNITS

REPRESENTING MEMBERSHIP INTERESTS IN

DIAMOND STATE GENERATION PARTNERS, LLC

Diamond State Generation Partners, LLC, a Delaware limited liability company (the Company ”), hereby certifies that                      is a Member of the Company and that this Certificate represents such Member’s ownership of                      (          ) units representing membership interests in the Company (“ Units ”) .

This Certificate is not negotiable or transferable except upon death or by operation of law or as otherwise provided in the Limited Liability Company Agreement of the Company, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, and the exhibits thereto (the Agreement ) to which reference is hereby made for a statement of the rights, preferences and limitations pertaining to the Units.

Dated: July 27, 2011

 

DIAMOND STATE GENERATION

PARTNERS, LLC

By:  

 

  Name:  

 

  Title:  

 

RESTRICTIONS UPON THE ASSIGNMENT OR OTHER DISPOSITION OF THE UNITS EVIDENCED BY THIS CERTIFICATE ARE SET FORTH ON THE REVERSE SIDE HEREOF.

 

Exhibit B-l


DIAMOND STATE GENERATION PARTNERS, LLC

CERTIFICATE FOR

100

UNITS

Dated: July 27, 2011

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ”) , AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE (AND, IN SUCH CASE, THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO BE DELIVERED TO IT TO THE EFFECT THAT SUCH OFFER OR SALE IS NOT REQUIRED TO BE REGISTERED UNDER THE SECURITIES ACT). THIS SECURITY IS SUBJECT TO CERTAIN VOTING AGREEMENTS, RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN THE LIMITED LIABILITY COMPANY AGREEMENT OF THE COMPANY, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.

 

Exhibit B-2


EXHIBIT C

ADOPTION AGREEMENT

This Adoption Agreement (“ Adoption ”) is executed by the undersigned transferee (“ Transferee ”) pursuant to the terms of Section 3.3 to the Limited Liability Company Agreement of Diamond State Generation Partners, LLC (the “ Company ”), dated as of May 27, 2011, a copy of which is attached hereto and is incorporated herein by reference (the “ Operating Agreement ) . By the execution of this Adoption, the Transferee (and such spouse, if applicable) agrees as follows:

1. Acknowledgment . Transferee acknowledges that Transferee is acquiring certain Units, subject to the terms and conditions of the Operating Agreement (including the Exhibits thereto). Capitalized terms used herein without definition are defined in the Operating Agreement and are used herein with the same meanings set forth therein.

2. Agreement . Transferee (a) agrees that Units acquired by Transferee shall be bound by and subject to the terms of the Operating Agreement (including the Exhibits thereto) and (b) hereby joins in, and agrees to be bound by, the Operating Agreement (including the Exhibits thereto) with the same force and effect as if it were originally a party thereto; provided, Transferee’s joinder in the Operating Agreement shall not constitute its admission as a Member unless and until such Transferee is duly admitted in accordance with the terms of the Operating Agreement.

3. Notice . Any notice required or permitted by the Operating Agreement shall be given to Transferee at the address listed beside Transferee’s signature below.

EXECUTED AND DATED on this 27 day of July, 2011.

 

TRANSFEREE:
BLOOM ENERGY CORPORATION
By:  

 

  Notice  
  Address:  

1299 Orleans Drive

Sunnyvale, California 94089

 

Exhibit C-1


EXHIBIT F

FORM OF CHADBOURNE OPINION

[ OMITTED – UNABLE TO LOCATE]


EXHIBIT G-1

FORM OF COMPANY OFFICER INSTRUCITON LETTER

[ OMITTED – UNABLE TO LOCATE]


EXHIBIT G-2

FORM OF PROJECT COMPANY INSTRUCTION LETTER

[ OMITTED – UNABLE TO LOCATE]


EXHIBIT H

FORM OF MCDERMOTT OPINION

[ OMITTED – UNABLE TO LOCATE]


EXHIBIT I

FORM OF FUNDING NOTICE

[ OMITTED – UNABLE TO LOCATE]


EXHIBIT J

MARCH 16, 2012 DRAFT VERSION OF CREDIT AGREEMENT

[ OMITTED – UNABLE TO LOCATE]


SCHEDULES to ECCA

(Initial Funding)

 

1


SCHEDULE 3.1(d)

LITIGATION

None.

 

Schedule 3.1(d) - 1


SCHEDULE 3.1(g)

TAXES

None.

 

Schedule 3.1(g) - 1


SCHEDULE 3.1(h)

FINANCIAL STATEMENTS

Diamond State Generation Holdings, LLC

Unaudited Consolidated Balance Sheet

 

     Diamond State
Generation
Holdings, LLC
     Diamond
State
Generation
Partners,
LLC
     Diamond State
Generation
Holdings, LLC
Consolidated
 

[***]

     [***]        [***]        [***]  

[***]

     [***]        [***]        [***]  

[***]

     [***]        [***]        [***]  

[***]

     [***]        [***]        [***]  

[***]

     [***]        [***]        [***]  

[***]

     [***]        [***]        [***]  

 

[***] Confidential Treatment Requested

 

Schedule 3.1(h) - 1


Diamond State Generation Partners, LLC

Unaudited Balance Sheet & Income Statement

 

     Initial
Investment
    Cash
Investment
    Inventory
Acquisition
    Return of
Equity
       

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

[***]

     [ ***]      [ ***]      [ ***]      [ ***]      [ ***] 

 

[***] Confidential Treatment Requested

 

Schedule 3.1(h) - 2


SCHEDULE 3.1(i)

GOVERNMENTAL APPROVALS AND FILINGS

 

1. Order from FERC granting Project Company MBR Authority required prior to the Project Company selling electric energy (including test energy) capacity or ancillary services from the Project.

 

2. Notice of Self-Certification of Exempt Wholesale Generator Status, filed March 15, 2012, in Docket No. EG12-44-000.

 

Schedule 3.1(i) - 1


SCHEDULE 3.1(k)

ENVIRONMENTAL MATTERS

None.

 

Schedule 3.1(k) - 1


SCHEDULE 3.1(l)

PERMITS

Brookside Site

 

Permit

  

Issuing Authority

  

Status

National Pollutant Discharge Elimination System (“NPDES”) Permit    Delaware Department of Natural Resources and Environmental Control (“DNREC”)    Approved
Air Permit    DNREC    Approved
Stormwater Review and Engineering Approval    New Castle County/DNREC    Completed
Planning Dept. and Site Plan Approval    New Castle County    Approved
Feasibility Study    PJM    Completed
Generation Interconnection Facilities Study Report    PJM    Completed

Red Lion Site

 

Permit

  

Issuing Authority

  

Status

Underground Injection Control Permit (to discharge waste water from water treatment plant)    DNREC    Application in progress
Waiving of 100 foot well restriction on the deed    Delaware City Refining Co.    Applied for, DBR working on it
Building Occupancy Permit    New Castle County    Cannot apply until after County inspections completed
Gas permit for building    New Castle County    Will be submitted by building contractor
System Impact Study    PJM    In progress
Transmission line right of way (route TBD)    DPL    Not applied for, waiting on PJM Interconnection Services Agreement to be completed
Building Permit    New Castle County    Not issued until after contractor selected and pre-construction meeting held with NCC

 

Schedule 3.1(1) - 1


DNREC Coastal Zone Permit    DNREC    Hearing scheduled for 3/6/2012
DNREC well permit    DNREC    Submitted 11/19/2011 but not yet approved
Record Minor    New Castle County    Submitted 12/21/2011 but not yet approved
Air Permit (Operating & Construction)    DNREC    To be issued in connection with Coastal Zone Permit
Stormwater Review and Engineering Approval    New Castle County    Approved
Planning Dept. and Site Plan Approval    New Castle County    Approved
Record Plan    New Castle County    To be recorded
DDOT Entrance Permit    DDOT    Design approved but permit will be issued as soon as DPL approves Site Remediation Estimate
NPDES Permit (construction)    DNREC    Completed
NPDES Permit (operation)    DNREC    In progress
Fire marshal Review    State of Delaware    Completed
Feasibility Study    PJM    Completed
Wetlands Review    New Castle County    Completed

 

Schedule 3.1(1) - 2


SCHEDULE 3.1(m)

INSURANCE

Please see attached.

 

Schedule 3.1(m) - 1


 

Insurance Services  |  Risk Management  |  Employee Benefits        

Diamond State Generation Partners, LLC

Revised Insurance Program Chart: Closing — Initial Funding as of 4/13/12

 

  Falvey (Lloyds), A XV
  Hartford, A XV

 

DSGP

  

Bloom Energy

  

DSGP

Transit/Cargo Stock    Transit/Cargo Stock    PROPERTY POLICY
(12/30/11-12/30/12)    (7/10/11-7/11/12)    (4/13/12-4/13/12)

Expeditors, Milpitas, CA and Moffett Filed, CA

 

Blanket Location Limit: $17,000,000

 

Earthquake/Flood/Wind Sub Limit:

$5,000,000

 

Transit Limit: $2,500,000

  

Installation Limits: $15,000,000

 

Earthquake/Flood/Wind Sub Limit:

$5,000,000

 

Transit Limit: $3,000,000

  

Brookside, DE Location

 

Property Limit: $27,876,383

Includes Installation

 

Business Income Incl. EE Limit

$2,095,098

 

Earthquake Limit for Brookside site:

$25M

 

Flood Limit for Brookside site: $10,000,000

 

Wind Limit for Brookside site: Policy Limits

 

Dependent Business Income Limit: $5M

$50,000 PD; 2.5% TIV subject to $50,000 minimum for Earthquake, Flood & Wind; 72 Hour Waiting Period for Earthquake    $50,000 PD; 5% TIV subject to $100,000 minimum for Earthquake, Flood & Wind; 72 Hour Waiting Period for Earthquake    $50,000 PD; 14 Day Deductible for BI-EE & Dependent BI; 72 Hour Waiting Period for BI-EE & Depend BI; $1000,000 Flood, Earthquake & Wind

 

 

LOGO       

www.wsndco.com

CA License 032999=8

DR License 812979

      
      

 

Schedule 3.1(m) - 2


SCHEDULE 3.1(n)

REAL PROPERTY

 

1. Lease Agreement between Delaware Department of Transportation and Diamond State Generation Partners, LLC, dated as of July 31, 2011.

 

2. Lease Agreement between Delmarva Power & Light Company and Diamond State Generation Partners, LLC, dated as of February 10, 2012.

 

Schedule 3.1(n) - 1


SCHEDULE 3.1(o)

PERSONAL PROPERTY

 

     Citibank  
          Account
#
 

[***]

   [***]      [ ***] 
   [***]      [ ***] 

[***]

   [***]      [ ***] 

 

[***] Confidential Treatment Requested

 

Schedule 3.1(o) - 1


SCHEDULE 3.1(p)

LIENS

None.

 

Schedule 3.1(p) - 1


SCHEDULE 3.1(q)

MATERIAL CONTRACTS

 

1. Lease Agreement between Delaware Department of Transportation and Diamond State Generation Partners, LLC, dated as of July 31, 2011.

 

2. Lease Agreement between Delmarva Power & Light Company and Diamond State Generation Partners, LLC, dated as of February 10, 2012.

 

3. Delmarva Power & Light Company’s Service Classification “QFCP-RC” for REPS Qualified Fuel Cell Provider Projects as approved by the Delaware Public Service Commission in accordance with the REPS Act on October 18, 2011.

 

4. Delmarva Power & Light Company’s Service Classification “LVG-QFCP-RC” filed for gas service applicable to REPS Qualified Fuel Cell Provider Projects and approved by the Delaware Public Service Commission in Order No. 8062 dated October 18, 2011.

 

5. Service Application and Agreement to Comply with Obligations dated as of June 28, 2011 between the Diamond State Generation Partners, LLC and Delmarva Power & Light Company.

 

6. Bill of Sale and Agreement effective as of December 30, 2011 between Bloom Energy Corporation and Diamond State Generation Partners, LLC.

 

7. Capital Contribution Agreement dated December 30, 2011, among Bloom Energy Corporation, Clean Technologies II, LLC, Diamond State Generation Holdings, LLC, and Diamond State Generation Partners, LLC.

 

8. Facilities Study Agreement dated November 23, 2011 between Diamond State Generation Partners, LLC and PJM.

 

9. System Impact Study Agreement dated August 29, 2011 between Diamond State Generation Partners, LLC and PJM.

 

10. Credit Agreement, dated March 22, 2012, among Diamond State Generation Partners, LLC, RBS Securities Inc., The Royal Bank of Scotland plc, as administrative agent and collateral agent, and the Lenders.

 

11. Security Agreement, dated March 22, 2012, between Diamond State Generation Partners, LLC and The Royal Bank of Scotland plc, as collateral agent.

 

12. Pledge and Security Agreement, dated March 22, 2012, among Diamond State Generation Holdings, LLC, Diamond State Generation Partners, LLC and The Royal Bank of Scotland plc, as collateral agent.

 

13. Depositary Agreement, dated March 22, 2012, among Diamond State Generation Partners, LLC and The Royal Bank of Scotland plc, as administrative agent, collateral agent, and Wilmington Trust, N.A., as depositary.

 

Schedule 3.1(q) - 1


14. Interparty Agreement, dated as of April 13, 2012, among Mehetia Inc., Diamond State Generation Partners, LLC, Diamond State Generation Holdings, LLC, Clean Technologies II, LLC, and The Royal Bank of Scotland plc, as administrative agent and collateral agent.

 

15. Cash Grant Indemnity Agreement, dated as of April 13, 2012, by Mehetia Inc. in favor of Diamond State Generation Partners, LLC, and The Royal Bank of Scotland plc, as collateral agent.

 

16. Cash Grant Indemnity Agreement, dated as of April 13, 2012, by Bloom Energy Corporation in favor of Diamond State Generation Partners, LLC, and The Royal Bank of Scotland plc, as collateral agent.

Defaults under any Material Contract or any of the Transaction Documents

None.

 

Schedule 3.1(q) - 2


SCHEDULE 3.1(s)

AFFILIATE TRANSACTIONS

 

1. Assignment Agreement (with respect to the Agreement for Construction Management Services dated September 15, 2011 between Diamond State Generation Partners, LLC and Hill International, Inc.), dated as of March 15, 2012, by and between Diamond State Generation Partners, LLC and Bloom Energy Corporation.

 

Schedule 3.1(s) - 1


SCHEDULE 3.1(y)

INTELLECTUAL PROPERTY

 

Geography

 

Serial No.

 

Patent Number

AU   2006201407  
BR   P10601582-4  
CN   200610077861.5   ZL200610077861.5
CN   200680024042.2   ZL200680024042.2
CN   200880011738.0  
CN   200880019306.4  
CN   20088010539.6  
CN   200880115166.0  
CN   200980105333.8  
CN   200980145976.5  
DE   102006020097.7  
DE   602004028720.2   162091
EP   3742806.7  
EP   4758024.6   1620911
EP   4759269.6  
EP   4783630.9  
EP   4817021.1  
EP   4821588.3  
EP   5723852.9  
EP   05759486.3  
EP   6759276.6  
EP   6788269.6  
EP   6800263.3  
EP   6800264.1  
EP   6800265.8  
EP   7007696.3  
EP   7716860.7  
EP   7754708.1  
EP   7811636.5  
EP   8780322.7  
EP   09712742.7  
EP   10797787.8  

 

Schedule 3.1(q) - 1


Fl   4758024.6   1620911
FR   06/03994  
FR   06/03998  
GB   4758024.6   1620911
IN   1093/KOLN/P/2004   233867
IN   1585/KOLNP/2011  
IN   1746/KOLNP/2005   226743
IN   176/KOLNP/2007  
IN   2055/KOLNP/2005   226430
IN   2082/KOLNP/2006  
IN   243/KOLNP/2010  
IN   2816/KOLNP/2010  
IN   3010/KOLNP/2006  
IN   311/KOLNP/2008  
IN   3286/KOLNP/2008  
IN   329/KOLNP/2008  
IN   343/KOLNP/2008  
IN   366/KOLNP/2008  
IN   4257/KOLNP/2007  
IN   4399/KOLNP/2008  
IN   576/KOL/2007  
IN   652/KOLNP/2006   230333
IN   692/KOLNP/2006   226485
IN   820/GHE/2006  
IN   852/CHENP/2012  
IN   861/KOLNP/2009  
JP   2003-570412  
JP   2006-130431  
JP   2008-511221  
JP   2008-524021  
JP   2008-524022  
JP   2008-524023  
JP   2008-524024  
JP   2008-552342  
JP   2010-518237  
JP   2010-547715  
KR   2004-7013022  

 

Schedule 3.1(q) - 2


PCT   PCT/US03/04808  
PCT   PCT/US03/04989  
PCT   PCT/US03/13151  
PCT   PCT/US03/29127  
PCT   PCT/US04/08741  
PCT   PCT/US04/08742  
PCT   PCT/US04/08745  
PCT   PCT/US04/10818  
PCT   PCT/US04/13895  
PCT   PCT/US04/27347  
PCT   PCT/US04/29458  
PCT   PCT/US04/41082  
PCT   PCT/US05/06164  
PCT   PCT/US05/10671  
PCT   PCT/US05/29747  
PCT   PCT/US05/32138  
PCT   PCT/US06/17655  
PCT   PCT/US06/28612  
PCT   PCT/US06/28613  
PCT   PCT/US06/28614  
PCT   PCT/US06/28615  
PCT   PCT/US06/37459  
PCT   PCT/US07/01584  
PCT   PCT/US07/01779  
PCT   PCT/US07/19887  
PCT   PCT/US07/19888  
PCT   PCT/US07/21597  
PCT   PCT/US07/21630  
PCT   PCT/US07/24457  
PCT   PCT/US07/25727  
PCT   PCT/US07/25785  
PCT   PCT/US07/06373  
PCT   PCT/US07/08224  
PCT   PCT/US07/08225  
PCT   PCT/US07/19155  
PCT   PCT/US07/19156  
PCT   PCT/US08/000413  

 

Schedule 3.1(q) - 3


PCT   PCT/US08/01162  
PCT   PCT/US08/01367  
PCT   PCT/US08/02114  
PCT   PCT/US08/02411  
PCT   PCT/US08/04216  
PCT   PCT/US08/04600  
PCT   PCT/US08/04710  
PCT   PCT/US08/05516  
PCT   PCT/US08/05517  
PCT   PCT/US08/06993  
PCT   PCT/US08/07360  
PCT   PCT/US08/08951  
PCT   PCT/US08/09069  
PCT   PCT/US08/12671  
PCT   PCT/US08/01814  
PCT   PCT/US08/02410  
PCT   PCT/US08/84027  
PCT   PCT/US09/00991  
PCT   PCT/US09/34367  
PCT   PCT/US09/65095  
PCT   PCT/US10/27899  
PCT   PCT/US10/41179  
PCT   PCT/US10/41221  
PCT   PCT/US10/41238  
PCT   PCT/US10/42316  
PCT   PCT/US10/45182  
PCT   PCT/US10/47540  
PCT   PCT/US10/50577  
PCT   PCT/US11/21664  
PCT   PCT/US11/47976  
PCT   PCT/US11/57440  
PCT   PCT/US11/60604  
PCT   PCT/US11/62328  
PCT   PCT/US12/20356  
TW   98124907  
TW   98139664  
TW   099108262  

 

Schedule 3.1(q) - 4


TW   99126983  
TW   99129535  
TW   100102963  
TW   100129273  
TW   100138524  
TW   100141483  
TW   100144017  
TW   101100717  
TW   099122589  
US   10/299,863   6,854,688
US   10/300,021   7,067,208
US   10/368,348   7,255,956
US   10/368,425  
US   10/368,493   7,045,237
US   10/369,103  
US   10/369,133   7,135,248
US   10/369,322   7,144,651
US   10/394,202   7,045,238
US   10/394,203   6,924,053
US   10/428,804   6,908,702
US   10/446,704   7,482,078
US   10/465,636   7,201,979
US   10/635,446   6,821,663
US   10/653,240   7,364,810
US   10/658,275   7,150,927
US   10/822,707  
US   10/853,194  
US   10/866,238   7,575,822
US   11/002,681   7,422,810
US   11/028,506  
US   11/076,102  
US   11/095,552   7,514,166
US   11/100,489   7,524,572
US   11/124,120  
US   11/124,817   7,858,256
US   11/125,267   7,700,210
US   11/138,292  

 

Schedule 3.1(q) - 5


US   11/188,118  
US   11/188,120   7,591,880
US   11/188,123   7,520,916
US   11/207,018  
US   11/221,983  
US   11/236,737   7,785,744
US   11/274,928   8,097,374
US   11/276,717   7,713,649
US   11/326,400  
US   11/384,426  
US   11/389,282  
US   11/404,760   7,599,760
US   11/432,503   7,572,530
US   11/433,582   7,781,912
US   11/436,537  
US   11/457,016  
US   11/491,487  
US   11/491,488   8,101,307
US   11/522,976  
US   11/524,241   7,846,600
US   11/526,029   7,968,245
US   11/594,797   7,887,971
US   11/641,942   7,393,603
US   11/656,006  
US   11/656,445   8,071,248
US   11/656,563  
US   11/703,152  
US   11/707,070  
US   11/711,625  
US   11/717,774   7,878,280
US   11/730,255   7,833,668
US   11/730,256   7,883,803
US   11/730,529   7,704,617
US   11/730,540  
US   11/730,541   7,883,813
US   11/730,555   7,951,509
US   11/785,034  

 

Schedule 3.1(q) - 6


US   11/797,707   7,974,106
US   11897,708   7,705,490
US   11/802,006  
US   11/896,487  
US   11/898,065  
US   11/905,051  
US   11/905,477  
US   11/907,204  
US   11/907,205  
US   11/984,605  
US   11/987,220  
US   12/000,924   7,951,496
US   12/005,344   7,781,112
US   12/010,884   8,110,319
US   12/071,396  
US   12/078,926  
US   12/081124  
US   12/149,488  
US   12/149,816  
US   12/149,984  
US   12/155,367   7,846,599
US   12/213,088  
US   12/219,684  
US   12/222,294  
US   12/222,295  
US   12/222,712   7,704,618
US   12/222,736  
US   12/225,915  
US   12/230,486   8,071,241
US   12/268,585  
US   12/289,510  
US   12/29,2151   8,067,129
US   12/292,078  
US   12/379,299  
US   12/379,310  
US   12/379,618  
US   12/382,173   7,931,997

 

Schedule 3.1(q) - 7


US   12/402,423   8,097,378
US   12/457,982  
US   12/458,171  
US   12/458,172  
US   12/458,173  
US   12/458,341   8,071,246
US   12/458,342  
US   12/458,355  
US   12/458,356  
US   12/461,413  
US   12/507,670  
US   12/535,971  
US   121585,627  
US   12/591,464  
US   12/591,872  
US   12/591,986  
US   12/659,742  
US   12/659,899  
US   12/759395  
US   12/765,208  
US   12/765,732   7,901,814
US   12/765213   8,057,944
US   12/766,711  
US   12/850,885  
US   12/873,935  
US   12/889,776  
US   12/892,582  
US   12/986,291   8,053,136
US   13/009,085  
US   13/020,598  
US   13/033,990  
US   13/154,888  
US   13/211,903  
US   13/242,194  
US   13/268,233  
US   13/269,006  
US   13/279,921  

 

Schedule 3.1(q) - 8


US   13/282,899  
US   13/286,749  
US   13/295,527  
US   13/306,511  
US   13/339,860  
US   13/344,077  
US   13/344,232  
US   13/344,304  
US   13/344,364  
US   60/357,636  
US   60/377,199  
US   60/420,259  
US   60/461,190  
US   60/537,899  
US   60/552,202  
US   60/602,891  
US   60/608,902  
US   60/660,515  
US   60/664,294  
US   60/666,304  
US   60/698,468  
US   60/701,976  
US   60/701,977  
US   60/760,933  
US   60/782,268  
US   60/788,042  
US   60/788,043  
US   60/788,044  
US   60/792,614  
US   60/808,113  
US   60/809,395  
US   60/816,878  
US   60/842,361  
US   60/852,396  
US   60/853,443  
US   60/861,444  
US   60/861,708  

 

Schedule 3.1(q) - 9


US   60/875,825  
US   60/887,398  
US   60/901,638  
US   60/907,524  
US   60/907,706  
US   60/924,874  
US   60/929,161  
US   60/935,092  
US   60/935,471  
US   60/996,352  
US   61/000,891  
US   61/064,143  
US   61/064,144  
US   61/064,566  
US   61/129,620  
US   61/129,621  
US   61/129,622  
US   61/129,623  
US   61/129,759  
US   61/129,838  
US   61/129,882  
US   61/136,091  
US   61/193,596  
US   61/193377  
US   61/202,639  
US   61/202,683  
US   61/202,876  
US   61/272,056  
US   61/272,227  
US   61/272,494  
US   61/282528  
US   61/298,468  
US   61/374,424  
US   61/386,257  
US   61/406,265  
US   61/413,629  
US   61/418,043  

 

Schedule 3.1(q) - 10


US   61/430,255  
US   61/467,444  
US   61/478,697  
US   61/494,397  
US   61/496,143  
US   61/501,367  
US   61/501,382  
US   61/501,599  
US   61/501,604  
US   61/501,607  
US   61/501,610  
US   61/501,613  
US   61/511,305  
US   61/535,121  
US   61/539,045  
US   61/560,893  
US   61/561,344  
US   61/600,102  
US   61/600,132  
US   61/600,171  
Israel   207645  
TRADEMARKS

Country

 

Application Serial

Number / Registration Number

 

Mark

US   Reg. No. 3,532,547   GRID TO GO
US   Reg. No. 3,677,943   ENERGY SAVER
US   Reg. No. 3,673,390   BLOOM ENERGY
US   Reg. No. 3,362,904   BLOOMENERGY
CTM   Serial No. 8889891   BLOOM ENERGY
US   Serial No. 77/943,428   BLOOM BOX
US   Serial No. 77/950,803   BLOOM ENERGY
US   Serial No. 85/266,176   BLOOM ELECTRONS
US   Reg. No. 3,620,161   POWDER TO POWDER
US   Serial No. 77/388,058   BE

 

Schedule 3.1(q) - 11


US   Reg. No. 3,213,856   ION AMERICA
US   Serial No. 85/546,516   THE BLOOM FOUNDATION
US   Serial No. 85/546,526   THE BLOOM ENERGY FOUNDATION

US

  Serial No. 85/546532   BLOOM ENERGY MY ENERGY

Agreements entered into since July 9, 2010:

 

1. Trademark Co-Existence Agreement, dated July 1, 2011, between Bloom and Bloom Engineering Company.

 

Schedule 3.1(q) - 12

Exhibit 10.33

BLOOM ENERGY CORPORATION

EMPLOYMENT, CONFIDENTIAL INFORMATION,

INVENTION ASSIGNMENT

AND ARBITRATION AGREEMENT

11/7/13

(Effective Date)

As a condition of my employment with BLOOM ENERGY CORPORATION, its subsidiaries, affiliates, successors or assigns (together, the “Company”), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by the Company, the sufficiency of which is hereby acknowledged, I agree to the following:

1. At-Will Employment . I UNDERSTAND AND ACKNOWLEDGE THAT MY EMPLOYMENT WITH THE COMPANY IS FOR AN UNSPECIFIED DURATION AND CONSTITUTES “AT-WILL” EMPLOYMENT. I ALSO UNDERSTAND THAT ANY REPRESENTATION TO THE CONTRARY IS UNAUTHORIZED AND NOT VALID UNLESS OBTAINED IN WRITING AND SIGNED BY AN OFFICER OF THE COMPANY. I ACKNOWLEDGE THAT THIS EMPLOYMENT RELATIONSHIP MAY BE TERMINATED AT ANY TIME, WITH OR WITHOUT GOOD CAUSE OR FOR ANY OR NO CAUSE, AT THE OPTION EITHER OF THE COMPANY OR MYSELF, WITH OR WITHOUT NOTICE.

2. Confidential Information .

(a) Company Information . I agree at all times during the term of my employment and thereafter to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company. I understand that “Confidential Information” means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the term of my employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. I further understand that Confidential Information does not include any of the foregoing items if such information has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved.

(b) Former Employer Information . I agree that I will not, during my employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity and that I will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.

(c) Third Party Information. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company’s agreement with such third parties.

 

- Page 1 -


3. Inventions .

(a) Inventions Retained and Licensed . I have attached hereto, as Exhibit A, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to my employment with the Company (collectively referred to as “Prior Inventions”), which belong to me, which relate to the Company’s proposed business, products or research and development, and which are not assigned to the Company hereunder; or, if no such fully completed and signed list is attached, I represent that there are no such Prior Inventions. If, in the course of my employment with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine.

(b) Assignment of Inventions . I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company (collectively referred to as “Inventions”), except as provided in Section 3(f) below. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and which are protectible by copyright are “works made for hire” as that term is defined in the United States Copyright Act. I understand and agree that the decision whether or not to commercialize or market any invention developed by me solely or jointly with others is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to me as a result of the Company’s efforts to commercialize or market any such invention.

(c) Inventions Assigned to the United States . I agree to assign to the United States government all my right, title, and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

(d) Maintenance of Records . I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.

(e) Patent and Copyright Registrations . I agree to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.

 

- Page 2 -


(f) Exception to Assignments . I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B) . I will advise the Company promptly in writing of any inventions that I believe meet the criteria in California Labor Code Section 2870 and that are not otherwise disclosed on Exhibit A .

4. Conflicting Employment . I agree that, during the term of my employment with the Company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to the Company.

5. Returning Company Documents . I agree that, at the time of leaving the employ of the Company, I will immediately deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to my employment with the Company or otherwise belonging to the Company, its successors or assigns. In the event of the termination of my employment, I agree to sign and deliver the “Termination Certification” attached hereto as Exhibit C .

6. Notification of New Employer . In the event that I leave the employ of the Company, I hereby grant consent to notification by the Company to my new employer about my rights and obligations under this Agreement.

7. Solicitation of Employees . I agree that for a period of twelve (12) months immediately following the termination of my relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company, either for myself or for any other person or entity.

8. Conflict of Interest Guidelines . I agree to diligently adhere to the Conflict of Interest Guidelines attached as Exhibit D hereto.

9. Representations . I agree to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict herewith.

10. Arbitration and Equitable Relief .

(a) Arbitration . In consideration of my employment with the Company, its promise to arbitrate all employment-related disputes, and my receipt of the compensation, pay raises and other benefits paid to me by the Company, at present and in the future, I agree that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from my employment with the Company or the termination of my employment with the Company shall be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including section 1283.05 (the “Rules”) and pursuant to California law. Disputes which will be arbitrated include any

 

- Page 3 -


statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination or wrongful termination and any statutory claims. This arbitration policy also applies to any disputes that the Company may have with me.

(b) Procedure . Any arbitration will be administered by the American Arbitration Association (“AAA”), by a neutral arbitrator selected in a manner consistent with its National Rules for the Resolution of Employment Disputes. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including discovery motions, motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator shall issue a written decision on the merits. The arbitrator shall have the power to award any remedies, including attorneys’ fees and costs, available under applicable law. The Company will pay for any administrative or hearing fees charged by the arbitrator or AAA except that I shall pay the first $125.00 of any filing fees associated with any arbitration I initiate. The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules and that to the extent that the AAA’s National Rules for the Resolution of Employment Disputes conflict with the Rules, the Rules shall take precedence.

(c) Remedy . Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute between me and the Company. Accordingly, except as provided for by the Rules, neither I nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator shall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

(d) Availability of Injunctive Relief . In addition to the right under the Rules to petition the court for provisional relief, any party may also petition the court for injunctive relief where either party alleges or claims a violation of the Employment, Confidential Information, Invention Assignment Agreement between me and the Company or any other agreement regarding trade secrets, confidential information, nonsolicitation or Labor Code §2870. In the event either party seeks injunctive relief, the prevailing party shall be entitled to recover reasonable costs and attorneys’ fees.

(e) Administrative Relief . I am not prohibited from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the workers’ compensation board. However, I may not pursue court action regarding any such claim.

(f) Voluntary Nature of Agreement . I ACKNOWLEDGE AND AGREE THAT I AM EXECUTING THIS AGREEMENT VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE ELSE. I FURTHER ACKNOWLEDGE AND AGREE THAT I HAVE CAREFULLY READ THIS AGREEMENT AND THAT I HAVE ASKED ANY QUESTIONS NEEDED FOR ME TO UNDERSTAND THE TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND IT, INCLUDING THAT I AM WAIVING MY RIGHT TO A JURY TRIAL . FINALLY, I AGREE THAT I HAVE BEEN PROVIDED AN OPPORTUNITY TO SEEK THE ADVICE OF AN ATTORNEY OF MY CHOICE BEFORE SIGNING THIS AGREEMENT.

11. General Provisions.

(a) Governing Law: Consent to Personal Jurisdiction . This Agreement will be governed by the laws of the State of California without giving effect to the conflict of laws principles thereof. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in California for any lawsuit filed there against me by the Company arising from or relating to this Agreement.

 

- Page 4 -


(b) Entire Agreement . This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

(c) Severability . If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

(d) Successors and Assigns . This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

IN WITNESS WHEREOF, I have executed this Employment, Confidential Information, Invention Assignment and Arbitration Agreement as of the date first written above.

 

/s/ Susan Brennan

Signature

Susan Brennan

Print Name

[Employment, Confidential Information, Invention Assignment and Arbitration Agreement signature page]

 

- Page 5 -


EXHIBIT A

LIST OF PRIOR INVENTIONS

AND ORIGINAL WORKS OF AUTHORSHIP

 

Title    Date    Identifying Number or Brief Description

 

  No inventions or improvements
  Additional Sheets Attached

 

/s/ Susan Brennan

 

Signature

Susan Brennan

Print Name

11/7/13

Date

 

- Page 6 -


EXHIBIT B

CALIFORNIA LABOR CODE SECTION 2870

INVENTION ON OWN TIME – EXEMPTION

FROM AGREEMENT

(a) “Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.”

 

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EXHIBIT C

BLOOM ENERGY CORPORATION

TERMINATION CERTIFICATION

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to BLOOM ENERGY CORPORATION, its subsidiaries, affiliates, successors or assigns (together, the “Company”).

I further certify that I have complied with all the terms of the Company’s Employment, Confidential Information, Invention Assignment and Arbitration Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Employment, Confidential Information, Invention Assignment and Arbitration Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.

I further agree that for twelve (12) months from this date, I will not hire any employees of the Company and I will not solicit, induce, recruit or encourage any of the Company’s employees to leave their employment.

 

 

 

Signature
 

 

Print Name
 

 

Date

 

- Page 8 -


EXHIBIT D

BLOOM ENERGY CORPORATION

CONFLICT OF INTEREST GUIDELINES

It is the policy of BLOOM ENERGY CORPORATION to conduct its affairs in strict compliance with the letter and spirit of the law and to adhere to the highest principles of business ethics. Accordingly, all officers, employees and independent contractors must avoid activities which are in conflict, or give the appearance of being in conflict, with these principles and with the interests of the Company. The following are potentially compromising situations which must be avoided. Any exceptions must be reported to the President and written approval for continuation must be obtained.

1. Revealing confidential information to outsiders or misusing confidential information. Unauthorized divulging of information is a violation of this policy whether or not for personal gain and whether or not harm to the Company is intended. (The Employment, Confidential Information, Invention Assignment and Arbitration Agreement elaborates on this principle and is a binding agreement.)

2. Accepting or offering substantial gifts, excessive entertainment, favors or payments which may be deemed to constitute undue influence or otherwise be improper or embarrassing to the Company.

3. Participating in civic or professional organizations that might involve divulging confidential information of the Company.

4. Initiating or approving personnel actions affecting reward or punishment of employees or applicants where there is a family relationship or is or appears to be a personal or social involvement.

5. Initiating or approving any form of personal or social harassment of employees.

6. Investing or holding outside directorship in suppliers, customers, or competing companies, including financial speculations, where such investment or directorship might influence in any manner a decision or course of action of the Company.

7. Borrowing from or lending to employees, customers or suppliers.

8. Acquiring real estate of interest to the Company.

9. Improperly using or disclosing to the Company any proprietary information or trade secrets of any former or concurrent employer or other person or entity with whom obligations of confidentiality exist.

10. Unlawfully discussing prices, costs, customers, sales or markets with competing companies or their employees.

11. Making any unlawful agreement with distributors with respect to prices.

12. Improperly using or authorizing the use of any inventions which are the subject of patent claims of any other person or entity.

13. Engaging in any conduct which is not in the best interest of the Company.

Each officer, employee and independent contractor must take every necessary action to ensure compliance with these guidelines and to bring problem areas to the attention of higher management for review. Violations of this conflict of interest policy may result in discharge without warning.

 

- Page 9 -

Exhibit 10.34

BLOOM ENERGY CORPORATION

EMPLOYMENT, CONFIDENTIAL INFORMATION, INVENTION ASSIGNMENT

AND ARBITRATION AGREEMENT

Effective Date: 12/1/2014

As a condition of my employment with BLOOM ENERGY CORPORATION, its subsidiaries, affiliates, successors or assigns (together, the “Company”), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by the Company, the sufficiency of which is hereby acknowledged, I agree to the following:

1. At-Will Employment. I UNDERSTAND AND ACKNOWLEDGE THAT MY EMPLOYMENT WITH THE COMPANY IS FOR AN UNSPECIFIED DURATION AND CONSTITUTES “AT-WILL” EMPLOYMENT. I ALSO UNDERSTAND THAT ANY REPRESENTATION TO THE CONTRARY IS UNAUTHORIZED AND NOT VALID UNLESS OBTAINED IN WRITING AND SIGNED BY AN OFFICER OF THE COMPANY. I ACKNOWLEDGE THAT THIS EMPLOYMENT RELATIONSHIP MAY BE TERMINATED AT ANY TIME, WITH OR WITHOUT GOOD CAUSE OR FOR ANY OR NO CAUSE, AT THE OPTION EITHER OF THE COMPANY OR MYSELF, WITH OR WITHOUT NOTICE.

2. Confidential Information.

(a) Company Information . I agree at all times during the term of my employment and thereafter to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company. I understand that “Confidential Information” means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the term of my employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. I further understand that Confidential Information does not include any of the foregoing items if such information has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved.

(b) Former Employer Information . I agree that I will not, during my employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity and that I will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.

(c) Third Party Information . I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company’s agreement with such third parties.

 

Page 1 of 9

October 27, 2013


3. Inventions.

(a) Inventions Retained and Licensed . I have attached hereto, as Exhibit A, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to my employment with the Company (collectively referred to as “Prior Inventions”), which belong to me, which relate to the Company’s proposed business, products or research and development, and which are not assigned to the Company hereunder; or, if no such fully completed and signed list is attached, I represent that there are no such Prior Inventions. If, in the course of my employment with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine.

(b) Assignment of Inventions . I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company (collectively referred to as “Inventions”), except as provided in Section 3(f) below. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and which are protectible by copyright are “works made for hire” as that term is defined in the United States Copyright Act. I understand and agree that the decision whether or not to commercialize or market any invention developed by me solely or jointly with others is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to me as a result of the Company’s efforts to commercialize or market any such invention.

(c) Inventions Assigned to the United States . I agree to assign to the United States government all my right, title, and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

(d) Maintenance of Records . I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.

(e) Patent and Copyright Registrations . I agree to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.

 

Page 2 of 9

October 27, 2013


(f) Exception to Assignments . I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B ). I will advise the Company promptly in writing of any inventions that I believe meet the criteria in California Labor Code Section 2870 and that are not otherwise disclosed on Exhibit A.

4. Image Release. I hereby sell, assign and grant to Company all right, title and interest to and permission to copyright, use, publish and republish my name, voice, picture and likeness (collectively, “Likeness”) in any and all media or distribution now known or hereafter developed taken or recorded during my employment with Company including but not limited to electronic, digital or conventional, blurred, altered or distorted, in color or black and white, video or otherwise for art, trade, internal distribution or any other lawful purpose in any lawful manner anywhere in the world and/or on the worldwide web. I hereby waive any right to inspect or approve any final product using my Likeness. I hereby release and discharge Company from any and all actions, claims and demands of any nature which I may have at any time now or in the future arising out of or related to the rights granted above or my Likeness.

5. Conflicting Employment. I agree that, during the term of my employment with the Company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to the Company.

6. Returning Company Documents. I agree that, at the time of leaving the employ of the Company, I will immediately deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to my employment with the Company or otherwise belonging to the Company, its successors or assigns. In the event of the termination of my employment, I agree to sign and deliver the “Termination Certification” attached hereto as Exhibit C.

7. Notification of New Employer. In the event that I leave the employ of the Company, I hereby grant consent to notification by the Company to my new employer about my rights and obligations under this Agreement.

8. Solicitation of Employees. I agree that for a period of twelve (12) months immediately following the termination of my relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company, either for myself or for any other person or entity.

9. Conflict of Interest Guidelines. I agree to diligently adhere to the Conflict of Interest Guidelines attached as Exhibit D hereto.

10. Representations. I agree to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict herewith.

 

Page 3 of 9

October 27, 2013


11. Arbitration and Equitable Relief .

(a) Arbitration . In consideration of my employment with the Company, its promise to arbitrate all employment-related disputes, and my receipt of the compensation, pay raises and other benefits paid to me by the Company, at present and in the future, I agree that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from my employment with the Company or the termination of my employment with the Company shall be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including section 1283.05 (the “Rules”) and pursuant to California law. Disputes which will be arbitrated include any statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination or wrongful termination and any statutory claims. This arbitration policy also applies to any disputes that the Company may have with me.

(b) Procedure . Any arbitration will be administered by the American Arbitration Association (“AAA”), by a neutral arbitrator selected in a manner consistent with its National Rules for the Resolution of Employment Disputes. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including discovery motions, motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator shall issue a written decision on the merits. The arbitrator shall have the power to award any remedies, including attorneys’ fees and costs, available under applicable law. The Company will pay for any administrative or hearing fees charged by the arbitrator or AAA except that I shall pay the first $125.00 of any filing fees associated with any arbitration I initiate. The arbitrator shall administer and conduct any arbitration in a manner consistent with the Rules and that to the extent that the AAA’s National Rules for the Resolution of Employment Disputes conflict with the Rules, the Rules shall take precedence.

(c) Remedy . Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute between me and the Company. Accordingly, except as provided for by the Rules, neither I nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator shall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

(d) Availability of Injunctive Relief . In addition to the right under the Rules to petition the court for provisional relief, any party may also petition the court for injunctive relief where either party alleges or claims a violation of the Employment, Confidential Information, Invention Assignment Agreement between me and the Company or any other agreement regarding trade secrets, confidential information, nonsolicitation or Labor Code §2870. In the event either party seeks injunctive relief, the prevailing party shall be entitled to recover reasonable costs and attorneys’ fees.

(e) Administrative Relief . I am not prohibited from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the workers’ compensation board. However, I may not pursue court action regarding any such claim.

(f) Voluntary Nature of Agreement . I ACKNOWLEDGE AND AGREE THAT I AM EXECUTING THIS AGREEMENT VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE BY THE COMPANY OR ANYONE ELSE. I FURTHER ACKNOWLEDGE AND AGREE THAT I HAVE CAREFULLY READ THIS AGREEMENT AND THAT I HAVE ASKED ANY QUESTIONS NEEDED FOR ME TO UNDERSTAND THE TERMS, CONSEQUENCES AND BINDING EFFECT OF THIS AGREEMENT AND FULLY UNDERSTAND IT, INCLUDING THAT I AM WAIVING MY RIGHT TO A JURY TRIAL . FINALLY, I AGREE THAT I HAVE BEEN PROVIDED AN OPPORTUNITY TO SEEK THE ADVICE OF AN ATTORNEY OF MY CHOICE BEFORE SIGNING THIS AGREEMENT.

 

Page 4 of 9

October 27, 2013


12. General Provisions.

(a) Governing Law; Consent to Personal Jurisdiction . This Agreement will be governed by the laws of the State of California without giving effect to the conflict of laws principles thereof. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in California for any lawsuit filed there against me by the Company arising from or relating to this Agreement.

(b) Entire Agreement . This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

(c) Severability . If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

(d) Successors and Assigns . This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

IN WITNESS WHEREOF, I have executed this Employment, Confidential Information, Invention Assignment and Arbitration Agreement as of the date first written above.

 

/s/ Glen Griffiths

Signature

Glen Griffiths

Print Name

[Employment, Confidential Information, Invention Assignment and Arbitration Agreement signature page]

 

Page 5 of 9

October 27, 2013


EXHIBIT A

LIST OF PRIOR INVENTIONS

AND ORIGINAL WORKS OF AUTHORSHIP

 

Title

  

Date

  

Identifying Number or Brief Description

VIA DESIGN FOR FLUX RESIDUE MITIGATION    7/3/2008    US 20080160252 A1

 

 1  No inventions or improvements
 0  Additional Sheets Attached

 

/s/ Glen Griffiths

Signature

Glen Griffiths

Print Name

12/1/2014

Date

 

Page 6 of 9

October 27, 2013


EXHIBIT B

CALIFORNIA LABOR CODE SECTION 2870

INVENTION ON OWN TIME – EXEMPTION FROM AGREEMENT

(a) “Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely

on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.”

 

Page 7 of 9

October 27, 2013


EXHIBIT C

BLOOM ENERGY CORPORATION

TERMINATION CERTIFICATION

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to BLOOM ENERGY CORPORATION, its subsidiaries, affiliates, successors or assigns (together, the “Company”).

I further certify that I have complied with all the terms of the Company’s Employment, Confidential Information, Invention Assignment and Arbitration Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Employment, Confidential Information, Invention Assignment and Arbitration Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.

I further agree that for twelve (12) months from this date, I will not hire any employees of the Company and I will not solicit, induce, recruit or encourage any of the Company’s employees to leave their employment.

 

 

 

Signature
 

 

Print Name
 

 

Date

 

Page 8 of 9

October 27, 2013


EXHIBIT D

BLOOM ENERGY CORPORATION CONFLICT OF INTEREST GUIDELINES

It is the policy of BLOOM ENERGY CORPORATION to conduct its affairs in strict compliance with the letter and spirit of the law and to adhere to the highest principles of business ethics. Accordingly, all officers, employees and independent contractors must avoid activities which are in conflict, or give the appearance of being in conflict, with these principles and with the interests of the Company. The following are potentially compromising situations which must be avoided. Any exceptions must be reported to the President and written approval for continuation must be obtained.

1. Revealing confidential information to outsiders or misusing confidential information. Unauthorized divulging of information is a violation of this policy whether or not for personal gain and whether or not harm to the Company is intended. (The Employment, Confidential Information, Invention Assignment and Arbitration Agreement elaborates on this principle and is a binding agreement.)

2. Accepting or offering substantial gifts, excessive entertainment, favors or payments which may be deemed to constitute undue influence or otherwise be improper or embarrassing to the Company.

3. Participating in civic or professional organizations that might involve divulging confidential information of the Company.

4. Initiating or approving personnel actions affecting reward or punishment of employees or applicants where there is a family relationship or is or appears to be a personal or social involvement.

5. Initiating or approving any form of personal or social harassment of employees.

6. Investing or holding outside directorship in suppliers, customers, or competing companies, including financial speculations, where such investment or directorship might influence in any manner a decision or course of action of the Company.

7. Borrowing from or lending to employees, customers or suppliers.

8. Acquiring real estate of interest to the Company.

9. Improperly using or disclosing to the Company any proprietary information or trade secrets of any former or concurrent employer or other person or entity with whom obligations of confidentiality exist.

10. Unlawfully discussing prices, costs, customers, sales or markets with competing companies or their employees.

11. Making any unlawful agreement with distributors with respect to prices.

12. Improperly using or authorizing the use of any inventions which are the subject of patent claims of any other person or entity.

13. Engaging in any conduct which is not in the best interest of the Company.

Each officer, employee and independent contractor must take every necessary action to ensure compliance with these guidelines and to bring problem areas to the attention of higher management for review. Violations of this conflict of interest policy may result in discharge without warning.

 

Page 9 of 9

October 27, 2013

Exhibit 21.1

Subsidiaries of Bloom Energy Corporation

 

Name of Subsidiary

 

Jurisdiction

Bloom Energy 2009 PPA Portfolio Holding Company, LLC  

Delaware

Diamond State Generation Holdings, LLC  

Delaware

2012 V PPA Holdco, LLC  

Delaware

2013B ESA Holdco, LLC  

Delaware

2014 ESA HoldCo, LLC  

Delaware

2015 ESA HoldCo, LLC  

Delaware

Exhibit 23.1

The reverse stock split described in Note 30 to the consolidated financial statements has not been consummated at July 9, 2018. When it has been consummated, we expect to be in a position to furnish the following consent.

/s/ PricewaterhouseCoopers LLP

San Jose, California

July 9, 2018

“CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of Bloom Energy Corporation of our report dated March 7, 2018, except for the effects of the reverse stock split described in Note 30, as to which the date is                     , relating to the financial statements of Bloom Energy Corporation, which appears in this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

San Jose, California”