UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-35758
SolarCity Corporation
(Exact name of registrant as specified in its charter)
Delaware | 02-0781046 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
3055 Clearview Way
San Mateo, California 94402
(Address of principal executive offices and zip code)
Registrants telephone number, including area code: (650) 638-1028
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered | |
Common Stock, par value $0.0001 per share | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer ¨ | |||
Non-accelerated filer ¨ | (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of June 28, 2013 (the last business day of the registrants most recently completed second fiscal quarter), the aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price of $37.749 for shares of the registrants common stock as reported by the NASDAQ Global Market, was approximately $778.0 million.
On March 13, 2014, 91,503,673 shares of the registrants common stock, $0.0001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information called for by Part III of this Form 10-K is hereby incorporated by reference from the definitive Proxy Statement for our annual meeting of stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2013.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are any statements that look to future events and consist of, among other things, our business strategies; anticipated future financial results; expected trends in certain financial and operating metrics; our belief that tracking the aggregate megawatt, or MW, production capacity of systems is an indicator of the growth rate of our solar energy systems business; projections on growth in the markets that we operate and our growth rates; the anticipated penetration of our SolarStrong project; pricing trends, including our ability to achieve economies of scale in both installation and capital costs; our belief that adequate surplus capacity of non-tariff solar panels is available to suit our future needs; projections relating to our use of and reliance on U.S. Treasury grants and federal, state and local incentives; the impact of the sequestration of federal spending that took effect in 2013; our expansion and hiring plans, including our plan to expand our domestic and international operations; product development efforts, including our belief that advances in battery storage technology, steep reductions in pricing and burgeoning policy changes that support energy storage hold significant promise for enabling deployments of grid-connected energy storage systems; customer preferences, including our belief that we are well-positioned to be the provider of choice for our customers energy needs; anticipated contract renewal rates; the success of our sales and marketing efforts; the payment of future dividends; our belief as to the sufficiency of our existing cash and cash equivalents, funds available under secured credit facilities and funds available under existing financing funds to meet our working capital and operating resource requirements for the next twelve months; dispositions, acquisitions, mergers or strategic transactions and our related integration efforts; our strategies for raising additional capital, including through the issuance of additional debt, equity, securitization or other financing alternatives; and our control environment, including our disclosure controls and procedures and our internal controls over financial reporting, and our related remediation efforts.
In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as will, may, anticipate, believe, could, would, might, potentially, estimate, continue, plan, expect, intend, and similar expressions or the negative of these terms or other comparable terminology that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this annual report on Form 10-K and are subject to inherent business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of a number of factors, including those set forth below in Part I, Item 1A, Risk Factors, and in our other reports filed with the U.S. Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business 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 light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publically release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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Overview
We sell renewable energy to our customers at prices below utility rates. Our long-term agreements generate recurring customer payments and position us to provide our growing base of customers with energy-related products and services that further lower their energy costs.
We install more solar energy systems than any other company in the United States. We are currently installing approximately one out of every four solar energy systems installed in the United States, according to GTM Research, and we are the largest employer in the United States solar industry.
We believe the significant demand for our energy solutions results from the following value propositions:
| We lower energy costs. Our customers buy renewable energy from us for less than they currently pay for electricity from utilities with little to no up-front cost. They are also able to lock in their energy costs for the long term and insulate themselves from rising energy costs. |
| We build long-term customer relationships. Most of our customers agree to a 20-year contract term, positioning us to provide them with additional energy-related solutions during this relationship to further lower their energy costs. At the end of the original contract term, we intend to offer our customers renewal contracts. |
| We make it easy. We perform the entire process, from permitting through installation of our solar energy systems, and make it simple for customers to switch to renewable energy. |
| We focus on quality. Our top priority is to provide value and quality service to our customers. We have assembled a highly skilled team of in-house professionals dedicated to the highest engineering standards, overall quality and customer service. |
We primarily serve customers in 14 states and the District of Columbia, and operate in other locations as strategic opportunities and commercial projects arise. We intend to expand our footprint domestically and internationally to every market where distributed solar energy generation is a viable economic alternative to utility generation. We generate revenue from a mix of residential customers, commercial entities such as Walmart, eBay, Intel, and Safeway, and government entities such as the U.S. Military. Since our founding in 2006, we have provided or contracted to provide systems or services to more than 100,000 customers. Every three minutes of the working day a new customer makes the switch to a SolarCity system. In addition, aggregate contractual cash payments that our customers are obligated to pay over the term of our long-term customer agreements have grown at a compounded annual rate of 108.1% since 2010. We structure these customer agreements as either leases or power purchase agreements. Our lease customers pay a fixed monthly fee with an electricity production guarantee. Our power purchase agreement customers pay a fee based on the amount of electricity the solar energy system produces.
Our long-term lease and power purchase agreements create high-quality recurring customer payments, investment tax credits, accelerated tax depreciation and other incentives. Our financial strategy is to monetize these assets at the lowest cost of capital. We share the economic benefit of this lower cost of capital with our customers by lowering the price they pay for energy. Historically, we have monetized the assets created by substantially all of our leases and power purchase agreements through financing funds we have formed with fund investors. In general, we contribute assets to the financing funds in exchange for upfront cash and a residual interest. The allocation of the economic benefits, as well as the timing of receipt of such economic benefits,
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among us and the fund investors varies depending on the structure of the financing fund. We use a portion of the cash received from the financing fund to cover our variable and fixed costs associated with installing the related solar energy systems. We invest the excess cash in the growth of our business. In 2013, we completed what we believe to be the first securitization of distributed solar energy assets. In the future, in addition to or in lieu of monetizing the value through financing funds, we may use debt, equity, securitization or other financing strategies to fund our operations.
We are organized and operate in a single segment. See Note 2 to our consolidated financial statements included in Part II, Item 8 of this annual report on Form 10-K.
Our Approach
We have developed an integrated approach that allows our customers to lower their energy costs in a simple and efficient manner. We have disrupted the industry status quo by providing renewable energy directly to customers for less than they are currently paying for utility-generated energy. Unlike utilities, we sell energy with a predictable cost structure that does not rely on limited fossil fuels and is insulated from rising retail electricity prices. We also guarantee the electricity production of our solar energy systems to our customers. Our strategy is to focus on that portion of the solar energy value chain with the most potential: the energy consumer and the customer relationship.
The key elements of our integrated approach are illustrated below:
SolarCitys Integrated Approach
| Sales. We market and sell our products and services through a national sales organization that includes a direct outside sales force, a door-to-door sales team, call centers, a channel partner network, and a robust customer referral program. We have structured our sales organization to efficiently engage prospective customers, from initial interest through customized proposals and, ultimately, signed contracts. We intend to continue to grow our sales teams and adopt new approaches to deploy renewable energy to more customers. |
| Financing. Financing makes it possible to install our solar energy systems for little or no upfront cost. Through a streamlined process, we provide multiple pricing options to our customers to help make renewable, distributed energy accessible and affordable, either on a fixed monthly fee basis or a fee based on the amount of energy produced. |
| Engineering. Our in-house engineering team custom designs a solar energy system for each of our customers. We have developed software that simplifies and expedites the design process and optimizes the design to maximize the energy production of each system. Our engineers complete a structural analysis of each building and produce a full set of structural design and electrical blueprints that contain the specifications for all system components. |
| Installation. Once we complete the design of our solar energy systems, we obtain all necessary building permits. Our customer care representatives coordinate the SolarCity team and keep our customers apprised of the project status every step of the way. We are a licensed contractor or use |
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licensed subcontractors in every community we service, and we are responsible for every customer installation. For substantially all of our residential projects, we are the general contractor, construction manager and installer. For our commercial projects, we are the general contractor and construction manager. Once we complete installation of a system, we schedule inspections with the local building department and arrange for interconnection to the power grid with the utility. By handling these logistics, we make the installation process simple for our customers. |
| Monitoring and Maintenance. Our proprietary monitoring software provides our customers with a real-time view of their energy generation and consumption. Through an easy-to-read graphical display available on smartphones and any device with a Web browser, our monitoring systems collect, monitor and display critical performance data from our solar energy systems, including production levels, local weather, electricity usage and environmental impacts. These monitoring systems allow us to confirm the continuing proper operation of our solar energy systems, identify maintenance issues and provide our customers with a better understanding of their energy usage, allowing them the opportunity to modify their usage accordingly. |
| Complementary Products and Services. We also offer complementary energy-related products and services aimed at increasing our customers energy savings. These offerings include DemandLogic, our smart energy storage system for commercial customers that allow businesses to reduce energy costs by using stored electricity generated by our solar energy systems to reduce peak demand from utilities, and Energy Explorer, our proprietary software that provides homeowners a self-guided tour of their energy usage that we offer free to each of our new residential solar energy system customers. |
Competitive Strengths
We believe the following strengths enable us to deliver our solar energy solutions to a diversified customer base that includes residential home owners, large and small businesses, and government entities:
| Lower cost energy. We sell energy to our customers at prices below utility rates. Our solar energy systems rely solely on the free energy produced by the sun, allowing our customers to generate their own energy and reduce the amount they purchase from utilities. We help put solar energy generation within the reach of our customers by providing a variety of pricing options that minimize or eliminate upfront costs. Our customers typically achieve a lower overall electricity bill immediately upon installation. As retail utility rates rise, our customers savings increase. |
| Easy to switch. We have developed an integrated approach that allows our customers to access distributed renewable energy generation simply and efficiently. By providing the sales, financing, engineering, installation, monitoring and maintenance ourselves, we are able to control and oversee the entire process while providing a superior experience to our customers. |
| Long-term customer relationships. Our business model enables us to develop long-term relationships with our customers. Under our standard customer agreements, our solar energy customers purchase energy from us for 20 years, and because our solar energy systems have an estimated life of 30 years, we intend to offer our customers renewal contracts at the end of the original contract term. This approach allows us to maintain an ongoing relationship with our solar energy customers through our receipt of payments and our real-time monitoring systems. We leverage these relationships to offer and develop complementary energy-related products and services such as DemandLogic and our pilot residential energy storage solutions, which we believe further reinforces our relationship, brand and value to the customer, and reduces our customer acquisition costs. |
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| Significant size and scale. Our status as the leading installer of solar energy systems in the United States enables us to achieve economies of scale in both installation and capital costs, enabling us to offer our customers electricity at rates lower than the retail rate offered by utilities. We believe that our size provides our customers with confidence in our continuing ability to service their system and guarantee its performance over the duration of their long-term contract. |
| Innovative technology. We continually innovate and develop new technologies to facilitate our growth and to enhance the delivery of our products and services. For example, we have developed proprietary software that significantly reduces design time, accelerates the permitting process and allows us to efficiently manage the installation of every project. |
| Brand recognition. Our ability to provide high-quality services, our dedication to best-in-class engineering efforts and our exceptional customer service have helped us establish a recognized and trusted national brand. For example, approximately 27% of our new residential projects in 2013 originated from existing customer referrals. We believe our brand is a meaningful factor for customers as they consider their energy alternatives. |
| Strong leadership team. We are led by a strong management team with demonstrated execution capabilities and an ability to adapt to rapidly changing market environments. Our senior leadership team, consisting of our co-founders, Lyndon R. Rive and Peter J. Rive, and our chairman, Elon Musk, are widely recognized entrepreneurs and thought leaders with track records of building successful businesses. Additionally, to support our integrated business model, we have developed in-house expertise through strong senior leadership on our engineering, structured finance, legal and government affairs teams. |
Our Innovative Products, Services and Technology
We deliver renewable energy to our customers through a portfolio of complementary products and services that enable more cost effective generation and reduced energy consumption. We have developed enabling technologies that allow us to simplify our customers experience and enhance our ability to deliver our products and services.
| Solar Energy Systems. The major components of our solar energy systems include solar panels that convert sunlight into electrical current, inverters that convert the electrical output from the panels to a usable current compatible with the electric grid, racking that attaches the solar panels to the roof or ground and electrical hardware that connects the solar energy system to the electric grid and our monitoring device. We purchase our components from vendors, maintaining multiple sources for each major component to ensure competitive pricing and an adequate supply of materials. Though we typically install poly-crystalline silicon panels and string inverters, we have installed a wide variety of other technologies, including thin film panels and panel-level power optimizers. |
| SolarLease and Power Purchase Agreement Finance Products. Most of our solar energy customers choose to purchase energy from us pursuant to one of two payment structures: a SolarLease or a power purchase agreement. In both structures, we charge customers a monthly fee for the power produced by our solar energy systems. In the lease structure, a monthly payment is pre-determined and includes a production guarantee. In the power purchase agreement structure, we charge customers a fee per kilowatt hour, or kWh, based on the amount of electricity produced by the solar energy system. Under both the SolarLease and power purchase agreement, our customers also have the option to pay little or no upfront costs or to reduce the aggregate amount of their future payments by pre-paying a portion of their future payments. Over the terms of both agreements, we own and operate the system and guarantee its performance. Our current standard SolarLeases and power purchase agreements have 20-year terms. Prior to 2010, our standard lease term was |
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15 years. In a limited number of utility districts, we continue to offer lease terms of less than 20 years to offer the maximum savings under applicable incentive programs. In addition, a limited number of our commercial customers have entered into power purchase agreements with terms of between 10 and 20 years. |
| Energy Storage. We are developing a proprietary battery management system built on our solar energy monitoring communications backbone. The battery management system is designed to enable remote, fully bidirectional control of distributed energy storage that can potentially provide significant benefits to our customers, utilities and grid operators. The benefits to our customers of energy storage coupled with a solar energy system may include back-up power, time-of-use energy arbitrage, rate arbitrage, peak demand shaving and demand response. We believe that advances in battery storage technology, steep reductions in pricing and burgeoning policy changes that support energy storage hold significant promise for enabling deployments of grid-connected energy storage systems. |
| Energy Efficiency Products and Services. Using our proprietary software, we offer free energy efficiency consultations to each new residential customer to provide a detailed in-home diagnosis that identifies energy use and loss. Based on this analysis, we work with customers to identify their priorities to improve the cost effectiveness, efficiency, health and comfort of their home by recommending and facilitating appropriate upgrades in exchange for a referral fee from our partners. |
Enabling Technologies
| SolarBid Sales Management Platform. SolarBid is our proprietary sales management platform that incorporates a database of rate information by utility, sun exposure, roof orientation and a variety of other factors to enable a detailed analysis and customized graphical presentation of each customers savings. SolarBid simplifies the sales process and automates pricing, system configuration and proposal generation. It also automatically prepares the customer agreements, incentive forms and utility paperwork required to complete a project. SolarBid is designed for maximum flexibility, allowing us to quickly add new products, services and geographies. |
| SolarWorks Customer Management Software. SolarWorks is our proprietary software platform used to track and manage every project. SolarWorks embedded database and custom architecture offers reduced costs, improved quality and improved customer experience by supporting scheduling, budgeting and other project management functions as well as customer communications, inventory management and detailed project data. |
| Energy Designer. Energy Designer is a proprietary software application used by our field engineering auditors to rapidly collect all pertinent site-specific design details on a tablet computer. This information then syncs with our design automation software, reducing design time and accelerating the permitting process. |
| SolarGuard and PowerGuide Proactive Monitoring Solutions. SolarGuard and PowerGuide provide our customers a real-time view of their homes or businesss energy generation and consumption. Through easy-to-read graphical displays available on smartphones and any device with a web browser, our monitoring systems collect, monitor and display critical performance data from our solar energy systems, including production levels, local weather, electricity usage and environmental impacts such as carbon offset and pollution reduction. Our customer service team reviews system performance data using this proprietary monitoring software to confirm continued efficient operation. |
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| Zep Solar Mounting Systems. We acquired Zep Solar in 2013, and operate it as a wholly-owned subsidiary. Zep Solar licenses its patented Zep Groove technology to top-tier photovoltaic module and power electronics manufacturers, and supplies us with complementary mounting and grounding hardware. |
Our Customers
Our customers purchase electricity and other energy-related products and services from us that lower their overall energy costs. Because our customers are individuals or commercial businesses with high credit scores and government agencies, and because electricity is a necessity, we perceive our recurring customer payments as high-quality assets. Our customer base is comprised of the following key sectors:
| Residential. Our residential customers are individual homeowners and homeowners within communities who have participated in our community solar program that want to switch to cleaner, cheaper energy. |
| Commercial. Our commercial customers represent diverse business sectors, including technology, retail, manufacturing, agriculture, nonprofit and houses of worship. Our commercial customers include the worlds largest retailer, the worlds premier semiconductor chip maker and hundreds of other businesses. |
| Government. We have installed solar energy systems for government entities including the U.S. Air Force, Army, Marines and Navy, the City of Lancaster, the Department of Homeland Security and more than 300 schools. In November 2011, SolarCity and Bank of America Merrill Lynch announced project SolarStrong, our five-year plan to build more than $1 billion in solar energy projects for privatized U.S. military housing communities across the country. We expect SolarStrong to ultimately create up to 300 MW of solar generation capacity that could provide energy to as many as 120,000 military housing units. If completed as anticipated, SolarStrong would be the largest residential solar project in American history. |
We generally group our commercial and governmental customers together for our internal customer management purposes.
Sales and Marketing
We market and sell our products and services through a national sales organization that includes a direct outside sales force, a door-to-door sales force, call centers, a channel partner network and a robust customer referral program.
| Direct outside sales force. Our outside sales force typically resides and works within a market we serve. Our outside sales force allows us to sell to those customers who prefer a face-to-face interaction. |
| Door-to-Door sales force. Our door-to-door sales force consists of trained salespersons that identify and educate potential customers about our product and service offerings. As solar energy remains a new commodity for many homeowners, our trained sales force can help reach families that may not have considered solar energy. |
| Call centers and virtual sales offices. Our call centers allow us to sell our energy products and services to customers without visiting their homes or businesses. Because every home or site is unique, we begin by talking with each prospective customer about their energy needs and savings goals. Then, using online satellite technology, our salesperson evaluates the suitability of the site |
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for our products and services. If a solar energy system is an appropriate solution, our salesperson collects preliminary utility usage data and site information, and ultimately, provides a preliminary estimate of costs. If the customer desires to work with us, contracts can then be executed with e-signatures. In 2013, we significantly expanded our virtual sales force with our acquisition of assets from Paramount Solar, and we have opened two additional virtual sales offices. |
| Channel Partner Network |
| SolarCity Network. The SolarCity Network is a by-invitation business development program that pays referral fees to local professionals and businesses that refer customers to us. Typical network members include realtors, architects, contractors and insurance/financial services providers. |
| The Home Depot. Our products and services are available through The Home Depot stores located in most states where we have significant operations. We are the exclusive solar provider in the stores we serve. We primarily sell through a team of field energy advisors that speak to and qualify prospective customers in stores. In addition we sell through point-of-purchase displays in the stores, and through other direct marketing strategies including in-store flyers, seminars, promotions, retail signage and displays, search engine marketing campaigns and a co-branded website. |
| Best Buy. In the first quarter of 2014, we announced a partnership with Best Buy to offer our products and services through approximately 60 Best Buy stores in California, Arizona, Hawaii, New York and Oregon. SolarCity representatives will be available at a SolarCity kiosk in select Best Buy stores to evaluate the feasibility of installing a residential solar energy system. |
| Homebuilder partners. Our products and services are available through more than 100 regional and national new home builders, including Shea Homes, Pulte, Taylor Morrison and Del Webb. These partners market solar energy systems through a variety of strategies, including advertising within their model homes, signage within their communities, realtor emails, newspaper inserts, online banners and co-branded flyers. Certain of these partners pre-pay for the electricity that will be produced by the solar energy system installed on the new home they sell, using the benefit of free solar energy as a selling point. |
| Other channel partners. Our products and services are also available through partnerships with Tesla Motors, Viridian Energy, Direct Energy, Honda, Acura, and BMW. |
| Customer Referral Program. We believe that customer referrals are the most effective way to market our products and services to new customers. Approximately 27% of our new residential projects in 2013 originated from existing customer referrals. We offer cash awards to incentivize our current customers to refer their friends, family and colleagues to install solar energy systems or enroll in an energy efficiency consultation. We also encourage our customers to host solar energy parties with their friends, family and colleagues, where one of our in-house solar consultants make an informal presentation. |
We also market our products and services through a variety of direct marketing strategies designed to reach qualified homeowners and businesses, including radio ads and public radio sponsorships, newspaper and magazine ads, online banner ads, search engine marketing, direct mail, participation in trade shows, events and home shows, email marketing, public relations, social media, sweepstakes and promotions, newsletters, community programs and field marketing techniques. Our in-house marketing team manages and coordinates our media buying and customizes our content for each region.
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Operations and Suppliers
We purchase major components such as solar panels and inverters directly from multiple manufacturers. We screen these suppliers and components based on expected cost, reliability, warranty coverage, ease of installation and other ancillary costs. As of December 31, 2013, our primary solar panel suppliers were BenQ Corporation, Canadian Solar Inc., Suniva Inc., Trina Solar Limited and Yingli Green Energy Holding Company Limited, among others, and our primary inverter suppliers were Power-One, Inc., SMA Solar Technology, AG, Fronius International GmbH and SolarEdge Technologies, among others. We typically enter into master contractual arrangements with our major suppliers that define the general terms and conditions of our purchases, including warranties, product specifications, indemnities, delivery and other customary terms. We typically purchase solar panels and inverters on an as-needed basis from our suppliers at then-prevailing prices pursuant to purchase orders issued under our master contractual arrangements. We generally do not have any supplier arrangements that contain long-term pricing or volume commitments, although at times in the past we have made limited purchase commitments to ensure sufficient supply of components.
Our racking and mounting systems are manufactured by our Zep Solar subsidiary, as well as other contract manufacturers in the United States using our design.
We primarily serve customers in 14 states and the District of Columbia, and operate in other locations as strategic opportunities and commercial projects arise. We maintain a number of centralized operations and maintenance facilities and a fleet of over 1,000 trucks and other vehicles to support our rapidly growing business. In California, we have operations and maintenance facilities within 30 miles of more than 90% of the states population. This operational scale is fundamental to our business, as our field teams currently complete over 3,000 residential installations solar energy system each month, while our project management teams simultaneously manage thousands of projects as they move through the stages of engineering, permitting, installation and monitoring.
We offer a range of warranties and performance guarantees for our solar energy systems. We generally provide warranties of between 10 to 20 years on the generating and nongenerating parts of the solar energy systems we sell, together with a pass-through of the inverter and module manufacturers warranties that generally range from 5 to 25 years. Where we sell the electricity generated by a solar energy system, we compensate customers if their system produces less energy than our guarantee by refunding overpayments. We also provide ongoing service and repair during the entire term of the customer relationship. Costs associated with such ongoing service and repair have not been material.
Competition
We believe that our primary competitors are the traditional utilities that supply energy to our potential customers. We compete with these traditional utilities primarily based on price, predictability of price, and the ease by which customers can switch to electricity generated by our solar energy systems. We believe that we compete favorably with traditional utilities based on these factors in the regions we service.
We also compete with companies that provide products and services in distinct segments of the downstream solar energy and energy-related products value chain. Many companies only install solar energy systems, while others only provide financing for these installations. In the residential solar energy system installation market, our competitors include American Solar Electric, Inc., Astrum Solar, Inc., Petersen Dean, Inc., Real Goods Solar, Inc., Sungevity, Inc., SunRun Inc., Trinity Solar, Inc., Verengo, Inc., Vivint Solar Inc. and many smaller local solar companies. In the commercial solar energy system installation market, our competitors include Chevron Corporation, SunEdison LLC, SunPower Corporation and Team Solar, Inc.
We believe that we compete favorably with these companies because we take an integrated approach to delivering renewable energy solutions, including offering solar energy systems, energy storage systems, energy
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efficiency consultations, and additional energy-related products and services, as well as in-house sales, financing, engineering, installation, monitoring, and operations and maintenance. Many of our competitors offer only a subset of the products and services we provide. Aside from simple cost efficiency, we offer distinct practical benefits as an all-in-one provider. We provide a single point of contact and accountability for our products and services during the relationship with our customers.
Intellectual Property
Our intellectual property is an essential element of our business, and our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patent, trade secret, trademark, copyright and other intellectual property laws, confidentiality agreements and license agreements to establish and protect our intellectual property rights.
As of December 31, 2013, we had 9 patents issued and 48 pending applications with the U.S. Patent and Trademark Office. These patents and applications relate to our installation and mounting hardware, our finance products, our monitoring solutions and our software platforms. Our issued patents start expiring in 2025. We intend to continue to file additional patent applications. SolarCity, SolarGuard, SolarLease, PowerGuide, SolarStrong, SunRaising, PowerSavings Plan, Rooftop Rewards, Solar Made Simple, Zep Solar and Zep Groove are our registered trademarks in the United States and, in some cases, in certain other countries. Our other unregistered trademarks and service marks in the United States include: Better Energy, SolarBid, SolarWorks and DemandLogic.
All of our employees and independent contractors are required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property and assigning to us any ownership that they may claim in those works.
Securing Our Solar Energy Systems
Unless a customer fully prepays for its solar energy system, we file a uniform commercial code financing statement, or UCC-1, on the systems in the real property records where each system is located prior to or when the system is installed. We file the UCC-1 to put on notice anyone who might perform a title search on the address where the system is located that our property, the solar energy system, is installed on the building. This filing protects our rights as the systems owner against a mortgage lender taking ownership of our solar energy system. Typically, in the event of foreclosure, we negotiate with the prospective buyer to assume the existing lease or power purchase agreement. We believe the prospective buyer is motivated to assume the existing agreement by the opportunity to purchase energy from us at a lower price than that available from the electric utility. As of December 31, 2013, we have repossessed sixteen financed solar energy systems, one of which has been redeployed. In all other cases, we have successfully negotiated with the new buyer to assume the existing lease or power purchase agreement.
Government Regulation
We are not a regulated utility in the United States under applicable national, state or other local regulatory regimes where we conduct business. For our limited operations in Ontario, Canada, our subsidiary is subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff, or FIT, regulations, including the FIT rates.
To operate our systems we obtain interconnection agreements from the applicable local primary electricity utility. Depending on the size of the solar energy system and local law requirements, interconnection agreements are between the local utility and either us or our customer. 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
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approvals are required once interconnection agreements are signed. We maintain a utility administration function, with primary responsibility for engaging with utilities and ensuring our compliance with interconnection rules.
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. We have a robust safety department led by a safety professional, and we expend significant resources to comply with OSHA requirements and industry best practices.
Federal and/or state prevailing wage requirements, which generally apply to any public works construction project that receives public funds, may apply to installations of our solar energy systems on government facilities. The prevailing wage is the basic hourly rate paid on public works projects to a majority of workers engaged in a particular craft, classification or type of work within a particular area. Prevailing wage requirements are established and enforced by regulatory agencies. Our in-house prevailing wage personnel monitor and coordinate our continuing compliance with these regulations.
Government Incentives
U.S. federal, state and local governments have established various incentives and financial mechanisms to reduce the cost of solar energy and to accelerate the adoption of solar energy. These incentives include tax credits, cash grants, tax abatements, rebates, and net energy metering, or net metering, programs. These incentives help catalyze private sector investments in solar energy, energy efficiency and energy storage measures, including the installation and operation of residential and commercial solar energy systems.
The federal government provides an uncapped investment tax credit, or Federal ITC, that allows a taxpayer to claim a credit of 30% of qualified expenditures for a residential or commercial solar energy system that is placed in service on or before December 31, 2016. This credit is scheduled to reduce to 10% effective January 1, 2017. Solar energy systems that began construction prior to the end of 2011 are eligible to receive a 30% federal cash grant paid by the U.S. Treasury Department under Section 1603 of the American Recovery and Reinvestment Act of 2009, or the U.S. Treasury grant, in lieu of the Federal ITC. The federal government also provides accelerated depreciation for eligible solar energy systems.
We have received U.S. Treasury grants with respect to the majority of the solar energy systems that we have installed. We have relied on U.S. Treasury grants to lower our cost of capital and to incent fund investors to invest in our funds, and they have enabled us to lower the price we charge customers for our solar energy systems.
Approximately half of U.S. states offer a personal and/or corporate investment or production tax credit for solar, which are additive to the Federal ITC. Further, more than half of U.S. states, and many local jurisdictions, have established property tax incentives for renewable energy systems, which include exemptions, exclusions, abatements and credits.
Many state governments, utilities, municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and operation of a solar energy system or energy-related products. Capital costs or up-front rebates provide funds to solar customers based on the cost, size or expected production of a customers solar energy system. Performance-based incentives provide cash payments to a system owner based on the energy generated by their solar energy system during a pre-determined period, and they are paid over that time period. Some states also have established feed-in tariff programs that are a type of performance-based incentive where the system owner-producer is paid a set rate for the electricity their system generates over a set period of time.
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Forty-three states and Washington, D.C. have a regulatory policy known as net energy metering, or net metering. Net metering typically allows SolarCitys customers to interconnect their on-site solar energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utilitys retail rate for energy generated by their solar energy system that is exported to the grid in excess of electric load used by customers. At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed.
Some states have established limits on net metering. For example, California investor-owned utilities are currently required to provide net metering to their customers until the total generating capacity of net metered systems exceeds 5% of the utilities aggregate customer peak demand. However, California recently enacted legislation that establishes a process and timeline for development of a new program with no participation cap that will apply after the current 5% cap is reached.
Many states also have adopted procurement requirements for renewable energy production. Twenty-nine states and Washington, D.C. have adopted a renewable portfolio standard that requires regulated utilities to procure a specified percentage of total electricity delivered to customers in the state from eligible renewable energy sources, such as solar energy systems, by a specified date. To prove compliance with such mandates, utilities typically must surrender renewable energy certificates, or RECs. System owners often are able to sell RECs to utilities directly or in REC markets.
Employees
As of December 31, 2013, we had 4,312 total employees, of which 4,262 were full-time employees. Our employees are not currently represented by any labor union or subject to any collective bargaining agreement. We have not experienced any work stoppages, and we consider our relationship with our employees to be good.
Corporate Information
We were incorporated in June 2006 as a Delaware corporation. Our headquarters are located at 3055 Clearview Way, San Mateo, California 94402, and our telephone number is (650) 638-1028. You can access our website at www.solarcity.com. Information contained on our website is not a part of, and is not incorporated into, this annual report on Form 10-K, and the inclusion of our website address in this annual report on Form 10-K is an inactive textual reference only. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are available free of charge on the Investors portion of our web site as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
You should carefully consider the risks described below together with the other information set forth in this annual report on Form 10-K, which could materially affect our business, financial condition and future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
Risks Related to our Operations
Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our solar energy systems.
Federal, state and local government regulations and policies concerning the electric utility industry, and internal policies and regulations promulgated by electric utilities, heavily influence the market for electricity
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generation products and services. These regulations and policies often relate to electricity pricing and the interconnection of customer-owned electricity generation. In the United States, governments and utilities continuously modify these regulations and policies. These regulations and policies could deter customers from purchasing renewable energy, including solar energy systems. This could result in a significant reduction in the potential demand for our solar energy systems. For example, utilities 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 increase our customers cost to use our systems and make them less desirable, thereby harming our business, prospects, financial condition and results of operations. In addition, depending on the region, electricity generated by solar energy systems competes most effectively with expensive peak-hour electricity from the electric grid, rather than the less expensive average price of electricity. Modifications to the utilities peak hour pricing policies or rate design, such as to a flat rate, would require us to lower the price of our solar energy systems to compete with the price of electricity from the electric grid.
In addition, any changes to government or internal utility regulations and policies that favor electric utilities could reduce our competitiveness and cause a significant reduction in demand for our products and services. For example, certain jurisdictions have proposed assessing fees on customers purchasing energy from solar energy systems or imposing a new charge that would disproportionately impact solar energy system customers who utilize net metering, either of which would increase the cost of energy to those customers and could reduce demand for our solar energy systems. Any similar government or utility policies adopted in the future could reduce demand for our products and services and adversely impact our growth.
We rely on net metering and related policies to offer competitive pricing to our customers in some of our key markets.
Forty-three states and Washington, D.C. have a regulatory policy known as net energy metering, or net metering. Each of the states where we currently serve customers has adopted a net metering policy except for Texas, where certain individual utilities have adopted net metering or a policy similar to net metering. Net metering typically allows our customers to interconnect their on-site solar energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utilitys retail rate for energy generated by their solar energy system that is exported to the grid in excess of electric load used by the customers. At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed. Utilities operating in states without a net metering policy may receive solar electricity that is exported to the grid at times when there is no simultaneous energy demand by the customer to utilize the generation onsite without providing retail compensation to the customer for this generation.
Our ability to sell solar energy systems or the electricity they generate may be adversely impacted by the failure to expand existing limits on the amount of net metering in states that have implemented it, the failure to adopt a net metering policy where it currently is not in place or the imposition of new charges that only or disproportionately impact customers that utilize net metering. Our ability to sell solar energy systems or the electricity they generate also may be adversely impacted by the unavailability of expedited or simplified interconnection for grid-tied solar energy systems or any limitation on the number of customer interconnections or amount of solar energy that utilities are required to allow in their service territory or some part of the grid.
Limits on net metering, interconnection of solar energy systems and other operational policies in key markets could limit the number of solar energy systems installed there. For example, California utilities are currently required to provide net metering to their customers until the total generating capacity of net metered systems exceeds 5% of the utilities aggregate customer peak demand. This cap on net metering in California was increased to 5% in 2010 as utilities neared the prior cap of 2.5%. New California legislation passed in October 2013 establishes a process and timeline for developing a new program with no participation cap that would apply after the current cap of 5% is reached. If the current net metering caps in California, or other jurisdictions, are reached, or if the amount of credit that customers receive for net metering are significantly
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reduced, future customers will be unable to recognize the current cost savings associated with net metering. We substantially rely on net metering when we establish competitive pricing for our prospective customers. The absence of net metering for new customers would greatly limit demand for our solar energy systems.
Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.
U.S. federal, state and local government bodies provide incentives to end users, distributors, system integrators and manufacturers of solar energy systems to promote solar electricity 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 lower our cost of capital and to incent fund investors to invest in our funds. These incentives enable us to lower the price we charge customers for energy and for our solar energy systems. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as solar energy adoption rates increase. These reductions or terminations often occur without warning.
The federal government currently offers a 30% investment tax credit under Section 48(a)(3) of the Internal Revenue Code, or the Federal ITC, for the installation of certain solar power facilities until December 31, 2016. This credit is due to adjust to 10% in 2017. Solar energy systems that began construction prior to the end of 2011 were eligible to receive a 30% federal cash grant paid by the U.S. Treasury Department under Section 1603 of the American Recovery and Reinvestment Act of 2009, or the U.S. Treasury grant, in lieu of the Federal ITC. Pursuant to the Budget Control Act of 2011, U.S. Treasury grants are subject to sequestration beginning in 2013. Specifically, U.S. Treasury grants made on or after March 1, 2013 through September 30, 2013 will be reduced by 8.7%, and U.S. Treasury grants made on or after October 1, 2013 through September 30, 2014 will be reduced by 7.2%, regardless of when the U.S. Treasury received the application. As a result, for all applications pending or submitted prior to December 31, 2013, we expect to suffer grant shortfalls of approximately $1.3 million associated with our financing funds. Applicable authorities may adjust or decrease incentives from time to time or include provisions for minimum domestic content requirements or other requirements to qualify for these incentives.
Reductions in, or eliminations or expirations of, governmental incentives could adversely impact our results of operations and ability to compete in our industry by increasing our cost of capital, causing us to increase the prices of our energy and solar energy systems, and reducing the size of our addressable market. In addition, this would adversely impact our ability to attract investment partners and to form new financing funds and our ability to offer attractive financing to prospective customers. For the year ended December 31, 2013, more than 93% of new customers chose to enter into financed lease or power purchase agreements rather than buying a solar energy system for cash.
Our business depends in part on the regulatory treatment of third-party owned solar energy systems.
Our leases and power purchase agreements are third-party ownership arrangements. Sales of electricity by third parties face regulatory challenges in some states and jurisdictions. Other challenges pertain to whether third-party owned systems qualify for the same levels of rebates or other non-tax incentives available for customer-owned solar energy systems, whether third-party owned systems are eligible at all for these incentives, and whether third-party owned systems are eligible for net metering and the associated significant cost savings. Reductions in, or eliminations of, this treatment of these third-party arrangements could reduce demand for our systems, adversely impact our access to capital and could cause us to increase the price we charge our customers for energy.
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The Office of the Inspector General of the U.S. Department of Treasury has issued subpoenas to a number of significant participants in the rooftop solar energy installation industry, including us. The subpoena we received requires us to deliver certain documents in our possession relating to our participation in the U.S. Treasury grant program. These documents are being delivered to the Office of the Inspector General of the U.S. Department of Treasury, which is investigating the administration and implementation of the U.S. Treasury grant program.
In July 2012, we and other companies that are significant participants in both the solar industry and the cash grant program under Section 1603 of the American Recovery and Reinvestment Act of 2009 received subpoenas from the U.S. Department of Treasurys Office of the Inspector General to deliver certain documents in our respective possession. In particular, our subpoena requested, among other things, documents dated, created, revised or referred to since January 1, 2007 that relate to our applications for U.S. Treasury grants or communications with certain other solar development companies or certain firms that appraise solar energy property for U.S. Treasury grant application purposes. The Inspector General is working with the Civil Division of the U.S. Department of Justice to investigate the administration and implementation of the U.S. Treasury grant program, including possible misrepresentations concerning the fair market value of the solar power systems submitted for grant under that program made in grant applications by companies in the solar industry, including us. We intend to cooperate fully with the Inspector General and the Department of Justice. We are continuing to produce documents and testimony as requested by the Inspector General and we anticipate at least three months will be required to complete the gathering and production of such information, and that the Inspector General will require at least another six to nine months to conclude its review. If at the conclusion of the investigation the Inspector General concludes that misrepresentations were made, the Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to us. If it were successful in asserting this action, we could then be required to pay damages and penalties for any funds received based on such misrepresentations (which, in turn, could require us to make indemnity payments to certain of our fund investors). Such consequences could have a material adverse effect on our business, liquidity, financial condition and prospects. Additionally, the period of time necessary to resolve the investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.
If the Internal Revenue Service or the U.S. Treasury Department makes additional determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our financing funds or to our fund investors and such determinations could have a material adverse effect on our business, financial condition and prospects.
We and our fund investors claim the Federal ITC or the U.S. Treasury grant in amounts based on the fair market value of our solar energy systems. We have obtained independent appraisals to support the fair market values we report for claiming Federal ITCs and U.S. Treasury grants. The Internal Revenue Service and the U.S. Treasury Department review these fair market values. With respect to U.S. Treasury grants, the U.S. Treasury Department reviews the reported fair market value in determining the amount initially awarded, and the Internal Revenue Service and the U.S. Treasury Department may also subsequently audit the fair market value and determine that amounts previously awarded must be repaid to the U.S. Treasury Department or that excess awards constitute taxable income for U.S. federal income tax purposes. Such audits of a small number of our financing funds are ongoing. With respect to Federal ITCs, the Internal Revenue Service may review the fair market value on audit and determine that the tax credits previously claimed must be reduced. If the fair market value is determined in these circumstances to be less than we reported, we may owe our financing fund or our fund investors an amount equal to this difference, plus any costs and expenses associated with a challenge to that valuation. We could also be subject to tax liabilities, including interest and penalties.
The U.S. Treasury Department has previously determined in some instances to award us U.S. Treasury grants for our solar energy systems at a materially lower value than we had established in our appraisals and, as a result, we have been required to pay our fund investors a true-up payment or contribute additional assets to the
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associated financing funds. It is possible that the U.S. Treasury Department will make similar determinations in the future. As a result of these actions by the U.S. Treasury Department, based on the number of such systems that we have placed in service and that we plan to place in service using funds contributed by investors to our financing funds currently, we estimate that we would be obligated to pay the investors approximately $3.9 million to compensate them for the anticipated shortfall in grants. In response to such shortfalls, two of our financing funds filed a lawsuit in the United States Court of Federal Claims to recover the difference between the U.S. Treasury grants they sought and the amounts the U.S. Treasury paid; to the extent that these lawsuits are successful, any recovery would be used to repay us for amounts we previously reimbursed those funds. Our fund investors are contributing to our financing funds at the amounts the U.S. Treasury Department has most recently awarded on similarly situated energy systems to reduce or eliminate the need for us to subsequently pay those fund investors true-up payments or contribute additional assets to the associated financing funds.
If the Internal Revenue Service or the U.S. Treasury Department further disagrees now or in the future, as a result of any pending or future audit, the outcome of the Department of Treasury Inspector General investigation, the change in guidelines or otherwise, with the fair market value of more of our solar energy systems that we have constructed or that we construct in the future, including any systems for which grants have already been paid, and determines we have claimed too high of a fair market value, it could have a material adverse effect on our business, financial condition and prospects. For example, a hypothetical five percent downward adjustment in the fair market value in the approximately $497.5 million of U.S. Department of Treasury grant applications that have been awarded from the beginning of the U.S. Treasury grant program through December 31, 2013 would obligate us to repay approximately $24.9 million to our fund investors.
We have historically benefited from the declining cost of solar panels, and our business and financial results may be harmed as a result of increases in the cost of solar panels or tariffs on imported solar panels imposed by the U.S. government.
The declining cost of solar panels and the raw materials necessary to manufacture them has been a key driver in the pricing of our solar energy systems and customer adoption of this form of renewable energy. With the stabilization of solar panel and raw materials prices, our growth could slow, and our financial results could suffer. Further, the cost of solar panels and raw materials could increase in the future due to tariff penalties or other factors.
The U.S. government has imposed tariffs on solar cells manufactured in China. Based on determinations by the U.S. government, the most recent applicable anti-dumping and countervailing tariff rates range from approximately 33%-255%. To the extent that U.S. market participants experience harm from Chinese pricing practices, an additional tariff of approximately 15%-16% will be applied. Such anti-dumping and countervailing tariffs are subject to annual review and may be increased. These tariffs have increased the price of solar panels containing Chinese-manufactured solar cells. In the past, we purchased a significant portion of the solar panels used in our solar energy systems from manufacturers based in China. Currently, many of the solar panels we purchase contain components from China or Taiwan. The purchase price of solar panels containing solar cells manufactured in China reflects these tariff penalties. While solar panels containing solar cells manufactured outside of China are not subject to these tariffs, the prices of these solar panels are, and may continue to be, more expensive than panels produced using Chinese solar cells, before giving effect to the tariff penalties.
In addition, the U.S. government has recently begun new trade investigations relating to certain components exported from China and Taiwan. If additional tariffs are imposed or other negotiated outcomes occur, our ability to purchase these products on competitive terms or to access specialized technologies from those countries could be limited. Any of those events could harm our financial results by requiring us to pay trade penalties or to purchase solar panels or other system components from alternative, higher-priced sources.
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Our ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits.
Our solar energy systems have been eligible for Federal ITCs or U.S. Treasury grants, as well as depreciation benefits. We have relied on, and will continue to rely on, financing structures that monetize a substantial portion of those benefits and provide financing for our solar energy systems. With the lapse of the U.S. Treasury grant program, we anticipate that our reliance on these tax-advantaged financing structures will increase substantially. If, for any reason, we were unable to continue to monetize those benefits through these arrangements, we may be unable to provide and maintain solar energy systems for new customers on an economically viable basis.
The availability of this tax-advantaged financing depends upon many factors, including:
| our ability to compete with other renewable energy companies for the limited number of potential fund investors, each of which has limited funds and limited appetite for the tax benefits associated with these financings; |
| the state of financial and credit markets; |
| changes in the legal or tax risks associated with these financings; and |
| non-renewal of these incentives or decreases in the associated benefits. |
Under current law, the Federal ITC will be reduced from approximately 30% of the cost of the solar energy systems to approximately 10% for solar energy systems placed in service after December 31, 2016. In addition, U.S. Treasury grants are no longer available for new solar energy systems. Moreover, potential fund investors must remain satisfied that the structures we offer make the tax benefits associated with solar energy systems available to these investors, which depends both on the investors assessment of the tax law and the absence of any unfavorable interpretations of that law. Changes in existing law and interpretations by the Internal Revenue Service and the courts could reduce the willingness of fund investors to invest in funds associated with these solar energy system investments. We cannot assure you that this type of financing will be available to us. If, for any reason, we are unable to finance solar energy systems through tax-advantaged structures or if we are unable to realize or monetize depreciation benefits, we may no longer be able to provide solar energy systems to new customers on an economically viable basis. This would have a material adverse effect on our business, financial condition and results of operations.
We need to enter into additional substantial financing arrangements to facilitate our customers access to our solar energy systems, and if this financing is not available to us on acceptable terms, if and when needed, our ability to continue to grow our business would be materially adversely impacted.
Our future success depends on our ability to raise capital from third-party fund investors to help finance the deployment of our residential and commercial solar energy systems. In particular, our strategy is to seek to reduce the cost of capital through these arrangements to improve our margins or to offset future reductions in government incentives and to maintain the price competitiveness of our solar energy systems. If we are unable to establish new financing funds when needed, or upon desirable terms, to enable our customers access to our solar energy systems with little or no upfront cost, we may be unable to finance installation of our customers systems, or our cost of capital could increase, either of which would have a material adverse effect on our business, financial condition and results of operations. To date we have raised capital sufficient to finance installation of our customers solar energy systems from a number of financial institutions and other large companies. The contract terms in certain of our financing fund documents condition our ability to draw on financing commitments from the fund investors, including if an event occurs that could reasonably be expected to have a material adverse effect on the fund or in one case on us. If we do not satisfy such condition due to events related
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to our business or a specific financing fund or developments in our industry (including related to the Department of Treasury Inspector General investigation) or otherwise, and as a result we are unable to draw on existing commitments, it could have a material adverse effect on our business, liquidity, financial condition and prospects. If any of the financial institutions or large companies that currently invest in our financing funds decide not to invest in future financing funds to finance our solar energy systems due to general market conditions, concerns about our business or prospects, the pendency of the Department of Treasury Inspector General investigation or any other reason, or materially change the terms under which they are willing to provide future financing, we will need to identify new financial institutions and companies to invest in our financing funds and negotiate new financing terms.
In the past, we encountered challenges raising new funds, which caused us to delay deployment of a substantial number of solar energy systems for which we had signed leases or power purchase agreements with customers. For example, in late 2008 and early 2009, as a result of the state of the capital markets, our ability to finance the installation of solar energy systems was limited and resulted in a significant backlog of signed sales orders for solar energy systems. Our future ability to obtain additional financing depends on banks and other financing sources continued confidence in our business model and the renewable energy industry as a whole. It could also be impacted by the liquidity needs of such financing sources themselves. If we experience higher customer default rates than we currently experience in our existing financing funds or if we lower the credit rating requirement for new customers, this could make it more difficult or costly to attract future financing. Solar energy has yet to achieve broad market acceptance and depends on continued support in the form of performance-based incentives, rebates, tax credits and other incentives from federal, state and foreign governments. If this support diminishes, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. In addition, we face competition for these investor funds. If we are unable to continue to offer a competitive investment profile, we may lose access to these funds or they may only be available on less favorable terms than our competitors. Our current financing sources may be inadequate to support the anticipated growth in our business plans. Our inability to secure financing could lead to cancelled projects and could impair our ability to accept new projects and customers. In addition, our borrowing costs could increase, which would have a material adverse effect on our business, financial condition and results of operations.
A material drop in the retail price of utility-generated electricity or electricity from other sources would harm our business, financial condition and results of operations.
We believe that a customers decision to buy renewable energy from us is primarily driven by their desire to pay less for electricity. The customers decision may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from utilities could decrease as a result of:
| the construction of a significant number of new power generation plants, including nuclear, coal, natural gas or renewable energy technologies; |
| the construction of additional electric transmission and distribution lines; |
| a reduction in the price of natural gas as a result of new drilling techniques or a relaxation of associated regulatory standards; |
| the energy conservation technologies and public initiatives to reduce electricity consumption; and |
| development of new renewable energy technologies that provide less expensive energy. |
A reduction in utility electricity prices would make the purchase of our solar energy systems or the purchase of energy under our lease and power purchase agreements less economically attractive. In addition, a
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shift in the timing of peak rates for utility-generated electricity to a time of day when solar energy generation is less efficient could make our solar energy system offerings less competitive and reduce demand for our products and services. If the retail price of energy available from utilities were to decrease due to any of these reasons, or others, we would be at a competitive disadvantage. As a result, we may be unable to attract new customers and our growth would be limited.
A material drop in the retail price of utility-generated electricity would particularly adversely impact our ability to attract commercial customers.
Commercial customers comprise a significant and growing portion of our business, and the commercial market for energy is particularly sensitive to price changes. Typically, commercial customers pay less for energy from utilities than residential customers. Because the price we are able to charge commercial customers is only slightly lower than their current retail rate, any decline in the retail rate of energy for commercial entities could have a significant impact on our ability to attract commercial customers. We may be unable to offer solar energy systems for the commercial market that produce electricity at rates that are competitive with the price of retail electricity on a non-subsidized basis. If this were to occur, we would be at a competitive disadvantage to other energy providers and may be unable to attract new commercial customers, and our business would be harmed.
If we fail to remediate deficiencies in our control environment or are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial and operating reporting and related disclosures may be adversely affected.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2013, we identified four material weaknesses in our internal control over financial reporting relating to (i) the costing of our solar system installations, (ii) accounting for and classification of redeemable noncontrolling interests, (iii) segregation of incompatible duties at our lease administrator and our controls over the data received from our administrator, and (iv) certain areas of our financial statement close process. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a companys annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses resulted from separate control deficiencies, as well as our misinterpretation of certain accounting standards, and resulted in the restatement of our consolidated financial statements as of and for the years ended December 31, 2012, 2011, 2010 and 2009 and for certain interim periods in 2012 and 2013.
In addition, we have previously identified material weaknesses in our internal control over financial reporting and inventory in 2010 and 2011. The accounting policies associated with our financing funds are complex, which contributed to the material weaknesses in our internal control over financial reporting, in particular those relating to the presentation of noncontrolling interests for related partnership fund structures. For our lease pass-through arrangements, we initially characterized funds received from investors as deferred revenue rather than financing obligations, which resulted in adjustments to our 2010 consolidated financial statements. For a particular sale-leaseback transaction, we did not initially defer the correct amount of gain associated with this arrangement, which was corrected in our 2010 consolidated financial statements. The foregoing resulted in a prior restatement to our 2010 consolidated financial statements. In addition, deficiencies in the design and operation of our internal controls resulted in audit adjustments and delayed our financial statement close process for the years ended December 31, 2013, 2012, 2011 and 2010.
We are taking and have taken numerous steps to remediate these material weaknesses and improve our internal control over financial reporting, as discussed in Item 9A below. In connection with this annual report on Form 10-K, our management has performed an evaluation of our internal control over financial reporting as of December 31, 2013 pursuant to Section 404 of the Sarbanes-Oxley Act, and has concluded that our internal control over financial reporting and our disclosure controls and procedures were ineffective as of December 31, 2013.
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If in the future, we are not able to implement and maintain effective internal control over financial reporting and disclosure controls and procedures, or if additional material weaknesses are discovered in future periods, a risk that is significantly increased in light of the complexity of our business, we may be unable to accurately and timely report our financial position, results of operations, cash flows or key operating metrics, which could result in additional late filings of our annual and quarterly reports under the Exchange Act, additional restatements of our consolidated financial statements or other corrective disclosures, a decline in our stock price, suspension or delisting of our common stock by the NASDAQ Global Market, an inability to access the capital and commercial lending markets, defaults under our credit and other agreements, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.
Rising interest rates could adversely impact our business.
Changes in interest rates could have an adverse impact on our business by increasing our cost of capital. For example:
| rising interest rates would increase our cost of capital; and |
| rising interest rates may negatively impact our ability to secure financing on favorable terms to facilitate our customers purchase of our solar energy systems or energy generated by our solar energy systems. |
The majority of our cash flows to date have been from solar energy systems under lease and power purchase agreements that have been monetized under various financing fund structures. One of the components of this monetization is the present value of the payment streams from the customers who enter into these leases and power purchase agreements. If the rate of return required by the fund investor rises as a result of a rise in interest rates, it will reduce the present value of the customer payment stream and consequently reduce the total value derived from this monetization. Rising interest rates could harm our business and financial condition.
We have guaranteed a minimum return to be received by an investor in one of our financing funds and could be adversely affected if we are required to make any payments under this guarantee.
We have guaranteed payments to the investor in one of our financing funds to compensate for payments that the investor would be required to make to a certain third party as a result of the investor not achieving a specified minimum internal rate of return in this fund, assessed annually. The amounts of potential future payments under this guarantee depend on the amounts and timing of future distributions to the investor from the funds and the tax benefits that accrue to the investor from the funds activities. Because of uncertainties associated with estimating the timing and amounts of distributions to the investor, we cannot determine the potential maximum future payments that we could have to make under this guarantee. We may agree to similar terms in the future if market conditions require it. Any significant payments that we may be required to make under our guarantees could adversely affect our financial condition.
In our lease pass-through financing funds, there is a one-time reset of the lease payments, and we may be obligated, in connection with the resetting of the lease payments at true up, to refund lease prepayments or to contribute additional assets to the extent the system sizes, costs, and timing are not consistent with the initial lease payment model.
In our lease pass-through financing funds, the models used to calculate the lease prepayments will be updated for each fund at a fixed date occurring after placement in service of all solar systems or an agreed upon date (typically within the first year of the applicable lease term) to reflect certain specified conditions as they exist at such date, including the ultimate system size of the equipment that was leased, how much it cost, and when it went into service. As a result of this true up, the lease payments are resized and we may be obligated to refund the investors lease prepayments or to contribute additional assets to the fund. Any significant refunds or capital contributions that we may be required to make could adversely affect our financial condition.
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We are not currently regulated as a utility under applicable law, but we may be subject to regulation as a utility in the future.
Federal law and most state laws do not currently regulate us as a utility. As a result, we are not subject to the various federal and state standards, restrictions and regulatory requirements applicable to U.S. utilities. In the United States, we obtain federal and state regulatory exemptions by establishing Qualifying Facility status with the Federal Energy Regulatory Commission for all of our qualifying solar energy projects. In Canada, we also are generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff regulations (including the feed-in tariff rates), however we are not currently subject to regulation as a utility. Our business strategy includes the continued development of larger solar energy systems in the future for our commercial and government customers, which has the potential to impact our regulatory position. Any local, state, federal or foreign regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting our sale of electricity. If we were subject to the same state, federal or foreign regulatory authorities as utilities in the United States or if new regulatory bodies were established to oversee our business in the United States or in foreign markets, then our operating costs would materially increase.
A failure to hire and retain a sufficient number of employees in key functions would constrain our growth and our ability to timely complete our customers projects.
To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees. In particular, we need to continue to expand and optimize our sales infrastructure to grow our customer base and our business, and we plan to expand our direct sales force. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new salesperson is fully trained and productive. If we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or grow our business.
To complete current and future customer projects and to continue to grow our customer base, we need to hire a large number of installers in the relevant markets. Competition for qualified personnel in our industry is increasing, particularly for skilled installers and other personnel involved in the installation of solar energy systems. We also compete with the homebuilding and construction industries for skilled labor. As these industries recover and seek to hire additional workers, our cost of labor may increase. The unionization of our labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, because we are headquartered in the San Francisco Bay Area, we compete for a limited pool of technical and engineering resources that requires us to pay wages that are competitive with relatively high regional standards for employees in these fields.
If we cannot meet our hiring, retention and efficiency goals, we may be unable to complete our customers projects on time, in an acceptable manner or at all. Any significant failures in this regard would materially impair our growth, reputation, business and financial results. If we are required to pay higher compensation than we anticipate, these greater expenses may also adversely impact our financial results and the growth of our business.
It is difficult to evaluate our business and prospects due to our limited operating history.
Since our formation in 2006, we have focused our efforts primarily on the sales, financing, engineering, installation and monitoring of solar energy systems for residential, commercial and government customers. We launched our energy efficiency line of products and services in mid-2010, and revenue attributable to this line of business has not been material compared to revenue attributable to our solar energy systems. We may be
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unsuccessful in significantly broadening our customer base through installation of solar energy systems within our current markets or in new markets we may enter. Additionally, we cannot assure you that we will be successful in generating substantial revenue from our current energy-related products and services or from any additional products and services we may introduce in the future. Our limited operating history, combined with the rapidly evolving and competitive nature of our industry, may not provide an adequate basis for you to evaluate our operating and financing results and business prospects. In addition, we only have limited insight into emerging trends that may adversely impact our business, prospects and operating results. As a result, our limited operating history may impair our ability to accurately forecast our future performance.
We have incurred losses and may be unable to achieve or sustain profitability in the future.
We have incurred net losses in the past, and we had an accumulated deficit of $166.7 million as of December 31, 2013. We may incur net losses from operations as we increase our spending to finance the expansion of our operations, expand our installation, engineering, administrative, sales and marketing staffs, and implement internal systems and infrastructure to support our growth. We do not know whether our revenue will grow rapidly enough to absorb these costs, and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our operating results. Our ability to achieve profitability depends on a number of factors, including:
| growing our customer base; |
| finding investors willing to invest in our financing funds; |
| maintaining and further lowering our cost of capital; |
| reducing the cost of components for our solar energy systems; and |
| reducing our operating costs by optimizing our design and installation processes and supply chain logistics. |
Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.
We face competition from both traditional energy companies and renewable energy companies.
The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the traditional utilities that supply energy to our potential customers. We compete with these utilities primarily based on price, predictability of price, and the ease by which customers can switch to electricity generated by our solar energy systems. If we cannot offer compelling value to our customers based on these factors, then our business will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, these competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities sources of electricity is non-solar, which may allow utilities to sell electricity more cheaply than electricity generated by our solar energy systems.
We also compete with solar companies in the downstream value chain of solar energy. For example, we face competition from purely finance driven organizations which then subcontract out the installation of solar energy systems, from installation businesses that seek financing from external parties, from large construction companies and utilities, and increasingly from sophisticated electrical and roofing companies. Some of these
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competitors specialize in either the residential or commercial solar energy markets, and some may provide energy at lower costs than we do. Many of our competitors also have significant brand name recognition and have extensive knowledge of our target markets. Competitors have increasingly begun vertically integrating their operations to offer comprehensive products and services offerings similar to ours. For us to remain competitive, we must distinguish ourselves from our competitors by offering an integrated approach that successfully competes with each level of products and services offered by our competitors at various points in the value chain. As more of our competitors develop an integrated approach similar to ours, our marketplace differentiation may suffer.
We also face competition in the energy-related products and services markets and we expect to face competition in additional markets as we introduce new products and services. As the solar industry grows and evolves, we will also face new competitors who are not currently in the market. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business and prospects.
Projects for our significant commercial or government customers involve concentrated project risks that may cause significant changes in our financial results.
During any given financial reporting period, we typically have ongoing significant projects for commercial and governmental customers that represent a significant portion of our potential financial results for such period. For example, Walmart is a significant customer for which we have installed a substantial number of solar energy systems. In November 2011, we announced SolarStrong, our five-year plan to build more than $1 billion in solar energy projects for privatized U.S. military housing communities across the country that we anticipate will involve a significant investment in resources and project management over time and will require additional financing funds to support the project. These larger projects create concentrated operating and financial risks. The effect of recognizing revenue or other financial measures on the sale of a larger project, or the failure to recognize revenue or other financial measures as anticipated in a given reporting period because a project is not yet completed under applicable accounting rules by period end, may materially impact our quarterly or annual financial results. In addition, if construction, warranty or operational issues arise on a larger project, or if the timing of such projects unexpectedly shifts for other reasons, such issues could have a material impact on our financial results. If we are unable to successfully manage these significant projects in multiple markets, including our related internal processes and external construction management, or if we are unable to continue to attract such significant customers and projects in the future, our financial results would be harmed.
We depend on a limited number of suppliers of solar panels and other system components to adequately meet anticipated demand for our solar energy systems. Any shortage, delay or component price change from these suppliers could result in sales and installation delays, cancellations and loss of market share.
We purchase solar panels, inverters and other system components from a limited number of suppliers, making us susceptible to quality issues, shortages and price changes. If we fail to develop, maintain and expand our relationships with these or other suppliers, we may be unable to adequately meet anticipated demand for our solar energy systems, or we may only be able to offer our systems at higher costs or after delays. If one or more of the suppliers that we rely upon to meet anticipated demand ceases or reduces production, we may be unable to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and we may be unable to satisfy this demand. In particular, there are a limited number of inverter suppliers. Once we design a system for use with a particular inverter, if that type of inverter is not readily available at an anticipated price, we may incur additional delay and expense to redesign the system. There have also been periods of industry-wide shortage of key components, including solar panels, in times of rapid industry growth. The manufacturing infrastructure for some of these components has a long lead time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. Any decline in the exchange rate of the U.S. dollar compared to the functional currency of our component suppliers could increase our component prices. Any of these shortages,
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delays or price changes could limit our growth, cause cancellations or adversely affect our profitability, and result in loss of market share and damage to our brand.
Our operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations, resulting in a severe decline in the price of our common stock.
Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past. However, given that we are an early-stage company operating in a rapidly growing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical operating results. As such, our past quarterly operating results may not be good indicators of future performance.
In addition to the other risks described in this Risk Factors section, the following factors could cause our operating results to fluctuate:
| the expiration or initiation of any rebates or incentives; |
| significant fluctuations in customer demand for our products and services; |
| our ability to complete installations in a timely manner due to market conditions resulting in inconsistently available financing; |
| our ability to continue to expand our operations, and the amount and timing of expenditures related to this expansion; |
| actual or anticipated changes in our growth rate relative to our competitors; |
| announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments; |
| changes in our pricing policies or terms or those of our competitors, including utilities; and |
| actual or anticipated developments in our competitors businesses or the competitive landscape. |
For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our future performance. In addition, our actual 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 a severe adverse effect on the trading price of our common stock.
We act as the licensed general contractor for our customers and are subject to risks associated with construction, cost overruns, delays, regulatory compliance and other contingencies, any of which could have a material adverse effect on our business and results of operations.
We are a licensed contractor or use licensed subcontractors in every community we service, and we are responsible for every customer installation. For our residential projects, we are the general contractor, construction manager and installer. For our commercial projects, we are the general contractor and construction manager, and we typically rely on licensed subcontractors to install these commercial systems. We may be liable to customers for any damage we cause to their home or facility, belongings or property during the installation of our systems. For example, we frequently penetrate our customers roofs during the installation process and may incur liability for the failure to adequately weatherproof such penetrations following the completion of construction. In addition, shortages of skilled subcontractor labor for our commercial projects could significantly
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delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project.
In addition, the installation of solar energy systems, energy-storage systems and other energy-related products requiring building modifications are subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection, utility interconnection and metering, and related matters. It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations and to design solar energy systems to comply with these varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our customers and, as a result, could cause a significant reduction in demand for our systems.
Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant monetary penalties, operational delays and adverse publicity.
The installation of solar energy systems requires our employees to work at heights with complicated and potentially dangerous electrical systems. The evaluation and installation of our energy-related products requires our employees to work in locations that may contain potentially dangerous levels of asbestos, lead or mold. We also maintain a fleet of more than 1,000 vehicles that our employees use in the course of their work. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act, or OSHA, and equivalent state laws. Changes to OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures, or suspend or limit operations. In the past, we have had workplace accidents and received citations from OSHA regulators for alleged safety violations, resulting in fines and operational delays for certain projects. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.
Problems with product quality or performance may cause us to incur warranty expenses and performance guarantee expenses, may lower the residual value of our solar energy systems and may damage our market reputation and cause our financial results to decline.
Our solar energy system warranties are lengthy. Customers who buy energy from us under leases or power purchase agreements are covered by warranties equal to the length of the term of these agreementstypically 20 years. Depending on the state where they live, customers who purchase our solar energy systems for cash are covered by a warranty up to 10 years in duration. We also make extended warranties available at an additional cost to customers who purchase our solar energy systems for cash. In addition, we provide a pass-through of the inverter and panel manufacturers warranties to our customers, which generally range from 5 to 25 years. One of these third-party manufacturers could cease operations and no longer honor these warranties, instead leaving us to fulfill these potential obligations to our customers. For example, Evergreen Solar, Inc., one of our former solar panel suppliers, filed for bankruptcy in August 2011. Further, we provide a performance guarantee with our leased solar energy systems that compensates a customer on an annual basis if their system does not meet the electricity production guarantees set forth in their lease.
Because of the limited operating history of our solar energy systems, we have been required to make assumptions and apply judgments regarding a number of factors, including our anticipated rate of warranty claims, and the durability, performance and reliability of our solar energy systems. We have made these assumptions based on the historic performance of similar systems or on accelerated life cycle testing. Our
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assumptions could prove to be materially different from the actual performance of our systems, causing us to incur substantial expense to repair or replace defective solar energy systems in the future or to compensate customers for systems that do not meet their production guarantees. Product failures or operational deficiencies also would reduce our revenue from power purchase agreements because they are dependent on system production. Any widespread product failures or operating deficiencies may damage our market reputation and adversely impact our financial results.
In addition, we amortize costs of our solar energy systems over 30 years, which typically exceeds the period of the component warranties and the corresponding payment streams from our operating lease arrangements with our customers. In addition, we typically bear the cost of removing the solar energy systems at the end of the lease term. Furthermore, it is difficult to predict how future environmental regulations may affect the costs associated with the removal, disposal or recycling of our solar energy systems. Consequently, if the residual value of the systems is less than we expect at the end of the lease, after giving effect to any associated removal and redeployment costs, we may be required to accelerate all or some of the remaining unamortized expenses. This could materially impair our future operating results.
Product liability claims against us could result in adverse publicity and potentially significant monetary damages.
If one of our solar energy systems or other products injured someone we would be exposed to product liability claims. Because solar energy systems and many of our other current and anticipated products are electricity producing devices, it is possible that consumers could be injured by our products, whether by product malfunctions, defects, improper installation or other causes. We rely on our general liability insurance to cover product liability claims and have not obtained separate product liability insurance. Any product liability claim we face could be expensive to defend and divert managements attention. The successful assertion of product liability claims against us could result in potentially significant monetary damages that could require us to make significant payments, as well as subject us to adverse publicity, damage our reputation and competitive position. Also, any product liability claims and any adverse outcomes may subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of our systems and other products.
Damage to our brand and reputation would harm our business and results of operations.
We depend significantly on our reputation for high-quality products and services, best-in-class engineering, exceptional customer service and the brand name SolarCity to attract new customers and grow our business. If we fail to continue to deliver our solar energy systems and our other energy products and services within the planned timelines, if our products and services do not perform as anticipated or if we damage any of our customers properties or cancel projects, our brand and reputation could be significantly impaired. In addition, if we fail to deliver, or fail to continue to deliver, high-quality products and services to our customers through our long-term relationships, our customers will be less likely to purchase future products and services from us, which is a key strategy to achieve our desired growth. We also depend greatly on referrals from existing customers for our growth, in addition to our other marketing efforts. Therefore, our inability to meet or exceed our current customers expectations would harm our reputation and growth through referrals.
If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service or adequately address competitive challenges.
We have experienced significant growth in recent periods, and we intend to continue to expand our business significantly within existing markets and in a number of new locations in the future. This growth has placed, and any future growth may place, a significant strain on our management, operational and financial infrastructure. In particular, we will be required to expand, train and manage our growing employee base. Our management will also be required to maintain and expand our relationships with customers, suppliers and other third-parties and attract new customers and suppliers, as well as to manage multiple geographic locations.
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In addition, our current and planned operations, personnel, systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investment in our infrastructure. Our success and ability to further scale our business will depend, in part, on our ability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures. This could also result in declines in quality or customer satisfaction, increased costs, difficulties in introducing new products and services or other operational difficulties. Any failure to effectively manage growth could adversely impact our business and reputation.
We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management.
We acquired Zep Solar in December 2013, the assets of Paramount Solar in September 2013 and various other smaller acquisitions throughout 2013, and in the future we may acquire additional companies, project pipelines, products, or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of our acquisitions or any other future acquisition and any acquisition has numerous risks.
These risks include the following, among others:
| difficulty in assimilating the operations and personnel of the acquired company; |
| difficulty in effectively integrating the acquired technologies or products with our current products and technologies; |
| difficulty in maintaining controls, procedures, and policies during the transition and integration; |
| disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; |
| difficulty integrating the acquired companys accounting, management information, and other administrative systems; |
| inability to retain key technical and managerial personnel of the acquired business; |
| inability to retain key customers, vendors, and other business partners of the acquired business; |
| inability to achieve the financial and strategic goals for the acquired and combined businesses; |
| incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results; |
| potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things; |
| potential inability to assert that internal controls over financial reporting are effective; and |
| potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions. |
Mergers and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.
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We may not be successful in leveraging our customer base to grow our business through sales of other energy products and services.
To date, we have derived substantially all of our revenue and cash receipts from the sale of solar energy systems and the sale of energy under our long-term customer agreements. While we continue to develop and offer innovative energy-related products and services, customer demand for these offerings may be more limited than we anticipate. We may not be successful in completing development of these products as a result of research and development difficulties, technical issues, availability of third-party products or other reasons. Even if we are able to offer these or other additional products and services, we may not successfully generate meaningful customer demand to make these offerings viable. If we fail to deliver these additional products and services, if the costs associated with bringing these additional products and services to market is greater than we anticipate, if customer demand for these offerings is smaller than we anticipate, or if our strategies to implement new sales approaches and acquire new customers are not successful, our growth will be limited.
Our growth depends in part on the success of our strategic relationships with third parties.
A key component of our growth strategy is to develop or expand our strategic relationships with third parties. For example, we are investing resources in establishing relationships with industry leaders, such as trusted retailers and commercial homebuilders, to generate new customers. Identifying partners and negotiating relationships with them requires significant time and resources. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to grow our business could be impaired. Even if we are able to establish these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business and customer base. This would limit our growth potential and our opportunities to generate significant additional revenue or cash receipts.
The loss of one or more members of our senior management or key employees may adversely affect our ability to implement our strategy.
We depend on our experienced management team, and the loss of one or more key executives could have a negative impact on our business. In particular, we are dependent on the services of our chief executive officer and co-founder, Lyndon R. Rive, and our chief technology officer and co-founder, Peter J. Rive. We also depend on our ability to retain and motivate key employees and attract qualified new employees. Neither our founders nor our key employees are bound by employment agreements for any specific term, and we may be unable to replace key members of our management team and key employees in the event we lose their services. Integrating new employees into our management team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial personnel who have critical industry experience and relationships could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition and results of operations.
Our business may be harmed if we fail to properly protect our intellectual property.
We believe that the success of our business depends in part on our proprietary technology, including our software, information, processes and know-how. We rely on trade secret and patent protections to secure our intellectual property rights. We cannot be certain that we have adequately protected or will be able to adequately protect our proprietary technology, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect our intellectual property rights. Moreover, we cannot be certain that our patents provide us with a competitive advantage. Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without our consent. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business. In the future, some of our products
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could be alleged to infringe existing patents or other intellectual property of third parties, and we cannot be certain that we will prevail in any intellectual property dispute. In addition, any future litigation required to enforce our patents, to protect our trade secrets or know-how or to defend us or indemnify others against claimed infringement of the rights of others could harm our business, financial condition and results of operations.
We are subject to legal proceedings and regulatory inquiries, and we may be named in additional legal proceedings or become involved in regulatory inquiries in the future, all of which are costly, distracting to our core business and could result in an unfavorable outcome, or a material adverse effect on our business, financial condition, results of operations, or the trading price for our securities.
We are involved in legal proceedings and receive inquiries from government and regulatory agencies (such as the pending Treasury and Department of Labor investigations). In the event that we are involved in significant disputes or are the subject of a formal action by a regulatory agency, we could be exposed to costly and time consuming legal proceedings that could result in any number of outcomes. Although outcomes of such actions vary, any claims or regulatory actions initiated by or against us, whether successful or not, could result in expensive costs of defense, costly damage awards, injunctive relief, increased costs of business, fines or orders to change certain business practices, significant dedication of management time, diversion of significant operational resources, or otherwise harm our business. In any of these cases, our financial results could be negatively impacted.
The requirements of being a public company may strain our resources, divert managements attention and affect our ability to attract and retain qualified board members and officers.
As a public company, we are subject to the reporting requirements of the Exchange Act, the listing requirements of the NASDAQ Global Market and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, managements attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.
As a public company, we also expect that it will be more expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly to serve on our audit committee and compensation committee.
The production and installation of solar energy systems depends heavily on suitable meteorological conditions. If meteorological conditions are unexpectedly unfavorable, the electricity production from our solar energy systems may be substantially below our expectations and our ability to timely deploy new systems may be adversely impacted.
The energy produced and revenue and cash receipts generated by a solar energy system depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our systems, such as panels and inverters, could be damaged by severe weather, such as hailstorms or tornadoes. In these circumstances, we generally would be obligated to bear the expense of repairing the damaged solar energy systems that we own. Sustained unfavorable weather also could unexpectedly delay our installation of solar energy systems, leading to increased expenses and decreased revenue and cash receipts in the relevant periods.
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Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where we install. This could make our solar energy systems less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition and results of operations.
We typically bear the risk of loss and the cost of maintenance and repair on solar systems that are owned or leased by our fund investors.
We typically bear the risk of loss and are generally obligated to cover the cost of maintenance and repair on any solar systems that we sell or lease to our fund investors. At the time we sell or lease a solar system to a fund investor, we enter into a maintenance services agreement where we agree to operate and maintain the system for a fixed fee that is calculated to cover our future expected maintenance costs. If our solar systems require an above-average amount of repairs or if the cost of repairing systems were higher than our estimate, we would need to perform such repairs without additional compensation. If our solar systems, a majority of which are located in California, are damaged in the event of a natural disaster beyond our control, losses could be excluded, such as earthquake damage, or exceed insurance policy limits, and we could incur unforeseen costs that could harm our business and financial condition. We may also incur significant costs for taking other actions in preparation for, or in reaction to, such events. We purchase Property and Business Interruption insurance with industry standard coverage and limits approved by an investors third-party insurance advisors to hedge against such risk, but such coverage may not cover our losses.
Any unauthorized disclosure or theft of personal information we gather, store and use could harm our reputation and subject us to claims or litigation.
We receive, store and use personal information of our customers, including names, addresses, e-mail addresses, credit information and other housing and energy use information. Unauthorized disclosure of such personal information, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. If we were subject to an inadvertent disclosure of such personal information, or if a third party were to gain unauthorized access to customer personal information we possess, our operations could be seriously disrupted and we could be subject to claims or litigation arising from damages suffered by our customers. In addition, we could incur significant costs in complying with the multitude of federal, state and local laws regarding the unauthorized disclosure of personal information. Finally, any perceived or actual unauthorized disclosure of such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our total consolidated indebtedness was $529.0 million as of December 31, 2013. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 2.75% Convertible Senior Notes due 2018 issued in November 2013 (the Notes), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
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We expect to incur substantially more debt or take other actions which would intensify the risks discussed above.
We and our subsidiaries expect to incur additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on the Notes when due. Our existing credit facilities restrict our ability to incur additional indebtedness, including secured indebtedness, but we may be able to obtain waivers of such restrictions or may not be subject to such restrictions under the terms of any subsequent indebtedness.
We may have trouble refinancing our credit facilities or obtaining new financing for our working capital, equipment financing and other needs in the future or complying with the terms of existing credit facilities. If credit facilities are not available to us on acceptable terms, if and when needed, or if we are unable to comply with their terms, our ability to continue to grow our business would be adversely impacted.
We have entered into several secured credit agreements, including a working capital facility under which we may currently borrow up to $250.0 million (with $160.5 million currently committed from several lenders and an additional $89.5 million subject to further conditions) that matures in December 2016. In November 2013, we fully repaid a $7.0 million term facility used to finance the purchase of vehicles. The working capital facility requires us to comply with certain financial, reporting and other requirements. The timing of our commercial projects has on occasion adversely affected our ability to satisfy certain financial covenants under these or prior facilities. While our lenders have given us waivers of certain covenants we have not satisfied in the past, there is no assurance that the lenders will waive or forbear from exercising their remedies with respect to any future defaults that might occur. For example, on April 30, 2012 and May 31, 2012, we did not meet a financial ratio covenant, and on June 30, 2012, we breached a financial covenant related to non-GAAP EBITDA under our prior working capital facility, which also resulted in a default under a separate vehicle financing facility with the same administrative bank agent. The bank waived these breaches, and in September 2012 we refinanced all amounts borrowed under the prior working capital facility with the $100.0 million working capital facility, which was later amended and restated to provide for the $250.0 million working capital facility described above. In May 2013, we executed amendments to two of our then outstanding secured credit facilities and obtained a waiver from our lenders under our third secured credit facility so that financial covenants regarding debt service coverage for the first quarter of 2013 would not apply to us because our trailing twelve-month non-GAAP EBITDA would have been insufficient to satisfy the covenants. In June 2013, we amended the debt service coverage ratio in our remaining two secured credit facilities to limit debt service to only cash interest charges. We believe that some of the financial and other covenants are generally more favorable to us following these changes, however a breach of our covenants may still occur in the future.
Further, there is no assurance that we will be able to enter into new credit facilities on acceptable terms. If we are unable to satisfy financial covenants and other terms under existing or new facilities or obtain associated waivers or forbearance from our lenders or if we are unable to obtain refinancing or new financings for our working capital, equipment and other needs on acceptable terms if and when needed, our business would be adversely affected.
We may not have the ability to raise the funds necessary to repurchase the Notes, including upon a fundamental change, and one of our current credit facilities prohibits us from repurchasing the issued notes upon a fundamental change.
Holders of the Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. However, at the time we may be required to repurchase the Notes we
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may not have sufficient available cash or be able to obtain sufficient financing to allow for repurchase. In addition, one of our existing credit facilities prohibits us from repurchasing the Notes upon a fundamental change, and we may enter into agreements in the future that similarly restrict our ability to repurchase the Notes and other securities. Our failure to repurchase the Notes when required would constitute a default which may result in defaults under other agreements governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof. Our ability to repurchase the Notes may also be limited by law or by regulatory authority.
We intend to expand our international activities, which will subject us to a number of risks.
Our long-term strategic plans include international expansion, and we intend to sell our solar energy products and services in international markets. Risks inherent to international operations include the following:
| inability to work successfully with third parties with local expertise to co-develop international projects; |
| multiple, conflicting and changing laws and regulations, including export and import restrictions, tax laws and regulations, environmental regulations, labor laws and other government requirements, approvals, permits and licenses; |
| changes in general economic and political conditions in the countries where we operate, including changes in government incentives relating to power generation and solar electricity; |
| political and economic instability, including wars, acts of terrorism, political unrest, boycotts, curtailments of trade and other business restrictions; |
| difficulties and costs in recruiting and retaining individuals skilled in international business operations; |
| international business practices that may conflict with U.S. customs or legal requirements; |
| financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts receivable; |
| fluctuations in currency exchange rates relative to the U.S. dollar; and |
| inability to obtain, maintain or enforce intellectual property rights, including inability to apply for or register material trademarks in foreign countries. |
Doing business in foreign markets requires us to be able to respond to rapid changes in market, legal, and political conditions in these countries. The success of our business will depend, in part, on our ability to succeed in differing legal, regulatory, economic, social and political environments. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business.
Risks Related to the Ownership of Our Common Stock
Our stock price has been and may continue to be volatile, and the value of your investment could decline.
The trading price of our common stock has been volatile since our initial public offering. Since shares of our common stock were sold in our initial public offering in December 2012 at a price of $8.00 per share, the reported high and low sales prices of our common stock on the NASDAQ Global Market has ranged from
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$9.20 to $88.35 per share, through March 15, 2014. The market price of our common stock may fluctuate widely in response to many risk factors listed in this section and others beyond our control, including:
| changes in laws or regulations applicable to our industry, products or services, including the effects of tariffs and other anti-competitive actions; |
| additions or departures of key personnel; |
| addition or loss of significant customers; |
| actual or anticipated changes in expectations regarding our performance by investors or securities analysts; |
| price and volume fluctuations in the overall stock market; |
| volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable; |
| share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; |
| our ability to protect our intellectual property and other proprietary rights; |
| sales of our common stock by us or our stockholders, including as a result of recent offerings and acquisitions; |
| litigation involving us, our industry or both; |
| major catastrophic events; and |
| general economic and market conditions and trends. |
Further, in recent years 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. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many renewable energy companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, government shutdowns, interest rate changes or international currency fluctuations, may cause the market price of our common stock to decline. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our managements attention from other business concerns, which could seriously harm our business.
Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Such sales may occur in connection with our acquisitions, such as our issuance of approximately 6.5 million shares in the aggregate for our acquisitions of Zep Solar and certain assets of Paramount Solar in 2013. In addition, holders of a substantial amount of our common stock are entitled to rights with respect to
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registration of these shares under the Securities Act pursuant to an investors rights agreement. If these holders of our common stock, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our common stock. If we file a registration statement for the purposes of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired.
Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
As of December 31, 2013, our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, owned approximately 54.1% of the outstanding shares of our common stock. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might affect the market price of our common stock.
Provisions in our certificate of incorporation and bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by discouraging, delaying or preventing a change of control of our company or changes in our management that the stockholders of our company may believe advantageous. These provisions include:
| establishing a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; |
| authorizing blank check preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt; |
| limiting the ability of stockholders to call a special stockholder meeting; |
| limiting the ability of stockholders to act by written consent; |
| providing that the board of directors is expressly authorized to make, alter or repeal our bylaws; and |
| establishing advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock, to some extent, depends on the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
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We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Our corporate headquarters and executive offices are located in San Mateo, California, where we occupy approximately 68,025 square feet of office space under a lease that expires in December 2016. Our Zep Solar subsidiary leases approximately 24,460 square feet of office space in San Rafael, California. Our other locations include sales offices and warehouses in Arizona, California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Nevada, New Jersey, New York, Oregon, Texas, Shanghai, China and Sydney, Australia. We also maintain sales and support offices in Ontario, Canada.
We lease all of our facilities, and we do not own any real property. We believe that our existing facilities are adequate for our current needs and that we will be able to lease suitable additional or alternative space on commercially reasonable terms if and when we need it.
On April 30, 2013, the U.S. Department of Labor notified us that it was undertaking a wage and hour investigation related to employees located in our Foster City, California facility. We have cooperated and continue to cooperate in that investigation. In the course of that investigation, the Department of Labor subsequently asked us to provide information regarding certain of our employee positions throughout our organization for the three years preceding April 2013, and we provided that information in the fall of 2013. On February 28, 2014, the Department of Labor informed us that it had made a preliminary determination that some of our employee positions were not properly classified, but has made no assessment of damages or penalties. If the Department of Labor were to conclusively determine that we violated certain of these labor laws and regulations, we would be required to make the appropriate payments of back wages and other amounts to employees, and we might be subject to fines or penalties. We are undertaking a thorough review, and are engaged in further discussion with the Department of Labor. We intend to vigorously contest any determination by the Department of Labor that we are liable for back wages, fines, or penalties. We recorded a reserve in the quarter ended December 31, 2013 to account for any expected liability as a result of this investigation.
On August 17, 2012, Kevin Demattio, a former outside sales employee, filed a putative class action complaint against SolarCity in the Superior Court for the County of Los Angeles (Civil Action No. BC490482). Mr. Demattio purports to represent a class of certain current and former outside sales representatives, and those with a similar title, who worked for us in California for the four-year period prior to the filing of the complaint. The complaint alleges causes of action for failure to pay proper wages due under various commission pay plans; failure to properly pay the wages of terminated (or resigned) employees; failure to provide proper itemized wage statements because of an alleged failure to specify requisite information; failure to keep accurate time records; and related claims for unfair competition and a California state statute permitting individuals to pursue claims not pursued by a state agency. Mr. Demattio seeks unspecified damages for himself and affected class members, including all wages due and owing, applicable statutory penalties (including waiting time penalties), interest, attorneys fees and costs. On January 24, 2013, we answered the complaint and asserted a cross complaint against Mr. Demattio to recover commissions that he was paid, but not entitled to, along with our fees and costs
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in the litigation. On March 14, 2014, Mr. Demattio filed a motion with the court to seek to pursue his action on behalf of a class. Also on March 14, 2014, we filed a motion for summary judgment on our cross complaint. Discovery has commenced, and we intend to defend ourselves against the complaint and pursue our own claims vigorously.
In July 2012, we and other companies with significant market share, and other companies related to the solar industry, received subpoenas from the U.S. Department of Treasurys Office of the Inspector General to deliver certain documents in our respective possession. In particular, our subpoena requested, among other things, documents dated, created, revised or referred to since January 1, 2007 that relate to our applications for U.S. Treasury grants or communications with certain other solar development companies or certain firms that appraise solar energy property for U.S. Treasury grant application purposes. The Inspector General is working with the Civil Division of the U.S. Department of Justice to investigate the administration and implementation of the U.S. Treasury grant program, including possible misrepresentations concerning the fair market value of the solar power systems submitted for grant under that program made in grant applications by companies in the solar industry, including us. We intend to cooperate fully with the Inspector General and the Department of Justice. We are continuing to produce documents as requested by the Inspector General, and anticipate at least six months will be required to complete the gathering and production of such materials, and that the Inspector General will require at least another year to conclude its review of those materials. We are not aware of, and have not been made aware of, any specific allegations of misconduct or misrepresentation by us or our officers, directors or employees, and no such assertions have been made by the Inspector General or the Department of Justice.
From time to time, we may be involved in litigation relating to claims arising in the ordinary course of our business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES
Market Information
Our common stock, $0.0001 par value per share, began trading on the NASDAQ Global Market on December 13, 2012, where its prices are quoted under the symbol SCTY.
Holders of Record
As of December 31, 2013 there were 240 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Price Range of Our Common Stock
The following table sets forth the reported high and low sales prices of our common stock for the indicated periods, as regularly quoted on the NASDAQ Global Market:
Fiscal Year Ended December 31, 2012 |
Fiscal Year Ended December 31, 2013 |
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High | Low | High | Low | |||||||||||||
First Quarter |
N/A | N/A | $ | 20.38 | $ | 11.95 | ||||||||||
Second Quarter |
N/A | N/A | $ | 52.77 | $ | 18.00 | ||||||||||
Third Quarter |
N/A | N/A | $ | 45.60 | $ | 28.31 | ||||||||||
Fourth Quarter(1) |
$ | 13.00 | $ | 9.20 | $ | 65.30 | $ | 34.52 |
(1) | The period reported for the fourth quarter of 2012 is from December 13, 2012 through December 31, 2012. |
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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Stock Price Performance Graph
This performance graph shall not be deemed filed for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of SolarCity Corporation under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
This chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and the NASDAQ Clean Edge U.S. Liquid Series Index, or CELS. The chart assumes $100 was invested on December 13, 2012 in the common stock of SolarCity Corporation, the NASDAQ Composite Index and the NASDAQ Clean Edge U.S. Liquid Series Index, and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
Company/Index |
Base Period 12/13/2012 |
Indexed Returns Period ended 12/31/2013 |
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SolarCity Corporation |
$ | 100.00 | $ | 481.93 | ||||
NASDAQ Composite Index |
$ | 100.00 | $ | 139.58 | ||||
NASDAQ Clean Edge U.S. Liquid Series Index |
$ | 100.00 | $ | 192.30 |
Recent Sales of Unregistered Securities
On December 11, 2013, in connection with our acquisition of Zep Solar, Inc., or Zep Solar, we issued 2,751,782 shares of common stock to the former security holders of Zep Solar. The shares were issued pursuant to a permit issued by the California Commissioner of Corporations pursuant to Sections 25121 and 25142 of the California Corporate Securities Law of 1968 and were exempt from registration under federal securities laws by virtue of the exemption provided by Section 3(a)(10) of the Securities Act. The shares were not issued by any underwriters and did not involve any underwriting discounts or commissions or any public offering.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data below in conjunction with Managements 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 annual report on Form 10-K. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this annual report on Form 10-K.
The consolidated statement of operations data for the years ended December 31, 2013, 2012 (as restated) and 2011 and the consolidated balance sheet data as of December 31, 2013 and 2012 (as restated) are derived from our audited consolidated financial statements included elsewhere in this annual report on Form 10-K (see Note 2 included elsewhere in this annual report on Form 10-K for information regarding the restatement). The consolidated statement of operations data for the years ended December 31, 2010 and 2009 and the consolidated balance sheet data as of December 31, 2011 (as restated), 2010 (as restated) and 2009 (as restated) are derived from our consolidated financial statements, which are stated on a basis consistent with our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in any future period.
Year Ended December 31, | ||||||||||||||||||||
2013 |
2012 (Restated) |
2011 |
2010 |
2009 |
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(in thousands, except per share amounts) | ||||||||||||||||||||
Consolidated statement of operations data: |
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Revenue: |
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Operating leases and solar energy systems incentives |
$ | 82,856 | $ | 46,098 | $ | 23,145 | $ | 9,684 | $ | 3,212 | ||||||||||
Solar energy systems sales |
80,981 | 80,810 | 36,406 | 22,744 | 29,435 | |||||||||||||||
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Total revenue |
163,837 | 126,908 | 59,551 | 32,428 | 32,647 | |||||||||||||||
Cost of revenue: |
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Operating leases and solar energy systems incentives |
32,745 | 14,596 | 5,718 | 3,191 | 1,911 | |||||||||||||||
Solar energy systems sales |
91,723 | 84,856 | 41,418 | 26,953 | 28,971 | |||||||||||||||
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Total cost of revenue |
124,468 | 99,452 | 47,136 | 30,144 | 30,882 | |||||||||||||||
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Gross profit |
39,369 | 27,456 | 12,415 | 2,284 | 1,765 | |||||||||||||||
Net loss |
(151,758 | ) | (113,726 | ) | (73,714 | ) | (47,074 | ) | (22,720 | ) | ||||||||||
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests(1) |
(95,968 | ) | (14,391 | ) | (117,230 | ) | (8,457 | ) | 3,507 | |||||||||||
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Net (loss) income attributable to stockholders(1) |
$ | (55,790 | ) | $ | (99,335 | ) | $ | 43,516 | $ | (38,617 | ) | $ | (26,227 | ) | ||||||
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Net (loss) income per share attributable to common stockholders: |
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Basic |
$ | (0.70 | ) | $ | (7.68 | ) | $ | 0.82 | $ | (4.50 | ) | $ | (3.13 | ) | ||||||
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Diluted |
$ | (0.70 | ) | $ | (7.69 | ) | $ | 0.76 | $ | (4.50 | ) | $ | (3.13 | ) | ||||||
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(1) | Under U.S. generally accepted accounting principles, we are required to present the impact of a hypothetical liquidation of our joint venture financing funds on our consolidated statements of operations. For a more detailed discussion of this accounting treatment, see Managements Discussion and Analysis of Financial Condition and Results of OperationsComponents of Results of OperationsNet Income (Loss) Attributable to Stockholders. |
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As of December 31, | ||||||||||||||||||||
2013 | 2012 (Restated) |
2011 | 2010 | 2009 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consolidated balance sheet data: |
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Cash and cash equivalents |
$ | 577,080 | $ | 160,080 | $ | 50,471 | $ | 58,270 | $ | 37,912 | ||||||||||
Total current assets |
787,663 | 313,938 | 241,522 | 110,432 | 69,896 | |||||||||||||||
Solar energy systems, leased and to be leased net |
1,682,521 | 984,121 | 535,609 | 239,611 | 87,583 | |||||||||||||||
Total assets |
2,809,534 | 1,342,300 | 813,173 | 371,264 | 164,154 | |||||||||||||||
Total current liabilities |
338,206 | 213,978 | 246,886 | 81,958 | 52,012 | |||||||||||||||
Long-term debt, net of current portion |
238,612 | 83,533 | 14,581 | | 1,808 | |||||||||||||||
Convertible senior notes, net of current portion |
230,000 | | | | | |||||||||||||||
Solar asset-backed notes, net of current portion |
49,780 | | | | | |||||||||||||||
Deferred revenue, net of current portion |
410,161 | 204,396 | 101,359 | 40,681 | 21,394 | |||||||||||||||
Lease pass-through financing obligation, net of current portion |
64,167 | 125,884 | 46,541 | 53,097 | | |||||||||||||||
Sale-leaseback financing obligation, net of current portion |
14,338 | 14,755 | 15,144 | 15,758 | | |||||||||||||||
Other liabilities and deferred credits |
193,439 | 114,006 | 36,314 | 15,715 | 120 | |||||||||||||||
Redeemable noncontrolling interests in subsidiaries (restated)(2) |
44,709 | 12,827 | 22,308 | 66,064 | 39,841 | |||||||||||||||
Convertible redeemable preferred stock |
| | 125,722 | 101,446 | 80,042 | |||||||||||||||
Total stockholders equity (deficit) (as restated)(2) |
617,598 | 183,601 | (37,662 | ) | (87,488 | ) | (50,736 | ) | ||||||||||||
Noncontrolling interests in subsidiaries (restated)(2) |
186,817 | 96,793 | 100,338 | 57,450 | 16,195 |
(2) | As discussed in Note 28 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, our consolidated balance sheets as of December 31, 2009, 2010, 2011 and 2012 have been restated to present redeemable noncontrolling interests in subsidiaries in temporary equity and not permanent equity as had previously been recorded. |
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ITEM 7. MANAGEMENTS 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 accompanying notes to those statements included elsewhere in this annual report on Form 10-K. 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 annual report on Form 10-K.
Overview
We integrate the sales, engineering, installation, monitoring, maintenance and financing of our distributed solar energy systems. This allows us to offer long-term energy solutions to residential, commercial and government customers. Our customers buy renewable energy from us for less than they currently pay for electricity from utilities with little to no up-front cost. Our long-term contractual arrangements typically generate recurring customer payments and enable our customers to have insight into their future electricity costs and to minimize their exposure to rising retail electricity rates. Our customer relationships also enable us to continue to offer our customers complimentary products and services offerings including energy storage solutions, electric vehicle charging stations and energy efficiency consultations.
We offer our customers the option to either purchase and own solar energy systems or to purchase the energy that our solar energy systems produce through various contractual arrangements. These contractual arrangements include long-term leases and power purchase agreements. In both structures, we install our solar energy system at our customers premises and charge the customer a monthly fee for the power that our system produces. In the lease structure, this monthly payment is fixed with a production guarantee. In the power purchase agreement structure, we charge customers a fee per kWh based on the amount of electricity the solar energy system actually produces. The leases and power purchase agreements are typically for 20 years, and generally when there is no upfront prepayment the specified monthly fees are subject to annual escalations.
Our solar energy systems serve as a gateway for us to offer energy-related products and services to our residential customers. To date, revenue attributable to our energy-related products and services has not been material compared to revenue attributable to our solar energy systems.
Through the first half of 2013, we typically acted as a general contractor and performed energy efficiency upgrades for our customers following energy efficiency evaluations and recommendations. As of the end of the third quarter of 2013, we completed our transition to a new sales approach of facilitating energy efficiency upgrades through trusted third-party vendors instead of performing these upgrades ourselves. We continue to perform energy efficiency evaluations for our customers and provide recommendations for upgrades to improve energy efficiency and home comfort. Once we complete these evaluations, we offer to provide a list of preferred vendors to our customers and introduce our customers to the third-party vendors who perform the upgrades. In exchange for providing the introduction to our customers, the preferred vendors pay us a referral fee.
Initially, we offered our solar energy systems on an outright purchase basis. In mid-2008, we began offering leases and power purchase agreements. Our ability to offer leases and power purchase agreements depends in part on our ability to finance the installation of the solar energy systems by monetizing the resulting customer receivables and related investment tax credits, accelerated tax depreciation and other incentives. We expect customers to continue to favor leases and power purchase agreements.
We compete mainly with the retail electricity rate charged by the utilities in the markets we serve, and our strategy is to price the energy we sell below that rate. As a result, the price our customers pay to buy energy
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from us varies depending on the state where the customer is located and the local utility. The price we charge also depends on customer price sensitivity, the need to offer a compelling financial benefit and the price other solar energy companies charge in the region. Our commercial rates in a given region are also typically lower than our residential rates in that region because utilities commercial retail rates are generally lower than their residential retail rates.
We generally recognize revenue from solar energy systems sold to our customers when we install the solar energy system and it passes inspection by the utility or the authority having jurisdiction. We account for our leases and power purchase agreements as operating leases. We recognize the revenue these arrangements generate on a straight-line basis over the term for leases, and as we generate and deliver energy for power purchase agreements. We recognize revenue from our energy efficiency business when we complete the services or more recently when one of our partners completes the services to the referred customer. Substantially all of our revenue is attributable to customers located in the United States.
In the fourth quarter of 2012, we began monetizing certain government incentives in the form of investment tax credits, or ITCs, under lease pass-through structures by assigning the credits to investors in exchange for upfront cash payments. We record the amounts we receive from the investors for the ITCs as a liability, which is subsequently recognized as revenue as the five-year recapture period expires. As the U.S. Department of Treasury Section 1603 grant program winds down, we expect to increasingly place in service solar energy systems under the ITC program.
The amount of operating lease revenue that we recognize in a given period is dependent in part on the amount of energy generated by solar energy systems under power purchase agreements and by systems with energy output performance incentives, which in turn are dependent in part on the amount of sunlight. As a result, operating lease revenue is impacted by seasonally shorter daylight hours in winter months. As the relative percentage of our revenue attributable to power purchase agreements or performance-based incentives increases, this seasonality may become more significant.
Various state and local agencies offer incentive rebates for the installation and operation of solar energy systems. For solar energy systems we sell, we typically have the customer assign the incentive rebate to us. We record the incentive rebates as a component of proceeds from the system sale. For incentive rebates associated with solar energy systems under leases or power purchase agreements, we initially record the rebate as deferred revenue and recognize the deferred revenue as revenue over the term of the lease or power purchase agreement.
Component materials, third-party appliances, and direct labor comprise the substantial majority of the costs of our solar energy systems and energy-related products and services. Under U.S. generally accepted accounting principles, or GAAP, the cost of revenue from our leases and power purchase agreements are primarily comprised of the depreciation of the cost of the solar energy systems, which are depreciated over the estimated useful life of 30 years, and the amortization of initial direct costs, which are amortized over the term of the lease or power purchase agreement, which is typically 20 years.
We have structured different types of financing funds to implement our asset monetization strategy. One such structure is a joint venture structure where we and our fund investors both contribute funds or assets into the joint venture. Under GAAP, we are required to present the impact of a hypothetical liquidation of these joint ventures on our consolidated statement of operations. Therefore, after we determine our consolidated net income (loss) for a given period, we are required to allocate a portion of our consolidated net income (loss) to the fund investors in our joint ventures (referred to as the noncontrolling interests in our consolidated financial statements) and allocate the remainder of the consolidated net income (loss) to our stockholders. These income or loss allocations, reflected on our consolidated statement of operations, can have a significant impact on our reported results of operations. For example, for the years ended December 31, 2013 and 2012, our consolidated net loss was $151.8 million and $113.7 million (restated), respectively. However, after applying the required allocations to arrive at the consolidated net loss attributable to our stockholders, the result was a loss of
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$55.8 million and $99.3 million (restated) in 2013 and 2012, respectively. For a more detailed discussion of this accounting treatment, see Components of Results of OperationsNet Income (Loss) Attributable to Stockholders.
On September 6, 2013, we purchased certain assets of Paramount Energy Solutions, LLC, or Paramount Energy. Paramount Energy was a leading direct-to-consumer marketer and was one of our channel partners through a customer referral arrangement. The acquired assets included Paramount Energys interest in a financing fund that it had formed with an investor that is also the investor in some of our existing funds, executed end-user customer agreements together with the associated solar energy systems in various stages of completion and various databases and arrangements used by Paramount Energy in its acquisition of new customers. The acquisition enables us to develop and offer solar energy systems directly to a broader customer base and to better compete with other energy producers, as well as to drive a lower cost of customer acquisition. In connection with the acquisition, the former chief executive officer of Paramount Energy joined us as our chief revenue officer.
On December 11, 2013, we acquired Zep Solar, Inc., or Zep Solar. Zep Solar designs and supplies solar energy system mounting solutions for photovoltaic panels and also licenses its patented technology to other third parties. Zep Solar contracts with manufacturers in China to produce its products, and it was a key supplier to us. The acquisition enables us to control the design and manufacture of the Zep Solar products that are key components in the installation of our solar energy systems. We expect that the acquisition will lead to improved efficiencies and cost reductions. In connection with the acquisition, certain former employees of Zep Solar accepted employment with us.
Financing Funds
Our lease and power purchase agreements in conjunction with the associated solar energy systems create investment tax credits, accelerated tax depreciation deductions and other incentives. Our financial strategy is to monetize these attributes or assets to generate cash. Through this monetization process, we are able to share the economic benefits generated by the solar energy system with our customers by lowering the price they pay for energy. Historically, we have monetized the assets created by substantially all of our leases and power purchase agreements via funds we have formed with fund investors. Depending on the structure of the fund, we may contribute or sell solar energy systems to the fund and assign certain of the tax attributes and other incentives associated with the solar energy systems to the investors and in return we receive upfront cash payments from investors.
We also enter into arrangements which allow us to borrow against the future recurring customer payments under the solar system leases and power purchase agreements. Through the financing funds, we are able to retain the residual value in leases and the solar energy systems themselves. We use the cash received from the investors to cover our operating and capital costs including the variable and fixed costs associated with installing the related solar energy systems. Because these recurring customer payments are from individuals or commercial businesses with high credit scores, and because electricity is a necessity, our fund investors perceive these as high-quality assets with a relatively low loss rate. We invest any excess cash in the growth of our business.
Joint Ventures. Under joint venture structures, we and our fund investors contribute funds into a joint venture. Then, the joint venture acquires solar energy systems from us and leases the solar energy systems to customers. Prior to the fund investor receiving its contractual rate of return or for a time period specified in the contractual arrangements, the fund investors receive substantially all of the value attributable to the long-term recurring customer payments, investment tax credits, accelerated tax depreciation and, in some cases, other incentives. After the fund investor receives its contractual rate of return or after the specified time period, we receive substantially all of the value attributable to the long-term recurring customer payments and the other incentives.
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We have determined that we are the primary beneficiary in these joint venture structures. Accordingly, we consolidate the assets and liabilities and operating results of these joint ventures, including the solar energy systems and operating lease revenue, in our consolidated financial statements. We recognize the fund investors share of the net assets of the joint ventures as noncontrolling interests in subsidiaries in our consolidated balance sheets. 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 fund investors as proceeds from investments by noncontrolling interests in subsidiaries. Our consolidated statements of cash flows also reflect cash paid to these fund investors as distributions paid to noncontrolling interests in subsidiaries. We reflect any unpaid distributions to these fund investors as distributions payable to noncontrolling interests in subsidiaries in our consolidated balance sheets.
Lease Pass-Through. Under lease pass-through structures, we lease solar energy systems to fund investors under a master lease agreement, and these investors in turn sublease the solar energy systems to customers. We receive all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to the other incentives. We assign to the fund investors the value attributable to the investment tax credits, the right to receive U.S. Treasury Department grants, and, for the duration of the master lease term, the long-term recurring customer payments. The investors typically make significant upfront cash payments which we classify and allocate between the right to the investment tax credits, where applicable, and the future customer lease payments and other benefits assigned to the investor, which are recorded as a lease pass-through financing obligation. After the master lease term expires we receive the customer payments, if any. We record the solar energy systems on our consolidated balance sheets as a component of solar energy systems, leased and to be leasednet. We record the amounts allocated to the investment tax credits as deferred revenue on our consolidated balance sheets as the associated solar energy systems are placed in service. We then recognize the deferred revenue in our consolidated statements of operations as revenue, by reducing the deferred revenue balance at each reporting date as the five-year recapture period expires. We record the balance of the amounts received from fund investors as lease pass-through financing obligations on our consolidated balance sheets and subsequently reduce these obligations by the amounts received by the fund investors from U.S. Treasury Department grants, customer payments and the associated incentive rebates. We in turn recognize the incentive rebates and customer payments as revenue over the customer lease term and amortize U.S. Treasury Department grants as a reduction to depreciation of the associated solar energy systems over the estimated life of these systems.
Sale-Leaseback. Under sale-leaseback structures, we generate cash through the sale of solar energy systems to our fund investors, and we then lease these systems back from the investors and sublease them to our customers. For the duration of the lease term, we may, for some of the structures, receive the value attributable to the incentives and the long-term recurring customer payments, and we make leaseback payments to the fund investors. The fund investors receive the customer payments after the lease term. They also receive the value attributable to the investment tax credits, accelerated depreciation and other incentives. At the end of the lease term, we have an option to purchase the solar energy systems from the fund investors. Typically, our customers make monthly lease payments that we recognize as revenue over the term of the subleases on a straight-line basis. Depending on the design, size and construction of the individual systems and the leaseback terms, we may recognize a portion of the revenue from the sale of the systems or we may treat the cash received from the sale as financing received from the fund investors and reflect the cash received as a sale-leaseback financing obligation on our consolidated balance sheets.
SecuritizationUnder securitization arrangements we pool and transfer qualifying solar energy systems and associated customer contracts into a special purpose entity, or SPE, and issue notes backed by these solar assets to investors. The SPE is wholly owned by us and we consolidate it in our consolidated financial statements. Accordingly we do not recognize a gain or loss on transfer of these assets. The notes bear interest at a rate determined at the inception. The cash flows generated by the assets in the SPEs are used to service the principal and interest payments of the notes, meet the SPEs expenses and any remaining cash is distributed to us.
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We recognize revenue earned from the customer leases or power purchase agreements associated with the solar energy systems transferred to the SPE in our consolidated financial statements. The assets and cash flows generated by the securitized solar energy systems are not available to our other creditors and the creditors of the SPE, including the notes holders, have no recourse to our other assets.
Restatement and Internal Controls
As discussed elsewhere in this report, in connection with the audit of our consolidated financial statements for the year ended December 31, 2013, we identified four material weaknesses relating to (i) the costing of solar energy system installations, (ii) accounting for and classification of redeemable noncontrolling interests, (iii) segregation of incompatible duties at our lease administrator and controls by us over the data received from our lease administrator, and (iv) certain areas of our financial statement close process. These material weaknesses resulted from deficiencies in the design and operation of our internal control over financial reporting, as well as our misinterpretation of certain accounting standards, and resulted in the restatement of our consolidated financial statements as of and for the years ended December 31, 2012, 2011, 2010 and 2009, and for certain interim periods in 2012 and 2013. The restated results of these prior periods are reflected in the discussion herein. See Item 9A. Controls and Procedures for a discussion of our disclosure controls and procedures and internal controls over financial reporting, including a discussion of the material weaknesses we have reported.
Key Operating Metrics
We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Customers
We track the number of residential, commercial and government customers where we have installed or contracted to install a solar energy system, or performed or contracted to perform an energy-related consultation or other energy efficiency services. We believe that the relationship we establish with building owners, together with the energy-related information we obtain about the buildings, position us to provide the owners with additional solutions to further lower their energy costs. Our cumulative number of customers increased by 92% to 92,998 as of December 31, 2013 from 48,419 as of December 31, 2012.
Energy Contracts
We define an energy contract as a residential, commercial or government lease or power purchase agreement pursuant to which consumers use or will use energy generated by a solar energy system that we have installed or have been contracted to install. For landlord-tenant structures in which we contract with the landlord or development company, we include each residence as an individual contract. For commercial customers with multiple locations, each location is deemed a contract if we maintain a separate contract for that location. We track the cumulative number of energy contracts as of the end of a given period as an indicator of our historical growth and as an indicator of our rate of growth from period to period.
The following table sets forth our cumulative number of energy contracts as of the dates presented:
December 31, 2013 |
December 31, 2012 | |||
Cumulative energy contracts |
83,265 | 40,685 |
Megawatts Deployed and Cumulative Megawatts Deployed
We track the megawatt production capacity of our solar energy systems that have had all required building department inspections completed. This metric includes solar energy systems deployed under energy contracts as well as solar energy system direct sales. Because the size of our solar energy systems varies greatly,
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we believe that tracking the megawatt production capacity of the systems is an indicator of the growth rate of our solar energy system business. We track the megawatts deployed in a given period as an indicator of asset growth in the period. We track cumulative megawatts deployed as of the end of a given period as an indicator of our historical growth and our future opportunity to provide customers with additional solutions to further lower their energy costs.
The following table sets forth the megawatt production capacity of solar energy systems that we have deployed during the periods presented and the cumulative megawatts deployed as of the end of each period presented:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Megawatts deployed |
280 | 157 | 72 | |||||||||
Cumulative megawatts deployed |
567 | 287 | 130 |
Nominal Contracted Payments
Our leases and power purchase agreements create long-term recurring customer payments. We use a portion of the value created by these contracts, which we refer to as nominal contracted payments, together with the value attributable to investment tax credits, accelerated depreciation, solar renewable energy credits, performance-based incentives, state tax benefits and rebates to cover the fixed and variable costs associated with installing solar energy systems.
We track the estimated nominal contracted payments of our leases and power purchase agreements entered into as of specified dates. Nominal contracted payments equal the sum of the cash payments that the customer is obligated to pay over the term of the agreement. When calculating nominal contracted payments, we only include those leases and power purchase agreements that have been signed. For a lease, we include the monthly fee and the upfront fee as set forth in the lease. As an example, the nominal contracted payments for a 20-year lease with monthly payments of $200 and an upfront payment of $5,000 is $53,000. For a power purchase agreement, we multiply the contract price per kWh by the estimated annual energy output of the associated solar energy system to determine the nominal contracted payments. The nominal contracted payments of a particular lease or power purchase agreement decline as the payments are received by us or a fund investor. Aggregate nominal contracted payments include leases and power purchase agreements that we have contributed to financing funds. Currently, fund investors have contractual rights to a portion of these nominal contracted payments.
Estimated nominal contracted payments remaining is a forward-looking number, and we use judgment in developing the assumptions used to calculate it. Those assumptions may not prove to be accurate over time. Underperformance of the solar energy systems, payment defaults by our customers, cancellation of signed contracts, or other factors described under the heading Risk Factors could cause our actual results to differ materially from our calculation of nominal contracted payments.
The following table sets forth, with respect to our leases and power purchase agreements, the estimated aggregate nominal contracted payments remaining as of the dates presented (in thousands):
December 31, 2013 |
December 31, 2012 |
|||||||
Estimated aggregate nominal contracted payments remaining |
$ | 1,990,059 | $ | 1,109,143 |
In addition to nominal contracted payments, our leases and power purchase agreements provide us with a significant post-contract renewal opportunity. Because our solar energy systems have an estimated life of 30 years, they will continue to have a useful life after the 20-year term of their leases or power purchase agreements. At the end of an original contract term, we intend to offer our customer a renewal contract. The solar energy system will already be installed on the customers building, which will facilitate the customers acceptance of our renewal offer and will result in limited additional costs to us.
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Components of Results of Operations
Revenue
Operating leases and solar energy systems incentives. We classify and account for our leases and power purchase agreements as operating leases. We consider the proceeds from solar energy system incentives offered by certain state and local governments to form part of the proceeds from our operating leases. As the U.S. Department of Treasury Section 1603 grant program winds down, we expect to increasingly place in service solar energy systems under the ITC program, and we expect the portion of the revenue attributable to such incentives will increase over time. Accordingly, commencing with this Annual Report, we have revised the reporting caption Operating leases to include solar energy systems incentives. We recognize revenue from our operating leases over the operating lease term either on a straight-line basis over the lease term for lease arrangements or as we generate and sell energy to customers under power purchase agreements. We typically bundle and charge for remote monitoring services as part of the lease or power purchase agreement and recognize the allocated amount as revenue over the term of the monitoring service. The term of our leases and power purchase agreements ranges between 10 and 20 years.
Solar energy systems sales. Solar energy systems sales is comprised of revenue from the sale of solar energy systems directly to cash paying customers, revenue generated from long-term solar energy system sales contracts and revenue attributable to our energy-related products and services. We generally recognize revenue from solar energy systems sold to our customers when we install the solar energy system and it passes inspection by the utility or the authority having jurisdiction. We allocate a portion of the proceeds from the sale of the system to the remote monitoring service or maintenance service if applicable and recognize the allocated amount as revenue over the contractual service term. We recognize revenue generated from long-term solar energy system sales contracts on a percentage-of-completion basis, based on the ratio of labor costs incurred to date to total project labor costs. We recognize revenue from our energy-related services when we complete the services.
During the years ended December 31, 2013 and 2012, less than 10% of our solar energy system installations were cash sales, measured by system capacities. However, because of our revenue recognition policy, these sales represented 49% and 64% (restated), respectively, of our total revenue for those periods. We expect installations utilizing leases and power purchase agreements to continue to represent the vast majority of our installed systems. As a result, the number of systems sold for cash and delivered in a given financial reporting period will have a disproportionate effect on the total revenue reported for that period.
Cost of Revenue, Gross Profit and Gross Profit Margin
Operating Leases and Solar Energy Systems Incentives Cost of Revenue. Operating leases and solar energy systems incentives cost of revenue is primarily comprised of the depreciation of the cost of the solar energy systems, the amortization of initial direct costs, maintenance costs, accruals for solar energy performance guarantees and warranty repair costs. The depreciation of the cost of the solar energy systems 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. Initial direct costs include allocated incremental contract administration costs, sales commissions and customer acquisition referral fees from the origination of solar energy systems leased to customers. These contract administration costs include incremental personnel costs, such as salary, bonus, employee benefit costs and stock-based compensation costs. Operating leases and solar energy systems incentives cost of revenue also includes direct and allocated costs associated with monitoring services for these systems.
Solar Energy Systems Sales Cost of Revenue. The substantial majority of solar energy systems cost of revenue consists of the costs of solar energy systems component acquisition and personnel costs associated with system installations. We acquire the significant component parts of the solar energy systems directly from foreign and domestic manufacturers or distributors. Our employees install our residential solar energy systems and our project managers and construction managers oversee the subcontractors that install commercial systems.
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To a lesser extent, solar energy systems cost of revenue also includes personnel costs associated with performing our energy-related services and related materials. Solar energy systems cost of revenue also includes engineering and design costs, estimated warranty costs, freight charges, allocated corporate overhead costs such as facilities costs, vehicle depreciation costs and personnel costs associated with supply chain, logistics, operations management, safety and quality control. Personnel costs include salary, bonus, employee benefit costs and stock-based compensation costs.
We allocate to solar energy systems cost of revenue certain corporate overhead costs that include rental and operating costs for our corporate facilities, information technology costs, travel expenses and certain professional services to cost of solar energy systems, work in process, cost of sales, sales and marketing and general and administrative expenses using an appropriate allocation basis.
Sales and Marketing Expenses
Sales and marketing expenses include personnel costs such as salaries, benefits, bonuses, sales commissions and stock-based compensation as well as advertising, promotional and other marketing related expenses. Sales and marketing expenses also include certain customer referral fees that are not a component of initial direct costs, allocated corporate overhead costs related to facilities and information technology, travel and professional services. We expect sales and marketing costs to increase significantly in absolute dollars in future periods as we continue to grow our sales headcount and expand our marketing efforts to continue to grow our business.
General and Administrative Expenses
General and administrative expenses include personnel costs such as salaries, bonuses and stock-based compensation and professional fees related to legal, human resources, accounting and structured finance services. General and administrative expenses also include allocated corporate overhead costs related to facilities and information technology, travel and professional services. We anticipate that we will incur additional administrative headcount costs to support the growth in our business, our financing fund arrangements and the additional costs of being a public filer.
Other Income and Expenses
In prior years, our other income and expenses consisted principally of the change in fair value of warrants issued to certain fund investors to acquire our convertible redeemable preferred stock, which were converted into warrants to acquire shares of our common stock upon the closing of our initial public offering, and subsequently exercised in 2013. For the year ended December 31, 2013, our other income and expenses consisted principally of franchise taxes and a loss on extinguishment of long-term debt.
Interest Income and Expense
Interest income and expense primarily consist of the interest charges associated with our secured credit revolver agreements, long-term debt facilities, solar asset-backed notes, convertible notes, financing obligations and capital lease obligations. Our credit revolver and certain of our long-term debt facilities are subject to variable interest rates. The interest rates charged on the solar asset-backed notes and convertible notes are fixed at inception. The interest charge on our financing obligations is fixed at the inception of the related transaction based on the incremental borrowing rate in effect on such date or the effective interest rate in the arrangement giving rise to the obligation. The interest charge on capital lease obligations is fixed at the inception of the related transaction based on the incremental borrowing rate in effect on such date. Interest income and expense also include the amortization of deferred financing costs associated with the issuance of the notes, the secured credit revolvers or long-term debt facilities, partially offset by a nominal amount of interest income generated from our cash holdings in interest-bearing accounts.
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Provision for Income Taxes
We are subject to taxation in the United States, Puerto Rico and Canada. We conduct our business primarily in the United States.
Our effective tax rates differ from the statutory rate primarily due to the valuation allowance on our deferred taxes, state taxes, foreign taxes, joint venture transactions and nondeductible stock compensation. Our current net tax benefit is primarily composed of the tax benefit from the release of valuation allowance offset by state income taxes, foreign income tax and the amortization of prepaid tax expense as a result of sales of assets to joint ventures included in our consolidated financial statements. In the year ended December 31, 2013, as a result of the acquisition of Zep Solar, for which a significant amount of the purchase price allocated to intangible assets had no tax basis, we recorded a net long-term deferred tax liability which subsequently triggered the release of $24.8 million of valuation allowance on our deferred tax asset as a benefit to income taxes.
As of December 31, 2013 and 2012, we had deferred tax assets of $289.2 million and $180.6 million (restated), respectively, and deferred tax liabilities of $228.7 million and $122.7 million (restated), respectively. During these periods, we maintained a net deferred tax asset and booked a valuation allowance against the net deferred tax asset.
Net Income (Loss) Attributable to Stockholders
We determine the net income (loss) attributable to stockholders by deducting from net income (loss) in a period the net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests. The net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests represents the joint venture fund investors allocable share in the results of the joint venture funds. We have determined that the provisions in the contractual arrangements represent substantive profit sharing arrangements. We have further determined that the appropriate methodology for calculating the noncontrolling interest and redeemable noncontrolling interests balances that reflects the substantive profit sharing arrangements is a balance sheet approach using the hypothetical liquidation at book value method, or HLBV method. We therefore use the HLBV method to determine the share of the results of the joint venture funds attributable to the joint venture fund investors, which we record in our consolidated balance sheets as noncontrolling interests and redeemable noncontrolling interests in subsidiaries. The HLBV method determines the joint venture fund investors allocable share of the results of the joint venture funds by calculating the net change in the joint venture fund investors share in the consolidated net assets of the joint venture funds at the beginning and end of the period after adjusting for any transactions between the joint venture funds and the joint venture fund investors, such as capital contributions or cash distributions. However, the redeemable noncontrolling interests balance is at least equal to the redemption amount.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. U.S. GAAP require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Our future consolidated financial statements will be affected to the extent that our actual results materially differ from these estimates.
We believe that the assumptions and estimates associated with our principles of consolidation, revenue recognition, solar energy systems, leased and to be leased, warranties, deferred U.S. Treasury Department grant proceeds, deferred ITC revenue, stock-based compensation, inventory reserves for excess and obsolescence, business combinations, long-lived assets, acquired intangible assets, goodwill, income taxes and noncontrolling
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interests have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant policies, see Note 2, Summary of Significant Accounting Policies and Procedures, to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
Principles of Consolidation
Our consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 810, Consolidation, we consolidate any variable interest entity, or VIE, of which we are the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity. However, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if (1) that party has the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This holder is considered the primary beneficiary. We do not consolidate a VIE in which we have a majority ownership interest if we are not considered the primary beneficiary. We have determined that we are the primary beneficiary in all of our VIEs and accordingly consolidate the assets and liabilities of such VIEs in our consolidated financial statements. We evaluate our relationships with our VIEs on an ongoing basis to determine whether we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
Our customers have the option to either purchase and own solar energy systems, to access solar energy systems through contractual arrangements that we account for as operating leases, or to purchase energy through power purchase agreements. We also offer ongoing monitoring services of the solar energy systems. In certain cases, we have entered into sale-leaseback arrangements with our fund investors. In a sale-leaseback arrangement, fund investors finance solar energy systems while enabling us to sublease the systems to our customers. We also offer energy-related products and services aimed at improving residential energy efficiency and lowering overall residential energy costs.
Solar Energy Systems Sales
For solar energy systems sold to customers, we recognize revenue, net of any applicable governmental sales taxes, in accordance with ASC 605-25, Revenue RecognitionMultiple-Element Arrangements, and ASC 605-10-S99, Revenue RecognitionOverallSEC Materials. Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. In instances where we have multiple deliverables in a single arrangement, we allocate the arrangement consideration to the various elements in the arrangement based on the relative selling price method. We recognize revenue when we install a solar energy system and it passes inspection by the utility or the authority having jurisdiction, provided all other revenue recognition criteria have been met. Costs incurred on residential installations before the solar energy systems are completed are included in inventories as work in progress in our consolidated balance sheets.
We recognize revenue for solar energy systems constructed for commercial customers according to ASC 605-35, Revenue RecognitionConstruction-Type and Production Type Contracts. Revenue is recognized on a percentage-of-completion basis, based on the ratio of labor costs incurred to date to total projected labor costs, provided all other revenue recognition criteria have been met. Costs in excess of billings are recorded where costs recognized are in excess of amounts billed to customers of purchased commercial solar energy systems.
Solar energy systems sold to commercial customers may take up to six months to install.
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Operating Leases and Power Purchase Agreements
For solar energy systems under operating leases, we account for the leases in accordance with ASC 840, Leases, under which we are the lessor. We record operating lease revenue from minimum lease payments, including upfront rebates and incentives earned from such systems, on a straight-line basis over the life of the lease term, provided all other revenue recognition criteria are met. For incentives that are earned based on the amount of electricity the system generates, we record revenue as amounts are earned. The difference between the payments received and the revenue recognized is recorded as deferred revenue on the consolidated balance sheet. Initial direct costs from the origination of solar energy systems leased to customers are capitalized as an element of solar energy systems, leased and to be leased net and amortized over the term of the related lease.
For solar energy systems where customers purchase electricity from us under power purchase agreements, we have determined that our power purchase agreements should be accounted for, in substance, as operating leases, pursuant to ASC 840. Revenue is recognized based upon the amount of electricity delivered as determined by remote monitoring equipment at rates specified under the contracts, assuming the other revenue recognition criteria are met. Initial direct costs from the origination of solar energy systems under power purchase agreements are capitalized as an element of solar energy systems, leased and to be leased net and amortized over the term of the related power purchase agreement.
Remote Monitoring Services
We provide solar energy system remote monitoring services, which are generally bundled with both sales and leases of solar energy systems. We allocate revenue between remote monitoring services and the other elements in a bundled sale of a solar energy system using the relative selling price method. The selling prices used in the allocation are determined by reference to the prices charged by third parties for similar services and products on a standalone basis. For remote monitoring services bundled with a sale of a solar energy system, we recognize the revenue allocated to remote monitoring services over the term specified in the associated contract or over the warranty period of the solar energy system if the contract does not specify the term. For remote monitoring services bundled with leases of solar energy systems, we recognize the revenue allocated to remote monitoring services on a straight-line basis over the life of the lease term. To date, remote monitoring services revenue has not been material and is included in the consolidated statements of operations under both operating leases and solar energy systems incentives revenue, when remote monitoring services are bundled with leases of solar energy systems, and solar energy system sales revenue, when remote monitoring services are bundled with sales of solar energy systems.
Sale-Leasebacks
We are a party to sale-leaseback arrangements that provide for the sale of solar energy systems to the fund investor and simultaneous leaseback to us of the systems that we then sublease to our customers. In sale-leaseback arrangements, we first determine whether the solar energy system under the sale-leaseback arrangement is integral equipment. We determine a solar energy system to be integral equipment when the cost to remove the system from its existing location exceeds ten percent of the fair value of the solar energy system at the time of its original installation. The cost to remove a system from its existing location includes the cost of shipping and reinstallation of the system at a new site, as well as any diminution in fair value. When the leaseback arrangements expire, we have the option to purchase the solar energy system, and in most cases, the lessor has the option to sell the system back to us, though in some instances the lessor can only sell the system back to us prior to expiration of the arrangement.
For solar energy systems that we have determined to be integral equipment, we have concluded that these rights create a continuing involvement. Therefore, we use the financing method to account for the sale-leaseback of such solar energy systems. Under the financing method, we do not recognize as revenue any of the sale proceeds received from the lessor that contractually constitutes a payment to acquire the solar energy
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system. Instead, we treat any such sale proceeds received as financing capital to install and deliver the solar energy system and accordingly record the proceeds as a financing obligation in our consolidated balance sheet. We allocate the leaseback payments that we make to the lessor between interest expense and a reduction to the financing obligation. Interest on the financing obligation is calculated using our incremental borrowing rate at the inception of the arrangement on the outstanding financing obligation. We determine our incremental borrowing rate by reference to the interest rates that we would obtain in the financial markets to borrow amounts equal to the financing obligation over a term similar to the master lease term.
For solar energy systems that are not integral equipment, we determine if the leaseback is classified as a capital lease or an operating lease. For leasebacks classified as capital leases, we initially record a capital lease asset and capital lease obligation in our consolidated balance sheet equal to the lower of the present value of our future minimum leaseback payments or the fair value of the solar energy system. For capital leasebacks, we do not recognize any of the revenue but defer the gross profit comprising the net of revenue and cost of sale of the associated solar energy system. For leasebacks classified 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 master lease term as a reduction to the cost of operating lease revenue in our consolidated statement of operations.
Energy-Related Products and Services
We recognized revenue attributable to energy-related products and services when we completed the services or more recently when we completed the customer referral, provided all other revenue recognition criteria were met. Typically, energy efficiency services took one to two months to complete. To date, the revenue generated from energy-related products and services has not been material and is included as a component of solar energy systems sales revenue in our consolidated statements of operations.
Solar Energy Systems, Leased and To Be Leased
We are the operating lessor of the solar energy systems under leases that qualify as operating leases. We account for the leases in accordance with ASC 840, Leases. To determine lease classification, we evaluate the lease terms to determine whether there is a transfer of ownership or bargain purchase option at the end of the lease, whether the lease term is greater than 75% of the economic life of the solar energy system, or whether the present value of minimum lease payments exceed 90% of the fair value at lease inception. We utilize periodic appraisals to estimate useful life and fair values at lease inception, and residual values at lease termination. Solar energy systems are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the respective assets as follows:
Useful Lives | ||
Solar energy systems leased to customers |
30 years | |
Initial direct costs related to solar energy systems leased to customers |
Lease term (10 to 20 years) |
Solar energy systems held for lease to customers are constructed systems pending interconnection with the respective utility and are depreciated as solar energy systems leased to customers when the respective systems have been interconnected and placed in service.
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Presentation of cash flows associated with solar energy systems
We disclose cash flows associated with solar energy systems in accordance with ASC 230, Statement of Cash Flows. We determine the appropriate classification of cash payments related to solar energy systems depending on the activity that is likely to be the predominant source of cash flows for the item being paid for. Accordingly, we present payments made in a period for costs incurred to install solar energy systems that will be leased to customers, including the payments for cost of the inventory that is utilized in such systems, as investing activities in our consolidated statement of cash flows. Payments made for inventory that is utilized for solar energy systems that will be sold to customers are presented as cash flows from operations in our consolidated statement of cash flows. We do not track payments for component parts at the individual component part level as they are not unique and can be used in either leased solar energy systems or solar energy systems that are sold to customers. Accordingly, we treat costs of raw material transferred to systems to be leased as if they were paid in the period they are transferred to the systems. During the years ended December 31, 2013, 2012 and 2011, we paid $786.6 million, $588.4 million and $337.8 million, respectively, for solar energy systems. Of these amounts, $716.9 million, $420.2 million (restated) and $291.6 (restated) million have been disclosed as cash payments for leased systems and disclosed as investing activities in the years ended December 31, 2013, 2012 and 2011, respectively.
Warranties
We warrant our products for various periods against defects in material or installation workmanship. We generally provide warranties of between 10 to 20 years on the generating and nongenerating parts of the solar energy systems that we sell. The manufacturers warranty on the components of the solar energy systems, which we typically pass through to our customers, has a warranty period ranging from 5 to 25 years depending upon the solar energy system component under warranty and the manufacturer. For the years ended December 31, 2013 and 2012, the changes in accrued warranty balance, recorded as a component of accrued liabilities on our consolidated balance sheets, consisted of the following (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Balancebeginning of the period |
$ | 4,019 | $ | 2,462 | ||||
Change in estimate charged to warranty expense |
1,514 | | ||||||
Provision charged to warranty expense |
2,257 | 1,773 | ||||||
Assumed obligations arising from business acquisitions |
188 | | ||||||
Less warranty claims |
(476 | ) | (216 | ) | ||||
|
|
|
|
|||||
Balanceend of the period |
$ | 7,502 | $ | 4,019 | ||||
|
|
|
|
Solar Energy Performance Guarantees
We guarantee that our leased solar energy systems will generate a minimum level of solar energy output. We monitor the systems to determine whether the systems are achieving these specified minimum outputs. If we determine that the guaranteed minimum energy output is not achieved, we record a liability for the estimated amounts payable. Since the actual solar energy output is impacted by seasonality, this liability is also affected by seasonality. As of December 31, 2013 and 2012, we recorded liabilities of $1.0 million and $0.6 million, respectively, under accrued and other liabilities in our consolidated balance sheets relating to these guarantees based on our assessment of the exposure.
Deferred U.S. Treasury Department Grant Income
We have determined that certain of our solar energy systems constitute eligible property as defined under Section 1603 of the American Recovery and Reinvestment Act of 2009, as amended by the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of December 2010. We submit applications for
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grants receivable from the U.S. Treasury Department related to eligible property based on 30% of the tax basis of the solar energy systems as supported by independently appraised fair market values of the systems or guideline system values that have been posted by the U.S. Treasury Department on its website. To determine the fair market value of the systems, an independent appraiser considers various factors such as the cost of producing the systems, the estimated price that could be obtained in the market from the sale of the systems, and the present value of the economic benefits expected to be generated by the systems. We then present our appraised fair market value to the U.S. Treasury Department when we apply for grants on our solar energy systems. In a number of cases, the U.S. Treasury Department has determined that grants should be paid based on a lower value for the systems and has in such instances posted guideline system values on its website that should be used in the grant applications.
We initially record the grants receivable for leased solar energy systems as deferred income at the amounts that have been approved for payment by the U.S. Treasury Department and then amortize them on a straight-line basis over the estimated useful lives of the related solar energy systems. We record the amortization of the deferred income as a credit to depreciation expense within operating leases and solar energy systems incentives cost of revenue within our consolidated statement of operations. We record a catch up adjustment in the period in which the grant is approved to recognize the portion of the grant that matches proportionally the amortization for the period between the date of placement in service of the solar energy systems and approval by the U.S. Treasury Department or receipt by the investor of the associated grant, in the case of lease pass-through funds. The catch up adjustments we have recorded to date have been immaterial. Some of our fund agreements obligate us to reimburse the fund investors based upon the difference between their anticipated benefit from U.S. Treasury grants at the formation of the funds and the benefit they receive from the amounts paid by the U.S. Treasury Department. For the joint venture financing funds where we are contractually obligated to reimburse investors for reductions in anticipated grants receivable, we record amounts we expect to pay the investors as distributions payable to noncontrolling interests and redeemable noncontrolling interests in our consolidated balance sheet, and any impact to our consolidated statement of operations, which is determined using the HLBV method, is reflected in the net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests line items. For sale-leaseback financing funds where we are contractually obligated to reimburse investors for reductions in anticipated grants receivable, we record amounts we expect to pay the investors under accrued and other current liabilities and reduce the deferred gain on sale-leaseback transactions included within other liabilities in our consolidated balance sheet, with no impact to our consolidated statement of operations. For lease pass-through funds, all amounts received from the investors are recorded in our consolidated balance sheet as a lease pass-through financing obligation, and the amounts we expect to reimburse investors for reductions in anticipated grants receivable would reduce the lease pass-through obligation with no impact on our consolidated statement of operations.
The changes in deferred U.S. Treasury Department grant proceeds were as follows (in thousands):
Balance as of January 1, 2011 |
$ | 19,340 | ||
U.S. Treasury grant receipts and receivable during the year ended December 31, 2011 |
68,585 | |||
U.S. Treasury grants receipts and receivable by investors under lease pass-through arrangements |
54,730 | |||
Amortization during the year ended December 31, 2011 |
(5,221 | ) | ||
|
|
|||
Balance as of December 31, 2011 |
137,434 | |||
U.S. Treasury grant receipts and receivable during the year ended December 31, 2012 |
112,520 | |||
U.S. Treasury grants receipts and receivable by investors under lease pass-through arrangements |
58,685 | |||
Amortization during the year ended December 31, 2012 |
(10,379 | ) | ||
|
|
|||
Balance as of December 31, 2012 |
298,260 | |||
U.S. Treasury grant receipts and receivable during the year ended December 31, 2013 |
124,404 | |||
U.S. Treasury grants receipts and receivable by investors under lease pass-through arrangements |
20,599 | |||
Amortization during the year ended December 31, 2013 |
(15,454 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
$ | 427,809 | ||
|
|
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In the first quarter of 2013, the U.S. Treasury Department announced that as a result of the sequestration of federal spending that took effect after the U.S. Congress was unable to agree on the spending cuts required under the Budget Control Act of 2011, all U.S. Treasury grant awards made under Section 1603 of the American Recovery and Reinvestment Act of 2009 on or after March 1, 2013 through September 30, 2013 were reduced by 8.7%, regardless of when the U.S. Treasury Department received the applications. As a result, we suffered U.S. Treasury grant shortfalls of $2.4 million associated with our financing funds, which is included in the table above.
Deferred ITC Revenue
Our solar energy systems are eligible for ITCs that accrue to eligible property under the Internal Revenue Code, or IRC. Under Section 50(d)(5) of the IRC and the related regulations, we are able to assign these ITCs to investors who can utilize them in return for cash payments.
For lease pass-through structures, we monetize the ITCs by assigning the ITCs associated with the systems leased to the investor under the master lease agreement. In addition, future customer lease payments are assigned to the investors in return for cash consideration. We allocate a portion of the aggregate payments received from the investor to the estimated fair value of the assigned ITCs. The estimated fair value of the ITCs is determined by discounting the estimated cash flows impacts of the ITCs using an appropriate discount rate that reflects a market interest rate.
We recognize the revenue associated with the monetization of ITCs in accordance with ASC 605-10-S99, Revenue Recognition-Overall-SEC Materials. The revenue associated with the monetization of the ITCs is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. The ITCs are subject to recapture under the IRC if the underlying solar energy system either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed in service date. The recapture amount decreases on the anniversary of the placed in service date. Since we have an obligation to ensure the solar energy system is in service and operational for a term of five years to avoid any recapture of the ITCs, we recognize revenue as the recapture provisions lapse assuming the other aforementioned revenue recognition criteria have been met. We initially record the monetized ITCs as deferred revenue on our consolidated balance sheets, and we subsequently recognize one-fifth of the monetized ITCs as revenue in our consolidated statements of operations on each anniversary of the solar energy systems placed in service date over the next five years.
We guarantee our fund investors that, in the event of a subsequent recapture of ITCs by the taxing authority due to our noncompliance with the applicable ITC guidelines, we would compensate them for any recaptured ITCs. We have concluded that the likelihood of a recapture event is remote and consequently have not recorded any liability in our consolidated balance sheets for any potential recapture exposure.
Stock-Based Compensation
We account for stock-based compensation costs under the provisions of ASC 718, CompensationStock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees, including our executive officers and employee members of our board of directors, based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported.
We apply ASC 718 and FASB ASC Subtopic 505-50, Equity-Based Payments to Non Employees, to options and other stock-based awards issued to non-employees. In accordance with ASC 718 and ASC Subtopic 505-50, we use the Black-Scholes option-pricing model to measure the fair value of the options at the measurement date and each reporting period prior to that, as applicable.
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Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing 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, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends that are estimated as follows:
| Fair value of our common stock. Because our common stock was not publicly traded when we issued stock options prior to our initial public offering, we estimated our common stocks fair value as discussed below. Subsequent to our initial public offering, we determined the fair value of our common stock based on its trading price on the NASDAQ Global Market. |
| Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding and was primarily determined using the simplified method in accordance with guidance provided by the U.S. Securities and Exchange Commission, or SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the awards. We will continue to utilize the simplified method for all standard awards until we have established a reasonable period of representative trading history as a public company, at which time we will determine the expected term based on the historical option exercise behavior of our employees, expectations about future option exercise behavior and post-vesting cancellations. |
| Volatility. Because we do not have a significant trading history for our common stock, the expected stock price volatility for our common stock has been estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the solar energy industry similar in size, stage of life cycle and financial leverage. We did not rely on implied volatilities of traded options in our industry peers common stock because the volume of activity was relatively low. 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 common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us. If this occurs, more suitable companies whose share prices are publicly available would be utilized in the calculation. Higher volatility and longer expected lives would result in an increase to stock-based compensation expense determined on the grant date. |
| Risk-free rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. |
| Dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero. |
In addition to assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures since the adoption of our option plan. We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and expectations of future option exercise behavior. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that would result in a decrease to the stock-based compensation expense recognized in our consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that would result in an increase to the stock-based compensation expense recognized in our consolidated financial statements.
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We will continue to use judgment in evaluating the expected term, expected volatility and forfeiture rate related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to the estimates of our expected volatility, expected terms and forfeiture rates, which could materially impact our future stock-based compensation expense as it relates to the future grants of our stock-based awards.
The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted during the periods presented:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Expected term (years) |
6.06 | 6.19 | 6.09 | |||||||||
Expected volatility |
92.86 | % | 89.52 | % | 87.26 | % | ||||||
Annual risk-free rate of return |
1.45 | % | 1.07 | % | 1.95 | % | ||||||
Dividend yield |
0 | % | 0 | % | 0 | % |
Stock-based compensation totaled $27.9 million, $11.2 million (restated) and $5.1 million in 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, we had $103.0 million and $30.0 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested stock options, which are expected to be recognized over the weighted-average period of 2.74 years and 2.62 years, respectively.
Nonemployee Stock-Based Compensation
We account for stock options issued to nonemployees based on the estimated fair value of the awards using the Black-Scholes option pricing model. The measurement of stock-based compensation is subject to quarterly adjustments as the underlying equity instruments vest and the resulting change in fair value is recognized in our consolidated statement of operations during the period the related services are rendered.
Inventory Reserves
Inventories include solar energy system components, including photovoltaic panels, inverters, mounting hardware and miscellaneous electrical components, and work-in-process, including solar energy system components that are partially installed and direct and indirect capitalized installation costs. Raw materials and work-in-process are stated at the lower of cost or market on a first in first out basis.
We evaluate our inventory reserves on a quarterly basis and write down the value of inventories for estimated excess and obsolete inventories based upon assumptions about future demand and market conditions.
Business Combinations
We account for business acquisitions under ASC 805, Business Combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities assumed on the acquisition date. We expense the costs that are directly attributable to the acquisition as incurred. Identifiable assets, including intangible assets, acquired and liabilities, including contingent liabilities, assumed in the acquisition are measured initially at their fair values on the acquisition date. Any noncontrolling interests in the acquired business are also initially measured at fair value. We recognize goodwill if the aggregate fair value of the total purchase consideration and noncontrolling interests is in excess of the aggregate fair value of the identifiable assets acquired and the liabilities assumed.
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Long-Lived Assets
Our long-lived assets include property and equipment, solar energy systems leased and to be leased and intangible assets acquired through business combinations. Intangible assets with definite useful lives are amortized over their estimated useful lives, which range from 1 to 10 years. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows from the long-lived asset are less than its carrying value, then we would recognize an impairment loss based on the aggregate discounted future net cash flows.
Goodwill
Goodwill represents the excess of the aggregate fair value of the total purchase consideration and noncontrolling interests over the aggregate fair value of the identifiable assets acquired and the liabilities assumed in a business combination. We test goodwill for impairment in the fourth quarter of each year, and whenever events or changes in circumstances indicate that the carrying value of goodwill might exceed its fair value, at the consolidated level, which is the sole reporting unit. When assessing goodwill for impairment, we consider our market capitalization adjusted for a control premium and, if necessary, our discounted cash flow model, which involves significant assumptions and estimates, including our future financial performance, our weighted-average cost of capital, and our interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require us to perform an impairment test include a significant decline in our financial results, a significant decline in our market capitalization relative to our net book value, an unanticipated change in competition or our market share, a significant change in our strategic plans and an adverse action by a regulator.
Provision for Income Taxes
We use the asset and liability method in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined on the difference between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The calculation of our tax assets and liabilities involves uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on the two-step process prescribed by applicable accounting principles. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to estimate and measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the relevant period.
As of December 31, 2012, we had no uncertain tax positions. As of December 31, 2013, we had $0.1 million of uncertain tax positions that were acquired.
As of December 31, 2013 and 2012, we had deferred tax assets of $289.2 million and $180.6 million (restated), respectively, and deferred tax liabilities of $228.7 million and $122.7 million (restated), respectively. During 2013 and 2012, we maintained a net deferred tax asset and booked a valuation allowance against the net deferred tax asset.
Deferred tax assets primarily relate to net operating loss, or NOL, carryforwards, accelerated gains for tax purposes and deferred revenue. As of December 31, 2013 and 2012, we had federal NOL carryforwards of
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$419.8 million and $178.3 million (restated), respectively. The net operating loss carryforwards expire at various dates beginning in 2026 if not utilized. In addition, we had NOLs for California income tax purposes of $186.1 million and $58.1 million (restated) as of December 31, 2013 and 2012, respectively, which expire at various dates beginning in 2020 if not utilized. We also had NOLs for other state income tax purposes of $77.2 million and $23.3 million (restated) as of December 31, 2013 and 2012, respectively, which expire at various dates beginning in 2015 if not utilized. Included in the Federal, California, and other state NOL carryovers above, $99.1 million, $45.9 million and $22.6 million relates to windfall stock option deductions which we will, when realized, credit to equity.
After January 1, 2013, the State of California allows a NOL to be carried back two years. The carryback provisions apply even where a NOL deduction is suspended pursuant to California tax law in the carryback tax year. Included in the California NOL carryover amount we will carry back $11.0 million to the 2011 tax year. We recognized a deferred tax asset of $0.6 million in 2013.
Our valuation allowance increased by $1.9 million and increased by $8.3 million (restated) in the year ended December 31, 2013 and 2012, respectively. The valuation allowance is determined in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Based on the available objective evidence and our history of losses, management believes it is more likely than not that the net deferred tax assets will not be realized. As of December 31, 2013 and 2012, we had applied a valuation allowance against the deferred tax assets, net of the expected income from the reversal of the deferred tax liabilities.
In December 2013, we acquired Zep Solar, a designer and supplier of mounting solutions for solar energy systems photovoltaic panels. The purchase consideration that we paid for the acquisition of Zep Solar which comprised cash and stock was $157.8 million. We recorded a total of $86.0 million of intangible assets and $97.9 million of goodwill as a result of its acquisition of Zep Solar. We are amortizing the intangible assets over a weighted-average life of approximately seven years. The goodwill associated with this acquisition is not deductible for income tax purposes. We also recorded a net $24.8 million of long-term deferred tax liabilities that were primarily related to the acquired intangible assets and NOLs which will provide us with a future source of taxable income. The recording of the deferred tax liability triggered the subsequent release of a deferred tax valuation allowance which we accounted for outside of the Zep Solar purchase accounting. Accordingly, we released $24.8 million of the deferred tax asset valuation allowance subsequent to the acquisition, which we recognized as a benefit to income taxes during 2013.
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 our consolidated statements of operations in the period in which the adjustment is determined to be required.
We apply any limitations as a result of the IRC Section 382 when determining the amount of NOLs that are available for future use. Based on this analysis, we have undergone two ownership changes as defined in IRC Section 382. The first ownership change occurred on July 7, 2006, and the second ownership change occurred on August 8, 2007. We have updated our IRC Section 382 analysis through December 31, 2013 and did not have any additional limitations. We also analyzed the NOL carryovers related to our acquisition of Zep Solar. Based on the IRC Section 382 analysis, Zep Solar has undergone two ownership changes. The first ownership change occurred in May 28, 2010, and the second ownership change occurred as of December 11, 2013, the date of acquisition by us. There were no significant limitations to the utilization of Zep Solars NOL.
We have agreements to sell solar energy systems to financing funds structured as joint ventures. The gain on the sale of the assets has been eliminated in our consolidated financial statements. These transactions are treated as intercompany sales, and as such, tax is not recognized on the sale until we no longer benefit from the underlying asset. Because the systems remain within the consolidated group, the tax expense incurred related to
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these sales is being deferred and amortized over the life of the underlying solar energy systems, estimated to be 30 years. As of December 31, 2013 and 2012, we recorded a long-term prepaid tax expense of $3.7 million and $2.0 million (restated), net of amortization, respectively.
On September 13, 2013, the U.S. Treasury Department and the Internal Revenue Service, or IRS, issued final regulations, Tangible Property Regulations, providing comprehensive guidance on the tax treatment of costs incurred to acquire, repair or improve tangible property. The final regulations are generally effective for taxable years beginning on or after January 1, 2014. On January 24, 2014, the IRS issued procedural guidance pursuant to which taxpayers will be granted automatic consent to change their tax accounting methods to comply with the final regulations. We are currently assessing the future impact of these regulations, but do not anticipate a material impact on our financial condition, results of operations or cash flows.
Noncontrolling Interests and Redeemable Noncontrolling Interests
Our noncontrolling interests and redeemable noncontrolling interests represent fund investors interests in the net assets of certain joint venture funding structures, which we consolidate, that we have entered into to finance the costs of solar energy systems under operating leases. We have determined that the provisions in the contractual agreements of the joint venture funding structures represent substantive profit sharing arrangements. We have further determined that the appropriate methodology for calculating the noncontrolling interests and redeemable noncontrolling interests balances that reflects the substantive profit sharing arrangements is a balance sheet approach using the HLBV method. We therefore determine the noncontrolling interests and redeemable noncontrolling interests balance at each balance sheet date using the HLBV method and record it in our consolidated balance sheets as noncontrolling interests in subsidiaries and redeemable noncontrolling interests in subsidiaries. Under the HLBV method, the amounts reported as noncontrolling interests and redeemable noncontrolling interests in our consolidated balance sheets represent the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements of the joint venture funding structures, assuming the net assets of the joint venture funding structures were liquidated at their recorded amounts determined in accordance with GAAP. The fund investors interests in the results of operations of the joint venture funding structures are determined as the difference in noncontrolling interests and redeemable noncontrolling interests in our consolidated balance sheets at the start and end of each reporting period, after taking into account any capital transactions between the joint venture funding structures and the fund 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 equity in our consolidated balance sheets or as redeemable noncontrolling interests in subsidiaries between total liabilities and stockholders equity in our consolidated balance sheets when the fund investors have the right to redeem their interests in the funds for cash. The redemption of the redeemable noncontrolling interests occurs at the times specified in the contractual agreements but generally the noncontrolling interests are redeemable approximately six to seven years after the formation of the joint venture.
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Results of Operations
The following table sets forth selected consolidated statements of operations data for each of the periods indicated.
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 | ||||||||||
(in thousands, except share and per share data) | ||||||||||||
Consolidated statement of operations data: |
||||||||||||
Revenue: |
||||||||||||
Operating leases and solar energy systems incentives |
$ | 82,856 | $ | 46,098 | $ | 23,145 | ||||||
Solar energy systems sales |
80,981 | 80,810 | 36,406 | |||||||||
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|
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Total revenue |
163,837 | 126,908 | 59,551 | |||||||||
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Cost of revenue: |
||||||||||||
Operating leases and solar energy systems incentives |
32,745 | 14,596 | 5,718 | |||||||||
Solar energy systems sales |
91,723 | 84,856 | 41,418 | |||||||||
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Total cost of revenue |
124,468 | 99,452 | 47,136 | |||||||||
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Gross profit |
39,369 | 27,456 | 12,415 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
97,426 | 69,392 | 42,004 | |||||||||
General and administrative |
91,321 | 49,075 | 31,664 | |||||||||
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Total operating expenses |
188,747 | 118,467 | 73,668 | |||||||||
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|||||||
Loss from operations |
(149,378 | ) | (91,011 | ) | (61,253 | ) | ||||||
Interest expense, net |
25,738 | 20,142 | 9,272 | |||||||||
Other expense, net |
1,441 | 2,519 | 3,097 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(176,557 | ) | (113,672 | ) | (73,622 | ) | ||||||
Income tax benefit (provision) |
24,799 | (54 | ) | (92 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(151,758 | ) | (113,726 | ) | (73,714 | ) | ||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
(95,968 | ) | (14,391 | ) | (117,230 | ) | ||||||
|
|
|
|
|
|
|||||||
Net (loss) income attributable to stockholders |
$ | (55,790 | ) | $ | (99,335 | ) | $ | 43,516 | ||||
|
|
|
|
|
|
|||||||
Net (loss) income per share attributable to common stockholders |
||||||||||||
Basic |
$ | (0.70 | ) | $ | (7.68 | ) | $ | 0.82 | ||||
|
|
|
|
|
|
|||||||
Diluted |
$ | (0.70 | ) | $ | (7.69 | ) | $ | 0.76 | ||||
|
|
|
|
|
|
|||||||
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders |
||||||||||||
Basic |
79,781,976 | 14,240,187 | 9,977,646 | |||||||||
|
|
|
|
|
|
|||||||
Diluted |
79,781,976 | 14,267,767 | 14,523,734 | |||||||||
|
|
|
|
|
|
Revenue
Year Ended December 31, | Change 2013 vs. 2012 | Change 2012 vs. 2011 | ||||||||||||||||||||||||||
(Dollars in thousands) | 2013 | 2012 (Restated) |
2011 | $ | % | $ | % | |||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 82,856 | $ | 46,098 | $ | 23,145 | $ | 36,758 | 80% | $ | 22,953 | 99% | ||||||||||||||||
Solar energy systems sales |
80,981 | 80,810 | 36,406 | 171 | 0% | 44,404 | 122% | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total revenue |
$ | 163,837 | $ | 126,908 | $ | 59,551 | $ | 36,929 | 29% | $ | 67,357 | 113% |
61
2013 Compared to 2012
Total revenue increased by $36.9 million, or 29%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012.
Operating leases and solar energy systems incentives revenue increased by $36.8 million, or 80%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This increase was attributable to the increase in solar energy systems placed in service under leases and power purchase agreements between January 1, 2013 and December 31, 2013. The annual average of the aggregate megawatt production capacity of solar energy systems in service increased by 116% for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This significant growth was attributable to our continued success in the installation and operation of solar energy systems under lease and power purchase agreements in new and existing markets. However, the impact of the installed base on the increase in revenue varied by the mix between systems under leases, for which revenue is recognized on a straight-line basis over the lease term, and power purchase agreements, for which revenue is recognized based on energy produced, and also when the systems were placed in service. The percentage of systems under power purchase agreements increased from 18% to 42% from January 1, 2013 and December 31, 2013, which increased the effect of seasonality in 2013 as compared to 2012.
Revenue from sales of solar energy systems remained consistent for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This increase was primarily due to an $18.8 million increase in revenue from sales of solar energy systems to the government and a $6.6 million increase in revenue from sales of solar energy systems to residential customers during the year ended December 31, 2013. These increases were offset by a $17.3 million decrease in revenue from long-term solar energy system sales contracts recognized on a percentage-of-completion basis, a $5.4 million decrease in revenue from sales to commercial customers and a $1.6 million decrease in revenue from sales of energy efficiency products and services during the year ended December 31, 2013.
2012 Compared to 2011
Total revenue increased by $67.4 million (restated), or 113% (restated), for the year ended December 31, 2012 as compared to the year ended December 31, 2011.
Operating leases and solar energy systems incentives revenue increased by $23.0 million (restated), or 99% (restated), for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was attributable to an increased number of solar energy systems under leases and power purchase agreements that are in service, the aggregate of which increased by 147% to December 31, 2012 from December 31, 2011. This significant growth was attributable to our continued success in the installation and operation of solar energy systems under lease and power purchase agreements in new and existing markets.
Revenue from sales of solar energy systems increased by $44.4 million (restated), or 122% (restated), for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was primarily due to a $14.9 million (restated) increase in large commercial solar energy system sales, a $11.0 million (restated) increase in revenue from long-term solar energy system sales contracts, a $10.2 million (restated) increase in revenue from sales of solar energy systems to the government and an $8.6 million (restated) increase in revenue from sales to a specific commercial customer during the year ended December 31, 2012. In addition, revenue from sales of energy-related products and services increased by $6.0 million to $7.8 million for the year ended December 31, 2012 from $1.8 million for the year ended December 31, 2011. This increase was offset in part by a lower average sales price of solar energy systems sold for the year ended December 31, 2012 as compared to the year ended December 31, 2011, including a $5.7 million (restated) decrease in residential solar energy system sales. The decline in the average sales price was due to a decrease in the cost of the solar energy system components that in turn led to a downward impact on the competitive market price of solar energy systems sold.
62
Cost of Revenue, Gross Profit and Gross Profit Margin
Year Ended December 31, | Change 2013 vs. 2012 | Change 2012 vs. 2011 | ||||||||||||||||||||||||||
(Dollars in thousands) | 2013 |
2012 (Restated) |
2011 |
$ |
% |
$ |
% |
|||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 32,745 | $ | 14,596 | $ | 5,718 | $ | 18,149 | 124 | % | $ | 8,878 | 155 | % | ||||||||||||||
Gross profit of operating leases and solar energy systems incentives |
50,111 | 31,502 | 17,427 | 18,609 | 59 | % | 14,075 | 81 | % | |||||||||||||||||||
Gross profit margin of operating leases and solar energy systems incentives |
60 | % | 68 | % | 75 | % | ||||||||||||||||||||||
Solar energy systems sales |
$ | 91,723 | $ | 84,856 | $ | 41,418 | $ | 6,867 | 8 | % | $ | 43,438 | 105 | % | ||||||||||||||
Gross loss of solar energy systems sales |
(10,742 | ) | (4,046 | ) | (5,012 | ) | (6,696 | ) | 165 | % | 966 | (19 | )% | |||||||||||||||
Gross loss margin of solar energy systems sales |
(13 | )% | (5 | )% | (14 | )% | ||||||||||||||||||||||
Total cost of revenue |
$ | 124,468 | $ | 99,452 | $ | 47,136 | $ | 25,016 | 25 | % | $ | 52,316 | 111 | % | ||||||||||||||
Total gross profit |
39,369 | 27,456 | 12,415 | 11,913 | 43 | % | 15,041 | 121 | % | |||||||||||||||||||
Total gross profit margin |
24 | % | 22 | % | 21 | % |
2013 Compared to 2012
Cost of operating leases and solar energy systems incentives revenue increased by $18.1 million, or 124%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This increase was primarily due to the increase in the depreciation charge arising from a higher aggregate cost of solar energy systems placed under operating leases that were interconnected and being depreciated. However, the gross profit margin of operating leases and solar energy systems incentives decreased to 60% in the year ended December 31, 2013 from 68% in the year ended December 31, 2012 primarily because lower relative amounts of U.S. Treasury grants were being amortized against depreciation expense for the year ended December 31, 2013 due to the winding-down of the U.S. Treasury grant program. In addition, the amortization of intangible assets acquired from Zep Solar resulted in an incremental $0.6 million of costs for the year ended December 31, 2013.
Cost of solar energy systems sales increased by $6.9 million, or 8%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. The higher cost of solar energy systems sales was primarily due to the growth in operational costs to support our growth in current and new territories. Gross margins decreased from (5)% to (13)% due to low or negative margins on larger commercial and government jobs. We also recorded a $2.4 million higher provision for warranty and anticipated losses on contracts in the year ended December 31, 2013 as compared to the year ended December 31, 2012. Additionally, in the year ended December 31, 2013, we incurred period charges of $0.5 million related to inventory reserves and $0.5 million related to the cancellation of certain Zep Solar vendor purchases orders.
2012 Compared to 2011
Cost of operating leases and solar energy systems incentives revenue increased by $8.9 million, or 155%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was primarily due to an increase in the aggregate number of solar energy systems placed under operating leases that were interconnected and being depreciated in the year ended December 31, 2012 and lower cost of operating leases and solar energy systems incentives revenue in the second quarter of 2011 from recognizing a catch-up adjustment on the amortization of U.S. Treasury grants related to our financing funds amounting to $1.4 million,
63
offset in part by the declining cost of solar energy system components. This resulted in a lower gross profit margin of operating leases and solar energy systems incentives in the year ended December 31, 2012 as compared to the year ended December 31, 2011.
Cost of solar energy systems sales increased by $43.4 million, or 105%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was due to increased costs associated with the rise in sales of solar energy systems, offset in part by the declining cost of solar energy system components. The increase in the gross margin from (13)% to (5)% was primarily due to the increase in the volume of sales recognized for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Due to the increased volume of sales, we were able to allocate overhead costs to more units, leading to a lower cost per unit.
Operating Expenses
Year Ended December 31, | Change 2013 vs. 2012 | Change 2012 vs. 2011 | ||||||||||||||||||||||||||
(Dollars in thousands) | 2013 | 2012 (Restated) |
2011 | $ | % | $ | % | |||||||||||||||||||||
Sales and marketing expense |
$ | 97,426 | $ | 69,392 | $ | 42,004 | $ | 28,034 | 40% | $ | 27,388 | 65% | ||||||||||||||||
General and administrative expense |
91,321 | 49,075 | 31,664 | 42,246 | 86% | 17,411 | 55% | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total operating expenses |
$ | 188,747 | $ | 118,467 | $ | 73,668 | $ | 70,280 | 59% | $ | 44,799 | 61% |
2013 Compared to 2012
Sales and marketing expense increased by $28.0 million, or 40%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This increase was primarily due to the increase in the annual average number of personnel in sales and marketing departments from 568, for the year ended December 31, 2012, to 1035, for the year ended December 31, 2013. This increase in personnel was in part a result of the Paramount Energy acquisition that closed in September 2013. As a result of this growth in headcount, employee compensation costs increased by $23.3 million and allocated facilities and operations costs increased by $1.0 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Employee compensation costs did not change proportionally to the change in headcount as new employee positions were primarily for lower level sales positions. In addition, during the year ended December 31, 2013 we recorded $2.8 million amortization of intangible assets acquired through the Paramount and Zep Solar acquisitions. We also recorded a $1.5 million charge related to the write-off of solar energy systems backlog acquired through the Paramount acquisition due to customer cancellations.
General and administrative expense increased by $42.2 million, or 86%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This increase was primarily due to the increase in the average number of personnel in general and administrative departments from 227, for the year ended December 31, 2012, to 420, for the year ended December 31, 2013. As a result of this growth in headcount, employee compensation costs increased by $23.0 million and allocated facilities costs increased by $5.0 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. In addition, the increase in the number of financing funds formed in the year, business acquisitions and other transactions in the year, our efforts with regard to compliance with Sarbanes-Oxley Act of 2002, combined with or increase in general business activity contributed to an increase in legal, audit and professional services expenses of $12.7 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012.
2012 Compared to 2011
Sales and marketing expense increased by $27.4 million, or 65%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was primarily driven by increased promotional and marketing activities in the year ended December 31, 2012 as we continued to broaden our sales and
64
marketing efforts in new and existing markets. Promotional marketing expenses increased by $3.9 million from 2011 to 2012. In addition, we increased our total number of personnel allocated to sales and marketing departments from 319 as of December 31, 2011 to 693 as of December 31, 2012. As a result of this growth in headcount, payroll costs increased by $20.5 million from 2011 to 2012.
General and administrative expense increased by $17.4 million, or 55%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was primarily due to an increase in the number of personnel allocated to general and administrative departments from 155 as of December 31, 2011 to 254 as of December 31, 2012. As a result of this growth in headcount, payroll costs increased by $12.6 million from 2011 to 2012. In addition, the larger number of financing funds contributed to an increase in legal, audit, and professional fees of $2.6 million from 2011 to 2012.
Other Income and Expenses
Year Ended December 31, | Change 2013 vs. 2012 | Change 2012 vs. 2011 | ||||||||||||||||||||||||||
(Dollars in thousands) | 2013 | 2012 | 2011 | $ | % | $ | % | |||||||||||||||||||||
Interest expense, net |
$ | 25,738 | $ | 20,142 | $ | 9,272 | $ | 5,596 | 28% | $ | 10,870 | 117% | ||||||||||||||||
Other expense, net |
1,441 | 2,519 | 3,097 | (1,078) | (43)% | (578) | (19)% | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total interest and other expenses, net |
$ | 27,179 | $ | 22,661 | $ | 12,369 | $ | 4,518 | 20 | % | $ | 10,292 | 83 | % |
2013 Compared to 2012
Interest expense, net, increased by $5.6 million, or 28%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Interest expense, net, was comprised of imputed interest on lease pass-through financing obligations of $13.4 million and $12.0 million and interest on borrowings, offset by interest income on cash balances, of $12.3 million and $8.1 million, each for the year ended December 31, 2013 and 2012, respectively. This increase in interest expense net was the result of higher average carrying balances related to financing obligations and borrowings for the year ended December 31, 2013 as compared to the year ended December 31, 2012.
Other expense, net, decreased by $1.1 million, or 43%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. The expense for the year ended December 31, 2013 was primarily from franchise taxes of $0.5 million and a loss on debt extinguishment of $0.3 million. The expense for the year ended December 31, 2012 was primarily from the change in the fair value of convertible redeemable preferred stock warrants, which converted to common stock warrants upon the closing of our initial public offering in December 2012 and, therefore, were no longer revalued.
2012 Compared to 2011
Interest expense, net, increased by $10.9 million, or 117%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Interest expense, net, is comprised of imputed interest on financing obligations of $12.0 million and $7.4 million for year ended December 31, 2012 and 2011, and interest on bank borrowings, net of interest income on cash balances, of $8.1 million and $1.9 million for the year ended December 31, 2012 and 2011, respectively. This increase was in line with higher balances of financing obligations and bank debt in the year ended December 31, 2012 as compared to the year ended December 31, 2011.
Other expense, net, decreased by $0.6 million, or 19%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This decrease was primarily due to a higher loss on disposal of property and equipment of $0.3 million in the year ended December 31, 2011.
65
Provision for Income Taxes
Year Ended December 31, | Change 2013 vs. 2012 | Change 2012 vs. 2011 | ||||||||||||||||||||||||||
(Dollars in thousands) | 2013 | 2012 (Restated) |
2011 | $ | % | $ | % | |||||||||||||||||||||
Income tax benefit (provision) | $ | 24,799 | $ | (54 | ) | $ | (92 | ) | $ | 24,853 | 462% | $ | 38 | 41% |
2013 Compared to 2012
In 2013 we recorded a tax benefit of $24.8 million arising from the release of deferred tax valuation allowances subsequent to the acquisition of Zep Solar. The release of the valuation allowances was triggered by the recognition of $24.8 million of long term net deferred tax liabilities that were primarily related to the acquired intangible assets and NOL recorded upon the acquisition of Zep Solar.
2012 Compared to 2011
Income tax expense decreased by approximately $0.04 million, or 41%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. As of December 31, 2012, we had incurred a total of $2.2 million of income tax expense in connection with sales of solar energy systems to the financing funds. Because no gain on the sales of the solar energy systems was recognized in our consolidated financial statements, the associated income tax expense was deferred and is being recognized as income tax expense over the estimated useful life of the solar energy systems.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
Year Ended December 31, | Change 2013 vs. 2012 | Change 2012 vs. 2011 | ||||||||||||||||||||||||||
(Dollars in thousands) | 2013 | 2012 (Restated) |
2011 | $ | % | $ | % | |||||||||||||||||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | $ | (95,968 | ) | $ | (14,391 | ) | $ | (117,230 | ) | $ | (81,577 | ) | 567 | % | $ | 102,839 | (88 | )% |
The net loss attributable to noncontrolling interests and redeemable noncontrolling interests represents the share of net loss that was allocated to the investors in the joint venture financing funds. This amount was determined as the change in the investors interests in the joint venture financing funds between the beginning and end of each reported period calculated primarily using the HLBV method, less any capital contributions net of any capital distributions. The calculation depends on the specific contractual liquidation provisions of each joint venture financing fund and is generally affected by, among other factors, the tax attributes allocated to the investors including tax bonus depreciation and investment tax credits or U.S. Treasury grants in lieu of the investment tax credits, the existence of guarantees of minimum returns to the investors by us, and the allocation of tax income or losses including provisions that govern the level of deficits that can be funded by the investors in a liquidation scenario. The calculation is also affected by the cost of the assets sold to the joint venture financing funds, which forms the book basis of the net assets allocated to the investors assuming a liquidation scenario. Generally, significant loss allocations to the investors have arisen in situations where there was a significant difference between the fair value and the cost of the assets sold to the joint venture financing funds in a particular period accompanied by the absence of guarantees of minimum returns to the investors by us, since the capital contributions by the investors were based on the fair value of the assets while the calculation is based on the cost of the assets. The existence of guarantees of minimum returns to the investors by us and limits on the level of deficits that the investors are contractually obligated to fund in a liquidation scenario reduce the amount of losses that could be allocated to the investors. In addition, the redeemable noncontrolling interests balance is at least equal to the redemption amount.
66
2013 Compared to 2012
The net loss attributable to noncontrolling interests and redeemable noncontrolling interests for the year ended December 31, 2013 was $96.0 million compared to $14.4 million for the year ended December 31, 2012. The net loss allocation to noncontrolling interests and redeemable noncontrolling interests for the year ended December 31, 2013 was primarily due to the $165.7 million loss allocation from funds into which we were selling or contributing assets. This loss allocation was partially offset by a $57.8 million income allocation related to a single fund whose contractual documents were amended in 2013. These amendments were made to ensure that the investor in this fund would earn in the future amounts equal to anticipated shortfalls in U.S. Treasury grants related to assets sold to the fund in prior periods. Additionally, $10.3 million of income was allocated to noncontrolling interests and redeemable noncontrolling interests in an entity that has a lease pass-through joint venture arrangement with us. The net loss allocation to noncontrolling interests and redeemable noncontrolling interests for the year ended December 31, 2012 was primarily due to the $18.9 million loss allocation from financing funds to which we were tranching assets.
2012 Compared to 2011
The net loss attributable to noncontrolling interests and redeemable noncontrolling interests was $102.8 million, or 88%, lower for the year ended December 31, 2012 as compared to the year ended December 31, 2011, mainly due to a $70.2 million higher loss allocation in 2011 to an investor in a financing fund into which we had sold assets with a larger excess of fair value over cost in 2011 as compared to 2012, a $14.1 million higher loss allocation in 2011 to an investor in two financing funds into which we had contributed assets, and we did not contribute any assets into these funds in 2012, and $32.0 million higher loss allocation in 2011 to a fund that was formed in 2011. These were offset in part by $12.1 million of net loss allocations to the investors in new financing funds formed in 2012.
67
Quarterly Results of Operations
The following table presents our unaudited consolidated statement of operations for each of the quarters indicated. Our consolidated statement of operations for each of these quarters have been prepared on a basis consistent with our audited annual consolidated financial statements included elsewhere in this annual report on Form 10-K and, in the opinion of management, include all adjustments necessary for the fair presentation of our consolidated results of operations for these quarters. You should read this information together with our annual consolidated financial statements and the related notes included elsewhere in this annual report on Form 10-K. The quarterly unaudited consolidated statements of operations presented below have been restated, as indicated below, to correct an error related to the allocation of overhead costs affecting cost of revenues of solar energy systems sales, work in progress and cost of solar energy systems, leased and to be leased. As a result, cost of revenues of solar energy systems sales increased, and consequently decreased gross profits and increased net losses. The quarterly unaudited consolidated statements of operations, as indicated below, have also been restated to correct an error related to the classification of certain redeemable noncontrolling interests in subsidiaries, and since the redeemable noncontrolling interest balance was at least equal to the redemption amount, net loss allocated to noncontrolling interests decreased. These corrections and corrections related to other immaterial errors have been incorporated in the quarterly unaudited consolidated statements of operations presented below. For further information on the impact of these adjustments, see Note 28 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Our quarterly results of operations are not necessarily indicative of our results for any future period.
Three Months Ended | ||||||||||||||||||||||||||||||||
December 31, 2013 |
September
30, 2013 (restated) |
June
30, 2013 (restated) |
March
31, 2013 (restated) |
December
31, 2012 (restated) |
September
30, 2012 (restated) |
June
30, 2012 (restated) |
March
31, 2012 (restated) |
|||||||||||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 22,363 | $ | 24,796 | $ | 20,608 | $ | 15,089 | $ | 12,514 | $ | 13,917 | $ | 11,528 | $ | 8,139 | ||||||||||||||||
Solar energy systems sales |
24,937 | 23,804 | 17,341 | 14,899 | 11,241 | 18,057 | 35,046 | 16,466 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total revenue |
47,300 | 48,600 | 37,949 | 29,988 | 23,755 | 31,974 | 46,574 | 24,605 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
11,580 | 8,619 | 6,794 | 5,752 | 5,461 | 2,435 | 3,896 | 2,804 | ||||||||||||||||||||||||
Solar energy systems sales |
25,874 | 26,128 | 23,014 | 16,707 | 14,017 | 17,025 | 37,533 | 16,281 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total cost of revenue |
37,454 | 34,747 | 29,808 | 22,459 | 19,478 | 19,460 | 41,429 | 19,085 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Gross profit |
9,846 | 13,853 | 8,141 | 7,529 | 4,277 | 12,514 | 5,145 | 5,520 | ||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||
Sales and marketing |
33,893 | 24,310 | 21,344 | 17,879 | 19,416 | 18,145 | 15,700 | 16,131 | ||||||||||||||||||||||||
General and administrative |
31,258 | 21,426 | 22,266 | 16,371 | 17,171 | 12,554 | 10,788 | 8,562 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total operating expenses |
65,151 | 45,736 | 43,610 | 34,250 | 36,587 | 30,699 | 26,488 | 24,693 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss from operations |
(55,305 | ) | (31,883 | ) | (35,469 | ) | (26,721 | ) | (32,310 | ) | (18,185 | ) | (21,343 | ) | (19,173 | ) | ||||||||||||||||
Interest expense, net |
8,217 | 5,781 | 5,421 | 6,319 | 5,220 | 6,587 | 4,841 | 3,494 | ||||||||||||||||||||||||
Other expense (income), net |
1,016 | 123 | 162 | 140 | (15,376 | ) | 7,466 | 1,455 | 8,974 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss before income taxes |
(64,538 | ) | (37,787 | ) | (41,052 | ) | (33,180 | ) | (22,154 | ) | (32,238 | ) | (27,639 | ) | (31,641 | ) | ||||||||||||||||
Income tax benefit (provision) |
24,742 | (23 | ) | (25 | ) | 105 | 53 | (57 | ) | (30 | ) | (20 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loss |
(39,796 | ) | (37,810 | ) | (41,077 | ) | (33,075 | ) | (22,101 | ) | (32,295 | ) | (27,669 | ) | (31,661 | ) | ||||||||||||||||
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests |
(66,489 | ) | (35,707 | ) | (1,614 | ) | 7,842 | (14,057 | ) | 13,911 | 4,388 | (18,633 | ) | |||||||||||||||||||
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Net income (loss) attributable to stockholders |
$ | 26,693 | $ | (2,103 | ) | $ | (39,463 | ) | $ | (40,917 | ) | $ | (8,044 | ) | $ | (46,206 | ) | $ | (32,057 | ) | $ | (13,028 | ) | |||||||||
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Net income (loss) attributable to common stockholders |
||||||||||||||||||||||||||||||||
Basic |
$ | 26,694 | $ | (2,103 | ) | $ | (39,463 | ) | $ | (40,917 | ) | $ | (18,135 | ) | $ | (46,206 | ) | $ | (32,057 | ) | $ | (13,028 | ) | |||||||||
Diluted |
$ | 26,694 | $ | (2,103 | ) | $ | (39,463 | ) | $ | (40,917 | ) | $ | (32,951 | ) | $ | (46,206 | ) | $ | (32,057 | ) | $ | (13,028 | ) | |||||||||
Net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||||||||||
Basic |
$ | 0.31 | $ | (0.03 | ) | $ | (0.52 | ) | $ | (0.54 | ) | $ | (0.75 | ) | $ | (4.14 | ) | $ | (2.94 | ) | $ | (1.24 | ) | |||||||||
Diluted |
$ | 0.28 | $ | (0.03 | ) | $ | (0.52 | ) | $ | (0.54 | ) | $ | (1.30 | ) | $ | (4.14 | ) | $ | (2.94 | ) | $ | (1.24 | ) | |||||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||||||||||
Basic |
87,358,869 | 79,918,110 | 76,529,698 | 75,186,430 | 24,283,731 | 11,161,789 | 10,897,198 | 10,503,931 | ||||||||||||||||||||||||
Diluted |
95,156,846 | 79,918,110 | 76,529,698 | 75,186,430 | 25,310,651 | 11,161,789 | 10,897,198 | 10,503,931 |
68
Liquidity and Capital Resources
The following table summarizes our consolidated cash flows:
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 (Restated) |
||||||||||
(in thousands, except share and per share data) |
||||||||||||
Consolidated cash flow data: |
||||||||||||
Net cash provided by operating activities |
$ | 174,515 | $ | 39,794 | $ | 16,751 | ||||||
Net cash used in investing activities |
(729,899 | ) | (428,520 | ) | (302,921 | ) | ||||||
Net cash provided by financing activities |
972,384 | 498,335 | 278,371 | |||||||||
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Net increase (decrease) in cash and cash equivalents |
$ | 417,000 | $ | 109,609 | $ | (7,799 | ) | |||||
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We finance our operations, including the costs of acquisition and installation of solar energy systems, mainly through a variety of financing fund arrangements that we have formed with fund investors, credit facilities from banks, preferred stock equity offerings and cash generated from our operations. As described below underFinancing ActivitiesFinancing Fund Commitments, as of December 31, 2013 we had $544.3 million of available commitments from our fund investors, including a $344.0 million financing fund structured as a debt facility, that would be available through our asset monetization strategy.
While we have reported operating losses for the year ended December 31, 2013, we believe that our existing cash and cash equivalents, funds available under a secured credit facility and funds available in our existing financing funds that can be drawn down through our assets monetization strategy will be sufficient to meet our cash requirements for at least the next 12 months.
Operating Activities (Restated)
In the year ended December 31, 2013, we generated $174.5 million in net cash from operations. This cash inflow primarily resulted from an increase in deferred revenue of $233.6 million relating to upfront lease payments received from customers and solar energy system incentive rebate payments received from various state and local governments and deferred investment tax credits revenue, an increase in accounts payable of $50.8 million, an increase in accrued and other liabilities of $84.4 million and a decrease in accounts receivable of $2.9 million. The cash inflow was offset in part by an increase in restricted cash of $13.1 million, an increase in incentive rebates receivable of $2.6 million, an increase in inventories of $20.0 million, an increase in prepaid and other current assets of $19.3 million and a net loss of $151.8 million, reduced by non-cash items such as depreciation and amortization of $41.4 million, stock-based compensation of $21.3 million and interest on lease pass-through financing obligation of $13.4 million and increased by a reduction in lease pass-through financing obligation of $35.7 million and a change in deferred income taxes of $25.4 million.
In the year ended December 31, 2012, we generated $39.8 million (as restated) in net cash from operations. This cash inflow primarily resulted from an increase in deferred revenue of $121.4 million relating to upfront lease payments received from customers and solar energy system incentive rebate payments received from various state and local governments, a decrease in inventories of $55.7 million, an increase in accrued and other liabilities of $70.1 million and a decrease in prepaid and other current assets of $7.9 million. The cash inflow was offset in part by a decrease in accounts payable of $99.6 million, an increase in incentive rebates receivable of $3.8 million, an increase in accounts receivable of $14.0 million and a net loss of $113.7 million, reduced by non-cash items such as depreciation and amortization of $20.8 million, stock-based compensation of $8.7 million and interest on lease pass-through financing obligation of $12.0 million and increased by a reduction in lease pass-through financing obligation of $16.2 million.
In the year ended December 31, 2011, we generated $16.8 million (as restated) in net cash from operations. This cash inflow primarily resulted from an increase in deferred revenue of $68.3 million relating to
69
upfront lease payments received from customers and solar energy system incentive rebate payments received from various state and local governments, an increase in customer deposits of $10.9 million and an increase in accounts payable of $118.9 million. The cash inflow was offset in part by an increase in incentive rebates receivable of $4.9 million, an increase in inventories of $111.1 million and a net loss of $73.7 million, reduced by non-cash items such as depreciation and amortization of $12.3 million, stock-based compensation of $3.7 million, interest on lease pass-through financing obligation of $7.4 million and changes in fair value of convertible redeemable preferred stock warrants of $2.1 million and increased by a reduction in lease pass-through financing obligation of $23.5 million. In addition, the increase in other liabilities resulted in additional net inflows of cash, which were partially offset by increased other assets. The sizeable increase in inventories and accounts payable was due to a $106.1 million year-end purchase of inverters and modules that are expected to be used in 2012 in the construction of solar energy systems eligible for the U.S. Treasury cash grant program, the program rules of which required that the cost of the equipment be incurred by December 31, 2011.
Investing Activities (Restated)
Our investing activities consist primarily of capital expenditures.
In the year ended December 31, 2013, we used $729.9 million in investing activities. Of this amount, we used $717.0 million on the design, acquisition and installation of solar energy systems under operating leases with our customers and $9.1 million in the acquisition of vehicles, office equipment, leasehold improvements and furniture and invested $3.8 million in the acquisitions of businesses.
In the year ended December 31, 2012, we used $428.5 million (as restated) in investing activities. Of this amount, we used $420.2 million on the design, acquisition and installation of solar energy systems under operating leases with our customers and $8.4 million in the acquisition of vehicles, office equipment, leasehold improvements and furniture.
In the year ended December 31, 2011, we used $302.9 million (as restated) in investing activities. Of this amount, we used $291.6 million on the design, acquisition and installation of solar energy systems under operating leases with our customers. We also used $8.8 million in the acquisition of vehicles, office equipment, leasehold improvements and furniture and invested $2.5 million in the acquisitions of related businesses.
Financing Activities
In the year ended December 31, 2013, we generated $972.4 million from financing activities. We raised $174.1 million, net of underwriting discounts, commissions and issuance costs, from a secondary issuance of our common stock. We received $222.5 million, net of issuance costs, from the issuance of convertible senior notes. We received $203.2 million, net of lender fees, from long-term debt and repaid $65.3 million of long-term debt. We received $51.3 million, net of issuance costs, from the issuance of solar asset-backed notes and repaid $1.5 million of the solar asset-backed notes. We also repaid $1.6 million of our capital lease obligation. We received $127.5 million from U.S. Treasury Department grants associated with solar energy systems that we had leased to customers. We received $57.8 million from fund investors in our lease pass-through financing funds and paid $41.1 million to fund investors in our lease pass-through financing funds. We also generated $362.7 million from proceeds from investments by various fund investors in our joint ventures and paid distributions to fund investors of $137.0 million. Additionally, we paid $3.4 million for deferred purchase consideration.
In the year ended December 31, 2012, we generated $498.3 million from financing activities. We raised $92.4 million, net of underwriting discounts, commissions and issuance costs, from our initial public offering. We received $80.9 million, net of transaction costs, from the issuance of convertible redeemable preferred stock. We received $133.4 million, net of lender fees, from long-term debt and $19.4 million from our revolving line of credit and repaid $52.3 million of long-term debt and $25.0 million on our revolving line of credit. We also
70
repaid $28.4 million of our capital lease obligation. We received $113.6 million from U.S. Treasury Department grants associated with solar energy systems that we had leased to customers. We received $145.8 million from fund investors in our lease pass-through financing funds. We also generated $161.4 million from proceeds from investments by various fund investors in our joint ventures and paid distributions to fund investors of $144.5 million.
In the year ended December 31, 2011, we generated $278.4 million from financing activities. We generated $208.0 million of this amount from proceeds from investments by various fund investors in our joint ventures, partially offset by distributions paid to fund investors of $88.6 million. We received $65.5 million from U.S. Treasury Department grants associated with solar energy systems that we had leased to customers. We received $64.1 million from fund investors in our lease pass-through financing funds. We also received $19.7 million, net of transaction costs, from the issuance of convertible redeemable preferred stock and $1.3 million from the issuance of warrants to acquire convertible redeemable preferred stock. We received an additional $17.3 million from long-term debt and $5.6 million from our revolving line of credit and repaid $3.2 million of long-term debt and $4.5 million of our revolving line of credit.
Convertible Senior Notes
In October 2013, we issued $230.0 million of convertible senior notes in aggregate principal through a public offering. The net proceeds from the offering, after deducting transaction costs, were $222.5 million. The notes bear interest at a fixed rate of 2.75% per annum. Each $1,000 of principal of the convertible senior notes is initially convertible into 16.2165 shares of our common stock, which is equivalent to an initial conversion price of $61.67 per share, subject to adjustment upon the occurrence of specified events. Holders of the convertible senior notes may convert their convertible senior notes at their option at any time prior to maturity. The convertible senior note holders may require us to repurchase the convertible senior notes for cash only under certain defined events of default.
Solar Asset-backed Notes
In November 2013, we pooled and transferred qualifying solar energy systems and associated customer contracts into a special purpose entity, or SPE, and issued notes backed by these solar assets to certain investors. The SPE is wholly owned by us and is consolidated in our financial statements. Accordingly, we did not recognize a gain or loss on transfer of these assets. The solar asset-backed notes issued during the year had an aggregate principal amount of $54.4 million and were issued at a discount of 0.05%. The solar asset-backed notes bear interest at a fixed rate of 4.80% per annum and mature on November 20, 2038. The cash flows generated by the assets in the SPE is used to service the monthly solar asset-backed note principal and interest payments and meet the SPEs expenses, and any residual returns are distributed to one of our wholly owned subsidiaries. The assets and cash flows generated by the securitized solar energy systems are not available to our creditors. The creditors of the SPE, including the solar asset-backed note holders, have no recourse to us.
Term Loans
On February 8, 2013, one of our subsidiaries entered into an agreement with a bank for a term loan of $10 million. The loan proceeds were used to finance our acquisition of a fund investors interests in three of our joint venture funds. The loan bore interest at an annual rate equal to the lower of (i) the sum of LIBOR plus 3.25% and (ii) an interest rate cap of 6.50%. The loan was repaid in full in November 2013.
On June 7, 2013, one of our subsidiaries entered into an agreement with a syndicate of banks for a term loan of $100.0 million. The term loan bears interest at an annual rate of LIBOR plus 3.25%. The term loan is secured by the assets and cash flows of our subsidiary and is nonrecourse to our other assets. The term loan matures on June 7, 2015.
71
Revolving Credit Facility
In September 2012, we entered into a revolving credit agreement with a syndicate of banks to obtain funding for working capital, letters of credit and funding for general corporate needs. The committed amount under the revolving credit facility was increased from $75.0 million to $160.5 million on November 1, 2013 and then from $160.5 million to $200.0 million on December 13, 2013. Borrowed funds bear interest at an annual rate of 3.25% plus LIBOR or, at our option, 2.25% plus the higher of (i) the federal funds rate plus 0.50%, (ii) Bank of Americas published prime rate or (iii) LIBOR plus 1.00%. The fee for letters of credit is 3.875% per annum, and the fee for undrawn commitments is 0.375% per annum. The facility is secured by certain of our machinery and equipment, accounts receivables, inventory and other assets. The facility matures on December 31, 2016. As of December 31, 2013, $138.5 million, net of fees, was outstanding under this revolving credit agreement and we were in compliance with the covenants.
Vehicle Loans
We have entered into various vehicle loan agreements with various financial institutions. The vehicle loans are secured by the vehicles financed and mature between March 2015 and December 2018.
Financing Fund Commitments
We have financing fund commitments from several fund investors that we can draw upon in the future upon the achievement of specific funding criteria. As of December 31, 2013, we had entered into 31 financing funds that had a total of $542.9 million of undrawn committed capital, including a $344.0 million financing fund structured as a debt facility discussed below, to be used to partially fund our SolarStrong initiative. From our significant customer backlog we allocate to our financing funds leases and power purchase agreements and related economic benefits associated with solar energy systems in accordance with the criteria of the specific funds. Upon such allocation and upon our satisfaction of the conditions precedent to drawing upon such commitments, we are able to draw down on the financing fund commitments. Once received, these proceeds provide working capital to deliver solar energy systems to our customers and form part of our general working capital. A significant portion of these commitments can be used only for solar energy systems that commenced construction during 2011 (either physically or through incurrence of sufficient project costs) in order to qualify for the U.S. Treasury grant. As our supply of such solar energy systems decreases, we may not be able to satisfy the drawing conditions for all such commitments.
In November 2011, one of our subsidiaries entered into a credit agreement with a bank, whereby the bank would provide this subsidiary with a credit facility to be used to partially fund our SolarStrong initiative, which is a five-year plan to build solar power projects for privatized U.S. military housing communities across the country. The credit facility will be drawn down in tranches as defined in the credit facility agreement, with the interest rates to be determined as the amounts are drawn down. The credit facility will be collateralized by assets of the SolarStrong initiative and is non-recourse to our other assets. As of December 31, 2013 we had $344.0 million available for drawdown under this facility, as mentioned above.
In May 2010, one of our subsidiaries entered into a financing agreement with a commercial bank to obtain funding for working capital. The amount that may be borrowed under this agreement was determined based on the estimated present value of expected future lease rentals to be generated by equipment owned by the subsidiary and leased to a customer, up to a maximum of $16.3 million. The loan was funded in four tranches and was drawn down by March 31, 2011. The loan tranches bear interest at an average blended rate of 2%. The loan is secured by substantially all the assets of the subsidiary and is non-recourse to our other assets. We borrowed $13.3 million under this working capital financing facility in March 2011, of which $10.0 million and $11.1 million was outstanding as of December 31, 2013 and December 31, 2012, respectively. We were in compliance with all covenants as of December 31, 2013.
72
Contractual Obligations
Set forth below is information concerning our contractual commitments and obligations as of December 31, 2013:
Total | Less Than 1 Year |
1-3 Years | 3-5 Years | More Than
5 Years |
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Long-term borrowings |
$ | 535,690 | $ | 12,409 | $ | 236,341 | $ | 240,501 | $ | 46,439 | ||||||||||
Sale-leaseback financing obligations |
14,756 | 418 | 929 | 1,068 | 12,341 | |||||||||||||||
Interest(1) |
79,639 | 18,120 | 33,249 | 17,899 | 10,371 | |||||||||||||||
Operating lease obligations |
75,233 | 14,592 | 22,476 | 12,776 | 25,389 | |||||||||||||||
Performance guarantee |
1,000 | 1,000 | | | | |||||||||||||||
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Total |
$ | 706,318 | $ | 46,539 | $ | 292,995 | $ | 272,244 | $ | 94,540 | ||||||||||
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(1) | Represents obligations for interest payments on long-term borrowings and sale-leaseback financing obligations, and includes projected interest on variable-rate long-term borrowings based on interest rates as of December 31, 2013. |
Off-Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of financing fund arrangements that we have entered into. We have not entered into any other 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.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies and Procedures, to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to certain market risks as part of our ongoing business operations. Our primary exposures include changes in interest rates because certain borrowings bear interest at floating rates based on LIBOR plus a specified margin. We manage our interest rate risk by balancing our amount of fixed-rate and floating-rate debt. For fixed-rate debt, interest rate changes do not affect our earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant.
Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and other operating expenses and reducing our funds available for capital investments, operations or other purposes. In addition, we must use a substantial portion of our cash inflows to service our borrowings, which may affect our ability to make future acquisitions or capital expenditures. A hypothetical 10% change in our interest rates would have increased our interest expense for the year ended December 31, 2013 and 2012 by $0.5 million and $0.2 million, respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SOLARCITY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
75 | ||||
76 | ||||
78 | ||||
Consolidated Statements of Convertible Redeemable Preferred Stock and Equity |
79 | |||
80 | ||||
82 |
The supplementary data required by Item 8 is presented under Part II, Item 7 and is incorporated herein by reference.
74
Report of the Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
SolarCity Corporation
We have audited the accompanying consolidated balance sheets of SolarCity Corporation as of December 31, 2013 and 2012, and the related consolidated statements of operations, convertible redeemable preferred stock and equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SolarCity Corporation as of December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the 2012 and 2011 financial statements and noncontrolling interests in subsidiaries and total equity as of January 1, 2011 have been restated to correct errors related to the allocation of overhead costs, the accounting for and classification of redeemable noncontrolling interests and the cash flow presentation of non-cash stock-based compensation costs.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), SolarCitys internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 18, 2014 expressed an adverse opinion thereon.
/s/ Ernst & Young LLP
Redwood City, California
March 18, 2014
75
Consolidated Balance Sheets
(In Thousands, Except Share Par Values)
December 31, | ||||||||
2013 | 2012 | |||||||
Assets | (Restated) | |||||||
Current assets: |
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Cash and cash equivalents |
$ | 577,080 | $ | 160,080 | ||||
Restricted cash |
19,182 | 7,516 | ||||||
Accounts receivable (net of allowances for doubtful accounts of $955 and $220 as of December 31, 2013 and 2012, respectively) |
23,011 | 24,629 | ||||||
Rebates receivable |
20,131 | 17,501 | ||||||
Inventories |
111,394 | 87,087 | ||||||
Deferred income tax asset |
9,845 | 5,623 | ||||||
Prepaid expenses and other current assets |
27,020 | 11,502 | ||||||
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Total current assets |
787,663 | 313,938 | ||||||
Restricted cash |
301 | 2,810 | ||||||
Solar energy systems, leased and to be leased net |
1,682,521 | 984,121 | ||||||
Property and equipment net |
22,407 | 18,635 | ||||||
Goodwill and intangible assets net |
278,169 | 626 | ||||||
Other assets |
38,473 | 22,170 | ||||||
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Total assets(1) |
$ | 2,809,534 | $ | 1,342,300 | ||||
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Liabilities and equity |
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Current liabilities: |
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Accounts payable |
$ | 121,556 | $ | 62,986 | ||||
Distributions payable to noncontrolling interests and redeemable noncontrolling interests |
20,390 | 12,028 | ||||||
Current portion of deferred U.S. Treasury grants income |
15,340 | 11,376 | ||||||
Accrued and other current liabilities |
72,157 | 53,233 | ||||||
Customer deposits |
8,828 | 7,909 | ||||||
Current portion of deferred revenue |
59,899 | 31,822 | ||||||
Current portion of long-term debt |
7,422 | 20,613 | ||||||
Current portion of solar asset-backed notes |
3,155 | | ||||||
Current portion of lease pass-through financing obligation |
29,041 | 13,622 | ||||||
Current portion of sale-leaseback financing obligation |
418 | 389 | ||||||
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Total current liabilities |
338,206 | 213,978 | ||||||
Deferred revenue, net of current portion |
410,161 | 204,396 | ||||||
Long-term debt, net of current portion |
238,612 | 83,533 | ||||||
Convertible senior notes |
230,000 | | ||||||
Solar asset-backed notes, net of current portion |
49,780 | | ||||||
Long-term deferred tax liability |
9,238 | 5,643 | ||||||
Lease pass-through financing obligation, net of current portion |
64,167 | 125,884 | ||||||
Sale-leaseback financing obligation, net of current portion |
14,338 | 14,755 | ||||||
Deferred U.S. Treasury grants income, net of current portion |
412,469 | 286,884 | ||||||
Other liabilities and deferred credits |
193,439 | 114,006 | ||||||
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Total liabilities(1) |
1,960,410 | 1,049,079 | ||||||
Commitments and contingencies (Note 25) |
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Redeemable noncontrolling interests in subsidiaries |
44,709 | 12,827 | ||||||
Stockholders equity: |
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Common stock, $0.0001 par value authorized, 1,000,000 shares as of December 31, 2013 and 2012; issued and outstanding, 91,009 and 74,913 shares as of December 31, 2013 and 2012, respectively |
10 | 7 | ||||||
Additional paid-in capital |
819,914 | 330,130 | ||||||
Accumulated deficit |
(202,326 | ) | (146,536 | ) | ||||
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Total stockholders equity |
617,598 | 183,601 | ||||||
Noncontrolling interests in subsidiaries |
186,817 | 96,793 | ||||||
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Total equity |
804,415 | 280,394 | ||||||
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|
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Total liabilities and equity |
$ | 2,809,534 | $ | 1,342,300 | ||||
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76
(1) | SolarCity Corporations, or the Companys, consolidated assets as of December 31, 2013 and 2012 include $823,165 and $554,985 (restated) respectively, being assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. These assets include solar energy systems, leased and to be leased, net, of $759,148 and $522,684 (restated) as of December 31, 2013 and 2012, respectively; cash and cash equivalents of $35,141 and $16,065 as of December 31, 2013 and 2012, respectively; restricted cash, short term, of $115 and $167 as of December 31, 2013 and 2012, respectively; accounts receivable, net, of $4,802 and $1,681 as of December 31, 2013 and 2012, respectively; prepaid expenses and other assets of $3,831 and $2,603 as of December 31, 2013 and 2012, respectively; rebates receivable of $17,351 and $8,985 as of December 31, 2013 and 2012, respectively; and other assets of $2,777 and $2,800 as of December 31, 2013 and 2012, respectively. The Companys consolidated liabilities as of December 31, 2013 and 2012 included $33,922 and $19,853, respectively, being liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include distributions payable to noncontrolling interests and redeemable noncontrolling interests of $20,390 and $12,028 as of December 31, 2013 and 2012, respectively; customer deposits of $5,291 and $4,162 as of December 31, 2013 and 2012, respectively; accounts payable of $0 and $9 as of December 31, 2013 and 2012, respectively; accrued and other payables of $615 and $938 as of December 31, 2013 and 2012, respectively; other liabilities of $1,893 and $0 as of December 31, 2013 and 2012, respectively; and bank borrowings of $5,733 and $2,716 as of December 31, 2013 and 2012, respectively. |
See further description in Note 15, VIE Arrangements. |
See accompanying notes.
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Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Restated) | ||||||||||||
Revenue: |
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Operating leases and solar energy systems incentives |
$ | 82,856 | $ | 46,098 | $ | 23,145 | ||||||
Solar energy systems sales |
80,981 | 80,810 | 36,406 | |||||||||
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Total revenue |
163,837 | 126,908 | 59,551 | |||||||||
Cost of revenue: |
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Operating leases and solar energy systems incentives |
32,745 | 14,596 | 5,718 | |||||||||
Solar energy systems sales |
91,723 | 84,856 | 41,418 | |||||||||
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|
|||||||
Total cost of revenue |
124,468 | 99,452 | 47,136 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
39,369 | 27,456 | 12,415 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
97,426 | 69,392 | 42,004 | |||||||||
General and administrative |
91,321 | 49,075 | 31,664 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
188,747 | 118,467 | 73,668 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(149,378 | ) | (91,011 | ) | (61,253 | ) | ||||||
Interest expense net |
25,738 | 20,142 | 9,272 | |||||||||
Other expense net |
1,441 | 2,519 | 3,097 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(176,557 | ) | (113,672 | ) | (73,622 | ) | ||||||
Income tax benefit (provision) |
24,799 | (54 | ) | (92 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(151,758 | ) | (113,726 | ) | (73,714 | ) | ||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
(95,968 | ) | (14,391 | ) | (117,230 | ) | ||||||
|
|
|
|
|
|
|||||||
Net (loss) income attributable to stockholders |
$ | (55,790 | ) | $ | (99,335 | ) | $ | 43,516 | ||||
|
|
|
|
|
|
|||||||
Net (loss)income attributable to common stockholders |
||||||||||||
Basic |
$ | (55,790 | ) | $ | (109,426 | ) | $ | 8,225 | ||||
Diluted |
$ | (55,790 | ) | $ | (109,703 | ) | $ | 10,989 | ||||
Net (loss) income per share attributable to common stockholders |
||||||||||||
Basic |
$ | (0.70 | ) | $ | (7.68 | ) | $ | 0.82 | ||||
Diluted |
$ | (0.70 | ) | $ | (7.69 | ) | $ | 0.76 | ||||
Weighted average shares used to compute net (loss) income per share attributable to common stockholders |
||||||||||||
Basic |
79,781,976 | 14,240,187 | 9,977,646 | |||||||||
Diluted |
79,781,976 | 14,267,767 | 14,523,734 |
See accompanying notes.
78
Consolidated Statements of Convertible Redeemable Preferred Stock and Equity
(In Thousands, Except Per Share Amounts)
Convertible Redeemable Preferred Stock |
Common Stock | Additional Paid-In Capital |
Accumulated Deficit |
Total Stockholders Equity (Deficit) |
Noncontrolling Interests in Subsidiaries |
Total Equity |
||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
Balance, January 1, 2011 as previously reported |
39,451 | $ | 101,446 | 8,949 | $ | | $ | 3,229 | $ | (90,717 | ) | $ | (87,488 | ) | $ | 123,514 | $ | 36,026 | ||||||||||||||||||
Balance, January 1, 2011 adjustment |
| | | | | | | (66,064 | ) | (66,064 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance, January 1, 2011 as restated |
39,451 | $ | 101,446 | 8,949 | $ | | $ | 3,229 | $ | (90,717 | ) | $ | (87,488 | ) | $ | 57,450 | $ | (30,038 | ) | |||||||||||||||||
Issuance of common stock upon exercise of stock options for cash |
| | 1,489 | 1 | 1,089 | | 1,090 | | 1,090 | |||||||||||||||||||||||||||
Contributions from noncontrolling interests as restated |
| | | | | | | 169,261 | 169,261 | |||||||||||||||||||||||||||
Issuance of common stock to a consultant |
| | 7 | | 12 | | 12 | | 12 | |||||||||||||||||||||||||||
Donations of common stock to a charitable organization |
| | 20 | | 119 | | 119 | | 119 | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 5,039 | | 5,039 | | 5,039 | |||||||||||||||||||||||||||
Income tax effect of stock-based compensation |
| | | | 50 | | 50 | | 50 | |||||||||||||||||||||||||||
Issuance of Series C convertible redeemable preferred stock upon exercise of warrants |
375 | 4,576 | | | | | | | | |||||||||||||||||||||||||||
Issuance of Series F convertible redeemable preferred stock at $9.68 per share, net of issuance cost of $93 |
2,067 | 19,700 | | | | | | | | |||||||||||||||||||||||||||
Net income (loss) as restated |
| | | | | 43,516 | 43,516 | (87,133 | ) | (43,617 | ) | |||||||||||||||||||||||||
Distributions to noncontrolling interests as restated |
| | | | | | | (39,240 | ) | (39,240 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance, December 31, 2011 as restated |
41,893 | $ | 125,722 | 10,465 | $ | 1 | $ | 9,538 | $ | (47,201 | ) | $ | (37,662 | ) | $ | 100,338 | $ | 62,676 | ||||||||||||||||||
Issuance of common stock upon exercise of stock options for cash |
| | 902 | | 1,724 | | 1,724 | | 1,724 | |||||||||||||||||||||||||||
Contributions from noncontrolling interests as restated |
| | | | | | | 115,133 | 115,133 | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 11,179 | | 11,179 | | 11,179 | |||||||||||||||||||||||||||
Issuance of Series C convertible redeemable preferred stock upon exercise of warrants |
113 | 1,480 | | | | | | | | |||||||||||||||||||||||||||
Issuance of Series F convertible redeemable preferred stock upon exercise of warrants |
8 | 150 | | | | | | | | |||||||||||||||||||||||||||
Issuance of Series G convertible redeemable preferred stock at $23.92 per share, net of issuance cost of $132 |
3,387 | 81,218 | | | | | | | | |||||||||||||||||||||||||||
Issuance of common stock from initial public offering of common stock, net of underwriters discount and commissions and issuance cost of $12,895 |
| | 13,160 | 1 | 92,385 | | 92,386 | | 92,386 | |||||||||||||||||||||||||||
Conversion of convertible redeemable preferred stock to common stock upon initial public offering of common stock |
(45,401 | ) | (208,570 | ) | 50,386 | 5 | 208,565 | | 208,570 | | 208,570 | |||||||||||||||||||||||||
Conversion of convertible redeemable preferred stock warrants to common warrants upon initial public offering of common stock |
| | | | 5,821 | | 5,821 | | 5,821 | |||||||||||||||||||||||||||
Net loss as restated |
| | | | | (99,335 | ) | (99,335 | ) | (23,087 | ) | (122,422 | ) | |||||||||||||||||||||||
Distributions to noncontrolling interests as restated |
| | | | | | | (95,591 | ) | (95,591 | ) | |||||||||||||||||||||||||
Acquisition of noncontrolling interest in subsidiaries as restated |
| | | | 918 | | 918 | | 918 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance, December 31, 2012 as restated |
| $ | | 74,913 | $ | 7 | $ | 330,130 | $ | (146,536 | ) | $ | 183,601 | $ | 96,793 | $ | 280,394 | |||||||||||||||||||
Contributions from noncontrolling interests |
| | | | | | | 189,779 | 189,779 | |||||||||||||||||||||||||||
Issuance of common stock from a subsequent public offering, net of underwriting discounts and commissions and issuance costs of $7,888 |
| | 3,910 | 1 | 174,082 | | 174,083 | | 174,083 | |||||||||||||||||||||||||||
Issuance of common stock upon acquisition of assets of Paramount Energy, net of issuance costs of $70 |
| | 3,675 | 1 | 108,733 | | 108,734 | | 108,734 | |||||||||||||||||||||||||||
Issuance of common stock upon acquisition of Zep Solar |
| | 2,752 | 1 | 140,561 | | 140,562 | | 140,562 | |||||||||||||||||||||||||||
Issuance of common stock options upon acquisition of Zep Solar |
| | | | 14,893 | | 14,893 | | 14,893 | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 27,936 | | 27,936 | | 27,936 | |||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options for cash |
| | 4,260 | | 15,545 | | 15,545 | | 15,545 | |||||||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units |
| | 14 | | | | | | | |||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock warrants for cash |
| | 1,485 | | 8,034 | | 8,034 | | 8,034 | |||||||||||||||||||||||||||
Net (loss) income |
| | | | | (55,790 | ) | (55,790 | ) | 22,886 | (32,904 | ) | ||||||||||||||||||||||||
Noncontrolling interest arising from acquisition of Paramount Energy |
| | | | | | | | | |||||||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | | (122,641 | ) | (122,641 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance, December 31, 2013 |
| $ | | 91,009 | $ | 10 | $ | 819,914 | $ | (202,326 | ) | $ | 617,598 | $ | 186,817 | $ | 804,415 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
79
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Restated | ) | (Restated | ) | |||||||||
Operating activities: |
||||||||||||
Net loss |
$ | (151,758 | ) | $ | (113,726 | ) | $ | (73,714 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Loss on disposal of property and equipment |
60 | 17 | 336 | |||||||||
Depreciation and amortization net of amortization of deferred U.S. Treasury grant income |
41,448 | 20,809 | 12,338 | |||||||||
Interest on lease pass-through financing obligation |
13,438 | 12,001 | 7,373 | |||||||||
Stock-based compensation |
21,262 | 8,677 | 3,701 | |||||||||
Donations of common stock to a charitable organization |
| | 119 | |||||||||
Revaluation of convertible redeemable preferred stock warrants |
| 1,898 | 2,050 | |||||||||
Revaluation of preferred stock forward contract |
| 350 | | |||||||||
Loss of extinguishment of long-term debt |
306 | | | |||||||||
Deferred income taxes |
(25,424 | ) | 13 | 7 | ||||||||
Reduction in lease pass-through financing obligation |
(35,675 | ) | (16,159 | ) | (23,528 | ) | ||||||
Changes in operating assets and liabilities: |
||||||||||||
Restricted cash |
(13,059 | ) | (864 | ) | (3,018 | ) | ||||||
Accounts receivable |
2,911 | (13,978 | ) | (7,172 | ) | |||||||
Rebates receivable |
(2,630 | ) | (3,817 | ) | (4,933 | ) | ||||||
Inventories |
(19,954 | ) | 55,734 | (111,081 | ) | |||||||
Prepaid expenses and other current assets |
(19,276 | ) | 7,914 | (6,945 | ) | |||||||
Other assets |
(6,882 | ) | (4,939 | ) | (6,361 | ) | ||||||
Accounts payable |
50,750 | (99,600 | ) | 118,875 | ||||||||
Accrued and other liabilities |
84,444 | 70,133 | 29,460 | |||||||||
Customer deposits |
919 | (6,024 | ) | 10,943 | ||||||||
Deferred revenue |
233,635 | 121,355 | 68,301 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
174,515 | 39,794 | 16,751 | |||||||||
Investing activities: |
||||||||||||
Payments for the cost of solar energy systems, leased and to be leased |
(716,947 | ) | (420,153 | ) | (291,602 | ) | ||||||
Purchase of property and equipment |
(9,126 | ) | (8,367 | ) | (8,772 | ) | ||||||
Acquisition of business, net of cash acquired |
(3,826 | ) | | (2,547 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(729,899 | ) | (428,520 | ) | (302,921 | ) | ||||||
Financing activities: |
||||||||||||
Investment fund financings, bank and other borrowings: |
||||||||||||
Borrowings under long-term debt |
203,228 | 152,804 | 22,852 | |||||||||
Repayments of long-term debt |
(65,328 | ) | (77,299 | ) | (7,653 | ) | ||||||
Proceeds from issuance of solar asset-backed notes |
51,334 | | | |||||||||
Repayments of borrowings under solar asset-backed notes |
(1,461 | ) | | | ||||||||
Payment of deferred purchase consideration |
(3,382 | ) | | | ||||||||
Repayments of sale-leaseback financing obligation |
(388 | ) | (361 | ) | (574 | ) | ||||||
Proceeds from lease pass-through financing obligation |
57,780 | 145,846 | 64,135 | |||||||||
Repayments of lease pass-through financing obligation |
(41,148 | ) | | | ||||||||
Repayment of capital lease obligations |
(1,594 | ) | (28,442 | ) | (7,323 | ) | ||||||
Proceeds from investment by noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
362,692 | 161,426 | 207,970 | |||||||||
Distributions paid to noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
(137,005 | ) | (144,493 | ) | (88,636 | ) | ||||||
Proceeds from U.S. Treasury grants |
127,476 | 113,648 | 65,513 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities before equity issuances |
552,204 | 323,129 | 256,284 | |||||||||
Equity and convertible notes issuances: |
||||||||||||
Proceeds from issuance of common stock |
174,083 | 92,386 | | |||||||||
Proceeds from issuance of convertible senior notes |
222,518 | | | |||||||||
Proceeds from exercise of stock options |
15,545 | 1,724 | 1,090 | |||||||||
Proceeds from exercise of common stock warrants |
8,034 | | | |||||||||
Proceeds from exercise of convertible redeemable preferred stock warrants |
| 228 | | |||||||||
Proceeds from issuance of convertible redeemable preferred stock warrants |
| | 1,297 | |||||||||
Proceeds from issuance of convertible redeemable preferred stock |
| 80,868 | 19,700 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by equity and convertible notes issuances |
420,180 | 175,206 | 22,087 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
972,384 | 498,335 | 278,371 | |||||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
417,000 | 109,609 | (7,799 | ) | ||||||||
Cash and cash equivalents, beginning of period |
160,080 | 50,471 | 58,270 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 577,080 | $ | 160,080 | $ | 50,471 | ||||||
|
|
|
|
|
|
80
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Cash paid during the period for interest |
$ | 6,603 | $ | 6,710 | $ | 2,841 | ||||||
|
|
|
|
|
|
|||||||
Cash (received) paid during the period for taxes |
$ | (1,726 | ) | $ | 2,689 | $ | 91 | |||||
|
|
|
|
|
|
|||||||
Noncash investing and financing activities: |
||||||||||||
Conversion of convertible redeemable preferred stock warrants to convertible redeemable preferred stock |
$ | | $ | | $ | 4,576 | ||||||
|
|
|
|
|
|
|||||||
Conversion of convertible redeemable preferred stock upon initial public offering of common stock |
$ | | $ | 208,570 | $ | | ||||||
|
|
|
|
|
|
|||||||
Conversion of convertible redeemable preferred stock warrants to common stock warrants upon initial public offering of common stock |
$ | | $ | 5,821 | $ | | ||||||
|
|
|
|
|
|
See accompanying notes.
81
SolarCity Corporation
Notes to Consolidated Financial Statements
1. Organization
SolarCity Corporation, or the Company, was incorporated as a Delaware corporation on June 21, 2006. The Company is engaged in the design, installation and sale or lease of solar energy systems to residential and commercial customers, or sale of electricity generated by solar energy systems to customers. The Companys headquarters are located in San Mateo, California.
2. Summary of Significant Accounting Policies and Procedures
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. In accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIEs economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary of a number of VIEsrefer to Note 15, VIE Arrangements. The Company evaluates its relationships with the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
Corrections and Restatement of Prior Period Amounts
The consolidated financial statements for the year ended December 31, 2012 have been restated to correct an error related to the allocation of overhead costs affecting cost of revenues of solar energy systems sales, work in progress and the cost of solar energy systems, leased and to be leased. As a result, cost of revenues of solar energy systems sales increased by $19.7 million, work in progress inventory decreased by $0.8 million and the cost of solar energy systems, leased and to be leased decreased by $18.1 million. In addition, this correction increased the deferred gain on sale leaseback by $2.0 million, and decreased each of the cash flows from operating activities and cash out flows from investing activities by $18.3 million. This error did not affect periods prior to 2012.
The Company also restated the consolidated financial statements for the years ended December 31, 2012 and 2011, and the statement of stockholders equity as of January 1, 2011 to correct an error related to the accounting for certain noncontrolling interests in subsidiaries which contain redemption features or put rights, after the Company concluded that such noncontrolling interests should be presented in temporary equity and not permanent equity as had previously been recorded, and the balance of certain noncontrolling interests should be at least equal to the redemption amount. The impact was to increase redeemable noncontrolling interests and decrease noncontrolling interests and equity by $12.8 million, $22.3 million, and $66.1 million as of December 31, 2012, December 31, 2011 and January 1, 2011, respectively. In addition, as the redeemable noncontrolling interest balance cannot be less than the redemption amount at each date, net loss attributable to noncontrolling interests decreased by $13.0 million for the year ended December 31, 2012. These redemption features had no impact on net loss attributable to noncontrolling interests in prior years.
82
The Company has also restated the presentation of non-cash stock-based compensation costs in the consolidated statements of cash flows for the years ended December 31, 2012 and 2011 within operating activities rather than investing activities for the portion of such costs that were capitalized as part of the costs of solar energy systems leased and to be leased that should be excluded from the Companys reconciliation of net loss in the computation of cash flows from operating activities. The impact was to decrease cash flows from operating activities and decrease cash outflows from investing activities by $2.3 million and $1.3 million for the years ended December 31, 2012 and 2011, respectively.
The following tables present the impact of these corrections and corrections of other immaterial errors on the 2012 consolidated financial statements and noncontrolling interests in subsidiaries and total equity as of January 1, 2011. The impact of the errors on the 2011 consolidated financial statements is described above.
83
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The following tables present the impact of these corrections on the consolidated financial statements:
Adjustments to the Consolidated Balance Sheet
(In Thousands, Except Share Par Values)
December 31, 2012 | ||||||||||||
As Previously Reported |
Adjustment | As Restated |
||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 160,080 | $ | | $ | 160,080 | ||||||
Restricted cash |
7,516 | | 7,516 | |||||||||
Accounts receivable net(1) |
25,145 | (516 | ) | 24,629 | ||||||||
Rebates receivable |
17,501 | | 17,501 | |||||||||
Inventories(2) |
87,903 | (816 | ) | 87,087 | ||||||||
Deferred income tax asset(3) |
5,770 | (147 | ) | 5,623 | ||||||||
Prepaid expenses and other current assets |
11,502 | | 11,502 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
315,417 | (1,479 | ) | 313,938 | ||||||||
Restricted cash |
2,810 | | 2,810 | |||||||||
Solar energy systems, leased and to be leased net(4) |
1,002,184 | (18,063 | ) | 984,121 | ||||||||
Property and equipment net |
18,635 | | 18,635 | |||||||||
Goodwill and intangible assets net |
626 | | 626 | |||||||||
Other assets |
22,170 | | 22,170 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 1,361,842 | $ | (19,542 | ) | $ | 1,342,300 | |||||
|
|
|
|
|
|
|||||||
Liabilities and equity |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 62,986 | $ | | $ | 62,986 | ||||||
Distributions payable to noncontrolling interests and redeemable noncontrolling interests |
12,028 | | 12,028 | |||||||||
Current portion of deferred U.S. Treasury grants income |
11,376 | | 11,376 | |||||||||
Accrued and other current liabilities(5) |
52,334 | 899 | 53,233 | |||||||||
Customer deposits(1) |
8,753 | (844 | ) | 7,909 | ||||||||
Current portion of deferred revenue(6) |
31,516 | 306 | 31,822 | |||||||||
Current portion of long-term debt |
20,613 | | 20,613 | |||||||||
Current portion of lease pass-through financing obligation |
13,622 | | 13,622 | |||||||||
Current portion of sale-leaseback financing obligation |
389 | | 389 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
213,617 | 361 | 213,978 | |||||||||
Deferred revenue, net of current portion |
204,396 | | 204,396 | |||||||||
Long-term debt, net of current portion |
83,533 | | 83,533 | |||||||||
Long-term deferred tax liability(3) |
5,790 | (147 | ) | 5,643 | ||||||||
Lease pass-through financing obligation, net of current portion |
125,884 | | 125,884 | |||||||||
Sale-leaseback financing obligation, net of current portion |
14,755 | | 14,755 | |||||||||
Deferred U.S. Treasury grants income, net of current portion |
286,884 | | 286,884 | |||||||||
Other liabilities and deferred credits(2) |
112,056 | 1,950 | 114,006 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
1,046,915 | 2,164 | 1,049,079 | |||||||||
Redeemable noncontrolling interests in subsidiaries(7) |
| 12,827 | 12,827 | |||||||||
Stockholders equity: |
||||||||||||
Common stock, $0.0001 par value |
7 | | 7 | |||||||||
Additional paid-in capital(8) |
325,705 | 4,425 | 330,130 | |||||||||
Accumulated deficit(9) |
(111,392 | ) | (35,144 | ) | (146,536 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
214,320 | (30,719 | ) | 183,601 | ||||||||
Noncontrolling interests in subsidiaries(10) |
100,607 | (3,814 | ) | 96,793 | ||||||||
|
|
|
|
|
|
|||||||
Total equity |
314,927 | (34,533 | ) | 280,394 | ||||||||
|
|
|
|
|
|
|||||||
Total liabilities and equity |
$ | 1,361,842 | $ | (19,542 | ) | $ | 1,342,300 | |||||
|
|
|
|
|
|
84
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Adjustments to the Consolidated Statement of Operations
(In Thousands, Except Share and Per Share Amounts)
Year Ended December 31, 2012 | ||||||||||||
As Previously Reported |
Adjustment | As Restated | ||||||||||
Revenue: |
||||||||||||
Operating leases and solar energy systems incentives(1) |
$ | 47,616 | $ | (1,518 | ) | $ | 46,098 | |||||
Solar energy systems sales(1) |
81,046 | (236 | ) | 80,810 | ||||||||
|
|
|
|
|
|
|||||||
Total revenue |
128,662 | (1,754 | ) | 126,908 | ||||||||
Cost of revenue: |
||||||||||||
Operating leases and solar energy systems incentives(2) |
13,346 | 1,250 | 14,596 | |||||||||
Solar energy systems sales(11) |
64,429 | 20,427 | 84,856 | |||||||||
|
|
|
|
|
|
|||||||
Total cost of revenue |
77,775 | 21,677 | 99,452 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
50,887 | (23,431 | ) | 27,456 | ||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
69,392 | | 69,392 | |||||||||
General and administrative(1) |
50,355 | (1,280 | ) | 49,075 | ||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
119,747 | (1,280 | ) | 118,467 | ||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(68,860 | ) | (22,151 | ) | (91,011 | ) | ||||||
Interest expense net |
20,142 | | 20,142 | |||||||||
Other expense net |
2,519 | | 2,519 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(91,521 | ) | (22,151 | ) | (113,672 | ) | ||||||
Income tax provision |
(54 | ) | | (54 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(91,575 | ) | (22,151 | ) | (113,726 | ) | ||||||
Net loss attributable to noncontrolling interests and nonredeemable noncontrolling interests(12) |
(27,384 | ) | 12,993 | (14,391 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss attributable to stockholders |
$ | (64,191 | ) | $ | (35,144 | ) | $ | (99,335 | ) | |||
|
|
|
|
|
|
|||||||
Net loss attributable to common stockholders |
||||||||||||
Basic |
$ | (74,282 | ) | $ | (35,144 | ) | $ | (109,426 | ) | |||
Diluted |
$ | (74,559 | ) | $ | (35,144 | ) | $ | (109,703 | ) | |||
Net loss per share attributable to common stockholders |
||||||||||||
Basic |
$ | (5.22 | ) | $ | (2.46 | ) | $ | (7.68 | ) | |||
Diluted |
$ | (5.23 | ) | $ | (2.46 | ) | $ | (7.69 | ) | |||
Weighted average shares used to compute net loss per share attributable to common stockholders |
||||||||||||
Basic |
14,240,187 | | 14,240,187 | |||||||||
Diluted |
14,267,767 | | 14,267,767 |
85
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Adjustments to the Consolidated Statement of Cash Flows
(In Thousands)
Year Ended December 31, 2012 | ||||||||||||
As Previously Reported |
Adjustment | As Restated | ||||||||||
Operating activities: |
||||||||||||
Net loss |
$ | (91,575 | ) | $ | (22,151 | ) | $ | (113,726 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Loss on disposal of property and equipment |
17 | | 17 | |||||||||
Depreciation and amortization net of amortization of deferred U.S. Treasury grant income(2) |
21,008 | (199 | ) | 20,809 | ||||||||
Interest on lease pass-through financing obligation |
12,001 | | 12,001 | |||||||||
Stock-based compensation(13) |
10,734 | (2,057 | ) | 8,677 | ||||||||
Revaluation of convertible redeemable preferred stock warrants |
1,898 | | 1,898 | |||||||||
Revaluation of preferred stock forward contract |
350 | | 350 | |||||||||
Deferred income taxes |
13 | | 13 | |||||||||
Reduction in lease pass-through financing obligation |
(16,159 | ) | | (16,159 | ) | |||||||
Changes in operating assets and liabilities: |
||||||||||||
Restricted cash |
(864 | ) | | (864 | ) | |||||||
Accounts receivable(1) |
(14,494 | ) | 516 | (13,978 | ) | |||||||
Rebates receivable |
(3,817 | ) | | (3,817 | ) | |||||||
Inventories(14) |
54,839 | 895 | 55,734 | |||||||||
Prepaid expenses and other current assets |
7,914 | | 7,914 | |||||||||
Other assets |
(4,939 | ) | | (4,939 | ) | |||||||
Accounts payable |
(99,600 | ) | | (99,600 | ) | |||||||
Accrued and other liabilities(15) |
67,138 | 2,995 | 70,133 | |||||||||
Customer deposits(1) |
(5,180 | ) | (844 | ) | (6,024 | ) | ||||||
Deferred revenue(6) |
121,049 | 306 | 121,355 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
60,333 | (20,539 | ) | 39,794 | ||||||||
Investing activities: |
||||||||||||
Payments for the cost of solar energy systems, leased and to be leased(16) |
(440,692 | ) | 20,539 | (420,153 | ) | |||||||
Purchase of property and equipment |
(8,367 | ) | | (8,367 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(449,059 | ) | 20,539 | (428,520 | ) | |||||||
Financing activities: |
||||||||||||
Investment fund financings and bank borrowings: |
||||||||||||
Borrowings under long-term debt |
152,804 | | 152,804 | |||||||||
Repayments of long-term debt |
(77,299 | ) | | (77,299 | ) | |||||||
Repayments of sale-leaseback financing obligation |
(361 | ) | | (361 | ) | |||||||
Proceeds from lease pass-through financing obligation |
145,846 | | 145,846 | |||||||||
Repayment of capital lease obligations |
(28,442 | ) | | (28,442 | ) | |||||||
Proceeds from investment by noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
161,426 | | 161,426 | |||||||||
Distributions paid to noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
(144,493 | ) | | (144,493 | ) | |||||||
Proceeds from U.S. Treasury grants |
113,648 | | 113,648 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities before equity issuances |
323,129 | | 323,129 | |||||||||
Equity issuances: |
||||||||||||
Proceeds from issuance of common stock |
92,386 | | 92,386 | |||||||||
Proceeds from exercise of stock options |
1,724 | | 1,724 | |||||||||
Proceeds from exercise of convertible redeemable preferred stock warrants |
228 | | 228 | |||||||||
Proceeds from issuance of convertible redeemable preferred stock |
80,868 | | 80,868 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by equity issuances |
175,206 | | 175,206 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
498,335 | | 498,335 | |||||||||
|
|
|
|
|
|
|||||||
Net increase in cash and cash equivalents |
109,609 | | 109,609 | |||||||||
Cash and cash equivalents, beginning of period |
50,471 | | 50,471 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 160,080 | $ | | $ | 160,080 | ||||||
|
|
|
|
|
|
86
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
(1) | The adjustment relates to the corrections of errors previously deemed immaterial. |
(2) | The adjustment relates to the correction of an error associated with the allocation of overhead costs. |
(3) | The adjustment represents the impact of the correction of the allocation of overhead cost error on deferred tax assets and liabilities. |
(4) | The adjustment is comprised of $18,073 relating to the correction of the allocation of overhead cost error offset by $10 relating to the correction of errors previously deemed immaterial. |
(5) | The adjustment is comprised of $89 relating to the correction of the allocation of overhead cost error and $810 relating to the correction of errors previously deemed immaterial. |
(6) | The adjustment is comprised of $329 relating to the correction of errors previously deemed immaterial offset by $23 relating to the correction of the allocation of overhead cost error. |
(7) | The adjustment relates to the correction of the classification of noncontrolling interests error. |
(8) | The adjustment is comprised of $3,979 relating to the correction of the classification of noncontrolling interests error and $446 relating to the correction of errors previously deemed immaterial. |
(9) | The adjustment is comprised of $20,905 relating to the correction of the allocation of overhead cost error, $12,995 relating to the correction of the classification of noncontrolling interests error and $1,244 relating to the correction of errors previously deemed immaterial. |
(10) | The adjustment is comprised of $12,827 relating to the correction of the classification of noncontrolling interests error offset by $9,013 relating to the correction of the allocation of overhead cost error. |
(11) | The adjustment is comprised of $19,655 relating to the correction of the allocation of overhead cost error and $772 relating to the correction of errors previously deemed immaterial. |
(12) | The adjustment is comprised of $16,775 relating to the correction of the classification of noncontrolling interests error offset by $3,782 relating to the correction of the allocation of overhead cost error. |
(13) | The adjustment relates to the correction of the error relating to the presentation of capitalized stock-based compensation expenses. |
(14) | The adjustment is comprised of $816 relating to the correction of the allocation of overhead cost error and $79 relating to the correction of the error relating to the presentation of capitalized stock-based compensation expenses. |
(15) | The adjustment is comprised of $2,039 relating to the correction of the allocation of overhead cost error and $956 relating to the correction of errors previously deemed immaterial. |
(16) | The adjustment is comprised of $18,272 relating to the correction of the allocation of overhead cost error, $2,277 relating to the correction of the error relating to the presentation of capitalized stock-based compensation expenses and offset by $10 relating to the correction of errors previously deemed immaterial. |
In addition, the unaudited condensed consolidated financial statements for certain periods within 2013 and 2012 that were disclosed in the Companys previous filings with the Securities and Exchange Commission have been restated to correct the errors (see Note 28).
Reclassifications
Prior period goodwill balances were reclassified from other assets to goodwill and intangible assets in the consolidated financial statements and accompanying notes in order to enhance their comparability to current period balances. The reclassifications did not impact prior period results of operations, cash flows or total assets.
Use of Estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
87
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The Company regularly makes significant estimates and assumptions including, but not limited to, estimates that affect the estimated selling price of undelivered elements for revenue recognition purposes, the collectability of accounts receivable, the valuation of inventories, the estimated total costs for long-term contracts used as a basis for determining percentage of completion for such contracts, the estimated fair values and residual values of solar energy systems subject to leases, the accounting for business combinations, the estimated fair values and useful lives of acquired intangible assets, the estimated fair values of noncontrolling interests from business combinations, the useful lives of solar energy systems, property and equipment, the determination of accrued warranty, the discount rates used to estimate the fair values of investment tax credits, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets and asset impairment assessment. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash and cash equivalents, which consist principally of demand deposits with high-credit-quality financial institutions. The Company has exposure to credit risk to the extent cash and cash equivalent balances, including any restricted cash balances on deposit, exceed amounts covered by federal deposit insurance. The Company believes that its credit risk is not significant.
Restricted Cash
Restricted cash includes cash received from certain fund investors that had not been released for use by the Company, cash held to service certain payments under the securitization transaction including management expenses and principal and interest payments to solar asset-backed note holders, and balances collateralizing standby letters of credit, outstanding credit card borrowing facilities and obligations under certain operating leases.
Accounts Receivable
Accounts receivable primarily represent trade receivables from sales of residential and commercial customers recorded at net realizable value. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable by aging category to identify significant customers 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.
Rebates Receivable
Rebates receivable represent rebates due from utility companies and government agencies. These receivables include rebates that have been earned by the Company by its cash customers on state-approved solar energy system installations sold to the customers and also uncollected incentives from state and local government agencies for solar energy system installations that have been leased to customers or are used to generate and sell electricity to customers under power purchase agreements. For the rebates assigned to the Company by its customers, the Company assumes the responsibility for the application and collection of the rebate. The processing cycle for these rebates and incentives involves a multi-step process in which the Company accumulates and submits information required by the utility company or state agency necessary for the collection
88
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
of the rebate. The entire process typically can take up to several months to complete. The Company recognizes rebates receivable upon the solar energy system passing inspection by the responsible city department after completion of system installation.
Concentrations of Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and rebates receivable. The associated risk of concentration for cash and cash equivalents is mitigated by banking with creditworthy institutions. At certain times, amounts on deposit exceed Federal Deposit Insurance Corporation insurance limits. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs periodic credit evaluations and ongoing evaluations of its customers financial condition. Rebates receivable are due from various states and local governments as well as various utility companies. The Company considers the risk of uncollectability of such amounts to be low.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:
| Level 1Observable inputs that reflect quoted prices for identical assets or liabilities in active markets. |
| Level 2Observable inputs other than Level 1 prices, 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. |
| Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
As of December 31, 2013 and 2012, there were no fair value measurements of assets and liabilities subsequent to initial recognition.
The Companys financial instruments include accounts receivable, accounts payable, customer deposits, distributions payable to noncontrolling interests, participation interest, solar asset-backed notes, convertible senior notes and long-term debt. The carrying values of its financial instruments other than the participation interest, solar asset-backed notes, convertible senior notes and long-term debt approximate their fair values due to the fact that they were short-term in nature at December 31, 2013 and December 31, 2012 (Level 1). The fair value of convertible senior notes was $273.0 million as of December 31, 2013 based on their last actively traded price (Level 1). The Company estimates the fair value of solar asset-backed notes and long-term debt based on rates currently offered for debt with similar maturities and terms (Level 3). The Company has estimated the fair value of solar asset-backed notes and long-term debt to approximate their carrying values given the short time since issuance to December 31, 2013. The Company has estimated the fair value of the participation interest to be $15.1 million based on rates currently offered for instruments with similar maturities and terms (Level 3).
89
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Business Combinations
The Company accounts for business acquisitions under ASC 805, Business Combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued, and liabilities assumed at the acquisition date. Costs that are directly attributable to the acquisition are expensed as incurred. Identifiable assets, including intangible assets, acquired and liabilities, including contingent liabilities, assumed in the acquisition are measured initially at their fair values at the acquisition date. Any noncontrolling interests in the acquired business are also initially measured at fair value. The Company recognizes goodwill if the aggregate fair value of the total purchase consideration and the noncontrolling interests is in excess of the aggregate fair value of the identifiable assets acquired and the liabilities assumed.
Goodwill
Goodwill represents the difference between the purchase price and the aggregate fair value of the identifiable assets acquired and the liabilities assumed in a business combination. The Company tests goodwill for impairment annually, in the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value of goodwill may exceed its fair value, at the consolidated-level, which is the sole reporting unit. When assessing goodwill for impairment, the Company considers its market capitalization adjusted for a control premium and, if necessary, the Companys discounted cash flow model, which involves significant assumptions and estimates, including the Companys future financial performance, weighted-average cost of capital, and interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require the Company to perform an impairment test include a significant decline in the Companys financial results, a significant decline in the Companys market capitalization relative to its net book value, an unanticipated change in competition or the Companys market share and a significant change in the Companys strategic plans.
Inventories
Inventories include raw materials that include photovoltaic panels, inverters, and mounting hardware as well as miscellaneous electrical components, and work in process that includes raw materials partially installed, along with direct and indirect capitalized installation costs. Raw materials and work-in-process are stated at the lower of cost or market (on a first-in-first-out basis). Work-in-process primarily relates to solar energy systems that will be sold to customers, which are under construction and are yet to pass inspection.
The Company also evaluates its inventory reserves on a quarterly basis and writes down the value of inventories for estimated excess and obsolete inventories based upon assumptions about future demand and market conditions.
Solar Energy Systems, Leased and To Be Leased
The Company is the operating lessor of the solar energy systems under leases that qualify as operating leases. The Company accounts for the leases in accordance with ASC 840, Leases. To determine lease classification, the Company evaluates lease terms to determine whether there is a transfer of ownership or bargain purchase option at the end of the lease, whether the lease term is greater than 75% of the useful life, or whether the present value of minimum lease payments exceed 90% of the fair value at lease inception. The Company utilizes periodic appraisals to estimate useful life and fair values at lease inception, and residual values at lease termination. Solar energy systems are stated at cost, less accumulated depreciation and amortization.
90
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the respective assets as follows.
Useful Lives | ||
Solar energy systems leased to customers |
30 years | |
Initial direct costs related to solar energy systems leased to customers |
Lease term (10 to 20 years) |
Solar energy systems held for lease to customers are installed systems pending interconnection with the respective utility companies and will be depreciated as solar energy systems leased to customers when the respective systems have been interconnected and placed in service.
Solar energy systems under construction represents systems that are under installation, which will be depreciated as solar energy systems leased to customers when the respective systems are completed, interconnected and subsequently leased to customers.
Initial direct costs related to solar energy systems leased to customers are capitalized and amortized over the term of the related customer lease agreements.
Presentation of Cash Flows Associated with Solar Energy Systems
The Company discloses cash flows associated with solar energy systems in accordance with ASC 230, Statement of Cash Flows. The Company determines the appropriate classification of cash payments related to solar energy systems depending on the activity that is likely to be the predominant source of cash flows for the item being paid for. Accordingly, the Company presents payments made in a period for costs incurred to install solar energy systems that will be leased to customers, including the payments for cost of the inventory that is utilized in such systems, as investing activities in the consolidated statement of cash flows. Payments made for inventory that will be utilized for solar energy systems that will be sold to customers are presented as cash flows from operations in the consolidated statement of cash flows.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the respective assets as follows.
Useful Lives | ||
Furniture and fixtures |
7 years | |
Vehicles |
5 years | |
Computer hardware and software |
5 years |
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, currently seven years.
Repairs and maintenance costs are expensed as incurred.
Upon disposition, the cost and related accumulated depreciation of the assets are removed from property and equipment and the resulting gain or loss is reflected in the consolidated statements of operations.
91
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Long-Lived Assets
The Companys long-lived assets include property and equipment, solar energy systems, leased and to be leased, and intangible assets acquired through business combinations. Intangible assets with definite useful lives are amortized over their estimated useful lives, which range from 1 to 30 years.
In accordance with ASC 360, Property, Plant, and Equipment, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset is less than its carrying value, then the Company would recognize an impairment loss based on the discounted future net cash flows. No impairment charges were recorded for the years ended December 31, 2013, 2012 or 2011.
Capitalization of Software Costs
For costs incurred in development of internal use software, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Warranties
The Company warrants its products for various periods against defects in material or installation workmanship. The Company generally provides a warranty on the generating and non-generating parts of the solar energy systems it sells of typically between five to twenty years. The manufacturers warranty on the solar energy systems components, which is typically passed through to customers, range from one to twenty-five years. The changes in the accrued warranty balance, recorded as a component of accrued and other current liabilities on the consolidated balance sheets, consisted of the following (in thousands):
As of and for
the Year Ended December 31, |
||||||||
2013 | 2012 | |||||||
Balance beginning of the period |
$ | 4,019 | $ | 2,462 | ||||
Change in estimate charged to warranty expense |
1,514 | | ||||||
Current year provision charged to warranty expense |
2,257 | 1,773 | ||||||
Assumed warranty obligation arising from business acquisitions (Note 3) |
188 | | ||||||
Less warranty claims |
(476 | ) | (216 | ) | ||||
|
|
|
|
|||||
Balance end of the period |
$ | 7,502 | $ | 4,019 | ||||
|
|
|
|
Solar Energy Systems Performance Guarantees
The Company guarantees certain specified minimum solar energy production output for systems leased or sold to customers. The Company monitors the solar energy systems to ensure that these outputs are being achieved. The Company evaluates if any amounts are due to its customers. As of December 31, 2013 and 2012, the Company had recorded liabilities of $1.0 million and $0.6 million, respectively, as accrued and other current liabilities in the consolidated balance sheets, relating to these guarantees based on the Companys assessment of its exposure.
92
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Convertible Redeemable Preferred Stock Warrant Liabilities
Freestanding warrants to acquire shares that may be redeemable were accounted for in accordance with ASC 480, Distinguishing Liabilities from Equity. Under ASC 480, freestanding warrants to purchase the Companys convertible redeemable preferred stock were classified as a liability on the consolidated balance sheets and carried at fair value (Level 3) because the warrants may conditionally obligate the Company to transfer assets at some point in the future. The Company initially measured the warrants at fair value on issuance. The warrants were subject to remeasurement to fair value at each balance sheet date, and any change in their fair value is recognized as a component of other expense, net, in the consolidated statements of operations. The Company continued to adjust the liability for changes in fair value until the closing of the Companys initial public offering of its common stock, upon which the outstanding convertible redeemable preferred stock warrants either expired unexercised or converted to common stock warrants. The fair value of the preferred stock warrants that converted to common stock warrants was transferred to additional paid in capital. The changes in the fair value of the convertible redeemable preferred stock warrant liabilities were as follows (in thousands):
Fair value as of January 1, 2011 |
6,554 | |||
Issuances |
1,297 | |||
Exercises |
(4,576 | ) | ||
Change in fair value |
2,050 | |||
|
|
|||
Fair value as of December 31, 2011 |
5,325 | |||
Exercises |
(1,402 | ) | ||
Change in fair value |
1,898 | |||
Conversion to common stock warrants |
(5,821 | ) | ||
|
|
|||
Fair value as of December 31, 2012 |
$ | | ||
|
|
93
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Deferred U.S. Treasury Grant Income
The Company is eligible for U.S. Treasury grants received or receivable on eligible property as defined under Section 1603 of the American Recovery and Reinvestment Act of 2009, as amended by the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of December 2010, which includes solar energy system installations, upon approval by the U.S. Treasury Department. For solar energy systems under lease pass-through arrangements, as described in Note 16, Lease Pass-Through Financing Obligation, the Company reduces the financing obligation and records deferred income for the U.S. Treasury grants which are paid directly to the investors upon receipt of the grants by the investors. The benefit of the U.S. Treasury grants is recorded as deferred income and is amortized on a straight-line basis over the estimated useful lives of the related solar energy systems of 30 years. The amortization of the deferred income is recorded as a reduction to depreciation expense, which is a component of the cost of revenue of operating leases and solar energy systems incentives in the consolidated statement of operations. A catch-up adjustment is recorded in the period in which the grant is approved by the U.S. Treasury Department or received by lease pass-through investors to recognize the portion of the grant that matches proportionally the amortization for the period between the date of placement in service of the solar energy systems and approval by the U.S. Treasury Department or receipt by lease pass-through investors of the associated grant. The changes in deferred U.S. Treasury grant income were as follows (in thousands):
Balance as of January 1, 2011 |
$ | 19,340 | ||
U.S. Treasury grants received and receivable by the Company |
68,585 | |||
U.S. Treasury grants received by investors under lease pass-through arrangements |
54,730 | |||
Amortized during the year as a credit to depreciation expense |
(5,221 | ) | ||
|
|
|||
Balance as of December 31, 2011 |
137,434 | |||
U.S. Treasury grants received and receivable by the Company |
112,520 | |||
U.S. Treasury grants received by investors under lease pass-through arrangements |
58,685 | |||
Amortized during the period as a credit to depreciation expense |
(10,379 | ) | ||
|
|
|||
Balance as of December 31, 2012 |
298,260 | |||
U.S. Treasury grants received and receivable by the Company |
124,404 | |||
U.S. Treasury grants received by investors under lease pass-through arrangements |
20,599 | |||
Amortized during the period as a credit to depreciation expense |
(15,454 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
$ | 427,809 | ||
|
|
Of the balance outstanding as of December 31, 2013 and 2012, $412.5 million and $286.9 million, respectively, are disclosed as noncurrent deferred Treasury grants income in the consolidated balance sheets.
Deferred Investment Tax Credits Revenue
The Companys solar energy systems are eligible for investment tax credits, or ITCs, that accrue to eligible property under the Internal Revenue Code. Under Section 50(d)(5) of the Internal Revenue Code and the related regulations, a lessor of qualifying property may elect to treat the lessee as the owner of such property for the purposes of claiming government ITCs associated with such property. These regulations enable the ITCs to be separated from the ownership of the property and allow the transfer of these ITCs. Under the lease pass-through structures, the Company can make a tax election to pass through the ITCs to the investor, who is the legal lessee of the property. The Company is therefore able to monetize the ITCs to investors who can utilize them in return for cash payments. The Company considers the monetization of ITCs to constitute one of the key elements of realizing the value associated with solar energy systems. The Company therefore views the proceeds from the monetization of ITCs to be a component of revenue generated from the solar energy systems.
94
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
For lease pass-through structures, the Company allocates a portion of the aggregate payments received from the investor to the estimated fair value of the assigned ITCs and the balance to the future customer lease payments that are also assigned to the investors. The estimated fair value of the ITCs are determined by discounting the estimated cash flows impact of the ITCs using an appropriate discount rate that reflects a market interest rate.
The Company recognizes the revenue associated with the monetization of ITCs in accordance with ASC 605-10-S99, Revenue Recognition-Overall-SEC Materials. The revenue associated with the monetization of the ITCs is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable, and (4) collection of the related receivable is reasonably assured. The ITCs are subject to recapture under the Internal Revenue Code if the underlying solar energy system either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed in service date. The recapture amount decreases on the anniversary of the placed in service date. As the Company has an obligation to ensure the solar energy system is in service and operational for a term of five years to avoid any recapture of the ITCs, the Company recognizes revenue as the recapture provisions lapse assuming the other aforementioned revenue recognition criteria have been met. The monetized ITCs are initially recorded as deferred revenue on the consolidated balance sheet, and subsequently, one-fifth of the monetized ITCs is recognized as revenue in the consolidated statement of operations on each anniversary of the solar energy systems placed in service date over the next five years.
The Company guarantees its fund investors that in the event of a subsequent recapture of the ITCs by the taxing authority due to the Companys noncompliance with the applicable ITC guidelines, the Company will compensate the investor for any recaptured credits. The Company has concluded that the likelihood of a recapture event is remote and consequently has not recorded any liability in the consolidated financial statements for any potential recapture exposure.
The balance of deferred investment tax credits revenue, which is included as part of deferred revenue in the consolidated balance sheets, as of December 31, 2013 and 2012 was $139.5 million and $0, respectively. For the year ended December 31, 2013 the Company recognized $0.5 million of revenue related to the monetization of ITCs which is included in operating leases and solar energy systems incentives in the consolidated statements of operations. The Company had not recognized any revenue related to the monetization of ITCs prior to 2013.
Deferred Revenue
The Company records as deferred revenue any amounts that are collected from customers, including lease prepayments, in excess of revenue recognized. Deferred revenue also includes the portion of rebates and incentives received from utility companies and various local and state government agencies, which are recognized as revenue over the lease term, as well as the remote monitoring fee, which is recognized as revenue ratably over the respective contract term. As of December 31, 2013 and 2012, deferred revenue related to customer payments, included in deferred revenue balance in the consolidated balance sheets, amounted to $186.9 million and $122.1 million, respectively. As of December 31, 2013 and 2012, deferred revenue from rebates and incentives, included in deferred revenue balance in the consolidated balance sheets, amounted to $143.6 million and $114.1 million, respectively.
Revenue Recognition
The Company provides design, installation, maintenance services and ongoing remote monitoring services of solar energy systems to residential and commercial customers. Customers generally purchase solar energy systems from the Company under fixed-price contracts or lease Company-owned solar energy systems,
95
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
which also include remote monitoring services. The Company also earns rebates that have been assigned to the Company by its cash customers on state-approved system installations sold to the customers, as well rebates and incentives from utility companies and state and local governments on systems leased to customers or used to sell electricity to customers under power purchase agreements. The Company considers the proceeds from the rebates to comprise a portion of the proceeds from the sale or lease of the solar energy systems. The Company also offered energy efficiency solutions aimed at improving residential energy efficiency and lowering overall residential energy costs. The energy efficiency services comprised of energy efficiency evaluations and upgrades to homes and household appliances to improve energy efficiency.
Solar Energy Systems Sales
For solar energy systems sold to customers, the Company recognizes revenue, net of any applicable governmental sales taxes, in accordance with ASC 605-25, Revenue RecognitionMultiple-Element Arrangements, and ASC 605-10-S99, Revenue RecognitionOverallSEC Materials. Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. In instances where there are multiple deliverables in a single arrangement, the Company allocates the arrangement consideration to the various elements in the arrangement based on the relative selling price method. The Company recognizes revenue when it installs a solar energy system and the solar energy system passes inspection by the utility or the authority having jurisdiction, provided all other revenue recognition criteria have been met. Costs incurred on residential installations before the solar energy systems are completed are included in inventories as work in progress in the consolidated balance sheets.
The Company recognizes revenue for solar energy systems constructed for commercial customers according to ASC 605-35, Revenue RecognitionConstruction-Type and Production Type Contracts. Revenue is recognized on a percentage-of-completion basis, based on the ratio of labor costs incurred to date to total projected labor costs. Provisions are made for the full amount of any anticipated losses on a contract-by-contract basis. The Company recognized $2.9 million, $2.6 million (restated) and $3.2 million of total losses for these types of contracts for the years ended December 31, 2013, 2012 and 2011, respectively. Costs in excess of billings are recorded where costs recognized are in excess of amounts billed to customers of purchased commercial solar energy systems. Costs in excess of billings as of December 31, 2013 and 2012 (restated) amounted to $0.1 million, and are included in prepaid expenses and other current assets in the consolidated balance sheets. Billings in excess of costs as of December 31, 2013 and 2012 amounted to $0.2 million and $0.2 million (restated), respectively, and are included in deferred revenue in the consolidated balance sheets.
Operating Leases and Power Purchase Agreements
The Company is the lessor under lease agreements for solar energy systems, which are accounted for as operating leases in accordance with ASC 840. The Company records operating lease revenue from minimum lease payments, including upfront rebates and incentives earned from such systems, on a straight-line basis over the life of the lease term, assuming all other revenue recognition criteria are met. For incentives that are earned based on amount of electricity generated by the system, the Company records revenue as the amounts are earned.
The difference between the payments received and the revenue recognized is recorded as deferred revenue in the consolidated balance sheets.
For solar energy systems where customers purchase electricity from the Company under power purchase agreements, the Company has determined that these agreements should be accounted for, in substance, as operating leases pursuant to ASC 840. Revenue is recognized based upon the amount of electricity delivered as
96
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
determined by remote monitoring equipment at rates specified under the contracts, assuming all other revenue recognition criteria are met.
The portion of rebates and incentives recognized within operating leases and solar energy systems incentives revenue for the years ended December 31, 2013, 2012 and 2011 amounted to $26.6 million, $18.2 million and $9.6 million, respectively.
Initial direct costs from the origination of solar energy systems leased to customers (the incremental cost of contract administration, referral fees and sales commissions) are capitalized as an element of solar energy systems and amortized over the term of the related lease or power purchase agreement, which generally ranges from 10 to 20 years. Refer to Note 7, Solar Energy Systems, Leased and To Be Leased Net, for a summary of initial direct costs from the origination of solar energy systems leased and to be leased to customers.
Remote Monitoring Services
The Company provides solar energy system remote monitoring services, which are generally bundled with both sales and leases of solar energy systems. The Company allocates revenue between remote monitoring services and the other elements in a bundled sale of a solar energy system using the relative selling price method. The selling prices used in the allocation are determined by reference to the prices charged by third parties for similar services and products on a standalone basis. For remote monitoring services bundled with a sale of a solar energy system, the Company recognizes the revenue allocated to remote monitoring services over the term specified in the associated contract or over the warranty period of the solar energy system if the contract does not specify the term. To date, remote monitoring services revenue has not been material and is included in the consolidated statements of operations under both operating leases and solar energy systems incentives revenue, when remote monitoring services are bundled with leases of solar energy systems, and solar energy system sales revenue, when remote monitoring services are bundled with sales of solar energy systems.
Energy Efficiency Services
For energy efficiency services, the Company recognized revenue upon completion of the services or the customer referrals, provided all other revenue recognition criteria were met. Typically, energy efficiency services took less than one month to complete. To date, energy efficiency services revenue has not been material and is included as a component of solar energy systems sales revenue in the consolidated statements of operations.
Sale-Leaseback
The Company is party to master lease agreements that provide for the sale of solar energy systems to third parties and the simultaneous leaseback of the systems, which the Company then subleases to customers. In sale-leaseback arrangements, the Company first determines whether the solar energy system under the sale-leaseback arrangement is integral equipment. A solar energy system is determined to be integral equipment when the cost to remove the system from its existing location, including the shipping and reinstallation costs of the solar energy system at the new site, including any diminution in fair value, exceeds ten percent of the fair value of the solar energy system at the time of its original installation. When the leaseback arrangements expire, the Company has the option to purchase the solar energy system, and in most cases, the lessor has the option to sell the system back to the Company, though in some instances the lessor can only sell the system back to the Company prior to expiration of the arrangement.
For solar energy systems that the Company has determined to be integral equipment, the Company has concluded that these rights create a continuing involvement. Therefore, the Company uses the financing method
97
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
to account for the sale-leaseback of such solar energy systems. Under the financing method, the Company does not recognize as revenue any of the sale proceeds received from the lessor that contractually constitutes a payment to acquire the solar energy system. Instead, the Company treats any such sale proceeds received as financing capital to install and deliver the solar energy system and accordingly records the proceeds as a sale-leaseback financing obligation in the consolidated balance sheets. The Company allocates the leaseback payments made to the lessor between interest expense and a reduction to the sale-leaseback financing obligation. Interest on the financing obligation is calculated using the Companys incremental borrowing rate at the inception of the arrangement on the outstanding financing obligation. The Company determines its incremental borrowing rate by reference to the interest rates that it would obtain in the financial markets to borrow amounts equal to the sale-leaseback financing obligation over a term similar to the master lease term.
For solar energy systems that the Company has determined not to be integral equipment, the Company determines if the leaseback is classified as a capital lease or an operating lease. For leasebacks classified as capital leases, the Company initially records a capital lease asset and capital lease obligation in the consolidated balance sheet equal to the lower of the present value of the future minimum leaseback payments or the fair value of the solar energy system. For capital leasebacks, the Company does not recognize any revenue but defers the gross profit comprising of the net of the revenue and the associated cost of sale. For leasebacks classified as operating leases, the Company recognizes a portion of the revenue and the associated cost of sale and defers 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, the Company records the deferred gross profit in the 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 and solar energy systems incentives cost of revenue in the consolidated statement of operations.
Cost of Revenue
Operating leases and solar energy systems incentives cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems reduced by amortization of U.S. Treasury grants income, maintenance costs associated with those systems and amortization of initial direct costs associated with those systems.
Solar energy systems cost of revenue includes direct and indirect material and labor costs, warehouse rent, freight, warranty expense, depreciation on vehicles, amortization of initial direct costs, depreciation of solar energy systems sold to customers and other overhead costs.
Advertising Costs
Advertising costs are expensed as incurred and are included as an element of sales and marketing expense in the consolidated statement of operations. The Company incurred advertising costs of $0.5 million, $3.8 million and $9.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Income Taxes
The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss, or NOL, carryforwards, and other tax credits measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.
98
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company uses a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
The Companys policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations.
Comprehensive Income (Loss)
The Company accounts for comprehensive income (loss) in accordance with ASC 220, Comprehensive Income. Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). There were no differences between comprehensive loss as defined by ASC 220 and net loss as reported in the consolidated statements of operations for the periods presented.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC 718, CompensationStock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported.
The Company applies ASC 718 and ASC Subtopic 505-50, Equity-Based Payments to Non Employees, to options and other stock-based awards issued to nonemployees. In accordance with ASC 718 and ASC Subtopic 505-50, the Company uses the Black-Scholes option-pricing model to measure the fair value of the options at the measurement date.
Noncontrolling Interests and Redeemable Noncontrolling Interests
Noncontrolling interests and redeemable noncontrolling interests represent third-party interests in the net assets under certain funding arrangements, or funds, that the Company has entered into to finance the cost of solar energy systems under operating leases. The Company has determined that the contractual provisions in the funds represent substantive profit sharing arrangements. The Company has further determined that the appropriate methodology for calculating the noncontrolling interest and redeemable noncontrolling interests balances that reflect the substantive profit sharing arrangements is a balance sheet approach using the hypothetical liquidation at book value, or HLBV, method. The Company therefore determines the amount of the noncontrolling interests and redeemable noncontrolling interests in the net assets at each balance sheet date using the HLBV method, which is presented on the consolidated balance sheets as noncontrolling interests in subsidiaries and redeemable noncontrolling interests in subsidiaries. Under the HLBV method, the amounts reported as noncontrolling interests and redeemable noncontrolling interests in the consolidated balance sheets represent the amounts the third parties would hypothetically receive at each balance sheet date under the liquidation provisions of the funds, assuming the net assets of the funds were liquidated at the recorded amounts determined in accordance with GAAP and distributed to the third parties. The third parties interests in the results
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SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
of operations of the funds is determined as the difference in the noncontrolling interests and redeemable noncontrolling interests balance in the consolidated balance sheets between the start and end of each reporting period, after taking into account any capital transactions between the funds and the third parties. 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.
Segment Information
Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Companys chief operating decision maker is the executive team, which is comprised of the chief executive officer, the chief technology officer, the chief revenue officer and the chief financial officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has a single operating and reporting segment: solar energy products and services. The Companys principal operations, revenue and decision-making functions are located in the United States.
Basic and Diluted Net Income (Loss) Per Share
The Companys basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.
Prior to the Companys initial public offering of its common stock, its convertible redeemable preferred stock was entitled to receive dividends of up to $0.01 per share if dividends would have been declared on the common stock and thereafter would have participated pro rata on an as-converted basis with the common stockholders on any distributions to common stockholders. The convertible redeemable preferred stock was therefore a participating security. As a result, the Company calculated the net income (loss) per share using the two-class method. Accordingly, the net income (loss) attributable to common stockholders was derived from the net income (loss) for the period and, in periods in which the Company had net income attributable to common stockholders, an adjustment was made for the noncumulative dividends and allocations of earnings to participating securities based on their outstanding shareholder rights. Under the two-class method, the net loss attributable to common stockholders was not allocated to the convertible redeemable preferred stockholders as the convertible redeemable preferred stock did not have a contractual obligation to share in the Companys losses.
The diluted net income (loss) per share attributable to common stockholders is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method or the if-converted method, as applicable. In periods when the Company incurred a net loss attributable to common stockholders, convertible redeemable preferred stock, stock options, restricted stock units, warrants to purchase common stock and warrants to purchase convertible redeemable preferred stock were considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
Recently Issued Accounting Standards
In February 2013, the FASB issued Accounting Standards Update, or ASU, No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other
100
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Comprehensive Income, to require reporting of the impact of significant reclassifications out of accumulated other comprehensive income or loss on the line items on the statement of operations, if a reclassification is required in its entirety in a single reporting period. The ASU is effective for interim and annual periods beginning after December 15, 2012. The adoption of the ASU did not have a significant impact on the Companys consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, to specify when an unrecognized tax benefit should be presented as a liability versus an offset against a deferred tax asset. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. The Company is currently assessing the impact of the ASU on the consolidated financial statements.
3. Acquisitions
Paramount Energy
On September 6, 2013, the Company purchased certain assets of Paramount Energy Solutions, LLC, or Paramount Energy. Paramount Energy was a leading direct-to-consumer marketer and was one of the Companys channel partners through a customer referral arrangement. The acquired assets included Paramount Energys interest in a financing fund that it had formed with an investor that is also the investor in some of the Companys existing funds, executed end-user customer agreements together with the associated solar energy systems in various stages of completion and various databases and arrangements used by Paramount Energy in its acquisition of new customers. The acquisition enables the Company to develop and offer its solar energy systems directly to a broader customer base and to better compete with other energy producers, as well as to drive a lower cost of customer acquisition. In connection with the acquisition, the former chief executive officer of Paramount Energy joined the Company as the chief revenue officer. The purchase consideration comprised of $3.7 million in cash and 3,674,565 shares of the Companys common stock, inclusive of 379,146 shares held in escrow until September 2014 to cover any general representations and warranties, with an aggregate fair value of $108.8 million based on the closing price of the Companys common stock on the acquisition date. Additionally, the Company was obligated to pay to the sellers an additional $4.0 million after the acquisition date, of which $3.2 million was paid in October 2013.
The following table summarizes the fair value of the purchase consideration as of the acquisition date (in thousands):
Cash |
$ | 3,700 | ||
Common stock |
108,804 | |||
Deferred consideration |
4,039 | |||
|
|
|||
Total purchase consideration |
$ | 116,543 | ||
|
|
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SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The following table summarizes the preliminary assessment of the fair value of the assets acquired, liabilities assumed and the noncontrolling interest as of the acquisition date (in thousands). The Company is in the process of reviewing third-party valuations of the solar energy systems under construction, the solar energy systems, leased and to be leased, the intangible assets and the noncontrolling interest. Accordingly, the preliminary fair value of these assets, the noncontrolling interest and goodwill reflected in the following table are subject to change:
Cash |
$ | 12 | ||
Deposits and prepaid costs |
409 | |||
Solar energy systems under construction |
2,130 | |||
Solar energy systems, leased and to be leased |
5,475 | |||
Property and equipment |
96 | |||
Intangible assets |
58,725 | |||
Deferred revenue |
(207 | ) | ||
|
|
|||
Total identifiable net assets at fair value |
66,640 | |||
Noncontrolling interest |
(549 | ) | ||
Goodwill |
50,452 | |||
|
|
|||
Total purchase consideration |
$ | 116,543 | ||
|
|
The noncontrolling interest represents the fair value of an investors interest in the financing fund acquired as part of the acquisition. The Company has determined that it is the primary beneficiary of the financing fund and, accordingly, consolidates the financial position and results of operations of the financing fund in the consolidated financial statements.
The goodwill recognized was primarily attributable to expected synergies, anticipated cost savings and efficiencies and the assembled workforce of Paramount Energy. The full amount of the goodwill is deductible for tax purposes.
The following table summarizes the acquired intangible assets as of the acquisition date:
Fair Value | Weighted- Average Useful Life |
|||||||
(in thousands) | (in years) | |||||||
Marketing database |
$ | 17,427 | 5 | |||||
PowerSaver agreement |
17,077 | 10 | ||||||
Solar energy systems backlog |
12,434 | 30 | ||||||
Non-compete agreement |
6,959 | 5 | ||||||
Mortgage database |
4,628 | 3 | ||||||
Funding commitment by fund investor |
200 | 5 | ||||||
|
|
|||||||
Total |
$ | 58,725 | ||||||
|
|
Subsequent to the acquisition date, the Company obtained more details related to status of certain of the acquired solar energy systems contracts and the costs incurred on the contracts. On the basis of the information obtained the Company revised the estimated percentage of completion of the various solar energy systems under the contracts and therefore the estimated fair values. Additionally the Company returned some of the contracts to the sellers. As a result of these changes, the Company reduced the previously disclosed fair values of the acquired solar energy systems under construction by $5.3 million, increased the fair value of acquired solar
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SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
energy systems, leased and to be leased, by $1.7 million, decreased the fair value of prepaid costs associated with the affected contracts by $0.4 million and increased the fair value of backlog acquired by $2.2 million. The Company also the decreased the fair value of the deferred consideration and acquired deferred revenue associated with these contracts by $0.1 million. These adjustments did not affect the previously reported net loss, earnings per share or cash flows. The revised amounts are reflected in the tables above.
The consolidated statements of operations include revenue of $0.2 million and a net loss of $0.1 million from Paramount Energy for the period from the acquisition date through December 31, 2013.
Pro forma financial information is not presented for the acquisition of Paramount Energy as its revenue and earnings were not material to the consolidated statements of operations.
Zep Solar
In December 2013, the Company completed its acquisition of Zep Solar, Inc., or Zep Solar, by means of a merger of one of its wholly-owned subsidiaries with and into Zep Solar such that Zep Solar became a wholly-owned subsidiary of the Company. Zep Solar designs and supplies solar energy system mounting solutions for photovoltaic panels and also licenses its patented technology to other third parties. Zep Solar contracts with manufacturers in China to produce its products and it was a key supplier to the Company. The acquisition enables the Company to control the design and manufacture of the Zep Solar products that are key components in the installation of the Companys solar energy systems. The Company expects that the acquisition will lead to improved efficiencies and cost reductions. In connection with the acquisition, certain former employees of Zep Solar accepted employment with the Company.
The acquisition consideration was comprised of $2.4 million in cash, 2,751,793 shares of the Companys common stock and the assumption of fully vested options to purchase 303,151 shares of the Companys common stock, which replaced certain fully vested options of Zep Solars common stock. The following table summarizes the determination of the fair value of the purchase consideration in the acquired business as of the acquisition date (in thousands):
Cash |
$ | 2,368 | ||
Common stock |
140,562 | |||
Common stock options |
14,893 | |||
|
|
|||
Total purchase consideration |
$ | 157,823 | ||
|
|
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SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The following table summarizes the preliminary assessment of the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands). The Company is in the process of reviewing third-party valuations of the acquired intangible assets, property and equipment and inventory. Accordingly, the preliminary fair value of these assets and goodwill reflected in the following table are subject to change:
Cash |
$ | 2,300 | ||
Accounts receivable |
1,293 | |||
Inventory |
4,255 | |||
Property and equipment |
366 | |||
Other assets |
251 | |||
Accounts payable and other liabilities assumed |
(9,646 | ) | ||
Deferred tax liabilities |
(24,797 | ) | ||
Intangible assets |
86,000 | |||
|
|
|||
Total identifiable net assets at fair value |
60,022 | |||
Goodwill |
97,801 | |||
|
|
|||
Total purchase consideration |
$ | 157,823 | ||
|
|
The goodwill recognized was primarily attributable to efficiencies and cost savings that the Company expects to achieve from leveraging Zep Solars technology in its installation of solar energy systems. The acquisition of Zep Solar technology will allow the Company to reduce the costs of purchasing solar energy system mounting hardware, minimize the installation time of solar energy systems and to improve efficiencies and profitability. The full amount of the goodwill is not deductible for tax purposes.
The following table summarizes the acquired intangible assets as of the acquisition date:
Fair Value | Weighted- Average Useful Life |
|||||||
(in thousands) | (in years) | |||||||
Developed technology |
$ | 60,100 | 7 | |||||
Trademarks and trade names |
24,700 | 7 | ||||||
Customer orders backlog |
700 | 1 | ||||||
Internally developed software |
500 | 3 | ||||||
|
|
|||||||
Total |
$ | 86,000 | ||||||
|
|
The consolidated statements of operations include revenue of $0.1 million and a net loss of $1.2 million from Zep Solar for the period from the acquisition date through December 31, 2013.
The unaudited pro forma financial information for the acquisition of Zep Solar, as if it had consummated on January 1, 2012, is as follows (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Total revenue |
$ | 182,713 | $ | 138,125 | ||||
Net loss attributable to common stockholders, diluted |
$ | (73,185 | ) | $ | (134,560 | ) | ||
Net loss per share attributable to common stockholders, diluted |
$ | (0.89 | ) | $ | (7.91 | ) |
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SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The pro forma financial information is hypothetical and based on the combined results of operations of Zep Solar and the Company with adjustments for Zep Solars sales to the Company, the amortization of the acquired intangible assets and the timing of acquisition expenses. The pro forma financial information is not necessarily indicative of the actual consolidated results of operations in prior or future periods had the acquisition actually consummated on January 1, 2012. For instance, the Company anticipates that Zep Solar will satisfy some outstanding orders to a customer of approximately $14.4 million in the first quarter of 2014. For 2014, the Company anticipates that it will consume the majority of Zep Solars products. Zep Solar products sold to the Company will generally be capitalized as inventory and eventually as cost of leased solar energy systems.
4. Goodwill and Intangible Assets
Intangible Assets
The following is a summary of intangible assets as of December 31, 2013 (in thousands):
Gross | Accumulated Amortization |
Transfer to solar energy systems leased and to be leased |
Write offs and cancellations |
Net | ||||||||||||||||
Developed technology |
$ | 60,100 | $ | (485 | ) | $ | | $ | | $ | 59,615 | |||||||||
Trademarks and trade names |
24,700 | (199 | ) | | | 24,501 | ||||||||||||||
Marketing database |
17,427 | (1,113 | ) | | | 16,314 | ||||||||||||||
PowerSaver agreement |
17,077 | (546 | ) | | | 16,531 | ||||||||||||||
Solar energy systems backlog |
12,434 | | (10,615 | ) | (1,429 | ) | 390 | |||||||||||||
Non-compete agreement |
6,959 | (444 | ) | | | 6,515 | ||||||||||||||
Mortgage database |
4,628 | (493 | ) | | | 4,135 | ||||||||||||||
Customer orders backlog |
700 | (89 | ) | | | 611 | ||||||||||||||
Internally developed software |
500 | (9 | ) | | | 491 | ||||||||||||||
Funding commitment |
200 | (13 | ) | | | 187 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 144,725 | $ | (3,391 | ) | $ | (10,615 | ) | $ | (1,429 | ) | $ | 129,290 | |||||||
|
|
|
|
|
|
|
|
|
|
Developed Technology
Zep Solar developed technology is solar panel interlocking technology that includes a rail-free installation system, auto-grounding connections and a rapid, drop-in module installation design. These features allow Zep Solars products to be installed easily and produce significant performance-based and aesthetic improvements compared to other solar energy system installation technologies. Zep Solar patented the various components and techniques used in the interlocking technology.
Trademarks and Trade Names
Trademarks and trade names are related to Zep Solars established market recognition and customer base.
Marketing Database
The marketing database is a comprehensive platform for targeted marketing, including a prospective customer scoring engine, a marketing campaign manager and monthly updates. The prospective customer scoring
105
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
engine improves the results of marketing initiatives by predicting which customer leads in the marketing database will respond favorably to a particular marketing campaign. The marketing campaign manager monitors the results of marketing campaigns and provides feedback for optimizing future marketing campaigns.
PowerSaver Agreement
Under the PowerSaver program, Fannie Mae makes available additional loans of up to $25,000 to eligible Fannie Mae borrowers. The additional loan amounts can only be used for energy efficiency projects that include the installation of solar energy systems. The PowerSaver program provides an additional source of financing for customers and therefore helps broaden the Companys customer base. Under the PowerSaver agreement, the Company is provided with the exclusive right to market solar energy systems to the customers of Paramount Mortgage, an affiliate of Paramount Energy.
Solar Energy Systems Backlog
Solar energy systems backlog represents the value attributable to the contractual arrangements entered into between Paramount Energy and its customers to install solar energy systems for which the installation had not commenced as of the acquisition date. The arrangements were acquired by the Company. This balance is transferred to solar energy systems, leased and to be leased, as the solar energy systems are installed and placed in service and subsequently depreciated as cost of solar energy systems over the estimated useful lives of the solar energy systems of 30 years.
Non-Compete Agreement
The former chief executive officer of Paramount Energy became the Companys new chief revenue officer and executed a five-year non-compete agreement with the Company. The chief executive officer and chief technology officer of Zep Solar each executed a three-year non-compete agreement with the Company.
Mortgage Database
The mortgage database contains data pertaining to households that the Company can directly market to.
Customer Orders Backlog
Customer orders backlog represents Zep Solars outstanding customer orders to be fulfilled in the future.
Internally Developed Software
Internally developed software consists of Zep Solars Zepulator System Designer, or Zepulator, online application. Zepulator can project the size, scope, layout, materials and costs of potential solar energy system installations, which assists with optimizing solar energy system installations.
106
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
All intangible assets, with the exception of the solar energy systems backlog, are amortized over their estimated useful lives. No intangible assets were impaired during the year ended December 31, 2013. However, the Company wrote-off $1.4 million of solar energy systems backlog related to contracts cancelled after acquisition, which was recorded in sales and marketing expense in the consolidated statement of operations. Total future amortization expense for intangible assets is as follows (in thousands):
2014 |
$ | 21,060 | ||
2015 |
20,449 | |||
2016 |
19,946 | |||
2017 |
18,739 | |||
2018 |
17,168 | |||
Thereafter |
31,538 | |||
|
|
|||
Total |
$ | 128,900 | ||
|
|
Goodwill
The changes to the carrying value of goodwill during the years ended December 31, 2013 and 2012 were as follows (in thousands):
2013 | 2012 | |||||||
Balance beginning of the period |
$ | 626 | $ | 626 | ||||
Acquisition of assets of Paramount Energy |
50,452 | | ||||||
Acquisition of Zep Solar |
97,801 | | ||||||
|
|
|
|
|||||
Balance end of the period |
$ | 148,879 | $ | 626 | ||||
|
|
|
|
The Company did not recognize any impairment of goodwill during the years ended December 31, 2013 and 2012.
5. Noncancelable Operating Lease Payments Receivable
As of December 31, 2013, future minimum lease payments to be received from customers under noncancelable operating leases for each of the next five years and thereafter are as follows (in thousands):
2014 |
$ | 32,860 | ||
2015 |
29,358 | |||
2016 |
29,603 | |||
2017 |
29,954 | |||
2018 |
30,399 | |||
Thereafter |
362,287 | |||
|
|
|||
Total |
$ | 514,461 | ||
|
|
The Company enters into power purchase agreements with its customers which are accounted for, in substance, as leases. These customers are charged solely based on actual power produced by the installed solar energy system at a predefined power rate per kWh of power produced. The payments from such arrangements are not included in the table above as they are a function of the power that will be generated by the related solar systems in the future.
107
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Included in revenue for the years ended December 31, 2013, 2012 and 2011 was $42.0 million, $20.2 million and $5.0 million, respectively, which have been accounted for as contingent rentals. The contingent rentals comprise of customer payments under power purchase agreements and performance-based incentives receivable by the Company from various utility companies.
6. Inventories
As of December 31, 2013 and 2012, inventories consisted of the following (in thousands):
December 31, | ||||||||
2013 | 2012 (Restated) |
|||||||
Raw materials |
$ | 105,919 | $ | 69,726 | ||||
Work in progress |
5,475 | 17,361 | ||||||
|
|
|
|
|||||
Total |
$ | 111,394 | $ | 87,087 | ||||
|
|
|
|
Raw materials are comprised of component parts that include photovoltaic panels, inverters and other electrical components that will be deployed to either solar energy systems that will be sold or solar energy systems that will be leased. Work in progress is comprised of installations in progress and includes component parts, labor and other overhead costs incurred up to the balance sheet date on solar energy systems that will be sold and for which binding sales contracts have already been executed. For solar energy systems, leased and to be leased, the Company commences transferring component parts from inventory to construction in progress, a component of solar energy systems, leased and to be leased, once a lease contract with a customer has been executed and installation has initiated. Additional costs incurred on the leased systems, including labor and overhead, are recorded within construction in progress.
7. Solar Energy Systems, Leased and To Be Leased Net
As of December 31, 2013 and 2012, solar energy systems, leased and to be leased, consisted of the following (in thousands):
December 31, | ||||||||
2013 | 2012 (Restated) |
|||||||
Solar energy systems leased to customers |
$ | 1,513,731 | $ | 880,637 | ||||
Initial direct costs related to solar energy systems leased to customers |
94,321 | 54,095 | ||||||
|
|
|
|
|||||
1,608,052 | 934,732 | |||||||
Less accumulated depreciation and amortization |
(86,457 | ) | (42,824 | ) | ||||
|
|
|
|
|||||
1,521,595 | 891,908 | |||||||
Solar energy systems under construction |
53,010 | 41,632 | ||||||
Solar energy systems to be leased to customers |
107,916 | 50,581 | ||||||
|
|
|
|
|||||
Solar energy systems, leased and to be leased net |
$ | 1,682,521 | $ | 984,121 | ||||
|
|
|
|
108
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Included under solar energy systems leased to customers as of December 31, 2013 and 2012 is $66.4 million related to capital leased assets, with an accumulated depreciation of $5.3 million and $2.6 million, respectively. As of December 31, 2013, future minimum lease payments to the lessor under this lease arrangement for each of the next five years and thereafter were as follows (in thousands):
2014 |
$ | 2,314 | ||
2015 |
2,327 | |||
2016 |
2,339 | |||
2017 |
2,353 | |||
2018 |
2,367 | |||
Thereafter |
23,455 | |||
|
|
|||
Total |
$ | 35,155 | ||
|
|
As of December 31, 2013, future minimum annual lease receipts to be paid to the Company by sublessees under this lease arrangement for each of the next five annual periods ending December 31, and thereafter are as follows (in thousands):
2014 |
$ | 2,413 | ||
2015 |
2,426 | |||
2016 |
2,454 | |||
2017 |
2,483 | |||
2018 |
2,513 | |||
Thereafter |
36,853 | |||
|
|
|||
Total |
$ | 49,142 | ||
|
|
The amounts in the table above are also included as part of the noncancelable operating lease payments from customers disclosed in Note 5, Noncancelable Operating Lease Payments Receivable.
8. Property and Equipment Net
As of December 31, 2013 and 2012, property and equipment consisted of the following (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Vehicles |
$ | 23,548 | $ | 17,669 | ||||
Computer hardware and software |
7,381 | 5,232 | ||||||
Furniture and fixtures |
2,653 | 1,787 | ||||||
Leasehold improvements |
7,397 | 6,942 | ||||||
Other equipment |
167 | | ||||||
|
|
|
|
|||||
41,146 | 31,630 | |||||||
Less accumulated depreciation and amortization |
(18,739 | ) | (12,995 | ) | ||||
|
|
|
|
|||||
Property and equipment net |
$ | 22,407 | $ | 18,635 | ||||
|
|
|
|
109
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
9. Accrued and Other Current Liabilities
As of December 31, 2013 and 2012, accrued and other current liabilities consisted of the following (in thousands):
December 31, | ||||||||
2013 | 2012 (Restated) |
|||||||
Accrued compensation |
$ | 21,634 | $ | 14,804 | ||||
Accrued expenses |
29,203 | 28,167 | ||||||
Accrued warranty |
7,502 | 4,019 | ||||||
Amounts refundable to an investor |
5,699 | | ||||||
Income taxes payable |
1,577 | | ||||||
Current portion of participation interest |
1,744 | | ||||||
Current portion of deferred gain on sale-leaseback transactions |
3,243 | 3,271 | ||||||
Current portion of capital lease obligation |
1,555 | 1,972 | ||||||
|
|
|
|
|||||
Total |
$ | 72,157 | $ | 53,233 | ||||
|
|
|
|
The amounts refundable to an investor represents the portion of cash received from an investor for the monetization of ITCs that is related to assets not placed in service by December 31, 2013. The Company and the investor are currently in negotiations to extend the deadline to place these assets in service.
10. Other Liabilities
As of December 31, 2013 and 2012, other liabilities consisted of the following (in thousands):
December 31, | ||||||||
2013 | 2012 (Restated) |
|||||||
Deferred gain on sale-leaseback transactions, net of current portion |
$ | 58,033 | $ | 61,193 | ||||
Deferred rent expense |
3,333 | 4,443 | ||||||
Capital lease obligation |
27,126 | 28,688 | ||||||
Liability for receipts from an investor |
72,520 | 18,111 | ||||||
Participation interest |
14,114 | | ||||||
Other noncurrent liabilities |
18,313 | 1,571 | ||||||
|
|
|
|
|||||
Total |
$ | 193,439 | $ | 114,006 | ||||
|
|
|
|
The liability for receipts from investor represent amounts received from an investor for monetization of ITCs for assets not yet placed in service. This amount is reclassified to deferred revenue when the related assets are placed are in service.
The participation interest represents rights granted by the Company to a former investor to share in future residual returns from securitized solar energy systems as described in Note 14, Solar Asset-backed Notes and Securitization, as part compensation for the termination of a lease pass-through arrangement.
110
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
11. Long-Term Debt
Working Capital Financing
On May 26, 2010, a subsidiary of the Company entered into a financing agreement with a bank to obtain funding for working capital. The amount available to be borrowed under the financing agreement was determined based on the present value of expected future lease rentals to be generated by solar energy systems owned by the subsidiary and leased to customers, but not exceeding $16.3 million. The working capital financing was funded in four tranches and was available for drawdown through March 31, 2011. Each tranche bears interest at an annual rate of 2.00% plus the swap rate applicable to the average life of the scheduled rent receipts for the tranche. The working capital financing is secured by substantially all of the subsidiarys assets and is nonrecourse to the Companys other assets. The working capital financing matures on December 31, 2024.
Through December 31, 2013, the Company had borrowed an aggregate of $13.3 million, net of fees, under the working capital financing. Of the amount borrowed, $10.0 million, net of fees, and $11.1 million, net of fees, were outstanding as of December 31, 2013 and 2012, respectively, of which $8.8 million and $10.0 million, respectively, are included in the consolidated balance sheets under long-term debt, net of current portion. For the amount outstanding as of December 31, 2013, the interest rates ranged between 5.48% and 5.65%. The Company was in compliance with all debt covenants as of December 31, 2013.
Vehicle Loans
The Company has entered into various vehicle loan agreements with various financial institutions. The vehicle loans are secured by the vehicles financed and mature between March 2015 and December 2018. Total vehicle loans outstanding as of December 31, 2013 and 2012 was $6.5 million and $7.7 million, respectively, of which $4.7 million and $4.7 million, respectively, are included in the consolidated balance sheets under long-term debt, net of current portion. For the total amount outstanding as of December 31, 2013, the interest rates ranged between 0.00% and 7.49%. The Company was in compliance with all debt covenants as of December 31, 2013.
Inventory Financing
On March 8, 2012, the Company entered into a $58.5 million term loan agreement with a syndicate of banks to finance purchases of inventory. The borrowed funds bore interest at an annual rate of LIBOR plus 3.75% and were secured by the Companys inventory. As of December 31, 2012, the amount outstanding under the inventory financing was $17.2 million, which is included in the consolidated balance sheets under current portion of long-term debt. In August 2013, the inventory financing was fully repaid.
Term Loan
On February 8, 2013, a subsidiary of the Company entered into an agreement with a bank for a term loan of $10 million. The loan proceeds were used to finance the Companys acquisition of a fund investors interests in three of the Companys VIE funds, as described in Note 15, VIE Arrangements. The loan bore interest at an annual rate equal to the lower of (i) the sum of LIBOR plus 3.25% and (ii) an interest rate cap of 6.50%. The loan was fully repaid in November 2013.
On June 7, 2013, a subsidiary of the Company entered into an agreement with a syndicate of banks for a term loan of $100.0 million. The term loan bears interest at an annual rate of LIBOR plus 3.25%. As of
111
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
December 31, 2013, the interest rates ranged between 3.41% and 3.67%. The term loan is secured by the assets and cash flows of the subsidiary and is nonrecourse to the Companys other assets. The term loan matures on June 7, 2015. Through December 31, 2013, the Company had borrowed an aggregate of $88.1 million under the term loan. Of the amount borrowed, $85.5 million, net of fees, was outstanding, of which $81.3 million is included in the consolidated balance sheets under long-term debt, net of current portion, as of December 31, 2013. The Company was in compliance with all debt covenants as of December 31, 2013.
Schedule of Principal Maturities of Long-Term Debt, Convertible Senior Notes and Solar Asset-Backed Notes
The scheduled principal maturities of long-term debt (see Note 11, Long-Term Debt), convertible senior notes (see Note 13, Convertible Senior Notes) and solar asset-backed notes (see Note 14, Solar Asset-backed Notes and Securitization) as of December 31, 2013 were as follows (in thousands):
Principal due: |
||||
2014 |
$ | 12,409 | ||
2015 |
87,951 | |||
2016 |
148,390 | |||
2017 |
5,684 | |||
2018 |
234,817 | |||
Thereafter |
46,439 | |||
|
|
|||
Total |
$ | 535,690 | ||
|
|
12. Borrowings under Bank Lines of Credit
Credit Facility for SolarStrong
On November 21, 2011, a subsidiary of the Company entered into an agreement with a bank for a credit facility of up to $350 million. The credit facility is used to partially fund the Companys SolarStrong initiative, which is a five-year plan to build solar energy systems for privatized U.S. military housing communities across the country. The credit facility is drawn down in tranches, with the interest rates determined when amounts are drawn down. As of December 31, 2013, the interest rates for the credit facility ranged between 6.78% and 7.27%. The credit facility is secured by the assets of the SolarStrong initiative and is nonrecourse to the Companys other assets. The credit facility matures in 2032. As of December 31, 2013 and 2012, $5.4 million, net of fees, and $2.5 million, net of fees, respectively, were outstanding under the credit facility, of which $5.3 million and $2.4 million, respectively, are included in the consolidated balance sheets under long-term debt, net of current portion. The Companys subsidiary was in compliance with all debt covenants as of December 31, 2013.
Revolving Credit Facility
In September 2012, the Company entered into a revolving credit agreement with a syndicate of banks to obtain funding for working capital, letters of credit and funding for general corporate needs. The committed amount under the revolving credit facility was increased from $75.0 million to $160.5 million on November 1, 2013 and then from $160.5 million to $200.0 million on December 13, 2013. Borrowed funds bear interest at an annual rate of 3.25% plus LIBOR or, at the Companys option, 2.25% plus the higher of (i) the federal funds rate plus 0.50%, (ii) Bank of Americas published prime rate or (iii) LIBOR plus 1.00%. The fee for letters of credit is 3.875% per annum, and the fee for undrawn commitments is 0.375% per annum. The facility is secured by certain of the Companys machinery and equipment, accounts receivables, inventory and other assets. The facility matures on December 31, 2016. As of December 31, 2013 and 2012, $138.5 million, net of fees, and
112
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
$66.4 million, net of fees, respectively, were outstanding under the facility, all of which are included in the consolidated balance sheets under long-term debt, net of current portion. For the amount outstanding as of December 31, 2013, the interest rates ranged between 3.41% and 5.50%. The Company was in compliance with all debt covenants as of December 31, 2013.
13. Convertible Senior Notes
In October 2013, the Company issued $230.0 million aggregate principal amount of 2.75% Convertible Senior Notes due November 1, 2018 (the Notes) in a public offering. The net proceeds from the offering, after deducting transaction costs, were approximately $222.5 million. The Company incurred $7.5 million of debt issuance costs in connection with the issuance of the Notes which is recorded in other assets and is being amortized to interest expense over the contractual term of the Notes. The interest under the Notes is fixed at 2.75% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2014. During the year ended December 31, 2013, the Company recognized $0.3 million of interest expense related to the amortization of debt issuance costs and $1.2 million related to the interest payable on the notes.
Each $1,000 of principal of the Notes will initially be convertible into 16.2165 shares of the Companys common stock, which is equivalent to an initial conversion price of approximately $61.67 per share, subject to adjustment upon the occurrence of specified events. Holders of the Notes may convert their Notes at their option at any time prior to maturity. Upon conversion, the Company would deliver shares of common stock based on a calculated conversion value. If specific corporate events occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances. The maximum conversion rate is capped at 21.4868 shares for each $1,000 of principal amount of the notes, which is equivalent to a minimum conversion price of approximately $46.54 per share. The Notes do not have a cash conversion option. The Notes holders may require the Company to repurchase the notes for cash only under certain events of default as defined in the offering documents.
14. Solar Asset-backed Notes and Securitization
In November 2013, the Company pooled and transferred qualifying solar energy systems and associated customer contracts into a special purpose entity, or SPE, and issued $54,425,000 aggregate principal amount of Solar Asset Backed Notes, Series 2013-1 with a scheduled maturity date of December 2026 (the Solar Asset-backed Notes) backed by these solar assets to certain investors. The SPE is wholly owned by the Company and is consolidated in the Companys financial statements. Accordingly the Company did not recognize a gain or loss on transfer of these assets. The Solar Asset-backed Notes issued during the year had an aggregate principal amount of $54.4 million and were issued at a discount of 0.05%. The Solar Asset-backed Notes bear interest at a fixed rate of 4.80% per annum and have a final maturity date of November 20, 2038. The cash flows generated by the assets in the SPEs are used to service the monthly Solar Asset-backed Notes principal and interest payments, meet the SPEs expenses and any residue returns are distributed to a wholly owned subsidiary of the Company. The Company recognizes revenue earned from the customer leases or power purchase agreements associated with the solar energy systems transferred to the SPE in accordance with the Companys revenue recognition policy. The assets and cash flows generated by the securitized solar energy systems are not available to the creditors of the Company. The creditors of the SPE, including the Solar Asset-backed Notes holders, have no recourse to the Company. The Company has been contracted by the SPE to provide operations and maintenance services for the solar energy systems. As of December 31, 2013, $52.9 million of the Solar Asset-backed Notes were outstanding, of which $49.8 million is disclosed in the consolidated balance sheet as non-current and the balance as current. The SPE was in compliance with the notes covenants as of December 31, 2013.
113
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
In connection with the pooling of the assets that were transferred to the SPE, the Company terminated a lease pass-through arrangement with an investor. The lease pass-through arrangement had been accounted for as a borrowing and any amounts outstanding from the arrangement were reported as lease pass-through financing obligation as further explained in Note 16, Lease Pass-Through Financing Obligation. The balance that was then outstanding under this arrangement recorded as a component of lease pass-through financing obligation was $56.4 million. The Company paid the investor an aggregate amount of $40.2 million and issued the investor a right to participate in the residual returns of the SPE for the balance of the remaining unsettled lease pass-through financing obligation. This right to participate in the future residual returns of the SPE has been disclosed as a component of other liabilities and deferred credits for the noncurrent portion (see Note 10, Other Liabilities) and as a component of accrued and other current liabilities for the current portion (see Note 9, Accrued and Other Current Liabilities) under the caption participation interest. In addition, under the terms of the participation interest, the Company has the option to purchase the participation interest from the investor and the investor has the option to sell the participation interest to the Company on a specified date for the amount necessary for the investor to achieve a specified internal rate of return.
The Company accounted for the termination of the lease pass-through obligation as a modification of debt and did not record any gain or loss on the modification. As of December 31, 2013, the Company had a balance of $15.8 million outstanding on the participation interest, of which $14.1 million has been recorded as a component of other liabilities and deferred credits and the balance of $1.7 million has been recorded as a component of accrued and other current liabilities.
15. VIE Arrangements
The Company has entered into various arrangements with investors to facilitate funding and monetization of solar energy systems. These arrangements include those described in this Note 15, VIE Arrangements, as well as those described in Note 16, Lease Pass-through Financing Obligation, Note 17, Sale-Leaseback Arrangements, and Note 18, Sale-Leaseback Financing Obligation.
Wholly owned subsidiaries of the Company and fund investors formed and contributed cash or assets to various solar financing funds and entered into related agreements. Additionally, the Company acquired the assets of a fund through a business combination in September 2013 and assumed the related contractual arrangements. As of December 31, 2013, the VIE investors had contributed $905.0 million into the VIEs.
The Company has determined it is the primary beneficiary of these VIEs by reference to the power and benefits criterion under ASC 810, Consolidation. The Company has considered the provisions within the contractual arrangements, which grant it power to manage and make decisions that affect the operation of these VIEs, including determining the solar energy systems and associated customer leases to be sold or contributed to the VIE, preparation and approval of budgets. The Company considers that the rights granted to the other investors under the contractual arrangements are more protective in nature rather than participating rights.
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 funds, and all intercompany balances and transactions between the Company and the financing funds are eliminated in the consolidated financial statements.
Under the related agreements, cash distributions of income and other receipts by a fund, net of agreed-upon expenses, estimated expenses, tax benefits and detriments of income and loss and tax benefits of tax credits, are allocated to the fund investor and the Companys subsidiary as specified in contractual arrangements.
114
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Generally, the Companys subsidiary has the option to acquire the investors interest at amounts based on the market value or an amount based on the formula specified in the agreements.
On December 31, 2012, the Company acquired one investors interest in three separate funds for a total cash consideration of $8.8 million. In these three funds, the Company was contractually required to make payments to the investor to ensure that the investor achieved a specified minimum internal rate of return upon occurrence of certain events. Upon the purchase of the investors stake in these funds, this obligation was satisfied.
As of December 31, 2013, the Company was contractually required to make payments to an investor in one of the VIE funds to ensure the investor was projected to achieve a specified minimum return annually. The amounts of potential future payments under these guarantees is dependent on the amounts and timing of future distributions to the investor from the funds, the tax benefits that accrue to the investor from the funds activities and the timing and amounts that the Company would pay to the investor if the Company purchased the investors stake in the funds, or timing and amounts of the distributions to the investor upon liquidation of the funds. Due to uncertainties associated with estimating the timing and amount of distributions to the investor and the possibility for and timing of the liquidation of the funds, the Company is unable to determine the potential maximum future payments that it would have to make under these guarantees.
Upon the sale or liquidation of the fund, distributions would occur in the order and priority specified in the contractual agreements.
Pursuant to management services, maintenance and warranty arrangements, the Company has been contracted to provide services such as warranty support, accounting, lease servicing and performance reporting. In some instances, the Company has guaranteed payments to the fund investors as specified in the contractual agreements. The funds creditors have no recourse to the general credit of the Company or to that of other funds. As of December 31, 2013, the assets of one of the VIEs with a carrying value of $28.7 million have been pledged as collateral for the VIEs borrowings under the SolarStrong facility. None of the assets of the other VIEs have been pledged as collateral for the VIEs obligations.
The Company reports the solar energy systems in the VIEs under the solar energy systems, leased and to be leased, net, in the consolidated balance sheets.
115
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The Company has aggregated the financial information of the VIE financing funds in the table below. The aggregate carrying values of the funds assets and liabilities (after elimination of intercompany transactions and balances) in the Companys consolidated balance sheets as of December 31, 2013 and 2012, were as follows (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Assets |
(Restated | ) | ||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 35,141 | $ | 16,065 | ||||
Restricted cash |
115 | 167 | ||||||
Accounts receivable net |
4,802 | 1,681 | ||||||
Rebates receivable |
17,351 | 8,985 | ||||||
Prepaid expenses and other current assets |
3,831 | 2,603 | ||||||
|
|
|
|
|||||
Total current assets |
61,240 | 29,501 | ||||||
Solar energy systems, leased and to be leased net |
759,148 | 522,684 | ||||||
Other assets |
2,777 | 2,800 | ||||||
|
|
|
|
|||||
Total assets |
$ | 823,165 | $ | 554,985 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | | $ | 9 | ||||
Distributions payable to noncontrolling interests and redeemable noncontrolling interests |
20,390 | 12,028 | ||||||
Current portion of deferred U.S. Treasury grants income |
6,668 | 6,710 | ||||||
Accrued and other current liabilities |
615 | 938 | ||||||
Customer deposits |
5,291 | 4,162 | ||||||
Current portion of deferred revenue |
13,754 | 11,324 | ||||||
Current portion of bank borrowings |
251 | 131 | ||||||
|
|
|
|
|||||
Total current liabilities |
46,969 | 35,302 | ||||||
Deferred revenue, net of current portion |
206,324 | 160,093 | ||||||
Bank borrowings, net of current portion |
5,482 | 2,585 | ||||||
Deferred U.S. Treasury grants income, net of current portion |
180,566 | 184,470 | ||||||
Other liabilities |
1,893 | | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 441,234 | $ | 382,450 | ||||
|
|
|
|
The Company is contractually obligated to make certain VIE investors whole for losses that the investors may suffer in certain limited circumstances resulting from the disallowance or recapture of tax credits or U.S. Treasury grants in lieu of tax credits, including in the event that the U.S. Treasury awards cash grants for the solar energy systems in the VIEs that are less than the amounts initially anticipated. The Company accounts for distributions due to the VIE investors that may arise from the reduction in anticipated U.S. Treasury grants under distributions payable noncontrolling interests and redeemable noncontrolling interests in the consolidated balance sheets. As of December 31, 2013, the Company has accrued as a distribution payable of $7.8 million, related to these obligations.
For one VIE fund, the Company estimated a reduction in the U.S. Treasury grants to be received of $22.9 million through December 31, 2012. In this particular VIE fund, the Company was obligated to contribute additional capital in the form of solar energy systems or cash to purchase additional solar energy systems. As of December 31, 2012, the Company had contributed solar energy systems to cover a substantial portion of the reduction in U.S. Treasury grants. Additionally, the Company contributed $5.1 million in cash as capital to the fund that was then distributed to the investor to cover the balance of the shortfalls and the impact of amendments to the contractual documents that revised certain of the future income and loss allocations between the Company and the investor.
116
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
16. Lease Pass-Through Financing Obligation
Through December 31, 2013, the Company entered into seven transactions referred to as lease pass-through fund arrangements. Under these arrangements, the Companys wholly owned subsidiaries finance the cost of solar energy systems with investors for an initial term ranging between 10 and 25 years. These solar energy systems are subject to lease or power purchase agreements with customers with an initial term not exceeding 20 years. These solar energy systems are reported under the line item solar energy systems, leased and to be leased, net, in the consolidated balance sheets. As discussed in Note 14, Solar Asset-backed Notes and Securitization, in November 2013, in connection with the Company pooling assets for purposes of issuing Solar Asset-backed Notes, the Company terminated a lease pass-through arrangement with an investor. The cost of the solar energy systems under the lease pass-through arrangements as of December 31, 2013 and 2012 was $420.4 million and $251.8 million (restated), respectively. The accumulated depreciation related to these assets as of December 31, 2013 and 2012 amounted to $17.6 million and $10.1 million (restated), respectively.
The investors make a large upfront payment to the lessor, which is a subsidiary of the Company, and in some cases, subsequent smaller quarterly payments. The Company accounts for the payments received from the investors under the arrangement as a borrowing by recording the proceeds received as a lease pass-through financing obligation, which would be repaid from U.S. Treasury grants (where applicable), customer payments and incentive rebates that would be received by the investors. Under this approach the Company continues to account for the arrangement with the customers in its consolidated financial statements, whether the cash generated from the customer arrangements is received by the Company or paid directly to the investor. A portion of the amounts received by the investors from U.S. Treasury grants (where applicable), customer payments and incentive rebates associated with the leases assigned to the lease pass-through investor is applied to reduce the lease pass-through financing obligation, and the balance allocated to interest expense. The incentive rebates and host customer payments are recognized into revenue consistent with the Companys revenue recognition accounting policy. The U.S. Treasury grants are initially recorded as deferred U.S. Treasury grants income and subsequently recognized as a reduction to the depreciation expense, consistent with the Companys accounting policy for recognition of U.S. Treasury grant income. Interest is calculated on the financing obligation using the effective interest rate method. The effective interest rate is the interest rate that equates the present value of the cash amounts to be received by an investor over the master lease term with the present value of the cash amounts paid by the investor to the Company, adjusted for any payments made by the Company. The lease pass-through obligation is nonrecourse once the associated assets have been placed in service and all the contractual arrangements have been assigned to the investor.
As of December 31, 2013, future minimum lease payments to be received from the investors under the lease pass-through fund arrangements for each of the next five years and thereafter are as follows (in thousands):
2014 |
$ | 30,112 | ||
2015 |
22,417 | |||
2016 |
22,190 | |||
2017 |
22,315 | |||
2018 |
22,358 | |||
Thereafter |
87,136 | |||
|
|
|||
Total |
$ | 206,528 | ||
|
|
For two of the lease pass-through arrangements, the Companys subsidiary has pledged its assets to the investor as security for its obligations under the contractual agreements.
117
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
For each of the lease pass-through arrangements, the Company is required to comply with certain financial covenants specified in the contractual arrangements, which the Company had met as of December 31, 2013.
Under these arrangements, the Companys subsidiaries are responsible for services such as warranty support, accounting, lease servicing and performance reporting. The performance of the obligations of the Companys subsidiary is guaranteed by the Company. As part of the warranty and performance guarantee with the host customers, the Company guarantees certain specified minimum annual solar energy production output for the solar energy systems leased to the customers.
Under the contractual terms of the lease pass-through arrangements there is a one-time future lease payment reset mechanism that is set to occur after all of the solar energy systems are delivered and placed in service in a fund. This reset date occurs when the installed capacity of the solar energy systems and in service placement dates are known or on an agreed upon date. As part of this reset process, the lease prepayment will be updated to reflect certain specified conditions as they exist at such date, including the ultimate system size of the equipment that was leased, how much it cost and when it went into service. As a result of this reset, the Company may be obligated to refund a portion of the investors lease prepayments or may be entitled to receive an additional lease prepayment from the investor. Additional payments by the investor would be recorded as additional lease pass-through financing obligation, while refunds of lease prepayments would reduce the lease pass-through financing obligation.
17. Sale-Leaseback Arrangements
In 2010, the Company executed a sale-leaseback arrangement with an existing investor, under which a wholly owned subsidiary of the Company entered into a 15-year master leaseback arrangement. The assets sold to the investor were valued at $25.2 million. The Companys subsidiary leased the solar energy systems to end-user customers. The obligations of the Companys subsidiary to the investor for this arrangement together with a funding arrangement entered into in 2009 with the same investor are guaranteed by the Company and supported by a $1.25 million restricted cash escrow. The amount in escrow is reduced by $0.25 million per annum in each of the first four years commencing in 2010, and the remaining balance remains in place until the end of the master lease period. Under this arrangement, the Companys subsidiary is responsible for services such as warranty support, accounting, lease servicing and performance reporting.
As of December 31, 2013 and 2012, the Company had contributed assets with a cost of $44.6 million to its wholly owned subsidiary that in turn sold the assets to a new investor and then executed a 15-year master leaseback agreement with the investor. Under this arrangement, the tax benefits from ITCs or Treasury grants in lieu of tax credits inure to the investor as the owner of the assets. A total of $100 million in financing was available from the investor under this fund arrangement in the form of proceeds from the sale of the assets, which had been utilized by December 31, 2013.
The Company has committed to make certain investors that have executed sale-leaseback arrangements with the Company whole for any reductions in the tax credit or U.S. Treasury awards resulting from changes in the tax basis submitted. The Company accrues any such payments due to these investors. As of December 31, 2013, no such amounts were due to these investors.
The Company has accounted for these sale-leaseback arrangements in accordance with the Companys accounting policy as described in Note 2, Summary of Significant Accounting Policies and Procedures.
118
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
18. Sale-Leaseback Financing Obligation
In November 2009, the Company entered into an arrangement with an investor to finance the development, construction and installation of a ground mounted solar system that was leased to a customer. The Company also entered into an agreement to sell the system to the investor for a cash consideration of $27.2 million, of which $23.7 million was received prior to December 31, 2013 and the balance of $3.5 million is receivable at the end of the lease period and accrues interest at an annual rate of 4.37%. Concurrent with the sale, a subsidiary of the Company entered into an agreement with the investor to lease back the solar energy system from the investor with lease payments being made on a quarterly basis. The Companys subsidiary has the option to purchase the system at the end of the lease term of 10 years for a price which is the greater of the fair market value or a predetermined agreed upon value. Additionally, the investor has the option to put its interest in the solar system to the Company within two years following the expiry of six years after placement in service of the solar system, for a value that is the greater of the fair value or a predetermined agreed upon value. As a result of these put and call options, the Company has concluded that it has a continuing involvement with the solar energy system.
The Company has determined that the ground mounted solar energy system qualifies as integral equipment and therefore as a real estate transaction under ASC 360-20, Real Estate Sales, and has been accounted for as a financing. Under the financing method, the receipts from the tax equity investor are reflected as a sale-leaseback financing obligation on the consolidated balance sheets, and the Company retains the solar energy system asset on the consolidated balance sheets within solar energy systems and depreciates the solar energy system over its estimated useful life of 30 years. The Company also continues to report all of the results of the operations of the system, with the revenue and expenses from the system operations being presented on the consolidated statements of operations on a gross basis. As of December 31, 2013, the balance of the sale-leaseback financing obligation outstanding was $14.8 million, of which $0.4 million has been classified as current and the balance of $14.4 million has been classified as noncurrent. As of December 31, 2012, the balance of the sale-leaseback financing obligation outstanding was $15.2 million, of which $0.4 million has been classified as current and the balance of $14.8 million has been classified as noncurrent.
As of December 31, 2013, future minimum annual rentals to be received from the customer for each of the next five years and thereafter are as follows (in thousands):
2014 |
$ | 466 | ||
2015 |
475 | |||
2016 |
485 | |||
2017 |
494 | |||
2018 |
504 | |||
Thereafter |
3,242 | |||
|
|
|||
Total |
$ | 5,666 | ||
|
|
The amounts in the table above are also included as part of the noncancelable operating lease payments from customers disclosed in Note 5, Noncancelable Operating Lease Payments Receivable.
119
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
As of December 31, 2013, future minimum annual payments to be paid to the investor under the financing arrangement for each of the next five years and thereafter are as follows (in thousands):
2014 |
$ | 1,251 | ||
2015 |
1,257 | |||
2016 |
1,264 | |||
2017 |
1,270 | |||
2018 |
1,277 | |||
Thereafter |
1,284 | |||
|
|
|||
Total |
$ | 7,603 | ||
|
|
The obligations of the Companys subsidiary to the investor together with the obligations of the Companys subsidiary under the sale-leaseback fund arrangement discussed in Note 18, Sale-Leaseback Financing Obligation, are guaranteed by the Company and supported by a $1.25 million restricted cash escrow that reduces by $0.25 million per annum for the first four years and remains in place until the end of the master lease period. As of December 31, 2013, $0.25 million was held as restricted cash.
19. Redeemable Noncontrolling Interests in Subsidiaries
Noncontrolling interests related to VIE arrangements that are redeemable at the option of the holder are classified as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet between liabilities and stockholders equity. Redeemable noncontrolling interests are reported using the hypothetical liquidation at book value method, but not less than their estimated redemption value in each reporting period. The following represents the activity of the redeemable noncontrolling interest in subsidiaries for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands):
Balance, January 1, 2011 as previously reported |
$ | | ||
Balance, January 1, 2011 adjustment |
66,064 | |||
|
|
|||
Balance, January 1, 2011 as restated |
66,064 | |||
Contributions from noncontrolling interests as restated |
38,709 | |||
Net loss as restated |
(30,097 | ) | ||
Distributions to noncontrolling interests as restated |
(52,368 | ) | ||
|
|
|||
Balance, December 31, 2011 as restated |
22,308 | |||
Contributions from noncontrolling interests as restated |
46,293 | |||
Net loss as restated |
8,696 | |||
Distributions to noncontrolling interests as restated |
(54,714 | ) | ||
Acquisition of noncontrolling interest in subsidiaries as restated |
(9,756 | ) | ||
|
|
|||
Balance, December 31, 2012 as restated |
12,827 | |||
Contributions from noncontrolling interests |
172,913 | |||
Net loss |
(118,854 | ) | ||
Noncontrolling interest arising from acquisition of Paramount Energy |
549 | |||
Distributions to noncontrolling interests |
(22,726 | ) | ||
|
|
|||
Balance, December 31, 2013 |
$ | 44,709 | ||
|
|
120
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
20. Convertible Redeemable Preferred Stock, Warrant Liability and Stockholders Equity
Convertible Redeemable Preferred Stock
Prior to its initial public offering of common stock, the Company had 12.0 million shares designated Series A convertible redeemable preferred stock, 5.0 million shares designated Series B convertible redeemable preferred stock, 9.2 million shares designated Series C convertible redeemable preferred stock, 5.8 million shares designated Series D convertible redeemable preferred stock, 4.4 million shares designated Series E convertible redeemable preferred stock, 3.4 million shares designated Series E-1 convertible redeemable preferred stock, 2.1 million shares designated Series F convertible redeemable preferred stock and 3.4 million shares designated Series G convertible redeemable preferred stock. All outstanding shares of preferred stock converted to 50.4 million shares of common stock upon the closing of the Companys initial public offering of common stock on December 18, 2012.
Preferred Stock Warrant Liability
In connection with the issuance of the convertible bridge notes in July 2007, in August 2007 the Company issued warrants to the note holders to purchase 124,924 shares of the Companys Series C convertible redeemable preferred stock at a purchase price of $2.40 per share. The warrants were to expire at the earlier of five years from the date of their issuance or any change of control, or the initial public offering of the Companys common stock. These warrants were exercised in August 2012.
During 2010, the Company issued warrants to a fund investor to purchase 995,006 shares of Series E convertible redeemable preferred stock at an exercise price equal to $5.41 per share, in connection with VIE fund arrangement (see Note 15, VIE Arrangements). In 2011, in connection with the amendment of this funding arrangement to increase the amount that would be contributed by the tax equity investor from $120 million to $218 million, and to extend the time period to complete the construction and placement in service of the solar energy systems, the Company issued warrants to the fund investor to purchase a further 490,004 shares of Series E convertible redeemable preferred stock at an exercise price equal to $5.41 per share. These warrants were converted to common stock warrants upon the closing of the Companys initial public offering of its common stock on December 18, 2012. On May 8, 2013, the investor exercised the warrants and purchased 1,485,010 shares of the Companys common stock for $8.0 million.
In June 2011, in connection with the issuance of 2.0 million shares of Series F convertible redeemable preferred stock, the Company issued warrants to the investors to acquire 0.2 million shares of Series F convertible redeemable preferred stock, with an exercise price of $9.68 per share. In November 2012, warrants to acquire 8,076 shares of Series F convertible redeemable preferred stock were exercised by an investor, while the remaining warrants expired unexercised upon the closing of the Companys initial public offering of its common stock on December 18, 2012.
As discussed in Note 2, Summary of Significant Accounting Policies and Procedures, the Company accounted for the warrants in accordance with ASC 480 as a liability carried at fair value. The warrants were subject to revaluation at each balance sheet date and any change in fair value was recognized as a component of other expense. The Company determined the fair value of these warrants using the Black-Scholes option-pricing model. The Company adjusted the warrant liability for changes in fair value until the earlier of the exercise of the warrants or upon the conversion of the preferred stock warrants into common stock warrants.
121
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Common Stock
At the inception of the Company in June 2006, the founders were issued four million shares of common stock at an issuance price of $0.0001 per share.
On December 18, 2012, the Company closed its initial public offering of its common stock and issued 11,434,988 shares of common stock at a price of $8.00 per share. On December 20, 2012, the Company issued an additional 1,725,000 shares of common stock at a price of $8.00 per share pursuant to the underwriters exercise of their over-allotment option. The net proceeds realized was $92.4 million net of underwriters discounts and commissions and offering costs of $12.9 million.
On May 8, 2013, a fund investor exercised its warrants to purchase 1,485,010 shares of the Companys common stock for $8.0 million.
On September 6, 2013, the Company issued 3,674,565 shares of its common stock pursuant to its acquisition of the assets of Paramount Energy (see Note 3, Acquisitions).
On October 21, 2013, the Company issued 3,910,000 shares of its common stock in a secondary public offering for aggregate proceeds of $174.1 million, net of underwriting discounts and offering expenses.
On December 11, 2013, the Company issued 2,751,782 shares of its common stock pursuant to its acquisition of Zep Solar (see Note 3, Acquisitions).
Shares Reserved for Future Issuance
The Company had reserved shares of common stock for future issuance as follows (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Stock-based compensation plans: |
||||||||
Awards available for grant |
8,466 | 8,490 | ||||||
Awards outstanding |
13,969 | 14,920 | ||||||
Employee Stock Purchase Plan |
1,300 | 1,300 | ||||||
Common stock warrants outstanding |
| 1,485 | ||||||
Convertible senior notes outstanding |
4,942 | | ||||||
|
|
|
|
|||||
Total |
28,677 | 26,195 | ||||||
|
|
|
|
21. Equity Award Plans
Stock Options
Under the Companys 2012 Equity Incentive Plan, the Company may grant incentive stock options and nonstatutory stock options for common stock to employees, directors and consultants. Stock options may be granted at an exercise price per share not less than 100% of the fair market value per share on the grant date. If an incentive stock option is granted to a 10% or greater stockholder, then the exercise price per share shall not be less than 110% of the fair market value per share on the grant date. Stock options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years.
122
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
In September 2012, the Company adopted a director compensation plan for future non-employee directors. Under the director compensation plan, each individual who joins the board of directors as a non-employee director following the adoption of the plan receives an initial stock option grant to purchase 30,000 shares of common stock at the time of initial election or appointment and additional triennial stock option grants to purchase 15,000 shares of common stock, as well as an annual cash retainer of $15,000, all of which are subject to continued service on the board of directors. Such non-employee directors who serve on committees of the board of directors receive various specified additional equity awards and cash retainers.
Pursuant to the acquisition of Zep Solar, the Company assumed the Zep Solar, Inc. 2010 Equity Incentive Plan, or Zep Solar Plan, and issued fully vested stock options to purchase 303,151 shares of the Companys common stock to replace certain fully vested stock options originally issued by Zep Solar. No additional equity awards were or will be granted under the Zep Solar Plan.
A summary of stock option activity is as follows (in thousands, except per share amounts):
Options | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding January 1, 2011 |
9,746 | $ | 1.49 | 7.39 | $ | 18,570 | ||||||||||
Granted (weighted-average fair value of $5.035) |
7,043 | 5.035 | | | ||||||||||||
Exercised |
(1,489 | ) | 0.73 | | | |||||||||||
Canceled |
(1,427 | ) | 2.435 | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding December 31, 2011 |
13,873 | 3.28 | 8.22 | 37,606 | ||||||||||||
Granted (weighted-average fair value of $11.08) |
3,082 | 11.08 | | | ||||||||||||
Exercised |
(902 | ) | 1.91 | | | |||||||||||
Canceled |
(1,150 | ) | 5.55 | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding December 31, 2012 |
14,903 | 4.80 | 7.67 | 107,653 | ||||||||||||
Granted (weighted-average fair value of $27.55) |
4,364 | 39.02 | | | ||||||||||||
Issued in connection with a business acquisition (weighted-average fair value of $49.13) |
303 | 1.97 | | | ||||||||||||
Exercised |
(4,260 | ) | 3.65 | | | |||||||||||
Canceled |
(1,361 | ) | 15.30 | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding December 31, 2013 |
13,949 | $ | 14.77 | 7.52 | $ | 586,740 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options vested and exercisable December 31, 2011 |
5,044 | $ | 1.85 | 7.45 | $ | 20,823 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options vested and exercisable December 31, 2012 |
7,374 | $ | 2.73 | 6.89 | $ | 67,864 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options vested and exercisable December 31, 2013 |
6,696 | $ | 4.62 | 6.54 | $ | 349,523 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options vested and expected to vest December 31, 2011 |
13,834 | $ | 3.27 | 8.21 | $ | 37,502 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options vested and expected to vest December 31, 2012 |
13,940 | $ | 4.61 | 7.60 | $ | 103,187 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options vested and expected to vest December 31, 2013 |
12,828 | $ | 13.53 | 7.41 | $ | 555,412 | ||||||||||
|
|
|
|
|
|
|
|
123
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The aggregate intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $149.7 million, $9.0 million and $5.4 million, respectively. The grant date fair market value of options that vested, excluding the fully vested options assumed in connection with the Zep Solar acquisition, in 2013, 2012 and 2011 was $28.3 million, $13.3 million and $3.9 million, respectively. The fair market value of the fully vested options assumed in connection with the Zep Solar acquisition was $14.9 million.
As of December 31, 2013 and 2012, there was $103.0 million and $30.0 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested stock options, which are expected to be recognized over the weighted-average period of 2.74 years and 2.62 years, respectively.
Under ASC 718, the Company estimates the fair value of stock options granted on each grant date using the Black-Scholes option valuation model and applies the straight-line method of expense attribution. The fair values were estimated on each grant date with the following weighted-average assumptions:
Year Ended December 31, | ||||||
2013 | 2012 | 2011 | ||||
Dividend yield |
0% | 0% | 0% | |||
Annual risk-free rate of return |
1.45% | 1.07% | 1.95% | |||
Expected volatility |
92.86% | 89.52% | 87.26% | |||
Expected term (years) |
6.06 | 6.19 | 6.09 |
The expected volatility was calculated based on the average historical volatilities of publicly traded peer companies determined by the Company. The risk-free interest rate used was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend yield was zero, as the Company does not anticipate paying a dividend within the relevant time frame. The expected term has been estimated using the simplified method allowed under ASC 718.
Restricted Stock Units
The Company began granting restricted stock units, or RSUs, to employees, directors and consultants in 2012 under the Companys 2012 Equity Incentive Plan. A summary of RSU activity is as follows (in thousands, except per share amounts):
Number of Shares |
Weighted- Average Fair Value |
Aggregate Intrinsic Value |
||||||||||
Outstanding January 1, 2012 |
| $ | | $ | | |||||||
Granted |
17 | 18.48 | 314 | |||||||||
|
|
|
|
|
|
|||||||
Outstanding December 31, 2012 |
17 | 18.48 | 314 | |||||||||
Granted |
17 | 35.00 | 598 | |||||||||
Released |
(14 | ) | 50.18 | 695 | ||||||||
|
|
|
|
|
|
|||||||
Outstanding December 31, 2013 |
20 | $ | 25.46 | $ | 1,149 | |||||||
|
|
|
|
|
|
|||||||
Expected to vest December 31, 2013 |
18 | $ | 50.18 | $ | 1,017 | |||||||
|
|
|
|
|
|
The grant date fair value of RSUs released in 2013 was $0.4 million. Under ASC 718, the Company determines the fair value of RSUs granted on each grant date based on the fair value of the Companys common stock on the grant date and applies the straight-line method of expense attribution. Stock-based compensation
124
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
expense from RSUs for the years ended December 31, 2013 and 2012 was $0.4 million and $0.1 million, respectively. As of December 31, 2013 and 2012, there was $0.5 million and $0.3 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, from RSUs, which are expected to be recognized over the weighted-average period of 1.99 years and 3.71 years, respectively.
Stock-Based Compensation Expense
As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of equity awards and adjust stock-based compensation expense accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock-based compensation expenses to be recognized in future periods.
The amount of stock-based compensation expense recognized during the years ended December 31, 2013, 2012 and 2011 was $27.9 million, $11.2 million (restated) and $5.1 million, respectively. The Company capitalized costs of $7.0 million, $2.7 million and $1.4 million in the years ended December 31, 2013, 2012 and 2011, respectively, as a component of work-in-progress within inventory or solar energy systems, leased and to be leased.
Stock-based compensation expense is included in cost of revenue and operating expenses as follows (in thousands):
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 | ||||||||||
Cost of revenue |
$ | 741 | $ | 470 | $ | 151 | ||||||
Sales and marketing |
$ | 4,003 | $ | 1,316 | $ | 443 | ||||||
General and administrative |
$ | 16,183 | $ | 6,652 | $ | 3,040 |
22. Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the then enacted tax rate that is expected to be applicable to taxable income in the years in which the differences are expected to be reversed.
The following table presents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands):
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 | ||||||||||
United States |
$ | (272,603 | ) | $ | (128,119 | ) | $ | 43,595 | ||||
Noncontrolling interest and redeemable noncontrolling interests |
95,968 | 14,391 | (117,230 | ) | ||||||||
Foreign |
78 | 56 | 13 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (176,557 | ) | $ | (113,672 | ) | $ | (73,622 | ) | |||
|
|
|
|
|
|
125
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
The income tax provision (benefit) is composed of the following (in thousands):
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 10 | $ | 10 | $ | (26 | ) | |||||
State |
80 | 16 | 107 | |||||||||
Foreign |
26 | 15 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total Current Provision |
116 | 41 | 85 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
(22,691 | ) | 12 | $ | 7 | |||||||
State |
(2,224 | ) | 1 | | ||||||||
Foreign |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total Deferred Provision |
(24,915 | ) | 13 | 7 | ||||||||
|
|
|
|
|
|
|||||||
Total (benefit) provision for income taxes |
$ | (24,799 | ) | $ | 54 | $ | 92 | |||||
|
|
|
|
|
|
The following table presents a reconciliation of the statutory federal rate and the Companys effective tax rate for the periods presented:
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 | ||||||||||
Tax provision (benefit) at federal statutory rate |
(34.00)% | (34.00)% | (34.00)% | |||||||||
State income taxes (net of federal benefit) |
(0.88) | (1.43) | (4.59) | |||||||||
Foreign income and withholding taxes |
1.41 | 0.00 | 0.00 | |||||||||
Noncontrolling interests and redeemable noncontrolling interests adjustment |
(16.62) | (32.03) | 19.38 | |||||||||
Investment in solar funds |
36.20 | 35.84 | 6.34 | |||||||||
Stock-based compensation |
1.77 | 2.07 | 1.48 | |||||||||
ASC 810 prepaid tax expense |
(1.39) | 0.00 | 0.16 | |||||||||
Purchase accounting adjustment |
0.00 | 21.24 | 0.00 | |||||||||
Other |
(3.74) | 1.05 | 1.11 | |||||||||
Tax Credits |
(1.75) | 0 | 0 | |||||||||
Change in valuation allowance |
4.96 | 7.30 | 10.24 | |||||||||
|
|
|
|
|
|
|||||||
Effective tax rate |
(14.04)% | 0.04% | 0.12% | |||||||||
|
|
|
|
|
|
126
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents significant components of the Companys deferred tax assets and liabilities for the periods presented (in thousands):
December 31, | ||||||||
2013 | 2012 (Restated) |
|||||||
Deferred tax assets: |
||||||||
Accruals and reserves |
$ | 12,693 | $ | 7,498 | ||||
Net operating losses |
119,790 | 76,185 | ||||||
Accelerated gain on assets |
27,712 | 29,185 | ||||||
Investment in solar funds |
69,273 | 24,443 | ||||||
Tax rebate revenue |
47,360 | 39,739 | ||||||
Stock-based compensation |
5,873 | 2,192 | ||||||
Other deferred tax assets |
1,924 | | ||||||
Tax credits |
4,577 | 1,404 | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
289,202 | 180,646 | ||||||
Valuation allowance |
(59,902 | ) | (57,977 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
229,300 | 122,669 | ||||||
Deferred tax liabilities: |
||||||||
Depreciation and amortization |
(125,765 | ) | (81,172 | ) | ||||
Investment in solar funds |
(69,203 | ) | (21,752 | ) | ||||
Other deferred tax liabilities |
(33,725 | ) | (19,765 | ) | ||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(228,693 | ) | (122,689 | ) | ||||
|
|
|
|
|||||
Net deferred taxes |
$ | 607 | $ | (20 | ) | |||
|
|
|
|
An analysis of current and noncurrent deferred tax assets and liabilities is as follows:
December 31, | ||||||||
2013 | 2012 (Restated) |
|||||||
Current: |
||||||||
Deferred tax assets |
$ | 12,940 | $ | 8,791 | ||||
Less: valuation allowance |
(3,095 | ) | (3,168 | ) | ||||
|
|
|
|
|||||
Net current deferred tax assets |
$ | 9,845 | $ | 5,623 | ||||
Noncurrent: |
||||||||
Deferred tax assets |
$ | 274,588 | $ | 170,893 | ||||
Deferred tax liabilities |
(227,021 | ) | (121,727 | ) | ||||
Total noncurrent gross deferred tax assets |
47,567 | 49,166 | ||||||
Less: valuation allowance |
(56,805 | ) | (54,809 | ) | ||||
|
|
|
|
|||||
Net noncurrent deferred tax liabilities |
$ | (9,238 | ) | $ | (5,643 | ) | ||
|
|
|
|
The above tables reflect changes to the 2012 balances to reflect comparability in presentation for material deferred items separately disclosed in 2013.
As of December 31, 2013 and 2012, the Company had federal NOL carryforwards of approximately $419.8 million and $178.3 million (as restated), respectively. The NOL carryforwards expire at various dates
127
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
beginning in 2026 if not utilized. In addition, the Company had NOLs for California income tax purposes of approximately $186.1 million and $58.1 million (as restated), as of December 31, 2013 and 2012, respectively, which expire at various dates beginning in 2020 if not utilized. The Company also had NOLs for other state income tax purposes of approximately $77.2 million and $23.3 million (as restated), as of December 31, 2013 and 2012, respectively, which expire at various dates beginning in 2015 if not utilized. Included in the Federal, California and other state NOL carryovers above, $99.1 million, $45.9 million and $22.6 million, respectively, relate to stock option windfall deductions which, when realized, will be credited to equity.
After January 1, 2013 the State of California allows a NOL to be carried back two years. The carryback provisions apply even where a NOL deduction is suspended pursuant to the State of California tax law in the carryback tax year. Included in the California NOL carryover amount was $11.0 million that will be carried back to the 2011 tax year. A deferred tax asset of $0.6 million was recognized as of December 31, 2013.
As of December 31, 2013 and 2012, the Company had federal business tax credit carryforwards of approximately $1.6 million and $0.8 million (as restated), respectively. The net business tax credit carryforward begins to expire in 2028 if not utilized. As of December 31, 2013 and 2012, the Company had California business tax credit carryforwards of approximately $0.2 million and nil (as restated), respectively. As of December 31, 2013, the Company had foreign tax credit carryforwards of approximately $2.5 million, which begins to expire in 2023 if not utilized.
In December 2013, the Company acquired Zep Solar, a designer and supplier of mounting solutions for solar energy systems photovoltaic panels. The purchase consideration for the acquisition of Zep Solar which comprised cash and stock was $157.8 million. The Company recorded a total of $86.0 million of intangible assets and $97.9 million of goodwill as a result of its acquisition of Zep Solar. For GAAP purposes, the intangible assets are being amortized over a weighted-average life of approximately seven years. The goodwill associated with this acquisition is not deductible for income tax purposes. The Company also recorded a net $24.8 million of long-term deferred tax liabilities that were primarily related to the acquired intangible assets and NOLs which will provide the Company a future source of taxable income. The recording of the deferred tax liability triggered the subsequent release of deferred tax valuation allowance which was accounted for outside of the Zep Solar purchase accounting. Accordingly, the Company released $24.8 million of its deferred tax asset valuation allowance subsequent to the acquisition, which was recognized as a benefit of income taxes during 2013.
The Companys valuation allowance increased by approximately $1.9 million for the year ended December 31, 2013 and increased by approximately $8.3 million (as restated) for the year ended December 31, 2012. The increase in the valuation allowance was primarily related to the operating losses. The valuation allowance is determined in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Based on the available objective evidence and the Companys history of losses, management believes it is more likely than not that the net deferred tax assets will not be realized. As of December 31, 2013 and 2012, the Company has applied a valuation allowance against its deferred tax assets net of the expected income from the reversal of the deferred tax liabilities.
Utilization of the NOL carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of NOL and credits before utilization. The Company completed a Section 382 analysis through December 2011 and determined that an ownership change, as defined under Section 382 of the Internal Revenue Code, occurred in prior years. Based on the analysis, the Company has undergone two ownership changes. The first ownership change occurred on July 7, 2006, and the second ownership change occurred on August 8, 2007. The Company has updated its Section 382 analysis through the year ended December 31, 2013 and does not have any additional limitations. NOL carryforwards
128
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
presented have accounted for any limited and potential lost attributes due to the ownership changes and expiration dates. The Company also analyzed the NOL carryovers related to its acquisition of Zep Solar. Based on the Internal Revenue Code Section 382 analysis, Zep Solar has undergone two ownership changes. The first ownership change occurred in May 28, 2010, and the second ownership change occurred as of December 11, 2013, the date of acquisition by the Company. The NOLs in the deferred table reflect the available NOLs not expected to expire unutilized.
As part of the assets monetization strategy, the Company has agreements to sell solar energy systems to the solar financing fund joint ventures. The gain on the sale of the assets has been eliminated in the consolidated financial statements. These transactions are treated as inter-company sales and as such, tax is not recognized on the sale until the Company no longer benefits from the underlying asset. Since the systems remain within the consolidated group, the tax expense incurred related to these sales is being deferred and amortized over the estimated useful life of the underlying systems which has been estimated to be 30 years. The deferral of the tax expense results in recording of a prepaid tax expense that is included in the consolidated balance sheets as other assets. As of December 31, 2013 and 2012, the Company recorded a long-term prepaid tax expense of $3.7 million and $2.0 million (as restated), respectively, net of amortization. The amortization of the prepaid tax expense in each period makes up the major component of the tax expense.
As a result of the Companys acquisition of the noncontrolling interest in certain of its partnership funds on December 31, 2012, the Company accounted for the direct impacts of the acquisition as an adjustment to other paid in capital, while the indirect impacts of the transaction were accounted for in the statement of operations. Since the Company owns 100% of these funds, the partnerships were treated as terminated for U.S. income tax purposes. Due to the deemed liquidation of these partnerships the Company recognized $2.5 million of taxable income resulting from liquidating distributions of cash and assets. This taxable income was offset by the current year NOLs, resulting in a net zero impact to the statement of operations. The Company also recognized a net deferred tax liability of $17.3 million resulting mainly from accelerated depreciation previously taken for tax purposes not for book purposes. The impact of setting up this deferred tax liability was offset by a release of valuation allowance, resulting in a net zero impact to the statement of operations.
The Company has an immaterial amount of undistributed earnings of foreign subsidiaries at December 31, 2013. Those earnings are considered to be indefinitely reinvested; accordingly, no provisions for U.S. Federal and State income taxes have been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carryforwards would be available to reduce any U.S. tax liability. An immaterial amount of withholding taxes may be payable upon remittance of all previously unremitted earnings at December 31, 2013.
On September 13, 2013, the U.S. Treasury Department and the Internal Revenue Service, or IRS, issued final regulations, Tangible Property Regulations, providing comprehensive guidance on the tax treatment of costs incurred to acquire, repair or improve tangible property. The final regulations are generally effective for taxable years beginning on or after January 1, 2014. On January 24, 2014, the IRS issued procedural guidance pursuant to which taxpayers will be granted automatic consent to change their tax accounting methods to comply with the final regulations. We are currently assessing the future impact of these regulations, but do not anticipate a material impact on our financial condition, results of operations or cash flows.
129
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Uncertain Tax Positions
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
Year Ended December 31, |
||||
2013 | ||||
Balance as of January 1 |
$ | | ||
Acquired from ZepSolar |
120 | |||
|
|
|||
Balance as of December 31 |
$ | 120 | ||
|
|
The interest expense and penalties for uncertain tax positions will be classified in the consolidated financial statements as income tax expense. There were no interest and penalties accrued for any uncertain tax positions as of December 31, 2013 and 2012.
The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized benefits will increase or decrease within 12 months of the year ended December 31, 2013.
The Company is subject to taxation and files income tax returns in the U.S., various state, local, and foreign jurisdictions. Due to the Companys net losses, substantially all of its federal, state, local, and foreign income tax returns since inception are still subject to audit.
23. Defined Contribution Plan
In January 2007, the Company established a 401(k) Retirement Plan, or the Retirement Plan, available to employees who meet the plans eligibility requirements. Participants may elect to contribute a percentage of their compensation to the Retirement Plan, up to a statutory limit. Participants are fully vested in their contributions. The Company may make discretionary contributions to the Retirement Plan as a percentage of participant contributions, subject to established limits. The Company did not make any contributions to the Retirement Plan during the years ended December 31, 2013, 2012 and 2011.
24. Related Party Transactions
The Companys operations included the following related party transactions (in thousands):
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenue: |
||||||||||||
Solar energy systems sales to related parties |
$ | 17 | $ | 937 | $ | | ||||||
Expenditures: |
||||||||||||
Purchases of inventories from related parties |
$ | 1,741 | $ | | $ | | ||||||
Referral fees paid or payable to related parties (included in sales and marketing expense) |
$ | 81 | $ | | $ | |
Related party balances were comprised of the following (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Due from related parties (included in accounts receivable) |
$ | 9 | $ | 932 | ||||
Due to related parties (included in accounts payable) |
$ | 427 | $ | | ||||
Due to related parties (included in customer deposits) |
$ | 83 | $ | | ||||
Deferred revenue from related parties (included in current portion of deferred revenue) |
$ | 831 | $ | |
130
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
25. Commitments and Contingencies
Noncancelable Operating Leases
The Company leases office and warehouse facilities under noncancelable operating leases primarily for its United States based warehouse locations. In addition, the Company leases equipment under noncancelable operating leases. Aggregate rent expense for facilities and equipment for the years ended December 31, 2013, 2012 and 2011, was $13.8 million, $4.2 million and $2.9 million, respectively.
Future minimum lease payments under noncancelable operating leases as of December 31, 2013, are as follows (in thousands):
2014 |
$ | 14,592 | ||
2015 |
12,455 | |||
2016 |
10,021 | |||
2017 |
8,114 | |||
2018 |
4,662 | |||
Thereafter |
25,389 | |||
|
|
|||
Total minimum lease payments |
$ | 75,233 | ||
|
|
Indemnification and Guaranteed Returns
As disclosed in Notes 15 and 17, the Company is contractually committed to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in U.S. Treasury grants or ITCs. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the U.S. Treasury Department for purposes of claiming U.S. Treasury grants or as assessed by the IRS for purposes of claiming ITCs or U.S. Treasury grants. For each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any guidelines issued by the U.S. Treasury Department on solar energy system valuations for purposes of claiming U.S. Treasury grants and any audits undertaken by the IRS. The Company believes that any payments to the fund investors in excess of the amount already recognized by the Company for this obligation are not probable based on the facts known at the reporting date.
The maximum potential future payments that the Company could have to make under this obligation would depend on the difference between the fair values of the solar energy systems sold or transferred to the funds as determined by the Company and the values that the U.S. Treasury Department would determine as fair value for the systems for purposes of claiming U.S. Treasury grants or the values the IRS would determine as the fair value for the systems for purposes of claiming ITCs or U.S. Treasury grants. The Company claims U.S. Treasury grants based on guidelines provided by the U.S. Treasury department and the statutory regulations from the IRS. The Company uses fair values determined with the assistance of an independent third-party appraisal as the basis for determining the ITCs that are passed-through to and claimed by the fund investors. Since the Company cannot determine future revisions to U.S. Treasury Department guidelines governing system values or how the IRS will evaluate system values used in claiming ITCs or U.S. Treasury grants, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date.
The Company is eligible to receive certain state and local incentives that are associated with renewable energy generation. The amount of incentive that can be claimed is based on the projected or actual solar energy system size and/or the amount of solar energy produced. The Company also currently participates in one states
131
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
incentive program in which the incentive is based on either the fair market value or the tax basis of solar energy systems placed in service. State and local incentives received are allocated between the Company and fund investors in accordance with the contractual provisions of each fund. The Company is not contractually obligated to indemnify any fund investor for any losses they may incur due to a shortfall in the amount of state or local incentives actually received.
As disclosed in Note 15, VIE Arrangements, the Company is contractually required to make payments to one fund investor to ensure that the fund investor achieves a specified minimum internal rate of return. The fund investor has already received a significant portion of the projected economic benefits from U.S. Treasury grant distributions and tax depreciation benefits. The contractual provisions of the fund state that the fund has an indefinite term unless the members agree to dissolve the fund. Based on the Companys current financial projections regarding the amount and timing of future distributions to the fund investor, the Company does not expect to make any payments as a result of this guarantee and has not accrued any liabilities for this guarantee. The amount of potential future payments under this guarantee is dependent on the amount and timing of future distributions to the fund investor and future tax benefits that accrue to the fund investor. Due to uncertainties surrounding estimating the amounts of these factors, the Company is unable to estimate the maximum potential payments under this guarantee. As of December 31, 2013, the fund investor had achieved the specified minimum internal rate of return as determined in accordance with the contractual provisions of the fund.
As disclosed in Note 16, Lease Pass-Through Financing Obligation, the lease pass-through financing funds have a one-time lease payment reset mechanism that occurs after the installation of all solar energy systems in a fund. As a result of this mechanism, the Company may be required to refund master lease prepayments previously received from investors. Any refunds of master lease prepayments would reduce the lease pass-through financing obligation.
Other Contingencies
In July 2012, the Company, along with other companies in the solar energy industry, received a subpoena from the U.S. Treasury Departments Office of the Inspector General to deliver certain documents in the Companys possession that were dated, created, revised or referred to after January 1, 2007 and that relate to the Companys applications for U.S. Treasury grants or communications with certain other solar energy development companies or with certain firms that appraise solar energy property for U.S Treasury grant application purposes. The Inspector General and the Civil Division of the U.S. Department of Justice are investigating the administration and implementation of the U.S Treasury grant program, including possible misrepresentations concerning the fair market value of the solar energy systems submitted by the Company in U.S. Treasury grant applications. If the Inspector General concludes that misrepresentations were made, the U.S. Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to the Company. If the U.S. Department of Justice is successful in asserting this action, the Company could then be required to pay material damages and penalties for any funds received based on such misrepresentations, which, in turn, could require the Company to make indemnity payments to certain financing fund investors. The Company is unable to estimate the possible loss, if any, associated with this ongoing investigation as information is still being produced by the Company for further review by the Inspector General.
On August 17, 2012, a former outside sales employee filed a putative class action complaint against SolarCity in the Superior Court for the County of Los Angeles (Civil Action No. BC490482). The former outside sales employee purports to represent a class of certain current and former outside sales representatives, and those with a similar title, who worked for the Company in California for the four-year period prior to the filing of the
132
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
complaint. The complaint alleges causes of action for failure to pay proper wages due under various commission pay plans; failure to properly pay the wages of terminated (or resigned) employees; failure to provide proper itemized wage statements because of an alleged failure to specify requisite information; failure to keep accurate time records; and related claims for unfair competition and a California state statute permitting individuals to pursue claims not pursued by a state agency. The former outside sales employee seeks unspecified damages for himself and affected class members, including all wages due and owing, applicable statutory penalties (including waiting time penalties), interest, attorneys fees and costs. On January 24, 2013, the Company answered the complaint and asserted a cross complaint against the former outside sales employee to recover commissions that he was paid, but not entitled to, along with the Companys fees and costs in the litigation. Discovery has commenced. On March 14, 2014, the former outside sales employee filed a motion with the court to seek to allow him to pursue his action on behalf of a class. Also on March 14, 2014, the Company filed a motion for a summary judgment on its cross complaint. The Company intends to defend itself against the complaint and pursue its own claims.
On April 30, 2013, the U.S. Department of Labor (DOL) notified the Company that it was undertaking a wage and hour investigation related to the Companys Foster City, California facility. In the course of that investigation, the DOL subsequently asked the Company to provide information regarding certain employee positions throughout the Company for the three years preceding April 2013. On February 28, 2014, the DOL informed the Company that it had made a preliminary determination that some of its employee positions were not properly classified, but has made no assessment of damages or penalties. If the DOL were to conclusively determine that the Company violated labor laws and regulations, the Company would be required to make the appropriate payments of back wages and other amounts to employees, and the Company might be subject to fines or penalties. The Company is currently unable to estimate the maximum potential exposure that may arise from this investigation based on information currently available. The Company recorded a liability in the quarter ended December 31, 2013 to account for any expected liability as a result of this investigation.
From time to time, claims have been asserted, and may in the future be asserted, including claims from regulatory authorities related to labor practices and other matters. Such assertions arise in the normal course of the Companys operations. The resolution of any such assertions or claims cannot be predicted with certainty.
133
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
26. Basic and Diluted Net Income (Loss) Per Share
The following table sets forth the computation of the Companys basic and diluted net income (loss) per share for the years ended December 31, 2013, 2012, and 2011 (in thousands, except share and per share amounts):
Year Ended December 31, | ||||||||||||
2013 | 2012 (Restated) |
2011 | ||||||||||
Net income (loss) attributable to stockholders |
$ | (55,790 | ) | $ | (99,335 | ) | $ | 43,516 | ||||
Noncumulative dividends on convertible redeemable preferred stock(1) |
| | (1,633 | ) | ||||||||
Undistributed earnings allocated to convertible redeemable preferred stockholders(2) |
| | (33,658 | ) | ||||||||
Deemed dividend to Series G convertible redeemable preferred stock prior to conversion(3) |
| (10,091 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) attributable to common stockholders, basic |
$ | (55,790 | ) | $ | (109,426 | ) | $ | 8,225 | ||||
|
|
|
|
|
|
|||||||
Adjustment to revaluation of convertible redeemable preferred stock warrants(4) |
| (277 | ) | | ||||||||
Adjustment to undistributed earnings allocated to convertible redeemable preferred stockholders(5) |
| | 2,764 | |||||||||
|
|
|
|
|
|
|||||||
Net income (loss) attributable to common stockholders, diluted |
$ | (55,790 | ) | $ | (109,703 | ) | $ | 10,989 | ||||
|
|
|
|
|
|
|||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic |
79,781,976 | 14,240,187 | 9,977,646 | |||||||||
Weighted-average of dilutive convertible redeemable preferred stock warrants outstanding |
| 27,580 | | |||||||||
Dilutive effect of common stock options |
| | 4,546,088 | |||||||||
Dilutive effect of restricted stock units |
| | | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, diluted |
79,781,976 | 14,267,767 | 14,523,734 | |||||||||
|
|
|
|
|
|
|||||||
Net income (loss) per share attributable to common stockholders, basic |
$ | (0.70 | ) | $ | (7.68 | ) | $ | 0.82 | ||||
|
|
|
|
|
|
|||||||
Net income (loss) per share attributable to common stockholders, diluted |
$ | (0.70 | ) | $ | (7.69 | ) | $ | 0.76 | ||||
|
|
|
|
|
|
(1) | Noncumulative dividends payable on convertible redeemable preferred stock represents a $0.01 noncumulative preferred dividend that would be payable to convertible redeemable preferred stockholders prior to any other allocations to preferred and common stockholders if all the earnings for each period were distributed. |
(2) | Undistributed earnings allocated to convertible redeemable preferred stockholders represents the share of available undistributed earnings as adjusted for noncumulative preferred dividends that would be allocated to convertible redeemable preferred stockholders on an as-converted basis. |
(3) | Deemed dividend to Series G convertible redeemable preferred stock prior to conversion represents the value attributable to a beneficial conversion feature associated with the Series G convertible redeemable preferred stock. The amount was calculated based upon the initial public offering of common stock price of $8.00 per share. Upon the closing of the initial public offering, each outstanding share of Series G convertible redeemable preferred stock converted automatically into a number of shares of common stock equal to the quotient obtained by dividing (A) the original issue price of $23.92 per share by (B) the greater |
134
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
of (i) 60% of the initial public offering price (before deducting underwriting discounts and commissions) and (ii) $9.68 (the conversion price of the Series F convertible redeemable preferred stock). As a result of this calculation, and based upon the initial public offering price of $8.00 per share, the 3,386,986 shares of Series G convertible redeemable preferred stock converted into 8,372,065 shares of common stock. The deemed dividend was calculated as the difference between the product of the number of shares of common stock issued upon conversion of the Series G convertible redeemable preferred stock multiplied by the estimated fair value of a share of common stock when the Series G convertible redeemable preferred stock was issued, less the proceeds that were realized upon the issuance of the Series G convertible redeemable preferred stock. The fair value of common stock used for this calculation was determined at each of the three closing dates of the issuance of Series G convertible redeemable preferred stock in February and March 2012. The fair value of common stock was estimated to be between $10.84 and $10.93 per share, based on an interpolation between the fair values the Company previously determined as of January 31, 2012 and March 12, 2012. |
(4) | Adjustment to revaluation of convertible redeemable preferred stock warrants represents the impact of no revaluation of convertible redeemable preferred stock warrants, as discussed in Note 2, Summary of Significant Accounting Policies and Procedures, to reflect the potential impact of dilutive securities. |
(5) | Adjustment to undistributed earnings allocated to convertible redeemable preferred stockholders represents the impact of reallocation of undistributed earnings allocated to convertible redeemable preferred stockholders, as described in (2) above, to reflect the potential impact of dilutive securities. |
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income (loss) per share for the periods presented because including them would have been antidilutive:
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Convertible redeemable preferred stock |
| 42,488,627 | 41,893,046 | |||||||||
Preferred stock warrants and common stock warrants |
516,702 | 835,698 | 1,816,650 | |||||||||
Common stock options |
14,412,968 | 14,623,766 | 3,678,225 | |||||||||
Restricted stock units |
21,681 | | | |||||||||
Convertible senior notes |
735,740 | | |
27. Subsequent Events
Fund Amendment
On January 13, 2014, the contractual terms of an existing fund was amended to increase the total available financing by $40.0 million.
Term Loan Amendment
On January 6, 2014, the term loan between a subsidiary of the Company and a syndicate of banks was amended to increase the maximum loan availability from $100.0 million to $158.0 million.
New Term Loan Agreement and Amendment
On February 4, 2014, a subsidiary of the Company entered into an agreement with a syndicate of banks for a term loan of $100.0 million. On February 20, 2014, the agreement was amended to increase the maximum loan availability to $220.0 million. The term loan bears interest at an annual rate of LIBOR plus 3.25%. The term
135
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
loan is secured by the assets and cash flows of the subsidiary and is nonrecourse to the Companys other assets. The term loan matures on December 31, 2016. The Company has not yet borrowed any amounts under the term loan.
New Lease Pass-Through Fund Arrangement
On February 21, 2014, a subsidiary of the Company entered into a new lease pass-through fund arrangement with an existing fund investor. The total available financing under the lease pass-through fund arrangement is $100.0 million.
136
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
28. Restatement of the Unaudited Condensed Consolidated Financial Statements for Prior Interim Periods
See Item 7 of the annual report on Form 10-K for Managements Discussion and Analysis of Financial Condition and Results of Operations which present the Companys selected unaudited condensed interim data for the years ended December 31, 2013 and 2012. The unaudited condensed consolidated financial statements for prior interim periods in 2013 and 2012 have been restated (see Note 2) as follows:
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Par Values)
(UNAUDITED)
September 30, 2013 | June 30, 2013 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 132,986 | $ | | $ | 132,986 | $ | 159,606 | $ | | $ | 159,606 | ||||||||||||
Restricted cash |
3,269 | | 3,269 | 6,031 | | 6,031 | ||||||||||||||||||
Accounts receivable net |
32,791 | | 32,791 | 23,988 | | 23,988 | ||||||||||||||||||
Rebates receivable |
19,158 | | 19,158 | 20,235 | | 20,235 | ||||||||||||||||||
Inventories |
90,753 | (512 | ) | 90,241 | 68,735 | (861 | ) | 67,874 | ||||||||||||||||
Deferred income tax asset |
7,762 | 1,581 | 9,343 | 5,377 | 1,581 | 6,958 | ||||||||||||||||||
Prepaid expenses and other current assets |
25,527 | | 25,527 | 25,831 | | 25,831 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
312,246 | 1,069 | 313,315 | 309,803 | 720 | 310,523 | ||||||||||||||||||
Restricted cash |
1,701 | | 1,701 | 1,984 | | 1,984 | ||||||||||||||||||
Solar energy systems, leased and to be leased net |
1,491,941 | (35,519 | ) | 1,456,422 | 1,278,880 | (31,148 | ) | 1,247,732 | ||||||||||||||||
Property and equipment net |
20,471 | | 20,471 | 19,862 | | 19,862 | ||||||||||||||||||
Goodwill and intangible assets net |
105,351 | | 105,351 | 626 | | 626 | ||||||||||||||||||
Other assets |
28,625 | | 28,625 | 27,049 | | 27,049 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 1,960,335 | $ | (34,450 | ) | $ | 1,925,885 | $ | 1,638,204 | $ | (30,428 | ) | $ | 1,607,776 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | 134,123 | $ | (298 | ) | $ | 133,825 | $ | 77,705 | $ | | $ | 77,705 | |||||||||||
Distributions payable to noncontrolling interests and redeemable noncontrolling interests |
17,634 | | 17,634 | 26,935 | | 26,935 | ||||||||||||||||||
Current portion of deferred U.S. Treasury grants income |
15,404 | | 15,404 | 14,809 | | 14,809 | ||||||||||||||||||
Accrued and other current liabilities |
51,800 | 86 | 51,886 | 43,743 | 87 | 43,830 | ||||||||||||||||||
Customer deposits |
9,208 | | 9,208 | 7,818 | | 7,818 | ||||||||||||||||||
Current portion of deferred revenue |
52,989 | 3 | 52,992 | 37,949 | (7 | ) | 37,942 | |||||||||||||||||
Current portion of long-term debt |
9,158 | | 9,158 | 8,702 | | 8,702 | ||||||||||||||||||
Current portion of lease pass-through financing obligation |
29,629 | | 29,629 | 27,939 | | 27,939 | ||||||||||||||||||
Current portion of sale-leaseback financing obligation |
410 | | 410 | 403 | | 403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
320,355 | (209 | ) | 320,146 | 246,003 | 80 | 246,083 |
137
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
September 30, 2013 | June 30, 2013 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Deferred revenue, net of current portion |
326,884 | | 326,884 | 277,827 | | 277,827 | ||||||||||||||||||
Long-term debt, net of current portion |
132,149 | | 132,149 | 115,213 | | 115,213 | ||||||||||||||||||
Long-term deferred tax liability |
7,791 | 1,581 | 9,372 | 5,400 | 1,581 | 6,981 | ||||||||||||||||||
Lease pass-through financing obligation, net of current portion |
103,128 | | 103,128 | 104,662 | | 104,662 | ||||||||||||||||||
Sale-leaseback financing obligation, net of current portion |
14,444 | | 14,444 | 14,550 | | 14,550 | ||||||||||||||||||
Deferred U.S. Treasury grants income, net of current portion |
411,316 | | 411,316 | 393,268 | | 393,268 | ||||||||||||||||||
Other liabilities and deferred credits |
182,288 | 1,884 | 184,172 | 149,854 | 1,906 | 151,760 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,498,355 | 3,256 | 1,501,611 | 1,306,777 | 3,567 | 1,310,344 | ||||||||||||||||||
Noncontrolling interests in subsidiaries |
| 30,285 | 30,285 | | 34,249 | 34,249 | ||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Common stock, $0.0001 par value |
8 | | 8 | 7 | | 7 | ||||||||||||||||||
Additional paid-in capital |
469,053 | 4,990 | 474,043 | 348,081 | 5,484 | 353,565 | ||||||||||||||||||
Accumulated deficit |
(162,915 | ) | (66,104 | ) | (229,019 | ) | (166,271 | ) | (60,645 | ) | (226,916 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity (deficit) |
306,146 | (61,114 | ) | 245,032 | 181,817 | (55,161 | ) | 126,656 | ||||||||||||||||
Noncontrolling interests in subsidiaries |
155,834 | (6,877 | ) | 148,957 | 149,610 | (13,083 | ) | 136,527 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
461,980 | (67,991 | ) | 393,989 | 331,427 | (68,244 | ) | 263,183 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, convertible redeemable preferred stock and equity |
$ | 1,960,335 | $ | (34,450 | ) | $ | 1,925,885 | $ | 1,638,204 | $ | (30,428 | ) | $ | 1,607,776 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
138
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
March 31, 2013 | September 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 127,294 | $ | | $ | 127,294 | $ | 49,318 | $ | | $ | 49,318 | ||||||||||||
Restricted cash |
3,154 | | 3,154 | 8,311 | | 8,311 | ||||||||||||||||||
Accounts receivable net |
19,041 | | 19,041 | 40,628 | | 40,628 | ||||||||||||||||||
Rebates receivable |
16,294 | | 16,294 | 16,509 | | 16,509 | ||||||||||||||||||
Inventories |
77,681 | (238 | ) | 77,443 | 112,913 | (425 | ) | 112,488 | ||||||||||||||||
Deferred income tax asset |
5,377 | | 5,377 | 3,657 | | 3,657 | ||||||||||||||||||
Prepaid expenses and other current assets |
26,304 | | 26,304 | 13,290 | | 13,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
275,145 | (238 | ) | 274,907 | 244,626 | (425 | ) | 244,201 | ||||||||||||||||
Restricted cash |
2,513 | | 2,513 | 3,958 | | 3,958 | ||||||||||||||||||
Solar energy systems, leased and to be leased net |
1,131,119 | (24,191 | ) | 1,106,928 | 858,746 | (11,148 | ) | 847,598 | ||||||||||||||||
Property and equipment net |
19,793 | | 19,793 | 18,766 | 18,766 | |||||||||||||||||||
Goodwill and intangible assets net |
626 | | 626 | 626 | | 626 | ||||||||||||||||||
Other assets |
22,794 | | 22,794 | 24,449 | | 24,449 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 1,451,990 | $ | (24,429 | ) | $ | 1,427,561 | $ | 1,151,171 | $ | (11,573 | ) | $ | 1,139,598 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | 57,525 | $ | | $ | 57,525 | $ | 86,619 | $ | | $ | 86,619 | ||||||||||||
Distributions payable to noncontrolling interests and redeemable noncontrolling interests |
19,435 | | 19,435 | 4,133 | | 4,133 | ||||||||||||||||||
Current portion of deferred U.S. Treasury grants income |
13,684 | | 13,684 | 10,943 | | 10,943 | ||||||||||||||||||
Accrued and other current liabilities |
36,395 | 297 | 36,692 | 31,984 | 89 | 32,073 | ||||||||||||||||||
Customer deposits |
8,349 | | 8,349 | 10,049 | | 10,049 | ||||||||||||||||||
Current portion of deferred revenue |
35,109 | (12 | ) | 35,097 | 25,843 | | 25,843 | |||||||||||||||||
Current portion of long-term debt |
14,211 | | 14,211 | 32,169 | | 32,169 | ||||||||||||||||||
Current portion of lease pass-through financing obligation |
27,165 | | 27,165 | 12,086 | | 12,086 | ||||||||||||||||||
Current portion of sale-leaseback financing obligation |
491 | | 491 | 382 | | 382 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
212,364 | 285 | 212,649 | 214,208 | 89 | 214,297 |
139
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
March 31, 2013 | September 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Deferred revenue, net of current portion |
234,907 | | 234,907 | 179,584 | | 179,584 | ||||||||||||||||||
Long-term debt, net of current portion |
96,224 | | 96,224 | 74,270 | | 74,270 | ||||||||||||||||||
Long-term deferred tax liability |
5,400 | | 5,400 | 3,673 | | 3,673 | ||||||||||||||||||
Lease pass-through financing obligation, net of current portion |
101,168 | | 101,168 | 134,988 | | 134,988 | ||||||||||||||||||
Sale-leaseback financing obligation, net of current portion |
14,653 | | 14,653 | 14,855 | | 14,855 | ||||||||||||||||||
Deferred U.S. Treasury grants income, net of current portion |
354,321 | | 354,321 | 262,405 | | 262,405 | ||||||||||||||||||
Convertible redeemable preferred stock warrant liabilities |
| | | 20,708 | | 20,708 | ||||||||||||||||||
Other liabilities and deferred credits |
118,560 | 1,928 | 120,488 | 93,533 | 2,009 | 95,542 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,137,597 | 2,213 | 1,139,810 | 998,224 | 2,098 | 1,000,322 | ||||||||||||||||||
Noncontrolling interests in subsidiaries |
| 14,577 | 14,577 | | 18,463 | 18,463 | ||||||||||||||||||
Convertible redeemable preferred stock: |
||||||||||||||||||||||||
Convertible redeemable preferred stock, $0.0001 par value |
| | | 208,420 | | 208,420 | ||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Common stock, $0.0001 par value |
7 | | 7 | 1 | | 1 | ||||||||||||||||||
Additional paid-in capital |
329,941 | 4,409 | 334,350 | 18,696 | | 18,696 | ||||||||||||||||||
Accumulated deficit |
(142,386 | ) | (45,067 | ) | (187,453 | ) | (108,349 | ) | (30,143 | ) | (138,492 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity (deficit) |
187,562 | (40,658 | ) | 146,904 | (89,652 | ) | (30,143 | ) | (119,795 | ) | ||||||||||||||
Noncontrolling interests in subsidiaries |
126,831 | (561 | ) | 126,270 | 34,179 | (1,991 | ) | 32,188 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
314,393 | (41,219 | ) | 273,174 | (55,473 | ) | (32,134 | ) | (87,607 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, convertible redeemable preferred stock and equity |
$ | 1,451,990 | $ | (24,429 | ) | $ | 1,427,561 | $ | 1,151,171 | $ | (11,573 | ) | $ | 1,139,598 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
140
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Par Values)
(UNAUDITED)
June 30, 2012 | March 31, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated |
As Previously Reported |
Adjustment | As Restated |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 61,779 | $ | | $ | 61,779 | $ | 90,668 | $ | | $ | 90,668 | ||||||||||||
Restricted cash |
2,309 | | 2,309 | 1,963 | | 1,963 | ||||||||||||||||||
Accounts receivable net |
27,047 | | 27,047 | 35,801 | | 35,801 | ||||||||||||||||||
Rebates receivable |
13,032 | | 13,032 | 16,625 | | 16,625 | ||||||||||||||||||
Inventories |
140,589 | 2,929 | 143,518 | 150,188 | 958 | 151,146 | ||||||||||||||||||
Deferred income tax asset |
5,137 | (441 | ) | 4,696 | 4,057 | (441 | ) | 3,616 | ||||||||||||||||
Prepaid expenses and other current assets |
18,861 | 947 | 19,808 | 12,577 | | 12,577 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
268,754 | 3,435 | 272,189 | 311,879 | 517 | 312,396 | ||||||||||||||||||
Restricted cash |
3,632 | | 3,632 | 3,505 | | 3,505 | ||||||||||||||||||
Solar energy systems, leased and to be leased net |
729,243 | (12,703 | ) | 716,540 | 623,596 | (4,906 | ) | 618,690 | ||||||||||||||||
Property and equipment net |
18,761 | | 18,761 | 17,665 | | 17,665 | ||||||||||||||||||
Goodwill and intangible assets net |
626 | | 626 | 626 | | 626 | ||||||||||||||||||
Other assets |
22,363 | (932 | ) | 21,431 | 19,605 | (932 | ) | 18,673 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 1,043,379 | $ | (10,200 | ) | $ | 1,033,179 | $ | 976,876 | $ | (5,321 | ) | $ | 971,555 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | 94,511 | $ | | $ | 94,511 | $ | 93,814 | $ | 332 | $ | 94,146 | ||||||||||||
Distributions payable to noncontrolling interests |
2,197 | | 2,197 | 4,443 | | 4,443 | ||||||||||||||||||
Current portion of deferred U.S. Treasury grants income |
9,282 | | 9,282 | 6,773 | | 6,773 | ||||||||||||||||||
Accrued and other current liabilities |
29,906 | 89 | 29,995 | 29,580 | (933 | ) | 28,647 | |||||||||||||||||
Customer deposits |
8,908 | | 8,908 | 13,680 | | 13,680 | ||||||||||||||||||
Current portion of deferred revenue |
25,915 | (353 | ) | 25,562 | 16,014 | (26 | ) | 15,988 | ||||||||||||||||
Current portion of long-term debt |
62,875 | | 62,875 | 67,111 | | 67,111 | ||||||||||||||||||
Current portion of lease pass-through financing obligation |
12,474 | | 12,474 | 9,236 | | 9,236 | ||||||||||||||||||
Current portion of sale-leaseback financing obligation |
375 | | 375 | 368 | | 368 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
246,443 | (264 | ) | 246,179 | 241,019 | (627 | ) | 240,392 | ||||||||||||||||
Deferred revenue, net of current portion |
151,490 | | 151,490 | 132,748 | | 132,748 | ||||||||||||||||||
Long-term debt, net of current portion |
23,787 | | 23,787 | 32,339 | | 32,339 | ||||||||||||||||||
Long-term deferred tax liability |
5,150 | (441 | ) | 4,709 | 4,067 | (441 | ) | 3,626 | ||||||||||||||||
Lease pass-through financing obligation, net of current portion |
148,927 | | 148,927 | 94,576 | | 94,576 | ||||||||||||||||||
Sale-leaseback financing obligation, net of current portion |
14,952 | | 14,952 | 15,049 | | 15,049 | ||||||||||||||||||
Deferred U.S. Treasury grants income, net of current portion |
181,422 | | 181,422 | 158,451 | | 158,451 | ||||||||||||||||||
Convertible redeemable preferred stock warrant liabilities |
14,882 | | 14,882 | 13,913 | | 13,913 | ||||||||||||||||||
Other liabilities and deferred credits |
72,887 | 924 | 73,811 | 49,961 | 346 | 50,307 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
859,940 | 219 | 860,159 | 742,123 | (722 | ) | 741,401 | |||||||||||||||||
Noncontrolling interests in subsidiaries |
| 15,525 | 15,525 | | 14,887 | 14,887 | ||||||||||||||||||
Convertible redeemable preferred stock: |
| |||||||||||||||||||||||
Convertible redeemable preferred stock, $0.0001 par value |
206,940 | | 206,940 | 206,940 | | 206,940 | ||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Common stock, $0.0001 par value |
1 | | 1 | 1 | | 1 | ||||||||||||||||||
Additional paid-in capital |
15,448 | | 15,448 | 12,016 | | 12,016 | ||||||||||||||||||
Accumulated deficit |
(70,278 | ) | (22,008 | ) | (92,286 | ) | (44,445 | ) | (15,784 | ) | (60,229 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity (deficit) |
(54,829 | ) | (22,008 | ) | (76,837 | ) | (32,428 | ) | (15,784 | ) | (48,212 | ) | ||||||||||||
Noncontrolling interests in subsidiaries |
31,328 | (3,936 | ) | 27,392 | 60,241 | (3,702 | ) | 56,539 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
(23,501 | ) | (25,944 | ) | (49,445 | ) | 27,813 | (19,486 | ) | 8,327 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, convertible redeemable preferred stock and equity |
$ | 1,043,379 | $ | (10,200 | ) | $ | 1,033,179 | $ | 976,876 | $ | (5,321 | ) | $ | 971,555 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
141
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
(UNAUDITED)
Three Months Ended September 30, 2013 | Three Months Ended June 30, 2013 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
(in thousands, except share and per share amounts) |
(in thousands, except share and per share amounts) |
|||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 24,796 | $ | | $ | 24,796 | $ | 20,608 | $ | $ | 20,608 | |||||||||||||
Solar energy systems sales |
23,804 | | 23,804 | 17,341 | | 17,341 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue |
48,600 | 48,600 | 37,949 | 37,949 | ||||||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
8,423 | 196 | 8,619 | 7,223 | (429 | ) | 6,794 | |||||||||||||||||
Solar energy systems sales |
22,640 | 3,488 | 26,128 | 15,247 | 7,767 | 23,014 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total cost of revenue |
31,063 | 3,684 | 34,747 | 22,470 | 7,338 | 29,808 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
17,537 | (3,684 | ) | 13,853 | 15,479 | (7,338 | ) | 8,141 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Sales and marketing |
24,310 | 24,310 | 21,344 | | 21,344 | |||||||||||||||||||
General and administrative |
21,893 | (467 | ) | 21,426 | 21,176 | 1,090 | 22,266 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
46,203 | (467 | ) | 45,736 | 42,520 | 1,090 | 43,610 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
(28,666 | ) | (3,217 | ) | (31,883 | ) | (27,041 | ) | (8,428 | ) | (35,469 | ) | ||||||||||||
Interest expense, net |
5,781 | | 5,781 | 5,421 | | 5,421 | ||||||||||||||||||
Other expense, net |
123 | | 123 | 162 | | 162 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
(34,570 | ) | (3,217 | ) | (37,787 | ) | (32,624 | ) | (8,428 | ) | (41,052 | ) | ||||||||||||
Income tax provision |
(23 | ) | | (23 | ) | (25 | ) | | (25 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(34,593 | ) | (3,217 | ) | (37,810 | ) | (32,649 | ) | (8,428 | ) | (41,077 | ) | ||||||||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
(37,949 | ) | 2,242 | (35,707 | ) | (8,764 | ) | 7,150 | (1,614 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to stockholders |
$ | 3,356 | $ | (5,459 | ) | $ | (2,103 | ) | $ | (23,885 | ) | $ | (15,578 | ) | $ | (39,463 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | 3,356 | $ | (5,459 | ) | $ | (2,103 | ) | $ | (23,885 | ) | $ | (15,578 | ) | $ | (39,463 | ) | |||||||
Diluted |
$ | 3,356 | $ | (5,459 | ) | $ | (2,103 | ) | $ | (23,885 | ) | $ | (15,578 | ) | $ | (39,463 | ) | |||||||
Net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | 0.04 | $ | (0.07 | ) | $ | (0.03 | ) | $ | (0.31 | ) | $ | (0.21 | ) | $ | (0.52 | ) | |||||||
Diluted |
$ | 0.04 | $ | (0.07 | ) | $ | (0.03 | ) | $ | (0.31 | ) | $ | (0.21 | ) | $ | (0.52 | ) | |||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
79,918,110 | | 79,918,110 | 76,529,698 | | 76,529,698 | ||||||||||||||||||
Diluted |
88,054,393 | | 79,918,110 | 76,529,698 | | 76,529,698 |
142
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Three Months Ended March 31, 2013 | Three Months Ended December 31, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
(in thousands, except share and per share amounts) |
(in thousands, except share and per share amounts) |
|||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 15,089 | $ | | $ | 15,089 | $ | 14,032 | $ | (1,518 | ) | $ | 12,514 | |||||||||||
Solar energy systems sales |
14,899 | | 14,899 | 11,241 | 11,241 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue |
29,988 | | 29,988 | 25,273 | (1,518 | ) | 23,755 | |||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
5,503 | 249 | 5,752 | 4,731 | 730 | 5,461 | ||||||||||||||||||
Solar energy systems sales |
11,789 | 4,918 | 16,707 | 6,505 | 7,512 | 14,017 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total cost of revenue |
17,292 | 5,167 | 22,459 | 11,236 | 8,242 | 19,478 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
12,696 | (5,167 | ) | 7,529 | 14,037 | (9,760 | ) | 4,277 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Sales and marketing |
17,879 | | 17,879 | 19,416 | | 19,416 | ||||||||||||||||||
General and administrative |
16,618 | (247 | ) | 16,371 | 18,451 | (1,280 | ) | 17,171 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
34,497 | (247 | ) | 34,250 | 37,867 | (1,280 | ) | 36,587 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
(21,801 | ) | (4,920 | ) | (26,721 | ) | (23,830 | ) | (8,480 | ) | (32,310 | ) | ||||||||||||
Interest expense, net |
6,319 | | 6,319 | 5,220 | | 5,220 | ||||||||||||||||||
Other expense, net |
140 | | 140 | (15,376 | ) | | (15,376 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
(28,260 | ) | (4,920 | ) | (33,180 | ) | (13,674 | ) | (8,480 | ) | (22,154 | ) | ||||||||||||
Income tax provision |
105 | | 105 | 53 | | 53 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(28,155 | ) | (4,920 | ) | (33,075 | ) | (13,621 | ) | (8,480 | ) | (22,101 | ) | ||||||||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
2,839 | 5,003 | 7,842 | (10,578 | ) | (3,479 | ) | (14,057 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to stockholders |
$ | (30,994 | ) | $ | (9,923 | ) | $ | (40,917 | ) | $ | (3,043 | ) | $ | (5,001 | ) | $ | (8,044 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (30,994 | ) | $ | (9,923 | ) | $ | (40,917 | ) | $ | (13,134 | ) | $ | (5,001 | ) | $ | (18,135 | ) | ||||||
Diluted |
$ | (30,994 | ) | $ | (9,923 | ) | $ | (40,917 | ) | $ | (27,950 | ) | $ | (5,001 | ) | $ | (32,951 | ) | ||||||
Net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (0.41 | ) | $ | (0.13 | ) | $ | (0.54 | ) | $ | (0.54 | ) | $ | (0.21 | ) | $ | (0.75 | ) | ||||||
Diluted |
$ | (0.41 | ) | $ | (0.13 | ) | $ | (0.54 | ) | $ | (1.10 | ) | $ | (0.20 | ) | $ | (1.30 | ) | ||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
75,186,430 | | 75,186,430 | 24,283,731 | | 24,283,731 | ||||||||||||||||||
Diluted |
75,186,430 | | 75,186,430 | 25,310,651 | | 25,310,651 |
143
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Three Months Ended September 30, 2012 | Three Months Ended June 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
(in thousands, except share and per share amounts) |
(in thousands, except share and per share amounts) |
|||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 13,917 | $ | | $ | 13,917 | $ | 11,528 | $ | | $ | 11,528 | ||||||||||||
Solar energy systems sales |
18,057 | | 18,057 | 35,046 | | 35,046 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue |
31,974 | | 31,974 | 46,574 | | 46,574 | ||||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
2,323 | 112 | 2,435 | 3,710 | 186 | 3,896 | ||||||||||||||||||
Solar energy systems sales |
13,900 | 3,125 | 17,025 | 31,899 | 5,634 | 37,533 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total cost of revenue |
16,223 | 3,237 | 19,460 | 35,609 | 5,820 | 41,429 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
15,751 | (3,237 | ) | 12,514 | 10,965 | (5,820 | ) | 5,145 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Sales and marketing |
18,145 | | 18,145 | 15,700 | | 15,700 | ||||||||||||||||||
General and administrative |
12,554 | | 12,554 | 10,788 | 10,788 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
30,699 | | 30,699 | 26,488 | 26,488 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
(14,948 | ) | (3,237 | ) | (18,185 | ) | (15,523 | ) | (5,820 | ) | (21,343 | ) | ||||||||||||
Interest expense, net |
6,587 | | 6,587 | 4,841 | | 4,841 | ||||||||||||||||||
Other expense, net |
7,466 | | 7,466 | 1,455 | | 1,455 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
(29,001 | ) | (3,237 | ) | (32,238 | ) | (21,819 | ) | (5,820 | ) | (27,639 | ) | ||||||||||||
Income tax provision |
(42 | ) | (15 | ) | (57 | ) | (30 | ) | | (30 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(29,043 | ) | (3,252 | ) | (32,295 | ) | (21,849 | ) | (5,820 | ) | (27,669 | ) | ||||||||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
9,028 | 4,883 | 13,911 | 3,984 | 404 | 4,388 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to stockholders |
$ | (38,071 | ) | $ | (8,135 | ) | $ | (46,206 | ) | $ | (25,833 | ) | $ | (6,224 | ) | $ | (32,057 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (38,071 | ) | $ | (8,135 | ) | $ | (46,206 | ) | $ | (25,833 | ) | $ | (6,224 | ) | $ | (32,057 | ) | ||||||
Diluted |
$ | (38,071 | ) | $ | (8,135 | ) | $ | (46,206 | ) | $ | (25,833 | ) | $ | (6,224 | ) | $ | (32,057 | ) | ||||||
Net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (3.41 | ) | $ | (0.73 | ) | $ | (4.14 | ) | $ | (2.37 | ) | $ | (0.57 | ) | $ | (2.94 | ) | ||||||
Diluted |
$ | (3.41 | ) | $ | (0.73 | ) | $ | (4.14 | ) | $ | (2.37 | ) | $ | (0.57 | ) | $ | (2.94 | ) | ||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
11,161,789 | | 11,161,789 | 10,897,198 | | 10,897,198 | ||||||||||||||||||
Diluted |
11,161,789 | | 11,161,789 | 10,897,198 | | 10,897,198 |
144
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Three Months Ended March 31, 2012 | ||||||||||||
As Previously Reported |
Adjustment | As Restated | ||||||||||
(in thousands, except share and per share amounts) |
||||||||||||
Revenue: |
||||||||||||
Operating leases and solar energy systems incentives |
$ | 8,139 | $ | | $ | 8,139 | ||||||
Solar energy systems sales |
16,702 | (236 | ) | 16,466 | ||||||||
|
|
|
|
|
|
|||||||
Total revenue |
24,841 | (236 | ) | 24,605 | ||||||||
Cost of revenue: |
||||||||||||
Operating leases and solar energy systems incentives |
2,582 | 222 | 2,804 | |||||||||
Solar energy systems sales |
12,125 | 4,156 | 16,281 | |||||||||
|
|
|
|
|
|
|||||||
Total cost of revenue |
14,707 | 4,378 | 19,085 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
10,134 | (4,614 | ) | 5,520 | ||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
16,131 | | 16,131 | |||||||||
General and administrative |
8,562 | | 8,562 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
24,693 | | 24,693 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(14,559 | ) | (4,614 | ) | (19,173 | ) | ||||||
Interest expense, net |
3,494 | | 3,494 | |||||||||
Other expense, net |
8,974 | | 8,974 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(27,027 | ) | (4,614 | ) | (31,641 | ) | ||||||
Income tax provision |
(35 | ) | 15 | (20 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(27,062 | ) | (4,599 | ) | (31,661 | ) | ||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
(29,818 | ) | 11,185 | (18,633 | ) | |||||||
|
|
|
|
|
|
|||||||
Net income (loss) attributable to stockholders |
$ | 2,756 | $ | (15,784 | ) | $ | (13,028 | ) | ||||
|
|
|
|
|
|
|||||||
Net income (loss) attributable to common stockholders |
||||||||||||
Basic |
$ | 453 | $ | (13,481 | ) | $ | (13,028 | ) | ||||
Diluted |
$ | 656 | $ | (13,684 | ) | $ | (13,028 | ) | ||||
Net income (loss) per share attributable to common stockholders |
||||||||||||
Basic |
$ | 0.04 | $ | (1.28 | ) | $ | (1.24 | ) | ||||
Diluted |
$ | 0.04 | $ | (1.28 | ) | $ | (1.24 | ) | ||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders |
||||||||||||
Basic |
10,503,931 | | 10,503,931 | |||||||||
Diluted |
17,076,717 | | 10,503,931 |
145
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Nine Months Ended September 30, 2013 | Nine Months Ended September 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 60,493 | $ | | $ | 60,493 | $ | 33,584 | $ | | $ | 33,584 | ||||||||||||
Solar energy systems sales |
56,044 | | 56,044 | 69,805 | (236 | ) | 69,569 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue |
116,537 | | 116,537 | 103,389 | (236 | ) | 103,153 | |||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
21,149 | 16 | 21,165 | 8,615 | 520 | 9,135 | ||||||||||||||||||
Solar energy systems |
49,676 | 16,173 | 65,849 | 57,924 | 12,915 | 70,839 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total cost of revenue |
70,825 | 16,189 | 87,014 | 66,539 | 13,435 | 79,974 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
45,712 | (16,189 | ) | 29,523 | 36,850 | (13,671 | ) | 23,179 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Sales and marketing |
63,533 | 63,533 | 49,976 | | 49,976 | |||||||||||||||||||
General and administrative |
59,687 | 376 | 60,063 | 31,904 | | 31,904 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
123,220 | 376 | 123,596 | 81,880 | | 81,880 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
(77,508 | ) | (16,565 | ) | (94,073 | ) | (45,030 | ) | (13,671 | ) | (58,701 | ) | ||||||||||||
Interest expense, net |
17,521 | | 17,521 | 14,922 | | 14,922 | ||||||||||||||||||
Other expense, net |
425 | | 425 | 17,895 | | 17,895 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
(95,454 | ) | (16,565 | ) | (112,019 | ) | (77,847 | ) | (13,671 | ) | (91,518 | ) | ||||||||||||
Income tax benefit (provision) |
57 | | 57 | (107 | ) | | (107 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(95,397 | ) | (16,565 | ) | (111,962 | ) | (77,954 | ) | (13,671 | ) | (91,625 | ) | ||||||||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
(43,874 | ) | 14,395 | (29,479 | ) | (16,806 | ) | 16,472 | (334 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to stockholders |
$ | (51,523 | ) | $ | (30,960 | ) | $ | (82,483 | ) | $ | (61,148 | ) | $ | (30,143 | ) | $ | (91,291 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (51,523 | ) | $ | (30,960 | ) | $ | (82,483 | ) | $ | (61,148 | ) | $ | (30,143 | ) | $ | (91,291 | ) | ||||||
Diluted |
$ | (51,523 | ) | $ | (30,960 | ) | $ | (82,483 | ) | $ | (61,148 | ) | $ | (30,143 | ) | $ | (91,291 | ) | ||||||
Net loss per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (0.67 | ) | $ | (0.40 | ) | $ | (1.07 | ) | $ | (5.63 | ) | $ | (2.77 | ) | $ | (8.40 | ) | ||||||
Diluted |
$ | (0.67 | ) | $ | (0.40 | ) | $ | (1.07 | ) | $ | (5.63 | ) | $ | (2.77 | ) | $ | (8.40 | ) | ||||||
Weighted-average shares used to compute net loss per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
77,228,677 | | 77,228,677 | 10,867,584 | | 10,867,584 | ||||||||||||||||||
Diluted |
77,228,677 | | 77,228,677 | 10,867,584 | | 10,867,584 |
146
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
$ | 35,697 | $ | | $ | 35,697 | $ | 19,667 | $ | | $ | 19,667 | ||||||||||||
Solar energy systems sales |
32,240 | | 32,240 | 51,748 | (236 | ) | 51,512 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue |
67,937 | | 67,937 | 71,415 | (236 | ) | 71,179 | |||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||
Operating leases and solar energy systems incentives |
12,726 | (180 | ) | 12,546 | 6,292 | 408 | 6,700 | |||||||||||||||||
Solar energy systems |
27,036 | 12,685 | 39,721 | 44,024 | 9,790 | 53,814 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total cost of revenue |
39,762 | 12,505 | 52,267 | 50,316 | 10,198 | 60,514 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
28,175 | (12,505 | ) | 15,670 | 21,099 | (10,434 | ) | 10,665 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Sales and marketing |
39,223 | | 39,223 | 31,831 | | 31,831 | ||||||||||||||||||
General and administrative |
37,794 | 843 | 38,637 | 19,350 | | 19,350 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
77,017 | 843 | 77,860 | 51,181 | | 51,181 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
(48,842 | ) | (13,348 | ) | (62,190 | ) | (30,082 | ) | (10,434 | ) | (40,516 | ) | ||||||||||||
Interest expense, net |
11,740 | | 11,740 | 8,335 | | 8,335 | ||||||||||||||||||
Other expense, net |
302 | | 302 | 10,429 | | 10,429 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
(60,884 | ) | (13,348 | ) | (74,232 | ) | (48,846 | ) | (10,434 | ) | (59,280 | ) | ||||||||||||
Income tax benefit (provision) |
80 | | 80 | (65 | ) | 15 | (50 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
(60,804 | ) | (13,348 | ) | (74,152 | ) | (48,911 | ) | (10,419 | ) | (59,330 | ) | ||||||||||||
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests |
(5,925 | ) | 12,153 | 6,228 | (25,834 | ) | 11,589 | (14,245 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to stockholders |
$ | (54,879 | ) | $ | (25,501 | ) | $ | (80,380 | ) | $ | (23,077 | ) | $ | (22,008 | ) | $ | (45,085 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (54,879 | ) | $ | (25,501 | ) | $ | (80,380 | ) | $ | (23,077 | ) | $ | (22,008 | ) | $ | (45,085 | ) | ||||||
Diluted |
$ | (54,879 | ) | $ | (25,501 | ) | $ | (80,380 | ) | $ | (23,077 | ) | $ | (22,008 | ) | $ | (45,085 | ) | ||||||
Net loss per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
$ | (0.72 | ) | $ | (0.34 | ) | $ | (1.06 | ) | $ | (2.16 | ) | $ | (2.06 | ) | $ | (4.22 | ) | ||||||
Diluted |
$ | (0.72 | ) | $ | (0.34 | ) | $ | (1.06 | ) | $ | (2.16 | ) | $ | (2.06 | ) | $ | (4.22 | ) | ||||||
Weighted-average shares used to compute net loss per share attributable to common stockholders |
||||||||||||||||||||||||
Basic |
75,861,802 | | 75,861,802 | 10,690,564 | | 10,690,564 | ||||||||||||||||||
Diluted |
75,861,802 | | 75,861,802 | 10,690,564 | | 10,690,564 |
147
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(UNAUDITED)
Nine Months Ended September 30, 2013 | Nine Months Ended September 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Operating activities: |
||||||||||||||||||||||||
Net loss |
$ | (95,397 | ) | $ | (16,565 | ) | $ | (111,962 | ) | $ | (77,954 | ) | $ | (13,671 | ) | $ | (91,625 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Loss on disposal of property and equipment |
30 | | 30 | 10 | | 10 | ||||||||||||||||||
Depreciation and amortization net of amortization of deferred U.S. Treasury grant income |
26,275 | (601 | ) | 25,674 | 14,277 | (97 | ) | 14,180 | ||||||||||||||||
Interest on lease pass-through financing obligation |
10,035 | | 10,035 | 8,948 | | 8,948 | ||||||||||||||||||
Stock-based compensation |
17,166 | (3,766 | ) | 13,400 | 7,749 | (1,737 | ) | 6,012 | ||||||||||||||||
Revaluation of convertible redeemable preferred stock warrants |
| | | 16,713 | | 16,713 | ||||||||||||||||||
Revaluation of preferred stock forward contract |
| | | 350 | | 350 | ||||||||||||||||||
Deferred income taxes |
9 | | 9 | 9 | | 9 | ||||||||||||||||||
Reduction in lease pass-through financing obligation |
(25,525 | ) | | (25,525 | ) | (12,057 | ) | | (12,057 | ) | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Restricted cash |
1,454 | | 1,454 | (6,709 | ) | | (6,709 | ) | ||||||||||||||||
Accounts receivable |
(7,646 | ) | (516 | ) | (8,162 | ) | (29,977 | ) | | (29,977 | ) | |||||||||||||
Rebates receivable |
(1,657 | ) | | (1,657 | ) | (2,825 | ) | | (2,825 | ) | ||||||||||||||
Inventories |
(2,850 | ) | (208 | ) | (3,058 | ) | 29,829 | 488 | 30,317 | |||||||||||||||
Prepaid expenses and other current assets |
(17,449 | ) | | (17,449 | ) | 2,615 | | 2,615 | ||||||||||||||||
Other assets |
(3,411 | ) | | (3,411 | ) | (7,218 | ) | | (7,218 | ) | ||||||||||||||
Accounts payable |
71,137 | (298 | ) | 70,839 | (75,967 | ) | | (75,967 | ) | |||||||||||||||
Accrued and other liabilities |
66,635 | (880 | ) | 65,755 | 41,137 | 2,243 | 43,380 | |||||||||||||||||
Customer deposits |
455 | 844 | 1,299 | (3,884 | ) | | (3,884 | ) | ||||||||||||||||
Deferred revenue |
143,682 | (303 | ) | 143,379 | 90,564 | | 90,564 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
182,943 | (22,293 | ) | 160,650 | (4,390 | ) | (12,774 | ) | (17,164 | ) | ||||||||||||||
Investing activities: |
||||||||||||||||||||||||
Payments for the cost of solar energy systems, leased and to be leased |
(507,695 | ) | 22,293 | (485,402 | ) | (290,371 | ) | 12,774 | (277,597 | ) | ||||||||||||||
Purchase of property and equipment |
(5,827 | ) | | (5,827 | ) | (7,400 | ) | | (7,400 | ) | ||||||||||||||
Acquisition of business, net of cash acquired |
(3,758 | ) | | (3,758 | ) | | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(517,280 | ) | 22,293 | (494,987 | ) | (297,771 | ) | 12,774 | (284,997 | ) |
148
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Nine Months Ended September 30, 2013 | Nine Months Ended September 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Financing activities: |
||||||||||||||||||||||||
Investment fund financings and bank borrowings: |
||||||||||||||||||||||||
Borrowings under long-term debt |
57,161 | | 57,161 | 138,426 | | 138,426 | ||||||||||||||||||
Repayments of long-term debt |
(24,690 | ) | | (24,690 | ) | (57,168 | ) | | (57,168 | ) | ||||||||||||||
Repayments of sale-leaseback financing obligation |
(290 | ) | | (290 | ) | (268 | ) | | (268 | ) | ||||||||||||||
Proceeds from lease pass-through financing obligation |
31,233 | | 31,233 | 138,775 | | 138,775 | ||||||||||||||||||
Repayment of capital lease obligations |
(1,594 | ) | | (1,594 | ) | (27,356 | ) | | (27,356 | ) | ||||||||||||||
Proceeds from investment by noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
221,175 | | 221,175 | 63,532 | | 63,532 | ||||||||||||||||||
Distributions paid to noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
(117,017 | ) | | (117,017 | ) | (137,276 | ) | | (137,276 | ) | ||||||||||||||
Proceeds from U.S. Treasury grants |
123,816 | | 123,816 | 99,916 | | 99,916 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities before equity issuances |
289,794 | | 289,794 | 218,581 | | 218,581 | ||||||||||||||||||
Equity issuances: |
||||||||||||||||||||||||
Proceeds from exercise of stock options |
9,415 | | 9,415 | 1,409 | | 1,409 | ||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred stock |
| | | 80,868 | | 80,868 | ||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred stock warrants |
| | | 150 | | 150 | ||||||||||||||||||
Proceeds from exercise of common stock warrants |
8,034 | | 8,034 | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by equity issuances |
17,449 | | 17,449 | 82,427 | | 82,427 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
307,243 | | 307,243 | 301,008 | | 301,008 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash and cash equivalents |
(27,094 | ) | | (27,094 | ) | (1,153 | ) | | (1,153 | ) | ||||||||||||||
Cash and cash equivalents, beginning of period |
160,080 | | 160,080 | 50,471 | | 50,471 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 132,986 | $ | | $ | 132,986 | $ | 49,318 | $ | | $ | 49,318 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
149
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Operating activities: |
||||||||||||||||||||||||
Net loss |
$ | (60,804 | ) | $ | (13,348 | ) | $ | (74,152 | ) | $ | (48,911 | ) | $ | (10,419 | ) | $ | (59,330 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Loss on disposal of property and equipment |
| 18 | 18 | 10 | | 10 | ||||||||||||||||||
Depreciation and amortization net of amortization of deferred U.S. Treasury grant income |
15,989 | (362 | ) | 15,627 | 9,021 | 44 | 9,065 | |||||||||||||||||
Interest on lease pass-through financing obligation |
6,869 | | 6,869 | 4,939 | | 4,939 | ||||||||||||||||||
Stock-based compensation |
8,996 | (1,444 | ) | 7,552 | 4,713 | (1,112 | ) | 3,601 | ||||||||||||||||
Revaluation of convertible redeemable preferred stock warrants |
| | | 9,557 | | 9,557 | ||||||||||||||||||
Revaluation of preferred stock forward contract |
| | | 350 | | 350 | ||||||||||||||||||
Deferred income taxes |
3 | | 3 | 6 | | 6 | ||||||||||||||||||
Reduction in lease pass-through financing obligation |
(14,239 | ) | | (14,239 | ) | (7,290 | ) | | (7,290 | ) | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Restricted cash |
(1,591 | ) | | (1,591 | ) | (381 | ) | | (381 | ) | ||||||||||||||
Accounts receivable |
1,157 | (516 | ) | 641 | (16,396 | ) | | (16,396 | ) | |||||||||||||||
Rebates receivable |
(2,734 | ) | | (2,734 | ) | 652 | | 652 | ||||||||||||||||
Inventories |
19,168 | 175 | 19,343 | 2,153 | (2,829 | ) | (676 | ) | ||||||||||||||||
Prepaid expenses and other current assets |
(12,717 | ) | | (12,717 | ) | (2,941 | ) | | (2,941 | ) | ||||||||||||||
Other assets |
(2,190 | ) | | (2,190 | ) | (5,132 | ) | 932 | (4,200 | ) | ||||||||||||||
Accounts payable |
14,719 | | 14,719 | (68,075 | ) | | (68,075 | ) | ||||||||||||||||
Accrued and other liabilities |
31,382 | (857 | ) | 30,525 | 21,744 | 151 | 21,895 | |||||||||||||||||
Customer deposits |
(935 | ) | 844 | (91 | ) | (5,025 | ) | | (5,025 | ) | ||||||||||||||
Deferred revenue |
79,864 | (313 | ) | 79,551 | 62,542 | (353 | ) | 62,189 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
82,937 | (15,803 | ) | 67,134 | (38,464 | ) | (13,586 | ) | (52,050 | ) | ||||||||||||||
Investing activities: |
||||||||||||||||||||||||
Payments for the cost of solar energy systems, leased and to be leased |
(296,254 | ) | 15,803 | (280,451 | ) | (174,552 | ) | 13,586 | (160,966 | ) | ||||||||||||||
Purchase of property and equipment |
(3,893 | ) | | (3,893 | ) | (5,970 | ) | | (5,970 | ) | ||||||||||||||
Acquisition of business, net of cash acquired |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(300,147 | ) | 15,803 | (284,344 | ) | (180,522 | ) | 13,586 | (166,936 | ) |
150
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Financing activities: |
||||||||||||||||||||||||
Investment fund financings and bank borrowings: |
||||||||||||||||||||||||
Borrowings under long-term debt |
34,464 | | 34,464 | 79,950 | | 79,950 | ||||||||||||||||||
Repayments of long-term debt |
(18,616 | ) | | (18,616 | ) | (18,127 | ) | | (18,127 | ) | ||||||||||||||
Repayments of sale-leaseback financing obligation |
(191 | ) | | (191 | ) | (178 | ) | | (178 | ) | ||||||||||||||
Proceeds from lease pass-through financing obligation |
20,592 | | 20,592 | 123,593 | | 123,593 | ||||||||||||||||||
Repayment of capital lease obligations |
(1,212 | ) | | (1,212 | ) | (15,582 | ) | | (15,582 | ) | ||||||||||||||
Proceeds from investment by noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
146,071 | | 146,071 | 21,795 | | 21,795 | ||||||||||||||||||
Distributions paid to noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
(76,236 | ) | | (76,236 | ) | (91,298 | ) | | (91,298 | ) | ||||||||||||||
Proceeds from U.S. Treasury grants |
98,484 | | 98,484 | 48,076 | | 48,076 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities before equity issuances |
203,356 | | 203,356 | 148,229 | | 148,229 | ||||||||||||||||||
Equity issuances: |
||||||||||||||||||||||||
Proceeds from exercise of stock options |
5,346 | | 5,346 | 1,197 | | 1,197 | ||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred stock |
| | | 80,868 | | 80,868 | ||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred stock warrants |
| | | | | | ||||||||||||||||||
Proceeds from exercise of common stock warrants |
8,034 | | 8,034 | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by equity issuances |
13,380 | | 13,380 | 82,065 | | 82,065 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
216,736 | | 216,736 | 230,294 | | 230,294 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash and cash equivalents |
(474 | ) | | (474 | ) | 11,308 | | 11,308 | ||||||||||||||||
Cash and cash equivalents, beginning of period |
160,080 | | 160,080 | 50,471 | | 50,471 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 159,606 | $ | | $ | 159,606 | $ | 61,779 | $ | | $ | 61,779 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
151
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Operating activities: |
||||||||||||||||||||||||
Net loss |
$ | (28,155 | ) | $ | (4,920 | ) | $ | (33,075 | ) | $ | (27,062 | ) | $ | (4,599 | ) | $ | (31,661 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Loss on disposal of property and equipment |
| 18 | 18 | | | | ||||||||||||||||||
Depreciation and amortization net of amortization of deferred U.S. Treasury grant income |
7,482 | (212 | ) | 7,270 | 3,961 | 56 | 4,017 | |||||||||||||||||
Interest on lease pass-through financing obligation |
3,871 | | 3,871 | 1,899 | | 1,899 | ||||||||||||||||||
Stock-based compensation |
3,722 | (1,197 | ) | 2,525 | 2,091 | (545 | ) | 1,546 | ||||||||||||||||
Revaluation of convertible redeemable preferred stock warrants |
| | | 8,588 | | 8,588 | ||||||||||||||||||
Revaluation of preferred stock forward contract |
| | | 350 | | 350 | ||||||||||||||||||
Deferred income taxes |
3 | | 3 | 3 | | 3 | ||||||||||||||||||
Reduction in lease pass-through financing obligation |
(5,482 | ) | | (5,482 | ) | (3,865 | ) | | (3,865 | ) | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Restricted cash |
757 | | 757 | 92 | | 92 | ||||||||||||||||||
Accounts receivable |
6,104 | (516 | ) | 5,588 | (25,150 | ) | | (25,150 | ) | |||||||||||||||
Rebates receivable |
1,207 | | 1,207 | (2,941 | ) | | (2,941 | ) | ||||||||||||||||
Inventories |
10,222 | (466 | ) | 9,756 | (7,446 | ) | (883 | ) | (8,329 | ) | ||||||||||||||
Prepaid expenses and other current assets |
(10,785 | ) | | (10,785 | ) | 2,223 | | 2,223 | ||||||||||||||||
Other assets |
(624 | ) | | (624 | ) | (2,374 | ) | 932 | (1,442 | ) | ||||||||||||||
Accounts payable |
(5,461 | ) | | (5,461 | ) | (68,772 | ) | 332 | (68,440 | ) | ||||||||||||||
Accrued and other liabilities |
(7,663 | ) | (623 | ) | (8,286 | ) | 7,872 | (559 | ) | 7,313 | ||||||||||||||
Customer deposits |
(404 | ) | 844 | 440 | (253 | ) | | (253 | ) | |||||||||||||||
Deferred revenue |
34,104 | (318 | ) | 33,786 | 33,899 | (26 | ) | 33,873 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
8,898 | (7,390 | ) | 1,508 | (76,885 | ) | (5,292 | ) | (82,177 | ) | ||||||||||||||
Investing activities: |
||||||||||||||||||||||||
Payments for the cost of solar energy systems, leased and to be leased |
(138,221 | ) | 7,390 | (130,831 | ) | (83,465 | ) | 5,292 | (78,173 | ) | ||||||||||||||
Purchase of property and equipment |
(2,355 | ) | | (2,355 | ) | (3,366 | ) | | (3,366 | ) | ||||||||||||||
Acquisition of business, net of cash acquired |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(140,576 | ) | 7,390 | (133,186 | ) | (86,831 | ) | 5,292 | (81,539 | ) |
152
SolarCity Corporation
Notes to Consolidated Financial Statements (continued)
Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | |||||||||||||||||||||||
As Previously Reported |
Adjustment | As Restated | As Previously Reported |
Adjustment | As Restated | |||||||||||||||||||
Financing activities: |
||||||||||||||||||||||||
Investment fund financings and bank borrowings: |
||||||||||||||||||||||||
Borrowings under long-term debt |
15,435 | | 15,435 | 76,988 | | 76,988 | ||||||||||||||||||
Repayments of long-term debt |
(9,729 | ) | | (9,729 | ) | (427 | ) | | (427 | ) | ||||||||||||||
Repayments of sale-leaseback financing obligation |
| | | (88 | ) | | (88 | ) | ||||||||||||||||
Proceeds from lease pass-through financing obligation |
4,631 | | 4,631 | 59,155 | | 59,155 | ||||||||||||||||||
Repayment of capital lease obligations |
(833 | ) | | (833 | ) | (5,481 | ) | | (5,481 | ) | ||||||||||||||
Proceeds from investment by noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
74,578 | | 74,578 | 3,469 | | 3,469 | ||||||||||||||||||
Distributions paid to noncontrolling interests and redeemable noncontrolling interests in subsidiaries |
(43,786 | ) | | (43,786 | ) | (37,829 | ) | | (37,829 | ) | ||||||||||||||
Proceeds from U.S. Treasury grants |
58,082 | | 58,082 | 26,871 | | 26,871 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities before equity issuances |
98,378 | | 98,378 | 122,658 | | 122,658 | ||||||||||||||||||
Equity issuances: |
||||||||||||||||||||||||
Proceeds from exercise of stock options |
514 | | 514 | 387 | | 387 | ||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred stock |
| | | 80,868 | | 80,868 | ||||||||||||||||||
Proceeds from issuance of convertible redeemable preferred stock warrants |
| | | | | | ||||||||||||||||||
Proceeds from exercise of common stock warrants |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by equity issuances |
514 | | 514 | 81,255 | | 81,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
98,892 | | 98,892 | 203,913 | | 203,913 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash and cash equivalents |
(32,786 | ) | | (32,786 | ) | 40,197 | | 40,197 | ||||||||||||||||
Cash and cash equivalents, beginning of period |
160,080 | | 160,080 | 50,471 | | 50,471 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 127,294 | $ | | $ | 127,294 | $ | 90,668 | $ | | $ | 90,668 |
153
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in 13a-15(e) and 15d-15(e) under the Exchange Act. Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2013. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2013, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting related to (i) costing of solar energy system installations, (ii) accounting for and classification of redeemable noncontrolling interests, (iii) segregation of incompatible duties at our lease administrator and our controls over the data received from the administrator, and (iv) certain areas of our financial statement close process.
Managements Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (1992 framework). Based on our evaluation under the COSO framework, management concluded that our internal control over financial reporting was ineffective as of December 31, 2013 as a result of the material weaknesses described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We have identified the following material weaknesses in our internal control over financial reporting:
| We failed to design and maintain effective controls over the costing of our solar energy system installations. Specifically, we did not accurately calculate the burden ratio used to allocate overhead expenses between solar energy systems leased and to be leased, work in process inventory and cost of solar energy systems sales. In addition, the operation of our control over the costing of direct labor was ineffective as of December 31, 2013. |
| We also failed to design and maintain effective controls over the accounting for redeemable noncontrolling interests in our VIE arrangements. The contractual provisions in those arrangements allow the investor to either (i) require us to purchase their interests in the arrangement or (ii) withdraw from the fund in exchange for cash. Specifically, we misapplied the provisions of ASC |
154
480-10-S99-3A, Distinguishing Liabilities from Equity, and ASU 2009-04, Accounting for Redeemable Equity Instruments, related to the accounting for and classification of redeemable noncontrolling interests as temporary rather than permanent equity and did not account for the redemption value in the balance of the redeemable noncontrolling interests. |
| Our service provider responsible for lease administration was unable to demonstrate effective internal controls over the information technology systems management policies and procedures to ensure adequate segregation of incompatible duties. As a result, reports provided by this vendor which are an input to our operating lease and financial statement close processes may not be reliable. In addition, we had design and operational deficiencies relating to our controls over the data received from the administrator. |
| In consideration of the above material weaknesses and the aggregation of other control deficiencies, we concluded there also is a material weakness in controls over certain aspects of the financial statement close process. Specifically, controls over areas such as the appropriate application of accounting standards to stock-based compensation for performance awards, classification of stock-based compensation non-cash charges in the consolidated statement of cash flows, the classification of lease contracts, income tax disclosures and the review of certain financial models relating to design, set up and administration of lease pass-through agreements was determined to be ineffective. |
As a result of these errors which occurred but were not detected by our controls, our consolidated financial statements for the years ended December 31, 2012 and 2011, the statements of convertible redeemable preferred stock and equity as of January 1, 2011 and the unaudited condensed consolidated financial statements included in our Quarterly Reports on Forms 10-Q for the periods ended March 31, 2013 and 2012, June 30, 2013 and 2012 and September 30, 2013 and 2012 have been restated.
Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
As permitted by SEC regulations, managements evaluation of internal control over financial reporting excluded the internal control activities of Zep Solar, Inc., which we acquired effective as of December 11, 2013, which entity is included in our December 31, 2013 consolidated financial statements and constitutes $193.4 million or 7% of total assets as of December 31, 2013, and contributed a net loss of $1.2 million for the period from the acquisition date through December 31, 2013.
Ernst & Young LLP, our independent registered public accounting firm, has issued a report on the effectiveness of our internal control over financial reporting, which is included herein.
Remediation Efforts to Address Material Weaknesses
In response to the material weaknesses identified above, we have performed additional procedures to analyze the allocation of overhead expenses, reviewed all of our VIE arrangements for provisions to be accounted under ASC 480-10-S99-3A and ASU 2009-04, and performed various procedures to corroborate the data provided by our lease administrator. In addition, we have performed incremental procedures over the data and analyses used in the financial statement close process.
To remediate the material weaknesses described above and prevent similar deficiencies in the future, we are implementing and evaluating new controls and procedures, including the following:
| Two layers of additional detail review of our overhead allocation work-papers. |
155
| Three additional overhead reconciliation corroborative methods to be utilized each period. |
| Additional reconciliation and monitoring activities have been implemented for processes involving outside service providers. |
| We are evaluating additional policies, improved processes and documented procedures relating to our financial statement close processes and procedures. |
| We are evaluating additional automated accounting procedures and software systems. |
| We are evaluating the need to hire additional accounting personnel as well as additional training for our accounting personnel. |
In addition, our lease administration vendor has committed to remediating the identified control deficiencies prior to June 30, 2014.
We expect that the remediation of these material weaknesses will be completed prior to June 30, 2014. However, we cannot make any assurances that we will successfully remediate these material weaknesses within our anticipated timeframe.
Changes in Internal Control Over Financial Reporting
With the oversight of senior management and our audit committee, we have begun taking the steps set forth above and plan to take additional measures to remediate the underlying causes of the material weaknesses.
Other than with respect to the ongoing remediation of the material weaknesses pursuant to the plan described above, there has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our organization have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
156
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
SolarCity Corporation
We have audited SolarCity Corporations internal control over financial reporting as of December 31, 2013, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). SolarCity Corporations management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed 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. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Annual Report on Internal Control Over Financial Reporting, managements assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Zep Solar, Inc., which entity is included in the 2013 consolidated financial statements of SolarCity Corporation and constituted $193.4 million and $183.3 million of total and net assets, respectively, as of December 31, 2013 and $0.1 million and $1.2 million of revenue and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of SolarCity Corporation also did not include an evaluation of the internal control over financial reporting of Zep Solar, Inc.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in managements assessment. Management has identified material weaknesses in controls related to the Companys costing of overhead expenses, accounting for and classification of redeemable noncontrolling interests, segregation of incompatible duties at the Companys lease administrator and controls at the Company over the data received from the administrator and certain areas of the financial
157
statement close process relating to areas such as stock based compensation, classification of lease contracts, income tax disclosures and review of certain financial models. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of SolarCity Corporation as of December 31, 2013 and 2012 and the related consolidated statements of operations, convertible redeemable preferred stock and equity and cash flows for each of the three years in the period ended December 31, 2013. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of those financial statements, and this report does not affect our report dated March 18, 2014, which expressed an unqualified opinion on those financial statements.
In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, SolarCity Corporation has not maintained effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.
/s/ Ernst & Young LLP
Redwood City, California
March 18, 2014
158
None.
159
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item 10 of Form 10-K that is found in our 2013 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2014 Annual Meeting of Stockholders (2013 Proxy Statement) is incorporated by reference to our 2013 Proxy Statement. The 2013 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K that is found in our 2013 Proxy Statement is incorporated by reference to our 2013 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 of Form 10-K that is found in our 2013 Proxy Statement is incorporated by reference to our 2013 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 of Form 10-K that is found in our 2013 Proxy Statement is incorporated by reference to our 2013 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Form 10-K that is found in our 2013 Proxy Statement is incorporated by reference to our 2013 Proxy Statement.
160
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this report are as follows:
1. Financial Statements
Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements under Part II, Item 8 of this report.
2. Financial Statement Schedules
The required information is included elsewhere in this report, not applicable, or not material.
3. Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report.
161
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 18, 2014.
SOLARCITY CORPORATION | ||
By: | /s/ Lyndon R. Rive | |
Lyndon R. Rive | ||
Chief Executive Officer |
162
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lyndon R. Rive and Robert D. Kelly, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
Signature |
Title |
Date | ||
/s/ Lyndon R. Rive Lyndon R. Rive |
Founder, Chief Executive Officer and Director (Principal Executive Officer) | March 18, 2014 | ||
/s/ Robert D. Kelly Robert D. Kelly |
Chief Financial Officer (Principal Accounting and Financial Officer) | March 18, 2014 | ||
/s/ Peter J. Rive Peter J. Rive |
Founder, Chief Technology Officer and Director | March 18, 2014 | ||
/s/ Elon Musk Elon Musk |
Chairman of the Board of Directors | March 18, 2014 | ||
/s/ John H. N. Fisher John H. N. Fisher |
Director | March 18, 2014 | ||
/s/ Antonio J. Gracias Antonio J. Gracias |
Director | March 18, 2014 | ||
/s/ Donald R. Kendall, Jr. Donald R. Kendall, Jr. |
Director | March 18, 2014 | ||
/s/ Nancy E. Pfund Nancy E. Pfund |
Director | March 18, 2014 | ||
/s/ Jeffrey B. Straubel Jeffrey B. Straubel |
Director | March 18, 2014 | ||
/s/ Bennet Van de Bunt Bennet Van de Bunt |
Director | March 18, 2014 |
163
EXHIBIT INDEX
Exhibit |
Exhibit Description |
Form | File No. | Incorporated by Reference |
Exhibit Filing Date | |||||
2.1 | Asset Purchase Agreement, dated as of August 13, 2013, by and among the Registrant, Poppy Acquisition LLC, Paramount GR Holdings, LLC and Paramount Energy Solutions, LLC | 8-K | 001-35758 | 2.1 | August 19, 2013 | |||||
2.2 | Agreement and Plan of Merger, dated as of October 8, 2013, by and among the Registrant, Zoom Acquisition Corporation, Zoom Acquisition LLC, Zep Solar, Inc., Shareholder Representative Services LLC and U.S. Bank National Association, as Escrow Agent | 8-K | 001-35758 | 2.1 | October 10, 2013 | |||||
3.1 | Amended and Restated Certificate of Incorporation of the Registrant | 10-K | 001-35758 | 3.1 | March 27, 2013 | |||||
3.2 | Amended and Restated Bylaws of the Registrant | 10-K | 001-35758 | 3.2 | March 27, 2013 | |||||
4.1 | Form of Common Stock Certificate of the Registrant | S-1/A | 333-184317 | 4.1 | November 27, 2012 | |||||
4.2 | Form of Warrant | S-1 | 333-184317 | 4.2 | October 5, 2012 | |||||
4.3 | Seventh Amended and Restated Investors Rights Agreement by and among the Registrant and certain stockholders of the Registrant, dated February 24, 2012 | S-1 | 333-184317 | 4.4 | October 5, 2012 | |||||
4.4 | Indenture, dated as of October 21, 2013, by and between the Registrant and Wells Fargo Bank National Association, including the form of senior convertible notes contained therein | 8-K | 001-35758 | 4.1 | October 21, 2013 | |||||
10.1* | Form of Indemnification Agreement for directors and executive officers | S-1 | 333-184317 | 10.1 | October 5, 2012 | |||||
10.2* | 2007 Stock Plan and form of agreements used thereunder | S-1 | 333-184317 | 10.2 | October 5, 2012 | |||||
10.3* | 2012 Equity Incentive Plan and form of agreements used thereunder | S-1 | 333-184317 | 10.3 | October 5, 2012 | |||||
10.4* | 2012 Employee Stock Purchase Plan and form of agreements used thereunder | S-1 | 333-184317 | 10.4 | October 5, 2012 | |||||
10.5 | Office Lease Agreement, between Locon San Mateo, LLC and the Registrant, dated as of July 30, 2010 | S-1 | 333-184317 | 10.5 | October 5, 2012 | |||||
10.5a | First Amendment to Lease, between Locon San Mateo, LLC and the Registrant, dated as of November 15, 2010 | S-1 | 333-184317 | 10.5a | October 5, 2012 |
164
Exhibit |
Exhibit Description |
Form | File No. | Incorporated by Reference |
Exhibit Filing Date | |||||
10.5b | Second Amendment to Lease, between Locon San Mateo, LLC and the Registrant, dated as of March 31, 2011 | S-1 | 333-184317 | 10.5b | October 5, 2012 | |||||
10.9* | Offer Letter between the Registrant and Robert D. Kelly, dated October 6, 2011 | S-1 | 333-184317 | 10.9 | October 5, 2012 | |||||
10.10** | Credit Agreement among the Registrant, Bank of America, N.A. and other banks and financial institutions party thereto, dated as of September 10, 2012 | S-1 | 333-184317 | 10.10 | October 5, 2012 | |||||
10.10a | Amendment to Credit Agreement, dated as of October 12, 2012, among the Registrant, Bank of America, N.A., as Administrative Agent and the lenders party thereto | 8-K | 001-35758 | 10.10a | June 24, 2013 | |||||
10.10b | Amendment to Credit Agreement, dated as of November 9, 2012, among the Registrant, Bank of America, N.A., as Administrative Agent and the lenders party thereto | 8-K | 001-35758 | 10.10b | June 24, 2013 | |||||
10.10c | Amendment to Credit Agreement, dated as of December 31, 2012, among the Registrant, Bank of America, N.A., as Administrative Agent and the lenders party thereto | 8-K | 001-35758 | 10.10c | June 24, 2013 | |||||
10.10d | Amendment Number One to Credit Agreement, dated as of June 18, 2013, among the Registrant, Bank of America, N.A., as Administrative Agent and the lenders party thereto | 8-K | 001-35758 | 10.10d | June 24, 2013 | |||||
10.10e** | Amended and Restated Credit Agreement among the Registrant, Bank of America, N.A. and other banks and financial institutions party thereto, dated as of November 1, 2013 | |||||||||
10.11** | Loan Agreement between City UB Solar, LLC (an indirect wholly owned subsidiary of the Registrant) and Union Bank, N.A., dated as of February 8, 2013 | 10-Q | 001-35758 | 10.11 | May 15, 2013 | |||||
10.12** | Loan Agreement among AU Solar 1, LLC (an indirect wholly owned subsidiary of the Registrant), as borrower, Credit Suisse Securities (USA) LLC, ING Capital LLC and Rabobank, N.A., as joint lead arrangers, Credit Suisse AG, Cayman Islands Branch, as collateral agent and administrative agent, and the lenders parties thereto, dated as of June 7, 2013 | 10-Q | 001-35758 | 10.12 | August 9, 2013 |
165
Exhibit |
Exhibit Description |
Form | File No. | Incorporated by Reference |
Exhibit Filing Date | |||||
10.12a** | Amendment No. 1 to Loan Agreement among AU Solar 1, LLC (an indirect wholly owned subsidiary of the Registrant), as borrower, Credit Suisse Securities (USA) LLC, ING Capital LLC and Rabobank, N.A., as joint lead arrangers, Credit Suisse AG, Cayman Islands Branch, as collateral agent and administrative agent, and the lenders parties thereto, dated as of December 6, 2013 | |||||||||
10.13* | Zep Solar, Inc. 2010 Equity Incentive Plan and form of agreements used thereunder | S-8 | 333-192996 | 4.5 | December 20, 2013 | |||||
21.1 | List of Subsidiaries | |||||||||
23.1 | Consent of Independent Registered Public Accounting Firm | |||||||||
24.1 | Power of Attorney (contained in the signature page to this Annual Report on Form 10-K) | |||||||||
31.1 | Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |||||||||
31.2 | Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |||||||||
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
101.INS | XBRL Instance Document. | |||||||||
101.SCH | XBRL Taxonomy Extension Schema Linkbase Document. | |||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
166
Exhibit |
Exhibit Description |
Form | File No. | Incorporated by Reference |
Exhibit Filing Date | |||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Indicates a management contract or compensatory plan or arrangement. |
** | Registrant has omitted portions of the relevant exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 under the Securities Act of 1933, as amended. |
| The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of SolarCity Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing. |
| XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections. |
167
Exhibit 10.10e
CONFIDENTIAL TREATMENT REQUESTED
Certain portions of this document have been omitted pursuant to a request for Confidential Treatment and, where applicable, have been marked with [***] to indicate where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
Published CUSIP Number: 83414VAG2
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 1, 2013
among
SOLARCITY CORPORATION,
as the Borrower,
THE SUBSIDIARIES OF THE BORROWER PARTY HERETO,
as the Guarantors,
BANK OF AMERICA, N.A.,
as Administrative Agent, Swingline Lender and
L/C Issuer,
and
THE LENDERS PARTY HERETO
BANK OF AMERICA MERRILL LYNCH,
as Sole Lead Arranger and Sole Book Manager
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS |
1 | |||||
Section 1.01 |
Defined Terms |
1 | ||||
Section 1.02 |
Other Interpretive Provisions |
35 | ||||
Section 1.03 |
Accounting Terms |
35 | ||||
Section 1.04 |
Rounding |
36 | ||||
Section 1.05 |
Times of Day |
36 | ||||
Section 1.06 |
Letter of Credit Amounts |
36 | ||||
Section 1.07 |
UCC Terms |
36 | ||||
ARTICLE II COMMITMENTS AND CREDIT EXTENSIONS |
37 | |||||
Section 2.01 |
Loans |
37 | ||||
Section 2.02 |
Borrowings, Conversions and Continuations of Loans |
37 | ||||
Section 2.03 |
Letters of Credit |
39 | ||||
Section 2.04 |
Swingline Loans |
46 | ||||
Section 2.05 |
Prepayments |
49 | ||||
Section 2.06 |
Termination or Reduction of Commitments |
50 | ||||
Section 2.07 |
Repayment of Loans |
50 | ||||
Section 2.08 |
Interest and Default Rate |
51 | ||||
Section 2.09 |
Fees |
51 | ||||
Section 2.10 |
Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate |
52 | ||||
Section 2.11 |
Evidence of Debt |
52 | ||||
Section 2.12 |
Payments Generally; Administrative Agents Clawback |
53 | ||||
Section 2.13 |
Sharing of Payments by Lenders |
54 | ||||
Section 2.14 |
Cash Collateral |
55 | ||||
Section 2.15 |
Defaulting Lenders |
56 | ||||
Section 2.16 |
Increase in Facility. |
58 | ||||
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY |
59 | |||||
Section 3.01 |
Taxes |
59 | ||||
Section 3.02 |
Illegality |
63 | ||||
Section 3.03 |
Inability to Determine Rates |
64 | ||||
Section 3.04 |
Increased Costs; Reserves on Eurodollar Rate Loans |
64 | ||||
Section 3.05 |
Compensation for Losses |
66 | ||||
Section 3.06 |
Mitigation Obligations; Replacement of Lenders |
66 | ||||
Section 3.07 |
Survival |
67 | ||||
ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS |
67 | |||||
Section 4.01 |
Conditions of Initial Credit Extension |
67 | ||||
Section 4.02 |
Conditions to all Credit Extensions |
69 | ||||
ARTICLE V REPRESENTATIONS AND WARRANTIES |
70 | |||||
Section 5.01 |
Existence, Qualification and Power |
70 | ||||
Section 5.02 |
Authorization; No Contravention |
70 | ||||
Section 5.03 |
Governmental Authorization; Other Consents |
70 | ||||
Section 5.04 |
Binding Effect |
71 |
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Section 5.05 |
Financial Statements; No Material Adverse Effect |
71 | ||||
Section 5.06 |
Litigation |
71 | ||||
Section 5.07 |
No Default |
71 | ||||
Section 5.08 |
Ownership of Property |
72 | ||||
Section 5.09 |
Environmental Compliance |
72 | ||||
Section 5.10 |
Insurance |
72 | ||||
Section 5.11 |
Taxes |
73 | ||||
Section 5.12 |
ERISA Compliance |
73 | ||||
Section 5.13 |
Margin Regulations; Investment Company Act |
74 | ||||
Section 5.14 |
Disclosure |
74 | ||||
Section 5.15 |
Compliance with Laws |
74 | ||||
Section 5.16 |
Solvency |
74 | ||||
Section 5.17 |
Casualty, Etc. |
74 | ||||
Section 5.18 |
Sanctions Concerns |
75 | ||||
Section 5.19 |
Responsible Officers |
75 | ||||
Section 5.20 |
Subsidiaries; Equity Interests; Loan Parties |
75 | ||||
Section 5.21 |
Collateral Representations |
75 | ||||
Section 5.22 |
Intellectual Property; Licenses, Etc. |
77 | ||||
Section 5.23 |
Labor Matters |
77 | ||||
Section 5.24 |
Available Take-Out |
77 | ||||
Section 5.25 |
Immaterial Subsidiaries |
78 | ||||
ARTICLE VI AFFIRMATIVE COVENANTS |
78 | |||||
Section 6.01 |
Financial Statements |
78 | ||||
Section 6.02 |
Certificates; Other Information |
79 | ||||
Section 6.03 |
Notices |
82 | ||||
Section 6.04 |
Payment of Obligations |
82 | ||||
Section 6.05 |
Preservation of Existence, Etc. |
83 | ||||
Section 6.06 |
Maintenance of Properties |
83 | ||||
Section 6.07 |
Maintenance of Insurance |
83 | ||||
Section 6.08 |
Compliance with Laws |
84 | ||||
Section 6.09 |
Books and Records |
84 | ||||
Section 6.10 |
Inspection Rights |
84 | ||||
Section 6.11 |
Use of Proceeds |
85 | ||||
Section 6.12 |
Material Contracts |
85 | ||||
Section 6.13 |
Covenant to Guarantee Obligations |
85 | ||||
Section 6.14 |
Covenant to Give Security |
85 | ||||
Section 6.15 |
Further Assurances |
86 | ||||
Section 6.16 |
Compliance with Environmental Laws |
87 | ||||
Section 6.17 |
Zep Acquisition Post Closiing Conditions |
87 | ||||
Section 6.18 |
[***] |
87 | ||||
Section 6.19 |
Puerto Rico Certificate of Good Standing |
87 | ||||
ARTICLE VII NEGATIVE COVENANTS |
87 | |||||
Section 7.01 |
Liens |
88 | ||||
Section 7.02 |
Indebtedness |
89 | ||||
Section 7.03 |
Investments |
91 | ||||
Section 7.04 |
Fundamental Changes |
92 | ||||
Section 7.05 |
Dispositions |
93 | ||||
Section 7.06 |
Restricted Payments |
94 |
ii
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Section 7.07 |
Change in Nature of Business |
94 | ||||
Section 7.08 |
Transactions with Affiliates |
95 | ||||
Section 7.09 |
Burdensome Agreements |
95 | ||||
Section 7.10 |
Use of Proceeds |
95 | ||||
Section 7.11 |
Financial Covenants |
95 | ||||
Section 7.12 |
Capital Expenditures |
96 | ||||
Section 7.13 |
Amendments of Organization Documents; Fiscal Year; Legal Name, State of Formation; Form of Entity and Accounting Changes |
96 | ||||
Section 7.14 |
Sale and Leaseback Transactions |
96 | ||||
Section 7.15 |
Host Customer Agreements |
96 | ||||
Section 7.16 |
General |
96 | ||||
Section 7.17 |
Prepayment of Notes |
97 | ||||
Section 7.18 |
[***] Agreement |
97 | ||||
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES |
97 | |||||
Section 8.01 |
Events of Default |
97 | ||||
Section 8.02 |
Remedies upon Event of Default |
99 | ||||
Section 8.03 |
Application of Funds |
100 | ||||
ARTICLE IX ADMINISTRATIVE AGENT |
101 | |||||
Section 9.01 |
Appointment and Authority |
101 | ||||
Section 9.02 |
Rights as a Lender |
101 | ||||
Section 9.03 |
Exculpatory Provisions |
102 | ||||
Section 9.04 |
Reliance by Administrative Agent |
103 | ||||
Section 9.05 |
Delegation of Duties |
103 | ||||
Section 9.06 |
Resignation of Administrative Agent |
103 | ||||
Section 9.07 |
Non-Reliance on Administrative Agent and Other Lenders |
105 | ||||
Section 9.08 |
No Other Duties, Etc. |
105 | ||||
Section 9.09 |
Administrative Agent May File Proofs of Claim; Credit Bidding |
105 | ||||
Section 9.10 |
Collateral and Guaranty Matters |
106 | ||||
Section 9.11 |
Secured Cash Management Agreements and Secured Hedge Agreements |
107 | ||||
ARTICLE X CONTINUING GUARANTY |
108 | |||||
Section 10.01 |
Guaranty |
108 | ||||
Section 10.02 |
Rights of Lenders |
108 | ||||
Section 10.03 |
Certain Waivers |
108 | ||||
Section 10.04 |
Obligations Independent |
109 | ||||
Section 10.05 |
Subrogation |
109 | ||||
Section 10.06 |
Termination; Reinstatement |
109 | ||||
Section 10.07 |
Stay of Acceleration |
109 | ||||
Section 10.08 |
Condition of Borrower |
109 | ||||
Section 10.09 |
Appointment of Borrower |
110 | ||||
Section 10.10 |
Right of Contribution |
110 | ||||
Section 10.11 |
Keepwell |
110 | ||||
ARTICLE XI MISCELLANEOUS |
110 | |||||
Section 11.01 |
Amendments, Etc. |
110 | ||||
Section 11.02 |
Notices; Effectiveness; Electronic Communications |
112 | ||||
Section 11.03 |
No Waiver; Cumulative Remedies; Enforcement |
114 | ||||
Section 11.04 |
Expenses; Indemnity; Damage Waiver |
115 |
iii
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Section 11.05 |
Payments Set Aside |
117 | ||||
Section 11.06 |
Successors and Assigns |
117 | ||||
Section 11.07 |
Treatment of Certain Information; Confidentiality |
121 | ||||
Section 11.08 |
Right of Setoff |
122 | ||||
Section 11.09 |
Interest Rate Limitation |
123 | ||||
Section 11.10 |
Counterparts; Integration; Effectiveness |
123 | ||||
Section 11.11 |
Survival of Representations and Warranties |
123 | ||||
Section 11.12 |
Severability |
123 | ||||
Section 11.13 |
Replacement of Lenders |
124 | ||||
Section 11.14 |
Governing Law; Jurisdiction; Etc. |
124 | ||||
Section 11.15 |
Waiver of Jury Trial |
125 | ||||
Section 11.16 |
Subordination |
126 | ||||
Section 11.17 |
No Advisory or Fiduciary Responsibility |
126 | ||||
Section 11.18 |
Electronic Execution of Assignments and Certain Other Documents |
127 | ||||
Section 11.19 |
USA PATRIOT Act Notice |
127 | ||||
Section 11.20 |
Time of the Essence |
127 | ||||
Section 11.21 |
No Novation |
127 |
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BORROWER PREPARED SCHEDULES
Schedule 1.01(c) |
Authorized Officers | |
Schedule 1.01(i) |
Investment Policy | |
Schedule 5.10 |
Insurance | |
Schedule 5.12 |
Pension Plans | |
Schedule 5.20(a) |
Subsidiaries, Partnerships and Other Equity Investments | |
Schedule 5.20(b) |
Loan Parties | |
Schedule 5.21(b) |
Intellectual Property | |
Schedule 5.21(c) |
Documents, Instrument, and Tangible Chattel Paper | |
Schedule 5.21(d)(i) |
Deposit Accounts & Securities Accounts | |
Schedule 5.21(d)(ii) |
Electronic Chattel Paper & Letter-of-Credit Rights | |
Schedule 5.21(e) |
Commercial Tort Claims | |
Schedule 5.21(f) |
Pledged Equity Interests | |
Schedule 5.21(g)(i) |
Mortgaged Properties | |
Schedule 5.21(g)(ii) |
Other Properties | |
Schedule 5.21(h) |
Material Contracts | |
Schedule 7.01 |
Existing Liens | |
Schedule 7.02 |
Existing Indebtedness | |
Schedule 7.03 |
Existing Investments |
ADMINISTRATIVE AGENT PREPARED SCHEDULES
Schedule 1.01(a) |
Certain Addresses for Notices | |
Schedule 1.01(b) |
Initial Commitments and Applicable Percentages | |
Schedule 1.01(e) |
Mortgaged Property Support Documentation |
EXHIBITS
Exhibit A |
Form of Administrative Questionnaire | |
Exhibit B |
Form of Assignment and Assumption | |
Exhibit C |
Form of Compliance Certificate | |
Exhibit D |
Form of Joinder Agreement | |
Exhibit E |
Form of Loan Notice | |
Exhibit F |
Form of Permitted Acquisition Certificate | |
Exhibit G |
Form of Revolving Note | |
Exhibit H |
Form of Secured Party Designation Notice | |
Exhibit I |
Form of Solvency Certificate | |
Exhibit J |
Form of Swingline Loan Notice | |
Exhibit K |
Form of Officers Certificate | |
Exhibit L |
Forms of U.S. Tax Compliance Certificates | |
Exhibit M |
Form of Funding Indemnity Letter | |
Exhibit N-1 |
Form of Bailee Agreement | |
Exhibit N-2 |
Form of Landlord Waiver | |
Exhibit O |
Form of Financial Condition Certificate | |
Exhibit P |
Form of Authorization to Share Insurance Information | |
Exhibit Q |
Form of Borrowing Base Certificate | |
Exhibit R |
Form of Back-Log Spreadsheet | |
Exhibit S |
Form of Take-Out Spreadsheet | |
Exhibit T |
Form of Unencumbered Liquidity Certificate |
The registrant agrees to furnish to the Securities and Exchange Commission upon request a copy of any omitted schedule or exhibit.
v
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AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of November 1, 2013, among SOLARCITY CORPORATION, a Delaware corporation (the Borrower), the Guarantors (defined herein), the Lenders (defined herein), and BANK OF AMERICA, N.A., as Administrative Agent, Swingline Lender and L/C Issuer.
PRELIMINARY STATEMENTS:
WHEREAS, Borrower, various lenders party thereto, and Administrative Agent, as agent for such lenders have entered into that certain Credit Agreement, dated as of September 10, 2012 (as amended, the Existing Credit Agreement);
WHEREAS, , Borrower, Administrative Agent and the Lenders have agreed to amend and restate the Existing Credit Agreement to modify certain terms thereof;
NOW THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Lenders, the Administrative Agent, and Borrower hereby agree to amend and restate the Existing Credit Agreement as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Defined Terms.
As used in this Agreement, the following terms shall have the respective meanings set forth below:
2013 Indenture means the Indenture, dated as of October 21, 2013, between the Borrower and Wells Fargo, National Association, as trustee
Activity Basis means recognizing all past, current and future revenue, expenses and associated income from a project at the time (i) with respect to photovoltaic projects, a project passes any and all city inspections required in such projects jurisdiction and (ii) with respect to projects that are not solar photovoltaic projects, a project is complete.
Acquisition means the acquisition, whether through a single transaction or a series of related transactions, of (a) majority of the Voting Stock or other controlling ownership interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity or other ownership interest or upon the exercise of an option or warrant for, or conversion of securities into, such equity or other ownership interest, or (b) assets of another Person which constitute all or substantially all of the assets of such Person or of a division, line of business or other business unit of such Person.
1
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Additional Secured Obligations means (a) all obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements and (b) all costs and expenses incurred in connection with enforcement and collection of the foregoing, including the fees, charges and disbursements of counsel, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding; provided that, Additional Secured Obligations of a Guarantor shall exclude any Excluded Swap Obligations with respect to such Guarantor.
Administrative Agent means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
Administrative Agents Office means the Administrative Agents address and, as appropriate, account as set forth on Schedule 1.01(a), or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire in substantially the form of Exhibit A or any other form approved by the Administrative Agent.
Affiliate means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Aggregate Commitments means the Commitments of all the Lenders.
Agreement means this Credit Agreement.
Applicable Percentage means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Facility represented by such Lenders Commitment at such time, subject to adjustment as provided in Section 2.15. If the Commitment of all of the Lenders to make Revolving Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, or if the Commitments have expired, then the Applicable Percentage of each Lender in respect of the Facility shall be determined based on the Applicable Percentage of such Lender in respect of the Facility most recently in effect, giving effect to any subsequent assignments. The Applicable Percentage of each Lender in respect of the Facility is set forth opposite the name of such Lender on Schedule 1.01(b) or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, or in any documentation executed by such Lender pursuant to Section 2.16, as applicable.
Applicable Rate means, for (a) Revolving Loans that are Base Rate Loans, 2.25%, (b) Revolving Loans that are Eurodollar Rate Loans, 3.25%, (c) the Letter of Credit Fee, 3.25%, and (d) the Commitment Fee, 0.375%.
Applicable Revolving Percentage means with respect to any Lender at any time, such Lenders Applicable Percentage in respect of the Facility at such time.
Appraisal means the appraisal acquired by the Borrower every six months which (i) is from a nationally recognized third-party appraiser that (A) is qualified to appraise independent electric
2
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
generating businesses, and (B) has been engaged in the appraisal or business valuation and consulting business for no fewer than five years, (ii) (A) is approved by the applicable Tax Equity Investor and (B) shows the fair market value of new residential and commercial photovoltaic systems in each of the States of the United States in which Projects are being Tranched, in each case expressed in terms of dollars per watt of installed capacity.
Appropriate Lender means, at any time, (a) with respect to the Facility, a Lender that has a Commitment or holds a Revolving Loan at such time, (b) with respect to the Letter of Credit Sublimit, (i) the L/C Issuer and (ii) if any Letters of Credit have been issued pursuant to Section 2.03, the Lenders and (c) with respect to the Swingline Sublimit, (i) the Swingline Lender and (ii) if any Swingline Loans are outstanding pursuant to Section 2.04(a), the Lenders.
Approved Fund means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Arranger means Merrill Lynch, Pierce, Fenner & Smith Incorporated, in its capacity as sole lead arranger and sole book manager.
ARRTA means the American Recovery and Reinvestment Tax Act of 2009, Pub. L. No. 111-5, as amended.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit B or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by the Administrative Agent.
Attributable Indebtedness means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease.
Audited Financial Statements means the audited Consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2012, and the related Consolidated statements of income or operations, shareholders equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.
Availability Period means in respect of the Facility, the period from and including the Closing Date to the earliest of (i) the Maturity Date for the Facility, (ii) the date of termination of the Commitments pursuant to Section 2.06, and (iii) the date of termination of the Commitment of each Lender to make Revolving Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.
Available Take-Out means, as of a given date of determination, the aggregate of (i) each Tax Equity Investors Tax Equity Commitment less all amounts advanced by such Tax Equity Investors under such Tax Equity Commitment, and (ii) the commitment of any Backlever Financing, less all amounts advanced by the applicable lender under such Backlever Financing, in each case as set forth in the Take-Out Spreadsheet.
3
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Backlever Financing means Indebtedness for borrowed money incurred by an Excluded Subsidiary where (i) such Indebtedness is made pursuant to an accounts receivable financing, a factoring facility or other similar financing; (ii) such Indebtedness is incurred only with respect to Projects that have been Tranched; (iii) Borrower does not guaranty the payment of debt service for such Indebtedness; and (iv) the Person providing the financing for such Indebtedness maintains no interest in, right or title to any Available Take-Out (other than a Backlever Financing).
Back-Log Spreadsheet means a spreadsheet for residential, commercial and military Projects, substantially in the form attached hereto as Exhibit R, providing for the status and amount of Project Back-Log.
Bank of America means Bank of America, N.A. and its successors.
Base Rate means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate, and (c) the Eurodollar Rate plus 1.00%. The prime rate is a rate set by Bank of America based upon various factors including Bank of Americas costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
Base Rate Loan means a Revolving Loan that bears interest based on the Base Rate.
Borrower has the meaning specified in the introductory paragraph hereto.
Borrower Materials has the meaning specified in Section 6.02.
Borrowing means a Revolving Borrowing or a Swingline Borrowing, as the context may require.
Borrowing Base means, the sum of (i) the Commercial Project Formula Amount, plus (ii) the Military Project Formula Amount, plus (iii) the Residential Project Formula Amount, minus (iv) the Lien Reserve.
Borrowing Base Certificate means a certificate substantially in the form of Exhibit Q.
Borrowing Base Deficiency means, at any time of determination, the failure of the Borrowing Base to exceed the Total Outstandings. Such determination shall be made based on the most recently delivered Borrowing Base Certificate and Total Outstandings as reflected in the Register.
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agents Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day that is also a London Banking Day.
Capital Expenditures means, with respect to any Person for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding (i) acquisitions of PV Systems made in the ordinary course of business and (ii) normal replacements and maintenance which are properly charged to current operations).
4
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Capitalized Leases means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.
Cash Collateral Account means a blocked, non-interest bearing deposit account of one or more of the Loan Parties at Bank of America in the name of the Administrative Agent and under the sole dominion and control of the Administrative Agent, and otherwise established in a manner satisfactory to the Administrative Agent.
Cash Collateralize means, to pledge and deposit with or deliver to the Administrative Agent, for the benefit of one or more of the L/C Issuers or the Lenders, as collateral for L/C Obligations, the Obligations, or obligations of the Revolving Lenders to fund participations in respect of L/C Obligations, (a) cash or deposit account balances, (b) backstop letters of credit entered into on terms, from issuers and in amounts satisfactory to the Administrative Agent and the applicable L/C Issuer, and/or (c) if the Administrative Agent and the applicable L/C Issuer shall agree, in their sole discretion, other credit support, in each case, in Dollars and pursuant to documentation in form and substance satisfactory to the Administrative Agent and such L/C Issuer. Cash Collateral shall have a meaning correlative to the foregoing and shall include the proceeds of such Cash Collateral and other credit support.
Cash Consideration means, with respect to any Acquisition, as at the date of consummation of such Acquisition, the amount of any cash and fair market value or other property (excluding Equity Consideration and the unpaid principal amount of any debt instrument) given as consideration in connection with such Acquisition.
Cash Equivalents means any of the following types of investments, to the extent owned by the Borrower or any of its Subsidiaries free and clear of all Liens (other than Permitted Liens):
(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof having maturities of not more than three hundred sixty days (360) days from the date of acquisition thereof; provided that, the full faith and credit of the United States is pledged in support thereof;
(b) time deposits with, or insured certificates of deposit or bankers acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than one hundred eighty (180) days from the date of acquisition thereof;
(c) commercial paper issued by any Person organized under the laws of any state of the United States and rated at least Prime-1 (or the then equivalent grade) by Moodys or at least A-1 (or the then equivalent grade) by S&P, in each case with maturities of not more than one hundred eighty (180) days from the date of acquisition thereof; and
(d) Investments, classified in accordance with GAAP as current assets of the Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moodys or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Cash Grant means any grant under Section 1603 of ARRTA or any successor or other similar provision, including any similar provision concerning a refundable tax credit that replaces such grant program.
Cash Management Agreement means any agreement that is not prohibited by the terms hereof to provide treasury or cash management services, including deposit accounts, overnight draft, credit cards, debit cards, p-cards (including purchasing cards and commercial cards), funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services and other cash management services.
Cash Management Bank means any Person in its capacity as a party to a Cash Management Agreement that, (a) at the time it enters into a Cash Management Agreement with a Loan Party, is a Lender or an Affiliate of a Lender, or (b) at the time it (or its Affiliate) becomes a Lender, is a party to a Cash Management Agreement with a Loan Party, in each case in its capacity as a party to such Cash Management Agreement (even if such Person ceases to be a Lender or such Persons Affiliate ceased to be a Lender); provided, however, that for any of the foregoing to be included as a Secured Cash Management Agreement on any date of determination by the Administrative Agent, the applicable Cash Management Bank (other than the Administrative Agent or an Affiliate of the Administrative Agent) must have delivered a Secured Party Designation Notice to the Administrative Agent prior to such date of determination.
CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.
CERCLIS means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.
CFC means a Person that is a controlled foreign corporation under Section 957 of the Code.
Change in Law means the occurrence, after the Closing Date, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Change of Control means an event or series of events by which:
(a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) other than an Existing Shareholder becomes the beneficial
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have beneficial ownership of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an option right)), directly or indirectly, of 25% or more of the Equity Interests of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or
(b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).
Closing Date means the date hereof.
Code means the Internal Revenue Code of 1986.
Collateral means all of the Collateral and Mortgaged Property referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.
Collateral Documents means, collectively, the Security Agreement, the Mortgages, any related Mortgaged Property Support Documents, each Joinder Agreement, each of the mortgages, collateral assignments, security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent pursuant to Section 6.14, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.
Commercial Project Formula Amount means the lesser of (i) 40% of the Eligible Commercial Project Back-Log, and (ii) 70% of the Eligible Commercial Take-Out.
Commitment means, as to each Lender, its obligation to (a) make Revolving Loans to the Borrower pursuant to Section 2.01(b), (b) purchase participations in L/C Obligations, and (c) purchase participations in Swingline Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lenders name on Schedule 1.01(b) under the caption Commitment or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Commitment Fee has the meaning set forth in Section 2.09(a).
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
Compliance Certificate means a certificate substantially in the form of Exhibit C.
Connection Income Taxes means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated means, when used with reference to financial statements or financial statement items of the Borrower and its Subsidiaries or any other Person, such statements or items on a consolidated basis in accordance with the consolidation principles of GAAP.
Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
Cost of Acquisition means, with respect to any Acquisition, as at the date of entering into any agreement therefor, the sum of the following (without duplication): (a) Equity Consideration, (b) Cash Consideration, (c) the amount (determined by using the face amount or the amount payable at maturity, whichever is greater) of any Indebtedness incurred, assumed or acquired by the Borrower or any Subsidiary in connection with such Acquisition, (d) a reasonable estimate of all additional purchase price amounts in the form of earn outs and other contingent obligations that should be recorded on the financial statements of the Borrower and its Subsidiaries in accordance with GAAP in connection with such Acquisition, (e) a reasonable estimate of all amounts paid in respect of covenants not to compete, consulting agreements that should be recorded on the financial statements of the Borrower and its Subsidiaries in accordance with GAAP, and other affiliated contracts in connection with such Acquisition, and (f) the aggregate fair market value of all other consideration given by the Borrower or any Subsidiary in connection with such Acquisition.
Credit Extension means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
Customer Lease Agreement means a lease agreement entered into by Borrower and its customer, pursuant to which such customer agrees to lease a PV System from Borrower in the ordinary course of business.
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 any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Default Rate means (a) with respect to any Obligation for which a rate is specified, a rate per annum equal to two percent (2%) in excess of the rate otherwise applicable thereto and (b) with respect to any Obligation for which a rate is not specified or available, a rate per annum equal to the Base Rate plus the Applicable Rate for Revolving Loans that are Base Rate Loans plus two percent (2%), in each case, to the fullest extent permitted by applicable Law.
Defaulting Lender means, subject to Section 2.15(b), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lenders determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, the L/C Issuer, the Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two (2) Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent, the L/C Issuer or the Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lenders obligation to fund a Loan hereunder and states that such position is based on such Lenders determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that, a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.15(b)) as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Borrower, the L/C Issuer, the Swingline Lender and each other Lender promptly following such determination.
Deposit Account has the meaning set forth in the UCC.
Designated Jurisdiction means any country or territory to the extent that such country or territory is the subject of any Sanction.
Disposition or Dispose means the sale, transfer, license, lease or other disposition (including any Sale and Leaseback Transaction) of any property by any Loan Party or Subsidiary (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Dollar and $ mean lawful money of the United States.
Domestic Subsidiary means any Subsidiary that is organized under the laws of any political subdivision of the United States, including the Commonwealth of Puerto Rico.
Eligible Assignee means any Person that meets the requirements to be an assignee under Section 11.06 (subject to such consents, if any, as may be required under Section 11.06(b)(iii)).
Eligible Commercial Project Back-Log means the Eligible Project Back-Log for PV Systems to be installed on commercial property.
Eligible Commercial Take-Out means Eligible Take-Out which is available for the purchase, lease or financing of PV Systems that make up Eligible Commercial Project Back-Log.
Eligible Military Project Back-Log means the Eligible Project Back-Log for PV Systems which are to be installed on property located on military bases.
Eligible Military Take-Out means Eligible Take-Out which is available for the purchase, lease or financing of PV Systems that make up Eligible Military Project Back-Log.
Eligible Project Back-Log means the Project Back-Log except for the following, which shall be deemed ineligible:
(a) 20% of residential Projects for which the period of time during which the applicable customer can terminate the Host Customer Agreement has not yet expired;
(b) residential Projects set forth in SolarWorks as being in the permit phase for more than [***] after being included in Project Back-Log;
(c) commercial Projects set forth in SolarWorks as being in the permit phase for more than [***] after being included in Project Back-Log;
(d) military Projects set forth in SolarWorks as being in the permit phase for more than [***] after being included in Project Back-Log;
(e) Projects which are purchased in cash by a customer (to the extent included in Project Back-Log);
(f) a Project to be installed on the property of a customer of Borrower if the Project Back-Log with respect to Projects for such customer exceeds 15% of the total Project Back-Log; provided, that ineligibility shall only apply to such excess and such limitation shall not apply to Projects provided to customers that have obtained an unsecured public debt rating of A or better from either Moodys or S&P;
(g) Projects to be Tranched in order to cure the True-Up Liability;
(h) a Project which has been identified for Tranching using Available Take-Out which is not Eligible Take-Out; and
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
(i) Projects expressly deemed ineligible by the Administrative Agent pursuant to Section 2.01(b)(i) herein.
Eligible Residential Project Back-Log means the Eligible Project Back-Log for PV Systems which are to be installed on residential property.
Eligible Residential Take-Out means Eligible Take-Out which is available for the purchase, lease or financing of PV Systems which make up Eligible Residential Project Back-Log.
Eligible Take-Out means the Available Take-Out except for the following, which shall be deemed ineligible:
(a) Available Take-Out provided by any Person (i) that has disputed its obligation to fund such Available Take-Out, (ii) that generally made statements that it is unable to satisfy its funding obligations, or (iii) for which any Person may have any claim, demand, or liability whether by action, suit, counterclaim or otherwise against such Available Take-Out;
(b) the Person providing such Available Take-Out is the subject of any action or proceeding of a type described in Section 8.01(f);
(c) the Available Take-Out is obtained from any facility other than (i) a Tax Equity Commitment under a Partnership Flip Structure, Sale-Leaseback Structure or Inverted Lease Structure, (ii) Backlever Financing, or (iii) other financings acceptable to Administrative Agent and Required Lenders;
(d) Available Take-Out provided by a Person who has the right of offset with respect to any amounts owed to such Person by Borrower or its Subsidiaries; provided, that ineligibility shall be limited to the amount of such set-off;
(e) Tax Equity Commitments or commitment of Backlever Financing expressly deemed ineligible by the Administrative Agent pursuant to Section 2.01(b)(ii) herein; and
(f) Any Available Take-Out with respect to which a default has occurred and is continuing under the documents governing the applicable Tax Equity Commitments or Backlever Financing.
Environmental Laws means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Environmental Permit means any permit, approval, identification number, license or other authorization required under any Environmental Law.
Equity Consideration means, with respect to any Acquisition, as at the date of consummation of such Acquisition, the ratio, stated as a percentage, of (i) the Equity Interests of the Borrower or any Subsidiary to be transferred in connection with such Acquisition, to (ii) the total Equity Interests of the Borrower, plus the Equity Interests of the Borrower or any Subsidiary to be transferred in connection with such Acquisition. For purposes of determining the Equity Consideration for any transaction, the Equity Interests of Borrower shall be valued in accordance with GAAP.
Equity Interests means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding.
ERISA means the Employee Retirement Income Security Act of 1974.
ERISA Affiliate means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
ERISA Event means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a substantial employer as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
Eurodollar Rate means:
(a) for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the London Interbank Offered Rate (LIBOR), or a comparable or successor rate which rate is approved by the Administrative Agent, as published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) (in such case, the LIBOR Rate) at or about 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; and
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to the LIBOR Rate, at or about 11:00 a.m., London time, two (2) Business Days prior to such date for Dollar deposits with a term of one (1) month commencing that day;
provided that, to the extent a comparable or successor rate is approved by the Administrative Agent in connection herewith, the approved rate shall be applied in a manner consistent with market practice; provided, further that to the extent such market practice is not administratively feasible for the Administrative Agent, such approved rate shall be applied in a manner as otherwise reasonably determined by the Administrative Agent.
Eurodollar Rate Loan means a Revolving Loan that bears interest at a rate based on clause (a) of the definition of Eurodollar Rate.
Event of Default has the meaning specified in Section 8.01.
Excluded Property means, with respect to any Loan Party, (a) any owned or leased real property which is located outside of the United States, (b) any Intellectual Property, (c) the Equity Interests of or in any Excluded Subsidiary, (d) the Equity Interests of any Foreign Subsidiary of any Loan Party to the extent not required to be pledged to secure the Secured Obligations pursuant to the Collateral Documents, and (e) any SREC that (i) has been sold pursuant to a forward purchase contract or a payment upon delivery contract (ii) is subject to the interest of a third party in connection with the monetization of such SREC, and (iii) by the terms of the assignment of such SREC, automatically reverts back to an Excluded Subsidiary after the occurrence of any event.
Excluded Subsidiaries means (i) any existing or future acquired or formed special purpose Subsidiary without employees in which Borrower holds a direct or indirect interest, established for the purpose of acquiring, leasing, operating, owning or financing energy systems and any SRECs, directly or indirectly, including but not limited to solar photovoltaic, battery storage, geothermal and other renewable energy technologies, in each case, whose (A) committed financing or equity contribution proceeds are included in the calculation of Available Take-Out, (B) Tax Equity Commitments have been fully deployed and which Tax Equity Commitments are no longer included in the calculation Available Take-Out or (C) was acquired or formed solely as an obligor for a System Refinancing and which has no assets other than those being borrowed against or securing such System Refinancing, (ii) any existing or future acquired or formed Immaterial Subsidiary, and (iii) any existing or future acquired or formed Subsidiary operating as a public utility, Load-Serving Entity, electric supplier, or [***].
Excluded Swap Obligation means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guaranty of such Guarantor of, or the grant by such Guarantor of a Lien to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act (or the application or official interpretation thereof) by virtue of such Guarantors failure for any reason to constitute an eligible contract participant as defined in the Commodity Exchange Act (determined after giving effect to Section 10.11 and any other keepwell, support or other agreement for the benefit of such Guarantor and any and all guarantees of such Guarantors Swap Obligations by other Loan Parties) at the time the Guaranty of such Guarantor, or grant by such Guarantor of a Lien, becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a Master Agreement governing more than one Swap Contract, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swap Contracts for which such Guaranty or Lien is or becomes excluded in accordance with the first sentence of this definition.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Excluded Taxes means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes; (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 11.13) or (ii) such Lender changes its Lending Office, except in each case to the extent that, pursuant to Sections 3.01(a)(ii), or 3.01(a)(iii) or (c), amounts with respect to such Taxes were payable either to such Lenders assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office; (c) Taxes attributable to such Recipients failure to comply with Section 3.01(e); and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
Existing Shareholder means Elon Musk and any estate planning vehicle over which Elon Musk has exclusive right of control, funds affiliated with Draper Fisher Jurvetson, funds affiliated with AJG Growth Fund, including Valor VC, LLC., funds affiliated with Generation Investment Management LLP, funds affiliated with DBL Investors, including Bay Area Equity Fund and Jeffrey B. Straubel.
Existing Vehicle Financing means the credit facility provided to Borrower pursuant to that certain Term Loan Agreement, dated January 24, 2011, between the Borrower and U.S. Bank National Association, as may be amended, restated, modified or refinanced from time to time.
Facility means, at any time, the aggregate amount of the Lenders Commitments at such time.
Facility Termination Date means the date as of which all of the following shall have occurred: (a) the Aggregate Commitments have terminated, (b) all Obligations have been paid in full (other than contingent indemnification obligations), and (c) all Letters of Credit have terminated or expired (other than Letters of Credit as to which other arrangements with respect thereto satisfactory to the Administrative Agent and the L/C Issuer shall have been made).
FASB ASC means the Accounting Standards Codification of the Financial Accounting Standards Board.
FATCA means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Federal Funds Rate means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Fee Letter means the letter agreement, dated as of the date hereof, between the Borrower, the Administrative Agent and the Arranger.
Foreign Lender means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
Foreign Subsidiary means any Subsidiary that is not a Domestic Subsidiary.
FRB means the Board of Governors of the Federal Reserve System of the United States.
Flood Hazard Property means any Mortgaged Property that is in an area designated by the Federal Emergency Management Agency as having special flood or mudslide hazards.
Fronting Exposure means, at any time there is a Defaulting Lender that is a Lender, (a) with respect to the L/C Issuer, such Defaulting Lenders Applicable Percentage of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to the Swingline Lender, such Defaulting Lenders Applicable Percentage of Swingline Loans other than Swingline Loans as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof.
Fund means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
Funding Indemnity Letter means a funding indemnity letter, substantially in the form of Exhibit M.
GAAP means generally accepted accounting principles in the United States set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession) including, without limitation, the FASB ASC, that are applicable to the circumstances as of the date of determination, consistently applied and subject to Section 1.03.
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).
Guarantee means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of the kind described in clauses (a) through (g) of the definition thereof or other obligation payable or performable by another Person (the primary obligor) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services
15
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for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness of the kind described in clauses (a) through (g) of the definition thereof or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed or expressly undertaken by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a corresponding meaning.
Guaranteed Obligations has the meaning set forth in Section 10.01.
Guarantors means, collectively, (a) the Subsidiaries of the Borrower (other than Excluded Subsidiaries) as are or may from time to time become parties to this Agreement pursuant to Section 6.13, and (b) with respect to Additional Secured Obligations owing by any Loan Party (other than the Borrower) and any Swap Obligation of a Specified Loan Party (determined before giving effect to Sections 10.01 and 10.11) under the Guaranty, the Borrower.
Guaranty means, collectively, the Guarantee made by the Guarantors under Article X in favor of the Secured Parties, together with each other guaranty delivered pursuant to Section 6.13.
Hazardous Materials means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
Hedge Bank means any Person in its capacity as a party to a Swap Contract that, (a) at the time it enters into a Swap Contract not prohibited under Article VI or VII, is a Lender or an Affiliate of a Lender, or (b) at the time it (or its Affiliate) becomes a Lender, is a party to a Swap Contract not prohibited under Article VI or VII, in each case, in its capacity as a party to such Swap Contract (even if such Person ceases to be a Lender or such Persons Affiliate ceased to be a Lender); provided, in the case of a Secured Hedge Agreement with a Person who is no longer a Lender (or Affiliate of a Lender), such Person shall be considered a Hedge Bank only through the stated termination date (without extension or renewal) of such Secured Hedge Agreement and provided further that for any of the foregoing to be included as a Secured Hedge Agreement on any date of determination by the Administrative Agent, the applicable Hedge Bank (other than the Administrative Agent or an Affiliate of the Administrative Agent) must have delivered a Secured Party Designation Notice to the Administrative Agent prior to such date of determination.
Honor Date has the meaning set forth in Section 2.03(c).
Host Customer Agreements means the Power Purchase Agreements and Customer Lease Agreements.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Immaterial Subsidiary means each Subsidiary of Borrower which at no time after the Closing Date holds more than $5,000,000 of assets in accordance with GAAP for a trailing twelve (12) month period; provided, that at no time shall the aggregate assets held by all such subsidiaries exceed $15,000,000 in accordance with GAAP for a trailing twelve (12) month period.
Indebtedness means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers acceptances, bank guaranties, surety bonds and similar instruments;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations (including, without limitation, earnout obligations) of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and remain unpaid for more than one-hundred twenty (120) days after the date on which such trade account was created);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales
or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and
(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.
Indemnified Taxes means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
Indemnitees has the meaning specified in Section 11.04(b).
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Indenture Documents means, collectively, the 2013 Indenture, the Notes and any document or agreement pertaining to any rights of any holders of the Notes.
Information has the meaning specified in Section 11.07.
Intellectual Property has the meaning set forth in the Security Agreement.
Intercompany Debt has the meaning specified in Section 7.02.
Interest Charges means, for any period of measurement, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) all interest paid or payable with respect to discontinued operations, and (c) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP which is to be paid in cash, in each case, of or by the Borrower for such period of measurement.
Interest Coverage Ratio means, for any period of measurement, with respect to Borrower, the ratio of (a) for the trailing 12-month period then ending on the most recent fiscal quarter end available (measured on a Consolidated basis) the difference between (A) gross profit (as measured in accordance with GAAP), less (B) twenty percent (20%) of general and administration (G&A, as measured in accordance with GAAP), to (b) for the trailing 12-month period then ending on the most recent fiscal quarter end available, the Borrowers cash Interest Charges (which interest charges shall not be determined on a Consolidated basis).
Interest Payment Date means, (a) as to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date of the Facility under which such Loan was made; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three (3) months, the respective dates that fall every three (3) months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan or Swingline Loan, the last Business Day of each March, June, September and December and the Maturity Date of the Facility under which such Loan was made (with Swingline Loans being deemed made under the Facility for purposes of this definition).
Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one (1), two (2), three (3) or six (6) months thereafter, as selected by the Borrower in its Loan Notice or such other period that is twelve (12) months or less requested by the Borrower and consented to by all the Appropriate Lenders; provided that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Maturity Date of the Facility under which such Loan was made.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Inverted Lease Structure means a tax equity investment structure in which the Borrower contributes PV Systems and assigns the affiliated Host Customer Agreements to a wholly-owned Excluded Subsidiary, which Excluded Subsidiary then leases such PV Systems to a Tax Equity Investor or a subsidiary of such Tax Equity Investor pursuant to a lease agreement.
Investment means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person (including any partnership or joint venture equity interest in such other Person and any arrangement pursuant to which the investor guaranties Indebtedness of such other Person), or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person which constitute all or substantially all of the assets of such Person or of a division, line of business or other business unit of such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
Investment Policy means the policy set forth in Schedule 1.01(i) pursuant to which Borrower and its Subsidiaries may make investments.
IRS means the United States Internal Revenue Service.
ISP means, with respect to any Letter of Credit, the International Standby Practices 1998 published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
Issuer Documents means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to such Letter of Credit.
ITC means any investment tax credit under Title 26, Section 48 of the United States Code or any successor or other similar provision, including any similar provision concerning a refundable tax credit that replaces such investment tax credit program.
Joinder Agreement means a joinder agreement substantially in the form of Exhibit D executed and delivered in accordance with the provisions of Sections 6.13 and 6.14.
[***] means [***], LLC, a Delaware limited liability company.
[***] Agreement means that certain [***] Agreement dated as of [***] by and between Borrower and certain of its Affiliates and [***], as such agreement is in existence on the Closing Date.
Laws means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
L/C Advance means, with respect to each Lender, such Lenders funding of its participation in any L/C Borrowing in accordance with its Applicable Revolving Percentage.
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L/C Borrowing means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Borrowing.
L/C Credit Extension means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
L/C Issuer means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
L/C Obligations means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be outstanding in the amount so remaining available to be drawn.
Lender means each of the Persons identified as a Lender on the signature pages hereto, each other Person that becomes a Lender in accordance with this Agreement and, their successors and assigns and, unless the context requires otherwise, includes the Swingline Lender.
Lending Office means, as to any Lender, the office or offices of such Lender described as such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
Letter of Credit means any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit.
Letter of Credit Application means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
Letter of Credit Expiration Date means the day that is seven (7) days prior to the Maturity Date then in effect for the Facility (or, if such day is not a Business Day, the next preceding Business Day).
Letter of Credit Fee has the meaning specified in Section 2.03(h).
Letter of Credit Sublimit means an amount equal to the lesser of (a) $25,000,000 and (b) the Facility. The Letter of Credit Sublimit is part of, and not in addition to, the Facility.
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property and any financing lease having substantially the same economic effect as any of the foregoing).
Lien Reserve measured as of any date, the payments made by [***] to Borrower and its Affiliates pursuant to [***] Agreement; provided, that, such amount shall be reduced annually pro rata as Borrower and its Affiliates perform their obligations to [***] under the [***] Agreement; [***].
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Load-Serving Entity means a Person who secures energy and transmission service (and related interconnected operations services) to serve the electrical demand and energy requirements of its end use customers.
Loan means an extension of credit by a Lender to the Borrower under Article II in the form of a Revolving Loan or a Swingline Loan.
Loan Documents means, collectively, (a) this Agreement, (b) the Revolving Notes, (c) the Guaranty, (d) the Collateral Documents, (e) the Fee Letter, (f) each Issuer Document, (g) each Joinder Agreement, (h) the Payment Direction Letters, and (i) any agreement creating or perfecting rights in Cash Collateral pursuant to the provisions of Section 2.14 (but specifically excluding any Secured Hedge Agreement or any Secured Cash Management Agreement).
Loan Notice means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit E.
Loan Parties means, collectively, the Borrower and each Guarantor.
London Banking Day means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
Master Agreement has the meaning set forth in the definition of Swap Contract.
Material Adverse Effect means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), financial condition of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document, or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
Material Contract means, (i) with respect to any Person, each contract or agreement (a) to which such Person is a party involving aggregate consideration payable to or by such Person of $10,000,000 or more or (b) otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person or (c) any other contract, agreement, permit or license, written or oral, of the Borrower and its Subsidiaries as to which the breach, nonperformance, cancellation or failure to renew by any party thereto, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and (ii) with respect to Borrower and its Subsidiaries, each contract or agreement evidencing Tax Equity Commitments or Backlever Financing to the extent any Available Take-Out exists with respect to such Tax Equity Commitment or Backlever Financing.
Maturity Date means December 31, 2016; provided, however, if such date is not a Business Day, the Maturity Date shall be the next proceeding Business Day.
Military Project Formula Amount means the lesser of (i) 40% of the Eligible Military Project Back-Log, and (ii) 70% of the Eligible Military Take-Out.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Minimum Collateral Amount means, at any time, (a) with respect to Cash Collateral consisting of cash or deposit account balances provided to reduce or eliminate Fronting Exposure during any period when a Lender constitutes a Defaulting Lender, an amount equal to 105% of the Fronting Exposure of the L/C Issuer with respect to Letters of Credit issued and outstanding at such time, (b) with respect to Cash Collateral consisting of cash or deposit account balances provided in accordance with the provisions of Section 2.14(a)(i), (a)(ii), (a)(iii) or (a)(iv), an amount equal to 105% of the Outstanding Amount of all L/C Obligations, and (c) otherwise, an amount determined by the Administrative Agent and the L/C Issuer in their sole discretion.
Moodys means Moodys Investors Service, Inc. and any successor thereto.
Mortgage or Mortgages means, individually and collectively, as the context requires, each of the fee or leasehold mortgages, deeds of trust and deeds executed by a Loan Party that purport to grant a Lien to the Administrative Agent (or a trustee for the benefit of the Administrative Agent) for the benefit of the Secured Parties in any Mortgaged Properties, in form and substance satisfactory to the Administrative Agent.
Mortgaged Property means any owned property of a Loan Party listed on Schedule 5.21(g)(i) and any other owned real property of a Loan Party that is or will become encumbered by a Mortgage in favor of the Administrative Agent in accordance with the terms of this Agreement.
Mortgaged Property Support Documents means with respect to any real property subject to a Mortgage, the deliveries and documents described on Schedule 1.01(e) attached hereto.
Multiemployer Plan means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five (5) plan years, has made or been obligated to make contributions.
Multiple Employer Plan means a Plan which has two or more contributing sponsors (including the Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.
New Revolving Lenders has the meaning specified in Section 2.16(c).
Non-Consenting Lender means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 11.01 and (b) has been approved by the Required Lenders.
Non-Defaulting Lender means, at any time, each Lender that is not a Defaulting Lender at such time.
Notes means the 2.75% Convertible Senior Notes issued under the 2013 Indenture.
NPL means the National Priorities List under CERCLA.
Obligations means (a) all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, or Letter of Credit and (b) all costs and expenses incurred in connection with enforcement and collection of the foregoing, including the fees, charges and disbursements of counsel, in each case whether direct or
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indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof pursuant to any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding; provided that Obligations of a Guarantor shall exclude any Excluded Swap Obligations with respect to such Guarantor.
OFAC means the Office of Foreign Assets Control of the United States Department of the Treasury.
Organization Documents means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement or limited liability company agreement (or equivalent or comparable documents with respect to any non-U.S. jurisdiction); (c) with respect to any partnership, trust or other form of business entity, the partnership or other applicable agreement of formation or organization (or equivalent or comparable documents with respect to any non-U.S. jurisdiction) and (d) with respect to all entities, any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization (or equivalent or comparable documents with respect to any non-U.S. jurisdiction).
Other Connection Taxes means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising solely from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
Other Taxes means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.06).
Outstanding Amount means (a) with respect to Revolving Loans and Swingline Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Revolving Loans and Swingline Loans, as the case may be, occurring on such date; and (b) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
Participant has the meaning specified in Section 11.06(d).
Partnership Flip Structure means a tax equity investment structure in which the Tax Equity Partnership or a subsidiary of such Tax Equity Investor purchases PV Systems and takes assignment of Host Customer Agreements from Borrower pursuant to a purchase agreement. In a Partnership Flip Structure, the membership interests in the Tax Equity Partnership to its members changes (or flips) upon fulfillment of specified conditions in the Organization Documents of such Tax Equity Partnership, but in any event, no earlier than five years from the date of the purchase of the PV Systems and assignment of the Host Customer Agreements.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Participant Register has the meaning specified in Section 11.06(d).
Payment Direction Letter means one or more payment direction letters from each Excluded Subsidiary that is wholly-owned, directly or indirectly, by Borrower, which confirms that certain proceeds of Available Take-Out from Tax Equity Investors, certain cash flows from Host Customer Agreements and certain proceeds from Backlever Financing (all as more specifically described therein) received by such Excluded Subsidiary will be distributed directly to Borrower.
PBGC means the Pension Benefit Guaranty Corporation.
Pension Act means the Pension Protection Act of 2006.
Pension Funding Rules means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
Pension Plan means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by the Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
Permitted Acquisition means (i) the Poppy Acquisition, (ii) Zoom Acquisition (iii) an Acquisition with a Cost of Acquisition of less than $500,000 by a Loan Party of a Target that meets the condition set forth in clauses (a), (g) and (h) below, (iv) an Acquisition with a Cost of Acquisition of less than $5,000,000 but greater than or equal to $500,000, by a Loan Party of a Target that meets the conditions set forth in clauses (a), (c), (d)(i), (d)(v), (e), (f), (g) and (h) below, or (v) an Acquisition with a Cost of Acquisition in excess of $5,000,000 by a Loan Party of a Target that meets all of the following conditions:
(a) no Event of Default shall then exist or would exist after giving effect thereto;
(b) the Loan Parties shall demonstrate to the reasonable satisfaction of the Administrative Agent that, after giving effect to the Acquisition on a Pro Forma Basis, the Loan Parties are in compliance with each of the financial covenants set forth in Section 7.11;
(c) the Administrative Agent, on behalf of the Secured Parties, shall have received (or shall receive in connection with the closing of such Acquisition) a first priority perfected security interest in all property (including, without limitation, Equity Interests) acquired with respect to the Target in accordance with the terms of Section 6.14 and the Target, if a Person, shall have executed a Joinder Agreement in accordance with the terms of Section 6.13, unless, in either case, such Target becomes an Excluded Subsidiary immediate after such Acquisition;
(d) the Administrative Agent and the Lenders shall have received (i) a description of the material terms of such Acquisition, (ii) audited financial statements (or, if unavailable, management-prepared financial statements) of the Target for its two most recent fiscal years, (iii)
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unaudited financial statements of the Target for any fiscal quarters ended within the fiscal year to date, (iv) Consolidated projected income statements of the Borrower and its Subsidiaries (giving effect to such Acquisition), and (v) not less than five (5) Business Days prior to the consummation of any Permitted Acquisition, a certificate substantially in the form of Exhibit F, executed by a Responsible Officer of the Borrower certifying that such Permitted Acquisition complies with the requirements of this Agreement;
(e) the Target (if an Acquisition of Equity Interests) or the assets acquired (if an Acquisition of assets which does not expressly exclude all liabilities associated with such assets), shall have earnings before interest, taxes, depreciation and amortization for the four (4) fiscal quarter period prior to the acquisition date in an amount greater than $0;
(f) such Acquisition shall not be a hostile Acquisition and shall have been duly authorized by the board of directors (or equivalent) and/or shareholders (or equivalent) of the applicable Loan Party and the Target, in each case where such authorization is required;
(g) the Cost of Acquisition paid by the Loan Parties and their Subsidiaries for all Acquisitions made after the Closing Date and during the term of this Agreement, (i) with respect to an Acquisition for which the Cost of Acquisition does not include any Equity Consideration, shall not exceed $15,000,000 for each such Acquisition; (ii) with respect to an Acquisition for which the Cost of Acquisition is paid solely in the Equity Interests of the Borrower or any Subsidiary, the Equity Consideration shall not exceed 5% for each such Acquisition; (iii) with respect to an Acquisition in which the Cost of Acquisition includes Equity Consideration and other Cost of Acquisition, the Equity Consideration shall not exceed 5% for each such Acquisition and the other Cost of Acquisition (excluding Equity Consideration) shall not exceed $15,000,000 for each such Acquisition; and (iv) with respect to all such Acquisitions, the aggregate Equity Consideration shall not exceed 15% and the aggregate other Cost of Acquisition (excluding Equity Consideration) shall not exceed $45,000,000.
(h) any earnouts or similar deferred or contingent obligations of any Borrower in connection with such Acquisition shall be subordinated to the Obligations in a manner and to the extent reasonably satisfactory to the Administrative Agent.
Permitted Convertible Indebtedness means the Indebtedness of Borrower evidenced by the Notes issued under the 2013 Indenture so long as (i) the scheduled maturity date of such Indebtedness is not earlier than November 1, 2018, (ii) the aggregate outstanding Indebtedness of the Notes does not exceed $345,000,000, (iii) such indebtedness is not subject to any scheduled principal amortization, scheduled redemption, sinking fund or similar payment except as set forth in Section 7.06(e); and (iv) the Indenture Documents do not include any financial covenant.
Permitted Dispositions means (a) Dispositions of inventory, equipment and Host Customer Agreements in the ordinary course of business, including Tranching of inventory, equipment and Host Customer Agreements (including any warranties arising in connection therewith) and, cash sales of inventory to Borrowers customers and sale of Projects pursuant to a customers purchase right under its applicable Host Customer Agreement; (b) Dispositions of property to the Borrower or any Subsidiary; provided, that if the transferor of such property is a Loan Party then the transferee thereof must be a Loan Party; (c) Dispositions of accounts receivable in connection with the collection or compromise thereof; (d) licenses, sublicenses, leases or subleases granted to others not interfering in any material respect with the business of the Borrower and its Subsidiaries; (e) the sale or disposition of Cash Equivalents for fair market value; (f) Dispositions of Equity Interests in accordance with the terms herein; and (g) Disposition of SRECs for the purpose of returning proceeds of such SRECs or SRECs to the Excluded Subsidiary in accordance with the applicable Tax Equity Document.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Person means any natural person, corporation, limited liability company, trust, association, company, partnership, Governmental Authority or other entity.
Plan means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Borrower or any ERISA Affiliate or any such Plan to which the Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees.
Platform has the meaning specified in Section 6.02.
Pledged Equity has the meaning specified in the Security Agreement.
Poppy Acquisition means (i) the transactions contemplated by that certain Asset Purchase Agreement, dated as of August 13, 2013 (including all exhibits and schedules thereto), by and among SolarCity Corporation, Poppy Acquisition LLC, Paramount GR Holdings, LLC, a Delaware limited liability company, Paramount Energy Solutions, LLC, a California limited liability company, Paramount GR Holdings, LLC, as representative and (ii) the acquisition of the membership interests of PEF I MM, LLC, a Delaware limited liability company from Paramount GR Holdings, LLC by Poppy Acquisition LLC.
Power Purchase Agreements means a power purchase agreement entered into by Borrower and a customer, pursuant to which such customer agrees to purchase electricity from Borrower generated by a PV System installed on the customers property.
Pro Forma Basis and Pro Forma Effect means, for any Disposition of all or substantially all of a line of business or for any Acquisition, whether actual or proposed, for purposes of determining compliance with the financial covenants set forth in Section 7.11, each such transaction or proposed transaction shall be deemed to have occurred on and as of the first day of the relevant measurement period, and the following pro forma adjustments shall be made:
(a) in the case of an actual or proposed Disposition, all income statement items (whether positive or negative) attributable to the line of business or the Person subject to such Disposition shall be excluded from the results of the Borrower and its Subsidiaries for such measurement period;
(b) in the case of an actual or proposed Acquisition, income statement items (whether positive or negative) attributable to the property, line of business or the Person subject to such Acquisition shall be included in the results of the Borrower and its Subsidiaries for such measurement period;
(c) interest accrued during the relevant measurement period on, and the principal of, any Indebtedness repaid or to be repaid or refinanced in such transaction shall be excluded from the results of the Borrower and its Subsidiaries for such measurement period; and
(d) any Indebtedness actually or proposed to be incurred or assumed in such transaction shall be deemed to have been incurred as of the first day of the applicable measurement period, and interest thereon shall be deemed to have accrued from such day on such Indebtedness at the applicable rates provided therefor (and in the case of interest that does or would accrue at a formula or floating rate, at the rate in effect at the time of determination) and shall be included in the results of the Borrower and its Subsidiaries for such measurement period.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Pro Forma Compliance means, with respect to any transaction, that such transaction does not cause, create or result in a Default after giving Pro Forma Effect, based upon the results of operations for the most recent four (4) fiscal quarter period for which financial statements have been delivered to the Administrative Agent pursuant to Section 6.01 to (a) such transaction and (b) all other transactions which are contemplated or required to be given Pro Forma Effect hereunder that have occurred on or after the first day of the relevant measurement period.
Project means a PV System together with all associated real property rights, rights under the applicable Host Customer Agreement, and all other related rights to the extent applicable thereto, including without limitation, all parts and manufacturers warranties and rights to access customer data.
Project Back-Log means, as of a given date of determination, the aggregate of the PV System Values set forth in the Backlog Spreadsheet for each PV System the Borrower has contracted to install but has not yet Tranched.
Public Lender has the meaning specified in Section 6.02.
Public Offering means a public offering of the Equity Interests of the Borrower pursuant to an effective registration statement under the Securities Act.
PV Systems means a photovoltaic system, including photovoltaic panels, racks, wiring and other electrical devices, conduit, weatherproof housings, hardware, one or more inverters, remote monitoring equipment, connectors, meters, disconnects and over current devices.
PV System Value means (i) for PV Systems which are to be installed on residential property or on property located on military bases, the appraised value of a PV System (based on the national appraisal or the state appraisals, as applicable, in each case as set forth in the most recent Appraisal), or (ii) for PV Systems which are to be installed on commercial property, the average appraised value of PV Systems installed on commercial property Tranched in the three months immediately prior to the date of measurement.
Qualified ECP Guarantor means, at any time, each Loan Party with total assets exceeding $10,000,000 or that qualifies at such time as an eligible contract participant under the Commodity Exchange Act and can cause another Person to qualify as an eligible contract participant at such time under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
Qualifying Control Agreement means an agreement, among a Loan Party, a depository institution or securities intermediary and the Administrative Agent, which agreement is in form and substance acceptable to the Administrative Agent and which provides the Administrative Agent with control (as such term is used in Article 9 of the UCC) over the deposit account(s) or securities account(s) described therein.
Recipient means the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder.
Register has the meaning specified in Section 11.06(c).
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Related Parties means, with respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Persons Affiliates.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30) day notice period has been waived.
Request for Credit Extension means (a) with respect to a Borrowing, conversion or continuation of Revolving Loans, a Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swingline Loan, a Swingline Loan Notice.
Required Lenders means, at any time, at least two (2) Lenders having Total Credit Exposures representing more than 50% of the Total Credit Exposures of all Lenders. The Total Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time; provided that, the amount of any participation in any Swingline Loan and Unreimbursed Amounts that such Defaulting Lender has failed to fund that have not been reallocated to and funded by another Lender shall be deemed to be held by the Lender that is the Swingline Lender or L/C Issuer, as the case may be, in making such determination.
Residential Project Formula Amount means the lesser of (i) 40% of the Eligible Residential Project Back-Log, and (ii) 70% of the Eligible Residential Take-Out.
Resignation Effective Date has the meaning set forth in Section 9.06(a).
Responsible Officer means the chief executive officer, chief financial officer, chief operations officer, chief revenue officer or controller of a Loan Party and solely for purposes of the delivery of incumbency certificates pursuant to Section 4.01, the general counsel, the secretary or any assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. To the extent requested by the Administrative Agent, each Responsible Officer will provide an incumbency certificate, in form and substance satisfactory to the Administrative Agent.
Restricted Payment means (a) any dividend or other distribution, direct or indirect, on account of any shares (or equivalent) of any class of Equity Interests of the Borrower or any of its Subsidiaries, now or hereafter outstanding, except such dividends or distributions made by an Excluded Subsidiary in the ordinary course of business pursuant to and as permitted by the terms of the Tax Equity Commitments, Backlever Financing or System Refinancing, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares (or equivalent) of any class of Equity Interests of the Borrower or any other Loan Party, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Equity Interests of any Loan Party or any of its Subsidiaries, now or hereafter outstanding, (d) any payment with respect to any earnout obligation, and (e) equity grants made in the ordinary course of business in connection with Borrowers stock option plan.
Revolving Borrowing means a borrowing consisting of simultaneous Revolving Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01(b).
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Revolving Exposure means, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Revolving Loans and such Lenders participation in L/C Obligations and Swingline Loans at such time.
Revolving Increase Effective Date has the meaning specified in Section 2.16(d).
Revolving Loan has the meaning specified in Section 2.01(b).
Revolving Note means a promissory note made by the Borrower in favor of a Lender evidencing Revolving Loans or Swingline Loans, as the case may be, made by such Lender, substantially in the form of Exhibit G.
S&P means Standard & Poors Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.
Sale and Leaseback Transaction means, with respect to any Loan Party or any Subsidiary, any arrangement, directly or indirectly, with any Person whereby such Loan Party or such Subsidiary shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred. For the avoidance of doubt, a Sale and Leaseback Transaction does not include operating leases (as such term is defined in FASB ASC 13).
Sale-Leaseback Structure means a tax equity investment structure in which the Borrower contributes PV Systems to an Excluded Subsidiary, which entity then sells such PV Systems to a Tax Equity Investor or a subsidiary of such Tax Equity Investor pursuant to a purchase agreement and subsequently leases back the same PV Systems.
Sanction(s) means any international economic sanction administered or enforced by the United States Government (including, without limitation, OFAC), the United Nations Security Council, the European Union, Her Majestys Treasury or other relevant sanctions authority.
SEC means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
Secured Cash Management Agreement means any Cash Management Agreement between the any Loan Party and any Cash Management Bank.
Secured Hedge Agreement means any interest rate, currency, foreign exchange, or commodity Swap Contract permitted under Article VI or VII between any Loan Party and any Hedge Bank.
Secured Obligations means all Obligations and all Additional Secured Obligations.
Secured Parties means, collectively, the Administrative Agent, the Lenders, the L/C Issuer, the Hedge Banks, the Cash Management Banks, the Indemnitees, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05.
Secured Party Designation Notice means a notice from any Lender or an Affiliate of a Lender substantially in the form of Exhibit H.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, including all amendments thereto and regulations promulgated thereunder.
Security Agreement means the security and pledge agreement, dated as of September 10, 2012, executed in favor of the Administrative Agent by each of the Loan Parties.
Share Lending Agreement means the Share Lending Agreement to be entered into among the Borrower, one or more underwriters and an agent, providing for the lending by Borrower of shares of its common stock, par value $.001 per share, in connection with the issuance of the Permitted Convertible Indebtedness.
SolarWorks means SolarWorks®, Borrowers proprietary project management software.
Solvency Certificate means a solvency certificate in substantially in the form of Exhibit I.
Solvent and Solvency mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
Specified Loan Party means any Loan Party that is not an eligible contract participant under the Commodity Exchange Act (determined prior to giving effect to Section 10.11 hereof).
SREC means, Solar Renewable Energy Certificates or any other similar credit or certificate issued by a governmental entity.
Subsidiary of a Person means a corporation, partnership, limited liability company or other business entity of which a majority of the shares of Voting Stock is at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Loan Parties.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement), including any such obligations or liabilities under any Master Agreement.
Swap Obligations means with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a swap within the meaning of Section 1a(47) of the Commodity Exchange Act.
Swap Termination Value means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
Swingline Borrowing means a borrowing of a Swingline Loan pursuant to Section 2.04.
Swingline Lender means Bank of America in its capacity as provider of Swingline Loans, or any successor swingline lender hereunder.
Swingline Loan has the meaning specified in Section 2.04(a).
Swingline Loan Notice means a notice of a Swingline Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit J.
Swingline Sublimit means an amount equal to the lesser of (a) $20,000,000 and (b) the Facility. The Swingline Sublimit is part of, and not in addition to, the Facility.
Synthetic Debt means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds but are not otherwise included in the definition of Indebtedness or as a liability on the Consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.
Synthetic Lease Obligation means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including Sale and Leaseback Transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
System Refinancing means Indebtedness for borrowed money incurred by an Excluded Subsidiary in connection with (i) the purchase of a Tax Equity Investors interest in a Partnership Flip Structure, Sale-Leaseback Structure or Inverted Lease Structure or (ii) the refinancing of any Backlever Financing or financing described in clause (i), in each case, so long as (w) no Loan Party has an obligation to pay debt service under such Indebtedness, (x) the Tax Equity Commitment or Backlever Financing of such Excluded Subsidiary and its partially or wholly owned subsidiaries are no longer included in the calculation of Available Take-Out and the exclusion of such Tax Equity Commitments or
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Backlever Financings from the calculation of Available Take-Out does not result in a Borrowing Base Deficiency, and (y) each of the Subsidiaries of Borrower acquired or formed in connection with such System Refinance have executed a joinder to the Payment Direction Letter.
Take-Out Spreadsheet means a spreadsheet for residential, commercial and military projects, substantially in the form attached hereto as Exhibit S, providing for the amount of Available Take-Out.
Target means a Person or division, line of business or other business unit or asset of such Person who is to be acquired or purchased by a Loan Party.
Tax Credit means (i) Cash Grants, (ii) ITC, and (iii) other tax credits established by the IRS or a state of the United States for the purchase, lease or other acquisition of PV Systems.
Tax Equity Commitment means, with respect to a given Tax Equity Investor, such Tax Equity Investors (i) in the case of an Inverted Lease Structure, commitment to prepay rent, (ii) in the case of a Sale Leaseback Structure, commitment to pay the purchase price (excluding any long-term payment of a deferred purchase price or any other payment that does not constitute a payment received for Tranching), (iii) in the case of a Partnership Flip Structure, commitment to contribute to the partnership for the payment of the purchase price, and (iv) in the case of any other tax structure, commitment to fund Tranching.
Tax Equity Document means any agreements entered into by Borrower, its Subsidiaries and Tax Equity Investors relating to, arising under or in connection with a Tax Equity Commitment.
Tax Equity Investor means an investor that has entered into agreements with Borrower or its Subsidiaries to provide a commitment to purchase, lease or otherwise finance PV System projects installed or to be installed pursuant to a Host Customer Agreement, which projects are eligible for a Tax Credit.
Tax Equity Partnership means a special purpose entity whose membership interests are held by the Borrower, as the managing member, and a Tax Equity Investor or a subsidiary of such Tax Equity Investor, as the investor member, and whose members are obligated to advance capital contributions to purchase PV Systems from Borrower in accordance with the Partnership Flip Structure.
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.
Threshold Amount means $2,000,000.
Total Credit Exposure means, as to any Lender at any time, the unused Commitments and Revolving Exposure of such Lender at such time.
Total Outstandings means the aggregate Outstanding Amount of all Revolving Loans, Swingline Loans and L/C Obligations.
Tranching means the sale, lease, assignment, contribution or other transfer of Projects by Borrower to an Excluded Subsidiary pursuant to an Inverted Lease Structure, Sale-Leaseback Structure or Partnership Flip Structure transaction.
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True-Up Liability means Borrowers liability to any Tax Equity Investor (as measured in Dollars) due to a reduction of fair market value of Projects already Tranched with such Tax Equity Investor, as set forth in the Borrowers financial statements and as may be reduced from time to time by the Tranching of such Projects pursuant to the applicable Tax Equity Documents.
Type means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
UCC means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any 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, UCC means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
UCP means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (ICC) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
Unencumbered Liquidity means the sum of Borrowers cash and Cash Equivalents (determined as of the last day of each month based on the average daily balance thereof during such month) held in deposit accounts and securities accounts in which Administrative Agent has obtained a perfected Lien subject to no other Liens.
Unencumbered Liquidity Certificate means a certificate substantially in the form of Exhibit T.
United States and U.S. mean the United States of America.
Unreimbursed Amount has the meaning specified in Section 2.03(c)(i).
U.S. Loan Party means any Loan Party that is organized under the laws of one of the states of the United States and that is not a CFC.
U.S. Person means any Person that is a United States Person as defined in Section 7701(a)(30) of the Code.
U.S. Tax Compliance Certificate has the meaning specified in Section 3.01(e)(ii)(B)(3).
Voting Stock means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right to so vote has been suspended by the happening of such contingency.
Zep Solar means Zep Solar, Inc., a California corporation.
Zoom means Zoom Acquisition LLC, a California limited liability company.
Zep Acquisition the acquisition of Zep Solar by Borrower on the Zep Acquisition Date through a merger of Zoom Acquisition Corporation into and with Zep Solar and the subsequent merger of Zep Solar with and into Zoom in accordance with the Zoom Merger Agreement.
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[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Zep Acquisition Certificate means an officers certificate executed by a Responsible Officer of Borrower and Zoom certifying to, or attaching, as applicable, the following representations, warranties, and covenants:
(i) certifying that the Zep Acquisition is an acquisition of a line of business permitted to be engaged in by the Borrower and its Subsidiaries pursuant to the terms of this Agreement;
(ii) certifying that no Event of Default exists or would exist after the Zep Acquisition Date occurs and after giving effect to the Zep Acquisition;
(iii) attaching a true, correct and complete copy of the Zoom Merger Agreement as in effect on Zep Acquisition Date and certifying that such agreement remains in full force and effect, that no modifications have been made to such agreement, and that no Loan Party that is a party thereto is in default in the performance of, or compliance with, any provisions thereof;
(iv) certifying that the Zep Acquisition has been duly authorized by the board of directors (or equivalent) and/or shareholders (or equivalent) of the applicable Loan Party, in each case where such authorization is required;
(v) certifying that any earnouts or similar deferred or contingent obligations of Borrower or any Subsidiary in connection with the Zep Acquisition, if any, shall be subordinated to the Obligations in a manner and to the extent reasonably satisfactory to the Administrative Agent;
(vi) certifying that the Zep Acquisition will be consummated on terms and conditions materially consistent (as determined by Administrative Agent, in its reasonable discretion) with the Zoom Merger Agreement; and
(vii) certifying that no Indebtedness (other than Indebtedness permitted under Section 7.02) will exist or be incurred as a result of the Zep Acquisition, and no Liens that are not permitted under Section 7.01 will exist or be incurred as a result of the Acquisition; provided, however, Indebtedness provided for in Section 6.20 of the Zoom Merger Agreement may exist after the Zep Acquisition Date so long as the Cost of Acquisition is reduced by the amount of such outstanding Indebtedness and Administrative Agent receives evidence that such amount is paid off and the liens thereunder, if any, have been discharged, in each case within 5 Business Days after the Zep Acquisition Date.
Zep Acquisition Date means the date that all of the property, rights, privileges, powers and franchises of Zep Solar shall vest in Zoom as the final surviving entity and all debts, liabilities and duties of Zep Solar shall become the debts, liabilities and duties of Zoom, as the final surviving entity, in each case in accordance with Section 2.4(b) of the Zoom Merger Agreement.
Zoom Acquisition Corporation means Zoom Acquisition Corporation, a California corporation.
Zoom Merger Agreement means that certain Agreement and Plan of Merger, dated as of October 8, 2013 (including all exhibits and schedules thereto), by and among Borrower, Zoom Acquisition Corporation, Zoom, Zep Solar, Shareholder Representative Services LLC, a Colorado limited liability company and U.S. Bank National Association, as escrow agent.
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Section 1.02 Other Interpretive Provisions.
With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to 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. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including the Loan Documents and any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, modified, extended, restated, replaced or supplemented from time to time (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Persons successors and assigns, (iii) the words hereto, herein, hereof and hereunder, and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory rules, regulations, orders and provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified, extended, restated, replaced or supplemented from time to time, and (vi) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including.
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
Section 1.03 Accounting Terms.
(a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 on financial liabilities shall be disregarded.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light
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of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the Audited Financial Statements for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.
(c) Pro Forma Treatment. Each Disposition of all or substantially all of a line of business, and each Acquisition, by the Borrower and its Subsidiaries that is consummated during any measurement period shall, for purposes of determining compliance with the financial covenants set forth in Section 7.11, be given Pro Forma Effect as of the first day of such measurement period.
Section 1.04 Rounding.
Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
Section 1.05 Times of Day.
Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable).
Section 1.06 Letter of Credit Amounts.
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
Section 1.07 UCC Terms.
Terms defined in the UCC in effect on the Closing Date and not otherwise defined herein shall, unless the context otherwise indicates, have the meanings provided by those definitions. Subject to the foregoing, the term UCC refers, as of any date of determination, to the UCC then in effect.
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ARTICLE II
COMMITMENTS AND CREDIT EXTENSIONS
Section 2.01 Loans.
(a) Revolving Borrowings. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a Revolving Loan) to the Borrower, in Dollars, from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lenders Commitment; provided, however, that after giving effect to any Revolving Borrowing, (i) the Total Outstandings shall not exceed the lesser of the Facility and the Borrowing Base, and (ii) the Revolving Exposure of any Lender shall not exceed such Lenders Commitment. Within the limits of each Lenders Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow Revolving Loans, prepay under Section 2.05, and reborrow under this Section 2.01(a). Revolving Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein; provided, however, any Revolving Borrowings made on the Closing Date or any of the three (3) Business Days following the Closing Date shall be made as Base Rate Loans unless the Borrower delivers a Funding Indemnity Letter not less than three (3) Business Days prior to the date of such Revolving Borrowing.
(b) Borrowing Base.
(i) Eligible Project Back-Log. If at any time during the Availability Period Administrative Agent conducts a field examination in accordance with Section 6.10 and determines based on the results of such field examination, after consulting with Borrower, that in its commercially reasonable judgment, the eligibility criteria for Eligible Project Back-Log are to be revised, the components of Eligible Project Back-Log shall be deemed revised accordingly and the Borrowing Base shall be calculated thereafter using such revised definition.
(ii) Eligible Take-Out. During the Availability Period, within five (5) Business Days after the closing of a new Tax Equity Commitment or Backlever Financing, [***]. Counsel to the Administrative Agent shall review such documents and report its results to Administrative Agent. If based on such report or a field examination conducted in accordance with Section 6.10 Administrative Agent determines, after consulting with Borrower, that in its commercially reasonable judgment, the eligibility criteria for Eligible Take-Out are to be revised, the components of Eligible Take-Out shall be deemed revised accordingly and the Borrowing Base shall be calculated thereafter using such revised definition. If Borrower does not receive notice from Administrative Agent that any new Tax Equity Commitment or Backlever Financing is to be ineligible under this clause (b)(ii) within 60 days after the delivery of the applicable documents as set forth above, such Tax Equity Commitments or Backlever Financing, as the case may be, shall be deemed eligible subject to the then existing eligibility conditions set forth herein.
Section 2.02 Borrowings, Conversions and Continuations of Loans.
(a) Notice of Borrowing. Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrowers irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three (3) Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any Borrowing of Base Rate
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Loans; provided, however, that if the Borrower wishes to request Eurodollar Rate Loans having an Interest Period other than one (1), two (2), three (3) or six (6) months in duration as provided in the definition of Interest Period, the applicable notice must be received by the Administrative Agent not later than 11:00 a.m. four (4) Business Days prior to the requested date of such Borrowing, conversion or continuation, whereupon the Administrative Agent shall give prompt notice to the Appropriate Lenders of such request and determine whether the requested Interest Period is acceptable to all of them. Not later than 11:00 a.m., three (3) Business Days before the requested date of such Borrowing, conversion or continuation, the Administrative Agent shall notify the Borrower (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all the Lenders. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (A) the applicable Facility and whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Loans, as the case may be, under such Facility, (B) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (C) the principal amount of Loans to be borrowed, converted or continued, (D) the Type of Loans to be borrowed or to which existing Loans are to be converted, and (E) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one (1) month. Notwithstanding anything to the contrary herein, a Swingline Loan may not be converted to a Eurodollar Rate Loan.
(b) Advances. Following receipt of a Loan Notice for the Facility, the Administrative Agent shall promptly notify each Appropriate Lender of the amount of its Applicable Percentage under such Facility of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Appropriate Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(a). In the case of a Borrowing, each Appropriate Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agents Office not later than 1:00 p.m. on the Business Day specified in the applicable Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided, however, that if, on the date a Loan Notice with respect to a Revolving Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Revolving Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrower as provided above.
(c) Eurodollar Rate Loans. Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan.
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During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders, and the Required Lenders may demand that any or all of the outstanding Eurodollar Rate Loans be converted immediately to Base Rate Loans.
(d) Notice of Interest Rates. The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of Americas prime rate used in determining the Base Rate promptly following the public announcement of such change.
(e) Interest Periods. After giving effect to all Revolving Borrowings, all conversions of Revolving Loans from one Type to the other, and all continuations of Revolving Loans as the same Type, there shall not be more than eight (8) Interest Periods in effect in respect of the Facility.
Section 2.03 Letters of Credit.
(a) The Letter of Credit Commitment.
(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Lenders set forth in this Section, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit in Dollars for the account of the Borrower, and to amend Letters of Credit previously issued by it, in accordance with Section 2.03(b), and (2) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower and any drawings thereunder; provided that, after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the Facility, (y) the Revolving Exposure of any Lender shall not exceed such Lenders Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii) The L/C Issuer shall not issue any Letter of Credit if:
(A) the expiry date of the requested Letter of Credit would occur more than twelve (12) months after the date of issuance, unless the Required Lenders have approved such expiry date; or
(B) the expiry date of the requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date;
(iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing the Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that
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the L/C Issuer refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon the L/C Issuer with respect to the Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;
(B) the issuance of the Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;
(C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, the Letter of Credit is in an initial stated amount less than $100,000, in the case of a commercial Letter of Credit, or $100,000, in the case of a standby Letter of Credit;
(D) the Letter of Credit is to be denominated in a currency other than Dollars;
(E) any Lender is at that time a Defaulting Lender, unless the L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, satisfactory to the L/C Issuer (in its sole discretion) with the Borrower or such Lender to eliminate the L/C Issuers actual or potential Fronting Exposure (after giving effect to Section 2.15(a)(iv)) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which the L/C Issuer has actual or potential Fronting Exposure, as it may elect in its sole discretion; or
(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue the Letter of Credit in its amended form under the terms hereof.
(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to the Letter of Credit.
(vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term Administrative Agent as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.
(b) Procedures for Issuance and Amendment of Letters of Credit; Auto Extension Letters of Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application may be sent by fax transmission, by United States mail, by overnight courier, by electronic transmission using the system provided by the L/C Issuer, by personal delivery or by any other means acceptable to the L/C Issuer. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two (2)
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Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) the purpose and nature of the requested Letter of Credit; and (H) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (1) the Letter of Credit to be amended; (2) the proposed date of amendment thereof (which shall be a Business Day); (3) the nature of the proposed amendment; and (4) such other matters as the L/C Issuer may require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.
(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one (1) Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuers usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lenders Applicable Revolving Percentage times the amount of such Letter of Credit.
(iii) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(iv) If the Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole discretion, agree to issue a standby Letter of Credit that has automatic extension provisions (each, an Auto-Extension Letter of Credit); provided that, any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve (12) month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the Non-Extension Notice Date) in each such twelve (12) month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section
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2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is seven (7) Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.
(v) Notwithstanding the terms of any Letter of Credit Application for a commercial Letter of credit, in no event may the Borrower extend the time for reimbursing any drawing under a commercial Letter of credit by obtaining a bankers acceptance from the L/C Issuer.
(c) Drawings and Reimbursements; Funding of Participations.
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an Honor Date), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the Unreimbursed Amount), and the amount of such Lenders Applicable Revolving Percentage thereof. In such event, the Borrower shall be deemed to have requested a Revolving Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Commitments and the conditions set forth in Section 4.02 (other than the delivery of a Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that, the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
(ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available (and the Administrative Agent may apply Cash Collateral provided for this purpose) for the account of the L/C Issuer at the Administrative Agents Office in an amount equal to its Applicable Revolving Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer.
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lenders payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section.
(iv) Until each Lender funds its Revolving Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lenders Applicable Revolving Percentage of such amount shall be solely for the account of the L/C Issuer.
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(v) Each Lenders obligation to make Revolving Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default; or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lenders obligation to make Revolving Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.
(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), then, without limiting the other provisions of this Agreement, the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lenders Revolving Loan included in the relevant Revolving Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this Section 2.03(c)(vi) shall be conclusive absent manifest error.
(d) Repayment of Participations.
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lenders L/C Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Revolving Percentage thereof in the same funds as those received by the Administrative Agent.
(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 11.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Revolving Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
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(e) Obligations Absolute. The obligation of the Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement or by such Letter of Credit, the transactions contemplated hereby or any agreement or instrument relating thereto, or any unrelated transaction;
(iii) any draft, demand, endorsement, certificate or other document presented under or in connection with such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv) waiver by the L/C Issuer of any requirement that exists for the L/C Issuers protection and not the protection of the Borrower or any waiver by the L/C Issuer which does not in fact materially prejudice the Borrower;
(v) honor of a demand for payment presented electronically even if such Letter of Credit requires that demand be in the form of a draft;
(vi) any payment made by the L/C Issuer in respect of an otherwise complying item presented after the date specified as the expiration date of, or the date by which documents must be received under such Letter of Credit if presentation after such date is authorized by the UCC, the ISP or the UCP, as applicable;
(vii) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(viii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any of its Subsidiaries.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrowers instructions or other irregularity, the Borrower will immediately notify the L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
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(f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight or time draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrowers pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in Section 2.03(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves, as determined by a final nonappealable judgment of a court of competent jurisdiction, were caused by the L/C Issuers willful misconduct or gross negligence or the L/C Issuers willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight or time draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring, endorsing or assigning or purporting to transfer, endorse or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. The L/C Issuer may send a Letter of Credit or conduct any communication to or from the beneficiary via the Society for Worldwide Interbank Financial Telecommunication (SWIFT) message or overnight courier, or any other commercially reasonable means of communicating with a beneficiary.
(g) Applicability of ISP and UCP; Limitation of Liability. Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each commercial Letter of Credit. Notwithstanding the foregoing, the L/C Issuer shall not be responsible to the Borrower for, and the L/C Issuers rights and remedies against the Borrower shall not be impaired by, any action or inaction of the L/C Issuer required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the Law or any order of a jurisdiction where the L/C Issuer or the beneficiary is located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and TradeInternational Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
(h) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance, subject to Section 2.15, with its Applicable Revolving Percentage a Letter of Credit fee (the Letter of Credit Fee) for each Letter of Credit issued pursuant to this Section 2.03 equal to the Applicable Rate times the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit,
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the amount of such Letter of Credit shall be determined in accordance with Section 1.06. Letter of Credit Fees shall be (A) due and payable on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (B) computed on a quarterly basis in arrears.
(i) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The Borrower shall pay directly to the L/C Issuer for its own account a fronting fee (i) with respect to each commercial Letter of Credit, at the rate specified in the Fee Letter, computed on the amount of such Letter of Credit, and payable upon the issuance thereof, (ii) with respect to any amendment of a commercial Letter of Credit increasing the amount of such Letter of Credit, at a rate separately agreed between the Borrower and the L/C Issuer, computed on the amount of such increase, and payable upon the effectiveness of such amendment, and (iii) with respect to each standby Letter of Credit, at the rate per annum specified in the Fee Letter, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee shall be due and payable on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. In addition, the Borrower shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(j) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
Section 2.04 Swingline Loans.
(a) The Swingline. Subject to the terms and conditions set forth herein, the Swingline Lender, in reliance upon the agreements of the other Lenders set forth in this Section, shall make loans (each such loan, a Swingline Loan). Each such Swingline Loan may be made, subject to the terms and conditions set forth herein, to the Borrower, in Dollars, from time to time on any Business Day. During the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swingline Sublimit, notwithstanding the fact that such Swingline Loans, when aggregated with the Applicable Revolving Percentage of the Outstanding Amount of Revolving Loans and L/C Obligations of the Lender acting as Swingline Lender, may exceed the amount of such Lenders Commitment; provided, however, that (i) after giving effect to any Swingline Loan, (A) the Total Outstandings shall not exceed the Facility at such time, and (B) the Revolving Exposure of any Lender at such time shall not exceed such Lenders Commitment, (ii) the Borrower shall not use the proceeds of any Swingline Loan to refinance any outstanding Swingline Loan, and (iii) the Swingline Lender shall not be under any obligation to make any Swingline Loan if it shall determine (which determination shall be conclusive and binding absent manifest error) that it has, or by such Credit Extension may have, Fronting Exposure. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section, prepay under Section 2.05, and reborrow under this Section. Each Swingline Loan shall bear interest only at a rate based on the Base Rate. Immediately upon the making of a Swingline Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swingline Lender a risk participation in such Swingline Loan in an amount equal to the product of such Lenders Applicable Revolving Percentage times the amount of such Swingline Loan.
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(b) Borrowing Procedures.
(i) Each Swingline Borrowing shall be made upon the Borrowers irrevocable notice to the Swingline Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swingline Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested date of the Borrowing (which shall be a Business Day). Each such telephonic notice must be confirmed promptly by delivery to the Swingline Lender and the Administrative Agent of a written Swingline Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Promptly after receipt by the Swingline Lender of any telephonic Swingline Loan Notice, the Swingline Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swingline Loan Notice and, if not, the Swingline Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swingline Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 2:00 p.m. on the date of the proposed Swingline Borrowing (A) directing the Swingline Lender not to make such Swingline Loan as a result of the limitations set forth in the first proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swingline Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swingline Loan Notice, make the amount of its Swingline Loan available to the Borrower.
(c) Refinancing of Swingline Loans.
(i) The Swingline Lender at any time in its sole discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swingline Lender to so request on its behalf), that each Lender make a Base Rate Loan in an amount equal to such Lenders Applicable Revolving Percentage of the amount of Swingline Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Facility and the conditions set forth in Section 4.02. The Swingline Lender shall furnish the Borrower with a copy of the applicable Loan Notice promptly after delivering such notice to the Administrative Agent. Each Lender shall make an amount equal to its Applicable Revolving Percentage of the amount specified in such Loan Notice available to the Administrative Agent in immediately available funds (and the Administrative Agent may apply Cash Collateral available with respect to the applicable Swingline Loan) for the account of the Swingline Lender at the Administrative Agents Office not later than 1:00 p.m. on the day specified in such Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swingline Lender.
(ii) If for any reason any Swingline Loan cannot be refinanced by such a Revolving Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Loans submitted by the Swingline Lender as set forth herein shall be deemed to be a request by the Swingline Lender that each of the Lenders fund its risk participation in the relevant Swingline Loan and each Lenders payment to the Administrative Agent for the account of the Swingline Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.
(iii) If any Lender fails to make available to the Administrative Agent for the account of the Swingline Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swingline Lender shall
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be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swingline Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swingline Lender in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Swingline Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lenders Revolving Loan included in the relevant Revolving Borrowing or funded participation in the relevant Swingline Loan, as the case may be. A certificate of the Swingline Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.
(iv) Each Lenders obligation to make Revolving Loans or to purchase and fund risk participations in Swingline Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swingline Lender, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lenders obligation to make Revolving Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Loan Notice). No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to repay Swingline Loans, together with interest as provided herein.
(d) Repayment of Participations.
(i) At any time after any Lender has purchased and funded a risk participation in a Swingline Loan, if the Swingline Lender receives any payment on account of such Swingline Loan, the Swingline Lender will distribute to such Lender its Applicable Revolving Percentage thereof in the same funds as those received by the Swingline Lender.
(ii) If any payment received by the Swingline Lender in respect of principal or interest on any Swingline Loan is required to be returned by the Swingline Lender under any of the circumstances described in Section 11.05 (including pursuant to any settlement entered into by the Swingline Lender in its discretion), each Lender shall pay to the Swingline Lender its Applicable Revolving Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swingline Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Interest for Account of Swingline Lender. The Swingline Lender shall be responsible for invoicing the Borrower for interest on the Swingline Loans. Until each Lender funds its Base Rate Loan or risk participation pursuant to this Section to refinance such Lenders Applicable Revolving Percentage of any Swingline Loan, interest in respect of such Applicable Revolving Percentage shall be solely for the account of the Swingline Lender.
(f) Payments Directly to Swingline Lender. The Borrower shall make all payments of principal and interest in respect of the Swingline Loans directly to the Swingline Lender.
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Section 2.05 Prepayments.
(a) Optional.
(i) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Revolving Loans in whole or in part without premium or penalty; provided that, (A) such notice must be received by the Administrative Agent not later than 11:00 a.m. (1) three (3) Business Days prior to any date of prepayment of Eurodollar Rate Loans and (2) on the date of prepayment of Base Rate Loans; (B) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (C) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lenders ratable portion of such prepayment (based on such Lenders Applicable Percentage in respect of the relevant Facility). If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of principal shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Subject to Section 2.15, such prepayments shall be paid to the Lenders in accordance with their respective Applicable Percentages in respect of the Facility.
(ii) The Borrower may, upon notice to the Swingline Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swingline Loans in whole or in part without premium or penalty; provided that, (A) such notice must be received by the Swingline Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (B) any such prepayment shall be in a minimum principal amount of $100,000 or a whole multiple of $100,000 in excess hereof (or, if less, the entire principal thereof then outstanding). Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of principal shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05.
(b) Mandatory.
(i) Revolving Outstandings. If for any reason a Borrowing Base Deficiency exists, the Borrower shall immediately on demand prepay Revolving Loans, Swingline Loans and/or L/C Borrowings (together with all accrued but unpaid interest thereon) and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; provided, however, that the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05(b)(i) unless, after the prepayment of the Revolving Loans and Swingline Loans, a Borrowing Base Deficiency continues to exist.
(ii) Application of Other Payments. Except as otherwise provided in Section 2.15, prepayments of the Facility made pursuant to this Section 2.05(b), first, shall be applied ratably to the L/C Borrowings and the Swingline Loans, second, shall be applied to the outstanding Revolving Loans, and, third, shall be used to Cash Collateralize the remaining L/C Obligations. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrower or any other Loan Party or any Defaulting Lender that has provided Cash Collateral) to reimburse the L/C Issuer or the Lenders, as applicable.
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Within the parameters of the applications set forth above, prepayments pursuant to this Section 2.05(b) shall be applied first to Base Rate Loans and then to Eurodollar Rate Loans in direct order of Interest Period maturities. All prepayments under this Section 2.05(b) shall be subject to Section 3.05, but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment.
Section 2.06 Termination or Reduction of Commitments.
(a) Optional. The Borrower may, upon notice to the Administrative Agent, terminate the Facility, the Letter of Credit Sublimit or the Swingline Sublimit, or from time to time permanently reduce the Facility, the Letter of Credit Sublimit or the Swingline Sublimit; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five (5) Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof and (iii) the Borrower shall not terminate or reduce (A) the Facility if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Facility, (B) the Letter of Credit Sublimit if, after giving effect thereto, the Outstanding Amount of L/C Obligations not fully Cash Collateralized hereunder would exceed the Letter of Credit Sublimit, or (C) the Swingline Sublimit if, after giving effect thereto and to any concurrent prepayments hereunder, the Outstanding Amount of Swingline Loans would exceed the Letter of Credit Sublimit.
(i) [Reserved].
(ii) If after giving effect to any reduction or termination of Commitments under this Section 2.06, the Letter of Credit Sublimit or the Swingline Sublimit exceeds the Facility at such time, the Letter of Credit Sublimit or the Swingline Sublimit, as the case may be, shall be automatically reduced by the amount of such excess.
(b) Application of Commitment Reductions; Payment of Fees.
The Administrative Agent will promptly notify the Lenders of any termination or reduction of the Letter of Credit Sublimit, Swingline Sublimit or the Commitment under this Section 2.06. Upon any reduction of the Commitments, the Commitment of each Lender shall be reduced by such Lenders Applicable Revolving Percentage of such reduction amount, the Facility shall be reduced as to such amount and any Commitment Fees accruing with respect thereto shall be calculated based on the reduced Facility. All fees in respect of the Facility accrued until the effective date of any termination of the Facility shall be paid on the effective date of such termination.
Section 2.07 Repayment of Loans.
(a) Revolving Loans. The Borrower shall repay to the Lenders on the Maturity Date for the Facility the aggregate principal amount of all Revolving Loans outstanding on such date.
(b) Swingline Loans. The Borrower shall repay each Swingline Loan on the earlier to occur of (i) the date ten (10) Business Days after such Loan is made and (ii) the Maturity Date for the Facility.
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Section 2.08 Interest and Default Rate.
(a) Interest. Subject to the provisions of Section 2.08(b), (i) each Eurodollar Rate Loan under the Facility shall bear interest on the outstanding principal amount thereof for each Interest Period from the applicable borrowing date at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate for such Facility; (ii) each Base Rate Loan under the Facility shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for such Facility; and (iii) each Swingline Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for the Facility.
(b) Default Rate.
(i) If any amount of principal of any Loan is not paid when due, whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due, whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iii) Upon the request of the Required Lenders, while any Event of Default exists, outstanding Obligations (including Letter of Credit Fees) may accrue at a fluctuating rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(c) Interest Payments. Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
Section 2.09 Fees.
In addition to certain fees described in Section 2.03:
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Revolving Percentage, a commitment fee (the Commitment Fee) equal to the Applicable Rate times the actual daily amount by which the Facility exceeds the sum of (i) the Outstanding Amount of Revolving Loans and (ii) the Outstanding Amount of L/C Obligations, subject to adjustment as provided in Section 2.15. For the avoidance of doubt, the Outstanding Amount of Swingline Loans shall not be counted towards or considered usage of the Aggregate Commitments. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period for the Facility.
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(b) Other Fees.
(i) The Borrower shall pay to the Administrative Agent and the Arranger for its own account fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(ii) The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
Section 2.10 Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate.
(a) Computation of Interest and Fees. All computations of interest for Base Rate Loans (including Base Rate Loans determined by reference to the Eurodollar Rate) shall be made on the basis of a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a three hundred sixty-five (365) day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that, any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one (1) day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
Section 2.11 Evidence of Debt.
(a) Maintenance of Accounts. The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Revolving Note, which shall evidence such Lenders Loans in addition to such accounts or records. Each Lender may attach schedules to its Revolving Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
(b) Maintenance of Records. In addition to the accounts and records referred to in Section 2.11(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swingline Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
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Section 2.12 Payments Generally; Administrative Agents Clawback.
(a) General. All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agents Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage in respect of the relevant Facility (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lenders Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. Subject to Section 2.07(a) and as otherwise specifically provided for in this Agreement, if any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Eurodollar Rate Loans (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lenders share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lenders Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Appropriate Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Appropriate Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with
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interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Revolving Loans, to fund participations in Letters of Credit and Swingline Loans and to make payments pursuant to Section 11.04(c) are several and not joint. The failure of any Lender to make any Loan, to fund any such participation or to make any payment under Section 11.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 11.04(c).
(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
Section 2.13 Sharing of Payments by Lenders.
If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of (a) Obligations in respect of any of the Facility due and payable to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender at such time to (ii) the aggregate amount of the Obligations in respect of the Facility due and payable to all Lenders hereunder and under the other Loan Documents at such time) of payments on account of the Obligations in respect of the Facility due and payable to all Lenders hereunder and under the other Loan Documents at such time obtained by all the Lenders at such time or (b) Obligations in respect of any of the Facility owing (but not due and payable) to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Lender at such time to (ii) the aggregate amount of the Obligations in respect of the Facility owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time) of payments on account of the Obligations in respect of the Facility owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time obtained by all of the Lenders at such time, then, in each case under clauses (a) and (b) above, the Lender receiving such greater proportion shall (A) notify the Administrative Agent of such fact, and (B) purchase (for cash at face value) participations in the Loans and subparticipations in L/C Obligations and Swingline Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of Obligations in respect of the Facility then due and payable to the Lenders or owing (but not due and payable) to the Lenders, as the case may be, provided that:
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(1) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(2) the provisions of this Section shall not be construed to apply to (x) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (y) the application of Cash Collateral provided for in Section 2.14, or (z) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or subparticipations in L/C Obligations or Swingline Loans to any assignee or participant, other than an assignment to any Loan Party or any Affiliate thereof (as to which the provisions of this Section shall apply).
Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.
Section 2.14 Cash Collateral.
(a) Certain Credit Support Events. If (i) the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, (ii) as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, (iii) the Borrower shall be required to provide Cash Collateral pursuant to Section 2.05 or 8.02(c), or (iv) there shall exist a Defaulting Lender, the Borrower shall immediately (in the case of clause (iii) above) or within one (1) Business Day (in all other cases) following any request by the Administrative Agent or the L/C Issuer, provide Cash Collateral in an amount not less than the applicable Minimum Collateral Amount (determined in the case of Cash Collateral provided pursuant to clause (iv) above, after giving effect to Section 2.15(a)(iv) and any Cash Collateral provided by the Defaulting Lender).
(b) Grant of Security Interest. The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grants to (and subjects to the control of) the Administrative Agent, for the benefit of the Administrative Agent, the L/C Issuer and the Lenders, and agrees to maintain, a first priority security interest in all such cash, deposit accounts and all balances therein, and all other property so provided as collateral pursuant hereto, and in all proceeds of the foregoing, all as security for the obligations to which such Cash Collateral may be applied pursuant to Section 2.14(c). If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent or the L/C Issuer as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, the Borrower will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency. All Cash Collateral (other than credit support not constituting funds subject to deposit) shall be maintained in one or more Cash Collateral Accounts at Bank of America. The Borrower shall pay on demand therefor from time to time all customary account opening, activity and other administrative fees and charges in connection with the maintenance and disbursement of Cash Collateral.
(c) Application. Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under any of this Section 2.14 or Sections 2.03, 2.05, 2.15 or 8.02 in respect of
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Letters of Credit shall be held and applied to the satisfaction of the specific L/C Obligations, obligations to fund participations therein (including, as to Cash Collateral provided by a Lender that is a Defaulting Lender, any interest accrued on such obligation) and other obligations for which the Cash Collateral was so provided, prior to any other application of such property as may be provided for herein.
(d) Release. Cash Collateral (or the appropriate portion thereof) provided to reduce Fronting Exposure or to secure other obligations shall be released promptly following (i) the elimination of the applicable Fronting Exposure or other obligations giving rise thereto (including by the termination of Defaulting Lender status of the applicable Lender (or, as appropriate, its assignee following compliance with Section 11.06(b)(vi))) or (ii) the determination by the Administrative Agent and the L/C Issuer that there exists excess Cash Collateral; provided, however, (A) any such release shall be without prejudice to, and any disbursement or other transfer of Cash Collateral shall be and remain subject to, any other Lien conferred under the Loan Documents and the other applicable provisions of the Loan Documents, and (B) the Person providing Cash Collateral and the L/C Issuer may agree that Cash Collateral shall not be released but instead held to support future anticipated Fronting Exposure or other obligations.
Section 2.15 Defaulting Lenders.
(a) Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(i) Waivers and Amendments. Such Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 11.01.
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 11.08 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the L/C Issuer or Swingline Lender hereunder; third, to Cash Collateralize the L/C Issuers Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.14; fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (A) satisfy such Defaulting Lenders potential future funding obligations with respect to Loans under this Agreement and (B) Cash Collateralize the L/C Issuers future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.14; sixth, to the payment of any amounts owing to the Lenders, the L/C Issuer or Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, the L/C Issuer or the Swingline Lender against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise as may be required under the Loan Documents in connection with any Lien conferred thereunder or directed by a court of competent jurisdiction; provided that, if (1)
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such payment is a payment of the principal amount of any Loans or L/C Borrowings in respect of which such Defaulting Lender has not fully funded its appropriate share, and (2) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Obligations owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Obligations owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments hereunder without giving effect to Section 2.15(a)(v). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.15(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees.
(A) Fees. No Defaulting Lender shall be entitled to receive any fee payable under Section 2.09 for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(B) Letter of Credit Fees. Each Defaulting Lender shall be entitled to receive Letter of Credit Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Applicable Revolving Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 2.14.
(C) Defaulting Lender Fees. With respect to any Letter of Credit Fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (1) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lenders participation in L/C Obligations or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (2) pay to the L/C Issuer and Swingline Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such L/C Issuers or Swingline Lenders Fronting Exposure to such Defaulting Lender, and (3) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Applicable Revolving Percentages to Reduce Fronting Exposure. All or any part of such Defaulting Lenders participation in L/C Obligations and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable Revolving Percentages (calculated without regard to such Defaulting Lenders Commitment) but only to the extent that (A) the conditions set forth in Section 4.02 are satisfied at the time of such reallocation (and, unless the Borrower shall have otherwise notified the Administrative Agent at such time, the Borrower shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (B) such reallocation does not cause the aggregate Revolving Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lenders Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lenders increased exposure following such reallocation.
(v) Cash Collateral, Repayment of Swingline Loans. If the reallocation described in clause (a)(iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under applicable Law, (A) first, prepay Swingline Loans in an amount equal to the Swingline Lenders Fronting Exposure and (B) second, Cash Collateralize the L/C Issuers Fronting Exposure in accordance with the procedures set forth in Section 2.14.
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(b) Defaulting Lender Cure. If the Borrower, the Administrative Agent, Swingline Lender and the L/C Issuer agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages (without giving effect to Section 2.15(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that, no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender.
Section 2.16 Increase in Facility.
(a) Request for Increase. Provided there exists no Default, upon notice to the Administrative Agent (which shall promptly notify the Revolving Lenders), the Borrower may from time to time, request an increase in the Facility so long as the Facility (Incremental Facility), after taking into account all such requests, does not exceed $250,000,000; provided that (i) any such request for an Incremental Facility shall be in a minimum amount of $15,000,000 and in increments of $5,000,000 in excess thereof, and (ii) the Borrower may make a maximum of three (3) such requests. At the time of sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Revolving Lender is requested to respond.
(b) Lender Elections to Increase. Each Revolving Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Revolving Commitment and, if so, whether by an amount equal to, greater than, or less than its Applicable Revolving Percentage of such requested increase. Any Revolving Lender not responding within such time period shall be deemed to have declined to increase its Revolving Commitment.
(c) Notification by Administrative Agent; Additional Revolving Lenders. The Administrative Agent shall notify the Borrower and each Revolving Lender of the Revolving Lenders responses to each request made hereunder. To achieve the full amount of a requested increase, and subject to the approval of the Administrative Agent, the L/C Issuer and the Swingline Lender (which approvals shall not be unreasonably withheld), the Borrower may also invite additional Eligible Assignees to become Revolving Lenders pursuant to a joinder agreement (New Revolving Lenders) in form and substance satisfactory to the Administrative Agent and its counsel.
(d) Effective Date and Allocations. If the Facility is increased in accordance with this Section, the Administrative Agent and the Borrower shall determine the effective date (the Revolving Increase Effective Date) and the final allocation of such increase. The Administrative Agent shall promptly notify the Borrower and the Revolving Lenders and the New Revolving Lenders of the final allocation of such increase and the Revolving Increase Effective Date.
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(e) Conditions to Effectiveness of Increase. As a condition precedent to such increase, the Borrower shall deliver to the Administrative Agent a certificate of each Loan Party dated as of the Revolving Increase Effective Date (in sufficient copies for each Lender) signed by a Responsible Officer of such Loan Party (i) certifying and attaching the resolutions adopted by such Loan Party approving or consenting to such increase, and (ii) in the case of the Borrower, certifying that, immediately before and after giving effect to the Incremental Facility, (A) the representations and warranties contained in Article V and the other Loan Documents are true and correct, on and as of the Revolving Increase Effective Date, and except that for purposes of this Section 2.16, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01, and (B) no Default exists. The Borrower shall deliver or cause to be delivered any other customary documents, (including, without limitation, legal opinions) as reasonably requested by the Administrative Agent in connection with any Incremental Facility. The Borrower shall prepay any Revolving Loans outstanding on the Revolving Increase Effective Date (and pay any additional amounts required pursuant to Section 3.05) to the extent necessary to keep the outstanding Revolving Loans ratable with any revised Applicable Revolving Percentages arising from any nonratable increase in the Revolving Commitments under this Section.
(f) Conflicting Provisions. This Section shall supersede any provisions in Section 2.13 or 11.01 to the contrary.
(g) Incremental Facility. Except as otherwise specifically set forth herein, all of the other terms and conditions applicable to such Incremental Facility shall be identical to the terms and conditions applicable to the Facility.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
Section 3.01 Taxes.
(a) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes.
(i) Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Laws. If any applicable Laws (as determined in the good faith discretion of the Administrative Agent) require the deduction or withholding of any Tax from any such payment by the Administrative Agent or a Loan Party, then the Administrative Agent or such Loan Party shall be entitled to make such deduction or withholding, upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.
(ii) If any Loan Party or the Administrative Agent shall be required by the Code to withhold or deduct any Taxes, including both United States federal backup withholding and withholding taxes, from any payment, then (A) the Administrative Agent shall withhold or make such deductions as are determined by the Administrative Agent to be required based upon the information and documentation it has received pursuant to subsection (e) below, (B) the Administrative Agent shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with the Code, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
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(iii) If any Loan Party or the Administrative Agent shall be required by any applicable Laws other than the Code to withhold or deduct any Taxes from any payment, then (A) such Loan Party or the Administrative Agent, as required by such Laws, shall withhold or make such deductions as are determined by it to be required based upon the information and documentation it has received pursuant to subsection (e) below, (B) such Loan Party or the Administrative Agent, to the extent required by such Laws, shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with such Laws, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
(b) Payment of Other Taxes by the Loan Parties. Without limiting the provisions of subsection (a) above, the Loan Parties shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(c) Tax Indemnifications.
(i) Each of the Loan Parties shall, and does hereby, jointly and severally indemnify each Recipient, and shall make payment in respect thereof within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error. Each of the Loan Parties shall also, and does hereby, jointly and severally indemnify the Administrative Agent, and shall make payment in respect thereof within ten (10) days after demand therefor, for any amount which a Lender or the L/C Issuer for any reason fails to pay indefeasibly to the Administrative Agent as required pursuant to Section 3.01(c)(ii) below.
(ii) Each Lender and the L/C Issuer shall, and does hereby, severally indemnify and shall make payment in respect thereof within ten (10) days after demand therefor, (A) the Administrative Agent against any Indemnified Taxes attributable to such Lender or the L/C Issuer (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (B) the Administrative Agent and the Loan Parties, as applicable, against any Taxes attributable to such Lenders failure to comply with the provisions of Section 11.06(d) relating to the maintenance of a Participant Register and (C) the Administrative Agent and the Loan Parties, as applicable, against any Excluded Taxes attributable to such Lender or the L/C Issuer, in each case, that are payable or paid by the Administrative Agent or a Loan Party in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any
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Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender and the L/C Issuer hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender or the L/C Issuer, as the case may be, under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this clause (ii).
(d) Evidence of Payments. Upon request by the Borrower or the Administrative Agent, as the case may be, after any payment of Taxes by any Loan Party or by the Administrative Agent to a Governmental Authority as provided in this Section 3.01, the Borrower shall deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrower, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to the Borrower or the Administrative Agent, as the case may be.
(e) Status of Lenders; Tax Documentation.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.01(e)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lenders reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), properly completed and executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, properly completed and executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the interest article of such tax treaty and (y) with respect to any other
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applicable payments under any Loan Document, properly completed and executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the business profits or other income article of such tax treaty;
(2) properly completed and executed originals of IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit L-1 to the effect that such Foreign Lender is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a 10 percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a controlled foreign corporation described in Section 881(c)(3)(C) of the Code (a U.S. Tax Compliance Certificate) and (y) properly completed and executed originals of IRS Form W-8BEN; or
(4) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY from the Foreign Lender, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit L-2 or Exhibit L-3, properly completed and executed originals of IRS Form W-9 and/or IRS Form W-8IMY, and/or other required documents from each intermediary and direct or indirect beneficial owner, as applicable; provided that, if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit L-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), FATCA shall include any amendments made to FATCA after the date of this Agreement.
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(iii) The Administrative Agent and each Lender agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall provide a new form or certification on or before the next Interest Payment Date or promptly notify the Borrower and the Administrative Agent, as the case may be, in writing of its legal inability to do so.
(f) Treatment of Certain Refunds. Unless required by applicable Laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender or the L/C Issuer, or have any obligation to pay to any Lender or the L/C Issuer, any refund of Taxes withheld or deducted from funds paid for the account of such Lender or the L/C Issuer, as the case may be. If any Recipient determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this Section 3.01, it shall pay to such Loan Party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 3.01 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) incurred by such Recipient, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that, each Loan Party, upon the request of the Recipient, agrees to repay the amount paid over to such Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Recipient in the event the Recipient is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this subsection, in no event will the applicable Recipient be required to pay any amount to such Loan Party pursuant to this subsection the payment of which would place the Recipient in a less favorable net after-Tax position than such Recipient would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This subsection shall not be construed to require the Recipient to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Loan Party or any other Person.
(g) Survival. Each partys obligations under this Section 3.01 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender or the L/C Issuer, the termination of the Commitments and the repayment, satisfaction or discharge of all other Obligations.
Section 3.02 Illegality.
If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its Lending Office to make, maintain or fund Loans whose interest is determined by reference to the Eurodollar Rate, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (a) any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended, and (b) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the Eurodollar Rate component of the Base Rate, the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (i) the Borrower shall, upon demand from such Lender (with a copy to
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the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans and (ii) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Eurodollar Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the Eurodollar Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Eurodollar Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
Section 3.03 Inability to Determine Rates.
If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan or in connection with an existing or proposed Base Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, (i) the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended, and (ii) in the event of a determination described in the preceding sentence with respect to the Eurodollar Rate component of the Base Rate, the utilization of the Eurodollar Rate component in determining the Base Rate shall be suspended, in each case until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.
Section 3.04 Increased Costs; Reserves on Eurodollar Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e)) or the L/C Issuer;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein;
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and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to, continuing or maintaining any Loan the interest on which is determined by reference to the Eurodollar Rate (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lenders or the L/C Issuers holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lenders or the L/C Issuers capital or on the capital of such Lenders or the L/C Issuers holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lenders or the L/C Issuers holding company could have achieved but for such Change in Law (taking into consideration such Lenders or the L/C Issuers policies and the policies of such Lenders or the L/C Issuers holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lenders or the L/C Issuers holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lenders or the L/C Issuers right to demand such compensation; provided that, the Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine (9) months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lenders or the L/C Issuers intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine (9) month period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as Eurocurrency liabilities), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least ten (10) days prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice ten (10) days prior to the relevant Interest Payment Date, such additional interest shall be due and payable ten (10) days from receipt of such notice.
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Section 3.05 Compensation for Losses.
Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 11.13; including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.
Section 3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender, the L/C Issuer, or any Governmental Authority for the account of any Lender or the L/C Issuer pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then at the request of the Borrower, such Lender or the L/C Issuer shall, as applicable, use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender or the L/C Issuer, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender or the L/C Issuer, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or the L/C Issuer, as the case may be. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the L/C Issuer in connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 and, in each case, such Lender has declined or is unable to designate a different lending office in accordance with Section 3.06(a), the Borrower may replace such Lender in accordance with Section 11.13.
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Section 3.07 Survival.
All of the Borrowers obligations under this Article III shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder, resignation of the Administrative Agent and the Facility Termination Date.
ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
Section 4.01 Conditions of Initial Credit Extension.
The obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement; Loan Documents. The Administrative Agent shall have received (i) counterparts of this Agreement, executed by a Responsible Officer of each Loan Party and a duly authorized officer of each Lender, (ii) for the account of each Lender requesting a Revolving Note, a Revolving Note executed by a Responsible Officer of the Borrower, (iii) counterparts (or reaffirmations, as applicable) of the Security Agreement, each Mortgage and any related Mortgaged Property Support Document (if applicable) and each other Collateral Document, executed by a Responsible Officer of the applicable Loan Parties and a duly authorized officer of each other Person party thereto, as applicable and (iv) counterparts (or reaffirmations, as applicable) of any other Loan Document, executed by a Responsible Officer of the applicable Loan Party and a duly authorized officer of each other Person party thereto.
(b) Officers Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer (in substantially the form of Exhibit K attached hereto) dated the Closing Date, certifying as to the Organization Documents of each Loan Party (which, to the extent filed with a Governmental Authority, shall be certified as of a recent date by such Governmental Authority), the resolutions of the governing body of each Loan Party, the good standing, existence or its equivalent of each Loan Party and of the incumbency (including specimen signatures) of the Responsible Officers of each Loan Party.
(c) Legal Opinions of Counsel. The Administrative Agent shall have received an opinion or opinions of counsel for the Loan Parties, dated the Closing Date and addressed to the Administrative Agent and the Lenders, in form and substance acceptable to the Administrative Agent.
(d) Reserved.
(e) Personal Property Collateral. The Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent:
(i) (A) searches of UCC filings in the jurisdiction of incorporation or formation, as applicable, of each Loan Party and each jurisdiction where a filing would need to be made in order to perfect the Administrative Agents security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens and (B) tax lien, judgment and bankruptcy searches;
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(ii) Reserved;
(iii) stock or membership certificates, if any, evidencing the Pledged Equity and undated stock or transfer powers duly executed in blank; in each case to the extent such Pledged Equity is certificated under Article 8 of the UCC;
(iv) to the extent required to be delivered pursuant to the terms of the Collateral Documents, all instruments, documents and chattel paper in the possession of any of the Loan Parties, together with allonges or assignments as may be necessary or appropriate to perfect the Administrative Agents and the Lenders security interest in the Collateral; and
(v) Qualifying Control Agreements satisfactory to the Administrative Agent to the extent required to be delivered pursuant to Section 6.14.
(f) Liability, Property, Terrorism and Business Interruption Insurance. The Administrative Agent shall have received copies of insurance policies (with premiums, rates and other proprietary information redacted), declaration pages as they become available, certificates, and endorsements of insurance or insurance binders (with premiums, rates and other proprietary information redacted) evidencing liability, casualty, property, with terrorism and business interruption insurance meeting the requirements set forth herein or in the Collateral Documents or as required by the Administrative Agent. The Loan Parties shall have delivered to the Administrative Agent an Authorization to Share Insurance Information in substantially the form of Exhibit P (or such other form as required by each of the Loan Parties insurance companies).
(g) Solvency Certificate. The Administrative Agent shall have received a Solvency Certificate signed by a Responsible Officer of the Borrower as to the financial condition, solvency and related matters of the Borrower and its Subsidiaries on a Consolidated basis, after giving effect to the initial borrowings under the Loan Documents and the other transactions contemplated hereby.
(h) Financial Condition Certificate. The Administrative Agent shall have received a certificate or certificates executed by a Responsible Officer of the Borrower as of the Closing Date, as to certain financial matters, substantially in the form of Exhibit O.
(i) Material Contracts. The Administrative Agent or its counsel shall have received true and complete copies, certified by an officer of the Borrower as true and complete, of all Material Contracts, together with all exhibits and schedules. [***].
(j) Borrowing Notice. The Administrative Agent shall have received a Borrowing Notice with respect to the Loans to be made on the Closing Date.
(k) Reserved.
(l) Consents. All boards of directors, governmental, shareholder and material third party consents and approvals necessary in connection with the entering into of this Agreement shall have been obtained.
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(m) Fees and Expenses. The Administrative Agent and the Lenders shall have received all fees and expenses, if any, owing pursuant to the Fee Letter and Section 2.09.
(n) Due Diligence. The Lenders shall have completed a due diligence investigation of the Borrower and its Subsidiaries in scope, and with results, satisfactory to the Lenders, including but not limited to due diligence with respect to the Tax Equity Commitments and Available Take-Out.
(o) Borrowing Base Certificate. Administrative Agent and Lenders shall have received a completed Borrowing Base Certificate together with a Back-Log Spreadsheet and a Take-Out Spreadsheet and other supporting information, each prepared as of the Closing Date, duly certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower.
(p) Reserved.
(q) Flow of Funds. Administrative Agent shall have received all documents and confirmations (including Payment Direction Letters) reasonably deemed necessary by Administrative Agent to confirm that the net fundings Available Take-Out from Tax Equity Investors will be paid directly to Borrower from such wholly-owned Excluded Subsidiary to which such Available Take-Out is due.
Without limiting the generality of the provisions of the last paragraph of Section 9.03, for purposes of determining compliance with the conditions specified in this Section, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
Section 4.02 Conditions to all Credit Extensions.
The obligation of each Lender and the L/C Issuer to honor any Request for Credit Extension is subject to the following conditions precedent:
(a) Representations and Warranties. The representations and warranties of the Borrower and each other Loan Party contained in Article II, Article V or any other Loan Document, shall (i) with respect to representations and warranties that contain a materiality qualification, be true and correct on and as of the date of such Credit Extension and (ii) with respect to representations and warranties that do not contain a materiality qualification, be true and correct in all material respects on and as of the date of such Credit Extension, and except that for purposes of this Section 4.02, the representations and warranties contained in Sections 5.05(a) and (b) shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b), respectively.
(b) Default. No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c) Request for Credit Extension. The Administrative Agent and, if applicable, the L/C Issuer or the Swingline Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.
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Each Request for Credit Extension submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Administrative Agent and the Lenders, as of the date made or deemed made, that:
Section 5.01 Existence, Qualification and Power.
Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. The copy of the Organization Documents of each Loan Party provided to the Administrative Agent pursuant to the terms of this Agreement is a true and correct copy of each such document, each of which is valid and in full force and effect.
Section 5.02 Authorization; No Contravention.
The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is or is to be a party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Persons Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.
Section 5.03 Governmental Authorization; Other Consents.
No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, other than (i) authorizations, approvals, actions, notices and filings which have been duly obtained and (ii) filings to perfect the Liens created by the Collateral Documents.
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Section 5.04 Binding Effect.
This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principals of equity.
Section 5.05 Financial Statements; No Material Adverse Effect.
(a) Audited Financial Statements. The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(b) Quarterly Financial Statements. The unaudited Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries dated as of June 30, 2013, and the related Consolidated and consolidating statements of income or operations, shareholders equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments.
(c) Material Adverse Effect. Since the date of the Audited Financial Statements (and, in addition, after delivery of the most recent annual audited financial statements in accordance with the terms hereof, since the date of such annual audited financial statements), there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
Section 5.06 Litigation.
There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Loan Parties after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or any Subsidiary or against any of their properties or revenues that (a) purport to materially affect this Agreement or any other Loan Document or any of the transactions contemplated hereby, or (b) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.
Section 5.07 No Default.
Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
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Section 5.08 Ownership of Property.
Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 5.09 Environmental Compliance.
(a) The Loan Parties and their respective Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Loan Parties have reasonably concluded that such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) None of the properties currently or formerly owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; there are no and never have been any underground or above-ground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned or operated by any Loan Party or any of its Subsidiaries or, to the best of the knowledge of the Loan Parties, on any property formerly owned or operated by any Loan Party or any of its Subsidiaries; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries; and Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries.
(c) Neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation that would reasonably be expected to have a Material Adverse Effect, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any of its Subsidiaries.
Section 5.10 Insurance.
The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts (after giving effect to any self-insurance compatible with the following standards), with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the applicable Loan Party or the applicable Subsidiary operates. The general liability, casualty, property, with terrorism and business interruption insurance coverage of the Loan Parties as in effect on the Closing Date, and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is outlined as to carrier, policy number, expiration date, type, amount and deductibles on Schedule 5.10 and such insurance coverage complies with the requirements set forth in this Agreement and the other Loan Documents.
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Section 5.11 Taxes.
Each Loan Party and its Subsidiaries have filed all federal, state and other material tax returns and filings required to be filed, and have paid all federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against any Loan Party or any Subsidiary that would, if made, have a Material Adverse Effect, nor is there any tax sharing agreement applicable to the Borrower or any Subsidiary that could reasonably be expected to result in a Material Adverse Effect.
Section 5.12 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state laws. Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter or is subject to a favorable opinion letter from the IRS to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the IRS. To the best knowledge of the Loan Parties, nothing has occurred that would prevent or cause the loss of such tax-qualified status.
(b) There are no pending or, to the best knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred, and no Loan Party nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) the Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is 60% or higher and no Loan Party nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of the most recent valuation date; (iv) no Loan Party nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.
(d) Neither the Borrower nor any ERISA Affiliate maintains or contributes to, or has any unsatisfied obligation to contribute to, or liability under, any active or terminated Pension Plan other than (i) on the Closing Date, those listed on Schedule 5.12 hereto and (ii) thereafter, Pension Plans not otherwise prohibited by this Agreement.
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Section 5.13 Margin Regulations; Investment Company Act.
(a) Margin Regulations. The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. Following the application of the proceeds of each Borrowing or drawing under each Letter of Credit, not more than 25% of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a Consolidated basis) subject to the provisions of Section 7.01 or Section 7.05 or subject to any restriction contained in any agreement or instrument between the Borrower and any Lender or any Affiliate of any Lender relating to Indebtedness and within the scope of Section 8.01(e) will be margin stock.
(b) Investment Company Act. None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an investment company under the Investment Company Act of 1940.
Section 5.14 Disclosure.
The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries or any other Loan Party is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, each Loan Party represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
Section 5.15 Compliance with Laws.
Each Loan Party and each Subsidiary thereof is in compliance with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
Section 5.16 Solvency.
The Borrower together with its Subsidiaries on a Consolidated basis is Solvent.
Section 5.17 Casualty, Etc.
Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
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Section 5.18 Sanctions Concerns.
No Loan Party, nor any Subsidiary, nor, to the knowledge of the Loan Parties and their Subsidiaries, any director, officer, employee, agent, affiliate or representative thereof, is an individual or entity currently the subject of any Sanctions, nor is any Loan Party or any Subsidiary located, organized or resident in a Designated Jurisdiction.
Section 5.19 Responsible Officers.
Set forth on Schedule 1.01(c) are the Responsible Officers, holding the offices indicated next to their respective names, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02. Such Responsible Officers are the duly elected and qualified officers of such Loan Party and are duly authorized to execute and deliver, on behalf of the respective Loan Party, the Credit Agreement, the Revolving Notes and the other Loan Documents.
Section 5.20 Subsidiaries; Equity Interests; Loan Parties.
(a) Subsidiaries, Partnerships and Equity Investments. Set forth on Schedule 5.20(a), is the following information which is true and complete in all respects as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02: (i) a complete and accurate list of all Subsidiaries and partnerships and other equity investments of the Loan Parties as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, (ii) the number of shares of each class of Equity Interests in each Subsidiary outstanding, (iii) the number and percentage of outstanding shares of each class of Equity Interests owned by the Loan Parties and their Subsidiaries and (iv) the class or nature of such Equity Interests (e.g., voting, non-voting, preferred, etc.). The outstanding Equity Interests in all Subsidiaries are validly issued, fully paid and non-assessable and are owned free and clear of all Liens. There are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors qualifying shares) of any nature relating to the Equity Interests of any Loan Party or any Subsidiary thereof, except as contemplated in connection with the Loan Documents.
(b) Loan Parties. Set forth on Schedule 5.20(b) is a complete and accurate list of all Loan Parties, showing as of the Closing Date, or as of the last date such Schedule was required to be updated in accordance with Section 6.02, (as to each Loan Party) (i) the exact legal name, (ii) any former legal names of such Loan Party in the four (4) months prior to the Closing Date, (iii) the jurisdiction of its incorporation or organization, as applicable, (iv) the type of organization, (v) the jurisdictions in which such Loan Party is qualified to do business, (vi) the address of its chief executive office, (vii) the address of its principal place of business, (viii) its U.S. federal taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation or organization, (ix) the organization identification number, (x) ownership information (e.g., publicly held or if private or partnership, the owners and partners of each of the Loan Parties) and (xi) the industry or nature of business of such Loan Party.
Section 5.21 Collateral Representations.
(a) Collateral Documents. The provisions of the Collateral Documents and the filings of any necessary UCC filings are collectively effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority Lien (subject to Permitted Liens) on all right, title and interest of the respective Loan Parties in the Collateral described therein. Except for
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filings completed prior to the Closing Date and as contemplated hereby and by the Collateral Documents, no filing or other action will be necessary to perfect or protect such Liens to the extent such Liens can be perfected by filing of a UCC filing.
(b) Intellectual Property. Set forth on Schedule 5.21(b), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of all registered or issued Intellectual Property (including all applications for registration and issuance) owned by each of the Loan Parties or that each of the Loan Parties has the right to (including the name/title, current owner, registration or application number, and registration or application date and such other information as reasonably requested by the Administrative Agent).
(c) Documents, Instrument, and Tangible Chattel Paper. Set forth on Schedule 5.21(c), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Documents (as defined in the UCC), Instruments (as defined in the UCC), and Tangible Chattel Paper (as defined in the UCC) of the Loan Parties (including the Loan Party owning such Document, Instrument and Tangible Chattel Paper and such other information as reasonably requested by the Administrative Agent) in each case with a face amount in excess of $1,000,000.
(d) Deposit Accounts, Electronic Chattel Paper, Letter-of-Credit Rights, and Securities Accounts.
(i) Set forth on Schedule 5.21(d)(i), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Deposit Accounts (as defined in the UCC) and Securities Accounts (as defined in the UCC) of the Loan Parties, including the name of (A) the applicable Loan Party, (B) in the case of a Deposit Account, the depository institution and average amount held in such Deposit Account and whether such account is a ZBA account or a payroll account, and (C) in the case of a Securities Account, the Securities Intermediary (as defined in the UCC) or issuer and the average aggregate market value held in such Securities Account, as applicable.
(ii) Set forth on Schedule 5.21(d)(ii), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Electronic Chattel Paper and Letter of Credit Rights of the Loan Parties, including the name of (A) the applicable Loan Party, (B) in the case of Electronic Chattel Paper, the account debtor and (C) in the case of Letter-of-Credit Rights, the issuer or nominated person, as applicable.
(e) Commercial Tort Claims. Set forth on Schedule 5.21(e), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Commercial Tort Claims (as defined in the UCC) for which the Loan Parties are a claimant (detailing such Commercial Tort Claim in such detail as reasonably requested by the Administrative Agent).
(f) Pledged Equity Interests. Set forth on Schedule 5.21(f), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of (i) all Pledged Equity and (ii) all other Equity Interests required to be pledged to the Administrative Agent pursuant to the Collateral Documents (in each case, detailing the Grantor (as defined in the Security Agreement), the Person whose Equity Interests are pledged, the number of shares of each class of Equity Interests, the certificate number and percentage ownership of outstanding shares of each class of Equity Interests and the class or nature of such Equity Interests (e.g., voting, non-voting, preferred, etc.).
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(g) Properties. Set forth on Schedule 5.21(g)(i), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of all Mortgaged Properties (including (i) the name of the Loan Party owning such Mortgaged Property, (ii) the number of buildings located on such Mortgaged Property, (iii) the property address, and (iv) the city, county, state and zip code which such Mortgaged Property is located. Set forth on Schedule 5.21(g)(ii), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of (A) each headquarter location of the Loan Parties, (B) each other location where any significant administrative or governmental functions are performed, (C) each other location where the Loan Parties maintain any books or records (electronic or otherwise) and (D) each location where any personal property Collateral is located at any premises owned or leased by a Loan Party with a Collateral value in excess of $1,000,000 (in each case, including (1) an indication if such location is leased or owned, (2), if leased, the name of the lessor, and if owned, the name of the Loan Party owning such property, (3) the address of such property (including, the city, county, state and zip code) and (4) to the extent owned, the approximate fair market value of such property).
(h) Material Contracts. Set forth on Schedule 5.21(h), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a complete and accurate list of all Material Contracts of the Borrower and its Subsidiaries.
(i) Borrowing Base Certificate. All information and calculations set forth on each Borrowing Base Certificate delivered to Administrative Agent pursuant to Section 6.02(m) are true and correct as of the date reflected therein.
Section 5.22 Intellectual Property; Licenses, Etc.
Each Loan Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party or any of its Subsidiaries infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the Borrower, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.23 Labor Matters.
There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date and the Borrower has not suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five (5) years preceding the Closing Date, which has resulted in a Material Adverse Effect.
Section 5.24 Available Take-Out.
The aggregate outstanding Revolving Loans are in an amount equal to or less than the net proceeds of Available Take-Out which are to be paid to Borrower.
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Section 5.25 Immaterial Subsidiaries/Zoom.
Each of Borrowers Immaterial Subsidiaries has no material assets or material liabilities. At all times prior to the Zep Acquisition Date, Zoom has no material assets or material liabilities.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each of the Loan Parties hereby covenants and agrees that on the Closing Date and thereafter until the Facility Termination Date, such Loan Party shall, and shall cause each of their Subsidiaries to:
Section 6.01 Financial Statements.
Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) Audited Financial Statements. As soon as available, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrower, a Consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related Consolidated statements of income or operations, changes in shareholders equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, (i) such Consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Administrative Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any going concern or like qualification or exception or any qualification or exception as to the scope of such audit, and (ii) such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller that is a Responsible Officer of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the Consolidated financial statements of the Borrower and its Subsidiaries.
(b) Quarterly Financial Statements. As soon as available, but in any event within sixty (60) days after the end of each fiscal quarter of the Borrower:
(i) A Consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related Consolidated and consolidating statements of income or operations, changes in shareholders equity and cash flows for such fiscal quarter and for the portion of the Borrowers fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP and including management discussion and analysis of operating results inclusive of operating metrics in comparative form, such Consolidated statements to be certified by the chief executive officer, chief financial officer, treasurer or controller who is a Responsible Officer of the Borrower as fairly presenting the financial condition, results of operations, shareholders equity and cash flows of the Borrower and its Subsidiaries, subject only to normal year-end audit adjustments and the absence of footnotes and such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller that is a Responsible Officer of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the Consolidated financial statements of the Borrower and its Subsidiaries; and
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(ii) A statement of income of the Borrower as at the end of such fiscal quarter, prepared on an Activity Basis and reflecting net present value of future cash flows and interest expense, depreciation and amortization.
(c) Megawatts Booked, Inspected and Terminated. As soon as available, but in any event within sixty (60) days after the end of each of the fiscal quarters of each fiscal year of the Borrower, (i) an internally prepared income statement, measured on an Activity Basis, reflecting megawatts booked and inspected for such fiscal quarter and (ii) a report of megawatts terminated for such fiscal quarter.
(d) Business Plan and Budget. As soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower, (i) an annual business plan and budget consisting of forecasts prepared by management of the Borrower on both an Activity Basis as well as in accordance with GAAP, in form reasonably satisfactory to the Administrative Agent and the Required Lenders, on a monthly basis for the immediately following fiscal year, and (ii) a cash forecast prepared by management of the Borrower, in form reasonably satisfactory to the Administrative Agent and the Required Lenders, on a quarterly basis for the immediately following fiscal year.
As to any information contained in materials furnished pursuant to Section 6.02(g), the Borrower shall not be separately required to furnish such information under Section 6.01(a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in Sections 6.01(a) and (b) above at the times specified therein.
Section 6.02 Certificates; Other Information.
Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) Accountants Certificate. Concurrently with the delivery of the Borrowers financial statements referred to in Section 6.01(a), a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Default or, if any such Default shall exist, stating the nature and status of such event.
(b) Compliance Certificate. Concurrently with the delivery of the Borrowers financial statements referred to in Sections 6.01(a) and (b), (i) a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller which is a Responsible Officer of the Borrower, and in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 7.11, a statement of reconciliation conforming such financial statements to GAAP, and (ii) a copy of managements discussion and analysis with respect to such financial statements.
(c) Updated Schedules. Concurrently with the delivery of the Compliance Certificate referred to in Section 6.02(b), the following updated Schedules of the Borrower to this Agreement (which may be attached to the Compliance Certificate) to the extent required to make the representation related to such Schedule true and correct as of the date of such Compliance Certificate: Schedules 1.01(c), 5.10, 5.20(a), 5.20(b), 5.21(b), 5.21(c), 5.21(d)(i), 5.21(d)(ii), 5.21(e), 5.21(f), 5.21(g)(i), 5.21(g)(ii) and 5.21(h).
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(d) Calculations. Concurrently with the delivery of the Compliance Certificate referred to in Section 6.02(b) required to be delivered with the Borrowers financial statements referred to in Section 6.01(a), a certificate from the Borrower (which may be included in such Compliance Certificate) including the amount of all Restricted Payments, Investments (including Permitted Acquisitions), Dispositions and Capital Expenditures that were made during the prior fiscal year.
(e) Changes in Corporate Structure. Concurrently with the delivery of the Compliance Certificate referred to in Section 6.02(b), Borrower will provide notice of any change in corporate structure of any Loan Party or any of its Subsidiaries (including by merger, consolidation, dissolution or other change in corporate structure) to the Administrative Agent, along with such other information as reasonably requested by the Administrative Agent. Provide notice to the Administrative Agent, not less than ten (10) days prior (or such extended period of time as agreed to by the Administrative Agent) of any change in any Loan Partys legal name, state of organization, or organizational existence.
(f) Audit Reports; Management Letters; Recommendations. Promptly after any reasonable request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party, or any audit of any of them.
(g) Annual Reports; Etc. Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto.
(h) Debt Securities Statements and Reports. Promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section.
(i) SEC Notices. Promptly, and in any event within five (5) Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof.
(j) Notices. Not later than five (5) Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of all notices, requests and other documents (including amendments, waivers and other modifications) so received under or pursuant to any instrument, indenture, loan or credit or similar agreement regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and, from time to time upon request by the Administrative Agent, such information and reports regarding such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request.
(k) Environmental Notice. Promptly after the assertion or occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could (i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law.
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(l) Additional Information. Subject to Section 6.10(b), promptly, such additional information regarding the business, financial, legal or corporate affairs of any Loan Party or any Subsidiary thereof, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.
(m) Borrowing Base Certificate. As soon as available, but in any event within fifteen (15) days after the end of each month, a Borrowing Base Certificate together with a Back-Log Spreadsheet and a Take-Out Spreadsheet and other supporting information, each prepared as at the end of such month, duly certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower.
(n) Unencumbered Liquidity. As soon as available, but in any event within fifteen (15) days after the end of each month, an Unencumbered Liquidity Certificate, prepared as at the end of such month, duly certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(g) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (a) on which the Borrower posts such documents, or provides a link thereto on the Borrowers website on the Internet at the website address listed on Schedule 1.01(a); or (b) on which such documents are posted on the Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website, related to an SEC filing or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender upon its request to the Borrower to deliver such paper copies and (ii) the Borrower shall notify the Administrative Agent and each Lender (by fax transmission or other e-mail transmission) of the posting of any such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
The Borrower hereby acknowledges that (A) the Administrative Agent and/or an Affiliate thereof may, but shall not be obligated to, make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Borrower hereunder (collectively, Borrower Materials) by posting the Borrower Materials on Debt Domain, IntraLinks, Syndtrak or another similar electronic system (the Platform) and (B) certain of the Lenders (each, a Public Lender) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons securities. The Borrower hereby agrees that so long as the Borrower is the issuer of any outstanding debt or Equity Interests that are registered or issued pursuant to a private offering or is actively contemplating issuing any such securities it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (1) all such Borrower Materials shall be clearly and conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (2) by marking Borrower Materials PUBLIC, the Borrower shall be deemed to have authorized the Administrative Agent, any Affiliate thereof, the Arranger, the L/C Issuer and the Lenders
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to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 11.07); (3) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated Public Side Information; and (4) the Administrative Agent and the any Affiliate thereof and the Arranger shall be entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not designated Public Side Information. Notwithstanding the foregoing, the Borrower shall be under no obligation to mark any Borrower Materials PUBLIC.
Section 6.03 Notices.
(a) Promptly, but in any event within two (2) Business Days, notify the Administrative Agent and each Lender of the occurrence of any Default; and
(b) Promptly, but in any event within four (4) Business Days, notify the Administrative Agent and each Lender:
(i) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (x) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (y) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (z) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;
(ii) of the occurrence of any ERISA Event;
(iii) of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof;
(iv) the execution and delivery by the parties thereto of agreements evidencing new Tax Equity Commitments or Backlever Financing obtained by Borrower or its Subsidiaries; or
(v) the occurrence of any default under agreements evidencing Tax Equity Commitments, Backlever Financing or System Refinancings.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and to the extent applicable and not including any notice provided pursuant to clause (iv) above, stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
Section 6.04 Payment of Obligations.
Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c)
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all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness; except, in each case, to the extent that failure an Excluded Subsidiaries failure to do so could not reasonably be expected to have a Material Adverse Effect.
Section 6.05 Preservation of Existence, Etc.
(a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05, except to the extent that failure to do so could not reasonably be expected to adversely affect the Agent or the Secured Parties;
(b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and
(c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.
Section 6.06 Maintenance of Properties.
(a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted;
(b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and
(c) use the standard of care typical in the industry in the operation and maintenance of its facilities.
Section 6.07 Maintenance of Insurance.
(a) Maintenance of Insurance. With respect to the Loan Parties, maintain with financially sound and reputable insurance companies not Affiliates of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, including, without limitation, (i) property terrorism insurance and (ii) flood hazard insurance on all Mortgaged Properties that are Flood Hazard Properties, on such terms and in such amounts as required by the National Flood Insurance Reform Act of 1994 or as otherwise required by the Administrative Agent.
(b) Evidence of Insurance. With respect to the Loan Parties, cause the Administrative Agent to be named as lenders loss payable, loss payee or mortgagee, as its interest may appear, and/or additional insured with respect of any such insurance providing liability coverage or coverage in respect of any Collateral, and cause, unless otherwise agreed to by the Administrative Agent, each provider of any such insurance to agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Administrative Agent that it will give the Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or cancelled (or ten (10) days prior notice in the case of cancellation due to the nonpayment of premiums). Annually, upon expiration of current insurance coverage, the Loan Parties shall provide, or cause to be provided, to the
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Administrative Agent, such evidence of insurance as required by the Administrative Agent, including, but not limited to: (i) certified copies of such insurance policies, (ii) evidence of such insurance policies (including, without limitation and as applicable, ACORD Form 28 certificates (or similar form of insurance certificate), and ACORD Form 25 certificates (or similar form of insurance certificate)), (iii) declaration pages for each insurance policy and (iv) lenders loss payable endorsement if the Administrative Agent for the benefit of the Secured Parties is not on the declarations page for such policy. As requested by the Administrative Agent, the Loan Parties agree to deliver to the Administrative Agent an Authorization to Share Insurance Information in substantially the form of Exhibit P (or such other form as required by each of the Loan Parties insurance companies).
(c) Redesignation. Promptly notify the Administrative Agent of any Mortgaged Property that is, or becomes, a Flood Hazard Property.
Section 6.08 Compliance with Laws.
Comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
Section 6.09 Books and Records.
(a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Loan Party or such Subsidiary, as the case may be; and
(b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over such Loan Party or such Subsidiary, as the case may be.
Section 6.10 Inspection Rights.
(a) Permit representatives and independent contractors of the Administrative Agent to visit and inspect any of Borrowers properties, to examine its and its Subsidiaries corporate, financial and operating records, and make copies thereof or abstracts therefrom (subject to the limitation set forth in clause (b) below), and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, subject to clause (c) below, prior to an Event of Default, Administrative Agent shall not conduct more than one such inspection during any calendar year; provided further, however, that when an Event of Default exists the Administrative Agent (or any of its respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.
(b) [***].
(c) Subject to the second proviso in clause (a) above, Administrative Agent may (and at the direction of a Lender shall) conduct an additional inspection during any calendar year beyond the inspection set forth in the first proviso in clause (a) above so long as (i) the results of such inspection will
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not result in the exercise of Administrative Agents discretion as set forth in Sections 2.01(b)(i) and (ii), (ii) such inspection shall be at the cost and expense of Lenders if at the time of such inspection no Event of Default exists, and (iii) Administrative Agent designates such inspection as an Additional Inspection.
Section 6.11 Use of Proceeds.
Use the proceeds of the Credit Extensions for general corporate purposes not in contravention of any Law or of any Loan Document. The proceeds of the Credit Extensions shall not be used to pay the purchase price or fees related to the purchase of the interests of a Tax Equity Investor in connection with Partnership Flip Structure, Sale-Leaseback Structure or Inverted Lease Structure.
Section 6.12 Material Contracts.
Perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon reasonable request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
Section 6.13 Covenant to Guarantee Obligations.
The Loan Parties will cause each of their Subsidiaries whether newly formed, after acquired or otherwise existing to promptly (and in any event within thirty (30) days after such Subsidiary is formed or acquired (or such longer period of time as agreed to by the Administrative Agent in its reasonable discretion)) become a Guarantor hereunder by way of execution of a Joinder Agreement; provided, however, no (i) Foreign Subsidiary shall be required to become a Guarantor to the extent such Guaranty would result in a material adverse tax consequence for the Borrower and (ii) no Subsidiary formed with the intent of becoming an Excluded Subsidiary shall be required to become a Guarantor. In connection therewith, the Loan Parties shall give notice to the Administrative Agent within thirty (30) days (or such longer period of time as agreed to by the Administrative Agent in its reasonable discretion) after creating a Subsidiary or acquiring the Equity Interests of any other Person. In connection with the foregoing, the Loan Parties shall deliver to the Administrative Agent, with respect to each new Guarantor to the extent applicable, substantially the same documentation required pursuant to Sections 4.01 and 6.14 and such other documents or agreements as the Administrative Agent may reasonably request.
Section 6.14 Covenant to Give Security.
Except with respect to Excluded Property:
(a) Equity Interests and Personal Property. Each Loan Party will cause the Pledged Equity and all of its tangible and intangible personal property now owned or hereafter acquired by it to be subject at all times to a first priority, perfected Lien (subject to Permitted Liens to the extent permitted by the Loan Documents) in favor of the Administrative Agent for the benefit of the Secured Parties to secure the Secured Obligations pursuant to the terms and conditions of the Collateral Documents. Each Loan Party shall provide opinions of counsel and any filings and deliveries reasonably necessary in connection therewith to perfect the security interests therein, all in form and substance reasonably satisfactory to the Administrative Agent.
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(b) Real Property. If any Loan Party intends to acquire a fee ownership interest in any real property (Real Estate) after the Closing Date and such Real Estate has a fair market value in excess of $1,000,000, it shall provide to the Administrative Agent within sixty (60) days (or such extended period of time as agreed to by the Administrative Agent) a Mortgage and such Mortgaged Property Support Documents as the Administrative Agent may request to cause such Real Estate to be subject at all times to a first priority, perfected Lien (subject in each case to Permitted Liens) in favor of the Administrative Agent for the benefit of the Secured Parties to secure the Secured Obligations pursuant to the terms and conditions of the Collateral Documents.
(c) Landlord Waivers. In the case of (i) each headquarter location of the Loan Parties (as of the Closing Date, there is only one headquarter location in San Mateo, California) and each other location where the Loan Parties maintain any books or records (electronic or otherwise) and (ii) any personal property Collateral located at any other premises containing personal property Collateral with a value in excess of $1,000,000, the Loan Parties will provide the Administrative Agent (x) with respect to any premises operated by a third party logistics coordinator or warehouse operator who manage such real property, with such estoppel letters, consents or waivers from such third party logistics coordinator or warehouse operator (such estoppel letters, consents or waivers shall be in form and substance satisfactory to the Administrative Agent, it being acknowledged and agreed that any bailee agreement in the form of Exhibit N-1 is satisfactory to the Administrative Agent) and (y) with respect to a premises that is leased directly from the property owner, with such estoppel letters, consents or waivers from the respective landlord who owns such property, to the extent (A) requested by the Administrative Agent and (B) the Loan Parties are able to secure such letters, consents and waivers after using commercially reasonable efforts (such letters, consents and waivers shall be in form and substance satisfactory to the Administrative Agent, it being acknowledged and agreed that any landlord waiver in the form of Exhibit N-2 is satisfactory to the Administrative Agent).
(d) Account Control Agreements. Each of the Loan Parties shall not open, maintain or otherwise have any deposit or other accounts (including securities accounts) at any bank or other financial institution, or any other account where money or securities are or may be deposited or maintained with any Person, other than (a) deposit accounts that are maintained at all times with depositary institutions as to which the Administrative Agent shall have received a Qualifying Control Agreement, (b) securities accounts that are maintained at all times with financial institutions as to which the Administrative Agent shall have received a Qualifying Control Agreement, (c) deposit accounts established solely as payroll and other zero balance accounts and such accounts are held at Bank of America and (d) other deposit accounts, so long as at any time the balance in any such account does not exceed $10,000 and the aggregate balance in all such other deposit accounts does not exceed $100,000.
(e) Further Assurances. At any time upon request of the Administrative Agent, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may deem necessary or desirable to maintain in favor of the Administrative Agent, for the benefit of the Secured Parties, Liens and insurance rights on the Collateral that are duly perfected in accordance with the requirements of, or the obligations of the Loan Parties under, the Loan Documents and all applicable Laws.
Section 6.15 Further Assurances.
Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates,
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assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable Law, subject any Loan Partys or any of its Subsidiaries properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.
Section 6.16 Compliance with Environmental Laws.
Comply, and cause all lessees and other Persons (other than the customer under the Host Customer Agreements) in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.
Section 6.17 Zep Acquisition Post Closing Conditions.
Within 30 days after the Zep Acquisition Date, Borrower and Zoom shall comply with each of the covenants set forth in Sections 6.13 and Sections 6.14 (the failure to perform or adhere to such covenants within the prescribed time period shall result in a Default).
Section 6.18 [***].
Borrower shall enter into discussions with [***] and use its commercially reasonable efforts to obtain [***] consent to amend the [***].
Section 6.19 Puerto Rico Certificate of Good Standing.
By no later than 30 days after the Closing Date, Borrower shall deliver to Administrative Agent a Certificate of Good Standing issued by the Secretary of State of the Government of Puerto Rico indicating that Borrower is qualified and in good standing under the laws of Puerto Rico.
ARTICLE VII
NEGATIVE COVENANTS
Each of the Loan Parties hereby covenants and agrees that on the Closing Date and thereafter until the Facility Termination Date, no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirect do the following.
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Section 7.01 Liens.
Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for the following (the Permitted Liens):
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the Closing Date and listed on Schedule 7.01 and any renewals or extensions thereof; provided that (i) the property, assets or revenues covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as contemplated by Section 7.02(b), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.02(b);
(c) Liens for Taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(d) Statutory Liens such as carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens arising in the ordinary course of business which are not overdue for a period of more than thirty (30) days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person; provided that, a reserve or other appropriate provision shall have been made therefor;
(e) pledges or deposits in the ordinary course of business in connection with workers compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness) that is not Indebtedness permitted under Section 7.02, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which 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 applicable Person;
(h) Liens securing judgments for the payment of money (or appeal or other surety bonds relating to such judgments) not constituting an Event of Default under Section 8.01(h);
(i) Liens securing Indebtedness permitted under Section 7.02(c); provided that (i) such Liens do not at any time encumber any property, assets or revenues other than the property, assets or revenues financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value at the time of the acquisition, whichever is lower, of the property being acquired on the date of acquisition;
(j) Liens (i) securing Indebtedness permitted under Section 7.02(g) on the property, assets and revenues of Excluded Subsidiaries and (ii) securing obligations of the Excluded Subsidiaries pursuant to the Tax Equity Documents, in each case so long as such Liens do not attach to the net proceeds of any Available Take-Out which are subject to the Payment Direction Letter;
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(k) Liens securing Indebtedness permitted under Section 7.02(i) so long as such Liens attach only to the vehicles or computer systems financed thereby;
(l) Liens securing Indebtedness permitted under Section 7.02(k) so long as such Liens attach only to the assets financed thereby;
(m) bankers Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by the Borrower or any of its Subsidiaries, in each case in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing solely the customary amounts owing to such bank with respect to cash management and operating account arrangements; provided, that in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;
(n) Liens arising out of judgments or awards not resulting in an Event of Default; provided the applicable Loan Party or Subsidiary shall in good faith be prosecuting an appeal or proceedings for review;
(o) Any interest or title of a lessor, licensor or sublessor under any lease, license or sublease entered into by any Loan Party or any Subsidiary thereof in the ordinary course of business and covering only the assets so leased, licensed or subleased;
(p) Liens of a collection bank arising under Section 4-210 of the UCC on items in the course of collection;
(q) Any zoning, building or similar laws or rights reserved to or vested in any Governmental Authority;
(r) Liens on property, assets and revenues of Excluded Subsidiaries securing Indebtedness incurred under Section 7.02(n); and
(s) other Liens securing Indebtedness outstanding in an aggregate principal amount not to exceed $[***]; provided that no such Lien shall extend to or cover any Collateral.
Section 7.02 Indebtedness.
Create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Indebtedness outstanding on the date hereof and listed on Schedule 7.02 and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension; and, still further, that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination, standstill and
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related terms (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;
(c) Indebtedness in respect of Capitalized Leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i); provided, however, that the aggregate amount of all such Indebtedness of the Loan Parties at any one time outstanding shall not exceed $[***];
(d) Unsecured Indebtedness of a Subsidiary of the Borrower owed to the Borrower or a Subsidiary of the Borrower, which Indebtedness shall (i) to the extent required by the Administrative Agent, be evidenced by promissory notes which shall be pledged to the Administrative Agent as Collateral for the Secured Obligations in accordance with the terms of the Security Agreement, (ii) be on terms (including subordination terms) reasonably acceptable to the Administrative Agent and (iii) be otherwise permitted under the provisions of Section 7.03 (Intercompany Debt);
(e) Guarantees of the Borrower or any Subsidiary in respect of Indebtedness otherwise permitted hereunder of the Borrower or any other Guarantor;
(f) obligations (contingent or otherwise) existing or arising under any Swap Contract; provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(g) Backlever Financing;
(h) Reserved;
(i) Existing Vehicle Financing and other Indebtedness incurred for the acquisition or lease of vehicles or computer systems (so long as the amount of the Indebtedness does not exceed the purchase price of the vehicles or computer systems purchased with the proceeds thereof and sole recourse with respect to such Indebtedness is the vehicle or computer systems purchased with the proceeds thereof) and any refinancing of such other Indebtedness (so long as the amount of the Indebtedness is not increased in connection with such refinancing);
(j) Borrowers limited guarantees, indemnification obligations and obligations to make capital contributions to or repurchase assets of the Excluded Subsidiaries as required under the documents evidencing the Tax Equity Commitments, Backlever Financing or System Refinancing, as the case may be, so long as such indemnification and capital contribution obligations are not made in respect of obligations to repay debt for borrowed money;
(k) vendor financing for the acquisition of Inventory incurred in the ordinary course of Borrower or any of its Subsidiaries business;
(l) Obligations of reimbursement owed to the issuers of surety bonds (including, without limitation, payment and performance bonds, operation and maintenance bonds, contractor license bonds,
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bid bonds, energy broker bonds, prevailing wage bonds, sweepstake bonds, permit bonds, electrical license bonds, notary public bonds and other similar bonds) to the extent such surety bonds are procured in the ordinary course of business;
(m) Indebtedness evidenced in warrants issued by Borrower in connection with its Equity Interests and stock options in the Borrower, in each case issued in the ordinary course of business, so long as such Indebtedness is not for borrowed money;
(n) System Refinancing;
(o) Indebtedness incurred in accordance with the applicable Tax Equity Documents in the ordinary course of business;
(p) Permitted Convertible Indebtedness; and
(q) other unsecured Indebtedness not contemplated by the above provisions in an aggregate principal amount not to exceed $[***] at any time outstanding.
Section 7.03 Investments.
Make or hold any Investments, except:
(a) Investments held by the Borrower and its Subsidiaries (i) in the form of cash or Cash Equivalents, and (ii) pursuant to the Investment Policy;
(b) loans from any Loan Party to any officer, director and/or employee of the Borrower and Subsidiaries in an aggregate amount not to exceed $100,000;
(c) (i) Investments by the Borrower and its Subsidiaries in their respective Subsidiaries outstanding on the date hereof, (ii) Investments by the Borrower and its Subsidiaries in Loan Parties, (iii) Investments by Excluded Subsidiaries in other Excluded Subsidiaries and (iv) so long as no Default has occurred and is continuing or would result from such Investment, additional Investments (other than Investments made under clause 7.03(j) below) by the Loan Parties in Excluded Subsidiaries in an aggregate amount invested from the date hereof together with any Investments made under clause 7.03(i) below not to exceed $[***];
(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(e) Guarantees permitted by Section 7.02;
(f) Investments existing on the date hereof (other than those referred to in Section 7.03(c)(i)) and set forth on Schedule 7.03;
(g) Permitted Acquisitions (other than of CFCs and Subsidiaries held directly or indirectly by a CFC which Investments are covered by Section 7.03(c)(iv));
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(h) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;
(i) Investments in Excluded Subsidiaries (x) in accordance with the applicable Tax Equity Documents, Backlever Financing or System Refinancing, as the case may be, in the ordinary course of business, (y) of PV Systems which are in operation as collateral to secure accounts receivable financing in which the net proceeds (after deduction of reasonable fees and expenses) is distributed to Borrower and (z) pursuant to any repurchase of assets permitted by Section 7.02(j);
(j) to the extent it constitutes an Investment, the loan by the Borrower of shares of its common stock, par value $.001 per share, under the Share Lending Agreement; and
(k) other Investments not contemplated by the above provisions not exceeding $[***] in the aggregate invested from the date hereof after taking into account Investments under clause 7.03(c)(iv) above.
Section 7.04 Fundamental Changes.
Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except:
(a) any Loan Party may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Loan Party, so long as no Default exists or would result therefrom;
(b) any Excluded Subsidiary may (i) dispose of all or substantially all its assets (including any Disposition that is in the nature of a liquidation) as set forth in Section 7.05(e), or (ii) so long as no Default exists or would result therefrom, merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it, in each case so long as the Tax Equity Commitments or Backlever Financings of such Excluded Subsidiary are not included in the calculation of Available Take-Out and the exclusion of such Tax Equity Commitments or Backlever Financings from the calculation of Available Take-Out does not result in a Borrowing Base Deficiency;
(c) in connection with any Permitted Acquisition (other than as set forth in clause (f) below, any Subsidiary of the Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that (i) the Person surviving such merger shall be a wholly-owned Subsidiary of the Borrower and (ii) in the case of any such merger to which any Loan Party (other than the Borrower) is a party, such Loan Party is the surviving Person;
(d) so long as no Default has occurred and is continuing or would result therefrom, each of the Borrower and any Loan Party may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided, however, that in each case, immediately after giving effect thereto (i) in the case of any such merger to which the Borrower is a party, the Borrower is the surviving Person and (ii) in the case of any such merger to which any Loan Party (other than the Borrower) is a party, such Loan Party is the surviving Person;
(e) any Public Offering of equity interests in the Borrower, any follow-on offerings thereafter, any private offerings of equity interests of Borrower and any other activities in connection therewith, so long as such offerings and activities could not be reasonably expected to have Material Adverse Effect or result in a Change of Control;
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(f) the mergers in connection with the Zep Acquisition as set forth in the Zoom Merger Agreement, so long as (i) the Zep Acquisition Date occurs by no later than January 31, 2014, (ii) Administrative Agent shall have received the Zep Acquisition Certificate prior to the Zep Acquisition Date, (iii) within 5 Business Days after the consummation thereof, Administrative Agent shall have received a certificate of merger issued by the Secretary of State of the State of California evidencing the merger pursuant to the Zoom Merger Agreement, and (iv) Administrative Agent shall have received (as required to maintain the related representations and warranties as true and correct in all material respects) updated Schedules 5.10, 5.20(a), 5.21(b), 5.21(c), 5.21(d)(i), 5.21(d)(ii), 5.21(e), 5.21(f), 5.21(g)(i), 5.21(g)(ii), and 5.21(h), prepared as of the Zep Acquisition Date and solely reflecting the additional information to be added to such schedules as a result of the Zep Acquisition (such updated schedules shall automatically and immediately be deemed to supplement the schedules previously delivered to Administrative Agent and attached to and made part of this Agreement); and
(g) Disposition of Equity Interests in or assets of Excluded Subsidiaries as permitted by Section 7.05(e).
Section 7.05 Dispositions.
Make any Disposition or enter into any agreement to make any Disposition, except:
(a) Permitted Dispositions;
(b) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;
(c) Dispositions of equipment or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;
(d) Dispositions permitted by Section 7.04;
(e) Dispositions of Equity Interests in, or assets of, Excluded Subsidiaries so long as (i) the Tax Equity Commitments or Backlever Financing of such Excluded Subsidiary and its partially or wholly owned subsidiaries, if any, are not included in the calculation of Available Take-Out and the exclusion of such Tax Equity Commitments or Backlever Financings from the calculation of Available Take-Out does not result in a Borrowing Base Deficiency, (ii) consideration received for such Disposition is in Cash or Cash Equivalents, and (iii) the net proceeds (after deduction of reasonable fees and expenses), if any, is distributed directly to Borrower;
(f) other Dispositions so long as (i) the consideration paid in connection therewith shall be cash or Cash Equivalents paid contemporaneously with consummation of the transaction and shall be in an amount not less than the fair market value of the property disposed of, (ii) if such transaction is a Sale and Leaseback Transaction, such transaction is not prohibited by the terms of Section 7.14, (iii) such transaction does not involve the sale or other disposition of Equity Interests in any Subsidiary, (iv) such transaction does not involve a sale or other disposition of receivables other than receivables owned by or attributable to other property concurrently being disposed of in a transaction otherwise permitted under this Section, and (v) the aggregate net book value of all of the assets sold or otherwise disposed of by the Loan Parties and their Subsidiaries in all such transactions in any fiscal year of the Borrower shall not exceed $[***];
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(g) Disposition of assets of an Excluded Subsidiary as a result of a foreclosure of a Permitted Lien in connection with a Backlever Financing or System Refinancing so long as such foreclosure does not result in a Borrowing Base Deficiency; and
(h) Dispositions made in the ordinary course of business in accordance with the applicable Tax Equity Documents.
Section 7.06 Restricted Payments.
Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:
(a) each Subsidiary may make Restricted Payments to any Person that owns Equity Interests in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made;
(b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in common Equity Interests of such Person;
(c) the exercise of stock repurchase rights of Borrower in connection with shareholders right of first refusal as set forth in Borrowers stock option plan;
(d) the Borrower may make other Restricted Payments in an aggregate amount during any fiscal year of the Borrower not to exceed $[***];
(e) notwithstanding the foregoing, even if a Default has occurred and is continuing, the Borrower may make equity grants in the ordinary course of business in connection with Borrowers stock option plan;
(f) the Borrower may pay earnouts in connection with Permitted Acquisition; provided, that, at any time a Default exists Borrower may only pay earnouts in Equity Interests of Borrower; provided, further, that, a Default set forth in Section 8.01(k) shall not be existing after giving effect to the payment of any such earnout in Equity Interests; and
(g) the Borrower may make Restricted Payments in connection with the redemption of, and any cash paid for fractional shares of, the Equity Interests of Borrower upon conversion of the Permitted Convertible Indebtedness.
Section 7.07 Change in Nature of Business.
Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto which could reasonably be expected to have a Material Adverse Effect.
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Section 7.08 Transactions with Affiliates.
Enter into or permit to exist any transaction or series of transactions with any officer, director or Affiliate of such Person other than (a) advances of working capital to any Loan Party, (b) transfers of cash and assets to any Loan Party, (c) intercompany transactions expressly permitted by this Agreement, (d) normal and reasonable compensation (including grant of stock options in accordance with Borrowers stock option plan) and reimbursement of expenses of officers and directors, (e) except as otherwise specifically limited in this Agreement, other transactions which are entered into in the ordinary course of such Persons business on fair and reasonable terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms length transaction with a Person other than an officer, director or Affiliate, (f) transactions contemplated by the Tax Equity Documents, Backlever Financings or System Refinancings, (g) transactions with Tesla Motors, Inc. with respect to the sharing of battery technologies and use of joint facilities for sales and marketing purpose, and (h) transactions approved by the board of directors of the Borrower or any authorized committee thereof, provided that such approval shall have included a determination by the board of directors or such committee, as the case may be, that such transaction is fair to, and in the best interest of, the Borrower.
Section 7.09 Burdensome Agreements.
Enter into, or permit to exist, any Contractual Obligation (except for this Agreement and the other Loan Documents) that (a) restricts the ability of any such Loan Party to (i) to act as a Loan Party; (ii) make Restricted Payments to any Loan Party, (iii) pay any Indebtedness or other obligation owed to any Loan Party, (iv) make loans or advances to any Loan Party, or (v) create any Lien upon any of their properties or assets, whether now owned or hereafter acquired, except, in the case of clause (a)(v) only, for any document or instrument governing Indebtedness incurred pursuant to Section 7.02(c), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, or (b) requires the grant of any Lien on property for any obligation if a Lien on such property is given as security for the Secured Obligations.
Section 7.10 Use of Proceeds.
Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
Section 7.11 Financial Covenants.
(a) Interest Coverage Ratio. Permit the Interest Coverage Ratio of the Borrower to be less than 1.50:1.00, measured quarterly as of the last day of each quarter.
(b) Unencumbered Liquidity. Permit the Unencumbered Liquidity of the Borrower to be less than $50,000,000, measured monthly as of the last day of each month; provided, that an Event of Default shall not be deemed to have occurred solely as a result of Borrowers failure to maintain an Unencumbered Liquidity of at least $50,000,000 as of any month end unless its Unencumbered Liquidity is less then such amount on two consecutive measurement dates; further provided, that Unencumbered Liquidity shall not be less than $40,000,000 as of the last day of any month.
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Section 7.12 Capital Expenditures.
Make or become legally obligated to make any Capital Expenditure, except for Capital Expenditures in the ordinary course of business not exceeding, in the aggregate for the Borrower and its Subsidiaries during each fiscal year set forth below, the amount set forth opposite such fiscal year:
Fiscal Year |
Amount | |||
2013 |
$ | 15,000,000 | ||
2014 |
$ | 15,000,000 | ||
2015 |
$ | 20,000,000 | ||
2016 |
$ | 20,000,000 |
Section 7.13 Amendments of Organization Documents; Fiscal Year; Legal Name, State of Formation; Form of Entity and Accounting Changes.
(a) Amend any of its Organization Documents in a manner that could reasonably be expected to lead to a Material Adverse Effect;
(b) change its fiscal year;
(c) without providing thirty (30) days prior written notice to the Administrative Agent (or such extended period of time as agreed to by the Administrative Agent), change its name, state of formation, form of organization or principal place of business; or
(d) make any change in accounting policies or reporting practices, except as required by GAAP or as required by Borrowers external auditors.
Section 7.14 Sale and Leaseback Transactions.
Enter into any Sale and Leaseback Transaction other than (i) a Sale and Leaseback Transaction of vehicles pursuant to the Existing Vehicle Financing, (ii) a Sale and Leaseback Transaction of office and computer equipment in the ordinary course of business, and (iii) a Sale and Leaseback Transaction for the sale of PV Systems in the ordinary course of Borrowers business pursuant to a Sale-Leaseback Structure.
Section 7.15 Host Customer Agreements.
Make any material amendments to its forms of Host Customer Agreements as disclosed to Administrative Agent on the Closing Date in a manner that could be reasonably expected to lead to a Material Adverse Effect.
Section 7.16 General.
Except with respect to Sections 7.06(b) and 7.09(a)(ii) which shall at all times be applicable to Borrower and each of its Subsidiaries, the covenants set forth in this Article VII shall in no way be applicable to the activities of the Excluded Subsidiaries required, contemplated or permitted under (i) the Tax Equity Documents, Backlever Financings and System Refinancings in effect on the Closing Date, (ii) the Tax Equity Documents, documents related to Backlever Financings executed after the Closing Date which are materially similar to the Tax Equity Documents and documents related to Backlever Financings in effect on the Closing Date or otherwise approved in accordance with Section 2.01(b)(ii), and (iii) all other Tax Equity Documents, Backlever Financings or System Refinancings to the extent the obligations
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of Borrower and its Subsidiaries thereunder (x) do not materially impair the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party, (y) could be reasonably expected to result in a Material Adverse Effect or (z) do not restrict the ability of any Excluded Subsidiary to perform its obligations under the Payment Direction Letter; provided, however, under no circumstance shall a Subsidiary shall incur a Lien on the assets or equity of any Loan Party.
Section 7.17 Prepayment of Notes.
Voluntarily prepay, redeem, purchase, defease or otherwise satisfy in any manner (including by the exercise of any right of setoff) the obligations owed under the Notes.
Section 7.18 [***] Agreement.
Allow the aggregate payments made by [***] pursuant to [***] Agreement to Borrower and its Affiliates under the [***] Agreement to exceed $[***].
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01 Events of Default.
Any of the following shall constitute an Event of Default:
(a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation or deposit any funds as Cash Collateral in respect of L/C Obligations, or (ii) within three (3) days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) within five (5) days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or
(b) Specific Covenants. (i) Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05, 6.08, 6.10, 6.11, 6.12, 6.16, Article VII or Article X or (ii) any of the Loan Parties fails to perform or observe any term, covenant or agreement contained in the Security Agreement; or
(c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days; or
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or
(e) Cross-Default. (i) Any Loan Party or any Subsidiary thereof (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or
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syndicated credit arrangement) of more than the $[***], or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, in each case having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $[***] or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by such Loan Party or such Subsidiary as a result thereof is greater than the Threshold Amount; or
(f) Insolvency Proceedings, Etc. Any Loan Party or any Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty (60) calendar days, or an order for relief is entered in any such proceeding; or
(g) Inability to Pay Debts; Attachment. (i) Any Loan Party or any Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within thirty (30) days after its issue or levy; or
(h) Judgments. There is entered against any Loan Party or any Subsidiary thereof (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer is rated at least A by A.M. Best Company, has been notified of the potential claim and does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of ten (10) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
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(j) Invalidity of Loan Documents. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all Obligations arising under the Loan Documents, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or
(k) Change of Control. There occurs any Change of Control; or
(l) Uninsured Loss. Any uninsured damage to or theft or destruction of any assets of the Loan Parties or any of their Subsidiaries shall occur that is in excess of $[***] (excluding customary deductible thresholds established in accordance with historical past practices).
provided, however, with respect to an Excluded Subsidiary, an Event of Default shall not be deemed to have occurred pursuant to Sections 8.01(e), (f), (g), and (h) unless the breach under such Sections could reasonably be expected to have a Material Adverse Effect or adversely affect such Excluded Subsidiarys ability to make required distributions or payments to Borrower.
Without limiting the provisions of Article IX, if a Default shall have occurred under the Loan Documents, then such Default will continue to exist until it either is cured (to the extent specifically permitted) in accordance with the Loan Documents or is otherwise expressly waived by Administrative Agent (with the approval of requisite Appropriate Lenders (in their sole discretion) as determined in accordance with Section 11.01; and once an Event of Default occurs under the Loan Documents, then such Event of Default will continue to exist until it is expressly waived by the requisite Appropriate Lenders or by the Administrative Agent with the approval of the requisite Appropriate Lenders, as required hereunder in Section 11.01.
Section 8.02 Remedies upon Event of Default.
If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the Commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the Minimum Collateral Amount with respect thereto); and
(d) exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies available to it, the Lenders and the L/C Issuer under the Loan Documents or applicable Law or equity;
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provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
Section 8.03 Application of Funds.
After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02) or if at any time insufficient funds are received by and available to the Administrative Agent to pay fully all Secured Obligations then due hereunder, any amounts received on account of the Secured Obligations shall, subject to the provisions of Sections 2.14 and 2.15, be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Secured Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Secured Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer arising under the Loan Documents and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Secured Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Secured Obligations arising under the Loan Documents, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Secured Obligations constituting unpaid principal of the Loans, L/C Borrowings and Secured Obligations then owing under Secured Hedge Agreements and Secured Cash Management Agreements, ratably among the Lenders, the L/C Issuer, the Hedge Banks and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them;
Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit to the extent not otherwise Cash Collateralized by the Borrower pursuant to Sections 2.03 and 2.14; and
Last, the balance, if any, after all of the Secured Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Subject to Sections 2.03(c) and 2.14, amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Secured Obligations, if any, in the order set forth above. Excluded Swap Obligations with respect to any
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Guarantor shall not be paid with amounts received from such Guarantor or its assets, but appropriate adjustments shall be made with respect to payments from other Loan Parties to preserve the allocation to Secured Obligations otherwise set forth above in this Section.
Notwithstanding the foregoing, Secured Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements shall be excluded from the application described above if the Administrative Agent has not received a Secured Party Designation Notice, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank or Hedge Bank, as the case may be. Each Cash Management Bank or Hedge Bank not a party to this Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article IX for itself and its Affiliates as if a Lender party hereto.
ARTICLE IX
ADMINISTRATIVE AGENT
Section 9.01 Appointment and Authority.
(a) Appointment. Each of the Lenders and the L/C Issuer hereby irrevocably appoints, designates and authorizes Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term agent herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
(b) Collateral Agent. The Administrative Agent shall also act as the collateral agent under the Loan Documents, and each of the Lenders (including in its capacities as a potential Hedge Bank and a potential Cash Management Bank) and the L/C Issuer hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as collateral agent and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article XI (including Section 11.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the collateral agent under the Loan Documents) as if set forth in full herein with respect thereto.
Section 9.02 Rights as a Lender.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the
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Administrative Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust, financial, advisory, underwriting or other business with any Loan Party or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders or to provide notice to or consent of the Lenders with respect thereto.
Section 9.03 Exculpatory Provisions.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent and its Related Parties:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty or responsibility to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
Neither the Administrative Agent nor any of its Related Parties shall be liable for any action taken or not taken by the Administrative Agent under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby or thereby (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary), or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment. Any such action taken or failure to act pursuant to the foregoing shall be binding on all Lenders. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given in writing to the Administrative Agent by the Borrower, a Lender or the L/C Issuer.
Neither the Administrative Agent nor any of its Related Parties have any duty or obligation to any Lender or participant or any other Person to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other
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terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
Section 9.04 Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall be fully protected in relying and shall not incur any liability for relying upon, any notice, request, certificate, communication, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall be fully protected in relying and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Loan Parties), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. For purposes of determining compliance with the conditions specified in Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objections.
Section 9.05 Delegation of Duties.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the Facility as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
Section 9.06 Resignation of Administrative Agent.
(a) Notice. The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United
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States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation (or such earlier days as shall be agreed by the Required Lenders)(the Resignation Effective Date), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above. Whether or not a successor has been appointed, such resignation shall become effective in accordance with the notice on the Resignation Effective Date.
(b) Defaulting Lender. If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable Law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days (or such earlier day as shall be agreed by the Required Lenders) (the Removal Effective Date), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(b) Effect of Resignation or Removal. With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than as provided in Section 3.01(g) and other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agents resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 11.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
(c) L/C Issuer and Swingline Lender. Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swingline Lender. If Bank of America resigns as an L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto, including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c). If Bank of America resigns as Swingline Lender, it shall retain all the rights of the Swingline Lender provided for hereunder with respect to Swingline Loans made by it and
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outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swingline Loans pursuant to Section 2.04(c). Upon the appointment by the Borrower of a successor L/C Issuer or Swingline Lender hereunder (which successor shall in all cases be a Lender other than a Defaulting Lender), (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swingline Lender, as applicable, (ii) the retiring L/C Issuer and Swingline Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (iii) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit.
Section 9.07 Non-Reliance on Administrative Agent and Other Lenders.
Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
Section 9.08 No Other Duties, Etc.
Anything herein to the contrary notwithstanding, none of the titles listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, the Arranger, a Lender or the L/C Issuer hereunder.
Section 9.09 Administrative Agent May File Proofs of Claim; Credit Bidding.
In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Secured Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer and the Administrative Agent under Sections 2.03(h) and (i), 2.09, and 11.04) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 11.04.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Secured Obligations or the rights of any Lender or the L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or the L/C Issuer or in any such proceeding.
The Loan Parties and the Secured Parties hereby irrevocably authorize the Administrative Agent, based upon the instruction of the Required Lenders, to (a) credit bid and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any sale thereof conducted under the provisions of the Bankruptcy Code of the United States, including under Section 363 of the Bankruptcy Code of the United States or any similar Laws in any other jurisdictions to which a Loan Party is subject, or (b) credit bid and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any other sale or foreclosure conducted by (or with the consent or at the direction of) the Administrative Agent (whether by judicial action or otherwise) in accordance with applicable Law. In connection with any such credit bid and purchase, the Secured Obligations owed to the Secured Parties shall be entitled to be, and shall be, credit bid on a ratable basis (with Secured Obligations with respect to contingent or unliquidated claims being estimated for such purpose if the fixing or liquidation thereof would not unduly delay the ability of the Administrative Agent to credit bid and purchase at such sale or other disposition of the Collateral and, if such claims cannot be estimated without unduly delaying the ability of the Administrative Agent to credit bid, then such claims shall be disregarded, not credit bid, and not entitled to any interest in the asset or assets purchased by means of such credit bid) and the Secured Parties whose Secured Obligations are credit bid shall be entitled to receive interests (ratably based upon the proportion of their Secured Obligations credit bid in relation to the aggregate amount of Secured Obligations so credit bid) in the asset or assets so purchased (or in the Equity Interests of the acquisition vehicle or vehicles that are used to consummate such purchase). Except as provided above and otherwise expressly provided for herein or in the other Collateral Documents, the Administrative Agent will not execute and deliver a release of any Lien on any Collateral. Upon request by the Administrative Agent or the Borrower at any time, the Secured Parties will confirm in writing the Administrative Agents authority to release any such Liens on particular types or items of Collateral pursuant to this Section 9.09.
Section 9.10 Collateral and Guaranty Matters.
Each of the Lenders (including in its capacities as a potential Cash Management Bank and a potential Hedge Bank) and the L/C Issuer irrevocably authorize the Administrative Agent, at its option and in its discretion,
(a) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon the Facility Termination Date, (ii) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other disposition permitted hereunder or under any other Loan Document, or (iii) if approved, authorized or ratified in writing by the Required Lenders in accordance with Section 11.01;
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(b) to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i);
(c) to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted under the Loan Documents or if such person becomes an Excluded Subsidiary;
(d) to release any Lien on the assets or Equity Interests of a Subsidiary that becomes an Excluded Subsidiary.
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agents authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrowers expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.
The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agents Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
Section 9.11 Secured Cash Management Agreements and Secured Hedge Agreements.
Except as otherwise expressly set forth herein, no Cash Management Bank or Hedge Bank that obtains the benefit of the provisions of Section 8.03, the Guaranty or any Collateral by virtue of the provisions hereof or any Collateral Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any Collateral) (or to notice of or to consent to any amendment, waiver or modification of the provisions hereof or of the Guaranty or any Collateral Document) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision of this Article IX to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Secured Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements except to the extent expressly provided herein and unless the Administrative Agent has received a Secured Party Designation Notice of such Secured Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank or Hedge Bank, as the case may be. The Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Secured Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements in the case of the Facility Termination Date.
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ARTICLE X
CONTINUING GUARANTY
Section 10.01 Guaranty.
Each Guarantor hereby absolutely and unconditionally, jointly and severally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all Obligations and Additional Secured Obligations (for each Guarantor, subject to the proviso in this sentence, its Guaranteed Obligations); provided that liability of each Guarantor individually with respect to this Guaranty shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the Bankruptcy Code of the United States or any comparable provisions of any applicable state law. The Administrative Agents books and records showing the amount of the Secured Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon each Guarantor, and conclusive for the purpose of establishing the amount of the Secured Obligations. This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Secured Obligations or any instrument or agreement evidencing any Secured Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Secured Obligations which might otherwise constitute a defense to the obligations of the Guarantors, or any of them, under this Guaranty, and each Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing.
Section 10.02 Rights of Lenders.
Each Guarantor consents and agrees that the Secured Parties may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Secured Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Secured Obligations; (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent, the L/C Issuer and the Lenders in their sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Secured Obligations. Without limiting the generality of the foregoing, each Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of such Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of such Guarantor.
Section 10.03 Certain Waivers.
Each Guarantor waives (a) any defense arising by reason of any disability or other defense of the Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of any Secured Party) of the liability of the Borrower or any other Loan Party; (b) any defense based on any claim that such Guarantors obligations exceed or are more burdensome than those of the Borrower or any other Loan Party; (c) the benefit of any statute of limitations affecting any Guarantors liability hereunder; (d) any right to proceed against the Borrower or any other Loan Party, proceed against or exhaust any security for the Secured Obligations, or pursue any other remedy in the power of any Secured Party whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by any Secured Party; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable Law limiting the liability of or exonerating
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guarantors or sureties. Each Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Secured Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Secured Obligations.
Section 10.04 Obligations Independent.
The obligations of each Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Secured Obligations and the obligations of any other guarantor, and a separate action may be brought against each Guarantor to enforce this Guaranty whether or not the Borrower or any other person or entity is joined as a party.
Section 10.05 Subrogation.
No Guarantor shall exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Secured Obligations and any amounts payable under this Guaranty have been indefeasibly paid and performed in full and the Commitments and the Facility are terminated. If any amounts are paid to a Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Secured Parties to reduce the amount of the Secured Obligations, whether matured or unmatured.
Section 10.06 Termination; Reinstatement.
This Guaranty is a continuing and irrevocable guaranty of all Secured Obligations now or hereafter existing and shall remain in full force and effect until the Facility Termination Date. Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrower or a Guarantor is made, or any of the Secured Parties exercises its right of setoff, in respect of the Secured Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by any of the Secured Parties in their discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Secured Parties are in possession of or have released this Guaranty and regardless of any prior revocation, rescission, termination or reduction. The obligations of each Guarantor under this paragraph shall survive termination of this Guaranty.
Section 10.07 Stay of Acceleration.
If acceleration of the time for payment of any of the Secured Obligations is stayed, in connection with any case commenced by or against a Guarantor or the Borrower under any Debtor Relief Laws, or otherwise, all such amounts shall nonetheless be payable by each Guarantor, jointly and severally, immediately upon demand by the Secured Parties.
Section 10.08 Condition of Borrower.
Each Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrower and any other Guarantor such information concerning the financial condition, business and operations of the Borrower and any such other Guarantor as such
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Guarantor requires, and that none of the Secured Parties has any duty, and such Guarantor is not relying on the Secured Parties at any time, to disclose to it any information relating to the business, operations or financial condition of the Borrower or any other guarantor (each Guarantor waiving any duty on the part of the Secured Parties to disclose such information and any defense relating to the failure to provide the same).
Section 10.09 Appointment of Borrower.
Each of the Guarantors hereby appoints the Borrower to act as its agent for all purposes of this Agreement and the other Loan Documents and agrees that (a) the Borrower may execute such documents on behalf of such Guarantor as the Borrower deems appropriate in its sole discretion and each Guarantor shall be obligated by all of the terms of any such document executed on its behalf, (b) any notice or communication delivered by the Administrative Agent or the Lender to the Borrower shall be deemed delivered to each Guarantor and (c) the Administrative Agent or the Lenders may accept, and be permitted to rely on, any document, instrument or agreement executed by the Borrower on behalf of each Guarantor.
Section 10.10 Right of Contribution.
The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under applicable Law.
Section 10.11 Keepwell.
Each Loan Party that is a Qualified ECP Guarantor at the time the Guaranty or the grant of a Lien under the Loan Documents, in each case, by any Specified Loan Party becomes effective with respect to any Swap Obligation, hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other support to each Specified Loan Party with respect to such Swap Obligation as may be needed by such Specified Loan Party from time to time to honor all of its obligations under the Loan Documents in respect of such Swap Obligation (but, in each case, only up to the maximum amount of such liability that can be hereby incurred without rendering such Qualified ECP Guarantors obligations and undertakings under this Article X voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations and undertakings of each Qualified ECP Guarantor under this Section shall remain in full force and effect until the Secured Obligations have been indefeasibly paid and performed in full. Each Loan Party intends this Section to constitute, and this Section shall be deemed to constitute, a guarantee of the obligations of, and a keepwell, support, or other agreement for the benefit of, each Specified Loan Party for all purposes of the Commodity Exchange Act.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Amendments, Etc.
No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:
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(a) waive any condition set forth in Section 4.01, or, in the case of the initial Credit Extension, Section 4.02, without the written consent of each Lender;
(b) without limiting the generality of clause (a) above, waive any condition set forth in Section 4.02 as to any Credit Extension without the written consent of the Required Lenders;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender (it being understood and agreed that a waiver of any condition precedent in Section 4.02 or of any Default or a mandatory reduction in Commitments is not considered an extension or increase in Commitments of any Lender);
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 11.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to such amount; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of Default Rate or to waive any obligation of the Borrower to pay interest or Letter of Credit Fees at the Default Rate;
(e) change Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(f) change any provision of this Section 11.01 or the definition of Required Lenders or any other provision of any Loan Document specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or thereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
(g) release all or substantially all of the Collateral in any transaction or series of related transactions (except with respect to Permitted Dispositions and Investments permitted under Section 7.03), without the written consent of each Lender;
(h) release all or substantially all of the value of the Guaranty, without the written consent of each Lender, except to the extent the release of any Guarantor from the Guaranty is permitted pursuant to Section 9.10 (in which case such release may be made by the Administrative Agent acting alone); or
(i) release the Borrower or permit the borrower to assign or transfer any of its rights or obligations under this Agreement or the other Loan Documents without the consent of each Lender;
and provided, further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Lender in addition to the Lenders required above, affect the rights or duties of the Swingline Lender under this Agreement; (iii)
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no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (iv) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, (A) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender, or all Lenders or each affected Lender under the Facility, may be effected with the consent of the applicable Lenders other than Defaulting Lenders, except that (1) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (2) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender, or all Lenders or each affected Lender under the Facility, that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender; (B) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code of the United States supersedes the unanimous consent provisions set forth herein and (C) the Required Lenders shall determine whether or not to allow a Loan Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and such determination shall be binding on all of the Lenders.
Notwithstanding anything to the contrary herein the Administrative Agent may, with the prior written consent of the Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.
Notwithstanding any provision herein to the contrary, this Agreement may be amended with the written consent of the Required Lenders, the Administrative Agent and the Borrower (I) to add one or more additional revolving credit or term loan facilities to this Agreement and to permit the extensions of credit and all related obligations and liabilities arising in connection therewith from time to time outstanding to share ratably (or on a basis subordinated to the existing facilities hereunder) in the benefits of this Agreement and the other Loan Documents with the obligations and liabilities from time to time outstanding in respect of the existing facilities hereunder, and (II) in connection with the foregoing, to permit, as deemed appropriate by the Administrative Agent and approved by the Required Lenders, the Lenders providing such additional credit facilities to obtain comparable tranche voting rights with respect to each such new facility and to participate in any required vote or action required to be approved by the Required Lenders or by any other number, percentage or class of Lenders hereunder.
If any Lender does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender and that has been approved by the Required Lenders, the Borrower may replace such Non-Consenting Lender in accordance with Section 11.13; provided that, such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Borrower to be made pursuant to this paragraph).
Section 11.02 Notices; Effectiveness; Electronic Communications.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax transmission or e-mail transmission as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
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(i) if to the Borrower or any other Loan Party, the Administrative Agent, the L/C Issuer or the Swingline Lender, to the address, facsimile number, e-mail address or telephone number specified for such Person on Schedule 1.01(a); and
(ii) if to any other Lender, to the address, facsimile number, e-mail address or telephone number specified in its Administrative Questionnaire (including, as appropriate, notices delivered solely to the Person designated by a Lender on its Administrative Questionnaire then in effect for the delivery of notices that may contain material non-public information relating to the Borrower).
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by (fax transmission or e-mail transmission shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail address and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that, the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent, the Swingline Lender, the L/C Issuer or the Borrower may each, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that, approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail address or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) The Platform. THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the Agent Parties) have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrowers, any Loan Partys or the Administrative Agents transmission of Borrower Materials or any other Information through the Internet, telecommunications, electronic or other information transmission systems.
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(d) Change of Address, Etc. Each of the Borrower, the Administrative Agent, the L/C Issuer and the Swingline Lender may change its address, facsimile number or telephone number or e-mail address for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, facsimile number or telephone number or e-mail address for notices and other communications hereunder by notice to the Borrower, the Administrative Agent, the L/C Issuer and the Swingline Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and e-mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one (1) individual at or on behalf of such Public Lender to at all times have selected the Private Side Information or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lenders compliance procedures and applicable Law, including United States federal and state securities Laws, to make reference to Borrower Materials that are not made available through the Public Side Information portion of the Platform and that may contain material non-public information with respect to the Borrower or its securities for purposes of United States federal or state securities laws.
(e) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic or electronic Loan Notices, Letter of Credit Applications and Swingline Loan Notices) purportedly given by or on behalf of any Loan Party even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Loan Parties shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of a Loan Party. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
Section 11.03 No Waiver; Cumulative Remedies; Enforcement.
No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Lenders and the L/C Issuer; provided, however, that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) the L/C Issuer or the Swingline Lender from exercising the rights
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and remedies that inure to its benefit (solely in its capacity as L/C Issuer or Swingline Lender, as the case may be) hereunder and under the other Loan Documents, (c) any Lender from exercising setoff rights in accordance with Section 11.08 (subject to the terms of Section 2.13), or (d) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 2.13, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
Section 11.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Loan Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer (including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the L/C Issuer), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with Loans made or Letters of Credit issued hereunder, including all such reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Loan Parties. The Loan Parties shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents (including in respect of any matters addressed in Section 3.01), (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by a Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to a Loan Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party or any of the Borrowers or such Loan Partys directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that, such
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indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitees obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. Without limiting the provisions of Section 3.01(c), this Section 11.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that the Loan Parties for any reason fail to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Issuer, the Swingline Lender or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer, the Swingline Lender or such Related Party, as the case may be, such Lenders pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lenders share of the Total Credit Exposure at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender), such payment to be made severally among them based on such Lenders Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought), provided, further that, the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), the L/C Issuer or the Swingline Lender in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent), the L/C Issuer or the Swingline Lender in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable Law, no Loan Party shall assert, and each Loan Party hereby waives, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
(e) Payments. All amounts due under this Section shall be payable not later than ten (10) Business Days after demand therefor.
(f) Survival. The agreements in this Section and the indemnity provisions of Section 11.02(e) shall survive the resignation of the Administrative Agent, the L/C Issuer and the Swingline Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
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Section 11.05 Payments Set Aside.
To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
Section 11.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns permitted hereby, except neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment(s) and the Loans (including for purposes of this subsection (b), participations in L/C Obligations and in Swingline Loans) at the time owing to it); provided that (in each case with respect to the Facility), any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lenders Commitment under the Facility and/or the Loans at the time owing to it (in each case with respect to the Facility) or contemporaneous assignments to related Approved Funds that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
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(B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if Trade Date is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000, in the case of any assignment in respect of the Facility, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement and the other Loan Documents with respect to the Loans and/or the Commitment assigned, except that this clause (ii) shall not apply to the Swingline Lenders rights and obligations in respect of Swingline Loans.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that, the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; and provided, further, that the Borrowers consent shall not be required during the primary syndication of the Facility;
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitment if such assignment is to a Person that is not a Lender with a Commitment in respect of the applicable Facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(C) the consent of the L/C Issuer and the Swingline Lender shall be required for any assignment in respect of the Facility.
(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made (A) to the Borrower or any of the Borrowers Affiliates or Subsidiaries, (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B), or (C) to a natural Person.
(vi) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or
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subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the L/C Issuer or any Lender hereunder (and interest accrued thereon) and (B) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 11.04 with respect to facts and circumstances occurring prior to the effective date of such assignment); provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Revolving Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
(c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower (and such agency being solely for tax purposes), shall maintain at the Administrative Agents Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the Register). The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural Person, a Defaulting Lender or the Borrower or any of the Borrowers Affiliates or Subsidiaries) (each, a Participant) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lenders participations in L/C Obligations and/or Swingline Loans) owing to it); provided that, (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 11.04(c) without regard to the existence of any participations.
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Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that, such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 11.01 that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05, subject to the requirements and limitations herein, including the requirements under Section 3.01(e) (it being understood that the documentation required under Section 3.01(e) shall be delivered to the Lender who sells the participation) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that, such Participant (A) agrees to be subject to the provisions of Sections 3.06 and 11.13 as if it were an assignee under paragraph (b) of this Section and (B) shall not be entitled to receive any greater payment under Sections 3.01 or 3.04, with respect to any participation, than the Lender from whom it acquired the applicable participation would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrowers request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.06 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.08 as though it were a Lender; provided that, such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other obligations under the Loan Documents (the Participant Register); provided that, no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participants interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Revolving Note or Revolving Notes, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(f) Resignation as L/C Issuer or Swingline Lender after Assignment. Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Revolving Loans pursuant to subsection (b) above, Bank of America may, (i) upon ten (10) days notice to the Borrower and the Lenders, resign as L/C Issuer and/or (ii) upon ten (10) days notice to the Borrower, resign as Swingline Lender. In the event of any such resignation as L/C Issuer or Swingline Lender, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swingline Lender hereunder; provided, however, that no failure by the Borrower to appoint any such
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successor shall affect the resignation of Bank of America as L/C Issuer or Swingline Lender, as the case may be. If Bank of America resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). If Bank of America resigns as Swingline Lender, it shall retain all the rights of the Swingline Lender provided for hereunder with respect to Swingline Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swingline Loans pursuant to Section 2.04(c). Upon the appointment of a successor L/C Issuer and/or Swingline Lender, (A) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swingline Lender, as the case may be, and (B) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit.
Section 11.07 Treatment of Certain Information; Confidentiality.
(a) Treatment of Certain Information. Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent required or requested by any regulatory authority having jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (iii) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (iv) to any other party hereto, (v) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement or (B) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (vii) on a confidential basis to the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the credit facilities provided hereunder, (viii) with the consent of the Borrower or to the extent such Information (1) becomes publicly available other than as a result of a breach of this Section or (2) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. For purposes of this Section, Information means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary; all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses shall be deemed Information for purposes of this Section 11.07(a) unless marked Public. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
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(b) Non-Public Information. Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (i) the Information may include material non-public information concerning a Loan Party or a Subsidiary, as the case may be, (ii) it has developed compliance procedures regarding the use of material non-public information and (iii) it will handle such material non-public information in accordance with applicable Law, including United States federal and state securities Laws.
(c) Press Releases. The Loan Parties and their Affiliates agree that they will not in the future issue any press releases or other public disclosure using the name of the Administrative Agent or any Lender or their respective Affiliates or referring to this Agreement or any of the Loan Documents without the prior written consent of the Administrative Agent, unless (and only to the extent that) the Loan Parties or such Affiliate is required to do so under law and then, in any event the Loan Parties or such Affiliate will consult with such Person before issuing such press release or other public disclosure.
(d) Customary Advertising Material. The Loan Parties consent to the publication by the Administrative Agent or any Lender of customary advertising material relating to the transactions contemplated hereby using the name, product photographs, logo or trademark of the Loan Parties; provided that, if any such advertising materials include Borrowers results of operating or other non-public Information that is to be treated as confidential under this Section 11.07, Borrowers consent shall be required prior to use of such Information.
Section 11.08 Right of Setoff.
If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer or their respective Affiliates, irrespective of whether or not such Lender, the L/C Issuer or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured, secured or unsecured, or are owed to a branch, office or Affiliate of such Lender or the L/C Issuer different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that, in the event that any Defaulting Lender shall exercise any such right of setoff, (a) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.15 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the L/C Issuer and the Lenders, and (b) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Secured Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that, the failure to give such notice shall not affect the validity of such setoff and application.
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Section 11.09 Interest Rate Limitation.
Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
Section 11.10 Counterparts; Integration; Effectiveness.
This Agreement and each of the other Loan Documents may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which taken together shall constitute a single contract. This Agreement, the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent or the L/C Issuer, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement or any other Loan Document, or any certificate delivered thereunder, by fax transmission or other e-mail transmission (e.g., pdf or tif) shall be effective as delivery of a manually executed counterpart of this Agreement or such other Loan Document or certificate. Without limiting the foregoing, to the extent a manually executed counterpart is not specifically required to be delivered under the terms of any Loan Document, upon the request of any party, such fax transmission or e-mail transmission shall be promptly followed by such manually executed counterpart.
Section 11.11 Survival of Representations and Warranties.
All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
Section 11.12 Severability.
If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable
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provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent, the L/C Issuer or the Swingline Lender, as applicable, then such provisions shall be deemed to be in effect only to the extent not so limited.
Section 11.13 Replacement of Lenders.
If the Borrower is entitled to replace a Lender pursuant to the provisions of Section 3.06, or if any Lender is a Defaulting Lender or a Non-Consenting Lender or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.06), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01 and 3.04) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(a) the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 11.06(b);
(b) such Lender shall have received payment of an amount equal to 100% of the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;
(d) such assignment does not conflict with applicable Laws; and
(e) in the case of an assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Section 11.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
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(b) SUBMISSION TO JURISDICTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER, THE L/C ISSUER, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION 11.14. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
Section 11.15 Waiver of Jury Trial.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (a) CERTIFIES THAT NO REPRESENTATIVE,
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AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (b) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.15.
Section 11.16 Subordination.
Each Loan Party (a Subordinating Loan Party) hereby subordinates the payment of all obligations and indebtedness of any other Loan Party owing to it, whether now existing or hereafter arising, including but not limited to any obligation of any such other Loan Party to the Subordinating Loan Party as subrogee of the Secured Parties or resulting from such Subordinating Loan Partys performance under this Guaranty, to the indefeasible payment in full in cash of all Obligations. If the Secured Parties so request, any such obligation or indebtedness of any such other Loan Party to the Subordinating Loan Party shall be enforced and performance received by the Subordinating Loan Party as trustee for the Secured Parties and the proceeds thereof shall be paid over to the Secured Parties on account of the Secured Obligations, but without reducing or affecting in any manner the liability of the Subordinating Loan Party under this Agreement. Without limitation of the foregoing, so long as no Default has occurred and is continuing, the Loan Parties may make and receive payments with respect to Intercompany Debt; provided, that in the event that any Loan Party receives any payment of any Intercompany Debt at a time when such payment is prohibited by this Section, such payment shall be held by such Loan Party, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to the Administrative Agent.
Section 11.17 No Advisory or Fiduciary Responsibility.
In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower and each other Loan Party acknowledges and agrees, and acknowledges its Affiliates understanding, that: (a) (i) the arranging and other services regarding this Agreement provided by the Administrative Agent and any Affiliate thereof, the Arranger and the Lenders are arms-length commercial transactions between the Borrower, each other Loan Party and their respective Affiliates, on the one hand, and the Administrative Agent and, as applicable, its Affiliates (including the Arranger) and the Lenders and their Affiliates (collectively, solely for purposes of this Section 11.17, the Lenders), on the other hand, (ii) each of the Borrower and the other Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) the Borrower and each other Loan Party is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (b) (i) the Administrative Agent and its Affiliates (including the Arranger) and each Lender each is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary, for Borrower, any other Loan Party or any of their respective Affiliates, or any other Person and (ii) neither the Administrative Agent, any of its Affiliates (including the Arranger) nor any Lender has any obligation to the Borrower, any other Loan Party or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (c) the Administrative Agent and its Affiliates (including the Arranger) and the Lenders may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Loan Parties and their respective Affiliates, and neither the Administrative Agent, any of its Affiliates (including the Arranger) nor any Lender has any obligation to disclose any of such interests to the Borrower, any other Loan Party or any of their respective Affiliates.
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To the fullest extent permitted by law, each of the Borrower and each other Loan Party hereby waives and releases any claims that it may have against the Administrative Agent, any of its Affiliates (including the Arranger) or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transactions contemplated hereby.
Section 11.18 Electronic Execution of Assignments and Certain Other Documents.
The words execute, execution, signed, signature, and words of like import in any Assignment and Assumption or in any amendment or other modification hereof (including waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 11.19 USA PATRIOT Act Notice.
Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower and the other Loan Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act. The Borrower and the Loan Parties agree to, promptly following a request by the Administrative Agent or any Lender, provide all such other documentation and information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the Act.
Section 11.20 Time of the Essence.
Time is of the essence of the Loan Documents.
Section 11.21 No Novation.
Borrower, Administrative Agent and Lenders hereby agree that, effective upon the execution and delivery of this Agreement by each such party, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended, restated and superseded in their entirety by the terms and provisions of this Agreement. Nothing herein contained shall be construed as a substitution or novation of the obligations of Borrower outstanding under the Existing Credit Agreement or instruments securing the same, which obligations shall remain in full force and effect, except to the extent that the terms thereof are modified hereby or by instruments executed concurrently herewith. Nothing expressed or implied in this Agreement shall be construed as a release or other discharge of Borrower, or any guarantor from any of its obligations or liabilities under the Existing Credit Agreement or any of the notes, security agreements, pledge agreements, mortgages, guaranties or other loan documents executed in connection therewith. Borrower hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Closing Date all references in any such Loan Document to the Credit Agreement, thereto, thereof, thereunder or words of like import referring to the Existing Credit Agreement shall
127
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
mean the Existing Credit Agreement as amended and restated by this Agreement; and (ii) confirms and agrees that to the extent that the Existing Credit Agreement or any Loan Document executed in connection therewith purports to assign or pledge to the Administrative Agent, for the benefit of Lenders, or to grant to Administrative Agent, for the benefit of the Lenders a security interest in or lien on, any collateral as security for the Obligations of Borrower from time to time existing in respect of the Existing Credit Agreement, such pledge, assignment or grant of the security interest or lien is hereby ratified and confirmed in all respects and shall remain effective as of the first date it became effective.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
128
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
BORROWER: | SOLARCITY CORPORATION, a Delaware corporation | |||||
By: | /s/ Robert Kelly | |||||
Name: | Robert Kelly | |||||
Title: | Chief Financial Officer | |||||
GUARANTOR: | POPPY ACQUISITION LLC | |||||
By: | /s/ Robert Kelly | |||||
Name: | Robert Kelly | |||||
Title: | Chief Financial Officer | |||||
ZOOM ACQUISITION LLC | ||||||
By: | /s/ Robert Kelly | |||||
Name: | Robert Kelly | |||||
Title: | Chief Financial Officer |
Amended and Restated Credit Agreement
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
BANK OF AMERICA, N.A., as Administrative Agent | ||||||
By: | /s/ Laura Call | |||||
Name: | Laura Call | |||||
Title: | Assistant Vice President |
Amended and Restated Credit Agreement
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
LENDERS: | BANK OF AMERICA, N.A., as a Lender, L/C Issuer and Swingline Lender | |||||
By: |
/s/ Thomas R. Sullivan | |||||
Name: | Thomas R. Sullivan | |||||
Title: | Senior Vice President |
Amended and Restated Credit Agreement
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
LENDERS: | Silicon Valley Bank as a Lender | |||||
By: | /s/ Mona Maitra | |||||
Name: | Mona Maitra | |||||
Title: | Vice President | |||||
BRIDGE BANK, NATIONAL ASSOCIATION as a Lender | ||||||
By: |
/s/ Molly Hendry | |||||
Name: |
Molly Hendry | |||||
Title: | Vice President | |||||
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH as a Lender | ||||||
By: | /s/ Christopher Day | |||||
Name: | Christopher Day | |||||
Title: | Authorized Signatory | |||||
By: | /s/ Tyler R. Smith | |||||
Name: | Tyler R. Smith | |||||
Title: | Authorized Signatory |
Amended and Restated Credit Agreement
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Exhibit 10.12a
CONFIDENTIAL TREATMENT REQUESTED
Certain portions of this document have been omitted pursuant to a request for Confidential Treatment and, where applicable, have been marked with [***] to indicate where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.
AMENDMENT NO. 1 TO LOAN AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN AGREEMENT (this Amendment), dated as of December 6, 2013 (the Amendment Effective Date), is by and among AU SOLAR 1, LLC, a Delaware limited liability company (the Borrower), the Lenders party hereto, CREDIT SUISSE SECURITIES (USA) LLC, ING CAPITAL LLC and RABOBANK N.A., as joint lead arrangers (the Joint Lead Arrangers), CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent (in such capacity, the Administrative Agent) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as the collateral agent for the Secured Parties (the Collateral Agent and together with the Borrower, the Joint Lead Arrangers and the Administrative Agent, the Parties). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement.
W I T N E S S E T H
WHEREAS, the Borrower, certain banks and financial institutions from time to time party thereto as lenders (the Lenders), the Administrative Agent, the Collateral Agent and the Joint Lead Arrangers, are parties to that certain Loan Agreement dated as of June 7, 2013 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement) pursuant to which Lenders make loans to Borrower to monetize the future Periodic Rent, certain Customer Payments and certain other payments to be received by Borrower under the Master Lease and Customer Agreements, respectively, with respect to certain Projects, on the terms, and subject to the condition set forth in the Loan Agreement;
WHEREAS, Borrower have requested that the Majority Lenders and each Joint Lead Arranger that is also a Lender, as applicable, amend the Loan Agreement to, among other things, (i) extend the Availability Period to parallel the extension of the date Projects must be Placed-In-Service under the Master Lease, (ii) to increase the Incremental Loan Commitment, (iii) make certain modifications related to the Amendment No. 2 of the Master Lease, dated as of [***], and (iv) make modifications to allow the distribution of Excess Cash Flow on a Scheduled Payment Date, subject to certain conditions; and
WHEREAS, the Majority Lenders and each Joint Lead Arranger that is also a Lender, as applicable, are willing to make such amendments to the Loan Agreement, in accordance with and subject to the terms and conditions set forth herein.
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
NOW, THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
AMENDMENTS TO LOAN AGREEMENT
Section 1.01 Amendment to Section 1.1. Section 1.1 of the Loan Agreement is hereby amended as follows:
(a) | The definition of Availability Period is hereby amended and restated in its entirety to read as follows: |
Availability Period means a period commencing on the Closing Date and ending on the earlier of (A) the date when the Commitments have been utilized for Borrowings and (B) August 31, 2014.
(b) | The definition of Investment Grade Host Customer is hereby added to Section 1.1 in its respective alphabetical order: |
Investment Grade Host Customer has the meaning given to such term in the Master Lease.
(c) | The definition of Master Lease is hereby amended and restated in its entirety to read as follows: |
Master Lease means the Master Lease Agreement, dated as of [***], by and between the Borrower and the Lessee, [***], and as may be further amended from time to time.
(d) | The definition of Upsize Project is hereby amended and restated in its entirety to read as follows: |
Upsize Project means a Project that is subject to the Master Lease and that is not a Funded Project as of September 1, 2014.
Section 1.02 Amendment to Section 2.10(a). Section 2.10(a) of the Loan Agreement is hereby amended by replacing the reference to $50,000,000 with $58,000,000.
Section 1.03 Amendment to Section 3.2(g). Section 3.2(g) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(g) Each Current Project shall be a Project subject to the Master Lease, and if any Current Project is a Commercial Project, then the commercial Host Customer met the Minimum Commercial Credit Standard as of the closing date of the applicable Lease Tranche under the Master Lease for such Current Project; provided, it shall not be a condition to a Borrowing that the commercial Host Customer meet the Minimum Commercial Credit Standard with respect to the Host Customer site being owner-
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
occupied and not leased, so long as (i) such Host Customer is an Investment Grade Host Customer and (ii) the term of the lease entered into by such Host Customer with respect to such site is the same or longer than such Host Customers Customer Agreement.
Section 1.04 Amendment to Section 3.2(k). Section 3.2(k) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(k) (i) No more than $[***] of Borrowings have been made with respect to Residential Projects with Host Customers with a FICO® score of [***] and (ii) to the extent the Master Lease is amended, or waived to permit, [***] terms as described in clause (D) of the first proviso in Section 6.11(a), no Current Project for a Residential Project has a Customer Agreement with [***] terms.
Section 1.05 Amendment to Section 4.1(z). Section 4.1(z) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(z) Project Credit Criteria. As of the closing date of the applicable Lease Tranche under the Master Lease for a Current Project, (a) if such Project is a Residential Project, the applicable Host Customer met the Minimum Residential Credit Standard and (b) if such Project is a Commercial Project, and unless the Lenders waived the condition precedent in Section 3.2(g) with respect to such Current Project, the applicable commercial Host Customer met the Minimum Commercial Credit Standard (not including, for purposes of this representation, the requirement that the Host Customer site is owner-occupied and not leased if (i) such Host Customer is an Investment Grade Host Customer and (ii) the term of the lease entered into by such Host Customer with respect to such site is the same or longer than such Host Customers Customer Agreement).
Section 1.06 Amendment to Section 6.7(d). Section 6.7(d) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(d) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, to Member from Upsize Rents or any amounts distributable pursuant to Section 5.1(b)(vi) of the Depositary Agreement on any Scheduled Payment Date; and.
ARTICLE II.
MISCELLANEOUS
Section 2.01 Amended Terms. On and after the Amendment Effective Date, all references to the Loan Agreement in each of the Financing Documents shall hereafter mean the Loan Agreement as amended by this Amendment. Except as specifically amended hereby or otherwise agreed, all the terms and conditions of the Financing Documents are unaffected and shall continue to be in full force and effect according to their respective terms. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Lenders, the Joint Lead Arrangers or the Agents under the Loan Agreement or any other Financing Document.
Section 2.02 Reaffirmation of Obligations. Borrower hereby ratifies the Loan Agreement and acknowledges and reaffirms (a) that it is bound by all terms of the Loan Agreement applicable to it and (b) that it is responsible for the observance and full performance of its Obligations.
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Section 2.03 Financing Document. This Amendment shall constitute a Financing Document under the terms of the Loan Agreement.
Section 2.04 Expenses. The Borrower agrees to reimburse the Agents for the Agents costs and out-of-pocket expenses incurred in connection with this Amendment, including the reasonable fees, out-of-pocket expenses and disbursements of Chadbourne & Parke LLP or any other counsel for the Agents, subject to the provisions of Section 10.4 of the Loan Agreement.
Section 2.05 Further Assurances. Borrower agrees to promptly take such action, upon the request of the Administrative Agent, as is necessary to carry out the intent of this Amendment.
Section 2.06 Entirety. This Amendment and the other Financing Documents embody the entire agreement among the parties hereto and supersede all prior agreements and understandings, oral or written, if any, relating to the subject matter hereof, including, for avoidance of doubt, the proviso contain in paragraph H of that certain Consent and Waiver, dated as of [***], among the Borrower, the Lenders, Joint Lead Arranger, the Administrative Agent and the Collateral Agent.
Section 2.07 Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment or any other document required to be delivered hereunder, by fax transmission or e-mail transmission (e.g. pdf or tif) shall be effective as delivery of a manually executed counterpart of this Agreement. Without limiting the foregoing, upon the request of any party, such fax transmission or e-mail transmission shall be promptly followed by such manually executed counterpart.
Section 2.08 GOVERNING LAW.THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (NOT INCLUDING SUCH STATES CONFLIT OF LAWS PROVISIONS OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
Section 2.09 Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
Section 2.10 Waiver of Jury Trial; Consent to Jurisdiction; Service of Process;. The waiver of jury trial, jurisdiction, and service of process provisions set forth in Sections 10.14 and 10.15 of the Loan Agreement are hereby incorporated by reference, mutatis mutandis.
Section 2.11 Instruction to Agents. By their execution and delivery of this Amendment, the Lenders consent to the amendments in Article I and hereby instruct the Administrative Agent and the Collateral Agent to execute this Amendment.
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
IN WITNESS WHEREOF the parties hereto have caused this Amendment No. 1 to Loan Agreement to be duly executed on the date first above written.
AU SOLAR 1, LLC, | ||
as Borrower | ||
By: | /s/ Robert Kelly | |
Name: | Robert Kelly | |
Title: | Chief Financial Officer |
AMENDMENT NO. 1 TO LOAN AGREEMENT
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, | ||
as Administrative Agent, Collateral Agent and as a Lender | ||
By: | /s/ Mikhail Faybusovich | |
Name: | Mikhail Faybusovich | |
Title: | Authorized Signatory | |
By: | /s/ Tyler R. Smith | |
Name: | Tyler R. Smith | |
Title: | Authorized Signatory |
AMENDMENT NO. 1 TO LOAN AGREEMENT
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
ING CAPITAL LLC, | ||
as a Lender and Joint Lead Arranger | ||
By: | /s/ Erwin Thomet | |
Name: | Erwin Thomet | |
Title: | Managing Director | |
By: | /s/ Thomas Cantello | |
Name: | Thomas Cantello | |
Title: | Director | |
RABOBANK, N.A, as a Lender and Joint Lead Arranger | ||
By: | /s/ Gianluca Signorelli | |
Name: | Gianluca Signorelli | |
Title: | SVP, Renewable Energy Finance | |
By: | /s/ Nina Davies | |
Name: | Nina Davies | |
Title: | VP, Renewable Energy Finance |
AMENDMENT NO. 1 TO LOAN AGREEMENT
[***] Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Exhibit 21.1
LIST OF SUBSIDIARIES
OF
SOLARCITY CORPORATION
(as of March 14, 2014)
Name of Subsidiary |
Jurisdiction of Incorporation | |
AU Solar 1, LLC |
Delaware | |
AU Solar 2, LLC |
Delaware | |
Banyan SolarCity Manager 2010, LLC |
Delaware | |
Banyan SolarCity Owner 2010, LLC |
Delaware | |
Beatrix Solar I, LLC |
Delaware | |
Bernese Solar Manager I, LLC |
Delaware | |
Blue Skies Solar I, LLC |
Delaware | |
Building Solutions Acquisition Corporation |
Delaware | |
Cardinal Blue Solar, LLC |
Delaware | |
City UB Solar, LLC |
Delaware | |
Clydesdale SC Solar I, LLC |
Delaware | |
Eiger Lease Co, LLC |
Delaware | |
Ever CT Solar Farm, LLC |
California | |
Fontane Solar I, LLC |
Delaware | |
Hammerhead Solar, LLC |
Delaware | |
Haymarket Holdings, LLC |
Delaware | |
Haymarket Manager 1, LLC |
Delaware | |
Haymarket Solar 1, LLC |
Delaware | |
Ikehu Manager I, LLC |
Delaware | |
IL Buono Solar I, LLC |
Delaware | |
Landlord 2008-A, LLC |
Delaware | |
Master Tenant 2008-A, LLC |
Delaware | |
Matterhorn Solar I, LLC |
Delaware | |
Monte Rosa Solar I, LLC |
Delaware | |
Mound Solar Manager V, LLC |
Delaware | |
Mound Solar Manager VI, LLC |
Delaware | |
Mound Solar Master Tenant V, LLC |
California | |
Mound Solar Master Tenant VI, LLC |
Delaware | |
Mound Solar Master Tenant VII, LLC |
Delaware | |
Mound Solar Master Tenant VIII, LLC |
Delaware | |
Mound Solar MT Manager VII, LLC |
Delaware | |
Mound Solar MT Manager VIII, LLC |
Delaware | |
Mound Solar Owner Manager VII, LLC |
Delaware | |
Mound Solar Owner Manager VIII, LLC |
Delaware | |
Mound Solar Owner V, LLC |
California | |
Mound Solar Owner VI, LLC |
Delaware | |
Mound Solar Owner VII, LLC |
Delaware | |
Mound Solar Owner VIII, LLC |
Delaware | |
MS SolarCity 2008, LLC |
Delaware | |
MS SolarCity Commercial 2008, LLC |
Delaware | |
MS SolarCity Residential 2008, LLC |
Delaware | |
MT Solar Corporation |
Delaware | |
NBA SolarCity AFB, LLC |
California | |
NBA SolarCity Commercial I, LLC |
California | |
NBA SolarCity Solar Phoenix, LLC |
California | |
PaCo Solar Holdings, LLC |
Delaware |
Name of Subsidiary |
Jurisdiction of Incorporation | |
PaCo Solar Lessee 1, LLC |
Arizona | |
PaCo Solar Lessee Manager 1, LLC |
Delaware | |
PaCo Solar Lessor 1, LLC |
Delaware | |
Paramount Energy Fund I Lessee, LLC |
Delaware | |
Paramount Energy Fund I Lessor, LLC |
Delaware | |
PEF I MM, LLC |
Delaware | |
Poppy Acquisition LLC |
Delaware | |
Pukana La Solar I, LLC |
Delaware | |
Sequoia Pacific Holdings, LLC |
Delaware | |
Sequoia Pacific Manager I, LLC |
Delaware | |
Sequoia Pacific Solar I, LLC |
Delaware | |
Sequoia SolarCity Owner I, LLC |
Delaware | |
Solar Aquarium Holdings, LLC |
Delaware | |
Solar Energy of America 1, LLC |
Delaware | |
Solar Energy of America Holdco, LLC |
Delaware | |
Solar Energy of America Manager 1 Corporation |
Delaware | |
Solar Grove Holdings, LLC |
Delaware | |
Solar House I, LLC |
Delaware | |
Solar Integrated Fund I, LLC |
Delaware | |
Solar Integrated Manager I, LLC |
Delaware | |
Solar Marketing, Inc. |
Delaware | |
Solar Marsh, LLC |
Delaware | |
Solar Odyssey Holdings, LLC |
Delaware | |
Solar Ulysses Manager I, LLC |
Delaware | |
Solar Warehouse Manager I, LLC |
Delaware | |
SolarCity Alpine Holdings, LLC |
Delaware | |
SolarCity Amphitheatre Holdings, LLC |
Delaware | |
SolarCity Arbor Holdings, LLC |
Delaware | |
SolarCity Arches Holdings, LLC |
Delaware | |
SolarCity AU Holdings, LLC |
Delaware | |
SolarCity Corporation |
Delaware | |
SolarCity Engineering, Inc |
California | |
SolarCity Finance Company, LLC |
Delaware | |
SolarCity Finance Holdings, LLC |
Delaware | |
SolarCity Fund Holdings, LLC |
Delaware | |
SolarCity Giants Holdings, LLC |
Delaware | |
SolarCity GivePower |
California | |
SolarCity Grand Canyon Holdings, LLC |
Delaware | |
SolarCity Holdings 2008, LLC |
Delaware | |
SolarCity International, Inc |
Delaware | |
SolarCity Investments Canada Ltd. |
Canada | |
SolarCity LMC Series I, LLC |
Delaware | |
SolarCity LMC Series II, LLC |
Delaware | |
SolarCity Mid-Atlantic Holdings, LLC |
Delaware | |
SolarCity Orange Holdings, LLC |
Delaware | |
SolarCity Pierpont Holdings, LLC |
Delaware | |
SolarCity Series Holdings I, LLC |
Delaware | |
SolarCity Series Holdings II, LLC |
Delaware | |
SolarCity Ulu Holdings, LLC |
Delaware | |
SolarCity Village Holdings, LLC |
Delaware | |
SolarMarsh KL, LLC |
Delaware | |
SolarMarsh RB, LLC |
Delaware | |
SolarMarsh SM, LLC |
Delaware |
Name of Subsidiary |
Jurisdiction of Incorporation | |
SolarMarsh VM, LLC |
Delaware | |
SolarRock, LLC |
Delaware | |
SolarStrong Holdings, LLC |
Delaware | |
SolarStrong, LLC |
Delaware | |
The Alliance for Solar Choice, LLC |
Delaware | |
Three Rivers Solar 1, LLC |
Delaware | |
Three Rivers Solar Holding Company, LLC |
Delaware | |
Three Rivers Solar Manager 1, LLC |
Delaware | |
USB SolarCity Manager 2009, LLC |
Delaware | |
USB SolarCity Manager 2009-2010, LLC |
Delaware | |
USB SolarCity Manager III, LLC |
Delaware | |
USB SolarCity Manager IV, LLC |
Delaware | |
USB SolarCity Master Tenant 2009, LLC |
California | |
USB SolarCity Master Tenant 2009-2010, LLC |
California | |
USB SolarCity Master Tenant III, LLC |
California | |
USB SolarCity Master Tenant IV, LLC |
California | |
USB SolarCity Owner 2009, LLC |
California | |
USB SolarCity Owner 2009-2010, LLC |
California | |
USB SolarCity Owner III, LLC |
California | |
USB SolarCity Owner IV, LLC |
California | |
Visigoth Solar 1, LLC |
Delaware | |
Visigoth Solar Holdings, LLC |
Delaware | |
Visigoth Solar Managing Member 1, LLC |
Delaware | |
Zep Solar Australia Pty Limited |
Australia | |
Zep Solar Hong Kong Limited |
Hong Kong | |
Zep Solar LLC |
California | |
Zep Solar Trading Ltd |
China |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
| 2007 Stock Plan, the 2012 Equity Incentive Plan and the 2012 Employee Stock Purchase Plan (Form S-8 No. 333-187576) of SolarCity Corporation (the Company), |
| the 2012 Equity Incentive Plan (Form S-8 No. 333-185444) of the Company, |
| the Zep Solar, Inc. 2010 Equity Incentive Plan (Form S-8 No. 333-192996) of the Company |
of our reports dated March 18, 2014, with respect to the consolidated financial statements of SolarCity Corporation and the effectiveness of internal control over financing reporting included in this Annual Report (Form 10-K) of the Company for the year ended December 31, 2013.
/s/ Ernst & Young LLP
Redwood City, California
March 18, 2014
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, Lyndon R. Rive, certify that:
1) I have reviewed this Annual Report on Form 10-K of SolarCity Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5) The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ Lyndon R. Rive |
Lyndon R. Rive |
Chief Executive Officer (Principal Executive Officer) |
Date: March 18, 2014
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert D. Kelly, certify that:
1) I have reviewed this Annual Report on Form 10-K of SolarCity Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5) The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ Robert D. Kelly |
Robert D. Kelly |
Chief Financial Officer (Principal Financial Officer) |
Date: March 18, 2014
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Lyndon R. Rive, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of SolarCity Corporation for the fiscal year ended December 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of SolarCity Corporation.
/s/ Lyndon R. Rive |
Lyndon R. Rive |
Chief Executive Officer (Principal Executive Officer) |
Date: March 18, 2014
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert D. Kelly, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of SolarCity Corporation for the fiscal year ended December 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of SolarCity Corporation.
/s/ Robert D. Kelly |
Robert D. Kelly |
Chief Financial Officer (Principal Financial Officer) |
Date: March 18, 2014
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