424B3 1 d303379d424b3.htm 424B3 424B3
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-256501

 

PROSPECTUS

 

 

LOGO

Up to 50,574,232 Shares of Common Stock

 

 

This prospectus relates to the offer and sale from time to time by the selling securityholders named in this prospectus (the “Selling Securityholders”) of up to 50,574,232 shares of the common stock, par value $0.0001 per share, of the Company (“Common Stock”). We will not receive any proceeds from the sale of shares of Common Stock by the Selling Securityholders pursuant to this prospectus.

Our registration of the securities covered by this prospectus does not mean that the Selling Securityholders will offer or sell any of the shares. The Selling Securityholders may sell the shares of Common Stock covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the Selling Securityholders may sell the shares in the section entitled “Plan of Distribution.”

We are registering the securities for resale pursuant to the Selling Securityholders’ registration rights under certain agreements between us and the Selling Securityholders. Our registration of the securities covered by this prospectus does not mean that the Selling Securityholders will offer or sell any of the shares of Common Stock. The Selling Securityholders may offer, sell or distribute all or a portion of their shares of Common Stock publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any proceeds from the sale of shares of Common Stock by the Selling Securityholders pursuant to this prospectus. We provide more information about how the Selling Securityholders may sell the shares in the section entitled “Plan of Distribution.”

Our Common Stock is listed on the New York Stock Exchange (“NYSE”), under the symbol “STEM.” On April 26, 2022, the closing price of our Common Stock was $7.48.

 

 

Investing in our Common Stock involves a high degree of risks. See the section entitled “Risk Factorsbeginning on page 6 of this prospectus to read about factors you should consider before buying our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is May 3, 2022.


Table of Contents

TABLE OF CONTENTS

 

     Page  

ABOUT THIS PROSPECTUS

     ii  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     ii  

SUMMARY

     1  

The Company

     1  

Background

     1  

Risk Factors

     2  

Additional Information

     4  

THE OFFERING

     5  

RISK FACTORS

     6  

USE OF PROCEEDS

     34  

DETERMINATION OF OFFERING PRICE

     35  

MARKET INFORMATION FOR COMMON STOCK AND DIVIDEND POLICY

     36  

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     37  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     44  

BUSINESS

     64  

DIRECTORS AND OFFICERS

     73  

EXECUTIVE AND DIRECTOR COMPENSATION

     81  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     100  

PRINCIPAL SECURITYHOLDERS

     105  

SELLING SECURITYHOLDERS

     107  

DESCRIPTION OF SECURITIES

     115  

PLAN OF DISTRIBUTION

     122  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     125  

LEGAL MATTERS

     130  

EXPERTS

     130  

WHERE YOU CAN FIND MORE INFORMATION

     130  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

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You should rely only on the information provided in this prospectus, as well as the information incorporated by reference into this prospectus and any applicable prospectus supplement. Neither we nor the Selling Securityholders have authorized anyone to provide you with different information. Neither we nor the Selling Securityholders are making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus, any applicable prospectus supplement or any documents incorporated by reference is accurate as of any date other than the date of the applicable document. Since the respective dates of this prospectus and the documents incorporated by reference into this prospectus, our business, financial condition, results of operations and prospects may have changed.

Unless the context indicates otherwise, references in this prospectus to the “Company,” “Stem,” “we,” “us,” “our” and similar terms refer to Stem, Inc. (f/k/a Star Peak Energy Transition Corp.), a Delaware corporation, and its consolidated subsidiaries. References to “Star Peak” or “STPK” refer to the Company prior to the consummation of the Merger (as defined herein).

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. Under this shelf registration process, the Selling Securityholders may, from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by such Selling Securityholders of the securities offered by them described in this prospectus.

Neither we nor the Selling Securityholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the Selling Securityholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the Selling Securityholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement, together with the additional information to which we refer you in the sections of this prospectus entitled “Where You Can Find More Information.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, any accompanying prospectus supplement and the documents incorporated by reference herein and therein may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and undue reliance should not be placed on these forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those

 

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contemplated in the forward-looking statements, including, without limitation, the risks described in the “Risk Factors” section of this prospectus and the risks included in our Annual Report on Form 10-K for the year ended December 31, 2021, under the heading “Risk Factors” and in our other filings with the SEC. These risk factors are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk 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. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

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SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus or the documents incorporated by reference herein. Because it is a summary, it may not contain all of the information that may be important to you. To understand this offering fully, you should read this entire prospectus, the registration statement of which this prospectus is a part and the documents incorporated by reference herein carefully, including the information set forth under the heading “Risk Factors” and our financial statements.

The Company

Stem is a large, digitally connected, intelligent energy storage network provider, providing our customers (i) with an energy storage system, sourced from leading, global battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including solar project developers and engineering, procurement and construction firms and (ii) through our Athena artificial intelligence (“AI”) platform (“Athena”), with ongoing software-enabled services to operate the energy storage systems for up to 20 years. In addition, in all the markets where we operate our customers’ systems, we have agreements to manage the energy storage systems using our Athena platform to participate in energy markets and to share the revenue from such market participation.

Background and Recent Developments

Stem, Inc., a Delaware corporation (the “Company”), was originally known as Star Peak Energy Transition Corp., a special purpose acquisition company that completed its initial public offering on August 20, 2020. On April 28, 2021 (the “Closing Date”), the Company consummated its initial business combination (the “Merger” and the closing of the Merger, the “Closing”) pursuant to that certain Agreement and Plan of Merger, dated December 3, 2020, by and among STPK, STPK Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of STPK (“Merger Sub”) and Stem, Inc. a Delaware corporation (“Legacy Stem”). Legacy Stem is considered the Company’s accounting predecessor.

On June 30, 2021, the Company issued 4,683,349 shares of Common Stock (the “Exchange Shares”) to Star Peak Sponsor LLC, a Delaware limited liability company (“STPK Sponsor”), and Star Peak Sponsor WarrantCo LLC, a Delaware limited liability company (together with STPK Sponsor, the “Sellers”). The issuance was pursuant to an Exchange Agreement dated as of June 25, 2021 by and among us and the Sellers (the “Exchange Agreement”). Pursuant to the Exchange Agreement and in consideration of the issuance to the Sellers of the Exchange Shares, the Sellers exchanged 7,181,134 warrants originally issued to STPK Sponsor in a private placement that closed simultaneously with the STPK initial public offering. The Exchange Shares were issued in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”).

On February 1, 2022, the Company completed the acquisition of 100% of the outstanding shares of AlsoEnergy Holdings, Inc. (“AlsoEnergy”) for an aggregate purchase price of $695.0 million, consisting of approximately 75% in cash and approximately 25% in shares of the Company’s common stock. The acquisition was structured on a cash-free, debt free basis and subject to other customary adjustments as set forth in the purchase agreement. The transaction combines our storage optimization capabilities with AlsoEnergy’s solar asset performance monitoring and control software. We plan to complete the initial accounting for the acquisition during our first quarter of 2022.

Our Common Stock is currently listed on the NYSE under the symbol “STEM.”

The rights of holders of our Common Stock are governed by our amended and restated certificate of incorporation (the “Amended and Restated Charter”), our amended and restated bylaws (the “Amended and

 

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Restated Bylaws”) and the Delaware General Corporation Law (the “DGCL”). See the section entitled “Description of Securities.”

Risk Factors Summary

An investment in our common stock involves substantial risk. The occurrence of one or more of the events or circumstances described in the section entitled “Risk Factors,” alone or in combination with other events or circumstances, may have a material adverse effect on our business, cash flows, financial condition and results of operations. Important factors and risks that could cause actual results to differ materially from those in the forward-looking statements include, among others, the following:

Risks Relating to our Acquisition of AlsoEnergy

 

   

We may fail to realize the anticipated benefits of our acquisition of AlsoEnergy.

 

   

Business issues currently faced by AlsoEnergy may adversely affect our operations.

Risks Relating to Our Business and Industry

 

   

Our limited operating history at current scale and our nascent industry make evaluating our business and prospects difficult.

 

   

Our distributed generation offerings may not receive widespread market acceptance.

 

   

Our operations may continue to be adversely affected by the coronavirus outbreak.

 

   

Sufficient demand for our hardware and software-enabled services may not develop or take longer to develop than we anticipate.

 

   

Battery storage costs may not continue to decline.

 

   

Estimates and assumptions used to determine the size of our total addressable market may be inaccurate.

 

   

We currently face and will continue to face significant competition.

Risks Relating to Our Operations

 

   

Supply chain disruption and competition could result in insufficient inventory and negatively affect our business.

 

   

Long-term supply agreements could result in insufficient inventory.

 

   

Our hardware and software-enabled services involve a lengthy sales and installation cycle. If we fail to close sales on a regular and timely basis it could adversely affect our business.

 

   

We may fail to attract and retain qualified management and technical personnel, which may adversely affect our ability to compete and grow our business.

 

   

We may not be able to develop, produce, market and sell our hardware and software-enabled services successfully.

 

   

We have incurred significant losses in the past and expect to incur net losses through 2022.

 

   

We may be unable to reduce our cost structure.

 

   

Any future acquisitions we undertake may disrupt our business, adversely affect operations, dilute our stockholders, and expose us to significant costs and liabilities.

 

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Our current and planned foreign operations will subject us to additional business, financial, regulatory, and competitive risks.

 

   

Our platform performance may not meet our customers’ expectations or needs.

 

   

If any energy storage systems procured from OEM suppliers and provided to our customers contain manufacturing defects, our business and financial results could be adversely affected.

 

   

If our estimates of useful life for our energy storage systems and related hardware and software-enabled services are inaccurate, or if our OEM suppliers do not meet service and performance warranties and guarantees, our business and financial results could be adversely affected.

 

   

Future product recalls could materially adversely affect our business, financial condition and operating results.

 

   

Any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business.

 

   

Any failure to offer high-quality technical support services may adversely affect our relationships with our customers.

 

   

Our business currently depends on the availability of rebates, tax credits and other financial incentives.

 

   

The economic benefit of our energy storage systems to our customers depends on the cost of electricity available from alternative sources.

 

   

Our business is subject to risks associated with construction.

 

   

The growth of our business depends on customers renewing their services subscriptions.

 

   

Changes in subscriptions or pricing models may not be reflected in near-term operating results.

 

   

Severe weather events, including the effects of climate change, may impact our customers and suppliers.

 

   

Increased scrutiny regarding ESG practices and disclosures could result in additional costs and adversely impact our business and reputation.

Risks Relating to Third-Party Partners

 

   

We are exposed to interconnection and transmission facility development and curtailment risks.

 

   

We may not successfully maintain relationships with third-parties such as contractors and developers.

 

   

We may not maintain customer confidence in our long-term business prospects.

Risks Relating to Our Intellectual Property and Technology

 

   

Our future growth depends on our ability to continue to develop and maintain our proprietary technology.

 

   

We may not adequately secure, protect and enforce our intellectual property rights and trademarks.

 

   

Our patent applications may not result in issued patents and our patents may not provide adequate protection.

 

   

We may need to defend ourselves against claims that we infringed intellectual property rights of others.

Regulatory Risks

 

   

The installation and operation of our energy storage systems are subject to environmental laws and regulations.

 

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Existing regulations and changes to such regulations impacting the electric power industry may create technical, regulatory and economic barriers which could significantly reduce demand for our energy storage systems.

 

   

Our business could be adversely affected by trade tariffs or other trade barriers.

 

   

Negative attitudes toward renewable energy from lawmakers and others may adversely affect our business, including by delaying permits for our customers’ projects.

Cybersecurity and Information Technology Risks

 

   

A failure of our information technology and data security infrastructure could adversely affect our business and operations.

 

   

Our technology could have undetected defects, errors or bugs in hardware or software.

Additional Risks Relating to Ownership of our Common Stock

 

   

We may not successfully correct all of the material weaknesses in our internal control over financial reporting, which could affect the reliability of our consolidated financial statements and have other adverse consequences.

 

   

We may issue a significant number of shares in the future in connection with investments or acquisitions.

 

   

We do not intend to pay cash dividends for the foreseeable future.

 

   

Analysts may not publish sufficient or any research about our business or may publish inaccurate or unfavorable research.

 

   

The trading price of our common stock is volatile.

 

   

Our financial and operating results are likely to fluctuate on a quarterly basis in future periods.

 

   

Certain provisions of the Company’s organizational documents may have an anti-takeover effect.

 

   

The Company’s exclusive forum provision may limit the Company’s stockholders’ ability to obtain a favorable judicial forum for disputes.

General Risk Factors

 

   

We will continue to incur significant costs as a result of operating as a public company.

 

   

Our management team has limited experience managing a public company.

 

   

Future litigation, investigations or regulatory or administrative proceedings could have a material adverse effect on our business.

Additional Information

The Company’s principal executive office is located at Stem, Inc., 100 California St., 14th Fl, San Francisco, California 94111, and the Company’s telephone number is 1-877-374-7836. Our website address is www.stem.com. Information contained on our website or connected thereto does not constitute part of, and is not incorporated by reference into, this prospectus or the registration statement of which it is a part.

 

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THE OFFERING

 

Issuer

Stem, Inc.

 

Shares of Common Stock offered by the Selling Securityholders

Up to 50,574,232 shares of Common Stock.

 

Shares of Common Stock outstanding

153,443,756 shares of Common Stock*

 

Use of Proceeds

We will not receive any proceeds from the sale of shares of Common Stock by the Selling Securityholders. See “Use of Proceeds.”

 

Market for Common Stock

Our Common Stock is currently traded on the NYSE under the symbol “STEM.”

 

Risk Factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before investing in our securities.

 

*

Based on number of shares of Common Stock issued and outstanding as of February 17, 2022. For additional information concerning the offering, see “Plan of Distribution.”

 

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RISK FACTORS

Investing in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus, any prospectus supplement or in any document incorporated by reference herein or therein are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.

Risks Relating to our Acquisition of AlsoEnergy

We may fail to realize the anticipated benefits of our acquisition of AlsoEnergy.

The success of our acquisition of AlsoEnergy will depend on, among other things, our ability to combine our business with that of AlsoEnergy in a manner that facilitates growth opportunities and realizes anticipated synergies. However, we must successfully combine both businesses in a manner that permits these benefits to be realized. The acquisition of AlsoEnergy is our first significant acquisition, and we have very limited experience integrating a company of the size and geographic scope of AlsoEnergy. The anticipated benefits of our integration plan may not be realized on a timely basis, if at all. In addition, we must achieve the anticipated synergies without adversely affecting current revenues and investments in future growth. If we are not able to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully, may take longer to realize than expected, or may never be realized. Potential issues and difficulties we may encounter in integrating AlsoEnergy include the following:

 

   

difficulties in managing the expanded operations of a significantly larger and more complex combined company;

 

   

difficulties in managing operations in foreign jurisdictions in which we have never operated (see — “Our current and planned foreign operations could subject us to additional business, financial, regulatory and competitive risks” below);

 

   

maintaining employee morale and retaining key management and other employees;

 

   

integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and customer service;

 

   

retaining existing business and operational relationships, including customers, suppliers and employees and other counterparties, and attracting new business and operational relationships;

 

   

consolidating corporate and administrative infrastructures and eliminating duplicative operations, and addressing unanticipated issues in integrating information technology, communications and other systems;

 

   

potential unknown liabilities and unforeseen expenses associated with the AlsoEnergy acquisition; and

 

   

performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the acquisition and integrating the companies’ operations.

Many of these factors will be outside of our control, and any one of them could result in delays, increased costs, decreases in the amount of expected revenues or cost synergies, and other adverse impacts, which could materially affect our financial position, results of operations and cash flows.

 

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Business issues currently faced by AlsoEnergy may adversely affect our operations.

To the extent that AlsoEnergy currently has or is perceived by customers to have operational challenges, such as on-time performance, safety issues or workforce issues, those challenges may raise concerns by our existing customers following the acquisition, which may limit or impede our future ability to obtain additional work from those customers.

Risks Relating to Stem’s Business and Industry

Our limited operating history at current scale and our nascent industry make evaluating our business and prospects difficult.

From our inception in 2009 through 2012, we were focused principally on research and development activities relating to our energy storage system technology. We did not sell any of our battery hardware and software-enabled services and did not recognize any material revenue until fairly recently. As a result, we have a limited history operating our business at its current scale, and therefore a limited history upon which you can base an investment decision.

There is rising demand for clean electric power solutions that can provide electric power with lower carbon emissions with high availability. One such solution is distributed, renewable energy generation, which is supplementing and replacing conventional generation sources, given its increasingly compelling economics. Among other renewable energy market trends, we expect our business results to be driven by declines in the cost of generation of renewable power both on an absolute basis and relative to other energy sources (as evidenced by current solar and wind generation deployments), decreases in the cost of manufacturing battery packs and a rapidly growing energy storage market driven by increasing demand from commercial and industrial customers, utilities and grid operators. However, predicting our future revenue and appropriately budgeting for our expenses is difficult, and we have limited insight into trends that may emerge and affect our business.

The distributed generation industry is emerging and our distributed generation offerings may not receive widespread market acceptance.

The implementation and use of distributed generation at scale is still relatively nascent, and we cannot be sure that potential customers will accept such solutions broadly, or our hardware and software-enabled services more specifically. Enterprises may be unwilling to adopt our offerings over traditional or competing power sources for any number of reasons, including the perception that our technology is unproven, lack of confidence in our business model, unavailability of back-up service providers to operate and maintain the energy storage systems, and lack of awareness of our related hardware and software-enabled services. Because this is an emerging industry, broad acceptance of our hardware and software-enabled services is subject to a high level of uncertainty and risk. If the market develops more slowly than we anticipate, our business may be adversely affected.

Our operations may continue to be adversely affected by the COVID-19 pandemic, and we face disruption risks from the pandemic that could adversely affect our business.

The COVID-19 pandemic has resulted in the extended shutdown of certain businesses in the U.S., Europe and Asia, which has resulted, and may in the future result, in disruptions or delays to our supply chain and has resulted in, and may result in further, significant disruptions to our customer base. Any disruption in these businesses will likely negatively affect our sales and operating results.

We purchase some of our components and materials outside of the United States through arrangements with various vendors, and have experienced delays in obtaining these components and materials as a result of the COVID-19 pandemic. We have also been affected by inflation in the costs of equipment, components and materials.

 

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To date, COVID-19 has had a limited adverse impact on our operations, supply chains and hardware and software-enabled services. Due to governmental responses to limit the spread of COVID-19 and resulting global economic effects, we may experience significant and unpredictable reductions in demand for our hardware and software-enabled services. In addition, the pandemic may have the effect of heightening many of the other risks described in this “Risk Factors” section, including risks associated with our customers, supply chain and financial condition.

The future impact of the COVID-19 pandemic is highly uncertain and cannot be predicted and there is no assurance that such outbreak will not have a material adverse impact on our business, financial condition and results of operations. The extent of the impact will depend on future developments, including actions taken to contain COVID-19 and if these impacts persist. In particular, we cannot predict the full effects the pandemic will have on the demand for our services, our sales cycles or installation timelines, the collections of account receivable, spending by customers, whether the pandemic will cause further customers to go out of business or continue to limit the ability of our direct sales force to travel to existing or potential customers, all of which could adversely affect our business, financial condition and results of operations.

If renewable energy technologies are not suitable for widespread adoption, or if sufficient demand for our hardware and software-enabled services does not develop or takes longer to develop than we anticipate, our sales may decline and we may be unable to achieve or sustain profitability.

The market for renewable, distributed energy generation is emerging and rapidly evolving, and its future success is uncertain. If renewable energy generation proves unsuitable for widespread commercial deployment or if demand for our renewable energy hardware and software-enabled services fails to develop sufficiently, we would be unable to achieve sales and market share.

Many factors may influence the widespread adoption of renewable energy generation and demand for our hardware and software-enabled services, including, but not limited to, the cost-effectiveness of renewable energy technologies as compared with conventional and competitive technologies, the performance and reliability of renewable energy products as compared with conventional and non-renewable products, fluctuations in economic and market conditions that impact the viability of conventional and competitive alternative energy sources, increases or decreases in the prices of oil, coal and natural gas, continued deregulation of the electric power industry and broader energy industry, and the availability or effectiveness of government subsidies and incentives. You should consider our prospects in light of the risks and uncertainties emerging companies encounter when introducing new products and services into a nascent industry.

The failure of battery storage cost to continue to decline would have a negative impact on our business and financial condition.

The growth and profitability of our business is dependent upon the continued decline in the cost of battery storage. Over the last decade the cost of battery storage systems, particularly lithium-ion based battery storage systems, has declined significantly. This lower cost has been driven by advances in battery technology, maturation of the battery supply chain, the scale of battery production by the leading manufacturers and other factors. The growth of our hardware sales and related software-enabled services is dependent upon the continued decrease in the price and efficiency of battery storage systems of our OEM suppliers. If for whatever reason, our OEM suppliers are unable to continue to reduce the price of their battery storage systems, our business and financial condition will be negatively impacted.

If the estimates and assumptions we use to determine the size of our total addressable market are inaccurate, our future growth rate may be affected and the potential growth of our business may be limited.

Market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. Even if the market in which we compete meets our size estimates

 

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and forecasted growth, our business could fail to grow at similar rates, if at all. The assumptions relating to our market opportunity include, but are not limited to, the following: (i) Wood Mackenzie research forecasts that the U.S. energy storage market, excluding the residential market, is expected to reach a total value of approximately 37.3 GWh in 2026 and the global energy storage market, excluding the residential market, is expected to reach a total value of approximately 75 GWh in 2026; (ii) declines in lithium-ion battery costs and in the cost of renewable generation; (iii) growing demand for renewable energy; and (iv) increased complexity of the electrical grid. Our market opportunity is also based on the assumption that our existing and future offerings will be more attractive to our customers and potential customers than competing products and services. If these assumptions prove inaccurate, our business, financial condition and results of operations could be adversely affected.

We currently face and will continue to face significant competition.

We compete for customers, financing partners and incentive dollars with other energy storage providers. Many providers of electricity, such as traditional utilities and other companies offering distributed generation products, have longer operating histories, customer incumbency advantages, access to and influence with local and state governments, and more capital resources than we do. Significant developments in alternative energy storage technologies or improvements in the efficiency or cost of traditional energy sources, including coal, oil, natural gas used in combustion or nuclear power, may materially and adversely affect our business and prospects in ways we cannot anticipate. We may also face new energy storage competitors who are not currently in the market. If we fail to adapt to changing market conditions and to compete successfully with new competitors, we will limit our growth and adversely affect our business results.

Risks Relating to Our Operations

We are subject to supply chain risk, including as a result of supply chain competition, which could result in insufficient inventory and negatively affect our results of operations.

We purchase our components and materials from international and domestic vendors and are exposed to supply chain risks arising from logistics disruptions, such as delays experienced in obtaining internationally sourced components and materials during the COVID-19 pandemic. In addition to such operational disruptions, international supply arrangements are also exposed to risks related to tariffs and sanctions, as well as political, social, or economic instability in regions where we source products and material. For example, in recent years, China and the U.S. have each imposed tariffs, and there remains a potential for further trade barriers and the possibility of an escalated trade war between China and the U.S. These or other tariffs could potentially impact our hardware component prices and impact any plans to sell products in China and other impacted international markets. Disruptions in the availability of key equipment, components or materials may adversely impact our business and operations, and volatility in prices and availability of such items may negatively impact our customer relationships and ability to plan for future growth.

In addition to the risk of supply chain disruptions, we are also subject to competitive risks resulting from limited supplier capacity. Certain of our suppliers also supply systems and components to other businesses, including businesses engaged in the production of consumer electronics and other industries unrelated to energy storage systems. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of the items in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers, which could materially adversely affect our business, financial condition and results of operations.

We have in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.

We have entered into long-term supply agreements with certain suppliers of battery storage systems and other components of our energy storage systems. Some of these supply agreements provide for fixed or inflation-

 

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adjusted pricing and substantial prepayment obligations. If our suppliers provide insufficient inventory at the level of quality required to meet customer demand, or if our suppliers are unable or unwilling to provide us with the contracted quantities, as we have limited alternatives for supply in the short term, our results of operations could be materially and negatively impacted. Further, we face significant specific counterparty risk under long-term supply agreements when dealing with certain suppliers without a long, stable production and financial history.

Given the uniqueness of our product, many of our suppliers do not have a long operating history and may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may be difficult or may require substantial time and expense to replace such supplier. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers, or secure new long-term supply agreements. Additionally, we procure many of the battery storage systems and components of our energy storage systems from non-U.S. suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations, such as taxes, tariffs, or quotas. Any of the foregoing could materially adversely affect our business, financial condition and results of operations.

Our hardware and software-enabled services involve a lengthy sales and installation cycle. If we fail to close sales on a regular and timely basis it could adversely affect our business, financial condition and results of operations. Amounts included in our pipeline and contracted backlog may not result in actual revenue or translate into profits.

Our sales cycle is typically six to 12 months for our hardware and software-enabled services, but can vary considerably. In order to make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our hardware and software-enabled services.

The period between initial discussions with a potential customer and the sale of even a single energy storage system typically depends on a number of factors, including the potential customer’s budget and decision as to the type of financing it chooses to use, as well as the arrangement of such financing. Prospective customers often undertake a significant evaluation process, which may further extend the sales cycle.

We view potential contracts with developers and independent power producers for energy optimization services and transfer of energy storage systems that are currently being pursued by our direct salesforce and channel partners as part of our pipeline. Our pipeline is an internal metric based on numerous assumptions and limitations, and is calculated using our own data that has neither been prepared or audited in accordance with U.S. GAAP, nor been independently verified by third parties. We cannot guarantee that our pipeline provides an accurate indication of our future or expected results, or will result in meaningful revenue or profitability.

Currently, we believe the time between the entry into a sales contract with a customer and the installation of our energy storage systems can range from nine to 18 months, or more. This lengthy sales and installation cycle is subject to a number of significant risks over which we have little or no control. We characterize contracts that have been signed but not yet installed as a booking that becomes part of our backlog. Because of both the long sales and installation cycles, we may expend significant resources without generating a sale or producing revenue from our bookings and backlog.

These lengthy sales and installation cycles increase the risk that our customers may fail to satisfy their payment obligations, cancel orders before the completion of the transaction or delay the planned date for installation. Cancellation rates may be impacted by factors outside of our control including an inability to install an energy storage system at the customer’s chosen location because of permitting or other regulatory issues, unanticipated changes in the cost or availability of alternative sources of electricity available to the customer or other reasons unique to each customer. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business, financial condition and results of operations could be adversely affected.

 

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Additionally, we have ongoing arrangements with our customers and target customers. Some of these arrangements are evidenced by contracts or long-term contract partnership arrangements. If these arrangements are terminated or if we are unable to continue to fulfill the obligations under such contracts or arrangements, our business, financial condition and results of operations could be adversely affected.

If we are unable to attract and retain key employees and hire qualified management, technical, engineering and sales personnel, our ability to compete and successfully grow our business could be adversely affected.

We believe that our success and our ability to reach our strategic objectives are highly dependent on the contributions of our key management, technical, engineering and sales personnel. The loss of the services of any of our senior executives and other key employees could disrupt our operations, delay the development and introduction of our hardware and software-enabled services, and negatively impact our business, financial condition and operating results. In addition, our ability to manage our growth effectively, including expanding our market presence in international markets such as Japan, Australia, Europe and Latin America, will be affected by our ability to successfully expand our management team, hire and train new personnel and successfully implement and enhance human resources administrative systems. Our success in hiring, attracting and retaining senior management and other experienced and highly skilled employees will depend in part on our ability to provide competitive compensation packages and a high-quality work environment and maintain a desirable corporate culture. We may not be able to attract, integrate, train, motivate or retain current or additional highly qualified personnel, and our failure to do so could adversely affect our business, financial condition and operating results.

Furthermore, there is continued and increasing competition for talented individuals in our field, and competition for qualified personnel is especially intense in the San Francisco Bay Area, where our principal offices are located. In addition to longstanding competition for highly skilled and technical personnel, we face increased competitive pressures and employee cost inflation in tighter labor markets, such as has been experienced during the COVID-19 pandemic. Industry competition and cross-industry labor market pressures may negatively impact our ability to attract and retain our executive officers and other key technology, sales, marketing and support personnel and drive increases in our employee costs, both of which could adversely affect our business, financial condition and results of operations.

We have incurred significant losses in the past and expect to incur net losses through at least 2023.

Since our inception in 2009, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2021, we had an accumulated deficit of approximately $509.1 million. We expect to continue to expand our operations, including by investing in sales and marketing, research and development, staffing systems and infrastructure to support our growth. Under our current plans, we expect to incur net losses on a GAAP basis through at least 2023. Our ability to achieve profitability in the future will depend on a number of factors, including:

 

   

growing our sales volume;

 

   

increasing sales to existing customers and attracting new customers for our hardware and software- enabled services;

 

   

improving our ability to procure energy storage systems from original equipment manufacturers (“OEMs”) on cost-effective terms;

 

   

improving our consolidated gross margins reflecting the ability to maintain favorable contract pricing and terms with our customers for our hardware and software-enabled services;

 

   

improving the effectiveness of our sales and marketing activities; and

 

   

attracting and retaining key talent in a competitive marketplace.

 

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

If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.

We must continue to reduce the costs of production, installation and operation of our energy storage systems to expand our market. Additionally, certain of our existing service contracts were entered into based on projections regarding service costs reductions that assume continued advances in the cost of delivery of our services, which we may be unable to realize. While we have been successful in reducing our costs to date, the cost of battery storage systems and other components of our energy storage systems, for example, could increase in the future. Any such increases could slow our growth and cause our financial results and operational metrics to suffer. In addition, we may face increases in our other expenses, including increases in wages or other labor costs, as well as marketing, sales or related costs. We will continue to make significant investments to drive growth in the future. In order to expand into new markets while still maintaining our current margins, we will need to continue to reduce our costs. Increases in any of these costs, or our failure to achieve projected cost reductions, could adversely affect our business, financial condition and results of operations. If we are unable to reduce our cost structure in the future, we may not be able to achieve profitability, which could have a material adverse effect on our business and prospects.

Any future acquisitions we undertake may disrupt our business, adversely affect operations, dilute our stockholders, and expose us to significant costs and liabilities.

Acquisitions are an important element of our business strategy, and we may pursue future acquisitions to increase revenue, expand our market position, add to our service offerings and technological capabilities, respond to dynamic market conditions, or for other strategic or financial purposes. However, we cannot assure you that we will identify suitable acquisition candidates or complete any acquisitions on favorable terms, or at all. In addition, any acquisitions we do complete, including our acquisition of AlsoEnergy, would involve a number of risks, which may include the following:

 

   

the identification, acquisition and integration of acquired businesses require substantial attention from management. The diversion of management’s attention and any difficulties encountered in the integration process could hurt our business;

 

   

the identification, acquisition and integration of acquired businesses requires significant investment, including to determine which new service offerings we might wish to acquire, harmonize service offerings, expand management capabilities and market presence, and improve or increase development efforts and technology features and functions;

 

   

the anticipated benefits from any acquisition may not be achieved, including as a result of loss of clients or personnel of the target, other difficulties in supporting and transitioning the target’s clients, the inability to realize expected synergies from an acquisition, or negative organizational cultural effects arising from the integration of new personnel;

 

   

we may face difficulties in integrating the personnel, technologies, solutions, operations, and existing contracts of the acquired business;

 

   

we may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company, technology or solution, including issues related to intellectual property, solution quality or architecture, income tax and other regulatory compliance practices, revenue recognition or other accounting practices, or employee or client issues;

 

   

to pay for future acquisitions, we could issue additional shares of our common stock or pay cash. Issuance of shares would dilute stockholders. See “— We may issue a significant number of shares in the future in connection with investments or acquisitions” below. Use of cash reserves could diminish

 

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our ability to respond to other opportunities or challenges. Borrowing to fund any cash purchase price would result in increased fixed obligations and could also include covenants or other restrictions that would impair our ability to manage our operations;

 

   

acquisitions expose us to the risk of assumed known and unknown liabilities including contract, tax, regulatory or other legal, and other obligations incurred by the acquired business or fines or penalties, for which indemnity obligations, escrow arrangements or insurance may not be available or may not be sufficient to provide coverage;

 

   

new business acquisitions can generate significant intangible assets that result in substantial related amortization charges and possible impairments;

 

   

the operations of acquired businesses, or our adaptation of those operations, may require that we apply revenue recognition or other accounting methodologies, assumptions, and estimates that are different from those we use in our current business, which could complicate our financial statements, expose us to additional accounting and audit costs, and increase the risk of accounting errors;

 

   

acquired businesses may have insufficient internal controls that we must remediate, and the integration of acquired businesses may require us to modify or enhance our own internal controls, in each case resulting in increased administrative expense and risk that we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002; and

 

   

acquisitions can sometimes lead to disputes with the former owners of the acquired company, which can result in increased legal expenses, management distraction and the risk that we may suffer an adverse judgment if we are not the prevailing party in the dispute.

Our current and planned foreign operations expose us to additional business, financial, regulatory and geopolitical risks, and any adverse event could have a material adverse effect on our results of operations.

As a result of our recent acquisition of AlsoEnergy, we now operate in more than 50 countries, including the United States and Canada, and in multiple EU and Latin American countries and Asia. Prior to our acquisition of AlsoEnergy, we operated in only three countries. We may in the future evaluate further opportunities to expand into new geographic markets and introduce new product offerings and services that are an extension of our existing business. We also may from time to time acquire businesses or product lines with the potential to strengthen our market position, enable us to enter attractive markets, expand our technological capabilities, or provide synergy opportunities.

We have very limited experience operating outside of the U.S. Managing our international expansion will require additional resources and controls, including additional manufacturing and assembly facilities. Furthermore, any additional markets that we may enter could have different characteristics from the markets in which we currently operate, and our success will depend on our ability to adapt properly to these differences. Any further international expansion could subject our business to risks associated with international operations, including:

 

   

compliance with multiple, potentially conflicting and changing governmental laws, regulations and permitting processes, including trade, labor, environmental, banking, employment, privacy and data protection laws and regulations, such as the EU Data Privacy Directive, as well as tariffs, export quotas, customs duties and other trade restrictions;

 

   

compliance with U.S. and foreign anti-bribery laws, including the Foreign Corrupt Practices Act of 1977, as amended;

 

   

difficulties in collecting payments in foreign currencies and associated foreign currency exposure;

 

   

compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws and potentially adverse tax consequences due to changes in such tax laws;

 

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the laws of some countries do not protect proprietary rights as fully as do the laws of the U.S. As a result, we may not be able to protect our proprietary rights adequately outside of the U.S.;

 

   

regional economic and political conditions;

 

   

conformity with applicable business customs, including translation into foreign languages and associated expenses;

 

   

lack of availability of government incentives and subsidies;

 

   

potential changes to our established business model;

 

   

cost of alternative power sources, which could vary meaningfully outside the U.S.;

 

   

difficulties in staffing and managing foreign operations in an environment of diverse culture, laws and customers, and the increased travel, infrastructure and legal and compliance costs associated with international operations;

 

   

customer installation challenges which we have not encountered before, which may require the development of a unique model for each country;

 

   

differing levels of demand among members of our customer base, including commercial and industrial customers, utilities, independent power producers and project developers; and

 

   

restrictions on repatriation of earnings.

As a result of these risks, any future international expansion efforts that we may undertake (as well as our recent acquisition of AlsoEnergy) may not be successful and may negatively affect our results of operations and profitability.

In addition, there may be adverse effects to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease. In particular, in February 2022, armed conflict escalated between Russia and Ukraine. The U.S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia and Russian interests, and have threatened additional sanctions and controls. It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, greater regional instability, geopolitical shifts and other adverse effects on macroeconomic conditions, currency exchange rates, supply chains and financial markets.

Our platform performance may not meet our customers’ expectations or needs.

The renewable energy projects that our customers construct and own are subject to various operating risks that may cause them to generate less value for our customers than expected. These risks include a failure or wearing out of our or our operators’, customers’ or utilities’ equipment; an inability to find suitable replacement equipment or parts; less than expected supply or quality of the project’s source of electricity and faster than expected diminishment of such electricity supply; or volume disruption in our supply collection and distribution system. Any extended interruption or failure of our customer’s projects for any reason to generate the expected amount of output could adversely affect our business, financial condition and results of operations. In addition, there has been in the past, and may be in the future, an adverse impact on our customers’ willingness to continue to procure additional hardware and software-enabled services from us if any of our customer’s projects incur operational issues that indicate expected future cash flows from the project are less than the project’s carrying value. Any such outcome could adversely affect our operating results or ability to continue to grow our sales volume or to increase sales to existing customers or new customers.

 

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If any energy storage systems procured from OEM suppliers and provided to our customers contain manufacturing defects, our business and financial results could be adversely affected.

The energy storage systems we pair with the Athena® platform are complex energy solutions. We rely on our OEM suppliers to control the quality of the battery storage equipment and other components that make up the energy storage system sold to our customers. We are not involved in the manufacture of the batteries or other components of the energy storage systems. As a result, our ability to seek recourse for liabilities and recover costs from our OEM suppliers depends on our contractual rights as well as the financial condition and integrity of such OEM suppliers that supply us with the batteries and other components of our energy storage systems. Such systems may contain undetected or latent errors or defects. In the past, we discovered latent defects in energy storage systems. In connection with such defects, we could incur significant expenses or disruptions of our operations, including to our energy storage network, that would prevent us from performing the automated data engineering required to support our AI processes and energy storage network. Any manufacturing defects or other failures of our energy storage systems to perform as expected could cause us to incur significant re-engineering costs, divert the attention of our personnel from operating and maintenance efforts, expose us to adverse regulatory action and significantly and adversely affect customer satisfaction, market acceptance and our business reputation. Furthermore, our OEM suppliers may be unable to correct manufacturing defects or other failures of any energy storage systems in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance and our business reputation.

On rare occasions, lithium-ion batteries can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion batteries. This faulty result could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion batteries for energy applications or any future incident involving lithium-ion batteries, such as a plant, vehicle or other fire, even if such incident does not involve hardware provided by us, could adversely affect our business and reputation.

If our estimates of useful life for our energy storage systems and related hardware and software-enabled services are inaccurate, or if our OEM suppliers do not meet service and performance warranties and guarantees, our business and financial results could be adversely affected.

We sell hardware and software-enabled services to our customers. Our software-enabled services are essential to the operation of these hardware products. As a result, in connection with the sales of energy storage hardware, we enter into recurring long-term services agreements with customers for the usage of our Athena platform for approximately 10 to 20 years. Our pricing of services contracts is based upon the value we expect to deliver to our customers, including considerations such as the useful life of the energy storage system and prevailing electricity prices. We also provide performance warranties and guarantees covering the efficiency and output performance of our software-enabled services. We do not have a long history with a large number of field deployments, and our estimates may prove to be incorrect. Failure to meet these performance warranties and guarantee levels may require us to refund our service contract payments to the customer, or require us to make cash payments to the customer based on actual performance, as compared to expected performance.

Further, the occurrence of any defects, errors, disruptions in service, or other performance problems, interruptions, or delays associated with our energy storage systems or the Athena platform, whether in connection with day-to-day operations or otherwise, could result in:

 

   

loss of customers;

 

   

loss or delayed market acceptance and sales of our hardware and software-enabled services;

 

   

delays in payment to us by customers;

 

   

injury to our reputation and brand;

 

   

legal claims, including warranty and service level agreement claims, against us; or

 

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diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance costs.

The costs incurred in correcting any material defects or errors in our hardware and software or other performance problems may be substantial and could adversely affect our business, financial condition and results of operations.

Future product recalls could materially adversely affect our business, financial condition and operating results.

Any product recall in the future, whether it involves our or a competitor’s product, may result in negative publicity, damage our brand and materially and adversely affect our business, financial condition and results of operations. In the future, we may voluntarily or involuntarily initiate a recall if any of our products are proven to be or possibly could be defective or noncompliant with applicable environmental laws and regulations, including health and safety standards. Such recalls involve significant expense and diversion of management attention and other resources, which could adversely affect our brand image, as well as our business, financial condition and operating results.

We primarily rely on Amazon Web Services to deliver our services to users on our Athena platform, and any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business, financial condition and results of operations.

We currently host our Athena platform and support our energy storage network operations on one or more data centers provided by Amazon Web Services (“AWS”), a third-party provider of cloud infrastructure services. We do not have control over the operations of the facilities of AWS that we use. AWS’ facilities are vulnerable to damage or interruption from natural disasters, cybersecurity attacks, terrorist attacks, power outages, and similar events or acts of misconduct. Our Athena platform’s continuing and uninterrupted performance is critical to our success. We have experienced, and expect that in the future we will experience, interruptions, delays, and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. In addition, any changes in AWS’ service levels may adversely affect our ability to meet the requirements of users on our Athena platform. Since our Athena platform’s continuing and uninterrupted performance is critical to our success, sustained or repeated system failures would reduce the attractiveness of our hardware and software-enabled services to customers. It may become increasingly difficult to maintain and improve our performance, as we expand and our energy storage network grows, increasing customer reliance on the Athena platform. Any negative publicity arising from any disruptions to AWS’ facilities, and as a result, our Athena platform could adversely affect our reputation and brand and may adversely affect the usage of our hardware and software-enabled services. Any of the above circumstances or events may adversely affect our reputation and brand, reduce the availability or usage of our hardware and software- enabled services, lead to a significant short-term loss of revenue, increase our costs, and impair our ability to attract new users, any of which could adversely affect our business, financial condition and results of operations.

Our commercial agreement with AWS will remain in effect until terminated by AWS or us. AWS may terminate the agreement for convenience by providing us at least thirty (30) days’ advance notice. AWS may also terminate the agreement for cause upon a material breach of the agreement, subject to AWS providing prior written notice and a 30-day cure period, and may in some cases terminate the agreement immediately for cause upon written notice. Even though our platform is entirely in the cloud, we believe that we could transition to one or more alternative cloud infrastructure providers on commercially reasonable terms. If our agreement with AWS is terminated or we add additional cloud infrastructure service providers, we may experience significant costs or downtime for a short period in connection with the transfer to, or the addition of, new cloud infrastructure service providers. However, we do not believe that such transfer to, or the addition of, new cloud infrastructure service providers would adversely affect our business, financial condition and results of operations over the longer term.

 

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Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and adversely affect our financial results.

Our customers depend on our support organization to resolve any technical issues relating to our hardware and software-enabled services. In addition, our sales process is highly dependent on the quality of our hardware and software-enabled services, on our business reputation and on strong recommendations from our existing customers. Any failure to maintain high-quality and highly-responsive technical support, or a market perception that we do not maintain high-quality and highly-responsive support, could adversely affect our reputation, our ability to sell our products to existing and prospective customers, and our business, financial condition and results of operations.

We offer technical support services with our hardware and software-enabled services and may be unable to respond quickly enough to accommodate short-term increases in demand for support services, particularly as we increase the size of our customer base. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. It is difficult to predict demand for technical support services and if demand increases significantly, we may be unable to provide satisfactory support services to our customers. Additionally, increased demand for these services, without corresponding revenue, could increase costs and adversely affect our business, financial condition and results of operations.

Our business currently depends on the availability of rebates, tax credits and other financial incentives. The reduction, modification, or elimination of government economic incentives could cause our revenue to decline and adversely affect business, financial condition and results of operations.

The U.S. federal government and some state and local governments provide incentives to end users and purchasers of our energy storage systems in the form of rebates, tax credits and other financial incentives, such as system performance payments and payments for renewable energy credits associated with renewable energy generation. We rely on these governmental rebates, tax credits and other financial incentives to significantly lower the effective price of the energy storage systems to our customers in the U.S. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.

Our energy storage systems have qualified for tax exemptions, incentives or other customer incentives in many states, including California, Massachusetts, New York, Hawaii and Texas. Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. Our energy storage systems are currently installed in eight U.S. states, each of which may have its own enabling policy framework. There is no guarantee that these policies will continue to exist in their current form, or at all. Such state programs may face increased opposition on the U.S. federal, state and local levels in the future. Changes in federal or state programs could reduce demand for our energy storage systems, impair sales financing and adversely impact our business results.

The economic benefit of our energy storage systems to our customers depends on the cost of electricity available from alternative sources, including local electric utility companies, which cost structure is subject to change.

The economic benefit of our energy storage systems to our customers includes, among other things, the benefit of reducing such customer’s payments to the local electric utility company. The rates at which electricity is available from a customer’s local electric utility company is subject to change and any changes in such rates may affect the relative benefits of our energy storage systems. Further, the local electric utility may impose “departing load,” “standby” or other charges on our customers in connection with their acquisition of our energy storage systems, the amounts of which are outside of our control and which may have a material impact on the economic benefit of our energy storage systems to our customers. Changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed by such utilities on customers acquiring our energy storage systems could adversely affect the demand for our energy storage systems.

 

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

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

Although we generally are not regulated as a utility, federal, state and local government statutes and regulations concerning electricity heavily influence the market for our products and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, and the rules surrounding the interconnection of customer-owned electricity generation for specific technologies. In the U.S., governments frequently modify these statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt different requirements for utilities and rates for commercial customers on a regular basis. Changes, or in some cases a lack of change, in any of the laws, regulations, ordinances or other rules that apply to customer installations and new technology could make it more costly for our customers to install and operate our energy storage systems on particular sites, and in turn could negatively affect our ability to deliver cost savings to customers for the purchase of electricity.

The installation and operation of our energy storage systems at a particular site is also generally subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection and related matters, and typically requires obtaining and keeping in good standing various local and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. It is difficult and costly to track the requirements of every individual authority having jurisdiction over energy storage system installations, to design our energy storage systems to comply with these varying standards, and for our customers to obtain all applicable approvals and permits. We cannot predict whether or when all permits required for a given customer’s project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit or utility connection essential to a project or the imposition of impractical conditions would impair our customer’s ability to develop the project. In addition, we cannot predict whether the permitting process will be lengthened due to complexities and appeals. Delay in the review and permitting process for a project can impair or delay our customers’ abilities to develop that project or increase the cost so substantially that the project is no longer attractive to our customers. Furthermore, unforeseen delays in the review and permitting process could delay the timing of the installation of our energy storage systems and could therefore adversely affect the timing of the recognition of revenue related to hardware acceptance by our customer, which could adversely affect our operating results in a particular period.

In addition, the successful installation of our energy storage systems is dependent upon the availability of and timely connection to the local electric grid. We may be unable to unable to obtain the required consent and authorization of local utilities to ensure successful interconnection to energy grids to enable the successful discharge of renewable energy to customers. Any delays in our customers’ ability to connect with utilities, delays in the performance of installation-related services or poor performance of installation- related services will have an adverse effect on our results and could cause operating results to vary materially from period to period.

The growth of our business depends on customers renewing their services subscriptions. If customers do not continue to use our subscription offerings or if we fail to expand the availability of hardware and software- enabled services available to our customers, our business and operating results will be adversely affected.

In addition to upfront sale of hardware and network integration, we depend on customers continuing to subscribe to services enabled by our Athena platform. Therefore, it is important that customers renew their

 

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subscriptions when the contract term expires, increase their purchases of our hardware and network solutions and enhance their subscriptions. Customers may decide not to renew their subscriptions with a similar contract period, at the same prices or terms or with the same or a greater number of users or level of functionality. Customer retention may decline or fluctuate as a result of a number of factors, including satisfaction with software-enabled services and features, functionality of our energy storage hardware and software-enabled services, prices, the features and pricing of competing products, reductions in spending levels, mergers and acquisitions involving customers and deteriorating general economic conditions.

If customers do not renew their subscriptions, if they renew on less favorable terms, if they fail to increase their purchase of our hardware and software-enabled services, or if they fail to refer us their customers and partners as potential new customers, our business, financial condition and results of operations will be adversely affected.

Changes in subscriptions or pricing models may not be reflected in near-term operating results.

We generally recognize subscription revenue from customers ratably over the terms of their contracts. As a result, most of the subscription revenue reported in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on revenue for that quarter. However, such a decline will negatively affect revenue in future quarters. In addition, the severity and duration of events may not be predictable and their effects could extend beyond a single quarter. Accordingly, the effect of significant downturns in sales and market acceptance of subscription services, and potential changes in pricing policies or rate of renewals, may not be fully apparent until future periods.

Severe weather events, including the effects of climate change, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition.

Our business, including our customers and suppliers, may be exposed to severe weather events and natural disasters, such as tornadoes, tsunamis, tropical storms (including hurricanes), earthquakes, windstorms, hailstorms, severe thunderstorms, flooding, wildfires and other fires, extreme heatwaves, drought and power shut-offs causing, among other things, disruptions to our supply chain or utility interconnections and/or damage to energy storage systems installed at our customers’ sites. Such damage or disruptions may prevent us from being able to satisfy our contractual obligations or may reduce demand from our customers for our energy storage systems causing our operating results to vary significantly from one period to the next. We may incur losses in our business in excess of: (1) those experienced in prior years, (2) the average expected level used in pricing, or (3) current insurance coverage limits.

The incidence and severity of severe weather conditions and other natural disasters are inherently unpredictable. Climate change may affect the occurrence of certain natural events, such as an increase in the frequency or severity of wind and thunderstorm events, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding; and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures. Additionally, climate change and the occurrence of severe weather events may adversely impact the demand, price, and availability of insurance. Due to significant variability associated with future changing climate conditions, we are unable to predict the impact climate change will have on our business.

Increased scrutiny from stakeholders and regulators regarding ESG practices and disclosures, including those related to sustainability, and disclosure could result in additional costs and adversely impact our business and reputation.

Companies across all industries are facing increasing scrutiny relating to their Environmental, Social and Governance (“ESG”) practices and disclosures and institutional and individual investors are increasingly using

 

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ESG screening criteria in making investment decisions. Our disclosures on these matters or a failure to satisfy evolving stakeholder expectations for ESG practices and reporting may potentially harm our reputation and impact employee retention, customer relationships and access to capital. For example, certain market participants use third-party benchmarks or scores to measure a company’s ESG practices in making investment decisions and customers and supplies may evaluate our ESG practices or require that we adopt certain ESG policies as a condition of awarding contracts. In addition, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could expose us to government enforcement actions and private litigation Our ability to achieve any goal or objective, including with respect to environmental and diversity initiatives and compliance with ESG reporting standards, is subject to numerous risks, many of which are outside of our control. Examples of such risks include the availability and cost of technologies and products that meet sustainability and ethical supply chain standards, evolving regulatory requirements affecting ESG standards or disclosures, our ability to recruit, develop and retain diverse talent in our labor markets, and our ability to develop reporting processes and controls that comply with evolving standards for identifying, measuring and reporting ESG metrics. As ESG best-practices, reporting standards and disclosure requirements continue to develop, we may incur increasing costs related ESG monitoring and reporting.

Risks Relating to Third-Party Partners

Our hardware and software-enabled services rely on interconnections to distribution and transmission facilities that are owned and operated by third parties, and as a result, are exposed to interconnection and transmission facility development and curtailment risks.

Our hardware and software-enabled services are interconnected with electric distribution and transmission facilities owned and operated by regulated utilities necessary to deliver the electricity that our storage systems produce. A failure or delay in the operation or development of these distribution or transmission facilities could result in a loss of revenues or breach of a contract because such a failure or delay could limit the amount of renewable electricity that our energy storage systems deliver or delay the completion of our customers’ construction projects. In addition, certain of our energy storage systems’ generation may be curtailed without compensation due to distribution and transmission limitations, reducing our revenues and impairing our ability to capitalize fully on a particular customer project’s potential. Such a failure or curtailment at levels above our expectations could impact our ability to satisfy agreements entered into with our suppliers and adversely affect our business.

Our growth depends in part on the success of our relationships with third parties, including contractors and project developers

We rely on third-party general contractors to install energy storage systems at our customers’ sites. We currently work with a limited number of general contractors, which has impacted and may continue to impact our ability to facilitate customer installations as planned. Our work with contractors or their subcontractors may have the effect of our being required to comply with additional rules (including rules unique to our customers), working conditions, site remediation and other union requirements, which can add costs and complexity to an installation project. The timeliness, thoroughness and quality of the installation-related services performed by our general contractors and their subcontractors in the past have not always met our expectations or standards and in the future may not meet our expectations and standards and it may be difficult to find and train third-party general contractors that meet our standards at a competitive cost.

In addition, we are investing resources in establishing strategic relationships with market players across a variety of industries, including large renewable project developers, to generate new customers. These programs may not roll out as quickly as planned or produce the results we anticipated. A significant portion of our business depends on attracting new partners and retaining existing partners. Negotiating relationships with our partners, investing in due diligence efforts with potential partners, training such third parties and contractors and

 

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monitoring them for compliance with our standards require significant time and resources and may present greater risks and challenges than expanding a direct sales or installation team. If we are not successful in establishing or maintaining our relationships with these third parties, our ability to grow our business and address our market opportunity could be impaired. Even if we are able to establish and maintain these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand recognition and customer base. Such circumstance would limit our growth potential and our opportunities to generate significant additional revenue or cash flows.

We must maintain customer confidence in our long-term business prospects in order to grow our business.

Customers may be less likely to purchase our hardware and services if they are not convinced that our business will succeed or that our services and support and other operations will continue in the long term. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our hardware and software-enabled services, long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as our limited operating history, customer unfamiliarity with our hardware and software-enabled services, delivery and service operations to meet demand, competition, future changes in the evolving distributed and renewable energy markets or uncertainty regarding sales performance compared with market expectations.

Accordingly, in order to grow our business, we must maintain confidence among our customers, OEM suppliers, third-party general contractor partners, financing partners and other parties in our long-term business prospects. This may be particularly complicated by factors such as:

 

   

our limited operating history at current scale;

 

   

our historical and anticipated near-term lack of profitability;

 

   

unfamiliarity with or uncertainty about our energy storage systems and the overall perception of the distributed and renewable energy generation markets;

 

   

prices for electricity in particular markets;

 

   

competition from alternate sources of energy;

 

   

warranty or unanticipated service issues we may experience in connection with third-party manufactured hardware and our proprietary software;

 

   

the environmental consciousness and perceived value of environmental programs to our customers;

 

   

the size of our expansion plans in comparison to our existing capital base and the scope and history of operations; and

 

   

the availability and amount of incentives, credits, subsidies or other programs to promote installation of energy storage systems.

Several of these factors are largely outside our control, and any negative perceptions about our long-term business prospects, even if unfounded, would likely adversely affect our business, financial condition and results of operations.

 

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Risks Relating to Our Intellectual Property and Technology

If we are unsuccessful in developing and maintaining our proprietary technology, including our Athena platform, our ability to attract and retain partners could be impaired, our competitive position could be adversely affected and our revenue could be reduced.

Our future growth depends on our ability to continue to develop and maintain our proprietary technology that supports our hardware and software-enabled services, including our Athena platform. In the event that our current or future products and services require features that we have not developed or licensed, or we lose the benefit of an existing license, we will be required to develop or obtain such technology through purchase, license or other arrangements. If the required technology is not available on commercially reasonable terms, or at all, we may incur additional expenses in an effort to internally develop the required technology. We have received patents and have filed patent applications with respect to certain aspects of our technology, and we generally rely on patent protection with respect to our proprietary technology, as well as a combination of trade secrets and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our proprietary technology and hardware and software-enabled services. There can be no assurance that the steps taken by us to protect any of our proprietary technology will be adequate to prevent misappropriation of these technologies by third parties. If we were unable to maintain our existing proprietary technology, our ability to attract and retain customers could be impaired, our competitive position could be adversely affected and our revenue could be reduced.

Our failure to adequately secure, protect and enforce our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.

Although we have taken many protective measures to protect our intellectual property, including trade secrets, policing unauthorized use of proprietary technology can be difficult and expensive. For example, many of our software developers reside in California and we cannot legally prevent them from working for a competitor.

Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. Such litigation may result in our intellectual property rights being challenged, limited in scope or declared invalid or unenforceable. We cannot be certain that the outcome of any litigation will be in our favor, and an adverse determination in any such litigation could impair our intellectual property rights and may adversely affect our business, prospects and reputation.

We rely primarily on patent, trade secret and trademark laws, and non-disclosure, confidentiality, and other types of contractual restrictions to establish, maintain, and enforce our intellectual property and proprietary rights. However, our rights under these laws and agreements afford us only limited protection and the actions we take to establish, maintain, and enforce our intellectual property rights may not be adequate. For example, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us with a competitive advantage, any of which could have a material adverse effect on our business, financial condition and results of operations. For example, we rely on our brand names, trade names and trademarks to distinguish our products and services, such as our Athena® platform, from the products of our competitors; however, third parties may oppose our trademark applications, or otherwise challenge our use of such trademarks. In the event that our trademarks are successfully challenged and we lose rights to use those trademarks, we could be forced to rebrand our products and services, which could result in the loss of goodwill and brand recognition. In addition, the laws of some countries do not protect proprietary rights as fully as do the laws of the U.S. As a result, we may not be able to protect our proprietary rights adequately abroad.

 

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Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

We cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. The status of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the future will afford protection against competitors with similar technology. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the U.S., and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued in other regions. Furthermore, even if these patent applications are accepted and the associated patents issued, some foreign countries provide significantly less effective patent enforcement than in the U.S.

In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, and operating results.

We may need to defend ourselves against claims that we infringe, have misappropriated or otherwise violate the intellectual property rights of others, which may be time consuming and would cause us to incur substantial costs.

Companies, organizations, or individuals, including our competitors, may hold or obtain patents, trademarks, or other proprietary rights that they may in the future believe are infringed by our products and services. Although we are not currently subject to any claims related to intellectual property, these companies holding patents or other intellectual property rights allegedly relating to our technologies could, in the future, make claims or bring suits alleging infringement, misappropriation or other violations of such rights, or otherwise asserting their rights and seeking licenses or injunctions. Several of the proprietary components used in our energy storage systems have been subjected to infringement challenges in the past. We also generally indemnify our customers against claims that the hardware and software-enabled services we supply infringe, misappropriate, or otherwise violate third-party intellectual property rights, and we may therefore be required to defend our customers against such claims. If a claim is successfully brought in the future and we or our hardware and software-enabled services are determined to have infringed, misappropriated, or otherwise violated a third-party’s intellectual property rights, we may be required to do one or more of the following:

 

   

cease selling products or services that incorporate the challenged intellectual property;

 

   

pay substantial damages (including treble damages and attorneys’ fees if our infringement is determined to be willful);

 

   

obtain a license from the holder of the intellectual property right, which license may not be available on reasonable terms or at all; or

 

   

redesign our products or services, which may not be possible or cost-effective.

Any of the foregoing could adversely affect our business, financial condition and operating results. In addition, any litigation or claims, whether or not valid, could adversely affect our reputation, result in substantial costs, and divert resources and management attention.

We also license technology from third parties, and incorporate components supplied by third parties into our hardware. We may face claims that our use of such technology or components infringes or otherwise violates the rights of others, which would subject us to the risks described above. We may seek indemnification from our licensors or suppliers under our contracts with them, but our rights to indemnification or our suppliers’ resources may be unavailable or insufficient to cover our costs and losses.

 

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Regulatory Risks

The installation and operation of our energy storage systems are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our energy storage systems, especially as these regulations evolve over time.

We are subject to national, state and local environmental laws and regulations, as well as environmental laws in those foreign jurisdictions in which we operate. Environmental laws and regulations can be complex and may change often. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. We are committed to compliance with applicable environmental laws and regulations, including health and safety standards, and we continually review the operation of our energy storage systems for health, safety and compliance. Our energy storage systems, like other battery technology-based products of which we are aware, produce small amounts of hazardous wastes and air pollutants, and we seek to ensure that they are handled in accordance with applicable regulatory standards.

Maintaining compliance with laws and regulations can be challenging given the changing patchwork of environmental laws and regulations that prevail at the U.S. federal, state, regional and local levels and in foreign countries in which we operate. Most existing environmental laws and regulations preceded the introduction of battery technology and were adopted to apply to technologies existing at the time, namely large, coal, oil or gas-fired power plants. Currently, there is generally little guidance from these agencies on how certain environmental laws and regulations may, or may not, be applied to our technology.

In many instances, our technology is moving faster than the development of applicable regulatory frameworks. It is possible that regulators could delay or prevent us from conducting our business in some way pending agreement on, and compliance with, shifting regulatory requirements. Such actions could delay the sale to and installation by customers of energy storage systems, require their modification or replacement, result in fines, or trigger claims of performance warranties and defaults under customer contracts that could require us to refund hardware or service contract payments, any of which could adversely affect our business, financial performance and reputation.

Existing regulations and changes to such regulations impacting the electric power industry may create technical, regulatory and economic barriers which could significantly reduce demand for our energy storage systems.

The market for electricity generation products is heavily influenced by U.S. federal, state, local and foreign government regulations and policies, as well as internal policies and regulations of electric utility providers. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations and policies are often modified and could continue to change, and this could result in a significant reduction in demand for our energy storage systems. For example, utility companies commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could change, increasing the cost to our customers of using our energy storage systems and making them less economically attractive.

Negative attitudes toward renewable energy projects from the U.S. government, other lawmakers and regulators, and activists could adversely affect our business, financial condition and results of operations.

Parties with an interest in other energy sources, including lawmakers, regulators, policymakers, environmental and advocacy organizations or other activists may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations and programs that promote renewable energy. Many of these parties have substantially greater resources and influence than we have. Further, changes in U.S. federal, state or local political, social or economic conditions, including a lack of legislative focus on these programs and regulations, could result in their modification, delayed adoption or repeal. Any failure to adopt, delay in

 

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implementing, expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage the use of other energy sources over renewable energy, could adversely affect our business, financial condition and results of operations.

Opposition to our customers’ project requests for permits or successful challenges or appeals to permits issued for their projects could adversely affect our operating plans.

A decrease in acceptance of renewable energy projects by local populations, an increase in the number of legal challenges, or an unfavorable outcome of such legal challenges could adversely affect the financial condition of our customers and reduce their demand for our hardware and software-enabled services. For example, persons, associations and groups could oppose renewable energy projects in general or our customers’ projects specifically, citing, for example, misuse of water resources, landscape degradation, land use, food scarcity or price increase and harm to the environment. Moreover, regulation may restrict the development of renewable energy plants in certain areas. In order to develop a renewable energy project, our customers are typically required to obtain, among other things, environmental impact permits or other authorizations and building permits, which in turn require environmental impact studies to be undertaken and public hearings and comment periods to be held during which any person, association or group may oppose a project. The effect of such public opposition to renewable energy projects and any resulting reduction in customer demand for our hardware and software-enabled services could adversely affect our business, financial condition and results of operations.

Cybersecurity and Information Technology Risks

A failure of our information technology (“IT”) and data security infrastructure could adversely affect our business and operations.

The efficient operation of our business depends on our IT systems, some of which are managed by third-party service providers. We rely upon the capacity, reliability and security of our IT and data security infrastructure and our ability to effectively manage our business data, accounting, financial, legal and compliance functions, communications, supply chain, order entry and fulfillment, and expand and continually update this infrastructure in response to the changing needs of our business. Our existing IT systems and any new IT systems we utilize may not perform as expected. If we experience a problem with the functioning of an important IT system or a security breach of our IT systems, including during system upgrades or new system implementations, the resulting disruptions could adversely affect our business.

Despite our implementation of reasonable security measures, our IT systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, fire, power loss, telecommunications failures, personnel misconduct, human error, unauthorized access, physical or electronic security breaches, cyber-attacks (including malicious and destructive code, phishing attacks, ransomware, and denial of service attacks), and other similar disruptions. Such attacks or security breaches may be perpetrated by bad actors internally or externally (including computer hackers, persons involved with organized crime, or foreign state or foreign state-supported actors). Cybersecurity threat actors employ a wide variety of methods and techniques that are constantly evolving, increasingly sophisticated, and difficult to detect and successfully defend against. We have experienced such incidents in the past, and any future incidents could expose us to claims, litigation, regulatory or other governmental investigations, administrative fines and potential liability. Any system failure, accident or security breach could result in disruptions to our operations. A material network breach in the security of our or our service providers’ IT systems could include the theft of our trade secrets, customer information, human resources information or other confidential data, including but not limited to personally identifiable information. Although past incidents have not had a material effect on our business operations or financial performance, to the extent that any disruptions or security breach results in a loss or damage to our data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to our reputation, affect our relationships with our customers and strategic partners, lead to claims against us from governments and private

 

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plaintiffs, and otherwise adversely affect our business. We cannot guarantee that future cyberattacks, if successful, will not have a material effect on our business or financial results.

Many governments have enacted laws requiring companies to provide notice of cyber incidents involving certain types of data, including personal data. If an actual or perceived cybersecurity breach of security measures, unauthorized access to our system or the systems of the third-party vendors that we rely upon, or any other cybersecurity threat occurs, we may incur liability, costs, or damages, contract termination, our reputation may be compromised, our ability to attract new customers could be negatively affected, and our business, financial condition, and results of operations could be materially and adversely affected. Any compromise of our security could also result in a violation of applicable domestic and foreign security, privacy or data protection, consumer and other laws, regulatory or other governmental investigations, enforcement actions, and legal and financial exposure, including potential contractual liability. In addition, we may be required to incur significant costs to protect against and remediate damage caused by these disruptions or security breaches in the future.

Our technology, including the Athena platform, could have undetected defects, errors or bugs in hardware or software which could reduce market adoption, damage our reputation with current or prospective customers and/or expose us to product liability and other claims that could materially and adversely affect our business.

We may be subject to claims that our hardware and software-enabled services, including the Athena platform have malfunctioned and persons were injured or purported to be injured. Any insurance that we carry may not be sufficient or it may not apply to all situations. Similarly, to the extent that such malfunctions are related to components obtained from third-party vendors, such vendors may not assume responsibility for such malfunctions. In addition, our customers could be subjected to claims as a result of such incidents and may bring legal claims against us to attempt to hold us liable. Any of these events could adversely affect our brand, relationships with customers, operating results or financial condition.

Furthermore, our Athena platform is complex, developed for over a decade by many developers, and includes a number of licensed third-party commercial and open-source software libraries. Our software has contained defects and errors and may in the future contain undetected defects or errors. We are continuing to evolve the features and functionality of our platform through updates and enhancements, and as we do, we may introduce additional defects or errors that may not be detected until after deployment to customers through our hardware. In addition, if our hardware and software-enabled services, including any updates or patches, are not implemented or used correctly or as intended, inadequate performance and disruptions in service may result.

Any defects or errors in product or services offerings, or the perception of such defects or errors, or other performance problems could result in any of the following, each of which could adversely affect our business, financial condition and results of operations:

 

   

expenditure of significant financial and product development resources, including recalls, in efforts to analyze, correct, eliminate or work around errors or defects;

 

   

loss of existing or potential customers or partners;

 

   

interruptions or delays in sales;

 

   

delayed or lost revenue;

 

   

delay or failure to attain market acceptance;

 

   

delay in the development or release of new functionality or improvements;

 

   

negative publicity and reputational harm;

 

   

sales credits or refunds;

 

   

exposure of confidential or proprietary information;

 

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diversion of development and customer service resources;

 

   

breach of warranty claims;

 

   

legal claims under applicable laws, rules and regulations; and

 

   

the expense and risk of litigation.

Although we have contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of our agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all contracts and, where implemented, may not fully or effectively protect from claims by customers, resellers, business partners or other third parties. Any insurance coverage or indemnification obligations of suppliers may not adequately cover all such claims, or cover only a portion of such claims. A successful product liability, warranty, or other similar claim could have an adverse effect on our business, financial condition and operating results. In addition, even claims that ultimately are unsuccessful could result in expenditure of funds in litigation, divert management’s time and other resources and cause reputational harm.

Additional Risks Relating to Ownership of Our Common Stock

We may issue a significant number of shares in the future in connection with investments or acquisitions.

We may issue securities in the future in connection with investments or acquisitions or otherwise. The amount of shares of common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to our stockholders.

We do not intend to pay cash dividends for the foreseeable future.

We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business, and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.

In early 2021, we identified material weaknesses in our internal control over financial reporting, which we are in the process of remediating. If we do not remediate these weaknesses, it could affect the reliability of our consolidated financial statements and have other adverse consequences.

In connection with the Company’s assessment of the effectiveness of internal control over financial reporting, the Company identified certain deficiencies in internal control over financial reporting that existed as of December 31, 2021, which management believes to be material weaknesses. These were previously identified and reported as of and for the year ended December 31, 2020 (our prior year end). Specifically, the material weaknesses identified related to (i) accounting for energy storage systems, deferred cost of goods sold and inventory, (ii) ineffective internal controls over review of the Company’s consolidated financial statements and related disclosures, (iii) a lack of formality in our internal control activities, especially related to management review-type controls, and (iv) ineffective internal controls over the review of certain revenue recognition calculations.

We have concluded that our disclosure controls and procedures were not effective as December 31, 2021 due to material weaknesses in our internal control over financial reporting. With respect to energy storage systems, inventory and deferred cost of goods sold, we did not properly track inflows and outflows, including the valuation of energy storage systems, due in part to the systems that we used to track and value energy storage systems and inventory. With respect to a lack of formality in our control activities, we did not sufficiently

 

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establish formal policies and procedures to design effective controls, establish responsibilities to execute these policies and procedures and hold individuals accountable for performance of these responsibilities, including over review over revenue recognition and internal-use capitalized software calculations. We had multiple control deficiencies aggregating to a material weakness over ineffective control activities.

Our management concluded that these material weaknesses in our internal control over financial reporting, are due to the fact that, at the time, we were a private company with limited resources and did not have the necessary business processes and related internal controls formally designed and implemented coupled with the appropriate resources with the appropriate level of experience and technical expertise to oversee our business processes and controls. While we have taken a number of steps during 2021 to remediate the material weaknesses, as described below, the controls implemented need to operate for a sufficient period of time, and their operational effectiveness needs to be confirmed through testing, in order for management to conclude that these controls are effective and the material weaknesses have been remediated. We cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the future. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future.

Remediation Activities

We have remediated material weaknesses related to (i) ineffective internal controls over accounting for complex and significant transactions, and (ii) ineffective internal controls over the review of internal-use capitalized software calculations that were previously identified during the course of preparing our financial statements as of and for the year ended December 31, 2020 (our prior year end). Our remediation efforts included implementing, under the direction of our Chief Financial Officer, enhanced review procedures and documentation standards to monitor and review all complex and significant transactions. Our management took further action by performing a robust review of all internal controls to strengthen documentation, validate processes and communicate accountability for performance of internal control responsibilities. Further, we engaged outside service providers to assist in evaluating and documenting processes and controls, identifying and addressing control gaps and strengthening the overall quality of documentation that evidences control activities.

Our management, with oversight of the Audit Committee of the Board, continues to devote significant time, attention and resources to remediating the aforementioned material weaknesses in its internal control over financing reporting and believes that we have made significant progress to that end. The material weaknesses will be considered remediated when management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. As of December 31, 2021, the Company had initiated the following steps intended to remediate the material weaknesses described above and strengthen its internal control over financial reporting that, as of December 31, 2021, had not yet been fully implemented or had not been in place for a sufficient period of time to demonstrate that they were having their desired effect:

 

   

develop and deliver internal control training to management and finance/accounting personnel, focusing on a review of management’s and individual roles and responsibilities related to internal control over financial reporting;

 

   

hire, train and develop experienced accounting executives and personnel with a level of public accounting knowledge and experience in the application of U.S. GAAP commensurate with our financial reporting requirements and the complexity of our operations and transactions;

 

   

establish and implement policies and practices to attract, develop and retain competent personnel with public accounting experience;

 

   

engage a qualified third-party SOX compliance firm to assist us in bolstering and implementing our SOX compliance program, with a focus on documenting processes and controls, identifying and addressing control gaps, formalizing the internal control activities and strengthening the overall quality of documentation that evidences control activities;

 

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perform a financial statement risk assessment and scoping exercise to identify and assess the risks of material misstatements in our financial statements to better ensure that the appropriate effort and resources are dedicated to addressing risks of material misstatement;

 

   

establish a disclosure committee comprised of our CEO, CFO, Chief Legal Officer, Chief Accounting Officer and other senior finance/accounting personnel to, among other things, communicate, discuss and capture information from across the Company for inclusion in our public filings to ensure that information required by us to be disclosed is recorded, processed, summarized and reported accurately and on a timely basis.

 

   

implement a Section 302 sub-certification program to reinforce the Company’s culture of compliance;

 

   

implement processes to improve monitoring activities involving the review and supervision of our accounting operations, including increased and enhanced balance sheet reviews to allow more focus on quality account reconciliations and enhanced monitoring of our internal control over financial reporting, and

 

   

implement new accounting applications to enhance and streamline the order-to-cash and commissions processes.

We plan to continue to devote significant time and attention to remediate the above material weaknesses as soon as reasonably practicable and believe that we have made significant progress to that end. In doing so, we will continue to incur expenses and expend management time on compliance-related issues. The material weaknesses will be considered remediated when management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. We believe the foregoing actions will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting; however, there can be no guarantee that such remediation will be sufficient. We will continue to evaluate the effectiveness of our controls and will make any further changes management determines appropriate. If we are unable to complete our remediation efforts in a timely manner and are, therefore, not able to favorably assess the effectiveness of our internal control over financial reporting, this could further cause investors to lose confidence, and our operating results, financial position, ability to accurately report our financial results and timely file our SEC reports, and our stock price could be adversely affected.

If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.

The trading market for our Common Stock depends in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our Common Stock, or publish inaccurate or unfavorable research about our business, the price of our Common Stock would likely decline. If few analysts cover us, demand for our common stock could decrease and our common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly.

The trading price of our common stock is volatile.

The trading price of our common stock has been and is likely to continue to be volatile. You may not be able to resell your shares at an attractive price due to a number of factors such as those listed in “— Risks Relating to Stem’s Business and Industry” and the following:

 

   

results of operations that vary from the expectations of securities analysts and investors;

 

   

results of operations that vary from those of our competitors;

 

   

the effects of the COVID-19 pandemic and its effect on the Company’s business and financial conditions;

 

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changes in expectations as to the Company’s future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

 

   

declines in the market prices of stocks generally;

 

   

strategic actions by us or our competitors;

 

   

announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments;

 

   

any significant change in the Company’s senior management;

 

   

changes in general economic or market conditions or trends in the Company’s industry or markets;

 

   

changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to the Company’s business;

 

   

future sales of our Common Stock or other securities;

 

   

investor perceptions or the investment opportunity associated with our Common Stock relative to other investment alternatives;

 

   

the public’s response to press releases or other public announcements by us or third parties, including the Company’s filings with the SEC;

 

   

litigation involving the Company, the Company’s industry, or both, or investigations by regulators into the Company’s operations or those of the Company’s competitors;

 

   

guidance, if any, that we provide to the public, any changes in this guidance or the Company’s failure to meet this guidance;

 

   

the development and sustainability of an active trading market for our Common Stock;

 

   

actions by institutional or activist stockholders;

 

   

changes in accounting standards, policies, guidelines, interpretations or principles; and

 

   

other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.

These broad market and industry fluctuations may adversely affect the market price of our Common Stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our Common Stock is low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from the Company’s business regardless of the outcome of such litigation.

Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our common stock.

Our financial condition and results of operations and other key metrics have fluctuated significantly in the past and may continue to fluctuate in the future due to a variety of factors, many of which are beyond our control. For example, the amount of revenue we recognize in a given period is materially dependent on the volume of purchases of our energy storage systems and software-enabled services in that period.

In addition to the other risks described herein, the following factors could also cause our financial condition and results of operations to fluctuate on a quarterly basis:

 

   

the timing of customer installations of our hardware, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting requirements,

 

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utility requirements, environmental, health and safety requirements, weather and customer facility construction schedules, and availability and schedule of our third-party general contractors;

 

   

the sizes of particular customer hardware installations and the number of sites involved in any particular quarter;

 

   

delays or cancellations of energy storage system purchases and installations;

 

   

fluctuations in our service costs, particularly due to unaccrued costs of servicing and maintaining energy storage systems;

 

   

weaker than anticipated demand for our energy storage systems due to changes in government incentives and policies;

 

   

interruptions in our supply chain;

 

   

the timing and level of additional purchases by existing customers;

 

   

unanticipated expenses or installation delays incurred by customers due to changes in governmental regulations, permitting requirements by local authorities at particular sites, utility requirements and environmental, health and safety requirements; and

 

   

disruptions in our sales, production, service or other business activities resulting from our inability to attract and retain qualified personnel.

In addition, our revenue, key operating metrics and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have an adverse effect on the price of our common stock.

Certain provisions of our Amended and Restated Charter and Amended and Restated Bylaws may have an anti- takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.

These provisions, among other things:

 

   

establish a staggered board of directors divided into three classes serving staggered three-year terms, such that not all members of our board of directors will be elected at one time;

 

   

authorize our board of directors to issue new series of preferred stock without stockholder approval and create, subject to applicable law, a series of preferred stock with preferential rights to dividends or our assets upon liquidation, or with superior voting rights to our existing common stock;

 

   

eliminate the ability of stockholders to call special meetings of stockholders;

 

   

eliminate the ability of stockholders to fill vacancies on our board of directors;

 

   

establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at our annual stockholder meetings;

 

   

permit our board of directors to establish the number of directors;

 

   

provide that our board of directors is expressly authorized to make, alter or repeal our Amended and Restated Bylaws;

 

   

provide that stockholders can remove directors only for cause and only upon the approval of not less than 6623 of all outstanding shares of our voting stock;

 

   

require the approval of not less than 6623 of all outstanding shares of our voting stock to amend our Amended and Restated Bylaws and specific provisions of our Amended and Restated Charter; and

 

   

limit the jurisdictions in which certain stockholder litigation may be brought.

 

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As a Delaware corporation, we are subject to the anti-takeover provisions of Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in a business combination specified in the statute with an interested stockholder (as defined in the statute) for a period of three (3) years after the date of the transaction in which the person first becomes an interested stockholder, unless the business combination is approved in advance by a majority of the independent directors or by the holders of at least two-thirds of the outstanding disinterested shares. The application of Section 203 of the DGCL could also have the effect of delaying or preventing a change of control of our company.

These anti-takeover provisions could make it more difficult for a third-party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

Our Amended and Restated Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our Amended and Restated Charter provides that, that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum, to the fullest extent permitted by law, for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim against us or any director, officer, or other employee arising pursuant to the DGCL, (iv) any action to interpret, apply, enforce, or determine the validity of our second amended and restated certificate of incorporation or amended and restated bylaws, or (v) any other action asserting a claim that is governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware (or another state court or the federal court located within the State of Delaware if the Court of Chancery does not have or declines to accept jurisdiction), in all cases subject to the court’s having jurisdiction over indispensable parties named as defendants. In addition, our Amended and Restated Charter provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act but that the forum selection provision does not apply to claims brought to enforce a duty or liability created by the Exchange Act. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers. Alternatively, if a court were to find the choice of forum provision contained in our Amended and Restated Charter to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition, and operating results. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consent to this exclusive forum provision, but will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

General Risk Factors

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the

 

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continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations and financial condition.

Future litigation or administrative proceedings could have a material adverse effect on our business, financial condition, and results of operations.

We have been and continue to be involved in legal proceedings, administrative proceedings, claims, and other litigation. In addition, since our energy storage product is a new type of product in a nascent market, we have in the past needed and may in the future need to seek the amendment of existing regulations or, in some cases, the creation of new regulations, in order to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could expose us to subsequent litigation. Unfavorable outcomes or developments relating to proceedings to which we are a party or transactions involving our products and services, such as judgments for monetary damages, injunctions, or denial or revocation of permits, could have a material adverse effect on our business, financial condition, and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations.

 

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USE OF PROCEEDS

All of the Common Stock offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. The Company will not receive any of the proceeds from these sales.

The Selling Securityholders will pay any underwriting fees, discounts and selling commissions incurred by such Selling Securityholders in disposing of their Common Stock. Pursuant to a registration rights agreement entered into by the Company, the Investors and certain other stockholders of the Company, the Company will bear all other costs, fees and expenses incurred in effecting the registration of the Common Stock covered by this prospectus, including, without limitation, all registration and filing fees, NYSE listing fees and fees and expenses of counsel and independent registered public accountants.

 

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DETERMINATION OF OFFERING PRICE

We cannot currently determine the price or prices at which shares of our Common Stock may be sold by the Selling Securityholders under this prospectus.

 

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MARKET INFORMATION FOR COMMON STOCK AND DIVIDEND POLICY

Market Information

Our Common Stock is listed on the NYSE under the symbol “STEM.” As of February 17, 2022, there were 176 holders of record of our Common Stock.

Dividend Policy

We have not paid any cash dividends on our Common Stock. Our board of directors may from time to time consider whether or not to institute a dividend policy. It is our present intention to retain any earnings for use in our business operations and accordingly, we do not anticipate the board of directors declaring any dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our board of directors. Further, our ability to declare dividends will also be limited by restrictive covenants contained in our debt agreements.

Securities Authorized for Issuance Under Equity Incentive Plan

At the special meeting of STPK’s stockholders in lieu of the Company’s 2021 annual meeting held on April 27, 2021, the stockholders of the Company considered and approved the Stem, Inc. 2021 Stock Incentive Plan (the “Incentive Plan”). The Incentive Plan was previously approved, subject to stockholder approval, by the STPK board of directors on December 3, 2020. The Incentive Plan became effective immediately upon the Closing. Pursuant to the Incentive Plan, 23,722,254 shares of Common Stock have been reserved for issuance under the Incentive Plan.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

On February 1, 2022, the Company completed the acquisition of AlsoEnergy, in accordance with the Stock Purchase Agreement dated as of December 16, 2021, by and between the Company, the selling stockholders of AlsoEnergy, Inc. identified therein, and the sellers’ representatives identified therein, for a preliminary purchase price of approximately $652.9 million.

The following unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting, with Stem being the acquiring entity, and reflects estimates and assumptions deemed appropriate by Company management to give effect to the Acquisition (as defined herein) as if it had been completed effective December 31, 2021, with respect to the unaudited pro forma condensed combined balance sheet, and as of January 1, 2021, with respect to the unaudited pro forma condensed combined statement of operations. The unaudited pro forma condensed combined financial statements should be read in conjunction with the estimates and assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma adjustments are based upon the best available information and certain assumptions that Stem believes to be reasonable. There can be no assurance that the final allocation of the purchase price and the fair values will not materially differ from the preliminary amounts reflected in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements are presented for informational purposes only and are not necessarily indicative of the combined financial position or results of operations that would have been realized had the acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the completion of the acquisition. The unaudited pro forma condensed combined financial statements are based on Stem’s accounting policies. Further review may identify additional differences between the accounting policies of AlsoEnergy that, when confirmed, could have a material impact on the financial statements of the combined company.

The unaudited pro forma condensed combined financial statements do not reflect the realization of any expected operating efficiencies or other synergies that may result from the transactions as a result of planned initiatives following the completion of the transactions.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2021

(In thousands)

 

     Stem, Inc.
Historical
    AlsoEnergy
Holdings, Inc.
Historical
    Pro Forma and
Reclassification
Adjustments
(Notes 4 & 5)
         Pro Forma
Combined
 

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 747,780     $ 9,748   $ (552,662   (5a)    $ 204,866

Short-term investments

     173,008       —         —            173,008

Accounts receivable, net

     61,701       12,270     —            73,971

Inventory, net

     22,720       3,113     —            25,833

Other current assets

     18,641       2,533     (707   (5b)      20,467
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     1,023,850       27,664     (553,369        498,145
  

 

 

   

 

 

   

 

 

      

 

 

 

Energy storage systems, net

     106,114       —         —            106,114

Contract origination costs, net

     8,630       1,351     (1,351   (5b)      8,630

Property and equipment

     —         838     (838   (4a)      —    

Goodwill

     1,741       23,628     522,354   (5c)      547,723

Intangible assets, net

     13,966       2,294     149,806   (5d)      166,066

Operating leases right-of-use assets

     12,998       —         1,368   (5g)      14,366

Other noncurrent assets

     24,531       136     838   (4a)      25,505
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

     1,191,830       55,911     118,808        1,366,549
  

 

 

   

 

 

   

 

 

      

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

           

Current liabilities:

 

        

Accounts payable

     28,273       8,436     (4,810   (4b) (5e)      31,899

Accrued liabilities

     25,993       —         1,216   (4b)      27,209

Accrued payroll

     7,453       —         2,620   (4b)      10,073

Financing obligation, current portion

     15,277       —         —            15,277

Loan payable to related party

     —         5,577     (5,577   (5e)      —    

Notes payable, current portion

     —         766     (766   (5e)      —    

Deferred revenue, current portion

     9,158       17,355     —            26,513

Other current liabilities

     1,813       75     968   (4b) (5g)      2,856
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current liabilities

     87,967       32,209     (6,349        113,827

Deferred revenue, noncurrent

     28,285       32,203     —            60,488

Asset retirement obligation

     4,135       —         —            4,135

Notes payable, noncurrent

     1,687       4,009     (4,009   (5e)      1,687

Convertible notes, noncurrent

     316,542       —         —            316,542

Financing obligation, noncurrent

     73,204       —         —            73,204

Lease liability, noncurrent

     12,183       205     735   (5g)      13,123

Other noncurrent liabilities

     —         138     15,293   (5h)      15,431
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     524,003       68,764     5,670        598,437

Stockholders’ equity:

 

        

Preferred stock

     —         —         —            —    

Common stock

     14       —         —            14

Additional paid-in capital

     1,176,845       30,619     78,264   (5f)      1,285,728

Accumulated other comprehensive income

     20       (27     27   (5f)      20

Accumulated deficit

     (509,052     (43,445     34,847   (5f)      (517,650
  

 

 

   

 

 

   

 

 

      

 

 

 

Total stockholders’ equity (deficit)

     667,827       (12,853     113,138        768,112
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 1,191,830       55,911   $ 118,808        $ 1,366,549
  

 

 

   

 

 

   

 

 

      

 

 

 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2021

(In thousands except share amounts)

 

     Stem, Inc.
Historical
    AlsoEnergy
Holdings, Inc.

Historical
    Pro Forma and
Reclassification
Adjustments

(Notes 4 & 5)
         Pro Forma
Combined
 

Revenue

           

Service revenue

   $ 20,463   $ 27,011   $ —          $ 47,474

Hardware revenue

     106,908       35,548     —            142,456
  

 

 

   

 

 

   

 

 

      

 

 

 

Total revenues

     127,371       62,559     —            189,930
  

 

 

   

 

 

   

 

 

      

 

 

 

Cost of revenue

           

Cost of service revenue

     28,177       —         11,530   (4c) (5i)      39,707

Cost of hardware revenue

     97,947       —         18,608   (4c)      116,555

Cost of sales

     —         25,838     (25,838   (4c)      —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total cost of revenue

     126,124       25,838     4,300        156,262
  

 

 

   

 

 

   

 

 

      

 

 

 

Gross margin

     1,247       36,721     (4,300        33,668
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating expenses

           

Sales and marketing

     19,950       40,071     14,114   (5i)      74,135

Research and development

     22,723       —         —            22,723

General and administrative

     41,648       —         23,982   (4d) (5j)      65,630

Depreciation and amortization

     —         4,965     (4,965   (4d) (5k)      —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total operating expenses

     84,321       45,036     33,131        162,488
  

 

 

   

 

 

   

 

 

      

 

 

 

Total loss from operations

     (83,074     (8,315     (37,431        (128,820
  

 

 

   

 

 

   

 

 

      

 

 

 

Other income (expense), net

           

Interest expense

     (17,395     (954     931   (5l)      (17,418

Loss on extinguishment of debt

     (5,064     —         —            (5,064

Change in fair value of warrants and embedded derivative

     3,424       —         —            3,424

Other income (expense), net

     898       (48     —            850
  

 

 

   

 

 

   

 

 

      

 

 

 

Total other income (expense)

     (18,137     (1,002     931        (18,208
  

 

 

   

 

 

   

 

 

      

 

 

 

Loss before income taxes

     (101,211     (9,317     (36,500        (147,028
  

 

 

   

 

 

   

 

 

      

 

 

 

Income tax expense (benefit)

     —         452     (15,293   (5m)      (14,841
  

 

 

   

 

 

   

 

 

      

 

 

 

Net loss

   $ (101,211   $ (9,769   $ (21,207      $ (132,187
  

 

 

   

 

 

   

 

 

      

 

 

 

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

   $ (0.96          $ (1.16

Weighted-average shares used in computing net loss per share, basic and diluted

     105,561,139              114,182,145  

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1. Description of the Transaction

On February 1, 2022, Stem completed the acquisition of AlsoEnergy, with AlsoEnergy as a wholly-owned subsidiary of Stem (the “Acquisition”). Through the acquisition, the Company acquired all of the outstanding shares of capital stock of AlsoEnergy on debt-free basis. The total consideration to be paid in connection with the Acquisition is approximately $652.9 million, consisting of cash and shares of the Company’s common stock.

Note 2. Basis of the Pro Forma Presentation

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses. In accordance with Release No. 33-10786, the unaudited condensed combined pro forma balance sheet and statements of operations reflect transaction accounting adjustments, as well as other adjustments deemed to be directly related to the acquisition, irrespective of whether or not such adjustment is deemed to be recurring.

Certain balance sheet and statement of operations reclassifications have been made in order to align presentations between Stem and AlsoEnergy for purposes of these pro forma financial statements. Refer to Note 4 for these reclassification adjustments.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), which generally uses the fair value concepts defined in ASC 820, Fair Value Measurement (“ASC 820”). The estimated fair values of the acquired assets and assumed liabilities as of the date of Acquisition are based on estimates and assumptions of Stem. Stem is continuing to finalize the valuations of the assets acquired and liabilities assumed. The fair value allocation consists of preliminary estimates and analyses and is subject to change upon the finalization of the valuation analyses, which may materially differ from the amounts presented herein.

The unaudited pro forma condensed combined financial statements should be read in conjunction with Stem’s historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and the historical consolidated financial statements of AlsoEnergy included in Exhibit 99.1 of this filing on Form 8-K/A.

 

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Note 3. Estimated Preliminary Purchase Price Allocation

The unaudited pro forma condensed combined balance sheet has been adjusted to record the February 1, 2022 closing purchase price of $652.9 million. The transaction has been accounted for as a business combination in accordance with ASC 805, which requires the allocation of purchase consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination. The estimated purchase consideration is calculated as follows (in thousands):

 

Cash consideration

   $   544,064  

Share consideration1

     108,883  
  

 

 

 

Total consideration

     652,947  
  

 

 

 

Tangible Net Assets Acquired

  

Cash

     9,748  

Accounts receivable

     12,270  

Inventory

     3,113  

Other current assets

     1,826  

Net fixed assets

     838  

Right-of-use assets

     1,368  

Other assets

     136  

Accounts payable

     (8,077

Deferred revenue

     (49,558

Lease liabilities

     (1,368

Other liabilities

     (15,431
  

 

 

 

Total

     (45,135

Intangible Assets

  

Trade name

     11,300  

Customer relationships

     106,800  

Backlog

     3,900  

Developed technology

     30,100  
  

 

 

 

Total

     152,100  

Goodwill

   $ 545,982  

 

1 

The share consideration is comprised of 8,621,006 shares of the Company’s common stock. The fair value of the shares was based on the Company’s closing stock price of $12.63 on the date of Acquisition.

Note 4. Reclassification Adjustments

Certain reclassifications have been made to the historical presentation of AlsoEnergy to conform to the Company’s presentation used in these unaudited pro forma condensed combined financial statements as follows:

 

   

$0.8 million was reclassified from property and equipment to other non-current assets.

 

   

$4.5 million was reclassified from accounts payable to accrued liabilities, accrued payroll, and other current liabilities.

 

   

$25.8 million of total cost of revenue was disaggregated into cost of service revenue and cost of hardware revenue.

 

   

$0.3 million of depreciation expense was reclassified into general and administrative expenses.

 

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Note 5. Pro Forma Adjustments

The following is a description of the pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements:

Adjustments to the unaudited pro forma condensed combined balance sheet

 

  a.

The pro forma adjustments to cash and cash equivalents reflect (i) the cash consideration paid to acquire AlsoEnergy, which included the payoff of AlsoEnergy’s existing debt, the settlement of AlsoEnergy’s Acquisition costs, and the settlement of AlsoEnergy’s outstanding stock options upon closing of the transaction and (ii) Stem Acquisition costs paid as follows (in thousands):

 

Stem acquisition costs paid

   $ (8,598

Cash consideration paid to acquire AlsoEnergy

     (544,064
  

 

 

 
   $   (552,662
  

 

 

 

 

  b.

The pro forma adjustment to contract origination cost reflects the elimination of historical AlsoEnergy contract origination costs based on the preliminary purchase price allocation.

 

  c.

The pro forma adjustment to goodwill reflects the purchase price paid in excess of the preliminary estimated fair value of net assets acquired as if the Acquisition occurred on December 31, 2021 as follows (in thousands):

 

Total consideration to acquire AlsoEnergy

   $ 652,947  

Less: preliminary estimated fair value of assets acquired and liabilities assumed

     (106,965

Less: historical AlsoEnergy goodwill

     (23,628
  

 

 

 

Total pro forma adjustment to goodwill

   $ 522,354  
  

 

 

 

 

  d.

The pro forma adjustment to intangible assets reflects the preliminary estimated fair value of the acquired identifiable intangible assets, consisting of trade name, customer relationships, backlog, and developed technology in connection with the Acquisition net of the elimination of the historical AlsoEnergy intangible assets of $2.3 million. The following table summarizes the estimated fair values of the identified intangible assets acquired upon consummation of the transaction and the estimated useful lives of the identifiable intangible assets (in thousands):

 

Trade name

   $ 11,300      7

Customer relationships

     106,800      12

Backlog

     3,900      1.1

Development technology

     30,100      7
  

 

 

    
   $   152,100     
  

 

 

    

 

  e.

The pro forma adjustment to debt and accounts payable reflects the cash payments made to extinguish AlsoEnergy’s existing debt and certain liabilities not assumed by Stem in the Acquisition.

 

  f.

The pro forma adjustments to the equity balances represent the elimination of the historical AlsoEnergy common and preferred stock, additional paid-in-capital, and accumulated deficit. The adjustment to additional paid-in-capital also reflects the share consideration paid by Stem totaling $108.9 million. The adjustment to accumulated deficit also reflects Stem’s estimated transaction costs incurred subsequent to December 31, 2021 totaling $8.6 million.

 

  g.

The pro forma adjustments to operating lease right-of-use assets, other current liabilities and lease liability, noncurrent represent the elimination of the historical AlsoEnergy deferred rent balance and the recording of the right-of-use asset and lease liability related to the leases assumed by Stem in the Acquisition.

 

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Adjustments to the unaudited pro forma condensed combined statement of operations

 

  h.

The proforma adjustment to other noncurrent liabilities reflects the deferred tax liability established as part of the preliminary purchase price allocation.

 

  i.

The pro forma adjustment to cost of service revenue and sale and marketing expenses reflects the amortization expense related to the acquired intangible assets totaling $4.3 million and $14.1 million, respectively.

 

  j.

The pro forma adjustment to general and administrative expenses reflects: (i) estimated Stem and AlsoEnergy transaction costs incurred subsequent to December 31, 2021 totaling $8.6 million and $12.8 million, respectively, and (ii) recognition of the settlement of AlsoEnergy option awards that immediately vested upon consummation of the Acquisition totaling $2.3 million. These expenses are reflected as a nonrecurring adjustment.

 

  k.

The pro forma adjustment to depreciation and amortization reflects the elimination of AlsoEnergy amortization expense related to historical intangible assets.

 

  l.

The pro forma adjustments to interest expense relate to the interest incurred by AlsoEnergy in relation to debt that was extinguished as part of the purchase consideration paid by Stem and not assumed in the Acquisition.

 

  m.

The proforma adjustment to income tax expense (benefit) reflects an income tax benefit due to the partial release of Stem’s valuation allowance as a result of the acquired deferred tax liability, which is reflected as a nonrecurring adjustment.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which Stem’s management believes is relevant to an assessment and understanding of Stem’s consolidated results of operations and financial condition. This discussion and analysis should be read together with (i) the section of this prospectus entitled “Business” and (ii) Stem’s audited consolidated financial statements and related notes that are included elsewhere in this prospectus. In addition to historical financial analysis, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions, as described under the heading “Forward-Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors — Risks Relating to the Company’s Business and Industry” or elsewhere in this prospectus. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Stem and its consolidated subsidiaries.

Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in Stem’s financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

Overview

Our mission is to build and operate the largest, digitally connected, intelligent energy storage network for our customers. In order to fulfill our mission, (i) we provide our customers, which include commercial and industrial (“C&I”) enterprises as well as independent power producers, renewable project developers, utilities and grid operators, with an energy storage system, sourced from leading, global battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including solar project developers and engineering, procurement and construction firms and (ii) through our Athena artificial intelligence (“AI”) platform (“Athena”) we provide our customers with on-going software-enabled services to operate the energy storage systems for 10 to 20 years. In addition, in all the markets where we operate our customers’ systems, we have agreements to manage the energy storage systems using the Athena platform to participate in energy markets and to share the revenue from such market participation.

We operate in two key areas within the energy storage landscape: Behind-the-Meter (“BTM”) and Front-of-the-Meter (“FTM”). An energy system’s position in relation to a customer’s electric meter determines whether it is designated a BTM or FTM system. BTM systems provide power that can be used on-site without interacting with the electric grid and passing through an electric meter. Our BTM systems reduce C&I customer energy bills and help our customers facilitate the achievement of their corporate environmental, social, and corporate governance (“ESG”) objectives. FTM, grid-connected systems provide power to off-site locations and must pass through an electric meter prior to reaching an end-user. Our FTM systems decrease risk for project developers, lead asset professionals, independent power producers and investors by adapting to dynamic energy market conditions in connection with the deployment of electricity and improving the value of energy storage over the course of their FTM system’s lifetime.

Since our inception in 2009, we have engaged in developing and marketing Athena’s software enabled services, raising capital, and recruiting personnel. We have incurred net operating losses and negative cash flows from operations each year since our inception. We have financed our operations primarily through the Merger, the issuance of convertible preferred stock, convertible senior notes, debt financing, and cash flows from customers.

 

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Our total revenue grew from $36.3 million for the year ended December 31, 2020 to $127.4 million for the year ended December 31, 2021. For the years ended December 31, 2021 and 2020, we incurred net losses of $101.2 million and $156.1 million, respectively. As of December 31, 2021, we had an accumulated deficit of $509.1 million.

We expect that our sales and marketing, research and development, and general and administrative costs and expenses will continue to increase as we expand our efforts to increase sales of our solutions, expand existing relationships with our customers, and obtain regulatory clearances or approvals for future product enhancements. In addition, we expect our general and administrative costs and expenses to increase due to the additional costs associated with scaling our business operations as well as with being a public company, including legal, accounting, insurance, exchange listing and SEC compliance, investor relations, and other costs and expenses. See “—Liquidity and Capital Resources.”

Key Factors, Trends and Uncertainties Affecting our Business

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to:

Decline in Lithium-Ion Battery Costs

Our revenue growth is directly tied to the continued adoption of energy storage systems by our customers. The cost of lithium-ion energy storage hardware has declined significantly in the last decade and has resulted in a large addressable market today. The market for energy storage is rapidly evolving, and while we believe costs will continue to decline, there is no guarantee. If costs do not continue to decline, or do not decline as quickly as we anticipate, this could adversely affect our ability to increase our revenue and grow our business.

Increase in Deployment of Renewables

Deployment of intermittent resources has accelerated over the last decade, and today, wind and solar have become a low cost fuel source. We expect the cost of generating renewable energy to continue to decline and deployments of energy storage systems to increase. As renewable energy sources of energy production are expected to represent a larger proportion of energy generation, grid instability rises due to their intermittency, which can be addressed by energy storage solutions.

Competition

We are a market leader in terms of capacity of energy storage under management. We intend to strengthen our competitive position over time by leveraging the network effect of Athena’s AI infrastructure. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. Furthermore, our competitors include other types of software providers and some hardware manufacturers that offer software solutions. If our market share declines due to increased competition, our revenue and ability to generate profits in the future may be adversely affected.

Government Regulation and Compliance

Although we are not regulated as a utility, the market for our product and services is heavily influenced by federal, state, and local government statutes and regulations concerning electricity. These statutes and regulations affect electricity pricing, net metering, incentives, taxation, competition with utilities, and the interconnection of customer-owned electricity generation. In the United States and internationally, governments continuously modify these statutes and regulations and acting through state utility or public service commissions, regularly change and adopt different rates for commercial customers. These changes can positively or negatively affect our ability to deliver cost savings to customers.

 

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Effects of COVID-19

The ongoing COVID-19 pandemic has resulted and may continue to result in widespread adverse effects on the global and U.S. economies. Ongoing government and business responses to COVID-19, along with COVID-19 variants and the resurgence of related disruptions, could have a continued material adverse impact on economic and market conditions and trigger a period of continued global and U.S. economic slowdown.

Our industry is currently facing shortages and shipping delays affecting the supply of inverters, enclosures, battery modules and associated component parts for inverters and battery energy storage systems available for purchase. These shortages and delays can be attributed in part to the COVID-19 pandemic and resulting government action, as well as broader macroeconomic conditions that may persist once the immediate effects of the COVID-19 pandemic have subsided. While a majority of our suppliers have secured sufficient supply to permit them to continue delivery and installations through the end of 2022, if these shortages and delays persist into 2023, they could adversely affect the timing of when battery energy storage systems can be delivered and installed, and when (or if) we can begin to generate revenue from those systems. We cannot predict the full effects the COVID-19 pandemic will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. We will continue to monitor developments affecting our workforce, our suppliers, our customers and our business operations generally, and will take actions we determine are necessary in order to mitigate these impacts as much as possible.

Non-GAAP Financial Measures

In addition to financial results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we use Adjusted EBITDA and non-GAAP gross margin, which are non-GAAP financial measures, for financial and operational decision making and as a means to evaluate our operating performance and prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our operating performance, such as stock-based compensation and other non-cash charges, as well as discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because they (1) allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) are used by our institutional investors and the analyst community to help them analyze the health of our business. Adjusted EBITDA and non-GAAP gross margin should be considered in addition to, not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP.

Non-GAAP gross margin

We define non-GAAP gross margin as gross margin excluding amortization of capitalized software, impairments related to decommissioning of end-of-life systems, and certain operating expenses including communication and cloud services expenditures reclassified to cost of revenue.

 

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The following table provides a reconciliation of non-GAAP gross margin to GAAP gross margin ($ in millions, except for percentages):

 

     Year Ended December 31,  
           2021                 2020        

Revenue

   $ 127.4     $ 36.3  

Cost of revenue

     (126.1     (40.2
  

 

 

   

 

 

 

GAAP Gross Margin

     1.2       (3.9

GAAP Gross Margin %

     1     (11 )% 

Adjustments to Gross Margin:

    

Amortization of Capitalized Software

     5.3       4.0  

Impairments

     4.6       3.1  

Other Adjustments (1)

     2.8       0.3  
  

 

 

   

 

 

 

Non-GAAP Gross Margin

   $ 14.0     $ 3.5  
  

 

 

   

 

 

 

Non-GAAP Gross Margin %

     11     10
  

 

 

   

 

 

 

 

(1)

Consists of certain operating expenses including communication and cloud service expenditures reclassified to cost of revenue.

Adjusted EBITDA

We believe that Adjusted EBITDA is useful for investors to use in comparing our financial performance with the performance of other companies. Nonetheless, the expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude when calculating Adjusted EBITDA.

We calculate Adjusted EBITDA as net income (loss) before net interest expense, income tax provision and depreciation and amortization, including amortization of internally developed software, further adjusted to exclude stock-based compensation and other income and expense items, including the change in fair value of warrants and embedded derivatives, vesting of warrants and loss on extinguishment of debt.

The following table provides a reconciliation of Adjusted EBITDA to net loss:

 

     Year Ended December 31,  
     2021      2020  
     (in thousands)  

Net loss

   $   (101,211    $   (156,124
  

 

 

    

 

 

 

Adjusted to exclude the following:

     

Depreciation and amortization

     29,098        20,871  

Interest expense

     17,395        20,806  

Loss on extinguishment of debt

     5,064        —    

Stock-based compensation

     13,546        4,542  

Issuance of warrants for services

     9,183        —    

Change in fair value of warrants and embedded derivative

     (3,424      84,455  

Provision for income taxes

     —          5  
  

 

 

    

 

 

 

Adjusted EBITDA

   $ (30,349    $ (25,445
  

 

 

    

 

 

 

 

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Financial Results and Key Operating Metrics

The following table presents our financial results and our key operating metrics (in millions unless otherwise noted):

 

     Year Ended December 31,  
           2021                 2020        
     (in millions)  

Financial Results

    

Revenue

   $ 127.4     $ 36.3  

GAAP Gross Margin

   $ 1.2     $ (3.9

GAAP Gross Margin %

     1     (11 )% 

Non-GAAP Gross Margin

   $ 14.0     $ 3.5  

Non-GAAP Gross Margin %

     11     10

Net Loss

   $   (101.2   $   (156.1

Adjusted EBITDA

   $ (30.3   $ (25.4

Key Operating Metrics

    

12-Month Pipeline (in billions) (1)

   $ 4.0     $ 1.6  

Bookings (in millions) (2)

     416.5       137.7  

Contracted Backlog (in millions) (3)

   $ 449.0     $ 184.0  

Contracted AUM (in GWh) (4)

     1.6       1.0  

 

*

at period end

**

not available

(1)

See discussion under “—Pipeline” below.

(2)

See discussion under “—Bookings” below.

(3)

Total value of bookings in dollars, as reflected on a specific date. Backlog increases as new contracts are executed (bookings) and decreases as integrated storage systems are delivered and recognized as revenue.

(4)

Total GWh of systems in operation or under contract.

Pipeline

Pipeline represents the total value (excluding market participation revenue) of uncontracted, potential hardware and software contracts that are currently being pursued by Stem direct salesforce and channel partners with developers and independent power producers seeking energy optimization services and transfer of energy storage systems that have a reasonable likelihood of execution within 12 months of the end of the relevant period based on project timelines published by such developers and independent power producers. We cannot guarantee that our pipeline will result in meaningful revenue or profitability.

Bookings

Due to the long-term nature of our contracts, bookings are a key metric that allows us to understand and evaluate the growth of our Company and our estimated future revenue related to customer contracts for our energy optimization services and transfer of energy storage systems. Bookings represents the accumulated value at a point in time of contracts that have been executed under both our host customer and partnership sales models.

For host customer sales, bookings represent the expected consideration from energy optimization services contracts, including estimated incentive payments that are earned by the host customer from utility companies in relation to the services provided by us and assigned by the host customer to us. For host customer sales, there are no differences between bookings and remaining performance obligations at any point in time.

For partnership sales, bookings are the sum of the expected consideration to be received from the transfer of hardware and energy optimization services (excluding any potential revenues from market participation). For

 

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partnership sales, even though we have secured an executed contract with estimated timing of project delivery and installation from the customer, we do not consider it a contract in accordance with FASB ASU 2014-09 Topic 606, Revenue from Contracts with Customers (“ASC 606”), or a remaining performance obligation, until the customer has placed a binding purchase order. A signed customer contract is considered a booking as this indicates the customer has agreed to place a purchase order in the foreseeable future, which typically occurs within three (3) months of contract execution. However, executed customer contracts, without binding purchase orders, are cancellable without penalty by either party.

For partnership sales, once a purchase order has been executed, the booking is considered to be a contract in accordance with ASC 606, and therefore, gives rise to a remaining performance obligation as we have an obligation to transfer hardware and energy optimization services in our partnership agreements. We also have the contractual right to receive consideration for our performance obligations.

The accounting policy and timing of revenue recognition for host customer contracts and partnership arrangements that qualify as contracts with customers under ASC 606, are described within Note 3- Revenue, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

Components of Our Results of Operations

Revenue

We generate service revenue and hardware revenue. Service revenue is generated through arrangements with host customers to provide energy optimization services using our proprietary cloud-based software platform coupled with a dedicated energy storage system owned and controlled by us throughout the term of the contract. Fees charged to customers for energy optimization services generally consist of recurring fixed monthly payments throughout the term of the contract and in some arrangements, an installation and/or upfront fee component. We may also receive incentives from utility companies in relation to the sale of our services.

We generate hardware revenue through partnership arrangements consisting of promises to sell an energy storage system to solar plus storage project developers. Performance obligations are satisfied when the energy storage system along with all ancillary hardware components are delivered. The milestone payments received before the delivery of hardware are treated as deferred revenue. We separately generate services revenue through partnership arrangements by providing energy optimization services after the developer completes the installation of the project.

Cost of Revenue

Cost of service revenue includes depreciation of the cost of energy storage systems we own under long-term customer contracts, which includes capitalized fulfillment costs, such as installation services, permitting and other related costs. Cost of revenue may also include any impairment of inventory and energy storage systems, along with system maintenance costs associated with the ongoing services provided to customers. Costs of revenue are recognized as energy optimization and other supporting services are provided to our customers throughout the term of the contract.

Cost of hardware revenue includes the cost of the hardware, which generally includes the cost of the hardware purchased from a manufacturer, shipping, delivery, and other costs required to fulfill our obligation to deliver the energy storage system to the customer location. Cost of revenue may also include any impairment of energy storage systems held in our inventory for sale to our customer. Cost of hardware revenue related to the sale of energy storage systems is recognized when the delivery of the product is completed.

Gross Margin

Our gross margin fluctuates significantly from quarter to quarter. Gross margin, calculated as revenue less costs of revenue, has been, and will continue to be, affected by various factors, including fluctuations in the

 

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amount and mix of revenue and the amount and timing of investments to expand our customer base. We hope to increase both our gross margin in absolute dollars and as a percentage of revenue through enhanced operational efficiency and economies of scale.

Operating Expenses

Sales and Marketing

Sales and marketing expense consists of payroll and other related personnel costs, including salaries, stock-based compensation, employee benefits, and travel for our sales and marketing personnel. In addition, sales and marketing expense includes trade show costs, amortization of intangibles and other expenses. We expect to our selling and marketing expense to increase in future periods to support the overall growth in our business.

Research and development

Research and development expense consists primarily of payroll and other related personnel costs for engineers and third parties engaged in the design and development of products, third-party software and technologies, including salaries, bonus and stock-based compensation expense, project material costs, services and depreciation. We expect research and development expense to increase in future periods to support our growth, including continuing to invest in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.

General and Administrative Expense

General and administrative expense consists of payroll and other related personnel costs, including salaries, stock-based compensation, employee benefits and expenses for executive management, legal, finance and other costs. In addition, general and administrative expense includes fees for professional services and occupancy costs. We expect our general and administrative expense to increase in future periods as we scale up headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

Other Income (Expense), Net

Interest Expense

Interest expense consists primarily of interest on our outstanding borrowings under our outstanding notes payable, convertible promissory notes, convertible senior notes, and financing obligations and accretion on our asset retirement obligations.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of penalties incurred in relation to the prepayment of our outstanding borrowings under our outstanding notes payable and the write-off of any unamortized debt issuance costs associated with such notes.

Change in Fair Value of Warrants and Embedded Derivatives

Change in fair value of warrants and embedded derivatives is related to the revaluation of our outstanding convertible preferred stock warrant liabilities and embedded derivatives related to the redemption features associated with our convertible notes at each reporting date.

 

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Other Expenses, Net

Other expenses, net consists primarily of income from equity investments and foreign exchange gains or losses.

Results of Operations

Results of Operations for the Year Ended December 31, 2021 and 2020

 

     Year Ended December 31,                
     2021      2020      $ Change      % Change  
     (In thousands, except percentages)  

Revenue

           

Service revenue

   $ 20,463      $ 15,645      $ 4,818        31

Hardware revenue

     106,908        20,662        86,246        *  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     127,371        36,307        91,064        251

Cost of revenue

           

Cost of service revenue

     28,177        21,187        6,990        33

Cost of hardware revenue

     97,947        19,032        78,915        *  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenue

     126,124        40,219        85,905        214
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin

     1,247        (3,912      5,159        (132 )% 

Operating expenses:

           

Sales and marketing

     19,950        14,829        5,121        35

Research and development

     22,723        15,941        6,782        43

General and administrative

     41,648        14,705        26,943        183
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     84,321        45,475        38,846        85
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (83,074      (49,387      (33,687      68

Other income (expense), net:

           

Interest expense

     (17,395      (20,806      3,411        (16 )% 

Loss on extinguishment of debt

     (5,064      —          (5,064      *  

Change in fair value of warrants and embedded derivative

     3,424        (84,455      87,879        (104 )% 

Other expenses, net

     898        (1,471      2,369        (161 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (expense)

     (18,137      (106,732      88,595        (83 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     (101,211      (156,119      54,908        (35 )% 

Income tax expense

     —          (5      5        (100 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $   (101,211    $   (156,124    $ 54,913        (35 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Percentage is not meaningful

Revenue

Total revenue increased by $91.1 million, or 251%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The change was primarily driven by a $86.2 million increase in hardware revenue due to the growth in demand for systems related to both FTM and BTM partnership agreements. Services revenue increased by $4.8 million primarily due to continued growth in host customers arrangements and partnership revenue related to services provided.

 

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Cost of Revenue

Total cost of revenue increased by $85.9 million, or 214%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The change was primarily driven by an increase of cost of hardware sales of $78.9 million in line with the increase in hardware revenue, and an increase of $7.0 million in cost of service revenue associated with the growth in service revenue.

Operating Expenses

Sales and Marketing

Sales and marketing expense increased by $5.1 million, or 35%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to an increase of $3.6 million in amortization of contract origination costs mainly related to hardware deliveries, an increase of $1.3 million in stock-based compensation expense primarily due to grants of stock options and RSUs to employees, $0.3 million in personnel related expenses as a result of increased headcount, and an increase of $0.6 million in professional services. The increase was partially offset by a decrease of $0.6 million in marketing expenses, and a decrease of $0.1 million in miscellaneous expenses.

Research and Development

Research and development expense increased by $6.8 million, or 43%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to an increase of $8.3 million in personnel related expenses as a result of increased headcount and an increase of $1.2 million in stock-based compensation expense primarily due to grants of stock options and RSUs to employees. The increase was partially offset by a decrease of $2.3 million in third-party software and technologies related expenses, and a decrease of $0.4 million in professional services.

General and Administrative

General and administrative expense increased by $26.9 million, or 183%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily driven by an increase of $14.6 million in professional and legal services primarily related to various transactions undertaken by us during 2021, an increase of $6.5 million in stock-based compensation expense primarily due to grants of stock options and RSUs to employees, an increase of $4.1 million in insurance related expenses, and an increase of $2.2 million in personnel related expenses due to higher headcount. The increase was partially offset by a decrease of $0.6 million in connection with settlement expenses incurred in 2020 not present in 2021.

Other Income (Expense), Net

Interest Expense

Interest expense decreased by $3.4 million, or 16%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was primarily driven by the repayment of notes payable during 2021, as discussed in Note 11 — Notes Payable, in the notes to our consolidated financial statements included elsewhere in this prospectus. The decrease was partially offset by additional interest expense from the issuance of the 2028 Convertible Notes in November 2021, and interest expense from financing obligations.

Loss on Extinguishment of Debt

The loss on extinguishment of debt of $5.1 million for the year ended December 31, 2021, is related to a $4.0 million cash penalty paid and the write-off of $1.1 million of unamortized debt issuance costs upon the conversion of our Series D convertible notes in relation to the Merger. There was no loss or gain on debt extinguishment recorded in the year ended December 31, 2020.

 

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Change in Fair Value of Warrants and Embedded Derivative

The change in fair value of warrants and embedded derivative reflected a $3.4 million of income for the year ended December 31, 2021, compared to a $84.5 million expense for the year ended December 31, 2020. The income of $3.4 million in the year ended December 31, 2021 primarily resulted from a decrease in the fair value of the Public Warrants, which was recorded as a gain in revaluation of the warrant liability, in connection with the exercise and redemption of the Public Warrants during the third quarter of 2021.

The expense of $84.5 million in the year ended December 31, 2020 primarily resulted from a loss on revaluation of warrant liabilities and embedded derivatives related to convertible promissory notes issued in 2019 and 2020. The loss was primarily driven by an increased in the fair value of the warrants as a result of increases in fair value of the underlying stock.

Other Expenses, Net

Other expenses, net decreased by $2.4 million, or 161%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The net decrease was primarily driven by $1.2 million in legal settlement and late fees incurred in 2020 and not present in 2021, a $0.9 million increase in interest income from debt securities purchased in the current year, and a $0.3 million net gain in connection with equity securities.

Liquidity and Capital Resources

Sources of liquidity

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. To meet our payment service obligations we must have sufficient liquid assets and be able to move funds on a timely basis.

As of December 31, 2021, our principal source of liquidity is cash generated from financing activities. Cash generated from financing activities through December 31, 2021 primarily includes proceeds from the Merger and PIPE financing (as defined in Note 1 to our audited consolidated financial statements included elsewhere in this prospectus) that provided us with approximately $550.3 million, net of fees and expenses, sales of convertible preferred stock, proceeds from convertible notes, including the 2028 Convertible Notes that provided us net proceeds of $445.7 million, proceeds from our various borrowings, and the exercise of Public Warrants, which increased our cash balance by $145.3 million. In connection with the Merger, the convertible notes and related accrued interest converted to equity and we paid in full all other outstanding debt except the 2021 Credit Agreement described below. On February 1, 2022, we completed the acquisition of AlsoEnergy for an aggregate purchase price of $695.0 million, of which approximately 75% was paid in cash. We believe that our cash position is sufficient to meet our capital and liquidity requirements for at least the next 12 months from February 28, 2022.

Our business prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the early stages of commercial operations. The attainment of profitable operations is dependent upon future events, including obtaining adequate financing to complete our development activities, obtaining adequate supplier relationships, building our customer base, successfully executing our business and marketing strategy and hiring appropriate personnel. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, financial condition and ability to achieve our intended business objectives.

 

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In the future, we may be required to obtain additional equity or debt financing in order to support our continued capital expenditures and operations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our business, growth and results of operations.

Our long-term liquidity requirements are linked primarily to the continued extension of the Athena platform and the use of our balance sheet to improve the terms and conditions associated with the purchase of energy storage systems from our hardware vendors. While we have plans to potentially expand our geographical footprint beyond our current partnerships and enter into joint ventures, those initiatives are not required to achieve our plan.

Financing Obligations

We have entered into arrangements wherein we finance the cost of energy storage systems via special purpose entities (“SPE”) we establish with outside investors. These SPEs are not consolidated into our financial statements, but are accounted for as equity method investments. Through the SPEs, the investors provide us upfront payments. Under these arrangements, the payment by the SPE to us is accounted for as a borrowing by recording the proceeds received as a financing obligation. The financing obligation is repaid with the future customer payments and incentives received. A portion of the amounts paid to the SPE is allocated to interest expense using the effective interest rate method.

Furthermore, we continue to account for the revenues from customer arrangements and incentives and all associated costs despite such systems being legally sold to the SPEs due to our significant continuing involvement in the operations of the energy storage systems.

The total financing obligation as of December 31, 2021 was $88.5 million, of which $15.3 million was classified as a current liability.

Notes Payable

Revolving Loan Due to SPE Member

In April 2017, we entered into a revolving loan agreement with an affiliate of a member of certain SPEs in which we have an ownership interest. The purpose of this revolving loan agreement was to finance our purchase of hardware for our various energy storage system projects.

In May 2020, concurrent with the 2020 Credit Agreement discussed below, we amended the facility to reduce the loan capacity to $35.0 million and extend the maturity date to May 2021. The amendment increased the fixed interest rate for any borrowings outstanding more than nine (9) months to 14% thereafter.

Additionally, under the original terms of the revolving loan agreement, we were able to finance 100% of the value of the hardware purchased up to the total loan capacity. The amendment reduced the advance rate to 85%, with an additional reduction to 70% in August 2020. In April 2021, we repaid the remaining outstanding balance in full.

Term Loan Due to Former Non-Controlling Interest Holder

In June 2018, we acquired, for $8.1 million, the outstanding member interests of an entity we controlled. We financed this acquisition by entering into a term loan agreement with the noncontrolling member bearing fixed interest of 18% (4.5% quarterly) on the outstanding principal balance. This loan requires fixed quarterly payments throughout the term of the loan, which will be paid in full by April 1, 2026. In May 2020, we amended

 

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the term loan and, using the proceeds from the 2020 Credit Agreement discussed below, prepaid $1.5 million of principal and interest on the note, of which $1.0 million was towards the outstanding principal balance, thereby reducing the fixed quarterly payment due to the lender. In relation to this amendment, we were required to issue warrants for 400,000 shares of common stock resulting in a discount to the term loan of $0.2 million. Such debt discount is amortized to earnings through interest expense over the expected life of the debt. In April 2021, we repaid the remaining outstanding balance in full.

2020 Credit Agreement

In May 2020, we entered into a credit agreement (“2020 Credit Agreement”) with a new lender that provided us with proceeds of $25.0 million that increased our access to working capital. The 2020 Credit Agreement had a maturity date of the earlier of (1) May 14, 2021, (2) the maturity date of the revolving loan agreement, or (3) the maturity date of the convertible promissory notes discussed below. The loan bore interest of 12% per annum, of which 8% was paid in cash and 4% was added back to principal of the loan balance every quarter. We used a portion of the proceeds towards payments associated with existing debt as previously discussed. In April 2021, we repaid the remaining outstanding balance in full.

2021 Credit Agreement

In January 2021, we entered into a non-recourse credit agreement to provide a total of $2.7 million towards the financing of certain energy storage systems that we own and operate. The credit agreement has a stated interest of 5.45% and a maturity date of June 2031. We received an advance under the credit agreement of $1.8 million in January 2021. The repayment of advances received under this credit agreement is determined by the lender based on the proceeds generated by us through the operation of the underlying energy storage systems. We had $1.9 million of outstanding borrowings under this credit agreement as of December 31, 2021.

2028 Green Convertible Senior Notes

On November 22, 2021, we sold to Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and Barclays Capital Inc, as initial purchasers (the “Initial Purchasers”), and the Initial Purchasers purchased from us, $460 million aggregate principal amount of our 0.50% Green Convertible Notes due 2028 (the “2028 Convertible Notes”), pursuant to a purchase agreement dated as of November 17, 2021, by and between us and the Initial Purchasers. The 2028 Convertible Notes will accrue interest payable semi-annually in arrears and will mature on December 1, 2028, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. Upon conversion, we may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock. The 2028 Convertible Notes are redeemable for cash at our option at any time given certain conditions. Refer to Note 12 — Convertible Promissory Notes, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

On November 17, 2021, in connection with the pricing of the 2028 Convertible Notes, and on November 19, 2021, in connection with the exercise in full by the Initial Purchasers of their option to purchase additional Notes, we entered into capped call transactions with certain of the Initial Purchasers of the 2028 Convertible Notes to minimize the potential dilution to our common stockholders upon conversion of the 2028 Convertible Notes. Our net proceeds from this offering were approximately $445.7 million, after deducting the Initial Purchasers’ discounts and commissions and the estimated offering expenses payable by the Company. We used approximately $66.7 million of the net proceeds to pay the cost of the capped call transactions described above. We intend to allocate an amount equivalent to the net proceeds from this offering to finance or refinance, in whole or in part, existing or new eligible green expenditures of Stem, including investments related to creating a more resilient clean energy system, optimized software capabilities for energy systems, and reducing waste through operations.

 

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Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

 

     Year Ended December 31,  
     2021      2020  

Net cash used in operating activities

   $ (101,266    $   (33,671

Net cash used in investing activities

     (185,233      (12,036

Net cash provided by financing activities

     1,027,095        40,294  

Effect of exchange rate changes on cash and cash equivalents

     242        (534
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 740,838      $ (5,947
  

 

 

    

 

 

 

Operating Activities

During the year ended December 31, 2021, net cash used in operating activities was $101.3 million, primarily resulting from our operating loss of $101.2 million, adjusted for non-cash charges of $59.5 million and net cash outflow of $59.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization of $24.5 million, non-cash interest expense of $9.6 million, which includes interest expenses associated with debt issuance costs, stock-based compensation expense of $13.5 million, change in the fair value of warrant liability and embedded derivative of $3.4 million, impairment of energy storage systems of $4.3 million, issuance of warrants for services of $9.2 million, noncash lease expense of $0.9 million, accretion expense of $0.2 million, and net amortization of premium on investments of $0.7 million. The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in accounts receivable of $48.1 million, an increase in other assets of $24.8 million, a decrease in deferred revenue of $15.0 million, an increase in inventory of $1.9 million, an increase in contract origination costs of $2.6 million, a decrease in lease liabilities of $0.3 million, a decrease in right-of-use-assets arising from the prepayment of our headquarter’s lease of $0.2 million, and a decrease in other liabilities of $0.1 million, partially offset by an increase in accounts payable and accrued expenses of $33.5 million.

During the year ended December 31, 2020, net cash used in operating activities was $33.7 million, primarily resulting from our operating loss of $156.1 million, adjusted for non-cash charges of $118.8 million and net cash flows of $2.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of change in fair value of warrants and embedded derivative of $84.5 million, depreciation and amortization of $17.7 million, non-cash interest expense of $10.0 million, which includes amortization of debt issuance costs, stock-based compensation expense of $4.5 million, $1.4 million of impairment charges related to energy storage systems that were determined to not be recoverable and non-cash lease expense of $0.6 million. The net cash inflow from changes in operating assets and liabilities was primarily driven by an increase in deferred revenue of $31.7 million due to advance payments for hardware sales prior to delivery and rebates from state incentive programs received in the period, an increase in accounts payable and accrued expenses of $5.7 million and partially offset by an increase in inventory of $17.3 million in line with revenue growth, including growth in hardware sales, an increase in accounts receivable of $7.0 million primarily due to advance billings for partner hardware sales, an increase in contract origination costs of $2.6 million related to commissions paid on new contracts executed in the period, an increase of $5.3 million in other assets, a decrease of $1.0 million in other liabilities and a decrease of $0.6 million in lease liabilities.

Investing Activities

During the year ended December 31, 2021, net cash used for investing activities was $185.2 million, primarily consisting of $189.9 million in purchase of available-for-sale investments, $3.6 million in purchase of energy systems, $5.9 in capital expenditures on internally-developed software, $1.2 million in purchase of equity

 

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method investment, and $0.6 million in purchase of property plant and equipment, partially offset by $16.0 million proceeds from the sale of available-for-sale investments.

During the year ended December 31, 2020, net cash used for investing activities was $12.0 million, consisting of $6.2 million in purchase of energy storage systems and $5.8 million in capital expenditures on internally developed software.

Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities was $1,027.1 million, primarily consisting of net proceeds from the Merger and PIPE financing of $550.3 million, proceeds from exercise of stock options and warrants of $148.5 million, proceeds from financing obligations of $7.8 million, proceeds from issuance of notes payable of $3.9 million, net proceeds from issuance of convertible promissory notes of $446.8 million, partially offset by purchased capped call options of $66.7 million, the repayment of notes payable of $41.4 million, payments for withholding taxes related to net share settlement of stock options of $12.6 million, and repayment of financing obligations of $9.6 million.

During the year ended December 31, 2020, net cash provided by financing activities was $40.3 million, primarily resulting from net proceeds from the issuance of convertible notes of $33.1 million, proceeds from the issuance of notes payable of $23.5 million, proceeds from financing obligations of $16.2 million and proceeds from exercise of stock options and warrants of $0.4 million, partially offset by repayment of our notes payable of $22.2 million and repayment of financing obligations of $10.7 million.

The Company’s material cash requirements include the following contractual and other obligations:

 

   

2028 Convertible Notes: Includes the aggregate principal amounts of the 2028 Convertible Notes on their contractual maturity dates, as well as the associated coupon interest. As of December 31, 2021, we have an outstanding aggregate principal amount of $460.0 million, none of which is payable within 12 months. Future interest payments associated with the 2028 Convertible Notes total $16.2 million, with $2.3 million payable within 12 months. For maturity dates, stated interest rates and additional information on our convertible senior notes, refer to Note 12 — Convertible Promissory Notes, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

 

   

Operating Lease Obligations: Our lease portfolio primarily comprises operating leases for our office space. As of December 31, 2021, we have operating lease obligations totaling $15.7 million, with $1.8 million payable within 12 months. For additional information regarding our operating leases, see Note 17 — Leases, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

We do not consider our financing obligations as contractual obligations, as our repayments of such obligations are required only to the extent payments are collected in relation to the operation of the underlying energy storage systems. The obligation is nonrecourse and there are no contractual commitments to pay specific amounts at any point in time throughout the life of the obligation.

We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, or unconsolidated variable interest entities that either have, or would reasonably be expected to have, a current or future material effect on our consolidated financial statements.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements. Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and

 

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assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting policies are those that materially affect our consolidated financial statements and involve difficult, subjective or complex judgments by management. A thorough understanding of these critical accounting policies is essential when reviewing our consolidated financial statements. We believe that the critical accounting policies listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.

Our significant accounting policies are described in Note 2 — Summary of Significant Accounting Policies, in the notes to our audited consolidated financial statements included elsewhere in this prospectus. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements:

 

   

revenue recognition;

 

   

financing obligations;

 

   

energy storage systems, net;

 

   

common stock warrants

 

   

convertible preferred stock warrant liability; and

 

   

2028 Convertible Notes

Revenue Recognition

We generate revenue through two types of arrangements with customers, host customer arrangements and partnership arrangements. We recognize revenue under these arrangements as described below.

Host Customer Arrangements

Host customer contracts are generally entered into with commercial entities who have traditionally relied on power supplied directly from the grid. Host customer arrangements consist of a promise to provide energy optimization services through our proprietary SaaS platform coupled with a dedicated energy storage system owned and controlled by us throughout the term of the contract. The host customer does not obtain legal title to, or ownership of the dedicated energy storage system at any point in time. The host customer is the end consumer of the energy that directly benefits from the energy optimization services we provide. The term for our contracts with host customers generally ranges from 5 to 10 years, which may include certain renewal options to extend the initial contract term or certain termination options to reduce the initial contract term.

Although we install energy storage systems at the host customer site in order to provide the energy optimization services, we determined we have the right to direct how and for what purpose the asset is used through the operation of our SaaS platform and, as such, retain control of the energy storage system; therefore, the contract does not contain a lease. We determined the various energy optimization services provided throughout the term of the contract, which may include services such as remote monitoring, performance reporting, preventative maintenance and other ancillary services necessary for the safe and reliable operation of the system, are part of a combined output of energy optimization services and we provide a single distinct combined performance obligation representing a series of distinct days of services.

We determine the transaction price at the outset of the arrangement, primarily based on the contractual payment terms dictated by the contract with the customer. Fees charged to customers for energy optimization services generally consist of recurring fixed monthly payments throughout the term of the contract. In certain

 

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arrangements, the transaction price may include incentive payments that are earned by the host customer from utility companies in relation to the services we provide. Under such arrangements, the rights to the incentive payments are assigned to us by the host customer. These incentives may be in the form of fixed upfront payments, variable monthly payments, or annual performance-based payments over the first five years of the customer contract term. Incentive payments may be contingent on approval from utility companies or actual future performance of the energy storage system.

Substantially all of our arrangements provide customers the unilateral ability to terminate for convenience prior to the conclusion of the stated contractual term or the contractual term is shorter than the estimated benefit period, which we have determined to be 10 years based on the estimated useful life of the underlying energy storage systems and the period over which the customer can benefit from the energy optimization services utilizing such energy storage systems. In these instances, we determined that upfront incentive payments received from our customers represent a material right that is, in effect, an advance payment for future energy optimization services to be recognized throughout the estimated benefit period. In contracts where the customer does not have the unilateral ability to terminate for convenience without a penalty during the estimated benefit period, we determined the upfront incentive payments do not represent a material right for services provided beyond the initial contractual period and are therefore a component of the initial transaction price. We revisit our estimate of the benefit period each reporting period. Our contracts with host customers do not contain a significant financing component.

We transfer control of our energy optimization services to our customers continuously throughout the term of the contract (a stand-ready obligation) and recognize revenue ratably as control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for our services. Monthly incentive payments based on the performance of the energy storage system are allocated to the distinct month in which they are earned because the terms of the payments relate specifically to the outcome from transferring the distinct time increment (month) of service and because such amounts reflect the fees to which we expect to be entitled for providing energy optimization services each period, consistent with the allocation objective. Annual variable performance- based payments are estimated at the inception in the transaction price using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted energy storage system performance patterns, and we recognize such payments ratably using a time-based measure of progress of days elapsed over the term of the contract to the extent that it is probable that a significant reversal of the cumulative revenue recognized will not occur in a future period. At the end of each reporting period, we reassess our estimate of the transaction price. We do not begin recognition of revenue until the System is live (i.e., provision of energy optimization services has commenced) or, as it relates to incentive payments, when approval has been received from the utility company if later.

Partnership Arrangements

Partnership arrangements consist of promises to transfer inventory in the form of an energy storage system to a solar plus storage project developer and separately provide energy optimization services as described previously to the ultimate owner of the project after the developer completes the installation of the project. Under partnership arrangements, our customer is the solar plus storage project developer. The customer obtains legal title to along with ownership and control of the inventory upon delivery and the customer is responsible for the installation of the project. Once installation of the project is complete, the owner of the solar plus storage project provides energy to the end consumer through a separate contractual arrangement directly with the end consumer. The term for our contracts with customers under partnership arrangements generally ranges from 10 to 20 years.

We determined the promise to deliver the inventory as a component of the solar plus storage project for which the customer is responsible to develop is a separate and distinct performance obligation from the promise to provide energy optimization services.

 

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We determine the transaction price at the outset of the arrangement, primarily based on the contractual payment terms dictated by the contract with the customer. Fees charged for the sale of inventory generally consist of fixed fees payable upon or shortly after successful delivery to the customer. Fees charged to customers for energy optimization services consist of recurring fixed monthly payments throughout the term of the contract. We are responsible for designing, procuring, delivering and ensuring the proper components are provided in accordance with the requirements of the contract. Although we purchase the inventory from a third-party manufacturer, we determined we obtain control of the inventory prior to delivery to the customer and are the principal in the arrangement. We are fully responsible for responding to and correcting any customer issues related to the delivery of the inventory. We hold title and assume all risks of loss associated with the inventory until the customer accepts the inventory. We are primarily responsible for fulfilling the delivery of the inventory to the customer, assume substantial inventory risks and have discretion in the pricing charged to the customer. We have not entered into any partnership arrangements where we are not the principal in the transaction.

We allocate revenue between the hardware and energy storage services performance obligations based on the standalone selling price of each performance obligation. The standalone selling price for the hardware is established based on observable pricing. The standalone selling price for the energy optimization services is established using a residual value approach due to the significant variability in the services provided to each individual customer based on the specific requirements of each individual project and the lack of observable standalone sales of such services. Our partnership arrangements do not contain a significant financing component.

We transfer control of the inventory upon delivery and simultaneous transfer of title to the customer. We transfer control of our energy optimization services to our customers continuously throughout the term of the contract (a stand-ready obligation), which does not commence until the customer successfully completes the installation of the project. As a result, the time frame between when we transfer control of the inventory to the customer upon delivery is generally several months, and can be in excess of one year, before we are required to perform any subsequent energy optimization services. Revenue is recognized ratably as control of these services is transferred to our customers based on a time-based output measure of progress of days elapsed over the term of the contract, in an amount that reflects the consideration we expect to be entitled to in exchange for our services.

In some partnership arrangements, we charge shipping fees for the inventory. We account for shipping as a fulfillment activity, since control transfers to the customer after the shipping is complete and include such amounts within cost of revenue.

Financing Obligations

We have formed various SPEs to finance the development and construction of our energy storage systems (“Projects”). These SPEs, which are structured as limited liability companies, obtain financing in the form of large upfront payments from outside investors and purchase Projects from us under master purchase agreements. We account for the large upfront payments received from the fund investor as a borrowing by recording the proceeds received as a financing obligation, which will be repaid through host customer payments and incentives received from the utilities that will be received by the investor.

The financing obligation is non-recourse once the associated energy storage systems have been placed in-service and the associated customer arrangements have been assigned to the SPE. However, we are responsible for any warranties, performance guarantees, accounting, performance reporting and all other costs associated with the operation of the energy storage systems. Despite such systems being legally sold to the SPEs, we recognize host customer payments and incentives as revenue during the period as discussed in the Revenue Recognition section above. The amounts received by the fund investor from customer payments and incentives are recognized as interest using the effective interest method, and the balance is applied to reduce the financing obligation. The effective interest rate is the interest rate that equates the present value of the cash amounts to be received by a fund investor in relation to the underlying Projects with the present value of the cash amounts paid to us by the investor, adjusted for any payments made by us.

 

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Energy Storage Systems, net

We sell energy optimization services to host customers through the use of energy storage systems installed at customer locations. We determined that we do not transfer control of these energy storage systems, which are operated and controlled via our proprietary cloud-based software (“SaaS”) platform; therefore, these energy storage systems do not qualify as a leased asset. The energy storage systems are stated at cost, less accumulated depreciation.

Energy storage systems, net is comprised of system equipment costs, which include components such as batteries, inverters, and other electrical equipment, and associated design, installation, and interconnection costs required to begin providing the energy optimization services to our customers.

Depreciation of the energy storage systems is calculated using the straight-line method over the estimated useful lives of the energy storage systems, or 10 years, once the respective systems have been installed, interconnected to the power grid, received permission to operate and we have begun to provide energy optimization services to the host customer (i.e., system is live). The valuation of energy storage systems and the useful life both require significant judgment.

We review our energy storage systems for impairment whenever events or changes in circumstances indicate that the carrying amount of energy storage systems may not be recoverable. If energy storage systems are impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assessing energy storage systems for impairment requires significant judgement.

Common Stock Warrants

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Such assessment requires significant judgement.

We accounted for our 19,967,302 public warrants issued in connection with our Initial Public Offering (12,786,168) and Private Placement (7,181,134) as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, we recognized the warrant instruments as liabilities at fair value and adjusted the instruments to fair value at each reporting period. The liabilities were subject to re-measurement at each balance sheet date until exercised, and any change in fair value was recognized in the Company’s statements of operations. The fair value of the Private Placement Warrants was estimated using a Black-Scholes method at each measurement date. The fair value of the warrants issued in connection with the Public Offering were initially measured at fair value using a Black-Scholes method and subsequently measured based on the listed market price of such warrants. Refer to Note 13 — Warrants, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

Convertible Preferred Stock Warrant Liability

We evaluate whether our warrants for shares of convertible redeemable preferred stock are freestanding financial instruments that obligate us to redeem the underlying preferred stock at some point in the future and determined that each of our outstanding warrants for convertible preferred stock are liability classified. The warrants are subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the change in fair value of warrants and embedded derivatives in the consolidated statements of operations.

As discussed in Note 13 — Warrants, in the notes to our audited consolidated financial statements included elsewhere in this prospectus, upon effectiveness of the Merger, substantially all of the outstanding convertible

 

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preferred stock warrants were converted into shares of common stock of Stem. As such, the associated warrant liability was reclassified to additional paid-in-capital upon the Merger and was no longer an outstanding Level 3 financial instrument as of December 31, 2021.

2028 Convertible Notes

We accounted for the 2028 Convertible Notes as separate liability and equity components. On issuance, the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was calculated by deducting the fair value of the liability component from the principal amount of the Convertible Notes as a whole. We estimated the fair value of the liability and equity components using a binomial lattice model, which includes subjective assumptions such as the expected term, the expected volatility, and the interest rate of a similar non-convertible debt instrument. These assumptions involved inherent uncertainties and management judgement. See Note 12 — Convertible Promissory Notes, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

Recent Accounting Pronouncements

See Note 2 — Summary of Significant Accounting Policies, in the notes to our audited consolidated financial statements included elsewhere in this prospectus for more information.

Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure resulting from potential changes in inflation, exchange rates or interest rates. We do not hold financial instruments for trading purposes.

Foreign Currency Exchange Risk

Our expenses are generally denominated in U.S. dollars. However, we have foreign currency risks related to our revenue and operating expenses denominated in Canadian dollars. We have entered into contracts with customers and a limited number of supply contracts with vendors with payments denominated in foreign currencies. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our financial statements.

Unfavorable changes in foreign exchange rates versus the U.S. dollar could increase our product costs, thus reducing our gross profit. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on operating results or financial condition.

Interest Rate Risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of interest expense recorded on outstanding borrowings. In addition, our convertible promissory notes, 2028 Convertible Notes, notes payable, and financing obligations bear interest at a fixed rate and are not publicly traded. Therefore, fair value of our convertible promissory notes, notes payable, financing obligations and interest expense is not materially affected by changes in the market interest rates. We do not enter into derivative financial instruments, including interest rate swaps, for hedging or speculative purposes.

 

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Credit Risk

Credit risk with respect to accounts receivable is generally not significant due to a limited carrying balance of receivables. We routinely assess the creditworthiness of our customers. We generally have not experienced any material losses related to receivables from individual customers, or groups of customers during the years ended December 31, 2021 and 2020. We do not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in our accounts receivable.

 

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BUSINESS

Company Overview

Our mission is to build and operate the largest, digitally connected, intelligent energy storage network for our customers. In order to fulfill our mission, (i) we provide our customers, which include C&I enterprises as well as independent power producers, renewable project developers, utilities and grid operators, with an energy storage system, sourced from leading, global battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including solar project developers and engineering, procurement and construction firms and (ii) through our Athena® artificial intelligence (“AI”) platform (“Athena”), we provide our customers with ongoing software-enabled services to operate the energy storage systems for up to 20 years. In addition, in all the markets where we operate our customers’ systems, we have agreements to manage the energy storage systems using our Athena platform to participate in energy markets and to share the revenue from such market participation.

We deliver our battery hardware and software-enabled services to our customers through our Athena platform. Our hardware and recurring software-enabled services mitigate customer energy costs through time-of-use and demand charge management innovations and a network of virtual power plants. The resulting network created by our growing customer base is designed to increase grid resilience and reliability through the real-time processing of market-based demand cycles, energy prices and other factors in connection with the deployment of renewable energy resources to such customers. Additionally, our energy storage solutions support renewable energy generation by alleviating grid intermittency issues and thereby reducing customer dependence on traditional, fossil fuel resources. As of December 31, 2021, Athena had accumulated more than 25.9 million runtime hours, which is equivalent to more than 2,900 years of operational experience, across hundreds of sites and customers in several utility territories across the U.S., Canada and Chile.

We believe that energy storage, which can instantly provide grid power 24x7, is a critical component of the global transition to renewable energy and a distributed energy infrastructure. As a result, there is rising demand for clean electric power solutions that can provide electric power with lower carbon emissions and high availability. One such solution is distributed, renewable generation which is supplementing and replacing conventional generation sources, given its increasingly compelling economics. According to a September 23, 2020 report from Wood Mackenzie Energy Storage Service (“Wood Mackenzie”), since 2019, 90% of the new interconnection requests in the U.S. electrical markets were for installations of renewable energy assets. However, one of the principal challenges affecting the increased development of renewable energy assets is the intermittent capacity that solar and wind generation exhibit when integrating into electrical power networks. Energy storage helps mitigate intermittency by acting as an energy reserve in times when wind and solar generation is reduced, unavailable or offline, which is why as of November 21, 2021 Bloomberg New Energy Finance (“BNEF”) forecasted energy storage solutions and services to represent a $1.2 trillion revenue opportunity on a cumulative basis through 2050.

The transition to renewable energy and a distributed energy infrastructure has resulted in an increase in the complexity and variability of end-customer electricity demand influenced by onsite generation and flexible sources of load. Accordingly, it has become nearly impossible to efficiently manage and operate businesses and the grid using a schedule based, human operated approach. Instead, the utilization of intelligent, responsive energy storage throughout the grid is required to provide the real-time balance necessary to support more distributed renewable assets, and we believe that Athena fulfills this vital need of a modern energy infrastructure. Athena unlocks the value of battery storage by providing energy forecasting, real-time energy optimization and automated controls for our customers leveraging over 10 years of operational data and experience. By dispatching electricity to our C&I customers through our energy storage network during periods of peak power demand, we are able to reduce our customers’ electricity expenses, improve the value of their energy usage and diminish their environmental impact. In addition, our energy storage network enables grid operators to decrease their reliance on conventional generation sources, thereby improving the resiliency of the electrical grid and enabling lower carbon emissions through the increased adoption of renewable generation sources.

 

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We operate in two key areas within the energy storage landscape: BTM and FTM. An energy system’s position in relation to a customer’s electric meter determines whether it is designated a BTM or FTM system. BTM systems installed at C&I customer locations generate energy that can be used on-site without interacting with the electric grid and passing through an electric meter. Our BTM systems are designed to reduce C&I customer energy bills and help our customers achieve their corporate environmental, social, and corporate governance (“ESG”) objectives. FTM, grid-connected systems deliver power into the grid, which is often sold to off-site customers and must pass through an electric meter prior to reaching an end-user. Our FTM systems are designed to decrease risk for project developers, asset owners, independent power producers and investors by adapting to dynamic energy market conditions in connection with the deployment of electricity and improving the combined value of the solar renewable resource and energy storage over the course of their FTM system’s useful life.

As an early participant in the BTM market, we developed operational focus and technical capabilities that position us to have multiple product offerings and services in the evolving market for FTM energy storage services. We believe that Athena’s ability to optimize operations in both the BTM and FTM markets is unique in the industry and provides us with a competitive advantage.

Industry

The architecture of the electric grid has historically been a unidirectional, central plant generation model, which is no longer optimal for the modern grid. Additionally, the electric power grid has suffered from insufficient investment in critical infrastructure as a result of complexities surrounding the ownership, operation and regulation of grid infrastructure, further compounded by the challenges of large capital costs and a lack of adequate innovation. These circumstances have contributed to the U.S. Department of Energy’s characterization of the U.S. electricity grid as “aging, inefficient, congested, and incapable of meeting the future energy needs of the information economy,” and the American Society of Civil Engineers issuing the U.S. energy infrastructure a D+ grade in 2017. We believe that deploying intelligent energy storage is a necessary step towards addressing these critical infrastructure issues as consumers are increasingly demanding clean electric power solutions.

Electricity generation from wind and solar in the U.S. has grown over recent years and is expected to account for a greater percentage of total generation going forward. According to Wood Mackenzie, since 2019, 90% of new interconnection requests in the U.S. electrical markets were for installations of renewable energy assets. While these renewable sources help to reduce overall greenhouse gas emissions from electricity production, a key challenge impacting adoption of renewable energy is the intermittent capacity that solar and wind generation exhibit when integrating into electrical power networks. Such unreliable integration can compromise the grid’s ability to deliver reliable electric power. Solutions such as energy storage are needed to balance the existing grid infrastructure and support the successful integration of intermittent sources such as wind or solar. Energy storage can help mitigate the issue of intermittency by effectively acting as a reserve in times when wind and solar generation is reduced, unavailable or offline. As a result, as the electricity generation from wind and solar increases, the demand for energy storage solutions and related services is also expected to increase.

Competitive Strengths

Our competitive strengths include the following:

 

   

Significant Benefits from Scale & Network Effects: We believe we are the largest in global distributed energy storage megawatts under management, with more than 1.5 GWh operating or contracted across more than 1,000 sites. This generates a significant amount of operational data leading to enhanced software performance through machine-learning and improving customer economics.

 

   

Advanced Technology Platform: We developed one of the first AI platforms for energy storage and virtual power plants, automating storage participation in electricity markets, performing monitoring

 

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and management of customer loads, solar generation and energy prices with real-time, complex decision- making algorithms. The platform is able to co-optimize multiple energy market revenue streams across a diverse fleet of hardware throughout multiple geographies and energy markets.

 

   

Compelling Business Model & Customer Solutions: We provide a seamless customer experience from commercial proposal to installation. We pioneered a project financed offering for C&I energy storage, providing customers immediate significant savings without capital expenditure. C&I customers are aggressively procuring renewable energy to meet ESG targets and save money on electricity, our solution enables these objectives with no impact to customer operations. Customers sign long-term contracts, typically between 10 and 20 years in duration, while providing us the flexibility to control their energy storage system to earn market participation revenue, lower their energy costs and meet their decarbonization goals.

 

   

Leading Strategic Partnerships: We have numerous partnerships with a diverse set of industry leaders to reduce execution risk and increase speed to market in certain geographies. In Massachusetts, we have a partnership with Constellation Energy to pair our energy storage systems with retail energy offerings for C&I customers. Internationally, we have partnerships with leading regional industrial equipment and energy firms such as Copec in South America, each focused on leveraging the partner’s local market knowledge and reputation with leading corporates, utilities and grid operators.

 

   

Exceptional AI and Energy Storage Expertise: We have a seasoned leadership team with a demonstrated track record of execution and more than 150 years of accumulated experience in energy storage, software and distributed energy expertise focused on artificial intelligence and technology development, new market commercialization, renewable project development and utility / grid program operations. Our data science team has more than 135 years of combined experience in machine learning, optimization and controls.

Our Strategy

Our mission is to build and operate the largest, digitally connected, intelligent energy storage network for our customers. In order to fulfill our mission, (i) we provide our customers, which include C&I enterprises as well as independent power producers, renewable project developers, utilities and grid operators, with an energy storage system, sourced from leading, global battery original equipment manufacturers (“OEMs”), that we deliver through our partners, including solar project developers and engineering, procurement and construction firms and (ii) through our Athena artificial intelligence (“AI”) platform (“Athena”), we provide our customers with on-going software-enabled services to operate the energy storage systems for 10 to 20 years. In addition, in all the markets where we operate our customers’ systems, we have agreements to manage the energy storage systems using the Athena platform to participate in energy markets and to share the revenue from such market participation.

We operate in two key areas within the energy storage landscape: BTM and FTM. An energy system’s position in relation to a customer’s electric meter determines whether it is designated a BTM or FTM system. BTM systems provide power that can be used on-site without interacting with the electric grid and passing through an electric meter. Our BTM systems reduce C&I customer energy bills and help our customers facilitate the achievement of their corporate environmental, social, and corporate governance (“ESG”) objectives. FTM, grid-connected systems provide power to off-site locations and must pass through an electric meter prior to reaching an end-user. Our FTM systems decrease risk for project developers, lead asset professionals, independent power producers and investors by adapting to dynamic energy market conditions in connection with the deployment of electricity and improving the value of energy storage over the course of their FTM system’s lifetime.

Our Customers

We operate in two key markets within the energy storage landscape: BTM and FTM. BTM systems installed at C&I customer locations provide power that can be used on-site without interacting with the electric grid and

 

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generally without generating energy that passes through a utility electric meter. FTM grid- connected systems deliver power into the grid which is often sold to off-site customers and transported by the grid prior to reaching an end-user. For BTM customers, we seek to maximize value by providing AI- powered storage services that reduce spending on utility bills, enhance the economics of solar and provide backup power. Additionally, we help BTM customers achieve renewable energy targets as part of their ESG commitments. For FTM customers, we provide software-enabled services to capture revenue from energy market participation, including the sale of capacity, energy and ancillary services into regional electricity markets helping these customers enhance renewable project returns while improving grid resiliency and reliability for utilities and grid operators. These services that we provide are all at the direction of our customers, and we do not independently participate in the wholesale electricity market.

We believe that Athena’s ability to optimize the operations in both the BTM and FTM markets is unique in the industry and provides a competitive differentiation. As an early participant in the BTM market, we developed operational focus and technical capabilities that position us to have multiple product offerings and services in the evolving market for FTM energy storage services. In particular, we believe recent regulatory actions by the Federal Energy Regulatory Commission (the “FERC”) and by global utilities and grid operators will enable distributed energy storage systems to participate in energy markets and receive equivalent compensation and market access to the same extent as conventional generation assets. Such regulatory actions are expected to provide new economic opportunities for software-enabled services offerings in the energy storage and broader distributed energy resource markets.

Research and Development

We have invested significant amounts of time and expense in the development of our Athena platform. The ability to maintain our leadership position depends in part on our ongoing research and development activities. Our software development team of 50 employees, is responsible for the design, development, integration and testing of the Athena platform. In addition, we augment our internal team with 15 off-shore contractors for flexible development capacity. We focus our efforts on developing Athena to continuously improve our algorithms, augment value with new revenue streams and localize based on geography and regulatory considerations.

Our research and development is principally conducted by our teams in the Silicon Valley and Seattle. As of December 31, 2021, we had 66 full-time employees engaged in research and development activities.

Intellectual Property

Intellectual property is a key differentiator for our business, and we seek protection whenever possible for the intellectual property that we own and control, including but not limited to patents, proprietary information, trade secrets and software tools and applications. We rely upon a combination of patent, copyright, trade secret and trademark laws, as well as employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect our proprietary rights.

We have developed a significant patent portfolio to protect elements of our proprietary technology. As of December 31, 2021, we had 27 issued patents and 4 patent applications pending in the U.S. Our intellectual property encompasses a diverse mix of patents with respect to our proprietary systems and software. These patents relate to the following broad categories:

 

   

power electronics, including the basic interaction of batteries with the power grid where such electronics convert direct current (DC) battery power to alternating current (AC) compatible grid power;

 

   

analytics and control, including use cases and decisions into the operation of an energy storage system and the coordination of providing economic or operational value to a customer; and

 

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networked operations and grid services that involve the aggregation and operation of a group of energy storage systems to provide value to a utility or grid operator.

Our registered trademarks for goods and services include, “Stem,” “Powerscope,” “Athena” and “Energy Superintelligence.” The goods and services relating to these trademarks include, but are not limited to, energy optimization services, software as a service for energy optimization services and energy storage charge and discharge.

We continually review our development efforts to assess the existence and patentability of our intellectual property. We pursue the registration of our domain names and trademarks and service marks in the U.S. In an effort to protect our brand, as of December 31, 2021, we had four registered trademarks in the U.S.

We have no pending claims of infringement or similar claims with third parties with respect to our intellectual property.

Competition

The energy storage industry is highly competitive, and new regulatory requirements for carbon emissions, technological advances, the lower cost of renewable energy, the decrease in battery costs, improving battery technology and shifting customer demands are causing the industry to evolve and expand. We believe that the principal competitive factors in the energy storage market include, but are not limited to:

 

   

safety, reliability and quality;

 

   

product performance and uptime;

 

   

historical track record and references for customer satisfaction;

 

   

experience in utilizing the energy storage system for multiple stakeholders;

 

   

technological innovation;

 

   

comprehensive solution from a single provider;

 

   

ease of integration; and

 

   

seamless hardware and software-enabled service offerings.

There is rising demand for clean electric power solutions that can provide electric power with lower carbon emissions with high availability. Additionally, the transition to renewable energy sources and distributed energy infrastructure has increased the complexity and variability of end-customer electricity demand. This industry transformation has created an opportunity for an increased role for energy storage solutions like ours. We believe as one of the largest in this industry we have a significant head start against our competition in this rapidly evolving environment. We believe the global push for lower carbon emissions combined with vast technological improvements in lithium-ion battery-powered technologies will drive commercial and industrial customers, utilities, independent power producers and project developers to grow their use of and investment in energy storage systems.

Our key competitors include energy storage system OEMs, hardware integration providers, renewable project developers and engineering, procurement and construction firms. Our industry peers are typically focused on the development and marketing of single-purpose built solutions with captive hardware offerings, while our AI-powered platform is capable of delivering a multitude of software-enabled services operating an extensive and diverse network of energy storage systems across multiple geographies, utility and grid operator service areas.

We believe that one of the key advantages driving sustainable differentiation for our company includes the focus and capabilities built in our pioneering history in the BTM segment of the energy storage industry. This

 

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experience required an emphasis on AI-driven co-optimization of energy storage operations and the build out of significant operational infrastructure to execute economic considerations for enterprise customers, utilities and grid operators. We believe that the distributed asset management capability from this experience positions us well to compete in the evolving FTM segment of the energy storage industry as recent regulatory actions include the liberalization and formalization of rules for compensation of market participation for distributed energy resources. We believe the legacy single-purpose market for FTM solutions will be driven by greater demand for flexible solutions that can access multiple market opportunities. Our solutions have been designed to mitigate the challenges of today’s enterprise customers, independent power producers, utilities, renewable asset owners and the modern electrical grid at scale with continuous improvements to artificial intelligence optimization strategies informed by operational data from one of the industry’s largest network of digitally-connected energy storage systems.

We believe we are well-positioned to compete successfully in the market for energy storage hardware and software-enabled services. Despite our limited operating history, we are among the leaders in global distributed energy storage under management, supported by our Athena platform, compelling customer services, strategic partnerships and seasoned leadership team with a proven track record of success.

Government Regulation and Compliance

There are varying policy frameworks across the U.S. and abroad designed to support and accelerate customer adoption of clean and/or reliable distributed generation technologies. These policy initiatives come in the form of tax incentives, cash grants, performance incentives and/or electric tariffs.

Our AI-powered platform manages energy storage systems currently installed in California, Massachusetts, New York, Hawaii and Texas, each of which has its own enabling policy framework. Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. These energy storage systems currently qualify for tax exemptions, incentives or other customer incentives in many states, including the states of California, Massachusetts and New York. These policy provisions are subject to change.

Although we are not regulated as a utility, federal, state and local government statutes and regulations concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition with utilities and the interconnection of customer-owned electricity generation. In the U.S., governments, often acting through state utility or public service commissions, change and adopt different rates for commercial customers on a regular basis. These changes can have a positive or negative effect on our ability to deliver cost savings to customers for the purchase of electricity.

Several states have an energy storage mandate or policies designed to encourage the adoption of storage. For example, California offers a cash rebate for storage installations through the Self Generation Incentive Program and Massachusetts and New York offer performance-based financial incentives for storage. Storage installations also are supported in certain states by state public utility commission policies that require utilities to consider alternatives such as storage before they can build new generation. In February 2018, the FERC issued Order 841 directing regional transmission operators and independent system operators to remove barriers to the participation of storage in wholesale electricity markets and to establish rules to help ensure storage resources are compensated for the services they provide. An appeal of Order 841 filed by utility trade associations and other parties challenging the extent of the FERC’s jurisdiction over storage resources connected to distribution systems (among other issues) is currently pending before the U.S. Court of Appeals for the D.C. Circuit. In September 2020, the FERC issued Order 2222, opening up U.S. wholesale energy markets to aggregations of distributed energy resources like rooftop solar, BTM batteries and electric vehicles.

Energy storage systems require interconnection agreements from the applicable local electricity utilities in order to operate. In almost all cases, interconnection agreements are standard form agreements that have been

 

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pre-approved by the local public utility commission or other regulatory body with jurisdiction over interconnection agreements. As such, no additional regulatory approvals are typically required once interconnection agreements are signed.

Our operations are subject to stringent and complex federal, state and local laws and regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended, and comparable state laws that protect and regulate employee health and safety.

There are government regulations pertaining to battery safety, transportation of batteries and disposal of hazardous materials. We and our suppliers, as applicable, are required to comply with these regulations in order to sell our batteries into the market. The license and sale of our batteries and technology abroad is likely to be subject to export controls in the future.

Each of our installations or customer installations must be designed, constructed and operated in compliance with applicable federal, state and local regulations, codes, standards, guidelines, policies and laws. To install and operate energy storage systems on our platform, we, our customers or our partners, as applicable, are required to obtain applicable permits and approvals from local authorities having jurisdiction to install energy storage systems and to interconnect the systems with the local electrical utility.

Human Capital Resources

Our mission is to build and operate the largest digitally connected energy storage network for our customers, and we are also committed to creating a world-class workforce. We aim to foster and maintain a workplace that values the unique talents and contributions of every individual. We believe it is the diversity of our people, with varied skills and backgrounds, that shape our success and innovation. Our people-focused culture is driven by collaboration and global cross-functional connections. We recognize the success of Stem is dependent on our talent and the satisfaction of our global workforce, and we are greatly invested in the ability of our people to succeed and thrive. The following discussions provide a description of our employees, and outline how we manage our human capital resources and how we invest in our employees’ success.

Employees

As of December 31, 2021, we had 213 employees, of whom 195 were based in the United States and 18 in Canada. As of December 31, 2021, approximately 28% of the global team was female and 72% was male.

We have not experienced any employment-related work stoppages due to the COVID-19 pandemic or otherwise, and consider relations with our employees to be good. Specifically, in response to local government and health guidelines around the COVID-19 pandemic we shifted almost all of our employees to remote work and began offering tools and services for optimizing remote work. We believe that our future success depends in part on our continued ability to hire, motivate and retain qualified employees in any operating environment.

Recruiting

We believe in investing for the future, including the future of our workforce, and have several talent programs to recruit exceptional individuals who share our values. Our recruiting team and hiring managers begin with the creation of detailed job descriptions, which clearly outline the skills and experience necessary for success in each role. We believe these steps are essential to effectively interview for identifiable skillsets and not just “personality fits.” We strive to build our workforce from within whenever possible; however, if the best candidate for an available position is not identified from within our existing talent pool, we will look externally for the best talent. Our recruitment strategy is to initially search for candidates directly through our professional networks, university and mentorship programs, and through advertising with certain partners. We also occasionally use recruitment consultants and search firms.

 

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Professional Development

We are committed to helping people realize their highest potential and fostering a culture that supports personal development for individuals, leaders and teams across the organization. Our employees enjoy ample opportunity to learn new skills to develop and advance their career, and we provide opportunities for all our employees to receive ongoing formal training to help foster their professional development. We also encourage continuing education programs through approved institutions and online learning such as Udemy and Stem University.

Employee Feedback

We value the feedback we receive from our employees. Our annual employee engagement survey asks all of our employees for their input on a variety of matters. The results of the employee survey are disseminated to all employees, and the results are used to design action plans to assist managers with actively responding to employees’ sentiments. The employee survey is an important tool that allows us to continuously improve, innovate and evolve through ongoing engagement and measurement.

Diversity and Inclusion

We are committed to building an inclusive culture and team environment that supports current and future diversity in our industry and our talent. In the spirit of Stem’s core values we are One Team and succeed through collaboration when we respect, acknowledge and celebrate each other’s differences. We are committed to creating an inclusive environment that promotes equality, cultural awareness and respect by implementing policies, benefits, training, recruiting and recognition practices to support our colleagues. We believe that diversity and inclusion is about valuing our differences and continually identifying ways to improve our cultural intelligence which ultimately leads to better decision-making and a more tailored client experience. To help us achieve and maintain a diverse workforce, we globally monitor certain employee demographic data such as gender, ethnicity, tenure and age.

Employee Compensation, Benefits & Wellbeing

We strive to enrich and elevate the lives of our employees through a robust compensation and benefits package that is flexible to meet both individual and family needs, including but not limited to:

 

   

Market competitive compensation packages;

 

   

Robust health and well-being benefits, including a variety of medical, dental, and vision benefit offerings, and physical and mental health programs;

 

   

Paid maternity/paternity leave;

 

   

Snacks and beverages in the office;

 

   

Competitive paid time off and paid holidays;

 

   

Retirement plan alternatives and education offerings; and

 

   

Social activities and happy hours.

Our employee compensation structure is designed to attract, motivate and retain employees and we accomplish this through our competitive compensation and bonus structure.

Properties

Our corporate headquarters is located in San Francisco, California. This facility comprises approximately 23,500 square feet of office space. We have an additional facility in Burlingame, California comprising approximately 20,800 square feet of office and warehouse space. We lease both of these facilities.

 

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We believe our space is adequate for our current needs and that suitable additional or substitute space will be available to accommodate the foreseeable expansion of our operations. For more information about our material lease commitments, see Note 7 — Leases, in the notes to our audited consolidated financial statements included elsewhere in this prospectus.

Legal Proceedings

From time to time, we may become involved in additional legal proceedings arising in the ordinary course of our business. We have been and continue to be involved in legal proceedings that arise in the ordinary course of business, the outcome of which, if determined adversely to us, would not, individually or in the aggregate, have a material adverse effect on our business, financial condition and results of operations.

Additional Information

Company Website and Public Filings

Our main website is www.stem.com, and our investor relations website is located at www.stem.com/ investors. Neither the information on these websites, nor the information on the websites of any of our brands and businesses, is incorporated by reference into this prospectus, or into any other filings with, or into any other information furnished or submitted to, the SEC.

 

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DIRECTORS AND OFFICERS

The following table sets forth certain information regarding our directors and executive officers.

 

Name

   Age     

Position

John Carrington    55      Chief Executive Officer and Director
William Bush    56      Chief Financial Officer
Mark Triplett    60      Chief Operating Officer
Alan Russo    52      Chief Revenue Officer
Larsh Johnson    64      Chief Technical Officer
Saul R. Laureles    56      Chief Legal Officer and Secretary
Prakesh Patel    47      Chief Strategy Officer
Rahul Shukla    39      Chief Accounting Officer
David Buzby    62      Chairman of the Board of Directors
Adam E. Daley    45      Director
Michael C. Morgan    53      Director
Anil Tammineedi    45      Director
Lisa L. Troe    60      Director
Laura D’Andrea Tyson    74      Director
Jane Woodward    62      Director

Executive Officers

John Carrington is Chief Executive Officer and Director for the Company. Mr. Carrington leads the energy storage and analytics movement at the Company. Mr. Carrington has more than 25 years of leadership experience at technology, energy and industrial companies. In 2011, Mr. Carrington joined Stem from MiaSole, the world’s largest CIGS-based thin film solar company. From 2011 to 2013, Mr. Carrington served as Chief Executive Officer and Director at MiaSole. Prior to MiaSole, from 2008 to 2009 Mr. Carrington was Executive Vice President of Marketing and Business Development at First Solar, where he grew the company revenue from $250 million to more than $2 billion, and opened markets in the U.S., Asia and Europe. From 1991 to 2008, Mr. Carrington worked at General Electric, most recently as General Manager and Chief Marketing officer of the $7 billion GE Plastics, where he led global innovation, new technology efforts and product strategy. Mr. Carrington was part of a small executive team that executed on the $12 billion sale of GE Plastics to SABIC in 2007. He is an alumnus of the University of Colorado, where he earned his bachelor’s degree in economics. Mr. Carrington is qualified to serve as a director due to his deep knowledge of the Stem platform and his extensive experience in the energy and technology sectors.

William Bush has been Chief Financial Officer for Stem since 2016. Mr. Bush manages the Company’s corporate and project financing efforts, and has guided the Company from a startup to a $300 million- invested leader in the energy storage industry. Before joining Stem, from 2010 to 2016 Mr. Bush was Chief Financial Officer of Borrego Solar Systems Inc., where he helped the company achieve nearly 10 times growth and profitability. From 2008 to 2010, Mr. Bush was Chief Financial Officer of Solar Semiconductor Inc., a leading private, vertically integrated manufacturer and distributor of PV modules and systems with operations in India, helping it achieve $100 million in sales in less than 15 months. Mr. Bush has served as Chief Financial Officer for numerous high-growth solar, software and online media companies, including being a co-founder of Buzzsaw.com, a spinoff of Autodesk, in 1999. Prior to his work with Buzzsaw.com, Bill served as Corporate Controller for Autodesk, Inc. (NASDAQ: ADSK) from 1997 to 1999 and worked for seven years in public accounting with Ernst & Young (EY) and PricewaterhouseCoopers. Mr. Bush holds a B.S. in business administration from UC Berkeley and is a Certified Public Accountant.

Mark Triplett has been Chief Operating Officer for the Company since 2018, responsible for energy storage system deployments, supply chain, network operations, and utility programs. Mr. Triplett also ensures

 

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effective deployment and usage of the Company’s energy storage systems and cutting-edge AI, AthenaTM. Mr. Triplett brings more than 25 years of experience developing, selling and delivering complex technology solutions in energy storage, smart grid, renewable energy, DERS, utility operations, telecommunications, and enterprise software. Prior to joining the Company, from 2015 to 2018 Mr. Triplett was Chief Operating Officer of Green Charge Networks, and earlier served from 2011 to 2015 as President of Software and Chief Operating Officer at UISOL, an Alstom-owned DRMS enterprise software application product exclusively for the utility industry. Mr. Triplett has a B.S. in engineering from the United States Military Academy at West Point and an M.B.A. from National University.

Alan Russo has been the Company’s Chief Revenue Officer since 2019, leading the expansion of the Company’s markets in the U.S., Canada, Europe and Asia. Before joining the Company, from 2015 to 2018 Mr. Russo led sales and marketing for REC Solar, a wholly owned subsidiary of Duke Energy. From 2012 to 2015, Mr. Russo was Vice President of Strategic Accounts for Bloom Energy. During his 10-year tenure at Bloom Energy from 2006 to 2015, Mr. Russo led the development and deployment of hundreds of fuel cell systems at critical facilities around the U.S. From 1999 to 2005 Mr. Russo also led Asia commercial operations for American Power Conversion, a Schneider Electric company, managing over 350 employees. Mr. Russo earned his B.S. in aerospace engineering from Boston University.

Larsh Johnson has been Chief Technology Officer for the Company since 2016. Mr. Johnson leads hardware and software engineering to meet the unique needs of the Company’s commercial, industrial, utility and energy market customers. Prior to joining the Company, from 2015 to 2016 Mr. Johnson was Chief Technology Officer at Siemens Digital Grid, where he led technology development teams on products spanning from consumer metering, demand response and analytics to control center software and grid automation. Mr. Johnson joined Siemens via the 2012 acquisition of eMeter Corporation, a Bay Area software company of which he was a co-founder and responsible for innovation and development of meter data management, analytics and advanced smart grid applications as Chief Technology Officer from 1999 to 2015. Prior to eMeter, in 1985 Mr. Johnson co-founded CellNet Data Systems, a pioneer in wireless networks for smart metering and distribution automation where he served as Chief Technology Officer from 1985 to 1999. Mr. Johnson was a founding member of the Department of Energy’s Gridwise Architecture Council (GWAC) in 2004 and remains a member emeritus. He earned his B.S. and an M.S. in mechanical engineering from Stanford University.

Saul R. Laureles has been the Company’s Chief Legal Officer and Secretary since May 2021. Previously, Before joining the Company, he served as Director, Corporate Legal Affairs and Assistant Corporate Secretary at Schlumberger Limited, the world’s largest oilfield services company, which he joined in 2007. Mr. Laureles has a B.A. from the University of Chicago and earned his J.D. from the University of Michigan Law School.

Prakesh Patel has been Chief Strategy Officer for the Company since 2020. Previously, Mr. Patel was the Company’s Vice President of Capital Markets and Strategy from 2013 to 2020, in which role he led the Company’s financial strategy and supported corporate fundraising initiatives, structuring its first project finance facilities and helping to secure more than $200 million in equity financing for the Company. Mr. Patel has spent his career financing technology and energy ventures at the cross section of multiple industries. Before joining the Company, from 2010 to 2013, he served on the investment team at Angeleno Group, an energy and natural resources-focused private equity firm, during which time he led their investment in the Company. Previously, Mr. Patel built and managed a portfolio of private equity investments at New Bridge Investments from 2008 to 2010 and Deutsche Bank from 2005 to 2008. Mr. Patel has a B.A. from UC Berkeley and an M.B.A. from Yale University.

Rahul Shukla is Chief Accounting Officer of the Company. Mr. Shukla was previously the Vice President, Finance for Natera, Inc. from June 2020 to December 2021. Prior to that, he was Vice President, Corporate Controller of eHealth, Inc. from 2018 to 2020. Prior to that, he served as Vice President, Finance and Accounting of Gum Drop Cases, Inc., from 2015 to 2018. Prior to that, he served in various accounting and finance roles with

 

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NextTag, Inc, from 2013 to 2015. Mr. Shukla has a Bachelor of Science degree in Business Administration from the University of California, Berkeley.

Directors

David Buzby has been starting, building and investing in 12 climate transition businesses over the last 30 years with an emphasis on renewable energy generation, energy storage/grid services and e-commerce. These companies have been at the forefront of financial innovation in the climate transition industry, developing the world’s first commercial and solar PPAs and energy storage as a service agreements. The innovations not only created industry leading platform companies (SunRun, the Company, SunEdison), but also attracted hundreds of billions of capital to business models that propelled overall industry growth. David has been on the Board of the Company since 2010, Leading Edge Equipment Technologies since 2017, Cambrian Innovation from 2016 to 2020, ParagonClinicals since 2020. and was founder and CEO of Bright Plain Renewable Energy from 2011 — 2016, as well as being a member of the Investment Committee at the PRIME Coalition. He has in the past been a founding investor and director of SunRun (NASD: RUN), SunEdison (NYSE: SUNE), Valueclick (NASD: VCLK), Prevalent Power, Resource Holdings and Best Internet. David has an M.B.A. from the Harvard Business School (1988) and a B.A. from Middlebury College (1982). Mr. Buzby is qualified to serve as a director due to his extensive experience in the climate transition sector and as a director on the boards of other public companies.

Adam E. Daley is a Partner at Magnetar Capital, Co-Head of Magnetar’s Energy & Infrastructure Group and a member of Magnetar Capital’s management committee and investment committee. Since joining Magnetar Capital at its inception in 2005, Mr. Daley has been focused primarily on the sourcing, execution and management of various investments in the energy, energy infrastructure and renewables sectors. Mr. Daley is currently a director of STPK. Prior to joining Magnetar Capital, Mr. Daley was an investment banker at Citigroup’s Global Corporate and Investment Bank, where he was responsible for executing a variety of corporate finance transactions. Mr. Daley also currently serves on the boards of directors of Star Peak Corp. II (NYSE: STPC), Double Eagle Energy III, LLC, Vesper Energy Development LLC, and DoublePoint Energy, LLC. Mr. Daley earned a BS in Finance with High Honors from the University of Illinois. Mr. Daley is qualified to serve as a director due to his broad transactional experience in the energy, energy infrastructure and renewables sectors.

Michael C. Morgan served as the Chairman of Star Peak Energy Transition Corp. In 2008, Mr. Morgan co-founded Triangle Peak Partners, LP, a multi-strategy asset management firm focused on venture capital and growth equity, and he currently serves as its Chairman and Chief Executive Officer. Since 2004, Mr. Morgan has also served as President and Chief Executive Officer of Portcullis Partners, LP, a private investment partnership and one of Triangle Peak Partners’ largest limited partners. Mr. Morgan currently serves as the lead director of Kinder Morgan, Inc. (NYSE: KMI), one of the largest energy infrastructure companies in North America. Mr. Morgan joined Kinder Morgan at its founding in 1997 and headed Kinder Morgan’s corporate development efforts until 2001, completing 23 acquisitions worth over $5 billion. He then served as President of KMI until 2004. Mr. Morgan has also served on the board of Sunnova Energy International, Inc. (NYSE: NOVA), a leading residential solar and energy storage company, since June of 2019. Mr. Morgan first joined the board of NOVA’s predecessor (Sunnova Energy Corporation) in October 2015, served as Lead Director until March of 2016 and remained on that board until NOVA’s initial public offering in June of 2019. Mr. Morgan previously served on the boards of directors of two public energy funds affiliated with Kayne Anderson (NYSE: KYN and KYE) and on the boards of directors of Bunchball, Lytx, and SCIenergy. Mr. Morgan also currently serves on the boards of directors of Star Peak Corp. II (NYSE: STPC). Mr. Morgan is a frequent volunteer at Stanford University, currently serving as the national chair of The Stanford Fund, as co-chair of the Precourt Energy Institute Advisory Council, and on several other advisory committees. Mr. Morgan previously served as an Adjunct Professor in the Practice of Management at the Jones Graduate School of Business at Rice University in Houston. Mr. Morgan received an M.B.A. from Harvard Business School and B.A. in Economics and an M.A. in Sociology from Stanford University. Mr. Morgan is qualified to serve as a director due to his extensive

 

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experience in the energy infrastructure and clean energy sectors and as a director on the boards of other public companies.

Anil Tammineedi has been with Angeleno Group, a leading global investment firm focused on high growth clean energy and climate solutions companies, since 2008, where he leads investments across a number of sectors including sustainable mobility, energy storage, resource efficiency and smart infrastructure. Mr. Tammineedi currently serves on the Boards of the Company, Critigen and Patriot Environmental Services and is a Board Observer at mPrest. Mr. Tammineedi has several years of technology and operating experience at Broadcom, where he worked from 1999 to 2006, in product development and management roles related to semiconductors targeting communications, mobile and power management applications. Mr. Tammineedi has an M.B.A. from the UCLA Anderson School of Management, where he also currently serves as a Faculty Advisor to the Business Creation Option of the capstone project, and a M.S. from Iowa State University. Mr. Tammineedi is also a Kauffman Fellow. Mr. Tammineedi is qualified to serve as a director due to his extensive experience in the technology sector and with high growth and clean energy companies and as a director on the boards of other companies.

Lisa L. Troe is a Senior Managing Director of Athena Advisors LLC, a business advisory firm she co-founded in 2014 that provides services in securities litigation, public company accounting, financial reporting and disclosure, auditing, compliance systems, enterprise risk management, and other business needs and strategies. From 2005 through 2013, Ms. Troe was a Senior Managing Director at FTI Consulting, Inc. (NYSE: FCN), a global business advisory firm. From 1995 through 2005, Ms. Troe served on the staff of the U.S. Securities and Exchange Commission’s Pacific regional office, including seven years as an Enforcement Branch Chief and six years as Regional Chief Enforcement Accountant. Prior to joining the SEC, Ms. Troe was an auditor at a Big Four public accounting firm and held corporate accounting and financial positions in the fossil fuels energy industry. Ms. Troe serves as (i) a director and the audit committee chair of Magnite, Inc. (Nasdaq: MGNI), an independent platform that employs machine learning algorithms for the purchase and sale of digital advertising, joining the board shortly before the company’s public offering in 2014, and (ii) a director of HireRight GIS Group Holdings LLC, which provides employers with global background screening and other workforce solutions. Ms. Troe has served on private company boards as a director and audit committee chair. From 2003 to 2014, Ms. Troe was a member of the advisory board that functioned as a board of directors for a Texas general partnership engaged in oil and gas exploration and production. In 2007, Ms. Troe served a member of a Special Litigation Committee of the board of a public gaming industry manufacturing company. Ms. Troe is a National Association of Corporate Directors member and Board Leadership Fellow, CERT certified in cybersecurity by the Software Engineering Institute of Carnegie Mellon University, and a CPA. Ms. Troe received her B.S. in Business Administration with honors from the University of Colorado. Ms. Troe is qualified to serve as a director due to her expertise in public company accounting, financial reporting and corporate governance, and the depth of her government and business experience, as well as her public company board and audit committee experience.

Laura D’Andrea Tyson is a Distinguished Professor of the Graduate School and Professor Emeritus at the Haas School of Business at the University of California at Berkeley, positions she has held since 2016. She has also been the Chair of the Board of Trustees and Steering Committee Member of the Blum Center for Developing Economies since 2007, and is currently the Faculty Director of the Berkeley Haas Blockchain Initiative and the co-Faculty Director of the Sustainable and Impact Finance Initiative at the Haas School of Business since 2019. Dr. Tyson has also held a series of other roles at the University of California at Berkeley, including Professor Business Administration and Economics at the Haas School of Business from 2007 to 2016, the Faculty Director and Interim Director of the Institute of Business and Social Impact from 2013 to 2020, Interim Dean in 2018 and Dean from 1998 through 2001. She was also Dean of London Business School, University of London from 2001 through 2006. Dr. Tyson is currently serving as a director of the CBRE Group, Inc. (NYSE: CBRE), the world’s largest commercial real estate services and investment firm, having acted on the acquisition committee from joining the board in 2010 to 2014 and currently acting on the audit committee since 2014. She is also currently serving on the board of directors of Lexmark International Inc., an American

 

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company that manufactures laser printers and imaging products, and Apex Swiss Holdings, SARL since 2017. Dr. Tyson also served on the board of directors of AT&T (NYSE: T) from 1999 to 2020, Morgan Stanley (NYSE: MS) from 1997 to 2016, and Silver Springs Networks, Inc. (NYSE: SSNI), a provider of smart grid products, from 2009 to its acquisition by Itron in 2018. Dr. Tyson has also been a board member of the Haas School of Business since 2020, the Philanthropy University since 2019, SeriousFun Children’s Network since 2020 and the Sustainability Accounting Standards Board Foundation since 2017. In addition to her service on the board of directors, Dr. Tyson has numerous advisory roles, such as Senior Advisor to Rockefeller Capital Management since 2020 and to the Rock Creek Group since 2009. Dr. Tyson has also been serving as a Global Economy Fellow for the MasterCard Center for Inclusive Growth since 2019, having acted as their special advisor since 2016. Since 2019, Dr. Tyson has been a member of the Commission d’experts sur les grands défis économiques for French President Emmanuel Macron since 2020. She is the co-chair of the California Governor’s Council of Economic Advisors. Other government roles include membership on the US President’s Council of Advisors on Science and Technology (Working Group Member on Semiconductors) from 2016 to 2017, Secretary of State Foreign Affairs Policy Board and Council on Jobs and Competitiveness for the President of the U.S. from 2011 to 2013, Economic Recovery Advisory Board to the President of the U.S. from 2009 to 2011. Dr. Tyson was a member of President Clinton’s cabinet from 1993 to 1996 and was the first woman to serve in the position of Chair of the President’s Council of Economic Advisors, from 1993 to 1995, and Director of the White House National Economic Council, from 1995 to 1996. Dr. Tyson received her B.A. from Smith College and holds a Ph.D. in Economics from the Massachusetts Institute of Technology. Dr. Tyson is qualified to serve as a director due to her extensive public company board experience, deep experience in the technology and energy industries and track record of accomplishment at the high levels of government service.

Jane Woodward is a Founder and Managing Partner of MAP Energy. MAP is one of the longest- standing private energy investment fund management firms in the U.S. with investors from U.S. endowments, foundations, and families. MAP began investing in natural gas mineral rights in 1987, wind energy in 2004, utility scale solar in 2015 and energy storage in 2017. In December 2020, MAP sold its renewable energy and energy storage assets under management to Global Infrastructure Partners (GIP). MAP continues to manage one of the largest private mineral portfolios in the U.S. and remains focused on energy investing. Ms. Woodward is also currently an adjunct professor of civil and environmental engineering at Stanford University and has over 30 years of experience developing and teaching energy classes at Stanford University. Ms. Woodward also serves on the Precourt Institute for Energy Advisory Council at Stanford University. Prior to founding MAP and teaching at Stanford, Ms. Woodward worked as an exploration geologist with ARCO Exploration Company and later as a petroleum engineering consultant to Stanford University’s endowment. Ms. Woodward received her B.A. in Geological Sciences from the University of California, Santa Barbara and holds a Master’s degree in Applied Earth Science and M.B.A. from Stanford University. Ms. Woodward is qualified to serve as a director due to her extensive private sector experience in numerous areas of the energy and renewables industries, as well as three decades of energy related teaching experience.

Board Composition

Our business and affairs is organized under the direction of our board of directors, which consists of eight members. The primary responsibilities of the board of directors are to provide oversight, strategic guidance, counseling and direction to our management. The board of directors will meet on a regular basis and additionally as required.

Our board of directors is divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a three-year term. The term of office of the first class of directors, consisting of Laura D’Andrea Tyson and Jane Woodward, will expire at the Company’s first annual meeting of stockholders. The term of office of the second class of directors, consisting of Adam E. Daley, Anil Tammineedi and Lisa L. Troe, will expire at the Company’s second annual meeting of stockholders. The term of office of the third class of directors, consisting of David Buzby, John Carrington and Michael C. Morgan, will expire at the Company’s third annual meeting of stockholders.

 

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Role of Board in Risk Oversight

The board of directors has extensive involvement in the oversight of risk management related to us and our business and accomplishes this oversight through the regular reporting to the board of directors by the audit committee. The audit committee represents the board of directors by periodically reviewing our accounting, reporting and financial practices, including the integrity of our financial statements, the surveillance of administrative and financial controls and our compliance with legal and regulatory requirements. Through its regular meetings with management, including the finance, legal, internal audit and information technology functions, the audit committee reviews and discusses all significant areas of our business and summarizes for the board of directors all areas of risk and the appropriate mitigating factors. In addition, our board of directors receives periodic detailed operating performance reviews from management.

Committees of the Board of Directors

The Company’s board of directors has three standing committees: an audit committee, a compensation committee and a nominating, governance and sustainability committee. Each committee operates under a charter that has been approved by our board of directors and has the composition and responsibilities described below. The charter of each committee are available on the Company’s website at www.stem.com.

Our Chief Executive Officer, Chief Financial Officer and other executive officers regularly report to the non-executive directors and the audit, the compensation and the nominating, corporate governance and sustainability committees to ensure effective and efficient oversight of our activities and to assist in proper risk management and the ongoing evaluation of management controls.

Audit Committee

Our board of directors has established an audit committee. The audit committee consists of Adam E. Daley, Anil Tammineedi and Lisa L. Troe, who serves as chairperson. Each member of the audit committee qualifies as an independent director under the NYSE listing standards and applicable SEC rules.

Each member of the audit committee meets the financial literacy requirements of NYSE listing standards and our board of directors has determined that Lisa L. Troe is as an “audit committee financial expert” as defined in applicable SEC rules.

The purpose of the audit committee is to prepare the audit committee report required by the SEC to be included in our proxy statement and to assist our board of directors in overseeing and monitoring (i) the quality and integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) our independent registered public accounting firm’s qualifications and independence, (iv) the performance of our internal audit function and (v) the performance of our independent registered public accounting firm.

Compensation Committee

Our board of directors has established a compensation committee. The compensation committee consists of David Buzby, Michael C. Morgan, who serves as chairperson, and Jane Woodward. Each member of the compensation committee qualifies as an independent director under the NYSE listing standards and applicable SEC rules.

The purpose of the compensation committee is to assist our board of directors in discharging its responsibilities relating to (i) setting our compensation program and compensation of our executive officers and directors, (ii) monitoring our incentive and equity-based compensation plans and (iii) preparing the compensation committee report required to be included in our proxy statement under the rules and regulations of the SEC.

 

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Nominating, Governance and Sustainability Committee

Our board of directors has established a nominating, governance and sustainability committee. The nominating, governance and sustainability committee consists of Anil Tammineedi, Laura D’Andrea Tyson, who serves as chairperson, and Jane Woodward. Each member of the nominating, governance and sustainability committee qualifies as an independent director under the NYSE listing standards.

The primary purposes of our nominating, governance and sustainability committee is to assist the board in: (i) identifying individuals qualified to become new board of directors members, consistent with criteria approved by the board of directors, (ii) reviewing the qualifications of incumbent directors to determine whether to recommend them for reelection and selecting, or recommending that the board of directors select, the director nominees for the next annual meeting of stockholders, (iii) identifying members of the board of directors qualified to fill vacancies on any board of directors committee and recommending that the board of directors appoint the identified member or members to the applicable committee, (iv) reviewing and recommending to the board of directors a set of corporate governance principles applicable to us, (v) overseeing the evaluation of the board of directors, (vi) overseeing and making recommendations to the board of directors regarding sustainability matters relevant to the Company’s business and (vii) handling such other matters that are specifically delegated to the committee by the board of directors from time to time.

Director Nominations

Our nominating, governance and sustainability committee recommends to the board of directors candidates for nomination for election at the annual meeting of the stockholders. The board of directors also considers director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to our board of directors should follow the procedures set forth in our bylaws.

We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, our board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.

Compensation Committee Interlocks and Insider Participation

Our compensation committee consists of David Buzby, Michael C. Morgan, who serves as chairperson, and Jane Woodward. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers that will serve as a member of our board of directors or compensation committee.

Code of Business Conduct

We have adopted a code of business conduct (the “code of business conduct”) that applies to all of our directors, officers and employees, including our chief executive officer, chief financial officer, chief revenue officer and chief operating officer. Our code of business conduct is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. Copies of the code of business conduct and charters for each of our committees will be provided without charge upon request from us and is available on our website at www.stem.com. We make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of ethics on our website.

 

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Corporate Governance Guidelines

Our board of directors has adopted a corporate governance guidelines in accordance with the corporate governance rules of the NYSE that serve as a flexible framework within which our board of directors and its committees operate. These guidelines cover a number of areas including board membership criteria and director qualifications, director responsibilities, board agenda, roles of the chair of the board, principal executive officer and presiding director, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines is available on our website at https://s27.q4cdn.com/138752898/files/doc_downloads/gov/Corporate-Governance- Guidelines.pdf m.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

Overview

In accordance with SEC transition rules for “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act, we have opted to comply with the SEC’s scaled down disclosure framework. These rules require compensation disclosure for the Company’s principal executive officer and its two most highly compensated executive officers other than the principal executive officer who were serving as executive officers as of December 31, 2021. We refer to these individuals as our “named executive officers,” or “NEOs.”

For purposes of this executive compensation discussion, the names and positions of our named executive officers for the 2021 fiscal year were:

 

   

John Carrington, Chief Executive Officer;

 

   

William Bush, Chief Financial Officer; and

 

   

Larsh Johnson, Chief Technology Officer.

2021 Summary Compensation Table

The following table sets forth information concerning the compensation paid to the principal executive officer and the next two most highly compensated executive officers of the Company during the fiscal years ended December 31, 2021 and December 31, 2020 (the “named executive officers,” or “NEOs”).

The following table sets forth information concerning the compensation paid to our named executive officers.

 

Name and Principal Position

  Year     Salary
($) (1)
    Stock
Awards
($) (2)
    Option
Awards
($) (3)
    Non-Equity
Incentive Plan
Compensation
($) (4)
    All Other
Compensation
($) (5)
    Total
($)
 

John Carrington

    2021       475,795       37,815,664       1,654,948       594,825       24,760       40,565,992  

Chief Executive Officer

    2020       395,521       —         4,210,065       350,625       —         4,956,211  

William Bush

    2021       374,167       2,938,958     $ 661,980       315,000       19,231       4,309,336  

Chief Financial Officer

    2020       350,000       —         1,878,363       150,000       —         2,378,363  

Larsh Johnson

    2021       350,000       2,867,180       579,227       238,875       12,736       4,048,018  

Chief Technology Officer

    2020       350,000       —         346,750       140,000       88,876       925,626  

 

(1)

Amounts reflect salary actually paid to the NEOs in the years shown.

(2)

Amounts reflect the aggregate grant date fair value of time-vested restricted stock units (“RSUs”) granted to the NEOs in the years shown, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASC Topic 718), and based on the closing price of our common stock on July 2, 2021, the date of grant. These amounts may not correspond to the actual value eventually realized by each NEO because the value depends on the market value of our common stock at the time the award vests.

The amount for Mr. Carrington in the “Stock Awards” column for the 2021 fiscal year represents a Closing Grant of 1,000,000 RSUs in recognition of his leadership in closing the Merger, as defined and described below under “Elements of 2021 Total Direct Compensation; 2021 Decisions — Incentive Compensation Plans – Long-Term Equity Incentive.” To promote retention of Mr. Carrington during our critical transition to a public company, his RSU award will vest over seven years, with the first 3/7 of his award (43%) “cliff” vesting on April 28, 2024, subject to Mr. Carrington’s continued employment with the Company on such date, and the remainder of his RSU award vesting in equal annual installments over the remaining four years, subject to his continued employment through each applicable vesting date. Also reflects a 2021 LTI

 

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award of 39,463 RSUs to Mr. Carrington, which will vest in equal annual installments over four years from the date of grant.

As discussed in more detail under “Elements of 2021 Total Direct Compensation; 2021 Decisions — Long-Term Equity Incentive Awards,” the stock price used to determine the number of RSUs representing the NEOs’ Closing Grants (including Mr. Carrington’s) was the price of STPK common stock immediately prior to the date of the announcement of the Merger in December 2021, rather than the Company’s post-Merger stock price on the date on which the awards were granted. Such grant date was approximately six months after the date of the closing of the Merger (when we first became eligible to, and did, file a registration statement on Form S-8 with respect to our 2021 Equity Incentive Plan). As a result, the value of the Closing Grants as disclosed in the Summary Compensation Table above, which were computed in accordance with FASB ASC Topic 718, is significantly higher than the values of the Closing Grants contemplated when the Closing Grants were negotiated in December 2020.

(3)

Amounts reflect the aggregate grant date fair value of option awards granted to the NEOs in the years shown, computed in accordance with FASB ASC Topic 718. This amount reflects an accounting expense and does not correspond to actual value that may be realized by the NEOs in the future. A description of the methodologies and assumptions we use to value option awards, and the manner in which we recognize the related expense, are described in Note 15, “Stock-Based Compensation Expense,” to our audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021. The NEOs may never realize any value from these stock options and, to the extent that they do, the amounts realized may have no correlation to the amounts reported above.

(4)

Amounts reflect annual cash bonuses earned by the NEOs for the years shown. The NEOs were each eligible to receive bonuses determined as a percentage of their respective base salaries based on the achievement of pre-established financial and operational metrics.

(5)

Amounts for 2021 in this column reflect cash payments for unused vacation days.

Principal Objectives of the Company’s Compensation Program for Named Executive Officers

Historically, the Company’s executive compensation program has reflected a corporate culture focused on growth and development. The following objectives have guided the Company’s decisions with respect to the compensation provided to its named executive officers: attract, retain and incent highly effective executives who share the Company’s values and philosophy; align the interests of our named executive officers with the interests of the Company’s stockholders; and reward the Company’s named executive officers for creating value for the Company’s stockholders in the long-term.

Elements of Compensation

The primary elements of compensation for the Company’s named executive officers are base salary, annual cash performance bonuses or commission payments, and awards of stock options under the long-term equity compensation plan. The named executive officers also participate in employee benefit plans and programs that the Company makes available to its other full-time employees on the same basis and receive certain additional benefits and perquisites, as described below.

Base Salary

The Company pays its named executive officers a base salary to compensate them for the satisfactory performance of services rendered to the Company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role, responsibilities, and contributions to the Company. Base salaries for the Company’s named executive officers have generally been set at levels deemed necessary to attract and retain individuals with superior talent and were initially established in each named executive officer’s employment offer letter agreement. The annual base salaries of the Company’s named executive officers for 2021 and 2020 are set forth in the summary compensation table above.

 

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Annual Cash Performance Bonuses

Historically, the Company’s named executive officers have been provided the opportunity to earn annual cash bonuses to compensate them for attaining annual company and individual performance goals. Each of these named executive officers has historically had an annual target bonus that is expressed as a percentage of his annual base salary. The initial annual target bonus percentages for Messrs. Carrington, Bush and Johnson are 110%, 75% and 65% of base salary, respectively.

The compensation committee of the board of directors of the Company maintains ultimate discretion over all bonus payouts (except as to the CEO, whose payout is approved by the board of directors), and no awards are paid unless approved by the board. Bonus awards for 2020 are set forth in the summary compensation table above.

On May 25, 2021, the Compensation Committee of the board of directors of the Company, adopted the Stem, Inc. 2021 Annual Incentive Plan (the “2021 Plan”), which is intended to provide a link between the compensation of participants and Company performance, to motivate participants to achieve individual and corporate performance goals and objectives and to enable the Company to attract and retain high quality executives. The Plan contains performance metrics for the calendar year 2021 performance period, based upon the Company’s 12-month pipeline, contracted backlog, revenue and adjusted EBITDA for 2021. Final payouts under the Plan will be determined by the Committee based upon Company performance relative to these performance metrics.

The following table summarizes the 2021 performance metrics, weighting per metric, the threshold and target goals per metric, actual performance per metric and actual performance as a percentage of the target, all as approved by our Compensation Committee:

 

Metric

   Weighting     Threshold*     Target*     Actual     Payout (1)  

12-month pipeline

     15   $ 1.75B     $ 2.5B     $ 4.0B       125

Contracted backlog

     35   $ 181M     $ 258.0M     $ 449.0M       125

Revenue

     30   $ 103M     $ 147.0M     $ 127.4M       87

Adjusted EBITDA (2)

     20     ($36M     ($25.0M     ($30.2M     80

Payout

       70     100       105

 

*

For results between performance targets, payout is prorated.

(1)

The maximum potential payout that our NEOs can earn for each performance metric is 125% of target for above-target achievement.

(2)

Adjusted EBITDA reflects net loss before depreciation and amortization, including amortization of internally developed software, net interest expense, further adjusted to exclude stock-based compensation and other income and expense items, including the change in fair value of warrants and embedded derivatives. For a reconciliation of Adjusted EBITDA to net loss on a GAAP basis, see Appendix A.

Based on this performance, the Committee awarded bonuses to the NEOs under our 2021 AIP as follows:

 

Named Executive Officer

   Target Bonus
Payout
    Actual Bonus
Payout
 

Carrington

     110     115.5

Bush

     75     78.75

Johnson

     65     68.25

Long-Term Equity Compensation

The Company maintained the 2009 Plan pursuant to which the NEOs have received stock options to acquire shares of common stock of the Company. When determining the number of stock options granted to an NEO, the

 

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Company considered such executive’s expertise, level of responsibilities, and contributions to the success of the Company. In addition to rewarding the NEOs based on the performance of the Company, these stock options have also served to retain the services of such executives since such stock options have been subject to time-based vesting conditions. The stock options granted to the NEOs have typically vested over a four-year period based on such executive’s continued employment or engagement by the Company. Information regarding the stock options granted to the NEOs in prior years, including during fiscal year 2021, is set forth above in the “Summary Compensation Table” above and in the “Outstanding Equity Awards at 2021 Fiscal Year End” table below.

Long-Term Equity Incentive Awards.

Long-term equity incentive (“LTI”) awards are designed to give NEOs and other key employees a longer-term stake in the Company, provide incentives for the creation of sustained stockholder value, act as long-term retention and motivation tools, and directly tie employee and stockholder interests over the longer term.

When determining the amount of LTI awards granted to an NEO, the Company considers such executive’s expertise, level of responsibilities, and contributions to the success of the Company. In addition to rewarding the NEOs based on the performance of the Company, equity awards have also served to retain the services of such executives since such they are subject to time-based vesting conditions. LTI awards granted to the NEOs typically vest annually over a four-year period, subject to such executive’s continued employment with the Company. Information regarding the stock options and RSUs granted to the NEOs in 2021 and 2020 is set forth above in the “Summary Compensation Table” and the “Outstanding Equity Awards at 2021 Fiscal Year End” table.

As noted above, prior to the announcement of the Merger in December 2020, each of our NEOs agreed to enter into an employment agreement with STPK, the material terms of which were agreed upon following arms’ length negotiations with management of STPK. These employment agreements became effective upon the consummation of the Merger on the Closing Date. Under these employment agreements, each of the NEOs was entitled to receive a Closing Grant of time-based RSUs to be awarded after the closing of the Merger, with Messrs. Carrington, Bush and Johnson eligible to receive 1,000,000 RSUs, 65,000 RSUs and 65,000 RSUs, respectively. On the date immediately prior to the announcement of the Merger, STPK’s common stock was trading at or about its notional IPO value of $10 per share, meaning that the target value of Mr. Carrington’s RSU award prior to announcement of the Merger was approximately $10 million.

The Closing Grants were intended to reward the NEOs for their leadership and performance through the closing of the Merger and, in the case of Mr. Carrington, to secure his leadership for up to seven years as the Company made the critical transition from a private to public company. As noted above, to promote retention of Mr. Carrington during our critical transition to a public company, his RSU award will vest over seven years, with the first 3/7 of his award (43%) “cliff” vesting on April 28, 2024, subject to Mr. Carrington’s continued employment with the Company on such date, and the remainder of his RSU award vesting in equal annual installments over the remaining four years, subject to his continued employment through each applicable vesting date. The Closing Grants for Messrs. Bush and Johnson provide for “cliff” vesting of 100% of the award on the third anniversary of the closing date of the Merger, subject to their continued employment with the Company on such date.

These Closing Grants, although provided for in the Employment Agreements and approved by our Compensation Committee in May 2021, were not granted until July 2, 2021, after the Merger and the filing of our registration statement on Form S-8. The Compensation Committee’s intention and desired cadence in future years is to grant annual awards in the first quarter of each year to align with the Company’s compensation-planning cycle. Because of the need to file the registration statement on Form S-8 prior to issuing the Closing Grant RSUs, by the time the Closing Grants could be awarded the stock price had increased significantly, reflecting the efforts and success of the team. As a result, the value of the Closing Grants as disclosed herein,

 

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which was computed in accordance with FASB ASC Topic 718, is significantly higher than the value contemplated when the Closing Grants were negotiated prior to the announcement of the Merger in December 2020.

In addition to the Closing Grants, the Employment Agreements provide that the NEOs are entitled to “Annual LTI Grants,” with Mr. Carrington eligible to receive LTI awards in 2021 with a grant date fair value equal to approximately $2 million, and Messrs. Bush and Johnson eligible to receive LTI awards in 2021 with a grant date fair value equal to $800,000, in the case of Mr. Bush, and $700,000, in the case of Mr. Johnson. At its May 2021 meeting, the Committee approved these awards to be issued in the form of RSUs and stock options, resulting in grants of 39,463 RSUs and 98,658 stock options to Mr. Carrington; 15,785 RSUs and 39,463 stock options to Mr. Bush and 13,812 RSUs and 34,530 stock options to Mr. Johnson. Like the Closing Grants, the 2021 Annual LTI Grants to the NEOs were made on July 2, 2021. The Annual LTI Grants for 2021 for each of the NEOs provide for vesting in equal annual installments over four years following the closing date of the Merger.

401(k), Health, Welfare and Additional Benefits

The NEOs are eligible to participate in employee benefit plans and programs, including medical and dental benefits, flexible spending accounts, long-term care benefits, and short- and long-term disability and life insurance, to the same extent as the Company’s other full-time employees, subject to the terms and eligibility requirements of those plans. The NEOs have also participated in a 401(k) defined contribution plan, subject to limits imposed by the Internal Revenue Code, to the same extent as the Company’s other full- time employees. In addition, Mr. Johnson receives an annual housing allowance to facilitate his ability to secure housing closer to the Company’s headquarters in San Francisco, California.

Employment Arrangements

Prior to the Merger, the Company entered into employment offer letter agreements with each of its named executive officers.

The key terms of these agreements are described immediately below.

John Carrington

Mr. Carrington and the Company entered into an employment offer letter agreement on December 3, 2013 (the “Carrington Agreement”), which provided that Mr. Carrington would serve as the Chief Executive Officer of the Company. The Carrington Agreement did not include a fixed term but instead provided for employment with the Company on an at-will basis. Mr. Carrington’s annual base salary was initially set at $325,000 under the Carrington Agreement and was subsequently increased to $375,000 for 2019 and $515,000 for 2020. The Carrington Agreement also provided that Mr. Carrington would be eligible to earn an annual cash bonus determined as a percentage of his annual base salary based on the achievement of individual and companywide performance metrics. During fiscal year 2020, Mr. Carrington had an opportunity to earn a cash bonus of $400,000 representing 100% of his annual base salary. In order to receive an annual bonus, Mr. Carrington was required to remain continuously employed by the Company through the end of applicable bonus period. Typically, any bonuses earned by Mr. Carrington have been generally paid by the fifteenth day of the third month following the close of the Company’s fiscal year or March 15 following the calendar year in which the bonus was earned. The Company also reimbursed Mr. Carrington for expenses incurred in the course and scope of his employment. In addition, Mr. Carrington was eligible to participate in the employee benefit plans of general applicability maintained by the Company for other senior-level executives.

Mr. Carrington also received stock options under the 2009 Plan consistent with the terms set forth in the Carrington Agreement.

 

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As a condition of employment, Mr. Carrington also entered into the “At Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement” with the Company (the “Restrictive Covenants Agreement”). This agreement includes a perpetual covenant prohibiting Mr. Carrington’s use and disclosure of confidential information. The agreement also provides for Mr. Carrington’s assignment of intellectual property to the Company. In addition, this agreement prohibits Mr. Carrington from soliciting employees of the Company during his service to the Company and for a period of twelve (12) months following his termination of service.

Mr. Carrington was also eligible to receive payments and benefits in connection with certain qualifying terminations of employment and a change in control of the Company. Such historical payments and benefits are described under “Severance and Change in Control Arrangements” below.

In connection with the Merger, Mr. Carrington entered into an employment agreement with the Company, which became effective as of the consummation of the Merger and superseded the Carrington Agreement. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below under “New Executive Agreements”.

William Bush

Mr. Bush and the Company entered into an employment offer letter agreement on October 13, 2016 (the “Bush Agreement”), which provided that Mr. Bush would serve as the Chief Financial Officer of the Company. The Bush Agreement did not include a fixed term but instead provided for employment with the Company on an at-will basis. Mr. Bush’s annual base salary was initially set at $325,000 under the Bush Agreement and was subsequently increased to $350,000. The Bush Agreement also provided that Mr. Bush would be eligible to earn an annual cash bonus determined as a percentage of his annual base salary based on the achievement of individual and company-wide performance metrics. During fiscal year 2020, Mr. Bush had an opportunity to earn a cash bonus of up to $175,000 representing 50% of his annual base salary. Mr. Bush was eligible to receive all or a portion of such bonus depending on the level of performance with threshold achievement yielding 25% of his bonus, target achievement yielding 50% of his bonus and maximum achievement yielding 100% of his bonus. Typically, any bonuses earned by Mr. Bush have been generally paid by the fifteenth day of the third month following the close of the Company’s fiscal year or March 15 following the calendar year in which the bonus was earned. The Company also reimbursed Mr. Bush for expenses incurred in the course and scope of his employment. In addition, Mr. Bush was eligible to participate in the employee benefit plans of the Company.

Mr. Bush also received stock options under the 2009 Plan consistent with the terms set forth in the Bush Agreement.

As a condition of employment, Mr. Bush also entered into the Restrictive Covenants Agreement. This agreement includes a perpetual covenant prohibiting Mr. Bush’s use and disclosure of confidential information. The agreement also provides for Mr. Bush’s assignment of intellectual property to the Company.

In addition, this agreement prohibits Mr. Bush from soliciting employees of the Company during his service to the Company and for a period of twelve (12) months following his termination of service.

Mr. Bush was eligible to receive payments and benefits in connection with certain qualifying terminations of employment and a change in control of the Company. Such payments and benefits are described under “Severance and Change in Control Arrangements” below.

In connection with the Merger, Mr. Bush entered into an employment agreement with the Company, which became effective as of the consummation of the Merger and superseded the Bush Agreement. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below under “New Executive Agreements”.

 

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Larsh Johnson

Mr. Johnson and the Company entered into an employment offer letter agreement on November 19, 2015 (the “Johnson Agreement”), which provided that Mr. Johnson would serve as the Chief Technical Officer of the Company. The Johnson Agreement did not include a fixed term but instead provided for employment with the Company on an at-will basis. Mr. Johnson’s annual base salary was initially set at $325,000 under the Johnson Agreement and was subsequently increased to $350,000. The Johnson Agreement also provided that Mr. Johnson would be eligible to earn an annual cash bonus determined as a percentage of his annual base salary based on the achievement of individual and company-wide performance metrics. During fiscal year 2020, Mr. Johnson had an opportunity to earn a cash bonus of up to $175,000 representing 50% of his annual base salary. Mr. Johnson was eligible to receive all or a portion of such bonus depending on the level of performance with threshold achievement yielding 25% of his bonus, target achievement yielding 50% of his bonus and maximum achievement yielding 100% of his bonus. Typically, any bonuses earned by Mr. Johnson have been paid no later than the fifteenth day of the third month following the close of the Company’s fiscal year or March 15 following the calendar year in which the bonus was earned. The Company also reimbursed Mr. Johnson for expenses incurred in the course and scope of his employment. In addition, Mr. Johnson was eligible to participate in the employee benefit plans of the Company.

Mr. Johnson also received stock options under the 2009 Plan consistent with the terms set forth in the Johnson Agreement.

As a condition of employment, Mr. Johnson also entered into the Restrictive Covenants Agreement. This agreement includes a perpetual covenant prohibiting Mr. Johnson’s use and disclosure of confidential information. The agreement also provides for Mr. Johnson’s assignment of intellectual property to the Company. In addition, this agreement prohibits Mr. Johnson from soliciting employees of the Company during his service to the Company and for a period of twelve (12) months following his termination of service.

Mr. Johnson was eligible to receive payments and benefits in connection with certain qualifying terminations of employment and a change in control of the Company. Such payments and benefits are described under “Severance and Change in Control Arrangements” below.

In connection with the Merger, Mr. Johnson entered into an employment agreement with the Company, which became effective as of the consummation of the Merger and superseded the Johnson Agreement. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below under “New Executive Agreements”.

Severance and Change in Control Arrangements

Historically, the Company’s named executive officers were eligible to receive payments and benefits in connection with a qualifying termination of employment and/or in the event of a change in control transaction under their employment offer letter agreements.

Carrington Agreement

Mr. Carrington was eligible to receive severance benefits in the event his status as a full-time employee or service provider was terminated by the Company without “Cause” or by Mr. Carrington for “Good Reason.” Specifically, he would have been eligible to receive (i) a lump sum payment equal to one (1) year of his annual base salary; (ii) reimbursements of any unreimbursed business expenses; (iii) a lump sum payment equal to a prorated bonus for the fiscal year in which his service to Stem terminated; (iv) accelerated vesting of half of his outstanding equity awards; and (v) a lump sum payment for the cost of the premiums that Mr. Carrington would pay for continuation of his health coverage for a period of one (1) year following his termination of service.

 

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The Carrington Agreement entitled Mr. Carrington to receive a cash bonus in connection with a “Change of Control” (as defined under the 2009 Plan). The Merger did not constitute a Change of Control. In order to receive such a bonus, Mr. Carrington was required to have continuously served Stem as a full- time employee or service provider through the date of the Change of Control. Mr. Carrington would, however, have been eligible to receive such a bonus in the event his employment has been terminated without Cause within either the three-month period prior to the execution of a letter of intent or term sheet providing for a Change of Control or during the period following the execution of a letter of intent or term sheet and ending on the closing of the Change of Control described therein. Such cash bonus would have been equal to the lesser of (i) $3,000,000 of the total “Net Proceeds” (as defined in the Carrington Agreement) payable to the stockholders of Stem in connection with the Change of Control if the holders of Series A and Series B Preferred Stock had received $84,000,000 from the Net Proceeds or (ii) an amount equal to $3,000,000 multiplied by a percentage determined by dividing the amount received by the holders of Series A and Series B Preferred Stock from the Net Proceeds by $84,000,000. Mr. Carrington’s cash bonus would have been reduced by all cash payments or other property that he received in connection with the Change of Control due to his equity holdings of Stem.

The Carrington Agreement provided for the vesting of half of Mr. Carrington’s outstanding equity awards in the event of a Change of Control. The Carrington Agreement further provided for full vesting of Mr. Carrington’s equity awards if his status as a full-time employee or service provider had been terminated by Stem without Cause or by Mr. Carrington for “Good Reason” within twelve (12) months following a Change of Control.

Mr. Carrington’s receipt of severance payments and benefits under the Carrington Agreement would have been subject to his continuing compliance with the terms of the Carrington Agreement and the Restrictive Covenants Agreement and his execution and non-revocation of a separation agreement that included a general release of claims. The Carrington Agreement provided for an additional payment to Mr. Carrington to account for any excise tax payable under Sections 280G and 4999 of the Internal Revenue Code (including any associated taxes thereon).

In connection with the Merger, Mr. Carrington entered into an employment agreement with the Company, which became effective as of the consummation of the Merger and superseded the Carrington Agreement. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below under “New Executive Agreements”.

Bush Agreement

Mr. Bush was eligible to receive severance benefits in the event his status as a full-time employee or service provider had been terminated by the Company without “Cause” or by Mr. Bush for “Good Reason.” In the event of such a termination of service, Mr. Bush would have been eligible to receive a lump sum payment equivalent to nine (9) months of his annual base salary and reimbursement for any unreimbursed business expenses.

The Bush Agreement provided for the following payments and benefits in the event that Mr. Bush’s continuous status as a full-time employee or service provider had been terminated within three (3) months prior to and six (6) months following a Change of Control (as defined in the 2009 Plan) either by Stem and/or any successor without Cause or by Mr. Bush for Good Reason: (i) a lump sum payment equivalent to nine (9) months’ worth of his annual base salary; (ii) a lump sum payment for the actual cost of the premiums that Mr. Bush would pay for continuation of his health and life insurance benefits for a period of nine (9) months; (iii) accelerated vesting of half of Mr. Bush’s outstanding equity awards; and (iv) reimbursement for any unreimbursed business expenses. The merger will not constitute a Change of Control.

Mr. Bush’s receipt of severance payments and benefits under the Bush Agreement would have been subject to his continuing compliance with the terms of the Bush Agreement and the Restrictive Covenants Agreement and his execution and non-revocation of a separation agreement that included a general release of claims.

 

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In connection with the Merger, Mr. Bush entered into an employment agreement with the Company, which became effective as of the consummation of the Merger and superseded the Bush Agreement. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below under “New Executive Agreements”.

Johnson Agreement

Mr. Johnson was eligible to receive severance benefits in the event his status as a full-time employee or service provider had been terminated by the Company without “Cause” or by Mr. Johnson for “Good Reason.” In the event of such a termination of service, Mr. Johnson would have been eligible to receive the following: (i) accelerated vesting of half of Mr. Johnson’s outstanding equity awards; (ii) a lump sum payment equivalent to nine (9) months of his annual base salary; and (iii) reimbursement for any unreimbursed business expenses.

The Johnson Agreement provided for the following payments and benefits in the event that Mr. Johnson’s continuous status as a full-time employee or service provider had been terminated within three (3) months prior to and twelve (12) months following a Change of Control (as defined in the 2009 Plan) either by Stem and/or any successor without Cause or by Mr. Johnson for Good Reason: (i) a lump sum payment equivalent to nine (9) months’ worth of his annual base salary; (ii) a lump sum payment for the actual cost of the premiums that Mr. Johnson would pay for continuation of his health and life insurance benefits for a period of nine (9) months; (iii) accelerated vesting of 100% of Mr. Johnson’s outstanding equity awards; and (iv) reimbursement for any unreimbursed business expenses. The merger will not constitute a Change of Control.

Mr. Johnson’s receipt of severance payments and benefits under the Johnson Agreement would have been subject to his continuing compliance with the terms of the Johnson Agreement and the Restrictive Covenants Agreement and his execution and non-revocation of a separation agreement that included a general release of claims.

In connection with the Merger, Mr. Johnson entered into an employment agreement with the Company, which became effective as of the consummation of the Merger and superseded the Johnson Agreement. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below under “New Executive Agreements”.

 

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Outstanding Equity Awards at 2021 Fiscal Year End

The following table sets forth information regarding equity awards held by our named executive officers as of December 31, 2021:

 

Name

  Grant
Date
    Option Awards (1)     Stock Awards  
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number of
shares or units
of stock that
have not vested
(#)
    Market value
of shares or
units of stock
that have not
vested ($)*
 

John Carrington

    2/8/2015       121,683       0       0.97       2/8/2025      
    2/8/2015       933,838       0       0.97       2/8/2025      
    10/28/2015       1,005,613       0       1.25       10/28/2025      
    10/22/2019       1,141,173       24,281       2.41       10/22/2029      
    12/3/2020       195,709       587,123       6.81       12/2/2030      
    12/3/2020       204,600       0       6.81       12/2/2030      
    5/28/2021         98,658       25.34       5/27/2031      
    7/2/2021  (2)              1,000,000       18,970,000  
    7/2/2021  (2)              39,463       748,613  

William Bush

    5/30/2017       495,232       0       1.67       5/30/2027      
    10/22/2019       280,569       5,970       2.41       10/21/2029      
    12/3/2020       85,494       256,483       6.81       12/2/2030      
    12/3/2020       99,608       0       6.81       12/2/2030      
    5/28/2021         39,463       25.34       5/27/2031      
    7/2/2021  (3)              65,000       1,233,050  
    7/2/2021  (3)              15,785       299,441  

Larsh Johnson

    8/10/2016       243,512       0       0.36       8/10/2026      
    10/22/2019       272,733       5,803       0.52       10/21/2029      
    12/3/2020       90,455       0       1.47       12/2/2030      
    5/28/2021         34,530       25.34       5/27/2031      
    7/2/2021  (4)              65,000       1,233,050  
    7/2/2021  (4)              13,812       262,014  

 

*

Market values in the final column were determined by multiplying the number of units of stock by $18.97, the closing price of our common stock on December 31, 2021, the last trading day of the year.

(1)

On April 27, 2021, our stockholders approved the Stem, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). Prior to that date, equity awards were granted under the Stem, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). Following the adoption of the 2021 Plan, no further grants of awards have been made or will be made under the 2009 Plan. Other than certain stock options granted on December 3, 2020 and as otherwise noted below, options disclosed in this table generally vest over four years, with 25% of the option vesting on the one-year anniversary of the vesting commencement date and 1/48th of the option vesting monthly thereafter through the four-year anniversary of the vesting commencement date, subject to the named executive officer’s continued employment with the Company through the applicable vesting dates.

(2)

Mr. Carrington was awarded a Closing Grant of 1,000,000 RSUs in recognition of his leadership in closing the Merger and for retention purposes, as defined and described below under “Elements of 2021 Total Direct Compensation; 2021 Decisions — Incentive Compensation Plans – Long-Term Equity Incentive.” To promote retention of Mr. Carrington during our critical transition to a public company, his Closing Grant will vest over seven years, with the first 3/7 of his award (43%) “cliff” vesting on April 28, 2024, subject to Mr. Carrington’s continued employment with the Company on such date, and the remainder of his RSU award vesting in equal annual installments over the remaining four years, subject to his continued employment through each applicable vesting date. Also reflects a 2021 LTI award of 39,463 RSUs to Mr. Carrington, which will vest in equal annual installments over four years from the date of grant.

 

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(3)

Mr. Bush was awarded a Closing Grant of 65,000 time-based RSUs in recognition of his leadership in closing the Merger. The RSU award vests 100% on April 28, 2024, subject to his continued employment with the Company on such date. Also reflects a 2021 LTI award of 15,785 RSUs to Mr. Bush, which will vest in equal annual installments over four years from the date of grant.

(4)

Mr. Johnson was awarded a Closing Grant of 65,000 time-based RSUs in recognition of his leadership in closing the Merger. The RSU award vests 100% on April 28, 2024, subject to his continued employment with the Company on such date. Also reflects a 2021 LTI award of 13,812 RSUs to Mr. Johnson, which will vest in equal annual installments over four years from the date of grant.

Stem, Inc. 2009 Equity Incentive Plan

Stem maintains the 2009 Plan, which originally became effective in March 2009 and was amended on February 17, 2015. The 2009 Plan was adopted to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The 2009 Plan allows for the grant of stock options (both incentive stock options and “non-qualified” stock options), stock appreciation rights, restricted stock and restricted stock units. Following the adoption of the Incentive Plan, no further grants of awards have been made nor will be made under the 2009 Plan.

The following description of the 2009 Plan is not intended to be complete and is qualified in its entirety by the complete text of the 2009 Plan, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Stockholders and potential investors are urged to read the 2009 Plan in its entirety.

Administration

The 2009 Plan is administered by the board of directors, or a committee of the board, as contemplated by the 2009 Plan. The board or committee has broad authority, subject to the provisions of the 2009 Plan, to administer and interpret the 2009 Plan. All decisions and actions of the administrator will be final.

Stock Subject to 2009 Plan

As described below, upon effectiveness of the Incentive Plan, no new grants of awards will be made under the 2009 Plan.

As of December 31, 2021, the aggregate number of shares of common stock that may be issued pursuant to the settlement or exercise, as applicable, of outstanding awards granted under the 2009 Plan was 51,379,939.

Stock Options

All stock options granted under the 2009 Plan are evidenced by a written agreement with the participant, which provides, among other things, whether the option is intended to be an incentive stock option or a non-qualified stock option, the number of shares subject to the option, the exercise price, exercisability (or vesting), the term of the option, which may not exceed ten (10) years, and other terms and conditions. Subject to the express provisions of the 2009 Plan, options generally may be exercised over such period, in installments or otherwise, as the administrator may determine. The exercise price for any stock option granted generally may not be less than the fair market value of the common stock subject to that option on the grant date. The exercise price may be paid in cash, check; promissory note (if permissible under applicable law), other shares, consideration received by Stem under a cashless exercise program (whether through a broker or otherwise) implemented by Stem in connection with the 2009 Plan, by net exercise, or such other consideration and method of payment for the issuance of shares to the extent permitted by applicable laws, or any combination of the foregoing methods of payment.

 

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Transferability

Options generally may not be sold, transferred for value, pledged, assigned or otherwise alienated or hypothecated by a participant other than by will or the laws of descent or distribution, and each option may be exercised only by the participant during his or her lifetime or by the participant’s estate or by a person who acquires the right to exercise the option following the death of the participant.

Amendment and Termination

The board of directors has the right to amend, alter, suspend or terminate the 2009 Plan at any time, provided certain enumerated material amendments may not be made without stockholder approval. No amendment or alteration to the 2009 Plan will be made that would impair the rights of the holder, unless mutually agreed otherwise between the administrator and the participant in writing. The 2009 Plan has been adopted by the board of directors and the stockholders of Stem and will automatically terminate, unless earlier terminated by the board of directors, ten (10) years after approval by the board of directors.

2021 Equity Incentive Plan

At the special meeting of STPK’s stockholders in lieu of the Company’s 2021 annual meeting held on April 27, 2021, the stockholders of the Company considered and approved the Stem, Inc. 2021 Stock Incentive Plan (the “Incentive Plan”). The Incentive Plan was previously approved, subject to stockholder approval, by the STPK board of directors on December 3, 2020.

The following description of the Incentive Plan is not intended to be complete and is qualified in its entirety by the complete text of the Incentive Plan, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Stockholders and potential investors are urged to read the Incentive Plan in its entirety.

Purpose of the Incentive Plan

The Incentive Plan is intended to help us secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for our success and the success of the Company’s affiliates and provide a means by which the eligible recipients may benefit from increases in the value of its common stock.

Eligibility

Awards may be granted to our and our subsidiaries’ employees, including officers, non-employee directors and consultants. Only our employees and those of our subsidiaries are eligible to receive incentive stock options.

Types of Awards

The Incentive Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Code, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards and performance cash awards.

Authorized Shares

Subject to adjustment for certain dilutive or related events, the aggregate maximum number of shares of our Common Stock that may be issued pursuant to stock awards under the Incentive Plan is 23,722,254 shares of Common Stock (the “Share Reserve”).

 

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The Share Reserve will not be reduced if an award or any portion thereof (i) expires, is cancelled or forfeited or otherwise terminates without all of the shares covered by such award having been issued or (ii) is settled in cash. If any shares of common stock issued under an award are forfeited back to or repurchased by us, such shares will revert to and again be made available for issuance under the Incentive Plan. Any shares retained or not issued by us in satisfaction of tax withholding obligations or as consideration for the exercise or purchase price of an award will also again become available for issuance under the Incentive Plan.

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 23,722,254.

In a single fiscal year, a non-employee director may not be granted awards under the Incentive Plan for such individual’s service on the board of directors of the Company having a value that, together with cash fees paid to such individual for service on the board of directors of the Company, exceed $600,000.

Shares issued under the Incentive Plan may consist of our authorized but unissued or reacquired common stock, including shares repurchased by us on the open market or otherwise or shares classified as treasury shares.

Plan Administration

Our board of directors has the authority to administer the Incentive Plan, including the powers to: (i) determine who will be granted awards and what type of award, when and how each award will be granted, the provisions of each award (which need not be identical), the number of shares or cash value subject to an award and the fair market value applicable to an award; (ii) construe and interpret the Incentive Plan and awards granted thereunder and establish, amend and revoke rules and regulations for administration of the Incentive Plan and awards, including the ability to correct any defect, omission or inconsistency in the Incentive Plan or any award document; (iii) settle all controversies regarding the Incentive Plan and awards granted thereunder; (iv) accelerate or extend, in whole or in part, the time during which an award may be exercised or vested or at which cash or shares may be issued; (v) suspend or terminate the Incentive Plan; (vi) amend the Incentive Plan; (vii) submit any amendment to the Incentive Plan for stockholder approval; (viii) approve forms of award documents for use under the Incentive Plan and to amend the terms of any one or more outstanding awards; (ix) generally exercise such powers and perform such acts as our board of directors may deem necessary or expedient to promote our best interests and that are not in conflict with the provisions of the Incentive Plan or any award documents; and (x) adopt procedures and sub-plans as are necessary or appropriate.

Subject to the provisions of the Incentive Plan, our board of directors may delegate all or some of the administration of the Incentive Plan to a committee of one or more directors and may delegate to one or more officers the authority to designate employees who are not officers to be recipients of options and stock appreciation rights (and, to the extent permitted by applicable law, other stock awards) and, to the extent permitted by applicable law, to determine the terms of such awards and the number of shares of common stock to be subject to such stock awards granted to such employees. Unless otherwise provided by our board of directors, delegation of authority by our board of directors to a committee or an officer will not limit the authority of our board of directors. All determinations, interpretations and constructions made by our board of directors (or another authorized committee or officer exercising powers delegated by our board of directors) in good faith will be final, binding and conclusive on all persons.

Stock Options

A stock option may be granted as an incentive stock option or a nonqualified stock option. The option exercise price may not be less than the fair market value of the stock subject to the option on the date the option is granted (or, with respect to incentive stock options, less than 110% of the fair market value if the recipient owns stock possessing more than 10% of the total combined voting power of all classes of our stock or the stock of any affiliate (a “Ten Percent Stockholder”)) unless the option was granted pursuant to an assumption or

 

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substitution for another option in a manner satisfying the provisions of Section 409A and, if applicable, Section 424(a) of the Code. Options will not be exercisable after the expiration of ten (10) years from the date of grant (or five (5) years, in the case of an incentive stock option issued to a Ten Percent Stockholder). Each award agreement will set forth the number of shares subject to each option. The purchase price of any shares acquired pursuant to an option may be payable in cash, check, bank draft, money order, net exercise or as otherwise determined by our board of directors and set forth in the award agreement, including through an irrevocable commitment by a broker to pay over such amount from a sale of the shares issuable under the option and the delivery of previously owned shares. The vesting schedule applicable to any option, including any performance conditions, will be as set forth in the award agreement.

Stock Appreciation Rights

A stock appreciation right (“SAR”) is a right that entitles the participant to receive, in cash or shares of stock or a combination thereof, as determined by our board of directors, value equal to or otherwise based on the excess of (i) the fair market value of a specified number of shares at the time of exercise over (ii) the exercise price of the right, as established by our board of directors on the date of grant. Upon exercising a SAR, the participant is entitled to receive the amount by which the fair market value of the stock at the time of exercise exceeds the exercise price of the SAR. The exercise price of each SAR may not be less than the fair market value of the stock subject to the award on the date the SAR is granted, unless the SAR was granted pursuant to an assumption of or substitution for another option in a manner satisfying the provisions of Section 409A. SARs will not be exercisable after the expiration of ten (10) years from the date of grant. Each award agreement will set forth the number of shares subject to the SAR. The vesting schedule applicable to any SAR, including any performance conditions, will be as set forth in the award agreement.

Provisions Applicable to Both Options and SARs.

Transferability. Our board of directors may, in its sole discretion, impose limitations on the transferability of options and SARs. Unless our board of directors provides otherwise, an option or SAR will not be transferable except by will or the laws of descent and distribution and will be exercisable during the lifetime of a participant only by such participant. Our board of directors may permit transfer of an option or SAR in a manner not prohibited by applicable law. Subject to approval by our board of directors, an option or SAR may be transferred pursuant to the terms of a domestic relations order or similar instrument or pursuant to a beneficiary designation.

Termination of Service. Except as otherwise provided in an applicable award document or other agreement between us or any affiliate and a participant, upon a termination for any reason other than for cause or due to death or disability, a participant may exercise his or her option or SAR (to the extent such award was exercisable as of the date of termination) for a period of three (3) months following the termination date or, if earlier, until the expiration of the term of such award. Upon a termination due to a participant’s disability, unless otherwise provided in an applicable award or other agreement, the participant may exercise his or her option or SAR (to the extent that such award was exercisable as of the date of termination) for a period of twelve (12) months following the termination date or, if earlier, until the expiration of the term of such award. Upon a termination due to a participant’s death, unless otherwise provided in an applicable award or other agreement, the participant’s estate may exercise the option or SAR (to the extent such award was exercisable as of the termination date) for a period of eighteen (18) months following the termination date or, if earlier, until the expiration of the term of such award. Unless provided otherwise in an award or other agreement, an option or SAR will terminate on the date that a participant is terminated for cause and the participant will not be permitted to exercise such award.

No Repricing. Neither a stock option nor SAR may be modified to reduce its exercise price nor may (i) a new stock option, SAR or other award at a lower price be substituted or exchanged for a surrendered stock option or SAR, (ii) any option or SAR with an exercise price that exceeds the fair market value of a share of common stock be exchanged for a new option, SAR, cash or other consideration or (iii) any action be taken that would be

 

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considered a “repricing” of an option or SAR under the applicable listing standards of the national securities exchange on which the common stock is listed, if any (other than adjustments or substitutions in accordance with adjustment provisions of the Incentive Plan), unless such action is approved by the stockholders of the Company.

Awards Other Than Options and SARs.

Restricted Stock and Restricted Stock Units. Restricted Stock are awards of shares, the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions (including continued employment) and terms as our board of directors deems appropriate. Restricted stock units (“RSUs”) are an award denominated in units under which the issuance of shares (or cash payment in lieu thereof) is subject to such conditions (including continued employment) and terms as our board of directors deems appropriate. Each award document evidencing a grant of restricted stock or RSUs will set forth the terms and conditions of each award, including vesting and forfeiture provisions, transferability and, if applicable, right to receive dividends or dividend equivalents.

Performance Awards. A performance award is a stock or cash award that is payable contingent upon the attainment during a performance period of certain performance goals. A performance award may, but need not, require the completion of a specified period of service. The length of any performance period, the applicable performance goals and the measurement of whether and to what degree such performance goals have been attained will be as determined by the compensation committee, our board of directors or an authorized officer. We retain the discretion to reduce or eliminate the compensation or economic benefit upon the attainment of any performance goals and to define the manner of calculating the performance criteria it selects to use for a performance period.

Cash Awards. A cash award is granted and/or becomes payable upon the completion of a specified period of service or on a fully discretionary basis. The length of any applicable period of service will be determined by the compensation committee, our board of directors or an authorized officer.

Certain Adjustments.

In the event of any change in our capitalization, our board of directors will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Incentive Plan; (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of incentive stock options; and (iii) the class(es) and number of securities or other property and value (including price per share of stock) subject to outstanding stock awards. Our board of directors will make such adjustments, and its determination will be final, binding and conclusive. Unless provided otherwise in an award or other agreement, in the event of our dissolution or liquidation, all outstanding stock awards (other than stock awards consisting of vested and outstanding shares of our common stock not subject to a forfeiture condition or our right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the shares of common stock subject to our repurchase rights or subject to forfeiture may be repurchased or reacquired by us notwithstanding the fact that the holder of such stock award is providing continuous service; provided, however, that our board of directors may, in its sole discretion, provide that some or all stock awards will become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent not already expired or terminated) before the dissolution or liquidation is completed but contingent upon its completion.

Change in Control.

Unless provided otherwise in an award agreement or other agreement between us or an affiliate and the participant, in the event of Change in Control (as defined in the Incentive Plan), our board of directors will take one or more of the following actions with respect to each outstanding award, contingent upon the closing or completion of the Change in Control:

(i) arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the award or to substitute a similar stock award for the

 

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award (including, but not limited to, an award to acquire the same consideration per share paid to the stockholders of the company pursuant to the Change in Control);

(ii) arrange for the assignment of any reacquisition or repurchase rights held by us in respect of common stock issued pursuant to the award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);

(iii) accelerate the vesting, in whole or in part, of the award (and, if applicable, the time at which the award may be exercised) to a date prior to the effective time of such Change in Control as determined by our board of directors, with such award terminating if not exercised (if applicable) at or prior to the effective time of the Change in Control, and with such exercise reversed if the Change in Control does not become effective;

(iv) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us with respect to the award;

(v) cancel or arrange for the cancellation of the award, to the extent not vested or not exercised prior to the effective time of the Change in Control, in exchange for such cash consideration, if any, as our board of directors, in its reasonable determination, may consider appropriate as an approximation of the value of the cancelled award; and

(vi) cancel or arrange for the cancellation of the award, to the extent not vested or not exercised prior to the effective time of the Change in Control, in exchange for a payment equal to the excess, if any, of (A) the value in the Change in Control of the property the participant would have received upon the exercise of the award immediately prior to the effective time of the Change in Control, over (B) any exercise price payable by such holder in connection with such exercise.

Our board of directors need not take the same action or actions with respect to all awards or portions thereof or with respect to all participants and may take different actions with respect to the vested and unvested portions of an award.

In the absence of any affirmative determination by our board of directors at the time of a Change in Control, each outstanding award will be assumed or an equivalent award will be substituted by such successor corporation or a parent or subsidiary of such successor corporation, referred to as a successor corporation, unless the successor corporation does not agree to assume the award or to substitute an equivalent award, in which case the vesting of such award will accelerate in its entirety (along with, if applicable, the time at which the award may be exercised) to a date prior to the effective time of such Change in Control as our board of directors will determine (or, if our board of directors does not determine such a date, to the date that is five (5) days prior to the effective date of the Change in Control), with such award terminating if not exercised (if applicable) at or prior to the effective time of the Change in Control, and with such exercise reversed if the Change in Control does not become effective.

Acceleration of Awards upon a Change in Control.

An award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the award agreement for such award or as may be provided in any other written agreement between us or an affiliate and the participant, but in the absence of such provision, no such acceleration will occur.

Termination and Amendment.

Our board of directors or the compensation committee may suspend or terminate the Incentive Plan at any time. No incentive stock options may be granted under the Incentive Plan after the tenth anniversary of the date our board of directors adopted the Incentive Plan. No awards may be granted under the Incentive Plan while the Incentive Plan is suspended or after it is terminated.

 

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Actions Taken in 2021

Stem and STPK took certain actions during 2021 impacting the compensatory arrangements of the named executive officers of Stem.

New Executive Agreements

In connection with the Merger, each of the named executive officers of Stem entered into an employment agreement with the Company. Such agreement is referred to herein as the “New Executive Agreement,” and the material terms of this agreement are summarized below.

The New Executive Agreement became effective upon the consummation of the Merger and provides for an initial three (3) year term. It further provides for automatic renewals for an additional one year period unless the Company or the named executive officer provides written notice of non-renewal at least sixty (60) days prior to the end of the then-current term.

The New Executive Agreement sets forth the position in which the named executive officer will serve with Mr. Carrington serving as the Chief Executive Officer of the Company, Mr. Bush serving as the Chief Financial Officer of the Company and Mr. Johnson serving as the Chief Technology Officer of the Company. The agreement also sets forth each named executive officer’s annual base salary with Messrs. Carrington, Bush and Johnson entitled to receive $515,000 per year, $350,000 per year, and $350,000 per year, respectively. With respect to annual cash bonuses, each named executive officer will be eligible to receive an annual cash bonus determined as a percentage of his annual base salary. The target percentages for Messrs. Carrington, Bush and Johnson are 110%, 75% and 65%, respectively.

The New Executive Agreement further provides that each named executive officer is eligible to participate in the 2020 Incentive Plan, or the “Incentive Plan,” and that each named executive officer will receive a “Closing Grant” of time-based restricted stock units under the Incentive Plan with Messrs. Carrington, Bush and Johnson eligible to receive one million restricted stock units, 65,000 restricted stock units and 65,000 restricted stock units, respectively. In addition, Mr. Carrington will be eligible to receive a number of restricted stock units with a grant date fair value equal to approximately $2 million in each of 2021, 2022 and 2023. Messrs. Bush and Johnson will be eligible to receive a number of restricted stock units in 2021 with a grant date fair value equal to approximately $800,000, in the case of Mr. Bush, and $700,000, in the case of Mr. Johnson.

Under the New Executive Agreement, each named executive officer is eligible to participate in all benefit plans and programs of the Company available to similarly situated executives of the Company, subject to the terms and conditions of such plans and programs as in effect from time to time.

Under the New Executive Agreement, each of the named executive officers is eligible to receive severance payments and benefits in connection with certain qualifying terminations of employment, as well as enhanced severance payments and benefits if such qualifying terminations of employment occur in connection with a “Change in Control” (as defined in the Incentive Plan). The “Change in Control Period” in the New Executive Agreement commences three (3) months prior to the occurrence of the Change in Control and ends twelve (12) months following the Change in Control.

Upon a termination without “Cause” (other than a termination due to death or disability) or resignation for “Good Reason,” in each case, outside of the Change in Control Period, each named executive officer would be eligible to receive: (i) payment of any bonus earned, but not yet paid for the year prior to the year of termination; (ii) an amount equal to twelve (12) months (in the case of Mr. Carrington) or nine (9) months (in the case of Messrs. Bush and Johnson) of his annual base salary in effect immediately prior to termination (the “Non-CIC Cash Severance”); (iii) payment of a pro-rata bonus for the year of termination based on actual performance; (iv) accelerated vesting of the portion of the Closing Grant that would have otherwise vested within twelve

 

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(12) months (in the case of Mr. Carrington) or six (6) months (in the case of Messrs. Bush and Johnson) following the date of termination assuming employment had continued through such date (the “Non-CIC Equity Acceleration”); and (v) payment or reimbursement for the premiums that the named executive officer would be required to pay to maintain continued health coverage under COBRA for a period of up to twelve (12) months (in the case of Mr. Carrington) or nine (9) months (in the case of Messrs. Bush and Johnson) following the date of termination (the “Non-CIC COBRA Benefit”). Receipt of such payments and benefits would be subject to the named executive officer’s execution and non-revocation of a release of claims and his continued compliance with the covenants set forth in the New Executive Agreement.

Upon a termination without Cause (other than a termination due to death or disability) or resignation for Good Reason, in each case, during the Change in Control Period, each named executive officer would be eligible to receive: (i) cash payment equal to two (2) times (in the case of Mr. Carrington) or (1) times (in the case of Messrs. Bush and Johnson) of the sum of the named executive officer’s annual base salary plus target bonus (the “CIC Cash Severance”); (ii) payment of any bonus earned, but not yet paid for the year prior to the year of termination; (iii) payment of a pro-rata bonus for the year of termination based on actual performance; (iv) full vesting of the Closing Grant (the “CIC Equity Acceleration”); and (v) payment or reimbursement for the premium that the named executive officer would be required to pay to maintain continued health coverage under COBRA for a period of up to eighteen (18) months (in the case of Mr. Carrington) or twelve (12) months (in the case of Messrs. Bush and Johnson) following the date of termination (the “CIC COBRA Benefit”). Receipt of such payments and benefits would be subject to the named executive officer’s execution and non-revocation of a release of claims and his continued compliance with the covenants set forth in the New Executive Agreement.

Under the New Executive Agreement, the named executive officer has an obligation not to compete with the Company or any of its affiliates or solicit the Company’s or its affiliates’ employees, customers, vendors or suppliers, in each case, in a defined market area during employment and, in the case of non- solicitation of employees only, for twelve (12) months following a termination of employment. In addition, the New Executive Agreement also includes customary confidentiality, intellectual property, cooperation and non- disparagement covenants.

The form of the New Executive Agreement is incorporated by reference herein. You are encouraged to read the form of the New Executive Agreement in its entirety.

Director Compensation

Individuals who served as directors of Stem during fiscal year 2021 did not receive compensation for their service as directors.

The board of directors of the Company approved a non-employee director compensation program on the terms described herein in connection with the Merger and the offering described in this prospectus

Under the non-employee director compensation program, each of the non-employee directors will be eligible to receive annual cash retainers for their service on the board of directors of the Company and the committees of such board. The expected cash retainers are set forth in the table immediately below. In addition, the Company will reimburse non-employee directors for reasonable travel expenses incurred by them in

 

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connection with attendance at meetings of the board of directors of the Company, in accordance with the Company’s expense reimbursement policy as in effect from time to time.

 

Position

   Cash Retainer ($)  

Board Member

   $ 36,000  

Non-Executive Chair of the Board

   $ 45,000  

Audit Committee Member

   $ 10,000  

Audit Committee Chair

   $ 20,000  

Compensation Committee Member

   $ 6,000  

Compensation Committee Chair

   $ 12,000  

Nominating, Governance and Sustainability Committee Member

   $ 4,000  

Nominating, Governance and Sustainability Committee Chair

   $ 8,000  

Non-employee directors are also expected to be granted an annual award of restricted stock units valued at $140,000, which award is expected to vest on the one-year anniversary of the date of grant, subject to the director’s continuous service.

Under the Incentive Plan, in a single fiscal year, a non-employee director may not be granted awards for such individual’s service on the board of directors of the Company having a value that, together with cash fees paid to such individual for service on the board of directors of the Company, exceed $600,000.

2021 Non-Employee Director Compensation Table

 

Name

   Fees Earned
or Paid in Cash
($) (1)
     Stock Awards
($) (2)
     All Other
Compensation
($)
     Total
($)
 

David Buzby

     37,040        200,963        —          238,003  

Adam E. Daley

     19,585        200,963        —          220,548  

Alec Litowitz

     —          —          —          —    

Michael C. Morgan

     20,436        200,963        —          221,399  

Desiree Rogers

     —          —          —          —    

C. Park Shaper

     —          —          —          —    

Anil Tammineedi

     21,288        200,963        —          222,251  

Lisa L. Troe

     23,840        200,963        —          224,803  

Laura D’Andrea Tyson

     18,733        200,963        —          219,696  

Jane Woodward

     19,585        200,963        —          220,548  

 

(1)

Amounts reported reflect cash fees actually paid in 2021 for services as a director, for periods post-April 28, 2021, the date of the closing of the Merger. Directors received no cash fees prior to the Merger. Ms. Rogers, and Messrs. Litowitz and Shaper, served on the Board prior to the closing of the Merger.

(2)

Amounts reported reflect the aggregate grant date fair value of RSUs, calculated in accordance with FASB ASC Topic 718 and based on the closing price of our common stock on July 2, 2021, the date of grant. Amounts reported are greater than the target value of $140,000 due to an increase in the market value of our common stock between May 25, 2021 (the date the awards were approved by the Compensation Committee) and the grant date. These amounts may not correspond to the actual value eventually realized by each director because the value depends on the market value of our common stock at the time the award vests.

Non-employee directors who begin their Board, Board Chair, committee or committee chair service after the Annual Meeting receive a prorated amount of annual compensation. Stem also reimburses non-employee directors for reasonable travel and other business expenses incurred in the performance of their services for Stem, in accordance with Stem’s expense reimbursement policy as in effect from time to time.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Related Party Transactions

The following is a summary of each transaction or series of similar transactions since January 1, 2019, or any currently proposed transaction, to which we (as Stem or Legacy Stem, as applicable) were or are a party in which:

 

   

the amount involved exceeds $120,000; and

 

   

any “related person,” including our directors or executive officers (including those that continued as directors or executive officers following the Merger), any holder of 5% or more of our common stock or any member of his or her immediate family, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described under the sections titled “Executive Compensation” and “Director Compensation” or that were approved by our Compensation Committee.

Related Party Transactions — Stem

Investor Rights Agreement

In connection with the Merger, Star Peak Sponsor LLC (the “Sponsor”), certain substantial holders of the Company’s common stock (determined on an as-converted basis) (the “New Holders”), STPK’s officers and directors and their affiliates, the Company’s Chief Executive Officer and Chairman (together with the New Holders, the “Investors”) entered into the Investor Rights Agreement, which became effective upon the consummation of the Merger. In accordance with the Investor Rights Agreement, the Sponsor and the Investors and their permitted transferees are entitled to, among other things, customary registration rights, including demand, piggy-back and shelf registration rights. The Investor Rights Agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the registration rights holders against (or make contributions in respect of) certain liabilities which may arise under the Securities Act.

Pursuant to the Investor Rights Agreement, the New Holders agreed, subject to certain exceptions, (i) not to transfer or dispose of their Common Stock until (x) the earlier of six (6) months after the consummation of the Merger and (y) the date after the closing on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their equity holdings in the Company for cash, securities or other property, and (ii) not engage, directly or indirectly, in any short sales or other hedging or derivative transactions involving the Company’s common stock or warrants until six (6) months after the consummation of the Merger. In addition, STPK’s officers and directors and their affiliates, the Company’s Chief Executive Officer and Chairman agreed, subject to certain exceptions, not to transfer or dispose of their common stock during the period from the date of the closing of the merger through the earlier of (i) the first anniversary of the consummation of merger, (ii) the date that the closing price of the common stock equals or exceeds $12.00 (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), for twenty (20) trading days within any thirty (30) trading day period following the 150th day following the Merger and (iii) the consummation of a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

RWE Warrant

On April 28, 2021, Stem issued to RWE Supply & Trading GmbH (“RWE”) a warrant to purchase 350,000 shares of Stem Common Stock at an exercise price of $0.01 per share (the “RWE Warrant”) during the period commencing on the date of issuance of the RWE Warrant until the earliest to occur of (x) 5:00 p.m., New York City time on the date that is five (5) years after the date on which such RWE Warrant is issued and (y) the liquidation of the Company in accordance with the Company’s amended and restated certificate of incorporation, as amended from time to time. The RWE Warrant and any shares underlying the RWE Warrant have not been

 

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registered under the Securities Act, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The RWE Warrant was issued to RWE in connection with STPK, Legacy Stem and RWE entering into a Strategic Relationship Agreement, dated April 7, 2021 (the “Strategic Relationship Agreement”), that, among other matters, provided for certain commercial initiatives between the Company and RWE to facilitate the sale of the Company’s products and services. On May 6, 2021, RWE elected to exercise the RWE Warrant and purchase 350,000 shares of the Company’s common stock.

Warrant Exchange Agreement

On June 25, 2021, Stem entered into that certain Warrant Exchange Agreement, by and between Stem, the Sponsor and Star Peak Sponsor WarrantCo LLC, a Delaware limited liability company (“WarrantCo” and, together with Sponsor, the “Exchange Sellers”), pursuant to which the Exchange Sellers exchanged 7,181,134 Private Placement Warrants for 4,683,349 shares of common stock (the “Exchange Shares”), on the terms and conditions set forth therein (the “Exchange”). The exchange calculation was based on a Black-Scholes calculation that utilized, among other factors, the trading volatility of a group of peer companies, given the limited trading history of the Company’s common stock. The Exchange Shares have not been registered under the Securities Act, in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act.

STPK Private Placement Warrants

Simultaneously with the closing of STPK’s initial public offering, STPK consummated the Private Placement of 6,733,333 Private Placement Warrants at a price of $1.50 per Private Placement Warrant to the Sponsor, generating gross proceeds of $10.1 million. In connection with the consummation of the sale of additional Units pursuant to the underwriters’ over-allotment option, on August 26, 2020, the Company sold an additional 447,801 Private Placement Warrants to the Sponsor, generating additional gross proceeds of approximately $0.7 million. On June 25, 2021, all of the Private Placement Warrants were cancelled and exchanged pursuant to the terms and conditions of the Exchange (as defined herein).

STPK Promissory Note

The Sponsor agreed to loan STPK up to $300,000 to cover expenses related to the IPO pursuant to a promissory note, dated November 8, 2018 and later amended on July 10, 2020 (the “STPK Note”). This loan was non-interest bearing. In 2018 and 2019, STPK borrowed approximately $182,000 under the STPK Note and repaid approximately $125,000 in September 2019. In July 2020, STPK borrowed an additional $235,000 under the STPK Note. STPK fully repaid the remaining balance of the STPK Note of approximately $292,000 on August 20, 2020.

STPK Administrative Service Agreement

Commencing on the date that STPK’s securities were first listed on the NYSE, STPK agreed to pay an affiliate of the Sponsor of total $10,000 per month for office space, utilities, secretarial support and administrative services. Upon completion of the Merger, the Company ceased paying these monthly fees.

Related Party Transactions – Legacy Stem

Legacy Stem Investors’ Rights Agreement

Legacy Stem was a party to a Fifth Amended and Restated Investors’ Rights Agreement, dated as of June 18, 2019 (the “Legacy Stem Investors’ Rights Agreement”), with certain holders of Legacy Stem’s capital stock and warrants. The Legacy Stem Investors’ Rights Agreement provided, among other things, that certain holders of Legacy Stem’s capital stock and warrants have the right to request that Stem file a registration

 

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statement, and/or request that their shares be covered by a registration statement that Stem is otherwise filing, subject to certain exceptions. In connection with the Merger, the Legacy Stem Investors’ Rights Agreement was terminated and none of Legacy Stem’s holders of capital stock and warrants have any special registration rights with respect to Stem’s securities.

Legacy Stem Voting Agreement

Legacy Stem was a party to a Fifth Amended and Restated Voting Agreement, dated as of June 18, 2019 (the “Legacy Stem Voting Agreement”), under which certain holders of Legacy Stem’s capital stock agreed to vote their shares on certain matters, including with respect to the election of directors. In connection with the Merger, the Legacy Stem Voting Agreement was terminated and none of Legacy Stem’s stockholders have any special rights regarding the election or designation of members of Stem’s board of directors, the voting of Stem’s capital stock, or the restrictions on transfer of Stem’s capital stock pursuant to the Legacy Stem Voting Agreement.

Legacy Stem Right of First Refusal and Co-Sale Agreement

Legacy Stem was a party to a Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of June 18, 2019 (the “Legacy Stem Right of First Refusal and Co-Sale Agreement”), with certain holders of Legacy Stem’s capital stock. The Right of First Refusal and Co-Sale Agreement provided for rights of first refusal and co-sale relating to the shares of Legacy Stem’s common stock held by certain parties to the Right of First Refusal and Co-Sale Agreement. In connection with the Merger, the Right of First Refusal and Co-Sale Agreement was terminated.

Indemnification Agreements

Legacy Stem entered into indemnification agreements with each of its then-current directors and officers.

Convertible Notes 2019 and 2020

In several closing throughout 2019 and 2020, Stem issued and sold convertible promissory notes (the “2019 Convertible Notes”) payable to various investors with aggregate gross proceeds of $98,875,394 of which $77,533,277 were sold to related parties. The 2019 Convertible Notes accrue interest at 8% per annum and are automatically convertible, contingent upon the occurrence of certain events, most notable a qualified financing (a “Qualified Financing”), defined as the issuance and sale of a minimum amount of additional common stock or the next series of preferred stock of Stem (“Financing Stock”). The conversion price is defined as a price per share equal to 85% of the price per share (“Offer Price”) paid by the other purchase of the Financing Stock sold in the Qualified Financing. The 2019 Convertible Notes are convertible into the number of shares of Financing Stock needed to settle all of the aggregate amount of principal and unpaid interest owed to the investor, which is based on the ultimate price per share associated with the Financing Stock.

At the time of the 2019 Convertible Notes offerings, Stem allowed certain existing investors who participated in the 2019 Convertible Notes offering to exchange existing holdings of preferred shares and common shares for shares of Stem’s Series D’ Preferred Stock. The exchange ratios were based on the liquidation preference that such holders of preferred stock that was junior to the Stem Series D’ Preferred Stock will receive the same aggregate liquidation value and dividend before and after the exchange.

 

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The table below summarizes these sales and the conversion.

 

Investor

   Shares of Series D’
Preferred Stock
Received
    Aggregate
Principal
Amount
($)
 

2561549 Ontario Limited (1)

     19,574,579       14,649,022  

RWE Supply & Trading GMBH (2)

     17,418,622       9,654,893  

Angeleno Investors III, L.P. (3)

     14,709,373       9,264,648  

Activate Capital Partners, L.P. (4)

     9,787,290       7,063,722  

Mitsui & Co., Ltd. (5)

     3,250,966       2,000,000  

David Buzby (6)

     254,888       2,000,000  

Copec Overseas S.P.A. (7)

     19,711,869  (8)      30,000,000  (8) 

 

(1)

Mr. Leufkens, a member of Stem’s board of directors, is a director of an affiliate of 2561549 Ontario Limited, which holds more than 5% of Stem’s capital stock.

(2)

Mr. O’Reilly, a member of Stem’s board of directors, is an employee of RWE Supply & Trading GMBH, which holds more than 5% of Stem’s capital stock.

(3)

Mr. Tammineedi, a member of Stem’s board of directors, is a principal of an affiliate of Angeleno Investors III, L.P., which holds more than 5% of Stem’s capital stock.

(4)

Mr. Jacob, a member of Stem’s board of directors, is a managing director of an affiliate of Activate Capital Partners, L.P., which holds more than 5% of Stem’s capital stock.

(5)

Mr. Kurihara, a member of Stem’s board of directors, is an employee of Mitsui & Co., Ltd., which holds more than 5% of Stem’s capital stock.

(6)

Mr. Buzby is a member of Stem’s board of directors.

(7)

Holds more than 5% of Stem’s capital stock.

(8)

In August 2019, Copec Overseas S.P.A. converted the outstanding note into Stem’s Series D’ Preferred Stock.

In connection with the 2019 Convertible Note offering, certain investors, including the related parties above that bought a minimum threshold of the 2019 Convertible Notes were issued warrants giving them rights to acquire Financing Stock at the Offer Price per share, or in the event the Financing Stock offering does not occur, to acquire Stem’s Series D’ Preferred Stock (the “Preferred Stock Warrants”). The number of Preferred Stock Warrants issued is subject to adjustment pending the occurrence of the Qualified Financing. The Preferred Stock Warrants are transferrable (with Stem’s consent) and expire upon the earlier of the occurrence of certain events or the seventh anniversary of the date of issuance. Copec Overseas S.P.A. (“Copec”) also received a warrant to purchase 5,000,000 shares of Stem’s Common Stock at the time it purchased the 2019 Convertible Notes.

Commercial Agreement with Copec

In July 2020, Legacy Stem and Copec Overseas S.P.A. (“Copec”), announced a joint venture and strategic partnership to bring Legacy Stem’s technology to Chile and Colombia. Copec was, at the time, a significant stockholder of Legacy Stem. Copec agreed to deploy Legacy Stem’s intelligent storage solutions and leverage Stem’s expertise in design, deployment, and project financing of energy storage projects.

Side Letters

In June 2019, Legacy Stem entered into a side letter with Mitsui & Co., Ltd. (“Mitsui”) which granted certain management rights. Those rights followed Mitsui’s purchase of 9,787,290 shares of Stem’s Series C Preferred Stock. Further, the side letter included certain other rights, including, among other things, that if Stem entered into any side letter or other similar written agreement following such date with a current stockholder, any purchaser of shares of Legacy Stem’s Series D Preferred Stock, or any other person that purchase shares of any series of preferred stock of Legacy Stem during the twelve (12) months following the date of the letter agreement

 

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(a “Mitsui New Stockholder”), then Mitsui shall receive the same rights as the Mitsui New Stockholder, subject to certain exemptions.

In July 2019, Legacy Stem entered into a side letter with Copec that granted Copec certain management rights. Further, the side letter included certain other rights, including, among other things, that if Legacy Stem entered into any side letter or other similar written agreement following such date with a current stockholder, any purchaser of shares of Stem’s Series D’ Preferred Stock, or any other person that purchase shares of any series of preferred stock of Legacy Stem during the twelve (12) months following the date of the letter agreement (a “Copec New Stockholder”), then Copec shall receive the same rights as the Copec New Stockholder, subject to certain exemptions.

Related Party Transaction Policy

We have adopted a written related party transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions. For purposes of our policy, a related person transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which (i) the aggregate amount involved exceeds or is expected to exceed $100,000, (ii) the Company or any of its subsidiaries was, is or will be a participant, and (iii) any related person (as defined above) had, has or will have a direct or indirect interest. Transactions involving compensation for services provided to us as an employee or director, among other limited exceptions, are deemed to have standing pre-approval by the Nominating Committee but may be specifically reviewed if appropriate in light of the facts and circumstances.

Under the policy, if a transaction has been identified as a related party transaction, our management must present information regarding the related party transaction to our Nominating Committee for review, consideration and approval or ratification. We will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related party transactions and to effectuate the terms of the policy. In addition, under our Code of Business Conduct and Ethics, our directors, officers and employees have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related party transactions, our Nominating Committee will take into account the relevant available facts and circumstances including, but not limited to: (i) whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and (ii) the extent of the interest of the related person in the transaction.

The related party transactions described above, other than the Warrant Exchange Agreement, were consummated prior to our adoption of our formal, written policy, and, accordingly, the foregoing policies and procedures were not followed with respect to these transactions. However, we believe that the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described above were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions at such time.

 

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PRINCIPAL SECURITYHOLDERS

The following table and accompanying footnotes set forth information with respect to the beneficial ownership of our Common Stock, as of March 31, 2022 for (i) each director and director nominee, (ii) each of our named executive officers and (iii) all directors and executive officers as a group.

The beneficial ownership percentages set forth in the table below are based on 153,844,420 shares of our common stock issued and outstanding as of March 31, 2022. The number of shares beneficially owned by each person or group as of March 31, 2022 includes shares of common stock that such person or group has the right to acquire within 60 days of March 31, 2022, including upon the exercise of options to purchase common stock or the vesting of restricted stock units (RSUs). References to options in the footnotes to the table below include only options outstanding as of March 31, 2022 that are currently exercisable or that become exercisable within 60 days of March 31, 2022, and references to RSUs in the footnotes to the table below are only to RSUs outstanding as of March 31, 2022 and that vest within 60 days of March 31, 2022.

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that person has or shares “voting power”, which includes the power to vote or to direct the voting of the security, or “investment power”, which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers within 60 days.

Unless otherwise noted in the footnotes to the following table, and subject to applicable community property laws, the persons and entities named in the table have sole voting and investment power with respect to their beneficially owned Common Stock.

 

Name and Address

  

Shares Beneficially
Owned

    

Percentage
of Total

 

Named Executive Officers and Directors

     

William Bush (1)

     395,079        *  

John Carrington (2)

     462,656        *  

Larsh Johnson (3)

     204,541        *  

David Buzby (4)

     675,711        *  

Adam E. Daley (5)

     595,800        *  

Michael C. Morgan (6)

     1,851,642        1.2

Anil Tammineedi (7)

     4,795,373        3.1

Lisa L. Troe (8)

     5,524        *  

Laura D’Andrea Tyson (9)

     5,524        *  

Jane Woodward (10)

     8,193        *  

All current directors and executive officers as a group (15 persons)

     9,307,364        6.0

 

*

Less than One percent

(1)

Includes 3,946 RSUs, and options to purchase 9,865 shares.

(2)

Includes 9,865 RSUs and options to purchase 24,664 shares.

(3)

Includes 3,453 RSUs, and options to purchase 8,632 shares.

(4)

Includes 5,524 RSUs, and 3,563 shares of common stock held by the David S. Buzby Revocable Trust, of which Mr. Buzby serves as trustee.

(5)

Includes (a) 5,524 RSUs; (b) 242,776 shares held by Daley Revocable Trust, of which Mr. Daley is a trustee, and (c) 246,251 shares held by Daley Investment Trust, of which Mr. Daley is a trustee.

(6)

Includes (a) 5,524 RSUs; (b) 37,500 shares of common stock held in a family trust (M GST) of which Mr. Morgan is an investment adviser; (c) 37,500 shares of common stock held in a family trust (C GST) of which Mr. Morgan is an investment adviser; (d) 542,181 shares of common stock held in a trust for which Mr. Morgan acts as trustee; (e) 1,178,937 shares of common stock held by Portcullis Investments, LP; and

 

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  (f) 50,000 shares of common stock held by Portcullis Partners, LP. Mr. Morgan is serves as Manager of the general partner of Portcullis Investments, LP and Portcullis Partners, L.P.
(7)

Includes (a) 5,524 RSUs and (b) 4,789,849 shares of common stock held by Angeleno Investors III, L.P. Mr. Tammineedi is a Principal at Angeleno Group, an affiliate of Angeleno Investors III, L.P., and may be deemed to share voting and investment power with respect to all shares held by Angeleno Investors III, L.P.

(8)

Includes 5,524 RSUs.

(9)

Includes 5,524 RSUs.

(10)

Includes (a) 5,524 RSUs; (b) 1,335 shares of common stock held by Greenleaf Trust I, of which Ms. Woodward is trustee, and (c) 1,334 shares of common stock held by Greenleaf Trust II, of which Ms. Woodward is trustee.

Security Ownership of Certain Beneficial Owners

The following table sets forth information as of December 31, 2021, with respect to persons known by the Company to be the beneficial owners of more than 5% of our common stock, based solely on the information reported by such persons in their Schedule 13G filings with the SEC. For each entity included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such entity by the 153,844,420 shares of common stock outstanding on March 31, 2022.

 

Name and Address

  

Shares Beneficially
Owned

    

Percentage of
Total

 

The Vanguard Group (1)

100 Vanguard Blvd.

Malvern, PA 19355

     12,086,688        7.9

 

(11)

Based solely on a Schedule 13G filed on February 10, 2022 by the Vanguard Group. Such filing indicates that The Vanguard Group has sole voting power with respect to 0 shares, shared voting power with respect to 204,909 shares, sole investment power with respect to 11,821,817 shares, and shared investment power with respect to 264,871 shares.

 

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SELLING SECURITYHOLDERS

The Selling Securityholders listed in the table below may from time to time offer and sell any or all of the shares of Common Stock set forth below pursuant to this prospectus. When we refer to the “Selling Securityholders” in this prospectus, we refer to the persons listed in the table below, and the pledgees, donees, transferees, assignees, successors and other permitted transferees that hold any of the Selling Securityholders’ interest in the shares of Common Stock after the date of this prospectus.

The following table sets forth information concerning the shares of Common Stock that may be offered from time to time by each Selling Securityholder.

We cannot advise you as to whether the Selling Securityholders will in fact sell any or all of such shares of Common Stock. In particular, the Selling Securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their securities after the date on which they provided us with information regarding their securities. Any changed or new information given to us by the Selling Securityholders, including regarding the identity of, and the securities held by, each Selling Securityholder, will be set forth in a prospectus supplement or amendments to the registration statement of which this prospectus is a part, if and when necessary.

Our registration of the shares of Common Stock does not necessarily mean that the Selling Securityholders will sell all or any of such Common Stock. The following table sets forth certain information provided by or on behalf of the Selling Securityholders as of October 22, 2021 (the “Reference Date”) concerning the Common Stock that may be offered from time to time by each Selling Securityholder with this prospectus. A Selling Securityholder may sell all, some or none of such securities in this offering. See “Plan of Distribution.”

 

     Before the Offering      After the Offering  

Name and Address of Selling
Securityholder)

  

Common
Stock
Beneficially
Owned
Prior to the
Offering(1)

    

Number of
Shares of
Common
Stock Being
Offered

    

Number of
Shares of
Common Stock
Beneficially
Owned After
the Offered
Shares of
Common Stock
Are Sold

    

After the
Offering
Percentage of
Outstanding
Common Stock
Beneficially
Owned After
the Offered
Shares of
Common Stock
Are Sold

 

PIPE Investors

           

Adage Capital Partners LP (1)

     1,800,000        1,800,000        —          —    

Alyeska Master Fund. L.P. (2)

     1,000,000        1,000,000        —          —    

Blackrock, Inc. (3)

     4,400,000        4,400,000        —          —    

Blackstone Aqua Master Sub-Fund, a sub-fund of Blackstone Global Master Fund ICAV (4)

     200,000        200,000        —          —    

Cohen & Steers Capital Management, Inc. (5)

     1,000,000        1,000,000        —          —    

DeGroff/Schneider Revocable Trust (6)

     6,500        6,500        —          —    

DSAM Partners (London) Ltd. (7)

     1,260,129        1,080,000        —          —    

Electron Capital Partners, LLC (8)

     3,000,000        3,000,000        —          —    

Entities affiliated with Millennium Management LLC (9)

     1,083,906        920,000        163,906        *  

Governors Lane Master Fund LP (10)

     400,000        400,000        —          —    

Hedosophia Group Limited (11)

     100,000        100,000        —          —    

HITE Hedge Asset Management LLC (12)

     1,000,000        1,000,000        —          —    

Jane Street Global Trading, LLC (13)

     201,298        200,000        —          —    

 

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Luxor Capital Group, LP (14)

     1,400,000        1,400,000        —          —    

Major Tom Capital LLC (15)

     400,000        400,000        —          —    

PFMO4 LLC (16)

     400,000        400,000        —          —    

Phoenix Insurance Company Ltd.

     20,000        20,000        —          —    

Portcullis Partners, LP (17)

     50,000        50,000        —          —    

Richard D. Kinder (18)

     700,000        700,000        —          —    

Scopus Fund Ltd. (19)

     6,984        6,080        904        *  

Scopus Partners, L.P. (19)

     13,459        11,176        2,283        *  

Scopus Partners II, L.P. (19)

     19,666        17,116        2,550        *  

Scopus Vista Fund Ltd. (20)

     11,821        9,548        2,273        *  

Scopus Vista Partners, L.P. (19)

     195,570        156,080        39,490        *  

Senator Global Opportunity Master Fund LP (20)

     2,200,000        2,200,000        —          —    

Magnetar Financial LLC (21)

     43,500        43,500        —          —    

Shotfut Menayot Phoenix

     180,000        180,000        —          —    

Vaneck Global Hard Assets Fund (22)

     736,009        362,000        374,009        *  

Vaneck Global Natural Resources Portfolio, a Series of Brighthouse Funds Trust II (22)

     1,363,799        761,000        602,799        *  

Vaneck VIP Global Hard Assets Fund (22)

     359,899        177,000        182,899        *  

Yaupon Master Fund LP (23)

     506,797        500,000        6,797        *  

Sponsor Investors

           

1811 Pesikoff Family Trust (24)

     25,339        25,339        —          —    

Alec Litowitz (25)

     1,886,686        1,886,686        —          —    

Brian Robert Beglin (26)

     4,687        4,687        —          —    

BSCH Master I Sub (MAG) L.P. (27)

     1,251,092        1,251,092        —          —    

Charles H. Coyle (28)

     3,516        3,516        —          —    

Charles Park Shaper (29)

     246,983        246,983        —          —    

Courtney Kozel (30)

     11,719        11,719        —          —    

Craig Philip Rohr (31)

     261,042        261,042        —          —    

D. Michael Dean (32)

     110,011        110,011        —          —    

Dain DeGroff (33)

     156,953        150,453        6,500        *  

David Wilansky (34)

     73,943        73,943        —          —    

Duane G. Kelley (35)

     15,204        15,204        —          —    

Eric J Scheyer (36)

     859,355        859,355        —          —    

Grace Sunyuh Kim-E (37)

     5,859        5,859        —          —    

James Thomas McCartt (38)

     15,204        15,204        —          —    

Jerome Silvey (39)

     46,879        46,879        —          —    

Joshua Taylor (40)

     8,235        8,235        —          —    

Mag Alpha 2 LLC (41)

     365,589        365,589        —          —    

Mag Beta LLC (42)

     497,847        497,847        —          —    

Mag Gamma LLC (43)

     79,907        79,907        —          —    

Matthew Wilkes (44)

     46,879        46,879        —          —    

Michael Wilds (45)

     76,494        76,494        —          —    

MTP Energy Management LLC

     16,426        16,426        —          —    

Nichole Milz (46)

     11,719        11,719        —          —    

Pangxin Tao (47)

     2,344        2,344        —          —    

Ross Laser (48)

     943,343        943,343        —          —    

Scott M. Bilyeu Revocable Trust (49)

     15,204        15,204        —          —    

Steven Settles (50)

     16,408        16,408        —          —    

Tarja Bentgarde-Childers (51)

     2,344        2,344        —          —    

Tyler David Peterson (52)

     25,339        25,339        —          —    

Tyson E. Taylor (53)

     30,787        30,787        —          —    

Xing Fang (54)

     2,344        2,344        —          —    

 

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Zachary Paul Kaufman (55)

     15,204        15,204        —          —    

Directors and Officers (56)

           

John Carrington (57)

     4,214,023        4,214,023        —          —    

William Bush (58)

     1,223,355        1,223,355        —          —    

Mark Triplett (59)

     728,324        728,324        —          —    

Alan Russo (60)

     305,615        305,615        —          —    

Larsh Johnson (61)

     873,261        873,261        —