e424b5
This
preliminary prospectus supplement and the accompanying
prospectus relate to an effective registration statement under
the Securities Act of 1933, but the information in this
prospectus supplement is not complete and may be changed. This
prospectus supplement and the accompanying prospectus are not an
offer to sell these securities and we are not soliciting an
offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
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Filed
Pursuant to
Rule 424(b)(5)
Registration
No. 333-128088
SUBJECT TO COMPLETION, DATED
JUNE 24, 2010
PRELIMINARY
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 6, 2007)
Shares
of Common Stock
We are
offering shares
of our common stock in this offering.
Our common stock is listed on The NASDAQ Global Market under the
symbol FCEL. On June 23, 2010, the last
reported sale price of our common stock was $1.58 per share.
Investing in our common stock involves significant risks. See
Risk Factors beginning on
page S-7
of this prospectus supplement and page 3 of the
accompanying prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Public Offering Price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to FuelCell (before expenses)
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$
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$
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We estimate the total expenses of this offering, excluding the
underwriting discounts and commissions, will be approximately
$ . We have granted the
underwriters an option for a period of 30 days from the
date of this prospectus supplement to purchase up to a total
of ,000
additional shares of our common stock at the public offering
price per share, less the underwriting discounts and
commissions, to cover any over-allotments.
We anticipate that delivery of the shares will be made on or
about June , 2010, subject to customary closing
conditions.
Sole Book-Running Manager
Lazard
Capital Markets
Co-Manager
canaccord
genuity
Prospectus supplement dated June , 2010.
TABLE OF
CONTENTS
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Prospectus Supplement
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S-3
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S-4
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S-6
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S-7
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S-19
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S-20
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S-20
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S-21
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S-21
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S-22
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S-25
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S-25
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S-25
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Prospectus
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ii
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ii
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1
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3
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14
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14
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14
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21
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32
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35
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35
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S-2
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is the prospectus
supplement, which describes the specific terms of the securities
we are offering and also adds to and updates information
contained in the accompanying prospectus and the documents
incorporated by reference into this prospectus supplement and
the accompanying prospectus. The second part, the accompanying
prospectus, provides more general information. Generally, when
we refer to this prospectus, we are referring to both parts of
this document combined. This prospectus supplement and the
accompanying prospectus and the documents incorporated by
reference herein and therein are part of a shelf registration
statement that we filed with the Securities and Exchange
Commission. Under the shelf registration process, we may offer
from time to time shares of our common stock and other
securities up to an original aggregate amount of $150,000,000,
of which $55,576,074 remains available and of which this
offering is a part. This prospectus supplement and the
accompanying prospectus and the documents incorporated by
reference herein and therein include important information about
us, our securities being offered and other information you
should know before investing. You should read this prospectus
supplement, the accompanying prospectus, the documents
incorporated by reference in this prospectus supplement and the
accompanying prospectus and any related free writing prospectus
that we authorized to be delivered to you, as well as the
additional information described under Where You Can Find
Additional Information on
page S-25
of this prospectus supplement and Incorporation of Certain
Information by Reference on
page S-25
of this prospectus supplement before investing in our securities.
To the extent there is a conflict between the information
contained in this prospectus supplement, on the one hand, and
the information contained in the accompanying prospectus or in
any document incorporated by reference that was filed with the
SEC before the date of this prospectus supplement, on the other
hand, you should rely on the information in this prospectus
supplement. If any statement in one of these documents is
inconsistent with a statement in another document having a later
date for example, a document incorporated by
reference in this prospectus supplement or the accompanying
prospectus the statement in the document having the
later date modifies or supersedes the earlier statement.
You should rely only on the information contained in this
prospectus supplement, the accompanying prospectus, any related
free writing prospectus that we authorized to be distributed to
you and the documents incorporated by reference herein and
therein. We have not, and the underwriters have not, authorized
anyone to provide you with information that is different. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are offering to sell and seeking
offers to buy shares of our common stock only in jurisdictions
where offers and sales are permitted. We are not making an offer
to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
contained in this prospectus supplement, the documents
incorporated by reference in this prospectus supplement and the
accompanying prospectus and any related free writing prospectus
that we have authorized to be delivered to you is accurate only
as of their respective dates, regardless of the time of delivery
of such documents or of any sale of securities. Our business,
financial condition, results of operations and prospects may
have changed since those dates. You should not consider this
prospectus supplement or the accompanying prospectus to be an
offer or solicitation relating to the securities in any
jurisdiction in which such an offer or solicitation relating to
the securities is not authorized. Persons outside the United
States who come into possession of this prospectus must inform
themselves about, and observe any restrictions relating to, the
offering of the common stock and the distribution of this
prospectus outside the United States. Furthermore, you should
not consider this prospectus supplement or the accompanying
prospectus to be an offer or solicitation relating to the
securities if the person making the offer or solicitation is not
qualified to do so, or if it is unlawful for you to receive such
an offer or solicitation.
Unless the context requires otherwise, in this prospectus
supplement and the accompanying prospectus the terms
FuelCell, the Company, we,
us, our and similar names refer to
FuelCell Energy, Inc. and its subsidiaries.
S-3
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights certain information about us, this
offering and information appearing elsewhere in this prospectus
supplement and in the accompanying prospectus and in the
documents we incorporate by reference. This summary is not
complete and does not contain all of the information that you
should consider before investing in shares of our common stock.
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed
information and financial statements and notes thereto appearing
elsewhere in this prospectus supplement and the accompanying
prospectus and incorporated by reference herein and therein.
Before you decide to invest in shares of our common stock, to
fully understand this offering and its consequences to you, you
should carefully read the entire prospectus supplement and the
accompanying prospectus carefully, including the risk factors
beginning on
page S-7
of this prospectus supplement and beginning on page 3 of
the accompanying prospectus, and the consolidated financial
statements and related notes included in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference herein and therein.
FuelCell
Energy, Inc.
Overview
We are a world leader in the development and production of
stationary fuel cells for commercial, industrial, government and
utility customers. Our ultra-clean, high efficiency Direct
FuelCell®
power plants are generating power at over 50 locations
worldwide. Our products have generated over 500 million kWh
of power using a variety of fuels, including renewable
wastewater gas, food and beverage waste, natural gas and other
hydrocarbon fuels.
Our Company was founded in Connecticut in 1969 and
reincorporated in Delaware in 1999. Our core fuel cell products
(Direct
FuelCell®
or
DFC®
Power Plants) offer higher efficiency stationary power
generation for customers. In addition to our commercial
products, we continue to develop our carbonate fuel cells,
planar solid oxide fuel cell (SOFC) technology and
other fuel cell technology with our own and government research
and development funds.
Our proprietary carbonate DFC Power Plants electrochemically
(without combustion) produce electricity directly from readily
available hydrocarbon fuels such as natural gas and biogas.
Customers buy fuel cells to reduce cost and pollution, and
improve power reliability. Electric generation without
combustion significantly reduces harmful pollutants such as NOX,
SOX and particulates. Higher fuel efficiency results in lower
emissions of carbon dioxide
(CO2),
a major greenhouse gas, and also results in less fuel needed per
kWh of electricity generated and Btu of heat produced. Greater
efficiency reduces customers exposure to volatile fuel
costs and minimizes operating costs. Our fuel cells operate 24/7
providing reliable power to both
on-site
customers and for grid-support applications.
Compared to other power generation technologies, we believe that
our products offer significant advantages including:
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Near-zero toxic emissions;
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High fuel efficiency;
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Ability to site units locally as distributed power generation;
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Potentially lower cost power generation;
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Byproduct heat ideal for cogeneration applications;
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Reliable 24/7 base load power;
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Quiet operation; and
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Fuel flexibility.
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S-4
Typical customers for our products include manufacturers,
mission critical institutions such as correction facilities and
government installations, hotels, natural gas letdown stations
and customers who can use renewable gas for fuel such as
breweries, food processors, and wastewater treatment facilities.
Our MW-class products are also used to supplement the grid for
utility customers. With increasing demand for renewable and
ultra-clean power options and increased volatility in electric
markets, our customers gain control of power generation
economics, reliability, and emissions.
As of May 7, 2010, our DFC Power Plants are protected by 59
U.S. and 73 international patents. In addition, we
currently have 33 U.S. and 137 international patents under
application.
Our executive offices are located at 3 Great Pasture Road,
Danbury, Connecticut 06813. Our telephone number is
(203) 825-6000.
We maintain a web site at the following Internet address:
www.fuelcellenergy.com. The information on our web site
is not part of this prospectus.
As used in this prospectus, all degrees refer to Fahrenheit (F),
and kilowatt and megawatt numbers designate nominal or rated
capacity of the referenced power plant. As used in this
prospectus, kilowatt (kW) means 1,000 watts;
megawatt (MW) means 1,000,000 watts; and
kilowatt hour (kWh) is equal to 1 kW of power
supplied to or taken from an electric circuit steadily for one
hour. All dollar amounts are in U.S. dollars unless
otherwise noted.
S-5
The
Offering
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Common stock offered by us |
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shares |
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Over-allotment option |
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shares |
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Common stock to be outstanding after this offering |
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Use of proceeds |
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We intend to use the net proceeds from this offering for market
and product development, project financing, expansion of
manufacturing capacity and general corporate purposes. Pending
use of the net proceeds, we intend to invest the net proceeds
temporarily in money-market funds or U.S. treasuries until we
use them for their stated purpose. See Use of
Proceeds on
page S-20
of this prospectus supplement. |
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Risk factors |
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See Risk Factors beginning on
page S-8
of this prospectus supplement and on page 3 of the
accompanying prospectus for a discussion of factors you should
consider carefully when making a decision to invest in our
common stock. |
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NASDAQ Global Market symbol |
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FCEL |
The number of shares of our common stock to be outstanding
immediately after this offering as shown above assumes that all
of the shares offered hereby are sold and is based on
85,307,401 shares outstanding as of June 23, 2010.
This number of shares does not
include shares
subject to the underwriters over-allotment option and also
excludes the following:
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approximately 5,448,512 shares of our common stock issuable
upon conversion of 64,020 shares of our 5% Series B
Cumulative Convertible Perpetual Preferred Stock outstanding;
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207,952 shares of our common stock issuable upon conversion
of 1,000,000 Series 1 preferred shares issued by FuelCell
Energy, Ltd., our wholly-owned Canadian subsidiary (formerly
known as FCE Canada, Inc.);
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5,254,651 shares of our common stock issuable upon the
exercise of options outstanding at May 31, 2010 under our
equity plans;
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1,993,968 shares of our common stock available as of
May 31, 2010, for future issuance under our equity plans;
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127,703 shares of our common stock available as of
May 31, 2010, for future issuance under our employee stock
purchase plan;
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shares of our common stock and other securities up to an
aggregate amount of $150,000,000 pursuant to a shelf
registration statement that we have filed with the SEC;
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966,178 shares of our common stock available for employee
bonuses; and
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6,000,000 shares of our common stock available for future
sale.
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S-6
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties that we are
unaware of, or that we currently deem immaterial, also may
become important factors that affect us. Before purchasing our
common stock, you should carefully consider the following risk
factors, as well as all other information contained in this
prospectus supplement and the accompanying prospectus and
incorporated by reference, including our consolidated financial
statements and the related notes. If any of the following risks
actually occur, our business, financial condition, or results of
operations could be materially and adversely affected. In such
cases, the trading price of our common stock could decline, and
you may lose all or part of your investment.
Risks
Related to Our Business
We
have incurred losses and anticipate continued losses and
negative cash flow.
We have been transitioning from a contract research and
development company to a commercial products developer and
manufacturer. As such, we have not been profitable since our
fiscal year ended October 31, 1997. We expect to continue
to incur net losses and generate negative cash flow until we can
produce sufficient revenues to cover our costs. We may never
become profitable. Even if we do achieve profitability, we may
be unable to sustain or increase our profitability in the
future. For the reasons discussed in more detail below, there
are substantial uncertainties associated with our achieving and
sustaining profitability. We have, from time to time, sought
financing in the public markets in order to fund operations. Our
future ability to obtain such financing, if required, could be
impaired by a variety of factors, including the price of our
common stock, the current global economic crisis and general
market conditions.
Our
cost reduction strategy may not succeed or may be significantly
delayed, which may result in our inability to offer our products
at competitive prices and may adversely affect our
sales.
Our cost reduction strategy is based on the assumption that a
significant increase in production will result in economies of
scale. In addition, our cost reduction strategy relies on
advancements in our manufacturing process, global competitive
sourcing, engineering design and technology improvements
(including stack life and projected power output). Failure to
achieve our cost reduction targets would have a material adverse
effect on our commercialization plans and, therefore, our
business prospects, results of operations and financial
condition.
Our
products compete with products using other energy sources, and
if the prices of the alternative sources are lower than energy
sources used by our products, sales of our products will be
adversely affected. Volatility of electricity prices may impact
sales of our products in the markets in which we
compete.
Our DFC Power Plants operate using a variety of hydrocarbon
fuels, including natural gas, methanol, diesel, biogas, coal
gas, coal mine methane, and propane. If these fuels are not
readily available or if their prices increase such that
electricity produced by our products costs more than electricity
provided by other generation sources, our products would be less
economically attractive to potential customers. In addition, we
have no control over the prices of several types of competitive
energy sources such as oil, gas or coal as well as local utility
electricity costs. Significant decreases (or short term
increases) in the price of these fuels or grid delivered prices
for electricity could also have a material adverse effect on our
business because other generation sources could be more
economically attractive to consumers than our products.
The
reduction or elimination of government subsidies and economic
incentives for alternative energy technologies, including our
fuel cell power plants, could reduce demand for our products,
lead to a reduction in our revenues and adversely impact our
operating results.
We believe that the near-term growth of alternative energy
technologies, including our fuel cells, relies on the
availability and size of government and economic incentives
(including, but not limited to, the U.S. Federal investment
tax credit, the incentive programs in South Korea and the state
of California and state renewable
S-7
portfolio standards programs). Many of these government
incentives expire, phase out over time, exhaust the allocated
funding, or require renewal by the applicable authority. In
addition, these incentive programs could be challenged by
utility companies, found to be unconstitutional,
and/or could
be reduced or discontinued for other reasons. The reduction,
elimination, or expiration of government subsidies and economic
incentives may result in the diminished economic competitiveness
of our power plants to our customers and could materially and
adversely affect the growth of alternative energy technologies,
including our fuel cells, as well as our future operating
results.
Financial
markets worldwide have been impacted by a credit crisis which
may have a material adverse impact on our Company, our customers
and our suppliers.
Financial markets have been impacted by a credit crisis
worldwide, affecting both debt and equity markets. This has
substantially limited the amount of financing available to all
companies, including companies with substantially greater
resources, better credit ratings and more successful operating
histories than ours. It is impossible to predict how long this
crisis will last or how it will be resolved and it may have a
materially adverse affect on us for a number of reasons, such as:
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The long term nature of our sales cycle often requires long lead
times between order booking and product fulfillment. For this,
we often require substantial cash down payments in advance of
delivery. Our growth strategy assumes that financing will be
available for our customers to provide for such down payments
and to pay for our products. The worldwide credit crisis may
delay, cancel or restrict the construction budgets and funds
available to our customers that we expect to be the ultimate
purchasers of our products and services;
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Projects using our products are, in part, financed by equity
investors interested in tax benefits as well as by the
commercial and governmental debt markets. Volatility in the
U.S. and international stock markets, coupled with the
failure of several large financial institutions, has caused
significant uncertainty and resulted in an increase in the
return required by investors in relation to the risk of such
projects. This in turn has increased the cost of capital to the
point where new projects or projects in the early or planning
stages may not receive funding or may have project delays or
cancellations.
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If we, or our customers and suppliers, cannot obtain financing
under favorable terms during the current financial crisis or
should the financial crisis worsen, our business may be
negatively impacted.
We
have signed product sales contracts, long-term service
agreements and power purchase agreements with customers.
Revenues earned are subject to accounting estimates and
technology and operating risks as well as market conditions that
may affect our operating results.
Revenue from sales of our power plants and modules are
recognized under the percentage of completion method of
accounting. Revenues are recognized proportionally as costs are
incurred and assigned to a customer contract by comparing total
expected costs for each contract to the total contract value.
Historically, we have not provided for a contract loss reserve
on product sales contracts as products were in their early
stages of development and market acceptance, and the total costs
to produce, install and commission these units could not be
reasonably estimated. As a result of a consistent production
rate over the past two fiscal years and installation and
commissioning experience for our major product lines, management
now believes that it has sufficient product cost history to
reasonably estimate the total costs of our fuel cell product
sales contracts. Accordingly, effective November 1, 2009, a
contract loss reserve on product sales contracts is recognized
at the time we become aware that estimated total costs are
expected to exceed the contract sales price. Actual results
could vary from initial estimates and reserve estimates will be
updated as we gain further manufacturing and operating
experience.
Revenue earned by performing routine monitoring and maintenance
under long term service agreements (LTSAs) is
recognized ratably over the term of the contract. For service
contracts which include a minimum operating output over the
course of the contract, a portion of the contract revenue is
deferred until such time as it is earned through power plant
performance.
S-8
Under the terms of our power purchase agreements
(PPAs), customers agree to purchase power from our
fuel cell power plants at negotiated rates, generally for
periods of five to ten years. Electricity rates are generally a
function of the customers current and future electricity
pricing available from the grid. Revenues are earned and
collected under these PPAs as power is produced. As owner of the
power plants in these PPA entities, we are responsible for all
operating costs necessary to maintain, monitor and repair the
power plants. Under certain agreements, we are also responsible
for procuring fuel, generally natural gas, to run the power
plants. Should electricity rates decrease or operating costs
increase from our original estimates, our results of operations
could be negatively impacted. We have qualified for incentive
funding for these projects in California under the states
SGIP and from other government programs. Funds are payable upon
commercial installation and demonstration of the plant and may
require return of the funds for failure of certain performance
requirements. Revenue related to these incentive funds is
recognized ratably over the performance period. We are not
required to produce minimum amounts of power under our PPA
agreements and we have the right to terminate PPA agreements by
giving written notice to the customer, subject to certain exit
costs.
We
extend product warranties and enter into long-term service
agreements which are subject to accounting estimates. Future
technology and operating risks as may affect our operating
results.
We warranty our products for a specific period of time against
manufacturing or performance defects. Our warranty is limited to
a term of generally 15 months after shipment or
12 months after installation of our products. We reserve
for estimated future warranty costs based on historical
experience. Given our limited operating experience, particularly
for newer product designs, actual results could vary from
initial estimates. Estimates used to record warranty reserves
are updated as we gain further operating experience.
In addition to the standard product warranty, we have entered
into LTSAs with certain customers to provide monitoring,
maintenance and repair services for fuel cell power plants
ranging from one to 13 years. Our standard service
agreement term is five years. Under the terms of our LTSAs, the
power plant must meet a minimum operating output during the
term. If minimum output falls below the contract requirement, we
may replace the customers fuel cell stack with a new or
used unit. Our contractual liability under LTSAs is limited to
the amount of service fees payable under the contract. This can
often times be less than the cost of a new stack replacement. In
order to continue to meet customer expectations on early product
designs, at our election we have incurred costs in excess of our
contractual liabilities.
Our
products are complex and could contain defects which could
reduce sales of our products or result in claims against
us.
We develop complex and evolving
products. Despite testing by us, our customers
and our suppliers, issues may be found in existing or new
products. This could result in a delay in recognition or loss of
revenues, loss of market share or failure to achieve market
acceptance. The occurrence of defects could also cause us to
incur significant warranty, support and repair costs, could
divert the attention of our engineering personnel from our
product development efforts, and could harm our relationships
with our customers. The occurrence of these problems could
result in the delay or loss of market acceptance of our products
and would likely harm our business. Defects or performance
problems with our products could result in financial or other
damages to our customers. Our customers could also seek and
obtain damages from us for their losses. From time to time, we
have been involved in disputes regarding product warranty
issues. Although we seek to limit our liability, a product
liability claim brought against us, even if unsuccessful, would
likely be time consuming and could be costly to defend.
We
currently face and will continue to face significant
competition.
We compete on the basis of our products reliability, fuel
efficiency, environmental considerations and cost. Technological
advances in alternative energy products or improvements in the
electric grid or other sources of power generation, or other
fuel cell technologies may negatively affect the development or
sale of some or all of our products or make our products
non-competitive or obsolete prior to commercialization or
afterwards. Other companies, some of which have substantially
greater resources than ours, are currently
S-9
engaged in the development of products and technologies that are
similar to, or may be competitive with, our products and
technologies.
Several companies in the U.S. are involved in fuel cell
development, although we believe we are the only domestic
company engaged in significant manufacturing and
commercialization of carbonate fuel cells. Emerging fuel cell
technologies (and companies developing them) include proton
exchange membrane fuel cells (Ballard Power Systems, Inc.;
United Technologies Corp. or UTC Power; and Plug Power),
phosphoric acid fuel cells (UTC Power and Samsung Everland) and
solid oxide fuel cells (Siemens Westinghouse Electric Company,
General Electric, Delphi, Rolls Royce, Bloom Energy, and
Acumentrics). Each of these competitors has the potential to
capture market share in our target markets.
There are other potential carbonate fuel cell competitors
internationally. In Europe, a company in Italy, Ansaldo Fuel
Cells, is actively engaged in carbonate fuel cell development
and is a potential competitor. Fuji Electric has been involved
with both PEM and phosphoric acid fuel cells. In Korea, Doosan
Corporation is engaged in carbonate fuel cell development.
Other than fuel cell developers, we must also compete with such
companies as Caterpillar, Cummins, Wartsilla, MTU, Mitsubishi
Heavy Industries and Detroit Diesel, which manufacture more
mature combustion-based equipment, including various engines and
turbines, and have well-established manufacturing, distribution,
and operating and cost features. Electrical efficiency of these
products can be competitive with our DFC Power Plants in certain
applications. Significant competition may also come from gas
turbine companies like General Electric, Ingersoll Rand, Solar
Turbines and Kawasaki, which have recently made progress in
improving fuel efficiency and reducing pollution in large-size
combined cycle natural gas fueled generators. These companies
have also made efforts to extend these advantages to smaller
sizes.
We
have a large and influential stockholder, which may make it
difficult for a third party to acquire our common
stock.
POSCO Power (POSCO) owns, as of June 23, 2010,
approximately 13 percent of our outstanding common stock,
which could make it difficult for a third party to acquire our
common stock. POSCO is also a licensee of our technology and
purchaser of our products. Therefore, it may be in POSCOs
interest to possess substantial influence over matters
concerning our overall strategy and technological and commercial
development.
We
have limited experience manufacturing our products on a
commercial basis, which may adversely affect our planned
increases in production capacity and our ability to satisfy
customer requirements.
We have limited experience manufacturing our products on a
commercial basis. Our overall manufacturing process has a
production capacity of 70 MW per year. We expect that we
will further increase our manufacturing capacity based on market
demand. We cannot be sure that we will be able to achieve any
planned increases in production capacity. Also, as we scale up
our production capacity, we cannot be sure that unplanned
failures or other technical problems relating to the
manufacturing process will not occur.
Even if we are successful in achieving our planned increases in
production capacity, we cannot be sure that we will do so in
time to meet our product commercialization schedule or to
satisfy the requirements of our customers. Additionally, we
cannot be sure that we will be able to develop efficient,
low-cost manufacturing capabilities and processes (including
automation) that will enable us to meet our cost goals and
profitability projections. Our failure to develop advanced
manufacturing capabilities and processes, or meet our cost
goals, could have a material adverse effect on our business
prospects, results of operations and financial condition.
Unanticipated
increases or decreases in business growth may result in adverse
financial consequences for us.
If our business grows more quickly than we anticipate, our
existing and planned manufacturing facilities may become
inadequate and we may need to seek out new or additional space,
at considerable cost to us. If our business does not grow as
quickly as we expect, our existing and planned manufacturing
facilities would,
S-10
in part, represent excess capacity for which we may not recover
the cost; in that circumstance, our revenues may be inadequate
to support our committed costs and our planned growth, and our
gross margins, and business strategy would be adversely affected.
Our
plans are dependent on market acceptance of our
products.
Our plans are dependent upon market acceptance of, as well as
enhancements to, our products. Fuel cell systems represent an
emerging market, and we cannot be sure that potential customers
will accept fuel cells as a replacement for traditional power
sources. As is typical in a rapidly evolving industry, demand
and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk.
Since the distributed generation market is still evolving, it is
difficult to predict with certainty the size of the market and
its growth rate. The development of a market for our products
may be affected by many factors that are out of our control,
including:
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the cost competitiveness of our fuel cell products;
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the future costs of natural gas and other fuels used by our fuel
cell products;
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customer reluctance to try a new product;
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perceptions of the safety of our fuel cell products;
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the market for distributed generation;
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local permitting and environmental requirements; and
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the emergence of newer, more competitive technologies and
products.
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If a sufficient market fails to develop or develops more slowly
than we anticipate, we may be unable to recover the losses we
will have incurred in the development of our products and may
never achieve profitability.
As we continue to commercialize our products, we intend to
continue to develop warranties, power production guarantees and
other terms and conditions relating to our products that will be
acceptable to the marketplace, and continue to develop a service
organization that will aid in servicing our products and obtain
self-regulatory certifications, if available, with respect to
our products. Failure to achieve any of these objectives may
also slow the development of a sufficient market for our
products and, therefore, have a material adverse effect on our
results of operations and financial condition.
We are
substantially dependent on a small number of customers and the
loss of any one of these customers could adversely affect our
business, financial condition and results of
operations.
We contract with a small number of customers for the sale of our
products and for research and development contracts. For the
three months ended April 30, 2010 and the fiscal years
ended October 31, 2009, 2008 and 2007, our top two
customers, POSCO Power and the U.S. Department of Energy
and other governmental agencies, accounted for 86 percent,
80 percent, 62 percent and 45 percent,
respectively of our total annual consolidated revenue. Our
largest strategic partner, POSCO Power, accounted for
64 percent, 64 percent, 46 percent and
13 percent of total revenues, and the DOE and other
governmental agencies accounted for 22 percent,
16 percent, 17 percent and 31 percent of total
revenues for the three months ended April 30, 2010 and the
fiscal years ended October 31, 2009, 2008 and 2007,
respectively.
There can be no assurance that we will continue to achieve
historical levels of sales of our products to our largest
customers. Even though our customer base is expected to increase
and our revenue streams to diversify, a substantial portion of
net revenues could continue to depend on sales to a limited
number of customers. Our agreements with these customers may be
cancelled if we fail to meet certain product specifications or
materially breach the agreement, and our customers may seek to
renegotiate the terms of current agreements or renewals. The
loss of, or a reduction in sales to, one or more of our larger
customers could have a material adverse affect on our business,
financial condition and results of operations.
S-11
Our
government research and development contracts are subject to the
risk of termination by the contracting party and we may not
realize the full amounts allocated under the contracts due to
the lack of Congressional appropriations.
A portion of our fuel cell revenues have been derived from
long-term cooperative agreements and other contracts with the
U.S. Department of Energy, the U.S. Department of
Defense, the U.S. Navy, and other U.S. government
agencies. These agreements are important to the continued
development of our technology and our products.
Generally, our U.S. government research and development
contracts are subject to the risk of termination at the
convenience of the contracting agency. Furthermore, these
contracts, irrespective of the amounts allocated by the
contracting agency, are subject to annual Congressional
appropriations and the results of government or agency sponsored
reviews and audits of our cost reduction projections and
efforts. We can only receive funds under these contracts
ultimately made available to us annually by Congress as a result
of the appropriations process. Accordingly, we cannot be sure
whether we will receive the full amounts awarded under our
government research and development or other contracts. Failure
to receive the full amounts under any of our government research
and development contracts could materially and adversely affect
our business prospects, results of operations and financial
condition.
A
negative government audit could result in an adverse adjustment
of our revenue and costs and could result in civil and criminal
penalties.
Government agencies, such as the Defense Contract Audit Agency,
routinely audit and investigate government contractors. These
agencies review a contractors performance under its
contracts, cost structure, and compliance with applicable laws,
regulations, and standards. If the agencies determine through
these audits or reviews that we improperly allocated costs to
specific contracts, they will not reimburse us for these costs.
Therefore, an audit could result in adjustments to our revenue
and costs.
Further, although we have internal controls in place to oversee
our government contracts, no assurance can be given that these
controls are sufficient to prevent isolated violations of
applicable laws, regulations and standards. If the agencies
determine that we or one of our subcontractors engaged in
improper conduct, we may be subject to civil or criminal
penalties and administrative sanctions, payments, fines, and
suspension or prohibition from doing business with the
government, any of which could materially affect our results of
operations and financial condition.
The
U.S. government has certain rights relating to our intellectual
property, including restricting or taking title to certain
patents.
Many of our U.S. patents relating to our fuel cell
technology are the result of government-funded research and
development programs. We own all patents resulting from research
funded by our DOE contracts awarded to date, based on our
small business status when each contract was
awarded. Under current regulations, patents resulting from
research funded by government agencies other than the DOE are
owned by us, whether or not we are a small business.
Eleven U.S. patents that we own have resulted from
government-funded research and are subject to the risk of
exercise of march-in rights by the government.
March-in rights refer to the right of the U.S. government
or a government agency to exercise its non-exclusive,
royalty-free, irrevocable worldwide license to any technology
developed under contracts funded by the government if the
contractor fails to continue to develop the technology. These
march-in rights permit the U.S. government to
take title to these patents and license the patented technology
to third parties if the contractor fails to utilize the patents.
In addition, our DOE-funded research and development agreements
also require us to agree that we will not provide to a foreign
entity any fuel cell technology subject to that agreement unless
the fuel cell technology will be substantially manufactured in
the U.S. Accordingly, we could lose some or all of the
value of these patents.
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A
failure to qualify as a small business could
adversely affect our rights to own future patents under
DOE-funded contracts.
Qualifying as a small business under DOE contracts
allows us to own the patents that we develop under DOE
contracts. A small business under applicable
government regulations generally consists of no more than
500 employees averaged over a one year period. If we
continue to grow, we will no longer qualify as a small
business and no longer own future patents we develop under
future contracts, grants or cooperative agreements funded by the
DOE based on such certification, unless we obtain a patent
waiver from the DOE. Should we not obtain a patent waiver and
outright ownership, we would nevertheless retain exclusive
rights to any such patents, so long as we continue to
commercialize the technology covered by the patents. As of
May 31, 2010, we had a total of 453 full-time
employees; however, we cannot assure you that we will continue
to qualify as a small business in the future.
Our
future success and growth is dependent on our distribution
strategy.
We cannot assure you that we will enter into distributor
relationships that are consistent with, or sufficient to
support, our commercialization plans, and our growth strategy or
that these relationships will be on terms favorable to us. Even
if we enter into these types of relationships, we cannot assure
you that the distributors with which we form relationships will
focus adequate resources on selling our products or will be
successful in selling them. Some of these distributor
arrangements have or will require that we grant exclusive
distribution rights to companies in defined territories. These
exclusive arrangements could result in our being unable to enter
into other arrangements at a time when the distributor with
which we form a relationship is not successful in selling our
products or has reduced its commitment to marketing our
products. In addition, certain distributor arrangements include,
and some future distributor arrangements may also include, the
issuance of equity and warrants to purchase our equity, which
may have an adverse affect on our stock price. To the extent we
enter into distributor relationships, the failure of these
distributors to assist us with the marketing and distribution of
our products may adversely affect our results of operations and
financial condition.
We cannot be sure that our original equipment manufacturers
(OEMs) will manufacture or package products using
our Direct FuelCell components. Our success will largely depend
upon our ability to make our products compatible with the power
plant products of OEMs and the ability of these OEMs to sell
their products containing our products. In addition, some OEMs
may need to redesign or modify their existing power plant
products to fully incorporate our products. Accordingly, any
integration, design, manufacturing or marketing problems
encountered by OEMs could adversely affect the market for our
products and, therefore, our business prospects, results of
operations and financial condition.
We
depend on third party suppliers for the development and supply
of key raw materials and components for our
products.
We use various raw materials and components to construct a fuel
cell module, including nickel and stainless steel which are
critical to our manufacturing process. We also rely on
third-party suppliers for the
balance-of-plant
components in our products. Suppliers must undergo a
qualification process, which takes four to twelve months. We
continually evaluate new suppliers and we are currently
qualifying several new suppliers. There are a limited number of
suppliers for some of the key components of products. A
suppliers failure to develop and supply components in a
timely manner, supply components that meet our quality, quantity
or cost requirements and technical specifications, or our
inability to obtain alternative sources of these components on a
timely basis or on terms acceptable to us, could harm our
ability to manufacture our Direct FuelCell products. In
addition, to the extent the processes that our suppliers use to
manufacture components are proprietary; we may be unable to
obtain comparable components from alternative suppliers.
We do not know when or whether we will secure long-term supply
relationships with any of our suppliers or whether such
relationships will be on terms that will allow us to achieve our
objectives. Our business prospects, results of operations and
financial condition could be harmed if we fail to secure
long-term relationships with entities that will supply the
required components for our Direct FuelCell products.
S-13
We
depend on our intellectual property, and our failure to protect
that intellectual property could adversely affect our future
growth and success.
Failure to protect our existing intellectual property rights may
result in the loss of our exclusivity or the right to use our
technologies. If we do not adequately ensure our freedom to use
certain technology, we may have to pay others for rights to use
their intellectual property, pay damages for infringement or
misappropriation, or be enjoined from using such intellectual
property. We rely on patent, trade secret, trademark and
copyright law to protect our intellectual property. As of
May 7, 2010, we had 59 current U.S. patents and 73
international patents covering our fuel cell technology. These
patents will expire between 2010 and 2028 and have an average
remaining life of 10.7 years.
Some of our intellectual property is not covered by any patent
or patent application and includes trade secrets and other
know-how that is not able to be patented, particularly as it
relates to our manufacturing processes and engineering design.
In addition, some of our intellectual property includes
technologies and processes that may be similar to the patented
technologies and processes of third parties. If we are found to
be infringing third-party patents, we do not know whether we
will be able to obtain licenses to use such patents on
acceptable terms, if at all. Our patent position is subject to
complex factual and legal issues that may give rise to
uncertainty as to the validity, scope, and enforceability of a
particular patent.
We cannot assure you that any of the U.S. or international
patents owned by us or other patents that third parties license
to us will not be invalidated, circumvented, challenged,
rendered unenforceable or licensed to others, or any of our
pending or future patent applications will be issued with the
breadth of claim coverage sought by us, if issued at all. In
addition, effective patent, trademark, copyright and trade
secret protection may be unavailable, limited or not applied for
in certain foreign countries.
We also seek to protect our proprietary intellectual property,
including intellectual property that may not be patented or able
to be patented, in part by confidentiality agreements and, if
applicable, inventors rights agreements with our
subcontractors, vendors, suppliers, consultants, strategic
partners and employees. We cannot assure you that these
agreements will not be breached, that we will have adequate
remedies for any breach or that such persons or institutions
will not assert rights to intellectual property arising out of
these relationships. Certain of our intellectual property have
been licensed to us on a non-exclusive basis from third parties
that may also license such intellectual property to others,
including our competitors. If our licensors are found to be
infringing third-party patents, we do not know whether we will
be able to obtain licenses to use the intellectual property
licensed to us on acceptable terms, if at all.
If necessary or desirable, we may seek extensions of existing
licenses or further licenses under the patents or other
intellectual property rights of others. However, we can give no
assurances that we will obtain such extensions or further
licenses or that the terms of any offered licenses will be
acceptable to us. The failure to obtain a license from a third
party for intellectual property that we use at present could
cause us to incur substantial liabilities, and to suspend the
manufacture or shipment of products or our use of processes
requiring the use of that intellectual property.
While we are not currently engaged in any intellectual property
litigation, we could become subject to lawsuits in which it is
alleged that we have infringed the intellectual property rights
of others or commence lawsuits against others who we believe are
infringing upon our rights. Our involvement in intellectual
property litigation could result in significant expense to us,
adversely affecting the development of sales of the challenged
product or intellectual property and diverting the efforts of
our technical and management personnel, whether or not that
litigation is resolved in our favor.
Our
future success will depend on our ability to attract and retain
qualified management and technical personnel.
Our future success is substantially dependent on the continued
services and performance of our executive officers and other key
management, engineering, scientific, manufacturing and operating
personnel, particularly R. Daniel Brdar, our Chief Executive
Officer and Chairman of the Board of Directors. The loss of the
services of any executive officer, including Mr. Brdar, or
other key management, engineering, scientific, manufacturing
S-14
and operating personnel, could materially adversely affect our
business. Our ability to achieve our development and
commercialization plans will also depend on our ability to
attract and retain additional qualified management and technical
personnel. Recruiting personnel for the fuel cell industry is
competitive. We do not know whether we will be able to attract
or retain additional qualified management and technical
personnel. Our inability to attract and retain additional
qualified management and technical personnel, or the departure
of key employees, could materially and adversely affect our
development and commercialization plans and, therefore, our
business prospects, results of operations and financial
condition.
Our
management may be unable to manage rapid growth
effectively.
We may rapidly expand our manufacturing capabilities, accelerate
the commercialization of our products and enter a period of
rapid growth, which will place a significant strain on our
senior management team and our financial and other resources.
Any expansion may expose us to increased competition, greater
overhead, marketing and support costs and other risks associated
with the commercialization of a new product. Our ability to
manage rapid growth effectively will require us to continue to
improve our operations, to improve our financial and management
information systems and to train, motivate and manage our
employees. Difficulties in effectively managing issues presented
by such a rapid expansion could harm our business prospects,
results of operations and financial condition.
We may
be affected by environmental and other governmental
regulation.
We are subject to various federal, state and local laws and
regulations relating to, among other things, land use, safe
working conditions, handling and disposal of hazardous and
potentially hazardous substances and emissions of pollutants
into the atmosphere. In addition, it is possible that
industry-specific laws and regulations will be adopted covering
matters such as transmission scheduling, distribution, and the
characteristics and quality of our products, including
installation and servicing. These regulations could limit the
growth in the use of carbonate fuel cell products, decrease the
acceptance of fuel cells as a commercial product and increase
our costs and, therefore, the price of our products.
Accordingly, compliance with existing or future laws and
regulations could have a material adverse effect on our business
prospects, results of operations and financial condition.
Utility
companies could impose customer fees or interconnection
requirements on our customers that could make our products less
desirable.
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 increase the cost to our customers of
using our Direct FuelCell products and could make our products
less desirable, thereby harming our business prospects, results
of operations and financial condition.
Several states have created and adopted, or are in the process
of creating, their own interconnection regulations covering both
technical and financial requirements for interconnection to
utility grids. Depending on the complexities of the
requirements, installation of our systems may become burdened
with additional costs that might have a negative impact on our
ability to sell systems. The Institute of Electrical and
Electronics Engineers has been working to create an
interconnection standard addressing the technical requirements
for distributed generation to interconnect to utility grids.
Many parties are hopeful that this standard will be adopted
nationally to help reduce the barriers to deployment of
distributed generation such as fuel cells; however this standard
may not be adopted nationally thereby limiting the commercial
prospects and profitability of our fuel cell systems.
We
could be liable for environmental damages resulting from our
research, development or manufacturing operations.
Our business exposes us to the risk of harmful substances
escaping into the environment, resulting in personal injury or
loss of life, damage to or destruction of property, and natural
resource damage. Depending on the nature of the claim, our
current insurance policies may not adequately reimburse us for
costs incurred
S-15
in settling environmental damage claims, and in some instances,
we may not be reimbursed at all. Our business is subject to
numerous federal, state, and local laws and regulations that
govern environmental protection and human health and safety. We
believe that our businesses are operating in compliance in all
material respects with applicable environmental laws, however
these laws and regulations have changed frequently in the past
and it is reasonable to expect additional and more stringent
changes in the future.
Our operations may not comply with future laws and regulations
and we may be required to make significant unanticipated capital
and operating expenditures. If we fail to comply with applicable
environmental laws and regulations, governmental authorities may
seek to impose fines and penalties on us or to revoke or deny
the issuance or renewal of operating permits and private parties
may seek damages from us. Under those circumstances, we might be
required to curtail or cease operations, conduct site
remediation or other corrective action, or pay substantial
damage claims.
Our
products use inherently dangerous, flammable fuels, operate at
high temperatures and use corrosive carbonate material, each of
which could subject our business to product liability
claims.
Our business exposes us to potential product liability claims
that are inherent in products that use hydrogen. Our products
utilize fuels such as natural gas and convert these fuels
internally to hydrogen that is used by our products to generate
electricity. The fuels we use are combustible and may be toxic.
In addition, our Direct FuelCell products operate at high
temperatures and use corrosive carbonate material, which could
expose us to potential liability claims. Although we have
comprehensive safety, maintenance, and training programs in
place and follow third-party certification protocols, codes and
standards, we cannot guarantee there will not be accidents. Any
accidents involving our products or other hydrogen-using
products could materially impede widespread market acceptance
and demand for our products. In addition, we might be held
responsible for damages beyond the scope of our insurance
coverage. We also cannot predict whether we will be able to
maintain adequate insurance coverage on acceptable terms.
We are
subject to risks inherent in international
operations.
Since we market our products both inside and outside the U.S.,
our success depends in part, on our ability to secure
international customers and our ability to manufacture products
that meet foreign regulatory and commercial requirements in
target markets. Sales to customers located outside the
U.S. accounted for 65 percent, 50 percent and
34 percent of our consolidated revenue in fiscal 2009, 2008
and 2007, respectively. Sales to customers in Asia represent the
majority of our international sales. We have limited experience
developing and manufacturing our products to comply with the
commercial and legal requirements of international markets. In
addition, we are subject to tariff regulations and requirements
for export licenses, particularly with respect to the export of
some of our technologies. We face numerous challenges in our
international expansion, including war, insurrection, civil
unrest, strikes and other political risks, renegotiation of
contracts with governmental entities, unexpected changes in
regulatory requirements, fluctuations in currency restrictions
and exchange rates, longer accounts receivable requirements and
collections, difficulties in managing international operations,
potentially adverse tax consequences, restrictions on
repatriation of earnings and the burdens of complying with a
wide variety of international laws. Our international operations
may also be adversely affected by laws and policies of the
United States affecting foreign policy, foreign trade, taxation
and the possible inability to subject foreign persons to the
jurisdiction of the courts in the United States. Any of these
factors could adversely affect our results of operations and
financial condition.
Potential
Regulations regarding climate change could alter the way we
conduct our business.
Governments around the world are beginning to address climate
change matters. This may result in new environmental regulations
that may unfavorably impact us, our suppliers and our customers.
The cost of meeting these requirements may have an adverse
impact on our financial condition, results of operations and
cash flows.
S-16
We
depend on relationships with strategic partners, and the terms
and enforceability of many of these relationships are not
certain.
We have entered into relationships with strategic partners for
design, product development and distribution of our existing
products and products under development, some of which may not
have been documented by a definitive agreement. The terms and
conditions of many of these agreements allow for termination by
the partners. Termination of any of these agreements could
adversely affect our ability to design, develop and distribute
these products to the marketplace. We cannot assure you that we
will be able to successfully negotiate and execute definitive
agreements with any of these partners, and failure to do so may
effectively terminate the relevant relationship.
Our
stock price has been and could remain volatile.
The market price for our common stock has been and may continue
to be volatile and subject to extreme price and volume
fluctuations in response to market and other factors, including
the following, some of which are beyond our control:
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failure to meet our product development and sales milestones;
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variations in our quarterly operating results from the
expectations of securities analysts or investors;
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downward revisions in securities analysts estimates or
changes in general market conditions;
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announcements of technological innovations or new products or
services by us or our competitors;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
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additions or departures of key personnel;
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investor perception of our industry or our prospects;
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insider selling or buying;
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demand for our common stock; and
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general technological or economic trends.
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In the past, following periods of volatility in the market price
of their stock, many companies have been the subjects of
securities class action litigation. If we became involved in
securities class action litigation in the future, it could
result in substantial costs and diversion of managements
attention and resources and could harm our stock price, business
prospects, results of operations and financial condition.
Provisions
of Delaware and Connecticut law and of our charter and by-laws
may make a takeover more difficult.
Provisions in our certificate of incorporation and by-laws and
in Delaware and Connecticut corporate law may make it difficult
and expensive for a third-party to pursue a tender offer, change
in control or takeover attempt that is opposed by our management
and board of directors. Public stockholders who might desire to
participate in such a transaction may not have an opportunity to
do so. These anti-takeover provisions could substantially impede
the ability of public stockholders to benefit from a change in
control or change in our management and board of directors.
The
rights of the Series 1 preferred shares and Series B
preferred stock could negatively impact FuelCell and our
Stockholders.
The terms of the Series 1 preferred shares issued by
FuelCell Energy, Ltd. (FCE), our wholly-owned,
indirect subsidiary, provide rights to the holder, Enbridge,
which could negatively impact us. Quarterly dividends of
Cdn.$312,500 accrue on the Series 1 preferred shares
(subject to possible reduction pursuant to the terms of the
Series 1 preferred shares). We have agreed to pay a minimum
of Cdn.$500,000 in cash or
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common stock annually to Enbridge, as long as Enbridge holds
these shares. Interest accrues on cumulative unpaid dividends at
an annual rate of 9 percent, compounded quarterly. All
cumulative unpaid dividends must be paid by December 31,
2010. Using an exchange rate of Cdn.$0.9945 to U.S.$1.00
(exchange rate on April 30, 2010), cumulative unpaid
dividends and accrued interest on the Series 1 Preferred
Shares was $10.8 million as of April 30, 2010.
Subsequent to 2010, FCE will be required to pay an annual
dividend of Cdn.$1.25 million so long as the Series 1
Preferred Shares remain outstanding. We have guaranteed
FCEs dividend obligations under the Series 1
preferred shares.
We are also required to issue common stock to the holder of the
Series 1 preferred shares if and when the holder exercises
its conversion rights. The number of shares of common stock that
we may issue upon conversion could be significant and dilutive
to our existing stockholders. For example, assuming the holder
of the Series 1 preferred shares exercises its conversion
rights after July 31, 2020 and assuming our common stock
price is $2.75 (our common stock closing price on April 30,
2010) and an exchange rate of Cdn.$0.9945 to U.S.$1.00
(exchange rate on April 30, 2010) at the time of
conversion, we would be required to issue approximately
9,512,304 shares of our common stock.
The terms of the Series B preferred stock also provide
rights to their holders that could negatively impact us. Holders
of the Series B preferred stock are entitled to receive
cumulative dividends at the rate of $50 per share per year,
payable either in cash or in shares of our common stock. To the
extent the dividend is paid in shares, additional issuances
could be dilutive to our existing stockholders and the sale of
those shares could have a negative impact on the price of our
common stock. A share of our Series B preferred stock may
be converted at any time, at the option of the holder, into
85.1064 shares of our common stock (which is equivalent to
an initial conversion price of $11.75 per share), plus cash in
lieu of fractional shares. Furthermore, the conversion rate
applicable to the Series B preferred stock is subject to
adjustment upon the occurrence of certain events.
If we
fail to maintain an effective system of internal controls, we
may not be able to accurately report our financial results or
prevent fraud, which could harm our brand and operating
results.
Effective internal controls are necessary for us to provide
reliable and accurate financial reports and effectively prevent
fraud. We have devoted significant resources and time to comply
with the internal control over financial reporting requirements
of the Sarbanes-Oxley Act of 2002. In addition, Section 404
under the Sarbanes-Oxley Act of 2002 requires that we assess,
and that our auditors attest to, the design and operating
effectiveness of our controls over financial reporting. Our
compliance with the annual internal control report requirement
for each fiscal year will depend on the effectiveness of our
financial reporting and data systems and controls. Inferior
internal controls could cause investors to lose confidence in
our reported financial information, which could have a negative
effect on the trading price of our stock and our access to
capital.
Our
results of operations could vary as a result of methods,
estimates and judgments we use in applying our accounting
policies.
The methods, estimates and judgments we use in applying our
accounting policies have a significant impact on our results of
operations (see Critical Accounting Policies and
Estimates in Part II, Item 7 of our Annual
Report on
Form 10-K
for the year ended October 31, 2009 and Note 1 of
Notes to Consolidated Financial Statements of our
Form 10-Q
for the six months ended April 30, 2010). Such methods,
estimates and judgments are, by their nature, subject to
substantial risks, uncertainties and assumptions, and factors
may arise over time that could lead us to reevaluate our
methods, estimates and judgments.
As we gain experience in future periods, management will
continue to reevaluate its estimates for contract losses,
warranty and inventory reserves. Changes in those estimates and
judgments could significantly affect our results of operations
and financial condition. We may also adopt changes required by
the Financial Accounting Standards Board and the Securities and
Exchange Commission.
S-18
Risks
Related to this Offering
Management
will have broad discretion as to the use of the proceeds of this
offering.
We have not designated the amount of net proceeds we will
receive from this offering for any particular purpose.
Accordingly, our management will have broad discretion as to the
application of these net proceeds and could use them for
purposes other than those contemplated at the time of this
offering. Our stockholders may not agree with the manner in
which our management chooses to allocate and spend the net
proceeds.
Investors
in this offering will pay a much higher price than the book
value of our common stock.
You will suffer substantial dilution in the net tangible book
value of the common stock you purchase in this offering because
the price per share of our common stock being offered hereby is
substantially higher than the book value per share of our common
stock. Based on an assumed public offering price of $1.58 per
share in this offering (the last reported price of our common
stock on The NASDAQ Global Market on June 23, 2010), if you
purchase shares of common stock in this offering, you will
suffer immediate and substantial dilution of $0.59 per share in
the net tangible book value of the common stock. See
Dilution on
page S-21
of this prospectus supplement for a more detailed discussion of
the dilution you will incur in this offering.
Future
sales of substantial amounts of our common stock could affect
the market price of our common stock.
Future sales of substantial amounts of our common stock, or
securities convertible or exchangeable into shares of our common
stock, into the public market, including shares of our common
stock issued upon exercise of options and warrants, or
perceptions that those sales could occur, could adversely affect
the prevailing market price of our common stock and our ability
to raise capital in the future.
FORWARD-LOOKING
STATEMENTS
Some of the statements contained in this prospectus supplement
or incorporated by reference into this prospectus supplement are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and are
subject to the safe harbor created by the Securities Litigation
Reform Act of 1995. We have based these forward-looking
statements largely on our expectations and projections about
future events and financial trends affecting the financial
condition
and/or
operating results of our business. Words such as
anticipates, expects,
intends, plans, believes,
seeks, estimates, the negative of these
words, or similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict;
therefore, actual results may differ materially from those
expressed or forecasted in any forward-looking statements. The
risks and uncertainties include those noted under the heading
Risk Factors below, in the filings incorporated
herein by reference and in the accompanying prospectus. There
are important factors that could cause actual results to be
substantially different from the results expressed or implied by
these forward-looking statements including, among other things:
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our ability to become profitable and attain positive cash flow;
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our ability to successfully implement our cost reduction
strategy and increase our production;
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the impact of competition and technological change on our
business;
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the effect of market conditions on our long-term power purchase
and service agreements with our customers;
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our ability to successfully market and commercialize our Direct
FuelCell®
products and our other products and product candidates;
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our dependence on government research and development contracts
and the effect that a negative government audit could have on
our business;
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S-19
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our dependence on a limited number of third-party suppliers for
our Direct
FuelCell®
products;
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our dependence on our intellectual property and ability to
protect our proprietary rights and operate our business without
conflicting with the rights of others;
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the effect that any intellectual property litigation or product
liability claims may have on our business and operating and
financial performance;
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our ability to attract and retain key, qualified management and
technical personnel;
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the negative effect of the imposition of customer fees or
interconnection requirements on our customers by utility
companies;
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the effect that environmental litigation or remediation
requirements may have on our business and operating and
financial performance; and
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other factors set forth above under Risk Factors and
in the accompanying prospectus, as well as in all filings
incorporated by reference into this prospectus supplement.
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We do not intend to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise. Past financial or operating performance is
not necessarily a reliable indicator of future performance, and
you should not use our historical performance to anticipate
results or future period trends.
SELECTED
FINANCIAL DATA
Financial data from our filings with the SEC has been
incorporated by reference.
Our Quarterly Reports on
Form 10-Q
for the fiscal periods ended January 31, 2010, and
April 30, 2010, were filed with the SEC on March 12,
2010, and June 9, 2010, respectively. In our
Form 10-Q
for the second fiscal quarter of fiscal 2010, there were
immaterial errors in the amounts reported as changes in other
assets and changes in accrued liabilities on the consolidated
statements of cash flows for the six months ended April 30,
2010, as well as related changes discussed within the Liquidity
and Capital Resources section of Managements Discussion
and Analysis of Financial Condition and Results of Operations.
The reported amount (in thousands) in other assets was $1,197 as
filed and should have been $1,865. The reported amount (in
thousands) in accrued liabilities was $2,135 as filed and should
have been $2,001. These immaterial errors had no impact on the
reported total of net cash used in operating activities for the
six months ended April 30, 2010 and will be corrected in
future filings.
USE OF
PROCEEDS
We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, will be approximately
$ million (or approximately
$ million if the
underwriters over-allotment option is exercised in full).
We currently intend to use the net proceeds of this offering for
market and product development, project financing, expansion of
manufacturing capacity and general corporate purposes. General
corporate purposes may include capital expenditures, repayment
of debt, payment of dividends and any other purposes. While we
have estimated the particular uses for the net proceeds of this
offering, we have not determined the amounts we plan to spend on
any of the areas listed above or the timing of these
expenditures. As a result, our management will have broad
discretion to allocate the net proceeds from this offering for
any purpose, and investors will be relying on the judgment of
our management with regard to the use of these net proceeds.
Pending use of the net proceeds as described above, we intend to
invest the net proceeds in money-market funds or
U.S. treasuries until we use them for their stated purpose.
S-20
DESCRIPTION
OF CAPITAL STOCK
The description of our common stock is set forth under the
heading Description of Capital Stock, beginning on
page 36 of the accompanying prospectus.
DILUTION
If you purchase any of the shares of common stock offered by
this prospectus supplement, you will experience dilution to the
extent of the difference between the offering price per share of
common stock you pay in this offering and the net tangible book
value per share of our common stock immediately after this
offering. Our unaudited net tangible book value as of
April 30, 2010, was approximately $76.8 million, or
$0.90 per share of common stock. Net tangible book value per
share is equal to our total tangible assets minus total
liabilities, all divided by the number of shares of common stock
outstanding.
After giving effect to the assumed sale of
15,000,000 shares of common stock in this offering an
assumed public offering price of $1.58 per share, and after
deducting the underwriting commissions and our estimated
offering expenses, our as adjusted net tangible book value as of
April 30, 2010, would have been approximately
$99.0 million, or approximately $0.99 per share of common
stock. This represents an immediate increase in net tangible
book value of approximately $0.09 per share to existing
stockholders and an immediate dilution of approximately $0.59
per share to new investors. The following table illustrates this
calculation on a per share basis:
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Assumed Public Offering price per share
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$
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1.58
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Net tangible book value per share as of April 30, 2010
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$
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0.90
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Increase per share attributable to this offering
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$
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0.09
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As adjusted net tangible book value per share after this offering
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$
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0.99
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Dilution per share to new investors participating in this
offering
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$
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0.59
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The number of shares of common stock outstanding used for
existing stockholders in both the table and calculations above
is based on 85,307,401 shares outstanding as of
June 23, 2010. This number of shares does not include
2,250,000 shares of common stock subject to the
underwriters over-allotment option and also excludes:
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approximately 5,448,512 shares of our common stock issuable
upon conversion of 64,020 shares of our 5% Series B
Cumulative Convertible Perpetual Preferred Stock outstanding;
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207,952 shares of our common stock issuable upon conversion
of 1,000,000 Series 1 preferred shares issued by FuelCell
Energy, Ltd., our wholly-owned Canadian subsidiary (formerly
known as FCE Canada, Inc.);
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5,254,651 shares of our common stock issuable upon the
exercise of options outstanding at May 31, 2010 under our
equity plans;
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1,993,968 shares of our common stock available as of
May 31, 2010 for future issuance under our equity plans;
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127,703 shares of our common stock available as of
May 31, 2010 for future issuance under our employee stock
purchase plan;
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shares of our common stock and other securities up to an
aggregate amount of $150,000,000 pursuant to a shelf
registration statement that we have filed with the SEC;
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966,178 shares of our common stock available for employee
bonuses; and
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6,000,000 shares of our common stock available for future
sale.
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To the extent that outstanding options are exercised, you will
experience further dilution. In addition, we may choose to raise
additional capital due to market conditions or strategic
considerations, even if we believe that we have sufficient funds
for our current or future operating plans. To the extent that
additional capital is
S-21
raised through the sale of equity or convertible debt
securities, the issuance of these securities could result in
further dilution to our shareholders.
UNDERWRITING
Under the terms and subject to the conditions in an underwriting
agreement dated the date of this prospectus supplement, the
underwriters named below, for whom Lazard Capital Markets LLC is
acting as representative, have agreed to purchase, and we have
agreed to sell to them, the number of shares of our common stock
at the public offering price, less the underwriting discounts
and commissions, as set forth on the cover page of this
prospectus supplement as indicated below:
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Number of
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Underwriter
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Shares
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Lazard Capital Markets LLC
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Canaccord Genuity Inc.
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Total:
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The underwriters are offering the shares of common stock subject
to their acceptance of the shares from us and subject to prior
sale. The underwriting agreement provides that the obligations
of the underwriters to pay for and accept delivery of the shares
of common stock offered by this prospectus supplement are
subject to the approval of certain legal matters by their
counsel and to other conditions. The underwriters are obligated
to take and pay for all of the shares of common stock offered by
this prospectus supplement if any such shares are taken.
The underwriters have an option to buy up
to
additional shares of common stock from us to cover sales of
shares by the underwriters which exceed the number of shares
specified in the table above. The underwriters may exercise this
option at any time and from time to time during the
30-day
period from the date of this prospectus supplement. If any
additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriters initially propose to offer the shares of common
stock directly to the public at the public offering price listed
on the cover page of this prospectus supplement. After the
initial offering of the shares of common stock, the offering
price and other selling terms may from time to time be varied by
the underwriters.
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent,
including the absence of any material adverse change in our
business and the receipt of customary legal opinions, letters
and certificates.
Commissions
and Discounts
The following table summarizes the public offering price,
underwriting discounts and commissions and proceeds before
expenses to us assuming both no exercise and full exercise of
the underwriters option to purchase additional shares:
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Total
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Without
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With
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Per Share
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Over-Allotment
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Over-Allotment
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Public offering price
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$
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$
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$
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Underwriting discounts and commissions
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Proceeds, before expenses, to us
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The expenses of the offering, not including the underwriting
discounts and commissions, payable by us are estimated to be
$ , which includes approximately
$ that we have agreed to reimburse
the underwriters for legal fees incurred in connection with this
offering. Lazard Frères & Co. LLC referred this
transaction to Lazard Capital Markets LLC and will receive a
referral fee from Lazard Capital Markets LLC in connection
therewith. Such referral fee is not in addition to the fee paid
by us to Lazard Capital Markets
S-22
LLC described above. James Kempner, a Managing Director of
Lazard Frères & Co. LLC, is the son of Tom
Kempner, one of our directors.
Indemnification
We and the underwriters have agreed to indemnify each other, and
we have also agreed to indemnify Lazard Frères &
Co. LLC, against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, and liabilities
arising from breaches of representations and warranties
contained in the underwriting agreement. We have also agreed to
contribute to payments the underwriters and Lazard
Frères & Co. LLC may be required to make in
respect of such liabilities
No Sales
of Similar Securities
We and each of our executive officers and directors, subject to
certain exceptions, have agreed with Lazard Capital Markets LLC
not to dispose of or hedge any of our shares of common stock or
securities convertible into or exercisable or exchangeable for
common stock for 90 days after the date of this prospectus
supplement without first obtaining the written consent of Lazard
Capital Markets LLC. The
90-day
lock-up
period during which we and our executive officers and directors
are restricted from engaging in transactions in our common stock
or securities convertible into or exercisable or exchangeable
for common stock is subject to extension such that, in the event
that either (i) during the last 17 days of the
lock-up
period, we issue an earnings or financial results release or
material news or a material event relating to us occurs, or
(ii) prior to the expiration of the
lock-up
period, we announce that we will release earnings or financial
results during the
16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
period will be extended until the expiration of the
18-day
period beginning on the issuance of the earnings or financial
results release or the occurrence of the material news or
material event, as applicable, unless Lazard Capital Markets LLC
waives, in writing, such an extension.
Price
Stabilization, Short Positions
In order to facilitate the offering of our common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of our common stock. Specifically,
the underwriters may sell more shares than they are obligated to
purchase under the underwriting agreement, creating a short
position. The underwriters must close out any short position by
purchasing shares in the open market. A short position may be
created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who
purchased in this offering. As an additional means of
facilitating this offering, the underwriters may bid for, and
purchase, shares of our common stock in the open market to
stabilize the price of the common stock. These activities may
raise or maintain the market price of our common stock above
independent market levels or prevent or slow a decline in the
market price of our common stock. The underwriters are not
required to engage in these activities, and may end any of these
activities at any time.
A prospectus in electronic format may be made available on
websites maintained by the underwriters. The underwriters may
agree to allocate a number of shares of common stock to other
underwriters for sale to their online brokerage account holders.
Internet distributions will be allocated by the underwriters on
the same basis as other allocations.
United
Kingdom
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (e) of the Order (all such persons
together being referred to as relevant persons). The
shares of common stock are only available to, and any
invitation, offer or agreement to subscribe, purchase or
otherwise acquire such common stock will be engaged
S-23
in only with, relevant persons. Any person who is not a relevant
person should not act or rely on this document or any of its
contents.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000 or FSMA) received by it in connection with
the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to us, and
(b) it has complied with, and will comply with all
applicable provisions of FSMA with respect to anything done by
it in relation to the shares in, from or otherwise involving the
United Kingdom.
European Economic Area
To the extent that the offer of the common stock is made in any
Member State of the European Economic Area that has implemented
the Prospectus Directive before the date of publication of a
prospectus in relation to the common stock which has been
approved by the competent authority in the Member State in
accordance with the Prospectus Directive (or, where appropriate,
published in accordance with the Prospectus Directive and
notified to the competent authority in the Member State in
accordance with the Prospectus Directive), the offer (including
any offer pursuant to this document) is only addressed to
qualified investors in that Member State within the meaning of
the Prospectus Directive or has been or will be made otherwise
in circumstances that do not require us to publish a prospectus
pursuant to the Prospectus Directive.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State (the Relevant Implementation
Date) it has not made and will not make an offer of shares
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities,
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts, or
(c) in any other circumstances which do not require the
publication by us of a prospectus pursuant to Article 3 of
the Prospectus Directive. For the purposes of this provision,
the S-14
expression an offer of shares to the public in
relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and the shares to be
offered so as to enable an investor to decide to purchase or
subscribe the shares, as the same may be varied in that Relevant
Member State by any measure implementing the Prospectus
Directive in that Relevant Member State and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
The EEA selling restriction is in addition to any other selling
restrictions set out below. In relation to each Relevant Member
State, each purchaser of shares of common stock (other than the
underwriters) will be deemed to have represented, acknowledged
and agreed that it will not make an offer of shares of common
stock to the public in any Relevant Member State, except that it
may, with effect from and including the date on which the
Prospectus Directive is implemented in the Relevant Member
State, make an offer of shares of common stock to the public in
that Relevant Member State at any time in any circumstances
which do not require the publication by us of a prospectus
pursuant to Article 3 of the Prospectus Directive, provided
that
S-24
such purchaser agrees that it has not and will not make an offer
of any shares of common stock in reliance or purported reliance
on Article 3(2)(b) of the Prospectus Directive. For the
purposes of this provision, the expression an offer of
shares to the public in relation to any shares of common
stock in any Relevant Member State has the same meaning as in
the preceding paragraph.
Transfer
Agent
The transfer agent for our common shares to be issued in this
offering is American Stock Transfer &
Trust Company. Our common shares are traded on The NASDAQ
Global Market under the symbol FCEL.
LEGAL
MATTERS
The validity of the securities offered hereby will be passed
upon for us by Robinson & Cole LLP, Stamford,
Connecticut. Certain matters will be passed upon for the
underwriters by Proskauer Rose LLP, New York, New York.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934 and, therefore, we file annual,
quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (SEC).
Our SEC filings are available to the public over the Internet at
the SECs website at www.sec.gov. The SECs
website contains reports, proxy and information statements and
other information regarding issuers, such as us, that file
electronically with the SEC. You may also read and copy any
document we file with the SEC at the SECs public Reference
Room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549 and the web site of the SEC at
www.sec.gov. You may also obtain copies of these
documents at prescribed rates by writing to the SEC. Please call
the SEC at
1-800-SEC-0330
for further information on the operation of its Public Reference
Room. Our common stock is quoted on The Nasdaq Global Market,
and you may also inspect and copy our SEC filings at the offices
of the National Association of Securities Dealers, Inc. located
at 1735 K Street, N.W., Washington, D.C. 20006.
The SEC maintains an Internet web site that contains reports,
proxy and information statements and other information regarding
issuers, including us, that file electronically with the SEC.
You should rely only on the information provided in, and
incorporated by reference in, this prospectus supplement and the
prospectus and the registration statement. We have not
authorized anyone else to provide you with different
information. Our securities are not being offered in any state
where the offer is not permitted. You should assume that the
information in this prospectus supplement is accurate only as of
the dates of those documents. Our business, financial condition,
results of operations and prospects may have changed since those
dates.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference
information that we file with it, which means that we can
disclose important information to you by referring you to those
documents. The information incorporated by reference is an
important part of this prospectus supplement. Information in
this prospectus supersedes information incorporated by reference
that we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will
automatically update and supersede this information. We
incorporate by reference into this registration statement and
prospectus the documents listed below, and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934:
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Our Annual Report on
Form 10-K
for the fiscal year ended October 31, 2009, filed with the
SEC on January 14, 2010;
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Our definitive proxy statement on Schedule 14A, filed with
the SEC on February 12, 2010;
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S-25
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Our Quarterly Reports on
Form 10-Q
for the fiscal periods ended January 31, 2010, and
April 30, 2010, filed with the SEC on March 12, 2010,
and June 9, 2010, respectively. In our
Form 10-Q
for the second fiscal quarter of fiscal 2010, there were
immaterial typographical errors for the amounts included as
changes in other assets and changes in accrued liabilities on
the consolidated statements of cash flows for the six months
ended April 30, 2010, as well as related changes discussed
within the Liquidity and Capital Resources section of
Managements Discussion and Analysis of Financial Condition
and Results of Operations. The reported change in other assets
was $1.2 million on the consolidated cash flows as filed
and should have been $1.9 million. The change in accrued
liabilities was $2.1 million as filed and should have been
$2.0 million. These typographical errors had no impact on
the reported total of net cash used in operating activities for
the six months ended April 30, 2010;
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Our current reports on
Form 8-K,
as filed with the SEC on November 2, 2009,
December 11, 2009, February 3, 11, and 17,
March 12, 19 and 29, April 13 and June 8,
2010; and
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The description of our common stock set forth in our
registration statement on Form
8-A, filed
with the SEC on June 6, 2000, including any amendments or
reports filed for the purposes of updating this description.
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We will furnish without charge to you, on written or oral
request, a copy of any or all of the documents incorporated by
reference, including exhibits to these documents. You should
direct any requests for documents to FuelCell Energy, Inc.,
Attention: Corporate Secretary, 3 Great Pasture Road, Danbury,
Connecticut 06813, telephone:
(203) 825-6000.
We have filed with the SEC a registration statement on
Form S-3
under the Securities Act with respect to our securities offered
hereby. This prospectus supplement, which constitutes a part of
the registration statement, does not contain all of the
information set forth in the registration statement or the
exhibits and schedules filed therewith. We have omitted certain
parts of the registration statement as permitted by the rules
and regulations of the SEC. For further information about us and
our securities offered hereby, reference is made to the
registration statement and the exhibits and schedules filed
therewith. Statements contained in this prospectus supplement
regarding the contents of any contract or any other document
that is filed as an exhibit to the registration statement are
not necessarily complete, and each such statement is qualified
in all respects by reference to the full text of such contract
or other document filed as an exhibit to the registration
statement.
S-26
$150,000,000
Debt
Securities
Preferred Stock
Common Stock
We may from time to
time offer and sell any combination of debt securities,
preferred stock
and/or
common stock described in this prospectus in one or more
offerings. The aggregate initial offering price of all
securities sold under this prospectus will not exceed
$150,000,000.
The securities may
be offered to or through underwriters, through agents or
dealers, directly to one or more purchasers or through a
combination of such methods. See Plan of
Distribution.
This prospectus
provides a general description of the securities we may offer.
Each time we sell securities, we will provide specific terms of
the securities offered in a supplement to this prospectus. The
prospectus supplement may also add, update or change information
contained in this prospectus. You should read this prospectus
and the applicable prospectus supplement carefully before you
invest in any securities. This prospectus may not be used to
consummate a sale of securities unless accompanied by the
applicable prospectus supplement.
We will use the net
proceeds received from the sale of the securities by the Company
for general corporate purposes.
Our common stock is
quoted on the Nasdaq Global Market under the symbol
FCEL. No public market currently exists for the
other securities offered hereby. The applicable prospectus
supplement will contain information, where applicable, as to any
other listing on any securities exchange of the securities
covered by the prospectus supplement.
Our principal
executive offices are located at 3 Great Pasture Road, Danbury,
Connecticut 06813, and our telephone number is
(203) 825-6000.
Investing in our
securities involves risks that are described in the Risk
Factors section beginning on page 3 of this
prospectus.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this
prospectus is February 6, 2007.
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i
FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated by reference into
this prospectus contain forward-looking statements that are
based on current expectations, estimates and projections about
our industry, managements beliefs, and assumptions made by
management. Words such as anticipates,
expects, intends, plans,
believes, seeks, estimates,
and variations of such words and similar expressions are
intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are
difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any
forward-looking statements. The risks and uncertainties include
those noted in Risk Factors above and in the
documents incorporated by reference. We undertake no obligation
to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission utilizing a
shelf registration process. Under this shelf
registration process, we may sell any combination of the
securities described in this prospectus in one or more offerings
up to a total dollar amount of $150,000,000. This prospectus
provides you with a general description of the securities that
we may offer. Each time we sell securities under this shelf
registration, we will provide a prospectus supplement that will
contain specific information about the terms of the offering.
The prospectus supplement may also add, update or change
information contained in this prospectus. If there is any
inconsistency between the information in this prospectus and any
prospectus supplement, you should rely on the information in
that prospectus supplement. You should carefully read both this
prospectus and any prospectus supplement, including documents
incorporated by reference herein, together with the additional
information described in the section entitled Where You
Can Find More Information.
We have not authorized any dealer, salesman or other person to
give any information or to make any representation other than
those contained or incorporated by reference in this prospectus
and the accompanying supplement to this prospectus. You must not
rely upon any information or representation not contained or
incorporated by reference in this prospectus or the accompanying
prospectus supplement. This prospectus and the accompanying
supplement to this prospectus do not constitute an offer to sell
or the solicitation of an offer to buy any securities other than
the registered securities to which they relate, nor do this
prospectus and the accompanying supplement to this prospectus
constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. You should not assume that the information
contained in this prospectus and the accompanying prospectus
supplement is accurate on any date subsequent to the date set
forth on the front of the document or that any information we
have incorporated by reference is correct on any date subsequent
to the date of the document incorporated by reference, even
though this prospectus and any accompanying prospectus
supplement is delivered or securities sold on a later date.
ii
FuelCell
Energy, Inc.
General
We are a world leader in the development and manufacture of fuel
cell power plants for ultra-clean, efficient and reliable
electric power generation. Our products are designed to meet the
24/7
baseload power needs of commercial, industrial, government and
utility customers. To date, our products have generated over
150 million kilowatt hours of electricity and we have units
operating at over 50 locations around the world.
Our executive offices are located at 3 Great Pasture Road,
Danbury, Connecticut 06813. Our telephone number is
(203) 825-6000.
We maintain a web site at the following Internet address:
www.fuelcellenergy.com. The information on our web site
is not part of this prospectus.
Unless the context otherwise requires, references in this
prospectus to FuelCell, we,
us and our refer to FuelCell Energy, Inc.
As used in this prospectus, all degrees refer to Fahrenheit
(°F), and kilowatt and megawatt numbers designate nominal
or rated capacity of the referenced power plant. As used in this
prospectus, kilowatt (kW) means 1,000 watts;
megawatt (MW) means 1,000,000 watts; and
kilowatt hour (kWh) is equal to 1 kW of power
supplied to or taken from an electric circuit steadily for one
hour. All dollar amounts are in U.S. dollars unless
otherwise noted.
Summary
of Business
We have been developing fuel cell technology since our founding
in 1969. Our core carbonate fuel cell products (Direct
FuelCell®
or
DFC®
Power Plants) offer stationary applications for customers.
In addition to our current commercial products, we continue to
develop our next generation of carbonate fuel cell and hybrid
products as well as planar solid oxide fuel cell technology with
our own and government research and development funds.
Our proprietary
DFC®
Power Plants electrochemically (meaning without combustion)
produce electricity directly from readily available hydrocarbon
fuels, such as natural gas and biomass fuels. Customers buy fuel
cells to improve reliability and reduce cost and emissions.
We believe our products offer significant advantages compared to
other power generation technologies:
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Reliable
24/7
baseload power,
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High fuel efficiency,
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Ultra-clean (e.g. virtually zero emissions) quiet operation,
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Lower cost to generate electricity, and
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The ability to site units locally and provide high temperature
heat for cogeneration applications.
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Typical customers for our products include manufacturers,
mission critical institutions such as correction facilities and
government installations, hotels and customers who can use waste
or byproducts of their operations for fuel such as breweries,
food processors and waste water treatment facilities. With
increasing demand for renewable and ultraclean power options,
and increased volatility and uncertainty in electric markets,
our customers gain control of power generation economics,
reliability and emissions. Our fuel cells offer flexible siting
and easy permitting.
Through December 31, 2006, our cumulative fleet
availability was greater than 90 percent. Our
DFC®
Power Plants are protected by 46 U.S. and 74 international
patents and we also have submitted 38 U.S. and 123 international
patent applications.
Our business strategy is to expand our leadership position in
key markets, build multi-megawatt markets and continue to reduce
the costs of our products. We believe that with the emergence of
the RPS markets, the growth of the California market and
continuing product cost reduction, we are well positioned to
move to
1
profitability. At a sustained annual order and production volume
of approximately 35 MW to 50 MW, depending on product
mix, geographic location and other variables such as fuel
prices, we believe we can reach gross margin break-even. We
believe our net income break-even can be achieved at a sustained
annual order and volume production of approximately
75-100 MW,
assuming a mix of
sub-MW and
MW sales. Our 2.4 MW product currently has a production
cost at market clearing prices in certain regions such as
Connecticut. Therefore, if product mix trends move toward MW and
multi-MW orders, we believe that company profitability can be
achieved at annual volumes lower than 75 MW.
2
RISK
FACTORS
Investing in our securities involves risks. Before
investing in our securities, you should carefully consider the
following risk factors as well as the other information included
and incorporated by reference in this prospectus. If any of the
following risks actually occur, our business, financial
condition, or results of operations and could be materially and
adversely affected. In such cases, the trading price of our
securities could decline, and you may lose all or part of your
investment.
We
have recently incurred losses and anticipate continued losses
and negative cash flow.
We have been transitioning from a contract research and
development company to a commercial products developer and
manufacturer. As such, we have not been profitable since our
fiscal year ended October 31, 1997. We expect to continue
to incur net losses and generate negative cash flow until we can
produce sufficient revenues to cover our costs. We may never
become profitable. Even if we do achieve profitability, we may
be unable to sustain or increase our profitability in the
future. For the reasons discussed in more detail below, there
are substantial uncertainties associated with our achieving and
sustaining profitability.
Our
cost reduction strategy may not succeed or may be significantly
delayed, which may result in our inability to offer our products
at competitive prices and may adversely affect our
sales.
Our cost reduction strategy is based on the assumption that a
significant increase in production will result in economies of
scale. In addition, our cost reduction strategy relies on
advancements in our manufacturing process, global competitive
sourcing, engineering design and technology (including projected
power output) that are currently not ascertainable. Failure to
achieve our cost reduction targets would have a material adverse
effect on our commercialization plans and, therefore, our
business, prospects, results of operations and financial
condition.
Our
products will compete with products using other energy sources,
and if the prices of the alternative sources are lower than
energy sources used by our products, sales of our products will
be adversely affected.
Our Direct
FuelCell®
has been operated using a variety of hydrocarbon fuels,
including natural gas, methanol, diesel, biogas, coal gas, coal
mine methane and propane. If these fuels are not readily
available or if their prices increase such that electricity
produced by our products costs more than electricity provided by
other generation sources, our products would be less
economically attractive to potential customers. In addition, we
have no control over the prices of several types of competitive
energy sources such as oil, gas or coal. Significant decreases
(or short term increases) in the price of these fuels could also
have a material adverse effect on our business because other
generation sources could be more economically attractive to
consumers than our products.
We
have signed long-term power purchase and service agreements with
customers which are subject to market conditions and operating
risks that may affect our operating results.
Under the terms of our power purchase agreements, customers
agree to purchase power from our fuel cell power plants at
negotiated rates, generally for periods of five to ten years.
Electricity rates are generally a function of the
customers current and future electricity pricing available
from the grid. Revenues are earned and collected under these
PPAs as power is produced. As owner of the power plants in these
PPA entities, we are responsible for all operating costs
necessary to maintain, monitor and repair the power plants.
Under certain agreements, we are also responsible for procuring
fuel, generally natural gas, to run the power plants. Should
electricity rates decrease or operating costs increase from our
original estimates, our results of operations could be
negatively impacted. We have qualified for incentive funding for
these projects in California under the states Self
Generation Incentive Funding Program and from other government
programs. Funds are payable upon commercial installation and
demonstration of the plant and may require return of the funds
for failure of certain performance requirements. Revenue related
to these incentive funds is recognized ratably over the
performance period. We are not required to produce minimum
amounts of power under our
3
PPA agreements and we have the right to terminate PPA agreements
by giving written notice to the customer, subject to certain
exit costs.
We have contracted with certain customers to provide service of
fuel cell power plants over terms ranging from one to thirteen
years. Under the provisions of these contracts, we provide
services to maintain, monitor and repair customer power plants.
Pricing for service contracts is based upon estimates of future
costs, which given the early stage of development could be
materially different from actual expenses.
We
extend product warranties which could affect our operating
results.
We warranty our products for a specific period of time against
manufacturing or performance defects. As we have limited
operating experience, warranty costs are expensed as incurred.
As a result operating results could be negatively impacted
should there be product manufacturing or performance defects.
We
currently face and will continue to face significant
competition.
Our Direct
FuelCell®
currently faces, and will continue to face, significant
competition. We compete on the basis of our products
reliability, fuel efficiency, environmental considerations and
cost. Technological advances in alternative energy products or
improvements in the electric grid or other sources of power
generation, or other fuel cell technologies may negatively
affect the development or sale of some or all of our products or
make our products non-competitive or obsolete prior to
commercialization or afterwards. Other companies, some of which
have substantially greater resources than ours, are currently
engaged in the development of products and technologies that are
similar to, or may be competitive with, our products and
technologies.
Several companies in the U.S. are involved in fuel cell
development, although we believe we are the only domestic
company engaged in significant manufacturing and
commercialization of carbonate fuel cells. Emerging fuel cell
technologies (and companies developing them) include proton
exchange membrane fuel cells (Ballard Power Systems, Inc.;
United Technologies Corp. or UTC Fuel Cells; and Plug Power),
phosphoric acid fuel cells (UTC Fuel Cells) and solid oxide fuel
cells (Siemens Westinghouse Electric Company, SOFCo, General
Electric, Delphi, Rolls Royce and Acumentrics). Each of these
competitors has the potential to capture market share in our
target markets.
There are other potential carbonate fuel cell competitors
internationally. In Europe, a company in Italy, Ansaldo Fuel
Cells, is actively engaged in carbonate fuel cell development
and is a potential competitor.
Other than fuel cell developers, we must also compete with such
companies as Caterpillar, Cummins, and Detroit Diesel, which
manufacture more mature combustion-based equipment, including
various engines and turbines, and have well-established
manufacturing, distribution, and operating and cost features.
Significant competition may also come from gas turbine companies
like General Electric, Ingersoll Rand, Solar Turbines and
Kawasaki, which have recently made progress in improving fuel
efficiency and reducing pollution in large-size combined cycle
natural gas fueled generators. These companies have also made
efforts to extend these advantages to smaller sizes.
We
have large and influential stockholders, which may make it
difficult for a third party to acquire our common
stock.
Our largest two institutional shareholders each own more than
5%, but less than 10%, of our outstanding common stock. MTU
Friedrichshafen GmbH owns approximately 5% of our outstanding
common stock. James D. Gerson beneficially owns approximately 2%
of our outstanding common stock. Loeb Investors Co. LXXV and
Warren Bagatelle (a managing director of an affiliate of Loeb
Investors Co. LXXV) collectively beneficially own
approximately 2% of our outstanding common stock. These
ownership levels could make it difficult for a third party to
acquire our common stock or have input into the decisions made
by our board of directors, which include Michael Bode (Chief
Executive Officer of MTU CFC Solutions GmbH), James D. Gerson,
Warren Bagatelle and Thomas L. Kempner (Chairman and Chief
Executive Officer of an affiliate of Loeb Investors Co. LXXV).
MTU CFC is also a licensee of our technology and a purchaser of
our Direct
4
FuelCell®
products. Therefore, it may be in MTU CFCs interest to
possess substantial influence over matters concerning our
overall strategy and technological and commercial development.
MTU
CFC may develop competing technologies.
MTU CFC Solutions GmbH is currently developing carbonate fuel
cell technology. If this technology does not use DFC know-how,
MTU CFC must use good faith efforts to license the technology to
us. If MTU CFC is successful but does not grant us a license, it
may be directly competing with us while having a significant
ownership interest in us, and a seat on our board of directors.
We have agreed with MTU CFC to continue developing products with
as much commonality as possible. However, the license agreement
between us and MTU CFC provides that each of us retains the
right to independently pursue the development of carbonate fuel
cell technologies.
We
have limited experience manufacturing our Direct
FuelCell®
products on a commercial basis, which may adversely affect our
planned increases in production capacity and our ability to
satisfy customer requirements.
We have limited experience manufacturing our Direct
FuelCell®products
on a commercial basis. Our manufacturing, testing and
conditioning facilities have equipment in place for a production
capacity of 50 MW per year. We expect that we will then
increase our manufacturing capacity based on market demand. We
cannot be sure that we will be able to achieve any planned
increases in production capacity. Also, as we scale up our
production capacity, we cannot be sure that unplanned failures
or other technical problems relating to the manufacturing
process will not occur.
Even if we are successful in achieving our planned increases in
production capacity, we cannot be sure that we will do so in
time to meet our product commercialization schedule or to
satisfy the requirements of our customers. Additionally, we
cannot be sure that we will be able to develop efficient,
low-cost manufacturing capabilities and processes (including
automation) that will enable us to meet our cost goals and
profitability projections. Our failure to develop advanced
manufacturing capabilities and processes, or meet our cost
goals, could have a material adverse effect on our business,
prospects, results of operations and financial condition.
Unanticipated
increases or decreases in business growth may result in adverse
financial consequences for us.
If our business grows more quickly than we anticipate, our
existing and planned manufacturing facilities may become
inadequate and we may need to seek out new or additional space,
at considerable cost to us. If our business does not grow as
quickly as we expect, our existing and planned manufacturing
facilities would, in part, represent excess capacity for which
we may not recover the cost; in that circumstance, our revenues
may be inadequate to support our committed costs and our planned
growth and our gross margins and business strategy would be
adversely affected.
Our
plans are dependent on market acceptance of our Direct
FuelCell®
products.
Our plans are dependent upon market acceptance of, as well as
enhancements to, those products. Fuel cell systems represent an
emerging market, and we cannot be sure that potential customers
will accept fuel cells as a replacement for traditional power
sources. As is typical in a rapidly evolving industry, demand
and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk.
Since the distributed generation market is still evolving, it is
difficult to predict with certainty the size of the market and
its growth rate. The development of a market for our Direct
FuelCell®
products may be affected by many factors that are out of our
control, including:
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the cost competitiveness of our fuel cell products;
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the future costs of natural gas and other fuels used by our fuel
cell products;
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consumer reluctance to try a new product;
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perceptions of the safety of our fuel cell products;
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the market for distributed generation;
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local permitting and environmental requirements; and
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the emergence of newer, more competitive technologies and
products.
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If a sufficient market fails to develop or develops more slowly
than we anticipate, we may be unable to recover the losses we
will have incurred in the development of Direct
FuelCell®
products and may never achieve profitability.
As we continue to commercialize our Direct
FuelCell®products,
we will continue to develop warranties, production guarantees
and other terms and conditions relating to our products that
will be acceptable to the marketplace, and continue to develop a
service organization that will aid in servicing our products and
obtain self-regulatory certifications, if available, with
respect to our products. Failure to achieve any of these
objectives may also slow the development of a sufficient market
for our products and, therefore, have a material adverse effect
on our results of operations.
Our
government research and development contracts are subject to the
risk of termination by the contracting party and we may not
realize the full amounts allocated under the contracts due to
the lack of Congressional appropriations.
A portion of our fuel cell revenues have been derived from
long-term cooperative agreements and other contracts with the
U.S. Department of Energy (DOE), the
U.S. Department of Defense, the U.S. Navy and other
U.S. government agencies. These agreements are important to
the continued development of our technology and our products.
Generally, our U.S. government research and development
contracts, are subject to the risk of termination at the
convenience of the contracting agency. Furthermore, these
contracts, irrespective of the amounts allocated by the
contracting agency, are subject to annual Congressional
appropriations and the results of government or agency sponsored
reviews and audits of our cost reduction projections and
efforts. We can only receive funds under these contracts
ultimately made available to us annually by Congress as a result
of the appropriations process. Accordingly, we cannot be sure
whether we will receive the full amounts awarded under our
government research and development or other contracts. Failure
to receive the full amounts under any of our government research
and development contracts could materially and adversely affect
our business prospects, results of operations and financial
condition.
A
negative government audit could result in an adverse adjustment
of our revenue and costs and could result in civil and criminal
penalties
Government agencies, such as the Defense Contract Audit Agency,
routinely audit and investigate government contractors. These
agencies review a contractors performance under its
contracts, cost structure and compliance with applicable laws,
regulations and standards. If the agencies determine through
these audits or reviews that we improperly allocated costs to
specific contracts, they will not reimburse us for these costs.
Therefore, an audit could result in adjustments to our revenue
and costs.
Further, although we have internal controls in place to oversee
our government contracts, no assurance can be given that these
controls are sufficient to prevent isolated violations of
applicable laws, regulations and standards. If the agencies
determine that we or one of our subcontractors engaged in
improper conduct, we may be subject to civil or criminal
penalties and administrative sanctions, payments, fines and
suspension or prohibition from doing business with the
government, any of which could materially affect our financial
condition.
6
The
U.S. government has certain rights relating to our
intellectual property, including restricting or taking title to
certain patents.
Many of our U.S. patents relating to our fuel cell
technology are the result of government-funded research and
development programs. Two of our patents that were the result of
DOE-funded research prior to January 1988 (the date that we
qualified as a small business) are owned by the
U.S. government and have been licensed to us. This license
is revocable only in the limited circumstances where it has been
demonstrated that we are not making an effort to commercialize
the invention. We own all patents resulting from research funded
by our DOE contracts awarded after January 1988 to date, based
on our small business status when each contract was
awarded. Under current regulations, patents resulting from
research funded by government agencies other than the DOE are
owned by us, whether or not we are a small business.
Ten U.S. patents that we own have resulted from
government-funded research and are subject to the risk of
exercise of march-in rights by the government.
March-in rights refer to the right of the U.S. government
or a government agency to exercise its non-exclusive,
royalty-free, irrevocable worldwide license to any technology
developed under contracts funded by the government if the
contractor fails to continue to develop the technology. These
march-in rights permit the U.S. government to
take title to these patents and license the patented technology
to third parties if the contractor fails to utilize the patents.
In addition, our DOE-funded research and development agreements
also require us to agree that we will not provide to a foreign
entity any fuel cell technology subject to that agreement unless
the fuel cell technology will be substantially manufactured in
the U.S. Accordingly, we could lose some or all of the
value of these patents.
A
failure to qualify as a small business could
adversely affect our rights to own future patents under
DOE-funded contracts.
Qualifying as a small business under DOE contracts
allows us to own the patents that we develop under DOE
contracts. A small business under applicable
government regulations generally consists of no more than 500
employees. If we continue to grow, we will no longer qualify as
a small business and no longer own future patents we
develop under future contracts, grants or cooperative agreements
funded by the DOE based on such certification, unless we obtain
a patent waiver from the DOE. Should we not obtain a patent
waiver and outright ownership, we would nevertheless retain
exclusive rights to any such patents, so long as we continue to
commercialize the technology covered by the patents. As a result
of our acquisition of Global Thermoelectric Inc., the number of
our employees increased and therefore, we temporarily did not
qualify as a small business. Following the sale of
Global Thermoelectric Inc. and its TEG product line on
May 27, 2004, we again qualified as a small
business; however, we cannot assure you that we will
continue to qualify as a small business in the
future.
Our
future success and growth is dependent on our distribution
strategy.
We cannot assure you that we will enter into distributor
relationships that are consistent with, or sufficient to
support, our commercialization plans or our growth strategy or
that these relationships will be on terms favorable to us. Even
if we enter into these types of relationships, we cannot assure
you that the distributors with which we form relationships will
focus adequate resources on selling our products or will be
successful in selling them. Some of these distributor
arrangements have or will require that we grant exclusive
distribution rights to companies in defined territories. These
exclusive arrangements could result in us being unable to enter
into other arrangements at a time when the distributor with
which we form a relationship is not successful in selling our
products or has reduced its commitment to marketing our
products. In addition, certain distributor arrangements include,
and some future distributor arrangements may also include, the
issuance of equity and warrants to purchase our equity, which
may have an adverse effect on our stock price. To the extent we
enter into distributor relationships, the failure of these
distributors in assisting us with the marketing and distribution
of our products may adversely affect our results of operations
and financial condition.
We cannot be sure that MTU CFC Solutions GmbH will continue to,
or original equipment manufacturers (OEMs) will,
manufacture or package products using our Direct
FuelCell®
components. In this area, our
7
success will largely depend upon our ability to make our
products compatible with the power plant products of OEMs and
the ability of these OEMs to sell their products containing our
products. In addition, some OEMs may need to redesign or modify
their existing power plant products to fully incorporate our
products. Accordingly, any integration, design, manufacturing or
marketing problems encountered by MTU CFC or other OEMs could
adversely affect the market for our Direct
FuelCell®
products and, therefore, our business, prospects, results of
operations and financial condition.
We
depend on third party suppliers for the development and supply
of key components for Direct
FuelCell®
products.
We purchase several key components of our Direct
FuelCell®
products from other companies and rely on third-party suppliers
for the
balance-of-plant
components in our Direct
FuelCell®
products. There are a limited number of suppliers for some of
the key components of Direct
FuelCell®
products. A suppliers failure to develop and supply
components in a timely manner or to supply components that meet
our quality, quantity or cost requirements or technical
specifications or our inability to obtain alternative sources of
these components on a timely basis or on terms acceptable to us
could harm our ability to manufacture our Direct
FuelCell®
products. In addition, to the extent the processes that our
suppliers use to manufacture components are proprietary, we may
be unable to obtain comparable components from alternative
suppliers.
We do not know when or whether we will secure long-term supply
relationships with any of our suppliers or whether such
relationships will be on terms that will allow us to achieve our
objectives. Our business, prospects, results of operations and
financial condition could be harmed if we fail to secure
long-term relationships with entities that will supply the
required components for our Direct
FuelCell®
products.
We
depend on our intellectual property, and our failure to protect
that intellectual property could adversely affect our future
growth and success.
Failure to protect our existing intellectual property rights may
result in the loss of our exclusivity or the right to use our
technologies. If we do not adequately ensure our freedom to use
certain technology, we may have to pay others for rights to use
their intellectual property, pay damages for infringement or
misappropriation or be enjoined from using such intellectual
property. We rely on patent, trade secret, trademark and
copyright law to protect our intellectual property. The patents
that we have obtained will expire between 2008 and 2024 and the
average remaining life of our U.S. patents is approximately
11.4 years.
Some of our intellectual property is not covered by any patent
or patent application and includes trade secrets and other
know-how that is not patentable, particularly as it relates to
our manufacturing processes and engineering design. In addition,
some of our intellectual property includes technologies and
processes that may be similar to the patented technologies and
processes of third parties. If we are found to be infringing
third-party patents, we do not know whether we will able to
obtain licenses to use such patents on acceptable terms, if at
all. Our patent position is subject to complex factual and legal
issues that may give rise to uncertainty as to the validity,
scope and enforceability of a particular patent. Accordingly, we
cannot assure you that:
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any of the U.S., Canadian or other foreign patents owned by us
or other patents that third parties license to us will not be
invalidated, circumvented, challenged, rendered unenforceable or
licensed to others; or,
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any of our pending or future patent applications will be issued
with the breadth of claim coverage sought by us, if issued at
all.
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In addition, effective patent, trademark, copyright and trade
secret protection may be unavailable, limited or not applied for
in certain foreign countries.
We also seek to protect our proprietary intellectual property,
including intellectual property that may not be patented or
patentable, in part by confidentiality agreements and, if
applicable, inventors rights agreements with our
subcontractors, vendors, suppliers, consultants, strategic
partners and employees. We cannot assure you that these
agreements will not be breached, that we will have adequate
remedies for any breach or that such persons or institutions
will not assert rights to intellectual property arising out of
these relationships.
8
Certain of our intellectual property has been licensed to us on
a non-exclusive basis from third parties that may also license
such intellectual property to others, including our competitors.
If our licensors are found to be infringing third-party patents,
we do not know whether we will be able to obtain licenses to use
the intellectual property licensed to us on acceptable terms, if
at all.
If necessary or desirable, we may seek extensions of existing
licenses or further licenses under the patents or other
intellectual property rights of others. However, we can give no
assurances that we will obtain such extensions or further
licenses or that the terms of any offered licenses will be
acceptable to us. The failure to obtain a license from a third
party for intellectual property that we use at present could
cause us to incur substantial liabilities, and to suspend the
manufacture or shipment of products or our use of processes
requiring the use of that intellectual property.
While we are not currently engaged in any material intellectual
property litigation, we could become subject to lawsuits in
which it is alleged that we have infringed the intellectual
property rights of others or commence lawsuits against others
who we believe are infringing upon our rights. Our involvement
in intellectual property litigation could result in significant
expense to us, adversely affecting the development of sales of
the challenged product or intellectual property and diverting
the efforts of our technical and management personnel, whether
or not that litigation is resolved in our favor.
Our
future success will depend on our ability to attract and retain
qualified management and technical personnel.
Our future success is substantially dependent on the continued
services and on the performance of our executive officers and
other key management, engineering, scientific, manufacturing and
operating personnel, particularly R. Daniel Brdar, our Chief
Executive Officer. The loss of the services of any executive
officer, including Mr. Brdar, or other key management,
engineering, scientific, manufacturing and operating personnel,
could materially adversely affect our business. Our ability to
achieve our development and commercialization plans will also
depend on our ability to attract and retain additional qualified
management and technical personnel. Recruiting personnel for the
fuel cell industry is competitive. We do not know whether we
will be able to attract or retain additional qualified
management and technical personnel. Our inability to attract and
retain additional qualified management and technical personnel,
or the departure of key employees, could materially and
adversely affect our development and commercialization plans
and, therefore, our business, prospects, results of operations
and financial condition.
Our
management may be unable to manage rapid growth
effectively.
We may rapidly expand our manufacturing capabilities, accelerate
the commercialization of our products and enter a period of
rapid growth, which will place a significant strain on our
senior management team and our financial and other resources.
Any expansion may expose us to increased competition, greater
overhead, marketing and support costs and other risks associated
with the commercialization of a new product. Our ability to
manage rapid growth effectively will require us to continue to
improve our operations, to improve our financial and management
information systems and to train, motivate and manage our
employees. Difficulties in effectively managing the budgeting,
forecasting and other process control issues presented by such a
rapid expansion could harm our business, prospects, results of
operations and financial condition.
We may
be affected by environmental and other governmental
regulation.
We are subject to federal, state, provincial or local regulation
with respect to, among other things, emissions and siting.
Assuming no co-generation applications are used in conjunction
with our Direct
FuelCell®
plants, they will discharge humid flue gas at temperatures of up
to 800º F, water at temperatures of approximately
10-20º F
above surrounding air temperatures and carbon dioxide.
In addition, it is possible that industry-specific laws and
regulations will be adopted covering matters such as
transmission scheduling, distribution and the characteristics
and quality of our products, including installation and
servicing. These regulations could limit the growth in the use
of carbonate fuel cell products, decrease the acceptance of fuel
cells as a commercial product and increase our costs and,
therefore, the price
9
of our Direct
FuelCell®
products. Accordingly, compliance with existing or future laws
and regulations could have a material adverse effect on our
business, prospects, results of operations and financial
condition.
Utility
companies could impose customer fees or interconnection
requirements on our customers that could make our products less
desirable.
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 increase the cost to our customers of
using our Direct
FuelCell®
products and could make our products less desirable, thereby
harming our business, prospects, results of operations and
financial condition.
Several states have created and adopted or are in the process of
creating their own interconnection regulations covering both
technical and financial requirements for interconnection to
utility grids. Depending on the complexities of the
requirements, installation of our systems may become burdened
with additional costs that might have a negative impact on our
ability to sell systems. The Institute of Electrical and
Electronics Engineers has been working to create an
interconnection standard addressing the technical requirements
for distributed generation to interconnect to utility grids.
Many parties are hopeful that this standard will be adopted
nationally to help reduce the barriers to deployment of
distributed generation such as fuel cells; however this standard
may not be adopted nationally thereby limiting the commercial
prospects and profitability of our fuel cell systems.
We
could be liable for environmental damages resulting from our
research, development or manufacturing operations.
Our business exposes us to the risk of harmful substances
escaping into the environment, resulting in personal injury or
loss of life, damage to or destruction of property, and natural
resource damage. Depending on the nature of the claim, our
current insurance policies may not adequately reimburse us for
costs incurred in settling environmental damage claims, and in
some instances, we may not be reimbursed at all. Our business is
subject to numerous federal, state and local laws and
regulations that govern environmental protection and human
health and safety. We believe that our businesses are operating
in compliance in all material respects with applicable
environmental laws, however these laws and regulations have
changed frequently in the past and it is reasonable to expect
additional and more stringent changes in the future.
Our operations may not comply with future laws and regulations
and we may be required to make significant unanticipated capital
and operating expenditures. If we fail to comply with applicable
environmental laws and regulations, governmental authorities may
seek to impose fines and penalties on us or to revoke or deny
the issuance or renewal of operating permits and private parties
may seek damages from us. Under those circumstances, we might be
required to curtail or cease operations, conduct site
remediation or other corrective action, or pay substantial
damage claims.
We may
be required to conduct environmental remediation activities,
which could be expensive.
We are subject to a number of environmental laws and
regulations, including those concerning the handling, treatment,
storage and disposal of hazardous materials. These environmental
laws generally impose liability on present and former owners and
operators, transporters and generators for remediation of
contaminated properties. We believe that our businesses are
operating in compliance in all material respects with applicable
environmental laws, many of which provide for substantial
penalties for violations. We cannot assure you that future
changes in such laws, interpretations of existing regulations or
the discovery of currently unknown problems or conditions will
not require substantial additional expenditures. Any
noncompliance with these laws and regulations could subject us
to material administrative, civil or criminal penalties or other
liabilities. In addition, we may be required to incur
substantial costs to comply with current or future environmental
and safety laws and regulations.
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Our
products use inherently dangerous, flammable fuels, operate at
high temperatures and use corrosive carbonate material, each of
which could subject our business to product liability
claims.
Our business exposes us to potential product liability claims
that are inherent in products that use hydrogen. Our products
utilize fuels such as natural gas and convert these fuels
internally to hydrogen that is used by our products to generate
electricity. The fuels we use are combustible and may be toxic.
In addition, our Direct
FuelCell®
products operate at high temperatures and our Direct
FuelCell®
products use corrosive carbonate material, which could expose us
to potential liability claims. Although we have comprehensive
safety, maintenance and training programs in place, we cannot
guarantee there will not be accidents. Any accidents involving
our products or other hydrogen-using products could materially
impede widespread market acceptance and demand for our Direct
FuelCell®
products. In addition, we might be held responsible for damages
beyond the scope of our insurance coverage. We also cannot
predict whether we will be able to maintain our insurance
coverage on acceptable terms.
We are
subject to risks inherent in international
operations.
Since we market our Direct
FuelCell®
products both inside and outside the U.S. and Canada, our
success depends, in part, on our ability to secure international
customers and our ability to manufacture products that meet
foreign regulatory and commercial requirements in target
markets. We have limited experience developing and manufacturing
our products to comply with the commercial and legal
requirements of international markets. In addition, we are
subject to tariff regulations and requirements for export
licenses, particularly with respect to the export of some of our
technologies. We face numerous challenges in our international
expansion, including unexpected changes in regulatory
requirements, fluctuations in currency exchange rates, longer
accounts receivable requirements and collections, difficulties
in managing international operations, potentially adverse tax
consequences, restrictions on repatriation of earnings and the
burdens of complying with a wide variety of international laws.
Any of these factors could adversely affect our operations and
revenues.
Our
stock price has been and could remain volatile.
The market price for our common stock has been and may continue
to be volatile and subject to extreme price and volume
fluctuations in response to market and other factors, including
the following, some of which are beyond our control:
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failure to meet our product development and commercialization
milestones;
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variations in our quarterly operating results from the
expectations of securities analysts or investors;
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downward revisions in securities analysts estimates or
changes in general market conditions;
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announcements of technological innovations or new products or
services by us or our competitors;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
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additions or departures of key personnel;
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investor perception of our industry or our prospects;
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insider selling or buying;
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demand for our common stock; and
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general technological or economic trends.
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In the past, following periods of volatility in the market price
of their stock, many companies have been the subjects of
securities class action litigation. If we became involved in
securities class action litigation in the future, it could
result in substantial costs and diversion of managements
attention and resources and could harm our stock price,
business, prospects, results of operations and financial
condition.
11
Provisions
of Delaware and Connecticut law and of our charter and by-laws
may make a takeover more difficult.
Provisions in our certificate of incorporation and by-laws and
in Delaware and Connecticut corporate law may make it difficult
and expensive for a third party to pursue a tender offer, change
in control or takeover attempt that is opposed by our management
and board of directors. Public stockholders who might desire to
participate in such a transaction may not have an opportunity to
do so. These anti-takeover provisions could substantially impede
the ability of public stockholders to benefit from a change in
control or change in our management and board of directors.
We
depend on relationships with strategic partners, and the terms
and enforceability of many of these relationships are not
certain.
We have entered into relationships with strategic partners for
design, product development and distribution of our existing
products, and products under development, some of which may not
have been documented by a definitive agreement. The terms and
conditions of many of these agreements allow for termination by
the partners. Termination of any of these agreements could
adversely affect our ability to design, develop and distribute
these products to the marketplace. We cannot assure you that we
will be able to successfully negotiate and execute definitive
agreements with any of these partners, and failure to do so may
effectively terminate the relevant relationship.
Future
sales of substantial amounts of our common stock could affect
the market price of our common stock.
Future sales of substantial amounts of our common stock, or
securities convertible or exchangeable into shares of our common
stock, into the public market, including shares of our common
stock issued upon exercise of options and warrants, or
perceptions that those sales could occur, could adversely affect
the prevailing market price of our common stock and our ability
to raise capital in the future.
The
rights of the Series 1 preferred shares and Series B
preferred stock could negatively impact FuelCell.
The terms of the Series 1 preferred shares issued by
FuelCell Energy, Ltd., our wholly-owned, indirect subsidiary,
provide rights to the holder, Enbridge Inc.
(Enbridge), including dividend and conversion rights
among others that could negatively impact us. For example, the
terms of the Series 1 preferred shares provide that the
holders are entitled to receive cumulative dividends for each
calendar quarter for so long as such shares are outstanding.
Assuming the exchange rate for Canadian dollars is Cdn.$1.1758
to U.S.$1.00 (exchange rate on January 10, 2007) at
the time of the applicable dividend payment date, we are
required to pay a preferred dividend of approximately
$265,776 per calendar quarter, subject to reduction in
accordance with the terms of the Series 1 preferred shares.
The terms of the Series 1 preferred shares also require
that the holder be paid any accrued and unpaid dividends on
December 31, 2010. To the extent that there is a
significant amount of accrued dividends that is unpaid as of
December 31, 2010 and we do not have sufficient working
capital at that time to pay the accrued dividends, our financial
condition could be adversely affected. We have guaranteed these
dividend obligations, including paying a minimum of Cdn.$500,000
in cash annually to Enbridge for so long as Enbridge holds the
Series 1 preferred shares. We have also guaranteed the
liquidation obligations of FuelCell Energy, Ltd. under the
Series 1 preferred shares.
We are also required to issue common stock to the holder of the
Series 1 preferred shares if and when the holder exercises
its conversion rights. The number of shares of common stock that
we may issue upon conversion could be significant and dilutive
to our existing stockholders. For example, assuming the holder
of the Series 1 preferred shares exercises its conversion
rights after July 31, 2020 and assuming our common stock
price is U.S.$6.22 (our common stock closing price on
January 10, 2007) and the exchange rate for Canadian
dollars is Cdn.$1.1758 to U.S.$1.00 (exchange rate on
January 10, 2007) at the time of conversion, we would
be required to issue approximately 3,598,260 shares of our
common stock.
The terms of the Series B preferred stock also provide
rights to their holders that could negatively impact us. Holders
of the Series B preferred stock are entitled to receive
cumulative dividends at the rate of $50 per
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share per year, payable either in cash or in shares of our
common stock. To the extent the dividend is paid in shares,
additional issuances could be dilutive to our existing
stockholders and the sale of those shares could have a negative
impact on the price of our common stock. A share of our
Series B preferred stock may be converted at any time, at
the option of the holder, into 85.1064 shares of our common
stock (which is equivalent to an initial conversion price of
$11.75 per share), plus cash in lieu of fractional shares.
Furthermore, the conversion rate applicable to the Series B
preferred stock is subject to adjustment upon the occurrence of
certain events.
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RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
The ratio of our earnings to fixed charges are set forth below
for each of the periods indicated.
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Fiscal Year Ended October 31,
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2006(1)
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2005(1)
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2004(1)
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2003(1)
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2002(1)
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Ratio of earnings to fixed charges and preference dividends
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N/A
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N/A
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N/A
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N/A
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N/A
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For the fiscal years ended October 31, 2006, 2005, 2004,
2003 and 2002, our earnings were insufficient to cover fixed
charges. The coverage deficiencies were $83.3 million,
$71.5 million, $88.2 million, $67.4 million and
$48.8 million, respectively. |
For purposes of calculating the ratios of earnings to fixed
charges, (i) fixed charges consist of interest on debt,
amortization of discount on debt, capitalized interest, and
preferred dividends and (ii) earnings consist of pre-tax
income from operations and fixed charges (excluding capitalized
interest) and include the amortization of capitalized interest.
USE OF
PROCEEDS
Except as may be provided in an applicable prospectus
supplement, we will use the net proceeds from the sale of the
debt securities, preferred stock
and/or
common stock for market and product development, project
financing and general corporate purposes. General corporate
purposes may include capital expenditures, repayment of debt,
payment of dividends and any other purposes that we may specify
in any prospectus supplement. We may invest the net proceeds
temporarily until we use them for their stated purpose.
DESCRIPTION
OF DEBT SECURITIES
We may from time to time offer and sell debt securities
consisting of debentures, notes
and/or other
unsecured evidences of indebtedness (the Debt
Securities). The Debt Securities will be either our
unsecured senior debt securities (the Senior Debt
Securities) or our unsecured subordinated debt securities
(the Subordinated Debt Securities). The Senior Debt
Securities will be issued under an Indenture (the Senior
Indenture) between us and a trustee that will be
identified in a prospectus supplement (the Senior
Trustee). The Senior Debt Securities will be our direct,
unsecured obligations and will rank equally with all of our
outstanding unsecured senior indebtedness. The Subordinated Debt
Securities will be issued under a second indenture (the
Subordinated Indenture) between us and a trustee
that will be identified in a prospectus supplement (the
Subordinated Trustee), which may be the same as the
Senior Trustee. The Subordinated Debt Securities will be our
direct, unsecured obligations and, unless otherwise specified in
the prospectus supplement relating to a particular series of
Subordinated Debt Securities offered by such prospectus
supplement, will be subject to the subordination provisions set
forth under the heading Subordination of the Subordinated
Debt Securities below. The Senior Indenture and the
Subordinated Indenture are together called the
Indentures and the Senior Trustee and the
Subordinated Trustee are together called the Trustee.
The following summary of certain provisions of the Indentures is
not complete. You should refer to the form of each Indenture,
copies of which will be filed as exhibits to the registration
statement of which this prospectus is a part.
The following section describes certain general terms and
provisions of the Debt Securities. The Debt Securities may be
issued from time to time in one or more series. The particular
terms of each series of Debt Securities offered by any
prospectus supplement will be described in that prospectus
supplement.
General. The Indentures do not limit the
aggregate principal amount of Debt Securities that we may issue.
Each Indenture provides that Debt Securities of any series may
be issued under it up to the aggregate principal amount
authorized from time to time by us and may be denominated in any
currency or currency unit that we designate. We will determine
the terms and conditions of each series of Debt Securities,
including the maturity, principal and interest, but those terms
must be consistent with the Indenture. Unless set forth in
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the applicable prospectus supplement, neither the Indentures nor
the Debt Securities will limit or otherwise restrict the amount
of other indebtedness that we may incur or the other securities
that we may issue.
The prospectus supplement relating to each series of Debt
Securities being offered will specify the particular terms of
those Debt Securities. The terms may include:
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the title of the Debt Securities and whether they are Senior
Debt Securities or Subordinated Debt Securities;
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any limit on the aggregate principal amount of the Debt
Securities;
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the priority of payment of the Debt Securities, including any
subordination provisions;
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the price or prices (which may be expressed as a percentage of
the aggregate principal amount thereof) at which the Debt
Securities will be issued;
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the date or dates on which the principal and premium, if any, of
the Debt Securities are payable;
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the interest rate or rates (which may be fixed or variable) of
the Debt Securities, if any;
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the interest payment date or dates, if any, or the method or
methods by which such dates may be determined, if any, the date
or dates on which payment of interest, if any, will commence,
the date or dates from which interest will accrue and the
regular record dates for such interest payment dates;
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the extent to which any of the Debt Securities will be issuable
in temporary or permanent global form, or the manner in which
any interest payable on a temporary or permanent Global Security
(as defined herein) will be paid;
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each office or agency where, subject to the terms of the
applicable Indenture, the Debt Securities may be presented for
registration of transfer or exchange;
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the place or places where, subject to the terms of the
applicable Indenture, the principal (and premium, if any) and
interest, if any, on the Debt Securities will be payable;
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the terms and conditions on which we may redeem any Debt
Securities, if at all;
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any obligation to redeem or purchase any Debt Securities and the
terms and conditions on which we must do so;
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the denomination or denominations in which the Debt Securities
will be issuable if other than $1,000 and integral multiples
thereof;
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the currency, currencies or units based on or related to
currencies for which the Debt Securities may be purchased and
the currency, currencies or currency units in which the
principal of, premium, if any, and any interest on such Debt
Securities may be payable;
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whether the Debt Securities will be convertible into shares of
our common stock or preferred stock, or other securities or
property, and, if so, the terms of such conversion;
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any index used to determine the amount of payments of principal
of, premium, if any, and interest on the Debt Securities;
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the payment of any additional amounts with respect to the Debt
Securities;
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whether any of the Debt Securities will be issued as Original
Issue Discount Securities (as defined below) and the terms and
provisions relating to these securities;
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information with respect to book-entry procedures relating to
Global Securities, if any;
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if applicable, that the Debt Securities are defeasible;
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any additional covenants or Events of Default not set forth in
the applicable Indenture or changes in the covenants or Events
of Default set forth in the applicable Indenture; and
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any other terms of the Debt Securities not inconsistent with the
provisions of the applicable Indenture.
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Debt Securities may be issued as original issue discount Debt
Securities (bearing no interest or interest at a rate that at
the time of issuance is below market rates) (Original
Issue Discount Securities), to be sold at a substantial
discount below their stated principal amount. There may not be
any periodic payments of interest on Original Issue Discount
Securities. In the event of an acceleration of the maturity of
any Original Issue Discount Security, the amount payable to the
holder of such Original Issue Discount Security upon such
acceleration will be set forth in the prospectus supplement and
determined in accordance with the terms of such security and the
Indenture, but will be an amount less than the amount payable at
the maturity of the principal of such Original Issue Discount
Security. The federal income tax considerations with respect to
Original Issue Discount Securities will be explained in the
prospectus supplement we prepare for the Original Issue Discount
Securities.
Conversion and Exchange Rights. The prospectus
supplement will describe, if applicable, the terms on which you
may convert Debt Securities into or exchange them for our common
stock, our preferred stock or other securities or property. The
conversion or exchange may be mandatory or may be at your
option. We will describe how the number of shares of our common
stock, our preferred stock or other securities or property to be
received upon conversion or exchange would be calculated.
Form, Exchange and Transfer. We will issue
Debt Securities only in fully registered form, without coupons,
and, unless otherwise specified in the prospectus supplement,
only in denominations of $1,000 and integral multiples thereof.
The holder of a Debt Security may elect, subject to the terms of
the Indentures and the limitations applicable to Global
Securities, to exchange them for other Debt Securities of the
same series of any authorized denomination and of a like tenor
and aggregate principal amount.
Holders of Debt Securities may present them for exchange as
provided above or for registration of transfer, duly endorsed or
with the form of transfer endorsed thereon duly executed, at the
office of the transfer agent we designate for the purpose. We
will not impose a service charge for any registration of
transfer or exchange of Debt Securities, but we may require a
payment sufficient to cover any tax or other governmental charge
payable in connection with the transfer exchange. We will name
the transfer agent in the prospectus supplement. We may
designate additional transfer agents or rescind the designation
of any transfer agent or approve a change in the office through
which any transfer agent acts, but we must maintain a transfer
agent in each place of payment for the Debt Securities.
If we redeem the Debt Securities, we will not be required to
issue, register the transfer of or exchange any Debt Security
during a specified period prior to mailing a notice of
redemption. We are not required to register the transfer of or
exchange any Debt Security selected for redemption, except the
unredeemed portion of the Debt Security being redeemed.
Payment and Paying Agents. Unless otherwise
stated in the prospectus supplement, we will pay principal and
any premium or interest on a Debt Security to the person in
whose name the Debt Security is registered at the close of
business on the regular record date for such interest.
Unless otherwise stated in the prospectus supplement, we will
pay principal and any premium or interest on the Debt Securities
at the office of our designated paying agent, except we may pay
interest by check mailed to the address of the person entitled
to the payment. Unless we state otherwise in the prospectus
supplement, the corporate trust office of the Trustee will be
the paying agent for the Debt Securities.
Any other paying agents we designate for the Debt Securities of
a particular series will be named in the prospectus supplement.
We may designate additional paying agents, rescind the
designation of any paying agent or approve a change in the
office through which any paying agent acts, but we must maintain
a paying agent in each place of payment for the Debt Securities.
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The paying agent will return to us all money we pay to it for
the payment of the principal, premium or interest on any Debt
Security that remains unclaimed for a specified period. The
holder thereafter may look only to us for payment.
Global Securities. The Debt Securities of any
series may be represented by one or more global securities
(each, a Global Security and, together, the
Global Securities) that will have an aggregate
principal amount equal to that of the Debt Securities of that
series. Each Global Security will be registered in the name of a
depositary identified in the prospectus supplement. We will
deposit the Global Security with the depositary or a custodian,
and the Global Security will bear a legend regarding the
restrictions on exchanges and registration of transfer.
No Global Security may be exchanged in whole or in part for Debt
Securities registered, and no transfer of a Global Security in
whole or in part may be registered, in the name of any person
other than the depositary or any nominee of the depositary
unless (1) the depositary has notified us that it is
unwilling or unable to continue as depositary or (2) an
event of default occurs and continues with respect to the Debt
Securities. The depositary will determine how all securities
issued in exchange for a Global Security will be registered.
As long as the depositary or its nominee is the registered
holder of a Global Security, the depositary or the nominee will
be considered the sole owner and holder of the Global Security
and the underlying Debt Securities. Except as stated above,
owners of beneficial interests in a Global Security will not be
entitled to have the Global Security or any Debt Security
registered in their names, will not receive physical delivery of
certificated Debt Securities and will not be considered to be
the owners or holders of the Global Security or underlying Debt
Securities. We will make all payments of principal, premium and
interest on a Global Security to the depositary or its nominee.
The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in
definitive form. These laws may prevent you from transferring
your beneficial interests in a Global Security.
Only institutions that have accounts with the depositary or its
nominee and persons that hold beneficial interests through the
depositary or its nominee may own beneficial interests in a
Global Security. The depositary will credit, on its book-entry
registration and transfer system, the respective principal
amounts of Debt Securities represented by the Global Security to
the accounts of its participants. Ownership of beneficial
interests in a Global Security will be shown only on, and the
transfer of those ownership interests will be effected only
through, records maintained by the depositary or any such
participant.
The policies and procedures of the depositary may govern
payments, transfers, exchanges and other matters relating to
beneficial interests in a Global Security. We and the Trustee
assume no responsibility or liability for any aspect of the
depositarys or any participants records relating to,
or for payments made on account of, beneficial interests in a
Global Security.
The specific terms of the depositary arrangement with respect to
any series of Debt Securities will be described in the
applicable prospectus supplement.
Consolidation, Merger and Sale of Assets. Each
Indenture provides that we may, without the consent of the
holders of any of the Debt Securities outstanding under the
applicable Indenture, consolidate with, merge into or transfer
our assets substantially as an entirety to any person, provided
that:
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any successor assumes our obligations on the applicable Debt
Securities and under the applicable Indenture;
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after giving effect to the transaction, there is no Default or
Event of Default that is continuing; and
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certain other conditions under the applicable Indenture are met.
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Accordingly, such consolidation, merger or transfer of assets
substantially as an entirety, which meets the conditions
described above, would not create any Event of Default which
would entitle holders of the Debt Securities, or the Trustee on
their behalf, to take any of the actions described below under
Events of Default.
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Leveraged and Other Transactions. Unless
otherwise specified in the applicable prospectus supplement, the
Indentures and the Debt Securities will not contain, among other
things, provisions that would protect holders of the Debt
Securities in the event of a highly leveraged or other
transaction involving us that could adversely affect the holders
of Debt Securities.
Modification of the Indentures; Waiver. Each
Indenture provides that, with the consent of the holders of not
less than a majority in aggregate principal amount of the
outstanding Debt Securities of each affected series,
modifications and alterations of such Indenture may be made that
affect the rights of the holders of such Debt Securities.
However, no such modification or alteration may be made without
the consent of the holder of each Debt Security so affected
which would, among other things:
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change the maturity of the principal of, or of any installment
of interest (or premium, if any) on, any Debt Security issued
pursuant to such Indenture;
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change the principal amount thereof, premium thereon, if any, or
interest thereon;
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change the method of calculation of interest or the currency of
payment of principal or interest (or premium, if any) thereon;
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reduce the minimum rate of interest thereon;
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impair the right to bring suit for the enforcement of any such
payment on or with respect to any such Debt Security;
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reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon an acceleration of
the maturity thereof;
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reduce the above-stated percentage in principal amount of
outstanding Debt Securities of any series required to modify or
alter such Indenture;
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in the case of Subordinated Debt Securities, modify the
subordination provisions in a manner materially adverse to their
holders;
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in the case of Debt Securities that are convertible or
exchangeable into our other securities, adversely affect the
right of holders to convert or exchange any of the Debt
Securities;
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reduce the percentage in principal amount of outstanding Debt
Securities of any series necessary for waiver of compliance with
certain provisions of the Indentures or for waiver of certain
defaults;
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modify provisions with respect to modification and
waiver; or
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change our obligation to maintain an office or agency as
required by the applicable Indenture.
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The holders of a majority in aggregate principal amount of the
outstanding Debt Securities of any series may waive, on behalf
of the holders of all Debt Securities of that series, our
compliance with certain restrictive provisions of the
Indentures. Prior to the acceleration of the maturity of the
Debt Securities of any series outstanding under the Indentures,
the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of any series may waive any past
default under the Indenture with respect to Debt Securities of
that series, except a default (1) in the payment of
principal, premium or interest on any Debt Security of that
series or (2) in respect of a covenant or provision of the
Indenture that cannot be amended without each holders
consent.
Except in certain limited circumstances, we may set any day as a
record date for the purpose of determining the holders of
outstanding Debt Securities of any series entitled to give or
take any direction, notice, consent, waiver or other action
under the Indentures. In certain limited circumstances, the
Trustee may set a record date for action by holders. To be
effective, the action must be taken by holders of the requisite
principal amount of such Debt Securities within a specified
period following the record date.
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Events of Default. An Event of Default with
respect to the Debt Securities of any series is defined in the
applicable Indenture as:
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default in the payment of principal of or premium, if any, on
any Debt Security of that series when due, whether or not, in
the case of Subordinated Debt Securities, such payment is
prohibited by the Subordinated Indenture;
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default in the payment of interest on any Debt Security of that
series when due, which continues for 30 days, whether or
not, in the case of Subordinated Debt Securities, such payment
is prohibited by the Subordinated Indenture;
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failure to deposit any sinking fund payment, when due, in
respect of any Debt Security of that series, whether or not, in
the case of Subordinated Debt Securities, such payment is
prohibited by the subordination provisions of the Subordinated
Indenture;
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default in the performance by us of any of our other covenants
in the applicable Indenture with respect to the Debt Securities
of such series, which continues for 90 days after written
notice by the Trustee or the holders of at least 25% in
aggregate principal amount of the Debt Securities of that series;
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certain events of bankruptcy, insolvency or reorganization
affecting us; and
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any other event that may be specified in a prospectus supplement
with respect to any series of Debt Securities.
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If an Event of Default (other than an Event of Default relating
to events of bankruptcy, insolvency or reorganization) with
respect to any series of Debt Securities occurs and is
continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the Debt Securities of such series
outstanding may declare the principal amount (or if such Debt
Securities are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that
series) of all Debt Securities of that series to be immediately
due and payable. If an Event of Default relating to events of
bankruptcy, insolvency or reorganization with respect to the
Debt Securities of any series at the time outstanding shall
occur, the principal amount of all the Debt Securities of that
series (or, in the case of any such Original Issue Discount
Security, such specified amount) will automatically, and without
any action by the applicable Trustee or any holder, become
immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the holders
of a majority in principal amount of the outstanding Debt
Securities of that series may, under certain circumstances,
rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal (or other
specified amount), have been cured or waived as provided in the
applicable Indenture. For information as to waiver of defaults,
see Modification of the Indentures; Waiver.
If an Event of Default occurs and is continuing, the Trustee
may, in its discretion, and at the written request of holders of
not less than a majority in aggregate principal amount of the
Debt Securities of any series, and upon reasonable indemnity
against the costs, expenses and liabilities to be incurred in
compliance with such request and subject to certain other
conditions set forth in the applicable Indenture will, proceed
to protect the rights of the holders of all the Debt Securities
of such series.
The Indentures provide that upon the occurrence of an Event of
Default relating to payments of principal of, premium, if any,
or interest on any Debt Security, we will, upon demand of the
Trustee, pay to it, for the benefit of the holder of any such
Debt Security, the whole amount then due and payable on such
Debt Securities for principal, premium, if any, and interest.
The Indentures further provide that that if we fail to pay such
amount upon such demand, the Trustee may, among other things,
institute a judicial proceeding for the collection of the amount
due.
No holder of a Debt Security of any series may institute any
proceeding with respect to the Indentures, or for the
appointment of a receiver or a trustee, or for other remedy,
unless (1) the holder has previously given the Trustee
written notice of a continuing event of default, (2) the
holders of at least 25% in aggregate principal amount of the
outstanding Debt Securities of that series have made a written
request, and the holders have offered reasonable indemnity to
the Trustee to institute the proceeding, and (3) the
Trustee has failed to
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institute the proceeding, and has not received a direction
inconsistent with the request within 60 days of such
notice. The Indentures also provide that, notwithstanding any
other provision of the applicable Indenture, the holder of any
Debt Security of any series will have the right to institute
suit for the enforcement of any payment of principal of,
premium, if any, and interest on such Debt Securities when due
and that such right will not be impaired without the consent of
such holder.
We are required to file annually with the applicable Trustee a
written statement as to the existence or non-existence of
defaults under the Indentures or the Debt Securities.
Subordination of the Subordinated Debt
Securities. The Subordinated Debt Securities will
be our direct, unsecured obligations and, unless otherwise
specified in the prospectus supplement relating to a particular
series of Subordinated Debt Securities offered by such
prospectus supplement, will be subject to the subordination
provisions described in this section. Upon any distribution of
our assets due to any dissolution, winding up, liquidation or
reorganization, the payment of the principal of, premium, if
any, and interest on the Subordinated Debt Securities is to be
subordinated in right of payment to all Senior Indebtedness. In
certain events of bankruptcy or insolvency, the payment of the
principal of and interest on the Subordinated Debt Securities
will, to the extent provided in the Subordinated Indenture, also
be effectively subordinated in right of payment to all General
Obligations (as defined below).
Upon any distribution of our assets due to any dissolution,
winding up, liquidation or reorganization, the holders of Senior
Indebtedness will first be entitled to receive payment in full
of all amounts due or to become due before the holders of the
Subordinated Debt Securities will be entitled to receive any
payment in respect of the Subordinated Debt Securities. If upon
any such payment or distribution of assets, after giving effect
to such subordination provisions in favor of the holders of
Senior Indebtedness, (i) there remain any amounts of cash,
property or securities available for payment or distribution in
respect of the Subordinated Debt Securities (Excess
Proceeds) and (ii) if, at such time, any creditors in
respect of General Obligations have not received payment in full
of all amounts due or to become due on or in respect of such
General Obligations, then such Excess Proceeds will first be
applied to pay or provide for the payment in full of such
General Obligations before any payment or distribution may be
made in respect of the Subordinated Debt Securities.
In addition, no payment may be made on the Subordinated Debt
Securities, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt
Securities, at any time in the event:
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there is a default in the payment of the principal of, premium,
if any, interest on or otherwise in respect of any Senior
Indebtedness; or
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any event of default with respect to any Senior Indebtedness has
occurred and is continuing or would occur as a result of such
payment on the Subordinated Debt Securities or any redemption,
retirement, purchase or other acquisition of any of the
Subordinated Debt Securities, permitting the holders of such
Senior Indebtedness to accelerate the maturity thereof.
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Except as described above, our obligation to make payments of
the principal of, premium, if any, or interest on the
Subordinated Debt Securities will not be affected.
By reason of the subordination in favor of the holders of Senior
Indebtedness, in the event of a distribution of assets upon any
dissolution, winding up, liquidation or reorganization, our
creditors who are not holders of Senior Indebtedness or the
Subordinated Debt Securities may recover less, proportionately,
than holders of Senior Indebtedness and may recover more,
proportionately, than holders of the Subordinated Debt
Securities.
Subject to payment in full of all Senior Indebtedness, the
holders of Subordinated Debt Securities will be subrogated to
the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or our securities
applicable to Senior Indebtedness. Subject to payment in full of
all General Obligations, the holders of the Subordinated Debt
Securities will be subrogated to the rights of the creditors in
respect of General Obligations to receive payments or
distributions of cash, property or our securities applicable to
such creditors in respect of General Obligations.
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Senior Indebtedness for purposes of the Subordinated
Indenture is the principal of, premium, if any, and interest on:
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all of our indebtedness for money borrowed (other than
(i) the Subordinated Debt Securities and (ii) the
Junior Subordinated Indebtedness (as defined below)) whether
outstanding on the date of execution of the Subordinated
Indenture or created, assumed or incurred after that date,
except such indebtedness as is by its terms expressly stated to
be not superior in right of payment to the Subordinated Debt
Securities or to rank equally with the Subordinated Debt
Securities; and
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any deferrals, renewals or extensions of any such Senior
Indebtedness.
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The term indebtedness for money borrowed as used in
this prospectus includes, without limitation, any obligation of,
or any obligation guaranteed by us for the repayment of borrowed
money, whether or not evidenced by bonds, debentures, notes or
other written instruments, and any deferred obligation for the
payment of the purchase price of property or assets. The
Subordinated Indenture does not limit our issuance of additional
Senior Indebtedness.
The Subordinated Debt Securities will rank senior in right of
payment to our Junior Subordinated Indebtedness upon any
distribution of our assets due to any dissolution, winding up,
liquidation or reorganization, to the extent provided in the
instruments creating our Junior Subordinated Indebtedness.
Junior Subordinated Indebtedness is the principal
of, premium, if any, and interest on:
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all of our indebtedness for money borrowed whether outstanding
on the date of the execution of the Subordinated Indenture or
created, assumed or incurred after that date that is by its
terms subordinated to the Subordinated Debt Securities; and
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any deferrals, renewals or extensions of any of such Junior
Subordinated Indebtedness.
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Unless otherwise specified in the prospectus supplement relating
to a particular series of Subordinated Debt Securities offered
thereby, the term General Obligations means all
obligations to make payment on account of claims in respect of
derivative products such as interest and foreign exchange rate
contracts, commodity contracts and similar arrangements, other
than:
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obligations on account of Senior Indebtedness;
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obligations on account of indebtedness for money borrowed
ranking equal with or subordinate to the Subordinated Debt
Securities; and
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obligations which by their terms are expressly stated not to be
senior in right of payment to the Subordinated Debt Securities
or to rank equally with the Subordinated Debt Securities.
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Unless otherwise specified in the prospectus supplement relating
to any series of Subordinated Debt Securities, payment of
principal of the Subordinated Debt Securities may be accelerated
only in case of the bankruptcy, insolvency or reorganization of
our company.
Defeasance and Covenant Defeasance. To the
extent stated in the prospectus supplement, we may elect to
apply the provisions relating to defeasance and discharge of
indebtedness, or to defeasance of certain restrictive covenants
in the Indentures, to the Debt Securities of any series.
DESCRIPTION
OF CAPITAL STOCK
General
The following is a summary of the rights of our common stock and
preferred stock and related provisions of our certificate of
incorporation and bylaws. For more detailed information, please
see our certificate of incorporation and bylaws, as amended.
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Authorized
and Outstanding Capital Stock
Our authorized capital stock consists of 150,000,000 shares
of common stock, par value $.0001 per share, and
250,000 shares of preferred stock, par value $.01 per
share, issuable in one or more series designated by our board of
directors, of which 105,875 shares of our preferred stock
have been designated as 5% Series B Cumulative Convertible
Perpetual Preferred Stock (Series B preferred
stock). On January 10, 2007, 53,169,234 shares
of our common stock were issued and outstanding and
64,120 shares of our Series B preferred stock were
issued and outstanding. No other shares of our preferred stock
are issued and outstanding.
In addition, as of January 10, 2007, there were outstanding
options to purchase 6,017,629 shares of our common stock
under our stock options plans, 2,669,689 shares of our
common stock were available for future issuance under our stock
option plans, 332,837 shares of our common stock were
available for future issuance under our employee stock purchase
plan, and there were outstanding warrants to purchase
1,200,000 shares of our common stock. In addition, as of
January 10, 2007, we were obligated, if and when the holder
exercises its conversion rights, to issue approximately
207,952 shares of our common stock upon conversion of the
Series 1 preferred shares. As of January 10, 2007,
there were 736 holders of record of our common stock.
Common
Stock
Voting
Rights
The holders of our common stock have one vote per share. Holders
of our common stock are not entitled to vote cumulatively for
the election of directors. Generally, all matters to be voted on
by shareholders must be approved by a majority, or, in the case
of the election of directors, by a plurality, of the votes
entitled to be cast at a meeting at which a quorum is present by
all shares of our common stock present in person or represented
by proxy, voting together as a single class, subject to any
voting rights granted to holders of any then outstanding
preferred stock.
Dividends
Holders of our common stock will share ratably in any dividends
declared by the board of directors, subject to the preferential
rights of any of our preferred stock then outstanding. Dividends
consisting of shares of our common stock may be paid to holders
of shares of our common stock.
Other
Rights
In the event of our liquidation, dissolution or winding up,
after payment of liabilities and liquidation preferences on any
of our preferred stock then outstanding, the holders of shares
of our common stock are entitled to share ratably in all assets
available for distribution. Holders of shares of our common
stock have no preemptive rights or rights to convert their
shares of our common stock into any other securities. There are
no redemption or sinking fund provisions applicable to the
common stock.
Preferred
Stock
This section describes the general terms of our preferred stock,
$0.01 par value, to which any prospectus supplement may
relate. Certain terms of any series of our preferred stock
offered by any prospectus supplement will be described in such
prospectus supplement. If so indicated in the prospectus
supplement, the terms of that series may differ from the terms
described below. The provisions of our preferred stock described
below are not complete. You should refer to our certificate of
incorporation and any certificate of amendment to our
certificate of incorporation or certificate of designations
filed with the SEC in connection with the offering of our
preferred stock.
Under our certificate of incorporation, our board of directors
has the authority, without further shareholder action, to issue
from time to time, preferred stock in one or more series and for
such consideration as may be fixed from time to time by our
board of directors. Our board also has the authority to fix and
determine, in the manner provided by law, the relative rights
and preferences of the shares of any series so established, such
as dividend and voting rights. Our certificate of incorporation
authorizes 250,000 shares of preferred stock. Prior
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to the issuance of each series of preferred stock, our board
will adopt resolutions creating and designating the series as a
series of preferred stock. The board of directors may, without
shareholder approval, issue preferred stock with voting and
other rights that could adversely affect the voting power and
other rights of the holders of our common stock and could have
anti-takeover effects.
Our preferred stock will have the dividend, liquidation,
redemption, voting and conversion rights set forth below unless
otherwise specified in the applicable prospectus supplement. You
should read the prospectus supplement relating to the particular
series of preferred stock offered thereby for specific terms,
including:
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the designation, stated value and liquidation preference of such
preferred stock and the number of shares offered;
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the initial public offering price at which the preferred stock
will be issued;
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the dividend rate or rates (or method of calculation), the
dividend periods, the date on which dividends will be payable
and whether such dividends will be cumulative or noncumulative
and, if cumulative, the dates from which dividends will begin to
cumulate;
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any redemption or sinking fund provisions;
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any conversion provisions; and
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any additional rights, preferences, privileges, qualifications,
limitations and restrictions of the preferred stock.
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Unless otherwise specified in the applicable prospectus
supplement, the shares of each series of preferred stock will
upon issuance rank equally in all respects with each other then
outstanding series of preferred stock.
Preferred stock could be issued quickly with terms that could
delay or prevent a change of control or make the removal of
management more difficult. Additionally, the issuance of
preferred stock may decrease the market price of our common
stock and may adversely affect the voting and other rights of
the holders of our common stock.
Ranking
Any series of our preferred stock will, with respect to dividend
rights and rights on liquidation, winding up or dissolution,
rank:
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senior to all classes of our common stock and to all equity
securities issued by us, the terms of which specifically provide
that the equity securities will rank junior to that preferred
stock;
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equally with all equity securities issued by us, the terms of
which specifically provide that the equity securities will rank
equally with that preferred stock; and
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junior to all equity securities issued by us, the terms of which
specifically provide that the equity securities will rank senior
to that preferred stock.
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Dividends
The holders of our preferred stock will be entitled to receive,
when, as and if declared by our board of directors, dividends at
such rates and on such dates as will be specified in the
applicable prospectus supplement. Such rates may be fixed or
variable or both. If variable, the formula used for determining
the dividend rate for each dividend period will be specified in
the applicable prospectus supplement. Dividends will be payable
to the holders of record as they appear on our stock books on
such record dates as will be fixed by our board. Dividends may
be paid in the form of cash, preferred stock (of the same or a
different series) or our common stock, in each case as specified
in the applicable prospectus supplement.
Dividends on any series of our preferred stock may be cumulative
or noncumulative, as specified in the applicable prospectus
supplement. If the dividends on a series of our preferred stock
are noncumulative (Noncumulative Preferred Stock),
and our board of directors fails to declare a dividend payable
on a
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dividend payment date, then the holders of such preferred stock
will have no right to receive a dividend in respect to the
dividend period relating to such dividend payment date, and we
will not be obligated to pay the dividend accrued for such
period, whether or not dividends on such preferred stock are
declared or paid on any future dividend payment dates.
We will not declare or pay or set apart for payment any
dividends on any series of our preferred stock that rank, as to
dividends, on a parity with or junior to the outstanding
preferred stock of any series unless (i) if such
outstanding preferred stock has a cumulative dividend
(Cumulative Preferred Stock), full cumulative
dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set
apart for such payment on such preferred stock for all dividend
periods terminating on or prior to the date of payment of any
such dividends on such other series of the preferred stock or
(ii) if such outstanding preferred stock is Noncumulative
Preferred Stock, full dividends for the then-current dividend
period on such preferred stock have been or contemporaneously
are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment.
Until full dividends are paid (or declared and payment is set
aside) on our preferred stock ranking equal as to dividends,
then:
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we will declare any dividends pro rata among the preferred stock
of each series and any preferred stock ranking equal to such
preferred stock as to dividends (i.e., the dividends we declare
per share on each series of such preferred stock will bear the
same relationship to each other that the full accrued dividends
per share on each such series of the preferred stock (which will
not, if such preferred stock is Noncumulative Preferred Stock,
include any accumulation in respect to unpaid dividends for
prior dividend periods) bear to each other);
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other than such pro rata dividends, we will not declare or pay
any dividends or declare or make any distributions upon any
security ranking junior to or equal with the preferred stock as
to dividends or upon liquidation (except dividends on common
stock payable in common stock, dividends or distributions paid
for with securities ranking junior to the preferred stock as to
dividends and upon liquidation and cash in lieu of fractional
shares in connection with such dividends); and
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we will not redeem, purchase or otherwise acquire (or set aside
money for a sinking fund for) our common stock or any other
securities ranking junior to or equal with the preferred stock
as to dividends or upon liquidation (except by conversion into
or exchange for stock junior to the preferred stock as to
dividends and upon liquidation).
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We will not owe any interest, or any money in lieu of interest,
on any dividend payment on any series of the preferred stock
that may be past due.
Redemption
A series of our preferred stock may be redeemable, in whole or
in part, at our option, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case
upon terms, at the times and at the redemption prices specified
in the applicable prospectus supplement. Redeemed shares of our
preferred stock will become authorized but unissued shares of
preferred stock that we may issue in the future.
The prospectus supplement relating to a series of our preferred
stock that is subject to mandatory redemption will specify the
number of shares of such preferred stock that we will redeem
each year and the redemption price per share. If shares of our
preferred stock are redeemed, we will pay all accrued and unpaid
dividends thereon (which will not, if such preferred stock is
Noncumulative Preferred Stock, include any accumulation in
respect of unpaid dividends for prior dividend periods) up to
but excluding the date of redemption. The redemption price may
be payable in cash or other property, as specified in the
applicable prospectus supplement. If the redemption price for
our preferred stock of any series is payable only from the net
proceeds of the issuance of our capital stock, the terms of such
preferred stock may provide that, if no such capital stock will
have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate
redemption price then due, such preferred stock will
automatically and mandatorily
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be converted into shares of our applicable capital stock
pursuant to conversion provisions specified in the applicable
prospectus supplement.
If fewer than all the outstanding shares of our preferred stock
of any series are to be redeemed, our board will determine the
number of shares to be redeemed. We will redeem the shares pro
rata from the holders of record of such shares in proportion to
the number of such shares held by such holders (with adjustments
to avoid redemption of fractional shares) or by lot or by any
other method as may be determined by our board.
Even though the terms of a series of the Cumulative Preferred
Stock may permit redemption of such preferred stock in whole or
in part, if any dividends, including accumulated dividends, on
that series are past due:
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we will not redeem any preferred stock of that series unless we
simultaneously redeem all outstanding preferred stock of that
series; and
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we will not purchase or otherwise acquire any preferred stock of
that series.
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The prohibition discussed in the preceding sentence will not
prohibit us from purchasing or acquiring preferred stock of that
series pursuant to a purchase or exchange offer if we make the
offer on the same terms to all holders of that series.
Conversion
Rights
The prospectus supplement relating to a series of convertible
preferred stock will describe the terms on which shares of such
series are convertible into our common stock.
Rights
Upon Liquidation
Unless the applicable prospectus supplement states otherwise, if
we voluntarily or involuntarily liquidate, dissolve or wind up
our business, the holders of our preferred stock will be
entitled to receive out of our assets available for distribution
to stockholders, before any distribution of assets is made to
holders of our common stock or any other class or series of
shares ranking junior to such preferred stock upon liquidation,
liquidating distributions in the amount of the liquidation
preference of such preferred stock plus accrued and unpaid
dividends (which will not, if such preferred stock is
Noncumulative Preferred Stock, include any accumulation in
respect of unpaid dividends for prior dividend periods). If we
voluntarily or involuntarily liquidate, dissolve or wind up our
business and the amounts payable with respect to our preferred
stock of any series and any of our other securities ranking
equal as to any such distribution are not paid in full, the
holders of such preferred stock and of such other shares will
share ratably in any such distribution of our assets in
proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders
of our preferred stock of any series will not be entitled to any
further participation in any distribution of our assets.
Voting
Rights
Except as described in this section or in the applicable
prospectus supplement, or except as expressly required by
applicable law, the holders of our preferred stock will not be
entitled to vote. If the holders of a series of our preferred
stock are entitled to vote and the applicable prospectus
supplement does not state otherwise, each such share will be
entitled to one vote on matters on which holders of such series
of preferred stock are entitled to vote. For any series of our
preferred stock having one vote per share, the voting power of
such series, on matters on which holders of such series and
holders of other series of our preferred stock are entitled to
vote as a single class, will depend on the number of shares in
such series, not the aggregate stated value, liquidation
preference or initial offering price of the shares of such
series of preferred stock.
Unless we receive the consent of the holders of an outstanding
series of preferred stock and the outstanding shares of all
other series of preferred stock which (i) rank equal with
such series either as to
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dividends or the distribution of assets upon liquidation,
dissolution or winding up of our business and (ii) have
voting rights that are exercisable and that are similar to those
of such series, we will not:
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authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to such
outstanding preferred stock with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or
winding up of our business; or
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amend, alter or repeal, whether by merger, consolidation or
otherwise, the provisions of our certificate or of the
resolutions contained in any certificate of designations
creating such series of preferred stock so as to materially and
adversely affect any right, preference privilege or voting power
of such outstanding preferred stock.
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This consent must be given by the holders of a majority of all
such outstanding preferred stock described in the preceding
sentence, voting together as a single class. We will not be
required to obtain this consent with respect to the actions
listed in the second bullet point above, however, if we only
(i) increase the amount of the authorized preferred stock,
(ii) create and issue another series of preferred stock, or
(iii) increase the amount of authorized shares of any
series of preferred stock, if such preferred stock in each case
ranks equal with or junior to the preferred stock with respect
to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of our business.
Series 1
Preferred Shares
On August 4, 2003, we entered into a combination agreement
with Global Thermoelectric Inc. (Global) to combine
Global with us in a
share-for-share
exchange pursuant to a Plan of Arrangement subject to approval
by the Court of Queens Bench of Alberta, Canada. On
October 31, 2003, our shareholders and the shareholders of
Global approved the combination. On October 31, 2003, the
Court of Queens Bench of Alberta issued an order approving
the combination. On November 3, 2003, the combination
transaction was consummated. In the aggregate, we issued
approximately 8.2 million shares of our common stock and
exchangeable shares in the acquisition. Following our
acquisition of Global, Globals Series 2 preferred
shares remained outstanding in Global. At the time of the sale
of our thermoelectric generator business, the holder of the
Series 2 preferred shares exchanged them for Series 1
Class A cumulative redeemable exchangeable preferred shares
(which were referred to as the Series 1 preferred shares)
issued by FuelCell Energy, Ltd., one of our indirect,
wholly-owned subsidiaries. We have guaranteed the obligations of
FuelCell Energy, Ltd. under the Series 1 preferred shares.
The Series 1 preferred shares may be converted into shares
of our common stock at the following conversion prices:
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Cdn.$120.22 per share of our common stock until
July 31, 2010;
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Cdn.$129.46 per share of our common stock after
July 31, 2010 until July 31, 2015;
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Cdn.$138.71 per share of our common stock after
July 31, 2015 until July 31, 2020; and
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at any time after July 31, 2020, the price equal to 95% of
the then current market price (converted to Cdn.$ at the time of
such calculation) of shares of our common stock at the time of
conversion.
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The foregoing conversion prices are subject to adjustment for
certain subsequent events. As illustrated below, the number of
shares of our common stock issuable upon conversion of the
Series 1 preferred shares after July 31, 2020 may be
significantly greater than the number of shares issuable prior
to that time.
The following examples illustrate the number of shares of our
common stock that we will be required to issue to the holder(s)
of the Series 1 preferred shares if and when the holder(s)
exercise their conversion rights pursuant to the terms of the
Series 1 preferred shares. The following examples are based
upon Cdn.$25.0 million of Series 1 preferred shares
outstanding (which is the amount currently outstanding) and
assume that all accrued dividends on the Series 1 preferred
shares have been paid through the time of the conversion and, in
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the case of conversions occurring after July 31, 2020, that
the exchange rate for Canadian dollars is Cdn.$1.1758 to
U.S.$1.00 (exchange rate on January 10, 2007) at the
time of the conversion:
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if the Series 1 preferred shares convert prior to
July 31, 2010, we would be required to issue approximately
207,952 shares of our common stock;
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if the Series 1 preferred shares convert after
July 31, 2010, but prior to July 31, 2015, we would be
required to issue approximately 193,110 shares of our
common stock;
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if the Series 1 preferred shares convert after
July 31, 2015, but prior to July 31, 2020, we would be
required to issue approximately 180,232 shares of our
common stock; and
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if the Series 1 preferred shares convert any time after
July 31, 2020, assuming our common stock price is
U.S. $6.22 (our common stock closing price on
January 10, 2007) at the time of conversion, we would
be required to issue approximately 3,598,260 shares of our
common stock.
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Subject to the Business Corporations Act (Alberta), the holder
of the Series 1 preferred shares is not entitled to receive
notice of or to attend or vote at any meeting of the FuelCell
Energy, Ltd. Common shareholders. At present, we own all of the
FuelCell Energy, Ltd. common stock.
Quarterly dividends of Cdn.$312,500 accrue on the Series 1
preferred shares (subject to possible reduction pursuant to the
terms of the Series 1 preferred shares on account of
increases in the price of our common stock). We have agreed to
pay a minimum of Cdn.$500,000 in cash or common stock annually
to Enbridge, the sole current holder of the Series 1
preferred shares, as long as Enbridge holds the shares. Interest
accrues on cumulative unpaid dividends at a 2.45% quarterly
rate, compounded quarterly, until payment thereof. All
cumulative unpaid dividends must be paid by December 31,
2010. Subsequent to 2010, FuelCell Energy, Ltd. would be
required to pay annual dividend amounts totaling
Cdn.$1.25 million so long as the Series 1 preferred
shares remain outstanding. Cumulative unpaid dividends of
$5.3 million on the Series 1 preferred shares were
outstanding as of October 31, 2006. We have guaranteed the
dividend obligations of FuelCell Energy, Ltd. to the
Series 1 preferred shareholders.
Subject to the Business Corporations Act (Alberta), we may
redeem the Series 1 preferred shares, in whole or part, at
any time, if on the day that the notice of redemption is first
given, the volume-weighted average price at which our common
stock is traded on the applicable stock exchange during the 20
consecutive trading days ending on a date not earlier than the
fifth preceding day on which the notice of redemption is given
was not less than a 20% premium to the current conversion price
on payment of Cdn.$25.00 per Series 1 preferred share
to be redeemed, together with an amount equal to all accrued and
unpaid dividends to the date fixed for redemption. On or after
July 31, 2010, the Series 1 preferred shares are
redeemable by us at any time on payment of Cdn.$25.00 per
Series 1 preferred share to be redeemed together with an
amount equal to all accrued and unpaid dividends to the date
fixed for redemption. Holders of the Series 1 preferred
shares do not have any mandatory or conditional redemption
rights. There are currently 1,000,000 Series 1 preferred
shares outstanding.
In the event of the liquidation, dissolution or winding up of
FuelCell Energy, Ltd., whether voluntary or involuntary, or any
other distribution of its assets among its shareholders for the
purpose of winding up its affairs, the holder of the
Series 1 preferred shares will be entitled to receive the
amount paid on such Series 1 preferred shares (currently
Cdn.$25.0 million) together with an amount equal to all
accrued and unpaid dividends thereon, before any amount will be
paid or any of FuelCell Energy, Ltd.s property or assets
will be distributed to the holders of FuelCell Energy,
Ltd.s common stock. After payment to the holder of the
Series 1 preferred shares of the amounts payable to them,
the holder of the Series 1 preferred shares will not be
entitled to share in any other distribution of FuelCell Energy,
Ltd.s property or assets. We have guaranteed the
liquidation obligations of FuelCell Energy, Ltd. under the
Series 1 preferred shares.
Series B
Preferred Stock
On November 11, 2004, we entered into a purchase agreement
with Citigroup Global Markets Inc., RBC Capital Markets
Corporation, Adams Harkness, Inc., and Lazard Freres &
Co., LLC (the Initial Purchasers)
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for the private placement under Rule 144A of up to
135,000 shares of our 5% Series B Cumulative
Convertible Perpetual Preferred Stock (Liquidation Preference
$1,000). On November 17, 2004 and January 25, 2005, we
closed on the sale of 100,000 shares and 5,875 shares,
respectively, of Series B preferred stock to the Initial
Purchasers.
At October 31, 2006 and 2005, there were 250,000 preferred
shares authorized of which 64,120 and 105,875 Series B
preferred shares were issued and outstanding, respectively. The
carrying value of the Series B preferred stock as of
October 31, 2006 and 2005 represents the net proceeds to us
of approximately $60.0 million and $99.0 million,
respectively. During fiscal 2006, we converted
41,755 shares of Series B preferred stock into
3,553,615 shares of our common stock. The conversion
occurred pursuant to the terms of the Certificate of Designation
for the Series B preferred stock, whereby upon conversion,
the holders received 85.1064 shares of our common stock per
share of Series B preferred stock. In addition, pursuant to
this conversion, we paid a conversion premium of
$4.3 million.
The following is a summary of certain provisions of our
Series B preferred stock. The resale of the shares of our
Series B preferred stock and the resale of the shares of
our common stock issuable upon conversion of the shares of our
Series B preferred stock are covered by a registration
rights agreement.
Ranking
Shares of our Series B preferred stock rank with respect to
dividend rights and rights upon our liquidation, winding up or
dissolution:
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senior to shares of our common stock;
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junior to our debt obligations; and
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effectively junior to our subsidiaries (i) existing
and future liabilities and (ii) capital stock held by
others.
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Dividends
The Series B preferred stock pays cumulative annual
dividends of $50 per share which are payable quarterly in
arrears on February 15, May 15, August 15 and
November 15, which commenced on February 15, 2005,
when, as and if declared by the board of directors. Dividends
will be paid on the basis of a
360-day year
consisting of twelve
30-day
months. Dividends on the shares of our Series B preferred
stock will accumulate and be cumulative from the date of
original issuance. Accumulated dividends on the shares of our
Series B preferred stock will not bear any interest.
The dividend rate on the Series B preferred stock is
subject to upward adjustment as set forth in the certificate of
designation of the Series B preferred stock if we fail to
pay, or to set apart funds to pay, dividends on the shares of
our Series B preferred stock for any quarterly dividend
period. The dividend rate on the Series B preferred stock
is also subject to upward adjustment as set forth in the
registration rights agreement entered into with the Initial
Purchasers if we fail to satisfy our registration obligations
with respect to the Series B preferred stock (or the
underlying common shares) set forth in the registration rights
agreement.
No dividends or other distributions may be paid or set apart for
payment upon our common shares (other than a dividend payable
solely in shares of a like or junior ranking) unless all
accumulated and unpaid dividends have been paid or funds or
shares of common stock therefore have been set apart on our
Series B preferred stock.
We may pay dividends on the Series B preferred stock:
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in cash; or
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at the option of the holder, in shares of our common stock,
which will be registered pursuant to a registration statement to
allow for the immediate sale of these common shares in the
public market.
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Liquidation
The Series B preferred stock has a liquidation preference
of $1,000 per share. Upon any voluntary or involuntary
liquidation, dissolution or winding up of FuelCell resulting in
a distribution of assets to the holders of any class or series
of our capital stock, each holder of shares of our Series B
preferred stock will be entitled to payment out of our assets
available for distribution of an amount equal to the liquidation
preference per share of Series B preferred stock held by
that holder, plus all accumulated and unpaid dividends on those
shares to the date of that liquidation, dissolution, or winding
up, before any distribution is made on any junior shares,
including shares of our common stock, but after any
distributions on any of our indebtedness or senior shares (if
any). After payment in full of the liquidation preference and
all accumulated and unpaid dividends to which holders of shares
of our Series B preferred stock are entitled, holders of
shares of our Series B preferred stock will not be entitled
to any further participation in any distribution of our assets.
Conversion
A share of our Series B preferred stock may be converted at
any time, at the option of the holder, into 85.1064 shares
of our common stock (which is equivalent to an initial
conversion price of $11.75 per share) plus cash in lieu of
fractional shares. The conversion rate is subject to adjustment
upon the occurrence of certain events, as described below, but
will not be adjusted for accumulated and unpaid dividends. Upon
conversion, holders of Series B preferred stock will not
receive a cash payment for any accumulated dividends. Instead
accumulated dividends, if any, will be cancelled.
On or after November 20, 2009 we may, at our option, cause
shares of our Series B preferred stock to be automatically
converted into that number of shares of our common stock that
are issuable at the then prevailing conversion rate. We may
exercise our conversion right only if the closing price of our
common stock exceeds 150% of the then prevailing conversion
price for 20 trading days during any consecutive 30 trading day
period, as described in the certificate of designation for the
Series B preferred stock.
If holders of shares of our Series B preferred stock elect
to convert their shares in connection with certain fundamental
changes (as described below and in the certificate of
designation), we will in certain circumstances discussed below
increase the conversion rate by a number of additional shares of
common stock upon conversion or, in lieu thereof, we may in
certain circumstances elect to adjust the conversion rate and
related conversion obligation so that shares of our
Series B preferred stock are converted into shares of the
acquiring or surviving company, in each case as described in the
certificate of designation.
The adjustment of the conversion price of the Series B
preferred stock is to prevent dilution of the interests of the
holders of the Series B preferred stock, including on
account of the following:
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Issuances of common stock as a dividend or distribution to
holders of our common stock;
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Common stock share splits or share combinations;
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Issuances to holders of our common stock of any rights, warrants
or options to purchase our common stock for a period of less
than 60 days; and
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Distributions of assets, evidences of indebtedness or other
property to holders of our common stock.
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Shares of our Series B preferred stock will not be
redeemable by us, except in the case of a fundamental change (as
described below and in the certificate of designation) whereby
holders may require us to purchase all or part of their shares
at a redemption price equal to 100% of the liquidation
preference of the shares of Series B preferred stock to be
repurchased, plus accrued and unpaid dividends, if any. We may,
at our option, elect to pay the redemption price in cash or, in
shares of our common stock valued at a discount of 5% from the
market price of shares of our common stock, or any combination
thereof. Notwithstanding the foregoing, we may only pay such
redemption price in shares of our common stock that are
registered under the Securities Act of 1933 and eligible for
immediate sale in the public market by non-affiliates of
FuelCell.
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Redemption by holders of the Series B preferred stock can
only occur upon a fundamental change, which we do not consider
to be probable at this time. Accordingly, future adjustments of
the redemption price will only be made if and when a fundamental
change is considered probable.
A fundamental change will be deemed to have occurred
if any of the following occurs:
(1) any person or group is or
becomes the beneficial owner, directly or indirectly, of 50% or
more of the total voting power of all classes of our capital
stock then outstanding and normally entitled to vote in the
election of directors;
(2) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by our
Board of Directors or whose nomination for election by our
shareholders was approved by a vote of two-thirds of our
directors then still in office who were either directors at the
beginning of such period or whose election of nomination for
election was previously so approved) cease for any reason to
constitute a majority of our directors then in office;
(3) the termination of trading of our common stock on the
Nasdaq Stock Market and such shares are not approved for trading
or quoted on any other U.S. securities exchange; or
(4) we consolidate with or merge with or into another
person or another person merges with or into us or the sale,
assignment, transfer, lease, conveyance or other disposition of
all or substantially all of our assets and certain of our
subsidiaries, taken as a whole, to another person and, in the
case of any such merger or consolidation, our securities that
are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of our voting stock
are changed into or exchanged for cash, securities or property,
unless pursuant to the transaction such securities are changed
into securities of the surviving person that represent,
immediately after such transaction, at least a majority of the
aggregate voting power of the voting stock of the surviving
person.
Notwithstanding the foregoing, holders of shares of
Series B preferred stock will not have the right to require
us to repurchase their shares if either:
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the last reported sale price of shares of our common stock for
any five trading days within the 10 consecutive trading days
ending immediately before the later of the fundamental change or
its announcement equaled or exceeded 105% of the conversion
price of the shares of Series B preferred stock immediately
before the fundamental change or announcement;
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at least 90% of the consideration, excluding cash payments for
fractional shares and in respect of dissenters appraisal
rights, in the transaction constituting the fundamental change
consists of shares of capital stock traded on a
U.S. national securities exchange or which will be so
traded or quoted when issued or exchanged in connection with a
fundamental change and as a result of the transaction, shares of
Series B preferred stock become convertible into such
publicly traded securities; or
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in the case of number 4 above of a fundamental change event, the
transaction is effected solely to change our jurisdiction of
incorporation.
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Voting
Holders of shares of our Series B preferred stock have no
voting rights unless (1) dividends on any shares of our
Series B preferred stock or any other class or series of
stock ranking on a parity with the shares of our Series B
preferred stock with respect to the payment of dividends shall
be in arrears for dividend periods, whether or not consecutive,
containing in the aggregate a number of days equivalent to six
calendar quarters or (2) we fail to pay the repurchase
price, plus accrued and unpaid dividends, if any, on the
fundamental change repurchase date for shares of our
Series B preferred stock following a fundamental change (as
described in the certificate of designation for the
Series B preferred stock). In each such case, the holders
of shares of our Series B preferred stock (voting
separately as a class with all other series of other preferred
stock on parity with our Series B preferred stock upon
which like voting rights have been conferred and are
exercisable, if any) will be entitled to vote for the election
of two directors in addition to those directors on
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the board of directors at such time at the next annual meeting
of shareholders and each subsequent meeting until the repurchase
price or all dividends accumulated on the shares of our
Series B preferred stock have been fully paid or set aside
for payment. The term of office of all directors elected by the
holders of shares of our Series B preferred stock will
terminate immediately upon the termination of the right of
holders of shares of our Series B preferred stock to vote
for directors.
So long as any shares of our Series B preferred stock
remain outstanding, we will not, without the consent of the
holders of at least two-thirds of the shares of our
Series B preferred stock outstanding at the time (voting
separately as a class with all other series of preferred stock,
if any, on parity with our Series B preferred stock upon
which like voting rights have been conferred and are
exercisable) issue or increase the authorized amount of any
class or series of shares ranking senior to the outstanding
shares of our Series B preferred stock as to dividends or
upon liquidation. In addition, we will not, subject to certain
conditions, amend, alter or repeal provisions of our certificate
of incorporation, including the certificate of designation
relating to our Series B preferred stock, whether by
merger, consolidation or otherwise, so as to adversely amend,
alter or affect any power, preference or special right of the
outstanding shares of our Series B preferred stock or the
holders thereof without the affirmative vote of not less than
two-thirds of the issued and outstanding shares of our
Series B preferred stock.
Anti-Takeover
Provisions
Provisions
of our Certificate of Incorporation and By-Laws
A number of provisions of our certificate of incorporation and
by-laws concern matters of corporate governance and the rights
of shareholders. Some of these provisions, including, but not
limited to, the inability of shareholders to take action by
unanimous written consent, supermajority voting provisions with
respect to any amendment of voting rights provisions, the
filling of vacancies on the board of directors by the
affirmative vote of a majority of the remaining directors, and
the ability of the board of directors to issue shares of
preferred stock and to set the voting rights, preferences and
other terms thereof, without further shareholder action, may be
deemed to have anti-takeover effect and may discourage takeover
attempts not first approved by the board of directors, including
takeovers which shareholders may deem to be in their best
interests. If takeover attempts are discouraged, temporary
fluctuations in the market price of shares of our common stock,
which may result from actual or rumored takeover attempts, may
be inhibited. These provisions, together with the ability of the
board of directors to issue preferred stock without further
shareholder action, could also delay or frustrate the removal of
incumbent directors or the assumption of control by
shareholders, even if the removal or assumption would be
beneficial to our shareholders. These provisions could also
discourage or inhibit a merger, tender offer or proxy contest,
even if favorable to the interests of shareholders, and could
depress the market price of our common stock. The board of
directors believes these provisions are appropriate to protect
our interests and the interests of our shareholders. The board
of directors has no present plans to adopt any further measures
or devices which may be deemed to have an anti-takeover
effect.
Delaware
Anti-Takeover Provisions
We are subject to Section 203 of the Delaware General
Corporation Law, which prohibits a publicly-held Delaware
corporation from engaging in a business combination,
except under certain circumstances, with an interested
shareholder for a period of three years following the date
such person became an interested shareholder unless:
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before such person became an interested shareholder, the board
of directors of the corporation approved either the business
combination or the transaction that resulted in the interested
shareholder becoming an interested shareholder;
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upon the consummation of the transaction that resulted in the
interested shareholder becoming an interested shareholder, the
interested shareholder owned at least 85 percent of the
voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares held by directors who
are also officers of the corporation and shares held by employee
stock plans in which employee
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participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
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at or following the time such person became an interested
shareholder, the business combination is approved by the board
of directors of the corporation and authorized at an annual or
special meeting of shareholders (and not by written consent) by
the affirmative vote of the holders of at least
662/3 percent
of the outstanding voting stock of the corporation which is not
owned by the interested shareholder.
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The term interested shareholder generally is defined
as a person who, together with affiliates and associates, owns,
or, within the three years prior to the determination of
interested shareholder status, owned, 15 percent or more of
a corporations outstanding voting stock. The term
business combination includes mergers, asset or
stock sales and other similar transactions resulting in a
financial benefit to an interested shareholder. Section 203
makes it more difficult for an interested
shareholder to effect various business combinations with a
corporation for a three-year period. The existence of this
provision would be expected to have an anti-takeover effect with
respect to transactions not approved in advance by the board of
directors, including discouraging attempts that might result in
a premium over the market price for the shares of our common
stock held by shareholders. A Delaware corporation may opt
out of Section 203 with an express provision in its
original certificate of incorporation or any amendment thereto.
Our certificate of incorporation does not contain any such
exclusion.
Listing
on the Nasdaq Global Market
Our common stock is listed on the Nasdaq Global Market under the
symbol FCEL.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock and
preferred stock is Continental Stock Transfer & Trust
Company, New York, New York.
PLAN OF
DISTRIBUTION
We may sell the securities from time to time pursuant to
underwritten public offerings, negotiated transactions, block
trades or a combination of these methods. We may sell the
securities (1) through underwriters or dealers,
(2) through agents
and/or
(3) directly to one or more purchasers. We may distribute
the securities from time to time in one or more transactions:
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at a fixed price or prices, which may be changed;
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at market prices prevailing at the time of sale;
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at prices related to such prevailing market prices; or
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at negotiated prices.
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We may solicit directly offers to purchase the securities being
offered by this prospectus. We may also designate agents to
solicit offers to purchase the securities from time to time. We
will name in a prospectus supplement any agent involved in the
offer or sale of our securities.
If we utilize a dealer in the sale of the securities being
offered by this prospectus, we will sell the securities to the
dealer, as principal. The dealer may then resell the securities
to the public at varying prices to be determined by the dealer
at the time of resale.
If underwriters are used in the sale of any the securities, the
securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the
time of sale. The securities may be either offered to the public
through underwriting syndicates represented by managing
underwriters, or directly by underwriters. Generally, the
underwriters obligations to purchase the securities
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will be subject to certain conditions precedent. The
underwriters will be obligated to purchase all of the securities
if they purchase any of the securities.
We may sell the securities through agents from time to time. The
applicable prospectus supplement will name any agent involved in
the offer or sale of the securities and any commissions paid to
them. Generally, any agent will be acting on a best efforts
basis for the period of its appointment. In addition, we may
enter into derivative, sale or forward sale transactions with
third parties, or sell securities not covered by this prospectus
to third parties in privately negotiated transactions. If the
applicable prospectus supplement indicates, in connection with
such transaction, the third parties may, pursuant to this
prospectus and the applicable prospectus supplement, sell the
securities covered by this prospectus and the applicable
prospectus supplement, including in short sale transactions. If
so, the third party may use securities borrowed from us or
others to settle such sales and may use securities received from
us or others to settle those sales to close out any related
short positions. The third party in such sale transactions will
be an underwriter and will be identified in the applicable
prospectus supplement (or a post-effective amendment). We may
also loan or pledge the securities covered by this prospectus
and the applicable prospectus supplement to third parties, who
may sell the loaned securities or, in an event of default in the
case of a pledge, sell the pledged securities pursuant to this
prospectus and the applicable prospectus supplement.
The Underwriters, broker-dealers and agents that participate in
the distribution of the securities may be deemed to be
underwriters as defined by the Securities Act. Any
commissions paid or any discounts or concessions allowed to any
such persons, and any profits they receive on resale of the
securities, may be deemed to be underwriting discounts and
commissions under the Securities Act.
Agents, underwriters, and dealers may be entitled under relevant
agreements with us to indemnification by us against certain
liabilities, including liabilities under the Securities Act, or
to contribution with respect to payments which such agents,
underwriters and dealers may be required to make in respect
thereof. The terms and conditions of any indemnification or
contribution will be described in the applicable prospectus
supplement.
Underwriters, broker-dealers or agents may receive compensation
in the form of commissions, discounts or concessions from us.
Underwriters, broker-dealers or agents may also receive
compensation from the purchasers of the securities for whom they
act as agents or to whom they sell as principals, or both.
Compensation as to a particular underwriter, broker-dealer or
agent might be in excess of customary commissions and will be in
amounts to be negotiated in connection with transactions
involving the securities. In effecting sales, broker-dealers
engaged by us may arrange for other broker-dealers to
participate in the resales. Maximum compensation to any
underwriters, dealers or agents will not exceed any applicable
NASD limitations.
Underwriters or agents may purchase and sell the securities in
the open market. These transactions may include over-allotments,
stabilizing transactions, syndicate covering transactions and
penalty bids. Over-allotments involve sales in excess of the
offering size, which creates a short position. Stabilizing
transactions consist of bids or purchases for the purpose of
preventing or retarding a decline in the market price of the
securities and are permitted so long as the stabilizing bids do
not exceed a specified maximum. Syndicate covering transactions
involve the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short
position created in connection with an offering. The
underwriters or agents also may impose a penalty bid, which
permits them to reclaim selling concessions allowed to syndicate
members or certain dealers if they repurchase the securities in
stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the
securities, which may be higher than the price that might
otherwise prevail in the open market. These activities, if
begun, may be discontinued at any time. These transactions may
be effected on any exchange on which the securities are traded,
in the
over-the-counter
market or otherwise.
Except as indicated in the applicable prospectus supplement, the
securities are not expected to be listed on any securities
exchange, except for our common stock, which is quoted on the
Nasdaq Global Market under the symbol FCEL, and no
underwriters will be obligated to make a market in these
securities. We cannot predict the activity or liquidity of any
trading in these securities.
33
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation provides that none of our
directors will be personally liable to us or our shareholders
for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation
thereof is not permitted under the Delaware General Corporation
Law. Our by-laws provide for indemnification of our officers and
directors to the fullest extent permitted by applicable law.
Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to directors, officers or
controlling persons of FuelCell pursuant to the Certificate of
Incorporation, Bylaws or applicable law, or otherwise, we have
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore
unenforceable.
LEGAL
MATTERS
The validity of the securities offered hereby has been passed
upon for us by Robinson & Cole LLP, Stamford,
Connecticut.
EXPERTS
Our consolidated financial statements as of October 31,
2006 and 2005, and for each of the three years in the period
ended October 31, 2006, incorporated by reference in this
prospectus and in the registration statement of which this
prospectus is a part, from our Annual Report on
Form 10-K
for the year ended October 31, 2006, have been audited by
KPMG LLP, independent registered public accounting firm, as
stated in their report, and have been so incorporated in
reliance upon the report given on their authority as experts in
accounting and auditing. The audit report covering the
October 31, 2006 consolidated financial statements refers
to a change in the method of accounting for share-based payments.
34
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (SEC)
a registration statement on
Form S-3
under the Securities Act with respect to our securities offered
hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information
set forth in the registration statement or the exhibits and
schedules filed therewith. We have omitted certain parts of the
registration statement as permitted by the rules and regulations
of the SEC. For further information about us and our securities
offered hereby, reference is made to the registration statement
and the exhibits and schedules filed therewith. Statements
contained in this prospectus regarding the contents of any
contract or any other document that is filed as an exhibit to
the registration statement are not necessarily complete, and
each such statement is qualified in all respects by reference to
the full text of such contract or other document filed as an
exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules filed
therewith may be inspected without charge at the public
reference room maintained by the SEC, located at 100 F Street,
N.E., Washington, D.C. 20549, and copies of all or any part
of the registration statement may be obtained from such offices
upon the payment of the fees prescribed by the SEC. Please call
the SEC at
1-800-SEC-0330
for further information about the public reference room. The SEC
also maintains an Internet web site that contains reports, proxy
and information statements and other information regarding
registrants that file electronically with the SEC. The address
of the site is http://www.sec.gov.
We are subject to the informational requirements of the
Securities Exchange Act of 1934 and, therefore, we file annual,
quarterly and current reports, proxy statements and other
information with the SEC. Such periodic reports, proxy
statements and other information are available for inspection
and copying at the public reference room and web site of the SEC
referred to above. Our common stock is quoted on the Nasdaq
Global Market, and you may also inspect and copy our SEC filings
at the offices of the National Association of Securities
Dealers, Inc. located at 1735 K Street, N.W.,
Washington, D.C. 20006.
You should rely only on the information provided in this
prospectus and the registration statement. We have not
authorized anyone else to provide you with different
information. Our securities are not being offered in any state
where the offer is not permitted. You should assume that the
information in this prospectus is accurate only as of the dates
of those documents. Our business, financial condition, results
of operations and prospects may have changed since those dates.
INCORPORATION
BY REFERENCE
The Securities and Exchange Commission (SEC) allows us to
incorporate by reference information that we file
with it, which means that we can disclose important information
to you by referring you to those documents. The information
incorporated by reference is an important part of this
prospectus. Information in this prospectus supersedes
information incorporated by reference that we filed with the SEC
prior to the date of this prospectus, while information that we
file later with the SEC will automatically update and supersede
this information. We incorporate by reference into this
registration statement and prospectus the documents listed
below, and any future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
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1.
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Our Annual Report on
Form 10-K
for the fiscal year ended October 31, 2006;
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2.
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Our Proxy for our shareholders meeting on March 28,
2006, filed on February 17, 2006;
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3.
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Our Current Reports on
Form 8-K
filed December 19, 2006 and January 16, 2007; and
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4.
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The description of our common stock set forth in our
registration statement on Form
8-A, filed
with the SEC on June 6, 2000, including any amendments or
reports filed for the purposes of updating this description.
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We will furnish without charge to you, on written or oral
request, a copy of any or all of the documents incorporated by
reference, including exhibits to these documents. You should
direct any requests for documents to FuelCell Energy, Inc.,
Attention: Corporate Secretary, 3 Great Pasture Road, Danbury,
Connecticut 06813, telephone:
(203) 825-6000.
35
PROSPECTUS SUPPLEMENT
Sole Book-Running Manager
Lazard
Capital Markets
Co-Manager
canaccord
genuity
June , 2010.