Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
, D.C. 20549
FORM 10-K
(Mark One)
x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2010
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT
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For
the transition period from
to
Commission file
number: 1-34392
Plug Power Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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22-3672377
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(State or Other Jurisdiction
of Incorporation or Organization)
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(I.R.S. Identification
Number)
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968 ALBANY SHAKER ROAD
, LATHAM, NEW YORK 12110
(Address of Principal Executive Offices, including Zip
Code)
(518) 782-7700
(Registrant’s telephone number, including area
code)
Securities registered pursuant to Section 12(b)
of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $.01 per share
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The NASDAQ Capital Market
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Series A Junior Participating Cumulative
Preferred
Stock, par value $.01 per share
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The
NASDAQ Capital Market
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Securities registered pursuant to Section 12(g)
of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes
o
No
x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer,”
“non-accelerated filer,” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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o
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o
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x
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o
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Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
o
No
x
The aggregate market value of the voting and
non-voting common equity of the registrant held by non-affiliates of the
registrant on June 30, 2010 was $38,646,553.
As of March 29,
2011, 132,434,673 shares of the registrant’s common stock were issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Table of Contents
INDEX TO
FORM 10-K
2
Table of
Contents
PART I
Forward-Looking
Statements
The following discussion should be read in conjunction
with our accompanying Consolidated Financial Statements and Notes thereto
included within this Annual Report on Form 10-K. In addition to historical
information, this Annual Report on Form 10-K and the following discussion
contain statements that are not historical facts and are considered
forward-looking within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. These forward-looking statements contain projections
of our future results of operations or of our financial position or state other
forward-looking information. In some cases you can identify these statements by
forward-looking words such as “anticipate,” “believe,” “could,”
“continue,” “estimate,”
“expect,” “intend,” “may,”
“should,” “will,” “would,”
“plan,” “projected” or the negative of such words or
other similar words or phrases. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control and that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Investors are cautioned not to
unduly
rely on forward-looking statements because they involve risks and
uncertainties, and actual results may differ materially from those discussed as
a result of various factors, including, but not limited to: the risk that
we continue to incur
losses and might never achieve or maintain profitability, the risk that the
additional capital we expect we will need to raise to fund our operations
beyond the first quarter of
2012 may not be available;
our lack of extensive experience in manufacturing and
marketing products may impact our ability to manufacture and market products on
a profitable and large-scale commercial basis; the risk that
unit orders will not ship,
be installed and/or converted to
revenue, in whole or in part; the risk that pending orders may not convert to
purchase orders, in whole or in part; the risk that our continued failure to
comply with NASDAQ’s listing standards may severely limit our ability to
raise additional capital; the cost and timing of developing, marketing and
selling our products and our ability to raise the necessary capital to fund
such costs; the ability to achieve the forecasted gross margin on the sale of
our products; the actual net cash used for operating expenses may exceed the
projected net cash for operating expenses; the cost and availability of fuel
and fueling infrastructures for our products; market acceptance of our GenDrive
systems; our ability to establish and maintain relationships with third parties
with respect to product development, manufacturing,
distribution and servicing and the supply of key product
components; the cost and availability of components and parts for our products;
our ability to develop commercially viable products; our ability to reduce
product and manufacturing costs; our ability to successfully expand our product
lines; our ability to improve system reliability for our GenDrive systems;
competitive factors, such as price competition and competition from other
traditional and alternative energy companies; our
ability to protect our intellectual property; the cost of complying with
current and future federal, state and international governmental regulations;
and other risks and uncertainties discussed under Item IA—Risk Factors.
Readers should not place undue reliance on our forward-looking statements.
These forward-looking statements speak only as of the date on which the
statements were made and are not guarantees of future performance. Except as
may be required by applicable law, we do not undertake or intend to update any
forward-looking statements after the date of this Annual Report on Form 10-K.
Company Background
Plug
Power Inc., or the Company, is a leading provider of alternative energy
technology focused on the design, development, commercialization and
manufacture of fuel cell systems for the industrial off-road (forklift or
material handling) market. Plug Power has also developed products for the
back-up and stationary power markets worldwide. Effective April 1, 2010, the
Company was no longer considered a development stage enterprise since its principal
operations began to provide more than insignificant revenues as the Company
received orders from repeat customers, increased its customer base and had a
significant backlog. Prior to April 1, 2010, the Company was considered a
development stage enterprise because substantially all of our resources and
efforts were aimed at the discovery of new knowledge that could lead to
significant improvement in fuel cell reliability and durability, and the
establishment, expansion and stability of markets for our products.
3
We
are focused on proton exchange membrane, or PEM, fuel cell and fuel processing
technologies and fuel cell/battery hybrid technologies, from which multiple products
are available. A fuel cell is an electrochemical device that combines hydrogen
and oxygen to produce electricity and heat without combustion. Hydrogen is
derived from hydrocarbon fuels such as liquid petroleum gas (LPG), natural gas,
propane, methanol, ethanol, gasoline or biofuels. Hydrogen can also be obtained
from the electrolysis of water. Hydrogen can be purchased directly from
industrial gas providers or can be produced on-site at consumer locations.
We concentrate our efforts on developing, manufacturing
and selling our hydrogen-fueled PEM GenDrive
®
products on
commercial terms for industrial off-road (forklift or material handling)
applications, with a focus on multi-shift high volume manufacturing and high
throughput distribution sites.
We have
previously
invested in development and sales activities for low-temperature remote-prime
power GenSys
®
products and our GenCore
®
product, which
is a hydrogen fueled PEM fuel cell system to provide back-up power for critical
infrastructure. While Plug Power will continue to service and
support GenSys and/or GenCore products on a limited basis, our main focus is
our Gendrive product line.
The
Company sells its products worldwide, with a primary focus on North America,
through our direct product sales force, original equipment manufacturers (OEMs)
and their dealer networks. We sell to business, industrial and government
customers.
We
were organized in the State of Delaware on June 27, 1997 and became a
public company listed on the NASDAQ exchange on October 29, 1999. We were
originally a joint venture between Edison Development Corporation and
Mechanical Technology Incorporated. In 2007, we acquired all the issued and outstanding
equity of Cellex Power Products, Inc. (Cellex) and General Hydrogen Corporation
(General Hydrogen). Through these acquisitions, and our continued GenDrive
product development efforts, Plug Power became the first fuel cell company to
offer a complete suite of products; Class 1 - sit-down counterbalance trucks, Class 2
– stand-up reach trucks and Class 3 – rider pallet trucks.
The launch of our Class 2 product occurred in January of 2010.
Unless
the context indicates otherwise, the terms “Company,” “Plug
Power,” “we,” “our” or “us” as used
herein refers to Plug Power Inc. and its subsidiaries.
Business
Strategy
We
are committed to developing effective, economical and reliable fuel cell
products and services for businesses, government agencies and commercial
consumers. Building on our substantial fuel cell application and product
integration experience, we are focused on generating strong relationships with
customers who value increased reliability, productivity, energy security and a
sustainable future.
Our
business strategy leverages our unique fuel cell application and integration
knowledge to identify early adopter markets for which we can design and develop
innovative systems and customer solutions that provide superior value,
ease-of-use and environmental design.
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We
have made significant progress in our analysis of the material handling and
stationary power markets. We believe we have developed reliable products which
allow the end customers to eliminate incumbent power sources from their
operations, and realize their sustainability objectives through clean energy
alternatives.
Our
strategy is to focus our resources on the material handling market with
GenDrive, a superior alternative to lead-acid batteries. Our strategy also
includes the following objectives: decrease product costs by leveraging the
supply chain, lower manufacturing costs, improve system reliability, expand our
sales network to effectively reach more of our targeted customers and provide
customers with high-quality products, service and post-sales support experience.
Our
longer-term objectives are to deliver economic, social, and environmental
benefits in terms of reliable, clean, cost-effective fuel cell solutions and,
ultimately, sustainability.
We
believe continued investment in research and development is critical to the
development and enhancement of innovative products, technologies and services.
In addition to evolving our direct hydrogen fueled systems, we continue to
capitalize on our investment in power electronics, controls, software and
reforming technology.
Business
Organization
We
manage our business as a single enterprise, emphasizing shared learning across
end-user applications and common supplier/vendor relationships.
Products
We sell and continue to develop a range of fuel cell
products to replace lead-acid batteries in material handling vehicles and
industrial trucks for some of North America’s largest distribution and
manufacturing businesses. Our primary product line
is GenDrive®, a hydrogen fueled PEM fuel cell system to provide power
to industrial vehicles. We are focusing our efforts on material handling
applications (forklifts) at multi-shift high volume manufacturing and high
throughput distribution sites where our products and services provide a unique
combination of productivity, flexibility and environmental benefits. Plug Power
has introduced new GenDrive product offerings to augment our product suite and
allow full site conversions. During the year, we experienced add-on orders from Walmart, Coca-Cola,
Sysco and Central Grocers. We also received several other new orders from
various companies, some of which have not been publicly announced. We expect
continued sales momentum in 2011 with our key target customers.
In
2010, we repositioned the majority of our GenSys
business
to focus our resources on our continued success in
the material handling market. In furtherance of this objective, in October
2010, the Company licensed the intellectual property relating to its
stationary power products, GenCore and GenSys, to IdaTech plc on a non-exclusive
basis. Plug Power maintains ownership of, and the right to use, the
patents and other intellectual property licensed to IdaTech. As part of
the transaction, Plug Power also sold inventory, equipment and certain other
assets related to its stationary power business. Total consideration for
the licensing and assets was $5 million and was received during October 2010.
The consideration is subject to reduction by a maximum of $1 million in
the event that the Company does not deliver certain of the assets sold.
As of
December 31, 2010, $1.0 million is included in assets held for sale in the
consolidated balance sheets.
We continue to develop and
monitor future iterations of our products aligned with our evolving product
roadmap. Plug Power currently has 85% market share in the fuel cell powered
material handling industry and is transforming the US fuel cell manufacturing
industry into a globally competitive force that will lead to the export, rather
than the import, of these innovative energy products.
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Product
Support & Services
To
promote fuel cell adoption and maintain post-sale customer satisfaction, we
offer a range of service and support options. These options include
installation, commissioning, remote monitoring, product manuals, as well as
on-site technical support.
Additionally,
GenDrive product support and services may also include customer training and using
available lift truck dealer networks’ service personnel. Such
personnel may assist with the commissioning and installation of GenDrive
products and, in some cases, regularly scheduled preventative maintenance.
Markets/Geography
& Order Status
Our
commercial sales for GenDrive products are in the material handling market,
which primarily consist of large fleet, multi-shift operations in high-volume
manufacturing and high-throughput distribution centers. In 2010, all of our
GenDrive product installations were in North America.
We shipped
650 units and received 543 orders for our GenDrive product during the year
ending December 31, 2010. Backlog on December 31, 2010 was 527 units
representing approximately $12.8 million in billable value including
approximately $700,000 related to 20 GenDrive products that were awarded under
various government projects that were unfunded as of December 31, 2010. Backlog
on December 31, 2009 was 654 units representing approximately $15.6 million in
billable value which includes approximately $700,000 related to 20 GenDrive
products that were awarded under various government projects that were unfunded
as of December 31, 2009.
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GenDrive
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2010
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2009
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Product Shipments
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552
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131
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Lease Shipments
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98
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140
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Cancellations
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20
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-
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Orders
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543
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584
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Backlog
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527
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654
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Under
all product lines, we have accepted orders that require certain conditions or
contingencies to be satisfied prior to shipment, some of which are outside of
our control. Historically, shipments made against these orders generally occur
between ninety (90) days and twenty-four (24) months from the date of
acceptance of the order.
The
assembly of GenDrive products that we sell is performed at our manufacturing
facility in Latham, New York. Currently, the supply and manufacture of several
critical components used in our products are performed by sole-sourced
third-party vendors in the U.S. and Canada.
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We
intend to focus our efforts on developing, manufacturing and selling our
GenDrive products and do not expect to develop or manufacture GenSys or GenCore
products in the near term.
In
2010, to the extent of existing purchase commitments, we continued to
manufacture and support our GenCore
®
product, a hydrogen fueled
PEM fuel cell system to provide back-up power for critical infrastructure. We
received 2 orders during the year ending December 31, 2009. Backlog on December 31, 2009 was 10 units representing
approximately $130,000 in billable value. On February 23, 2009, our Distributor
Agreement with IST Telecom expired; 100 units that had been ordered pursuant to
this Distributor Agreement and in backlog were cancelled.
GenCore
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2010
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2009
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Shipments
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10
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31
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Cancellations
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-
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101
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Orders
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-
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2
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Backlog
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-
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10
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The
assembly of GenCore products that we sell is performed at our manufacturing
facility in Latham, New York. Currently, the supply and manufacture of several
critical components used in our products are performed by sole-sourced
third-party vendors in the U.S. and Canada.
Distribution,
Marketing and Strategic Relationships
We
have developed strategic relationships with well-established companies in key
areas including distribution, service, marketing, supply, technology
development and product development. We sell our products worldwide, with a
primary focus on North America, through our direct product sales force,
original equipment manufacturers (OEMs) and their dealer networks.
At December 31, 2010, contracts with two customers and
one federal government agency each accounted for 10% or more of total
consolidated revenues.
Competition
We are confronted by aggressive competition in all
areas of our business. The markets we address for motive power are
characterized by the presence of well-established battery and combustion
generator products in addition to several competing fuel cell companies.
Over the past several years, there has been price competition in these
markets. The principal competitive factors in the markets in which we
operate include price, product features,
including size and weight, relative price and performance, product quality and
reliability, design innovation, marketing and distribution capability, service
and support and corporate reputation.
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In
the material handling market, we believe our GenDrive products have an
advantage over lead-acid batteries for customers who run high-throughput
distribution centers with multi shift operations by offering increased
productivity with lower operational costs. However, we expect competition in
this space to intensify as competitors attempt to imitate our approach with
their own offerings. Some of these current and potential competitors have
substantial resources and may be able to provide such products and services at
little or no profit or even at a loss to compete with our offerings.
Intellectual
Property
We
believe that neither we nor our competitors can achieve a significant
proprietary position on the basic technologies currently used in PEM fuel cell
systems. However, we believe the design and integration of our system and
system components, as well as some of the low-cost manufacturing processes that
we have developed, are intellectual property that can be protected. Our
intellectual property portfolio covers among other things: fuel cell components
that reduce manufacturing part count; fuel cell system designs that lend
themselves to mass manufacturing; improvements to fuel cell system efficiency,
reliability and system life; and control strategies, such as added safety
protections and operation under extreme conditions. In general, our
employees are party to agreements providing that all inventions (whether
patented or not) made or conceived while an employee of Plug Power, which are
related to or result from work or research that Plug Power performs, will
remain the sole and exclusive property of Plug Power.
During
2010, the U.S. Patent and Trademark Office issued one new patent to the Company
and we currently have a total of 150 issued patents. We also have 21 U.S. patent applications pending. The number of pending patent applications decreased in 2010
as we continued our efforts to focus our intellectual property protection on our
current product offerings. Additionally, we have seven trademarks registered
with the U.S. Patent and Trademark Office.
Furthermore,
as of December 31, 2010 there were 26 pending U.S. patent applications filed on
behalf of Honda and one U.S. patent issued to Honda relating to joint
development work on the Home Energy Station (HES) and to which we have certain
rights.
In October 2010, the Company licensed the intellectual
property relating to its stationary power products, GenCore and GenSys, to
IdaTech plc on a non-exclusive basis. Plug Power maintains ownership of,
and the right to use, the patents and other intellectual property licensed to
IdeaTech. As part of the transaction, Plug Power also sold inventory,
equipment and certain other assets related to its stationary power
business. Total consideration for the licensing and assets was $5 million
and was received during October 2010. The consideration is subject to reduction
by a maximum of $1 million in the event that the Company does not deliver
certain of the assets sold.
As of December 31, 2010, $1.0 million is included in
assets held for sale in the consolidated balance sheets.
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Government
Regulation
We
believe that we will not be subject to existing federal and state regulatory
commissions governing traditional electric utilities and other regulated
entities. Our products and their installations are, however, subject to
oversight and regulation at the state and local level in accordance with state
and local statutes and ordinances relating to, among others, building codes,
fire codes, public safety, electrical and gas pipeline connections and hydrogen
siting. The level of regulation may depend, in part, upon where a system is
located. For example, the 2008 National Electrical Code (NEC) is a model code
written by the National Fire Protection Association, or NFPA, that governs the
electrical wiring of most homes, businesses and other buildings in the United States. The NEC has been adopted by local jurisdictions throughout the United States and is enforced by local officials, such as building and electrical
inspectors. Article 692 of the NEC governs the installation of stationary fuel
cell systems, such as our GenSys or GenCore products. Accordingly, all of our
stationary products installed in a jurisdiction that has adopted the NEC are
installed in accordance with Article 692.
In
addition, product safety standards have been established by the American
National Standards Institute (ANSI) covering the overall fuel cell system. When
in production, our GenCore product was certified by independent third-parties
such as the Canadian Standards Association (CSA International) to be in
compliance with such ANSI standards. Additionally, the F2 and F3 GenDrive
products are designed with the intent of meeting the requirements of UL 2267
“Fuel Cell Power Systems for Installation in Industrial Electric
Trucks” and NFPA 505
“Fire Safety Standard for Powered Industrial Trucks.” The
hydrogen tanks used in these systems have been either certified to ANSI/CSA
NGV2-2007 or designed to meet ISO/TS 15869 “Gaseous hydrogen and hydrogen
blends-Land vehicle fuel tanks.” We will continue to design our
GenDrive products to meet ANSI and/or other standards in 2011. Other than these
requirements, at this time we do not know what additional requirements, if any,
each jurisdiction will impose on our products or their installation. We also do
not know the extent to which any new regulations may impact our ability to
distribute, install and service our products. As we continue distributing our
systems to our target markets, the federal, state or local government entities
may seek to impose regulations or competitors may seek to influence regulations
through lobbying efforts.
Raw Materials
Although
most components essential to our business are generally available from multiple
sources, we currently obtain certain key components including, but not limited
to, fuel cell stack materials and energy storage devices, from single or
limited sources. In 2010, Plug Power signed a supply agreement with Ballard
Power Systems (Ballard) which continues through December 31, 2014. Under this
agreement, Ballard serves as the exclusive supplier of fuel cell stacks for
Plug Power’s GenDrive product line for North America.
We believe there are several component suppliers and
manufacturing vendors whose loss to the Company could have a material adverse
effect upon our business and financial condition. At this time, such vendors
include, but are not limited to, Ballard,
Air Squared, Inc. (Air Squared) and Citic GuoAn Mengguli Power Science &
Technology Co. Ltd. (MGL). We attempt to mitigate
these potential risks by working closely with these and other key suppliers on
product introduction plans, strategic inventories, coordinated product introductions
and internal and external manufacturing schedules and levels.
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Research and
Development
Because
the fuel cell industry is characterized by its early state of adoption, our
ability to compete successfully is heavily dependent upon our ability to ensure
a continual and timely flow of competitive products, services, and technologies
to the marketplace. We continue to develop new products and technologies and to
enhance existing products in the areas of cost, size, weight, and in supporting
service solutions in order to drive commercialization. We may expand the range
of our product offerings and intellectual property through licensing and/or
acquisition of third-party business and technology. Our research and
development expense totaled $12.9 million, $16.3 million and $35.0 million in
2010, 2009 and 2008, respectively. We also had cost of research and development
contract revenue of $6.4 million, $12.4 million and $21.5 million in 2010, 2009
and 2008, respectively. These expenses represent the cost of research and
development programs that are partially funded under cost reimbursement
research and development arrangements with third parties.
Employees
As of
December 31, 2010, we had 149 employees, which includes 133 full time
employees.
Financial
Information About Geographic Areas
Please
refer to our Geographic Information included in our Consolidated Financial
Statements and notes thereto included in Part II, Item 8: Financial Statements
and Supplementary Data of this Form 10-K.
Available
Information
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act are available free of charge,
other than an investor’s own internet access charges, on the
Company’s website with an internet address of www.plugpower.com as soon
as reasonably practicable after the Company electronically files such material
with, or furnishes it to the Securities and Exchange Commission (SEC). The
information contained on our website is not included as a part of, or
incorporated by reference into, this Annual Report on Form 10-K. The public may
read and copy any materials the Company files with the SEC at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The SEC’s
website address is http://www.sec.gov.
The following
risk
factors should be considered carefully in addition to the other information in
this Annual Report on Form 10-K. The occurrence of any of the
following material risks could harm our business and future results of
operations and could result in the trading price of our common stock declining
and a partial or complete loss of your investment. These risks are not the only
ones that we face. Additional risks not presently known to us or that we
currently consider immaterial may also impair our business operations and trading
price of our common stock. Except as mentioned under
“Quantitative and Qualitative Disclosure About Market Risk” and
except for the historical information contained herein, the discussion
contained in this
Annual Report on
Form 10-K contains “forward-looking statements,” within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act, that
involve risks and uncertainties. Please refer to the
section entitled “Forward-Looking Statements.”
10
We have incurred losses, anticipate
continuing to incur losses and might never achieve or maintain
profitability.
We
have not achieved profitability in any quarter since our formation and we will continue to incur net losses
until we can produce sufficient revenue to cover our costs. Our net losses were
approximately $50.3 million in 2006, $60.6 million in 2007, $121.7 million in
2008, $40.7 million in 2009 and $47.0 million in 2010. As of December 31, 2010,
we had an accumulated deficit of $727.3 million. We
anticipate that we will continue to incur losses until we can produce and sell
our products on a large-scale and cost-effective basis. Substantially all of our losses resulted from costs
incurred in connection with our operating expenses, research and development
expenses and from general and administrative costs associated with our
operations. We cannot guarantee when we will operate profitably, if ever. In
order to achieve profitability, among other factors, management must
successfully execute our planned path to profitability in the early adoption
markets on which we are focused, the hydrogen infrastructure that is needed to
support our growth readiness and cost efficiency must be available and cost
efficient, we must: 1) continue to shorten the
cycles in our product roadmap with
respect to: (a)
product reliability and performance
that
our customers
expect and
(b) successful introduction of
our products
into the market,
2)
accurately evaluate our markets for,
and react to, competitive threats in both other technologies (such as advanced
batteries) and our technology field, and
3)
we must
continue to lower our products’ build costs and lifetime service
costs. If we are unable to successfully take these
steps, we may never operate profitably, and, even if we do achieve profitability, we may be unable
to sustain or increase our profitability in the future.
We
expect we will need to raise additional capital to fund our operations beyond the
first quarter of 2012 and such capital may not be available to us, in which
case we may need to reduce and/or cease our operations.
Since inception, we have funded our operations
primarily through private and public offerings of our common and preferred
stock, borrowings under our line of credit and maturities and sales of our
available-for-sale securities. Because we may not have adequate capital to fund
our operations beyond the first quarter of 2012, during 2011 we expect we will
need to raise additional funds for our operations through equity or debt
financings, strategic alliances or otherwise. Our future liquidity and capital
requirements will depend upon numerous factors, including the following:
the timing and quantity of product
orders and shipments, the extent to which we can effectuate the May 2010
restructuring plan;
the timing and amount of our
operating expenses;
the timing and costs of working
capital needs;
the timing and costs of building a sales
base; the timing and costs of developing marketing and
distribution channels;
the timing and costs of product
service requirements;
the timing and costs of hiring and
training product staff;
the extent to which our products
gain market acceptance;
the timing and costs of
product development and introductions; the extent of our
ongoing and any new research and development programs; and
changes in our strategy or our planned activities.
If we are unable to obtain additional capital prior to the end
of 2011, we may not be able to sustain our future operations and may be
required to delay, reduce and/or cease our operations and/or seek bankruptcy
protection. If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders could
be significantly diluted, and these newly issued securities may have rights,
preferences or privileges senior to those of existing stockholders. If we incur
additional debt, a substantial portion of our operating cash flow may be
dedicated to the payment of principal and interest on such indebtedness, thus
limiting funds available for our business activities. The terms of any debt
securities issued could also impose significant restrictions on
11
our operations. We cannot
assure you that any necessary additional financing will be available on terms
favorable to us, or at all. Given the difficult current economic environment,
we believe that it could be difficult to raise additional funds and there can
be no assurance as to the availability of additional financing or the terms
upon which additional financing may be available. In recent years and months,
the stock market in general, and the NASDAQ Capital Market and the market for
smaller capitalized companies in particular, have experienced significant price
and volume fluctuations that may have been unrelated or disproportionate to the
operating performance of the listed companies. Broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance, and may adversely impact our ability to raise
additional funds. Similarly, if our common stock is delisted from the NASDAQ
Capital Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant
licenses on terms that are not favorable to us. If adequate funds are not
available prior to the end of 2011, we may be required to reduce, delay and/or
cease our operations and/or seek bankruptcy protection. Additionally, even if
we raise sufficient capital through equity or debt financing, strategic
alliances or otherwise, there can be no assurances that the revenue or capital
infusion will be sufficient to enable us to develop our business to a level
where it will be profitable or generate positive cash flow.
We do not have extensive experience in
manufacturing and marketing our products and, as a result, may be unable to sustain
a profitable commercial market for our new and existing products.
From 1997 to 2008, we have
focused primarily on research and
development of fuel cell systems. In the latter half of
2008, Plug Power shifted to focus the viable commercialization of our fuel cell
products. In 2000, we completed construction of our 50,000
square foot manufacturing facility and have continued to develop our
manufacturing capabilities and processes. While we have been
manufacturing our products in small quantities for several years, we do not
have extensive experience in mass-manufacturing and marketing our products.
We do not know whether or when we will
be able to develop efficient, low-cost manufacturing capabilities and processes
that will enable us to manufacture our products in commercial quantities while
meeting the quality, price, engineering, design, and production standards
required to profitably market our products. Even if we are successful in
developing our manufacturing capabilities and processes, we do not know whether
we will do so in time to meet our product commercialization schedule or to
satisfy the requirements of our distributors or customers. Before
investing in our common stock, you should consider the challenges, expenses and
difficulties that we will face as an emerging technology company seeking to
sustain a viable commercial market for our new and existing products. If we are unable to sustain a viable commercial market for
our products, that failure would have a material adverse effect on our
business, prospects, financial condition and results of operations.
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Our purchase orders may not ship, be commissioned or
installed, or convert to revenue, in whole or in part; and our pending orders
may not convert to purchase orders, in whole or in part; and our pending orders
may not convert to purchase orders, in whole or in part
,
which may have a material adverse effect on our revenue and cash flow.
We have accepted orders from certain customers, which
may include firm orders, stocking orders and orders that require certain
conditions or contingencies to be satisfied prior to shipment or prior to
commissioning or installation, some of which are outside of our control.
Historically, shipments made against these orders have generally occurred
between ninety (90) days and twenty-four (24) months from the date of
acceptance of the order. Orders received during the year ended
December 31, 2010 totaled 543 units. Backlog on December 31, 2010 was
527 units. Of the unit orders in backlog on December 31, 2010, orders for 144
units were older than 12 months. The time periods from receipt of an order to
shipment date and installation vary widely and are determined by a number of
factors, including the terms of the customer contract and the customer’s
deployment plan. There may also be product redesign or modification
requirements that must be satisfied prior to shipment of units under certain of
our agreements. If the redesigns or modifications are not completed, some or
all of our orders may not ship or convert to revenue. We also have publicly
discussed anticipated, pending orders with potential customers; however, those
potential customers may require certain conditions or contingencies to be satisfied
prior to issuing a purchase order to the Company, some of which are outside of
our control. Such conditions or contingencies that may be required to be
satisfied before the Company’s receipt of a purchase order may include,
but are not limited to, successful product demonstrations or field
trials. Some conditions or contingencies that are out of our control may
include, but are not limited to, government tax policy, government funding
programs, and government incentive programs. Additionally, some
conditions and contingencies may extend for several years. We may have to
compensate customers, by either reimbursement, forfeiting portions of
associated revenue, or other methods depending on the terms of the customer
contract, based on the failure on any of these conditions or
contingencies. This could have an adverse impact on our revenue and cash
flow.
A continued failure to
comply with NASDAQ’s listing standards could result in the delisting of
our common stock from the NASDAQ Capital Market and severely limit the ability
to trade our common stock
and to raise additional capital
.
As a result of a failure to comply with NASDAQ’s
$1.00 minimum bid price requirement, effective as of June 7, 2010, our common
stock listing was transferred to the NASDAQ Capital Market from the NASDAQ
Global Market. The Company was given 180 calendar days, or until December 6,
2010, to regain compliance with the minimum bid price requirement, but failed
to do so. On December 7, 2010, the NASDAQ Listing Qualifications Panel stayed a
delisting action pending the Company’s request for a hearing before the
NASDAQ Hearing Panel on January 20, 2011. After the hearing, on February 1,
2011, the NASDAQ Hearing Panel granted Plug Power a final extension, until June
30, 2011, to evidence a closing bid price of $1.00 or more for a minimum of ten
consecutive business days. If Plug Power does not regain compliance with the
minimum bid price requirement by June 6, 2011, the Hearing Panel will issue a
final determination to delist the Company’s shares and suspend trading of
the Company’s shares on the NASDAQ market effective on the second
business day from the date of the final determination. If our common stock is
delisted and we are unable to list on another exchange, the ability to trade
and effectuate public offerings
in our common stock would
be severely, if not completely, limited.
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Our stock price has been and could remain volatile
,
which could adversely affect the price of our stock, our ability to raise
additional capital and/or cause us to be subject to securities class action
litigation.
The
market price of our common stock has historically experienced and may continue
to experience significant volatility. In 2010, the market price of our common
stock fluctuated from a high of $0.74 per share in the first quarter of 2010 to
a low of $0.36 per share in the second quarter of 2010. Our progress in
developing and commercializing our products, our quarterly operating results,
announcements of new products by us or our competitors, our perceived
prospects, changes in securities’ analysts’ recommendations or
earnings estimates, changes in general conditions in the economy or the
financial markets, adverse events related to our strategic relationships,
significant sales of our common stock by existing stockholders, including one
or more of our strategic partners, and other developments affecting us or our
competitors could cause the market price of our common stock to fluctuate
substantially. In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. This volatility has affected the
market prices of securities issued by many companies for reasons unrelated to
their operating performance and may adversely affect the price of our common
stock. Such market price volatility could adversely affect our ability to raise
additional capital. In addition, we may be subject to additional securities
class action litigation as a result of volatility in the price of our common
stock, which could result in substantial costs and diversion of
management’s attention and resources and could harm our stock price,
business, prospects, results of operations and financial condition.
The loss of one or more of our
key
supply partners could have a
material adverse effect on our business.
We have certain key suppliers, such as
Ballard, Air Squared and MGL, that we rely on for
critical components in our products and there are numerous other components for
our products that are sole sourced. A supplier’s failure to develop
and supply components in a timely manner or at all, or to develop or supply
components that meet our quality, quantity or cost requirements, or our
inability to obtain substitute sources of these components on a timely basis or
on terms acceptable to us, could harm our ability to manufacture our products.
In addition, to the extent that our supply partners use technology or
manufacturing processes that are proprietary, we may be unable to obtain
comparable components from alternative sources.
OJSC
(Third Generation Company of the Wholesale Electricity Market) (OGK-3) has
substantial control over us and could limit stockholders’ ability to
influence the outcome of key transactions, including a change of control.
OGK-3 owns
approximately 33.7% of the outstanding shares of our common stock. As a result, OGK-3 can
significantly influence or control certain matters requiring approval by our
stockholders, including the approval of mergers or other extraordinary
transactions. The interests
of OGK‑3
may differ
from the interest of the Company and its other stockholders, and
OGK‑3 may vote in a way which may be adverse to the interests of the
Company and its other stockholders. This concentration of ownership may have
the effect of delaying, preventing or deterring key transactions such as a change of control of our
Company, could deprive our stockholders of an opportunity to receive a premium
for their common stock as part of a sale of our Company and might ultimately
affect the market price of our common stock.
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The sale by OGK-3 of a substantial number of shares of the Company’s
common
stock
could
cause the market price of our common
stock
to decline and adversely affect our ability to remain
listed on an exchange and/or raise capital through equity offerings.
OGK-3
holds 44,626,939 shares of common stock
as of March 29, 2011, which represent in the aggregate
approximately 33.7% of the Company’s outstanding common stock.
In 2010, OGK‑3 announced an
intention to sell some or all of its Plug Power Inc. common stock. If
OGK-3 or its affiliates sell substantial amounts of our common stock in the
public market, the market price of our common stock could decrease
significantly. The overhang
caused by OGK-3’s announced plan to sell shares of common stock could
also depress the trading price of our common stock. A decline in the price of
shares of our common stock might impede our ability to continue to remain listed on the NASDAQ Capital Market and
raise capital through the issuance of additional shares of our common stock or
other equity securities.
The dependency of our GenDrive product
on hydrogen and
our lack of control
over or limited availability of such fuel
may adversely impact our sales and
product deployment.
Our
products depend largely on the availability of natural gas and hydrogen gas. We are dependant upon hydrogen suppliers for success
with the profitable commercialization of our GenDrive product. Although
we will continue to work with hydrogen suppliers to mutually agree on terms for
our customers, including, but not limited to, price of the hydrogen molecules,
liquid hydrogen, hydrogen infrastructure and service costs, to the benefit of
our GenDrive product value proposition, ultimately we have no control over such
third parties.
If these fuels are not
readily available or if their prices are such that energy produced by our
products costs more than energy provided by other sources, then our products
could be less attractive to potential users and our products’ value
proposition could be negatively affected. If hydrogen suppliers elect
not to participate in the material handling market, there may be an insufficient supply of hydrogen for this market
that could negatively affect our sales and deployment of our GenDrive product.
A robust
market for our
GenDrive
products may never develop or may take longer
to develop than we anticipate.
We
believe we have identified viable markets for our
GenDrive
products, however our products represent emerging technologies,
and we do not know the extent to which our targeted customers will want to
purchase them and whether end-users will want to use them. If
a sizable market fails to develop or develops more slowly
than we anticipate, we may be unable to recover the losses we will have
incurred to develop our products and may be unable to achieve profitability.
The development of
a sizable
market for our products may be impacted by many factors which are out of our
control, including: (i) the cost competitiveness of our products; (ii) the
future costs of natural gas, hydrogen and other fuels expected to be used by
our products; (iii) consumer reluctance to try a new product; (iv) consumer
perceptions of our products’ safety; (v) regulatory requirements; (vi)
barriers to entry created by existing energy providers; and (vii) the emergence
of newer, more competitive technologies and products.
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We
may be unable to establish or maintain relationships with third parties for
certain aspects of continued product development, manufacturing, distribution
and servicing and the supply of key components for our products.
We will need to maintain and may need to enter into
additional strategic relationships in order to complete our current product
development and commercialization plans. We will also require partners to
assist in the sale, servicing and supply of components for our anticipated
products, which are in development. If we are unable to identify or enter into
satisfactory agreements with potential partners, including those relating to
the distribution, service and support of our anticipated products, we may not
be able to complete our product development and commercialization plans on
schedule or at all. We may also need to scale back these plans in the absence
of needed partners, which would adversely affect our future prospects for
development and commercialization of future products. In addition, any
arrangement with a strategic partner may require us to issue a significant
amount of equity securities to the partner, provide the partner with
representation on our board of directors and/or commit significant financial resources
to fund our product development efforts in exchange for their assistance or the
contribution to us of intellectual property. Any such issuance of equity
securities would reduce the percentage ownership of our then current
stockholders. While we have entered into relationships with suppliers of some
key components for our products, we do not know when or whether we will secure
supply relationships for all required components and subsystems for our
products, 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 relationships with
entities which can develop or supply the required components for our products and
provide the required distribution and servicing support. Additionally, the
agreements governing our current relationships allow for termination by our
partners under certain circumstances, some of which are beyond our control. If
any of our current strategic partners were to terminate any of its agreements
with us, there could be a material adverse impact on the continued development
and profitable commercialization of our products and the operation of our
business, financial condition, results of operations and prospects.
Unless we
lower the cost of our
GenDrive products and demonstrate
their reliability
, our product
sales could be adversely affected.
The initial capital cost of our
GenDrive products is currently higher than many established
competing technologies. If we are unable to develop and continue the current
development of products that are competitive with competing technologies in
terms of price, reliability and longevity, consumers will be unlikely to buy
our products. The profitability of our products depends largely on material and
manufacturing costs. We cannot guarantee that we will be able to lower these
costs to the level where we will be able to produce a competitive product or
that any product produced using lower cost materials and manufacturing
processes will not suffer from a reduction in performance, reliability and
longevity.
We
face risks associated with our plans to market, distribute and service our GenDrive
products internationally.
We intend to market, distribute, sell and service our GenDrive
products internationally. We have limited experience developing and
manufacturing our products to comply with the commercial and legal requirements
of international markets. Our success in international markets will depend, in
part, on our ability and that of our partners to secure relationships with
foreign sub-distributors, and our ability to manufacture
products that meet foreign regulatory and commercial requirements.
Additionally, our planned international operations are subject to other
inherent risks, including potential difficulties in enforcing contractual
obligations and intellectual property rights in foreign countries and
fluctuations in currency exchange rates. Also, to the extent our operations and
assets are located in foreign countries, they are potentially subject to
nationalization actions over which we will have no control.
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Delays
in our product development could have a material impact on the profitable commercialization
of our products.
If we experience delays in meeting our development
goals, our products exhibit technical defects, or if we are unable to meet cost
or performance goals, including power output, useful life and reliability, the profitable
commercialization of our products will be delayed. In this event, potential
purchasers of our products may choose alternative technologies and any delays
could allow potential competitors to gain market advantages. We cannot assure
you that we will successfully meet our commercialization schedule in the
future.
We have not developed and produced certain products
that we have agreed to sell to some of our
customers
, which may give such customers the right to terminate
their agreements with us.
We have not developed or produced certain products
that are required by some of our sales and customer agreements.
As of December 31, 2010, 78 of our
backlog orders worth approximately $2.1 million of product revenues have not
been developed or produced. There can be no assurance that we will complete
development of products meeting specifications required by our sales and
customer agreements and deliver them on schedule. Pursuant to certain
agreements, the customers have the right to provide notice to us if, in their
good faith judgment, we have materially deviated from the agreement. Should a
customer provide such notice, and we cannot mutually agree to a modification to
the agreement, then the customer may have the right to terminate the agreement,
which could adversely affect our future business.
We may never complete the research and development of
certain commercially viable products
, which may adversely affect our revenue,
profitability and result in possible warranty claims.
Other than certain products within our GenCore, GenSys
and GenDrive product families, which we believe to be commercially viable at
this time, we do not know when or whether we will successfully complete
research and development of other commercially viable products. If we are unable
to develop additional commercially viable products, we may not be able to
generate sufficient revenue to become profitable. The profitable commercialization
of our products depends on our ability to reduce the costs of our components
and subsystems, and we cannot assure you that we will be able to sufficiently
reduce these costs. In addition, the profitable commercialization of our
products requires achievement and verification of their overall reliability,
efficiency and safety targets, and we cannot assure you that we will be able to
develop, acquire or license the technology necessary to achieve these targets. We
must complete
additional research and
development to fill out product portfolios and deliver enhanced functionality
and reliability in order to manufacture additional commercially viable products
in commercial quantities. In addition, while we are conducting tests to predict
the overall life of our products, we may not have run our products over their
projected useful life prior to large-scale commercialization. As a result, we
cannot be sure that our products will last as long as predicted, resulting in
possible warranty claims and commercial failures.
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Failure of our customer demonstrations could
negatively impact demand for our products.
We are currently conducting demonstrations with a
number of our
customers, and we plan to conduct
additional demonstrations in the future. We may encounter problems and delays
during these demonstrations for a number of reasons, including the failure of
our technology or the technology of third parties, as well as our failure to
maintain and service our products properly. Many of these potential problems
and delays are beyond our control. Any problem or perceived problem with our
demonstrations could materially harm our reputation and impair market
acceptance of, and demand for, our products.
Product
liability or defects could negatively impact our results of operations.
Any liability for damages resulting from malfunctions
or design defects could be substantial and could materially adversely affect
our business, financial condition, results of operations and prospects. In
addition, a well-publicized actual or perceived problem could adversely affect
the market’s perception of our products resulting in a decline in demand
for our products and could divert the attention of our management, which may
materially and adversely affect our business, financial condition, results of
operations and prospects.
Our GenDrive products
face intense competition and
we
may be unable to compete successfully.
The markets for energy products are intensely
competitive. Some of our competitors in the fuel cell sector and in incumbent
technologies are much larger than we are and may have the manufacturing,
marketing and sales capabilities to complete research, development and
commercialization of profitable, commercially viable products more quickly and
effectively than we can. There are many companies engaged in all areas of
traditional and alternative energy generation in the United States, Canada and
abroad, including, among others, major electric, oil, chemical, natural gas,
battery, generator and specialized electronics firms, as well as universities,
research institutions and foreign government-sponsored companies. These firms
are engaged in forms of power generation such as solar and wind power,
reciprocating engines and micro turbines, advanced battery technologies, as
well as traditional grid-supplied electric power. Many of these entities have
substantially greater financial, research and development, manufacturing and
marketing resources than we do.
Alternatives to our
GenDrive products or improvements to traditional energy technologies
could make our products less attractive or render them obsolete.
Our products are among a number of alternative energy
products being developed. A significant amount of public and private funding is
currently directed toward development of micro turbines, solar power, wind power,
advanced batteries and generator sets, fast charged technologies and other
types of fuel cell technologies. Improvements are also being made to the
existing electric transmission system and battery based systems. Technological
advances in alternative energy products, improvements in the electric power
grid, battery systems or other fuel cell technologies may make our products
less attractive or render them obsolete.
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We
depend on only a few customers for the majority of our revenues and the loss of
any one or more of these customers, or a significant loss, reduction or
rescheduling of orders from any of these customers, would have a material
adverse effect on our business, financial condition and results of operations.
We sell most of our products to a small number of
customers, and while we are continually seeking to expand our customer base, we
expect this will continue for the next several years.
As of
December 31, 2010, five of our customers comprised approximately 83.6% of
the total accounts receivable balance, with each customer individually
representing 33.7%, 33.5%, 6.7%, 6.0% and 3.6% of that amount.
At December
31, 2010, contracts with two customers and one federal government agency each
accounted for 10% or more of total consolidated revenues. Any decline in
business with these small numbers of customers could have an adverse impact on
our business, financial condition and results of operations. Our future success
is dependent upon the continued purchases of our products by a small number of
customers. Any fluctuations in demand from such customers or other customers
may negatively impact our business, financial condition and results of
operations. If we are unable to broaden our customer base and expand
relationships with potential customers, our business will continue to be
impacted by unanticipated demand fluctuations due to our dependence on a small
number of customers. Unanticipated demand fluctuations can have a negative
impact on our revenues and business, and an adverse effect on our business,
financial condition and results of operations. In addition, our dependence on a
small number of major customers exposes us to numerous other risks, including:
(i) a slowdown or delay in a customer’s deployment of our products could
significantly reduce demand for our products; (ii) reductions in a single
customer’s forecasts and demand could result in excess inventories; (iii)
the current economic crisis could negatively affect one or more of our major
customers and cause them to significantly reduce operations, or file for
bankruptcy; (iv) consolidation of customers can reduce demand as well as
increase pricing pressure on our products due to increased purchasing leverage;
(v) each of our customers has significant purchasing leverage over us to
require changes in sales terms including pricing, payment terms and product
delivery schedules; and (vi) concentration of accounts receivable credit risk,
which could have a material adverse effect on our liquidity and financial
condition if one of our major customers declared bankruptcy or delayed payment
of their receivables.
The
raw materials on which our products rely may not be readily available or
available on a cost-effective basis.
Platinum
is a key material in our PEM fuel cells. Platinum is
a scarce natural resource and we are dependent upon a sufficient supply of this
commodity. Any shortages could adversely affect our ability to produce
commercially viable fuel cell systems and significantly raise our cost of
producing our fuel cell systems.
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Our
future plans could be harmed if we are unable to attract or retain key
personnel.
We have attracted a highly skilled management team and
specialized workforce, including scientists, engineers, researchers,
manufacturing, marketing and sales professionals. Our future success will
depend, in part, on our ability to attract and retain qualified management and
technical personnel. We do not know whether we will be successful in hiring or
retaining qualified personnel. Our inability to hire qualified personnel on a
timely basis, or the departure of key employees, could materially and adversely
affect our development and profitable commercialization plans and, therefore,
our business prospects, results of operations and financial condition.
Provisions
in our charter documents and Delaware law may prevent or delay an acquisition
of us, which could decrease the value of our common stock.
Our certificate of incorporation, our bylaws, and
Delaware corporate law contain provisions that could make it harder for a third
party to acquire us without the consent of our board of directors. These
provisions include those that: (i) authorize the issuance of up to 5,000,000
shares of preferred stock in one or more series without a stockholder vote;
(ii) limit stockholders’ ability to call special meetings; (iii)
establish advance notice requirements for nominations for election to our board
of directors or for proposing matters that can be acted on by stockholders at
stockholder meetings; and (iv) provide for staggered terms for our
directors. We have a shareholders rights plan that may be triggered if a
person or group of affiliated or associated persons acquires beneficial
ownership of 15% or more of the outstanding shares of our common stock. In
addition, in certain circumstances, Delaware law also imposes restrictions on
mergers and other business combinations between us and any holder of 15% or
more of our outstanding common stock.
Adverse
changes in general economic conditions in the United States or any of the major
countries in which we do business could adversely affect our operating results.
As a global company, we are subject to the risks
arising from adverse changes in global economic conditions. For example, as a
result of the ongoing financial crisis in the credit markets, softness in the
housing markets, difficulties in the financial services sector and continuing
economic uncertainties, the direction and relative strength of the U.S. economy has become increasingly uncertain. If economic growth in the United States and other countries slows or recedes, our current or potential customers may delay or
reduce technology purchases. This could result in reductions in sales of our
products, longer sales cycles, slower adoption of new technologies and
increased price competition, which could materially and adversely affect our
business, results of operations and financial condition.
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Our business may become
subject to future government regulation, which may impact our ability to market
our products and costs and price
of
our products.
Our products are subject to certain federal, local,
and non-U.S. laws and regulations, including, for example, state and local
ordinances relating to building codes, public safety, electrical and gas
pipeline connections, hydrogen transportation and siting and related matters. See “Business—Government
Regulations” for additional information. Further, as products are
introduced into the market commercially, governments may impose new
regulations. We do not know the extent to which any such regulations may impact
our ability to distribute, install and service our products. Any regulation of
our products, whether at the federal, state, local or foreign level, including
any regulations relating to installation and servicing of our products, may
increase our costs and the price of our products.
Our products use
flammable fuels that are inherently dangerous substances.
Our
fuel cell systems use natural gas and hydrogen gas in catalytic reactions.
While our products do not use this fuel in a combustion process, natural gas
and hydrogen gas are flammable fuels that could leak in a home or business and
combust if ignited by another source. Further, while we are not aware of any
accidents involving our products, any such accidents involving our products or
other products using similar flammable fuels could materially suppress demand
for, or heighten regulatory scrutiny of, our products.
We may not be able to protect important intellectual
property and we could incur substantial costs defending against claims that our
products infringe on the proprietary rights of others.
PEM fuel cell technology was first developed in the
1950s, and fuel processing technology has been practiced on a large scale in
the petrochemical industry for decades. Accordingly, we do not believe that we
can establish a significant proprietary position in the fundamental component
technologies in these areas. However, our ability to compete effectively will
depend, in part, on our ability to protect our proprietary system-level
technologies, systems designs and manufacturing processes. We rely on patents,
trademarks, and other policies and procedures related to confidentiality to
protect our intellectual property. However, some of our intellectual property
is not covered by any patent or patent application. Moreover, we do not know
whether any of our pending patent applications will issue or, in the case of
patents issued or to be issued, that the claims allowed are or will be
sufficiently broad to protect our technology or processes. Even if all of our patent
applications are issued and are sufficiently broad, our patents may be
challenged or invalidated. We could incur substantial costs in prosecuting or
defending patent infringement suits or otherwise protecting our intellectual
property rights. While we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have been or will be completely
successful in doing so. Moreover, patent applications filed in foreign
countries may be subject to laws, rules and procedures that are substantially
different from those of the United States, and any resulting foreign patents
may be difficult and expensive to enforce. In addition, we do not know whether
the U.S. Patent & Trademark Office will grant federal registrations based
on our pending trademark applications. Even if federal registrations are
granted to us, our trademark rights may be challenged. It is also possible that
our competitors or others will adopt trademarks similar to ours, thus impeding
our ability to build brand identity and possibly leading to customer confusion.
We could incur substantial costs in prosecuting or defending trademark
infringement suits.
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Further, our competitors may independently develop or
patent technologies or processes that are substantially equivalent or superior
to ours. If we are found to be infringing third party patents, we could be
required to pay substantial royalties and/or damages, and we do not know
whether we will be able to obtain licenses to use such patents on acceptable
terms, if at all. Failure to obtain needed licenses could delay or prevent the
development, manufacture or sale of our products, and could necessitate the
expenditure of significant resources to develop or acquire non-infringing
intellectual property.
Asserting,
defending and maintaining our intellectual property rights could be difficult
and costly and failure to do so may diminish our ability to compete effectively
and may harm our operating results.
We may
need to pursue lawsuits or legal action in the future to enforce our
intellectual property rights, to protect our trade secrets and domain names,
and to determine the validity and scope of the proprietary rights of others. If
third parties prepare and file applications for trademarks used or registered
by us, we may oppose those applications and be required to participate in
proceedings to determine the priority of rights to the trademark. Similarly,
competitors may have filed applications for patents, may have received patents
and may obtain additional patents and proprietary rights relating to products
or technology that block or compete with ours. We may have to participate in
interference proceedings to determine the priority of invention and the right
to a patent for the technology. Litigation and interference proceedings, even
if they are successful, are expensive to pursue and time consuming, and we
could use a substantial amount of our financial resources in either case.
We rely, in part,
on contractual provisions to protect our trade secrets and proprietary
knowledge
,
the adequacy of which may not be sufficient.
Confidentiality
agreements to which we are party may be breached, and we may not have adequate
remedies for any breach. Our trade secrets may also be known without breach of
such agreements or may be independently developed by competitors. Our inability
to maintain the proprietary nature of our technology and processes could allow
our competitors to limit or eliminate any competitive advantages we may have.
Our government
contracts could restrict our ability to profitably commercialize our
technology.
Some
of our technology has been developed with state and federal government funding
in the United States, Canada and other countries. The United States and Canadian governments have a non-exclusive, royalty-free, irrevocable world-wide
license to practice or have practiced some of our technology developed under
contracts funded by the respective government. In some cases, government
agencies in the United States or Canada can require us to obtain or produce
components for our systems from sources located in the United States or Canada, respectively, rather than foreign countries. Our contracts with government
agencies are also subject to the risk of termination at the convenience of the
contracting agency, potential disclosure of our confidential information to
third parties and the exercise of “march-in” rights by the
government. March-in rights refer to the right of the United States or Canadian governments or government agency to license to others any technology
developed under contracts funded by the government if the contractor fails to
continue to develop the technology. The implementation of restrictions on our
sourcing of components or the exercise of march-in rights could harm our
business, prospects, results of operations and financial condition. In
addition, under the Freedom of Information Act, any documents that we have
submitted to the government or to a contractor under a government funding
arrangement are subject to public disclosure that could compromise our
intellectual property rights unless such documents are exempted as trade
secrets or as confidential information and treated accordingly by such
government agencies.
22
Table of
Contents
Item 1B.
|
Unresolved Staff Comments
|
There are no unresolved comments regarding our
periodic or current reports from the staff of the SEC that were issued 180 days
or more preceding the end of our 2010 fiscal year.
Our
principal offices are located in Latham, New York. At our 36-acre campus, we
own a 56,000 square foot research and development center, a 32,000 square foot
office building and a 50,000 square foot manufacturing facility and we believe
that these facilities are sufficient to accommodate our anticipated production
volumes for at least the next two years. We also lease a 25,000 square
foot warehouse facility in Latham, New York.
In
connection with the acquisitions of Cellex and General Hydrogen, we also lease one
facility in Richmond, British Columbia with square footage of 33,200 square
feet. The Company no longer occupies this space but has sublease
agreements for the total square footage.
Item 3.
|
Legal Proceedings
|
In
July 2008, Soroof Trading Development Company Ltd. (Soroof) filed a demand for
arbitration against GE Fuel Cell Systems, LLC (GEFCS) claiming breach of a
distributor agreement and seeking damages of $3 million. Prior to GEFCS’
dissolution in 2006, the Company held a 40% membership interest and GE
Microgen, Inc. (GEM) held a 60% membership interest in GEFCS. In January
2010, Soroof requested, and GEM and Plug Power Inc. agreed, that the
arbitration proceeding be administratively closed pending final resolution of
the matter in United States District Court, Southern District of New York. On
January 22, 2010, Soroof filed a complaint in United States District Court,
Southern District of New York naming, among others, Plug Power Inc., GEFCS, and
GEM as defendants
, and the
lawsuit is pending. Accordingly, while there continues to be on-going
discussions between the parties, we believe that it is too early to determine
(i) that there is likely exposure to an adverse outcome and (ii) whether or not
the probability of an adverse outcome is more than remote. The Company, GEFCS,
GEM and General Electric Company (GE) are party to an agreement under which the
Company agreed to indemnify such parties for up to $1 million of certain losses
related to the Soroof distributor agreement. GE has made a claim for
indemnification against the Company under this agreement for all losses it may
suffer as a result of the Soroof dispute.
On September 29, 2010, Aspen Technology, Inc. filed a
complaint against Plug Power Inc. in the Suffolk County, Massachusetts Superior
Court, alleging that the Company breached a software license and service
agreement due to nonpayment. The complaint seeks monetary damages of
approximately $745,000, which is allegedly the remaining license fee payable by
the Company under the agreement, plus attorneys' fees and interest. On
January 31, 2011, Plug Power Inc. and Aspen Technology executed a
confidential settlement agreement wherein Aspen Tech
nology
and Plug Power mutually released the other from all claims, debts, demands,
causes of action and liabilities that were or could have been asserted in the
action. The Suffolk County Superior Court formally dismissed the case
with prejudice on February 4, 2011.
23
Table of Contents
Item 4.
|
Removed and Reserved
|
PART II
During
the years ended December 31, 2010 and 2009, we issued 901,661 and 607,553
shares, respectively, of our common stock in connection with matching
contributions under our 401(k) Savings & Retirement Plan. The issuance
of these shares is exempt from registration under Section 3(a)(2) of the
Securities Act of 1933, as amended.
Market
Information.
Our common stock is
traded on the NASDAQ Capital Market under the symbol “PLUG.” As of March
5, 2011, there were approximately 2,763 record holders of our common stock.
However, management believes that a significant number of shares are held by
brokers under a “nominee name” and that the number of beneficial
shareholders of our common stock exceeds 47,305. The following table sets forth
the high and low close price per share of our common stock as reported by the
NASDAQ Capital Market for the periods indicated:
|
|
|
|
|
|
|
|
|
Sales prices
|
|
|
High
|
|
Low
|
2010
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
0.74
|
|
$
|
0.50
|
2nd Quarter
|
|
$
|
0.73
|
|
$
|
0.36
|
3rd Quarter
|
|
$
|
0.50
|
|
$
|
0.38
|
4th Quarter
|
|
$
|
0.54
|
|
$
|
0.37
|
2009
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
1.10
|
|
$
|
0.68
|
2nd Quarter
|
|
$
|
1.14
|
|
$
|
0.73
|
3rd Quarter
|
|
$
|
0.89
|
|
$
|
0.67
|
4th Quarter
|
|
$
|
1.19
|
|
$
|
0.68
|
Dividend
Policy.
We have never declared
or paid cash dividends on our common stock and do not anticipate paying cash dividends
in the foreseeable future. Any future determination as to the payment of
dividends will depend upon capital requirements and limitations imposed by our
credit agreements, if any, and such other factors as our board of directors may
consider.
24
Table of Contents
Five-Year
Performance Graph
. Below is a line
graph comparing the percentage change in the cumulative total return on the
Company’s common stock, based on the market price of the Company’s
common stock, with the total return of companies included within the NASDAQ
Market Index and the companies included within the Russell 300 Technology Index
for the period commencing December 31, 2005 and ending December 31,
2010. The calculation of the cumulative total return assumes a $100 investment
in the Company’s common stock, the NASDAQ Market Index and the Russell
300 Technology Index on December 31, 2005 and the reinvestment of all
dividends.
Index
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
PLUG POWER INC.
|
|
100.00
|
|
75.83
|
|
77.00
|
|
19.88
|
|
13.84
|
|
7.23
|
RUSSELL 300 TECHNOLOGY INDEX
|
|
100.00
|
|
110.46
|
|
127.03
|
|
72.49
|
|
117.86
|
|
132.86
|
NASDAQ MARKET INDEX
|
|
100.00
|
|
109.52
|
|
120.27
|
|
71.51
|
|
102.89
|
|
120.29
|
See also
Part III Item 12 in this Annual Report on Form 10-K for additional detail
related to security ownership and related stockholder matters, and for
additional detail on equity compensation plan matters.
25
Table of Contents
Item 6.
|
Selected Financial Data
|
The
following tables set forth selected financial data and other operating
information of the Company. The selected statements of operations and balance
sheet data for 2010, 2009, 2008, 2007, and 2006 as set forth below are derived
from the audited Consolidated Financial Statements of the Company. The
information is only a summary and you should read it in conjunction with the
Company’s audited Consolidated Financial Statements and related notes and
other financial information included herein and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands, except per share data)
|
|
Statements Of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and service revenue
|
|
$
|
15,739
|
|
|
$
|
4,833
|
|
|
$
|
4,667
|
|
|
$
|
3,082
|
|
|
$
|
2,657
|
|
Research and development contract revenue
|
|
|
3,598
|
|
|
|
7,460
|
|
|
|
13,234
|
|
|
|
13,189
|
|
|
|
5,179
|
|
Licensed technology revenue
|
|
|
136
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
19,473
|
|
|
|
12,293
|
|
|
|
17,901
|
|
|
|
16,271
|
|
|
|
7,836
|
|
Cost of product and service revenues
|
|
|
23,111
|
|
|
|
7,246
|
|
|
|
11,442
|
|
|
|
9,399
|
|
|
|
4,833
|
|
Cost of research and development contract revenues
|
|
|
6,371
|
|
|
|
12,433
|
|
|
|
21,505
|
|
|
|
19,045
|
|
|
|
7,637
|
|
Research and development expense
|
|
|
12,901
|
|
|
|
16,324
|
|
|
|
34,987
|
|
|
|
39,218
|
|
|
|
41,577
|
|
Selling, general and administrative expenses
|
|
|
25,572
|
|
|
|
15,427
|
|
|
|
28,333
|
|
|
|
19,323
|
|
|
|
12,268
|
|
Goodwill impairment charge
|
|
|
—
|
|
|
|
—
|
|
|
|
45,843
|
|
|
|
—
|
|
|
|
—
|
|
Gain on sale of assets
|
|
|
(3,217
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization of intangible assets
|
|
|
2,264
|
|
|
|
2,132
|
|
|
|
2,225
|
|
|
|
1,614
|
|
|
|
—
|
|
Other income (expense), net
|
|
|
570
|
|
|
|
560
|
|
|
|
4,734
|
|
|
|
11,757
|
|
|
|
8,169
|
|
Net loss
|
|
$
|
(46,959
|
)
|
|
$
|
(40,709
|
)
|
|
$
|
(121,700
|
)
|
|
$
|
(60,571
|
)
|
|
$
|
(50,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted
|
|
$
|
(0.36
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(1.36
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
131,232
|
|
|
|
129,111
|
|
|
|
89,383
|
|
|
|
87,342
|
|
|
|
86,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(at end of the
period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted cash, cash equivalents and available-for-sale securities
|
|
$
|
21,359
|
|
|
$
|
62,541
|
|
|
$
|
104,688
|
|
|
$
|
165,701
|
|
|
$
|
269,123
|
|
Trading securities – auction rate debt securities
|
|
|
—
|
|
|
|
53,397
|
|
|
|
52,651
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
|
59,177
|
|
|
|
164,185
|
|
|
|
209,112
|
|
|
|
268,392
|
|
|
|
307,920
|
|
Borrowings under line of credit
|
|
|
—
|
|
|
|
59,375
|
|
|
|
62,875
|
|
|
|
—
|
|
|
|
—
|
|
Current portion of long-term obligations
|
|
|
—
|
|
|
|
533
|
|
|
|
401
|
|
|
|
1,384
|
|
|
|
—
|
|
Long-term obligations
|
|
|
1,244
|
|
|
|
2,426
|
|
|
|
1,313
|
|
|
|
4,580
|
|
|
|
1,112
|
|
Stockholders’ equity
|
|
|
42,913
|
|
|
|
88,269
|
|
|
|
125,864
|
|
|
|
248,900
|
|
|
|
294,528
|
|
Working capital
|
|
|
23,659
|
|
|
|
60,009
|
|
|
|
86,171
|
|
|
|
163,906
|
|
|
|
267,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Table of Contents
The
discussion contained in this Form 10-K contains “forward-looking
statements,” within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, that involve risks and uncertainties. Our
actual results could differ materially from those discussed in this Form 10-K.
In evaluating these statements, you should review Part I, Item 1A: Risk Factors
and our Consolidated Financial Statements and notes thereto included in Part
II, Item 8: Financial Statements and Supplementary Data of this Form
10-K.
Overview
Plug
Power Inc., or the Company, is a leading provider of alternative energy
technology focused on the design, development, commercialization and
manufacture of fuel cell systems for the industrial off-road (forklift or
material handling) market. Plug Power has also developed products for the
back-up and stationary power markets worldwide. Effective April 1, 2010, the
Company was no longer considered a development stage enterprise since principal
operations began to provide more than insignificant revenues as the Company
received orders from repeat customers, increased its customer base and had a
significant backlog. Prior to April 1, 2010, the Company was considered a
development stage enterprise because substantially all of our resources and
efforts were aimed at the discovery of new knowledge that could lead to
significant improvement in fuel cell reliability and durability and the
establishment, expansion and stability of markets for our products. The Company
continues to experience significant net outflows of cash from operations and
devotes significant efforts towards financial planning in order to forecast
future cash spending and the ability to continue product research and
development activities and expansion of markets for its products. We continue
to leverage our unique fuel cell application and integration knowledge to
identify commercially viable markets for which we can design and develop
innovative systems and customer solutions that provide superior value,
ease-of-use and environmental design. We have made significant progress in the
material handling market and believe we have developed reliable products for
our end customers.
Plug
Power has successfully introduced new GenDrive product offerings to augment our
product suite and allow full site conversions. We have sold, on commercial
terms, product offerings to target customers including Walmart, FedEx Freight,
Coca-Cola Bottling Co., Sysco Foods and Central Grocers. Our sales to Central
Grocers and Sysco Foods involve “greenfield” conversion sites.
Greenfield sites offer the potential for the greatest financial benefits
to our customers by eliminating the need for customers to make capital
investments in batteries and the associated chargers, storage and changing
systems.
We have experienced and continue to experience negative
cash flows from operations and we expect to continue to incur net losses in the
foreseeable future. Accordingly, in 2010, we restructured and consolidated our
operations to focus on the GenDrive business. Please see “—Recent
Developments” below for additional information regarding the
restructuring. This restructuring is expected to decrease our operating
expenses by $12 to $15 million annually starting in 2011.
27
Table of Contents
As of December 31, 2010, we
had approximately $11.0 million and $10.4 million of cash and cash equivalents
and available-for-sale securities, respectively, to fund our future operations.
We believe that our current cash, cash equivalents, available-for-sale
securities balances and cash generated from future sales will provide
sufficient liquidity to fund operations into or through the first quarter of
2012. This projection is based on our current expectations regarding product
sales, cost structure, cash burn rate and operating assumptions (including
those specified in the May 2010 restructuring plan described below), which do
not include any funding from external sources of financing. Our future
liquidity and capital requirements will depend upon numerous factors, including
those identified in Risk Factors
We expect we will need to raise
additional capital to fund our operations beyond the first quarter of 2012 and
such capital may not be available to us, in which case we may have to reduce
and/or cease our operations. As a result, we can provide no assurance that we
will be able to fund our operations beyond 2011 without external financing. If
we are unable to obtain additional capital prior to the end of 2011, we may not
be able to sustain our future operations beyond the first quarter of 2012 and
may be required to delay, reduce and/or cease our operations and/or seek
bankruptcy protection. We cannot assure you that any necessary additional
financing will be available on terms favorable to us, or at all. Given the
difficult current economic environment, we believe that it could be difficult
to raise additional funds and there can be no assurance as to the availability
of additional financing or the terms upon which additional financing may be available.
Additionally, even if we raise sufficient capital through equity or debt
financing, strategic alliances or otherwise, there can be no assurances that
the revenue or capital infusion will be sufficient to enable us to develop our
business to a level where it will be profitable or generate positive cash flow.
Recent
Developments
OGK-3.
On March 29, 2011, OJSC INTER RAO
UES filed a Form 3 with the SEC reporting that on March 18, 2011 INTER RAO UES
indirectly acquired a 74.7% interest in OGK-3. OGK-3 owns approximately 33.7%
of our outstanding common stock. In the Form 3 INTER RAO UES also reported
that, as of March 29, 2011, it directly owned 81.9% of OGK-3.
Service
and Supply Agreement
. On February 2,
2010, the Company signed a service and supply agreement with the Raymond
Corporation (Raymond), a global provider of material handling solutions that
improve space utilization and productivity, with lower cost of operation and
greater operator acceptance. Raymond is now an independent distributor for the
sale, rental and lease of Plug Power GenDrive fuel cell units in North America. As an authorized service provider, Raymond also will provide warranty and
maintenance service on GenDrive products through its North American Sales and
Service Center Network. In addition, Raymond is a GenDrive authorized
distributor of service parts.
On July 15, 2010,
the Company and Ballard Power Systems Inc. (Ballard) announced an extension to
their existing supply agreement through 2014. Ballard will remain the exclusive
supplier of fuel cell stacks for the Company’s full suite of GenDrive
products. In addition, the Company will become the exclusive systems integrator
for Ballard’s fuel cell stack into solutions addressing the material
handling market in North America. The previous agreement was due to expire
December 31, 2010.
Commercialization
Agreement
. On February 4, 2010, the
Company signed a commercialization agreement with CITIC GuoAn Mengguli Power
Science & Technology Co., Ltd. (MGL), a leader in advanced lithium-ion
batteries and materials, for the joint marketing and sales of their
co-developed high power lithium-ion battery systems into automotive
applications. In our on-going effort to improve performance and reduce cost of
its GenDrive products for the material handling market, we began the
development of a lithium based hybrid battery system to replace our
nickel-metal hydride hybrid batteries. Based on the successful introduction of
the lithium battery systems into GenDrive products, it became evident that other
adjacent markets could also benefit from this sophisticated and configurable
technology. Through this agreement, Plug Power and MGL will first introduce
their products to the Chinese automotive industry, where “New
Energy” sponsored programs are supporting the deployment of at least
500,000 hybrid and pure electric vehicles over the next four years.
28
Table of Contents
Restructuring
. On May 25, 2010, the Company adopted a restructuring
plan to focus and align the Company on its GenDrive business. As part of this plan,
the Company has consolidated all operations to its Latham, New York
headquarters and as such, the Company’s operating expenses are expected
to decrease by $12 to $15 million annually, preserving necessary capital to help
accelerate market adoption in the material handling market. The Company
recorded restructuring charges in the amount of $8,096,838 within selling,
general and administrative expenses in the consolidated statement of operations
for 2010 in relation to this restructuring. At December 31, 2010, $687,696
remains in accrued expenses on the consolidated balance sheets.
Licensing Agreement
. Effective October 26, 2010, the Company announced that it had licensed
the intellectual property relating to its stationary power products, GenCore
and GenSys, to IdaTech plc on a non-exclusive basis. Plug Power maintains
ownership of, and the right to use, the patents and other intellectual property
licensed to IdeaTech. As part of the transaction, Plug Power also sold
inventory, equipment and certain other assets related to its stationary power
business. Total consideration for the licensing and assets was $5 million
and was received during October 2010. The consideration is subject to reduction
by a maximum of $1 million in the event that the Company does not deliver
certain of the assets sold.
As of December 31, 2010, $1.0 million is included in
assets held for sale in the consolidated balance sheets.
Departure
of Directors or Principal Officers
.
On August 27, 2010, Mark A. Sperry stepped down from his positions as Senior
Vice President of the Company and as General Manager of the Company's
Continuous Power Division. The Company and Mr. Sperry have entered into
an agreement under which Mr. Sperry will provide consulting services to the
Company for a period of up to twelve (12) months. The Company’s
maximum obligation under the consulting agreement shall not exceed $100,000.
On
October 13, 2010, Jeffrey M. Drazan resigned as a member of the Board of Directors
of the Company.
Debt
and Lease Arrangement.
In March,
2009, the Company signed a $1.7 million promissory note issued by Key
Equipment Finance Inc. (Key Equipment) for the purpose of financing GenDrive
products leased to Central Grocers. On April 1, 2009, the Company began leasing
this same equipment to its customer, Central Grocers. In July 2009, the Company
signed a letter of credit with Key Bank in the amount of $525,000. The standby
letter of credit is required by the agreement negotiated between Air Products
and Chemicals, Inc. (Air Products) and the Company to supply hydrogen
infrastructure and hydrogen to Central Grocers at their distribution center.
The standby letter of credit is collateralized
by cash held in a restricted account.
In December
2010, the Company assigned all of its rights, title and interest in the lease
to Somerset Capital Group, Ltd. (Somerset), but the Company will continue to
provide maintenance in accordance with the lease agreement. In conjunction with
the lease assignment, the Key Equipment promissory note was completely paid off
by the Company and the collateralized cash was released to the Company. The
Company sold all of the equipment under the lease to Somerset.
During
2010, the Company entered into the second phase of leased assets with Central
Grocers and assigned all of its rights, title and interest in the second phase lease
to Somerset, but the Company will continue to provide maintenance in accordance
with the lease agreement. The Company sold all of the equipment under the second
phase lease to Somerset.
In
October 2009, the Company entered into a 15 month financing arrangement for an
electrolyzer.
See
Note 8 (Debt and Lease Arrangement) of the Consolidated Financial Statements
for more detail.
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Results of Operations
Product
and service revenue.
Effective April
1, 2010, the Company adopted ASU No. 2009-13 on Topic 605, Revenue
Recognition– Multiple Deliverable Revenue Arrangements retroactive to
January 1, 2010
.
ASU No. 2009-13 amends the FASB ASC to eliminate the
residual method of allocation for multiple-deliverable revenue arrangements,
and requires that arrangement consideration be allocated at the inception of an
arrangement to all deliverables using the relative selling price method. As a
result of implementing ASU No. 2009-13, we recognized approximately $10.5
million during the year ended December 31, 2010 that would have been deferred
under the Company’s previous guidance for multiple-deliverable revenue
arrangements. The Company anticipates that the effect of the adoption of this
guidance on subsequent periods will be primarily based on the arrangements
entered into and the timing of shipment of deliverables. See Note 19, Multiple-Deliverable
Revenue Arrangements of the Consolidated Financial Statements, Part II, Item 8
of this Annual Report on Form 10-K for further discussion of our
multiple-deliverable revenue arrangements.
For all product
and service revenue transactions entered into prior to the implementation of
ASU No. 2009-13, the Company will continue to defer the recognition of product
and service revenue and recognize revenue on a straight-line basis as the
continued service, maintenance and other support obligations expire, which are
generally for periods of twelve to thirty months, or which can extend over
multiple years. While contract terms for those transactions generally required
payment shortly after shipment or delivery and installation of the fuel cell
system and were not contingent on the achievement of specific milestones or
other substantive performance, the multiple-element revenue obligations within
our contractual arrangements were generally not accounted for separately based
on our limited experience and lack of evidence of fair value of the undelivered
components.
Product
and service revenue for the year ended December 31, 2010 increased $10.9
million, or 225.7%, to $15.7 million from $4.8 million for the year ended December
31, 2009. Approximately $10.5 million of the increase is related to the
adoption of ASU No. 2009-13 as well as an increase in current period system
shipments partially offset by a decrease in revenue from prior period system
shipments that have now been fully accreted into income. A portion of the
non-deferred revenue represents revenue associated with replacement parts or
services not covered by service agreements or other similar types of sales
where the Company has no continuing obligation after the parts are shipped or
delivered or after services are rendered.
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In
the product and service revenue category, during the year ended December 31,
2010, we shipped 660 fuel cell systems (562 are related to sales to end
customers and 98 were delivered to Central Grocers under a lease arrangement
whereby Plug Power retained title and ownership of the equipment until it
subsequently sold the leases) as compared to 257 fuel cell systems (117 were
related to sales to end customers and 140 were delivered to Central Grocers
under a lease arrangement whereby Plug Power retained title and ownership of
the equipment until it subsequently sold the leases) shipped during the year
ended December 31, 2009. In the year ended December 31, 2010, we recognized
approximately $13.0 million of revenue for products shipped or delivered or
services rendered in the year ended December 31, 2010 as compared to
approximately $1.7 million of revenue recognized in the year ended December 31,
2009. Additionally, in the year ended December 31, 2010, we recognized
approximately $2.7 million of product and services revenue from fuel cell
shipments made prior to 2010, whereas in the year ended December 31, 2009, we
recognized approximately $3.1 million of product and service revenue from fuel
cell shipments made prior to 2009.
Product
and service revenue for the year ended December 31, 2009 increased
$165,000 or 3.5%, to $4.8 million from $4.7 million for the year ended
December 31, 2008. The increase is primarily related to an increase in
non-deferred revenue partially offset by decreased system shipments and the
revenue recognized on those shipments. The non-deferred revenue represents
revenue associated with replacement parts or services not covered by service
agreements or other similar types of sales where the Company has no continuing
obligation after the parts are shipped or delivered or after services are
rendered.
In the
product and service revenue category, during the year ended December 31,
2009, we shipped 257 fuel cell systems (117 are related to sales to end
customers and 140 were delivered to Central Grocers under a lease arrangement
whereby Plug Power retains title and ownership of the equipment) as compared to
273 fuel cell systems during the year ended December 31, 2008. In the year
ended December 31, 2009, we recognized $1.7 million of revenue for products
shipped or delivered or services rendered in the year ended December 31, 2009,
which includes $1.4 million of non-deferred revenue as compared to $2.3 million
of revenue recognized in the year ended December 31, 2008 for products shipped
or delivered or services rendered in the year ended December 31, 2008, which
includes $1.1 million of non-deferred revenue. Additionally, in the year ended
December 31, 2009, we recognized approximately $3.1 million of product and
services revenue originally deferred at December 31, 2008, whereas in the
year ended December 31, 2008, we recognized $2.4 million of revenue originally
deferred at December 31, 2007.
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Research
and development contract revenue.
Research and development contract revenue
primarily relates to cost reimbursement research and development contracts
associated with the development of PEM fuel cell technology. We generally share
in the cost of these programs with our cost-sharing percentages generally
ranging from 30% to 50% of total project costs. Revenue from time and material
contracts is recognized on the basis of hours expended plus other reimbursable
contract costs incurred during the period. Revenue from fixed fee contracts is
recognized on the basis of percentage of completion. We expect to continue
certain research and development contract work that is directly related to our
current product development efforts.
Research
and development contract revenue for the year ended December 31, 2010 decreased
$3.9 million, or 51.8%, to $3.6 million from $7.5 million for the year ended December
31, 2009. The decrease is primarily related to having fewer active contracts in
2010.
Research
and development contract revenue for year ended December 31, 2009 decreased
$5.8 million, or 43.6%, to $7.5 million from $13.2 million for the year ended
December 31, 2008. The decrease is primarily related to the completion and near
completion of funded projects in both the United States and Canada as well as a delay in the timing of deliverables in new programs. In the research and
development contract revenue category, during the twelve months ended December 31,
2009 we shipped 45 GenDrive fuel cell systems that were previously funded under
various government projects.
Cost
of product and service revenue.
Cost
of product and service revenue includes the direct material and labor cost as
well as an allocation of overhead costs that relate to the manufacturing of
products we sell. In addition, cost of product and service revenue also
includes the labor and material costs incurred for product maintenance,
replacement parts and service under our contractual obligations.
Cost of product
and service revenue for the year ended December 31, 2010 increased $15.9
million, or 218.9%, to $23.1 million from $7.2 million for the year ended
December 31, 2009. The increase is primarily related to increased product and
service fuel cell system shipments to end customers. There were 660 fuel cell
system shipments for the year ended December 31, 2010, as compared to 257 for
the year ended December 31, 2009, which includes 98 and 140 fuel cells,
respectively, that were being accounted for under a lease arrangement until the
sale of the leases. Therefore, the cost recognized on those shipments was
recorded on the consolidated balance sheets as investment in leased property
and was being depreciated over the lease term. The increase also includes an
allocation of overhead costs charged to cost of product and service revenue as
a result of increased sales and a focus on commercial production of our
product. Accordingly, some of these costs were included in research and
development expense prior to the third quarter of 2010, due to the
Company’s focus on research and development at that time.
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Cost
of product and service revenue for the year ended December 31, 2009 decreased
$4.2 million, or 36.7%, to $7.2 million from $11.4 million for the year ended
December 31, 2008. The decrease is attributable to $2.3 million in inventory
write-offs associated with the corporate restructuring plan announced in
December 2008 and a decrease in product and service fuel cell system shipments
from the prior year. There were 257 fuel cell system shipments for the year
ended December 31, 2009, as compared to 273 for the year ended December 31,
2008. Further contributing to the decrease in 2009, 140 of the 257 fuel cell
system shipments are being accounted for under a lease arrangement which
commenced in the second quarter of 2009. Therefore, the cost recognized
on those 140 shipments consists of depreciation of approximately $206,000 in the
year ended December 31, 2009.
Cost
of research and development contract revenue
. Cost of research and development contract revenue includes costs
associated with research and development contracts including: cash and non-cash
compensation and benefits for engineering and related support staff, fees paid
to outside suppliers for subcontracted components and services, fees paid to
consultants for services provided, materials and supplies used and other
directly allocable general overhead costs allocated to specific research and
development contracts.
Cost
of research and development contract revenue for the year ended December 31,
2010 decreased $6.1 million, or 48.8%, to $6.4 million from $12.4 million for
the year ended December 31, 2009. This decrease is primarily related to having
fewer active contracts in 2010.
Cost
of research and development contract revenue for the year ended December 31,
2009 decreased $9.1 million, or 42.2%, to $12.4 million from to $21.5 million
in 2008. This decrease reflects a reduced effort on funded contracts due to the
completion or near completion of several major contracts in the United States and Canada as well as a delay in the timing of deliverables for new programs.
Research
and development expense.
Research and
development expense includes: materials to build development and prototype
units, cash and non-cash compensation and benefits for the engineering and
related staff, expenses for contract engineers, fees paid to outside suppliers
for subcontracted components and services, fees paid to consultants for
services provided, materials and supplies consumed, facility related costs such
as computer and network services, and other general overhead costs associated
with our research and development activities.
Research and development
expense for the year ended December 31, 2010 decreased $3.4 million, or 21.0%,
to $12.9 million from $16.3 million for the year ended December 31, 2009. This
decrease was primarily a result of the wind-down of our operations in Plug
Power Energy India Private Limited, Plug Power Canada as well as our Plug Power
Holland organization. The decrease was also coupled with our allocation of
overhead costs charged to cost of product and service revenue as a result of
increased sales and a focus on commercial production of our product.
Accordingly, some of these costs were included in research and development
expense prior to this quarter, due to the Company’s focus on research and
development at that time.
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Research
and development expense for the year ended December 31, 2009 decreased
$18.7 million, or 53.3%, to $16.3 million from to $35.0 million in 2008. This
decrease was a direct result of the corporate restructuring plans announced in
June and December of 2008, which included a reduced workforce and a reduction
in non-strategic research and development projects.
Selling,
general and administrative expenses.
Selling, general and administrative expenses includes cash and non-cash compensation,
benefits and related costs in support of our general corporate functions,
including general management, finance and accounting, human resources, selling
and marketing, information technology and legal services.
Selling,
general and administrative expenses for the year ended December 31, 2010
increased $10.1 million, or 65.8%, to $25.6 million from $15.4 million for the
year ended December 31, 2009. This increase was primarily a result of the
corporate restructuring plan announced in May 2010, which totaled $8.1 million
and a $2.1 million write-off of assets from Plug Power Canada Inc.
Selling,
general and administrative expenses for the year ended December 31, 2009
decreased $12.9 million, or 45.6%, to $15.4 million compared to $28.3 million
in 2008. This decrease was a direct result of the corporate restructuring plans
announced in June and December of 2008.
Gain on Sale of Assets.
Effective October 26, 2010, the Company licensed the
intellectual property relating to its stationary power products, GenCore and
GenSys, to IdaTech plc on a non-exclusive basis. Plug Power maintains
ownership of, and the right to use, the patents and other intellectual property
licensed to IdaTech. As part of the transaction, Plug Power also sold
inventory, equipment and certain other assets related to its stationary power
business. Total consideration for the licensing and assets was $5 million
and was received during October 2010. This consideration was net against costs
incurred to close the transaction.
Amortization
of intangible assets.
Amortization of
intangible assets represents the amortization associated with the
Company’s acquired identifiable intangible assets from Plug Power Canada
Inc., including acquired technology and customer relationships, which are being
amortized over eight years.
Amortization
of intangible assets increased to $2.3 million for the year ended December 31,
2010, compared to $2.1 million for the year ended December 31, 2009. The
increase is related to foreign currency fluctuations.
Amortization
of intangible assets decreased to $2.1 million for the year ended
December 31, 2009, compared to $2.2 million for the year ended
December 31, 2008. The decrease is related to foreign currency
fluctuations.
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Interest
and other income and net realized gains from available-for-sale securities.
Interest and other income and net realized gains from
available-for-sale securities consists primarily of interest earned on our
cash, cash equivalents, available-for-sale and trading securities, other
income, and the net realized gain/loss from the sale of available-for-sale
securities.
Interest
and other income and net realized gains from available-for-sale securities
decreased to $1.1 million for the year ended December 31, 2010 from $1.7
million for the year ended December 31, 2009. This decrease is primarily related
to lower cash balances coupled with lower yields on our investments due to a
declining interest rate environment offset by increased rental income received
from our Latham facility. Interest income on trading securities and
available-for-sale securities for the year ended December 31, 2010 was
approximately $352,000 and $179,000, respectively. Interest income on trading
securities and available-for-sale securities for the year ended December 31,
2009 was approximately $906,000 and $307,000, respectively.
Interest
and other income and net realized gains from available-for-sale securities
decreased to $1.7 million for the year ended December 31, 2009 from $5.1
million for the year ended December 31, 2008. This decrease is primarily
related to lower cash balances coupled with lower yields on our investments due
to a declining rate environment. Total net realized gains/losses from the sale
of available-for-sale securities was $0 for the year ended December 31, 2009
and a net gain of approximately $389,000 for the year ended December 31, 2008.
Interest income on trading securities and available-for-sale securities for the
year ended December 31, 2009 was approximately $906,000 and $307,000,
respectively. Interest income on trading securities and available-for-sale
securities for the year ended December 31, 2008 was approximately $1.9 million
and $1.5 million, respectively. Also included in the year ended December 31,
2008 is a $1.2 million gain relating to the termination of Technology
Partnerships Canada (TPC) agreements as discussed in Note 10 (Repayable
Government Assistance) of the Notes to Consolidated Financial Statements.
Gain
on auction rate debt securities repurchase agreement.
In December 2008, the Company entered into a
Repurchase Agreement with the third-party lender such that the Company may
require the third-party lender to repurchase the auction rate debt securities
pledged as collateral for the Credit Line Agreement, at their par value, from
June 30, 2010 through July 2, 2012. As a result of the Repurchase Agreement
entered into with a third party lender in December 2008, the Company
reclassified the auction rate debt securities from available-for-sale
securities to trading securities. The Company elected to record this item at
its fair value in accordance with FASB ASC No. 825-10-25, Fair Value Option.
The third-party lender repurchased the securities on July 1, 2010 in accordance
with the Repurchase Agreement. The corresponding Credit Line Agreement was paid
in full on July 1, 2010 in conjunction with the repurchase of the auction rate
debt securities. The change in fair value of approximately $6.0 million and
$4.2 million during the years ended December 31, 2010 and 2009, respectively
was recorded as a loss in the consolidated statements of operations which is
offset by the change in fair value of the auction rate debt securities held as
collateral of approximately $6.0 million and $4.2 million that is recorded as a
gain in the consolidated statements of operations for the years ended December
31, 2010 and 2009, respectively. At December 31, 2009, the fair value of this
item was $6.0 million.
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Impairment loss on available-for-sale securities.
Due to the liquidity issues in the credit and capital
markets, the market for auction rate debt securities began experiencing auction
failures in February 2008, and there have been no successful auctions for the
securities held in our portfolio since the failures began. Given the lack of
liquidity in the market for auction rate debt securities, the Company concluded
that the estimated fair value of these securities has become lower than the
cost of these securities, and, based on an analysis of the other-than-temporary
impairment factors, management has determined that this difference represents a
decline in fair value that is other-than-temporary. Accordingly, the Company
recorded an other-than-temporary impairment charge of $10.2 million in the
twelve months ended December 31, 2008. There were no securities deemed
other-than-temporarily impaired during 2010 and 2009.
Interest
and other expense.
Interest and other
expense consists of interest on repayable government assistance amounts related
to the activities of Cellex and General Hydrogen, interest related to the
Credit Line Agreement and long term debt, and foreign currency exchange
gain/(loss).
Interest
and other expense for the year ended December 31, 2010 was approximately $487,000,
compared to approximately $1.1 million for the year ended December 31, 2009. Interest
expense related to the Credit Line Agreement was approximately $305,000 and $915,000,
respectively, for the years ended December 31, 2010 and 2009, respectively.
Interest
and other expense for the year ended December 31, 2009 was approximately
$1.1 million, compared to approximately $401,000 for the year ended
December 31, 2008. Interest expense related to the Credit Line Agreement
was approximately $915,000 for the year ended December 31, 2009 and was not
significant for the year ended December 31, 2008.
Income
taxes.
We did not report a benefit
for federal and state income taxes in the Consolidated Financial Statements as
the deferred tax asset generated from our net operating loss has been offset by
a full valuation allowance because it is more likely than not that the tax
benefits of the net operating loss carry forward will not be realized.
Critical
Accounting Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles and related disclosures requires management to make
estimates and assumptions.
We
believe that the following are our most critical accounting estimates and
assumptions the Company must make in the preparation of its Consolidated Financial
Statements and related disclosures:
Revenue
recognition:
Our fuel cell systems
are designed to replace incumbent electric power technologies in material
handling equipment. Our current product offerings are intended to offer
complementary, quality power while demonstrating the market value of fuel cells
as a preferred form of alternative distributed power generation. Subsequent
enhancements to our initial product are expected to expand the market
opportunity for fuel cells by lowering the installed cost, decreasing operating
and maintenance costs, increasing efficiency and improving reliability.
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Effective
April 1, 2010, the Company adopted ASU No. 2009-13 on Topic 605, Revenue
Recognition– Multiple Deliverable Revenue Arrangements retroactive to
January 1, 2010
.
The objective of this ASU is to address the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit. Vendors
often provide multiple products or services to their customers. Those
deliverables often are provided at different points in time or over different
time periods. This ASU provides amendments to the criteria in Subtopic 605-25
for separating consideration in multiple-deliverable arrangements. The
amendments in this ASU establish a selling price hierarchy for determining the
selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence (TPE) if VSOE is not available, or estimated selling price
(ESP) if neither VSOE nor TPE is available. The amendments in this ASU also
replace the term fair value in the revenue allocation guidance with selling
price to clarify that the allocation of revenue is based on entity-specific
assumptions rather than assumptions of a marketplace participant and expands
the disclosure requirements related to a vendor’s multiple-deliverable
revenue arrangements. This ASU is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010, however, the Company chose early adoption of this ASU.
The Company was
previously prohibited from separating these multiple deliverables into
individual units of accounting without VSOE of fair value or other TPE of fair
value. This evidence was not available due to our limited experience and lack
of evidence of fair value of the undelivered components of the sale. Without
this level of evidence, the Company had to treat each sale as a single unit of
accounting and defer the revenue recognition of each sale, recognizing revenue
over a straight-line basis as the continued service, maintenance and other
support obligations expired. Under ASU No. 2009-13, the requirement to have
VSOE or TPE in order to recognize revenue has been modified, and it now allows
the vendor to make its best estimate of the standalone selling price of
deliverables when more objective evidence of selling price is not available.
For all product
and service revenue transactions entered into prior to the implementation of
ASU No. 2009-13, the Company will continue to defer the recognition of product
and service revenue and recognize revenue on a straight-line basis as the
continued service, maintenance and other support obligations expire, which are
generally for periods of twelve to thirty months, or which extend over
multiple years. While contract terms for those transactions generally required
payment shortly after shipment or delivery and installation of the fuel cell
system and were not contingent on the achievement of specific milestones or
other substantive performance, the multiple-element revenue obligations within
our contractual arrangements were generally not accounted for separately based
on our limited experience and lack of evidence of fair value of the undelivered
components.
See Note 19, Multiple-Deliverable Revenue Arrangements
of the Consolidated Financial Statements, Part II, Item 8 of this Form 10-K for
further discussion of our multiple-deliverable revenue arrangements.
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The
product and service revenue contracts entered into as of January 1, 2010
generally provide a one to two-year product warranty to customers from date of
shipment. We currently estimate the costs of satisfying warranty claims
based on an analysis of past experience and provide for future claims in the
period the revenue is recognized. The Company carefully monitors the warranty
work requested by its customers and management believes that its current warranty
reserve appears adequate as of December 31, 2010. The Company’s product
and service warranty as of December 31, 2010 is approximately $862,000 and is
included in product warranty reserve in the consolidated balance sheets.
Additionally,
our research and development contract revenue primarily relates to cost
reimbursement research and development contracts associated with the
development of PEM fuel cell technology. The Company generally shares in the
cost of these programs with our cost-sharing percentages generally ranging from
30% and 50% of total project costs. Revenue from time and material contracts is
recognized on the basis of hours expended plus other reimbursable contract
costs incurred during the period. Revenue from fixed fee contracts is recognized
on the basis of percentage of completion.
Valuation
of long-lived assets:
We value
long-lived assets at their fair value at the date of acquisition. We utilize
third-party valuation experts in our assessments of the fair values of acquired
long-lived assets and allocate purchase price to the acquired assets and
liabilities assumed accordingly. We assess the impairment of long-lived assets,
including identifiable intangible assets, whenever events or changes in
circumstances indicate that the carrying value may not be recoverable and, for
goodwill, at least annually. Factors we consider important that could trigger
an impairment review include, but are not limited to, the following:
-
significant underperformance
relative to expected historical or projected future operating results;
-
significant changes in the manner
of our use of the acquired assets or the strategy for our overall business;
-
significant negative industry or
economic trends;
-
significant decline in our stock
price for a sustained period; and
-
our market capitalization relative
to net book value.
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When
we determine that the carrying value of long-lived assets, including
identifiable intangible assets, may not be recoverable based upon the existence
of one or more of the above indicators of impairment, we would measure any
impairment based upon the provisions of FASB ASC No. 350, Intangibles -
Goodwill and Other and FASB ASC No. 360-10-35-15, Impairment or Disposal of
Long-Lived Assets, as appropriate. Any resulting impairment loss could have a
material adverse impact on our financial condition and results of operations.
Goodwill
impairment testing is performed at the segment (or reporting unit) level. The
Company’s goodwill is evaluated at the entity level as there is only one
reporting unit. Goodwill is assigned to reporting units at the date the
goodwill is initially recorded. Once goodwill has been assigned to reporting
units, it no longer retains association with a particular acquisition, and all
of the activities within a reporting unit, whether acquired or organically
grown, are available to support the value of the goodwill.
The
Company performs its annual goodwill impairment assessment under FASB ASC No.
350, Intangibles - Goodwill and Other at the date of its fiscal year end or
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. As of December 31, 2010, the Company had no goodwill on
its consolidated balance sheet as a result of the full impairment charge
recorded in 2008. If goodwill exists, our impairment test is based on a set of
assumptions regarding discounted future cash flows, which represent the
Company’s best estimate of future performance at this time, as well as
consideration of the Company’s market capitalization.
The goodwill impairment analysis is dependent on many
variables used to determine fair value of the Company overall and the fair
value of the Company’s assets and liabilities. Please see Note 6
(Goodwill and Other Intangible Assets) of the Notes to Consolidated Financial
Statements for a description of the valuation methods and related estimates and
assumptions used in our impairment testing. The complexity of the analysis does
not permit a simplistic determination of the impact of changes in assumptions.
Stock
Based Compensation
: We recognize
stock-based compensation expense associated with the vesting of share based
instruments in the consolidated statements of operations. Determining the amount
of stock-based compensation to be recorded requires us to develop estimates to
be used in calculating the grant-date fair value of stock options. We calculate
the grant-date fair values using the Black-Scholes valuation model. The
Black-Scholes model requires us to make estimates of the following assumptions:
Expected
volatility—The estimated stock price volatility was derived based upon a
blend of implied volatility (i.e. management’s expectation of volatility)
and the Company’s actual historic stock prices over the expected life of
the options, which represents the Company’s best estimate of expected
volatility.
Expected
option life—The Company’s estimate of an expected option life was
calculated in accordance with the simplified method for calculating the
expected term assumption. The simplified method is a calculation based on the
contractual life of the associated options.
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Risk-free
interest rate—We use the yield on zero-coupon U.S. Treasury securities
for a period that is commensurate with the expected life assumption as the
risk-free interest rate.
The
amount of stock-based compensation recognized during a period is based on the
value of the portion of the awards that are ultimately expected to vest. FASB
ASC No. 718-10-55, Compensation - Stock Compensation – Overall
– Implementation and Guidance Illustrations, requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The term
“forfeitures” is distinct from “cancellations” or
“expirations” and represents only the unvested portion of the
surrendered option. We review historical forfeiture data and determine the
appropriate forfeiture rate based on that data. We re-evaluate this analysis
periodically and adjust the forfeiture rate as necessary. Ultimately, we will
recognize the actual expense over the vesting period only for the shares that
vest.
Auction
rate securities and auction rate debt securities repurchase agreement:
As of December 31, 2010, the Company no longer
held any trading securities - auction rate debt securities since they were
repurchased in July, 2010 at par by the third-party lender holding the collateral
under the Repurchase Agreement which resulted in a corresponding reduction in
amounts outstanding and the extinguishment of the Credit Line Agreement. We
valued our auction rate debt securities and auction rate debt securities
repurchase agreement based upon factors specific to these securities, including
duration, tax status (taxable or tax-exempt), credit quality, the existence of
insurance wraps, and the composition of the underlying student loans (Federal
Family Education Loan Program or private loans). Assumptions were made
about future cash flows based upon interest rate formulas as described in Note
3, Fair Value Measurements. Also, our valuation included estimates of
market data including yields or spreads of similar trading instruments, when available,
or assumptions believed to be reasonable. Illiquid credit markets and
volatile equity markets have combined to increase the uncertainty inherent in
our estimates and assumptions. As future events cannot be determined with
precision, actual results could differ significantly from our estimates.
Recent
Accounting Pronouncements
A
discussion of recently adopted and new accounting pronouncements is included in
Note 2 (Summary of Significant Accounting Policies) of the Consolidated
Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Liquidity
and Capital Resources
We
have experienced recurring operating losses and as of December 31, 2010, we had
an accumulated deficit of approximately $727.3 million. Substantially all of
our losses resulted from costs incurred in connection with our operating
expenses, research and development expenses and from general and administrative
costs associated with our operations. To date, we have funded our operations
primarily through private and public offerings of our common and preferred
stock, our line of credit and maturities and sales of our available-for-sale
securities. We anticipate incurring substantial additional losses and may never
achieve profitability. Our May 2010 restructuring plan, which involves focusing
on our GenDrive business and consolidating our operations into our Latham, New York facility, is expected to reduce these losses going forward. We anticipate that the
restructuring will reduce our annual operating expenses by approximately $12 to
$15 million, with all targeted expense reductions implemented by year end 2010.
40
Table of Contents
As
of December 31, 2010, we had approximately $11.0 million and $10.4 million of
cash and cash equivalents and available-for-sale securities, respectively, to
fund our future operations. We believe that our current cash, cash equivalents,
available-for-sale securities balances and cash generated from future sales
will provide sufficient liquidity to fund operations into or through the first
quarter of 2012. This projection is based on our current expectations regarding
product sales, cost structure, cash burn rate and operating assumptions
(including those specified in the May 2010 restructuring plan described below),
which do not include any funding from external sources of financing. In the
event that our operating expenses are higher than anticipated or the gross
margins and shipments of our GenDrive products do not increase as we expect, we
may be required to implement contingency plans within our control to conserve
and/or enhance our liquidity to meet operating needs. Such plans include; our
ability to further reduce discretionary expenses, monetize our real estate
assets through a sale-leaseback arrangement and obtain additional funding from
licensing the use of our technologies. Our cash requirements relate primarily
to working capital needed to operate and grow our business, including funding
operating expenses, growth in inventory to support both shipments of new units
and servicing the installed base, and continued development and expansion of
our products. If our projections for significant order and shipment growth
materialize, we believe we can obtain debt financing to fund the working
capital needed to fulfill these orders and shipments. Our future liquidity and
capital requirements will depend upon numerous factors, including those
identified in Risk Factors
We expect we will need to raise additional
capital to fund our operations beyond the first quarter of 2012 and such
capital may not be available to us, in which case we may have to reduce and/or
cease our operations. As a result, we can provide no assurance that we will be
able to fund our operations beyond 2011 without external financing. We continue
to evaluate opportunities to raise additional capital to fund our business
beyond 2011. Alternatives under consideration include equity or debt
financings, strategic alliances or joint ventures. If we are unable to obtain
additional capital prior to the end of 2011, we may not be able to sustain our
future operations beyond the first quarter of 2012 and may be required to
delay, reduce and/or cease our operations and/or seek bankruptcy protection. We
cannot assure you that any necessary additional financing will be available on
terms favorable to us, or at all. Given the difficult current economic
environment, we believe that it could be difficult to raise additional funds
and there can be no assurance as to the availability of additional financing or
the terms upon which additional financing may be available. Additionally, even
if we raise sufficient capital through equity or debt financing, strategic
alliances or otherwise, there can be no assurances that the revenue or capital
infusion will be sufficient to enable us to develop our business to a level
where it will be profitable or generate positive cash flow. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders could be significantly diluted,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing stockholders. If we incur additional debt, a
substantial portion of our operating cash flow may be dedicated to the payment
of principal and interest on such indebtedness, thus limiting funds available
for our business activities. The terms of any debt securities issued could also
impose significant restrictions on our operations. Broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance, and may adversely impact our ability to raise
additional funds. Similarly, if our common stock is delisted from the NASDAQ
Capital Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant
licenses on terms that are not favorable to us.
41
Table of Contents
Several
key indicators of liquidity are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended or at December 31,
|
(in thousands)
|
|
2010
|
|
2009
|
|
2008
|
Cash and cash equivalents at end of period
|
|
$
|
10,955
|
|
$
|
14,581
|
|
$
|
80,845
|
Trading securities – auction rate debt securities at end of
period
|
|
|
-
|
|
|
53,397
|
|
|
52,651
|
Available-for-sale securities at end of period
|
|
|
10,403
|
|
|
47,960
|
|
|
23,844
|
Borrowings under
line of credit at end of period
|
|
|
-
|
|
|
59,375
|
|
|
62,875
|
Working capital at end of period
|
|
|
23,659
|
|
|
60,009
|
|
|
86,171
|
Net loss
|
|
|
46,959
|
|
|
40,709
|
|
|
121,700
|
Net cash used in operating activities
|
|
|
40,770
|
|
|
38,228
|
|
|
56,596
|
Purchase of property, plant and equipment
|
|
|
1,100
|
|
|
533
|
|
|
1,419
|
Included in trading securities and working
capital at December 31, 2009, was $53.4 million of auction rate debt
securities. The auction rate debt securities were secured by student loans
which are generally guaranteed by the Federal government. These auction rate
debt securities were structured to be tendered at par, at the investor’s
option, at auctions occurring every 27-30 days. However, due to the liquidity
issues in the credit and capital markets, the market for auction rate debt
securities began experiencing auction failures in February 2008, and there have
been no successful auctions for the securities held in our portfolio since the
failures began. We continued to receive interest on these securities, subject
to an interest rate cap formula for each security as periodically adjusted in
accordance with the respective securities’ agreement. At December 31,
2009, the interest rates ranged from 0.61% to 3.48% on the auction rate debt
securities.
The Company had
pledged these securities as collateral to a third-party lender for a Credit
Line Agreement (See Note 7, Credit Line Agreement and Auction Rate Debt
Securities Repurchase Agreement) entered into in December 2008. In December
2008, the Company entered into a Repurchase Agreement with a third-party
lender such that the Company may require the third-party lender to repurchase
the auction rate debt securities pledged as collateral for the Credit Line
Agreement at their par value, from June 30, 2010 through July 2, 2012 as full
settlement for the advances on the Credit Line Agreement. The fair value of the
Repurchase Agreement at its origination was $10.2 million. The fair value of
the Repurchase Agreement at December 31, 2010 and December 31, 2009 was $0 and
$6.0 million, respectively and is recorded as an asset on the condensed
consolidated balance sheets. The change in fair value of approximately $6.0
million and $4.2 million during the years ended December 31, 2010 and 2009,
respectively, was recorded as a loss in the consolidated statements of
operations which is offset by the change in fair value of the auction rate debt
securities held as collateral of approximately $6.0 million and $4.2 million
that is recorded as a gain in the consolidated statements of operations for the
years ended December 31, 2010 and 2009, respectively.
Effective
July 1, 2010, all auction rate debt securities were repurchased at par by the
third-party lender holding the collateral under the Repurchase Agreement which
resulted in a corresponding reduction in amounts outstanding and the
extinguishment of the Credit Line Agreement.
42
Table of Contents
Debt
and Lease Arrangement.
In March,
2009, the Company signed a $1.7 million promissory note issued by Key
Equipment Finance Inc. (Key Equipment) for the purpose of financing GenDrive
products leased to Central Grocers. On April 1, 2009, the Company began leasing
this same equipment to its customer, Central Grocers. In July 2009, the Company
signed a letter of credit with Key Bank in the amount of $525,000. The standby
letter of credit is required by the agreement negotiated between Air Products
and Chemicals, Inc. (Air Products) and the Company to supply hydrogen
infrastructure and hydrogen to Central Grocers at their distribution center.
The standby letter of credit is collateralized
by cash held in a restricted account.
In
December 2010, the Company assigned all of its rights, title and interest in
the lease to Somerset Capital Group, Ltd. (Somerset), but the Company will
continue to provide maintenance in accordance with the lease agreement. In
conjunction with the lease assignment, the Key Equipment promissory note was completely
paid off by the Company and the collateralized cash was released to the
Company. The Company sold all of the equipment under the lease to Somerset.
During
2010, the Company entered into the second phase of leased assets with Central
Grocers and assigned all of its rights, title and interest in the second phase lease
to Somerset, but the Company will continue to provide maintenance in accordance
with the lease agreement. The Company sold all of the equipment under the second
phase lease to Somerset.
In
October 2009, the Company entered into a 15 month financing arrangement for an
electrolyzer.
See
Note 8 (Debt and Lease Arrangement) of the Consolidated Financial Statements
for more detail.
43
Table of Contents
Under
Internal Revenue Code (IRC) Section 382, the use of loss carryforwards may be
limited if a change in ownership of a company occurs. If it is determined that
due to transactions involving the Company’s shares owned by its 5 percent
shareholders a change of ownership has occurred under the provisions of IRC
Section 382, the Company's Federal and state net operating loss carryforwards
could be subject to significant IRC Section 382 limitations. As a result
of certain equity transactions, the Company may have had an ownership change for
IRC Section 382 purposes. Please refer to Part I Item 7 Recent
Developments in this Annual Form 10-K.
Based
upon an IRC Section 382 study, a Section 382 ownership change occurred in 2005
that resulted in approximately $479 million of the $674 million of Federal and
state net operating loss carryforwards being subject to IRC Section 382
limitations and as the result of IRC Section 382 limitations, approximately
$53.7 million of the net operating loss carryforwards acquired from H Power
will expire prior to utilization, and approximately $27 million of the net
operating loss carryforwards acquired from General Hydrogen will expire prior
to utilization. Additionally, approximately $25 million of H Power’s
remaining net operating loss carryforwards represent an unrecognized tax benefit.
As a result of the IRC Section 382 limitations and the unrecognized tax
benefits, these net operating loss carryforwards are not reflected in the
Company’s deferred tax asset as of December 31, 2010.
Our
cash requirements depend on numerous factors, including completion of our
product development activities, ability to commercialize our fuel cell systems,
market acceptance of our systems and other factors. As of December 31, 2010, we
had cash and cash equivalents of $11.0 million, available-for-sale securities
of $10.4 million and working capital of $23.7 million.
During
the year ended December 31, 2010, cash used for operating activities was $40.7
million, consisting primarily of a net loss of $47.0 million offset, in part,
by non-cash expenses in the amount of $8.8 million, including $7.2 million for
amortization and depreciation, $1.2 million for stock based compensation, $1.0
million for the net proceeds/gain from the sale of assets, $377,000 for loss on
disposal of property, plant and equipment and leased assets and $10,000 in bad
debt. Cash provided by investing activities for the year ended December 31,
2010 was $98.6 million, consisting primarily of $59.4 million in proceeds from
trading securities, $37.4 million of maturities (net of purchases) of
available-for-sale securities and $988,000 net for the investment and sale in
leased property offset, in part, by $1.1 million used to purchase property,
plant and equipment. Cash used for financing activities for the year ended
December 31, 2010 was approximately $61.4 million consisting of $59.4 million
in repayment of borrowings under line of credit, $442,000 for the purchase of
treasury stock and $1.6 million in principal payments on long-term debt.
Subsequent
to December 31, 2010, we issued 508,790 shares of common stock for the
achievement of performance objectives in 2010.
44
Table of Contents
Contractual Obligations
Contractual
obligations as of December 31, 2010, under agreements with non-cancelable
terms are as follows:
|
Total
|
<1 Year
|
1-3 Years
|
3-5 Years
|
>
5 Years
|
Long-term
debt obligations
|
$
9,956
|
$
9,956
|
$
-
|
$
-
|
$
-
|
Operating
lease obligations
|
3,080,282
|
584,131
|
846,189
|
633,646
|
1,016,316
|
Purchase
obligations
(A)
|
1,275,796
|
1,275,796
|
-
|
-
|
-
|
Other
obligations
(B)
,
(C)
|
212,995
|
212,995
|
-
|
-
|
-
|
Total
|
$ 4,579,029
|
$ 2,082,878
|
$ 846,189
|
$ 633,646
|
$ 1,016,316
|
(A)
|
The
Company has contractual obligations for consulting and miscellaneous office services
and an obligation to assume or buy out the leases for batteries, chargers and
battery changing equipment for a certain amount of stand up rider trucks at
Central Grocers. On January 14, 2011, the Company bought out the leases for a
total amount of $958,817 and retains ownership of the equipment. See Note 18
(Commitments and Contingencies) of the Consolidated Financial Statements for
more detail.
|
(B)
|
The
Company has a contractual obligation to NYSERDA, a New York State Government
agency, to pay royalties to NYSERDA based on 0.5% of net sales of our GenCore
and GenSys products if product is manufactured in the state of New York. See Note 18 (Commitments and Contingencies) of the Consolidated Financial
Statements for more detail.
|
(C)
|
The
Company has a contractual obligation pursuant to a development collaboration
agreement with General Electric Company (GE). The Company and GE agreed to
extend the terms of the agreement such that the Company’s remaining
obligation to purchase approximately $363,000 of services as of December 31,
2009 under the agreement became due and payable; however, the Company and GE
entered into a Lease Agreement for space in the Company’s Latham, New
York facility whereby the parties mutually agreed that the amount owed by the
Company to GE under the development collaboration agreement would be offset
by the rent owed by GE to the Company each month. The development
collaboration agreement is scheduled to terminate on the earlier of
(i) December 31, 2014 or (ii) upon the completion of a certain
level of program activity. See Note 18 (Commitments and Contingencies) of the
Consolidated Financial Statements for more detail.
|
Item 7A.
|
Quantitative and Qualitative Disclosures about
Market Risk
|
We
invest our excess cash in government, government backed and interest-bearing
investment-grade securities that we generally hold for the duration of the term
of the respective instrument. We do not utilize derivative financial
instruments, derivative commodity instruments or other market risk sensitive
instruments, positions or transactions in any material fashion. Accordingly,
other than with respect to auction rate debt securities, we believe that, while
the investment-grade securities we hold are subject to changes in the financial
standing of the issuer of such securities, we are not subject to any material
risks arising from changes in interest rates, foreign currency exchange rates,
commodity prices, equity prices or other market changes that affect market risk
sensitive instruments.
45
Table of Contents
A portion of the Company’s total financial
performance was attributable to our operations in Canada and India. Our exposure to changes in foreign currency rates primarily arises from short-term
inter-company transactions with our Canadian and Indian subsidiaries and from
client receivables in different currencies. Foreign sales are mostly made by
our Canadian subsidiaries in their respective countries and are typically
denominated in Canadian dollars. Our foreign subsidiaries incur most of their
expenses in their local currency as well, which helps minimize our risk of
exchange rate fluctuations, particularly between the U.S. dollar, the Canadian
dollar and the Indian dollar. As exchange rates vary, the Company’s
results can be materially affected. As of December 31, 2010, all of the
Company’s operations have been relocated to the United States.
In
addition, the Company may source inventory among its worldwide operations. This
practice can give rise to foreign exchange risk resulting from the varying cost
of inventory to the receiving location as well as from the revaluation of
intercompany balances. The Company mitigates this risk through local sourcing
efforts.
Item 8.
|
Financial Statements and Supplementary Data
|
The
Company’s Consolidated Financial Statements included in this report
beginning at page F-1 are incorporated in this Item 8 by reference.
Item 9.
|
C
hanges in and Disagreements
with Accountants on Accounting and Financial Disclosure
|
None.
Item 9A.
|
Controls and Procedures
|
(a)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation,
our principal executive officer and our principal financial officer concluded
that, as of the end of the period covered by this annual report, our disclosure
controls and procedures were effective, in that they provide reasonable
assurance that information required to be disclosed by us in the reports we
file or submit, under the Exchange Act, is recorded, processed, summarized and
reported within the time period specified in the SEC’s rules and forms.
(b)
Management’s Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organization of the Treadway Commission. Based on our evaluation under the
framework in
Internal Control—Integrated Framework
, our management
concluded that the Company maintained effective internal control over financial
reporting as of December 31, 2010.
46
Table of Contents
(c) Attestation Report of the Registered Public
Accounting Firm
The
attestation report of the Company’s independent registered public
accounting firm regarding internal control over financial reporting is included
on page F-3 of this Annual Report on Form 10-K and incorporated herein by
reference.
(d)
Changes in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial
reporting identified in connection with the evaluation of such internal control
that occurred during the Company’s last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Item 9B.
|
Other Information
|
Not
applicable.
PART III
(a) Directors
The number of directors of the Company is fixed at
five, and the Board of Directors currently consists of five members. The Board
of Directors is divided into three classes, with three directors in Class I,
one director in Class II, and one director in Class III. Directors in Classes
I, II and III serve for three-year terms with one class of directors being
elected by the Company’s stockholders at each Annual Meeting of
Stockholders. The Board of Directors has determined that Ms. Helmer and Messrs.
Garberding, McNamee, and Willis are independent directors as defined in Rule
5605(a)(2) under the Marketplace Rules of the National Association of
Securities Dealers, Inc. (the “NASDAQ Rules”).
The positions of Chief
Executive Officer and Chairman of the Board are currently each filled by a
different individual, Andrew Marsh and George McNamee, respectively; however,
if the position of Chairman of the Board is vacant, or if he or she is absent,
the Chief Executive Officer shall preside, when present, at meetings of
stockholders and of the Board of Directors.
Set forth below is certain information regarding
the directors of the Company, including the Class III Director who has been
nominated for re-election at the Annual Meeting. The ages of and biographical
information regarding the nominee for election as Class III Director at the
Annual Meeting and each director who is not standing for election is based on
information furnished to the Company by each nominee and director and is as of
January 31, 2011.
47
Table of Contents
|
|
|
Name
|
Age
|
Director
Since
|
Class I—Term Expires 2012
|
|
|
Andrew Marsh
|
54
|
2008
|
Gary K. Willis (1)(2)
|
65
|
2003
|
Maureen O. Helmer (1)(3)
|
54
|
2004
|
|
|
|
Class II—Term Expires 2013
|
|
|
George C. McNamee (2)(3)
|
64
|
1997
|
|
|
|
Class III—Term Expires 2011
|
|
|
Larry G. Garberding (1)(3)*
|
72
|
1997
|
* Nominee
for re-election.
(1) Member of the Audit
Committee.
(2) Member of the
Compensation Committee.
(3) Member of the
Corporate Governance and Nominating Committee.
The
principal occupation and business experience for at least the last five years
for each nominee and director of the Company is set forth below. The
biographies of each of the nominees and continuing directors below contains
information regarding the person’s service as a director, business experience,
director positions held currently or at any time during the last five years,
information regarding the experiences, qualifications, attributes or skills
that caused the Corporate Governance Committee and the Board to determine that
the person should serve as a director.
Andrew J. Marsh
has served as Chief Executive Officer, President and
member of the Board of Directors of the Company since April 8, 2008.
Previously, Mr. Marsh was a co-founder of Valere
Power where he served as President, CEO and director from the company’s
inception in 2001 through its sale to Eltek ASA in 2007. Under his
leadership, Valere grew into a profitable global operation with over 200
employees and $90 million in revenues derived from the sale of DC power
products to the telecommunications sector. During Mr. Marsh’s
tenure, Valere Power received many awards such as the Tech Titan award as the
fastest growing technology company in the Dallas Fort Worth area and the Red
Herring Top 100 Innovator Award. Prior to founding Valere, he spent
approximately eighteen years with Lucent Bell Laboratories where he held a
variety of sales and technical management positions. Mr. Marsh is
a member of the board of directors of Power Distribution Inc., a company
focused on quality power management. Mr. Marsh holds a Bachelor of Science in
Electrical Engineering Technology from Temple University, a Master of Science
in Electrical Engineering from Duke University and a Masters of Business
Administration from Southern Methodist University. We believe Mr. Marsh’s
qualifications to sit on our Board include his record of success in leadership
positions in technology companies having attributes similar to our Company, his
extensive experience in management positions as well as his educational
background in engineering and business administration.
48
Table of Contents
Gary K. Willis
has been a director of the Company since 2003. Mr. Willis joined Zygo
Corporation’s Board of Directors in June 2009 after retiring as Chairman
of the Board of Directors in November 2000, having served in that capacity
since November 1998. Zygo Corporation is a
provider of metrology, optics, optical assembly, and systems solutions to the
semiconductor, optical manufacturing, and industrial/automotive markets. Mr.
Willis had been a director of Zygo Corporation since February 1992 and also
served as its President from 1992 to 1999 and as its
Chief Executive Officer from 1993 to 1999. Prior to joining Zygo Corporation,
Mr. Willis served as the President and Chief Executive Officer of The Foxboro
Company, a manufacturer of process control instruments and systems. Mr. Willis
is also a director of Rofin-Sinar Technologies, Inc. since
1996 and Middlesex Health Services, Inc. since 1996. Mr.
Willis holds a Bachelor of Science degree in Mechanical Engineering from
Worcester Polytechnic Institute. We believe Mr.
Willis’ qualifications to sit on our Board include his extensive
experience in management and director positions with similar companies as well
as his educational background in mechanical engineering.
Maureen O. Helmer
has been a director of the Company since 2004.
Ms. Helmer is currently a member of the law firm Hiscock & Barclay LLP and
is the Co-Chair of the firm’s Regulatory Practice Group. Prior to
her joining Hiscock & Barclay LLP in November 2008, Ms. Helmer was a member
of Green & Seifter Attorneys, PLLC since October 2006. From 2003 through
2006 she practiced as a partner in the law firm of Couch White, LLP and then as
a solo practitioner. In addition to serving as Chair of the New York
State Public Service Commission (PSC) from 1998 to 2003, Ms. Helmer also served
as Chair of the New York State Board on Electric Generation Siting and the
Environment. Ms. Helmer has advised international energy,
telecommunications and industrial companies on policy and government affairs
issues. Prior to her appointment as Chair, Ms. Helmer served as
Commissioner of the Public Service Commission from 1997 until 1998 and was
General Counsel to the Department of the Public Service Commission from 1995
through 1997. From 1984 through 1995, Ms. Helmer held several positions in the
New York Legislature. She also served as a board member of the New York
State Energy Research and Development Authority, the New York State
Environmental Board and the New York State Disaster Preparedness Commission
during her tenure as Chair of the PSC. In addition, she was Vice Chair of
the Electricity Committee of the National Association of Regulatory Utility
Commissioners and a member of the NARUC Board of Directors. She was also
appointed to serve as a member of the New York State Cyber-Security Task
Force. Ms. Helmer earned her Bachelor of Science from the State University at Albany and her Juris Doctorate from the University of Buffalo law
school. She is admitted to practice law in New York. We
believe Ms. Helmer’s qualifications to sit on our Board include her long
history of experience with energy regulation, policy and government affairs and
advising energy and industrial companies.
49
Table of Contents
George
C. McNamee
serves as Chairman of the
Company’s Board of Directorsand has served as such
since 1997. Mr. McNamee is also Managing Partner of FA Tech Ventures, an
information and energy technology venture capital firm, a director of iRobot
Corporation (IRBT) since 1997 and Gleacher Securities, formerly Broadpoint
Securities (BPSG)
, and previously Chairman of
BPSG’s predecessor First Albany Companies. Mr. McNamee’s
background in investment banking has given him broad exposure to many financing
and merger and acquisition issues. As an executive, he has dealt with
rapid-growth companies, technological change, crisis management, team building
and strategy. As a public company director, Mr. McNamee led board special
committees, chaired audit committees, chaired three boards and has been an
active lead director. His past public company boards include Mechanical
Technology Inc. (MTI) and Home Shopping Network (HSN). He has been an
early stage investor, director and mentor for private companies that
subsequently went public including MapInfo (now Pitney Bowes), META Group and
IRBT. Mr. McNamee served on industry boards like the Securities Industry Association,
the National Association of Securities Dealers (NASD) district committee, the
National Stock Clearing Corporation and chaired the Regional Firms Advisory
Committee of the New York Stock Exchange (NYSE). He served as an NYSE
director from 1999 to 2004 and chaired its foundation. In the aftermath
of the 1987 stock market crash, he chaired the Group of Thirty Committee to
reform the Clearance and Settlement System. Mr. McNamee has been active
as a director or trustee of civic organizations including The Albany Academies
and Albany Medical Center, whose finance Committee he chaired for a dozen
years. Mr. McNamee chaired New York State Comptroller Ned Regan’s
Temporary State Commission on State and Local Fiscal Policies and served as a
member of the New York State Science and Tech Council for Governors Carey,
Cuomo and Pataki. He is also a director of several private companies, a
member of the Yale Development Board and a Trustee of The American Friends of
Eton College. He received his Bachelor of Arts degree from Yale University.
We believe Mr. McNamee’s qualifications
to sit on our Board include his experience serving on countless boards, his
background in investment banking and experience with the financial sector and
its regulatory bodies.
Larry G. Garberding
has served as a director of the Company since 1997.
Mr. Garberding
was a Director and Executive Vice President and Chief
Financial Officer of DTE Energy Company and the Detroit Edison Company from
1990 until retiring in 2001. Mr. Garberding was a Certified Public Accountant,
a partner with a major public accounting firm, and has been on the board of
several corporations, having had responsibility for financial, operational,
regulatory and sales activities. Mr. Garberding is currently a director
of Altarum Institute, a non-profit research and innovations institute; H2Gen
Innovations, Inc., a developer of hydrogen generation equipment; and Intermap
Technologies Corporation, a digital mapping company
,
since 2001. Mr. Garberding received a Bachelor of Science degree in Industrial
Administration from Iowa State University. We believe
Mr. Garberding’s qualifications to sit on our Board include his extensive
experience with power and energy companies and his background in accounting,
financing and operations.
50
Table of Contents
(b)
Executive Officers
The names and ages of all executive
officers of the Company and the principal occupation and business experience
for at least the last five years for each are set forth below. The ages of and
biographical information regarding each executive officer is based on
information furnished to the Company by each executive officer and is as of January
31, 2011.
|
|
|
|
|
Executive Officers
|
Age
|
Position
|
|
Andrew Marsh..................................
|
54
|
President, Chief Executive
Officer and Director
|
|
Gerald A. Anderson
........................
|
53
|
Chief Financial Officer and Senior
Vice President - Operations
|
|
Gerard L. Conway, Jr........................
|
46
|
General Counsel, Corporate Secretary
and Senior Vice President - Government Relations
|
|
Erik Hansen.......................................
|
39
|
Senior Vice President - Sales,
Service and Hydrogen
|
|
Adrian Corless..................................
|
44
|
Chief Technology Officer, Senior
Vice President - Engineering
|
|
Reid Hislop........................................
|
50
|
Vice President - Marketing
and Investor Relations
|
The principal occupation and
business experience for at least the last five years for each executive officer
of the Company is set forth below. The biographies of each of the
executive officers below contains information regarding the person’s
service as an executive, business experience, director positions held currently
or at any time during the last five years, information regarding the experiences,
qualifications, attributes or skills that caused the Corporate Governance
Committee and the Board to determine that the person should serve as an
executive officer.
Andrew Marsh’s
biographical information can be found in the section
entitled
“Directors”
in Part III Item 10(a) of this Annual
Form 10-K.
Gerald A. Anderson
joined Plug Power as Chief Financial Officer in July
2007 and, since March 2009, has also served as Senior Vice President. He
is responsible for managing all aspects of the Company’s financial,
investor relations and information services operations. Prior to joining Plug
Power, Mr. Anderson was the Treasurer and Director of Finance for
Intermagnetics General Corporation. Utilizing an
acquisition growth strategy, he managed finance, treasury, risk management and
business valuation functions for the medical device manufacturing company.
Prior to that, he was Chief Financial Officer for J Management Company. In addition to managing finance, controllership, merger
and acquisition and treasury functions, he also helped set the strategic
direction of the company. Earlier in his career, Mr. Anderson spent 15 years
with KeyCorp, eventually as Senior Vice President, Director of Business
Analysis and Management Reporting. He has 30 years of financial
experience. He holds a Bachelor of Science degree in Business
Administration, with a concentration in Accounting, from the University of Arizona.
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Table of Contents
Gerard L. Conway, Jr.
has served as General Counsel and Corporate Secretary
since September 2004 and, since March 2009, has also served as Senior Vice
President. In that capacity, Mr. Conway is responsible for advising the
Company on legal issues such as corporate law, securities, contracts, strategic
alliances and intellectual property. He also serves as the Compliance
Officer for securities matters affecting the Company. During his tenure, Mr.
Conway served as Vice President of Government Relations from 2005 to June 2008
and in that capacity he advocated on energy issues, policies, legislation and
regulations on the state, federal, national and international levels on behalf
of the Company and the alternative energy sector. Prior to his appointment to
his current position, Mr. Conway served as Associate General Counsel and
Director of Government Relations for the Company beginning in July 2000. Prior
to joining Plug Power, Mr. Conway spent four years as an Associate with
Featherstonhaugh, Conway, Wiley & Clyne, LLP, where he concentrated in
government relations, business and corporate law. Mr. Conway has more
than nineteen years of experience in general business, corporate real estate
and government relations. Mr. Conway holds a Bachelor of Arts degree in
English and Philosophy from Colgate University and a Juris Doctorate from
Boston University School of Law.
Erik Hansen
joined Plug Power Inc. as Vice President of Business Development in 2008 and
was appointed Senior Vice President and General Manager of the Motive Power
Division in October of 2009. Mr. Hansen is responsible for directing the
Motive Power Division as it commercializes its fuel cell power products for
material handling customers. Mr. Hansen has more than 15 years of
experience with cutting edge technologies related to energy storage
systems. Prior to joining Plug Power, he was General Manager of Sales and
Systems Engineering for Cobasys LLC in Orion, Michigan, where he worked for
eight years. In that role, Mr. Hansen led the decision-making and
strategic planning for the manufacture and sales of advanced energy storage
solutions for both the transportation and uninterruptible power systems.
Mr. Hansen holds a Bachelor of Science degree in Electrical Engineering and a
Bachelor of Science degree in Computer Engineering, both from West Virginia University.
Adrian Corless
joined Plug Power in April 2007 as Vice President of Technology and was
appointed Chief Technology officer in June 2008. As of February 2010, Mr.
Corless was appointed Senior Vice President and Chief Technology Officer and is
currently responsible for the development of Plug Power’s Motive Power
products as well as guiding Plug Power’s overall technology and
Intellectual Property strategies. Prior to joining Plug Power, Mr.
Corless was the Chief Technical Officer of Cellex Power Products
and was responsible for the technical aspects of the
product development process. Prior to joining Cellex, Mr. Corless worked
for Ballard Power Systems Inc.
and Excellsis Inc.
latterly as Program Manger for the Phase 4 fuel cell bus program
. Mr. Corless is an active participant in the
Industrial Truck Association, an executive board member of the Canadian
Hydrogen and Fuel Cell Association, a Technical Advisory Board member for the
NRC Institute for Fuel Cell Innovation, and a member of both UL and CSA
standards development committees. Mr. Corless holds a Masters of Applied
Science degree in Mechanical Engineering from the University of Victoria and is a Registered Professional Engineer in British Columbia, Canada.
52
Table of Contents
Reid Hislop
joined Plug Power in 2010 as Vice President of Marketing and Investor
Relations. Mr. Hislop brings over twenty years of technology marketing
experience and a long history of developing successful and innovative marketing
programs to his role. For Plug Power, he leads the Company’s
Marketing Communications and Investor relations teams. He works directly
with the Company’s executive team to grow and strengthen its overall
market position, vision and awareness in the alternative energy economy.
Prior to joining Plug Power, Mr. Hislop was Vice President of Global Marketing
for Pitney Bowes Business Insight (PBBI). PBBI was
the business unit created shortly after MapInfo was acquired by Pitney Bowes in
2007. Prior to the acquisition, Mr. Hislop served
as the Vice President of Marketing for MapInfo, where he led the
Company’s global marketing team, directed branding efforts and helped
create MapInfo’s leadership role in the Location Intelligence
category. Mr. Hislop holds a Bachelor of Science degree from the University of Alberta, Canada.
Subject to any terms of any employment agreement with
the Company (as further described in "Employment Agreements" under Item 12 below), each
of the executive officers holds his or her respective office until the regular
annual meeting of the Board of Directors following the Annual Meeting of
Stockholders and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
(c)
Code of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics that applies to all
officers, directors, employees and consultants of the Company. The Code of
Business Conduct and Ethics is intended to comply with Item 406 of Regulation
S-K of the Securities Exchange Act of 1934 and with applicable rules of The
NASDAQ Stock Market, LLC. Our Code of Business Conduct and Ethics is posted on
our Internet website under the “Investor” page. Our Internet
website address is www.plugpower.com. To the extent required or permitted by
the rules of the SEC and NASDAQ, we will disclose amendments and waivers
relating to our Code of Business Conduct and Ethics in the same place as our
website.
(d)
Audit Committee
The Company has a separately-designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act.
The Audit Committee consists of Messrs. Garberding
(Chair) and Willis, and Ms. Helmer. The Audit Committee held six (6) meetings
during Fiscal 2010 and each member attended all of the meetings during the
period in which such person served on the committee.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of
1934, as amended,
requires the Company's officers, as defined by Section 16, and directors, and
persons who own more than 10% of the Company's outstanding shares of Common
Stock (collectively, "Section 16 Persons"), to file initial reports of
ownership and reports of changes in ownership with the SEC. Section 16
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
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Table of Contents
A Form 5 was filed late
on February 16, 2010 for Gerard L. Conway, Jr. to account for a sale of shares
initiated by the broker to pay for the brokerage annual fee. Five Form 4s
were filed late on February 19, 2010 for each of the Officers of the Company to
account for the stock grants pursuant to the Plug Power 1999 Stock Option and
Incentive Plan and the Executive Incentive Plan as amended July 30, 2008 and as
approved by the Board of Directors on February 8, 2010. A Form 3 was filed
late on February 25, 2010 for Adrian Corless once he was established as a
Section 16 Person. Five Form 4s were filed late on July 20, 2010 for each
of the Directors of the Company to account for quarterly stock compensation.
Item 11.
|
Executive Compensation
|
Compensation Discussion and Analysis
We provide what we believe is a competitive total compensation package
to our executive management team through a combination of base salary, annual
incentive bonuses, long-term equity incentive compensation, and broad-based
benefits programs. We place emphasis on pay-for-performance based incentive
compensation, which is designed to reward our executives based on the
achievement of predetermined performance goals. This Compensation
Discussion and Analysis explains our compensation objectives, policies and
practices with respect to our Chief Executive Officer, Chief Financial Officer, the other three most
highly-compensated executive officers and an additional
individual for whom disclosure would have been provided but for the fact that
he was not serving as an executive officer of the Company at the end of the
last completed fiscal year as determined in accordance with applicable SEC
rules, who are collectively referred to as the “Named Executive
Officers.”
Mr. Sperry was
formerly a party to an employment agreement with the Company that provided for
a payment upon termination for other than “Cause.” On
August 27, 2010, Mr. Sperry was terminated as part of the Company’s May
2010 restructuring to focus on harnessing commercial traction in the material
handling market. In accordance with the terms of his employment agreement,
the Company made a severance payment to Mr. Sperry in the amount of $258.000
Objectives of Our Executive
Compensation Programs
Our compensation programs
for our named executive officers are designed to achieve the following
objectives:
-
Attract and retain talented and
experienced executives;
-
Motivate and reward executives
whose knowledge, skills and performance are critical to our success;
-
Provide a competitive compensation
package which is weighted towards pay-for-performance and in which total compensation
is primarily determined by Company and individual results and the creation of
shareholder value;
54
Table of Contents
-
Ensure fairness among the
executive management team by recognizing the contributions each executive makes
to our success; and
-
Motivate our executives to manage
our business to meet our short- and long-term objectives and reward them for
meeting these objectives.
Our Executive Compensation
Programs
Our executive
compensation primarily consists of base salary, annual incentive bonuses,
long-term equity incentive compensation and broad-based benefits
programs. Consistent with the emphasis we place on pay-for-performance
based incentive compensation, long-term equity incentive compensation in the
form of stock options and restricted stock constitute a significant portion of
our total executive compensation.
Within the context of the overall objectives of our compensation
programs, our Compensation Committee determined the specific amounts of
compensation to be paid to each of our executives in 2010 based on a number of
factors, including:
-
Its understanding of the amount of compensation generally paid by
similarly situated companies to their executives with similar roles and
responsibilities;
-
Our executives’ performance during 2010 in general and as
measured against predetermined performance goals;
-
The nature, scope and level of our executives’
responsibilities;
-
Our executives’ effectiveness in leading the
Company’s initiatives to increase customer value, productivity and
revenue growth;
-
The individual experience and skills of, and expected
contributions from, our executives;
-
The executive’s contribution to the Company’s
commitment to corporate responsibility, including the executive’s success
in creating a culture of unyielding integrity and compliance with applicable
law and the Company’s ethics policies;
-
The amounts of compensation being paid to our other executives;
-
The executive’s contribution to our financial results;
-
Our executives’ historical compensation at our Company; and
-
Any contractual commitments we have made to our executives
regarding compensation.
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Table of Contents
Each of the primary elements of our executive compensation is discussed
in detail below, including a description of the particular element and how it
fits into our overall executive compensation. Compensation paid to our
named executive officers in 2010 is discussed under each element. In the
descriptions below, we have identified particular compensation objectives which
we have designed our executive compensation programs to serve; however, we have
designed our compensation programs to complement each other and to collectively
serve all of our executive compensation objectives described above.
Accordingly, whether or not specifically mentioned below, we believe that, as a
part of our overall executive compensation, each element to a greater or lesser
extent serves each of our objectives.
Base Salary
We pay our executives a base salary which we review and determine
annually. We believe that a competitive base salary is a necessary
element of any compensation program designed to attract and retain talented and
experienced executives. We also believe that attractive base salaries can
motivate and reward executives for their overall performance. Base
salaries are, in part, established based on the individual experience, skills,
expected contributions of our executives, and our executives’ performance
during the prior year.
In 2010, we did not increase the base salaries of Mr.
Marsh and Mr. Conway. The base salaries for these executives remained at
the 2009 levels as follows: Mr. Marsh’s base salary was $375,000 per year
and Mr. Conway’s base salary was $200,000 per year. Mr. Corless
became a named executive officer in 2010 and his base salary was set at
$215,000. In 2010, we increased the base salaries of Mr. Anderson and Mr.
Hansen as follows: Mr. Anderson’s salary was increased from
$250,000 to $300,000 and Mr. Hansen’s salary was increased from $200,000
to $230,000. Our executives’ base salaries reflect the initial base
salaries that we negotiated with each of our executives at the time of his or
her initial employment or promotion and our subsequent adjustments to these
amounts to reflect market increases, the growth and stage of development of our
Company, our executives’ performance and increased experience, any
changes in our executives’ roles and responsibilities, and other factors.
The initial base salaries that we negotiated with our executives were based on
our understanding of the market at the time, the individual experience and
skills of, and expected contribution from, each executive, the roles and
responsibilities of the executive, the base salaries of our existing
executives, and other factors.
Annual Incentive Bonuses
Our named executive officers are eligible to receive annual incentive
bonuses based on our pay-for-performance incentive compensation program.
They are eligible to receive annual incentive bonuses primarily based upon
their performance as measured against predetermined individual performance
goals, including financial measures, achievement of strategic objectives, and
other factors. The primary objective of this program is to motivate and
reward our named executive officers for meeting individual performance
goals. We do not believe that every important aspect of executive
performance is capable of being specifically quantified in a predetermined
performance goal. For example, events outside of our control may occur
after we have established the named executive officers’ individual
performance goals for the year that require our named executive officers to
focus their attention on different or other strategic initiatives; thus, the
individual performance goals may be modified during the fiscal year by the
President and Chief Executive Officer, or the Board of Directors in the case of
the President and Chief Executive Officer himself, to account for such events
beyond our control.
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Table of Contents
Within our pay-for-performance incentive compensation program, specific
performance attainment levels are indicated for each performance goal.
These performance attainment levels correlate to potential award amounts that
are calculated as a percent of each executive’s base salary.
We
established attainment levels for each of our executives, other than Mr. Marsh,
as 10%, 20% or 30% of his or her base salary to be awarded in the form of a
stock grant. Since the annual
incentive bonus is payable based on the achievement of each of the different
levels of performance, the executive officer may earn between 0% and 30% of his
base salary given his actual performance. The 20% attainment level is
considered the target level for each performance goal because it is challenging
for the executive to attain, and the executive would meet expectations if he
achieved this level. The 10% attainment level is considered the threshold
level for each performance goal because although still challenging, it is the
minimum acceptable performance level. The 30% attainment level is
considered the maximum, or stretch, level for each performance goal because it
is most challenging for the executive to attain, and the executive would have
to exceed expectations to achieve this level. Our maximum and threshold
performance attainment levels are determined in relation to our target
attainment levels and are intended to provide for correspondingly greater or
lesser incentives in the event that performance is within an appropriate range
above or below the target performance attainment level.
We also established attainment levels for our Chief
Executive Officer as 17%, 34% or 50% of his base salary to be awarded in the
form of a stock grant. Since the
annual incentive bonus is payable based on the achievement of each of the
different levels of performance, the Chief Executive Officer may earn between
0% and 50% of his base salary given his actual performance. The 34%
attainment level is considered the target level for each performance goal
because it is challenging for the Chief Executive Officer to attain, and the
executive would meet expectations if he achieved this level. The 17%
attainment level is considered the threshold level for each performance goal
because although still challenging, it is the minimum acceptable performance
level. The 50% attainment level is considered the maximum, or stretch,
level for each performance goal because it is most challenging for the Chief
Executive Officer to attain, and the Chief Executive Officer would have to
exceed expectations to achieve this level. Our maximum and threshold
performance attainment levels are determined in relation to our target
attainment levels and are intended to provide for correspondingly greater or
lesser incentives in the event that performance is within an appropriate range
above or below the target performance attainment level.
As a way of linking each executive’s performance
to corporate-wide strategy, the executives’ individual performance goals
directly correlate to our corporate milestones, which management recommends to
the Board of Directors and the Board of Directors approves after appropriate
discussion and review. The executives’ individual performance goals
are determined in the same way as the corporate milestones such that management
reviews how each executive may contribute to the corporate milestones and
recommends individual performance goals to the Board of Directors. The
Board of Directors, after appropriate discussion and review, ultimately
approves the individual performance goals. Because disclosure of the
specific individual performance goals would give competitors information that
could be leveraged for competitive advantage, we do not disclose these specific
individual performance goals or our executives’ actual performance
against such goals. Generally the individual performance goals, as well
as the corporate milestones, fell into one or more of the following categories:
(i) increase sales, (ii) meet product launch schedules, (iii) meet goals for
number of units shipped, (iv) decrease product and fuel costs, and (v) decrease
costs of business operations.
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Table of Contents
Initially, the CEO, and other members of management as
appropriate, make a recommendation to the Compensation Committee of the Board
of Directors for each executive’s potential award amount based on his
level of attainment of each of his individual performance goals (with the
exception of the CEO himself whose level of attainment is evaluated by the
Compensation Committee directly). Ultimately, the Board of Directors,
after review and discussion and recommendation from the Compensation Committee,
determines the final achieved level of attainment for each executive’s
individual performance goals. In
2010, no annual incentive awards in the form of stock grants were made to the
named executive officers.
Long-Term
Equity Incentive Compensation
We grant long-term equity
incentive awards in the form of stock options and restricted stock to
executives as part of our total compensation package. Consistent with our
emphasis on pay-for-performance based incentive compensation, these awards
represent a significant portion of total executive
compensation. Based on the stage of our Company’s development and
the incentives we aim to provide to our executives, we have chosen to use
either stock options or a combination of stock options and restricted stock as
our long-term equity incentive awards. Our decisions regarding the amount
and type of long-term equity incentive compensation and relative weighting of
these awards among total executive compensation have also been based on our
understanding of market practices of similarly situated companies and our
negotiations with our executives in connection with their initial employment or
promotion by our Company.
Additionally, the Board
adopted stock ownership guidelines for named executives, effective as of August
15, 2005, which are also considered when granting long-term equity incentive
awards to executives. These guidelines provide a target level of Company
equity holdings with which named executives are expected to comply within five
(5) years from the latter of the effective date of the guidelines or the date
the individual is first appointed as an executive. The target stock
holdings are determined as a multiple of the named
executive’s base salary and then converted to a fixed number of shares.
The named executive’s base salary is multiplied by five (5) for Chief
Executive Officer and by three (3) for all other named executives; that product
is divided by Plug Power’s 200-day average common stock price as reported
by the NASDAQ Global Market; and finally that amount is then rounded to the
nearest 100 shares. The following count towards satisfaction of these
stock ownership guidelines: (i) shares owned outright by the executive
or his or her immediate family members residing in the same household; (ii)
stock held in the Plug Power Inc. Savings and Retirement Plan (401K Plan);
(iii) stock held in the Plug Power Inc. Employee Stock Purchase Plan (ESPP);
(iv) restricted stock issued as part of an executive’s annual or other
bonus whether or not vested; (v) shares acquired upon the exercise of employee
stock options; (vi) shares underlying unexercised employee stock options as
part of the Plug Power Inc. Employee Stock Option Plan (ESOP) times a factor of
thirty-three percent; and (vii) shares held in trust.
58
Table of Contents
Stock option awards provide our executive officers with the right to
purchase shares of our common stock at a fixed exercise price typically for a
period of up to ten years, subject to continued employment with our
Company. Stock options are earned on the basis of continued service and
generally vest over three years, beginning with one-third vesting on the first
anniversary of the grant date, one-third vesting on the second anniversary of
the grant date and the final one-third vesting on the third anniversary of the
grant date, subject to acceleration in certain circumstances. Stock
option awards are made pursuant to our 1999 Stock Option and Incentive
Plan. Except as may otherwise be provided in the applicable stock option
award agreement, stock option awards become fully exercisable upon a change of
control under the 1999 Stock Option and Incentive Plan. The exercise
price of each stock option granted under our 1999 Stock Option and Incentive
Plan is the closing price of our common stock on the NASDAQ Capital Market as of the effective date of each grant.
Grants to new hires and grants relating to an existing executive
officer’s promotion may be made on a periodic basis. All grants to
executive officers are approved by the Compensation Committee. We
consider a number of factors in determining the number of stock options, if
any, to grant to our executives, including:
-
the number of shares subject to, and exercise price of,
outstanding options, both vested and unvested, held by our named executive
officers;
-
the vesting schedule of the unvested stock options held by our
named executive officers; and
-
the amount and percentage of our total equity on a diluted basis
held by our named executive officers.
Restricted stock awards provide our executive officers with
shares of our stock that they may retain or trade; however, all executive
officers must trade within their rights according to our Insider Trading
Policy. The restricted stock is intended to be a long-term incentive
alternative to the stock option awards that may be appropriate for executive
officers based on their performance and their critical skills. Restricted
stock awards may vest over three years, beginning with one-third vesting one
year after the date of grant, then pro-rata vesting monthly thereafter.
Restricted stock awards are made pursuant to our 1999 Stock Option and
Incentive Plan.
On October 28, 2009, the
Compensation Committee recommended and the Board of Directors approved a Long
Term Incentive (LTI) Plan pursuant to the terms of the Company’s 1999
Stock Option and Incentive Plan. Designed as an incentive vehicle to support
employee efforts, the LTI Plan seeks to increase shareholder value by
encouraging Plug Power employees to continue to work diligently to further the
Company’s long term goals, particularly the recently announced three year
plan to achieve profitability in 2012.
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Table of Contents
Under the LTI Plan, a select
group of critical employees received a Restricted Stock Unit Award Agreement
(Agreement) awarding a one time grant of restricted stock units (RSUs)
calculated using a multiple of the selected employee’s base salary.
According to the Agreement, the restrictions on each participant’s RSU
allocation will lapse over a three year period upon successful completion of
weighted performance-based metrics. Specifically, restrictions on 25% of RSUs
are tied to the Company’s achievement of revenue targets, while the
restrictions on 75% of RSUs are tied to the Company’s achievement of
earnings before interest expense, taxes,
depreciation, amortization and non-cash charges for equity compensation
(measurement referred to in the Agreement as “EBITDAS”) targets.
Intended to supplement the annual employee incentive plan payout, the total
number of RSUs on which restrictions shall lapse each year will vary depending
on the Company’s progress achieving the corresponding threshold, target
or stretch goals.
Restrictions shall lapse
with respect to the corresponding revenue RSUs based on the following sample
schedule, depending on the Company’s achievement of the Revenue targets
for 2010, 2011 and 2012:
FOR ACHIEVEMENT OF REVENUE PERFORMANCE TARGETS
|
|
RSU
|
Percent
|
RSU's
|
RSU's
|
2010 PERFORMANCE
|
Allocation
|
Vesting
|
Earned
|
Forfeited
|
< Threshold
|
0
|
0%
|
0
|
3,831
|
>= Threshold and < Target
|
13,931
|
20%
|
2,786
|
1,045
|
>= Target and < Stretch
|
17,413
|
20%
|
3,483
|
348
|
>= Stretch
|
19,155
|
20%
|
3,831
|
0
|
|
RSU
|
Percent
|
RSU's
|
RSU's
|
2011 PERFORMANCE
|
Allocation
|
Vesting
|
Earned
|
Forfeited
|
< Threshold
|
0
|
0%
|
0
|
4,789
|
>= Threshold and < Target
|
13,931
|
25%
|
3,483
|
1,306
|
>= Target and < Stretch
|
17,413
|
25%
|
4,353
|
436
|
>= Stretch
|
19,155
|
25%
|
4,789
|
0
|
|
RSU
|
Percent
|
RSU's
|
RSU's
|
2012 PERFORMANCE
|
Allocation
|
Vesting
|
Earned
|
Forfeited
|
< Threshold
|
0
|
0%
|
0
|
10,535
|
>= Threshold and < Target
|
13,931
|
55%
|
7,662
|
2,873
|
>= Target and < Stretch
|
17,413
|
55%
|
9,577
|
958
|
>= Stretch
|
19,155
|
55%
|
10,535
|
0
|
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Table of Contents
Restrictions
shall lapse with respect to the corresponding EBITDAS RSUs based on the
following sample schedule, depending on the Company’s achievement of the
EBITDAS targets for 2010, 2011 and 2012:
FOR ACHIEVEMENT OF EBITDAS PERFORMANCE TARGETS
|
|
|
|
RSU
|
Percent
|
RSU's
|
RSU's
|
2010 PERFORMANCE
|
Allocation
|
Vesting
|
Earned
|
Forfeited
|
< Threshold
|
0
|
0%
|
0
|
11,493
|
>= Threshold and < Target
|
41,791
|
20%
|
8,358
|
3,135
|
>= Target and < Stretch
|
52,240
|
20%
|
10,448
|
1,045
|
>= Stretch
|
57,463
|
20%
|
11,493
|
0
|
|
|
RSU
|
Percent
|
RSU's
|
RSU's
|
2011 PERFORMANCE
|
Allocation
|
Vesting
|
Earned
|
Forfeited
|
< Threshold
|
0
|
0%
|
0
|
14,366
|
>= Threshold and < Target
|
41,791
|
25%
|
10,448
|
3,918
|
>= Target and < Stretch
|
52,240
|
25%
|
13,060
|
1,306
|
>= Stretch
|
57,463
|
25%
|
14,366
|
0
|
|
|
RSU
|
Percent
|
RSU's
|
RSU's
|
2012 PERFORMANCE
|
Allocation
|
Vesting
|
Earned
|
Forfeited
|
< Threshold
|
0
|
0%
|
0
|
31,604
|
>= Threshold and < Target
|
41,791
|
55%
|
22,985
|
8,619
|
>= Target and < Stretch
|
52,240
|
55%
|
28,732
|
2,872
|
>= Stretch
|
57,463
|
55%
|
31,604
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
For example, assuming the Company achieves stretch revenue
and EBITDAS metrics, restrictions on a maximum of 20% of total awarded RSUs
will lapse in 2011 for performance in 2010; restrictions on a maximum of 25% of
total awarded RSUs will lapse in 2012 for performance in 2011; and restrictions
on a maximum of 55% of total awarded RSUs will lapse in 2013 for performance in
2012. Alternatively, if at the end of the fiscal year it is determined
that the Company failed to achieve these articulated performance-based metrics,
a percentage of RSUs will be forfeited for that fiscal year.
Pursuant to the terms of the
Agreement, in the event stretch revenue and EBITDAS metrics are reached during
each of the three years of the grant period commencing on January 1, 2010, the
Company could issue a maximum of 8,667,666 shares to LTI Plan participants,
currently representing approximately 6.6% of total outstanding shares.
Restrictions on these shares only lapse in the event the Company performs at
the articulated performance metrics.
61
Table of Contents
In 2010, no threshold, target or stretch revenue and
EBITDAS performance-based metrics were reached. Accordingly, no
restrictions lapsed with respect to the 2010 performance period and 20% of the total awarded RSUs
for the Named Executive Officers
were forfeited
as follows: Mr. Marsh - 257,813 RSUs, Mr. Anderson - 158,654 RSUs, Mr.
Conway - 95,192 RSUs, Mr. Hansen - 95,192 RSUs and Mr. Corless - 91,942 RSUs.
Broad-Based Benefits
All full-time employees, including our named executive officers, may
participate in our health and welfare benefit programs, including medical,
dental, and vision care coverage, disability insurance and life insurance, and
our 401(k) plan.
Our Executive Compensation Process
The Compensation Committee of our Board of Directors is responsible for
determining the compensation for our named executive officers. The
Compensation Committee is composed entirely of non-employee directors who are
“independent” as that term is defined in the applicable NASDAQ
rules. In determining executive compensation, our Compensation Committee
annually reviews the performance of our executives with our Chief Executive
Officer, and our Chief Executive Officer makes recommendations to our
Compensation Committee with respect to the appropriate base salary, annual
incentive bonuses and performance measures, and grants of long-term equity
incentive awards for each of our executives. The Chairman of the
Compensation Committee makes recommendations to the Compensation Committee with
regards to the Chief Executive Officer’s compensation. The
Compensation Committee makes its determination regarding executive compensation
and then recommends such determination to the Board of Directors. The
Board of Directors ultimately approves executive compensation.
As a
result, the total amount of compensation that we paid to our executives, the
types of executive compensation programs we maintained, and the amount of
compensation paid to our executives under each program has been determined by
our Compensation Committee and Board of Directors based on their understanding
of the market, experience in making these types of decisions, and judgment
regarding the appropriate amounts and types of executive compensation to
provide.
Summary Compensation
The
following table sets forth information concerning compensation for services
rendered in all capacities awarded to, earned by or paid in the last three fiscal years
to the Company's Named Executive Officers.
62
Table of Contents
Summary Compensation
Table
|
|
|
|
|
All Other
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
|
Stock Awards ($)
|
Option Awards ($)
|
Compensation ($)
|
|
Total ($)
|
|
|
(1)
|
(2)
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Marsh (4)
|
2010
|
375,000
|
-
|
-
|
12,526
|
(5)
|
387,526
|
President, Chief Executive Officer and
|
2009
|
382,212
|
57,562
|
1,775
|
48,742
|
(5)
|
490,291
|
Director
|
2008
|
272,596
|
109,835
|
832,000
|
127,864
|
(5)
|
1,342,295
|
Gerald A. Anderson
|
2010
|
258,654
|
-
|
-
|
12,526
|
(6)
|
271,180
|
Chief Financial Officer and
|
2009
|
254,807
|
50,150
|
1,775
|
12,526
|
(6)
|
319,258
|
Senior Vice President - Operations
|
2008
|
248,577
|
87,256
|
42,120
|
11,995
|
(6)
|
389,948
|
Gerard L. Conway, Jr. (7)
|
2010
|
200,000
|
-
|
-
|
180
|
(8)
|
200,180
|
General Counsel, Corporate Secretary and
|
2009
|
203,846
|
38,300
|
1,775
|
180
|
(8)
|
244,101
|
Senior Vice President - Government Relations
|
2008
|
197,693
|
80,500
|
42,120
|
7,757
|
(8)
|
328,070
|
Erik J. Hansen (9)
|
2010
|
209,034
|
-
|
-
|
9,346
|
(10)
|
218,380
|
Senior Vice President - Sales, Service and Hydrogen
|
2009
|
181,000
|
37,400
|
1,775
|
9,158
|
(10)
|
229,333
|
|
2008
|
-
|
-
|
-
|
-
|
|
-
|
Adrian Corless (11)
|
2010
|
215,827
|
-
|
-
|
61,122
|
(12)
|
276,949
|
Chief Technology Officer,
|
2009
|
-
|
-
|
-
|
-
|
|
-
|
Senior Vice President - Engineering
|
2008
|
-
|
-
|
-
|
-
|
|
-
|
Mark A. Sperry (13)
|
2010
|
193,828
|
-
|
-
|
258,000
|
(14)
|
451,828
|
Senior Vice President and General
|
2009
|
262,962
|
18,602
|
1,775
|
12,430
|
(14)
|
295,769
|
Manager of Continuous Power Division
|
2008
|
257,231
|
77,399
|
42,120
|
11,499
|
(14)
|
388,249
|
(1)
|
This column represents the dollar
amount of base salary actually paid to executives. During 2009, our
fiscal calendar included fifty-three (53) pay periods, and therefore, each
executive earned one (1) additional week of base pay.
|
|
|
(2)
|
This column represents the aggregate
grant date fair value of the stock award computed in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic
718. Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures. Fair value is calculated using the closing price of Plug Power
stock on the date of grant. For additional information on stock awards, refer
to note 14 of the Company’s consolidated
financial statements in the Form 10-K for the year ended December 31,
2010, as filed with the SEC. These amounts reflect the Company’s
accounting expense for these awards, and do not correspond to the actual value
that will be recognized by the named executives.
|
63
Table of Contents
(3)
|
This column represents the
aggregate grant date fair value of the option award computed in accordance with
Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 718. Pursuant to SEC rules, the amounts shown exclude the impact of
estimated forfeitures. For additional information on the valuation assumptions
with
respect to option awards, refer
to note 14 of the Company’s consolidated financial statements in the Form
10-K for the year ended December 31, 2010, as filed with the SEC. These
amounts reflect the Company’s accounting expense for these awards, and do
not correspond to the actual value that will be recognized by the named
executives.
|
|
|
(4)
|
Mr. Marsh was hired in April 2008,
and therefore he received compensation in 2008 for nine months.
|
|
|
(5)
|
Includes the Company’s share
of contributions on behalf of Mr. Marsh to the Plug Power 401(k) savings plan
in the amount of $12,250, $12,250 and $10,130 in the years ended 2010, 2009 and
2008, respectively, payments of $276, $276 and $673 for supplemental life
insurance premiums in the years ended 2010, 2009 and 2008, respectively, and payments
of $36,216 and $117,061 for moving and relocation expenses in 2009 and 2008,
respectively.
|
|
|
(6)
|
Includes the Company’s share
of contributions on behalf of Mr. Anderson to the Plug Power 401(k) savings
plan in the amount of $12,250, $12,250 and $11,443 in the years ended 2010, 2009
and 2008, respectively, and payments of $276, $276 and $552 for supplemental
life insurance premiums in the years ended 2010, 2009 and 2008, respectively.
|
|
|
(7)
|
Mr. Conway became a named
executive officer in 2008.
|
|
|
(8)
|
Includes the Company’s share
of contributions on behalf of Mr. Conway to the Plug Power 401(k) savings plan
in the amount of $0, $0 and $7,577 in the years ended 2010, 2009 and 2008,
respectively, and payments of $180, $180 and $180 for supplemental life
insurance premiums in the years ended 2010, 2009 and 2008, respectively.
|
|
|
(9)
|
Mr. Hansen became a named
executive officer in 2009.
|
|
|
(10)
|
Includes the Company’s share
of contributions on behalf of Mr. Hansen to the Plug Power 401(k) savings plan
in the amount of $9,346 and $9,158 in the years ended 2010 and 2009,
respectively.
|
|
|
(11)
|
Mr. Corless became a named
executive officer in 2010.
|
|
|
(12)
|
Includes the Company’s share
of contributions on behalf of Mr. Corless of $120 for supplemental life
insurance premiums in the year ended 2010, as well as a stipend of $61,000
related to moving and relocation expenses.
|
64
Table of Contents
(13)
|
On August 27, 2010, Mark. A.
Sperry's position was eliminated and he subsequently stepped down from his position as Senior Vice President and General
Manager of the Company’s Continuous Power Division.
|
|
|
(14)
|
Includes the Company’s share
of contributions on behalf of Mr. Sperry to the Plug Power 401(k) savings plan
in the amount of $0, $12,250, and $11,125 in the years ended 2010, 2009 and 2008,
respectively, and payments of $0, $180 and $374 for supplemental life insurance
premiums in the years ended 2010, 2009 and 2008, respectively, and a severance
payment of $258,000 in 2010.
|
Grants of Plan-Based Awards Table
There
were no equity awards granted to the named executive officers in 2010.
DISCUSSION OF SUMMARY COMPENSATION AND GRANTS OF
PLAN-BASED AWARDS TABLES
Our executive compensation policies and practices,
pursuant to which the compensation set forth in the Summary Compensation Table
and the Grants of Plan Based Awards Table was paid or awarded, are described
above under “Compensation Discussion and Analysis.” A summary of
certain material terms of our compensation plans and arrangements is set forth
below.
Employment Agreements
The Company and Mr. Marsh are parties to an employment
agreement which renews automatically for successive one-year terms unless Mr.
Marsh or the Company gives notice to the contrary. Mr. Marsh receives an annual
base salary of $375,000 and is eligible to: (i) receive an annual incentive
bonus of up to an amount equal to fifty percent (50%) of his annual base
salary; (ii) participate in all savings and retirement plans; and (iii)
participate in all benefit and executive perquisites. Mr. Marsh’s
employment may be terminated by the Company for “Cause”, as defined
in the agreement, or by Mr. Marsh for “Good Reason”, as defined in
the agreement, or without “Good Reason” upon written notice of
termination to the Company. If Mr. Marsh’s employment is terminated by
the Company for any reason other than cause, death or disability, or in the
event that Mr. Marsh terminates his employment with the Company and is able to
establish “Good Reason”, the Company is obligated to pay Mr. Marsh
the sum of the following amounts:
(i)
any earned but unpaid annual base salary,
(ii)
incentive bonus earned but not yet paid,
(iii)
unpaid expense reimbursements,
(iv)
accrued but unused vacation, plus
(v) any
benefits that may have vested under any employee benefit plan of the Company
through the date of termination; plus:
(a) one (1) times annual base
salary and
(b) one
(1) times the annual incentive bonus for the immediately preceding fiscal year.
65
Table of Contents
In addition, Mr. Marsh is entitled to fully vest as of
the date of termination in any outstanding restricted stock, stock options and
other stock awards previously granted that would have vested had he remained an
employee for an additional twelve (12) months following the date of
termination. Furthermore, the Company is required to continue paying health
insurance and other benefits to Mr. Marsh and his eligible family members for
twelve (12) months following his termination. The agreement also provides,
among other things, that if, within twelve (12) months after a “Change in
Control”, as defined in the agreement, the Company terminates such
executive’s employment without Cause, then such executive shall be
entitled to:
(i)
|
receive a lump sum payment equal to three (3) times the sum
of (1) his current annual base salary plus (2) his average annual incentive
bonus over the three (3) fiscal years prior to the Change in Control (or his
annual incentive bonus for the fiscal year immediately preceding to the Change
of Control, if higher),
|
|
|
(ii)
|
continued vesting of his stock options and other
stock-based awards for twelve (12) months following the Change of Control as if
he had remained an active employee, and
|
|
|
(iii)
|
receive benefits, including health and life insurance for
twelve (12) months following the Change of Control.
|
The Company and Messrs. Anderson, Conway, Hansen and Corless are parties to
Executive Employment Agreements pursuant to which if any of their employment is
terminated by the Company for any reason other than “Cause”, as
defined in the agreement, death or disability, or in the event that any
terminates his employment with the Company and is able to establish “Good
Reason”, as defined in the agreement, the Company is obligated to pay
each the sum of the following amounts:
(i)
|
any earned
but unpaid annual base salary,
|
|
|
(ii)
|
incentive
bonus earned but not yet paid,
|
|
|
(iii)
|
unpaid
expense reimbursements,
|
|
|
(iv)
|
accrued but
unused vacation, plus
|
|
|
(v)
|
any
benefits that may have vested under any employee benefit plan of the
Company through the date of termination; plus (a) one (1) times annual
base salary.
|
In addition, each is entitled to exercise any vested
stock options for twelve (12) months following the date of termination. Furthermore,
the Company is required to continue paying health insurance and other benefits
to each and his eligible family members for twelve (12) months following his
termination. The Executive Employment Agreements also provide, among other
things, that if, within twelve (12) months after a “Change in
Control”, as defined in the agreement, the Company terminates such
executive’s employment without Cause, then such executive shall be
entitled to:
66
Table of Contents
(i)
|
receive a
lump sum payment equal to the sum of (1) his average annual base salary
over the three (3) fiscal years immediately prior to the Change of
Control (or the executives annual base salary in effect immediately
prior to the Change of Control, if higher) and (2) his average annual
bonus over the three (3) fiscal years prior to the Change in Control (or
the executives annual bonus in effect immediately prior to the Change
of Control, if higher),
|
|
|
(ii)
|
continued
vesting of his stock options for twelve (12) months following the Change
of Control as if he had remained an active employee, and
|
|
|
(iii)
|
receive
benefits, including health and life insurance for twelve (12) months
following the Change of Control.
|
Annual Incentive Bonuses
We established incentive bonus potentials for each of our named
executive officers as a percentage of that executive’s base salary
according to the executives’ achievement of a number of predetermined
performance goals, as described above under “Our Executive Compensation
Programs – Annual Incentive Bonuses.” With the exception of
Mr. Marsh, each executive has the ability to earn a stock grant equivalent to
between 0% and 30% of his base salary given his actual performance. Mr.
Marsh has the ability to earn a stock grant equivalent to between 0% and 50% of
his base salary given his actual performance. In 2010, no annual
incentive awards in the form of stock grants were made to the named executive
officers.
2010 Stock Option Grants
There were no equity awards granted to the named executive officers in
2010.
1999 Stock Option
and Incentive Plan
Administration.
Our Board of Directors
currently administers our 1999 Stock Option and Incentive Plan. The
Compensation Committee of our Board of Directors is responsible for reviewing
all of our executive compensation plans.
Eligibility.
All of our employees, consultants and
non-employee directors are eligible to be granted awards under our 1999 Stock
Option and Incentive Plan. An employee, consultant or non-employee director
granted an award is a participant under our 1999 Stock Option and Incentive
Plan.
Number of Shares Available for Issuance.
The maximum number of shares of our common stock that
are authorized for issuance under our 1999 Stock Option and Incentive Plan as
of January 1, 2011 is 22,355,685. Shares issued under the 1999 Stock Option and
Incentive Plan may be treasury shares or authorized but unissued shares.
In the event the number of shares to be delivered upon the exercise or payment
of any award granted under the 1999 Stock Option and Incentive Plan is reduced
for any reason or in the event that any award (or portion thereof) can no
longer be exercised or paid, the number of shares no longer subject to such
award shall be released from such award and shall thereafter be available under
the 1999 Stock Option and Incentive Plan for the grant of additional
awards. Upon the occurrence of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares or the
like, the plan administrator may ratably adjust the aggregate number and
affected class of securities available under the 1999 Stock Option and
Incentive Plan.
67
Table of Contents
Types of Awards.
The plan administrator may grant the following types of awards under
our 1999 Stock Option and Incentive Plan: stock options; restricted stock; or
other stock-based awards. Stock options awarded under our 1999 Stock Option and
Incentive Plan may be nonqualified stock options or incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended. With the
exception of incentive stock options, the plan administrator may grant, from
time to time, any of the types of awards under our 1999 Stock Option and
Incentive Plan to our employees, consultants and non-employee directors.
Incentive stock options may only be granted to our employees.
Stock Options.
A stock option is the right to acquire shares of our
common stock at a fixed price for a fixed period of time and generally is
subject to a vesting requirement. To date, as a matter of practice, options
have generally been subject to a three-year vesting period, with one-third of
the total award vesting at the first anniversary of the grant date and the remainder
vesting in equal thirds each anniversary thereafter. A stock option will
be in the form of a nonqualified stock option or an incentive stock option. The
exercise price is set as the market price on the grant date. The term of
a stock option may not exceed ten years or
five years in the case of incentive stock options granted to a 10% owner.
Our 1999 Stock Option and Incentive Plan also allows for the early exercise of
unvested options, provided that right is permitted in the applicable stock option
agreement. All outstanding unvested shares of our common stock acquired through
early exercised options are subject to repurchase by us. After
termination of an optionee, he or she may exercise his or her vested options
for the period of time stated in the stock option agreement. If
termination is for cause, vested options may no longer be exercised. In
all other cases, the vested options will remain exercisable for executives
twelve (12) months. However, an option may not be exercised later than its
expiration date.
Restricted Stock.
A restricted stock award is an award entitling the recipient to
acquire, at par value or such other higher purchase price determined by the
administrator, shares of stock subject to such restrictions and conditions as
the administrator may determine at the time of grant. Conditions may be
based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and objectives. The
grant of a restricted stock award is contingent on the participant executing
the restricted stock award agreement. Restricted stock awards are shares
of our common stock that are subject to cancellation, restrictions and vesting
conditions, as determined by the plan administrator. Restricted stock
awards generally vest over three years, beginning with one-third vesting one
year after the date of grant, then pro-rata vesting monthly thereafter.
Restricted stock awards are made pursuant to our 1999 Stock Option and
Incentive Plan.
Other Awards.
The
administrator of the 1999 Stock
Option and Incentive Plan also may grant other forms of
awards that generally are based on the value of our common stock as determined
by the plan administrator to be consistent with the purposes of our 1999 Stock
Option and Incentive Plan including restricted Stock units. A restricted
Stock unit is a commitment by the Company to issue a share of our Common Stock
for each restricted Stock unit at the time that the restrictions set in forth
in the award lapse or are satisfied.
Amendment
and Discontinuance; Term.
The
plan administrator may amend, suspend or terminate our 1999 Stock Option and
Incentive Plan at any time, with or without prior notice to or consent of any
person, except as would require the approval of our stockholders, be required
by law or the requirements of the exchange on which our common stock is listed
or would adversely affect a participant’s rights to outstanding awards
without their consent. The Company’s shareholders approved an amendment
to the 1999 Stock Option and Incentive Plan on May 16, 2001, and the date of
this amendment constitutes the effective date of the 1999 Stock Option and
Incentive Plan. Unless terminated earlier, our 1999 Stock Option and
Incentive Plan will expire on the tenth anniversary of its effective date,
which is May 16, 2011.
68
Table of Contents
Outstanding Equity Awards at 2010 Fiscal Year-End
The following table provides information on the holdings of stock options by
the Named Executive Officers as of December 31, 2010. For
additional information about the option awards and stock awards, see the
description of equity incentive compensation in the section titled
"Compensation Discussion and Analysis" under Item 11 above.
|
Option Awards
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
Awards: Market or
|
|
|
|
|
|
|
|
Equity Incentive Plan
|
Payout Value Of
|
|
|
|
|
|
|
|
Awards: Number of
|
Unearned Shares,
|
|
Number of Securities
|
Number of Securities
|
|
|
Unearned Shares, Units, or
|
Units, or Other Rights
|
|
Underlying Unexercised
|
Underlying Unexercised
|
Option Exercise
|
Option Expiration
|
Other Rights That Have
|
That Have Not Yet
|
Name
|
Options
|
Options
|
Price ($)
|
Date
|
Not Yet Vested (1)
|
Vested ($) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
Unexercisable
|
|
|
|
|
Unexercisable
|
|
|
Andrew Marsh
|
|
400,000
|
|
|
|
3.58
|
04/08/18
|
|
|
750,000
|
|
277,500
|
|
|
834
|
|
|
|
0.95
|
05/20/19
|
|
|
|
|
|
|
|
|
|
|
1,666
|
0.95
|
05/20/19
|
|
|
|
|
|
Gerald A. Anderson
|
|
|
45,000
|
|
|
|
3.33
|
07/09/17
|
|
|
461,539
|
|
170,769
|
|
|
|
27,000
|
|
|
|
2.60
|
01/24/18
|
|
|
|
|
|
|
|
|
834
|
|
|
|
0.95
|
05/20/19
|
|
|
|
|
|
|
|
|
|
|
|
1,666
|
0.95
|
05/20/19
|
|
|
|
|
|
Gerard L. Conway, Jr.
|
|
|
1,871
|
|
|
|
8.53
|
11/14/11
|
|
|
276,923
|
|
102,462
|
|
|
|
2,250
|
|
|
|
8.53
|
11/14/11
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
6.73
|
12/22/13
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
5.39
|
01/28/15
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
5.58
|
02/01/16
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
3.75
|
02/14/17
|
|
|
|
|
|
|
|
|
27,000
|
|
|
|
2.60
|
01/24/18
|
|
|
|
|
|
|
|
|
834
|
|
|
|
0.95
|
05/20/19
|
|
|
|
|
|
|
|
|
|
|
|
1,666
|
0.95
|
05/20/19
|
|
|
|
|
|
Erik J. Hansen
|
|
|
50,000
|
|
|
|
0.86
|
10/29/18
|
|
|
276,923
|
|
102,462
|
|
|
|
834
|
|
|
|
0.95
|
05/20/19
|
|
|
|
|
|
|
|
|
|
|
|
1,666
|
0.95
|
05/20/19
|
|
|
|
|
|
Adrian Corless
|
|
|
30,000
|
|
|
|
3.24
|
04/04/17
|
|
|
267,469
|
|
98,964
|
|
|
|
27,000
|
|
|
|
2.42
|
07/30/18
|
|
|
|
|
|
|
|
|
834
|
|
|
|
0.95
|
05/20/19
|
|
|
|
|
|
|
|
|
|
|
|
1,666
|
0.95
|
05/20/19
|
|
|
|
|
|
Mark A. Sperry
|
|
|
35,027
|
|
|
|
8.53
|
11/14/11
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
9.20
|
02/10/14
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
5.39
|
01/28/15
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
5.58
|
02/01/16
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
3.75
|
02/14/17
|
|
|
|
|
|
|
|
|
27,000
|
|
|
|
2.60
|
01/24/18
|
|
|
|
|
|
|
|
|
834
|
|
|
|
0.95
|
05/20/19
|
|
|
|
|
|
69
Table of Contents
(1)
|
This column represents the number of shares that
have not yet vested, and have not yet been earned. The number of shares is
based on achieving threshold performance of goals.
|
|
|
(2)
|
This column represents the market
value of the unearned restricted stock awards using the stock price at the end
of fiscal year 2010.
|
Option Exercises and Stock Vested in Fiscal 2010 Table
There were no option exercises or stock awards vested
during the year for the named executive officers.
Potential Payments Upon Termination or Change-in-Control
The Company and Messrs. Marsh, Anderson, Conway, Hansen and Corless are
parties to employment agreements, respectively, that provide for a potential
payment upon termination for other than “Cause” as discussed above
in
Employment Agreements
.
Such payments by
the Company to any of Messrs. Marsh, Anderson, Conway, Hansen, or Corless are subject
to the executive signing a general release of claims in a form and manner
satisfactory to the Company and in no event is the executive entitled to
receive any such payment after he breaches the Employee Patent, Confidential
Information and Non-Compete Agreement referenced in the executive’s
respective agreement or any non-compete, non-solicit or non-disclosure
covenants in any agreement between the Company and such executive. We
agreed to provide severance payments to such executives in these circumstances
based on our negotiations with each of our executives at the time they joined
our Company, or as negotiated subsequent to hiring, and in order to provide a
total compensation package that we believed to be competitive.
Additionally, we believe that providing severance upon a termination without
cause can help to encourage our executives to take the risks that we believe
are necessary for our Company to succeed and also recognizes the longer hiring
process typically involved in hiring a senior executive.
“Cause” shall mean (i) a willful act of dishonesty by
the Executive with respect to any matter involving the Company or any
subsidiary or affiliate, or (ii) conviction of the Executive of a crime
involving moral turpitude, (iii) the failure to perform to the reasonable
satisfaction of the Board a substantial portion of the Executive’s duties
and responsibilities assigned or delegated under this Agreement (other than any
such failure after the Executive gives notice of termination for “Good
Reason”), which failure continues, in the reasonable judgment of the
Board, after written notice given to the Executive by the Board. For
purposes of this definition (i) hereof, no act, or failure to act, on the
Executive’s part shall be deemed “willful” unless done, or
omitted to be done, by the Executive without reasonable belief that the
Executive’s act, or failure to act, was in the best interests of the
Company and its subsidiaries and affiliates. “Cause” may also
include (i) the failure or refusal of the named executive to render services to
us in accordance with his obligations under the employment agreement or a
determination by us that the named executive has failed to perform the duties
of his employment; (ii) disloyalty, gross negligence, dishonesty, breach of
fiduciary
70
Table of Contents
duty or breach of the terms of the employment agreement or the other
agreements executed in connection therewith; (iii) the commission by the named
executive of an act of fraud, embezzlement or disregard of our rules or
policies or the commission by the named executive of any other action which
injures us; (iv) acts which, in the judgment of our board of directors, would
tend to generate adverse publicity toward us; (v) the commission, or plea of
nolo contendere, by the named executive of a felony; (vi) the commission of an
act which constitutes unfair competition with us or which induces any of our
customers to breach a contract with us; or (vii) a breach by the named executive
of the terms of the non-competition and non-solicitation agreement or the
employee nondisclosure and developments agreement between us and the named
executive.
“Terminating Event”
shall mean a termination by the Company of the employment of the Executive with
the Company for any reason other than (i) a willful act of dishonesty by the
Executive with respect to any matter involving the Company or any subsidiary or
affiliate, or (ii) conviction of the Executive of a crime involving moral
turpitude, or (iii) the gross or willful failure by the Executive to
substantially perform the Executive’s duties with the Company, which
failure is not cured within thirty (30) days after a written demand for
substantial performance is received by the Executive from the Board of
Directors of the Company (the “Board”) which specifically
identifies the manner in which the Board believes the Executive has not
substantially performed the Executive’s duties, or (iv) the failure by
the Executive to perform his full-time duties with the Company by reason of his
death or Disability. For purposes of clauses (i) and (iii) of this
Section 1(a), no act, or failure to act, on the Executive’s part shall be
deemed “willful” unless done, or omitted to be done, by the
Executive without reasonable belief that the Executive’s act, or failure
to act, was in the best interests of the Company and its subsidiaries and
affiliates. For purposes of this Agreement, “Disability”
shall mean the Executive’s incapacity due to physical or mental illness
which has caused the Executive to be absent from the full-time performance of
his duties with the Company for a period of six (6) consecutive months if the
Company shall have given the Executive a Notice of Termination and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of his duties.
If Mr. Marsh had been terminated without cause on December 31, 2010,
the approximate value of the severance package, including, as mentioned above
in
Employment Agreements
, salary, benefits and equity awards, under his
employment agreement would have been $466,792. This includes an acceleration of
any remaining unvested options granted to such named executive under the 1999
Stock Option and Incentive Plan. If Mr. Anderson, Conway, Hansen or Corless had
been terminated without cause on December 31, 2010, the approximate value of
the severance packages, including, as mentioned above in
Employment
Agreements
, salary, benefits and equity awards, under the employment
agreement for such named executive would have been for Mr. Anderson $366,090,
for Mr. Conway $261,934, for Mr. Hansen $293,147 and Mr. Corless $293,504.
71
Table of Contents
Mr. Sperry was
formerly a party to an employment agreement with the Company that provided for
a payment upon termination for other than “Cause.” On
August 27, 2010, Mr. Sperry's position was eliminated and he subsequently
stepped down from his position as Senior Vice President and General Manger of
the Company's Continuous Power Division. In accordance with the terms of his employment agreement,
the Company made a severance payment to Mr. Sperry in the amount of $258,000
The Company and Messrs. Marsh, Anderson, Conway, Hansen, and Corless
are parties to employment agreements, respectively, that provide for a
potential payment upon a “Change of Control”, as discussed above in
Employment Agreements
. Such payments by the Company to the
executive are subject to the executive signing a general release of claims in a
form and manner satisfactory to the Company and in no event is Messrs. Marsh,
Anderson, Conway, Hansen or Corless entitled to receive any such payment
after he breaches the Employee Patent, Confidential Information and Non-Compete
Agreement referenced in the executives respective agreement or any non-compete,
non-solicit or non-disclosure covenants in any agreement between the Company
and such executive.
“Change in Control” shall be deemed to have occurred in any
one of the following events:
(i)
|
any “person,” as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), (other than the Company, any of its
subsidiaries, any trustee, fiduciary or other person or entity holding
securities under any employee benefit plan or trust of the Company or any of
its subsidiaries, OGK-3, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such person, shall become the
“beneficial owner” (as such term is defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the then outstanding shares of common stock of the
Company (the “Stock”) (other than as a result of an acquisition of
securities directly from the Company); or
|
|
|
(ii)
|
persons who, as of the effective date of
this Agreement (the “Effective Date”), constitute the
Company’s Board of Directors (the “Incumbent Directors”)
cease for any reason, including, without limitation, as a result of a tender
offer, proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of the
Company subsequent to the Effective Date shall be considered an Incumbent
Director if such person’s election was approved by or such person was
nominated for election by either (A) a vote of at least a majority of the
Incumbent Directors or (B) a vote of at least a majority of the Incumbent
Directors who are members of a nominating committee comprised, in the majority,
of Incumbent Directors; but provided further, that any such person whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of members of the Board of Directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board, including by reason of agreement
intended to avoid or settle any such actual or threatened contest or
solicitation, shall not be considered an Incumbent Director; or
|
72
Table of Contents
(iii)
|
Upon (A) the consummation of any
consolidation or merger of the Company where the shareholders of the Company,
immediately prior to the consolidation or merger, did not, immediately after
the consolidation or merger, beneficially own (as such term is defined in Rule
13d-3 of the Exchange Act), directly or indirectly, shares representing in the
aggregate more than 50% of the voting shares of the corporation issuing cash or
securities in the consolidation or merger (or of its ultimate parent
corporation, if any), (B) the consummation of any sale, lease, exchange or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company or (C) the completion of a liquidation or dissolution
that has been approved by the stockholders of the Company; or
|
|
|
(iv)
|
OGK-3,
together with all Affiliates and Associates (as such
terms are hereinafter defined) of such person, shall become the
“beneficial owner” (as such term is defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the then outstanding Stock (other than as a result
of an acquisition of securities directly from the Company).
|
|
|
For purposes of this Agreement,
“Affiliate” and “Associate” shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the Exchange Act, as in effect
on the date of this Agreement;
provided
,
however
, that no person
who is a director or officer of the Company shall be deemed an Affiliate or an
Associate of any other director or officer of the Company solely as a result of
his position as director or officer of the Company.
Notwithstanding
the foregoing, a “Change in Control” shall not be deemed to have
occurred for purposes of the foregoing clauses (i) or (iv) solely as the result
of an acquisition of securities by the Company which, by reducing the number of
shares of Stock outstanding, increases the proportionate number of shares of
Stock beneficially owned by any person to 25% or more (or 50% or more in the
case of clause (iv)) of the shares of Stock then outstanding; provided,
however, that if any such person shall at any time following such acquisition
of securities by the Company become the beneficial owner of any additional
shares of Stock (other than pursuant to a stock split, stock dividend, or
similar transaction) and such person immediately thereafter is the beneficial
owner of 25% or more (or 50% or more in the case of clause (iv)) of the shares
of Stock then outstanding, then a “Change in Control” shall be
deemed to have occurred for purposes of the foregoing clause (i) or (iv), as
applicable.
“Change-in-control” may also generally
mean any of the following: (1) a sale or other disposition of all or
substantially all of our assets; or (2) a merger or consolidation after which
our voting securities outstanding immediately before the transaction cease to
represent at least a majority of the combined voting power of the successor
entity’s outstanding voting securities immediately after the
transaction. We agreed to provide payments to these executives in these
circumstances in order to provide a total compensation package that we believed
to be competitive. Additionally, the primary purpose of our equity-based
incentive awards is to align the interests of our executives and our
stockholders and provide our executives with strong incentives to increase
stockholder value over time. As change-in-control transactions typically
represent events where our stockholders are realizing the value of their equity
interests in our Company,
we believe it
is appropriate for our executives to share in this realization of stockholder value,
particularly where their employment is terminated in connection with the
change-in-control transaction. We believe that this will also help to
better align the interests of our executives with our stockholders in pursuing
and engaging in these transactions.
73
Table of Contents
If a change-in-control had occurred on
December 31, 2010 and on that date Messrs. Marsh, Anderson, Conway, Hansen
or Corless had been terminated without Cause, experienced a material negative
change in his or her compensation or responsibilities or was required to be
based at a location more than fifty (50) miles from his or her current work
location, the value of the change-of-control provisions, including, as
mentioned above, salary, benefits, vested equity awards and expected bonus,
under the employment or executive severance agreements for each such named
executive would have been as follows: Mr. Marsh $1,386,646, Mr. Anderson $365,975, Mr. Conway
$251,893, Mr. Hansen $280,074 and Mr. Corless $281,100.
The following Report of the Compensation Committee of
the Board of Directors on Executive Compensation will not be deemed
incorporated by reference by any general statement incorporating by reference
this Annual Report on Form 10-K into any of the Company’s filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates this
information by reference, and will not otherwise be deemed filed under such
Acts.
Compensation Committee
Report
The Compensation Committee reviews and evaluates
individual executive officers and determines the compensation for each
executive officer (See the section entitled “
Executive Compensation
”).
The Compensation Committee also oversees management’s decisions
concerning the performance and compensation of other Company officers,
administers the Company’s incentive compensation and other stock-based
plans, evaluates the effectiveness of its overall compensation programs,
including oversight of the Company’s benefit, perquisite and employee
equity programs, and reviews the Company’s management succession plans. A
more complete description of the Compensation Committee’s functions is
set forth in the Compensation Committee’s charter which is published on
the “Investors” section of the Company’s website at
www.plugpower.com
. Each member of the
Compensation Committee is an independent director as defined in the NASDAQ
Rules.
In general, the Compensation Committee designs
compensation to attract, retain and motivate a superior executive team, reward
individual performance, relate compensation to Company goals and objectives and
align the interests of the executive officers with those of the Company’s
stockholders. We rely upon our judgment about each individual—and not on
rigid guidelines or formulas, or short-term changes in business
performance—in determining the amount and mix of compensation elements
for each senior executive officer. Key factors affecting our judgments include:
the executive’s performance compared to the goals and objectives
established for the executive at the beginning of the year; the nature, scope
and level of the executive’s responsibilities; the executive’s
contribution to the Company’s financial results; the executive’s
effectiveness in leading the Company’s initiatives to increase customer
value, productivity and revenue growth; and the executive’s contribution
to the Company’s commitment to corporate responsibility, including the
executive’s success in creating a culture of unyielding integrity and
compliance with applicable law and the Company’s ethics policies.
74
Table of Contents
The Compensation Committee has reviewed the
Compensation Discussion and Analysis and discussed that analysis with
Management. Based on its review and discussions with Management, the
Compensation Committee recommended to our Board of Directors that the
Compensation Discussion and Analysis be included in the Company’s Annual
Report on Form 10-K for 2010 and the Company’s 2011 Proxy
statement. This report on executive compensation for Fiscal 2009 is
provided by the undersigned members of the Compensation Committee of the Board
of Directors.
Gary K. Willis (Chairman)
George C. McNamee
Compensation Committee Interlocks and Insider
Participation
During Fiscal 2010, Messrs.
Willis (Chairman) and McNamee served as members of the Compensation
Committee. None of them had any relationship with the Company requiring
disclosure under applicable rules and regulations of the SEC.
Director Compensation
The Compensation Committee periodically reviews the
Companys Non-Employee Director Compensation Plan (the Plan) to ensure that
the compensation aligns the directors interests with the long-term interests
of the stockholders and that the structure of the compensation is simple,
transparent and easy for stockholders to understand. The Compensation Committee
also considers whether the Plan fairly compensates the Companys directors when
considering the work required in a company of the size and scope of the
Company. Employee directors do not receive additional compensation for their
services as directors. The following is a summary of the Plan:
Pursuant to the current form of
the Plan, upon initial election or appointment to the Board of Directors, new
non-employee directors receive non-qualified stock options to purchase 125,000
shares (50,000 shares for any new non-employee Chairman) of Common Stock with
an exercise price equal to fair market value on the date of grant and that are
fully vested on the first anniversary of the date of the grant. Each year of a
non-employee directors tenure, the director will receive non-qualified options
to purchase 10,000 shares (15,000 shares for any non-employee Chairman), plus
non-qualified options to purchase an additional 5,000 shares for serving as
chairman of the Audit Committee and non-qualified options to purchase an
additional 2,000 shares for serving as chairman of any other committee,
including the Compensation Committee and the Corporate Governance and
Nominating Committee. These annual options, with an exercise price equal to
fair market value on the grant date, fully vest on the first anniversary of the
date of the grant.
In
addition, under the current form of the Plan each non-employee director is paid
an annual retainer of $30,000 ($85,000 for any non-employee Chairman) for their
services. Committee members receive additional annual retainers in accordance
with the following table:
|
|
|
Committee
|
Non-Employee
Chairman
|
Non-Employee
Director
|
Audit Committee
|
$ 20,000
|
$ 15,000
|
Compensation
Committee
|
15,000
|
5,000
|
Corporate Governance and
Nominating Committee
|
10,000
|
5,000
|
These additional payments for service on a committee
are due to the workload and broad-based responsibilities of the committees. The
total amount of the annual retainers are paid in a combination of fifty percent
(50%) cash and fifty percent (50%) Common Stock, with an option to receive up
to one hundred percent (100%) Common Stock, at the election of the non-employee
director. At the Boards discretion, directors may receive a greater portion
of the foregoing amounts, up to eighty percent (80%), in cash. All such stock
shall be fully vested at the time of issuance and is valued at its fair market
value on the date of issuance. Non-employee directors are also reimbursed for
their direct expenses associated with their attendance at board meetings.
Non-Employee Director Compensation Table
The following table provides information for
non-employee directors who served during Fiscal 2010.
Name
|
Fees Earned or
Paid in Cash
($)
|
Stock Awards
(1)
($)
|
Option Awards
(2)
($)
|
Total
($)
|
Gary Willis
|
30,000
|
30,000
|
4,440
|
64,440
|
George McNamee
|
76,000
|
19,000
|
5,550
|
100,550
|
Jeffrey Drazan (3)
|
13,743
|
13,743
|
3,700
|
31,186
|
Larry Garberding
|
27,500
|
27,500
|
5,550
|
60,550
|
Maureen Helmer
|
27,500
|
27,500
|
4,440
|
59,440
|
(1)
This column represents the dollar
amount recognized for financial statement reporting purposes with respect to
the 2010 fiscal year for the fair value of restricted stock earned in 2010.
Fair value is calculated using the closing price of Plug Power stock on the
date of grant. Stock awards granted to directors vest immediately. For
additional information, refer to note 14 of the Companys consolidated
financial statements in the Form 10-K for the year ended December 31, 2010, as
filed with the SEC.
a.
Gary Willis has no unexercised stock
awards. Stock awards earned by Mr. Willis in 2010 include 11,364 shares
granted on April 1, 2010 with a grant date fair value of $0.66, 17,857 shares
granted on July 1, 2010 with a grant date fair value of $0.42, 19,231 shares
granted on October 1, 2010 with a grant date fair value of $0.39, and 19,231
shares granted on January 3, 2011 with a grant date fair value of $0.39.
b.
George McNamee has no unexercised stock
awards. Stock awards earned by Mr. McNamee in 2010 include 7,197 shares
granted on April 1, 2010 with a grant date fair value of $0.66, 11,310 shares
granted on July 1, 2010 with a grant date fair value of $0.42, 12,179 shares
granted on October 1, 2010 with a grant date fair value of $0.39, and 12,179
shares granted on January 3, 2011 with a grant date fair value of $0.39.
c.
Jeffrey Drazan has no unexercised
stock awards. Stock awards earned by Mr. Drazan in 2010 include 6,629 shares
granted on April 1, 2010 with a grant date fair value of $0.66, 10,417 shares
granted on July 1, 2010 with a grant date fair value of $0.42, 11,218 shares
granted on October 1, 2010 with a grant date fair value of $0.39, and 1,585
shares granted on January 3, 2011 with a grant date fair value of $0.39.
d.
Larry Garberding has no unexercised
stock awards. Stock awards earned by Mr. Garberding in 2010 include 10,417
shares granted on April 1, 2010 with a grant date fair value of $0.66, 16,369
shares granted on July 1, 2010 with a grant date fair value of $0.42, 17,628
shares granted on October 1, 2010 with a grant date fair value of $0.39, and
17,628 shares granted on January 3, 2011 with a grant date fair value of $0.39.
e.
Maureen Helmer has no unexercised
stock awards. Stock awards earned by Ms. Helmer in 2010 include 10,417 shares
granted on April 1, 2010 with a grant date fair value of $0.66,16,369 shares
granted on July 1, 2010 with a grant date fair value of $0.42, 17,628 shares
granted on October 1, 2010 with a grant date fair value of $0.39, and 17,628
shares granted on January 3, 2011 with a grant date fair value of $0.39.
75
(2)
This column represents the dollar
amount recognized for financial statement reporting purposes with respect to
the 2010 fiscal year for the fair value of stock options granted to each of the
named Non-Employee Directors in 2010 as well as prior fiscal years, in
accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 718. Pursuant to SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based vesting
conditions. For additional information on the valuation assumptions with
respect to the 2010 grants, refer to note 14 of the Companys consolidated
financial statements in the Form 10-K for the year ended December 31, 2010, as
filed with the SEC. Also see note 14 for information on the valuation
assumptions with respect to grants made prior to 2010.
These amounts reflect
the Companys accounting expense for these awards, and do not correspond to the
actual value that will be recognized by the directors
. As of December 31,
2010:
a.
Gary Willis has 235,245 unexercised
option awards including 95,337 unvested awards. Option awards for 2010 include
12,000 shares granted on May 19, 2010 with a grant date fair value of $0.37.
b.
George McNamee has 410,000
unexercised option awards including 98,337 unvested awards. Option awards for
2010 include 15,000 shares granted on May 19, 2010 with a grant date fair value
of $0.37.
c.
Jeffrey Drazan has 145,000
unexercised option awards including 10,000 unvested awards. Option awards for
2010 include 10,000 shares granted on May 19, 2010 with a grant date fair value
of $0.37.
d.
Larry Garberding has 275,000
unexercised option awards including 98,337 unvested awards. Option awards for
2010 include 15,000 shares granted on May 19, 2010 with a grant date fair value
of $0.37.
e.
Maureen Helmer has no 220,000
unexercised option awards including 95,337 unvested awards. Option awards for
2010 include 12,000 shares granted on May 19, 2010 with a grant date fair value
of $0.37.
(3)
Jeffrey Drazan resigned from the Companys Board of
Directors as of October 2010.
Item 12.
|
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
|
The following table sets forth information regarding
the beneficial ownership of Common Stock as of March 29, 2011 (except as
otherwise indicated) by:
-
all persons known by us to have
beneficially owned 5% or more of the Common Stock;
-
each director of the Company;
-
the named executive officers; and
-
all directors and executive officers as a group.
The beneficial ownership of the stockholders
listed below is based on publicly available information and from
representations of such stockholders.
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner (1)
|
|
Shares Beneficially Owned (2)
|
|
|
|
|
Number
|
Percentage (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OJSC OJK-3 (3)
|
|
44,626,939.00
|
33.7%
|
|
George C. McNamee (4)
|
|
858,044
|
*
|
|
Andrew Marsh (5)
|
|
628,729
|
*
|
|
Larry G. Garberding (6)
|
|
376,111
|
*
|
|
Gary K. Willis (7)
|
|
329,317
|
*
|
|
Maureen O. Helmer (8)
|
|
307,720
|
*
|
|
Gerald A. Anderson (9)
|
|
251,012
|
*
|
|
Gerard L. Conway, Jr. (10)
|
|
226,824
|
*
|
|
Adrian Corless (11)
|
|
162,396
|
*
|
|
Erik J. Hansen (12)
|
|
136,454
|
*
|
|
All executive officers and directors as a group (10 persons)
|
3,276,607
|
2.5%
|
76
Table of Contents
* Represents less than 1% of the outstanding shares of
Common Stock
1)
|
The address for OJSC OJK-3 is
Ermolayevsky pereulok, 25, 123001, Moscow, Russia. Unless otherwise
indicated, all other addresses for Beneficial Owners is c/o Plug Power Inc., 968 Albany Shaker Road, Latham, New York 12110.
|
|
|
2)
|
The number of shares beneficially
owned by each stockholder is determined under rules promulgated by the SEC and
includes voting or investment power with respect to securities. Under Rule
13d-3 under the Securities Exchange Act of 1934, as amended, beneficial
ownership includes any shares to which the individual or entity has sole or
shared voting power or investment power and includes any shares as to which the
individual or entity has the right to acquire beneficial ownership within 60
days of March 29, 2011, through the exercise of any warrant, stock option or
other right. The inclusion in this Annual Report on Form 10-K of such shares, however,
does not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. The number of shares of Common Stock
outstanding used in calculating the percentage for each listed person includes
the shares of Common Stock underlying options, warrants or other rights held by
such person that are exercisable within 60 days of March 29, 2011 but excludes
shares of Common Stock underlying options, warrants or other rights held by any
other person. Percentage of beneficial ownership is based on 132,434,673 shares of Common Stock outstanding as of March 23, 2011.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of Common Stock beneficially owned
by the stockholder.
|
|
|
3)
|
Under an Investor Rights Agreement dated as of June
29, 2006, as amended, until June 29, 2011, OGK-3 is prohibited from taking
certain actions to influence or obtain control of the Company, including but
not limited to acquiring additional shares of common stock and making
shareholder proposals or director nominations. In a Form 3 filed with the SEC
on March 29, 2011, INTER RAO UES reported that it directly owns 81.9% of OGK-3.
By virtue of its ownership interest in OGK-3, INTER RAO UES could be deemed to
have the power to vote, or direct the voting of, and the power to dispose, or
direct the disposition of, the shares of Common Stock held by OGK-3, and as
such could be deemed the beneficial owner of such shares of Common Stock.
|
1
For purposes of this
policy, a person's immediate family should include such person’s child,
stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, sister-in-law or any other person
(other than a tenant or employee) sharing the household of such person.
|
77
Table of Contents
4)
|
Includes 353,325 shares of Common Stock issuable
upon exercise of outstanding options at a weighted average exercise price of
$3.81.
|
|
|
5)
|
Includes 401,667 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $3.57.
|
|
|
6)
|
Includes 218,325 shares of Common Stock issuable
upon exercise of outstanding options at a weighted average exercise price of
$4.85.
|
|
|
7)
|
Includes 181,570 shares of Common Stock issuable
upon exercise of outstanding options at a weighted average exercise price of
$2.86.
|
|
|
8)
|
Includes 166,325 shares of Common Stock issuable
upon exercise of outstanding options at a weighted average exercise price of
$3.00.
|
|
|
9)
|
Includes 73,667 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $3.01.
|
|
|
10)
|
Includes 112,788 shares of Common Stock issuable
upon exercise of outstanding options at a weighted average exercise price of
$4.48.
|
|
|
11)
|
Includes 58,667 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $2.80.
|
|
|
12)
|
Includes 51,667 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $0.86.
|
78
Table of Contents
Securities Authorized for Issuance Under Equity
Compensation Plans
The
following table gives information about the shares of Common Stock that may be
issued upon the exercise of options, restricted stock and warrants under the
Plug Power, L.L.C. Second Amendment and Restatement of the Membership Option
Plan (1997 Plan), the Company’s 1999 Stock Option and Incentive Plan, as
amended (1999 Stock Option Plan) and the Company’s 1999 Employee Stock
Purchase Plan, as of December 31, 2010.
Equity Compensation Plan
Information
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of shares to be issued
upon exercise of outstanding
options, warrants and rights (a)
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights (b)
|
|
Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))(c)
|
|
Equity compensation plans approved by security holders
|
|
8,842,774
|
(1)
|
$
|
2.19
|
|
6,699,873
|
(2)
|
Equity compensation plans not approved by security holders
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
|
|
8,842,774
|
|
$
|
2.19
|
|
6,699,873
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents 4,463,251
outstanding options and 4,379,523 shares of unvested restricted stock issued
under the 1999 Stock Option Plan.
|
(2)
|
Includes 6,610,547
shares available for future issuance under the 1999 Stock Option Plan and
89,326 shares available for future issuance under the 1999 Employee Stock
Purchase Plan. The 1999 Stock Option Plan incorporates an evergreen formula
pursuant to which the aggregate number of shares reserved for issuance under
the 1999 Stock Option Plan will increase on the first day of January and July
each year. On each January 1 and July 1, the aggregate number of
shares reserved for issuance under the 1999 Stock Option Plan increases by
16.4% of any net increase in the total number of outstanding shares since the
preceding July 1 or January 1, as the case may be. In accordance
with this formula, on January 1, 2011, the maximum number of shares
remaining available for future issuance under the 1999 Stock Option Plan is
6,714,127.
|
79
Table of Contents
Item 13.
|
Certain
Relationships and Related Transactions and Director Independence
|
There are no related party transactions to
disclose. The Company’s Board of Directors adopted a related party
transaction policy in October of 2006. This policy requires that the
Company’s General Counsel, together with outside counsel as necessary,
evaluate potential transaction before the Company enters into any agreements
with a related party. Certain transactions may require the Board of
Directors’ and its Audit Committee’s approval. The policy defines a
“related party” as: (i) the Company’s directors or executive
officers, (ii) the Company’s director nominees, (iii) security holders
known to Plug Power to beneficially own more than 5% of any class of Plug Power’s
voting securities, or (iv) the immediate family members
1
of
any of the persons listed in items (i) – (iii).
Item 14.
|
Principal Accounting Fees and Services
|
The following table presents fees for professional
services rendered by KPMG for the audit of the Company’s annual financial
statements and fees billed for other services rendered by KPMG:
|
KPMG
|
|
2010
|
2009
|
Audit Fees
|
$563,000
|
$473,000
|
Audit-Related Fees
|
19,300
|
49,900
|
Tax Fees
|
-
|
50,000
|
All Other Fees
|
-
|
-
|
Total
|
$582,300
|
$572,900
|
In the above table, and in accordance with SEC
definitions and rules: (1) “audit fees” are fees for professional
services for the audit of the Company’s consolidated financial statements
included in Form 10-K, review of unaudited interim consolidated financial
statements included in Form 10-Qs, testing of the effectiveness of internal
control on financial reporting, or for services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements; (2) “audit-related fees” are fees for assurance and related
services that are reasonably related to
the performance of the audit or review of the Company’s
consolidated financial statements; (3) “tax fees” are fees for tax
compliance, tax advice, and tax planning; and (4) “all other fees”
are fees for any services not included in the first three categories.
Under the Audit Committee’s charter, the Audit
Committee is authorized to delegate to one or more of its members the authority
to pre-approve audit and non-audit services. All fees listed in the above table
were approved using pre-approval procedures. The Audit Committee has not
delegated its pre-approval authority. The Audit Committee approved all audit
and non-audit services provided to the Company by KPMG during Fiscal 2010.
1
For purposes of this policy, a person's immediate family should include such
person’s child, stepchild, parent, stepparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
sister-in-law or any other person (other than a tenant or employee) sharing the
household of such person.
80
Table of Contents
PART IV
Item 15.
|
Exhibits and Financial Statement Schedules
|
15(a)(1) Financial
Statements
The
financial statements and notes are listed in the Index to Consolidated
Financial Statements on page F-1 of this Report.
15(a)(2)
Financial Statement Schedules
Consolidated
financial statement schedules not filed herein have been omitted as they are
not applicable or the required information or equivalent information has been
included in the consolidated financial statements or the notes thereto.
15(a)(3)
Exhibits
Exhibits
are as set forth in the “List of Exhibits” which immediately
precedes the Index to Consolidated Financial Statements on page F-1 of this
Report.
81
Table of Contents
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
|
P
LUG
P
OWER
I
NC
.
|
|
|
By:
|
|
/s/ A
NDREW
M
ARSH
|
|
|
Andrew Marsh,
|
|
|
President, Chief Executive Officer and Director
|
Date: March 31, 2011
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ ANDREW
MARSH
Andrew Marsh
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 31, 2011
|
|
|
|
/s/ GERALD A.
ANDERSON
Gerald A. Anderson
|
|
Chief Financial Officer (Principal
Financial Officer)
|
|
March 31, 2011
|
|
|
|
/s/ LARRY G.
GARBERDING
Larry G. Garberding
|
|
Director
|
|
March 31, 2011
|
|
|
|
/s/ MAUREEN O.
HELMER
Maureen O. Helmer
|
|
Director
|
|
March 31, 2011
|
|
|
|
/s/ GEORGE C.
McNAMEE
George C. McNamee
|
|
Director
|
|
March 31, 2011
|
|
|
|
/s/ GARY K.
WILLIS
Gary K. Willis
|
|
Director
|
|
March 31, 2011
|
|
|
|
82
Table of Contents
Certain
exhibits indicated below are incorporated by reference to documents of Plug
Power on file with the Commission. Exhibits nos. 10.1, 10.2, 10.3, 10.5, 10.7
and 10.12 through 10.25 represent the management contracts and compensation
plans and arrangements required to be filed as exhibits to this Annual Report
on Form 10-K.
Exhibit No.
and Description
|
|
|
3.1
|
|
Amended and
Restated Certificate of Incorporation of Plug Power Inc.(9)
|
|
|
3.2
|
|
Third Amended and
Restated By-laws of Plug Power Inc.(10)
|
|
|
3.3
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation of Plug Power
Inc.(9)
|
|
|
|
3.4
|
|
Certificate of
Designations, Preferences and Rights of a Series of Preferred Stock of Plug
Power Inc. classifying and designating the Series A Junior Participating
Cumulative Preferred Stock.(11)
|
|
|
4.1
|
|
Specimen
certificate for shares of common stock, $.01 par value, of Plug Power.(2)
|
|
|
4.2
|
|
Shareholder Rights
Agreement, dated as of June 23, 2009, between Plug Power Inc. and Registrar
and American Stock Transfer & Trust Company, LLC, as Rights Agent.(11)
|
|
|
|
10.1
|
|
Second Amendment
and Restatement of the Membership Option Plan dated February 15, 1999
and First Amendment to Second Amendment and Restatement of the Membership
Option Plan dated October 1, 1999.(3)
|
|
|
10.2
|
|
1999 Stock Option
and Incentive Plan.(2)
|
|
|
10.3
|
|
Employee Stock
Purchase Plan.(2)
|
|
|
10.4
|
|
Registration Rights
Agreement to be entered into by the Registrant and the stockholders of the
Registrant.(9)
|
|
|
10.5
|
|
Severance
Agreement, dated as of July 12, 2007, by and between Plug Power Inc. and
Gerald A. Anderson.(6)
|
|
|
10.6
|
|
Joint Development
Agreement, dated as of June 2, 2000, between Plug Power Inc. and
Engelhard Corporation.(9)
|
|
|
10.7
|
|
Executive Severance
Agreement, dated as of July 9, 2007, by and between Plug Power Inc. and
Gerald A. Anderson.(6)
|
|
|
10.8
|
|
Indemnification
Agreement, dated as of July 9, 2007, by and between Plug Power Inc. and
Gerald A. Anderson.(6)
|
|
|
83
Table of Contents
Exhibit No.
and Description
|
|
|
10.9
|
|
Investor Rights
Agreement, dated as of June 29, 2006, by and among Plug Power Inc.,
Smart Hydrogen Inc. and the other parties named therein.(1)
|
|
|
|
10.10
|
|
Registration Rights
Agreement, dated as of June 29, 2006, by and between Plug Power Inc. and
Smart Hydrogen Inc.(1)
|
|
|
|
10.11
|
|
Form of Indemnification
Agreement entered into with each director.(1)
|
|
|
|
10.12
|
|
Form of Incentive
Stock Option Agreement.(4)
|
|
|
|
10.13
|
|
Form of
Non-Qualified Stock Option Agreement for Employees.(4)
|
|
|
|
10.14
|
|
Form of
Non-Qualified Stock Option Agreement for Independent Directors.(4)
|
|
|
10.15
|
|
Form of Restricted
Stock Award Agreement.(4)
|
|
|
10.16
|
|
Amendment to the
1999 Stock Option and Incentive Plan.(13)
|
|
|
|
10.17
|
|
Amendment to the
1999 Stock Option and Incentive Plan.(13)
|
|
|
|
10.18
|
|
Amendment to the
1999 Stock Option and Incentive Plan.(4)
|
|
|
10.19
|
|
Plug Power
Executive Incentive Plan.(5)
|
|
|
10.20
|
|
Employment
Agreement, dated as of April 7, 2008, by and between Andrew Marsh and Plug
Power Inc.(7)
|
|
|
10.21
|
|
Form of
Non-Qualified Stock Option Agreement for Employees.(7)
|
|
|
10.22
|
|
Executive
Employment Agreement, dated as of May 5, 2008, by and between Gerard L.
Conway, Jr. and Plug Power Inc.(8)
|
|
|
10.23
|
|
Executive
Employment Agreement, dated as of October 28, 2009, by and between Erik J.
Hansen and Plug Power Inc.(12)
|
|
|
|
10.24
|
|
Executive
Employment Agreement, dated as of February 9, 2010, by and between Adrian
Corless and Plug Power Inc.(12)
|
|
|
|
10.25
|
|
Form of Restricted
Stock Unit Award Agreement for Employees.(13)
|
84
Table of Contents
Exhibit No.
and Description
|
|
|
23.1
|
|
Consent of KPMG
LLP.(14)
|
|
|
|
31.1 and 31.2
|
|
Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(14)
|
|
|
|
32.1 and 32.2
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(14)
|
|
|
|
(1)
|
Incorporated by
reference to the Company’s current Report on Form 8-K dated
June 29, 2006.
|
(2)
|
Incorporated by
reference to the Company’s Registration Statement on Form S-1 (File
Number 333-86089).
|
(3)
|
Incorporated by
reference to the Company’s Registration Statement on Form S-1/A (File
Number 333-86089).
|
(4)
|
Incorporated by
reference to the Company’s Form 10-Q for the period ended June 30,
2006.
|
(5)
|
Incorporated by
reference to the Company’s current Report on Form 8-K dated
February 15, 2007.
|
(6)
|
Incorporated by
reference to the Company’s current Report on Form 8-K dated
July 9, 2007.
|
(7)
|
Incorporated by reference
to the Company’s current Report on Form 8-K dated April 2, 2008.
|
(8)
|
Incorporated by
reference to the Company’s Form 10-Q for the period ended June 30,
2008.
|
(9)
|
Incorporated by
reference to the Company’s Form 10-K for the period ended December 31,
2008.
|
(10)
|
Incorporated by
reference to the Company’s current Report on Form 8-K dated October 28,
2009.
|
(11)
|
Incorporated by
reference to the Company’s Registration Statement on Form 8-A dated
June 24, 2009.
|
(12)
|
Incorporated by
reference to the Company’s current Report on Form 8-K dated October 28,
2009.
|
(13)
|
Incorporated by
reference to the Company’s Form 10-K for the period ended December 31,
2009.
|
(14)
|
Filed herewith.
|
85
Table of Contents
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
86
Table
of Contents
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Plug Power Inc.:
We
have audited the accompanying consolidated balance sheets of Plug Power Inc.
and subsidiaries (the Company) as of December 31, 2010 and 2009, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2010. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Plug Power Inc. and
subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2010,
in conformity with U.S. generally accepted accounting principles.
As
discussed in Note 19 to the consolidated financial statements, the Company has
changed its method of accounting for revenue arrangements with
multiple-deliverables entered into or substantially modified after January 1,
2010 to adopt Accounting Standards Update No. 2009-13 on Topic 605,
Revenue
Recognition Multiple Deliverable Revenue Arrangements.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Companys internal control over
financial reporting as of December 31, 2010, based on criteria established in
Internal
ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 31,
2011, expressed an unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
/S/ KPMG LLP
Albany, New York
March 31, 2011
F-1
Table
of Contents
Report of Independent
Registered Public Accounting Firm
The Board of Directors and Stockholders
Plug
Power Inc.:
We
have audited Plug Power Inc. and subsidiaries (the Company) internal control
over financial reporting as of December 31, 2010, based on criteria
established in
Internal Control ‑ Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
.
The Companys management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In
our opinion, Plug Power Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December
31, 2010, based on criteria established in
Internal
Control ‑ Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Plug Power Inc. and subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of operations, stockholders equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2010, and our report dated March 31, 2011 expressed an
unqualified opinion on those consolidated financial statements.
As discussed in Note 19 to the consolidated financial
statements, the Company has changed its method of accounting for revenue
arrangements with multiple-deliverables entered into or substantially modified
after January 1, 2010 to adopt Accounting Standards Update No. 2009-13 on Topic
605,
Revenue Recognition-Multiple Deliverable Revenue Arrangements.
/S/ KPMG LLP
Albany, New York
March 31, 2011
F-2
Table of Contents
Plug Power Inc. and Subsidiaries
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
Assets
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
10,955,403
|
|
$
|
14,580,983
|
|
Trading securities - auction rate debt securities
|
-
|
|
53,397,179
|
|
Available-for-sale securities
|
10,403,315
|
|
47,959,920
|
|
Accounts receivable, less allowance of $10,160 in 2010 and $92,560 in 2009
|
4,196,361
|
|
2,004,670
|
|
Inventory
|
10,539,116
|
|
6,360,755
|
|
Assets held for sale
|
1,000,000
|
|
-
|
|
Auction rate debt securities repurchase agreement
|
-
|
|
5,977,822
|
|
Prepaid expenses and other current assets
|
1,584,466
|
|
3,217,446
|
|
|
Total current assets
|
38,678,661
|
|
133,498,775
|
Restricted cash
|
525,000
|
|
2,265,405
|
Property, plant and equipment, net
|
9,838,631
|
|
14,342,740
|
Investment in leased property, net
|
263,239
|
|
2,255,772
|
Intangible assets, net
|
9,871,394
|
|
11,821,830
|
|
|
Total assets
|
$
|
59,176,925
|
|
$
|
164,184,522
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
3,560,048
|
|
$
|
2,877,270
|
|
Accrued expenses
|
4,336,229
|
|
5,847,541
|
|
Product warranty reserve
|
862,480
|
|
-
|
|
Borrowings under line of credit
|
-
|
|
59,375,000
|
|
Current portion long term debt
|
9,956
|
|
413,708
|
|
Deferred revenue
|
4,349,749
|
|
4,596,717
|
|
Other current liabilities
|
1,901,372
|
|
379,584
|
|
|
Total current liabilities
|
15,019,834
|
|
73,489,820
|
|
Long term debt
|
-
|
|
1,150,408
|
|
Other liabilities
|
1,243,728
|
|
1,275,541
|
|
|
Total liabilities
|
16,263,562
|
|
75,915,769
|
Stockholders' equity:
|
|
|
|
|
Common stock, $0.01 par value per share; 245,000,000 shares authorized;
|
|
|
|
|
Issued (including shares in treasury):
|
|
|
|
|
133,699,235 at December 31, 2010 and 130,591,236 at December 31, 2009
|
1,336,992
|
|
1,305,913
|
|
Additional paid-in capital
|
769,659,871
|
|
767,808,572
|
|
Accumulated other comprehensive income
|
965,868
|
|
803,209
|
|
Accumulated deficit
|
(727,329,858)
|
|
(680,370,937)
|
|
Less common stock in treasury:
|
|
|
|
|
1,804,487 shares at December 31, 2010 and 986,199 shares at December 31, 2009
|
(1,719,510)
|
|
(1,278,004)
|
|
|
Total stockholders' equity
|
42,913,363
|
|
88,268,753
|
|
|
Total liabilities and stockholders' equity
|
$
|
59,176,925
|
|
$
|
164,184,522
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
Table of Contents
|
|
|
|
|
|
|
|
|
|
PLUG POWER INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For the years ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
Product and service revenue
|
|
$
|
15,738,841
|
|
$
|
4,832,773
|
|
$
|
4,667,295
|
Research and development contract revenue
|
|
3,597,870
|
|
7,459,783
|
|
13,234,022
|
Licensed technology revenue
|
|
135,938
|
|
-
|
|
-
|
|
|
|
|
|
|
|
Total revenue
|
|
19,472,649
|
|
12,292,556
|
|
17,901,317
|
|
|
|
|
|
|
|
Cost of product and service revenue
|
|
23,111,151
|
|
7,246,453
|
|
11,442,232
|
Cost of research and development contract revenue
|
|
6,370,797
|
|
12,433,361
|
|
21,504,926
|
Research and development expense
|
|
12,901,170
|
|
16,324,373
|
|
34,987,207
|
Selling, general and administrative expenses
|
|
25,572,364
|
|
15,426,806
|
|
28,333,151
|
Gain on sale of assets
|
|
(3,217,594)
|
|
-
|
|
-
|
Goodwill impairment
|
|
-
|
|
-
|
|
45,842,656
|
Amortization of intangible assets
|
|
2,263,627
|
|
2,132,333
|
|
2,224,954
|
|
|
|
|
|
|
|
Operating loss
|
|
(47,528,866)
|
|
(41,270,770)
|
|
(126,433,809)
|
Interest and other income and net realized gains (losses) from
available-for-sale securities
|
|
1,056,932
|
|
1,689,299
|
|
5,134,442
|
Change in fair value of auction rate securities repurchase agreement
|
|
(5,977,822)
|
|
(4,246,524)
|
|
10,224,346
|
Net trading gain
|
|
5,977,822
|
|
4,246,524
|
|
-
|
Impairment loss on available-for-sale securities
|
|
-
|
|
-
|
|
(10,224,346)
|
Interest and other expense
|
|
(486,987)
|
|
(1,127,081)
|
|
(400,657)
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,958,921)
|
|
$
|
(40,708,552)
|
|
$
|
(121,700,024)
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.36)
|
|
$
|
(0.32)
|
|
$
|
(1.36)
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
outstanding
|
|
131,231,619
|
|
129,110,661
|
|
89,383,480
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
For the years ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
Net loss
|
$
|
(46,958,921)
|
|
$
|
(40,708,552)
|
|
$
|
(121,700,024)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation of property, plant and equipment and investment in leased property
|
4,969,263
|
|
3,634,668
|
|
4,398,147
|
|
Amortization of intangible assets
|
2,263,627
|
|
2,132,333
|
|
2,224,954
|
|
Loss (gain) on disposal of property, plant and equipment
|
86,794
|
|
504,397
|
|
(2,701)
|
|
Stock-based compensation
|
1,174,576
|
|
1,928,501
|
|
8,590,573
|
|
Provision for bad debts
|
10,160
|
|
92,560
|
|
75,148
|
|
Loss on sale of leased assets
|
290,491
|
|
-
|
|
-
|
|
Goodwill impairment charge
|
-
|
|
-
|
|
45,842,656
|
|
Impairment loss on available-for-sale securities
|
-
|
|
-
|
|
10,224,346
|
|
Net unrealized gains on trading securities
|
(5,977,822)
|
|
(4,246,524)
|
|
-
|
|
Change in fair value of auction rate debt securities repurchase agreement
|
5,977,822
|
|
4,246,524
|
|
(10,224,346)
|
|
Gain on repayable government assistance
|
-
|
|
(324,300)
|
|
(1,232,522)
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
(2,193,325)
|
|
65,440
|
|
2,281,723
|
|
Inventory
|
(4,409,582)
|
|
(95,935)
|
|
(521,253)
|
|
Prepaid expenses and other current assets
|
1,624,422
|
|
(684,277)
|
|
256,448
|
|
Accounts payable and accrued expenses
|
2,618,994
|
|
(3,944,407)
|
|
1,103,013
|
|
Deferred revenue
|
(246,968)
|
|
(828,675)
|
|
2,087,370
|
|
Net cash used in operating activities
|
(40,770,469)
|
|
(38,228,247)
|
|
(56,596,468)
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
(1,100,478)
|
|
(532,960)
|
|
(1,418,641)
|
|
Investment in leased property, net
|
(2,233,334)
|
|
(2,461,526)
|
|
-
|
|
Proceeds from sale of leased assets
|
3,221,168
|
|
-
|
|
-
|
|
Restricted cash
|
1,740,405
|
|
(2,265,405)
|
|
-
|
|
Proceeds from disposal of property, plant and equipment
|
121,564
|
|
223,000
|
|
14,587
|
|
Proceeds from trading securities
|
59,375,001
|
|
3,500,000
|
|
-
|
|
Proceeds from maturities and sales of available-for-sale securities
|
79,754,039
|
|
137,555,930
|
|
266,774,180
|
|
Purchases of available-for-sale securities
|
(42,311,734)
|
|
(161,803,208)
|
|
(199,713,772)
|
|
Net cash provided by (used in) investing activities
|
98,566,631
|
|
(25,784,169)
|
|
65,656,354
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
Purchase of treasury stock
|
(441,506)
|
|
(534,418)
|
|
(618,642)
|
|
Proceeds from stock option exercises and employee stock purchase plan
|
-
|
|
76,493
|
|
202,875
|
|
(Repayment) proceeds of borrowings under line of credit
|
(59,375,000)
|
|
(3,500,000)
|
|
62,875,000
|
|
Proceeds from long term debt
|
-
|
|
1,793,461
|
|
-
|
|
Principal payments on long-term debt
|
(1,561,371)
|
|
(229,602)
|
|
-
|
|
Repayment of government assistance
|
-
|
|
-
|
|
(2,235,244)
|
|
Net cash (used in) provided by financing activities
|
(61,377,877)
|
|
(2,394,066)
|
|
60,223,989
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
(43,865)
|
|
142,965
|
|
(516,313)
|
|
(Decrease) Increase in cash and cash equivalents
|
(3,625,580)
|
|
(66,263,517)
|
|
68,767,562
|
|
Cash and cash equivalents, beginning of period
|
14,580,983
|
|
80,844,500
|
|
12,076,938
|
|
Cash and cash equivalents, end of period
|
$
|
10,955,403
|
|
$
|
14,580,983
|
|
$
|
80,844,500
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
Table of Contents
PLUG POWER
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE
LOSS
For the years ended December 31, 2010, 2009 and 2008
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-
in-Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Shares
|
|
Amount
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Equity
|
|
Total
Comprehensive
Loss
|
December 31, 2007
|
395,000
|
|
$
|
3,950
|
|
87,882,922
|
|
$
|
878,829
|
|
$
|
758,169,498
|
|
$
|
7,810,558
|
|
-
|
|
$
|
-
|
|
$
|
(517,962,361)
|
|
$
|
248,900,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(121,700,024)
|
|
(121,700,024)
|
|
(121,700,024)
|
Foreign currency translation loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(8,325,499)
|
|
-
|
|
-
|
|
-
|
|
(8,325,499)
|
|
(8,325,499)
|
Unrealized gain on available-for-sale securities, net of
reclassification adjustments for realized net losses and gains
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
155,688
|
|
-
|
|
-
|
|
-
|
|
155,688
|
|
155,688
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
$
|
(129,869,835)
|
Stock based compensation
|
-
|
|
-
|
|
665,744
|
|
6,658
|
|
7,258,897
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7,265,555
|
|
|
Conversion of preferred stock
|
(395,000)
|
|
(3,950)
|
|
39,500,000
|
|
395,000
|
|
(391,050)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Purchase of treasury stock
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
402,114
|
|
(743,586)
|
|
-
|
|
(743,586)
|
|
|
Stock option exercises
|
-
|
|
-
|
|
3,935
|
|
39
|
|
3,896
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,935
|
|
|
Stock issued under employee stock purchase plan
|
-
|
|
-
|
|
111,402
|
|
1,114
|
|
306,465
|
|
-
|
|
-
|
|
-
|
|
-
|
|
307,579
|
|
|
December 31, 2008
|
-
|
|
$
|
-
|
|
128,164,003
|
|
$
|
1,281,640
|
|
$
|
765,347,706
|
|
$
|
(359,253)
|
|
402,114
|
|
$
|
(743,586)
|
|
$
|
(639,662,385)
|
|
$
|
125,864,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(40,708,552)
|
|
(40,708,552)
|
|
(40,708,552)
|
Foreign currency translation gain
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,293,770
|
|
-
|
|
-
|
|
-
|
|
1,293,770
|
|
1,293,770
|
Unrealized loss on available-for-sale securities, net of
reclassification adjustments for realized net losses and gains
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(131,308)
|
|
-
|
|
-
|
|
-
|
|
(131,308)
|
|
(131,308)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(39,546,090)
|
Stock based compensation
|
-
|
|
-
|
|
2,218,993
|
|
22,190
|
|
2,264,858
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,287,048
|
|
|
Stock issued under employee stock purchase plan
|
-
|
|
-
|
|
208,240
|
|
2,083
|
|
196,008
|
|
-
|
|
-
|
|
-
|
|
-
|
|
198,091
|
|
|
Purchase of treasury stock
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
584,085
|
|
(534,418)
|
|
-
|
|
(534,418)
|
|
|
December 31, 2009
|
-
|
|
$
|
-
|
|
130,591,236
|
|
$
|
1,305,913
|
|
$
|
767,808,572
|
|
$
|
803,209
|
|
986,199
|
|
$
|
(1,278,004)
|
|
$
|
(680,370,937)
|
|
$
|
88,268,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(46,958,921)
|
|
(46,958,921)
|
|
(46,958,921)
|
Foreign currency translation gain
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
276,959
|
|
-
|
|
-
|
|
-
|
|
276,959
|
|
276,959
|
Unrealized loss on available-for-sale securities, net of
reclassification adjustments for realized net losses and gains
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(114,300)
|
|
-
|
|
-
|
|
-
|
|
(114,300)
|
|
(114,300)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(46,796,262)
|
Stock based compensation
|
-
|
|
-
|
|
3,107,999
|
|
31,079
|
|
1,851,299
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,882,378
|
|
|
Purchase of treasury stock
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
818,288
|
|
(441,506)
|
|
-
|
|
(441,506)
|
|
|
December 31, 2010
|
-
|
|
$
|
-
|
|
133,699,235
|
|
$
|
1,336,992
|
|
$
|
769,659,871
|
|
$
|
965,868
|
|
1,804,487
|
|
$
|
(1,719,510)
|
|
$
|
(727,329,858)
|
|
$
|
42,913,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
Table
of Contents
PLUG
POWER INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of
Operations
Description of
Business
Plug
Power Inc., or the Company, is a leading provider of alternative energy
technology and is involved in the design, development, commercialization and
manufacture of fuel cell systems for the industrial off-road (forklift or
material handling) market. Plug Power has also provided product development for
the back-up and stationary power markets worldwide. Effective April 1, 2010,
the Company was no longer considered a development stage enterprise since its principal
operations began to provide more than insignificant revenues as the Company
received orders from repeat customers, increased its customer base and had a
significant backlog. Prior to April 1, 2010, the Company was considered a
development stage enterprise because substantially all of our resources and
efforts were aimed at the discovery of new knowledge that could lead to
significant improvement in fuel cell reliability and durability, and the
establishment, expansion and stability of markets for our products.
The
Company is focused on proton exchange membrane, or PEM, fuel cell and fuel
processing technologies and fuel cell/battery hybrid technologies, from which
multiple products are available. A fuel cell is an electrochemical device that
combines hydrogen and oxygen to produce electricity and heat without
combustion. Hydrogen is derived from hydrocarbon fuels such as liquid petroleum
gas (LPG), natural gas, propane, methanol, ethanol, gasoline or biofuels.
Hydrogen can also be obtained from the electrolysis of water. Hydrogen can be
purchased directly from industrial gas providers or can be produced on-site at
consumer locations.
The Company concentrates its efforts on developing,
manufacturing and selling our hydrogen-fueled PEM GenDrive
®
products on commercial terms for industrial off-road (forklift or material
handling) applications, with a focus on multi-shift high volume manufacturing
and high throughput distribution sites.
We have previously invested in development and sales
activities for low-temperature remote-prime power GenSys
®
products and our GenCore
®
product, which is a hydrogen fueled
PEM fuel cell system to provide back-up power for critical infrastructure.
While Plug Power will continue to service and support GenSys and/or GenCore
products on a limited basis, our main focus is our GenDrive product line.
The
Company sells its products worldwide, with a primary focus on North America,
through our direct product sales force, original equipment manufacturers (OEMs)
and their dealer networks. We sell to business, industrial and government
customers.
The
Company was organized in the State of Delaware on June 27, 1997 and became
listed on the NASDAQ exchange on October 29, 1999. The Company was originally a
joint venture between Edison Development Corporation and Mechanical Technology
Incorporated. In 2007, we merged with and acquired all the assets, liabilities
and equity of Cellex Power Products, Inc. (Cellex) and General Hydrogen
Corporation (General Hydrogen). Through these acquisitions, and our continued
GenDrive product development efforts, Plug Power became the first fuel cell
company to offer a complete suite of products; Class 1 - sit-down counterbalance trucks,
Class 2 – stand-up reach trucks and Class 3 – rider pallet trucks. The launch of our Class 2 product
occurred in January of 2010.
F-7
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Unless
the context indicates otherwise, the terms “Company,” “Plug
Power,” “we,” “our” or “us” as used
herein refers to Plug Power Inc. and its subsidiaries.
Although
the Company has a significant amount of available-for-sale securities, as
described further below, as of December 31, 2010, neither the Company nor
any of its subsidiaries was an “investment company” pursuant to the
Investment Company Act of 1940, as amended.
Liquidity
We have experienced recurring operating losses
and we anticipate incurring substantial additional losses. As
of December 31, 2010, we had approximately $11.0 million and $10.4 million of
cash and cash equivalents and available-for-sale securities, respectively, to
fund our future operations. We believe that our current cash, cash equivalents,
available-for-sale securities balances and cash generated from future sales
will provide sufficient liquidity to fund operations into or through the first
quarter of 2012. This projection is based on our current expectations regarding
product sales, cost structure, cash burn rate and operating assumptions
(including those specified in the May 2010 restructuring plan described below),
which do not include any funding from external sources of financing. In the
event that our operating expenses are higher than anticipated or the gross
margins and shipments of our GenDrive products do not increase as we expect, we
may be required to implement contingency plans within our control to conserve
and/or enhance our liquidity to meet operating needs. Such plans include; our
ability to further reduce discretionary expenses, monetize our real estate
assets through a sale-leaseback arrangement and obtain additional funding from
licensing the use of our technologies. Our cash requirements relate primarily
to working capital needed to operate and grow our business, including funding
operating expenses, growth in inventory to support both shipments of new units
and servicing the installed base, and continued development and expansion of
our products. If our projections for significant order and shipment growth
materialize, we believe we can obtain debt financing to fund the working
capital needed to fulfill these orders and shipments. Our future liquidity and
capital requirements will depend upon numerous factors, including those
identified in Risk Factors
We expect we will need to raise additional
capital to fund our operations beyond the first quarter of 2012 and such
capital may not be available to us, in which case we may have to reduce and/or
cease our operations. As a result, we can provide no assurance that we will be
able to fund our operations beyond 2011 without external financing. We continue
to evaluate opportunities to raise additional capital to fund our business
beyond 2011. Alternatives under consideration include equity or debt
financings, strategic alliances or joint ventures. If we are unable to obtain
additional capital prior to the end of 2011, we may not be able to sustain our
future operations beyond the first quarter of 2012 and may be required to
delay, reduce and/or cease our operations and/or seek bankruptcy protection. We
cannot assure you that any necessary additional financing will be available on
terms favorable to us, or at all. Given the difficult current economic
environment, we believe that it could be difficult to raise additional funds
and there can be no assurance as to the availability of additional financing or
the terms upon which additional financing may be available. Additionally, even
if we raise sufficient capital through equity or debt financing, strategic
alliances or otherwise, there can be no assurances that the revenue or capital
infusion will be sufficient to enable us to develop our business to a level
where it will be profitable or generate positive cash flow. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders could be significantly diluted,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing stockholders. If we incur additional debt, a
substantial portion of our operating cash flow may be dedicated to the payment
of principal and interest on such indebtedness, thus limiting funds available
for our business activities. The terms of any debt securities issued could also
impose significant restrictions on our operations. Broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance, and may adversely impact our ability to raise
additional funds. Similarly, if our common stock is delisted from the NASDAQ
Capital Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant
licenses on terms that are not favorable to us.
F-8
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
As
of December 31, 2010, we had cash and cash equivalents of $11.0 million,
available-for-sale securities of $10.4 million and working capital of $23.7
million.
Private
Placements
In
June 2006, the Company completed a private placement with Smart Hydrogen
Inc. (the Buyer) whereby the Company sold 395,000 shares of Class B Capital
Stock, a class of preferred stock of the Company, which were convertible into
39,500,000 shares of common stock, and 11,240 shares of common stock to the
Buyer for a net purchase price of approximately $214.4 million, after payment
of expenses relating to the issuance. The Buyer also contemporaneously
purchased 1,825,000 shares of common stock of the Company from DTE Energy
Foundation.
Mergers
and Acquisitions
On
April 3, 2007, we purchased all of the outstanding capital stock of
Cellex, a development stage enterprise, from its equity holders for an
aggregate cash purchase price of $46.1 million, including acquisition costs.
On
May 4, 2007, the Company completed the acquisition of all of the
outstanding shares of General Hydrogen, a development stage enterprise, for an
aggregate purchase price of $12.4 million, including acquisition costs. The
purchase price included the settlement of $3 million in senior secured loans
previously made by Plug Power to General Hydrogen, as well as 571,429 warrants
granted to shareholders of General Hydrogen that were valued at $1.4 million.
The warrant price was based on a Monte Carlo simulation which was performed,
and the mean value was selected. The warrants become exercisable when Plug
Power’s Common Stock trades at a volume weighted average price of $7.00
or more for 10 consecutive trading days. The warrants carry an exercise price
of $.01 per share and expire four years from the date of issuance.
F-9
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Change in Control
In
December 2008, Smart Hydrogen Inc. sold to OJSC (Third Generation Company of
the Wholesale Electricity Market) (OGK-3) all 395,000 shares of the Company's
Class B Capital Stock as well as 5,126,939 shares of the Company's common
stock. This sale triggered the automatic conversion of the Company's Class B
Capital Stock into 39,500,000 shares of common stock, and the termination of
all the rights and obligations attached to the Class B Capital Stock. The
rights and obligations attached to the Class B Capital Stock that terminated
included, but were not limited to, the right to appoint directors, veto rights
and voting support obligations under the Investor Rights Agreement dated as of
June 29, 2006, as amended (the Investor Rights Agreement). OGK-3 has executed a
joinder agreement to the Investor Rights Agreement and is prohibited from
transferring its shares of the Company's Common Stock to a competitor of the
Company. OGK-3 is also bound by the same standstill provisions that applied to
Smart Hydrogen, as set forth in the Investor Rights Agreement. This transfer
and conversion triggered a change of control pursuant to Section 17 of our 1999
Stock Option and Incentive Plan; and, therefore, each outstanding Stock Option
Right automatically became fully exercisable and conditions and restrictions on
each outstanding Restricted Stock Award, Deferred Stock Award and Performance
Share Award that relates solely to the passage of time and continued employment
were removed.
2.
Summary of Significant Accounting Policies
Principles of
Consolidation
The
consolidated financial statements include the financial statements of Plug
Power Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. It is the
Company’s policy to reclassify prior year consolidated financial statements
to conform to current year presentation.
Cash
Equivalents
Cash
equivalents consist of money market accounts and overnight repurchase
agreements with an initial term of less than three months. For purposes of the
consolidated statements of cash flows, the Company considers all highly-liquid
debt instruments with original maturities of three months or less to be cash
equivalents.
Investment
Securities
Investment
securities at December 31, 2010 and 2009 consist of U.S. Treasury and
auction rate debt securities. The Company classifies its securities in one of
two categories: trading or available‑for‑sale. Trading securities
consisted of auction rate debt securities. All other securities not included in
trading are classified as available‑for‑sale.
F-10
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Trading
and available‑for‑sale securities are recorded at fair value.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, net of the related tax effect,
on available‑for‑sale securities are excluded from earnings and are
reported as a separate component of accumulated other comprehensive income
until realized. Realized gains and losses from the sale of available‑for‑sale
securities are determined on a specific‑identification basis.
Where
a decline in the fair value of any available for sale debt security below cost
is deemed to be other than temporary, and management does not intend to sell
the security and believes it is more likely than not the Company will not be
required to sell the security prior to recovery of cost or amortized cost, the
portion of the total impairment attributable to the credit loss is recognized
in earnings, and the remaining difference between the security’s
amortized cost basis and its fair value is included in other comprehensive
income.
For
other-than-temporarily impaired available for sale debt securities that
management intends to sell, or where management believes it is more likely than
not that the Company will be required to sell, and does not expect the fair
value of a security to recover to cost or amortized cost prior to the expected date
of sale, the impairment charge is recognized in earnings equal to the
difference between the fair value and amortized cost basis of the security. The
fair value of the other than temporarily impaired security becomes the new cost
basis.
To
determine whether an impairment is other than temporary the Company considers
the reasons for the impairment, the severity and duration of the impairment,
changes in value subsequent to period-end, forecasted performance of the
investee, and the general market conditions in the geographic area or industry
the investee operates in.
Premiums
and discounts are amortized or accreted over the life of the related available‑for‑sale
security as an adjustment to yield using the interest method. Interest income
is recognized when earned.
Accounts
Receivable
Accounts
receivable related to product and service arrangements are recorded when
products are shipped or delivered to customers, as appropriate. Accounts
receivable related to contract research and development arrangements are
recorded when work is completed under government contracts. Accounts receivable
are stated at the amount billed to customers. Interest and late charges billed
to customers are not material, and because collection is uncertain, are not
recognized until collected. Accounts receivable are ordinarily due between 30
and 60 days after the issuance of the invoice. Accounts are considered
delinquent when more than 90 days past due. Delinquent receivables are reserved
or written off based on individual credit evaluation and specific circumstances
of the customer. The allowance for doubtful accounts and related receivable are
reduced when the amount is deemed uncollectible.
F-11
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Inventory
Inventory
is stated at the lower of cost or market value and consists primarily of raw
materials. In the case of our limited consignment arrangements, we do not
relieve inventory until the customer has accepted the product, at which time
the risks and rewards of ownership have transferred. At December 31, 2010
and 2009, inventory on consignment was valued at approximately $725,000 and $0,
respectively.
Goodwill and
Other Intangible Assets
Goodwill
is tested for impairment annually or more frequently when events or
circumstances indicate that the carrying value more likely than not exceeds its
fair value. Goodwill impairment testing is performed at the segment (or
reporting unit) level. The Company’s goodwill is evaluated at the entity
level as there is only one reporting unit. Goodwill is assigned to reporting
units at the date the goodwill is initially recorded. Once goodwill has been
assigned to reporting units, it no longer retains association with a particular
acquisition, and all of the activities within a reporting unit, whether
acquired or organically grown, are available to support the value of the
goodwill. The goodwill impairment analysis is a two-step test. The first step,
used to identify potential impairment, involves comparing the reporting
unit’s fair value to its carrying value including goodwill. If the fair
value of a reporting unit exceeds its carrying value, applicable goodwill is considered
not to be impaired. If the carrying value exceeds fair value, there is an
indication of impairment and the second step is performed to measure the amount
of impairment, if any. The Company performs its annual goodwill assessment
under the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) ASC No. 350 at the date of its fiscal year end. As of
December 31, 2010 and 2009, the Company has no goodwill. See Note 6,
Goodwill and Other Intangible Assets for more information.
Intangible
assets with estimable useful lives are amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment when certain triggering events occur. Intangible assets consisting
of acquired technology and customer relationships related to Cellex and General
Hydrogen are amortized using a straight-line method over their useful lives of
8 years. As a result of the uncertain economic environment in general and the
further decline in our stock price, the Company performed an impairment
assessment during the second quarter of 2010 and determined that no impairment
exists.
Product and Service
Revenue
Effective
April 1, 2010, the Company adopted Accounting Standards Update (ASU) ASU No.
2009-13 on Topic 605, Revenue Recognition– Multiple Deliverable Revenue
Arrangements retroactive to January 1, 2010
.
The objective of this ASU
is to address the accounting for multiple-deliverable arrangements to enable
vendors to account for products or services (deliverables) separately rather
than as a combined unit. Vendors often provide multiple products or services to
their customers. Those deliverables often are provided at different points in
time or over different time periods. This ASU provides amendments to the criteria
in Subtopic 605-25 for separating consideration in multiple-deliverable
arrangements. The amendments in this ASU establish a selling price hierarchy
for determining the selling
F-12
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
price of a deliverable.
The selling price used for each deliverable will be based on vendor-specific
objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is
not available, or estimated selling price (ESP) if neither VSOE nor TPE is
available. The amendments in this ASU also replace the term fair value in the
revenue allocation guidance with selling price to clarify that the allocation of
revenue is based on entity-specific assumptions rather than assumptions of a
marketplace participant and expands the disclosure requirements related to a
vendor’s multiple-deliverable revenue arrangements. This ASU is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010, however, the Company chose
early adoption of this ASU.
The
Company was previously prohibited from separating these multiple deliverables
into individual units of accounting without VSOE of fair value or other TPE of
fair value. This evidence was not available due to our limited experience and
lack of evidence of fair value of the undelivered components of the sale.
Without this level of evidence, the Company had to treat each sale as a single
unit of accounting and defer the revenue recognition of each sale, recognizing
revenue over a straight-line basis as the continued service, maintenance and
other support obligations expired. Under ASU No. 2009-13, the requirement to
have VSOE or TPE in order to recognize revenue has been modified, and it now
allows the vendor to make its best estimate of the standalone selling price of
deliverables when more objective evidence of selling price is not available.
Prior
to the adoption of ASU No. 2009-13, the Company applied the guidance within
FASB ASC No. 605-10-S99, Revenue Recognition – Overall – SEC
Materials, in the evaluation of its contracts to determine when to properly
recognize
revenue. Under FASB ASC No.
605-10-S99 revenue is recognized when title and risk of loss have passed to the
customer, there is persuasive evidence of an arrangement, delivery has occurred
or services have been rendered, the sales price is determinable, and
collectibility is reasonably assured.
The
Company’s initial sales of products were contract-specific arrangements
containing multiple obligations that may include a combination of fuel cell
systems, continued service, maintenance, a supply of hydrogen and other
support. While contract terms generally stipulated that title and risk of
ownership pass and require payment upon shipment or delivery of the fuel cell
system, or acceptance in the case of certain consignment sales, and also
stipulated that payment is not contingent on the achievement of specific
milestones or other substantive performance, the multiple obligations within
the Company’s contractual arrangements were not accounted for separately
based on the Company’s limited commercial experience and lack of evidence
of fair value of the separate elements. As a result, the Company deferred
recognition of product and service revenue and recognized revenue on a
straight-line basis over the stated contractual terms, as the continued
service, maintenance and other support obligations expired, which were generally
for periods of twelve (12) to thirty (30) months or which may have extended over
multiple years.
For
all product and service revenue transactions entered into prior to the
implementation of ASU No. 2009-13, the Company will continue to defer the
recognition of product and service revenue and recognize revenue on a
straight-line basis as the continued service, maintenance and other support
obligations expire, which are generally for periods of twelve to thirty months,
or which extend over multiple years. While contract terms for those
transactions generally required payment shortly after shipment or
delivery and installation of the fuel cell system and were not contingent on
the achievement of specific milestones
or other substantive performance, the multiple-element revenue obligations within our
contractual arrangements were generally not accounted for separately based on
our limited experience and lack of evidence of fair value of the undelivered
components.
F-13
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
See
Note 19, Multiple-Deliverable Revenue Arrangements for further discussion of
our multiple-deliverable revenue arrangements.
The
product and service revenue contracts entered into since January 1, 2010
generally provide a one to two-year product warranty to customers from date of
shipment. We currently estimate the costs of satisfying warranty claims
based on an analysis of past experience and provide for future claims in the
period the revenue is recognized. The Company carefully monitors the warranty
work requested by its customers and management believes that its current
warranty reserve appears adequate as of December 31, 2010. The Company’s
product and service warranty as of December 31, 2010 is approximately $862,000
and is included in product warranty reserve in the consolidated balance sheets.
In the
case of the Company’s limited consignment sales, the Company does not
begin recognizing revenue until the customer has accepted the product, at which
time the risks and rewards of ownership have transferred, the price is fixed
and the Company has a reasonable expectation of collection upon billing. The costs
associated with the product, service and other obligations are generally
expensed as they are incurred. At December 31, 2010 and 2009, the Company had
unbilled amounts from product and service revenue in the amount of
approximately $107,000 and $33,000, respectively and is included in other
current assets in the consolidated balance sheets. At December 31, 2010
and 2009, the Company had customer deposits from product and service revenue,
representing deposits in advance of performance of the allowable work, in the
amount of approximately $576,000 and $0, respectively and is included in other
current liabilities in the consolidated balance sheets.
At December 31, 2010 and 2009, the Company had
deferred product and service revenue in the amount of $4.3 million and $4.6
million, respectively and is included in deferred revenue in the consolidated
balance sheets.
Research and
Development Contract Revenue
Research
and development contract revenue primarily relates to cost reimbursement
research and development contracts associated with the development of PEM fuel
cell technology. The Company generally shares in the cost of these programs
with cost sharing percentages generally ranging from 30% to 50% of total
project costs. Revenue from time and material contracts is recognized on the
basis of hours expended plus other reimbursable contract costs incurred during
the period. Revenue from fixed fee contracts is recognized on the basis of
percentage of completion. Our percentage-of-completion contracts are best efforts
contracts with essentially no set deliverables. We measure progress on our
percentage-of-completion contracts based on costs incurred. All allowable work
performed through the end of each calendar quarter is billed, subject to
limitations in the respective contracts. We expect to continue certain research
and development contract work that is directly related to our current product
development efforts. At December 31, 2010 and 2009, the Company had unbilled
amounts from research and development contract revenue in the amount of approximately
$457,000 and $1.3 million, respectively and is included in other current assets
in the consolidated balance sheets. At December 31, 2010 and 2009, the
Company had customer deposits from research and development contract revenue,
representing deposits in advance of performance of the allowable work, in the
amount of approximately $297,000 and $159,000, respectively and is included in
other current liabilities in the consolidated balance sheets.
F-14
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Property, Plant and
Equipment
Property,
plant and equipment are originally recorded at cost. Maintenance and repairs
are expensed as costs are incurred. Depreciation on plant and equipment is
calculated on the straight-line method over the estimated useful lives of the
assets. The Company records depreciation and amortization over the following estimated
useful lives:
Buildings
|
|
20 years
|
Building improvements
|
|
5–20 years
|
Software, machinery and equipment
|
|
1–15 years
|
Impairment of
Long-Lived Assets
Long-lived
assets, such as property, plant, and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and liabilities
of a disposal group classified as held for sale would be presented separately
in the appropriate asset and liability sections of the balance sheet. As a
result of the uncertain economic environment in general and the further decline
in our stock price, the Company performed an impairment assessment during the
second quarter of 2010 and has determined that no impairment exists.
Income Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets if
it is more likely than not that such assets will not be realized. We did not
report a benefit for federal and state income taxes in the consolidated
financial statements as the deferred tax asset generated from our net operating
loss has been offset by a full valuation allowance because it is more likely
than not that the tax benefits of the net operating loss carryforward will not
be realized.
F-15
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
The
Company accounts for uncertain tax positions in accordance with FASB ASC No.
740-10-25, Income Taxes – Overall – Recognition. The Company must
recognize in its financial statements the impact of a tax position, if that
position is more likely than not to be sustained on audit, based on the technical
merits of the position.
Foreign Currency Translation
Foreign
currency translation adjustments arise from conversion of the Company’s
foreign subsidiary’s financial statements to US dollars for reporting
purposes, and are included in accumulated other comprehensive income (loss) in
stockholders’ equity on the accompanying consolidated balance sheets.
Realized foreign currency transaction gains and losses are included in interest
and other expense in the accompanying consolidated statements of operations.
Research and
Development
Costs
incurred in research and development by the Company are expensed as incurred.
Stock-Based
Compensation
The
Company maintains employee stock-based compensation plans, which are described
more fully in Note 14, Employee Benefit Plans.
Stock-based
compensation represents the cost related to stock-based awards granted to
employees and directors. The Company measures stock-based compensation cost at
grant date, based on the fair value of the award, and recognizes the cost as
expense on a straight-line basis (net of estimated forfeitures) over the
option’s requisite service period.
The Company estimates the fair value of stock-based
awards using a Black-Scholes valuation model. Stock-based compensation expense
is recorded in “Research and development expense” and
“Selling, general and administrative expense” in the consolidated
statements of operations based on the employees’ respective function.
The
Company records deferred tax assets for awards that result in deductions on the
Company’s income tax returns, unless the Company cannot recognize the
deduction (i.e. the Company is in a net operating loss (NOL) position), based
on the amount of compensation cost recognized and the Company’s statutory
tax rate. Differences between the deferred tax assets recognized for financial
reporting purposes and the actual tax deduction reported on the Company’s
income tax return are recorded in additional paid-in capital if the tax
deduction exceeds the deferred tax asset or in the consolidated statements of
operations if the deferred tax asset exceeds the tax deduction and no
additional paid-in capital exists from previous awards. No tax benefit or
expense for stock-based compensation has been recorded during the years ended
December 31, 2010, 2009 and 2008 since the Company remains in a NOL
position.
F-16
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Per Share Amounts
Basic
earnings per common share are computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the reporting period, adjusted for unvested restricted stock. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock (such as convertible preferred stock,
stock options, unvested restricted stock, and warrants) were exercised or
converted into common stock or resulted in the issuance of common stock (net of
any assumed repurchases) that then shared in the earnings of the Company, if
any. This is computed by dividing net earnings by the combination of dilutive
common share equivalents, which is comprised of shares issuable under
outstanding warrants, the Company’s share-based compensation plans, and
the weighted average number of common shares outstanding during the reporting
period. Since the Company is in a net loss position, all common stock
equivalents would be considered to be anti-dilutive and are, therefore, not
included in the determination of diluted earnings per share. Accordingly, basic
and diluted loss per share are the same.
The
following table provides the components of the calculations of basic and diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,958,921
|
)
|
|
$
|
(40,708,552
|
)
|
|
$
|
(121,700,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
131,231,619
|
|
|
|
129,110,661
|
|
|
|
89,383,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
These dilutive potential common shares are summarized
as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
Stock options outstanding
|
|
4,463,251
|
|
5,981,286
|
|
6,119,804
|
Unvested restricted stock (1)
|
|
4,379,523
|
|
8,682,666
|
|
—
|
Warrants
|
|
571,429
|
|
571,429
|
|
571,429
|
Number of dilutive potential common shares
|
|
9,414,203
|
|
15,235,381
|
|
6,691,233
|
|
|
|
|
|
|
|
(1)
|
December
31, 2010, does not include 508,790 shares subsequently issued in 2011 (which
will immediately vest) for the achievement of performance objectives in 2010.
|
Use of
Estimates
The
consolidated financial statements of the Company have been prepared in
conformity with U.S. generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Subsequent
Events
The
Company has evaluated subsequent events and transactions through the date of
this filing for potential recognition or disclosure in the consolidated financial
statements and has noted no other subsequent events requiring recognition or
disclosure.
F-18
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Recently Adopted
Accounting Pronouncements
In
January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures About
Fair Value Measurements. This ASU adds disclosure requirements about transfers
into and out of Levels 1, 2, and 3, clarifies existing fair value
disclosure requirements about the appropriate level of disaggregation, and
clarifies that a description of the valuation technique (e.g., market approach,
income approach, or cost approach) and inputs used to measure fair value is
required for recurring, nonrecurring, and Level 2 and 3 fair value
measurements. These provisions were adopted by the Company during the reporting
period ending March 31, 2010. As this ASU amends only the disclosure
requirements for fair value measurements, the adoption did not impact its
consolidated financial position, consolidated results of operations, or
liquidity. The ASU also requires that Level 3 activity about purchases,
sales, issuances, and settlements be presented on a gross basis rather than as
a net number as currently required. This provision is effective for the
Company's reporting period ending March 31, 2011. As this ASU amends only
the disclosure requirements for fair value measurements, the adoption will have
no impact on its consolidated financial position, consolidated results of
operations, and liquidity.
In
February 2010, the FASB issued ASU No. 2010-09, Subsequent Events - Amendments
to Certain Recognition and Disclosure Requirements. This ASU provides guidance
related to events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. This ASU guidance amends
existing standards to address potential conflicts with the Securities and
Exchange Commission (SEC) guidance and refines the scope of the reissuance
disclosure requirements to include revised financial statements only. Under
this guidance, SEC filers are no longer required to disclose the date through
which subsequent events have been evaluated. These provisions were adopted by
the Company during the reporting period ending March 31, 2010. As this ASU
amends only the disclosure requirements for subsequent events, the adoption did
not impact its consolidated financial position, consolidated results of
operations, and liquidity. See "Subsequent Events" in Note 23.
Recent
Accounting Pronouncements
In
April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition –
Milestone Method (Topic 605). This ASU provides guidance on defining a
milestone and determining when it may be appropriate to apply the milestone
method of revenue recognition for research or development transactions. This
ASU is effective prospectively for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15, 2010. The
Company is currently evaluating the impact, if any, of this new accounting
update and plans to adopt this new standard on January 1, 2011 and does not
believe adoption of this new standard will have a material effect on its
consolidated financial position, consolidated results of operations, and
liquidity.
F-19
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
In
December 2010, the FASB issued ASU No. 2010-28, Intangibles —
Goodwill and Other: When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts (a consensus of the
EITF). This ASU modifies Step 1 of the goodwill impairment test for reporting
units who have recognized goodwill and whose reporting unit carrying amount is
either zero or negative. For those reporting units, an entity is required to
perform Step 2 of the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. In determining whether it is more likely
than not that a goodwill impairment exists, an entity should consider whether
there are any adverse qualitative factors indicating that an impairment may
exist. Early adoption is not permitted. The Company is currently evaluating the
impact, if any, of this new accounting update and plans to adopt this new
standard on January 1, 2011 and does not believe adoption of this new standard
will have a material effect on its consolidated financial position,
consolidated results of operations, and liquidity.
3. Fair Value
Measurements
The
Company complies with the provisions of FASB ASC No. 820, Fair Value
Measurements and Disclosures
(ASC 820), in measuring fair value and in
disclosing fair value measurements. ASC 820 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements required under other accounting pronouncements. FASB ASC No.
820-10-35, Fair Value Measurements and Disclosures- Subsequent Measurement (ASC
820-10-35), clarifies that fair value is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. ASC 820-10-35-3 also requires
that a fair value measurement reflect the assumptions market participants would
use in pricing an asset or liability based on the best information available.
Assumptions include the risks inherent in a particular valuation technique
(such as a pricing model) and/or the risks inherent in the inputs to the model.
ASC
820-10-35 discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income
or cash flow), and the cost approach (cost to replace the service capacity of
an asset or replacement cost). The statement utilizes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of those three
levels:
Level
1 Inputs – Level 1 inputs are unadjusted quoted prices in active markets
for assets or liabilities identical to those to be reported at fair value. An
active market is a market in which transactions occur for the item to be fair
valued with sufficient frequency and volume to provide pricing information on
an ongoing basis.
F-20
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Level
2 Inputs – Level 2 inputs are inputs other than quoted prices included
within Level 1. Level 2 inputs are observable either directly or indirectly.
These inputs include: (a) Quoted prices for similar assets or liabilities
in active markets; (b) Quoted prices for identical or similar assets or
liabilities in markets that are not active, such as when there are few transactions
for the asset or liability, the prices are not current, price quotations vary
substantially over time or in which little information is released publicly;
(c) Inputs other than quoted prices that are observable for the asset or
liability; and (d) Inputs that are derived principally from or
corroborated by observable market data by correlation or other means.
Level
3 Inputs – Level 3 inputs are unobservable inputs for an asset or
liability. These inputs should be used to determine fair value only when
observable inputs are not available. Unobservable inputs should be developed
based on the best information available in the circumstances, which might
include internally generated data and assumptions being used to price the asset
or liability.
When
determining the fair value measurements for assets or liabilities required or
permitted to be recorded at and/or marked to fair value, the Company considers
the principal or most advantageous market in which it would transact and
considers assumptions that market participants would use when pricing the asset
or liability. When possible, the Company looks to active and observable markets
to price identical assets. When identical assets are not traded in active
markets, the Company looks to market observable data for similar assets.
Nevertheless, certain assets are not actively traded in observable markets and
the Company must use alternative valuation techniques to derive a fair value
measurement.
As of
December 31, 2010, the Company no longer held any trading securities - auction
rate debt securities since they were repurchased in July, 2010 at par by the
third-party lender holding the collateral under the Repurchase Agreement which
resulted in a corresponding reduction in amounts outstanding and the
extinguishment of the Credit Line Agreement. At December 31, 2009, was $53.4
million of trading securities - auction rate debt securities. The auction rate
debt securities were secured by student loans which are generally guaranteed by
the Federal government. These auction rate debt securities were structured to
be tendered at par, at the investor’s option, at auctions occurring every
27-30 days. However, due to the liquidity issues in the credit and capital
markets, the market for auction rate debt securities began experiencing auction
failures in February 2008, and there have been no successful auctions for the
securities held in our portfolio since the failures began. We continued to
receive interest on these securities, subject to an interest rate cap formula
for each security as periodically adjusted in accordance with the respective
securities’ agreement. At December 31, 2009, the interest rates ranged
from 0.61% to 3.48% on the auction rate debt securities.
F-21
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
The
following tables summarize the basis used to measure certain financial assets
at fair value on a recurring basis in the consolidated balance sheets:
Basis
of Fair Value Measurements
|
|
|
|
Quoted Prices in Active
Markets for Identical Items
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Balance
at December 31, 2010
|
|
Total
|
|
|
|
Available-for-sale securities –
U.S. treasury securities
|
|
$
|
10,403,315
|
|
$
|
10,403,315
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
Markets for Identical Items
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Balance
at December 31, 2009
|
|
Total
|
|
|
|
Trading securities – auction rate
debt securities
|
|
$
|
53,397,179
|
|
$
|
—
|
|
$
|
—
|
|
$
|
53,397,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
47,959,920
|
|
$
|
47,959,920
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate debt securities
repurchase agreement
|
|
$
|
5,977,822
|
|
$
|
—
|
|
$
|
—
|
|
$
|
5,977,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following tables show reconciliations of the beginning and ending balances for
assets measured at fair value on a recurring basis using significant
unobservable inputs (i.e. Level 3):
|
|
|
|
|
Trading
Securities – Auction Rate Debt Securities
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
|
|
Beginning of period
|
|
$
|
53,397,179
|
|
Sale of trading securities
for the year ended December 31, 2010
|
|
|
(59,375,001
|
)
|
Net unrealized gains on trading securities
for the year ended December 31, 2010
|
|
|
5,977,822
|
|
|
|
|
|
|
Fair value of trading securities - auction rate debt securities at
December 31, 2010
|
|
$
|
—
|
|
|
|
|
|
|
F-22
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
|
|
|
|
Auction
Rate Debt Securities Repurchase Agreement
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
|
Beginning of period
|
|
$
|
5,977,822
|
Change in fair value of auction rate debt securities repurchase
agreement for the year ended December 31, 2010
|
|
|
(5,977,822)
|
|
|
|
|
Fair value of auction rate debt securities repurchase agreement at
December 31, 2010
|
|
$
|
—
|
|
|
|
|
The
following summarizes the valuation technique for assets measured and recorded
at fair value:
Available-for-sale
securities: For our level 1 securities, which represent U.S. treasury securities, fair value is based on quoted market prices.
Trading
securities – auction rate debt securities and auction rate debt
securities repurchase agreement: The securities valued using unobservable
inputs were the auction rate debt securities and auction rate debt securities
repurchase agreement as the financial and capital markets have experienced
significant dislocation and illiquidity in regard to these types of instruments
and there is currently no secondary market for these types of securities. There
have been no successful auctions since early 2008. The valuation of these
auction rate debt securities and auction rate debt securities repurchase
agreement is an estimate based upon factors specific to these securities,
including duration, tax status (taxable or tax-exempt), credit quality, the
existence of insurance wraps, and the composition of the underlying student
loans (Federal Family Education Loan Program or private loans). Assumptions
were made about future cash flows based upon interest rate formulas as
described above. Also, the valuation included estimates of market data
including yields or spreads of similar trading instruments, when available, or
assumptions believed to be reasonable for non-observable inputs such as
likelihood of redemption. These securities were redeemed at par in July
2010.
F-23
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
4.
Available-for-Sale Securities
The
amortized cost and fair value of the Company’s available-for-sale
securities as of December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
U.S. Treasury Securities
|
|
$
|
10,421,817
|
|
$
|
—
|
|
$
|
18,502
|
|
|
$
|
10,403,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amortized cost and fair value of the Company’s available-for-sale
securities as of December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
U.S. Treasury Securities
|
|
$
|
47,864,122
|
|
$
|
95,798
|
|
$
|
—
|
|
|
$
|
47,959,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in the above table are 2 securities where the current fair value is less than
the related amortized cost at December 31, 2010. These unrealized losses
do not reflect any deterioration of the credit worthiness of the issuers of the
securities. All securities are of investment grade. The unrealized losses on these
temporarily impaired securities are a result of changes in interest rates for
fixed-rate securities where the interest rate received is less than the current
rate available for new offerings of similar securities and changes in market
spreads as a result of shifts in supply and demand. There were no unrealized
losses in the available-for-sale securities portfolio at December 31, 2009. The
contractual maturities of available-for-sale securities are all in the year
ended December 31, 2011 for balances as of December 31, 2010, and December 31,
2010 for balances as of December 31, 2009.
The Company recognized gross gains, gross losses and
proceeds on available-for-sale securities for each of the years ended
December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
Proceeds on sales
|
|
$
|
14,975,693
|
|
$
|
3,699,149
|
|
$
|
159,849,925
|
Proceeds on maturities
|
|
|
64,778,346
|
|
|
133,856,781
|
|
|
106,924,255
|
Gross realized gains
|
|
|
-
|
|
|
-
|
|
|
404,074
|
Gross realized losses
|
|
|
-
|
|
|
-
|
|
|
14,890
|
F-24
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
5.
Property, Plant and Equipment
Property,
plant and equipment at December 31, 2010 and 2009 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2010
|
|
|
December 31,
2009
|
|
Land
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
Buildings
|
|
|
14,557,080
|
|
|
|
14,557,080
|
|
Building improvements
|
|
|
6,843,954
|
|
|
|
8,784,867
|
|
Software, machinery and equipment
|
|
|
13,608,624
|
|
|
|
16,131,696
|
|
|
|
|
35,099,658
|
|
|
|
39,563,643
|
|
Less accumulated depreciation and amortization
|
|
|
(25,261,027
|
)
|
|
|
(25,220,903
|
)
|
Property, plant, and equipment, net
|
|
$
|
9,838,631
|
|
|
$
|
14,342,740
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $4.9 million, $3.4 million and $4.4 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
In the
fourth quarter of 2010, we abandoned our facility in Richmond, B.C. As a
result, in accordance with ASC No. 360-10-35-47, Long-Lived Assets to Be
Abandoned, we recorded depreciation expense in the amount of $2.1 million.
6.
Goodwill and Other Intangible Assets
Goodwill
is tested for impairment annually or more frequently when events or circumstances
indicate that the carrying value more likely than not exceeds its fair value.
There was no goodwill or changes in the carrying amount of goodwill for the
years ended December 31, 2010 and 2009 as a result of the full impairment
charge recorded in 2008.
As a result of
the uncertain economic environment in general and the decline in our stock
price during the fourth quarter of 2008, indicative of a potential devaluation
of the Company’s assets, the Company performed a goodwill impairment
assessment. As a result of this assessment, the Company determined that a
goodwill impairment occurred and recorded an impairment charge of $45.8 million
during the year ended December 31, 2008.
We estimated the fair value of our single reporting
unit using “market” and “income” valuation approaches.
The “market” valuation approach estimates our enterprise value,
which is comprised of our market capitalization. The “income”
valuation approach estimates our enterprise value using a net present value
model, which discounts projected free cash flows (DCF) of our business at a
computed weighted average cost of capital as the discount rate.
F-25
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
In the fourth quarter of 2008, we completed steps 1
and 2 of the goodwill impairment test. This goodwill impairment test indicated
that goodwill was impaired and we recorded a non-cash goodwill impairment charge
of $45.8 million, which was classified as goodwill impairment in the
accompanying 2008 consolidated statement of operations.
Intangible
assets consisting of acquired technology and customer relationships related to
the Cellex and General Hydrogen acquisitions during the year ended December 31,
2007 are amortized using a straight-line method over their useful lives of 8
years. On January 1, 2008, General Hydrogen (Canada) Corporation, Plug
Power Canada Inc. and Cellex Power Products, Inc. amalgamated as Plug Power
Canada Inc.
The
gross carrying amount and accumulated amortization of the Company’s
acquired identifiable intangible assets as of December 31, 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Amortization Period
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Effect of
Foreign Currency
Translation
|
|
Total
|
Acquired
Technology
|
8 years
|
|
$
|
15,900,000
|
|
$
|
(7,776,713
|
)
|
|
$
|
1,206,411
|
|
$
|
9,329,698
|
Customer
Relationships
|
8 years
|
|
|
1,000,000
|
|
|
(458,304
|
)
|
|
|
—
|
|
|
541,696
|
|
|
|
$
|
16,900,000
|
|
$
|
(8,235,017
|
)
|
|
$
|
1,206,411
|
|
$
|
9,871,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
gross carrying amount and accumulated amortization of the Company’s
acquired identifiable intangible assets as of December 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Amortization Period
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Effect of
Foreign Currency
Translation
|
|
Total
|
Acquired
Technology
|
8 years
|
|
$
|
15,900,000
|
|
$
|
(5,638,057
|
)
|
|
$
|
893,220
|
|
$
|
11,155,163
|
Customer
Relationships
|
8 years
|
|
|
1,000,000
|
|
|
(333,333
|
)
|
|
|
—
|
|
|
666,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,900,000
|
|
$
|
(5,971,390
|
)
|
|
$
|
893,220
|
|
$
|
11,821,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Amortization
expense for acquired identifiable intangible assets for the years ended
December 31, 2010, 2009, and 2008 was $2.3 million, $2.1 million, and $2.2
million, respectively. Estimated amortization expense for subsequent years is
as follows:
|
|
|
|
2011
|
|
$
|
2,305,769
|
2012
|
|
|
2,305,769
|
2013
|
|
|
2,305,769
|
2014
|
|
|
2,305,769
|
2015
|
|
|
648,318
|
Thereafter
|
|
|
—
|
Total
|
|
$
|
9,871,394
|
|
|
|
|
7. Credit Line
Agreement and Auction Rate Debt Securities Repurchase Agreement
In
December 2008, the Company entered into a Credit Line Agreement with a
third-party lender with a maximum availability of $62.9 million. The
Company’s auction rate debt securities included in trading securities on
the consolidated balance sheet at December 31, 2009 was pledged as collateral
for the Credit Line Agreement. As of December 31, 2008, the Company had drawn
down $62.9 million on this line of credit. During the years ended December 31, 2010
and 2009, $59.4 million and $3.5 million, respectively of auction rate debt
securities were sold by the third-party lender holding the collateral which
resulted in a corresponding reduction in amounts outstanding under the Credit
Line Agreement. The fair value of the auction rate debt securities was $53.4
million at December 31, 2009. The Credit Line Agreement had interest at a
variable rate equal to the average rate of interest earned by the Company on
the auction rate debt securities pledged as collateral for the Credit Line
Agreement. The interest rate on the line of credit advances was 1.2% at
December 31, 2009. Interest expense on the advances on the Credit Line
Agreement was approximately $305,000 and $915,000 for the years ended December
31, 2010 and 2009, respectively.
The
advances on the Credit Line Agreement were repayable on demand by the
third-party lender. If the third-party lender had exercised its right to demand
repayment of the advances under the Credit Line Agreement prior to June 30,
2010 (the date upon which the Company could first exercise its rights under the
Repurchase Agreement discussed below), the third-party lender was required to
arrange alternative financing on terms substantially the same as the Credit
Line Agreement or the third party lender must repurchase the auction rate debt
securities pledged as collateral for the Credit Line Agreement at their par
value, which was $59.4 million at December 31, 2009.
F-27
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
In
December 2008, the Company also entered into a Repurchase Agreement with the
third-party lender such that the Company may require the third-party lender to
repurchase the auction rate debt securities pledged as collateral for the
Credit Line Agreement, at their par value, from June 30, 2010 through July 2,
2012 as full settlement for the advances on the Credit Line Agreement.
The Company elected to record this item at its fair value in accordance with
ASC No. 825-10-25 to allow consistent treatment of this repurchase agreement
and the underlying collateral. At December 31, 2009, the fair value of
this item was approximately $6.0 million and was recorded as an asset on the
consolidated balance sheets. The change in the fair value of the Repurchase
Agreement for the years ended December 31, 2010 and 2009 was $6.0 million and $4.2
million, respectively, and is recorded as a realized loss on the consolidated
statements of operations.
Effective
July 1, 2010, all auction rate debt securities were repurchased at par by the third-party
lender holding the collateral under the Repurchase Agreement which resulted in
a corresponding reduction in amounts outstanding and the extinguishment of the
Credit Line Agreement.
8. Debt and Lease
Arrangement
In
March 2009, the Company signed a $1.7 million promissory note issued by
Key Equipment Finance Inc. (Key Equipment) for the purpose of financing GenDrive
products leased to Central Grocers, beginning on April 1, 2009. Monthly
installments of $32,900 are due through March 2014 and the note bears interest
at a fixed rate of 7.23% per annum on a 360-day year. The Company was initially
required to pledge $1.8 million in cash to collateralize the debt, which will
decrease over time in accordance with decreases in the outstanding balance of the
debt. This note is also secured by the equipment that is leased to Central
Grocers as described in the Master Security Agreement and Collateral Schedule
No. 01 dated as of March 20, 2009, together known as the Master Security
Agreement.
The
outstanding balance of the debt as of December 31, 2009 was $1.4 million and was
recorded as current portion of long term debt and long term debt in the
consolidated balance sheets. Restricted cash and the amount of the
corresponding pledge requirement as of December 31, 2009 was $1.7 million and was
recorded within restricted cash in the consolidated balance sheets.
On
April 1, 2009, the Company began leasing the GenDrive products to Central
Grocers. The terms of the arrangement are 60 monthly installments of $32,900.
Upon expiration of the 60 months (initial term of the lease), Central Grocers
has the option to renew the lease for an additional five years at mutually
agreed upon pricing, to purchase all equipment for a purchase price equal to
the then fair market value thereof, or to return the equipment to the Company.
The Company shall provide maintenance in accordance with the lease agreement.
F-28
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
In
December 2010, the Company assigned all of its rights, title and interest in
the lease to Somerset Capital Group, Ltd. (Somerset), but the Company will
continue to provide maintenance in accordance with the lease agreement. In
conjunction with the assignment of the lease, the Key Equipment promissory note
was completely paid off by the Company and the collateralized cash was released
to the Company. The Company sold all of the equipment under the lease to Somerset.
During
2010, the Company entered into the second phase of leased assets with Central
Grocers. The terms of the arrangement are 60 monthly installments of $24,640.
Upon expiration of the 60 months (initial term of the lease), Central Grocers
has the option to renew the lease for an additional five years at mutually
agreed upon pricing, to purchase all equipment for a purchase price equal to
the then fair market value thereof, or to return the equipment to the Company.
The Company shall provide maintenance in accordance with the lease agreement.
In
December 2010, the Company assigned all of its rights, title and interest in
the second phase lease to Somerset, but the Company will continue to provide
maintenance in accordance with the lease agreement. The Company sold all of the
equipment under the second phase lease to Somerset.
In
July 2009, the Company signed a letter of credit with Key Bank in the amount of
$525,000. The standby letter of credit is required by the agreement negotiated
between Air Products and Chemicals, Inc. (Air Products) and the Company to
supply hydrogen infrastructure and hydrogen to Central Grocers at their
distribution center.
The standby letter
of credit is collateralized by cash held in a restricted account.
In October
2009, the Company entered into a 15 month financing arrangement for an
electrolyzer. The outstanding balance of the debt as of December 31, 2010
and 2009 was approximately $10,000 and $123,000, respectively and is recorded
as current portion of long term debt and long term debt in the consolidated
balance sheets.
F-29
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
9. Accrued
Expenses
Accrued
expenses at December 31, 2010 and 2009 consist of:
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
Accrued payroll and compensation related costs
|
|
$
|
869,545
|
|
$
|
2,310,273
|
Accrued restructuring costs
|
|
|
1,392,568
|
|
|
1,694,456
|
Accrued dealer commissions
and customer rebates
|
|
|
492,700
|
|
|
—
|
Accrued software costs
|
|
|
542,500
|
|
|
—
|
Other accrued liabilities
|
|
|
1,038,916
|
|
|
1,842,812
|
|
|
|
|
|
|
|
|
|
$
|
4,336,229
|
|
$
|
5,847,541
|
|
|
|
|
|
|
|
10. Repayable
Government Assistance
During the year
ended December 31, 2000, the Company’s wholly-owned subsidiary, Plug
Power Canada Inc., formerly known as Cellex Power Products Inc., entered into
an Industrial Research Assistance Program (IRAP) Repayable Contribution
Agreement with the National Research Council of Canada (NRC) under which it
received contributions totaling Cdn$500,000 for certain development activities.
The agreement with the NRC provided for payment of royalties of up to 170% of
the contributions received subject to certain conditions, payable quarterly,
calculated at 3.5% of gross revenues. Plug Power Canada’s repayment
obligation to the NRC existed from July 1, 2002 to March 31, 2009. At
April 1, 2009, if the total amount repaid to the NRC was less than the
Cdn$500,000 contribution, then Plug Power Canada would continue to make
payments to the NRC until either the full Cdn$500,000 was repaid or until
July 1, 2012, whichever came first. The maximum liability under this
repayment obligation was Cdn$850,000. If at any point Plug Power Canada’s repayments reached this amount, the obligation would cease.
At April 1, 2009,
the total amount repaid to the NRC was less than the Cdn$500,000 contribution,
therefore Plug Power Canada was required to make payments to the NRC until
either the full Cdn$500,000 was repaid or until July 1, 2012, whichever came
first. As of February 2010 Plug Power Canada repaid the full Cdn$500,000.
The Company
recorded the estimate of amounts owed under this arrangement as a debt, with
royalty payments recorded as a reduction of the debt. Accordingly, liabilities
relating to this agreement in the amount of $119,408 have been recorded as
current portion of repayable government assistance (other current
liabilities) in the consolidated balance sheet as of December 31, 2009.
F-30
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
General Hydrogen Corporation and its wholly owned
subsidiary General Hydrogen (Canada) Corporation, and Cellex Power Products,
Inc. each entered into agreements with Technology Partnerships Canada (TPC)
during the year ended December 31, 2005 for the development of early
market fuel cell applications. On December 31, 2007, General Hydrogen
Corporation merged with Plug Power Inc. and, subsequently, Plug Power Inc.
contributed the wholly owned subsidiary General Hydrogen (Canada) Corporation to Plug Power Canada Inc. On January 1, 2008, General Hydrogen (Canada) Corporation, Plug Power Canada Inc. and Cellex Power Products, Inc. amalgamated as
Plug Power Canada Inc.
On
September 30, 2008 Plug Power Inc., Plug Power Canada Inc., and TPC
entered into Assumption and Termination Agreements related to both the Cellex
TPC Agreement and the General Hydrogen TPC Agreement. In consideration of the
Assumption and Termination Agreements, Plug Power Inc. and Plug Power Canada
Inc agreed to pay $2,235,244 to TPC. As a result of this agreement, the
Company recorded a gain on the termination of these agreements in the amount of
$1,232,522 in interest and other income and net realized gains from
available-for-sale securities in the consolidated statement of operations for
2008.
11. Restructuring
Charges
On May 25, 2010, the Company adopted a restructuring
plan to focus and align the Company on its GenDrive business. As part of this
plan, the Company has consolidated all operations to its Latham, New York headquarters. The Company recorded restructuring charges in the amount of $8,096,868
within selling, general and administrative expenses in the consolidated
statement of operations for 2010 in relation to this restructuring. At December
31, 2010, $687,696 remains in accrued expenses on the consolidated balance
sheets.
The
accrued restructuring charges relating to the May 2010 restructuring are
comprised of the following at December 31, 2010:
|
|
Accrued
restructuring
charges at
January 1, 2010
|
|
Total amount
expensed
|
|
Cash Payments
|
|
Accrued
restructuring
charges at
December 31, 2010
|
Personnel Related
|
|
$
|
—
|
|
$
|
2,680,560
|
|
$
|
(2,680,560)
|
|
$
|
—
|
Contract Cancellation
|
|
|
—
|
|
|
3,696,153
|
|
|
(3,696,153)
|
|
|
—
|
Net Lease Obligations
|
|
|
—
|
|
|
727,438
|
|
|
(39,742)
|
|
|
687,696
|
Non-cash Settlement
|
|
|
—
|
|
|
967,997
|
|
|
N/A
|
|
|
N/A
|
Other
|
|
|
—
|
|
|
24,690
|
|
|
(24,690)
|
|
|
—
|
Total
|
|
$
|
—
|
|
$
|
8,096,838
|
|
$
|
(6,441,145)
|
|
$
|
687,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
During 2008, the Company adopted two restructuring
plans to focus the Company on becoming a market and sales driven organization,
to drive revenue growth, improve organizational efficiency and to position the
Company for long-term profitability. As part of the plans, the Company
implemented reductions in workforce, terminated purchase commitments, charged
off inventory related to lapsed product lines, cut back discretionary spending,
and deferred non strategic projects. The Company recorded restructuring
charges and revisions to previous estimates in the amount of ($504,847),
$210,038 and $7,735,165 within selling, general and administrative expenses in
the consolidated statement of operations for the years ended December 31, 2010,
December 31, 2009 and December 31, 2008, respectively. The Company
recorded additional restructuring charges in the amount of $2,295,370 in cost
of product and service revenue in the consolidated statement of operations for
the year ended December 31, 2008. At December 31, 2010, $704,872 remains
in accrued expenses on the consolidated balance sheets.
The accrued restructuring charges relating to the two
2008 restructurings are comprised of the following at December 31, 2010:
|
Accrued
restructuring
charges at
January 1, 2010
|
|
Adjustments to,
additional accrued
restructuring charges
or non-cash charges
|
|
Cash payments
|
|
Accrued
restructuring
charges at
December 31, 2010
|
Personnel Related
|
$
|
16,000
|
|
$
|
(16,000)
|
|
$
|
—
|
|
$
|
—
|
Contract Cancellation
|
|
1,275,810
|
|
|
(518,364)
|
|
|
(210,090)
|
|
|
547,356
|
Net Lease Obligations
|
|
402,646
|
|
|
29,517
|
|
|
(274,647)
|
|
|
157,516
|
Total
|
$
|
1,694,456
|
|
$
|
(504,847)
|
|
$
|
(484,737)
|
|
$
|
704,872
|
12. Income Taxes
The
components of income/(loss) before income taxes and the provision for income
taxes for the years ended December 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Income/(loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(38,567,000
|
)
|
|
$
|
(39,363,000
|
)
|
|
$
|
(95,363,000
|
)
|
Foreign
|
|
|
(8,392,000
|
)
|
|
|
(1,346,000
|
)
|
|
|
(26,337,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(46,959,000
|
)
|
|
$
|
(40,709,000
|
)
|
|
$
|
(121,700,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
There
was no current income tax expense for the years ended December 31, 2010,
2009 and 2008. The Company was a Limited Liability Company (LLC) until its
merger into Plug Power Inc. effective November 3, 1999. From inception
through November 3, 1999, the Company was treated as a partnership for
federal and state income tax purposes and accordingly the Company’s
income taxes or credits resulting from earnings or losses were payable by, or
accrued to its members. Therefore, no provision for income taxes has been made
prior to November 3, 1999.
Effective
November 3, 1999, the Company is taxed as a corporation for Federal and
State income tax purposes and the effect of deferred taxes recognized as a
result of the change in tax status of the Company have been included in
operations. Deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax bases of assets
and liabilities as measured by the enacted tax rates.
The
significant components of U.S. deferred income tax (benefit) expense for the
years ended December 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit)/expense
|
|
$
|
(652,000
|
)
|
|
$
|
(1,679,000
|
)
|
|
$
|
(18,983,000
|
)
|
Net operating loss carryforward
|
|
|
(14,168,000
|
)
|
|
|
(14,973,000
|
)
|
|
|
(9,308,000
|
)
|
Valuation allowance
|
|
|
14,820,000
|
|
|
|
16,652,000
|
|
|
|
28,291,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
significant components of Foreign deferred income tax (benefit) expense for the
years ended December 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (benefit)/expense
|
|
$
|
(822,000
|
)
|
|
$
|
(1,633,000
|
)
|
|
$
|
2,020,000
|
|
Net operating loss carryforward
|
|
|
(1,081,000
|
)
|
|
|
147,000
|
|
|
|
786,000
|
|
Valuation allowance
|
|
|
1,903,000
|
|
|
|
1,486,000
|
|
|
|
(2,806,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
The
Company’s effective income tax rate differed from the Federal statutory
rate as follows:
|
Years ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
U.S. Federal statutory tax rate
|
(35.0
|
)%
|
(35.0
|
)%
|
(35.0
|
)%
|
Deferred state taxes, net of
federal benefit
|
(2.5
|
)
|
(2.9
|
)
|
(1.8
|
)
|
Other, net
|
(1.1
|
)
|
(0.8
|
)
|
0.1
|
|
Goodwill impairment charge
|
—
|
|
—
|
|
12.3
|
|
Foreign tax rate differential
|
2.2
|
|
0.2
|
|
0.8
|
|
Expiring attribute
carryforward
|
1.2
|
|
—
|
|
0.7
|
|
Adjustment to opening
deferred tax balance
|
0.4
|
|
(4.3
|
)
|
0.8
|
|
Tax credits (net of monetization)
|
(0.6
|
)
|
0.7
|
|
(0.3
|
)
|
Change in valuation
allowance
|
35.4
|
|
42.1
|
|
22.4
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of certain assets and
liabilities for financial reporting and the amounts used for income tax expense
purposes. Significant components of the Company’s deferred tax assets and
liabilities as of December 31, 2010 and 2009 are as follows:
F-34
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Years ended December 31,
|
|
|
Foreign
Years ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
Deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
$
|
270,278
|
|
|
$
|
340,574
|
|
|
$
|
(28,763
|
)
|
|
$
|
(372,240)
|
Non-employee stock-based
compensation
|
|
(1,792,727
|
)
|
|
|
(1,043,476
|
)
|
|
|
—
|
|
|
|
—
|
Gain on auction rate debt securities
repurchase agreement
|
|
(2,271,572
|
)
|
|
|
(1,613,679
|
)
|
|
|
—
|
|
|
|
—
|
Impairment loss on available-for-
sale securities
|
|
2,271,572
|
|
|
|
1,613,679
|
|
|
|
—
|
|
|
|
—
|
Deferred revenue
|
|
1,652,904
|
|
|
|
1,746,752
|
|
|
|
—
|
|
|
|
—
|
Other reserves and accruals
|
|
669,061
|
|
|
|
572,913
|
|
|
|
206,184
|
|
|
|
123,196
|
Capital loss carryforwards
|
|
5,883,889
|
|
|
|
5,883,889
|
|
|
|
—
|
|
|
|
—
|
Research and development tax
credit carryforwards
|
|
9,833,063
|
|
|
|
9,559,233
|
|
|
|
1,512,346
|
|
|
|
1,490,302
|
Property, plant and equipment
|
|
753,930
|
|
|
|
368,953
|
|
|
|
521,379
|
|
|
|
170,778
|
Amortization of stock-based
compensation
|
|
7,490,246
|
|
|
|
7,211,439
|
|
|
|
—
|
|
|
|
—
|
Research and development
expenditures
|
|
17,328,000
|
|
|
|
16,796,000
|
|
|
|
3,667,068
|
|
|
|
3,613,615
|
Repayable government assistance
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,852
|
Net operating loss carryforwards
|
|
217,868,010
|
|
|
|
203,699,706
|
|
|
|
3,958,652
|
|
|
|
2,877,873
|
Total deferred tax asset
|
|
259,956,654
|
|
|
|
245,135,983
|
|
|
|
9,836,867
|
|
|
|
7,933,376
|
Less valuation allowance
|
|
(259,956,654
|
)
|
|
|
(245,135,983
|
)
|
|
|
(9,836,867
|
)
|
|
|
(7,933,376)
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has recorded a valuation allowance, as a result of uncertainties
related to the realization of its net deferred tax asset, at December 31,
2010 and 2009 of approximately $269.8 million and $253.1 million, respectively.
A reconciliation of the current year change in valuation allowance is as
follows:
F-35
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
|
|
Total
|
|
|
U.S.
|
|
|
Foreign
|
|
Increase in valuation allowance for
current year increase in net
operating losses
|
$
|
14,480,000
|
|
$
|
14,169,000
|
|
$
|
311,000
|
|
Increase in valuation allowance for
current year net increase in
deferred tax assets other than net
operating losses
|
|
1,411,000
|
|
|
652,000
|
|
|
759,000
|
|
Increase in valuation allowance as a
result of foreign currency
fluctuation
|
|
117,000
|
|
|
—
|
|
|
117,000
|
|
Decrease in valuation allowance as a
result of change in foreign tax rate
|
|
—
|
|
|
—
|
|
|
—
|
|
Increase in valuation allowance due
to current year change of deferred
tax assets as the result of uncertain
tax positions
|
|
716,000
|
|
|
—
|
|
|
716,000
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in valuation allowance
|
$
|
16,724,000
|
|
$
|
14,821,000
|
|
$
|
1,903,000
|
|
|
|
|
|
|
|
|
|
|
|
The deferred
tax assets have been offset by a full valuation allowance because it is more
likely than not that the tax benefits of the net operating loss carryforwards
and other deferred tax assets may not be realized. Included in the valuation
allowance as of December 31, 2010 and December 31, 2009 are $14.3 million
of deferred tax assets resulting from the exercise of employee stock options,
which upon subsequent realization of the tax benefits, will be allocated
directly to paid-in capital.
At
December 31, 2010, the Company has unused Federal and State net operating
loss carryforwards of approximately $674.6 million, of which $74.2 million was
generated from the operations of H Power during the period May 31, 1989,
through the date of the H Power acquisition, $2.7 million was generated by
Cellex through the date of the Cellex acquisition, $44.1 million was generated
by General Hydrogen through the date of the General Hydrogen acquisition, and
$553.6 million was generated by the Company during the period October 1, 1999
through December 31, 2010. The net operating loss carryforwards if unused
will expire at various dates from 2011 through 2030. In 2010, net operating
loss carryforwards of $2.4 million acquired as part of the H Power transaction
expired.
F-36
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Under
Internal Revenue Code (IRC) Section 382, the use of loss carryforwards may be
limited if a change in ownership of a company occurs. If it is determined that
due to transactions involving the Company’s shares owned by its 5 percent
shareholders a change of ownership has occurred under the provisions of IRC
Section 382, the Company's Federal and state net operating loss carryforwards
could be subject to significant IRC Section 382 limitations. As a result
of certain equity transactions, the Company may have had an ownership change for
IRC Section 382 purposes. Please refer to Part I Item 7 Recent
Developments in this Annual Form 10-K.
Based
upon an IRC Section 382 study, a Section 382 ownership change occurred in 2005
that resulted in approximately $479 million of the $674.6 million of Federal
and state net operating loss carryforwards being subject to IRC Section 382
limitations and as the result of IRC Section 382 limitations, approximately $49.3
million of the net operating loss carryforwards acquired from H Power will
expire prior to utilization, and approximately $27 million of the net operating
loss carryforwards acquired from General Hydrogen will expire prior to
utilization. Additionally, approximately $25 million of H Power’s
remaining net operating loss carryforwards represent an unrecognized tax
benefit. As a result of the IRC Section 382 limitations and the unrecognized
tax benefits, these net operating loss carryforwards are not reflected in the
Company’s deferred tax asset as of December 31, 2010.
At
December 31, 2010, the Company has Federal capital loss carryforwards of
approximately $15.5 million available to offset future capital gains that will expire
in 2011. At December 31, 2010, the Company has US Federal Research and
Experimentation credit carryforwards of approximately $15.6 million available
to offset future income tax that will expire at various dates from 2020 through
2030. Approximately $5.7 million of the Company’s Research and
Experimentation carryforwards represent an unrecognized tax benefit and are
therefore, not reflected in the Company’s deferred tax asset as of
December 31, 2010.
At
December 31, 2010, the Company has unused foreign net operating loss
carryforwards of approximately $16.4 million. The net operating loss
carryforwards if unused will expire at various dates from 2014 through 2030. At
December 31, 2010, the Company has Scientific Research and Experimental
Development expenditures of $21.5 million available to offset future taxable
income. These expenditures have no expiry date. At December 31, 2010, the
Company has Canadian investment tax credit (ITC) carryforwards of $2.3 million
available to offset future income tax. These credit carryforwards if unused
will expire at various dates from 2011 through 2027. Approximately $607,000 of
the net operating loss carryforwards, $6.8 million of the Scientific Research
and Experimental Development expenditures and $834,000 of the Canadian ITC
credit carryforwards represent unrecognized tax benefits and are therefore, not
reflected in the Company’s deferred tax asset as of December 31, 2010.
The
Company intends to reinvest indefinitely any unrepatriated foreign earnings. As
of December 31, 2010, the Company has no unrepatriated foreign earnings. The
Company has not provided for US income taxes on any undistributed earnings of
its foreign subsidiaries because management considers that any such earnings will
be reinvested indefinitely outside of the U.S. If the earnings were
distributed, the Company may be subject to both foreign withholding taxes and U.S. income taxes that may not be fully offset by foreign tax credits. Determination of the
amount of this unrecognized deferred income tax liability is not practical.
F-37
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
Unrecognized tax benefits balance at
beginning of year
|
$
|
18,570,177
|
|
$
|
18,149,125
|
|
$
|
16,119,790
|
Additions for tax positions of prior years
|
|
—
|
|
|
—
|
|
|
2,518,182
|
Reductions based on tax positions related
to the current year
|
|
—
|
|
|
—
|
|
|
—
|
Reductions for tax positions of prior years
|
|
(716,419)
|
|
|
(55,884)
|
|
|
—
|
Settlements
|
|
—
|
|
|
—
|
|
|
—
|
Currency translation
|
|
39,253
|
|
|
476,936
|
|
|
(488,847)
|
Unrecognized tax benefits balance at end
of year
|
$
|
17,893,011
|
|
$
|
18,570,177
|
|
$
|
18,149,125
|
|
|
|
|
|
|
|
|
|
The
Company recognizes accrued interest and penalties related to unrecognized tax
benefits as a component of income tax expense. During the year ended
December 31, 2010, the Company recognized $0 in interest and penalties.
The Company had $1.2
million in interest and penalties accrued at
December 31, 2010.
The
Company files income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions. In the normal course of business the Company
is subject to examination by taxing authorities. Open tax years in the U.S. range from 2007 to 2010. Open tax years in the foreign jurisdictions range from 2004
to 2010. However, upon examination in subsequent years, if net operating loss
carryforwards and tax credit carryforwards are utilized, the U.S. and foreign jurisdictions can reduce net operating loss carryforwards and tax credit
carryforwards utilized in the year being examined if they do not agree with the
carryforward amount. As of December 31, 2010, the Company was not under
audit in the U.S. or non-U.S. taxing jurisdictions. No significant changes to
the amount of unrecognized tax benefits are anticipated within the next twelve
months.
F-38
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
13.
Stockholders’ Equity
The
Company has financed our operations primarily from the sale of equity
(including those related to stock-based compensation less stock issuance
costs). This includes our June 29, 2006 transaction with Smart Hydrogen
Inc. (the Buyer). The Company sold 395,000 shares of Class B Capital Stock, a
class of preferred stock of the Company, which were convertible into 39,500,000
shares of common stock of the Company, and 11,240 shares of common stock of the
Company to the Buyer.
In
December 2008, Smart Hydrogen Inc. sold to OJSC (Third Generation Company of
the Wholesale Electricity Market) (OGK-3) all 395,000 shares of the Company's
Class B Capital Stock as well as 5,126,939 shares of the Company's common
stock. This sale triggered the automatic conversion of the Company's Class B
Capital Stock into 39,500,000 shares of common stock, and the termination of
all the rights and obligations attached to the Class B Capital Stock. The
rights and obligations attached to the Class B Capital Stock that terminated
included, but were not limited to, the right to appoint directors, veto rights
and voting support obligations under the Investor Rights Agreement dated as of
June 29, 2006, as amended (the Investor Rights Agreement). OGK-3 has executed a
joinder agreement to the Investor Rights Agreement and is prohibited from
transferring its shares of the Company's Common Stock to a competitor of the
Company. OGK-3 is also bound by the same standstill provisions that applied to
Smart Hydrogen, as set forth in the Investor Rights Agreement. This transfer
and conversion triggered a change of control pursuant to Section 17 of our 1999
Stock Option and Incentive Plan; and, therefore, each outstanding Stock Option
Right automatically became fully exercisable and conditions and restrictions on
each outstanding Restricted Stock Award, Deferred Stock Award and Performance
Share Award that relates solely to the passage of time and continued employment
were removed.
Preferred
Stock
The
Company has authorized 5.0 million shares of preferred stock, par value
$.01 per share. The Company’s certificate of incorporation provides that
shares of preferred stock may be issued from time to time in one or more
series. The Company’s Board of Directors is authorized to fix the voting
rights, if any, designations, powers, preferences, qualifications, limitations
and restrictions thereof, applicable to the shares of each series. As of December 31,
2010 and 2009, there were no shares of preferred stock issued and outstanding.
The
Company has registered Series A Junior Participating Cumulative Preferred
Stock, par value $.01 per share. As of December 31, 2010 and 2009, there
were no shares of Series A Junior Participating Cumulative Preferred Stock
issued and outstanding.
Common Stock
The
Company has one class of common stock, par value $.01 per share. Each share of
the Company’s common stock is entitled to one vote on all matters
submitted to stockholders. As of December 31, 2010 and 2009 there were 133,699,235
and 130,591,236, respectively shares of common stock issued and outstanding.
F-
39
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
14. Employee Benefit Plans
1999 Employee Stock
Purchase Plan
In
1999, the Company adopted the 1999 Employee Stock Purchase Plan (the Plan)
under which employees were eligible to purchase shares of the Company’s
common stock at a discount through periodic payroll deductions. The Plan was
intended to meet the requirements of Section 423 of the Internal Revenue
Code. Purchases occurred at the end of six month offering periods at a purchase
price equal to 85% of the market value of the Company’s common stock at
either the beginning of the offering period or the end of the offering period,
which ever was lower. Participants could elect to have up to 10% of their pay
withheld for purchase of common stock at the end of the offering period, up to
a maximum of $12,500 within any offering period. The Company reserved 1,000,000
shares of common stock for issuance under the Plan. The Company issued 0, 208,240
and 111,402 shares of stock under the Plan during 2010, 2009, and 2008,
respectively.
Under
FASB ASC No. 718, Compensation – Stock Compensation, the 15% discount and
the look-back feature are considered compensatory items for which expense must
be recognized. The Company valued Plan shares as a combination position
consisting of 15% of a share of nonvested stock and 85% of a six-month stock
option. The value of the nonvested stock was estimated based on the trading
value of the Company’s common stock at the beginning of the offering
period, and an expected life of six months. The resulting per-share value was
multiplied by the shares estimated to be purchased during the offering period
based on historical experience to arrive at a total estimated compensation cost
for the offering period. The estimated compensation cost was recognized on a
straight-line basis over the offering period.
Effective July 1, 2009, the Company suspended this
plan. Factors taken into consideration were the expense of administering the
plan, participation rate and the introduction of the Company-wide stock option
grant as an alternative means of promoting employee stock ownership.
Stock Option Plan
1999 Stock
Option and Incentive Plan
Effective
August 16, 1999, the Company established a stock option plan to encourage
and enable the officers, employees, independent directors and other key persons
(including consultants) of the Company and its subsidiaries upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company (1999
Stock Option Plan).
F-40
Table of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
At
December 31, 2010 there were approximately 4.5 million options
granted and outstanding and 6.6 million options available to be issued under
the 1999 Stock Option Plan. The number of shares of common stock available for
issuance under the Plan will increase by the amount of any forfeitures under
the 1999 Stock Option Plan and under the 1997 Stock Option Plan. The number of
shares of common stock under the 1999 Stock Option Plan will further increase
January 1 and July 1 of each year by an amount equal to 16.4% of any
net increase in the total number of common shares of stock outstanding. The
1999 Stock Option Plan permits the Company to: grant incentive stock options;
grant non-qualified stock options; grant stock appreciation rights; issue or
sell common stock with vesting or other restrictions, or without restrictions;
grant rights to receive common stock in the future with or without vesting;
grant common stock upon the attainment of specified performance goals; and
grant dividend rights in respect of common stock. Options for employees issued
under this plan generally vest in equal annual installments over periods of
three or four years and expire ten years after issuance. Options granted to
members of the Board generally vest one year after issuance. To date, options
granted under the 1999 Stock Option Plan have vesting provisions ranging from
immediate vesting to five years in duration and expire ten years after
issuance.
Compensation cost associated with employee stock
options represented approximately $247,000 of the total share-based payment
expense recorded for the year ended December 31, 2010. The Company
estimates the fair value of stock options and shares issued under the employee
stock purchase plan using a Black-Scholes valuation model, and the resulting
fair value is recorded as compensation cost on a straight-line basis over the
option vesting period. Key inputs and assumptions used to estimate the fair
value of stock options include the grant price of the award, the expected
option term, volatility of the Company’s stock, an appropriate risk-free
rate, and the Company’s dividend yield. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by
employees who receive equity awards, and subsequent events are not indicative
of the reasonableness of the original estimates of fair value made by the
Company. The assumptions made for purposes of estimating fair value under the
Black-Scholes model for the 150,000, 1,375,500 and 1,114,750 options granted
during the years ended December 31, 2010, 2009 and 2008, respectively were
as follows:
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
Dividend yield:
|
|
0%
|
|
0%
|
|
0%
|
Expected term of options (years):
|
|
6
|
|
6
|
|
6
|
Risk free interest rate:
|
|
1.52%-2.93%
|
|
1.79%-2.80%
|
|
2.56%-3.45%
|
Volatility:
|
|
94%-95%
|
|
85%-89%
|
|
61%-84%
|
The
Company’s estimate of an expected option term was calculated in
accordance with the simplified method for calculating the expected term
assumption. The estimated stock price volatility was derived based upon a blend
of implied volatility and the Company’s actual historic stock prices over
the past six years, which represents the Company’s best estimate of
expected volatility.
F-41
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
A
summary of stock option activity for the year December 31, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
|
Shares
|
|
Exercise Price
|
|
Terms
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
5,981,286
|
|
$
|
6.97
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
150,000
|
|
0.49
|
|
|
|
|
Exercised
|
|
-
|
|
-
|
|
|
|
|
Forfeited
|
|
(265,787)
|
|
0.88
|
|
|
|
|
Expired
|
|
(1,402,248)
|
|
15.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010
|
|
4,463,251
|
|
$
|
4.35
|
|
5.79
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010
|
|
3,796,631
|
|
$
|
4.96
|
|
5.29
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Options fully vested at December 31, 2010
|
|
3,796,631
|
|
$
|
4.96
|
|
5.29
|
|
$
|
-
|
The
weighted average grant date fair value of options granted during the years
ended December 31, 2010, 2009 and 2008 was $0.38, $0.66 and $1.68,
respectively. There were no stock options exercised during the year ended
December 31, 2010. As of December 31, 2010, there was approximately $329,000
of unrecognized compensation cost related to stock option awards to be
recognized over the next three years. The total fair value of stock options
that vested during the years ended December 31, 2010 and 2009 was approximately
$247,000 and $291,000, respectively.
F-42
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Restricted
stock awards vest in equal installments over a period of one to four years.
Restricted stock awards were valued based on the closing price of the
Company’s common stock on the date of grant, and compensation cost is
recorded on a straight-line basis over the share vesting period. The Company
recorded expense of approximately $369,000 associated with its restricted stock
awards in 2010. As of December 31, 2010, there was $3.7 million of
unrecognized compensation cost related to restricted stock awards to be
recognized over the next three years.
A summary of restricted stock activity for the year
ended December 31, 2010 is as follows:
|
|
Shares
|
|
|
Aggregate
Intrinsic
Value
|
|
Unvested restricted stock at December 31, 2009
|
|
8,682,666
|
|
|
$
|
7,294,489
|
|
Granted
|
|
1,966,716
|
|
|
|
1,062,027
|
|
Forfeited
|
|
(4,298,145
|
)
|
|
|
(3,610,909
|
)
|
Vested
|
|
(1,971,714
|
)
|
|
|
(1,066,575
|
)
|
Unvested restricted stock at December 31, 2010
|
|
4,379,523
|
|
|
$
|
3,679,032
|
|
|
|
|
|
|
|
|
|
For
the years ended December 31, 2010, 2009, and 2008, the Company recorded expense
of approximately $1.2 million, $1.9 million, and $8.6 million respectively, in
connection with its share based payment awards.
401(k)
Savings & Retirement Plan
The
Company offers a 401(k) Savings & Retirement Plan to eligible
employees meeting certain age and service requirements. This plan permits
participants to contribute 100% of their salary, up to the maximum allowable by
the Internal Revenue Service regulations. Participants are immediately vested
in their voluntary contributions plus actual earnings or less actual losses
thereon. Participants are vested in the Company’s matching contribution
based on years of service completed. Participants are fully vested upon
completion of three years of service. During 2002, the Company began funding
its matching contribution in common stock. Accordingly, the Company has issued
901,661, 607,553 and 379,189 shares of common stock to the Plug Power Inc.
401(k) Savings & Retirement Plan during 2010, 2009 and 2008,
respectively.
The
Company’s expense for this plan, including the issuance of shares, was
approximately $441,000, $534,000 and $835,000 for years ended December 31,
2010, 2009 and 2008, respectively.
F-43
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Long
Term Incentive Plan
On
October 28, 2009, the Compensation Committee recommended and the Board of
Directors approved a Long Term Incentive (LTI) Plan pursuant to the terms of the
Company’s 1999 Stock Option and Incentive Plan. Designed as an incentive
vehicle to support employee efforts, the LTI Plan seeks to increase shareholder
value by encouraging Plug Power employees to continue to work diligently to
further the Company’s long term goals, particularly the recently
announced three year plan to achieve profitability in 2012.
Under
the LTI Plan, a select group of critical employees received a Restricted Stock
Unit Award Agreement (Agreement) awarding a one time grant of restricted stock
units (RSUs) calculated using a multiple of the selected employee’s base
salary. According to the Agreement, the restrictions on each
participant’s RSU allocation will lapse over a three year period upon
successful completion of weighted performance-based metrics. Specifically,
restrictions on 25% of RSUs are tied to the Company’s achievement of
revenue targets, while the restrictions on 75% of RSUs are tied to the
Company’s achievement of earnings before interest expense, taxes, depreciation,
amortization and non-cash charges for equity compensation (measurement referred
to in the Agreement as “EBITDAS”) targets. Intended to supplement
the annual employee incentive plan payout, the total number of RSUs lapsing
each year will vary depending on the Company’s progress achieving the
corresponding threshold, target or stretch goals.
In
the event stretch revenue and EBITDAS metrics are reached during the next two
years of the grant period ending December 31, 2011 and December 31, 2012, the
Company could issue a maximum of 4,376,189 shares to LTI Plan participants,
currently representing approximately 3.3% of total outstanding shares.
Restrictions on these shares only lapse in the event the Company performs at
the articulated performance metrics.
In 2010,
no threshold, target or stretch revenue and EBITDAS performance-based metrics
were reached. Accordingly, no restrictions lapsed in 2011 and 20% of the total
awarded RSUs were forfeited for the 2010 fiscal year. Therefore, no expense was
recorded during the year ended December 31, 2010.
15.
Other Related Party Transactions
Pursuant
to the Second Amendment to the Amended and Restated Distribution Agreement
dated May 13, 2005, the Company currently has a non-exclusive distribution
agreement with DTE Energy Technologies, Inc. (DTE), an affiliate of Edison
Development Company and DTE Energy Corporation, for the states of Michigan, Ohio, Illinois, and Indiana. According to the most recent amendments to the
agreement, the Company may sell directly or negotiate non-exclusive
distribution rights with third parties for the GenCore, GenSite and GenSys2T
products in these four states. For every product sold directly by the Company
or by a third party within Michigan, Ohio, Illinois and Indiana the Company has
agreed to pay a 5% commission to DTE based on sales price of units shipped to
the above noted states. The distribution agreement expires on December 31,
2014.
As of
December 31, 2010 and 2009, the Company had no payables due to DTE under
this commission provision and no outstanding receivables from DTE.
F-44
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
16. Fair Value of
Financial Instruments
The
following disclosure of the estimated fair value of financial instruments is
made in accordance with the provision of ASC No. 825-10-65, Financial
Instruments – Transition and Open Effective Date Information (ASC
825-10-65). ASC 825-10-65 requires disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements. Although the estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies, the estimates presented are not necessarily indicative of the
amounts that the Company could realize in current market exchanges.
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents, accounts receivable,
accrued interest receivable and payable and borrowings under line of credit:
The carrying amounts reported in the consolidated
balance sheets approximate fair value because of the short maturities of these
instruments.
Long term debt:
The carrying amount reported in the consolidated balance sheets approximates
fair value as the debt was negotiated at market rates during the first quarter
2009. During the year ended December 31, 2010, the Company paid off all long
term debt.
17.
Supplemental Disclosures of Cash Flows Information
The
following represents required supplemental disclosures of cash flows
information and non-cash financing and investing activities which occurred
during the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation accrual impact, net
|
|
$
|
707,802
|
|
|
$
|
480,145
|
|
$
|
(1,341,324
|
)
|
Change in unrealized loss/gain on available-for-sale securities
|
|
|
(114,300
|
)
|
|
|
(131,308
|
)
|
|
155,688
|
|
Restricted shares forfeited
|
|
|
—
|
|
|
|
—
|
|
|
(124,945
|
)
|
Transfer to trading securities – auction rate debt securities
|
|
|
—
|
|
|
|
—
|
|
|
52,650,654
|
|
Cash paid for interest
|
|
|
471,386
|
|
|
|
999,665
|
|
|
—
|
|
Transfer of property, plant and equipment to assets held for sale
|
|
|
768,779
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
18.
Commitments and Contingencies
Alliances and
development agreements
BASF
: In 2006, BASF SE, a German Societas Europaea (SE)
corporation, acquired Engelhard, with whom we have a Development Agreement and
a Supply Agreement. With its acquisition, BASF inherited Engelhard’s
obligations to the Company under both of these agreements. The Development
Agreement, dated April 5, 2004, is for the development of advanced catalysts
to increase the overall performance and efficiency of the Company’s fuel
processor and will expire on December 31, 2010. The Supply Agreement, also
dated April 5, 2004, is a requirements contract whereby the Company agrees
to buy from BASF and BASF agrees to sell to the Company, 100% of the
Company’s requirements for catalyst materials, as developed under the
Development Agreement, the price to be determined January 1
st
of each year by BASF, until the agreement’s expiration date of
December 31, 2010.
General
Electric Company (GE) Entities:
On
February 27, 2006, the Company, GE MicroGen, Inc., and GE restructured
their service and equity relationships by terminating the joint venture and the
associated distributor and other agreements, and entering into a new development
collaboration agreement. Under this agreement, the Company and GE (through its
Global Research unit) agreed to collaborate on programs including, but not
limited to, development of tools, materials and components that can be applied
to various types of fuel cell products. The Company and GE mutually agreed to
extend the terms of the development collaboration agreement such that the
Company is obligated to purchase $1 million of services from GE in connection
with this collaboration prior to December 31, 2009. As of
December 31, 2009, the approximately $363,000 obligation remaining under
the extended development collaboration agreement became due and payable;
however, the Company and GE d/b/a GE Global Research entered into a Lease
Agreement dated October 6, 2009 for space in the Company’s Latham, New
York facility whereby the parties mutually agreed that pursuant to section 4 of
the Lease Agreement the amount owed by the Company to GE under the development
collaboration agreement would be offset by the rent owed by GE to the Company
each month. The development collaboration agreement is scheduled to terminate
on the earlier of (i) December 31, 2014 or (ii) upon the
completion of a certain level of program activity. As of December 31, 2010
and 2009, approximately $209,000 and $363,000, respectively, have been recorded
as accrued expenses in the consolidated balance sheets related to the
development collaboration agreement.
NYSERDA
: The Company has an obligation to repay the New York
State Environmental Research and Development Authority (NYSERDA) according to
royalty payment provisions in each of the Company’s past and present
NYSERDA agreements. For sales made by a New York State manufacturer, the
Company must pay a royalty to NYSERDA at a rate of 0.5% of net sales of
products developed under the NYSERDA programs; or, for a non-new York State manufacturer, the Company must pay a royalty to NYSERDA at a rate of 3% of net
sales. The royalty payments are currently calculated at 0.5% of net sales of
our GenCore and GenSys products because we are a New York State manufacturer
and both of these products were developed using some percentage of NYSERDA
monies. The Company’s maximum liability under the NYSERDA royalty
provisions is one times the aggregate total amount of monies received from
NYSERDA. If the total amount received from NYSERDA under an individual
agreement is not paid back in royalties to NYSERDA within fifteen
(15) years from the date of that individual agreement, then that amount is
deducted from the aggregate total amount due under the royalty provisions. As
of December 31, 2010 and 2009, approximately $4,000 and $2,000,
respectively, have been recorded as accrued expenses in the consolidated
balance sheets related to the royalty provisions.
F-46
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Leases
As of
December 31, 2010 and 2009, the Company has no capital leases outstanding.
The Company has several noncancelable operating leases, primarily for warehouse
facilities and office space that expire over the next five years. Portions of
certain properties are subleased for periods expiring in various years through
2011.
Future
minimum lease payments under noncancelable operating leases (with initial or
remaining lease terms in excess of one year) as of December 31, 2010 are:
|
|
|
|
Year
ending December 31
|
|
Operating leases
|
2011
|
|
$
|
573,206
|
2012
|
|
|
476,230
|
2013
|
|
|
369,959
|
2014
|
|
|
316,823
|
2015 and thereafter
|
|
|
1,333,139
|
Total future minimum lease payments
|
|
$
|
3,069,357
|
|
|
|
|
Minimum
future rental income receivable under subleases from non-cancelable operating
leases were $153,932 and $437,028 as of December 31, 2010 and 2009,
respectively.
Rental
expense for all operating leases for the years ended December 31, 2010, 2009
and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rentals
|
|
$
|
2,153,000
|
|
|
$
|
1,819,000
|
|
$
|
1,909,000
|
|
Sublease rental income
|
|
|
(269,000
|
)
|
|
|
(5,000
|
)
|
|
—
|
|
Total
|
|
$
|
1,884,000
|
|
|
$
|
1,814,000
|
|
$
|
1,909,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations
of credit risk
Concentrations
of credit risk with respect to receivables exist due to the limited number of
select customers that the Company has initial commercial sales arrangements
with and government agencies. To mitigate credit risk, the Company performs
appropriate evaluation of a prospective customer’s financial condition.
F-47
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
At
December 31, 2010, five customers comprise approximately 83.6% of the
total accounts receivable balance, with each customer individually representing
33.7%, 33.5%, 6.7%, 6.0% and 3.6% of total accounts receivable, respectively. At
December 31, 2009, five customers comprise approximately 67.7% of the
total accounts receivable balance, with each customer individually representing
43.8%, 7.0%, 6.7%, 6.2% and 4.0% of total accounts receivable, respectively.
For
the year ended December 31, 2010, contracts with two customers and one federal
government agency each accounted for 10% or more of total consolidated revenues.
For the year ended December 31, 2009, contracts with the federal government
accounted for approximately $5.6 million or 45.6% of total consolidated revenues.
For the year ended December 31, 2008, contracts with the federal government
accounted for approximately $8.3 million or 46.6% of total consolidated
revenues, contracts with the state government accounted for approximately $1.9
million or 10.7% and one customer accounted for approximately $1.9 million or
10.7% of total consolidated revenues.
The
Company has cash deposits in excess of federally insured limits. The amount of
such deposits is essentially all cash at December 31, 2010.
Employment
Agreements
The
Company is party to employment agreements with certain executives which provide
for compensation and certain other benefits. The agreements also provide for
severance payments under certain circumstances.
Early Commercial Purchase Agreement
On
October 15, 2007, the Company and Wal-Mart Stores East, LP (Wal-Mart)
signed an Early Commercial Purchase Agreement for GenDrive units. Under this
agreement, the Company has certain commitments to provide for the
maintenance/service of the units sold as well as supply of hydrogen to Wal-Mart
for up to seven years from the date of commissioning. The Company also provides
certain indemnifications related to this agreement to Wal-Mart. As of
September 30, 2008, all units sold to Wal-Mart have been placed in
service.
Hydrogen
Payment Agreement
Pursuant
to the agreement negotiated between Air Products and the Company to supply
hydrogen infrastructure and hydrogen to Central Grocers at their distribution
center, the Company has an obligation to purchase hydrogen from and pay a
monthly service charge of $23,300 for hydrogen infrastructure to Air Products
for the full term of the contract. Amendment No. 1 to the Hydrogen Payment
Agreement became effective April 1, 2010 and increased the monthly service
charge to $25,971 to accommodate for the addition of two dispensers and
associated piping.
Lease Buyout
Arrangement
Pursuant
to an agreement negotiated between Central Grocers and the Company, the Company
had an obligation to assume or buy out the leases for batteries, chargers and
battery changing equipment for a certain amount of stand up rider trucks.
On January 14, 2011, the Company bought out the leases for a total amount of
$958,817 and retains ownership of the equipment.
F-48
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
19.
Multiple-Deliverable Revenue Arrangements
Effective
April 1, 2010, the Company adopted ASU No. 2009-13 on Topic 605, Revenue
Recognition– Multiple Deliverable Revenue Arrangements retroactive to
January 1, 2010
.
The objective of this ASU is to address the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit. Vendors
often provide multiple products or services to their customers. Those
deliverables often are provided at different points in time or over different
time periods. This ASU provides amendments to the criteria in Subtopic 605-25
for separating consideration in multiple-deliverable arrangements. The
amendments in this ASU establish a selling price hierarchy for determining the
selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence (TPE) if VSOE is not available, or estimated selling price
(ESP) if neither VSOE nor TPE is available. The amendments in this ASU also
replace the term fair value in the revenue allocation guidance with selling price
to clarify that the allocation of revenue is based on entity-specific
assumptions rather than assumptions of a marketplace participant and expands
the disclosure requirements related to a vendor’s multiple-deliverable
revenue arrangements. This ASU is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010, however, the Company chose early adoption of this ASU
as noted above.
In
an arrangement with multiple-deliverables, the delivered items will be
considered a separate unit of accounting if the following criteria are met:
-
The delivered item or items have value to the customer
on a standalone basis.
-
If the arrangement includes a general right of return
relative to the delivered item(s), delivery or performance of the undelivered
item or items is considered probable and substantially in the control of the
vendor.
The
Company enters into multiple-deliverable revenue arrangements that may contain
a combination of fuel cell systems or equipment, installation, service,
maintenance, fueling and other support services. The delivered item, equipment,
does have value to the customer on a standalone basis and could be separately
sold by another vendor. In addition, the Company does not include a right
of return on its products.
The
Company was previously prohibited from separating these multiple deliverables
into individual units of accounting without VSOE of fair value or other TPE of
fair value. This evidence was not available due to our limited experience and
lack of evidence of fair value of the undelivered components of the sale.
Without this level of evidence, the Company had to treat each sale as a single
unit of accounting and defer the revenue recognition of each sale, recognizing
revenue over a straight-line basis as the continued service, maintenance and
other support obligations expired. Under ASU No. 2009-13, the requirement to
have VSOE or TPE in order to recognize revenue has been modified, and it now
allows the vendor to make its best estimate of the standalone selling price of
deliverables when more objective evidence of selling price is not available.
F-49
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
Per
the provisions of ASU No. 2009-13, the Company allocates arrangement
consideration to each deliverable in an arrangement based on its relative
selling price. The Company determines selling price using VSOE, if it exists,
otherwise TPE. If neither VSOE nor TPE of selling price exists for a unit of
accounting, the Company uses ESP.
VSOE
is generally limited to the price that a vendor charges when it sells the same
or similar products or services on a standalone basis. TPE is determined based
on the prices charged by competitors of the Company for a similar deliverable
when sold separately. The Company generally expects that it will not be
able to establish VSOE or TPE for certain deliverables due to the lack of
standalone sales and the nature of the markets in which the Company competes,
and, as such, the Company typically will determine selling price using ESP.
The
objective of ESP is to determine the price at which the Company would transact
if the product or service were sold by the Company on a standalone basis. The
Company’s determination of ESP may involve a weighting of several factors
based on the specific facts and circumstances of the arrangement. Specifically,
the Company may consider the cost to produce the deliverable, the anticipated
margin on that deliverable, the selling price and profit margin for similar
parts, the Company’s ongoing pricing strategy and policies, the value of
any enhancements that have been built into the deliverable and the
characteristics of the varying markets in which the deliverable is sold, as
applicable. The Company will determine ESP for deliverables in future
agreements based on the specific facts and circumstances of the arrangement.
As
noted above, in determining selling price, TPE is generally not readily
available due to a lack of a competitive environment in selling fuel cell
technology. However, when determining selling price for certain
deliverables such as service and maintenance, if available, the Company
utilizes prices charged by its competitors as TPE when estimating its costs for
labor hours.
Each
deliverable within the Company’s multiple-deliverable revenue
arrangements is accounted for as a separate unit of accounting under the
guidance of ASU No. 2009-13. Once a standalone selling price for all the
deliverables that meet the separation criteria has been met, whether by VSOE,
TPE or ESP, the relative selling price method is used to proportionately
allocate each element of the arrangement to the sale consideration. The Company
plans to analyze the selling prices used in its allocation of arrangement
consideration at a minimum on an annual basis. Selling prices will be analyzed
on a more frequent basis if a significant change in the Company’s business
necessitates a more timely analysis or if the Company experiences significant
variances in its selling prices.
Deliverables
not meeting the criteria for being a separate unit of accounting are combined
with a deliverable that does meet that criterion. The appropriate allocation of
arrangement consideration and recognition of revenue is then determined for the
combined unit of accounting.
The
majority of the Company’s multiple-deliverable revenue arrangements ship
complete within the same quarter. The Company anticipates that the effect of
the adoption of this guidance on subsequent periods will be primarily based on
the arrangements entered into and the timing of shipment of deliverables.
F-50
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
As a
result of implementing ASU No. 2009-13, the Company recognized approximately $10.5
million as revenue in the twelve months ended December 31, 2010 that would have
been deferred under the previous guidance for multiple-element revenue
arrangements. Total revenue recognized under multiple-deliverable revenue
arrangements in the twelve months ended December 31, 2010 was approximately 66.6%
of total product and service revenue.
During
the previously reported interim period ended March 31, 2010, the following was
reported in the condensed consolidated statement of operations:
|
|
Product and service
revenue
|
$
|
1,539,342
|
Net loss
|
$
|
(12,182,585)
|
Earnings per share
|
$
|
(0.09)
|
During
the previously reported interim period ended March 31, 2010, the following
would have been the effect of the change of adopting ASU No. 2009-13 in the
condensed consolidated statement of operations:
|
|
Product and service
revenue
|
$
|
3,163,177
|
Net loss
|
$
|
(10,558,750)
|
Earnings per share
|
$
|
(0.08)
|
For
all product and service revenue transactions entered into prior to the
implementation of ASU No. 2009-13, the Company will continue to defer the recognition
of product and service revenue and recognize revenue on a straight-line basis
as the continued service, maintenance and other support obligations expire,
which are generally for periods of twelve to thirty months, or which extend
over multiple years. While contract terms for those transactions generally
required payment shortly after shipment or delivery and installation of the
fuel cell system and were not contingent on the achievement of specific
milestones or other substantive performance, the multiple-element revenue
obligations within our contractual arrangements were generally not accounted
for separately based on our limited experience and lack of evidence of fair
value of the undelivered components.
F-51
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
20.
Licensing Agreement
On October 26, 2010, the Company licensed the
intellectual property relating to its stationary power products, GenCore and
GenSys, to IdaTech plc on a non-exclusive basis. Plug Power maintains
ownership of, and the right to use, the patents and other intellectual property
licensed to IdaTech. As part of the transaction, Plug Power also sold inventory,
equipment and certain other assets related to its stationary power
business. Total consideration for the licensing and assets was $5 million
and was received during October 2010. The consideration is subject to reduction
by a maximum of $1 million in the event that the Company does not deliver
certain of the assets sold.
As of December 31, 2010, $1.0 million is included in
assets held for sale and $1.0 million is included in other current liabilities
in the consolidated balance sheets, respectively until all assets have been
sold. Upon the sale of assets, the $1.0 million of consideration will be
released.
21.
Geographic Information
The
following is a summary of revenue for the years ended December 31, 2010,
2009 and 2008, based on physical location of the subsidiary making the sale:
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
2008
|
|
2008
|
|
|
Product and
service and
licensed
technology
revenue
|
|
|
Research and
development
contract
revenue
|
|
|
Product and
service
revenue
|
|
|
Research and
development
contract
revenue
|
|
Product and
service
revenue
|
|
Research and
development
contract
revenue
|
United
States
|
$
|
15,740,087
|
|
$
|
3,463,508
|
|
$
|
4,683,627
|
|
$
|
7,269,404
|
|
$
|
4,442,432
|
|
$
|
10,779,553
|
Canada
|
|
134,692
|
|
|
134,362
|
|
|
149,146
|
|
|
190,379
|
|
|
224,863
|
|
|
2,454,469
|
Total
|
$
|
15,874,779
|
|
$
|
3,597,870
|
|
$
|
4,832,773
|
|
$
|
7,459,783
|
|
$
|
4,667,295
|
|
$
|
13,234,022
|
Long-lived assets, representing the sum of net book
value of property, plant, and equipment plus intangible assets, goodwill and other
assets, based on physical location as of December 31, 2010 and 2009, are
as follows:
|
|
2010
|
|
|
2009
|
United States
|
$
|
13,839,370
|
|
$
|
18,572,109
|
India
|
|
—
|
|
|
14,222
|
Canada
|
|
6,133,894
|
|
|
9,834,011
|
Total
|
$
|
19,973,264
|
|
$
|
28,420,342
|
F-52
Table
of Contents
PLUG POWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS—(Continued)
22. Unaudited
Quarterly Financial Data (in thousands, except per share data)
|
|
Quarters Ended
|
|
|
|
March 31,
2010
|
|
|
June 30,
2010
|
|
|
September 30,
2010
|
|
|
December 31,
2010
|
|
Product and service revenue
|
|
$
|
3,163
|
|
|
$
|
2,326
|
|
|
$
|
4,795
|
|
|
$
|
5,455
|
|
Research and development contract revenue
|
|
|
1,208
|
|
|
|
778
|
|
|
|
957
|
|
|
|
655
|
|
Licensed technology revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
136
|
|
Net loss
|
|
|
(10,558
|
)
|
|
|
(18,516
|
)
|
|
|
(9,292
|
)
|
|
|
(8,593
|
)
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.09
|
)
|
|
|
(0.14
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
|
|
Quarters Ended
|
|
|
|
March 31,
2009
|
|
|
June 30,
2009
|
|
|
September 30,
2009
|
|
|
December 31,
2009
|
|
Product and service revenue
|
|
$
|
1,283
|
|
|
$
|
1,285
|
|
|
$
|
1,045
|
|
|
$
|
1,220
|
|
Contract revenue
|
|
|
1,339
|
|
|
|
1,937
|
|
|
|
1,497
|
|
|
|
2,687
|
|
Net loss
|
|
|
(8,157
|
)
|
|
|
(10,250
|
)
|
|
|
(10,171
|
)
|
|
|
(12,131
|
)
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.06
|
)
|
|
|
(0.08
|
)
|
|
|
(0.08
|
)
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23. Subsequent Events
The
Company has evaluated subsequent events and transactions through the date of
this filing for potential recognition or disclosure in the financial
statements and has noted no subsequent events requiring recognition or
disclosure.
F-53
Grafico Azioni Plug Power (NASDAQ:PLUG)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Plug Power (NASDAQ:PLUG)
Storico
Da Lug 2023 a Lug 2024