Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Note 1. Nature of Business and Basis of Presentation
FuelCell Energy, Inc., together with its subsidiaries (the “Company”, “FuelCell Energy”, “we”, “us”, or “our”), is a leading integrated fuel cell company with a growing global presence in delivering environmentally-responsible distributed baseload power solutions through our proprietary, molten-carbonate fuel cell technology. We develop turn-key distributed power generation solutions and operate and provide comprehensive service for the life of the power plant. We are working to expand the proprietary technologies that we have developed over the past five decades into new products, applications, markets and geographies. Our mission and purpose remains to utilize our proprietary, state-of-the-art fuel cell platforms to enable a world empowered by clean energy and to reduce the global environmental footprint of baseload power generation by providing environmentally responsible solutions for reliable electrical power, hot water, steam, chilling, distributed hydrogen, micro-grid applications, electrolysis, long-duration hydrogen based energy storage and carbon capture.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all normal and recurring adjustments necessary to fairly present the Company’s financial position and results of operations as of and for the three and six months ended April 30, 2020 and 2019 have been included. All intercompany accounts and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet as of October 31, 2019 has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto for the fiscal year ended October 31, 2019, which are contained in the Company’s Annual Report on Form 10-K previously filed with the SEC. The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Use of Estimates
The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty accruals, share-based compensation expense, fair value measurements, allowance for doubtful accounts, depreciation and amortization, impairment of goodwill and intangible assets, impairment of long-lived assets (including project assets), lease liabilities and right-of-use (“ROU”) assets and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Liquidity
The Company’s future liquidity will depend on its ability to (i) timely complete current projects in process within budget, including approved amounts that have been financed, as financing does not cover budget overages or the total cost of the projects, (ii) increase cash flows from its generation portfolio, including by meeting conditions required to timely commence operation of new projects, operating its generation portfolio in compliance with minimum performance guarantees and operating its generation portfolio in accordance with revenue expectations, (iii) obtain approval of and receive funding for project construction under its Credit Agreement with Orion Energy Partners Investment Agent, LLC and its affiliated lenders and meet conditions for release of funds, or obtain other financing, (iv) obtain permanent financing for its projects once constructed, (v) increase order and contract volumes, which would lead to additional product sales, services agreements and generation revenues, (vi) obtain funding for and receive payment for research and development under current and future Advanced Technology contracts, including achieving a $5 million technological performance milestone under its Joint Development Agreement with ExxonMobil Research and Engineering Company (“EMRE”) during calendar year 2020, (vii) implement the cost reductions necessary to achieve profitable operations and (viii) access the capital markets to raise funds through the sale of equity securities, convertible notes, other equity-linked instruments and/or other debt instruments. Our business model requires substantial outside financing arrangements and satisfaction of the conditions of such financing arrangements to construct and deploy our projects and facilitate the growth of our business. We may seek to obtain such financing in both the debt and equity markets. If financing is not available to us on acceptable terms if and when needed, or on terms acceptable to us or our lenders, if we do not satisfy the conditions of our financing arrangements, if we spend more than the financing approved for projects, if project costs exceed an amount that the Company can finance, or if we do not generate sufficient revenues or obtain capital sufficient for our corporate needs, we may be required to reduce planned spending, reduce staffing, sell assets, seek alternative financing and take other measures, which could have a material adverse effect on our financial condition and operations.
There are indicators that substantial doubt about the Company’s ability to continue as a going concern exists, including, but not limited to, historical losses and negative cash flows, increasing costs of debt financing, restrictive debt covenants and restrictions imposed by the Company’s current lenders, limited availability of assets to support borrowing that have not already been pledged to existing lenders, potential delays in completing the manufacture of modules for project assets due to the closure of the Company’s manufacturing facility as a result of the COVID-19 pandemic, and the need for additional financing to carry out the Company’s business plans. When indicators of substantial doubt exist, GAAP requires management to make an assessment of whether substantial doubt is alleviated by management’s plans. Even though equity and debt financings and other sources of funds may be available in the future, when assessing whether substantial doubt is alleviated, management is not able to place reliance on
9
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
uncommitted sources of financing. Management assessed substantial doubt about the Company’s ability to continue as a going concern through analysis of existing cash on hand, expected receipts under existing agreements, and release of short-term restricted cash less expected disbursements over the next twelve months, and was not able to alleviate substantial doubt until it entered into the Fifth Orion Amendment (as defined and described below). As a result of this Fifth Orion Amendment, management has concluded that substantial doubt was alleviated, and the Company expects that it will meet its obligations for at least one year from the date of issuance of these financial statements (assuming that there are no extraordinary or unanticipated impacts to its business as result of COVID-19 or otherwise). Execution of the Company’s business plan will require additional financing or other measures to generate cash inflows and reduce cash outflows as early as the expected filing of the Form 10-Q for the third quarter of 2020 in order to alleviate substantial doubt in future periods.
The key agreements which may impact the Company’s future liquidity position include:
|
•
|
Orion Facility and the Fifth Orion Amendment.
|
On October 31, 2019, the Company and certain of its affiliates as guarantors entered into a Credit Agreement (as amended from time to time, the “Orion Credit Agreement”) with Orion Energy Partners Investment Agent, LLC, as Administrative Agent and Collateral Agent (the “Agent”), and its affiliates, Orion Energy Credit Opportunities Fund II, L.P., Orion Energy Credit Opportunities Fund II GPFA, L.P., and Orion Energy Credit Opportunities Fund II PV, L.P., as lenders, for a $200.0 million senior secured credit facility (the “Orion Facility”). The Orion Facility is structured as a delayed draw term loan to be provided by the lenders primarily to fund certain of the Company’s construction and related costs for fuel cell projects which meet the requirements of the Orion Facility. In conjunction with the closing of the Orion Facility, on October 31, 2019, the Company drew down$14.5 million (the “Initial Funding”). The Company drew down an additional $65.5 million on November 22, 2019 (the “Second Funding”). The Company may draw the remainder of the Orion Facility, up to $120.0 million, over the first 18 months following the Initial Funding and subject to the Agent’s approval, to fund project-related expenses consisting of: (i) construction costs, inventory and other capital expenditures of additional fuel cell projects with contracted cash flows (under power purchase agreements (“PPAs”) with creditworthy counterparties) that meet or exceed a mutually agreed coverage ratio; and (ii) inventory, working capital, and other costs that may be required to be delivered by the Company on purchase orders, service agreements, or other binding customer agreements with creditworthy counterparties. Except as may be approved by the Agent and the lenders under the Orion Facility (and except as provided in the Fifth Orion Amendment), the Company cannot use the Orion Facility to fund its working capital or other expenses at the corporate level.
On June 8, 2020, the Company and certain of its affiliates as guarantors entered into a fifth amendment to the Orion Credit Agreement with the Agent and the lenders (the “Fifth Orion Amendment”). Pursuant to the terms of the Fifth Orion Amendment and the amended Orion Credit Agreement, the lenders have committed to make available certain delayed-draw loans to the Company in an aggregate principal amount of up to $35 million (the “Secondary Facility Loans”) between the execution date and September 14, 2020. Such Secondary Facility Loans may be used for general corporate purposes of the Company or the guarantors in accordance with either (i) the then effective operating budget of the Company or the guarantors or (ii) the cash use forecast delivered by the Company to the Agent on June 6, 2020. Any draws under the Secondary Facility Loans must be repaid by September 1, 2021. Refer to Note 18. “Subsequent Events” for additional details.
The lenders and the Agent under the Orion Facility have broad approval rights over the Company’s ability to raise additional capital, obtain other debt financing, and draw, allocate and use funds from the Orion Facility. If the Company is unable to obtain such approvals when the Company seeks to raise additional capital, obtain other debt financing, or use funds under the Orion Facility, it could have a material adverse effect on the Company’s financial condition and operations.
|
•
|
EMRE Joint Development Agreement.
|
On November 5, 2019, the Company signed a two-year Joint Development Agreement with EMRE, pursuant to which the Company will continue exclusive research and development efforts with EMRE to evaluate and develop new and/or improved carbonate fuel cells to capture and reduce carbon dioxide emissions from industrial and power sources, in exchange for (a) payment of (i) an exclusivity and technology access fee of $5.0 million, (ii) up to $45.0 million for research and development efforts, and (iii) milestone-based payments of up to $10.0 million after certain technological milestones are met, and (b) certain licenses.
10
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
|
•
|
Paycheck Protection Program Loan.
|
On April 20, 2020, the Company entered into a Paycheck Protection Program Promissory Note, dated April 16, 2020 (the “PPP Note”), evidencing a loan to the Company from Liberty Bank under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Pursuant to the PPP Note, the Company received total proceeds of approximately $6.5 million on April 24, 2020. In accordance with the original requirements of the CARES Act, at least 75% of the proceeds used by the Company to date have been used to pay eligible payroll costs. Under the original requirements of the CARES Act, the loan may be fully forgiven if (i) proceeds are used to pay eligible payroll costs, rent, mortgage interest and utilities and (ii) full-time employee headcount and salaries are either maintained during the applicable eight-week period or restored by June 30, 2020. Any forgiveness of the loan will be subject to approval by the U.S. Small Business Administration (the “SBA”) and Liberty Bank and will require the Company to apply for such treatment in the future. In order to obtain the consent of the Agent and the lenders under the Orion Facility to enter into the PPP Note, the Agent and the lenders have required the Company to apply for forgiveness within 30 days after the last day of the loan forgiveness period as designated under the PPP regulations in effect as of June 6, 2020. On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “PPP Flexibility Act”) was signed into law, extending the loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years. The Company is evaluating the impact of these changes on its PPP Note. While the Company may apply for forgiveness of the PPP Note in accordance with the requirements and limitations under the CARES Act and the SBA regulations and requirements, no assurance can be given that any portion of the PPP Note will be forgiven.
The Company’s cash, cash equivalents and restricted cash consist of (a) restricted cash and cash equivalents, which consist of amounts pledged as performance security, reserved for future debt service requirements, reserved for letters of credit for certain banking requirements and contracts and reserved to pay down the Orion Facility which can be accessed or redeployed into other project financing at the option of and only with the approval of the lenders and the Agent under the Orion Facility or other lenders or third parties; (b) project cash and cash equivalents, which consist of amounts borrowed under the Orion Facility which can be used only by our consolidated wholly-owned project subsidiaries in the normal course of operations for project construction, purchase of equipment (including inventory from FuelCell Energy, Inc.) and working capital for projects approved under the Orion Facility in accordance with each project’s construction budget and schedule and which are classified as unrestricted cash on the Company’s consolidated balance sheets; and (c) unrestricted cash and cash equivalents, which can be used by the Company for general corporate purposes, including working capital at the corporate level, and which include the proceeds of the PPP Note received during the quarter ended April 30, 2020. Unrestricted cash and cash equivalents, as presented on the Company’s consolidated balance sheets, consist of the amounts described in (b) and (c) above. As of April 30, 2020, unrestricted cash and cash equivalents totaled $29.1 million compared to $9.4 million as of October 31, 2019. Of this amount, project cash and cash equivalents funded under the Orion Facility totaled $18.6 million as of April 30, 2020 compared to $0 as of October 31, 2019. Excluding project cash and cash equivalents and the remaining balance of approximately $6.0 million under the PPP Note, which may only be used for certain payroll and other eligible expenditures, unrestricted cash and cash equivalents totaled $4.5 million as of April 30, 2020 compared to $9.4 million as of October 31, 2019.
In future periods, the Company expects to seek lower-cost long-term debt and tax equity (e.g., sale-leaseback and partnership transactions) for its project asset portfolio as these projects commence commercial operations. The proceeds of any such financing, if obtained, may allow the Company to fund other fuel cell projects (subject to the approval of the lenders and the Agent under the Orion Facility) and/or pay down the outstanding principal balance of the Orion Facility. There can be no assurance that the Company can obtain such financing on terms acceptable to the Company, or that the lenders and the Agent under the Orion Facility will consent to such financing. The Company may also seek to raise funds through the sale of equity securities, convertible notes, other equity-linked instruments and/or other debt instruments. If the Company is unable to obtain such financing or raise additional capital, it could have a material adverse effect on the Company’s financial condition and operations, and could require the Company to reduce its expenditures or slow its project spending.
11
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Note 2. Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
The Company adopted Accounting Standards Update Codification (“ASC”), “Leases” (“Topic 842” or “ASC 842”) on November 1, 2019. ASC 842, including all the related amendments subsequent to its issuance, supersedes the prior guidance for lease accounting and requires lessees to recognize a ROU asset representing the right to use an underlying asset and a lease liability representing the obligation to make lease payments over the lease term for substantially all leases, as well as disclose key quantitative and qualitative information about leasing arrangements. Upon adoption, the Company recognized an operating lease liability of approximately $10.3 million and corresponding operating lease ROU assets of approximately $10.1 million. There was no cumulative effect of the adoption recorded to accumulated deficit. There was no significant net effect on the consolidated statements of operations and comprehensive loss. Refer to Note 11. “Leases” for additional information on the Company’s adoption of ASC 842.
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The adoption of Topic 606 by the Company on November 1, 2018 using the modified retrospective transition method resulted in a cumulative effect adjustment that increased Accumulated deficit by $6.7 million.
Recent Accounting Guidance Not Yet Effective
There is no recent accounting guidance not yet effective that is expected to have a material impact on the Company’s financial statements when adopted.
Note 3. Revenue Recognition
Contract Balances
Contract assets as of April 30, 2020 and October 31, 2019 were $11.9 million and $11.3 million, respectively. The contract assets relate to the Company’s rights to consideration for work completed but not billed. These amounts are included on a separate line item as Unbilled receivables, and balances expected to be billed later than one year from the balance sheet date are included within Other assets on the accompanying consolidated balance sheets. The net change in contract assets represent amounts recognized as revenue offset by customer billings.
Contract liabilities as of April 30, 2020 and October 31, 2019 were $42.5 million and $40.2 million, respectively. The contract liabilities relate to the advance billings to customers for services that will be recognized over time and in some instances for deferred revenue relating to license performance obligations that will be recognized at a future point in time. These amounts are included within Deferred revenue and Long-term deferred revenue on the accompanying consolidated balance sheets. The net change in contract liabilities represents customer billings offset by revenue recognized.
Remaining Performance Obligations
Remaining performance obligations are the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of April 30, 2020, the Company’s total remaining performance obligations for service agreements, license agreements and Advanced Technologies contracts were $192.4 million. License revenue recognized over time will be recognized over the remaining term of the applicable license agreement. License revenue recognized at a point in time will be recognized when the first specified upgrade that has been developed is delivered and when the second specified upgrade is developed and delivered. Service revenue in periods in which there are no module replacements is expected to be relatively consistent from period to period, whereas module replacements will result in an increase in revenue when replacements occur. Advanced technologies revenue will be recognized as costs are incurred.
The Company has elected practical expedients in the accounting guidance that allow for revenue to be recorded in the amount that the Company has a right to invoice, if that amount corresponds directly with the value to the customer of the Company's performance to date, and not to disclose related unsatisfied performance obligations. Generation sales, to the extent the related power purchase agreements are within the scope of Topic 606, fall into this category, as these sales are recognized as revenue in the period the Company provides the electricity and completes the performance obligation, which is the same as the monthly amount billed to customers. Revenue recognition for the Joint Development Agreement with EMRE also falls into this category where revenue is recorded consistent with the amounts invoiced for research performed.
12
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Note 4. Accounts Receivable, Net and Unbilled Receivables
Accounts receivable, net and Unbilled receivables as of April 30, 2020 and October 31, 2019 consisted of the following:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Commercial Customers:
|
|
|
|
|
|
|
|
|
Amount billed
|
|
$
|
5,632
|
|
|
$
|
2,227
|
|
Unbilled receivables (1)
|
|
|
5,820
|
|
|
|
6,139
|
|
|
|
|
11,452
|
|
|
|
8,366
|
|
Advanced Technologies (including U.S. government(2)):
|
|
|
|
|
|
|
|
|
Amount billed
|
|
|
485
|
|
|
|
1,065
|
|
Unbilled receivables
|
|
|
1,655
|
|
|
|
1,545
|
|
|
|
|
2,140
|
|
|
|
2,610
|
|
Accounts receivable, net and unbilled receivables
|
|
$
|
13,592
|
|
|
$
|
10,976
|
|
(1)
|
Additional long-term unbilled receivables of $4.4 million and $3.6 million are included within “Other Assets” as of April 30, 2020 and October 31, 2019, respectively.
|
(2)
|
Total U.S. government accounts receivable, including unbilled receivables, outstanding as of April 30, 2020 and October 31, 2019 were $1.4 million and $1.2 million, respectively.
|
Accounts receivable are presented net of an allowance for doubtful accounts. There was no allowance for doubtful accounts as of April 30, 2020 and October 31, 2019. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all collection efforts have failed and it is deemed unlikely that the amount will be recovered.
Note 5. Inventories
Inventories (short and long-term) as of April 30, 2020 and October 31, 2019 consisted of the following:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
24,558
|
|
|
$
|
25,466
|
|
Work-in-process (1)
|
|
|
39,405
|
|
|
|
31,228
|
|
Inventories
|
|
|
63,963
|
|
|
|
56,694
|
|
Inventories - short-term
|
|
|
(54,945
|
)
|
|
|
(54,515
|
)
|
Inventories - long-term (2)
|
|
$
|
9,018
|
|
|
$
|
2,179
|
|
(1)
|
Work-in-process includes the standard components of inventory used to build the typical modules or module components that are intended to be used in future project asset construction or power plant orders or for use under the Company’s service agreements. Included in work-in-process as of April 30, 2020 and October 31, 2019 was $22.0 million and $23.5 million, respectively, of completed standard components and modules.
|
(2)
|
Long-term inventory includes modules that are contractually required to be segregated for use as replacement modules for specific project assets. Given that these project assets are long-term, the Company classifies the inventory as long-term regardless of the expected timing of such module replacements.
|
Raw materials consist mainly of various nickel powders and steels, various other components used in producing cell stacks and purchased components for balance of plant. Work-in-process inventory is comprised of material, labor, and overhead costs incurred to build fuel cell stacks and modules, which are subcomponents of a power plant.
The Company incurred costs associated with excess plant capacity and manufacturing variances of $2.7 million and $3.4 million for the three months ended April 30, 2020 and 2019, respectively, and $4.4 million and $6.6 million for the six months ended April 30, 2020 and 2019, respectively, which were included within product cost of revenues on the consolidated statements of operations and comprehensive loss.
13
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Note 6. Project Assets
Project assets as of April 30, 2020 and October 31, 2019 were $153.9 million and $144.1 million, respectively. Project assets as of April 30, 2020 and October 31, 2019 included eight and seven, respectively, completed, commissioned installations generating power with respect to which the Company has PPAs with an aggregate carrying value of $77.9 million and $59.2 million as of April 30, 2020 and October 31, 2019, respectively. Certain of these assets are the subject of sale-leaseback arrangements with PNC Energy Capital, LLC (“PNC”) and Crestmark Equipment Finance, a division of MetaBank (“Crestmark”), which are accounted for under the financing method. Project asset depreciation was approximately $2.8 million and $1.0 million for the three months ended April 30, 2020 and 2019, respectively, and $5.8 million and $2.1 million for the six months ended April 30, 2020 and 2019, respectively.
The Project assets balance as of April 30, 2020 and October 31, 2019 also includes installations with an aggregate value of $76.0 million and $84.9 million, respectively, which are being developed and constructed by the Company under existing PPAs that have not been placed in service.
Project construction costs incurred for long-term project assets are reported as investing activities in the consolidated statements of cash flows. The proceeds received from the sale and subsequent leaseback of project assets are classified as “Cash flows from financing activities” within the consolidated statements of cash flows and are classified as a financing obligation within “Current portion of long-term debt” and “Long-term debt and other liabilities” on the consolidated balance sheets (refer to Note 16. “Debt and Financing Obligations” for more information).
Note 7. Goodwill and Intangible Assets
As of April 30, 2020 and October 31, 2019, the Company had goodwill of $4.1 million that was recorded in connection with the 2012 acquisition of Versa Power Systems, Inc. (“Versa”) and intangible assets of $20.6 million and $21.3 million, respectively, that were recorded in connection with the 2012 Versa acquisition and the 2019 Bridgeport Fuel Cell Project acquisition. The Versa intangible asset consists of indefinite-lived in-process research and development intangible assets (“IPR&D”) for cumulative research and development efforts associated with the development of solid oxide fuel cell stationary power generation. The Company recorded $12.3 million as an intangible asset during fiscal year 2019 in connection with the Bridgeport Fuel Cell Project acquisition in May 2019 related to an acquired PPA that had favorable terms. The balance for the PPA intangible asset was $11.0 million and $11.7 million as of April 30, 2020 and October 31, 2019, respectively. Amortization expense for the Bridgeport Fuel Cell Project related intangible asset for the three and six months ended April 30, 2020 was $0.3 million and $0.7 million, respectively.
Note 8. Other Current Assets
Other current assets as of April 30, 2020 and October 31, 2019 consisted of the following:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Advance payments to vendors (1)
|
|
$
|
1,338
|
|
|
$
|
1,899
|
|
Prepaid expenses and other (2)
|
|
|
4,334
|
|
|
|
4,022
|
|
Other current assets
|
|
$
|
5,672
|
|
|
$
|
5,921
|
|
(1)
|
Advance payments to vendors relate to payments for inventory purchases ahead of receipt.
|
(2)
|
Primarily relates to other prepaid expenses including insurance, rent and lease payments.
|
Note 9. Other Assets
Other assets as of April 30, 2020 and October 31, 2019 consisted of the following:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Long-term stack residual value (1)
|
|
$
|
987
|
|
|
$
|
987
|
|
Long-term unbilled receivables (2)
|
|
|
4,438
|
|
|
|
3,588
|
|
Other (3)
|
|
|
5,425
|
|
|
|
4,914
|
|
Other assets
|
|
$
|
10,850
|
|
|
$
|
9,489
|
|
(1)
|
Relates to estimated residual value for module exchanges performed under the Company’s service agreements where the useful life extends beyond the contractual term of the service agreement and the Company obtains title for the module from the customer upon expiration or non-renewal of the service agreement. If the Company does not obtain rights to title from the customer, the full cost of the module is expensed at the time of the module exchange.
|
14
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
(2)
|
Represents unbilled receivables that relate to revenue recognized on customer contracts that will be billed in future periods in excess of 12 months from the balance sheet date.
|
(3)
|
The Company entered into an agreement with one of its customers on June 29, 2016 that includes a fee for the purchase of the power plants at the end of the term of the agreement. The fee is payable in installments over the term of the agreement and the total paid as of April 30, 2020 and October 31, 2019 was $2.4 million and $2.3 million, respectively. Also included within “Other” are long-term security deposits and prepaid withholding taxes on deferred revenue as of April 30, 2020.
|
Note 10. Accrued Liabilities
Accrued liabilities as of April 30, 2020 and October 31, 2019 consisted of the following:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued payroll and employee benefits
|
|
$
|
1,934
|
|
|
$
|
2,282
|
|
Accrued product warranty cost (1)
|
|
|
110
|
|
|
|
144
|
|
Accrued service agreement costs (2)
|
|
|
4,011
|
|
|
|
4,047
|
|
Accrued legal, taxes, professional and other
|
|
|
4,850
|
|
|
|
4,979
|
|
Accrued liabilities
|
|
$
|
10,905
|
|
|
$
|
11,452
|
|
(1)
|
Activity in the accrued product warranty costs represents reduction related to actual warranty activity as contracts progress through the warranty period or are beyond the warranty period and for the three months ended April 30, 2020 and 2019 was $0.01 million and $0.04 million, respectively, and for the six months ended April 30, 2020 and 2019 was $0.03 million and $0.08 million, respectively.
|
(2)
|
The loss accruals on service contracts were $3.3 million as of October 31, 2019, which decreased to $3.0 million as of April 30, 2020. The accruals for performance guarantees increased from $0.8 million as of October 31, 2019 to $1.0 million as of April 30, 2020.
|
Note 11. Leases
The Company adopted ASC 842 and its related amendments (collectively, the “New Lease Accounting Standard”) effective November 1, 2019 and elected the modified retrospective approach in which results and disclosures for periods before 2019 were not adjusted for the new standard and the cumulative effect of the change in accounting, if applicable, is recognized through accumulated deficit at the date of adoption.
The New Lease Accounting Standard establishes a right-of-use model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. In addition, this standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risks and rewards or control, the lease is treated as operating.
The New Lease Accounting Standard provides entities with several practical expedient elections. Among them, the Company elected the package of practical expedients that permits the Company to not reassess prior conclusions related to its leasing arrangements, lease classifications and initial direct costs. In addition, the Company has elected the practical expedients to not separate lease and non-lease components, to use hindsight in determining the lease terms and impairment of ROU assets, and to not apply the New Lease Accounting Standard’s recognition requirements to short-term leases with a term of 12 months or less.
The adoption of the New Lease Accounting Standard did not have a material effect on the Company’s consolidated statement of operations or consolidated statement of cash flows. Upon adoption, the Company recorded a $10.1 million operating lease ROU asset and a $10.3 million operating lease liability. The adoption of the New Lease Accounting Standard had no impact on accumulated deficit.
The Company enters into operating and finance lease agreements for the use of real estate space, vehicles, information technology equipment, and certain other equipment. We determine if an arrangement contains a lease at inception, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. Operating leases are included in Operating lease right-of-use assets, Operating lease liabilities, and Long-term operating lease liabilities in the Company’s consolidated balance sheet. Finance leases are not considered significant to the Company’s consolidated balance sheet or consolidated statement of operations. Finance lease ROU assets at April 30, 2020 of $0.1 million are included in Property, plant and equipment, net in the Company’s consolidated balance sheet. Finance lease liabilities at April 30, 2020 of $0.1 million are included in Current portion of long-term debt and Long-term debt and other liabilities in the Company’s consolidated balance sheet.
15
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the present value of the Company’s obligation to make lease payments arising from the lease over the lease term at the commencement date of the lease (or November 1, 2019 for leases existing upon the adoption of ASC 842). As most of the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate based on the information available at the date of adoption in determining the present value of lease payments and used the implicit rate when readily determinable. The Company determined incremental borrowing rates through market sources for secured borrowings including relevant industry rates. The Company’s operating lease ROU assets also include any lease pre-payments and exclude lease incentives. Certain of the Company’s leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes variable payments from lease ROU assets and lease liabilities, to the extent not considered in-substance fixed, and instead, expenses variable payments as incurred. Variable lease expense and lease expense for short term contracts are not material components of lease expense. The Company’s leases generally have remaining lease terms of 1 to 26 years, some of which include options to extend leases. The exercise of lease renewal options is at the Company’s sole discretion and the Company’s lease ROU assets and liabilities reflect only the options the Company is reasonably certain that it will exercise. We do not have leases with residual value guarantees or similar covenants.
Operating lease expense for the three and six months ended April 30, 2020 was $0.1 million and $0.3 million, respectively. As of April 30, 2020, the weighted average remaining lease term (in years) was approximately 19 years and the weighted average discount rate was 6.2%. Lease payments made for the three and six months ended April 30, 2020 were $0.2 million and $0.5 million, respectively.
Undiscounted maturities of operating lease and finance lease liabilities are as follows:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Due Year 1
|
|
$
|
1,198
|
|
|
$
|
69
|
|
Due Year 2
|
|
|
1,339
|
|
|
|
18
|
|
Due Year 3
|
|
|
1,292
|
|
|
|
—
|
|
Due Year 4
|
|
|
768
|
|
|
|
—
|
|
Due Year 5
|
|
|
693
|
|
|
|
—
|
|
Thereafter
|
|
|
14,413
|
|
|
|
—
|
|
Total undiscounted lease payments
|
|
|
19,703
|
|
|
|
87
|
|
Less imputed interest
|
|
|
(9,217
|
)
|
|
|
(4
|
)
|
Total discounted lease payments
|
|
$
|
10,486
|
|
|
$
|
83
|
|
Prior to the adoption of the New Lease Accounting Standard, rental commitments on an undiscounted basis were approximately $19.9 million under long-term non-cancelable operating leases and were payable as follows: $1.1 million in fiscal year 2020, $1.4 million in fiscal year 2021, $1.3 million in fiscal year 2022, $0.9 million in fiscal year 2023, $0.7 million in fiscal year 2024 and $14.6 million thereafter. Rent expense for the three and six months ended April 30, 2019 was $0.2 million and $0.5 million, respectively.
Crestmark Sale-Leaseback Transaction
On February 11, 2020, an indirect wholly-owned subsidiary of the Company, Central CA Fuel Cell 2, LLC (“CCFC2”), entered into a Purchase and Sale Agreement (the “Purchase Agreement”) and an Equipment Lease Agreement (the “Lease”) with Crestmark. Under these agreements, CCFC2 sold the 2.8 MW biogas fueled fuel cell power plant (the “Plant”) located at the Tulare wastewater treatment plant in Tulare, California to Crestmark and then leased the Plant back from Crestmark through this sale-leaseback transaction. The Plant was designed, manufactured and installed by the Company, and commercial operations began on December 27, 2019. In operating the Plant, CCFC2 purchases biogas from the City of Tulare and sells the power produced by the Plant to Southern California Edison under a twenty-year PPA, which was separately entered into on April 20, 2018 (the “Tulare PPA”), under the California Bioenergy Market Adjusting Tariff.
16
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Under the terms of the Purchase Agreement, Crestmark paid CCFC2 an aggregate purchase price of $14.4 million. A portion of these proceeds were used by CCFC2 to make a down payment and an initial rental payment under the Lease to Crestmark totaling $2.9 million, to pay taxes and transaction costs and to fund a debt service reserve totaling approximately $1.0 million, resulting in net proceeds to CCFC2 of approximately $10.5 million. These net proceeds were allocated as follows:
|
•
|
Approximately $6.5 million of the net proceeds were deposited into the Project Proceeds Account (restricted cash on the Company’s consolidated balance sheet) under the Orion Facility. These proceeds may be used to repay amounts outstanding under the Orion Facility or redeployed, subject to the approval of the lenders and the Agent under the Orion Facility, to other financing transactions for the Company’s projects. These net proceeds are classified as long-term restricted cash on the consolidated balance sheet.
|
|
•
|
Approximately $1.2 million of the net proceeds were deposited into a module reserve account and debt services reserve account under the Orion Facility. These net proceeds are classified as long-term restricted cash on the consolidated balance sheet.
|
|
•
|
The balance of the net proceeds, totaling $2.8 million, were used to fund the quarterly cash interest payment due to the lenders under the Orion Facility and the dividend payments on the Company’s Series B Preferred Stock (as defined below) and the dividend and return of capital payment on the Series 1 Preferred Shares (as defined below) of FCE Ltd. (as defined below) required to be paid in the second quarter of fiscal 2020.
|
The Lease has an initial term of ten years but may be extended at the option of CCFC2. As noted above, an initial rental down payment and one month’s rent totaling $2.9 million was paid using the proceeds from the sale of the Plant. Lease payments are due on a monthly basis in the amount of $0.1 million. Lease payments are expected to be funded with proceeds from the sale of power under the Tulare PPA. Following the sale-leaseback transaction, the remaining lease payments due over the term of the Lease total approximately $9.3 million.
CCFC2 and Crestmark entered into an Assignment Agreement on February 11, 2020 (the “Assignment Agreement”) and FuelCell Energy Finance, LLC (“FuelCell Finance”, a wholly-owned subsidiary of the Company and the direct parent of CCFC2) and Crestmark entered into a Pledge Agreement on February 11, 2020 (the “Pledge Agreement”) pursuant to which collateral was provided to Crestmark to secure CCFC2’s obligations under the Lease. Specifically, CCFC2 and FuelCell Finance granted Crestmark a security interest in (i) certain agreements relating to the sale-leaseback transaction, (ii) the revenues CCFC2 receives with respect to the Plant, (iii) two fuel cell modules to be maintained by CCFC2 as replacement modules for the Plant, and (iv) FuelCell Finance’s equity interest in CCFC2. CCFC2 and the Company also entered into a Technology License and Access Agreement with Crestmark on February 11, 2020, which provides Crestmark with certain intellectual property license rights to have access to the Company’s proprietary fuel cell technology, but only for the purpose of maintaining and servicing the Plant in certain circumstances where the Company is not satisfying its obligations under its service agreement with regard to the maintenance and servicing of the Plant.
Pursuant to the Lease, CCFC2 has an obligation to indemnify Crestmark for the amount of any actual reduction in the U.S. Investment Tax Credit anticipated to be realized by Crestmark in connection with the foregoing sale-leaseback transaction. Such obligations would arise as a result of reductions to the value of the underlying fuel cell project as assessed by the U.S. Internal Revenue Service (“IRS”). The Company does not believe that any such obligation is likely based on the facts known as of April 30, 2020. The maximum potential future payments that CCFC2 could have to make under these obligations would depend on the difference between the fair values of the fuel cell project sold or financed and the values the IRS would determine as the fair value for the system for purposes of claiming the Investment Tax Credit. The value of the Investment Tax Credit in the sale-leaseback agreements is based on guidelines provided by regulations from the IRS. The Company and Crestmark used fair values determined with the assistance of an independent third-party appraisal.
The Purchase Agreement and the Lease contain representations and warranties, affirmative and negative covenants, and events of default that entitle Crestmark to cause CCFC2’s indebtedness under the Lease to become immediately due and payable. The Lease includes an end of term option for CCFC2 to repurchase the transferred assets at the then fair market value of the assets. As a result, a repurchase of the assets would preclude sale accounting since there are no alternative assets, substantially the same as the transferred assets readily available in the marketplace. As such, the transaction is a failed sale-leaseback transaction that is accounted for as a financing transaction.
Pursuant to a Guaranty Agreement executed on February 11, 2020 by the Company for the benefit of Crestmark (the “Guaranty”), the Company has guaranteed the payment and performance of CCFC2’s obligations under the Lease.
17
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Note 12. Stockholders’ Equity and Warrant Liabilities
At Market Issuance Sales Agreement
On October 4, 2019, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR, Inc. (the “Sales Agent”) to create an at-the-market equity program under which the Company was entitled, from time to time, to offer and sell up to 38.0 million shares of its common stock through the Sales Agent. However, to ensure that the Company had sufficient shares available for reservation and issuance upon exercise of all of the warrants to be issued to the lenders under the Orion Facility (as discussed in further detail below), the Company, effective as of October 31, 2019, reduced the number of shares reserved for future issuance and sale under the Sales Agreement from 27.9 million shares to 7.9 million shares (thus allowing for total aggregate issuances (past and future) of up to 18.0 million shares under the Sales Agreement) and reserved 20.0 million shares for issuance upon exercise of the warrants by the Orion lenders. Under the Sales Agreement, the Sales Agent was entitled to a commission in an amount equal to 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.
There were no sales under the Sales Agreement during the three months ended April 30, 2020. During the six months ended April 30, 2020, the Company issued and sold a total of approximately 7.9 million shares of its common stock under the Sales Agreement at prevailing market prices, with an average sale price of $0.46 per share, and raised aggregate gross proceeds of approximately $3.6 million, before deducting expenses and commissions. Commissions of $0.1 million were paid to the Sales Agent in connection with these sales, resulting in net proceeds to the Company of approximately $3.5 million. As of April 30, 2020, there were 1,154 shares available for issuance under the Sales Agreement.
See Note 18. “Subsequent Events” for information regarding the termination of the Sales Agreement following the end of the quarter.
Outstanding Warrants
Orion Warrants
In connection with the closing of the Orion Facility and the Initial Funding, on October 31, 2019, the Company issued warrants to the lenders under the Orion Facility to purchase up to a total of 6,000,000 shares of the Company’s common stock, at an exercise price of $0.310 per share (the “Initial Funding Warrants”). In addition, pursuant to the Orion Facility, on the date of the Second Funding (November 22, 2019), the Company issued warrants to the lenders under the Orion Facility to purchase up to a total of 14,000,000 shares of the Company’s common stock, with an exercise price with respect to 8,000,000 of such shares of $0.242 per share and with an exercise price with respect to 6,000,000 of such shares of $0.620 per share (the “Second Funding Warrants”, and together with the Initial Funding Warrants, the “Orion Warrants”).
The Orion Warrants have an 8-year term from the date of issuance, are exercisable immediately beginning on the date of issuance, and include provisions permitting cashless exercises.
On January 9, 2020, the lenders exercised, on a cashless basis, Orion Warrants (with cash exercise prices of $0.310 per share and $0.62 per share) representing the right to purchase, in the aggregate, 12,000,000 shares of the Company’s common stock. Because these warrants were exercised on a cashless basis pursuant to the formula set forth in the warrants, the lenders received, in the aggregate 9,396,320 shares of the Company’s common stock upon the cashless exercise of Initial Funding Warrants representing the right to purchase 6,000,000 shares of the Company’s common stock and Second Funding Warrants representing the right to purchase 6,000,000 shares of the Company’s common stock. The cashless exercise resulted in 2,603,680 shares no longer being required to be reserved for issuance upon exercise of the Orion Warrants. Following this exercise, warrants to purchase 8,000,000 shares of the Company’s common stock, with an exercise price of $0.242 per share, remain outstanding.
The estimated fair value of the Orion Warrants upon issuance was based on a Black-Scholes model using Level 2 inputs, including volatility of 96%, a risk free rate of 1.63%, the Company’s common stock price as of October 31, 2019 of $0.24 per share and the term of 8 years, which resulted in a total value of $3.9 million. The Orion Warrants will be remeasured to fair value each reporting period.
The Orion Warrants that were converted were remeasured to fair value immediately preceding the conversion based upon volatility of 103.7%, a risk free rate of 1.81% and the Company’s common stock price of $2.29 on January 8, 2020, which resulted in a $23.7 million charge for the three months ended January 31, 2020. The revised estimated fair value of the converted warrants as of the date of conversion of $26.0 million was reclassified to Additional paid in capital. The remaining warrants as of January 31, 2020 were remeasured to estimated fair value based upon a volatility of 104.9%, a risk free rate of 1.45% and the Company’s common stock price at January 31, 2020 of $1.59 per share, which resulted in a charge for the three months ended January 31, 2020 of $10.5 million. The Company remeasured the remaining warrants again at April 30, 2020 based upon a volatility of 107.4%, a risk free rate of 0.57% and the Company’s common stock price at April 30, 2020 of $2.02 per share, which resulted in a charge for the three months ended April 30, 2020 of $3.4 million. The remaining warrants outstanding are valued at $15.5 million as of April 30, 2020 and are classified as Long-term debt and other liabilities.
18
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Other Warrants
On May 3, 2017, the Company completed an underwritten public offering of (i) 1,000,000 shares of its common stock, (ii) Series C warrants to purchase 1,000,000 shares of its common stock and (iii) Series D warrants to purchase 1,000,000 shares of its common stock. The Series C warrants have an exercise price of $19.20 per share and a term of five years. The Series D warrants were exercised previously and are no longer outstanding. No Series C warrants were exercised during the three and six months ended April 30, 2020.
The following table summarizes outstanding warrant activity during the six months ended April 30, 2020:
|
|
Series C Warrants
|
|
|
Orion Warrants
|
|
Balance as of October 31, 2019
|
|
|
964,114
|
|
|
|
6,000,000
|
|
Warrants issued
|
|
|
—
|
|
|
|
14,000,000
|
|
Warrants converted
|
|
|
—
|
|
|
|
(12,000,000
|
)
|
Balance as of April 30, 2020
|
|
|
964,114
|
|
|
|
8,000,000
|
|
Note 13. Redeemable Preferred Stock
The Company is authorized to issue up to 250,000 shares of preferred stock, par value $0.01 per share, in one or more series, of which 105,875 shares were designated as 5% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) in March 2005.
Series B Preferred Stock
As of April 30, 2020, the Company had 105,875 shares of Series B Preferred Stock, with a liquidation preference of $1,000.00 per share, authorized for issuance. As of April 30, 2020 and October 31, 2019, there were 64,020 shares of Series B Preferred Stock issued and outstanding, with a carrying value of $59.9 million. Dividends of $0.8 million were paid in cash during the three-month periods ended April 30, 2020 and 2019, and dividends of $3.2 million and $1.6 million were paid in cash during the six months ended April 30, 2020 and 2019, respectively. A payment of $2.4 million made in the fiscal quarter ended January 31, 2020 represented the dividends payable with respect to the May 15, 2019 and August 15, 2019 dividend dates and the dividends payable with respect to the November 15, 2019 dividend date that were declared on October 30, 2019.
Class A Cumulative Redeemable Exchangeable Preferred Shares
As of April 30, 2020, FCE FuelCell Energy, Ltd. (“FCE Ltd.”) had 1,000,000 Class A Cumulative Redeemable Exchangeable Preferred Shares (the “Series 1 Preferred Shares”) issued and outstanding, which are held by Enbridge, Inc. (“Enbridge”). Dividends and return of capital payments are due quarterly based on calendar quarters. The Company made payments of Cdn. $0.3 million during the three-month period ended April 30, 2020 and payments of Cdn. $1.5 million and Cdn. $0.3 million during the six-month periods ended April 30, 2020 and 2019, respectively. The Company’s payments made during the fiscal quarter ended January 31, 2020 included the payments which were not made previously for the calendar quarters ended on March 31, 2019, June 30, 2019 and September 30, 2019. The Company recorded interest expense, which reflects the amortization of the fair value discount of approximately Cdn. $1.0 million and Cdn. $0.0 million for the three months ended April 30, 2020 and 2019, respectively and Cdn $1.8 million and Cdn. $0.7 million for the six months ended April 30, 2020 and 2019, respectively. As of April 30, 2020 and October 31, 2019, the carrying value of the Series 1 Preferred Shares was Cdn. $24.1 million (U.S. $17.3 million) and Cdn. $22.7 million (U.S. $17.2 million), respectively, and is classified as a preferred stock obligation of a subsidiary on the consolidated balance sheets. Under the terms of the January 2020 Letter Agreement (as defined and described below) relating to the amendment of the terms of the Series 1 Preferred Shares, the Company is still required to make (i) annual dividend payments of Cdn. $500,000 and (ii) annual return of capital payments of Cdn. $750,000. Dividend and return of capital payments are to be made on a quarterly basis and are scheduled to end on December 31, 2021 unless these obligations are satisfied in advance of such date.
19
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
On January 20, 2020, the Company, FCE Ltd. and Enbridge entered into a letter agreement (the “January 2020 Letter Agreement”), pursuant to which they agreed to amend the articles of FCE Ltd. relating to and setting forth the terms of the Series 1 Preferred Shares to: (i) remove the provisions of the articles permitting or requiring the issuance of shares of the Company’s common stock in exchange for the Series 1 Preferred Shares or as payment of amounts due to the holders of the Series 1 Preferred Shares, (ii) remove certain provisions of the articles relating to the redemption of the Series 1 Preferred Shares, (iii) increase the annual dividend rate, commencing on January 1, 2020, to 15%, (iv) extend the final payment date for all accrued and unpaid dividends and all return of capital payments (i.e., payments of the principal redemption price) from December 31, 2020 to December 31, 2021, (v) clarify when dividend and return of capital payments are to be made in the future and extend the quarterly dividend and return of capital payments through December 31, 2021 (which were previously to be paid each quarter through December 31, 2020), (vi) remove certain terms and provisions of the articles that are no longer applicable, and (vii) make other conforming changes to the articles. In addition, the parties agreed to amend the Company’s guarantee in favor of Enbridge as necessary or as the parties may mutually agree, in either case, in order to be consistent with such amended articles and to maintain the Company’s guarantee of FCE Ltd.’s obligations under the Series 1 Preferred Shares. The articles of FCE Ltd. were amended and filed in accordance with the provisions of the January 2020 Letter Agreement on March 26, 2020.
After taking into account the amendments to the terms of the Series 1 Preferred Shares described in the January 2020 Letter Agreement, the aggregate amount of all accrued and unpaid dividends to be paid on the Series 1 Preferred Shares on December 31, 2021 is expected to be Cdn. $26.5 million and the balance of the principal redemption price to be paid on December 31, 2021 with respect to all of the Series 1 Preferred Shares is expected to be Cdn. $3.5 million. The amendment to the Series 1 Preferred Shares resulted in an extinguishment of the prior Series 1 Preferred Shares for accounting purposes. A revised fair value was estimated using a discounted cash flow model resulting in a revised carrying value being recorded for the amended Series 1 Preferred Shares of Cdn. $24.1 million (U.S. $17.3 million) as of April 30, 2020, which resulted in a loss of Cdn. $0.2 million (U.S. $0.2 million) recorded in Other income, net on the consolidated statements of operations and comprehensive loss during the three and six months ended April 30, 2020. On an undiscounted basis, the Company’s actual aggregate amount of all accrued and unpaid dividends to be paid on the Series 1 Preferred Shares as of April 30, 2020 totaled approximately Cdn. $21.9 million (U.S. $15.8 million) and the balance of the principal redemption price as of April 30, 2020 with respect to all of the Series 1 Preferred Shares totaled approximately Cdn. $4.8 million (U.S. $3.5 million).
Prior to the amendment, the Company bifurcated the conversion feature and a variable dividend feature. As a result of the January 2020 Letter Agreement, both features were removed from the Series 1 Preferred Shares which resulted in the Company recognizing a gain of $0.6 million.
Note 14. Loss Per Share
The calculation of basic and diluted loss per share was as follows:
|
|
Three Months Ended April 30,
|
|
|
Six Months Ended April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,769
|
)
|
|
$
|
(19,530
|
)
|
|
$
|
(54,920
|
)
|
|
$
|
(37,078
|
)
|
Series A warrant exchange
|
|
|
—
|
|
|
|
(3,169
|
)
|
|
|
—
|
|
|
|
(3,169
|
)
|
Series B preferred stock dividends
|
|
|
(800
|
)
|
|
|
(800
|
)
|
|
|
(1,731
|
)
|
|
|
(1,600
|
)
|
Series C preferred stock deemed contributions (dividends) and
redemption value adjustment, net
|
|
|
—
|
|
|
|
1,599
|
|
|
|
—
|
|
|
|
(7,406
|
)
|
Series D Preferred stock deemed dividends and redemption
accretion
|
|
|
—
|
|
|
|
(976
|
)
|
|
|
—
|
|
|
|
(6,661
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(15,569
|
)
|
|
$
|
(22,876
|
)
|
|
$
|
(56,651
|
)
|
|
$
|
(55,914
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares
|
|
|
211,000,091
|
|
|
|
11,090,698
|
|
|
|
206,560,031
|
|
|
|
9,683,253
|
|
Effect of dilutive securities (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average diluted common shares
|
|
|
211,000,091
|
|
|
|
11,090,698
|
|
|
|
206,560,031
|
|
|
|
9,683,253
|
|
Basic loss per share
|
|
$
|
(0.07
|
)
|
|
$
|
(2.06
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(5.77
|
)
|
Diluted loss per share (1)
|
|
$
|
(0.07
|
)
|
|
$
|
(2.06
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(5.77
|
)
|
(1)
|
Due to the net loss to common stockholders in each of the periods presented above, diluted loss per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti-dilutive. As of April 30, 2020 and 2019, potentially dilutive securities excluded from the diluted loss per share calculation are as follows:
|
20
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Orion Warrants
|
|
|
8,000,000
|
|
|
|
—
|
|
May 2017 Offering - Series C Warrants
|
|
|
964,114
|
|
|
|
964,114
|
|
Outstanding options to purchase common stock
|
|
|
23,891
|
|
|
|
24,945
|
|
Unvested Restricted Stock Awards
|
|
|
2,091
|
|
|
|
32,659
|
|
Unvested Restricted Stock Units
|
|
|
63,267
|
|
|
|
212,034
|
|
Series C Preferred Shares to satisfy conversion requirements (1)
|
|
|
—
|
|
|
|
313,589
|
|
Series D Preferred Shares to satisfy conversion requirements (2)
|
|
|
—
|
|
|
|
1,114,890
|
|
5% Series B Cumulative Convertible Preferred Stock
|
|
|
37,837
|
|
|
|
37,837
|
|
Series 1 Preferred Shares to satisfy conversion requirements
|
|
|
—
|
|
|
|
1,264
|
|
Total potentially dilutive securities
|
|
|
9,091,200
|
|
|
|
2,701,332
|
|
(1)
|
The number of shares of common stock issuable upon conversion of the Series C Convertible Preferred Stock was calculated using the liquidation preference value outstanding on April 30, 2019 of $1.6 million divided by the reduced conversion price of $5.16 per share.
|
(2)
|
The number of shares of common stock issuable upon conversion of the Series D Convertible Preferred Stock was calculated using the liquidation preference value outstanding on April 30, 2019 of $18.5 million divided by the conversion price of $16.56 per share.
|
Note 15. Restricted Cash
As of April 30, 2020 and October 31, 2019, there was $44.3 million and $30.3 million, respectively, of restricted cash and cash equivalents pledged as performance security, reserved for future debt service requirements, reserved for letters of credit for certain banking requirements and contracts, and reserved to pay down the Orion Facility or be redeployed into other project financing at the option of the Agent and lenders under the Orion Facility. The allocation of restricted cash is as follows:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Restricted for Outstanding Letters of Credit (1)
|
|
$
|
6,225
|
|
|
$
|
5,733
|
|
Cash Restricted for PNC Sale-Leaseback Transactions
|
|
|
17,925
|
|
|
|
17,934
|
|
Cash Restricted for Crestmark Sale-Leaseback Transaction
|
|
|
430
|
|
|
|
—
|
|
Bridgeport Fuel Cell Park Project Debt Service and Performance Reserves
|
|
|
6,247
|
|
|
|
4,946
|
|
Orion Facility - Performance Reserve (2)
|
|
|
5,000
|
|
|
|
—
|
|
Orion Facility - Module and Debt Service Reserves (3)
|
|
|
1,175
|
|
|
|
—
|
|
Orion Facility - Project Proceeds Account (4)
|
|
|
6,543
|
|
|
|
—
|
|
Other
|
|
|
787
|
|
|
|
1,731
|
|
Total Restricted Cash
|
|
|
44,332
|
|
|
|
30,344
|
|
Restricted Cash and Cash Equivalents - Short-Term (5)
|
|
|
(8,082
|
)
|
|
|
(3,473
|
)
|
Restricted Cash and Cash Equivalents - Long-Term
|
|
$
|
36,250
|
|
|
$
|
26,871
|
|
(1)
|
Letters of credit outstanding as of April 30, 2020 expire on various dates through August 2028.
|
(2)
|
Short-term reserve related to certain project construction and financing milestones. Refer to Note. 16. “Debt and Financing Obligations” for conditions to be met to achieve the release of this reserve.
|
(3)
|
Long-term reserve primarily to fund future module replacements for operating projects which fall under the collateral pool (CCSU and Triangle Street) under the Orion Facility.
|
(4)
|
Reserve related to proceeds received from project refinancing to be used to pay-down the Orion Facility unless redeployed into other project financing (at the option of the Agent and the lenders under the Orion Facility).
|
(5)
|
Short-term restricted cash and cash equivalents are amounts expected to be released and categorized as unrestricted cash within twelve months of the balance sheet date.
|
21
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Note 16. Debt and Financing Obligations
Debt as of April 30, 2020 and October 31, 2019 consisted of the following:
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Orion Energy Partners Credit Facility
|
|
$
|
80,000
|
|
|
$
|
14,500
|
|
Connecticut Green Bank Loans
|
|
|
10,217
|
|
|
|
7,555
|
|
Liberty Bank Term Loan Agreement (BFC Loan)
|
|
|
10,590
|
|
|
|
11,632
|
|
Fifth Third Bank Term Loan Agreement (BFC Loan)
|
|
|
10,590
|
|
|
|
11,632
|
|
Finance obligation for sale-leaseback transactions
|
|
|
55,681
|
|
|
|
45,219
|
|
State of Connecticut Loan
|
|
|
9,660
|
|
|
|
10,000
|
|
New Britain Renewable Energy Term Loan
|
|
|
—
|
|
|
|
497
|
|
Enhanced Capital Term Loan and Security Agreement
|
|
|
—
|
|
|
|
1,500
|
|
Fifth Third Bank Construction Loan Agreement
|
|
|
—
|
|
|
|
11,072
|
|
Liberty Bank Promissory Note (PPP Note)
|
|
|
6,515
|
|
|
|
—
|
|
Capitalized lease obligations
|
|
|
83
|
|
|
|
141
|
|
Deferred finance costs
|
|
|
(4,572
|
)
|
|
|
(3,180
|
)
|
Unamortized debt discount
|
|
|
(5,520
|
)
|
|
|
(4,251
|
)
|
Total debt and financing obligations
|
|
$
|
173,244
|
|
|
$
|
106,317
|
|
Current portion of long-term debt and financing obligations
|
|
|
(13,834
|
)
|
|
|
(21,916
|
)
|
Long-term debt and financing obligations
|
|
$
|
159,410
|
|
|
$
|
84,401
|
|
Orion Energy Partners Investment Agent, LLC Credit Agreement
On October 31, 2019, the Company and certain of its affiliates as guarantors entered into a Credit Agreement (as amended from time to time, the “Orion Credit Agreement”) with Orion Energy Partners Investment Agent, LLC, as Administrative Agent and Collateral Agent (the “Agent”), and certain lenders affiliated with the Agent for a $200.0 million senior secured credit facility (the “Orion Facility”), structured as a delayed draw term loan to be provided by the lenders primarily to fund certain of the Company’s construction and related costs for fuel cell projects which meet the requirements of the Orion Facility. Under the Orion Credit Agreement, each lender will fund its commitments on each funding date in an amount equal to the principal amount of the loans to be funded by such lender on such date, less 2.50% of the aggregate principal amount of the loans funded by such lender on such date (the “Loan Discount).
On October 31, 2019, the Company drew down $14.5 million (the “Initial Funding”) and received $14.1 million after taking into account a Loan Discount of $0.4 million.
On November 22, 2019, a second draw (the “Second Funding”) of $65.5 million, funded by Orion Energy Credit Opportunities Fund II, L.P., Orion Energy Credit Opportunities Fund II GPFA, L.P., Orion Energy Credit Opportunities Fund II PV, L.P., and Orion Energy Credit Opportunities FuelCell Co-Invest, L.P. (the “Orion Lenders”), was made to fully repay certain outstanding third party debt of the Company, including the outstanding construction loan from Fifth Third Bank with respect to the Groton Project and the outstanding loan from Webster Bank with respect to the CCSU Project, as well as to fund remaining going forward construction costs and anticipated capital expenditures relating to the Groton Project (a 7.4 MW project), the LIPA Yaphank Solid Waste Management Project (a 7.4 MW project), and the Tulare BioMAT Project (a 2.8 MW project). The Company received $63.9 million in the Second Funding after taking into account a Loan Discount of $1.6 million as described above. Also in conjunction with the Second Funding, the Company issued to the Orion Lenders the Second Funding Warrants to purchase up to a total of 14.0 million shares of the Company’s common stock, with an initial exercise price with respect to 8.0 million of such shares of $0.242 per share and with an initial exercise price with respect to 6.0 million of such shares of $0.620 per share.
22
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
The Company may draw the remainder of the Orion Facility, up to $120.0 million, over the first 18 months following the Initial Funding and subject to the Agent’s approval to fund project-related expenses consisting of: (i) construction costs, inventory and other capital expenditures of additional fuel cell projects with contracted cash flows (under PPAs with creditworthy counterparties) that meet or exceed a mutually agreed coverage ratio; and (ii) inventory, working capital, and other costs that may be required to be delivered by the Company on purchase orders, service agreements, or other binding customer agreements with creditworthy counterparties. Except as may be approved by the Agent and the Orion Lenders (and except as provided in the Fifth Orion Amendment), the Company cannot use the Orion Facility to fund its working capital or other expenses at the corporate level. The Orion Lenders and the Agent have broad approval rights over the Company’s ability to raise additional capital, obtain other debt financing, and draw, allocate and use funds from the Orion Facility.
Under the Orion Credit Agreement, cash interest of 9.9% per annum will be paid quarterly. In addition to the cash interest, payment-in-kind interest of 2.05% per annum will accrue which will be added to the outstanding principal balance of the Orion Facility but will be paid quarterly in cash to the extent of available cash after payment of the Company’s operating expenses and the funding of certain reserves for the payment of outstanding indebtedness to the State of Connecticut and Connecticut Green Bank. The Orion Credit Agreement contains representations, warranties and other covenants.
Outstanding principal under the Orion Facility will be amortized on a straight-line basis over a seven year term in quarterly payments beginning one year after the Initial Funding, with the initial payment due 21 business days after the end of the first quarter of fiscal 2021; provided that, if the Company does not have sufficient cash on hand to make any required quarterly amortization payments, such amounts shall be deferred and payable at such time as sufficient cash is available to make such payments subject to all outstanding principal being due and payable on the maturity date, which is the date that is eight years after the date of the Initial Funding or October 31, 2027.
The issuance of the Initial Funding Warrants and recognition of the Second Funding Warrants resulted in $3.9 million being recorded as a liability as of October 31, 2019 with the offset recorded as a debt discount. Refer to Note 12. “Stockholders’ Equity and Warrant Liabilities” for additional information regarding the Initial Funding Warrants and Second Funding Warrants, including the accounting, terms and conversions during the quarter ended January 31, 2020.
In conjunction with the Second Funding, the Company and the other loan parties entered into the First Amendment to the Orion Credit Agreement (the “First Orion Amendment”), which required the Company to establish a $5.0 million debt reserve, with such reserve to be released on the first date following the date of the Second Funding on which all of the following events shall have occurred: (a) each of (x) the commercial operation date for the Tulare BioMAT project shall have occurred and (y) a disposition, refinancing or tax equity investment in the Tulare BioMAT project of at least $5.0 million is consummated (both conditions (x) and (y) have been satisfied); (b) each of (x) the Groton Project shall have achieved its business plan in accordance with the Groton Construction Budget (as defined in the Orion Credit Agreement), (y) the commercial operation date for the Groton Project shall have occurred and (z) the Groton Project shall have met its annualized output and heat rate guarantees for three months; and (c) a disposition, refinancing or tax equity investment of at least $30 million shall have occurred with respect to the Groton Project. The First Orion Amendment further required the Company (i) to provide, no later than December 31, 2019, a biogas sale and purchase agreement through December 31, 2021 for the Tulare BioMAT project, which was obtained as of such date, (ii) to obtain by December 31, 2019, a fully executed contract for certain renewable energy credits for the Groton Project, which was obtained as of such date, and (iii) to provide by January 31, 2020, certain consents and estoppels from the Connecticut Municipal Electric Energy Cooperative (“CMEEC”) related to the Groton Project and an executed, seventh modification to the lease between CMEEC and the United States Government, acting by and through the Department of the Navy, both of which were obtained as of such date.
In addition, in connection with the January 2020 Letter Agreement among the Company, FCE Ltd. and Enbridge described above, on January 20, 2020, in order to obtain the Orion Lenders’ consent to the January 2020 Letter Agreement as required under the Orion Credit Agreement, the Company, the Agent, the Orion Lenders, and the other loan parties entered into the Second Amendment to the Orion Credit Agreement (the “Second Orion Amendment”), which added a new affirmative covenant to the Orion Credit Agreement that obligates the Company to, and to cause FCE Ltd. to, on or prior to November 1, 2021, either (i) pay and satisfy in full all of their respective obligations in respect of, and fully redeem and cancel, all of the Series 1 Preferred Shares of FCE Ltd., or (ii) deposit in a newly created account of FCE Ltd. or the Company cash in an amount sufficient to pay and satisfy in full all of their respective obligations in respect of, and to effect a redemption and cancellation in full of, all of the Series 1 Preferred Shares of FCE Ltd. The Second Orion Amendment also provides that the amended articles of FCE Ltd. setting forth the modified terms of the Series 1 Preferred Shares will be considered a “Material Agreement” under the Orion Credit Agreement. Under the Second Orion Amendment, a failure to satisfy this new affirmative covenant or to otherwise comply with the terms of the Series 1 Preferred Shares will constitute an event of default under the Orion Credit Agreement, which could result in the acceleration of any amounts outstanding under the Orion Credit Agreement.
Additionally, in order to obtain the Orion Lenders’ consent to the Crestmark sale-leaseback transaction described in Note 11. “Leases” and to the use of certain proceeds from the Crestmark sale-leaseback transaction (the “Crestmark Proceeds”) as described below, the Company, the Agent, the Orion Lenders and the other loan parties entered into the Third Amendment to the Orion Credit Agreement (the “Third Orion Amendment”) dated February 11, 2020, and a Consent and Waiver dated February 11, 2020 (the “Consent and Waiver”). Pursuant to the Third Orion Amendment, TRS Fuel Cell, LLC was added as an Additional Covered Project Company (as defined in the Orion Credit Agreement), requiring the Company to pledge
23
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
all of the assets of TRS Fuel Cell, LLC under the Orion Credit Agreement. In addition, pursuant to the Orion Credit Agreement (as modified by the Third Orion Amendment), all of the proceeds received by the Company from the Crestmark sale-leaseback transaction described above, after a down payment and an initial rental payment under the Lease to Crestmark, the payment of taxes and transaction costs and funding a debt service reserve totaling approximately $1.0 million, were deposited in the Company’s Project Proceeds Account, which account is restricted, with withdrawals permitted only with consent of the Agent for use to (i) prepay the loans under the Orion Credit Agreement or (ii) fund (x) construction costs, inventory or other capital expenditures for an Additional Covered Project (as defined in the Orion Credit Agreement) whose contracted cash flows (as determined in the Orion Lenders’ sole discretion) meet or exceed a coverage ratio acceptable to the Orion Lenders, and (y) inventory, working capital and other costs required in connection with the performance of purchase orders, service agreements and other binding customer agreements (as determined in the Orion Lenders’ sole discretion); provided, however, that, pursuant to the Third Orion Amendment, certain portions of the funds deposited in the Project Proceeds Account were used as follows: (a) $1.1 million of the Crestmark Proceeds were transferred to the Module Reserve Account (as defined in the Orion Credit Agreement) to fund module replacement costs for Covered Projects (as defined in the Orion Credit Agreement); (b) $0.1 million of the Crestmark Proceeds were transferred to the Debt Reserve Account; (c) $1.7 million of the Crestmark Proceeds were used to fund the quarterly cash interest due to the Orion Lenders under the Orion Credit Agreement; and (d) $1.1 million of the Crestmark Proceeds were used to fund the aggregate amount of the dividends on the Company’s Series B Preferred Stock and the Series 1 Preferred Shares of FCE Ltd. required to be paid in the second quarter of fiscal 2020. As of April 30, 2020, the remaining approximately $6.5 million of the Crestmark Proceeds was long-term restricted cash in the Project Proceeds Account. As noted below, on April 30, 2020, the Company reached agreement with the Orion Lenders to allocate up to a total of $3.5 million of these funds to the San Bernardino project over time. Pursuant to the Consent and Wavier, subject to the terms and conditions described above in the Third Orion Amendment, the Orion Lenders consented to the release of liens on those assets that were the subject of the Crestmark sale-leaseback transaction and to the Company’s entering into the Guaranty.
On April 30, 2020, the Company, the Agent, the Orion Lenders and the other loan parties entered into the Fourth Amendment to the Orion Credit Agreement (the “Fourth Orion Amendment”). Pursuant to the Fourth Orion Amendment, the Agent and the Orion Lenders agreed to permit the release of $3.5 million from the Project Proceeds Account (as defined in the Orion Credit Agreement) subject to the following terms and conditions. Pursuant to the Fourth Orion Amendment, the Company’s 1.4 MW biogas fueled project at the wastewater treatment plant in San Bernardino, California has been added as an Additional Covered Project (as defined in the Orion Credit Agreement), and the Company subsidiary developing such project, San Bernardino Fuel Cell, LLC, has been added as an Additional Covered Project Company (as defined in the Orion Credit Agreement) such that those covenants, terms and conditions in the Orion Credit Agreement that apply to Covered Projects and Covered Project Companies will now be applicable to the foregoing project and project company, including that the “Project Payoff Amount” (i.e., the amount required pursuant to the Orion Credit Agreement to be realized upon a subsequent sale or refinancing of a project) for the San Bernardino project will be $5 million. Subsequent to quarter end, $2.3 million of the $3.5 million was released from the Project Proceeds Account, which account is restricted subject to the control of the Agent, and transferred to a General Business Unit Account (as defined in the Orion Credit Agreement), which account is unrestricted and available for general use by the Company. The remaining $1.2 million will be released from the Project Proceeds Account and transferred to a Covered Project Account (as defined in the Credit Agreement) being established for the San Bernardino project for use in connection with the construction of the San Bernardino project upon satisfaction of the following conditions: (a) approval of a self-generation incentive program grant for the San Bernardino project in an amount equal to no less than $1.0 million; (b) approval of an interconnection agreement; (c) provision of a fuel affidavit approval by Southern California Gas Company; (d) issuance of an air permit for the anaerobic digester gas cleanup system; (e) provision of an executed consent to collateral assignment by The City of San Bernardino Municipal Water District; (f) recordation in the land records of San Bernardino County of a memorandum of site license; (g) after giving effect to the release and transfer of $1.2 million to the Covered Project Account, evidence that there will be sufficient cash in the Covered Project Account for the San Bernardino project to cover remaining expenditures and complete the project and (h) written approval of the Agent. Refer to Note 18 “Subsequent Events” for additional information concerning the Orion Credit Agreement and the Fifth Orion Amendment.
24
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Connecticut Green Bank Loans
As of October 31, 2019, the Company had a long-term loan agreement with the Connecticut Green Bank, providing the Company with a loan of $1.8 million (the “Green Bank Loan Agreement”). On and effective as of December 19, 2019, the Company and Connecticut Green Bank entered into an amendment to the Green Bank Loan Agreement (the “Green Bank Amendment”). Upon the execution of the Green Bank Amendment on December 19, 2019, Connecticut Green Bank made an additional loan to the Company in the aggregate principal amount of $3.0 million (the “December 2019 Loan”), which is to be used (i) first, to pay closing fees related to the May 9, 2019 acquisition of the Bridgeport Fuel Cell Project and the Subordinated Credit Agreement (as defined below), other fees, and accrued interest from May 9, 2019, totaling $0.4 million (“Accrued Fees”), and (ii) thereafter, for general corporate purposes as determined by the Company, including, but not limited to, expenditures in connection with the project being constructed by Groton Station Fuel Cell, LLC (“Groton Fuel Cell”). Pursuant to the terms of the Green Bank Amendment, Connecticut Green Bank will have no further obligation to make loans under the Green Bank Loan Agreement and the Company will have no right to make additional draws under the Green Bank Loan Agreement. The Green Bank Amendment provides that, until such time as the loan (which includes both the outstanding principal balance of the original loan under the Green Bank Loan Agreement and the outstanding principal amount of the December 2019 Loan) has been repaid in its entirety, interest on the outstanding balance of the loan shall accrue monthly in arrears from the date of the Green Bank Amendment at a rate of 5% per annum until May 8, 2019 and at a rate of 8% per annum thereafter, payable by the Company on a monthly basis in arrears. The Green Bank Amendment further provides that the payment by the Company of the Accrued Fees (as described above) includes any shortfall of interest due but unpaid by the Company through and including November 30, 2019. Interest payments made by the Company after the date of the Green Bank Amendment are to be applied first to interest that has accrued on the outstanding principal balance of the original loan under the Green Bank Loan Agreement and then to interest that has accrued on the December 2019 Loan. The Green Bank Amendment also modifies the repayment and mandatory prepayment terms and extends the maturity date set forth in the original Green Bank Loan Agreement. Under the Green Bank Amendment, to the extent that excess cash flow reserve funds under the BFC Credit Agreement (as defined below) are eligible for disbursement to Bridgeport Fuel Cell, LLC pursuant to Section 6.23(c) of the BFC Credit Agreement, such funds are to be paid to Connecticut Green Bank, to be applied first to repay the outstanding principal balance of the original loan under the Green Bank Loan Agreement and thereafter to repay the outstanding principal amount of the December 2019 Loan, until repaid in full. The Green Bank Amendment further provides that the entire unpaid balance of the loan and all other obligations due under the Green Bank Loan Agreement will be due and payable on May 9, 2026 if not paid sooner in accordance with the Green Bank Loan Agreement. Finally, with respect to mandatory prepayments, the Green Bank Amendment provides that, when the Company has closed on the subordinated project term loan pursuant to the Commitment Letter, dated February 6, 2019, issued by Connecticut Green Bank to Groton Fuel Cell to provide a subordinated project term loan to Groton Fuel Cell in the amount of $5.0 million, the Company will be required to prepay to Connecticut Green Bank the lesser of any then outstanding amount of the December 2019 Loan and the amount of the subordinated project term loan actually advanced by Connecticut Green Bank. The balance under the original Green Bank Loan Agreement and the December 2019 Loan as of April 30, 2020 was $4.8 million.
Bridgeport Fuel Cell Project Loans
On May 9, 2019, in connection with the closing of the purchase of the membership interests of Bridgeport Fuel Cell, LLC (“BFC”) (and the 14.9 MW Bridgeport Fuel Cell Project), BFC entered into a subordinated credit agreement with the Connecticut Green Bank whereby Connecticut Green Bank provided financing in the amount of $6.0 million (the “Subordinated Credit Agreement”). This $6.0 million consisted of $1.8 million in incremental funding that was received by BFC and $4.2 million of funding previously received by FuelCell Energy, Inc. with respect to which BFC became the primary obligor. As security for the Subordinated Credit Agreement, Connecticut Green Bank received a perfected lien, subordinated and second in priority to the liens securing the $25.0 million loaned under the BFC Credit Agreement (as defined below), in all of the same collateral securing the BFC Credit Agreement. The interest rate under the Subordinated Credit Agreement is 8% per annum. Principal and interest are due monthly in amounts sufficient to fully amortize the loan over an 84-month period ending in May 2026. The Subordinated Credit Agreement contains representations, warranties and covenants. The balance under the Subordinated Credit Agreement as of April 30, 2020 was $5.4 million.
On May 9, 2019, in connection with the closing of the purchase of the Bridgeport Fuel Cell Project, BFC entered into a Credit Agreement with Liberty Bank, as administrative agent and co-lead arranger, and Fifth Third Bank as co-lead arranger and swap hedger (the “BFC Credit Agreement”), whereby (i) Fifth Third Bank provided financing in the amount of $12.5 million towards the purchase price for the BFC acquisition; and (ii) Liberty Bank provided financing in the amount of $12.5 million towards the purchase price for the BFC acquisition. As security for the BFC Credit Agreement, Liberty Bank and Fifth Third Bank were granted a first priority lien in (i) all assets of BFC, including BFC’s cash accounts, fuel cells, and all other personal property, as well as third party contracts including the Energy Purchase Agreement between BFC and Connecticut Light and Power Company dated July 10, 2009, as amended; (ii) certain fuel cell modules that are intended to be used to replace the Bridgeport Fuel Cell Project’s fuel cell modules as part of routine operation and maintenance; and (iii) FuelCell Finance’s (a wholly-owned subsidiary of the Company and the direct parent of BFC) ownership interest in BFC. The maturity date under the BFC Credit Agreement is May 9, 2025. Monthly principal and interest are to be paid in arrears in an amount sufficient to fully amortize the term loan over a 72-month period. BFC has the right to make additional principal payments or pay the balance due under the BFC Credit Agreement in full, provided that it pays any associated breakage fees with regard to the interest rate swap agreements fixing the interest rate. The interest rate under the BFC Credit Agreement fluctuates monthly at the 30-day LIBOR rate plus 275 basis points on an initial total notional value of $25.0 million, reduced for principal payments.
25
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
An interest rate swap agreement was required to be entered into with Fifth Third Bank in connection with the BFC Credit Agreement to protect against movements in the floating LIBOR index. Accordingly, on May 16, 2019, an interest rate swap agreement (the “Swap Agreement”) was entered into with Fifth Third Bank in connection with the BFC Credit Agreement for the term of the loan. The net interest rate across the BFC Credit Agreement and the swap transaction results in a fixed rate of 5.09%. The interest rate swap will be adjusted to fair value on a quarterly basis. The estimated fair value is based on Level 2 inputs including primarily the forward LIBOR curve available to swap dealers. The valuation methodology involves comparison of (i) the sum of the present value of all monthly variable rate payments based on a reset rate using the forward LIBOR curve and (ii) the sum of the present value of all monthly fixed rate payments on the notional amount, which is equivalent to the outstanding principal amount of the loan. The fair value adjustments for the three and six months ended April 30, 2020 resulted in a $0.5 million charge. The fair value of the interest rate swap at April 30, 2020 and October 31, 2019 was $1.2 million and $0.6 million, respectively.
Finance obligations for sale leaseback agreements
Several of the Company’s special purpose project subsidiaries previously entered into sale-leaseback agreements with PNC for commissioned projects where the Company had entered into a PPA with the site host/end-user of produced power, and CCFC2 entered into a sale-leaseback with Crestmark on February 11, 2020 (refer to Note. 11. “Leases” for additional information). Under the financing method of accounting for a sale-leaseback, the Company did not recognize as income any of the sale proceeds received from the lessor that contractually constitute payments to acquire the assets subject to these arrangements. Instead, the sale proceeds received were accounted for as financing obligations. The outstanding financing obligation balance as of April 30, 2020 was $55.7 million, and the increase from $45.2 million on October 31, 2019 represents the finance obligation with Crestmark and the recognition of interest expense offset by lease payments. The outstanding financing obligation includes an embedded gain which will be recognized at the end of each 10-year lease term.
State of Connecticut Loan
In October 2015, the Company closed on a definitive Assistance Agreement with the State of Connecticut (the “Assistance Agreement”) and received a disbursement of $10.0 million, which was used for the first phase of the expansion of the Company’s Torrington, Connecticut manufacturing facility. In conjunction with this financing, the Company entered into a $10.0 million promissory note and related security agreements securing the loan with equipment liens and a mortgage on its Danbury, Connecticut location. Interest accrues at a fixed interest rate of 2.0%, and the loan is repayable over 15 years from the date of the first advance, which occurred in October of 2015. Principal payments were deferred for four years from disbursement and began on December 1, 2019. Under the Assistance Agreement, the Company was eligible for up to $5.0 million in loan forgiveness if the Company created 165 full-time positions and retained 538 full-time positions for two consecutive years (the “Employment Obligation”) as measured on October 28, 2017 (the “Target Date”). The Assistance Agreement was subsequently amended in April 2017 to extend the Target Date by two years to October 28, 2019.
In January 2019, the Company and the State of Connecticut entered into a Second Amendment to the Assistance Agreement (the “Second Amendment”). The Second Amendment extends the Target Date to October 31, 2022 and amends the Employment Obligation to require the Company to continuously maintain a minimum of 538 full-time positions for 24 consecutive months. If the Company meets the Employment Obligation, as modified by the Second Amendment, and creates an additional 91 full-time positions, the Company may receive a credit in the amount of $2.0 million to be applied against the outstanding balance of the loan. However, based on the Company’s current headcount and plans for fiscal year 2020, it will not meet this requirement or receive this credit. The Second Amendment deletes and cancels the provisions of the Assistance Agreement related to the second phase of the expansion project and the loans related thereto, but the Company had not drawn any funds or received any disbursements under those provisions. A job audit will be performed within 90 days of the Target Date. If the Company does not meet the Employment Obligation, then an accelerated payment penalty will be assessed at a rate of $18,587.36 times the number of employees below the number of employees required by the Employment Obligation. Such penalty is immediately payable and will be applied first to accelerate the payment of any outstanding fees or interest due and then to accelerate the payment of outstanding principal.
In April of 2020, as a result of the COVID-19 pandemic, the State of Connecticut agreed to defer three months of principal and interest payments under the Assistance Agreement beginning with the May 2020 payment. These deferred payments will be added at the end of the loan, thus extending out the maturity date by three months.
26
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Webster Bank Loan
In November 2016, the Company assumed debt with Webster Bank, National Association (“Webster Bank”) in the amount of $2.3 million as a part of a project asset acquisition transaction. The term loan interest rate was 5.0% per annum and payments, which commenced in January 2017, were due on a quarterly basis. The balance outstanding as of October 31, 2019 was $0.5 million. The loan was paid off and extinguished during the three months ended January 31, 2020.
Enhanced Capital Loan
On January 9, 2019, the Company, through its indirect wholly-owned subsidiary TRS Fuel Cell, LLC, entered into a Loan and Security Agreement with Enhanced Capital Connecticut Fund V, LLC (“Enhanced”) in the amount of $1.5 million. On January 13, 2020, TRS Fuel Cell, LLC and Enhanced entered into a payoff letter pursuant to which the loan was paid off and extinguished on January 14, 2020.
Fifth Third Bank Groton Loan
On February 28, 2019, the Company, through its indirect wholly-owned subsidiary, Groton Station Fuel Cell, LLC (“Groton Fuel Cell”), entered into a Construction Loan Agreement (as amended from time to time, the “Groton Agreement”) with Fifth Third Bank pursuant to which Fifth Third Bank agreed to make available to Groton Fuel Cell a construction loan facility in an aggregate principal amount of up to $23.0 million (the “Groton Facility”) to fund the manufacture, construction, installation, commissioning and start-up of the 7.4 MW fuel cell power plant for the Connecticut Municipal Electric Energy Cooperative located on the U.S. Navy submarine base in Groton, Connecticut (the “Groton Project”). Groton Fuel Cell made an initial draw under the Groton Facility on the date of closing of $9.7 million and made an additional draw of $1.4 million in April 2019. The original maturity date of the Groton Facility was the earlier of (a) October 31, 2019, (b) the commercial operation date of the Groton Project, or (c) one business day after receipt of proceeds of debt financing (i.e., take out financing) in an amount sufficient to repay the outstanding indebtedness under the Groton Facility.
The total outstanding balance under the Groton Facility as of October 31, 2019 was $11.1 million. This balance was paid off, the loan was extinguished, and the Groton Facility was terminated during the three months ended January 31, 2020.
Liberty Bank Promissory Note
On April 20, 2020, the Company entered into the PPP Note, dated April 16, 2020, evidencing a loan to the Company from Liberty Bank, under the CARES Act, administered by the SBA. Pursuant to the PPP Note, the Company received total proceeds of approximately $6.5 million on April 24, 2020. In accordance with the requirements of the CARES Act, the Company is using the proceeds primarily for payroll costs.
The PPP Note is scheduled to mature on April 16, 2022, has a 1.00% per annum interest rate, and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. Monthly principal and interest payments, less the amount of any potential forgiveness (as discussed below), will commence on November 16, 2020. The Company did not provide any collateral or guarantees for the PPP Note, nor did the Company pay any facility charge to obtain the PPP Note. The PPP Note provides for events of default, including, among others, those relating to failure to make a payment when due under the PPP Note, failure to comply with any provision of the PPP Note, bankruptcy, and breaches of or materially misleading representations. Upon the occurrence of an event of default, Liberty Bank may require immediate payment of all amounts owing under the PPP Note, collect all amounts owing from the Company, and pursue other remedies. The PPP Note may be prepaid at any time with no prepayment penalties.
Under the original requirements of the CARES Act, proceeds may only be used for the Company’s eligible payroll costs (with salary capped at $100,000 on an annualized basis for each employee), rent, mortgage interest, and utilities, in each case paid during the eight-week period following disbursement. Also, under the original requirements of the CARES Act, at least 75% of the proceeds must be used for eligible payroll costs. The loan may be fully forgiven if (i) proceeds are used to pay eligible payroll costs, rent, mortgage interest and utilities and (ii) full-time employee headcount and salaries are either maintained during the applicable eight-week period or restored by June 30, 2020. If not so maintained or restored, forgiveness of the loan will be reduced in accordance with the regulations to be issued by the SBA. Any forgiveness of the loan will be subject to approval by the SBA and Liberty Bank and will require the Company to apply for such treatment in the future. In order to obtain the consent of the Agent and the Orion Lenders under the Orion Facility to enter into the PPP Note, the Agent and the Orion Lenders have required the Company to apply for forgiveness within 30 days after the last day of the loan forgiveness period as designated under the PPP regulations in effect as of June 6, 2020.
On June 5, 2020, the PPP Flexibility Act was signed into law, extending the loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years. The Company is evaluating the impact of these changes on its PPP Note.
Deferred Finance Costs
27
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Deferred finance costs relate primarily to (i) sale-leaseback transactions entered into with PNC and Crestmark, which are being amortized over the 10-year terms of the lease agreements, (ii) payments under the loans obtained to purchase the membership interests in BFC, which are being amortized over the 8-year term of the loans and (iii) payments to enter into the Orion Facility, which will be amortized over the 8 year term of the facility.
Note 17. Commitments and Contingencies
Service Agreements
Under the provisions of its service agreements, the Company provides services to maintain, monitor, and repair customer power plants to meet minimum operating levels. Under the terms of such service agreements, the particular power plant must meet a minimum operating output during defined periods of the term. If minimum output falls below the contract requirement, the Company may be subject to performance penalties and/or may be required to repair or replace the customer’s fuel cell module(s).
Power Purchase Agreements
Under the terms of the Company’s PPAs, customers agree to purchase power from the Company’s fuel cell power plants at negotiated rates. Electricity rates are generally a function of the customers’ current and estimated future electricity pricing available from the grid. As owner or lessee of the power plants, the Company is responsible for all operating costs necessary to maintain, monitor and repair the power plants. Under certain agreements, the Company is also responsible for procuring fuel, generally natural gas or biogas, to run the power plants. In addition, under the terms of some of the PPA agreements, the Company may be subject to a performance penalty if the Company does not meet certain performance requirements.
Other
As of April 30, 2020, the Company had unconditional purchase commitments aggregating $29.2 million, for materials, supplies and services in the normal course of business.
The Company is involved in legal proceedings, including, but not limited to, regulatory proceedings, claims, mediations, arbitrations and litigation, arising out of the ordinary conduct of its business (“Legal Proceedings”). Although the Company cannot assure the outcome, management presently believes that the result of such Legal Proceedings, either individually, or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial statements, and no material amounts have been accrued in the Company’s consolidated financial statements with respect to these matters.
Note 18. Subsequent Events
Impact of the COVID-19 Pandemic
On March 18, 2020, in response to the COVID-19 pandemic, we temporarily suspended operations at our Torrington, Connecticut manufacturing facility and also ordered those employees that could work from home to do so. This suspension was subsequently extended following the guidance of Connecticut’s stay at home orders, and we now are tentatively planning to resume operations in the manufacturing facility on June 22, 2020. We continue to evaluate our plans based on federal, state and local guidance, evolving data concerning the pandemic and the best interests of our employees, customers and stockholders. All employees that are not able to work from home due to their job function are still receiving full wages and benefits. To date, we have not implemented any furlough, layoff or shared work program supported by the State of Connecticut. If production resumes as currently planned on June 22, 2020, we do not expect a material adverse impact to current project schedules as a result of the shutdown. However, if we do not resume production as planned, our project schedules and associated financing could be adversely affected. Additionally, while we have attempted to continue business development activities during the pandemic, state and local shut downs, shelter in place orders and travel restrictions have impeded our ability to meet with customers and solicit new business and certain bids and solicitations in which we typically participate have been postponed. We expect these impacts to continue until such shut downs, shelter in place orders and travel restrictions are fully lifted and bids and solicitations are allowed to proceed.
28
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
On April 20, 2020, we entered into the PPP Note evidencing a loan to us from Liberty Bank under the CARES Act. Pursuant to the PPP Note, we received total proceeds of approximately $6.5 million on April 24, 2020. In order to obtain the consent of the Agent and the Orion Lenders under the Orion Facility to enter into the PPP Note, the Agent and the Orion Lenders have required the Company to apply for forgiveness within 30 days after the last day of the loan forgiveness period as designated under the PPP regulations in effect as of June 6, 2020. If we seek forgiveness of the loan, we must apply for such forgiveness by October 31, 2020.
On June 5, 2020, the PPP Flexibility Act was signed into law, extending the loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years. The Company is evaluating the impact of these changes on its PPP Note.
While we may apply for forgiveness of the PPP Note in accordance with the requirements and limitations under the CARES Act and the SBA regulations and requirements, no assurance can be given that any portion of the PPP Note will be forgiven. Based on guidance from the United States Department of the Treasury, since the total PPP Note proceeds exceeded $2.0 million, our forgiveness application will be subject to audit by the SBA.
Increase in Authorized Shares
The Company obtained stockholder approval on May 8, 2020 at the reconvened Annual Meeting of Stockholders to increase the number of shares of common stock we are authorized to issue under our Certificate of Incorporation, as amended. Our stockholders approved a 112,500,000 increase in the number of authorized shares of common stock. Accordingly, on May 11, 2020, the Company filed a Certificate of Amendment of the Certificate of Incorporation of the Company with the Delaware Secretary of State increasing the total number of authorized shares of common stock from 225,000,000 shares to 337,500,000 shares.
Amendment and Restatement of the Company’s 2018 Omnibus Incentive Plan
At the reconvened Annual Meeting of Stockholders held on May 8, 2020, the Company’s stockholders approved the amendment and restatement of the FuelCell Energy, Inc. 2018 Omnibus Incentive Plan (as so amended and restated, the “Plan”), which authorizes the Company to issue up to 4,000,000 additional shares of the Company’s common stock pursuant to awards under the Plan and provides for an increase in the annual limit on the grant-date fair value of awards to any non-employee director of the Company from $200,000 to $250,000.
Following the approval of the Plan by the Company’s stockholders at the Annual Meeting, the Plan provides the Company with the authority to issue a total of 4,333,333 shares of the Company’s common stock, 1,000,000 shares of which have been reserved for settlement of restricted stock units granted pursuant to an employment agreement, effective as of August 26, 2019, between the Company and Jason Few, our President and Chief Executive Officer (the “Sign-On Award”). The Sign-On Award was contingent upon obtaining stockholder approval of a sufficient number of additional shares under the Plan. The Plan authorizes grants of stock options, stock appreciation rights, restricted stock, restricted stock units, shares, performance shares, performance units, incentive awards and dividend equivalent units to officers, other employees, directors, consultants and advisors.
Fifth Amendment to Orion Credit Agreement
On October 31, 2019, the Company and certain of its affiliates as guarantors entered into the Orion Credit Agreement with the Agent and certain lenders affiliated with the Agent for the $200.0 million Orion Facility, which is structured as a delayed draw term loan to be provided by the lenders primarily to fund certain of the Company’s construction and related costs for fuel cell projects which meet the requirements of the Orion Facility. The Orion Credit Agreement was amended on November 22, 2019, January 20, 2020, February 11, 2020 and April 30, 2020. Refer to Note 16 – “Debt and Financing Obligations” for detailed descriptions of the Orion Credit Agreement and each of these amendments thereto.
In order to alleviate substantial doubt about the Company’s ability to continue as a going concern, on June 8, 2020, the Company, certain of its affiliates as guarantors, the Agent and the lenders entered into the Fifth Orion Amendment. Pursuant to the terms of the Fifth Orion Amendment, the lenders agreed to make a commitment to make certain loans to the Company in an aggregate principal amount of up to $35 million (which are referred to herein as the “Secondary Facility Loans”), and the Company, the guarantors, the Agent and the lenders agreed to amend the Orion Credit Agreement to facilitate the provision of such Secondary Facility Loans.
Pursuant to the Orion Credit Agreement, as amended by the Fifth Orion Amendment, the lenders have committed to make Secondary Facility Loans up to an aggregate amount of $35 million available to the Company for general corporate purposes of the Company or the guarantors in accordance with either (i) the then effective Operating Budget (as defined in the Orion Credit Agreement) of the Company or the guarantors or (ii) the cash use forecast delivered by the Company to the Agent on June 6, 2020. The Secondary Facility Loan commitment allows the Company to draw on the Secondary Facility Loans commencing on June 5, 2020 (the “Commencement Date”) and terminating on September 14, 2020 (the “Termination
29
FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)
Date”). The Company may make draws on the Secondary Facility Loans in amounts of no less than $5 million, and no more than $15 million may be drawn in any 30 day period, provided that the Company may draw any remaining available funds under the Secondary Facility Loans between August 15, 2020 and the Termination Date. Any drawn amounts must be fully repaid on or before September 1, 2021 (the “Secondary Facility Repayment Date”). The amended Orion Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default, including failure to make payments when due and termination of or default under certain material agreements as specified in the Orion Credit Agreement, that entitle the Agent and the lenders to cause the Company’s indebtedness under the amended Orion Credit Agreement to become immediately due and payable.
In exchange for the Secondary Facility Loan commitment, the Company will pay to the lenders an option premium of $1 million on the earlier of September 14, 2020 and the date of full repayment of all amounts drawn on the Secondary Facility Loans. Such option premium is fully earned on the Commencement Date and non-refundable and non-creditable thereafter, and is due and payable whether or not any draw is ever made under the Secondary Facility Loan commitment. Additionally, for each draw made on the Secondary Facility Loans, the Company must pay to the lenders an initial draw discount of 5% of the amount drawn. In the event that full repayment of all amounts drawn under the Secondary Facility Loans has not occurred within 6 months of the date of initial draw, the Company must pay to the lenders an additional draw discount in the amount of 10% of any amount outstanding under the Secondary Facility Loans as of such date. In the event that full repayment has not occurred within 9 months of the date of initial draw under the Secondary Facility Loans, the Company must pay to the lenders an additional draw discount in the amount of 20% of any amount outstanding as of such date. All of such draw discounts will be fully earned on the respective dates and non-refundable and non-creditable thereafter, and will be due on the earlier of the Secondary Facility Repayment Date and the date of full repayment of all amounts drawn under the Secondary Facility Loans.
In connection with the lenders making the commitment to make Secondary Facility Loans, the Company is providing additional collateral to the lenders by a pledge of all of the Company’s intellectual property assets. All liens on the Company’s intellectual property will be released upon full repayment of all amounts drawn on the Secondary Facility Loans or upon termination of the Secondary Facility Loan commitment if no amounts are drawn.
Under the amended Orion Credit Agreement, cash interest of 9.9% per annum will be paid quarterly on all outstanding amounts under the Secondary Facility Loans. In addition to the cash interest, payment-in-kind interest of 2.05% per annum will accrue which will be added to the outstanding principal balance under the existing Orion Facility, but will be paid quarterly in cash to the extent of available cash after payment of the Company’s operating expenses and the funding of certain reserves for payment of outstanding indebtedness to the State of Connecticut and Connecticut Green Bank. Any drawn amounts on the Secondary Facility Loans may be prepaid at any time without penalty.
The Company is required to prepay any draws on the Secondary Facility Loans in the event that the Company (i) issues or incurs any indebtedness (other than Permitted Indebtedness as defined in the Orion Credit Agreement) (“Debt”) or (ii) issues or sells any capital stock or any option, warrant or other instrument, security or right that is convertible into or exercisable or exchangeable for capital stock (“Equity”), by applying 100% of the net proceeds of any such Debt issuance and 50% of the net proceeds of any such Equity issuance to pay down the outstanding amounts under the Secondary Facility Loans.
Termination of At Market Issuance Sales Agreement
On June 5, 2020, the Company provided written notice to B. Riley FBR, Inc. of the Company’s determination to terminate the At Market Issuance Sales Agreement, dated October 4, 2019, effective as of 5 p.m. Eastern Time on June 12, 2020.
30