Evergreen Solar's capped call transaction for 4% convertibles complicated by Lehman bankruptcy

By Angela McDaniels

Tacoma, Wash., Sept. 15 - Evergreen Solar, Inc. is considering how best to maintain the intent of the capped call transaction it entered into with Lehman Brothers OTC Derivatives Inc. in connection with its $373.75 million 4% senior convertible notes due 2013.

The company made the announcement after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy on Monday.

Lehman Brothers Inc. was the lead underwriter for the convertibles, and Evergreen Solar entered into the capped call transaction with Lehman Brothers OTC Derivatives to reduce the dilutive effect the convertibles would have upon conversion.

The conversion price is $12.11 per share, but the capped call transaction effectively increases the conversion price to $19.00 per share, according to a company news release.

The company said it has paid about $39.5 million for the capped call transaction to date. Evergreen Solar is working with several investment banks to determine the best course of action.

When it issued the convertibles in July, the company also entered into a common stock lending agreement under which it loaned 30.9 million shares to Lehman Brothers International (Europe). The shares must be returned before the convertibles mature, and until that time, the shares are considered to be issued and outstanding for corporate law purposes.

However, Evergreen Solar said it will continue to consider the shares not outstanding for the purpose of computing and reporting per-share results until it has more information regarding Lehman's bankruptcy proceedings and can properly assess whether Lehman Brothers International (Europe) will be able to return the borrowed shares.

"The agreements in question are with affiliates of Lehman Brothers Holdings Inc. that have not filed for bankruptcy protection and are structured to provide Evergreen Solar with as much legal protection as is customarily available in transactions such as these," Evergreen Solar chief financial officer Michael El-Hillow said in the release.

"While the ultimate impact of the situation is expected to unfold over the next few months, we are availing ourselves of all legal remedies to protect our company and its shareholders in this very fluid situation," he said.

"The majority of our cash and short-term investments are held by Silicon Valley Bank, our corporate commercial bank. We also have funds on deposit with two international commercial banks. We have sufficient cash to complete our 160 MW Devens facility and support our other operating needs as we drive to profitability in 2009."

Evergreen Solar is a Marlboro, Mass.-based producer of String Ribbon solar power products.

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