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Specialized Technology Resources, a maker of solar equipment, files for $300M IPO
Jeremy Jacquot | August 1st, 2008

Specialized Technology Resources (STR) Holdings, an Enfield, Conn.-based manufacturer of solar cell encapsulants, has filed for an IPO that could be worth as much as $300 million in common stock. It plans to trade on the NYSE under the ticker symbol “PVS”; Goldman Sachs and Credit Suisse will serve as its co-lead underwriters.

Founded in 1945, the company sells Photocap encapsulants, protective sheets for solar cells that are typically made of glass, to many of the world’s leading solar module makers, including First Solar, SunPower, United Solar, Solarwatt and BP Solar. STR claims its proprietary “User-Friendly” (UF) technique makes encapsulants with zero shrinkage during the lamination process. This allows for higher throughput, it says.

Its encapsulants undergo rigorous testing to ensure they can withstand the harshest environments, and STR says they are some of the most long-lived in the industry. The company currently has four factories in operation; its fourth factory, launched last year, specialized in the production of systems for emerging photovoltaic (PV) applications.

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Company History
Specialized Technology Resources, Inc.

Two of the world's most prominent polymer scientists joined together in 1945 to create the first dedicated plastics research and development firm in the United States. John M. DeBell and Henry M. Richardson located their company in the Hazardville section of Enfield, Connecticut, USA. The company rapidly gained a reputation for innovation of engineered compounds and technical service for the burgeoning plastics industry. DeBell & Richardson. Inc. created and patented dozens of plastics commonly in use today.

In 1972, then President Robert C. Springborn purchased DeBell & Richardson. Inc. and broadened the scope of the company to include testing, analysis and quality assurance. The areas of expertise for these endeavors were chemicals and plastics, electrical / electronics and consumer merchandise. The new expanded company, Springborn Laboratories, became a leader in the quality assurance and consumer products testing market while continuing to provide expert plastics research and development services to a variety of internationally known clients.

In 1975, that vast knowledge base in polymeric materials was called upon to create the company's most important innovation - the development of encapsulants for terrestrial photovoltaic modules. The original PV encapsulant development program, having a duration of more than a decade, evaluated hundreds of polymeric materials and modifier combinations, and included years of advanced weathering studies.

The outcome of the program was clear: modified ethylene vinyl acetate copolymer (EVA), represented the very best combination of performance and cost, easily besting other materials including silicones, urethanes, acrylics, PVB's, ionomers, etc.

In the early 1980's, the demand for its EVA became so strong that the company, then known as Springborn Testing and Research (STR), decided to make a significant commitment to the expansion of its pilot manufacturing operation, investing in production-scale equipment and infrastructure.

As a result of the knowledge base acquired through the development of the material in its own laboratories and testing facilities, STR found its ability to provide technical service to solar start-ups as much in demand as its encapsulant products.

In the early 1990's, STR (with an updated name: Specialized Technology Resources, Inc.) increased capacity once again and continued its refinement of EVA-based PV encapsulants, launching products with unsurpassed long term photo-thermal stability, faster curing capability, and dimensional stability.

In 2002, STR formed the Spanish company Specialized Technology Resources España, S.A., (STRE) in Asturias, Spain, to better serve its growing customer base in Europe. In June of 2004, STRE officially commenced production, and began planning the addition of its second production line just two months later.

Also during the early 2000's, STR polymer scientists were busy developing still more advanced formulations and product configurations, including ultra fast curing encapsulants and multilayer products such as EVA/backsheet and EVA/cover film.

STR acquired Conplex, Inc. in St. Augustine, Florida in January of 2005, subsequently converting the company to a dedicated PV encapsulant manufacturing operation and renaming it Specialized Technology Resources Florida, Inc.

In 2006, STR completed the addition of its second production line at STRE and began preparations for a third line there by purchasing the neighboring property, commencing a building expansion to double the size of the facility, and ordering its largest and most advanced production line to date.

In 2007 STR launched its fourth factory in Somers, Connecticut, USA. This factory is dedicated to the production of multilayer constructions for emerging PV applications.

STR is passionately committed to continue the scientific advancement of PV encapsulants, and the efficient and timely delivery of these products to its global customer base.

STR wishes to acknowledge its loyal and valued customers, large and small – it is an honor and pleasure to serve you.

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PROSPECTUS SUMMARY

This section summarizes key information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. You should carefully review the entire prospectus, including the risk factors, the consolidated financial statements and the notes thereto, and the other documents to which this prospectus refers before making an investment decision. We are currently organized as STR Holdings LLC, a Delaware limited liability company. Immediately prior to the consummation of this offering, STR Holdings LLC will convert from a Delaware limited liability company to a Delaware corporation, to be called STR Holdings, Inc., and each of the unitholders of STR Holdings LLC will become a stockholder of STR Holdings, Inc. We refer to the foregoing as our corporate reorganization. Unless the context requires otherwise, references in this prospectus to "STR,""we," "us," "our company" or similar terms refer to STR Holdings, Inc. and its subsidiaries, giving effect to our corporate reorganization. Unless otherwise indicated, references to our solar manufacturing and production capacity are to annual capacity.

Our Company

We are a global leader in each of our businesses: solar power module encapsulant manufacturing and consumer product quality assurance. Our solar business is a leading global provider of encapsulants, which are specialty extruded sheets and film which hold the solar module together and protect the semiconductor circuit of a solar panel. Encapsulants are a critical component used in solar modules. We supply solar module encapsulants to many of the major solar module manufacturers, including BP Solar, First Solar, Inc., Solarwatt AG, SunPower Corporation and United Solar Ovonic LLC. We believe we were the primary supplier of encapsulants to each of our top 10 customers in 2007, which we believe is due to our superior product performance and customer service. Our encapsulants can be used in both crystalline and thin-film solar modules. Our solar net sales have increased from $9.9 million in 2003 to $78.6 million in 2007, representing a compound annual growth rate, or CAGR, of 67.9%.

Our quality assurance business is a leader in the consumer products quality assurance market, and we believe our quality assurance business is the only global testing services provider exclusively focused on the consumer products market. Our quality assurance business provides inspection, testing and audit services that enable retailers and manufacturers to determine whether products and facilities meet applicable safety, regulatory, quality, performance and social standards. Our quality assurance net sales have increased from $66.5 million in 2003 to $95.4 million in 2007, representing a CAGR of 9.4%.

Our Solar Business

Our solar business is a leading global provider of encapsulants, which are specialty extruded sheets and film which hold a solar module together and protect the semiconductor circuit of a solar panel. We, in conjunction with the U.S. government, were the first to develop the original ethylene-vinyl-acetate, or EVA, encapsulants used in commercial solar module manufacturing, and we have sold our EVA encapsulants commercially since the late 1970s under our trademark PhotoCap. We have continually improved our encapsulants, and we have developed many significant innovations since we first commercialized our encapsulants, including encapsulants that maintain their dimensional stability and ultra-fast curing formulations. Our encapsulants can be used in both of the prevailing solar panel technologies, crystalline and thin-film, and are valued by our customers because they maintain their size and shape throughout the solar module manufacturing process, have fast curing times and have demonstrated long-term stability. These attributes are critical to solar module manufacturers, which typically provide 20- to 25-year warranties of the performance of their solar modules and continually seek to maximize manufacturing yield and optimize efficiency. Despite the critical nature of encapsulant to solar cell applications, the encapsulant represents a small percentage of the overall manufacturing cost of the total solar module.

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STR Holdings LLC (Holidngs) is engaged in solar power module encapsulant manufacturing and consumer product quality assurance. Its solar business provides encapsulants, which are specialty extruded sheets and film, which hold the solar module together and protect the semiconductor circuit of a solar panel. Encapsulants are a critical component used in solar modules. Holdings’ quality assurance business provides testing services exclusively focused on the consumer products market. The Company and its wholly owned subsidiary, STR Acquisition, Inc. (STR Acquisition) were created to acquire Specialized Technology Resources, Inc. (STRI) and its subsidiaries. STRI was acquired on June 15, 2007 through a transaction with STR Acquisition, which was accomplished through the merger of STR Acquisition with and into STRI with STRI being the surviving corporation.

Holdings’ has over 10 commercial encapsulant formulations. It develops its formulations internally and in conjunction with its customers to meet their varying requirements. Its encapsulant formulations offer a range of properties and processing attributes, including various curing times and temperatures that align with the requirements of its customers' lamination processes and module constructions. The Company’s formulations can be used in both crystalline and thin-film modules, except that it has developed a non-EVA encapsulant specifically for thin-film solar modules.

Solar

The Company’s solar customer base comprises over 50 solar module manufacturers. The Company supplies solar module encapsulants to many of the major solar module manufacturers, including BP Solar, First Solar, Inc., Solarwatt AG, SunPower Corporation and United Solar Ovonic LLC. Its encapsulants can be used in both crystalline and thin-film solar modules. Operations for its solar segment are housed in four locations, three in the United States and one in Spain. During the year ended December 31, 2007, the Company sold approximately 1,065 megawatts (MW) of solar module equivalent of encapsulant worldwide, of which 561 MW were produced at its three facilities in the United States and approximately 504 MW were produced at its facility in Spain.

Quality Assurance

The Company’s quality assurance business provides inspection, testing and audit services that enable retailers and manufacturers to determine whether products and facilities meet applicable safety, regulatory, quality, performance and social standards. It has a client base, serving over 5,000 clients during 2007. The Company has developed a network of 19 laboratories, 65 inspection and audit offices and 20 sales offices in 35 countries across North America, South America, Europe, Asia and Africa. In addition, it has approximately 30 accreditations and memberships.

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Jury Slaps STR
Ruling may expose solar supply company to greater competition, affect its IPO

By Jason Millman

[e-mail]

09/08/08

HBJ file photo

STR is a key supplier to several of the industry's leading producers of solar panels, like those shown above.

An Enfield solar supply company that plans a $300 million initial public offering lost an intellectual property case in a Massachusetts court last week, raising new questions about its vulnerability to competitors that seek to use its technology.

A Superior Court jury in Northampton, Mass., rejected claims by STR Holdings that a former employee working for a rival misappropriated trade secrets in developing an encapsulant that shields solar modules from weather damage.

STR Holdings, which employs 1,700 Specialty Technology Resources Inc. employees at facilities in the United States and Spain, said the ruling “will not have a material impact on our business.”

But in its registration statement filed with the Securities and Exchange Commission July 31, the company had warned that a negative ruling in the case could expose it to greater competition, saying: “The outcome of this litigation is unknown and, if we are unsuccessful, competitors may be legally entitled to use certain proprietary technologies that have historically given us a competitive advantage in the marketplace.”

STR had filed suit against JPS Industries and former STR employee Jim Galica, claiming the South Carolina-based company misappropriated trade secrets in developing its own encapsulants, which were introduced in 2006, a year after Galica left STR to join JPS.

The jury ruled that a misappropriation of trade secrets had not occurred. The verdict not only opens the door for an immediate competitor, but also underscores STR’s lack of patent protection and heavy reliance on trade secrets, as cited in its SEC documents.

STR acknowledged in its registration statement any breaches in its trade secrets may “undermine our competitive position,” and further legal actions to defend them “may be protracted and expensive.”

The legal setback will force STR to answer tough questions from possible investors on the doorstep of its IPO, said Scott Sweet, managing director of IPO Boutique, an investment analyst firm that specializes in companies about to go public.

“The investors are going to ask, now that you’ve lost this case, what are you going to do to remedy the situation?” Sweet said. “The company’s probably going to say that it’s not a catastrophic setback and that they’ve already been planning for a possible loss.”

The jury’s ruling should not have an immediate effect on the IPO because most investors were probably already aware of the litigation, said Stephen Simko, a Morningstar analyst who tracks the company. For now, STR is still in a good position to dominate the encapsulant market, Simko said. He noted that the company believes it is the primary supplier to its top 10 customers, according to its SEC filing.

That isn’t likely to change any time soon, Simko said, but the lawsuit may complicate the company’s long-term prospects because they are likely to face more competition, he added.

“You’re still looking at some pretty significant short-term growth,” he said. “A couple of years down the road, who knows what the competition will be out there.”


Supplier to First Solar

Encapsulant sales for STR were $78.6 million last year, up from $9.9 million in 2003. The company said it expects production to more than double after it opens a new facility in Malaysia. Due to open in the fourth quarter, the new facility will directly supply First Solar, a major customer and industry leader.

Aside from producing encapsulants, STR also operates a quality assurance business, which accounted for $95.4 million in net sales in 2007, up from $66.5 million in 2003.

The company said the quality assurance segment is also vulnerable to competition because it relies primarily on trade secrets, trademarks, copyrights and other contractual restrictions to protect its intellectual property.

In a statement issued last Thursday, the company said, “It should be noted that the jury ruled that STR has successfully proved that its ‘UF Process’ for making non-shrinking encapsulants is a valid trade secret according to the stringent requirements of Massachusetts law. As such, STR will continue to enjoy use of its trade secret technology, and there will be no interruption of supply of UF products to its customers.

“We are reviewing our legal options, and look forward to the judge’s consideration of our pending claim under the unfair trade practices statute.”

Charles R. Tutterow, executive vice president and chief financial officer of JPS and president of Stevens(R) Urethane, the JPS unit that developed the encapsulants in question, said of the jury’s ruling, “This clearly vindicates Stevens(R), and most importantly, Jim Galica personally.”

STR Holdings was acquired last year by DLJ Merchant Banking Partners IV and other investors, including members of the company’s management team. After its IPO, the company expects to trade on the New York Stock Exchange under the symbol PVS.

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