OPEL Solar International Inc.
TSX VENTURE : OPL

OPEL Solar International Inc.
ODIS Inc.

ODIS Inc.

March 02, 2011 10:23 ET

OPEL Announces Third Party Valuation of its POET Technology

Third Party Valuation of POET Technology over $1 Billion

SHELTON, CONNECTICUT--(Marketwire - March 2, 2011) - OPEL Solar International Inc. ("OPEL" or "the Company") (TSX VENTURE:OPL) announced today that it is in receipt of a third party valuation of intellectual property developed by its U.S. affiliates OPEL, Inc. and ODIS Inc. The Planar Opto Electronic Technology ("POET"), initially developed by Dr. Geoffrey Taylor at the University of Connecticut and licensed to OPEL, Inc., is a semiconductor fabrication technology that enables the dense packing of digital, analog, and optical circuits on a single gallium arsenide chip. The technology now makes it possible to monolithically integrate a wide number of electronic and optoelectronic functions in a single chip with higher speeds and reduced power consumption compared to Silicon CMOS. For the same functionality, the chip size would be considerably reduced to approximately the size of half a person's thumb nail.

OPEL commissioned a valuation analysis of the POET Technology portfolio ("POET Technology") by an independent, third party valuation firm, Pellegrino & Associates, LLC. The Pellegrino firm performed an analysis of the uses of the POET Technology, the sales it could achieve in its targeted end-markets and likely margins if OPEL can complete its research and development activities successfully and the market adopts the POET Technology. Using a number of valuation techniques and based on technical information provided to it by the Company, the valuation firm has estimated that the POET Technology portfolio could be worth as much as approximately $1 billion. This worth is derived from a range of values; the median value being $966.6 million, while the mean valuation was reported at $1.31 billion.

Using the income approach to value, Pellegrino & Associates, LLC built a valuation model to determine the economic income that might be possible from the potential exploitation of the POET Technology in several prospective markets. Pellegrino & Associates, LLC used market data, revenue projections, investment data, and cost data as from various sources, including from ODIS representatives, to determine the economic income attributable solely to the POET Technology. Pellegrino & Associates, LLC then integrated the information into a valuation model, accounting for the economic life of the POET Technology. Pellegrino & Associates, LLC performed a royalty rate analysis to determine what the market may bear as a reasonable royalty rate for the exclusive use of the POET Technology. Pellegrino & Associates, LLC developed a risk-adjusted discount rate to discount forecast future free cash flows to determine a nominal value indication as of the appraisal's effective date.

To account for the uncertainty inherent in the valuation process, Pellegrino & Associates, LLC captured the complex model interactions in the face of uncertain estimating assumptions using Monte Carlo simulation techniques. This did not constrain the valuation model to any single value predictions of key values such as royalty rates or costs. Pellegrino & Associates, LLC programmed the valuation model to recalculate repeatedly to create a distribution of outcomes that Pellegrino & Associates, LLC analyzed. Pellegrino & Associates, LLC used the range of values calculated by the model to come to a final determination. In complex situations that involve uncertainty, this methodology helps to generate meaningful estimates that would otherwise be impossible to model using discrete methods such as best-, expected-, and worst-case modeling. Pellegrino & Associates, LLC used the median value from this simulation process as the fair market value for the POET Technology. The Company will post a copy of a redacted version of the valuation on its website at www.opelinc.com, as well as on SEDAR at www.sedar.com, concurrent with the dissemination of this press release. Disclosure of certain information in the valuation would be seriously prejudicial to the interests of the Company and its shareholders, or would violate confidentiality provisions with third parties, and has been omitted or marked to be unreadable. The redactions have been done by the Company and Pellegrino & Associates, LLC. The omitted information is that information necessary to protect important proprietary and technical information of the Company and third parties, including Pellegrino & Associates, LLC, and to protect against competitor infringement. Canadian Securities Administrators National Instrument 52-103 provides that a reporting issuer that discloses material forward-looking material information must include disclosure that states the material factors or assumptions used to develop forward-looking information. As a consequence of the redactions, Pellegrino & Associates, LLC has provided a detailed memorandum which sets out the key assumptions they used in the construction of their valuation models. The memorandum is attached as a schedule to this press release and should be read in conjunction with the redacted valuation which contains important information concerning the methodology of the valuation and the credentials of Pellegrino & Associates, LLC.

It is important to note that a third party valuation is not an indication of interest by any party, nor does it represent an actual offer to purchase the POET intellectual property. As indicated in the report, the POET Technology is still under development, and no assurances can be given that such development will be successfully completed, that the technology will be brought to commercial realization or that the Company's target markets will adopt this technology. Commercial applications of the technology will likely not be available for several years, if ever.

The fair market value estimate in the appraisal report does not necessarily reflect the actual price that OPEL could realize from a true sale of its technology in a real market. Rather, the valuation reflects the notional value of the technology in an assumed market. This assumed market considers, among other things, the historic and prospective value of the technology in light of the associated business risk. The notional value does not include possible synergistic benefits or economies of scale that might accrue to the potential purchaser not already captured in the report. The notional value was also derived utilizing various assumptions and estimates relating to growth, establishing new markets, expansion into new markets and related plans other than statements of historical fact, which are forward-looking statements subject to a number of uncertainties that could cause actual value to differ materially from the third party valuation. Pellegrino & Associates makes no representations or assurances as to the Company's plans or ability to effect any planned and/or proposed actions. Furthermore, Pellegrino & Associates derived its valuation based on certain technical information provided by the Company and related sources believed by the valuation firm to be reliable, but the valuation firm did not undertake an independent verification of the accuracy and completeness of this information, and no representation, expressed or implied, is made as to its accuracy, completeness or correctness. Pellegrino & Associates is not an investment advisor, and its report is not investment advice.

In the real market, the technology could generate as many prices as there are buyers in the market, with each buyer having the ability to pay its own specific price based on its own specific set of circumstances. In the end, the final price will be the result of a set of negotiations between buyers and sellers that the valuation firm could not ascertain or forecast for the purpose of its engagement. However, Pellegrino & Associates did test its value conclusions to ensure that there was a reasonable economic basis for its value opinion.

Pellegrino & Associates prepared its report in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP") adopted by the Appraisal Standards Board of the Appraisal Foundation, and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. OPEL paid Pellegrino & Associates a flat fee for its analysis that was in no way contingent on achieving any predetermined value conclusion. Further, Pellegrino & Associates has no current or contingent interest in OPEL and has no duty to update its analysis to account for subsequent events.

The Board of Directors of OPEL engaged Pellegrino & Associate in order to assess the potential for the POET Technology and is considering alternatives to realize the full value of the POET Technology. On February 28, 2011, the Board of Directors passed all of the necessary resolutions to authorize the sale of the POET intellectual property portfolio. Currently, the Board of Directors is evaluating proposals from investment banking firms specializing in this technology regarding an engagement to consider strategic alternatives for OPEL's future exploitation of the POET Technology, which may include the full or partial sale of the technology.

OPEL will host a conference call to discuss the valuation, strategic alternatives and the POET Technology. The call will occur on Friday, March 4, at 11:00 AM Eastern Standard Time. Interested parties can participate by calling 1-888-510-1765, which is toll free in Canada and the U.S. (Other International callers can dial 1- 719-457-2624, which is not toll free.) The call will also be webcast, and can be accessed at http://viavid.net/dce.aspx?sid=00008205. A replay of the call will be available on the OPEL website, in the Investor Relations section, for one year after the call.

Leon M. Pierhal, Chief Executive Officer of OPEL, elaborates, "We are extremely proud and excited about the work we are doing on the POET Technology. We control a revolutionary technology that we think can fundamentally alter the landscape of the server, smart-device and computing industries. Never before has one chip been able to integrate both electronic and optical circuits. By combining them in one part, we believe we can eliminate the inefficiency and cost burden on systems that must use separate chips for each function. These cost savings and performance improvements can be immense, potentially transforming the whole industry."

Background on POET Technology

Known as the Planar Opto Electronic Technology ("POET"), POET fulfills a long-held objective of the semiconductor industry, bypassing many of the physical limits of existing semiconductor technologies. Key benefits of the POET platform include faster semiconductor operating frequencies-- up to 100GHz-- lower heat losses, greater reliability, and total system cost. All components of the technology have been validated by third parties, and the Company expects to have a fully integrated, operational chip within months. The technology is protected by numerous U.S. and international patents issued and pending.

ODIS personnel are working with leading defense systems integrator companies and with military and government agencies to develop important applications for the technology. With partners, ODIS is developing infrared arrays for imaging, optoelectronic switches, compact ultra-low power memory, optical CDMA communications chips, and radio frequency detection arrays. The Company believes that POET has numerous applications in computing and communications technologies, and it will fundamentally alter the landscape of those industries with heretofore unattainable functionality and price/performance.

About OPEL Solar International Inc., OPEL, Inc. and ODIS Inc.

With operations headquartered in Shelton, CT and the head office in Toronto, Ontario, Canada, the Company, through OPEL, Inc., designs, manufactures and markets high performance concentrating photovoltaic ("HCPV") panels to transform solar energy into electricity for worldwide application. OPEL's high performance photovoltaic concentrating panels generate up to 40% more kilowatt-hours than conventional flat plate silicon solar panels, resulting in more cost effective electricity generated from the sun. OPEL also markets a complete line of dual and single axis solar trackers to mount either HCPV or flat solar panels for the optimum power output. The Company, through ODIS Inc., a U.S. company, designs infrared sensor type products for military, consumer, industrial and commercial applications. ODIS continues to develop gallium arsenide-based processes and semiconductor microchip products having several potential major market applications: infrared sensor arrays for Homeland Security monitoring and imaging along with the unique combination of optical lasers, and electronic control circuits on the same microchip for potential applications in various military programs and potentially telecom for, Fiber to The Home.

A leader in gallium arsenide and solar concentrating photovoltaic technology, the Company has been awarded 33 patents and has 17 more patents pending, including those related to POET. OPEL's common shares trade on the TSX Venture Exchange under the symbol "OPL". For more information about OPEL, please visit the Company's website at www.opelinc.com.

Dated: March 2, 2011

ON BEHALF OF THE BOARD OF DIRECTORS

(Signed)

Michel Lafrance, Secretary

This news release contains "forward-looking information" (within the meaning of applicable Canadian securities laws) and "forward-looking statements" (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995). Such statements or information are identified with words such as "anticipate", "believe", "expect", "plan", "intend", "potential", "estimate", "propose", "project", "outlook", "foresee" or similar words suggesting future outcomes or statements regarding an outlook. Such statements include, among others, those concerning OPEL's anticipated operational plans and activities including the revenue and growth outlook.

Such forward-looking information or statements are based on a number of risks, uncertainties and assumptions which may cause actual results or other expectations to differ materially from those anticipated and which may prove to be incorrect.

The valuation report prepared by Pellegrino & Associates, LLC is subject to certain contingent and limiting conditions, including the following:

  • Valuations are based on future earnings potential that may or may not materialize. Therefore, the actual results achieved during the projection period will likely vary from the projections utilized in this valuation, and the variations may be material; and
  • Some assumptions invariably will not materialize, and unanticipated events and circumstances may occur. Therefore, the actual performance in any areas forecasted will vary from what was forecasted, and the variations may be material.

Although OPEL believes that the expectations reflected in the forward-looking information or statements are reasonable, prospective investors in OPEL's securities should not place undue reliance on forward-looking statements because OPEL can provide no assurance that such expectations will prove to be correct. Forward- looking information and statements contained in this news release are as of the date of this news release and OPEL assumes no obligation to update or revise this forward-looking information and statements except as required by law. Canadian continuous disclosure requirements provide that a reporting issuer must discuss in its MD&A events and circumstances that occurred during the period to which the MD&A relates that are reasonably likely to cause actual results to differ materially from material forward-looking information for a period that is not yet complete that the reporting issuer previously disclosed to the public and the expected differences. However, the reporting issuer may disclose such information in a press release(s) before the filing of such MD&A if the MD&A appropriately identifies such news release(s).

SCHEDULE "A"
 
February 25, 2011
 
Mr. Lee Pierhal
ODIS, Inc.
Three Corporate Drive, Suite 204
Shelton, CT 06484

Dear Mr. Pierhal:

In accordance with your request, the following are the key assumptions that we used in the construction of our valuation models.

General Key Valuation Assumptions

The following are key assumptions that are common to all of our valuation models:

  • It will take between 6 and 18 months for POET to pass through technical readiness level ("TRL"), making POET then desirable for licensing transactions.
  • All revenue models rely on technology licensing fees; thus, there is no cost of goods sold
  • ODIS will incur cumulative nominal monthly expenses that current grant revenues satisfy.
  • The nominal discount rate for future cash flows is 32.04%
  • The base target rate of return used for the discount rate determination is 23.98%.
  • The success rate used for the discount rate determination is 25%.
  • The holding period used for the discount rate determination would reflect an investment of 22 years (i.e., ODIS is a strategic acquisition, not a financial acquisition).
  • The nominal remaining economic life for the technology is 22 years.
  • ODIS will incur a 40% nominal income tax rate.
  • ODIS will incur a 5% royalty payment to UCONN for the technology licensing.
  • ODIS will enjoy an average of 20 remaining years for statutory protection for POET patent portfolio.
  • A per-unit royalty would constitute 8.17% of the total value basis for the product.
  • Once deployed, it will take 48 months for penetration of the market to the nominal ending market share.
  • Product adoption will occur along a Fisher-Pry market adoption curve with a market shape of 0.2000

Defense Market Key Valuation Assumptions

The following are key assumptions that we integrated into the valuation model for the defense market:

  • ODIS will continue to receive annual revenues from Small Business Innovation Research (SBIR) grants and other awards, in accordance with a projected schedule provided by ODIS representatives
  • ODIS will likely license POET to one or all of the top ten defense contractors.
  • Each defense contractor's licensing decision is an equally probable binary outcome (i.e., they will either license it or not, each occurrence having equal probability).
  • Each defense contractor's licensing decision is independent of other defense contractors (i.e., we modeled no conditional licensing probabilities).
  • A time gap that ranges between 2 and 18 months exists that captures when each defense contractor considers executing a license.
  • The defense contractors would pay an initial, nonexclusive license fee that may range between $20 million and $50 million
  • Defense contractors would make monthly royalty payments thereafter of $250,000 to account for any product-specific royalties.

Commercial Market Key Valuation Assumptions

The following are key assumptions that we integrated into the valuation model for the commercial market:

  • The first market application for POET in the commercial market would be for general- purpose microprocessors for server computers.
  • The second market application for POET in the commercial market would be for general- purpose microprocessors for desktop computers.
  • The third market application for POET in the commercial market would be for general- purpose microprocessors for laptop computers.
  • ODIS will likely license POET to one or all of the top general computer microprocessor manufacturers on an exclusive basis.
  • In each target market, POET platform would nominally allow a manufacturer to capture its current nominal market share deploying it.
  • The server processor market would start at 6,939,877 annual units, growing at 0% per year.
  • Server processors would enter the market 48 months from the effective date of the valuation.
  • Server processors average $828.89 per unit, which would serve as a basis for a negotiated royalty payment.
  • Each server would require two processors.
  • The desktop processor market would start at 128,200,000 annual units, growing at 1.13% per year.
  • Desktop processors would enter the market 48 months from the effective date of the valuation.
  • Desktop processors average $93.22 per unit, which would serve as a basis for a negotiated royalty payment.
  • Each desktop would require one processor.
  • The laptop processor market would start at 231,900,000 annual units, growing at 12.43% per year.
  • Laptop processors would enter the market 48 months from the effective date of the valuation.
  • Laptop processors average $93.22 per unit, which would serve as a basis for a negotiated royalty payment.
  • Each laptop would require one processor.

Smartphone Market Key Valuation Assumptions

The following are key assumptions that we integrated into the valuation model for the smartphone market:

  • The POET platform would nominally allow a smartphone microprocessor manufacturer to capture its current nominal market share deploying it.
  • ODIS will likely license POET to one or all of the top smartphone microprocessor manufacturers on an exclusive basis.
  • The desktop processor market would start at 188,100,000 annual units, growing at 10.00% in Year 1, 18.18% in Year 2, 15.38% in Year 3, 13.33% in Year 4, 11.28% in Year 5, 9.23% in Year 6, 7.18% in Year 7, 5.13% in Year 8, 3.08% in Year 9, and 1.03% in Year 10.
  • Smartphone processors would enter the market 48 months from the effective date of the valuation.
  • Smartphone value creation averages $78.96 per unit, which would serve as a basis for a negotiated royalty payment.
  • Each smartphone would require one processor.

Should you have any questions regarding this memorandum, please feel welcome to contact me.

Very truly yours,

(Signed)

Mike Pellegrino

President

Pellegrino & Associates, LLC

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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