As filed with the Securities and Exchange Commission on April 1, 2002.
Registration No. 333--
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
ENVIRONMENTAL POWER CORPORATION
-------------------------------
(Name of registrant as specified in its charter)
Delaware 04-2782065
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
JOSEPH E. CRESCI
One Cate Street, Fourth Floor One Cate Street, Fourth Floor
Portsmouth, New Hampshire 03801 Portsmouth, New Hampshire 03801
(603) 431-1780 (603) 431-1780
----------------------------------- ---------------------------------------
(Address, including zip code, and (Name, address, including zip code, and
telephone number, including area code, telephone number, including area code,
of registrant's principal executive of agent for service)
offices)
With copies to:
Steven I. Himelstein
Dorsey & Whitney LLP
250 Park Avenue New York, New York 10177
Approximate date of commencement of proposed sale to the public: As soon
as practicable following the date on which the Registration Statement becomes
effective.
If any of the securities being registered on this form are offered as a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof pursuant to Item 11(a)(i) of
this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.[_]
CALCULATION OF REGISTRATION FEE
===================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of each class Amount to be offering price aggregate registration
of securities to be registered registered /(1)/ per share offering price fee /(5)/
------------------------------ ---------------- --------- -------------- ---------
Common Stock..................... 16,031,957 /(2)/ $0.52 $8,336,618 $767
Common Stock Underlying
Options.......................... 141,329 /(3)/ 0.52 73,491 7
Common Stock Underlying
Warrants......................... 821,170 /(4)/ 0.52 427,008 40
Total ........................... 16,994,456 Shares XXX $8,837,117 $814
===================================================================================================
/(1)/ In accordance with Rule 416, there are hereby being registered an
indeterminate number of additional shares of common stock which may be issued
as a result of the anti-dilution provisions of the options and warrants.
/(2)/ Registered for resale.
/(3)/ Registered for resale upon exercise of outstanding options.
/(4)/ Registered for resale upon exercise of outstanding warrants.
/(5)/ The registration fee that is being paid herewith was calculated in
accordance with Rule 457(c) and is based on the average of the bid and asked
prices of the registrants' common stock, as reported on the OTC Bulletin Board
on March 27, 2002.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed.
The selling shareholders may not sell their securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell the securities and it is not soliciting an
offer to buy the securities in any state where the offer or sale is not
permitted.
Subject to completion, dated April 1, 2001.
PROSPECTUS
ENVIRONMENTAL POWER CORPORATION
16,994,456 shares of common stock
This prospectus describes the registration of 16,031,957 shares of
common stock, 141,329 shares of common stock issuable upon the exercise of
outstanding options and 821,170 shares of common stock issuable upon exercise
of outstanding warrants. We will be issuing, in private transactions, the
shares of common stock issuable upon exercise of the options and warrants.
We do not know if any or all of the options or warrants will be
exercised. The selling shareholders will have to exercise the options and
warrants in order to publicly sell the underlying shares of common stock that
are offered for resale in this prospectus.
The common stock is quoted for trading on the OTC Bulletin Board under
the symbol "POWR." The address of our principal executive offices is One Cate
Street, Fourth Floor, Portsmouth, New Hampshire 03801 and our telephone number
is (603) 431-1780.
Investing in the common stock involves certain risks. See "Risk
Factors" commencing on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is ________, 2002.
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TABLE OF CONTENTS
RISK FACTORS 3
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS 14
USE OF PROCEEDS 15
SELLING SHAREHOLDERS 15
PLAN OF DISTRIBUTION 23
DESCRIPTION OF SECURITIES 24
DOCUMENTS INCORPORATED BY REFERENCE 25
WHERE CAN YOU FIND ADDITIONAL INFORMATION 26
LEGAL MATTERS 26
EXPERTS 26
INDEX TO PRO FORMA FINANCIAL INFORMATION AND MICROGY
FINANCIAL STATEMENTS 27
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RISK FACTORS
An investment in our common stock is speculative and involves a high
degree of risk. You should purchase the common stock only if you are
sophisticated in financial matters and business investments. You should
carefully consider the following factors before purchasing our common stock.
Microgy Cogeneration Systems, Inc., a company that we recently acquired, has
very little operating history from which to evaluate its business and products.
Microgy was formed in 1999 and is still in the development stage.
Microgy intends to develop facilities which use environmentally friendly
anaerobic digestion and other technologies to produce bio-energy from animal
and organic wastes. Because a large part of our future business is anticipated
to involve Microgy's bio-energy projects, your investment decision will likely
be based in large part on an enterprise with very little operating history upon
which to judge. We are unable to determine whether our investment in Microgy
will prove to be financially advantageous.
Microgy has experienced losses to date and we anticipate it will continue to
experience losses in the foreseeable future.
Microgy had accumulated losses of approximately $2.3 million through
December 31, 2001. We expect our Microgy subsidiary to continue to incur
losses, reduce our earnings or, as the case may be, add to our earnings deficit
as we seek to develop its business. These ongoing losses will likely adversely
affect our financial condition into the foreseeable future.
We have not completed our plans for deployment of our anaerobic digester
technology and therefore, cannot predict its related costs or outlook for
profitability.
The strategic implementation planning necessary to determine our
course of action for deployment of our anaerobic digester technology has not
been completed. Accordingly, no decision has been made as to whether we will
sell, install and operate, or develop and own the related facilities. In
addition, we do not have experience in, or a basis for, predicting the general
and administrative and other costs associated with developing anaerobic
digester facilities. Because of this we are unable to determine when or if
these facilities will generate a profit. If the organizational, structural,
staffing and other overhead costs associated with the anaerobic digester
facilities outstrip any profits, the value of your investment will be adversely
affected.
If we are unable to obtain needed financing for Microgy's anaerobic digestion
bioenergy projects, the valuation of our Microgy investment may be reduced
significantly.
We are considering corporate, project and group financing to fund the
cost of any development we may decide to pursue for our anaerobic digestion
bioenergy projects. In such event, we are likely to require financing with more
favorable rates and terms than are generally available and such financing may
be difficult to obtain. If we are unable to obtain such
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financing, our initial valuation of our Microgy investment may be reduced
significantly, and we may be required to substantially curtail our business or
close any anaerobic digester projects. This financing will depend on the
lender's or investor's review of the financial capabilities of us as well as
specific project or projects and other factors, including their assessment of
our ability to successfully construct and manage the project.
Microgy's technologies could become obsolete before commercial deployment,
reducing the value of your investment.
We do not expect to commercially deploy Microgy's licensed anaerobic
digestion bioenergy technologies until we further develop Microgy's business
plan, decide on project structures and arrange necessary financing. Current
solutions or solutions that may be developed in the future by competitors could
make our anaerobic digestion bioenergy technologies obsolete before they are
commercially deployed. Accordingly, we cannot guarantee that our technologies
will ensure a competitive position within the marketplace in the future. If we
are unable to obtain a competitive position in the agricultural and alternative
power generation markets, the value of your investment will be reduced.
If we experience delays in obtaining the technical information and specifics
needed to build our licensed anaerobic digester technologies, our business
could be harmed and the value of your investment could be reduced.
The company from which we license intellectual property regarding our
anaerobic digestion bioenergy products still holds trade secret and other
proprietary information that is important to us. In the past, Microgy has
experienced delays in obtaining and completing information necessary to
successfully develop anaerobic digester projects. The inability to readily
obtain this information from our licensor could delay our product offerings,
make them more expensive to bring to market and reduce the value of your
investment.
The market for anaerobic digester bioenergy technology is crowded and our
market share may not be sufficient to be profitable.
There are many companies that offer anaerobic digester systems. We
believe that at least 60 companies offer complete systems or components to
these systems in the U.S. market. The presence of these companies may dilute
our market share to a degree that we are not profitable.
We currently rely on the Scrubgrass Project for all of our operating revenue.
We own a 22 year leasehold interest that commenced in 1994 in our
Scrubgrass Project, a waste coal fired electric generating facility in
Pennsylvania. Because all of our operating revenue currently results from the
Scrubgrass Project, we are dependent on its successful and continued operation.
Significant unscheduled shutdowns or large increases in interest rates at
Scrubgrass could reduce our cash flow. This may necessitate a substantial
curtailment of our operations and require the termination of any anaerobic
digester projects and would have an adverse effect on our results of operations.
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We do not control the management of the Scrubgrass project, our primary revenue
generating asset.
We have a management services agreement with PG&E National Energy
Group to manage our Scrubgrass project and a 15-year operations and maintenance
agreement with PG&E Operating Services Company to operate the facility. Under
the terms of these agreements, there are provisions that limit our
participation in the management and operation of our Scrubgrass project.
Because we do not exercise control over the operation or management of our
Scrubgrass project, decisions may be made, notwithstanding our opposition, that
may have an adverse effect on our business.
Our current power generation revenue is derived from only one customer, the
loss of which would severely harm our financial condition and the value of your
investment
Our current Scrubgrass project power generation revenue is earned
under a long-term power purchase agreement with one customer, Pennsylvania
Electric Company, or Penelec. We expect that the concentration of our revenue
with this customer will continue for the foreseeable future. If this customer
goes out of business or defaults on its payments to us, our financial condition
will be adversely affected.
A large increase in interest rates may adversely affect our operating results.
Our Buzzard subsidiary is leveraged with variable rate and fixed rate
debt obligations. Should market interest rates rise significantly, our
operating results will be adversely impacted.
Our long term Scrubgrass project power purchase agreement is subject to market
conditions in its later years which may affect our profitability.
Our Scrubgrass project generates electricity that is sold at rates
established under a long-term power purchase agreement with Penelec, approved
by the Pennsylvania Public Utility Commission. Contracted rates in the later
years of the agreement are determined with reference to then existing market
conditions. Therefore, low wholesale energy rates during the later years of the
power purchase agreement would negatively impact our profitability and could
affect our financial position.
Payment terms on our Scrubgrass project will change in 2003 and, if our working
capital is not increased to satisfy the change, our cash available for other
uses will be significantly limited.
In 2003, the payment schedule on our power purchase agreement will be
modified to allow Penelec more time to pay us for the power that we produce.
This will reduce our working capital and could limit our ability to service our
debt or allocate resources to other projects.
5
Our technology for generating power from waste coal at our Scrubgrass project
is relatively new and unproven and its effectiveness and efficiency cannot be
anticipated.
Our Scrubgrass project employs circulating fluidized bed technology to
produce electricity. Certain aspects of this technology, as well as the
conversion of waste products into electricity, are relatively new concepts and
have only been in existence in the United State over approximately the last 20
years. In addition, the long-term costs and implications of maintaining this
technology have not been established by historical industry data. Accordingly,
this technology carries greater risk of failure than proven power generation
technologies with more established histories.
We are a small company and the entrance of large companies into the alternative
fuels and renewable energy business will likely harm our business.
Competition in the traditional energy business from electric utilities
and other energy companies is well established with many substantial entities
having multi-billion dollar multinational operations. Competition in the
alternative fuels and renewable energy business is expanding with growth of the
industry and advent of many new technologies. Larger companies, due to their
better capitalization, will be better positioned to develop new technologies
and to install existing or more advanced renewable energy generators, which
could harm our market share and business.
If we are unable to obtain sufficient waste resources our renewable energy
technologies will not likely operate profitably.
The performance of our renewable energy technologies is dependent on
the availability of certain waste resources to produce the raw energy and meet
performance standards in the generation of power or fuel. Lack of these waste
resources or adverse changes in the nature or quality of such waste resources
would seriously affect our ability to develop and finance projects and to
efficiently operate and generate income. In such circumstances, our revenue and
financial condition will be materially and negatively affected. We cannot be
sure that waste resources, will be available in the future for free or at a
price that make them affordable for our waste to energy technologies.
Our reliance on licenses, agreements and business alliances links our fate to
the fate of these businesses, of which we cannot predict or control.
We intend to rely on a network of various licenses, agreements and
alliances with other businesses to provide important technologies and services
for our businesses. Specifically, we rely on third party companies for the
operation and maintenance of our Scrubgrass project and for the technology
upon which we base our proposed anaerobic digester projects. The termination of
any of these or other material license, agreement or business alliance will
have a detrimental impact on the success of one or all projects or categories
of projects and negatively impact our revenue. We cannot predict or control the
fate of these other businesses on which we rely.
6
Because we have not filed patents to protect Microgy's intellectual property,
we might not be able to prevent others from employing competing products.
Conversely, others who have filed for patent or other protection might be able
to prevent us from employing our products.
Neither we nor, it is believed, our primary licensor have filed any
patent applications on the intellectual property Microgy plans to use. Should
we or our primary licensor decide to file patent applications, there can be no
assurance that any patent applications relating to our existing or future
products or technologies will result in patents being issued, that any issued
patents will afford adequate protection to us, or that such patents will not be
challenged, invalidated, infringed or circumvented. Furthermore, there can be
no assurance that others have not developed, or will not develop, similar
products or technologies that will compete with our products without infringing
upon, or which do not infringe upon, our intellectual property rights.
Third parties, including potential competitors, may already have filed
patent applications relating to the subject matter of our current or future
products. In the event that any such patents are issued to such parties, such
patents may preclude our licensors from obtaining patent protection for their
technologies, products or processes. In addition, such patents may hinder or
prevent us from commercializing our products and could require us to enter into
licenses with such parties. There can be no assurance that any required
licenses would be available to us on acceptable terms, or at all.
We rely heavily on confidentiality agreements and licensing agreements
to maintain the proprietary nature of our base of technologies relating to
currently licensed technologies. To compete effectively, we may have to defend
the rights to our intellectual property from time to time. The defense costs
can be significant. As such, we may lack the financial resources to adequately
defend our intellectual property.
Our license for microturbine technology is from a small company that has not
completed the development of the technology and is therefore of an uncertain
value.
Our Microgy subsidiary has entered into a license agreement for
applications of microturbine technology which is owned and being developed by
Electric Power International, Inc., which itself is a small company with limited
resources. Electric Power International has not yet completed development of the
microturbine technology and may not have the resources available to do so. As a
result, the value of this license agreement is of uncertain value.
The large amount of obstacles necessary to overcome for the development of
power projects increases the possibility that such projects will incur costly
delays.
In our development of power projects for ourselves or on behalf of our
customers, we will be required to enter into or obtain some or all of the
following:
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. site agreements;
. supply contracts;
. design/build or other construction related agreements;
. power sales contracts;
. various co-product sales agreements;
. waste disposal agreements;
. licenses;
. environmental and other permits;
. local government approvals; and
. financing commitments required for the successful completion of
development projects.
Our failure to accomplish any of these objectives could materially
increase the cost or prevent the successful completion of development projects
and incur the loss of any investment made. These events could adversely affect
our business and results of operations and the value of your investment.
System failure of our power generation projects will reduce our revenue.
Whether we have sold our facilities to customers or continue to own
them, our revenue and our performance under various agreements will depend on
the efficient and uninterrupted operation of our bioenergy plants and systems,
including automated control systems. Any system failure that causes
interruptions in our operations could have a material adverse effect on our
business, results of operations and financial condition. As we expand our
operations, there will be increased stress placed upon hardware and information
traffic management systems. There can be no assurance that we will not
experience system failures. In addition, our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins and similar events. Our systems and
operations will also face contamination due to the actions of farmers and
others who may have access to our sites. We do not presently have redundant
systems or a formal disaster recovery plan to mitigate the risk of losses that
may occur. There can also be no assurance that any business interruption or
property and casualty insurance that we would carry in the future would be
sufficient to compensate for any losses that may occur.
Scheduled and unscheduled shutdowns of our power generation projects will
reduce our revenue.
Our Scrubgrass Project and any future power generation projects we
develop will experience both scheduled and unscheduled shutdowns. Periodically,
power generation projects incur scheduled shutdowns in order to perform
maintenance procedures to equipment that cannot be performed while the
equipment is operating. Occasionally, our power generation projects may also
incur unscheduled shutdowns and be required to temporarily cease operation or
to
8
operate at reduced capacity levels following the detection of equipment
malfunctions, or following minimum generation orders received by the utility.
During periods when these projects shutdown or are operating at reduced capacity
levels, we may incur losses due to reduced operating revenue and due to
additional costs that may be required to complete any maintenance procedures.
Our power generation activites expose us to significant liability that our
insurance cannot cover.
Our power generation activities involve significant risks to us for
environmental damage, equipment damage and failures, personal injury and fines
and costs imposed by regulatory agencies. In the event a liability claim is
made against us, or if there is an extended outage or equipment failure or
damage at our power plant for which it is inadequately insured or subject to a
coverage exclusion, and we are unable to defend such claim successfully or
obtain indemnification or warranty recoveries, there may be a material adverse
effect on our financial condition.
Poor fuel and other materials quality will expose us to environmental liability
and reduce our operating results.
For our Scrubgrass project, we obtain waste coal primarily from coal
mining companies on a long-term basis because waste coal is plentiful and
generally creates environmental hazards, such as acid drainage, when not
disposed of properly. The waste coal is burned in the Scrubgrass project using a
circulating fluidized bed combustion system. During the circulating fluidized
bed combustion process, the waste coal is treated with other substances such as
limestone. Depending on the quality of the waste coal and the limestone, the
facility operator may need to add additional waste coal or other substances to
create the appropriate balance of substances which would result in the best fuel
or sorbent consistency for power generation and compliance with air quality
standards. Therefore, the cost of generating power is directly impacted by the
quality of the waste coal which supplies the Scrubgrass project. Certain
conditions, such as poor weather, can create situations where the facility
operator has less control over the quality of the waste coal. Poor fuel quality
may impact our future operating results.
The composition of effluents from our anaerobic digester facilities is not
certain and may expose us to liability.
We do not have experience in blending the wastes that will occur in
our anaerobic digester facilities. Such blends could result in unpredictable
regulatory compliance costs, related liabilities and unwanted materials in
waste effluents and coproducts, all of which could harm our financial condition.
9
Our sale of power into unregulated and retail markets will likely subject our
revenue to large swings or a prolonged depression of prices.
Electricity is a commodity available from a large amount of sources
with no pricing control. When we sell power under long term supply contracts or
into the unregulated wholesale and retail markets, we will be subject to very
competitive pricing pressures and market risks. Low energy rates would
negatively impact our profitability and could adversely affect our financial
condition.
Our products and services involve long sales cycles that result in high costs
and uncertainty.
The negotiation of the large number of agreements necessary to sell,
develop, install, operate and manage any of our facilities, as well as to
market the energy and other co-products and to provide necessary related
resources and services, involves a long sales cycle and decision-making
process. Delays in the parties' decision-making process are outside of our
control and may have a negative impact on our cost of sales, receipt of revenue
and sales projections. We estimate that it can take from six months to a year
or more to obtain decisions and to negotiate and close these complex agreements.
Because the market for renewable energy and waste management is unproven, it is
possible that we may expend large sums of money to bring our offering to market
and the revenue that we derive may be insufficient to fund our operations.
Our business approach to the renewable energy and waste management
industry may not produce results as anticipated, be profitable or be readily
accepted by the marketplace. We cannot estimate whether demand for our
bio-energy products will materialize at anticipated prices, or whether
satisfactory profit margins will be achieved. If such pricing levels are not
achieved or sustained, or if our technologies and business approach to the
energy industry do not achieve or sustain broad market acceptance, our
business, operating results and financial condition will be materially and
negatively impacted.
If we violate performance guarantees granted to Penelec we will be required to
provide them with an incentive payment.
Our agreement for the sale of power to Penelec contains a provision
that requires our Scrubgrass project to provide Penelec a certain percentage of
its average output over a given period of time. If we do not comply with this
performance guarantee, we will be required to compensate Penelec with an
incentive payment. The payment of an incentive payment would have an adverse
effect on our financial condition.
10
Our products and services will be subject to numerous governmental regulations.
We expect to provide services involving government regulation, which
will subject us to certain regulatory policies and procedures. Compliance with
these regulations could be costly and harm our financial condition. Many of
these regulations cover air and water quality and related pollution issues.
These regulations are mandated by the United States Environmental Protection
Agency and various state and local governments. More specifically, our
activities in anaerobic digestion and/or nutrient management related to animal
manure, and other wastes, as well as the air emissions and waste effluent
control from our facilities will involve a permitting process and other forms
of scrutiny from these agencies. In addition, our activities will fall under a
number of health and safety regulations and laws and regulations relating to
farms and zoning.
Our power producing activities could be subject to costly regulations and
tariffs.
Our Scrubgrass project and many of our planned bio-energy projects may
or do produce power for sale to the electric grid. As such, the sale of this
power may come under the regulations of various state public utility
commissions. These commissions set the price tariffs under which energy can be
sold or purchased and they set the design standards for the interconnection of
power producing equipment with the electric power grid. Most of our power
projects where electricity is sold to the grid will come under regulation by
these commissions. These regulations may impede or delay the process of
approving and implementing our projects. Substantial delays may materially
affect our financial condition.
Government regulations can be burdensome and may result in delays and
expense. In addition, modifications to regulations could adversely affect our
ability to sell power or to implement our chosen strategy for the sale of
power. Subsequent changes in the applicable regulations could also affect our
ability to sell or install new facilities or develop and install facilities in
an efficient manner or at all. Failure to comply with applicable regulatory
requirements can result in, among other things, operating restrictions and
fines which could harm our financial condition.
11
We depend on a small number of key executives and our business could suffer if
they were to leave.
We employ a small group of skilled individuals to accomplish our
goals. We believe our performance is substantially dependent on the continued
employment and performance of our senior management. Many of these individuals
are not currently subject to employment agreements or employee non-compete
agreements. If we fail to retain the services of one or more of these persons,
our business could suffer significantly. We do not maintain key-man insurance
on the life of any of our officers at this time.
Our plans to enter into the anaerobic digester market will require the
retention of skilled employees and contractors, the success of which cannot be
assured.
In order for us to enter into the anaerobic digester market we will be
required to hire and retain highly skilled employees and independent
contractors. It is anticipated that such persons will be difficult to locate
and engage. If we are not successful in hiring and retaining qualified persons,
our entrance into the anaerobic digester market will not likely be successful
and the value of your investment will be impaired.
Lack of trading market may make it difficult for you to sell our common stock.
The trading of our common stock is conducted on the OTC Bulletin Board
trading market. Trading activity in our common stock has fluctuated and has at
times been limited. We cannot guarantee that a consistently active trading
market will develop in the future, especially while we remain on the OTC
Bulletin Board. A holder of the common stock may find it difficult to dispose
of or to obtain accurate quotations as to the market value of our common stock.
Our common stock is defined as a "penny stock" by rules adopted by the
Securities and Exchange Commission. Brokers and dealers affecting transactions
in our common stock in many circumstances must obtain the written consent of a
customer prior to purchasing our common stock, must obtain information from the
customer and must provide disclosures to the customer. These requirements may
have the effect of reducing the level of trading of our common stock and reduce
the liquidity of your investment.
We have numerous outstanding options and warrants which may adversely affect
the price of our common stock.
As of December 31, 2001, we had outstanding options and warrants to
acquire up to approximately 1,542,499 shares of our common stock at prices
ranging from $0.43 to $3.08 per share. For the term of such options and
warrants, the holders thereof will have an opportunity to profit from a rise in
the market price of our common stock without assuming the risk of ownership.
This may have an adverse affect on the price of our common stock and on the
terms upon which we could obtain additional capital. It should be expected that
the holders of such options and warrants would exercise them at a time when we
would be able to obtain equity capital on terms more favorable then those
provided by the options and warrants.
12
The issuance of preferred stock may adversely affect the price of our common
stock which could cause a reduction in the value of your investment.
We are authorized to issue two million shares of preferred stock. The
preferred stock may be issued in series from time to time with such
designations, rights, preferences and limitations as our Board of Directors may
determine by resolution without shareholder approval. No shares of preferred
stock are currently outstanding and our directors have no current intention to
issue any new shares of preferred stock. However, the potential exists that
preferred stock might be issued which would grant dividend and liquidation
preferences over our common stock, diminishing the value of our common stock.
A significant sale of our outstanding restricted common stock into the market
could reduce the value of your investment.
A significant portion of our outstanding shares of common stock is
restricted from immediate resale but may be sold into the market in the near
future pursuant to this prospectus. This could cause the market price of our
common stock to drop significantly, even if our business is doing well. Any
reduction in the market price of our common stock would reduce the value of
your investment.
Management and directors will continue to control our management and affairs.
Assuming that no member of our management sells his shares in this
offering, management and directors will beneficially own approximately 70% of
our outstanding common stock. Consequently, such persons, as a group, may be
able to control the outcome of matters submitted for stockholder action
including the election of members to our board of directors and the approval of
significant change in control transactions. In addition, as a part of our
acquisition of Microgy we entered into a stockholder's agreement with the
principal former Microgy shareholders, Joseph E. Cresci and Donald A.
Livingston, in which it was agreed that such parties will vote their shares
through June 30, 2003 to cause the five existing directors (or replacements
designated by Messrs. Cresci and Livingston) to be elected to five out of eight
director positions and persons designated by Microgy's former principal
shareholders to be elected to three out of our eight director positions. This
may have the effect of delaying or preventing a change in control.
An active market for the common stock may not develop and the price for our
common stock may be volatile.
Prior to this offering our common stock was not traded in high
volumes. An active or liquid trading market in our common stock may not
develop upon completion of this offering, or, if it does develop, it may not
continue.
The market price for our common stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
announcements of technological innovations or new projects and products by us
or our competitors, or our failure to achieve operating results consistent with
any securities analysts' projections of our performance.
The stock market has experienced extreme price and volume fluctuations
and volatility that have particularly affected the market price of many
emerging growth and development stage companies. Such fluctuations and
volatility have often been unrelated or disproportionate to the operating
performance of such companies.
13
We do not intend to pay dividends and you may not receive a return on
investment without selling shares.
Since we are utilizing available cash for working capital purposes,
including developing Microgy's business, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Therefore, you will
not receive a return on our investment in our common stock without selling your
shares since we currently intend to retain future earnings to fund our growth
rather than paying dividends.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Some of the statements contained in this prospectus under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" are forward looking. They include
statements that involve risks and uncertainties that might adversely affect our
operating results in the future in a material way. Such risks and uncertainties
include:
. the ability to integrate and manage an acquired business;
. volatile and unpredictable plant outages and repair requirements;
. the unpredictability of the timing and loss of construction;
. general economic and industry conditions;
. government and regulatory policy fluctuations;
. increases in marketing and sales costs;
. intensity of competition for customers;
. the stability of the bio-energy market; and
. availability and cost of financing.
Most of these risks are beyond our control. Actual results may differ
materially from those suggested by the forward looking statements for various
reasons, including those discussed under "Risk Factors."
14
USE OF PROCEEDS
We intend to use the net proceeds from the exercise of the options and
warrants for working capital. It is uncertain when, if ever, we will receive
proceeds from exercise of the options and warrants.
. If all of the options to purchase common stock being registered
are exercised, we will receive proceeds of $435,293. Such options
were issued in exchange for Microgy options.
. If all of the warrants to purchase common stock being registered
are exercised, we will receive proceeds of $1,285,729. Such
warrants, issued in exchange for Microgy warrants, are exercisable
through September 30, 2002.
SELLING SHAREHOLDERS
The following tables set forth certain information regarding the
shares of common stock owned as of December 31, 2001, by each selling
shareholder as adjusted to reflect the assumed sale by all selling shareholders
of the shares of common stock offered in this prospectus. The tables indicate:
. any position, office or other material relationship with us that
the selling shareholder had within the past three years;
. our estimate, assuming no gifts, pledges or sales pursuant to Rule
144, of the number of shares of common stock owned by such selling
shareholder prior to the offering; and
. the maximum number of shares of common stock to be offered for
such selling shareholder's account and the amount and the
percentage (if one percent or more and calculated as if the
selling security holder were the sole seller of shares pursuant
to this prospectus) of the shares of common stock to be owned by
the selling shareholder after completion of the offering (assuming
the selling shareholder sells the maximum number of shares of
common stock).
The selling shareholders are not required, and may choose not, to sell
any of their shares of common stock. Further, certain of the selling
shareholders may have already sold their shares of common stock prior to the
date of this prospectus.
15
Percent
of
Shares Shares Outstanding
Position or Owned Outstanding Shares Shares
Other Material Prior to Being Owned Owned
Name and Address Relationship Offering Offered After Offering After Offering
---------------- ------------ -------- ------- -------------- --------------
Ahmad Akrami 48,734 48,734 0 0
902 S. Wiley Court
Superior, CO 80027
Michael Amato & 16,245 16,245 0 0
Linda J. Mahfoud, JTWROS
2846 Falcon Pt
Lafayette, CO 80026
Amro International, S.A. 90,255 90,255 0 0
Attn: H.U. Bochofen
Director
c/o Ultra Finant
Grossmuensterplatz 6
P.O. Box 4401
Zurich CH 8022
Switzerland
Anthony J. Anvari 24,367 24,367 0 0
6 Brownsbury Road
Laguna Niguel, CA 92677
Arrowhead Trust 5,117 5,117 0 0
Denis Ramirez IRA /(13)/
Arrowhead Trust
24 Executive Park, Suite
125
Irving, CA 92614
Attn: Nicole Wells
Arrowhead Trust, Inc. 2,437 2,437 0 0
f/b/o Norman Eliason
IRA /(13)/
Arrowhead Trust
24 Executive Park, Suite
125
Irving, CA 92614
Attn: Nicole Wells
Arrowhead Trust f/b/o 53,607 53,607 0 0
Kamal Pasricha /(13)/
Arrowhead Trust
16
24 Executive Park, Suite
125
Irving, CA 92614
Attn: Nicole Wells
Arrowhead Trust f/b/o 2,437 2,437 0 0
Oliver IRA /(13)/
Arrowhead Trust
24 Executive Park, Suite
125
Irving, CA 92614
Attn: Nicole Wells
William W. Bailey 119,399/(1)/ 119,399/(1)/ 0 0
P.O. Box 6700
Charlottesville, VA 22906
Shahpour Baratzadeh 26,804/(2)/ 26,804/(2)/ 0 0
61 Cathy Lane
Scotts Valley, CA 95066
Bear Cove, S.A., LLC 26,804/(2)/ 26,804/(2)/ 0 0
234 E. Cahill Ct.
Big Pine Key, FL 33043
Attn: Lance L. Beutel
Timothy D. Biehler Former Microgy 121,835 121,835 0 0
511 Meyer Lane, Suite 12 Officer
Redondo Beach, CA 90278
Benjamin J. Brant Director; Former 2,753,066 2,753,066 0 0
7553 S. Gartner Rd. Microgy Officer
Evergreen, CO 80439
Sabine Brueske 7,310 7,310 0 0
3020 Hayward Street
Bellingham, WA 98226
Steven J. Brunner Microgy Vice 548,258 548,258 0 0
10245 West Warren Drive President
Lakewood, CO 80227
John J. Burke 451,241 451,241 0 0
622 North Water Street
Suite 200
Milwaukee, WI 53202
17
Joseph E. Cresci Chairman of the 4,725,348/(3)/ 4,725,348/(3)/ 0 0
c/o Environmental Power Board and Chief
Corporation Executive Officer;
One Cate Street Portsmouth, Microgy Director
NH 03801
Developing World Solar 36,551 36,551 0 0
Project
c/o Jeffrey Passarelli
9080 Brumm Trail
Golden, CO 80403
Daniel J. Eastman Microgy Senior Vice 1,120,882/(10)/ 1,120,882/(10)/ 0 0
Suite C President
166 N. Green Bay Road
Thiensville, WI 53092
Norman Eliason 90,158/(4)/ 90,158/(4)/ 0 0
60621 Hwy 204
Weston, OR 97886
John H. Gable 124,759/(5)/ 124,759/(5)/ 0 0
13396 Everest Ave.
Apple Valley, MN 55124
Babak Gulati 29,240 29,240 0 0
700 Grape Street
Denver, CO 80220
Jay D. Haefeli 16,245 16,245 0 0
0041 S. Counts Road 1 E
Monte Vista, CO 81144
James M. Harris 29,240/(6)/ 29,240/(6)/ 0 0
Route 2 - Box 103
Grapeland, TX 75844
Hitel Group 45,128 45,128 0 0
3038 N. Federal Hwy,
Suite B
Ft. Lauderdale, FL 33308
George A. Kast Director 2,823,188 2,823,188 0 0
1767 Denver West Blvd.
Golden, CO 80401
18
Jerzy Kedzierski 26,804/(2)/ 26,804/(2)/ 0 0
Perfect Smile
4710 Ruffner Street
San Diego, CA 92111
Frank Kramer 90,255 90,255 0 0
5330 East 17th Ave.
Denver, CO 80220
Henry S. Krauss 22,564 22,564 0 0
100 Park Avenue, 2850.
New York, NY 10017
Donald A. Livingston President, Chief 2,461,739 2,461,739 0 0
c/o Environmental Power Operating Officer
Corporation and Director;
One Cate Street Microgy President
Portsmouth, NH 03801 and Director
Frances Luskind & 22,564 22,564 0 0
Henry S. Krauss
As TTEES of the TR
U/W/O
Jessie Daniels FBO
Frances Luskind
100 Park Avenue, 28th Fl.
New York, NY 10017
Adrian Madera Former Microgy 24,367/(11)/ 24,367/(11)/ 0 0
4001 Starflower Road employee
Castle Rock, CO 80104
James W. Muzzy Former Microgy 99,417 99,417 0 0
P.O. Box 600 officer
Conifer, CO 80433
Leander Nyack 119,399/(1)/ 119,399/(1)/ 0 0
8 Azurean Court
Mt. Sinai, NY 11766
Henry G. Oliver 66,765/(7)/ 66,765/(7)/ 0 0
83 White Pine Way
Guelph, ONT N1G 4X7
CANADA
19
John P. O'Shea 135,383 135,383 0 0
100 Park Avenue, 2850
New York, NY 10017
Edward Polloway 26,804/(2)/ 26,804/(2)/ 0 0
10220 Memorial Drive, Apt.
100
Houston, TX 77024
Kamal Singh Pasricha 64,328/(8)/ 64,328/(8)/ 0 0
26500 Agoura Rd., Apt. 712
Calabasas, CA 91302
Jeffrey Passarelli & 16,245 16,245 0 0
Kimberly Lacy
9080 Brumm Trail
Golden, CO 80403
Denis Ramirez 125,247/(9)/ 125,247/(9)/ 0 0
433 S. Navarra Drive
Scotts Valley, CA 95066
Rudy Scarborough 73,101 73,101 0 0
2176 Via Robles
Oceanside, CA 92054
Martin A. Simonetti & 9,747 9,747 0 0
Mary Ann Simonetti
4553 Eighty-fourth Ave. SE
Mercer Island, WA 98040
Smithson Ventures, Inc. 45,128 45,128 0 0
Money
Purchase Pension Plan
DLJSC Tax ID
#132741729
Custodian F/B/O
Deborah Salerno, MPP
355 South End Ave., 22B
New York, NY 10287
20
Sterling Trust Company f/b/o 2,924 2,924 0 0
James M. Harris
IRA
Route 2, Box 103
Grapeland, TX 75844
James P. Steuerwald 24,368/(2)/ 24,368/(2)/ 0 0
6833 Topaz Court
DeForest, WI 53532
Randy Taylor 67,686 67,686 0 0
c/o Taylor Oil Properties
1550 W Dry Creek Road
Littleton, CO 80120
Clay G. Walton Microgy Vice 116,962/(12)/ 116,962/(12)/ 0 0
17385 W 57th Street President
Golden, CO 80403
Robert Wuilleumier 467 467 0 0
6078 Rattman Road
Madison, WI 53718
David Yolton 13,537 13,537 0 0
9610 S. Dover Way
Littleton, CO 80127
_________________________________
/(1)/ Includes 54,826 shares of Common Stock underlying a presently
exercisable warrant.
/(2)/ Includes 12,184 shares of Common Stock underlying a presently
exercisable warrant.
/(3)/ Includes 3,665,618 shares held in a revocable trust for the benefit
of members of Mr. Cresci's family, of which Mr. Cresci is the trustee,
and as to which Mr. Cresci has shared voting and investment power; but
does not include 20,000 shares owned by Mr. Cresci's wife, as to which
shares Mr. Cresci has neither voting nor investment power and as to
which shares he disclaims beneficial ownership. Includes 1,000,000
shares which Mr. Cresci deposited into a voting trust (the "Voting
Trust") on November 20, 1996 and in which Mr. Cresci has beneficial
ownership in such shares which are evidenced by voting trust
certificates held by The Cresci Family Limited Partnership of
which Mr. Cresci is the sole general partner with sole dispositive
power.
/(4)/ Includes 42,642 shares of Common Stock underlying a presently
exercisable warrant.
/(5)/ Includes 57,262 shares of Common Stock underlying a presently
exercisable warrant.
21
/(6)/ Includes 14,620 shares of Common Stock underlying a presently
exercisable warrant.
/(7)/ Includes 31,677 shares of Common Stock underlying a presently
exercisable warrant.
/(8)/ Includes 53,607 shares of Common Stock underlying a presently
exercisable warrant.
/(9)/ Includes 60,918 shares of Common Stock underlying a presently
exercisable warrant.
/(10)/ Includes 389,872 shares of Common Stock underlying a presently
exercisable warrant.
/(11)/ Shares of Common Stock underlying a presently exercisable option.
/(12)/ Shares of Common Stock underlying an option for which 38,987 shares
are presently exercisable, 38,988 shares become exercisable on
October 1, 2002 and 38,987 shares become exercisable
on October 1, 2003.
/(13)/ Beneficiary of such trust or IRA holds additional shares of common
stock listed separately in this table.
22
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
shareholders as required by a July 23, 2001 Registration Rights Agreement.
Selling shareholders include donees and pledgees selling shares of common stock
received from a named selling shareholder after the date of this prospectus.
Pursuant to such Registration Rights Agreement, all costs, expenses and fees in
connection with the registration of the shares of common stock offered hereby
will be borne by us. In addition, the selling shareholders may be entitled to
indemnification against certain liabilities pursuant to the Registration Rights
Agreement. Brokerage commissions and similar selling expenses attributable to
the sale of shares of common stock will be borne by the selling shareholders.
Sales of shares of common stock may be effected by selling shareholders in one
or more types of transactions (which may include block transactions), in the
over-the-counter market, in negotiated transactions, through put or call option
transactions relating to the shares of common stock, through short sales of
shares of common stock, or a combination of such methods of sale, at market
prices prevailing at the time of sale, or at negotiated prices. Such
transactions may or may not involve brokers or dealers. We have not been
advised by the selling shareholders that they have entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers
regarding the sale of their shares of common stock, nor that there is an
underwriter or coordinating broker acting in connection with the proposed sale
of shares of common stock by the selling shareholders.
The selling shareholders may effect such transactions by selling
shares of common stock directly to purchasers or to or through broker-dealers,
which may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
selling shareholders and/or the purchasers of shares of common stock for whom
such broker-dealers may act as agents or to whom they sell as principal, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The selling shareholders and any broker-dealers that act in connection
with the sale of shares of common stock might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, and any
commissions received by such broker-dealers and any profit on the resale of the
shares of common stock sold by them while acting as principals might be deemed
to be underwriting discounts or commissions under the Securities Act of 1933.
Such arrangement may necessitate a filing with the NASD pursuant to Notice to
Members 88-101. The selling shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
the shares of common stock against certain liabilities, including liabilities
arising under the Securities Act of 1933.
Because selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, the selling
shareholders will be subject to the prospectus delivery requirements of the
Securities Act of 1933.
The selling security holder and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
under such act, including, without limitation, Regulation M. These provisions
may restrict certain activities of, and limit the timing of purchases and sales
of any of the shares by, the selling security holder. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
23
Selling shareholders also may resell all or a portion of the shares of
common stock in transactions in reliance upon Rule 144 or Regulation S under
the Securities Act of 1933, provided they meet the criteria and conform to the
requirements of such Rule or Regulation.
Upon us being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
of common stock through a block trade, special offering, exchange distribution
or secondary distribution or a purchase by a broker or dealer, a supplement to
this prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act of 1933, disclosing:
. the name of each such selling shareholder and of the participating
broker-dealer(s);
. the number of shares of common stock involved;
. the price at which such shares of common stock are being sold;
. the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
. that such broker-dealer(s) did or did not conduct any
investigation to verify the information set out or incorporated
by reference in this prospectus; and
. other facts material to the transaction.
In addition, upon us being notified by a selling shareholder that
a donee or pledgee intends to sell more than 500 shares of common stock, we will
file a supplement to this prospectus.
DESCRIPTION OF SECURITIES
Our authorized capital stock currently consists of 50,000,000 shares
of common stock and 2,000,000 shares of preferred stock. Of the 2,000,000
shares of preferred stock, 30,000 shares have been designated as Series A
Convertible Preferred Stock and 250,000 shares have been designated as Series B
Convertible Preferred Stock. We may issue the preferred stock in one or more
series as determined by the board of directors. As of March 27, 2002, there
were 21,370,293 shares of common stock issued and 20,251,653 shares of common
stock outstanding that were held of record by approximately 251 persons. As of
March 27, 2002, no shares of Series A Convertible Preferred Stock or Series
B Convertible Preferred Stock were outstanding.
COMMON STOCK
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders for their
vote. Cumulative voting in the election of directors is not authorized.
24
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds,
and, in the event of liquidation, dissolution or winding up of our affairs,
holders are entitled to receive ratably our net assets available to the
stockholders. Holders of outstanding shares of common stock have no preemptive,
conversion or redemption rights. All of the issued and outstanding shares of
common stock are, and all unissued common stock, when offered and sold will be,
duly authorized, validly issued, fully paid and nonassessable. To the extent
that additional common stock of ours may be issued in the future, the relative
interests of the then existing stockholders may be diluted.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company serves as the transfer agent
and registrar for our common stock.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law permits us to
indemnify, under certain circumstances, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
for expenses related to such proceeding if the person acted in good faith and
in a manner the person reasonable believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that the person's conduct was
unlawful. Our bylaws substantively provide that we will indemnify such persons
to the fullest extent allowed by the Delaware General Corporation Law.
DOCUMENTS INCORPORATED BY REFERENCE
We "incorporate by reference" into this prospectus the information in
documents we file with the Securities and Exchange Commission, which means that
we can disclose important information to you through these documents. The
information incorporated by reference is an important part of this prospectus.
Some information contained in this prospectus updates the information
incorporated by reference and some information that we file subsequently with
the Securities and Exchange Commission will automatically update this
prospectus. We incorporate by reference the document listed below which has been
filed as an exhibit with the registration statement to which this prospectus is
a part:
. our Annual Report on Form 10-K for the year ended December
31, 2001.
You may request, and we will provide, a copy of these filings at no
cost by writing or calling William D. Linehan, Acting Chief Financial Officer,
at One Cate Street, Fourth Floor, Portsmouth, New Hampshire 03801, (603)
431-1780.
25
WHERE CAN YOU FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and we file reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file with the Securities and Exchange Commission at the
public reference facilities maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Our filings with
the Securities and Exchange Commission are available to the public from the
Securities and Exchange Commission's website at http://www.sec.gov. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-2 of which this prospectus is a part, under
the Securities Act of 1933, as amended, for the common stock offered in this
prospectus. This prospectus does not contain all of the information set forth
in the registration statement. Certain documents filed by us with the
Securities and Exchange Commission have been incorporated in this prospectus by
reference, see the section "Documents Incorporated by Reference." For further
information about us and the common stock to be issued by us upon conversion of
the options and warrants, please review the registration statement, including
the exhibits and the documents incorporated by reference. The registration
statement may be inspected for free at the principal office of the Securities
and Exchange Commission in Washington, D.C., and copies of all or part of it
may be obtained from the Securities and Exchange Commission by paying the
prescribed fees.
LEGAL MATTERS
The validity of the common stock offered in this prospectus has been
passed upon for us by Dorsey & Whitney LLP, New York, New York.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from our Annual Report on Form
10-K have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have
been so included in reliance upon the report of such firm given their authority
as experts in accounting and auditing.
Microgy's financial statements as of June 30, 2001 and 2000, for the
years ended June 30, 2001 and 2000, and for the period from March 25, 1999
(inception) through June 30, 2001, included in this prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
appearing herein and elsewhere in the registration statement and are included
in reliance upon such given on the authority of such firm as experts in
accounting and auditing.
26
INDEX TO PRO FORMA FINANCIAL INFORMATION AND MICROGY FINANCIAL STATEMENTS
The financial statements and pro forma financial information listed in the
following index are included as a part of this prospectus.
Page No.
--------
PRO FORMA FINANCIAL INFORMATION FOR EPC:
Unaudited pro forma combined condensed statement of operations for F-1
the year ended December 31, 2001
Notes to unaudited pro forma combined financial statements F-2
HISTORICAL FINANCIAL STATEMENTS FOR MICROGY:
Report of independent auditors F-5
Audited balance sheets as of June 30, 2001 and 2000 F-6
Audited statements of operations for the years ended
June 30, 2001 and 2000 and the period from March 25, 1999 (inception)
through June 30, 2001 F-7
Audited statements of changes in stockholders' equity (deficit)
for the years ended June 30, 2001 and 2000 and the period from
March 25, 1999 (inception)
through June 30, 2001 F-8
Audited statements of cash flows for the years ended June 30, 2001
and 2000 and the period from March 25, 1999 (inception) through
June 30, 2001 F-9
Notes to audited financial statements F-10
27
Environmental Power Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 2001
EPC Microgy Pro Forma Pro Forma Combined
(as filed) 1/1/01-7/23/01 Adjustments Adjustments Notes Total
---------------------------------------------------------------------------------
POWER GENERATION REVENUES $ 53,518,000 - $ 53,518,000
COSTS AND EXPENSES:
Operating expenses (23,681,081) (23,681,081)
Lease expenses (24,705,813) (24,705,813)
General and administrative expenses (3,973,025) (705,995) (4,679,020)
Depreciation and amortization (441,410) (8,613) (103,677) (D) (553,700)
---------------------------------------------------------------------------------
(52,801,329) (714,608) - (103,677) (53,619,614)
OPERATING INCOME 716,671 (714,608) - (103,677) (101,614)
OTHER INCOME (EXPENSE):
Interest income 78,203 1,156 79,359
Interest expense (185,547) (185,547)
Other income (expense) 2,135,048 (28,575) 2,106,473
Amortization of deferred gain 308,410 308,410
---------------------------------------------------------------------------------
2,336,114 (27,419) - - 2,308,695
INCOME (LOSS) BEFORE INCOME TAXES 3,052,785 (742,027) - (103,677) 2,207,081
INCOME TAX (EXPENSE) BENEFIT (1,373,454) - 259,709 38,360 (E) (1,075,385)
---------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,679,331 $ (742,027) $ 259,709 $(65,317) $ 1,131,696
=================================================================================
EARNINGS PER COMMON SHARE:
Basic $ 0.12 $ 0.06
Diluted $ 0.11 $ 0.06
F-1
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
-------------------------------
During 2001, Environmental Power Corporation (individually "EPC" or consolidated
"the Company") acquired 100% of the common stock of Microgy in two related
transactions. On July 23, 2001, the Company exchanged approximately 87.7% of the
outstanding common stock of Microgy for securities of the Company pursuant to a
Share Exchange Agreement (the "Exchange Agreement") dated as of June 20, 2001
among the Company, Microgy and certain principal Microgy shareholders. Under the
terms of the Exchange Agreement, the Company also committed to offer the
remaining Microgy shareholders the opportunity to exchange their Microgy
securities for the Company's securities. On December 28, 2001, the Company
completed the exchange of its securities for the remaining outstanding
securities of Microgy.
Transaction Details
On July 23, 2001, the Company issued an aggregate of 5,521,549 shares of common
stock and 197,760.7 shares of newly designated Series B Convertible Preferred
Stock to certain principal stockholders of Microgy in exchange for 15,919,147
shares of Microgy common stock. Each share of preferred stock, which voted with
the common stock on an as-converted basis, was automatically converted into ten
shares of common stock as of November 9, 2001 upon an increase in the
authorized common stock to an amount sufficient to allow conversion of the
preferred stock. The exchange ratio of 0.4711 shares of the Company's common
stock for each share of Microgy common stock was determined by negotiations
among the Company, Microgy and the primary principal Microgy shareholders. The
exchange ratio is based on all of the fully diluted equity of Microgy being
exchanged for 45% of the Company's fully diluted equity and assumes exercise or
conversion of all derivative securities. The exchange ratio may be increased to
reflect certain issuances of equity by the Company to generate funds to be
available for financing Microgy. However, holders of approximately 94% of the
Microgy common stock agreed to waive their right to adjustments in the exchange
ratio, other than any adjustment resulting from 400,000 options and warrants
issued in September 2001. One of the principal Microgy shareholders exchanged a
warrant to purchase 800,000 shares of Microgy common stock for a warrant to
purchase the Company's securities based on the exchange ratio. In connection
with the issuance of 400,000 options and warrants in September 2001, the
Company adjusted the exchange ratio to 0.4873 shares of the Company's common
stock for each share of Microgy common stock. The Company then issued 258,884
additional shares of common stock to the principal Microgy shareholders on
December 28, 2001 and amended the warrant issued to the principal Microgy
shareholder to reflect the new exchange ratio.
On October 17, 2001, the Company offered the remaining security holders of
Microgy, who owned an aggregate of 2,230,126 shares of Microgy common stock,
warrants to purchase 885,000 shares of Microgy common stock and options to
purchase 290,000 shares of Microgy common stock, an opportunity to exchange
their securities of Microgy for the Company's securities based on the adjusted
exchange ratio. On December 28, 2001, the Company issued 1,086,830 shares of
its common stock and exchanged warrants to purchase 431,298 shares of its
common stock and options to purchase 141,329 shares of its common stock for the
remaining Microgy securities.
Solely for purposes of this presentation, the unaudited combined condensed
statement of operations has been prepared as if Microgy were combined with EPC
and its other subsidiaries into one reporting entity. The purchase price paid
by EPC for Microgy's net assets has been pushed down to the Microgy subsidiary.
The portion of the purchase price not allocated to tangible or intangible
assets or liabilities has been recorded as goodwill (See Note B).
The accompanying unaudited pro forma combined condensed statement of operations
of the Company has been prepared in accordance with the instructions to Form
S-2 and Regulation S-X and does not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.
F-2
NOTE B - PURCHASE PRICE
-----------------------
For purposes of the unaudited pro forma combined condensed statement of
operations, the purchase price for the outstanding common stock of Microgy was
calculated as follows:
Number Fair
Of Shares Value
-------------- -------------
Common stock issued 8,844,870 $6,837,084
Common stock options 141,329 11,967
Common stock warrants 821,170 43,730
Direct acquisition costs 450,747
-------------- -------------
Total purchase price 9,807,369 $7,343,528
============== ==============
The fair value of common stock issued was determined by multiplying the number
of shares by the average closing market price of EPC's common stock from June
18, 2001 through June 27, 2001.
The fair value of the common stock options and warrants were determined using
an option pricing model with the following assumptions:
50,000 240,000 800,000 885,000
Microgy Microgy Microgy Microgy
Options Options Warrants Warrants
-------------------------------------------
Calculated fair value $ 0 $ 11,967 $ 41,451 $ 2,279
Options/Warrants for EPC common shares 24,367 116,962 389,872 431,298
Exercise price per share (EPC share basis) $ 3.08 $ 3.08 $ 1.03 $ 2.05
Dividend yield 0% 0% 0% 0%
Risk free rate of return 1.711% 4.336% 2.182% 1.811%
Expected useful life 3 months 4.75 years 1 year 9 months
Expected stock volatility rate 88.04% 88.04% 72.28% 88.04%
NOTE C -- GOODWILL
------------------
For purposes of the unaudited pro forma combined condensed statement of
operations, the Company has allocated the excess of the purchase price over the
fair value of net tangible and identifiable intangible assets as of July 23,
2001 to goodwill. Goodwill was determined as follows:
Total purchase price of Microgy $ 7,343,528
Fair value of licensed technology rights (3,710,000)
Fair value of net operating loss carryforwards (538,000)
Fair value of deferred income tax liability 1,374,770
Fair value of the net tangible assets acquired:
100% of the negative historical book value of Microgy 442,568
-----------------
Goodwill $ 4,912,866
=================
Amortization of goodwill has not been included in the unaudited pro forma
combined condensed statement of operations pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets".
NOTE D - LICENSED TECHNOLOGY RIGHTS
-----------------------------------
Licensed technology rights are recorded at cost and are being amortized using
the straight-line method over a useful life of 20 years. The Company reported
amortization of licensed technology rights of $185,500 in its unaudited pro
forma combined condensed statements of operations for the year ended December
31, 2001.
F-3
NOTE E - INCOME TAXES
---------------------
Microgy is a development stage company which currently does not incur income
tax expense on a standalone basis because of its net operating losses. For
purposes of the unaudited pro forma combined condensed statement of operations,
the Company has reported an income tax benefit from Microgy's loss before
income taxes. This amount represents the Company's estimated savings of Federal
and certain state income taxes from including Microgy's operations in a
combined tax return.
NOTE F - EARNINGS PER COMMON SHARE
-----------------------------------
The Company computes its earnings per common share using the treasury stock
method in accordance with SFAS No. 128, "Earnings per Share". The Company
computes basic earnings per share by dividing net income for the period by the
weighted average number of shares of common stock outstanding during the
period. For purposes of calculating diluted earnings per share, the Company
considers its shares issuable in connection with stock options to be dilutive
common stock equivalents when the exercise price is less than the average
market price of the Company's common stock for the period. The Company excludes
antidilutive common stock equivalents from the calculation of diluted earnings
per share. The following table outlines the calculation of proforma combined
basic earnings per share and diluted earnings per share for the year ended
December 31, 2001.
Income Shares Per Share
(Numerator) (Denominator) Amounts
---------------- ------------------ ------------
Year Ended December 31, 2001:
----------------------------
Income available to shareholders $ 1,131,696 20,251,653 $ .06
Effect of dividends to preferred stockholders (5,000)
---------------- ------------------ ------------
Basic EPS - income available to common shareholders 1,126,696 20,251,653 .06
Effect of dilutive securities:
Assumed exercise of dilutive stock options 16,318
---------------- ------------------ ------------
Diluted EPS - income available to common shareholders $ 1,126,696 20,267,971 $ .06
================ ================== ============
The Company did not include in the computation of diluted EPS antidilutive
options and warrants to purchase 1,442,499 shares of the Company's common stock
as of December 31, 2001. The options and warrants expire at various dates
through 2011.
F-4
Report of Independent Auditors
Board of Directors
Microgy Cogeneration Systems, Inc.
We have audited the accompanying balance sheets of Microgy Cogeneration
Systems, Inc. (a development stage company) as of June 30, 2001 and 2000 and
the related statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended June 30, 2001 and 2000 and the
period from March 25, 1999 (inception) through June 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Microgy Cogeneration Systems,
Inc. at June 30, 2001 and 2000, and the results of its operations and its cash
flows for the years ended June 30, 2001 and 2000 and the period from March 25,
1999 (inception) through June 30, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Denver, Colorado
October 23, 2001
F-5
Microgy Cogeneration Systems, Inc.
(A development stage company)
Balance Sheets
June 30,
----------------------------
2001 2000
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 42,502 $ 274,866
Common stock subscriptions receivable - 675,008
Prepaid expenses and other current assets 110 3,722
----------------------------
Total current assets 42,612 953,596
Property and equipment 41,267 1,461
Accumulated depreciation (11,371) (46)
----------------------------
Net property and equipment 29,896 1,415
Investment in Microgy Projects 100,694 -
----------------------------
Total assets $ 173,202 $ 955,011
============================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 252,019 $ 70,098
Accrued liabilities 122,300 26,911
Note payable--shareholder 177,000 -
Note payable--associated entity 26,200 -
----------------------------
Total current liabilities 577,519 97,009
Stockholders' equity (deficit):
Common stock ($.001 par value; 75,000,000 shares
authorized; 18,149,273 and 17,994,815 shares
issued and outstanding in 2001 and 2000,
respectively) 18,149 17,995
Preferred stock ($.001 par value; 25,000,000 shares
authorized; none issued and outstanding) - -
Additional paid-in capital 1,476,704 1,393,451
Deficit accumulated during the development stage (1,899,170) (553,444)
----------------------------
Total stockholders' equity (deficit) (404,317) 858,002
----------------------------
Total liabilities and stockholders' equity (deficit) $ 173,202 $ 955,011
============================
See accompanying notes.
F-6
Microgy Cogeneration Systems, Inc.
(A development stage company)
Statements of Operations
Period from
March 25,
1999
(Inception)
Year Ended Year Ended Through
June 30, June 30, June 30,
2001 2000 2001
--------------------------------------------
Revenues
Other revenue $ 14,000 $ - $ 14,000
Interest income 14,737 93 14,830
--------------------------------------------
28,737 93 28,830
Expenses
Project costs:
Project-related legal costs 18,087 - 18,087
Other project-related corporate costs 3,395 - 3,395
Salaries and benefits 676,603 245,286 921,889
Issuance of common stock for services -- 104,341 104,341
Marketing and sales 34,969 25,025 59,994
General and administrative 333,257 121,161 457,268
Other operating expenses 213,420 51,328 268,248
Impairment of investment in associate 83,407 - 83,407
Depreciation expense 11,325 46 11,371
--------------------------------------------
(1,374,463) (547,187) (1,928,000)
--------------------------------------------
Loss before income taxes (1,345,726) (547,094) (1,899,170)
Income taxes -- - -
--------------------------------------------
Net loss $(1,345,726) $(547,094) $ (1,899,170)
============================================
See accompanying notes.
F-7
Microgy Cogeneration Systems, Inc.
(A development stage company)
Statements of Changes in Stockholders' Equity (Deficit)
Period from March 25, 1999 (inception) through June 30, 2001
Total
Common Stock Additional Stockholders'
----------------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------------------------------------------------------------------
Balance at March 25, 1999 (inception) - $ - $ - $ - $ -
Issuance of stock for cash--initial stockholders 8,112,500 8,113 - - 8,113
Net loss - - - (6,350) (6,350)
---------------------------------------------------------------
Balance at June 30, 1999 8,112,500 8,113 - (6,350) 1,763
Issuance of stock for cash to a director 5,937,500 5,937 244,063 - 250,000
Issuance of stock to management for cash
($1,954) and services ($104,341) 1,954,000 1,954 104,341 - 106,295
Issuance of stock for cash in private placement,
net of expenses 1,990,815 1,991 1,045,047 - 1,047,038
Net loss - - - (547,094) (547,094)
---------------------------------------------------------------
Balance at June 30, 2000 17,994,815 17,995 1,393,451 (553,444) 858,002
Issuance of stock in exchange for investment 154,458 154 83,253 - 83,407
Net loss - - - (1,345,726) (1,345,726)
------------------------------------------------------------------
Balance at June 30, 2001 18,149,273 $18,149 $ 1,476,704 $(1,899,170) $(404,317)
==================================================================
See accompanying notes.
F-8
Microgy Cogeneration Systems, Inc.
(A development stage company)
Statements of Cash Flows
Period from
March 25,
1999
(Inception)
Year Ended Year Ended Through
June 30, June 30, June 30,
2001 2000 2001
-------------------------------------------
Cash flows from operating activities
Net loss $(1,345,726) $(547,094) $(1,899,170)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 11,325 46 11,371
Issuance of common stock for services - 104,341 104,341
Impairment of investment in associate 83,407 - 83,407
Decrease (increase) in prepaid
expenses and other current assets 3,612 (3,722) (110)
Increase in accounts payable 181,921 63,748 252,019
Increase in accrued liabilities 95,389 26,911 122,300
-------------------------------------------
Net cash used in operating activities (970,072) (355,770) (1,325,842)
Cash flows from investing activities
Purchase of property and equipment (39,806) (1,461) (41,267)
Investment in Microgy Projects (100,694) - (100,694)
-------------------------------------------
Net cash used in investing activities (140,500) (1,461) (141,961)
Cash flows from financing activities
Proceeds from note payable to associate 26,200 - 26,200
Proceeds from note payable to 177,000 - 177,000
shareholder
Collection of stock subscriptions
receivable 675,008 - 675,008
Proceeds from sale of common stock - 632,097 632,097
-------------------------------------------
Net cash provided by financing activities 878,208 632,097 1,510,305
Net change in cash and cash equivalents (232,364) 274,866 42,502
-------------------------------------------
Cash and cash equivalents, beginning of
period 274,866 - -
-------------------------------------------
Cash and cash equivalents, end of period $ 42,502 $ 274,866 $ 42,502
===========================================
See accompanying notes.
F-9
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements
June 30, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DEVELOPMENT STAGE ACTIVITY
Microgy Cogeneration Systems, Inc. (the "Company") was incorporated in Colorado
on March 25, 1999, and is in the development stage as of June 30, 2001. The
Company is an alternative energy company developing renewable energy projects
through proprietary technologies and systems. The initial proposed projects are
biopower facilities intended to process agricultural and organic wastes into
renewable energy and fuels through Company systems using proprietary
technologies.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand at the balance sheet date.
PROPERTY AND EQUIPMENT
Property and equipment, consisting primarily of computer equipment and
furniture and fixtures, is stated at cost. Depreciation is computed over the
estimated useful lives of the assets, which range from three to seven years.
CASH FLOW REPORTING
The Company issued common stock valued at $83,407 during the year ended June
30, 2001 to purchase preferred shares in an associated entity. The investment
was fully reserved for as of June 30, 2001.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-10
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMMON STOCK SUBSCRIPTIONS RECEIVABLE
Common stock subscriptions receivable represent amounts due from stockholders
of the Company's common stock at June 30, 2000. All amounts were received by
the Company during July 2000.
2. INCOME TAXES
The Company accounts for income taxes in conformity with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes. Under the
provisions of Financial Accounting Standards Board Statement No. 109, a
deferred tax liability or asset (net of a valuation allowance) is provided in
the financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. These temporary differences will
result in net taxable or deductible amounts in future years as a result of
events recognized in the financial statements in the current or preceding years.
The Tax Reform Act of 1986 contains provisions that limit the utilization of
net operating loss and tax credit carryforwards if there has been a "change in
ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carryforwards, and could be triggered by an initial public
offering or subsequent sales of securities by the Company or its stockholders.
Significant components of the Company's deferred tax accounts are as follows:
June 30,
2001 2000
-----------------------------------
Deferred tax assets:
Net operating loss carryforwards $511,181 $200,613
Allowance for doubtful accounts 19,371 9,987
-----------------------------------
Total deferred tax assets 530,552 210,600
Valuation allowance (530,552) (210,600)
-----------------------------------
Net deferred taxes $ - $ -
===================================
At June 30, 2001, the Company had net operating loss carryforwards for income
tax purposes of approximately $1,503,000, which expire through 2020.
F-11
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
3. COMMON STOCK ISSUANCES
During March and June 1999, 8,112,500 shares of common stock were issued to
management and founders of the Company for an aggregate of $8,113, or $0.001,
per share.
In August 1999, the Company sold 5,937,500 shares for an aggregate of $250,000
or $0.042 per share.
During January and April of 2000, 1,500,000 shares and 454,000 shares,
respectively, were issued to members of management for an aggregate of $1,500
and $454, respectively. In connection with both issuances, the Company recorded
expense in relation to services of $104,341.
During June 2000, the Company completed a private placement and raised a total
of $1,047,038 on the issuance of 1,990,815 shares at a price of $0.54 per
share, net of issuance costs of $28,000.
During July 2000, the Company issued 154,458 shares valued at $0.54 per share
in an exchange for an investment of preferred stock of an associated entity.
The investment was fully reserved for as of June 30, 2001.
4. STOCK OPTIONS
Pursuant to the provisions of Financial Accounting Standards Board Statement
No. 123, Accounting and Disclosure of Stock-Based Compensation, the Company
accounts for its stock compensation arrangements under Accounting Principles
Board No. 25, Accounting for Stock Issued to Employees, and related
pronouncements. Under the provisions of Accounting Principles Board No. 25, no
compensation expense is recognized when stock options are granted with exercise
prices equal to or greater than market value on the date of grant.
In June 2000, the Company's Board of Directors and stockholders approved the
2000 Stock Option Plan (the 2000 Plan) pursuant to which a total of 5,000,000
shares of common stock have been reserved for issuance to eligible employees,
consultants, and directors of the Company. Awards under the 2000 Plan may
consist of incentive stock options, which qualify under Section 422 of the
Internal Revenue Code, or nonqualified
F-12
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
4. STOCK OPTIONS (CONTINUED)
stock options, which do not qualify under that provision. The 2000 Plan
provides for an exercise period of up to six years with the price being equal
to the fair market value at the time the option is granted. The 2000 Plan is
administered by the Board of Directors, which has the authority to select the
individuals to whom awards will be granted and to determine whether and to what
extent stock options are to be granted, the numbers of shares of common stock
to be covered by each award, the vesting schedule of stock options, and all
other terms and conditions of each award. There were 5,000,000 shares of common
stock reserved for issuance under the 2000 Plan as of June 30, 2000. No stock
options were issued as of June 30, 2000.
On September 18, 2000, the Board of Directors authorized 290,000 options to be
issued to employees of the Company with an exercise price of $1.50 per share.
Options to purchase 50,000 shares vest on August 1, 2001. The remaining 240,000
options vest on October 1, 2001. As of June 30, 2001, there were no options
exercised or exercisable.
Pro forma information regarding net income and earnings per share is required
by Financial Accounting Standards Board Statement No. 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using the minimum value method available to
nonpublic companies under Financial Accounting Standards Board Statement No.
123. Under this method, option value is determined as the excess of the fair
value of the stock at the date of the grant over the present value of both the
exercise price (lump sum) and the expected dividend payments (annuity), each
discounted at the risk-free rate, over the expected exercise life of the
option. A risk-free interest rate of 5%, a dividend yield of 0%, and a
weighted- average expected life of three years were applied.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The pro forma effect
on the Company's net income for the year ended June 30, 2001 is immaterial.
5. PREFERRED STOCK
The Company is authorized to issue up to 25,000,000 shares of nonvoting
preferred stock, $0.001 par value, with the shares to be issued in series by
the Board of Directors. The shares of preferred stock may be issued in one or
more series with such designations,
F-13
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
5. PREFERRED STOCK (CONTINUED)
rights, preferences, and limitations as the Company's Board of Directors may
determine without approval of its stockholders. As of June 30, 2001 and 2000,
there were no preferred stock shares issued or outstanding.
6. WARRANTS
In May 1999, the Company issued 885,000 warrants to stockholders of the
Company. The shareholder warrants expire in May 2002. Each warrant is
exercisable for one share of common stock at a price of $1.00 per share. The
Company has the ability to call the warrants at a price of $1.20 per common
share, or greater under certain conditions.
In December 1999, an employee was issued a warrant to purchase 800,000 shares
of common stock at an exercise price of $0.50 per share through March 2001 and
$1.00 per share through September 2002. On June 8, 2001, the Board of Directors
extended the exercise date to May 31, 2002 at $0.50 per share and to September
30, 2002 at $1.00 per share. This warrant was exchanged for a warrant in
Environmental Power Corporation ("EPC") in connection with the share exchange
transaction, which occurred in July 2001 (see Note 11).
7. RELATED-PARTY TRANSACTIONS
During the year ended June 30, 2000, rent and telephone expenses in the amount
of $9,250 were paid to a related party having the same President and Vice
President as the Company, who are also stockholders of both entities. Business
opportunities relating to anaerobic digestion, microturbines, and heating and
cooling technology were purchased for $25,000 in September 1999 from the same
related party and expensed at that time. Advances were also made to that
related party under a promissory note related to a secured advance line not to
exceed $250,000. The Company had advanced $56,974 and $26,274 as of June 30,
2001 and 2000, respectively. Due to the uncertainty of collection, this amount
has been reserved in full. In addition, no interest income related to the note
receivable has been recognized by the Company.
During the years ended June 30, 2001 and 2000, the Company paid rent of $57,554
and $10,350, respectively, to a related party whose Chairman of its Board of
Directors is also the Chairman of the Board of Directors of the Company.
F-14
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
On March 30, 2001, the Company executed an unsecured note payable with the
Company's Chairman of the Board of Directors for an amount not to exceed
$200,000. The note bears interest at 8% per annum and matures on September 30,
2001. The outstanding balance of the note as of June 30, 2001 is $177,000.
Subsequent to June 30, 2001, the Company settled its obligation in full in
relation to the note.
On June 28, 2001, the Company executed an unsecured note payable with EPC (see
Note 11) for an amount not to exceed $100,000. The note bears interest at 8%
per annum and is payable on demand. The outstanding balance of the note as of
June 30, 2001 is $26,200. Subsequent to June 30, 2001, the Company executed an
additional unsecured note with EPC in an amount not to exceed $50,000. The note
is payable on demand and bears interest at a rate of 8% per annum.
8. POWER CONTRACT
In December 2000, the Company entered into an agreement with a California-based
irrigation district that provides water and electric services to its customers
located primarily in the California central valley. The agreement calls for the
Company to sell up to 15 megawatts of power to the irrigation district once the
Company has developed facilities to generate such power. The term of the
agreement is ten years from the date of commercial operation of each proposed
facility. The facilities would provide renewable energy created by the Company
from agricultural wastes located on farms, which are customers of the
irrigation district.
9. EUROPEAN TECHNOLOGY PROVIDER
On May 12, 2000, the Company entered into a revised licensing agreement with a
European technology provider whereby the Company is granted a perpetual and
exclusive license in certain territories for use of certain proprietary
technology in its cogeneration facilities. This agreement superseded an initial
license agreement executed in November 1999.
F-15
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
9. EUROPEAN TECHNOLOGY PROVIDER (CONTINUED)
The European technology provider will own a 5% minority equity stake in any
legal entity that owns any project developed by the Company using the European
technology provider's enhanced anaerobic digester technology wherein the
Company retains an equity position.
The agreement specifies a fixed payment amount per project to the European
technology provider for engineering work and construction drawings. The
agreement also specifies that a licensing fee, based on a percentage of the
total cost for each project facility where the licensed technology is installed
and operating, as well as a monthly consulting fee, will be paid to the
European technology provider upon commercial operation of a particular project.
10. COLORADO TECHNOLOGY PROVIDER
On September 17, 1999, the Company entered into an agreement with a Colorado
technology provider whereby the Company is granted an exclusive and perpetual
worldwide license for use of the Colorado technology provider's proprietary
microturbine, which is currently being developed for use in the Company's
biogas or cogeneration projects. The agreement also gives the Company the right
to manufacture the microturbine under certain conditions.
The Company also has a nonexclusive and perpetual worldwide license for the
manufacture and use of the proprietary microturbine in a stand-alone or utility
grid-connected system.
11. SUBSEQUENT EVENT
On July 23, 2001, approximately 88% of the shares of the Company were exchanged
for shares of EPC, an energy company that is publicly traded and has annual
revenues of more than $50 million. In that transaction, certain shareholders of
the Company exchanged their common stock in the Company for common and
convertible preferred stock of EPC. In a subsequent share exchange offer, EPC
has also offered to the remaining shareholders, representing the remaining 12%
of the Company's common shares, to exchange their shares on the same basis. The
basis of the exchange ratio on a fully diluted basis will result in the
Company's shareholders owning approximately 45% of the fully diluted equity of
EPC if all shareholders exchange. The Company has, in
F-16
Microgy Cogeneration Systems, Inc.
(A development stage company)
Notes to Financial Statements (continued)
11. SUBSEQUENT EVENT (CONTINUED)
turn, become a controlled subsidiary of EPC. Members of the Board of Directors
of the Company are now representatives of the senior management of EPC. EPC has
appointed the President of the Company, and the majority of the shareholders of
the Company have, in turn, appointed three of the eight members of the Board of
Directors of EPC.
F-17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses payable by us in connection with the issuance and distribution
of the securities being registered hereby are as follows:
SEC registration fee..................... $ 814
Accounting fees and expenses............. $ *30,000
Legal fees and expenses.................. $ *50,000
Printing, freight and engraving.......... $ *7,000
Transfer agent fee....................... $ *1,000
Miscellaneous............................ $ -
---------------------
Total............................... $ 88,814*
=====================
------------------
*Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits us to
indemnify, under certain circumstances, any person acting on our behalf who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative for expenses related to such proceeding if the person acted in
good faith and in a manner the person reasonable believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that the
person's conduct was unlawful. Our bylaws substantively provide that we will
indemnify such persons to the fullest extent allowed by the Delaware General
Corporation Law.
In addition, our certificate of incorporation limits the liability our
of directors for monetary damages for breach of their fiduciary duty as a
director other than for intentional misconduct, fraud or a knowing payment of a
dividend in violation of Delaware law. Such provision limits recourse for money
damages that might otherwise be available to us or our shareholders for
negligence by directors acting on our behalf. Although these provisions would
not prohibit injunctive or similar actions against these individuals, the
practical effect of such relief would be limited. This limitation of liability
under state law does not apply to any liabilities that may exist under federal
securities laws.
Finally, we have entered into an indemnification agreement with Joseph
C. Cresci, Donald A. Livingston and William D. Linehan where we agree to
indemnify these individuals against any loss, liability, cost or other expense
that they incur in relation to certain of their activities related to them
acting as either fiduciaries or agents of all of our employee welfare benefit
plans, employee pension benefit plans and benefit plans.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to our directors, officers and controlling persons, or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
II-1
ITEM 16. EXHIBITS
The following is a list of all exhibits filed as a part of this
registration statement:
Exhibit Incorporation
Number Description Reference
------- ----------- ---------
5.01 Opinion of Dorsey & Whitney LLP. *
10.01 Share Exchange Agreement dated June 20, 2001 among the Company, Microgy and H
the Principal Microgy Shareholders.
10.02 Stockholders' Agreement dated July 23, 2001 among the Company, the Principal H
Microgy Shareholders, Joseph E. Cresci and Donald A. Livingston.
10.03 Registration Rights Agreement dated July 23, 2001 among the Company, the H
Principal Microgy Shareholders, Joseph E. Cresci, Donald A. Livingston and
future exchanging Microgy security holders who become a party thereto.
10.04 Form of Joinder Agreement related to Share Exchange Agreement. H
10.05 Form of Waiver Agreement dated July 23, 2001 executed by certain Microgy H
Shareholders.
10.06 Warrant Agreement dated July 23, 2001 between the Company and Daniel J. I
Eastman.
10.07 Technology Licensing Agreement dated May 12, 2000 between Microgy and K
Danish Biogas Technology, A.S. (portions of this exhibit have been
omitted and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment).
10.08 Promissory Note dated September 14, 2001 between the Company and Alco K
Financial Services, LLC.
10.09 Security Agreement dated September 14, 2001 between the Company and Alco K
Financial Services, LLC.
10.10 Warrant to purchase 50,000 shares of common stock issued to Alco Financial K
Services, LLC.
10.11 Services Agreement dated September 13, 2001 between the Company and L
PG&E Energy Trading Power, L.P. pertaining to the sale and purchase of
Nitrogen Oxide Ozone Transport Region (NOx) Budget Allowances completed
in 2002.
10.12 Agreement for Power Purchases dated March 21, 2002 between Microgy L
and Wisconsin Public Service Corporation.
10.13 Environmental Power Corporation Retirement Plan, as restated, effective as of L
January 1, 1998 and dated as of December 23, 1998.
10.14 Trust Agreement for Environmental Power Corporation Retirement Plan, as L
amended and restated, effective as of January 1, 1998 and dated as of
December 23, 1998.
10.15 Indemnification Agreement dated February 12, 2002 between the Company and L
Joseph Cresci, Donald Livingston, William Linehan, and their successors.
10.16 Office Building Lease Agreement dated December 21, 2001 between the Company L
and Merkle, Soupcoff, & Fiorentino, Inc.
10.17 Form of Warrant Agreement executed by certain Microgy warrant holders. L
10.18 Agreement for the Sale of Electric Energy from the Scrubgrass Generating B
Plant by and between Pennsylvania Electric Company and Scrubgrass Power
Corporation dated August 7, 1987 which was assigned by Scrubgrass Power
II-2
Corporation to Scrubgrass Generating Company, L.P. on December 15, 1990 and
assigned by Scrubgrass Generating Company, L.P. to Buzzard Power Corporation
on June 17, 1994.
10.19 Supplemental Agreement for the Sale of Electric Energy from the Scrubgrass B
Generating Plant by and between Pennsylvania Electric Company and Scrubgrass
Power Corporation dated February 22, 1989, as amended by letter agreement
dated March 28, 1989, which was assigned by Scrubgrass Power Corporation to
Scrubgrass Generating Company, L.P. on December 15, 1990 and assigned by
Scrubgrass Generating Company, L.P. to Buzzard Power Corporation on June 17,
1994.
10.20 Second Supplemental Agreement for the Sale of Electric Energy from the B
Scrubgrass Generating Plant by and between Pennsylvania Electric Company and
Scrubgrass Power Corporation dated September 27, 1989 which was assigned by
Scrubgrass Power Corporation to Scrubgrass Generating Company, L.P. on
December 15, 1990 and assigned by Scrubgrass Generating Company, L.P. to
Buzzard Power Corporation on June 17, 1994.
10.21 Third Supplemental Agreement for the Sale of Electric Energy from the B
Scrubgrass Generating Plant by and between Pennsylvania Electric Company and
Scrubgrass Power Corporation dated August 13, 1990 which was assigned by
Scrubgrass Power Corporation to Scrubgrass Generating Company, L.P. on
December 15, 1990 and assigned by Scrubgrass Generating Company, L.P. to
Buzzard Power Corporation on June 17, 1994.
10.22 Amendment to the Third Supplemental Agreement for the Sale of Electric B B
Energy from the Scrubgrass Generating Plant by and between Pennsylvania
Electric Company and Scrubgrass Power Corporation dated November 27, 1990
which was assigned by Scrubgrass Power Corporation to Scrubgrass Generating
Company, L.P. on December 15, 1990 and assigned by Scrubgrass Generating
Company, L.P. to Buzzard Power Corporation on June 17, 1994.
10.23 Letter Agreement dated December 20, 1990 amending the Agreement for the Sale B
of Electric Energy from the Scrubgrass Generating Plant by and between
Pennsylvania Electric Company and Scrubgrass Power Corporation dated August
7, 1987, as amended and supplemented from time to time through November 27,
1990, which was assigned by Scrubgrass Power Corporation to Scrubgrass
Generating Company, L.P. on December 15, 1990 and assigned by Scrubgrass
Generating Company, L.P. to Buzzard Power Corporation on June 17, 1994.
10.60 Management Services Agreement by and between Scrubgrass Generating Company, B
L.P. and PG&E-Bechtel Generating Company dated December 15, 1990 which was
assigned by Scrubgrass Generating Company, L.P. to Buzzard Power Corporation
on June 17, 1994. PG&E-Bechtel Generating Company has assigned its rights to
this agreement ultimately to U.S. Gen. (now PG&E National Energy Group).
Exhibit A to this agreement was omitted because it was previously filed as
Exhibit 10.67.
10.61 Agreement for Operation and Maintenance of the Scrubgrass Cogeneration Plant B
between Scrubgrass Generating Company, L.P. and Bechtel Power Corporation
dated December 21, 1990 which was assigned by Scrubgrass Generating Company,
L.P. to Buzzard Power Corporation on June 17, 1994. Bechtel Power
Corporation has assigned its rights to this agreement ultimately to U.S.
Operating Services Company (now PG&E Operating Services Company).
II-3
10.62 First Amendment to the Agreement for Operation and Maintenance of the B
Scrubgrass Cogeneration Plant between Buzzard Power Corporation and,
ultimately, U.S. Operating Services Company (now PG&E Operating Services
Company) dated December 22, 1995.
10.67 Appendix I to the Amended and Restated Participation Agreement, dated as of G
December 22, 1995, among Buzzard Power Corporation, Scrubgrass Generating
Company, L.P., Environmental Power Corporation, Bankers Trust Company and
Credit Lyonnais, which Appendix defines terms used and not otherwise defined
in other contracts.
10.70 Stock Pledge Agreement, dated December 19, 1991, between Environmental Power D
Corporation and Scrubgrass Generating Company, L.P.
10.71 Amended and Restated Participation Agreement, dated as of December 22, 1995, G
among Buzzard Power Corporation, Scrubgrass Generating Company, L.P.,
Environmental Power Corporation, Bankers Trust Company and Credit Lyonnais.
10.72 Amendment No. 1, dated as of May 22, 1997, to the Amended and Restated C
Participation Agreement, dated as of December 22, 1995, among Buzzard Power
Corporation, Scrubgrass Generating Company, L.P., Environmental Power
Corporation, Bankers Trust Company and Credit Lyonnais.
10.73 Director Option Plan. F
10.80 Amended and Restated Lease Agreement between Scrubgrass Generating Company, B
L.P., a Delaware limited partnership, as Lessor, and Buzzard Power
Corporation, a Delaware corporation, as Lessee, dated as of December 22,
1995. Schedules and similar attachments listed in the Lease have been
omitted and the Company agrees to furnish supplementally a copy of any
omitted schedule or attachment to the Securities and Exchange Commission
upon request.
10.83 Amended and Restated Disbursement and Security Agreement between Scrubgrass B
Generating Company, L.P., as Lessor, Buzzard Power Corporation, as Lessee,
Bankers Trust Company as Disbursement Agent and Credit Lyonnais acting
through its New York Branch as Agent, dated as of December 22, 1995.
Schedules and similar attachments listed in this agreement have been omitted
and the Company agrees to furnish supplementally a copy of any omitted
schedule or attachment to the Securities and Exchange Commission upon
request.
10.84 Amended and Restated Lessee Working Capital Loan Agreement between B
Scrubgrass Generating Company, L.P., as Lender, and Buzzard Power
Corporation, as Lessee, dated as of December 22, 1995.
10.85 Amendment No. 1, dated as of May 22, 1997, to the Amended and Restated C
Disbursement and Security Agreement between Scrubgrass Generating Company,
L.P., as Lessor, Buzzard Power Corporation, as Lessee, Bankers Trust Company
as Disbursement Agent and Credit Lyonnais acting through its New York Branch
as Agent, dated as of December 22, 1995.
10.91 Amendment No. 2, dated as of September 2, 1998, to the Amended and Restated E
Participation Agreement, dated as of December 22, 1995, among Buzzard Power
Corporation, Scrubgrass Generating Company, L.P., Environmental Power
Corporation, Bankers Trust Company and Credit Lyonnais.
10.92 Amendment No. 1, updated as of October 9, 1998, to the Amended and E
II-4
Restated Disbursement and Security Agreement between Scrubgrass Generating
Company, L.P., as Lessor, Buzzard Power Corporation, as Lessee, Bankers Trust
Company as Disbursement Agent and Credit Lyonnais acting through its New York
Branch as Agent, dated as of December 22, 1995.
10.93 Amendment No. 1, dated as of June 1, 1996, but not executed until July 24, E
1998, to the Amended and Restated Lease Agreement between Scrubgrass
Generating Company, L.P., a Delaware limited partnership, as Lessor, and
Buzzard Power Corporation, a Delaware corporation, as Lessee, dated as of
December 22, 1995.
10.94 Lease between Adams Realty Trust and Environmental Power Corporation, dated E
January 26, 1999.
10.95 Settlement Agreement and Release between GEC Alsthom International, Inc. and E
Buzzard Power Corporation dated May 28, 1998.
10.96 Purchase and Sale Agreements, dated as of December 16, 1998, January 4, 1999 E
and January 8, 1999, between PG&E Energy Trading - Power, L.P. and Buzzard
Power Corporation pertaining to Nitrogen Oxide Ozone Transport Region (NOx)
Budget Allowances.
10.97 Environmental Power Corporation Medical Expense Reimbursement Plan effective E
as of September 1, 1998 and dated as of December 18, 1998.
10.98 Environmental Power Corporation Defined Benefit Pension Plan effective as of E
January 1, 1998 and dated as of December 23, 1998.
10.99 Settlement Agreement, dated August 3, 1999 and effective February 27, 2000,
among Buzzard Power Corporation, Scrubgrass Generating Company L.P. and
Pennsylvania Electric Company. F
11 Computation of earnings per share. L
13 Company's Annual Report on Form 10-K for the year ended December 31, 2001. L
21 Subsidiaries of the Registrant. L
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Dorsey & Whitney LLP (filed as Exhibit 5.0).*
Incorporation references:
A (INTENTIONALLY OMITTED)
B Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-15472).
C Previously filed as part of the Company's Report on Form 10-Q for the
period ended June 30, 1997 (Commission File No. 0-15472).
D Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1997 (Commission File No. 0-15472).
E Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1998 (Commission File No. 0-15472).
F Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 1999 (Commission File No. 0-15472).
G Previously filed as part of the Company's Report on Form 10-K for the
year ended December 31, 2000 (Commission File No. 0-15472).
II-5
H Previously filed as part of Amendment No. 7 to Schedule 13D filed by Joseph E. Cresci on
August 2, 2001.
I Previously filed as part of Schedule 13D filed by Daniel J. Eastman on August 2, 2001
J Previously filed as part of the Company's Report on Form 8-K dated as of August 7, 2001
(Commission File No. 0-15472).
K Previously filed as part of the Company's Report on Form 10-Q for the period
ended September 30, 2001 (Commission File No. 0-15472).
L Previously filed as a part of the Company's Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15472).
------------------
* To be filed by amendment.
Item 17. Undertakings
The undersigned hereby undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
. include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
. reflect in the prospectus any facts or events, which, individually
or together, represent a fundamental change in the information set
forth in the registration statement; and
. include any additional or changed material information on the plan
of distribution.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof; and
(3) file a post-effective amendment removing from registration
any of the securities that remain unsold at the end of the offering.
(4) insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
(5) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of
Portsmouth, State of New Hampshire on April 1, 2002.
ENVIRONMENTAL POWER CORPORATION
/s/ Joseph E. Cresci
---------------------------------------------
Joseph E. Cresci, Chief Executive Officer
/s/ William D. Linehan
---------------------------------------------
William D. Linehan, Acting Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- -----
/s/ Joseph E. Cresci Director April 1, 2002
-----------------------------------
Joseph E. Cresci
/s/ Donald A. Livingston Director April 1, 2002
-----------------------------------
Donald A. Livingston
/s/ Peter J. Blampied Director April 1, 2002
-----------------------------------
Peter J. Blampied
/s/ Edward B. Koehler Director April 1, 2002
-----------------------------------
Edward B. Koehler, Esq.
/s/ Robert I. Weisberg Director April 1, 2002
-----------------------------------
Robert I. Weisberg
/s/ George A. Kast Director April 1, 2002
-----------------------------------
George A. Kast
/s/ Benjamin J. Brant Director April 1, 2002
-----------------------------------
Benjamin J. Brant
/s/ Thomas W. Matthews Director April 1, 2002
-----------------------------------
Thomas W. Matthews
II-8
Index to Exhibits:
Exhibit Incorporation
Number Description Reference
------- ----------- ---------
5.01 Opinion of Dorsey & Whitney LLP. *
10.01 Share Exchange Agreement dated June 20, 2001 among the Company, Microgy and H
the Principal Microgy Shareholders.
10.02 Stockholders' Agreement dated July 23, 2001 among the Company, the Principal H
Microgy Shareholders, Joseph E. Cresci and Donald A. Livingston.
10.03 Registration Rights Agreement dated July 23, 2001 among the Company, the H
Principal Microgy Shareholders, Joseph E. Cresci, Donald A. Livingston and
future exchanging Microgy security holders who become a party thereto.
10.04 Form of Joinder Agreement related to Share Exchange Agreement. H
10.05 Form of Waiver Agreement dated July 23, 2001 executed by certain Microgy H
Shareholders.
10.06 Warrant Agreement dated July 23, 2001 between the Company and Daniel J. I
Eastman.
10.07 Technology Licensing Agreement dated May 12, 2000 between Microgy and Danish K
Biogas Technology, A.S. (portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request
for confidential treatment).
10.08 Promissory Note dated September 14, 2001 between the Company and Alco K
Financial Services, LLC.
10.09 Security Agreement dated September 14, 2001 between the Company and Alco K
Financial Services, LLC.
10.10 Warrant to purchase 50,000 shares of common stock issued to Alco Financial K
Services, LLC.
10.11 Services Agreement dated September 13, 2001 between the Company and L
PG&E Energy Trading Power, L.P. pertaining to the sale and purchase of
Nitrogen Oxide Ozone Transport Region (NOx) Budget Allowances completed
in 2002.
10.12 Agreement for Power Purchases dated March 21, 2002 between Microgy and L
Wisconsin Public Service Corporation.
10.13 Environmental Power Corporation Retirement Plan, as restated, effective as of L
January 1, 1998 and dated as of December 23, 1998.
10.14 Trust Agreement for Environmental Power Corporation Retirement Plan, as L
amended and restated, effective as of January 1, 1998 and dated as of
December 23, 1998.
10.15 Indemnification Agreement dated February 12, 2002 between the Company and L
Joseph Cresci, Donald Livingston, William Linehan, and their successors.
10.16 Office Building Lease Agreement dated December 21, 2001 between the Company L
and Merkle, Soupcoff, & Fiorentino, Inc.
10.17 Form of Warrant Agreement executed by certain Microgy warrant holders. L
10.18 Agreement for the Sale of Electric Energy from the Scrubgrass Generating B
Plant by and between Pennsylvania Electric Company and Scrubgrass Power
Corporation dated August 7, 1987 which was assigned by Scrubgrass Power
II-9
Corporation to Scrubgrass Generating Company, L.P. on December 15, 1990 and
assigned by Scrubgrass Generating Company, L.P. to Buzzard Power Corporation
on June 17, 1994.
10.19 Supplemental Agreement for the Sale of Electric Energy from the Scrubgrass B
Generating Plant by and between Pennsylvania Electric Company and Scrubgrass
Power Corporation dated February 22, 1989, as amended by letter agreement
dated March 28, 1989, which was assigned by Scrubgrass Power Corporation to
Scrubgrass Generating Company, L.P. on December 15, 1990 and assigned by
Scrubgrass Generating Company, L.P. to Buzzard Power Corporation on June 17,
1994.
10.20 Second Supplemental Agreement for the Sale of Electric Energy from the B
Scrubgrass Generating Plant by and between Pennsylvania Electric Company and
Scrubgrass Power Corporation dated September 27, 1989 which was assigned by
Scrubgrass Power Corporation to Scrubgrass Generating Company, L.P. on
December 15, 1990 and assigned by Scrubgrass Generating Company, L.P. to
Buzzard Power Corporation on June 17, 1994.
10.21 Third Supplemental Agreement for the Sale of Electric Energy from the B
Scrubgrass Generating Plant by and between Pennsylvania Electric Company and
Scrubgrass Power Corporation dated August 13, 1990 which was assigned by
Scrubgrass Power Corporation to Scrubgrass Generating Company, L.P. on
December 15, 1990 and assigned by Scrubgrass Generating Company, L.P. to
Buzzard Power Corporation on June 17, 1994.
10.22 Amendment to the Third Supplemental Agreement for the Sale of Electric Energy B
from the Scrubgrass Generating Plant by and between Pennsylvania Electric
Company and Scrubgrass Power Corporation dated November 27, 1990 which was
assigned by Scrubgrass Power Corporation to Scrubgrass Generating Company,
L.P. on December 15, 1990 and assigned by Scrubgrass Generating Company, L.P.
to Buzzard Power Corporation on June 17, 1994.
10.23 Letter Agreement dated December 20, 1990 amending the Agreement for the Sale B
of Electric Energy from the Scrubgrass Generating Plant by and between
Pennsylvania Electric Company and Scrubgrass Power Corporation dated August
7, 1987, as amended and supplemented from time to time through November 27,
1990, which was assigned by Scrubgrass Power Corporation to Scrubgrass
Generating Company, L.P. on December 15, 1990 and assigned by Scrubgrass
Generating Company, L.P. to Buzzard Power Corporation on June 17, 1994.
10.60 Management Services Agreement by and between Scrubgrass Generating Company, B
L.P. and PG&E-Bechtel Generating Company dated December 15, 1990 which was
assigned by Scrubgrass Generating Company, L.P. to Buzzard Power Corporation
on June 17, 1994. PG&E-Bechtel Generating Company has assigned its rights to
this agreement ultimately to U.S. Gen. (now PG&E National Energy Group).
Exhibit A to this agreement was omitted because it was previously filed as
Exhibit 10.67.
10.61 Agreement for Operation and Maintenance of the Scrubgrass Cogeneration Plant B
between Scrubgrass Generating Company, L.P. and Bechtel Power Corporation
dated December 21, 1990 which was assigned by Scrubgrass Generating Company,
L.P. to Buzzard Power Corporation on June 17, 1994. Bechtel Power
Corporation has assigned its rights to this agreement ultimately to U.S.
Operating Services Company (now PG&E Operating Services Company).
II-10
10.62 First Amendment to the Agreement for Operation and Maintenance of the B
Scrubgrass Cogeneration Plant between Buzzard Power Corporation and,
ultimately, U.S. Operating Services Company (now PG&E Operating Services
Company) dated December 22, 1995.
10.67 Appendix I to the Amended and Restated Participation Agreement, dated as of G
December 22, 1995, among Buzzard Power Corporation, Scrubgrass Generating
Company, L.P., Environmental Power Corporation, Bankers Trust Company and
Credit Lyonnais, which Appendix defines terms used and not otherwise defined
in other contracts.
10.70 Stock Pledge Agreement, dated December 19, 1991, between Environmental Power D
Corporation and Scrubgrass Generating Company, L.P.
10.71 Amended and Restated Participation Agreement, dated as of December 22, 1995, G
among Buzzard Power Corporation, Scrubgrass Generating Company, L.P.,
Environmental Power Corporation, Bankers Trust Company and Credit Lyonnais.
10.72 Amendment No. 1, dated as of May 22, 1997, to the Amended and Restated C
Participation Agreement, dated as of December 22, 1995, among Buzzard Power
Corporation, Scrubgrass Generating Company, L.P., Environmental Power
Corporation, Bankers Trust Company and Credit Lyonnais.
10.73 Director Option Plan. F
10.80 Amended and Restated Lease Agreement between Scrubgrass Generating Company, B
L.P., a Delaware limited partnership, as Lessor, and Buzzard Power
Corporation, a Delaware corporation, as Lessee, dated as of December 22,
1995. Schedules and similar attachments listed in the Lease have been
omitted and the Company agrees to furnish supplementally a copy of any
omitted schedule or attachment to the Securities and Exchange Commission
upon request.
10.83 Amended and Restated Disbursement and Security Agreement between Scrubgrass B
Generating Company, L.P., as Lessor, Buzzard Power Corporation, as Lessee,
Bankers Trust Company as Disbursement Agent and Credit Lyonnais acting
through its New York Branch as Agent, dated as of December 22, 1995.
Schedules and similar attachments listed in this agreement have been omitted
and the Company agrees to furnish supplementally a copy of any omitted
schedule or attachment to the Securities and Exchange Commission upon
request.
10.84 Amended and Restated Lessee Working Capital Loan Agreement between B
Scrubgrass Generating Company, L.P., as Lender, and Buzzard Power
Corporation, as Lessee, dated as of December 22, 1995.
10.85 Amendment No. 1, dated as of May 22, 1997, to the Amended and Restated C
Disbursement and Security Agreement between Scrubgrass Generating Company,
L.P., as Lessor, Buzzard Power Corporation, as Lessee, Bankers Trust Company
as Disbursement Agent and Credit Lyonnais acting through its New York Branch
as Agent, dated as of December 22, 1995.
10.91 Amendment No. 2, dated as of September 2, 1998, to the Amended and Restated E
Participation Agreement, dated as of December 22, 1995, among Buzzard Power
Corporation, Scrubgrass Generating Company, L.P., Environmental Power
Corporation, Bankers Trust Company and Credit Lyonnais.
10.92 Amendment No. 1, updated as of October 9, 1998, to the Amended and E
II-11
Restated Disbursement and Security Agreement between Scrubgrass Generating
Company, L.P., as Lessor, Buzzard Power Corporation, as Lessee, Bankers Trust
Company as Disbursement Agent and Credit Lyonnais acting through its New York
Branch as Agent, dated as of December 22, 1995.
10.93 Amendment No. 1, dated as of June 1, 1996, but not executed until July 24, E
1998, to the Amended and Restated Lease Agreement between Scrubgrass
Generating Company, L.P., a Delaware limited partnership, as Lessor, and
Buzzard Power Corporation, a Delaware corporation, as Lessee, dated as of
December 22, 1995.
10.94 Lease between Adams Realty Trust and Environmental Power Corporation, dated E
January 26, 1999.
10.95 Settlement Agreement and Release between GEC Alsthom International, Inc. and E
Buzzard Power Corporation dated May 28, 1998.
10.96 Purchase and Sale Agreements, dated as of December 16, 1998, January 4, 1999 E
and January 8, 1999, between PG&E Energy Trading -- Power, L.P. and Buzzard
Power Corporation pertaining to Nitrogen Oxide Ozone Transport Region (NOx)
Budget Allowances.
10.97 Environmental Power Corporation Medical Expense Reimbursement Plan effective E
as of September 1, 1998 and dated as of December 18, 1998.
10.98 Environmental Power Corporation Defined Benefit Pension Plan effective as of E
January 1, 1998 and dated as of December 23, 1998.
10.99 Settlement Agreement, dated August 3, 1999 and effective February 27, 2000,
among Buzzard Power Corporation, Scrubgrass Generating Company L.P. and
Pennsylvania Electric Company. F
11 Computation of earnings per share.
13 Company's Annual Report on Form 10-K for the year ended December 31, 2001. L
21 Subsidiaries of the Registrant. L
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Dorsey & Whitney LLP (filed as Exhibit 5.0).*
Incorporation references:
A (INTENTIONALLY OMITTED)
B Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-15472).
C Previously filed as part of the Company's Report on Form 10-Q for the
period ended June 30, 1997 (Commission File No. 0-15472).
D Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 0-15472).
E Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1998 (Commission File No. 0-15472).
F Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1999 (Commission File No. 0-15472).
G Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 2000 (Commission File No. 0-15472).
II-12
H Previously filed as part of Amendment No. 7 to Schedule 13D filed by Joseph E. Cresci on
August 2, 2001.
I Previously filed as part of Schedule 13D filed by Daniel J. Eastman on August 2, 2001
J Previously filed as part of the Company's Report on Form 8-K dated as of August 7, 2001
(Commission File No. 0-15472).
K Previously filed as part of the Company's Report on Form 10-Q for the period
ended September 30, 2001 (Commission File No. 0-15472).
L Previously filed as a part of the Company's Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15472).
--------------------
* To be filed by amendment.
II-13